Servias Ministries Blog

On 12/12/12, Ben Bernanke announced a continuation of Quantitative Easing (aka money printing).  John Williams at shadowstats.com made the comment:

“The problem remains banking-system solvency; 2008 still is playing out.  The Fed’s purported effort at attacking the weak economy (specifically unemployment), with debt monetization is nothing more than political cover for helping the banks.”

John further stated:

“With no economic recovery in place or pending, and with the financial system and markets unable to survive withdrawal symptoms, ever-expanding QE3 likely will continue until such time as the U.S. dollar collapses in a hyperinflation.  Effectively, this was a decision that was made at the time of the panic in 2008, in an effort to avert an immediate systemic collapse, to buy some time.”

I recommend a subscription to www.shadowstats.com for all of you economists that want to keep abreast of the uncooked government statistics.

Once banks see that the regulators will not prosecute them, they look at fines as another cost of doing business.  See:  http://www.nytimes.com/2012/12/12/opinion/hsbc-too-big-to-indict.html?emc=eta1&_r=1&

The Federal Reserve’s Ben Bernanke continues his plan:

“The central bank replaced a more modest stimulus program due to expire at year-end with a fresh round of Treasury purchases that will increase its balance sheet. It committed to monthly purchases of $45 billion in Treasuries on top of the $40 billion per month in mortgage-backed bonds it started buying in September.

In a surprise move, the Fed also adopted numerical thresholds for policy, a step that had not been expected until early next year. In particular, the Fed said it will likely keep official rates near zero for as long as unemployment remains above 6.5 percent, inflation between one and two years ahead is projected to be no more than 2.5 percent, and long-term inflation expectations remain contained.”

See:  http://finance.yahoo.com/news/fed-ramps-stimulus-approach-support-173200191.html

Is he praying for a miracle for the current system or that Our Heavenly Father’s Kingdom would spread around the globe and remove the heat altogether?

It has been said that the 8th wonder of the world is compound interest.  What were these guys thinking?

See:  http://www.npr.org/2012/12/07/166745290/school-district-owes-1-billion-on-100-million-loan

As I mentioned on Sunday, the Government Debt Bubble is now at epic proportions.  It is also known as the Bond Bubble.  Switzerland’s Bank of International Settlements is now warning of this bubble as well.  See: http://www.arabianmoney.net/gold-silver/2012/12/10/swiss-bis-warns-of-another-2008-style-credit-bubble-about-to-burst/

You will notice that this articles speaks of gold and silver as safe havens.  In the meantime, large bullion banks have shorted gold and silver beyond the futures market’s ability to deliver the actual metal if taken for delivery by the long side of the market.  A silver futures contract is sold with a commitment to deliver a specific amount of the metal at some date in the future at a locked in price today.  This protects the buyer from price changes before delivery.  However if the price goes down, the buyer must still pay the contracted price.  If the price goes up, the buyer enjoys the extra profit.  The seller of the futures contract is “short” and expects the price to go down before the delivery date.  As the price goes down, the seller can buy an offsetting contract to close out the position.

What happens if there are more contracts than physical metal available for delivery and the buyers decide to take delivery?  A crisis!  If the bond bubble bursts, many investors will flood into the precious metals for safe haven.  If and when this happens, demand will skyrocket and the same banks that were too big to fail will be at risk of failing again.  It is liable to get ugly out there.

Currently it is estimated that Non-US banks and the US banks’ positions amount to a total short of 290,000,000 ounces of silver.  This is about two years of silver production net availability.  This amounts to a massive attempt to keep the price of silver down.  This is at the same time that silver is being increasingly used for solar power and other high tech needs.  China’s economy is rebounding which will also increase the demand.  Could this be setting the stage for silver to return back to the historic 16 to 1 price ratio to gold?  What about those silver stocks?

One of the primary attributes of lawlessness is that it thinks you get away with breaking the law.  As a child you steal some candy and no one catches you.  You were able to break the law and enjoy the candy.  You receive temporary satisfaction but opened the door to a lawless heart that remained in you.  Your ego kicked in and made you feel superior to the law of theft.  Later you cheated on a test and received that “A”.  You outsmarted the teacher and now you are feeling superior.  Once again, your ego is stroked.  Now you pride yourself in staying one step ahead of the Law.  You are living on the edge and it is exhilarating.  What you don’t realize is that there is a ledger book being kept outside of your control, recording all of your mischief and ultimately the Law demands restitution.

On a macroeconomic level, the stakes are bigger and the restitution is greater.  When a nation pursues lawlessness, the laws that govern the universe demand restitution.  It may not occur today or tomorrow, but it will ultimately “reconcile” the books.  How do I know that it is true?  Look at history.  There is not one empire that managed to stay afloat once lawlessness began to infiltrate the economy.  Gold standards were compromised and men found lawless ways to circumvent standards of monetary exchange.  Those same little boys who were smarter than their teacher were exalted to government planners.  Their egos grew faster than their little bodies.  The subtle strokes to their egos made them feel like gods as they took the economic reins of the country.  They walked around with swagger.  “I am Numero Uno!”

Alan Greenspan was exalted above all financial soothsayers when he was the head of the Federal Reserve Bank.  The markets hung on his every word.  In looking back, his policies promoted the huge mess we are in now.  “The consumer should go borrow more money!” was the patriotic cry from Washington.  Greenspan’s previous work history was not stellar as an economist.  However, he once wrote of the necessity of a Gold Standard in 1966.  He is quoted:

“under the gold standard, a free banking system stands as the protector of an economy’s stability and balanced growth… The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit… In the absence of the gold standard, there is no way to protect savings from confiscation through inflation”

That says it all.  The Law of Jubilee in Scripture is the economic protector against men who would perpetually enslave the populace through borrowing.  Borrowing denotes an expectation that you know the future thus you have the inherent ability to pay back what you borrow today, with interest.  Over time, banks developed credit policies to limit their exposure to your inability to predict future events.  Once they threw out these policies, debt bubbles were created.  In 2008, they burst.  Today the Federal Government is following the same path and will reap the same reward.  The $86.8 trillion Federal unfunded liability does not appear on any set of books for the average American to look at.  However, those ledger books in the higher realm demand restitution and the day of reckoning will arrive.

See: http://online.wsj.com/article/SB10001424127887323353204578127374039087636.html

Dollar Bubble and the Government Debt Bubble are the next on the list to pop.  Self-serving politicians will not acknowledge the dramatic risks we are currently dealing with.  We are borrowing money at level exceeding $1 Trillion per year.  The Federal Reserve Bank is buying most of the debt.  Where are they getting the funds to buy the debt?  Out of thin air.

How do we prepare for the bursting of these bubbles?  First, we must acknowledge the problem.  Denial is a killer.  Two to four years appears to be the current time frame.

Normally, the inflation rate controls the printing of money but the Fed has manage to exercise short-term control over the rate.  Manipulation of the price of gold has helped keep the lid on the “perception” of inflation.  Manipulating government statistics such as headline unemployment and inflation has served them well.

Resource depletion is still occurring and $85 oil is now the new norm as a base price.  This will help fuel inflation. 

What is the exit plan of the Fed?  There is none.  The level of the problem has exceeded their ability to control.  We have been close to zero percent interest rates going on four years.  That’s fine if you want to borrow.  Investing has now become “speculating” and the real issue is the return of capital rather than return on investment.  In frustration, investors are making mistakes and attempting to seek out a return on investment thereby risking their “return of investment”.  It appears that many are being set up for a substantial extraction of wealth in a very short period of time.  Their illusion of wealth may be on the verge of being shattered.  When that happens there will be a corporate repenting by society.  Desperation moves them to seek the Higher Power that they once knew as children.  Knowing nothing else, they will recite the Lord’s Prayer, hoping that the pain will be relieved.  There will be a new paradigm of Internet surfing and it won’t be for sensual pleasure.  They will seek answers to life instead. 

Isn’t it amazing that the so-called smartest guys around are creating the very mechanism that will remove them from  power?  The Sons of GOD will be ready and empowered when that day arrives.

If 535 politicians could not fix the “fiscal cliff” in 2011, what makes us think that they can fix it now?  Total debt is higher and continues to grow.  I would love to be optimistic about the current system but its underpinnings are based on the love of money-greed.  Our Heavenly Father’s Kingdom is the only sustainable solution.

Wars and rumors of wars continue.

When people lose everything and have nothing to lose, they lose it!

With interest rates hovering close to zero and true inflation much higher, the bond market is poised to have its bubble burst.  The talk of energy independence of the U.S. is smoke and mirrors.  I expect $3.75 natural gas to become history when exploration companies finally run out of cheap money to drill expensive wells.  These horizontal gas wells are not economically justified at the current price level.  We need $6-8 natural gas to truly break even.  But when the investment alternatives are so poor, investors tend to seek out the best “ugly” investment in town.  Natural gas drilling is the beneficiary.  Other countries are willing to pay up to $15 per MCF for natural gas so there will be some of the US natural gas shipped to those countries via specialized tankers.

Global commodity prices will reflect the US Dollar’s depreciation.  Other currencies are becoming “reserve” currencies in practice.  The demand for Dollars will decline causing further depreciation of value for those who hold them.  Couple that with US Government Bond yields and you have a serious problem.  When the bubble pops, the Federal deficit will skyrocket due to higher interest expense on the massive debt level.  In the private sector, bankruptcy is the only solution.  I wonder what these guys will think of when the day of reckoning arrives?  Those retirement accounts are looking yummy!