Servias Ministries Blog

U.S. attempts to control multiple political outcomes and a global geo-political/military order rests on the ability to finance and control that order.  The key word is “finance” at this point.  Egypt is disintegrating before our eyes on TV.  The U.S. aid to Egypt has been running $1.4 Billion on an annual basis with most of that going to the military.  Inflation around the globe created by Federal Reserve monetary policy is shrinking the middle class at an alarming rate.  Interviews with Egyptian college graduates that can’t find jobs reveal how bad it is in Egypt.  As we saw in the early 70’s during the Vietnam era, students are the initiators of the protests.  Once they have taken actions, others follow.

The masses are only controlled until they become unified against the status quo.  The police in Egypt found that out.  You can’t kill everyone.  The Egyptian military rolled into Cairo to protect the national treasures but appear to side with the protestors at an individual level.  Populations reach a tipping point where they just won’t take it anymore.  Government leaders are watching closely and taking notes on the Egyptian crisis.  Things had better change or other countries will suffer the same revolt.  You can’t buy food with rhetoric and once people get desperate, the rule of law is no longer the driving force, hunger is.

The wealthy are leaving Egypt and the threat of looting behind.  Most of the private jets are heading to Dubai.  Those who can’t afford to leave are guarding their houses with guns and bats.  Would you want to have all you money in Egyptian currency right now?  In one week, things can change drastically.

The OTC derivative crisis of 2008 caused banks to shrink lending and curb global economic growth.  The Fed threw trillions of dollars at the issue to maintain the current financial paradigm.  It did not work.  The large financial institutions being guarded from failure came at a cost to the global population.  Ireland, Spain, Portugal, Italy, and now Egypt are hanging in the balance.  If these dominos fall, the whole system is at risk.

“Peak Oil” will not go away!

A $3.79 increase in oil on Friday accentuates the sensitivity of global oil concerns.  Naysayers point to deposits such as the Canadian Oil Sands with its huge deposits.  The problem is “flow rate”.  You can have a huge asset but if you can’t quickly convert it to cash, you have a challenge.  The annual output of the oil sands is low compared to the reserves and increasing output is not an inexpensive affair.

Right now, Brent Crude Oil is priced 99.42 whereas NYMEX Crude closed at 89.34 and this $10 difference will be reconciled.  Most of the globe is buying at the Brent Crude price.  Why would sellers take $10 less per barrel.

The next 24 months will be historic to say the least.  The Chinese do not want to experience an uprising like Egypt.  They will throw the U.S. under the bus if necessary to keep their own house from crumbling.  Until peace breaks out around the globe, gold and silver should provide “insurance” against currency debasement and global crisis.  $1,300 gold is now looking pretty cheap!

Congressman Ron Paul wants to know what is behind the curtain by the end of 2112: http://paul.house.gov/index.php?option=com_content&view=article&id=1822:audit-the-fed-reintroduced&catid=63:2011-press-releases

Oh my goodness!  Toto, we’re not in Kansas anymore!

Is this what the Mayans predicted to be the end?

Social Security is the latest focal point for the “worse than expected” rhetoric:  “The Congressional Budget Office (CBO) reports that Social Security will effectively run a $45-billion deficit in 2011 and continue to run deficits totaling $547 billion over the coming decade.”  I am amazed at the lackadaisical attitude of all Americans concerning this slow train wreck occurring before our very eyes.  The Social Security deficit has begun five years earlier than predicted.

The record deficit of $1.48 Trillion for the Government for this year hardly gets any media attention.  Ben Bernanke keeps throwing newly printed money at the problem without much success.  If it were not for other countries in worse fiscal condition, the U.S. Dollar would now be in the tank.

Japan’s creditworthiness has been downgraded by Standard & Poor’s.  Remember when the Japanese were buying America?  It takes only a couple of decades to turn a robust economy into a mess.  The Japanese Government have allowed their financial institutions to carry toxic debt on their books for years but that did not fix the problem.

Living on perception and illusion can last only so long before the denial of reality changes to anger.  The average man will become desperate and begin challenging the status quo.  A confrontation is coming and I regret that it will be looking pretty ugly.  Some 3,000,000 homes will foreclose this year after the government’s program to save most of them failed.  Real Estate will continue to have this albatross hanging around its neck for years to come.  We have yet to see the bottom of the real estate prices.

Because of the predatory practices by large financial institutions, the Feds are implementing about 300 new consumer regulations for community banks.  This will have a crushing blow on many of the smaller banks.  They will respond by charging consumers fees on anything and everything.  One of the banks I have an account with now charges $5 for a noncustomer to cash a check written against the bank.  What happened to “payable on demand”?  I suspect there will be another Tea Party uprising when these fees finally take up more space on our bank statement than the checks we write.

Simplification will come either by decision or by collapse!

Energy prices are expected to move up this year.  Diesel prices will increase on an expected demand increase of 6.2% this year.  Light, sweet crude oil prices exceed $100 in some areas.  Consumer confidence continues to go negative.  The consumer portion of the economy won’t stand on its own.  Four additional banks were closed yesterday which brings the total to 7 for the year.

China is dealing with food inflation, overheated housing, and greater energy demand.  Domestically, municipal bonds are now in the spotlight.  Municipalities will either raise taxes or go bankrupt.  The voter is not interested in tax hikes.  It has been reported in Vallejo, California, the city defaulted on their bonds and bondholders received about 5 cents on the dollar.  The local judge protected local pension funds which left the investors holding the bag.

Investing is probably more challenging this year than anytime in recent history.  Short term traders are dumping gold and silver yet the U.S. Mint is reporting unprecedented demand for 1 ounce silver coins.  Has money printing ended?  Not that I know of.  Has Europe resolved its fiscal problems? No.  The U.S. will be refinancing during the mid-year timeframe in the $3 Trillion arena.  This year appears to be paralleling 2008.  QE3 (Quantitative Easing or printing more money) may happen in the 3rd quarter.

Ireland may be the first domino to fall in Europe.  In March, the Irish may elect a new party who promises to default on its debt.  If that occurs, the other countries in trouble may follow suit.  Will this be a St. Patrick’s Day massacre?

A 20% correction in gold & silver would be healthy.   $1,150 gold would produce a notable correction to the related stocks.  I will be buying with what money I can scrape up to add to my stock positions.  Remember, gold and silver mining companies are making a lot of money at these price levels thus improving their cash positions.  One silver producer I invest in has a negative per ounce of silver mining cost.  Other metals mined pay for the mining expense. $27 silver is all profit.  What company has a better cash flow and income model? 

On the subject of Iraqi Dinars

Several people have asked my opinion about this investment.  My advice?  Ask Our Heavenly Father whether you should invest and how much.  Never invest in anything like this where you can’t afford to lose 100%.  If you do invest and the major revaluation occurs, then you have a new issue: How do you manage the windfall?  Money produces power and a sense of entitlement.  Only the strongest believers will be good stewards of the additional funds.  Others will lose the money and be back to their previous life, possibly with less.  Step 1: Pay your tax liability immediately.  Step 2: Pay off your debt immediately.  Step 3:  Wait on THE LORD to hear what or who you should invest in.  Don’t be in a hurry!  HE’LL talk to you if you will listen.

Yes, every person in America has a $45,300 liability which does not appear on their personal balance sheet.  Overall, this equates to a $14 Trillion deficit of the United States.  If you included the unfunded liabilities you could easily triple that number.  Is this why this little girl is so disturbed:

The politicians have mortgaged her future by creating a world of entitlement in order to perpetuate their own agendas.  Lust is the benefit of “self” at the expense of others.  This country is experiencing a slow train wreck and everyone is in denial.  Asset prices are propped up by ramped up government spending taking up the slack for the reduction of consumer spending.  Unemployment is high and drug use is even higher.  The Mexican drug cartels have recently expanded their terror to Acapulco and surely more tourist destinations will be affected.  How can we stop them?  Quit buying their product.  I would dare say that every extended family in America has at least one member with a drug problem.

Europe’s debt crisis has been on the front pages in recent days as though the U.S. debt problem is resolved.  Not!  The States budgets are in a mess and they will soon have to start making interest payments on their borrowings from the U.S. Treasury (who created money out of thin air).  Doncha luv it!

Chinese President Hu Jintao has said the international currency system dominated by the US dollar is a "product of the past".  The Chinese are methodically working on a means to ultimately disconnect from the U.S. Dollar denominated trade deals.  Right now, the U.S. Dollar is the best looking currency of the “ugly” sisters.  At some point, I believe everyone will suddenly wake up and conclude that a gold backed medium of exchange is the answer.  If that happens, the gold peg will surely be notably higher than the exchange rates today.

It just keeps getting more complicated!  I think she is possibly sensing the problem:

The financial markets ended the week strong and all the bad news is being discounted.  Gold & silver took a hit as investors locked in profits from the recent rise.  The government deficit has once again taken a backseat to other news.  Nobody is looking at the elephant in the room.  Government spending cannot be cut easily.  Medicare, Social Security, and Medicaid account for 60% of the government budget, Defense Spending and interest on the debt account for 20% thus totaling 80%.  The rest of government spending accounts for 20% of the budget.  Where could a politician who wants to get reelected cut spending enough to make a difference?  The entitlements (Medicare, Social Security, and Medicaid) are untouchable.  I made mandatory contributions into these programs my entire career with an expectation of distributions at retirement.  Being “self-employed” required double the payment.  I want my money back (with accumulated interest) just as every other worker wants his or her benefits.  The problem is that the government took my money and spent it in other areas without my approval.  If a private entity had done this, they would be prosecuted and in prison today.  Many recipients have received substantially more than they paid in.  The food stamp program has supported more recipients than its original intent.  It has been reported that one in six are on food stamps in the U.S.

Oil prices may hit $120 per barrel by summer.  2011 is paralleling 2008 with one exception: the economy is weaker going into the year.  $147 oil in 2008 caused the economy to stall whereas this year I expect the same impact at $120.  I hope you bought that fuel efficient vehicle, we did.  If the oil prices gather steam and approach $120, then the stock market will head back south again.

Gold prices are correcting again.  Over the last 10 years of this bull market, I have heard naysayers call the end of the rise of gold.  Each time they were wrong.  Are they right this time?  From a macroeconomic view, one would expect gold to continue its rise relative to the fiat currencies.  Right now, the U.S. Dollar is the best looking house on an ugly street but it is still ugly!  Nothing has changed from a fiscal point of view.  Government spending is propping up the economy and true unemployment is still high.  It will be several years before unemployment and housing can be corrected.  Don’t forget the toxic debt on bank balance sheets.  The banks are still misrepresenting their financial health.  If interest rates rise, the Fed could become technically insolvent.  If that happens, the U.S. taxpayer would be the lender of last resort.  Is the U.S. economy unsinkable?

The Scripture makes it quite clear the commerce should be guided by the principles of Love: equal weights and measures, the Golden Rule, Love your neighbor as yourself…  Today, that is not the American standard.

See: http://www.huffingtonpost.com/2011/01/04/federal-reserve-rescission-regulation_n_804334.html

The large corporations and banks continue to focus on serving the “elite and wealthy” at the expense of the average person.  Our Heavenly Father will judge the situation and cleanse the system as He has done so many times in the past.

Many Investors are optimistic about the stock market for 2011.  Many think the market will grow by 20% this year and very few believe the market will go sideways.  For whatever reason, all of the problems of 2009-2010 seem to no longer matter.  The states have a funding problem.  Housing prices are not expected to improve in the foreseeable future.  Quantitative easing which causes inflation seems to be acceptable now.  The government deficit and liabilities are astronomical and nobody has a solution to a resolution that will not decimate our children and grandchildren.  How quickly do we forget and deny these structural flaws in our system.

Denial and blindness are taking hold once again.  Logical conclusions do not apply when the masses are addicted to leverage and spending.  In the early ‘90’s I was working for a company where I earned a healthy salary.  I knew I would be leaving in early 1993 and start my own business again.  We had become accustomed to the standard of living supported by my salary.  It was extremely difficult to curb our spending prior to my departure.  There was such an emotional tie to spending money and there were many “corrective” discussions concerning our monthly spending habits.  Once I departed, we suffered an emotional “hit” adjusting to a new lower level of spending that comes with starting a new business venture.

Currently, the U.S. Dollar is the least ugly of the ugly sisters.  The Euro crisis caused the relative strength of the Dollar but the ultimate test was to compare the Dollar to hard assets.  Short term volatility masks the underlying problem of Dollar depreciation.  A sovereign debt crisis could move all currencies in a downward spiral.  The FDIC closed 157 banks last year and 2 were closed yesterday.  Most of these banks were smaller but since the Fed provided funding for the “too big to fail” group, the closures misrepresent the health of the financial system.  The amount of toxic debt on the banks’ balance sheets is still a mystery to most of us.

Oil prices are firming around the $90/bbl level.  Oil consumption is on the increase and will place upward pressure on the price.  $100 oil is an easy target.  If the price advances too quickly, the current economic recovery could quickly stall out.  China’s actions to slow their economy will impact the price of oil by restricting consumption.  The global connectivity of commodity prices make it impossible to project short term directions of prices.

The U.S. Dollar has achieved a purpose of extracting true wealth from around the globe.  By being the world’s reserve currency, it has been used to trade for the productive capacity of other countries and direct those resources to those who hold the Dollar.  For example, when I was in Romania in 1993, I could buy a 12 course meal for about $5.  An ice cream cone was five cents.  My Dollars were well received in that country.  With the consistent policy of inflation of Dollars, we buy goods and services then pay for them with a lower value.  The problem is that in Kingdom economics this is a sin of unequal weights and measures.  At some point the Dollar will be judged and found lacking.  The timing will be according to Our Heavenly Father’s perfect plan, will, and purpose.  I trust that HE will prepare HIS sons and daughters for this event.  As each of us dwells in HIS Word and Presence, we will be led to make preparations for such an event in whatever form it takes.

People are addicted to drugs, things, making money, achieving stardom, and any other thing that would strengthen and support pride, ego, and the flesh.  This causes them to be blinded from the truth, wisdom, and understanding.  What is so obvious to those who are not blind has been withheld from those who are.  Our prayers should be for Our Heavenly Father to lift the veil from those who are blind (including our own partial blindness).  We cannot know just how HE would do that but throughout history HE has removed any distractions such as their temporary wealth, houses, and other trappings.  It would not surprise me to see HIM perform another “cleansing” as HE has done so many times for the Kingdom economy will not be run in the same fashion as the current system.  As always, HE will raise up a people to lead others toward HIS Kingdom.  May the readers of this blog be in that company.

It is not “Business as usual”.  We are in the midst of epic government intervention with Quantitative Easing by the Federal Reserve at the forefront.  Mal-investments are not allowed to fail and cleanse the system.  Instead, the government claims that they are too big to fail and prop them up with our money.  On the other hand, you and I are in the “too small to care about” category.  This is why unemployment is officially 9.8% with the true rate much higher.

Why aren’t we seeing the same results as the 1930’s?  It is because our infrastructure is more advanced and people who are still working have sufficient assets to help those without.  This reality does not change the fact that we are at risk.  Complexity evokes a more severe contraction once it fails.

Alternative energy is not working.  The concentration of energy contained in oil and gas are much greater than most of the alternatives.  More agencies are admitting peak oil occurred between 2005 and 2006.  The cost of energy will continue to rise and unless there is a global depression, expect gasoline prices  to remain strong.  Rail base transports will do well.  Government subsidies of ethanol are simply throwing away money that could be used for better purposes.  We all love the farmers but subsidizing ethanol will only delay the inevitable.

Ben Bernanke will continue to depreciate the Dollar and he will defend an inflationary path.  This means that he must keep rates low to encourage consumer spending.  Absent that, the government must spend which is occurring at an epic pace.

Christmas spending was up but I believe it was do to pent up demand by families holding off until the Christmas season.  Now we are back to removing debt from our balance sheets.  Everyone needed a breather over the Christmas holidays and many of the restaurants were full again.  After New Year’s Eve, the restaurant lines had vanished, once again.

Oil will be the hot topic among the press.  A former Shell exec is making the rounds on the TV circuit laying the groundwork for expected higher oil prices.  We have been warning about  this for some time now.  Prepare yourself for $3-$4 gas at the pump.  See: http://www.washingtontimes.com/news/2011/jan/2/dramatic-spike-in-gas-prices-forecasted/

Nobody knows how to manage this global economy except Our Heavenly Father.  It is simply too complex.  In the meantime, expect volatility of commodity prices.  The gold bull market is still intact and will try to shake off all timid investors.

Good money must have a number of unique characteristics.

(1) It must be durable, which is why we don’t use wheat or corn.
(2) It must be divisible, which is why we don’t use a Picasso painting or jade statues.
(3) It must be convenient, which is why we don’t use lead or copper or real estate.
(4) It must have value in itself, which is why we don’t use paper.
(5) It must be transportable, which means that large values must be contained in a small area (a gold coin weighing only one ounce can be worth far more than fifteen hundred dollars).
(6) It must have a long history of being accepted as a store of value. Gold was considered valuable as long as 5,000 years ago in the age of the Egyptians.
(7) It cannot "disappear" or be used up in manufacturing as is copper and even silver. Thus, the gold coin that you have in your hand may have been part of Cleopatra’s earrings centuries ago. Almost all the gold that has ever been discovered is still available in one form or another.
(8) It must not be the liability of any sovereign nation, nor should it require governmental law to make it money. For instance Gold requires capital, talent, risk, sweat and courage to recover or to accumulate.

Hmmm! That’s why gold just won’t go away.