Servias Ministries Blog

John Williams publishes government statistics based on raw government-produced data using the government’s own current and past formulas.  This allows the reader to get an “apples to apples” comparison over time.  True unemployment is much higher than the touted numbers by the mainstream media (MSM).  True inflation is also higher.  In the graphs below, SGS is “Shadow Government Statistics”, the way the government measured the rate in 1990.

You may subscribe to John’s newsletter at shadowstats.com

In a recent interview:

“Accordingly, as they did in 2008 and beyond, the Fed and Treasury can be expected to guarantee, loan, spend and create whatever money is needed to prevent a systemic failure. 

The long-term cost of these actions remains inflation.  Inflation, however, is likely to be a very near-term effect this time as well.  The various economic and financial outlooks remain as discussed in Hyperinflation Special Report (2011); they will be reviewed in the pending Hyperinflation 2012.

Despite the September 5th historic-high gold price of $1,895.00 per troy ounce, and despite the multi-decade-high silver price of $48.70 per troy ounce, gold and silver prices have yet to re-hit their 1980 historic levels, adjusted for inflation. 

The earlier all-time high of $850.00 of January 21, 1980 would be $2,472 per troy ounce, based on November 2011 CPI-U-adjusted dollars, $8,702 per troy ounce based on SGS-Alternate-CPI-adjusted dollars.

In like manner, the all-time high price for silver in January 1980 of $49.45 per troy ounce, although approached earlier this year, still has not been hit since 1980, including in terms of inflation-adjusted dollars.  Based on November 2011 CPI-U inflation, the 1980 silver price peak would be $144 per troy ounce and would be $506 per troy ounce in terms of SGS-Alternate-CPI-adjusted dollars.”

I’m maintaining my “insurance policy” in unleveraged hard assets.  You should ask Our Heavenly Father how you should prepare for 2012.

This yearend is unlike any yearend of the past.  In the past, most of us have closed out our year thinking about Christmas gifts, last chance deductions, and what to do on New Year’s Eve.  Not for me this year.  The question now is “Am I prepared for the worst case scenario- economic chaos?”  I am not an alarmist but I am not a cow that wants to be led to the slaughter house.  Little did I realize the importance of my Degree in Economics obtained some four decades later.  We were led to believe that the U.S. was a “free market” economy.  Wrong.  We were led to believe public servants served the public.  Wrong again.  We were led to believe that those elected officials would strongly defend The Constitution.  Sorry, only when it is convenient.

The global economic system is in total disarray.  The banking system has financial landmines that would rival the fields in Cambodia.  Political pressure to hide losses inside the balance sheet of major banks creates a credibility gap bigger than the Grand Canyon.  When central banks around the world make a concerted effort to provide liquidity, this would indicate a larger problem than the average person can imagine.

Since governments control the system by creating money out of thin air, major resources in the economy are redirected from the productive and innovative private sector to the totally inefficient and bureaucratic public sector. The public sector only consumes wealth.  Nothing but promises are produced. By taking critical resources from the private sector, consuming most of what it takes and then giving the rest to the most unproductive part of society (entitlements), governments perpetuate the worst part of the economy and destroys the ability of the nation to expand via the private sector.  In the past, the private sector could overcome the drag of government.  But now uncertainty has replaced the willingness of the risk taker to invest in long-term projects.  Artificially low interest rates have sent the caution signal to management as an indication of further weakness in the system.  Europe will see bank failures in 2012 and nobody knows how serious it could get for the average guy.  Never in the history of the world are there so many countries with serious fiscal problems all at once.   There is no economic book or white paper to refer to.

The interconnectedness of the global financial system may have been a good idea in theory but now some catastrophic event 5,000 miles away can affect you and me.  If things get ugly, the politicians will be in the bunker looking at us on their closed-circuit TV’s.  Self-preservation is the one consistency among most of the world’s politicians.

So with that said, my strategy is as follows:

1. Keep my communication lines open with Our Heavenly Father.  HE is the Merciful One.

2. Look in the mirror to see if there is any denial that needs to be dealt with.

3. Forgive everyone.  You don’t need any bitterness when you brother is in deep trouble.

4. Check the pantry.  Make sure you have plenty of non-perishable food on hand.  It’s better to have too much than not enough.  If by some miracle financial system survives the next 60 months, you can donate extra food to a food pantry.

5. Make sure you have good, durable clothing to handle the elements.  Power outage are occurring more frequently and you should be prepared for substandard response time to outages.

6. Keep extra cash available in a safe place in case of a “bank holiday”.  Notice how they put a positive spin on a disintegrating situation?  Holiday?  Not for you or me.  Generally, the small print in the signature card you signed at your financial institution includes a right for the bank to hold your money for up to 30 days or more.  Since it has rarely been exercised, people have grown accustomed to the assumption that they can access their money at any time.

7. Minimize debt and do not add any more.  Cash is still king.  If you can’t pay cash, you probably don’t need it.  “That’s what my momma always said.”  Oh yes, she grew up in the last Great Depression.

8. Hyperinflation is more than a 50% probability in many countries around the world.  Don’t assume it won’t come to the shores of the U.S.

9. Hard assets will preserve value.  I have begun the direct registration of stocks held in my broker account.  I don’t want a middle man with potential fraudulent intent to compromise my ownership position.  MF Global comes to mind.

10. Make sure your property taxes are paid up and you have enough reserves to pay them for at least 36 months.  You just thought you owned your house.  The taxman can confiscate property if necessary.

11. Make sure you pay the IRS monies owed.  As long as they have power and authority by statute to collect tax, pay the tax.

12. For the hundredth time, simplify.  If things get tough, all of the big boy toys will be of no value.  That goes for you “big girls” as well.

13. Ask Our Heavenly Father what you should do with your retirement account.  I cannot advise you on your investments but Our Heavenly Father can and will.

14. Encourage your family and friends to follow similar defensive moves.

15. Express an attitude of gratitude daily.

16. Walk the Love walk!

In 2017, I would like to reflect back and see that  the steps I took turned out to be unnecessary, but I don’t think that will be the case.  Be vigilant!

Oil

Peak oil is no longer a debate for the facts support this reality.  Technicians at the highest level simply assumed that the technology silver bullet would continue to enable us to find new reserves.  Wrong!  Economies run on energy and expansion requires additional energy.  The easy to find oil is gone and the expensive oil is reflected in the $95+ price reflects this.  Global oil production has plateaued since 2004, even with the high prices in the triple digits.

The assumption that technology will solve the energy storm is wrong.  Technology has improved extraction but it does not create new deposits.  Yes, there may be some large fields yet to be found but extraction won’t be easy.  Jed Clampett of the Beverly Hillbillies is not going to discover another large discovery of shallow oil by gunshot.  Depletion is barely being offset by new production but that offset is becoming increasingly difficult to achieve.

We are not out of oil but the extraction is more difficult.  These costs are going to superimpose themselves on the current recessionary pressures challenging global growth.  The fragile financial system cannot afford another source of resistance to recovery.

Once the market smells the rain in the air, prices will move upward and test $147 per barrel.  Once this barrier has been broken, $200 is not far off.

Gold

If I were in charge of making my currency look good and I had the authority over printing money and could direct agents to buy and sell gold without concern of legal prosecution, gold would be moving downward in the Christmas season.  My goal would be to make gold look like it was going to head south for the winter.  If I can shake the confidence of the gold bugs then they will help me move the price further down with their emotional selling.  With my high powered servers, I would simulate a technical “crash” for all those traders who use all the standard technical indicators to buy and sell.  I would paint their charts to create a sell signal for gold and the underlying gold shares.  The problem arises when China and India are on the other side of the transaction using their agents to buy on the dips and with the money they got from me by selling me trinkets and flat screen TV’s.  My focus is on the short term, no further out than November of 2012 when the elections conclude.  Their focus, on the other hand, is 10 to 100 years.   My focus on the futures market to move the entire market, an idea first penned by Walter E. Heller, as worked well in the past.  If we can just keep the wheels on the car for a little while longer!  Do I have a wild imagination or what???

Confidence in a currency determines its future.  If people believe in the currency, they will store the generated value of their life’s work in terms of that currency.  They will place the money received for their labor into a bank for future consumption.   They expect the “value” to be protected until such a time they need the money to purchase goods and services.  They also expect interest payments for the privilege of the safe use of their money until they need it.  These interest payments should insure that value is retained into the future.  The primary  function of money is to store value.  Only as a store of value can it then be used as a medium of exchange.  This has been the underlying view of German monetary policy since WWII.

The Eurozone must tighten its monetary policy to survive.  Austerity measures are required by those countries who have attempted to sustain their lifestyle by borrowing.  Germany is dictating controls over those countries in trouble and this equates to a loss of sovereignty for them.  This policy forces the affected countries into recession with a strong potential of depression.  Greece is already there.  Their stock market is down 90% from its all time high.  The big question is will those countries bring the rest of Europe into a severe recession and will it spread to the rest of the globe.

2012 will see one to three nations exit the Euro.  You should expect a revolution to occur in at least one country which will need to be managed by those in power.  There are no established rules for exiting the Euro.  January 1 is its 10th anniversary and it appears that it will not survive another decade.  As a country exits the Euro, it will nationalize its own currency and preexisting sovereign debt is subject to default.  This is where the financial exposure is for the rest of the globe.  Once default occurs,  holders of that debt must claim the loss on their financial statements thus exposing the weakness that has been hidden by lax accounting rules.  This could have a cascading effect on the global financial market and worries central banks.

There is a high risk of recession in 2012.  We do not have the normal pre-conditions for a recession.  The high level of debt that has prevailed and a cleansing process is needed to remove this high level of debt.  The balance sheets of those who are holding that debt will take a major hit.  I am concerned that the instability of the Euro will adversely affect the U.S. financial markets and produce additional “MF Global’s”.

Real Wealth is land, mineral resources, productive plants, durable goods, and human production creating the productive capacity of a nation.  Titles and stock certificates represent direct ownership of real wealth and is equivalent to real wealth.

Money (paper) wealth is debt which includes are forms of contracts which includes bonds, notes, loans, deposits, life insurance,, and pension obligations.  Money wealth does not represent the direct ownership of any real asset.  However it does represent an interest in  real assets of the direct owners.  The wealth of a nation is not increased when paper wealth is increased but the existing wealth is only inflated in terms of prices.

If people have confidence in paper assets, they will continue to buy paper assets.  But once they lose confidence, they will convert their paper assets to real wealth.  When this happens, interest rates on debt rise dramatically to lure asset holders back.  Greek 10 year notes are 30% while U.S. 10 year notes are 2%.  The market has lost confidence in Greece’s paper assets.

When paper wealth grows beyond the ability to absorb it with debt, the central bank’s goal is to depreciate the value of the paper wealth back to manageable levels by a continuous inflation.  

Exponential change (accelerating change) is on its way.  Growth requires energy in large amounts and there is no new scalable energy source out there.  As the energy costs increase due to greater scarcity and cost of extraction, complex systems will become simpler. and so will our lifestyles.

We fool ourselves at our peril.  Thinking that the future will simply be a continuation of the last 40 years is denial of the seriousness of the situation.  As the complex system breaks down, the rules will be changed.  Politicians will throw anyone under the bus to keep his or her job and lifestyle.

If you can’t accurately assess the risks, be careful about how you invest.  Futures and options risks have risen dramatically with the demise of MF Global.  Beware, you may not be insulated from the fallout of the risk-taking decisions of those connected at the top.  The insiders will pull their money first leaving the rest of us looking up at the undersides of the infamous bus.

Maturing Bonds need to be refinanced and the bond auctions are coming soon for European countries shown below.  If no buyers show up, the yields will skyrocket or the central banks will create more money to buy the bonds with.  This will further mortgage our future into chaos.  Can the house of cards remain standing past April?

With regards to statistical reporting, I have never found a delay to result in better than expected news.  With Christmas season in full swing, it would appear that the powers that be will try to protect the season of increased consumer consumption and prevent an emotional response to the delayed report.  If the report contained good news, the normal response would be to release numbers early and get a bump on the retail spending.  With a tentative release of December 23rd, the spending cycle will be all but complete.  John Williams of shadowstats.com reported:

A Christmas Present from Uncle Sam. I called the U.S. Treasury, today (December 5th), to confirm the scheduled December 15th release of the 2011 Financial Statements of the U.S. Government, the GAAP-based (generally accepted accounting principles) accounting of the government’s financial operations for the 2011 fiscal year ended September 30th.

The advice received was that the release has been delayed until Friday, December 23rd, which is as close to Christmas Eve as the government can get. Given the way prior releases of these statements have been handled, though, the 23rd still has to be considered as a tentative release date, and I offer no comment as to any implications of the new timing and the potential for burying unhappy political news. Beyond an initial analysis of the GAAP financial statements, once released, I shall include an assessment of the key elements of the government’s finances as part of the updated Hyperinflation Report. The timing of that report will be discussed in the next regular Commentary.

John Williams’ December 4th Overview:

> – There Is No Sudden Economic Recovery, Just Bad-Quality Numbers and Deteriorating Labor Conditions
> – Latest Jobs Level Still Well Below Pre-2007 and Pre-2001 Recession Levels
> – November Unemployment: 8.6% (U.3), 15.6% (U.6), 22.6% (SGS)
> – Money Supply M3 Annual Growth at 2.7% in November
> – Potential Euro Disintegration Is Nothing Like the Looming Dollar Collapse

For the past four years I have been writing on the impending challenges ahead for mankind.  Energy depletion, chaos in the financial markets, and population-based resource shortages.  The following video encapsulates those views in a one hour and eleven minute video.  Set aside this time and view the presentation.  When the chaos comes, we must not be in denial of the problem.  We can prepare ourselves and our family for the turbulence ahead.  The wisdom from above is the only solution to the problems facing mankind today.

The coordinated action of six major central banks to stimulate the global financial system this week warns us of how fragile the system is:

China is in the midst of a huge investment bubble that has propped up raw materials (base commodities) markets around the world.  If it bursts, Australia, Africa, the Middle East, South America, all have high risk of severe contractions.  A vicious downward spiral of economic activity would occur.

Weak European Countries are all but lost.  This will increase money printing.

The developed economies will go after individual’s wealth by taxation.  Double taxation will become the standard.  You just thought that money was yours.

Volatility in the price of gold, silver, and oil will keep the average investor in anxiety.

Prices at the local level will continue to rise and cause people to reduce their expenditures on discretionary items and further the contraction.

It’s getting ugly out there!  A Bank Holiday (closing of banks so that you cannot withdraw funds) may be upon us.

VP Joe Biden reveals the fact that President Obama was considering a “Bank Holiday” during their transition and sought John Corzine’s opinion.  Mr. Corzine made bad bets on the European market and led MF Global into bankruptcy and there is a lot of money missing.  The  following excerpt is from: http://www.huffingtonpost.com/2011/11/29/mf-global-bankruptcy-portion-missing-funds-found-uk-jpmorgan_n_1118287.html

About $200 million in customer funds missing at MF Global may have surfaced at JP Morgan Chase in Britain, the New York Times said, citing people briefed on the matter.

During MF Global’s last days, it overdrew an account at JPMorgan, the newspaper said, citing a person close to the matter. MF Global transferred roughly $200 million in the days before the firm filed for bankruptcy, the paper reported.

MF Global filed for Chapter 11 protection on October 31 after the New York-based company revealed it had made a $6.3 billion bet on European sovereign debt, spooking investors.

Regulators are trying to determine what happened to the missing money and whether MF Global may have improperly mixed customer funds with its own, a violation of industry rules. The total shortfall at the brokerage is estimated to be just under $1 billion.

The Administration is asking this guy’s advice?  Our Heavenly Father’s advice is the only words of wisdom worth anything at this point.  The complexity of the financial system is above any individual’s understanding.