Servias Ministries Blog

John Williams’ website www.shadowstats.com provides an “apples to apples” comparison for historic government statistics.  Over the years, politicians have redefined inflation, the deficit, and any other statistic the market follows.  Why?  To improve the perception of the people that all is well.  I guess they think we are too stupid to comprehend the facts and respond prudently.  This website is all about serving mankind, not manipulating man for self serving motives.  Wouldn’t it be nice if politicians had this epiphany?  In the mean time, it would be prudent to stock up on non-perishable food items as you are led.  Buying a can of beans for 50 cents now versus 75 cents in twelve months is equivalent to a 50% return on investment.  Banks are not offering that kind of return!  Let the truth and facts speak for themselves.

In the pharmaceutical business, death is an “unintended outcome”.  What a polite expression!  Sanitizing events is done with positive and negative words.  In the political world it is called putting “spin” on the situation, spin the facts around to make a negative look like a positive.  This methodology is intended to sway the psychology of the masses into following the desired path of those in power.  It has generally worked in the past.  It is well known that the national media “sanitizes” the news to fit an agenda of the owners.  The term “politically correct” comes to mind.  Wikileaks upsets the status quo and paints a different picture of those in power.  When secrets are revealed, we now see the “character” of those involved.  It is interesting that attempts to hide the truth of any matter ultimately fails.  Ben Bernanke used his interview on "60 Minutes” to further the agenda of Quantitative Easing, or printing more money out of thin air.

What are the ramifications of quantitative easing?

Higher inflation, especially the essentials such as food and energy

Devaluation of you life savings, your dollars will buy less

Lowering interest rates, your life savings will not earn enough to support your retirement years

Allow big banks to continue their huge bonuses by giving them 0% loans to invest in 3% Treasury securities.  (Why can’t I get in on that lovin’?)

Risk of Hyper-inflation, Bernanke is in uncharted territory and there is no positive example that can guide him through this money printing efforts.

A meltdown in the Bond Market, if nobody buys U.S. debt, interest rates will rise rapidly and create serious losses.

Currency failure, history is sprinkled with similar attempts that have resulted in this outcome.  Are we smarter than all the historical figures of the past?

Gold & silver, energy, and food related investments provide the best “insurance” against loss of value if these rounds of quantitative easing continue to pump up the money supply.  Do not leverage yourself in these times.  Be safe.  Reduce your liabilities and monthly cash flow requirements.  Be nimble.

The most recent unemployment report set the rate at 9.8%, an understated number.  However, the stock market shrugged off this report because Ben Bernanke has promised to keep the market up.  How will he do this?  By printing as much money as is needed.  This is why gold and silver are moving into new highs.  As those of you who have been reading this site for some time, I have been preaching about hard assets and the need to protect yourself against the Fed’s loose money policy.  We are seeing the effects of this policy in the precious metals market.  Some sliver mining stocks were up notably this week.  The mining stocks are in “catch up” mode trailing the bullion prices.  These companies are generating huge amounts of cash and profit at these price levels and they appear to be at the early stages of this secular bull market.

Each of us probably has friends who are unemployed or underemployed, or we may unemployed as well.  The media continues to paint a rosy picture about the economy but it is not consistent with what we see at the local level.  Restaurant waiting lines are minimal versus two years ago.  Prices are soft for capital goods and houses.  Those flat screen TV’s are getting cheap.  However, the perceived wealth of the citizens of the U.S. is dwindling.  The equity in the home is shrinking on a monthly basis.  A million dollars in the bank will only yield up to $35,000 in a year versus $50,000 thirty-six months earlier.  Inflation is eating away the purchasing power of the retired.

For the past 60 years, the growth formula has included leveraging your future earnings in order to acquire an asset today.  Remember the 36 month new car loan?  It then went to 48, 60, and finally 72 months.  Unfortunately the buyer’s asset depreciated quicker than the loan balance.  I’ve known families who have been making perpetual car payments, unable to get out of the leverage spiral.  Dave Ramsey has built a business (or ministry) on counseling families in the area of debt reduction.  “Act your wage” is a great reminder that we should not buy what we can’t afford.

If you are out of debt and the stock market crashes, you will not lose sleep the next night.  But, if you are in debt and your future earnings may be at risk thus placing your house and cars at risk, then you can look forward to some sleepless nights.  For the last 30 years, I have been preaching that “cash is king” relative to personal money management.  During that time I have seen people suffer bankruptcy, businesses evaporate, and once wealthy people live in the past and in denial of the present.  Look in the closet and find those things you could not live without.  Were they really that important to your life?

“Relationships” is what life is all about.  It is not about your house, your car, your position in the community, your job, it is about blessing others.  Look around and see if there is someone hurting and in need.  Let the Love of Our Heavenly Father be seen in your face.  Give with an attitude of gratitude.

Though we have often looked at the economic crisis in the U.S., Europe has it own challenges as well:

Man’s attempt at a one world government is not working well.  Our Heavenly Father has a better answer!

Year to date:  The FDIC has closed 146 banks.

2007 to date:  311 banks.

Latest Details

August 6, 2010 to November 12, 2010:  38 Banks

Stated Assets:  $13.78 billion

Deposits:  $11.97 billion

FDIC’s estimated cost of closing all 38 banks:  $2.72 billion  (23% of deposits)

FDIC Year to date total estimated losses:   $21.6 billion.

Loss Share Agreements

Loss sharing is a feature that the Federal Deposit Insurance Corporation (FDIC) first introduced into selected purchase and assumption transactions in 1991. Under loss sharing, the FDIC absorbs a portion of the loss on a specified pool of assets which maximizes asset recoveries and minimizes FDIC losses through least-cost approaches. Loss sharing also reduces the FDIC’s immediate cash needs, is operationally simpler and more seamless to failed bank customers and moves assets quickly into the private sector.  Simply put, the FDIC may suffer more losses if the underlying assets degrade further.

In the most of closures (30 closings out of 38), the FDIC entering into loss share agreements covering a high percentage of the assets taken over by the successor banks. In connection with these 30 closings, the FDIC entered into new loss-share agreements covering an additional $8.2 billion in assets.

That brings the total face value of assets covered by FDIC loss share agreements up to about $189 billion. Loss share agreements typically guarantee at least 80% of the value of assets over a period of eight to ten years.

This is “quantitative easing” being practiced by the federal government. This defers the day of reckoning when banks are forced to reconcile the inflated condition of their balance sheets.

Some Simple Math

Declared assets: $13.78 billion

Deposits of $11.97 billion

FDIC estimated closings cost:  $2.72 billion

True value of Declared Assets: $9.25 billion

Overstated value of Assets:  $4.53 billion (49% of Declared value)

Neither you nor I could get away with overstating our assets in order to get a mortgage (unlike 3 to 7 years ago).  Any overstatement would be classified as fraud, especially doubling the value.

Specific examples:

Maritime Savings Bank of West Allis, Wisconsin: stated assets of $350.5 million and deposits of $248.1 million. The FDIC estimated its closing cost $83.6 million. Overvalued by 113%.

ShoreBank of Chicago, Illinois: stated assets of $2.16 billion and deposits of $1.54 billion. The FDIC estimated its closing cost about $370 million. Overvalued by 84%.

Pace of Bank Closings Artificially Slow

The FDIC’s closure of 38 banks over three months is by no means an insignificant number. However, in the context of the FDIC’s overhang of troubled banks, it suggests the pace of bank closings is being kept artificially low.

As of April 2010, there were about 425 banks operating under serious FDIC enforcement orders that called into question the banks’ solvency. Since then, upwards of 25 new banks have come under such orders each month.

Therefore, closing 13 banks a month has done nothing to reduce the backlog of troubled banks operating in the Country. That backlog could only have grown.

Most likely, the pace of bank closings had been held back artificially by the need to keep up appearances for the benefit of the mid-term elections. With those now behind us, I would expect the pace of bank closings to accelerate considerably.

The last five decades converted Ford from a manufacturing company who dabbled in credit to a bank who built cars.  The F.I.R.E. economy (Finance, Insurance, Real Estate) resulted from the move away from the gold standard.  Unrestricted money creation attracted the corporate treasurers to the profits of financial engineering.  GM made more money in it GMAC lending unit than it did building cars.

The housing bubble was a debt based bubble.  When the housing prices fell, the debt level did not and the banks do not want to book the loss.  They want the consumers to absorb the loss instead, equal to about $1 Trillion per year.  We need a banking system but the banks moved away from their original mandate and became aggressive investors.  Their aggressive behavior created huge losses and they don’t want to be held accountable.  High unemployment hinders the ability of borrowers to pay back the inflated loans and most are now considering default.  That is the dilemma.

The Federal Reserve is trying to resurrect the broken FIRE economy but should be focused on creating new jobs by building a new energy-efficient infrastructure.  The FIRE economy is history.  The Transportation, Energy, Communications, Infrastructure (TECI) economy should now be the focus.

$300 Fluctuations?

Gold lost $40 on Friday and silver lost $1.64, about 5%.  But silver is up 54% for the year.  This metals bull market will try to buck timid investors off its back.  Was anything solved at the G20 summit?  No.  QE2 (Quantitative Easing #2) will push the dollar lower but there will be rallies on the way.  The Fed will use foreign intervention to keep the dollar from tanking immediately.  They want the dollar to decline, but in an orderly fashion.  The dollar rally this week needed to happen as the President participated in talks at the G20 summit to project “confidence” in U.S. policy.

The Banking System Flush

For those unfamiliar with how regulators process insolvent banks, it would be helpful provide a little discussion.  Regulators audit banks on an annual basis.  They track performance ratios on a continual basis.  When banks become weak, the regulators start looking for suitors to take over the bank.  This may take many months to solve the problem.  The regulators closely monitor the bank and keep it afloat while attempting to find another bank or a qualified group of investor to acquire the bank.  This allows regulators to “manage” bank closures so that it does alert the public to the seriousness of the insolvency in the system.  Thus a systematic approach to bank closure that manages perception is used.  Three banks were closed this week and more will be closed in coming weeks.

Living Beyond Our Means

Cut spending for others, but not for me.  The U.S. is spending beyond its ability to pay back the money it borrows to satisfy the accustomed lifestyle.  Americans are unwilling to choose austerity as a solution to the problem.  The only other solution is to inflate our way out of debt.  That is Ben Bernanke’s job.  Obama knows it, the Chinese know it, the Fed knows it, and now you know it.  What can we do as individuals?  Shift some of our assets into precious metals, store food for future consumption, pay off debt, reduce our monthly bills, and simplify.

The manipulation of the silver market has long been a frustrating drama for those of us who watch the metals prices on a daily basis.  Over the last several years, there have been many interviews and articles about the observed manipulation but it fell on legislative deaf ears.  It would appear that the time has finally arrived for the perpetrators to be brought to justice.  See: http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/8116143/Whistleblower-accuses-HSBC-and-JP-Morgan-of-silver-futures-scam.html

The problem is one of complexity and jurisdiction.  When traders are in the New York and London, it is not easy to follow the money trail.  The brightest financial engineers are not working for the regulatory agencies since they can make more money working in private industry.  Add a whistleblower to the mix, and you have some real potential.  The whistleblower can lead the regulators right to the detailed records that prove the crime.  Most likely the whistleblower was complicit in the crime but was shafted by the employer.

When gold & silver were used as currency, a 15 to 1 ratio was the standard valuation between the two metals.  Once we went off the gold standard, this ratio averaged 55:1.  That may change soon.  If we allow for a 30 to 1 ratio. silver should move to $50 per ounce soon.  However, if gold moves to $3,000 as many predict, $100 silver is not unrealistic.  Related silver stocks stand to gain rather nicely from this move.

The Day of Atonement was on the 260th day of this year and is the day Jesus was baptized and marked the trip to the wilderness.  On the 300th day of the year which marked the ending to the time of testing, the CFTC announced the investigation to the manipulation of silver (to the downside).  Silver represents redemption in Scripture.  The Ark was 300 cubits in length, another number of redemption of mankind.  Selah.

What a good looking chart below:

It seems that nobody has preached on this forty day cycle yet.  Jesus was in the wilderness during the Feast of Tabernacles takin’ care of business.  It wasn’t until His time of testing as a mature man (30 years old) could He celebrate that feast day.

The Chinese people are expected to buy 18 million new cars next year whereas the demand in the U.S. will be about 11.5 million.  Other developing countries are also on the upswing of energy consumption.  We are currently in the shoulder months for gasoline and natural gas but the oil prices have remained firm.  It appears that the market understands the increasing demand of the Far East and the inability to substantially increase global production of oil.

I expect an oil shock of some point within the next 48 months.  Suddenly the market will wake up to the fact that demand continues to outstrip supply.  As the price of oil rises, other energy prices will rise as well.  Energy supports growth, lack of energy resource restricts it.  The price of oil relative to other commodities has shown a strong correlation to U.S. economic cycles as being a primary reason for the rise and fall of the economy.

It took 24 months for the electorate to determine if Obama could turn this economy around.  All indications are that the time is up and tonight will tell the story.  Economies do not “turn on a dime” but sustained unemployment and fear of recession cause society to demand change.  The problem is that neither Democrats nor Republicans have the answer.  The mindset of the American people must change.

The Far East wants a standard of living similar to the rest of the world.  The problem is that the rest of the world attained the current standard with cheap energy and cheap food.  These commodities are no longer cheap.  The current infrastructure will no longer support the ways of the past.  Mankind must change.  Our Heavenly Father has all the answers and His Love will release those answers for the good off men whether they are His friends or enemies.  Our focus and direction should be toward His Heart.  His elect will have the answers as they mature into their calling.

$100 Oil/Currency War

We may soon see $100 oil based on the decline of the Dollar.  Global commodities are pushing up prices in terms of U.S. Dollars.  Bernanke and his cohorts want to see inflation but the rest of us have been experiencing inflation in our everyday lives.  See: http://www.bloomberg.com/news/2010-10-15/opec-members-seek-100-a-barrel-oil-as-sliding-dollar-cuts-real-revenue.html  The US desperately needs a cheaper currency, but so do other countries.  There is a race to the bottom and gold & silver will reap the benefits.  The average person will be the loser due to the depreciation of savings.

No increase for Social Security Recipients

Once again, the “cooked” statistics have slapped our seniors in the face.  The measurement of inflation has been diluted by non-essential products and services that it has indicated to us there was no inflation over the last 12 months.  I wonder what country they live in?  We received notice of an increase in our health insurance premium, just like clockwork.  SGS places September’s consumer inflation level at 8.5% which is certainly a more realistic number.  See http://www.shadowstats.com  If the government used these numbers, the increase in Social Security would cause the agency to run out of money sooner than currently projected.    How can our seniors survive on the same check as last year?  What little savings they have, they receive virtually no interest.  There came a famine in the land!

Looming Energy Crisis

Within 48 months, I project the energy crisis revelation will go mainstream.  At that point, the gas guzzlers will become worthless.  We are hoping to have a Prius in the garage by the end of the month.  Once the mainstream media figures out the global production has peaked and in decline, fuel efficient cars will be in short supply and the discounts will evaporate.  Am I willing to give up roominess for geographic flexibility?  Yes.  I expect higher prices or a deeper recession.  Either way, we are reducing our relative energy expense and exposure.

Banks’ Impact

To add insult to injury, the banks are pleading for mercy in their mortgage-backed security crisis.  The problem is that someone is going to lose wealth at the end of the day.  Will it be the banks, the pension funds and other investors, and/or the US taxpayers?  The music has stopped and the party is over.  I expect we will be hearing cries to Heaven before long.  We’re in a multi-front crisis.