Judgment on the Horizon

Twilight's Last Gleaming?

We have frequently discussed the impending disaster which will inevitably come home to roost from our Federal debt, continually made ever worse by the annual federal deficits (be sure to distinguish between the two!). But there are other aspects on the global horizon of which we must be aware.

We're losing. America's intractable budget and trade deficits, combined with its low savings rate, have been eroding the value of our currency for years. The trade deficit, a measure of our international competitive performance, ballooned 50% to $155.67 billion in 1994, the second-highest level on record! We continue to lose in the international marketplace.

Mexico, Canada, and the U.S. continue to plunge toward collapse. We are now clearly included among the world's weaker problem currencies.1

The Fall of the Dollar

Currently there is about $390 billion worth of dollar-denominated currency in existence. Approximately $250 billion of U.S. currency is overseas--only about one-third circulates within our own country. U.S. companies invest heavily abroad, and alert Americans have been avidly buying up foreign stocks and bonds. The net result is that the world is awash with dollars.

The fall of the dollar against stronger world currencies continues. Even the recent, brief attempts of as many as 18 central banks (spending billions) have failed to stem the slide. The Federal Reserve has the capacity of buying perhaps a billion or two dollars a day; the foreign exchange markets traffic about 1.25 trillion per day!

Alan Greenspan, Chairman of the Federal Reserve, has accurately blamed the dollar's weakness on the U.S. budget deficit and on Congress's dismal failure to pass a balanced-budget amendment.

Foreign investors were initially impressed by the results of our November elections and were counting on the Republicans to come to grips with America's deficit problem. It is amazing how many analysts, even today, still fail to see the significance of the continuing erosion--over several decades--of the value of the dollar against foreign currencies, which are less abusive of the credit processes.

The Role of the Federal Reserve

It's gets even worse. Overseas dollar foreign exchange reserves are held at the New York Federal Reserve Bank in a custodial account. When countries like Mexico are hit with capital flight and lose reserves, they must sell their U.S. Treasuries held by the Fed. The loss of foreign exchange reserves leads to what amounts to a "run on the Fed." The New York Fed (as agent for foreign central banks) must sell Treasury securities and send those dollars abroad.

This means that interest rates would go up in the U.S., unless the Fed counteracts that draining influence by purchasing more Treasury debt itself. The Fed interprets its mission to counteract exactly this kind of outside influence on domestic U.S. monetary policy.2

As the Fed's custodial accounts drop, their system account rises. As foreign central banks lose reserves and sell U.S. Treasuries, the Fed picks up the slack by buying more bills, notes and bonds in the secondary market.

This creates new credit money out of thin air and, of course, debases the value of the existing dollars. Thus, the dollar continues to get weaker against the Deutschmark, the Swiss franc, and the Japanese yen. While the dollar was long considered one of the world's favorite investments during times of international upheaval, those days seem to be ending.

European Currency Status

While timing remains uncertain, the tide towards a common European currency continues. The 1997 date envisioned in the Maastricht Treaty may be delayed, but various staging proposals continue to be advanced. And Germany's banking dominance in Europe continues.

The inexorable consolidations within the European Union continue in apparent preparation for the scenario detailed in Daniel Chapters 2 and 7.3

Land of the Free?

Clinton's budget message has given us an authoritative forecast about investment prospects in North America. He wants Congress to authorize an "exit tax"--a Berlin Wall for capital to discourage Americans from fleeing with their money. (Last year 250,000 Americans expatriated to other domiciles. They voted with their feet.)

There could be no clearer signal that the time has come for sophisticated investors to get their money out of the country.


Howard Phillips continues to emphasize that "...we are only a few years, at most, away from a historic crash which will cripple the American economy and erode confidence in the legitimacy of our political system."4 Perhaps that's why even Alan Greenspan recently endorsed relinking the dollar to gold.

This also appears to be one of the possible explanations for the apparent absence of the United States in end-time prophecy. We may not be a major player in the scenario just ahead.

Only a miracle can save America. But God is in the miracle business. His formula is summarized in 2 Chronicles 7:14, "If my people, who are call by my name...."

It is not the Clintonistas, the Democrats or the Republicans that are the problem. This passage is directed toward us. (The immediate context was, of course, Israel, but God is announcing a principle, and our God changes not.) Are you His people, called by His name?

"...Will humble themselves, and pray...." I believe we know how to do that.

"...And seek my face." That requires a deeper commitment.

"...And turn from their (our) wicked ways...." Aye, there's the rub. You mean we have to give up sin? Notice, it is the Christian body we're talking about--not the general population! We're the problem. If we do those thing, God promises to "hear our prayers, forgive our sins, and heal our land!"

Let's not waste another second. We need to apply this passage right now, while there's still time left.


  1. For a detailed review, see the McAlvany Intelligence Advisor, February 1995. P.O. Box 84904, Phoenix, AZ, 85071.
  2. "US Monetary Policy and Financial Markets, NY Fed as analyzed by Michael Belkin," Strategic Investment, February 22, 1995, 824 E. Baltimore St., Baltimore, MD, 21202.
  3. See our briefing package "Iron Mixed With Clay."
  4. Howard Phillips, "Issues and Strategy Bulletin" February 28, 1995, 9520 Bent Creek Lane, Vienna, VA, 22182.