May, 1998

Dear ICE Subscriber:

The U.S. real estate market rests on a promise: that someone who loans a borrower money for 30 years will be paid back. This promise is no stronger than the banking system (means of payment) and the court system (means of enforcement). Today's real estate prices are vastly inflated compared to what they would be if the market were a cash market. If you had to sell your property for cash without a borrower who lends money to a buyer, you would find out just how low the price would be.

When the bank runs begin in 1999, the real estate market will start moving toward a cash market. When men recognize that the Federal government will go bankrupt in 2000 because the tax collectors' computers are down and bank computers are down, they will cease putting money into Federally insured credit institutions: banks, mortgage pools, credit unions, and savings & loan associations. This will be the end of the script for It's a Wonderful Life. Jimmy Stewart's S&L will go under; so will Potter's bank.

When men see that banks and government-insured credit institutions will not be able to repay creditors because millions of depositors are lining up to pull out cash, no one will loan money for 30 years. Or five years. Or one year. When the electronic money system collapses in a gigantic move from a credit-based monetary system to cash, all contracts based on today's prices will become unenforceable.

When depositors at long last recognize that the failure of the computers will bring down the banks, they will seek to borrow money and pull out their cash. Interest rates will skyrocket. People will borrow on their credit cards. They will line up in front of ATM machines — few of which are 2000-compliant today — and take out cash. A gigantic squeeze will hit the banks: money going out (credit and cash) and none coming in. That will bankrupt them. The government will then intervene and ration people's money back to them. Such emergency orders have been in place ever since Eisenhower's Secretary of the Treasury, Robert Anderson, signed the Emergency Banking Order #1 in early 1961.

The State will intervene. It will probably freeze existing mortgage debts. Debtors will be granted relief. Creditors will be expropriated. There are more voters who pay mortgages than voters who receive mortgage payments. The rich will be sacrificed to the middle class. Since the courts would otherwise jam up in endless disputes over who owes whom what, the politicians will declare a debt moratorium. That will kill the credit markets. Cash will rule. Prices will collapse, except for guns, ammunition, food, and other basics.

A mad rush for liquidity will collapse all of the credit-based markets, which means all of today's legal markets. We have not seen anything like this before. Even in the Great Depression, the credit markets stayed open. They won't after the public recognizes that the failure of computers means the failure of the existing property rights system, which is based on enforceable promises to pay and credit-based money for paying off the debts. Investors will then try to sell their stocks and bonds. They will try to sell their pension plans. The toll-free 800 numbers will be busy, day and night. Millions of people will try to get through to sell out. They will never get through. Then the markets will be shut down by law.

At that point, if you want to buy, you will have to have cash. As for selling, your credit-based equity in any urban property will disappear. You will be locked into your existing real estate at the time of the bank runs. Where will you be living then? You had better plan to stay there until you die. If the power grid goes down, that won't be long.

"But I Have a Calling in the City!"

I receive letters from subscribers who have warned their pastors. When the response isn't skepticism, which it usually is, it is some variation of this: "My calling is in the city." This statement may be true today. Will it be true in 2000?

Here is a test. Has the pastor received several offers from other churches that offered him a larger salary, a larger pastoral manse, and a better pension program? Has he resisted these offers? If so, take him seriously when he speaks about his calling. If he has received no offers, you have a right to be a bit skeptical — surely as skeptical as he is about Y2K. It's easy to have a fixed calling when there are no better options.

Understand, this is not New England in 1650. What prevailed then has not prevailed in two centuries. In those days, a young man graduated from Harvard College and accepted a call to a church. He was expected to stay with that church until he died. It was almost like a marriage. Competitive bidding by churches to recruit pastors from existing congregations was not common. It is today. Pastors rarely stay with the first congregations that hired them. So, when a modern pastor says, "I have a calling to my people," he means "until a better deal comes along." Any congregation that believes otherwise is suffering from terminal naiveté.

What about you? Where is your calling? I define "calling" as the most important work you can do for God's kingdom in which you would be most difficult to replace. Is this work in the city? Just because your pastor says his most important work is in the city is no reason for you to stay there with him. There are rural areas that could use someone with your skills, and more to the point, with your capital, which you may not possess in 2000 and beyond. Where will your most important service be in 2000? Buy a place there now.

Do you have a moral obligation to stay behind in a city? To answer this question, consider Ezekiel's case. He was told by God to get out.

The word of the LORD also came unto me, saying, Son of man, thou dwellest in the midst of a rebellious house, which have eyes to see, and see not; they have ears to hear, and hear not: for they are a rebellious house. Therefore, thou son of man, prepare thee stuff for removing, and remove by day in their sight; and thou shalt remove from thy place to another place in their sight: it may be they will consider, though they be a rebellious house. Then shalt thou bring forth thy stuff by day in their sight, as stuff for removing: and thou shalt go forth at even in their sight, as they that go forth into captivity. Dig thou through the wall in their sight, and carry out thereby. In their sight shalt thou bear it upon thy shoulders, and carry it forth in the twilight: thou shalt cover thy face, that thou see not the ground: for I have set thee for a sign unto the house of Israel. And I did so as I was commanded: I brought forth my stuff by day, as stuff for captivity, and in the even I digged through the wall with mine hand; I brought it forth in the twilight, and I bare it upon my shoulder in their sight (Ezek. 12:1-7).

Ezekiel was a prophet. There are none today. God gave him the authority over life and death: to place a mark on the men, women, and children who would be spared mass execution (Ezek. 9). Private citizens do not possess such authority today. God told Ezekiel to get out of town; this does not mean that he has told us to do the same. But it does mean that getting out of the way of God's judgment is a good idea when we see it coming.

It looks as though it's coming. To think otherwise is to imagine that an entire civilization could be threatened merely because a tiny band of programmers half a century ago decided to save two digits of space on 80-digit computer punch cards. If you believe that this bizarre relationship between civilization and punch cards is sufficient to explain what is about to happen, you have eliminated the covenantal judgment factor. This, I contend, is exactly what your pastor is doing if he is not warning people to store up food, cash, and other supplies. If he is playing the ostrich in the name of a higher calling, which somehow involves public silence regarding the Year 2000 Problem, then I suggest that you imitate Ezekiel's example rather than his.

The Division of Labor

Of course, people insist that this civilization is not threatened by Y2K. This is the equivalent of saying that the division of labor has not made us dependent on each other to such an extent that our lives would be in danger if we were unable to trade with each other. But we really are this dependent. We are paper-pushers. Fact: you can't eat paper. The problem facing us now is that all of our institutions are based on the existing division of labor. This high division of labor cannot survive the breakdown of the computers, which will shut down banking, the payments system, railroads, airlines, telecommunications, and possibly even the power grid. (On this last point, officials with the $500 million-per-year Electric Power Research Institute are not sure. They say they don't know.)

General Motors has 85,000 suppliers. It also has two billion lines of code of its own. Do you think that its assembly lines will keep rolling if it doesn't get this code fixed, and if most of its suppliers do not get their code fixed? Do you think Ford and Chrysler and Honda and Toyota will survive? Yes, you do — if your zip code hasn't changed: from urban to rural or small town.

Recently, I spoke with a newly minted Ph.D. in math. She can't get a college-level teaching job. For every job opening, there are 100 candidates with a Ph.D. in math. She says she plans to switch to statistics. I think she's making a mistake. She's obviously no good at statistics. She invested five years of her life to train for a job market that has been suffering 100-to-one odds in math (and much worse in the arts) since 1969.

But, you may say, she must be very good at math. She just refused to do the necessary research. Really? You mean a very smart person forfeits five years of income to become eligible for a job market where he or she faces 100-to-one odds — worse than a roulette wheel? How can this be? What psychological quirk produces such behavior? A widespread one. There are 30,000 new Ph.D.'s issued in the U.S. each year to people who have refused to study the economic effects of a Ph.D. glut that has been continuous since 1969. Wouldn't you say that they are living in a self-imposed fantasy world?

Then what about you? Are you facing a similar market in 2000? Have you deliberately refused to research this market? For example, have you visited ICE's Web site? (http://www.remnant.org) Have you considered even a fraction of the evidence that I have posted there over the last 16 months? Or are you playing the game of "let's pretend"? "Let's pretend that we aren't dependent on hundreds of thousands of market-integrated supply lines that are in turn dependent on mainframe computers that have been programmed to shut down in 2000." "Let's pretend that our paper-pushing skills will remain valuable in a world in which the trains aren't running and the required 30 pounds of grain per month per adult are rotting in the fields." "Let's pretend that our homes' equity is not based on credit, and that credit is forever, world without end, amen."

Think about it. You need 30 pounds of grain per month to survive. What else do you need? If the banks go down, your employer goes bankrupt, and your pension fund goes into an electronic black hole, where will you buy such items? With what?

It's time to buy a copy of P. A. Sorokin's The Crisis of Our Age (1941) and read it. It's still in print. You can order it on-line from www.amazon.com. See what happens when a sensate culture such as ours breaks down. Ours is the ultimate sensate culture. "If I can't see it, measure it, or touch it, I don't believe it." (You can't see, measure, or touch the meaning of words, but never mind.) It's very vulnerable. We live in a world of interconnected, enormous dominoes. Stay out of their way when they topple.

Sincerely,