Tuesday, June 16, 2009

Year of Jubilee – The Meek Shall Inherit the Earth

Leviticus 25 is one of the more obscure and misunderstood Old Testament Laws. Every 50 years the economy in the nation of Israel was to have a reset button. All debts were to be forgiven, slaves were set free and the land was to be returned to the original owner.

I have always believed that the laws of the Old Testament weren’t just some willy nilly decrees by an uncaring God wanting to test His people in order to see if they would obey Him no matter what. Adultery isn’t wrong because the Bible says so, it’s wrong because it destroys relationships and the law simply states that reality. In other words, His laws aren’t prescriptive but are rather descriptive of what makes for a healthy lifestyle or a destructive lifestyle.

So why did God implement an economic reset button? As life unfolds human nature tends to over extend itself. Sometimes it’s because of greed, or lack of self-control or misfortune like sickness or an accident. Whether the downward spiral of indebtedness is caused by a person’s own poor decisions or are a result of outside factors there is often a deep sense of hopelessness for those who are enslaved by debt.

God understood this trap that human nature tends to go into all too easily and gave the gift of resetting the economy back to having no debt every 50 years. In other words, everyone got a fair chance to start over within their lifetime.

Wealth Transfer in Jubilee

Whether planned or unplanned, every Jubilee is accompanied by a large transfer of wealth.

Proverbs 13:22b “But the wealth of the wicked is stored up for the righteous.”

So according to the Bible, who are the financially wicked and righteous?

Psalm 37:21 “The wicked borrows and does not repay; But the righteous shows mercy and gives.”

So, according to the Bible, the wealth of the one who borrows and does not repay (wicked) is stored up for the one who shows mercy and gives (righteous).


Matthew 5:5 “Blessed are the meek for they shall inherit the earth (land)”

So what is meekness?

—Having great power or capacity and using very little of it.
—Vines Bible dictionary says, Meekness is “the fruit of power.” “The common assumption is that when a man is meek, it is because he cannot help himself; but the Lord was meek because He had the infinite resources of God at His command.”

The sad reality is that most of us, definitely including me, have not lived within our capacity.

A friend of mine told me that if you can’t finance a house without a clear plan of paying it off within seven years, that you are over extended. When I heard that I thought that was farfetched and yet it simply requires the capacity to pay 10% more than what the bank would require off of the principle, each year.

When it comes to credit, people have simply not lived in meekness. I just heard about someone praying for someone to loan them $20,000 for a down payment so that they could increase their indebtedness by another $400,000. They actually thought that if the loan happened then that meant God was looking after them. God would never want someone to enslave themselves to a debt that could potentially crush them and stop them from being able to freely go where they wanted or worse yet, tempt them to become a wicked person by not repaying their debt.

Debt has increased at an unprecedented rate and there is about to be a correction. We no longer have a clear plan of when to push the economic reset button and yet it is obvious that the human condition of getting in over our heads financially has not changed.

I actually thought I was being very clever by leveraging the inflated value of my home in order to buy what I could not afford. It seems I was just one of literally millions who are all too willing to enslave themselves to a future of debt thinking that housing would always continue to go up in value.

Many people have been in the habit of buying on credit and then clearing their credit card debt by refinancing their houses. In other words, they increased their indebtedness, hoping that the economy will continue to move forward. As long as houses continue to go up in price there is always the safety net of refinancing in order to deal with our natural capacity to over extend ourselves. The average person in North America tends to spend 110% and many 140% of their capacity. In other words we’re just like the government that thinks deficits are a good way to buy ourselves out of momentary discomfort.

But what happens when there is an economic downturn and people lose their jobs? They no longer have the ability to pay for their $300,000 home. So they sell. As more people sell, the price of housing actually begins to go down in value. It actually starts very slowly since the last thing our ego wants to admit to, is that we are in over our heads.

Housing no longer rises at 5-10% a year. Even people who still have jobs no longer have the cushion of refinancing since they are mortgaged to the max and their house didn’t go up in value. And then they lose their job as well and now they can’t pay their mortgage. What started off as a trickle begins to gain momentum, housing prices drop a little more and the small asset, (the difference between the mortgage and the relative value of the house diminishes) and now the mortgage is higher than the value of the home. People now begin to declare bankruptcy instead of selling their homes.

Meanwhile, the banks which had been over extending themselves in the name of profit are now stuck with homes they don’t want and they sell them for less, driving the value of housing lower.

At this point some people actually jump into the housing market and there is a small surge because interest rates are low and there are some deals to be had. Banks are still willing to extend credit because they need to sell the houses they don’t want.

60 Minutes - The Mortgage Meltdown

But now there are others who need to be able refinance their mortgages but that can only happen if their house went up in value. At this point, the small surge has only stopped houses from going down in value and now this new group of people must sell. But this time the price of housing takes a modest 5% drop. People are even more uncertain about their job situation and can’t afford a mortgage that is more than the value of their homes. Many of them have financed their house to 90-110% of its value.

Many houses come on the market at the same time and what was only a 5% drop turns into a 15% drop. If you have a job you ride out this loss but lo and behold you lose your job. The mortgage is 300,000 and now your house is only worth $280,000. Oops, I got a little over extended with another a car payment and some credit card debt that I expected to clear up by refinancing my house.

But there is an answer for me, I can reset my indebtedness. It’s called personal bankruptcy. God calls this wickedness. Why? Because I will deny others what is rightly owed and they can't pay others as well. My wicked actions can literally begin a chain reaction that harms innocent people.

Now the banks are stuck with houses that they don’t want, plus they just lost $20,000 in credit card debt that won’t get repaid and repossessed a car that now costs them money to get rid of.

The bank didn’t even have a chance of forcing foreclosure and now must sell their increasing number of houses cheaper and the price of housing drops another 10% which precipitates another cycle of personal bankruptcies.

Meanwhile, those who have not ever extended themselves, have watched what they thought was a great retirement asset diminish by 25%. They see the writing on the wall and can afford to sell and still make a profit. After all, they bought at $60,000 and even though their house went up to a paper value of $300,000 they are still going to do ok by selling for $240,000. This again drives the market down a little more and within 6 months that same house is only selling for $200,000.

There is always little surges in the market because people can’t resist jumping in considering that a house that sold for $300,000 last year is now a bargain at $200,000. No one expects the downward spiral to continue.

But in all this, those that needed to refinance because of credit card debt can’t and even though they weren’t anywhere close to bankruptcy last year, the drop in housing prices has tempted them to sell or declare bankruptcy. After all, they still have a job with decent cash flow and it simply doesn’t make sense to hold onto a liability when they have seen so many others get out of their debt so easily.

When will this downward cycle reverse itself? Impossible to say. Is this cycle possible?

God gave the year of Jubilee to show us that once every lifetime, society needs to push a reset button to clear debt.

The meek who have maintained their cash by not spending beyond their capacity or being greedy for a great deal, will be the ones who can afford to buy when houses bottom out to real values. (The actual cost of the materials to build not the inflated prices that we think are the value of a home.)

And this is when, the meek shall inherit the earth.

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