A Time for 

Financial Caution

I would surely think that none of our people would be invested in the stock market; yet, even if there is one who is, the writing of this report was worthwhile.

In addition, because of developing conditions, such a report is needed by all our people. In the next few pages, you will learn why.

I am pastor to many people and I believe my duty to you extends to a number of practical matters which strongly affect your lives.

If you think that this report has little relevance to your future, then toss it aside or give it to someone who recognizes the urgency of what is presented here.

 My early years were lived in the Great Depression. Following the stock market crash of October 1929, hundreds of people committed suicide, thousands of businesses closed, and millions lost their jobs. America had a desolate appearance for several years. Indeed, it was not until the Japanese raid on Pearl Harbor that we really recovered.

Beginning in 1934, America began pulling itself out of the crash by going into federal debt. We have been sinking deeper into that debt ever since. Economists and financiers know that, it is now so high, when the next crash comes--the nation will not be rescued by debt-building government public works projects.

Someone will say that a stock market crash would only affect those who have stocks. Not so. Most of you have no stocks; I have none. I am too much a child of the Depression to go near them. But when the big crash (not just a dip here and there) comes, it will place the entire nation in financial crisis.

A big crash is coming. Every expert admits it. The only question is when. When it comes, it will sweep everything before it. Evidence indicates that this crisis is nearing.

  Here are some facts to consider:

The Dow (the Dow Jones Industrial Average) of 30 stocks has risen into the stratosphere. Whenever this happened earlier in U.S. financial history, a crash has always occurred. Yet never before has the rise been so meteoritic or so rapid, as it has over the last 10 years. The coming crash will be terrible.

The Great Depression of the 1930s was brought on by a small stock market rise, compared to what has occurred more recently. It went from about 600 in 1924 to about 1100 in 1929. In 1932 the Dow was 59. The stock run-up between 1923 and 1929 was only 83%.

Compare that with the present financial monster on Wall Street.

On August 12, 1982, the Dow began its most recent climb upward. On that date, it registered at 776. It is now at about 9000! Such a rise is unrelated to the real value or dividends from those securities. (Stock market dividends now yield under 1.7% a year.)

  One factor in this phenomenal rise has been the flood of mutual fund money into the market. Consider this: From 1924 to October 1990, the public invested only $120 billion in stocks. From October 1990 to the spring of 1995, the public invested an additional $380 billion.

But by December 1997, the total public investment in stocks was $2.3 trillion! That is an additional $192 billion in stock investments in a little over a year and a half!

This means that over 90% of all the money ever invested in stock mutual funds has come in since late 1990.

Whenever the stock market goes crazy, a terrible crash follows; and at this time it has gone rabidly insane. The worst part is that a majority of investors really believe it is going to keep moving on up. That is why it keeps going up. They keep pushing it up; and more people, who know nothing about stock values, keep jumping on the train.  

Another factor in this remarkable rise has been the ease with which investors can buy stock in financial markets outside their own nation. A lot of money has been shunted into New York markets from overseas investors.

Yet another factor in the staying power of this rise in the past few months is the financial collapse in the Far East. It has brought still more money into Wall Street.

And all this means that, when the crash comes, it will have even more devastating effects all over the world than it might otherwise have had.  When the bottom drops out, invested money from all over the world will disappear down the hole.

  When a market nears its crash point, it moves up rapidly. Near the end, people become frenzied, and even the savings of individuals and families, which would not ordinarily be put into stocks, are invested. Then the market tops out, and falls dramatically. Immense losses occur. Entire nations can be disrupted.

  This is not a pleasant subject, but I feel I should mention it. The crash will affect us all, no matter who we are.

In 1973, the Dow lost nearly 50% of its value, falling from a high of 1,051 to 577. From early 1977 to early 1980, the Dow dropped by 25%. In real terms, the loss was closer to 50%. Nine times in the last hundred years, the Dow has fallen to below the starting point of the previous bull (upward) market. These falls have occurred, on an average, about every 10 years.

But, as noted earlier, the current bull market began on August 12, 1982, with the Dow at 776. Will the next crash take us that low? Even if the collapse only dropped halfway, it would be below 4,400.

Another comparison: From 1923 to 1929, the bull market shot up from about 600 to about 1100. That was a run-up of 344%. The present run-up is almost three times bigger.

  The dizzy, irrational height of the stock market is not a factor which stands alone. Several other ominous signals also warn us of severe trouble ahead. Here are some of them:

  Stock market dividends now yield under 1.7% a year; this is below where short-term interest rates were in early 1994. Yet, since then, short-term interest rates have almost doubled. Meanwhile, long-term interest rates are falling. This is a classic sign to financial experts that a recession is soon to occur. On that fact alone, a mountain of sell-orders should begin when investors wake up to the fact that their stocks really are not worth much.

When panic selling begins, and people are confronted with the fact that they may lose a third of their investment dollars within a day or two, what will they do? Panic selling would deepen! and could easily push the Dow to below 2,700. That would be a drop of more 6,300 points from recent highs.

A wide variety of events could trigger this, yet it is the underlying factors which would drive it down.

  The general public in America are precariously over invested in stocks. This is what happened in 1928-1929. Everybody was rushing to buy stocks. At this time, Americans are fantastically invested in stocks! In 1985, about 45% of their savings were in stocks; today it stands at about 64%. Such overinvestment is itself a sign of topping out.

Another indicator is the fact that Americans have so little in the bank. They are not prepared for a crisis, should it come. They live for today, and care little about what tomorrow will bring. The average U.S. family has less than $5,000 in the bank. Every other First World nation has a higher savings rate! Japan has an average household savings rate of $45,000.

  Debt has become an addiction. The average U.S. household owes $71,500, making us the biggest borrowers in the world. This includes such things as home loans, credit card debts, gambling debts, personal loans, and unpaid medical bills. The next highest is Britain, which is $34,500. (Germany and France are a little lower at $28,00 for each; Netherlands is $3,200; Switzerland is under $1,000.)

Personal debt is becoming especially bad among lower-income households: those earning less than $50,000 a year. Yet this group generates 55% of all consumption and 66% of gross domestic product. That means that, at this time, a very weak group is holding up our GDP. When the buying power of Americans vanishes, the nation is in deep trouble. Shops and businesses close down.

Those Americans, who have not placed their savings in stocks, are in debt to high-interest rate loan companies, credit card firms, or are gambling the little they have left at the casinos. I guarantee you: What America gets is what it brought on itself.

Bankruptcies were a record 1.1 million for 1996, and are projected to top 1.2 million for 1997. That means close to 1% of the population will go bankrupt in a span of two years. In the 1970s, there were only seven bankruptcy filings per 1,000 population; today it is 34. This is a 3.5 times increase in the last two decades.

  Short-term debt is especially dangerous, since it is high interest rate debt. Banks have allowed people to amass extremely high levels of short-term debt at 15% to 18% interest per year. The average person filing bankruptcy has short-term debt that is 1.6 times his annual income! Add mortgages and other long-term debt, and total is staggering--an average of 5.3, which is 5 times annual income in debt. This is double what it was 10 years ago.

Yet credit card lenders are begging for more customers. They do this because their interest rates are so exorbitant. Such lenders make so much money, they can write off the bankruptcies which result from some of them. In 1992, they sent out one billion solicitations for credit card accounts. Within three years that number had risen 250% to 2.5 billion. That is equivalent to ten credit card offers to every man, woman, and child in America.

  Underlying the whole problem is the federal debt. It is now so vast that the government could not help the people in the next crash, as it did in the 1930s.

Clinton promised to cut the overall deficit by $500 billion over five years. Instead, under his administration, the total debt has gone from $4 trillion to $5 trillion. What many do not realize is how he reduced the deficit somewhat: Half the slowdown was accomplished by a massive tax increase. The other half was primarily done by refinancing government debt from long-term debt to the new, lower-rate short-term obligations--which, in a crisis, can be far more dangerous! Can you imagine Washington, D.C. financed by the equivalent of credit card debt!

Yet, in Washington, all the talk is about reducing the deficit. The deficit is the amount added each year to the debt. It is the national debt which is the killer. There are those who would like us to forget about the debt and think about the deficit.

If someone told you that he was $485,000 in debt, but that, good news, he had only added $3,200 more debt to it last year, what would you say? He personally owed $485,000, and his deficit last year was only $3,200. You would be frightened for his family--because of the massive debt; you would be giving far less thought to his deficit.

  But you have not heard the end. There is yet more to the double-talk about national debt. When the debt is discussed, it is only the official debt that is mentioned. But there is a lot more federal debt than that!

While the official national debt is now $5 trillion; the total value of unfunded U.S. government financial obligations and private debt is over $17 trillion! No one talks about this economic torpedo. Yet it is destined to sink us--simply because, year after year, we are not getting rid of it. Neither Congress nor the White House dare tackle it. As for the people in the streets; they are satisfied with more handouts.

Today, a full third of our federal debt is financed at one year or less. And the mere fact that our national debt is so massive, so much of it is financed short-term, has led foreign holders to become increasingly wary. They are losing confidence in our ability to control our debt.

Ask any financial expert if a large amount of short-term debt is safe, and he will tell you the higher rate of interest on all that debt is the problem. Smart people do not do what our government is doing.

In addition, when you rely on short-term financing you become extremely vulnerable to fluctuations in interest rates. Its like having a huge mortgage on your house, with a floating rate.

All this combines into a recipe for disaster: When the national budget becomes tight (because a crash has put the taxpayers out of work), higher interest rates will bankrupt the government.

Here is the U.S. budget: The cost of operating the government: 11%. The cost of defense (we think we should be continually able to conduct two wars): 22%. Social security: 21%.

What is left? the other benefits being given to the people (other entitlements, 32%), and the interest on the national debt (14%).

It is obvious that cuts in defense and entitlements is the only way to reduce the debt--and doing that would automatically lower the interest payments.

But none of this will be done.

  Of course, a fundamental problem, underlying all the rest, is the lack of morality among the citizenry. When a people turn away from God and basic moral norms, they are in real trouble.

Urged on by their preachers, Americans have turned their backs on the Ten Commandments. Babies are killed, immoral politicians and recreational heroes are idolized, money is gambled away or placed in overpriced stocks.

  What will happen when the crash comes? No one can know, for never before have we had such a high run-up in the financial markets. The drop could be immense.

The only thing maintaining the present high stock prices is misplaced investor confidence. They are certain Wall Street will keep moving on up. Yet, once something triggers a collapse, it could be immense.

Look at the Asiatic financial crisis! It is happening before your eyes right now. Their markets also rose too high and every East Asian nation is in trouble now.

The markets crash, because it is tied to rising interest rates, will boost our national debt at least eight times above today's levels. At that point, the country would go bankrupt. This is because the interest the federal government is now paying on the national debt is already at the peak which can be handled. It is now 14% of the total federal budget!

85% of the money now in the U.S. Stock Market has entered it during the last seven years. It came from novice investors who think they are guaranteed 14% returns every year. When they jump out in panic, the market will fall so far--that it will take everyone else down with it. Many institutions will go bankrupt.

National bankruptcy would mean the federal government could no longer pay its bills--to other governments, to its bondholders, or even social security or welfare.

Why social security? Because back in the 1960s, Congress pooled social security accounts with the rest of the government budget. This enabled Congress to leverage that money--and go out and borrow still more money for wasteful spending. That is a major factor in the present instability of social security. The government borrowed on social security.

Factors producing higher interest rates are complicated, but a crash will cause them to move upward. Do not forget that interest rates spiraled over 20% in 1980 (which is why Davenports pyramid scheme collapsed when it did).

It is believed that, when the crash comes, interest rates will dramatically rise again. Many businesses will close, and employees will be laid off. People will not be able to make car, house, and other loan payments. Repair work and new construction will stop. Politicians will try to bandage the situation by printing more money, which will result in inflation. The money will be worth less and less.

With the lower classes out of bread, riots could occur in the cities. Suburban house prices will fall to half their value. People with money will leave. Only those who cannot afford to will remain.

The working population of America is only about 134 million people. A few years of difficult times could result in one in 10 of the heads of these households declaring bankruptcy.

In the heart of the Great Depression, nearly 50% of the people in the U.S. were out of work.

What should you be doing?

You should sell your stock investments (hopefully, you have none).

You should close your offshore banking investments. These are based on price fluctuations and bring you gain at a loss to others. Like stocks, they are a form of gambling.

You should be living in the country, not in the cities or just outside them.

It would be advisable for you to have a well on your place and a hand pump you can install in it. Then you can garden when all else fails.

I learned decades ago that, during the Great Depression of the 1930s, the state which was the least affected was Nevada. This was because the people there were self-sustaining. They had their little farms, and nothing else. (The evils of gambling, prostitution, and quick marriage/divorces had not yet been legalized.)

  Someone may say the above is an extreme portrayal of what might happen. Actually, it is not as extreme as what could happen--but that is a horror best not placed in print.

However, we would hope that not much will happen and only some moderate dips will occur. Yet even those could wipe out the invested savings of little people.

  I would rather not have prepared this report; it is unpleasant. But I do not wish to be a dumb dog who will not bark.

 The Spirit of Prophecy is very clear that practical religion is what counts, and it reaches into every aspect of our daily lives.                

                                          Vance Ferrell

The 1920s were remarkably like the 1990s. Under one president (Warren Harding), the executive branch of the federal government had a number of shocking incidents, in which government officials engaged in scandalous activities--although tame to what is happening now.

Jazz bands, a craze for sports, dancing, musical and film stars, and (in spite of prohibition) liquor. Women were working out of the home. Morality had never been lower in American history. Yet nothing like the depths we are reaching today.

Herbert Hoover became president in 1929 and said he was going to improve the nation. But that fall, the stock marked crashed.  On just one day, October 29, desperate speculators sold 16.4 million shares of stock. When, two months later, the year ended--the stock market crash had already cost investors $40 billion. As with all crashes, this one dropped quickly. Today, with computer transactions, it would drop even faster.

One day, shortly after the crash began, several of the wealthiest men in the nation strode into the New York Stock Exchange on Wall Street, and announced that they were sinking a vast amount of their money into stocks to keep them from falling any farther. There were rousing cheers from the traders. News about this powerful effort to renew public confidence in the stock market went out across America. The next day, the market continued downward, and continued on down, day after day.

It is significant that, just as today, small businesses were already going bankrupt before the crash came. But after it occurred, the nation was desolated. The country steadily sank into the most acute depression in its history. Year after year, conditions seemed to worsen. Millions lost everything. Banks failed, factories closed, stores went out of business, and those still open had few customers.

People had haunted faces, and wandered around trying to find work or wondering what to do next. Men stood on street corners selling apples. Government on all levels could not collect half their taxes. Transportation and foreign trade ground into low gear. Trains were empty and there was nothing to trade.

More than 6 million Americans were out of work by the end of 1930, and 12 million a year later. More than 5,000 banks failed, and over 32,000 businesses went bankrupt. Farm prices lost value, and farmers could not pay their mortgages.

In both the cities and in rural areas, banks were foreclosing on unpaid properties. Pitched battles occurred.

In the cities, people were eating in soup kitchens and living in clumps of shacks called Hoovervilles. Workmen demanded radical government aid. It was as in the days of Joseph, when the famine was throughout the land; men were willing to do anything to get government aid.

  But in our time things will be different. The government is too much in debt to be able to come to anyone's aid, without raising the debt interest so high--the nation will go into default. But it matters not; we are so overextended now, it will go broke anyway.

But, back then, Franklin Roosevelt came to the rescue of the nation in January 1933. He offered the people a New Deal, and instituted a variety of governmental handouts and reforms to oil the machinery and get things moving again. Vast federal work projects were started, which cost billions: the Federal Emergency Relief Administration, the Civilian Conservation Corps, the Works Progress Administration, to name some of the leading ones.

Bank deposits were insured, farmers were subsidized, and a variety of welfare and benefit programs. All these programs cost money, and government spending rose 1,100 percent from what it had been a few years earlier.

Excessive government spending never stopped, even when World War II brought prosperity to the nation. And here we are today, immersed in national and personal debt, awaiting the next crash; a possibility just as unthinkable as the idea appeared in early 1929.

  We are told, in Great Controversy, that national apostasy will be followed by national ruin. The passage refers to the enactment of the National Sunday Law and the downward spiral which follows. It is not talking about a stock market crash, big or little. Yet such an event could be a factor in helping the excitement in some of the churches to trigger the enactment of that law. We really cannot know.

But we can know that economic collapse, whether moderate or severe, faces our nation; and, just as in the 1930s, it will (if severe enough) spread outward and include Europe and the other major nations as well.


Statistics reveal that Seventh-day Adventists like credit (source: Review, Vol. 170, No. 48; no date printed, but had a 1993 copyright).

Bank cards:

   U.S. average - 32%

   Adventists - 65%

Travel cards:

   U.S. average - 6%

   Adventists - 14%

Retail store cards:

   U.S. average - 37%

   Adventists - 47%

Oil company cards:

   U.S. average - 24%

   Adventists - 34%

  I could not sleep past two o'clock this morning. During the night season I was in council. I was pleading with some families to avail themselves of Gods appointed means, and get away from the cities to save their children. Some were loitering, making no determined efforts.

The angels of mercy hurried Lot and his wife and daughters by taking hold of their hands. Had Lot hastened as the Lord desired him to, his wife would not have become a pillar of salt. Lot had too much of a lingering spirit. Let us not be like him. The same voice that warned Lot to leave Sodom bids us, Come out from among them, and be ye separate, . . and touch not the unclean. Those who obey this warning will find a refuge. Let every man be wide awake for himself, and try to save his family. Let him gird himself for the work. God will reveal from point to point what to do next.

Hear the voice of God through the apostle Paul: Work out your own salvation with fear and trembling. For it is God which worketh in you both to will and to do of His good pleasure. Lot trod the plain with unwilling and tardy steps. He had so long associated with evil workers that he could not see his peril until his wife stood on the plain a pillar of salt forever.2 Selected Messages, 354-355.

The time is near when the large cities will be visited by the judgments of God. In a little while, these cities will be terribly shaken. No matter how large or how strong their buildings, no matter how many safeguards against fire may have been provided, let God touch these buildings, and in a few minutes or a few hours how they are in ruins.

The ungodly cities of our world are to swept away by the besom of destruction. In the calamities that are now befalling immense buildings and large portions of cities, God is showing us what will come upon the earth.7 Testimonies, 83 (1902).

I am bidden to declare the message that cities full of transgression, and sinful in the extreme, will be destroyed by earthquakes, by fire, by flood. All the world will be warned that there is a God who will display His authority as God. His unseen agencies will cause destruction, devastation, and death. All the accumulated riches will be as nothingness     . .

Calamities will come--calamities most awful, most unexpected; and these destructions will follow one after another. If there will be a heeding of the warnings that God has given, and if churches will repent, returning to their allegiance, then other cities may be spared for a time. But if men who have been deceived continue in the same way in which they have been walking, disregarding the law of God, and presenting falsehoods before the people, God allows them to suffer calamity, that their senses may be awakened.

The Lord will not suddenly cast off all transgressors, or destroy entire nations; but He will punish cities and places where men have given themselves up to the possession of satanic agencies. Strictly will the cities of the nations be dealt with, and yet they will not be visited in the extreme of Gods indignation, because some souls will yet break away from the delusions of the enemy, and will repent and be converted, while the mass will be treasuring up wrath against the day of wrath. Evangelism, 27 (1906).

There are reasons why we should not build in the cities. On these cities, Gods judgments are soon to fall. Letter 158 (1902).

The time is near when large cities will be swept away, and all should be warned of these coming judgments. Evangelism, 29 (1910).

O that Gods people had a sense of the impending destruction of thousands of cities, now almost given to idolatry. Review and Herald, September 10, (1903).

Last Friday morning, just before I awoke, a very impressive scene was presented before me. I seemed to awake from sleep, but was not in my home. From the windows I could behold a terrible conflagration. Great balls of fire were falling upon houses, and from these balls fiery arrows were flying in every direction. It was impossible to check the fires that were kindled, and many places were being destroyed. The terror of the people was indescribable. Evangelism, 29 (1906).

While at Loma Loma, California, April 16, 1906, there passed before me a most wonderful representation. During a vision of the night, I stood on an eminence, from which I could see houses shaken like a reed in the wind. Buildings, great and small, were falling to the ground. Pleasure resorts, theaters, hotels, and the homes of the wealthy were shaken and shattered. Many lives were blotted out of existence, and the air was filled with the shrieks of the injured and the terrified.

The destroying angels of God were at work. One touch, and buildings so thoroughly constructed that men regarded them as secure against every danger, quickly became heaps of rubbish. There was no assurance of safety in any place. I did not feel in any special peril, but the awfulness of the scenes that passed before me I cannot find words to describe. It seemed that the forbearance of God was exhausted, and that the judgment day had come.

The angel that stood at my side then instructed me that but few have any conception of the wickedness existing in our world today, and especially the wickedness in the large cities. He declared that the Lord has appointed a time when He will visit transgressors in wrath for persistent disregard of His law.

Terrible as was the representation that passed before me, that which impressed itself most vividly upon my mind was the instruction given in connection with it. The angel that stood by my side declared that Gods supreme rulership and the sacredness of His law must be revealed to those who persistently refuse to render obedience to the King of kings. Those who choose to remain disloyal, must be visited in mercy with judgments, in order that, if possible, they may be aroused to a realization of the sinfulness of their course.9 Testimonies, 92-93 (1909).

For years I have been given special light that we are not to center our work in the cities. The turmoil and confusion that fill these cities, the conditions brought about by the labor unions and the strikes, would prove a great hindrance to our work. Men are seeking to bring those engaged in the different trades under bondage to certain unions. This is not Gods planning, but the planning of the power that we should in no wise acknowledge. Gods word is fulfilling; the wicked are binding themselves up in bundles ready to be burned.

We are now to use all our entrusted capabilities in giving the last warning message to the world. In this work we are to preserve our individuality. We are not to unite with secret societies or with trade unions. We are to stand free in God, looking constantly to Christ for instruction. All our movements are to be made with a realization of the importance of the work to be accomplished for God.7 Testimonies, 84 (1902).

We are not to locate ourselves where we will be forced into close relations with those who do not honor God . . A crisis is soon to come in regard to the observance of Sunday . .

The Sunday party is strengthening itself in its false claims, and this will mean oppression to those who determine to keep the Sabbath of the Lord. We are to place ourselves where we can carry out the Sabbath commandment in its fullness. Six days shalt thou labor, the Lord declares, and do all thy work: but the seventh day is the Sabbath of the Lord thy God: in it thou shalt not do any work. And we are to be careful not to place ourselves where it will be hard for ourselves and our children to keep the Sabbath.2 Selected Messages, 358 (1908).

This disaster [the burning of the Review and Herald building] may make a decided change in affairs. I hope that our brethren will heed the lesson that God is trying to teach them, and that they will not rebuild the publishing house in Battle Creek. God means that we shall not locate in the cities, for there are very stormy times before us. Letter 2; Publishing Ministry, 176 (1903).

Men will arise speaking perverse things, to counterwork the very movements that the Lord is leading His servants to make. But it is time that men and women reasoned from cause to effect. It is too late, too late, to establish large business firms in the cities--too late to call young men and women from the country to the city. Conditions are arising in the cities that will make it very hard for those of our faith to remain in them. It would therefore be a great mistake to invest money in the establishment of business interests in the cities. Manuscript 76; Publishing Ministry, 185 (1905).

Repeatedly the Lord has instructed us that we are to work the cities from outpost centers. In these cities we are to have houses of worship, as memorials for God; but institutions for the publication of our literature, for the healing of the sick, and for the training of workers, are to be established outside the cities. Especially is it important that our youth be shielded from the temptations of city life. Special Testimonies, Series B, No. 8, pp. 7-8.

It is no time now for Gods people to be fixing their affections or laying up their treasure in the world. The time is not far distant, when, like the early disciples, we shall be forced to seek a refuge in desolate and solitary places. As the siege of Jerusalem by the Roman armies was the signal for flight to the Judean Christians, so the assumption of power on the part of our nation, in the decree enforcing the papal sabbath, will be a warning to us. It will then be time to leave the large cities, preparatory to leaving the smaller ones for retired homes in secluded places among the mountains. And now, instead of seeking expensive dwellings here, we should be preparing to move to a better country, even a heavenly. Instead of spending our means in self-gratification, we should be studying to economize. 5 Testimonies, 464-465 (1885).

  We live in very uncertain times and we must be careful about investments. But we must continue to push vigorously forward in our efforts to fulfill Gods plans for our lives, and help those around us.                                                                     vf