Access your downloads at our archive site. Visit Archive
Magazine Article

Living Defensively: Managing Debt

If your bank is like mine, you have been inundated with sweet-appearing advertising posters every time you enter your bank.

  • Tom Rose,
Share this

If your bank is like mine, you have been inundated with sweet-appearing advertising posters every time you enter your bank. These posters have captions similar to: �Because you keep your promises!� They encourage people to take out a home-equity loan for a vacation or other consumer expenditure. Recent posters depict a single female parent or a married couple wistfully looking at a young child. The unspoken, but well communicated, idea is that if you love your child, you will use the equity in your home to show your love by keeping any promise you might have made, regardless of changing circumstances � promises, you realize, must be kept!

What is wrong with the message being communicated? How could any parent who loves his or her child object to borrowing money for making good on a promise? After all, doesn't the Bible require us to keep our word?

A number of things should cause Christians to think twice about borrowing money to make good on a promise to children, or to anyone else for that matter. Note that I use the term �think twice,� for there can be extenuating circumstances that might lead a person to borrow money for honoring a business contract or promise that is morally binding (Ps. 15:4). But borrowing money through home equity loans for consumer spending is just one aspect of the many clashes in our modern society between Christian philosophy and secular humanist philosophy.

For instance, most promises to children (�I'll take you shopping tomorrow,� or �Let's go see Grandma next week,� or �If you are a good boy we will go see Niagara Falls next summer�) are not ironclad oaths made before the Lord that must be honored to the hurt of the swearer. Rather, such �contracts� of future intentions with children, or with other persons, should always be phrased conditionally to conform to the advice given by the apostle James (Jas. 4:13 -15). We, after all, are not like God who is omniscient and has already determined the future, so we should always be open to the possibility that God might overrule plans we make. As Christians we must always stand ready to adjust our plans to meet changing circumstances, for it is God who is author of the future.

A second reason to eschew home equity loans in most circumstances is that borrowing against the equity of one's home for consumer spending runs counter to the sense of economic frugality and warnings against debt that are found in the Bible (Pr. 13:11, 22:7; 1 Tim. 5:8).

Mountains of Debt
How does this apply to us in our current world economy? Political leaders in many countries, including our own, have long followed inflationary monetary policies that have led to, or threaten to lead to, inescapable deflationary collapses in economic activity. Japan has been experiencing a deflationary collapse for over a decade, and the United States has been experiencing one for over two years. The American economy has become very dependent on consumer spending financed by credit extended by other countries (China , Japan, other low-cost Asian exporters, oil-producing nations, Canada , etc.). Just to keep our frail consumer-oriented economy going requires the continued willingness of foreign exporting nations to hold ever-increasing amounts of American debt instruments. As Jim Puplava notes:

Asia now holds $1,000 billion [$1 trillion] of foreign exchange reserves out of a global total of $2,500 billion [$2.5 trillion]. Most of these reserves are held in U.S. dollars that come from trade imbalances between Asia and the U.S.1

And the evidence is echoed by David Vaughn:

In just five years, total financial as well as non-financial American debt has surged by 51% or $10.9 trillion to more than $32 trillion, three times the annual Gross National Product. During the last quarter alone American households added $397.6 billion in mortgage debt & another $40 billion in credit card debt.2

This growing mountain of American debt held by foreigners should cause thinking persons to quake in fear that some unforeseen event will cause foreigners to stop accepting additional debt denominated in U.S. dollars, which are increasingly losing purchasing value. Even worse, we should fear the growing possibility that foreigners might soon find it to their advantage to disgorge trillions of dollars into the international money market. The possibility of such an imminent event has been brought upon us by profligate spending by both the federal government and consumers. Wasteful spending has been encouraged and sustained by fiat-money creation by the Federal Reserve and its fractional-reserve banking affiliates.

Servant to the Lender
Once again I encourage readers to ponder Proverbs 22:7. If foreign central banks decide to unload their holdings of U.S. dollar-denominated securities, homeowners who have succumbed to the siren call of easy credit through home equity loans are likely to find themselves unexpectedly saddled with increased debt and rising interest rates at a time when equity ownership in their home has fallen far below its market value. Post-boom deflationary periods always find some people encumbered with too much debt and no means to service it. During such periods there is always a vast transfer of wealth from financially weak, over-extended individuals to the relatively stronger lending financial institutions, often at a fraction of the real worth of the defaulted property. Thus, financial institutions that offer temptingly low-cost credit terms to unwary consumers are not really friends to borrowers, who are the very ones who stand to lose in case of an economic downturn.

In the mid-1950s I served as manager of the Chamber of Commerce in a town in Southeast Kansas. During the Korean War the town was booming because of employment supplied by a nearby munitions facility. But when the facility shut down, the boom fizzled. Families suddenly found the homes they had purchased at high prices, financed by government-guaranteed loans, to be worth much less than their outstanding mortgages. What did they do? Easy! They simply moved away and left an entire subdivision almost completely devoid of human habitation! This is an example of what happened in just one small locality of our country in 1956-57. It took years for the local economy to be revitalized.

Today the problem of home indebtedness is much greater and more widespread. It is nationwide and is now exacerbated by exceedingly high levels of credit-card debt and the reckless amount of federal debt mentioned above. At present, the Federal Reserve has been flooding the economy with fiat money in a failing effort to keep the speculative bubble of the 1990s from deflating, but the present rising price of gold is clearly evidencing the weakness of the U.S. dollar relative to foreign currencies that have not been inflated as much.

Is There a Solution?
What can be done to solve the problem of easy credit generated by government-sponsored fiat money?

In the long run, we must eliminate America 's fiat money machine, the Federal Reserve, and our system of fractional-reserve banking. We must go to a 100-percent reserve system of banking. I won't explain the mechanics of making the change now, but it can be done. The artificial control of interest rates would no longer be in the hands of untrustworthy central bankers whose main concern is to support special interest groups, both domestic and foreign. Interest rates would quickly adjust to a free-market level that would no longer penalize savers at the expense of spenders. Older people who have saved many years for their old age or to pass wealth on to their children would no longer be legally robbed by the insidious tax called inflation. Fiscal integrity and honor would return to our country's entire financial sector. But these are long-term goals to use as guiding stars in our journey of trying to right our ship of state among the treacherous waters created by growing secular statism in both our country and the world.

Until we succeed, and while we are in the process of succeeding, to correct past errors committed by our political leaders,3 there are some constructive things we can do as individuals to withstand the manufactured dangers that now beset us.

First, we as individuals can avoid additional debt and even pay down existing debt as one of our highest priorities. The fact that our central government has embarked on the road to financial bankruptcy provides a compelling reason why American families should stand financially tall and strong as private entities. In my lectures and writing I have often stated this maxim, �He who holds gold wields power.� Similarly, he who stands financially and economically independent is also in a position to wield beneficial power and influence. Christians who heed the Biblical admonition to build and conserve family wealth will be in a position not only to protect their closest loved ones, but also to be of wholesome leadership to our country. We must think positively while we follow the dictates of Biblical prudence in setting our financial affairs in order.

Related to this is the need to counter the popular humanistic ploy of sacrificing everything �for the sake of the children,� which comes through in the bank posters mentioned above. Over the last few decades our society has been overwhelmed with the humanistic call that depicts children as the main focus of all that we do, thus the line �Because you keep your promises!� While children are indeed important and our only way of building Christ's Kingdom from one generation to another, children are not the main focus of our Kingdom-building work.

Today our society is so child-oriented that many �children,� now in their 40s and 50s, still think and act as children. They will never be able to grow up and accept responsibilities as independent thinking adults. Thus, we must rediscover the inescapable fact that childhood is a relatively short period of life and that an orderly society is built and maintained by adults in an adult-oriented world. In past generations children were taught that they lived in an adult world and that their role as children was to learn the discipline and responsibilities of adulthood as they grew and matured in wisdom. Many in our society have lost this common-sense view of generational relationships between children and adults, and it has caused many individuals to become short-sighted in their world-and-life view, which is unbiblical. This, too, should be kept in mind as we plan for a better future. God has placed man in a cause-and-effect world. We must discern the times by sound thinking and perception based upon Biblical principles.

©Tom Rose, 2003


1. Jim Puplava, �West to East: the trade deficit represents largest wealth transfer in history,� in News & Views, ed. Michael J. Kosares, Fall 2003, 4 ( publication).

2. �Daily Reckoning 10/10/2003,� in Gold is breaking through!, David N. Vaughn, ©Le Metropole Café, Inc.

3. Tom Rose, �America 's Central Bank,� Chalcedon Repor, Jan. & Feb. 2003.

  • Tom Rose

Tom is a retired professor of economics, Grove City College, Pennsylvania. He is author of seven books and hundreds of articles dealing with economic and political issues. His articles have regularly appeared in The Christian Statesman, published by the National Reform Association, Pittsburgh, PA, and in many other publications. He and his wife, Ruth, raise registered Barzona cattle on a farm near Mercer, PA, where they also write and publish economic textbooks for use by Christian colleges, high schools, and home educators. Rose’s latest books are: Free Enterprise Economics in America and God, Gold and Civil Government.

More by Tom Rose