Discover the Financial Principles of the Bible

The Prosperity of Fools

“… and the prosperity of fools shall destroy them.” Proverbs 1:32 

Last year, Cullen Murphy wrote a very popular book entitled Are We Rome? Murphy examined the fall of the Roman Empire and showed the striking similarities with twenty-first century America. These similarities included excessive corruption in government, issues with border controls, arrogance towards the outside world, over-reliance on our military power, etc. 

However, maybe the more relevant question today is – Are We Egypt? 

Thousands of years ago there was a time of abundant prosperity in Egypt. The economic boom continued for seven consecutive years. Riches were made and the nation lived as though the prosperity would continue forever. 

Then came the Great Depression of Egypt. Investors who had speculated on real estate were left with worthless soil as the land would no longer produce grain anymore. Many others had used the wealth created in the years of prosperity to over-leverage themselves in expectations of an even greater era of prosperity. 

After all, a new age of prosperity had arrived in Egypt. While there may have been economic cycles in the past, this time it was different. Sadly, it seems that no one was prudent enough to foresee a day when the prosperity would end. 

“Yea, they are greedy dogs which can never have enough, and they are shepherds that cannot understand: they all look to their own way, every one for his gain, from his quarter. Come ye, say they, I will fetch wine, and we will fill ourselves with strong drink; and to morrow shall be as this day, and much more abundant.” Isaiah 56:11-12 

The first year of the famine in Egypt was undoubtedly a period of denial. After all, most recessions are short-lived and so the experts would have naturally predicted that the economy would soon resume its growth pattern again. 

In our current economic crisis, we have already moved beyond the denial phase. A recent survey of 51 leading economists showed that they unanimously agreed that we are indeed in a recession (of course the average person could have told you that months ago). 

We are now into the blaming stage – blaming everyone except ourselves for the conditions we find ourselves in. This is typically accompanied by outcries to the government to bail us out of our problems (just like in Egypt). 

The government has stepped up with hundreds of billions of dollars in bailout packages, interest rate cuts and stimulus plans, but the underlying problems that have crippled our economy cannot be resolved by simply waving a magic wand. 

So what has happened to the tremendous amounts of wealth created in recent years? Sadly, it probably never was real wealth in the first place. The prosperity of fools is never real prosperity. It is a credit-driven, artificially created wealth that soon evaporates leaving behind disastrous consequences. 

The housing market was the first victim of the wealth bubble to pop. Coming out of the 2001 recession, real estate became a booming market. New wisdom said that real estate was a safe investment because there is only a limited supply of land and real estate prices “always” go up. 

Individuals ended up buying homes they couldn’t afford while financial institutions contributed to the expanding bubble by offering exotic financing options to people who couldn’t qualify for traditional loans. 40 year mortgages, interest-only mortgages, teaser-rate mortgages and even negative-amortization mortgages (where your principle balances goes up) were popularized over these years as individuals grasped for a lifestyle that they really couldn’t afford. 

But the credit-driven prosperity extended beyond just housing. Over the past decade we have experienced one of the most extravagant spending sprees in history. American consumers purchased everything from flat-screen tv’s to furniture, from designer clothing to vacations – all with the magical plastic credit card. In the last 10 years, Americans learned we couldn’t live without our daily $4 Starbucks, Netflix, and the very latest cell phones and electronic gadgets that Silicon Valley could produce. 

Of course an economic boom driven by credit can’t last forever. Financial institutions are now feeling the effects of their lax lending practices. In recent months, the massive amount of debt that banks now have on their balance sheets coupled with escalating delinquency rates has basically frozen the credit markets. There are multitudes of businesses and individual consumers that would like to borrow money, but there is none to lend. Commercial banks have become much more careful about who they lend money to, while other institutions which a couple of years ago represented 70% of the debt market have now pulled out completely. 

To date, the financial industry still doesn’t know the extent of the damage done from the foolishness of the last few years. Losses stemming from the subprime mortgage crisis are approaching $1 trillion, while speculation continues over how big the impact of credit card losses will be. Bank of America CEO Kenneth Lewis recently said, “We, as an industry, may end up with possibly the highest credit card losses the industry has ever experienced.” 

This generation seems to have forgotten the basic financial principles that our parents and grandparents adhered to. In short, don’t spend more than you earn. In the decade of the 1960’s, the personal savings rate averaged 8.3%. In the 1990’s, that savings rate fell to 5.2%. Since the turn of the century, the savings rate is averaging only 1.6%. Over the next few years, people will need to get reacquainted with the concept of savings and less familiar with buying on credit. 

Not everyone needs to follow the path of the fool in chasing after artificial prosperity. Instead if you will just follow the wisdom of God’s Word, you will find He can give you real prosperity.

Filed in: Debt & Credit, Stewardship

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