Servias Ministries Blog

I have strongly recommended that individuals pay off debt in order to improve their sleep cycle.  Individuals ultimately make up a nation.  In the past, different nations were in different stages of development somewhat independent of the rest of the world.  This is no longer true.  With telecommunications reaching every nook and cranny around the world, all countries are interconnected in some way.  Money easily flows around the globe in milliseconds now.  American depositors can now have a bank account denominated in other currencies with a click of the computer mouse.

It has been reported that the world GDP (Gross Domestic Product equivalent) is $60 Trillion.  See:http://siteresources.worldbank.org/DATASTATISTICS/Resources/GDP.pdf

The following graph indicates that governments around the world will need $5 Trillion in new money to fund their 2009 debt issuance:

This graph indicates that governments around the world need to attract funds equivalent to 9% of the world’s GDP.  HOUSTON, WE HAVE A PROBLEM!  This year the amount of funding needed is three times the five year average!

With much of the globe fighting off a recession, where will these funds come from?  Increasing interest rates to compete with other investments is not plausible.  It would appear that the monetary printing presses will heat up to take up the slack.  This will be bullish for commodities including oil, gas, gold, and silver. 11+ states in the U.S. are dealing with the potential of bankruptcy with California in the lead.  Official Unemployment will probably exceed 11% soon.  Tighten your belts, things are getting interesting!

In the 1970’s, Peter Drucker, “The Father of Business”, promoted Management By Objective (MBO).  Current global leadership is attempting to manage by perception (MBP).

Government statistics are no longer accurate and properly accounting for money growth, unemployment numbers, and gross domestic product.  Later this year, we may see a temporary bounce in the economy which will be touted as a recovery.  This will probably be a sucker’s rally which will draw money into the market and place the returning money into higher risk.

There is a lot of cash sitting on the sideline waiting for the market to recover and that money is becoming impatient.  Equities look pretty cheap versus historical price/earnings ratios.  The market pundits expect low interest rates through 2010 but the bond vigilantes may surface and push the rates up.

The government needs the value of the dollar to decline but other countries like China want that value to remain high and stable.  The decline of the U.S. Dollar is the only solution that will be palatable for domestic voters.  This higher inflation rate will be friendly to debtors but will penalize creditors with repayment of loans using cheaper dollars.  It will be a tightrope walk by the current administration.

China is a master at patient negotiations when dealing with adversaries who consistently underestimate the opposition.

“All warfare is based on deception.” Quote from Art of War by Sun Tzu

The Chinese understand strategy when dealing with The West.  Don’t underestimate the Kings of the East.

Central Banks are printing money and are attempting to hide the growth of the money by reclassifying demand deposits by sweeping transaction deposits into overnight time deposits thus misstating monetary growth of demand deposits.

Globalization of manufacturing has distorted the manufacturing capacity utilization of the U.S.  When you have less manufacturing capacity, improvements are easier to achieve.  Manufacturing employment has dropped notably over the last two decades in the U.S. and China has been glad to take over the manufacturing duties.  Most of the goods in Walmart and Best Buy are made in China, India, Vietnam or Mexico.

Americans have come to believe they are entitled to consume 25% of the world’s goods and services while third world countries have starving masses.  The character of the American has changed in the last three decades and it is not a pretty sight.  There will be a ground swell of intolerance once the average citizen realizes what his indifference has caused.  The following video is a sample of what will become the rallying cry once the sleeping giant has awaken.  Indifference will be replaced with anger.  Leaders will be forced to rediscover what public servants are.  Will this anger surface in a perfect storm with the financial crisis?

Our biggest problem in the U.S. is found in the mirror:

Interference in the economy by the current administration is causing businesses to wonder how they can operate a profitable operation.  A cap & trade tax of $2 trillion ultimately will be passed on to the consumer.  The average work week is 33 hours in the U.S., the lowest since 1958.  The next wave of foreclosures will reduce home prices another 10-15%.  All of this uncertainty causes businesses to defer investment until stability arrives in the market.

On a technical basis, there is a possible global catastrophic “head & shoulders” formation forming.  If it finishes forming, there is a notable probability of a financial catastrophe.  The Federal Reserve is expected to no longer monetize debt after August.  3 1/2 trillion dollars worth of bonds are to be rolled over later this year which will put a lot of supply of U.S. Bonds.  This is negative for low interest rates.

Many countries are moving away from the U.S. Dollar.  China, the largest holder of dollars, wants to move away from the risk of holding dollars.  China is diversifying out of dollars into commodities according to George Soros.  That is one reason the commodity complex is the best performing sector.  The valuations of oil, gas, gold, and silver are low and appear to be a great buy.

For the aggressive investor, investing in an ultra bear index fund may be a good investment to offset the rest of the portfolio at risk of a major decline.  However, an ultra bear investment can slice both ways.

Precious metals are forming a reverse “head & shoulders” expected to have the opposite impact relative to the stock market.  The summertime is normally weak for precious metals prices.  The final four months of the year is normally robust for the price of gold & silver.  Some central banks appear to be buying gold without making official announcements.

Unemployment is approaching 10% on an official basis but is double that to 20% based on raw numbers that have no “tinkering” done to them.  As I have said before: If your neighbor is unemployed, it is a recession; it you are unemployed, it’s a depression.  Reduced employment means reduced sales.

“Less bad” is now called improvement or green shoots in the economy.  The consumer is reducing consumption in favor of savings and payoff of loans.  Government stimulus payments have added only 8% in consumption thus defying the government’s intent and creating a possible jobless recovery.  Unemployment is expected to increase through next year.  Expect another stimulus package soon, they will do whatever is necessary to increase consumption at the expense of our children and grandchildren’s tax burden.

Tax Load:  $1 Trillion of new taxes in 2011 (Bush Tax Cuts expiring),  $2 Trillion in Cap & Tax, and  $1 Trillion in Healthcare coming.

They want to phase out your itemized deductions on your tax return.  What are these guys thinking?  They seem to be assuring us of a double dip recession.  When they add another stimulus, there will be a temporary recovery as they trade their stimulus for your itemized deductions and other tax benefits.  Remember when you could deduct interest from your car loan off your taxes?  Remember when your real estate taxes where based on the original cost of your house?

Threats to recovery include: higher interest rates, Fed tightening credit, higher inflation rates, protectionism, BRIC countries’ economies slowing down, black swan event.

Only Our Heavenly Father knows the future but HE gives us eyes to see and ears to hear and provide perspective about being prepared for what is coming.  Watchmen on the wall were placed there to alert the rest of the people of the adversaries approaching the city.  It appears we are on course of an economic challenge that most of us have never seen.

The Old Covenant in Scripture was a conditional covenant.  It was based on “if” and “then”.  IF you will turn from your wicked ways, THEN I will…  Both Our Heavenly Father and Israel made commitments.  As we know Israel failed and Our Heavenly Father mercifully pulled them out of the fire many times.

The New Testament was based on the unconditional commitment of Love with Jesus going to the cross on behalf of mankind for all generations.  This Love did not rely on our performance but relied solely on Jesus and His blood.  As a display of His economic responsibility, Jesus fed the multitudes by focusing His Love on the fish and bread to multiply them to meet the economic needs of the people.  The mind has a hard time grasping this Kingdom principle.  And when the mind cannot grasp something, it will direct you away from this reality.  What the mind doesn’t understand, it tends to rationalize to alternate area of understanding.

On June 17th, 2009, President Obama delivered a speech concerning Financial Reform.  The following is an excerpt:

“As a result, the failure of one firm threatened the viability of many others. The effect multiplied. There was no system in place that was prepared for this kind of outcome. And more importantly, no one has been charged with preventing it. We were facing one of the largest financial crises in history — and those responsible for oversight were mostly caught off guard and without the authority needed to address the problem.”  See: //www.whitehouse.gov/the_press_office/Remarks-of-the-President-on-Regulatory-Reform/

Timothy Geithner, the current Treasury Secretary, was previously the president of the Federal Reserve Bank of New York, the most influential of the twelve Fed Districts.  The New York Fed implements monetary policy, supervises and regulates financial institutions and helps maintain the nation’s payment systems.

Current functions of the Federal Reserve System include:

• To address the problem of banking panics
• To serve as the central bank for the United States
• To strike a balance between private interests of banks and the centralized responsibility of government
  • To supervise and regulate banking institutions
  • To protect the credit rights of consumers
• To manage the nation’s money supply through monetary policy to achieve the sometimes-conflicting goals of
  • maximum employment
  • stable prices, including prevention of either inflation or deflation
  • moderate long-term interest rates
• To maintain the stability of the financial system and contain systemic risk in financial markets
• To provide financial services to depository institutions, the U.S. government, and foreign official institutions, including playing a major role in operating the nation’s payments system
  • To facilitate the exchange of payments among regions
  • To respond to local liquidity needs
• To strengthen U.S. standing in the world economy

Secretary Geithner was in the middle of all the action while the problem was brewing.  How can we expect him and others in leadership to fix a problem that President Obama claims they were caught off guard?  In a subtle fashion, he has judged his own cabinet members.  This is a serious issue!  We need wisdom from above to solve these problems.  The solution may not be what we expect but we must rely on our Covenant with Our Heavenly Father to bring us through this mess.  The current path leads to destruction.

Congressman Paul from Texas understands the issue:

Bill Clinton coined the phrase in the 1992 Presidential Election- “It’s the economy, stupid!” and stayed focus on that issue which helped win him the election.  Now there is a greater issue at hand- the world economic system with the U.S. Dollar as the reserve currency.  For decades the U.S. Dollar has been the medium of exchange for global transactions thus creating a consistent demand.  Times are a changin’!  The U.S. supremacy is coming into question and those in power are attempting to keep the wheels on the wagon by expanding power without oversight.

The following interview was conducted during the Financial Services Subcommittee on Oversight and Investigations hearing of May 5, 2009. Rep. Alan Grayson asks the Federal Reserve Inspector General about the oversight responsibilities:

This interview makes us wonder just who is in charge?  Further, as we all know that the Federal Reserve is a private entity, how can there be no accounting to the people of the United States whose money is being spent?  The country may be becoming “too big to survive” instead of too big to fail.

A primary battle front is the price of gold in U.S. Dollars.  The following graph shows an interesting technical formation:

Notice from Mid February thru the current session that there is a reverse head & shoulders pattern forming.  This is a power pattern if and when it is confirmed.  The following is a historical example of this pattern:

Notice that once the price moved above the “neckline”, the stock headed upward.  For gold, the neckline is $1,000 and if it penetrates that price with strong volume, technicians expect a strong price move to $1,300 and that does not bode well for the U.S. Dollar.  This is why the battle is on between central government intervention and the investment community.  Over the last nine years, gold has yielded 16.4% return on investment but you hear very little in the press about that performance.  Gold is the “canary in the mine” for the fate of the U.S. Dollar.  $5,000 gold is no longer an unreasonable peak price.

Have you noticed how many U.S. officials are making trips to China these days?  China has a huge investment in Dollar holdings and must be reassured that the dollar isn’t going to tank.

At a recent trip to China by Timothy Geithner:

“Chinese assets are very safe,” Geithner said in response to a question after a speech at Peking University, where he studied Chinese as a student in the 1980s.

His answer drew loud laughter from his student audience, reflecting skepticism in China about the wisdom of a developing country accumulating a vast stockpile of foreign reserves instead of spending the money to raise living standards at home.  See: http://finance.yahoo.com/news/Geithner-tells-China-its-rb-15396905.html?.v=2

Gold acts as “insurance” against a declining U.S. Dollar and there is not really too much anyone can do about the decline except to try to slow the descent.

In a recent speech, economist John Taylor from Stanford told the Atlanta Fed that with the current spending policies in place, the U.S. Government will need to increase taxes of the American people.  A 60 percent tax increase across the board would be required.  Otherwise to cut the debt being created, an inflation rate of 10% for 10 years will be required. http://www.stanford.edu/~johntayl/Systemic_Risk_and_the_Role_of_Government-May_12_2009.pdf

Take your pick!

You can better understand why the BRIC countries are signing bilateral trade agreements thus removing the U.S. Dollar from the mix.  BRIC or BRICs is an acronym that refers to the fast-growing developing economies of Brazil, Russia, India, and China.  Russia is the only country with sufficient internal problems that may slow down the move away from the use of U.S. Dollars to settle trade among those countries.

History tells us the every country whose currency was used as the world’s reserve currency and became a debtor nation to the extent of the U.S., their economy ultimately collapsed.

Oil surpassed $70 per barrel last week, up from $37 back in December.  The unwinding of speculative positions forced the price down from $147.  In the intermediate term of six to twelve months, I expect the stock market to show signs of life which will help support higher oil prices.  The real issue is supply destruction in the oil industry and this reality is known as depletion.  All you hear about in the news is “demand destruction” but supply destruction is outpacing demand destruction thus forcing the price upward.

As in many markets, energy prices spiked to new highs and then subsided causing the average consumer to think the price spike was an aberration in the market.  We have maintained that peak oil occurred in 2005.  The peak is where new production does not exceed actual depletion of existing fields.  There have been some who believe that massive undeveloped oil deposits in various locations have been withheld for suspicious reasons.  I disagree.  It is true there are massive deposits but they are expensive to extract or they are in formations that do not easily give up the hydrocarbon.  The low hanging fruit has been developed.  The greed of man does not believe in patience when resources can easily be extracted and converted to cash.

Why do you think that the Obama Administration is making such a big deal about alternative energy?  They see the writing on the wall.  $200 oil is in the cards for the near future and will arrive sooner not later if the economies around the world heat up thus requiring more liquid fuel.  China is at the point of exceeding the U.S. as the #1 consumer of new autos and the demand appears to be strong.

The U.S. Dollar must decline in order for the U.S. to survive this economic crisis.  The Fed cannot raise interest rates without extending this “recession” or depression depending if you have a job or not.  By depreciating the U.S. Dollar, the current debt will become worth less, hopefully not worthless.

I now believe that one should increase their position of gold and/or silver bullion if possible.  5-10% is not enough insurance to weather the potential decline of the U.S. Dollar.  20% of your investment portfolio is not an unreasonable percentage.  The commodity bull market is alive and well around the globe.  If the U.S. Dollar declines by 5%, oil will increase by 5% without any change to the other fundamentals.  The opposite is true as well.  However, I do not believe that a strong dollar is sustainable given the quantitative easing by the Fed and the unfunded liabilities of the U.S.  Inflation is a currency event, not an economic cycle event.

Natural gas is cheap right now.  Its price is being set at the trading desks of hedge funds and investment banks rather than the economic supply/demand criteria of end users and suppliers.  Of course this is true for all commodities.  Perceptions of the moneychangers provide a perverted pricing function thus are ultimately stealing from the rest of us who consume commodities.  The world continues to consume more energy each year independent of the economic downturns and as the global population grows, this will be the reality.  All sources of energy must be tapped to keep up with the demand.  Right now, natural gas is cheap relative to the alternatives.  You can expect the price to be pulled up by the market in the coming months.

Mexico is in deep trouble.  Mexico’s Cantarell Oil field, The second Largest oil field in the World Is Dying.  In July 2008, daily production rate fell sharply by 36% to 973,668 barrels per day from 1.526 million barrels per day a year earlier.  Mexico may soon be an importer of oil rather than an exporter to the U.S.

Canadian Oil Sands extraction is unprofitable below $75-$80 per barrel.  This provides a floor for supply from this resource.  Venezuela’s exports are being committed to China.  In Colorado, new permitting requirements make it extremely difficult to drill for oil & gas.

I suggest that you prepare yourself for this coming storm.  Anything you can do to become more energy efficient now will reap rewards in the near future.  If you have a gas guzzler, you may want to trade for a more efficient vehicle.  There are little things you can do around the house to improve its energy footprint.  There are now energy tax credits for approved upgrades in the U.S.  You can grow a vegetable garden and start with the simple- tomatoes, onions, lettuce, radishes…  Yes, right now it seems like more trouble than it is worth but as energy prices go up, there will be less fresh produce to buy at reasonable prices.

If you own two or more vehicles, I would recommend that one of them be energy efficient with a notable range (gallons x mpg).  If we have an gasoline shortages, the impact will be less on those with energy efficient vehicles.

When will the storm arrive?  You can be sure that leadership will not forewarn us since they do not want the masses rising up in fear.  If everyone topped off their gas tanks at once, we would have a gasoline shortage immediately.  That is how tight supplies really are.  What would happen if people began to hoard gasoline because of being told of a coming energy storm?

Proverbs 6:6-8
Go to the ant, thou sluggard; consider her ways, and be wise:

Which having no guide, overseer, or ruler,

Provideth her meat in the summer, [and] gathereth her food in the harvest.

Abrogation: To abolish, do away with, or annul, especially by authority.

The Obama Administration has abrogated contracts in private industry “for the greater good”.  Contract Law is the basis of free enterprise and once you begin to tamper with contract enforcement you will see the demise of free enterprise.  As this is written, Chrysler is attempting to survive with Fiat’s assistance.  However, three of the secured bond debt holders felt that receiving 29 cents on the dollar was not enough.  The Administration has clearly demonstrated that contract law is subservient to presidential desires.  The President, a former law professor, must have forgotten about the need to honor contracts.

China is not happy with the U.S. Administration’s economic policies.  In a recent trip to China, Timothy Geithner was laughed at by Chinese students as he was attempting to give a speech on Monetary Economics.  The Chinese are creating trade agreements with Brazil, Russia, Indonesia, and other countries bypassing the U.S. Dollar in the settlement of trade.

True Unemployment is 16.4% when you include discouraged workers and those working part-time wanting to work full-time.  Officially, 345,000 jobs were lost last month but 200,000+ jobs were added by the “birth/death” model which hardly ever loses jobs.  “Liars figure, figures lie”.

The Administration has blown off the Tax Tea Party.  In an attempt to protect the current paradigm, Obama will attempt to raise taxes in any area he can.  The facade will be put in place to lead us to believe that only the wealthy will be taxed.  Not so.  The wealthy provide the capital for business creation which in turn benefits the average citizen by providing jobs.  Obama wants to change the tax laws for small oil & gas companies.  The net effect of this move will be to wipe out many of the independent exploration companies and thus lower oil output.  This in turn will push oil prices up toward $200 per barrel and ultimately will tax the public at the pump.  What are these guys in Washington thinking?  Expect a national value added tax (VAT) to be implemented, one similar to England.  Notice that they’re in worse shape than we are!

Most people were against the bailouts but the Administration did not care.  GM threatened bankruptcy months ago and received billions.  Now they are in bankruptcy and are receiving additional billions.  What a deal!

The little people are being squeezed, you and I are in that category.  Most of us are in the “too small to save” category.  Have you ever noticed how the government “gives” money to the large entities and loans money to the average citizen, if they qualify?  Giving a bank $5 billion at 0% interest allows them to invest the money and receive interest income without any expense.  Once they are done, they simply return the money to the government.  Why can’t you and I get in on some of that lovin’?

The printing of money is simply to relieve the symptoms, just like a pharmaceutical.  The U.S. needs to contract and rid itself of unworkable and unprofitable businesses.  If a bank can’t manage its business properly, why prolong poor management?  If a car company can’t make a profit, why prolong its poor management or business model?  How long do you think it will take GM to pay back $50 billion to the government out of its profits?  Forever!

The greed, mistakes, and criminality of Wall Street gang is being protected at the expense of the average citizen.  As our family members grow older, it becomes critically important to retain family wealth for their care.  The current system is designed to extract wealth by taxation, inflation, and any other means to keep the current system going.  Only the elite will be assured of asset protection.

The Bailout Bubble by definition is the last bubble of this current series of bubbles.  A nation’s currency is that last bubble to inflate.  History tells us that the bursting of this bubble will not be pretty.  How long can this bubble continue to inflate?  Only Our Heavenly Father knows.  With the continued global population growth, commodities will be in greater demand.  As I see it, ownership of food, water, oil, gas, gold, and silver is the only possible insurance policy the average person can have.  Paper assets will continue to depreciate as the Fed tries to save Wall Street.  As we proceed forward, chaos is at hand for the average citizen.  When men become desperate, they will justify any action to feed their families.  The nations of the earth will then turn toward Heaven and seek guidance from above… finally!

You lead sheep and you drive cattle.  Jesus made it clear that we are to be likened to sheep, not cattle.  Sheep and fish are the two species that accept newcomers without reservation or critical review.  Flocks of sheep can grow into the thousands on the way to market because of this reality.  Sheep also know the voice of their leader.  On the other hand, cattle must be driven by “force” and rounded up by experienced cowboys on equally experienced horses.

Love leads and Ego drives.

The ego must control and manipulate to move its agenda of lordship.  When you put two strong egos in the room, you create competition.  The ego must dominate to sustain its relative position thus you have the cattle driven by the egos of “leaders”.  In recent years with the access to information provided by the Internet, private individuals have been able to uncover the manipulation of data by those in power.  Whether it be the local banker who was paying low rates on CD’s or inflation rates with hedonic indexing, the proverbial cat is out of the bag.  Long-term promises were made to the American people by short-term leaders who knew they would not be around when delivery of those promise came due.  With the unfunded liabilities in the ten’s of trillions, there is no alternative but to devalue the dollar.  In order to do this and survive, the cattle drivers must prop up the current paradigm for as long as possible.  At its core, the ego knows that competition is a core method of misdirection.  Why do you think that we have so many different professional sports in the U.S.?  As Joe Sixpack focuses on the latest game or motor race, the dollar is crumbling away.

Have you ever noticed that politicians seem to enter politics as a middle class citizen then shortly after leaving politics they seem to become independently wealthy in a short period of time?  They receive “consulting” revenue from the very companies and industries which fared well during their political office.  The system perpetuates itself.  There are a few exceptions and they are called leaders.  Ron Paul from Texas has understood the perils of a fiat based currency.  His ongoing quest to challenge the status quo has caused people who understand his mission to follow Congressman Paul.  They know that he has their best interest at heart.  That is a sign of a true leader.  In the past we would call these types of politicians- statesmen.  When is the last time you heard that term used?

Cattle drivers create problems and then fix them to convince people of their “calling”.  This leads to domination over opponents by creating a resume that has been fashioned to attract voters and big money to support the “leader”.  It assumes ignorance of the facts by those who are called upon to support this leader.  As an example, how can a person with a law degree and no management experience be thrust into a management position of the largest economy on earth and be expected to make the right decisions?  How can an economics professor with no private industry management experience formulate economic policy that affects millions of small businesses?  The short answer is that they cannot hence the need to drive cattle by utilizing “think tanks” to help sway public opinion to get those theoretical policies in place.  The long term effects of those policies are not known until those who made the policies are long gone.

Recently, Brian Deese, a protege of Dr. Lawrence Summers (Obama’s Economic Advisor),  was assigned to dismantle GM and put it back together again.

Deese is a 31 year old Law student with no automotive, finance, or management experience yet he has been given the task of overseeing one of the largest reorganizations in world history.  See:http://www.nytimes.com/glogin?URI=http://www.nytimes.com/2009/06/01/business/01deese.html&OQ=_rQ3D3Q26hpw&OP=2b747986Q2FQ7BKbQ27Q7BHDRQ2A8DD.BQ7BBQ51Q51IQ7BQ51oQ7BQ51YQ7BQ27,Q2AC-bQ2AQ2AQ7BQ51YHbbQ2AbJq.9Q60

See: http://www.foxnews.com/story/0,2933,524757,00.html

What are these guys thinking?  Leadership seeks out those who are called to a position and places them in their calling.  Cattle drivers simply find a warm body to fill a position hoping they can somehow muster up enough luck to complete the task.

When a man is left to his own devices, his path leads to destruction.  When all he has to rely on is his ego which leads him to believe he is qualified to do a job, he will surely fail.

Proverbs 16:18  Pride [goeth] before destruction, and an haughty spirit before a fall.

How many billions of dollars will be lost from poorly informed decision making?  I suspect we will not found out the extent of the damage from placing a 31 year old inexperienced law student to do a seasoned leader’s job.

Leaders are moved by love to serve people, cattle drivers are compelled by ego to serve self.

Depreciation is a decrease in value.  There is a normal decline in value of a physical asset because it simply wears out.  Depreciation can occur when a product is no longer in demand relative to its supply.  On a global basis, when a currency is excessively created, its supply outstrips demand is depreciates in value.  The Federal Reserve is creating a large supply of the U.S. Dollar

Deficits in the U.S. are running at historic highs at an anticipated $1.2 Trillion for 2009.  On the balance sheet, a deficit reduces owner equity relative to the liabilities.  If the liabilities outstrip the ability of income to service the outstanding debt, insolvency will occur.  The assumption that the government has the power to create money is applicable to the degree that the rest of the world is confident in the valuation of the U.S. Dollar.

Debt accumulated by consumers has forced a reduction in consumption in order to pay down the accumulated liabilities.  With the consumer accounting for 70% of the Gross Domestic Product (GDP) of the U.S., the economy must contract to allow for a re-balancing of the consumer’s balance sheet.

Dwellings or housing is normally the largest asset held by a consumer.  Most of those who purchased houses in the last seven years may have lost a sizable value of the personal net worth.  If the asset value declines with the liability still in place, net worth evaporates.  When the emotion kicks in that your net worth has declined substantially, your spending habits change drastically.  Depending on your leverage (assets divided by net worth), you may have to liquidate holdings in an adverse market thus perpetuating a deflating asset price.

Deflation of goods and services adversely affects accumulated wealth of the individual stock portfolio especially when there is monetary inflation occurring at the same time.  When demand decreases relative to supply, prices deflate.  However if those goods and services are discretionary, then the price deflation does not help the consumer.  If you own a hotel stock in your portfolio but the public has reduced travel plans, you lose.  The price for a room goes down, the value of the stock goes down, but you are still dealing with monetary inflation decreasing the value of your purchasing power as you attempt to buy food and energy.

Demographics is a huge issue for the developed countries.  Like a broken record, I keep referring to the “baby boomer” generation.  The current paradigm of social security will not handle the liability commitment to this generation.  Over the last forty years, Congress has misappropriated the social security funds and placed IOU’S in their place.  I believe this issue is the reason many legislators have opted to leave public service when there was no apparent reason to step down.  Whoever is in power when this issue arrives at the breaking point will suffer the wrath of the baby boomer generation.  We worked throughout our adult lives paying into the system while being assured of retirement funds at the age of 65.  This backdrop assured the less fortunate of a subsistence level of living.  See: http://www.usdebtclock.org/

Derivatives are bets against the future.  There is a buyer and seller of the derivative and the seller receives a “time” premium for selling the derivative.  The buyer’s incentive is that he wants to cap his risk in the underlying investments.  The problem lies in the seller’s financial strength that backs the derivative instrument.  If the seller sells more derivatives than his capital structure can support, the derivative’s value becomes worthless thereby resulting in the buyer having no real insurance supporting his investment.  Derivatives are now in the quadrillions and a substantial portion of that total cannot be supported by existing capital.  As derivatives unwind the losses must be realized on the balance sheets and when this happens capital evaporates and moves the entity toward insolvency.

Devaluations of asset values has an emotional impact on the owner of these assets.  As the devaluations move toward a minimum operational level, the equity owner will change their spending pattern.  For example, if you have an equity of $1 million you will spend as though you are a millionaire because you have plenty of buffer if you have a negative economic event occur.  You will take nicer vacations, make home improvements, and eat at restaurants more often.  In other words, your consumption goes up.  If you lose $600,000 in equity, you will cut back in all discretionary spending and move to a defense posture.  You will defer spending thus increasing deflation of consumption based goods and services.

Dollar, that is the U.S. Dollar, is in serious risk of default.  The long term decline (3 t0 5 years) is expected to be 50% of its current value.  This translates to an equivalent decline in purchasing value to the average U.S. citizen.  Those on fixed incomes will suffer the greatest loss of purchasing power.  Workers may have a small buffer by demanding greater wages to offset inflation but will lag behind the dollar decline.

Depression is becoming a real global possibility, mainly for the developed countries.  Those economies who shipped their manufacturing jobs to cheaper jurisdictions in favor of a service-based economy will suffer the greatest contraction.  Anytime you have a decline in revenue, services get cut first.  There is a battle between the government protecting the current paradigm and the reality of the consumer-based de-leveraging requirement.  The de-leveraging requirement will win.

Destruction may result from man’s attempt to defy realities created by greed.  Resources are being consumed at record rates and the global population growth cannot be supported by the current infrastructure.  When this happens war results, maybe a world war.  Each country believes it is entitled to resources and when that country becomes desperate, they will take desperate measures.

There are more D’s we could cover but the above provides us a clear view of the current environment.  Filled with negatives, the D’s are a result of man’s best attempt to manage the globe without the Wisdom from above.  As men become desperate, they will shift their focus from the mirror to the Heavens and seek Our Heavenly Father’s face.  Could this be the major paradigm shift many of us have been looking for?  The smoke and mirrors of government rhetoric will not bail us out of this time of extended greed.  A new era is coming whether it be natural or supernatural!

The Internet bubble burst back in 2000 and was followed by the housing bubble.  We are now facing the biggest bubble of them all: the Monetary Bubble.  This bubble is a precursor to hyper-inflation and this environment will take no prisoners.  The megabanks have operated as drug addicts and the Fed has become their “enabler”.  Their actions moved them to insolvency and the Fed has endorsed their actions by funding their addiction.  Bankruptcy of these institutions was the best solution in order to cleanse the system of unfruitful works.

The following is an example of insolvency:

Mat 21:19  And when he (Jesus) saw a fig tree in the way, he came to it, and found nothing thereon, but leaves only, and said unto it, Let no fruit grow on thee henceforward for ever. And presently the fig tree withered away.

We are not to judge the heart of man, only the fruit.  Jesus became a fruit inspector of Israel and found it lacking.  It was bankrupt.  Our Heavenly Father had been longsuffering with the sins of Israel and had once “married” Israel only to divorce later.  The people no longer loved The Lord and chose to live according to fleshly desires.  They gave lip service to serving The Lord but their actions communicated a different direction.  Revelation was converted to tradition and the Glory of The Lord had left the Temple.

Today, the financial industry is no different.  Rather than serve the public, these institutions are exploiting their customers with predatory practices of high and hidden fees, high interest rates relative to their cost of money (nearly 0%), and misleading information about their financial status.  Effectively, they have exploited customers and the government at the same time.

Irresponsibility-a form of untrustworthiness; the trait of lacking a sense of responsibility and not feeling accountable for your actions.  The last fifty years has seen the monetary system go from a conservative, stable system to a casino-style system of greed.  Don’t get me wrong, greed was always there but was in check until Congress lifted the restraints.  Those restraints had been in place since the Great Depression.  Once again we have confirmations that man’s sin nature is alive and operational.  Community banks generally did not participate in the instruments of greed because they knew that they are too small to save.  They simply had to make money through normal, prudent lending and investing practices.

The economic environment is changing.  Baby boomers will swing to the ultra-conservative side by curbing consumption, cutting back on luxury goods, and looking for more secure investments.  It is no surprise that Home Depot and Lowe’s home improvement centers are topping Wall Street estimates.  People will repair and enhance their current homes rather than increase their square footage.  The repair industry will show signs of life.  Homebuilders will shrink to pre-1990’s levels.  Commercial real estate will be the next topic of the network nightly news anchors.  The contraction is rapidly reducing the retail space needs around the country.  Some of the large mall operators have already been mentioned in the financial news media as having serious cashflow problems.

Credit card companies are attempting to keep the current paradigm intact by raising rates and fees while reducing credit limits.  Many of us have received notices of a reduction in credit limits due to lack of activity on the account.  The credit card companies have abused many cardholders with these changes and will force Congress to respond with new regulations.  Leadership maintained the status quo of consumer exploitation until the cries became too loud.

When you add up all of the woes in the current system, you find no good fruit.  The summation of Irresponsible actions over the last forty years has produced the current perfect storm.  Leaders around the world are desperately trying their best to keep the current paradigm intact.  “Hot” money is smelling blood in the currency arena and is now making large investments in precious metals expecting notable appreciation in gold and silver in the coming months and years.  Purchasing power of the U.S. Dollar will substantially decline in coming years with the current economic policies in place.  Stockholder rights have been shredded by the current government intervention in publicly held companies.  Mankind will hold on to recent history as their hope to restore things back to the way they were.  Is the writing on the wall?

Daniel 5:25 “This is the writing that was inscribed: MENE, MENE,TEQEL, and PHARSIN. 5:26 This is the interpretation of the words:  As for mene– God has numbered your kingdom’s days and brought it to an end. 5:27 As for teqel – you are weighed on the balances and found to be lacking. 5:28 As for peres  – your kingdom is divided and given over to the Medes (middle land) and Persians (pure).”