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Paying the Bills in a Recession
By: Lyle E. Schaller

What created that national economic recession that economists now contend began back in December 2007? Why has it become increasingly common for religious congregations and other charitable organizations to be forced to reduce projected expenditures because receipts are substantially less than was anticipated? Why has the percentage of the non-capital expenditures of denominationally affiliated Protestant congregations that are sent to the denominational treasurer plunged from about 12 to 15 percent in the 1950s to 5 or 6 percent in recent years?

A comprehensive response to those three questions would require a 500-page report. One chapter could be devoted to the "housing bubble." The most difficult chapter to write probably would seek to explain the growth of "bad paper" in which the collateral consists of mortgages and notes that cannot be assigned a realistic market value.

The focal point of this essay, however, can be summarized under one word—death. Most of the millions of adult Americans who placed a high value on "saving for a rainy day" are dead. For several decades, American-born adults in the 1860-1940 era were taught to save their money. Two highly visible examples were the two national campaigns to sell United States Savings Bonds to help finance the costs of two World Wars.

Who Taught Them?
One of the most influential forces in shaping the values, behavior, priorities, personalities, attitudes, dreams, ambitions, and goals of children is their parents. For many, a close second is the child's siblings. In the contemporary American culture, the influence of peers is clearly among the top six. The Great Depression of 1929-37 is an illustration of how the national economic scene taught millions of Americans of all ages to "save for that rainy day."

The Influence of Institutions
While frequently ignored, institutions also influence the values and behavior of individuals. Perhaps the No. 1 example in American history has been and is the power of schools to persuade people that the number of years of formal education in the first three decades of life correlates with the potential for a happy and prosperous future as an adult.

One related consequence is the proportion of adult females in the United States who had completed at least four years of college rose from 3.8 percent in 1940 to 20.2 percent in 1995. For adult males that increase was from 5.5 percent in 1940 to 26.0 percent in 1995.

Another has been what for most of its history was called the United States Post Office. The primary purpose was to collect, transport, and deliver the mail. In small-town America, the local post office also often was a place to greet old friends and to catch up on the latest local news.
A largely forgotten role was carried here by immigrants from western Europe where the local post office also served as a savings bank. Thus, in June 1910, the United States Congress approved legislation that also was motivated by the financial panic of 1907 in this country. That wiped out the savings millions of Americans had deposited in a bank that failed. In that era, post offices were open from 8 a.m. to 6 p.m. six days a week. The minimum deposit was one dollar, and the maximum for any one deposit was $2,500. (After allowing for inflation, $1 in 1911 was the equivalent of $21 in 2008.)

Two years later, in 1913, a total of 12,820 Postal Savings Offices were in operation. In the years following World War II, an average of slightly over 4 million depositors had combined deposits of more than $2 billion (the equivalent of $18 billion in 2008) in their Postal Savings accounts. Thus, the United States, through the role of Savings Bonds and the Postal Savings System, was offering Americans two safe, convenient, and simple ways to save money.

What Happened Next?
After 67 years of encouraging Americans to save for the future, the Postal Savings System was terminated in 1967.

Second, the incentive to save was replaced by an incentive to borrow and spend. Instead of the Postal Saving System encouraging Americans to save, the Postal Service was delivering millions of letters every month encouraging the recipients to apply for a credit card.

The number of credit cards in circulation jumped from 126 million in 1981 to 290 million in 1990 and to an estimated 1.4 billion in 2008! The outstanding balances due on credit card debt rose from $2.7 million in 1970 to $80 billion in 1981 to an estimated $900 billion at the end of 2008!

For six decades, the United States Post Office Department encouraged Americans to save. For the past four decades, the mail and the media have sent messages encouraging Americans to borrow and spend.

The Housing Bubble
By the late 1970s, it had become obvious to many Americans that the most productive way to save was to combat inflation by becoming a homeowner. That turned out to be a wise strategy for those who were able to pay off their mortgage and sell before the "housing bubble" burst in 2006-2007. One example is the householder who purchased a single-family home in 1974 for $25,000 and sold it for $100,000 in 1989. In the typical metropolitan area, approximately $60,000 of that $75,000 increase in price was due to inflation and the other $15,000 was a result of the real increase in land values and construction costs.

If the timeframe is expanded to four decades from 1968 to 2008, the Consumer Price Index (1982-84=100) rose approximately six-fold from 34.8 to about 215. To compensate for that, the market value of the typical single-family home needed to increase from approximately $25,000 to $150,000 over four decades. The attractiveness of being a homeowner was increased by the Taxpayer Act of 1997. The capital gains in investments in stocks and bonds were taxed, but that legislation exempted the first $500,000 of capital gains on a house that a couple had lived in for at least two of the five previous years. One consequence was the sales of existing single-family homes doubled from under 3 million in 1992 to over 6 million in 2005. Add in the purchases by people who realistically could not afford the mortgage payments, and one consequence was the "housing bubble" that began to burst in 2006.

The Gold Standard
While this is a more complicated part of this story, it is a critical component of any plan to reach, attract, serve, assimilate, nurture, disciple, challenge, and equip for ministry Americans up and down an income ladder with the very high-income adults working in the financial sector at the top and the low-income people in the service sector and the unemployed at the bottom.

For many years, the United States Treasury Department agreed to accept Treasury-issued gold certificates in exchange for gold at a rate of $20.67 per ounce of gold. In January 1934, the price was raised to $35 per ounce of gold. In July 1944, the international "Bretton Woods Agreement" was signed. It was agreed to replace the British pound with the American dollar as the standard for global currency. The dollar was valued at $35 for an ounce of gold. America was enjoying a huge surplus in international trade, and that reinforced the viability of that system.

One price tag of the war in Vietnam was a trade deficit for the United States, so on August 15, 1971, President Richard M. Nixon changed the rules and suspended the promise to value the dollar at $35 per ounce of gold. Two years later, the price of gold had increased to $42.22 per ounce. During the James E. Charter Administration in 1979, the price of gold climbed from $225 to $525 per ounce. In recent years, it has fluctuated between $700 and $1,000 per ounce.

One consequence is when consumer debt exceeds consumer savings it becomes difficult to borrow money. A second has been the bursting of the "housing bubble." For many, the "equity" in their home has been transformed from an asset into liability. A third has been for all Americans born after about 1935 an unprecedented stratification of the population by income. The old Sunday School movement divided people by age, gender, grade, marital status, and role—teacher or student. The teacher might have more accumulated wealth and/or be higher on the income ladder than the adults in that class, but they all spent Sunday morning together in the same church.

One of the most important consequences for congregational and denominational leaders has been the division of Americans with discretionary income into three categories. Some of the savers decided to invest their savings in capital assets that were expected to increase in value. The purchase of a home was one example. A second was to buy three or four units in a new apartment building and live in one of them. The hope was that the appreciation in the value of the rented units eventually would match or exceed the cost of the original purchase. The most popular, of course, was to invest in the stock market.

The second category of savers chose to place a high value on protecting the value of their capital. They purchased Treasury bonds or insured certificates of deposit or similar "safe" investments.

The third group defined "how much can we afford to lose" and split their investments between "safe" and "high-risk" assets.

Three Consequences
While it is true that by 1965 most Protestant denominations in America included congregations composed largely of upwardly mobile adults while other churches were attracting "working class" adults and a few served low-income families, the emphasis on requiring two academic degrees for ordination reinforced an image of focusing on well-educated adults.

The emergence of a global economic system produced a sharp decline in the number of American adults employed in agriculture, manufacturing, and mining. That trend was paralleled by a sharp increase in the number employed in the professions of law, education, medicine, and finance. It also was paralleled by a sharp increase in the number of Americans employed in the services sector, such as healthcare, retail trade, transportation, and as unskilled laborers.

One predictable consequence has been the numerical decline in the number of members in those denominations organized to serve those closest to the top of the income ladder. A second predictable consequence has been the emergence of thousands of new congregations across America organized around the "Three Self" missionary principle of self-governing, self-financing, and self-propagating. Most of them have been created to reach and serve people who are in the lower half of that income ladder and/or are recent migrants, but more than a few are nondenominational megachurches. Their constituencies tend to include a large proportion of people who are future-oriented and upwardly mobile adults who are savers and in the upper third of the population in terms of accumulated wealth.

A third consequence has been that most Protestant denominational systems tend to rely on the dollars sent to headquarters by affiliated congregations to fund their budgets. While that system began to become obsolete in the 1980s, many religious institutions find it easier to seek to perpetuate the systems that worked with the adults born in the 1860 to 1930 era rather than adapt to a new social and economic environment.

By contrast, a growing variety of parachurch organizations designed to resource congregations pay their bills from: (1) fees for services and resources, (2) donor-designated contributions from individuals who are savers, (3) grants from that rapidly growing number of family foundations, and (4) choosing only savers to serve as volunteer members of the governing board and each one is expected to be able to contribute at least $10,000 a year to help fund the budget.

Next month's essay will suggest options for constructive responses to the current economic recession in America.

Lyle E. Schaller is a retired parish pastor and parish consultant.

Copyright 2009 by Lyle E. Schaller









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