Servias Ministries Blog

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.

Jubilee is the “writing off of debt” and liberates the debtor.  We were encouraged by the banks to gamble on the rising prices of housing, a wrong assumption.  Without the jubilee, the current system’s best case scenario is two decades of a Japan-like economy.  Worst case is the “Greatest Depression”.

Steve Keen, an Australian economist, is now proclaiming the need for a jubilee.  By and large, I agree with his assessment.  However as he indicates in his interview, there is no politician on the horizon with the intestinal fortitude to lead the country in this direction.  Without this leadership, we must get ready for the “Greatest Depression”.  Watch the video:

Capital moves from country to country like a loaded loose cannon on a ship’s deck in a rough sea firing away in an unpredictable fashion.  Once the Euro begins its collapse, capital will flee to the U.S. Dollar causing its value to temporarily increase.  In turn, this may put pressure on gold & silver prices denominated in $USD.  $1,400 gold and $25 silver would not be out of the question.  Volatility could impact prices either side of those numbers.  I expect this to be temporary until that same capital perceives the next sovereign crisis to be in the U.S.  At that time, the gold & silver prices are set to shoot up to epic levels.

If the Far East decides to keep support levels higher by buying on the price dips at $1,600 and $29, then we may not see the earlier mentioned numbers.  Ben Bernanke began Operation Twist and Wall Street voted with a down day in the market.  The Fed will be unable to move the economy forward because the housing market collapse will probably take 20+ years to recover.  In the meantime consumers don’t feel as wealthy with the loss of home equity value.  They will not soon forget the losses in home equity and 401K’s.  The only group unaffected by high unemployment was the retired worker population.  With 0% interest on their investments, they will curb their spending as well.  It seems that the politicians have alienated nearly every group who could spend money to stimulate the economy.  This does not bode well for those in office.

As fear continues to grip the various groups affected by monetary policies, consumer sentiment surveys have plunged.  This translates to weak demand in non-essential purchases.

We are now at risk of another systemic collapse and the Fed will do whatever possible to keep this from happening and they will throw you and I under the bus.  Hyper-inflation is around the corner and there is risk of legislation to restrict gold purchases by the common man.  I suspect that they will not try to control silver purchases do to its dual role as an industrial metal.

Retaining purchasing power is the name of the game.  A portion of our current income is set aside for the future and each of us wants our savings to retain value well into the future.  Our retirement is based on that assumption.  However, the economic policy makers don’t share our priorities.  They live and die by today’s performance and will do whatever is necessary to carry out their policies.  We can no longer rely on them to protect our interests and must think for ourselves.  Most of all we must move closer to Our Heavenly Father who will guide us through these times of volatility.

Ben Bernanke has indicated the Fed will keep the rates low until mid 2013.  Massive redeployment of resources is needed to pull us out of this severe recession.  Money needs to be spent on new industries.  Workers need to be re-educated in the blue collar arena and the U.S. needs to bring production back inside the shores of the country.  Outsourced creation of goods and services has now proven to be a serious mistake for this country.  Global interconnectivity was dreamed up by the theorists but they failed to consider the greed associated with the redeployment of assets.  In a perfect world, it would work.  However, the Kingdom of GOD has not yet manifested for a true global economy to function properly.  The counterfeit is now deemed a failure.

Gordon Chang has recently written a book named “The Reasons for China’s Imminent Bust”.  His comments:

We are seeing signs of deterioration in China’s economy.  Month on month, the economy is no longer growing and energy consumption is at zero growth as car sales are down 5%.  He believes that there is real possibility of a domestic uprising similar to the “Arab Spring’ in Egypt, Libya and other countries.  The rich are moving offshore, many in Princeton, NJ.  This is an early sign of potential problems.  The Chinese leaders injected over $1.1 Trillion in 2008-2009 to prop up their $4.3 Trillion economy, a 25% injection.

China’s property prices are now dropping like a rock.  Some builders are offering a BMW to the first 150 buyers of apartments.  Ghost cities have been built and there are over 64.5 million empty apartments, enough housing for 250 million people.  The property market has been in a bubble and he expects a hard landing.

They are very nervous in Beijing.  The leadership is spending a lot of money on domestic security forces.  Food inflation in China is officially 11%, unofficially 25%.  This accounts for over 40% of the average family’s budget.  China’s growth model assumes a substantial export demand and if the U.S. and Europe reduces their exports due to economic contraction, China has a serious problem.

In the recent past, apartment ownership was used as a store value.  As problems in the economy increase, many may switch to gold as a store of value.

The U.S, Europe, Japan, and China are all having economic issues.  What is the probability that all will successfully deal with their issues and keep this interconnected global economy intact?

Let’s get complicated for a moment:

MF Global bet on European Bonds, lost, and filed bankruptcy on October 31st and the brokerage accountholders got tricked!  Happy Halloween!  $869 million were frozen since October 31 across commodity customer accounts that contained only cash, bankruptcy trustee James Giddens has said.  Gerald Celente, a customer of a subsidiary Lind-Waldock tells a different story.   Lind-Waldock operated as a full-service futures brokerage firm primarily serving individual traders, or as known in the industry, “retail” clients.  Celente had bought a gold futures contract and had sufficient funds to take possession of the gold next month.  The futures contract locks in the price of gold to be settled at a specific point in the future.  Most traders close their position before expiration and settle for cash thus producing a profit or loss depending on the price the day of settlement.  Celente put enough money (over $100,000) in his account to actually take delivery of the gold at expiration of the contract.  Celente received a phone call last week indicating that the Chicago Mercantile Exchange (CME) who handles the commodities trading exchange, “and others”, had confiscated his cash in a totally separate account without his knowledge or approval AND he was receiving a “margin call”.  The broker will initiate a margin call when there is not enough money in the account to cover the futures contract.  Celente in his own words suffered a major loss.

The essence of this story is that the rule of law is  being broken and anybody with bank accounts, brokerage accounts, safe deposit boxes, etc., may not have the safety net they think they have.  If an entity can extract your funds without your consent or knowledge then you no longer have the safety of Law to insure your wealth won’t be confiscated.  This fundamental right of Americans is why the rest of the globe wants to live here.  Other countries have dismantled the rights of the individual and stolen their wealth by various means.  The global financial system is based on the rule of law.  How can we conduct business without a consistent set of rules?  What if Our Heavenly Father decided to change the law of gravity from time to time?  Chaos went ensue.  That may happen soon in the global financial markets if this action is a true indication.

Who is in the middle of this?  MF’s chief executive, former New Jersey governor and Goldman Sachs head Jon Corzine.

The European crisis is moving toward the extraction of wealth from bondholders and banks who bet on European bonds.  If the banks take a loss, who do you think will backstop them?  The American taxpayer once again.  Italy has replaced its Prime Minister with Mario Monti.  Who is Monti?  Monti is a member of the Presiderium of the Friends of Europe, a leading European think tank, and was the first chairman of Bruegel, a European think tank founded in 2005. He is the European Chairman of the Trilateral Commission, a think tank founded in 1973 by David Rockefeller.  He is also a leading member of the exclusive Bilderberg Group of economists.  Monti is an international adviser to Goldman Sachs and The Coca-Cola Company.

Greece is in the same shape. Lucas Papademos has been selected to head up Greece.  What are his ties?  He has served as Senior Economist at the Federal Reserve Bank of Boston in 1980.  He has been a member of the Trilateral Commission since 1998.

Goldman Sachs has had a major impact on global finance.  Former employees include Robert Rubin and Henry Paulson who served as United States Secretary of the Treasury under Presidents Bill Clinton and George W. Bush, respectively, as well as Mark Carney, the governor of the Bank of Canada since 2008, and Mario Draghi, governor of the European Central Bank.

Gary Gensler is the chairman of the U.S. Commodity Futures Trading Commission under President Barack Obama.  This agency’s job was to regulate MF Global to insure this event did not happen.  Who is Gensler?  Gensler spent 18 years at Goldman Sachs, making partner when he was 30, becoming head of the company’s fixed income and currency trading operations in Tokyo by the mid-’90s, and eventually the company’s co-head of finance.  Why would he take a low paying position with the CFTC?

The rule of law depends on fair practices and a single standard of doing business.  Favoritism and preferential treatment compromise the rule of law.  Celente’s explicit statements about what happened to him cause concern whether this event is a symptom of a bigger problem.  The overall trend of the average guy being thrown under the bus seems to be in place.  It’s going to get crowded under there!