Servias Ministries Blog

Too much debt, higher energy prices, and higher food prices will bring forth downsizing in all areas.  Bigger houses and bigger cars will be a preference of the past.  You only have to go to Europe to see the result of higher energy prices.  The percentage of SUV’S in Switzerland is extremely small.  There are more Smart Cars than SUV’S traveling around Zurich these days.  I would suggest that you have at least one fuel efficient car in your garage, the sooner the better.  As in the early 80’s, large vehicles will depreciate much faster as the mainstream media starts reporting the peak oil issue.  As of this writing, peak supply occurred November, 2005.

Those in the Energy Industry have been surprised by the price of both oil and gas.  Their 20 to 30 years of experience have hindered their view of global demand.  Most of their careers have been dealing with cheap oil and gas.  Prior to this decade, many wells were plugged when exploration companies found only natural gas "downhole".  Natural gas is about double what was predicted by those in the industry.  Times have changed.  Coal is out of favor for generating electricity.  Natural gas is "in".  This will translate to higher electricity costs.  As our monthly utility bills increase, the demand for larger homes will decrease.  People will no longer tolerate the high cost of living in a larger home.  Smaller, efficient houses will be where the housing boom resumes.  There’s an old saying, "It’s easier to obtain than it is to maintain".  Alternative fuels will not solve the problem.  You can’t stick solar panels on our fleet of airplanes.  Our transportation infrastructure was built on the assumption of cheap oil.  Europe’s infrastructure was built on the opposite assumption.  They are in much better shape to absorb the higher cost of energy.

I expect town centers to be revitalized.  For most families, traveling 20 miles to the movie will become history.  The lower and middle class will be hit hardest.  Inflation is going to eat up private savings.  Bible Law demands equal weights and measures.  Playing with the money supply to promote the current financial system will ultimately result in hyper-inflation.  Note the following graph:

Source: http://www.shadowstats.com/alternate_data

The Federal Reserve no longer publishes Money Supply-M3 data.  This number best reflects the increase in overall money injected into the economy.  This number is the root of inflation.  The result is price inflation.  Doubling our money supply growth will surely hyper-inflate the prices you and I pay at the grocery store, department store, and gas pump.  This problem will be systemic.  City, county, and state governments will increase taxes to cover increased costs.  Once a nation defies Biblical Law, judgment prevails.  Mercy first exposes the sin to be dealt with.  If no repentance occurs, judgment ensues.  The decades of American excesses will be cleansed.  The insatiable desire for bigger homes and cars will be quenched… the hard way I suspect.  What were we thinking???

What action should one take?  As I have written in the past, simplify.  Remove excesses from your life.  Reduce your discretionary spending for 30 days.  How difficult was it?  We tend to spend up to our monthly income.  Reinstate that budget that you abandoned a long time ago.  Learn how to grow a garden if you don’t know how.  It may be required soon.  The days of "2,500 mile" salads may be gone soon.  What’s a 2,500 mile salad?  Lettuce is grown in California and shipped to New York to be served in a salad.  The cost of transportation will prohibit many from buying those fruit and vegetables grown in distant regions.  In Switzerland, you find community vegetable garden plots of land.  Each family has a small section for their garden along with a shed to keep the tools and supplies.  They will share and trade with other families so that all will have a variety of vegetables.  I suspect prices will force people to plant vegetable and fruit gardens again.

How do I determine what is needed vs. what is excess in my life?  Ask Our Heavenly Father.  He knows your calling and knows what you need to fulfill your calling.  Not all of us need the same size house or car.  There are those who will need a private jet to fulfill their calling.  Others will only need a compact car.  Don’t envy those who have need of more capacity than you.  If they have excess capacity, it will be removed in the upcoming cleansing cycle.  More capacity requires more time and energy to manage it.  Don’t serve structure, serve God!

Oil Demand to Hit 94.3 Million Barrels a Day by 2012, IEA Says

By Mike Cohen

March 17 (Bloomberg) — The International Energy Agency, an adviser to 27 industrialized nations, expects worldwide demand for oil products to increase an average 1.9 percent annually until 2012, driven mainly by expansion in Asia and the Middle East.

“Demand is projected to grow to almost 94.3 million barrels a day by 2012,” Eduardo Lopez, an analyst with the agency, said in a presentation to the Oil Africa 2008 conference in Cape Town today. “By 2012, demand will be a third higher than in 1996.”

http://www.bloomberg.com/apps/news?pid=20602099&sid=aR16.phppLlA&refer=energy

If you are forced to drive a substantial number of miles each month you may want to consider downsizing.  If your vehicle’s gas mileage is less than 25 mpg, you should look at replacing it.  If your job requires a certain vehicle type such as a heavy duty pickup, the upcoming months and years will be a challenge.  The high price of oil appears to be with us for the next 5-10 years at a minimum.  What few people seem to understand is that oil has a much better energy coefficient (energy output vs. energy input to produce) than most alternatives.  On the other hand, ethanol has a low coefficient.  Ethanol requires energy to grow and harvest the crop, transport it to an ethanol plant.  The ethanol plant requires substantial energy to convert the feedstock to ethanol.  Often, the heat source is natural gas.  Oil is still the best deal in town.  Other technologies are just not yet viable.  The world has about 800 million vehicles with 50 million being added every year.  That is a staggering number.  The U.S. vehicle inventory averages 15-17 years to turnover or replace.  If you introduced a new technology today, it would take 30 years or more to move the world to the new infrastructure.  The crisis we are facing cannot wait 30 years.  Late adaptors to energy saving vehicles will be severely impacted.  When we had the oil crisis in the early 80’s, large gas guzzling cars lost substantial value overnight.  For those who owned those vehicles with a substantial loan balance, they were immediately "upside down" on their note.

There have been many inventors claiming a solution to the crisis.  Each invention has its drawbacks.  Ethanol requires a lot of fresh water.  Fresh water may become a scarcity soon.  Wind turbines need a sustaining wind.  Many locations are just not suitable for turbines.  Solar power requires sunlight and land area.  It won’t work in Seattle, Washington or Benton Harbor, Michigan.  They are known to count the days of "no sun".  The biofuels upset our food chain.  You can’t fly an airplane with a giant power cord.  Natural gas is world’s only super-efficient heat source.  It lacks infrastructure to handle current transportation requirements.

Scalability of new technology will be the limiting factor over the next 10 years.  Any alternative will require substantial infrastructure investment.  Infrastructure  development and repair require commodities.  Metals, hydrocarbons, cement, and other products will be in great demand no matter what develops.  Electricity is highly inefficient heat source.  However, nuclear power has tremendous benefits when producing electricity for transportation requirements.  The U.S. infrastructure is based on cheap oil.  The massive highway system is contrasted to Europe’s rail, bus, and subway system.  Blaming the oil companies will not result in any productive change.  The world will need about 10 million barrels of NEW oil per day in 2012.  There is no realistic way to ramp up the supply in time.  A new discovery such as the North Dakota (actually it isn’t new but recently revisited) will require substantial investment and time to develop if found to be confirmed as a major field.  When demand exceeds supply the price goes up to dampen demand.  The decline in the value of the U.S. dollar will only fuel price increases for U.S. domestic consumption.

What am I to do if I can’t change out my vehicle?  One subtle way to offset your energy consumption exposure is to buy "insurance".  How?  Start investing in a dividend paying energy stock.  As energy costs increase, the value and/or dividend of the energy stock should reflect the increase.  Effectively, you become both a supplier and user of energy.  Below is an example of the "insurance":

I know, you don’t have $7,840 to go buy PWE(Penn West Energy) stock.  Open up an account and start buying what you can.  The earlier you start dealing with the energy issue, the better shape you will be in when gasoline hits $4.40 per gallon.

See Disclaimer: http://www.servias.org/?p=56

The term black swan comes from the ancient Western conception that ‘All swans are white’. In that context, a black swan was a metaphor for something that could not exist. The 17th Century discovery of black swans in Australia metamorphosed the term to connote that the perceived impossibility actually came to pass.

Most people today believe that technology and sophistication of thought would prevent any economic catastrophe from happening.  The classic argument of the average man on the street is, "If we can go to the moon and back, surely this problem can be resolved."  What mankind has failed to put into his equation is the sovereignty of God.  Spirit trumps the mind and flesh.

In the Book of Judges,  The Lord would provide a deliverer for the children of Israel.  Each deliverer would defeat the enemy and then peace would be restored.

Judges 3:30 So Moab was subdued that day under the hand of Israel. And the land had rest for eighty years.

Upon reading the Book of Judges, you will notice that after each deliverance, the rest period shortened.  The problem was that each man would do "right in his own sight" rather than following the Word of The Lord.  Our Heavenly Father would evoke a "cleansing cycle" to clean up the mess created by man during the expansion cycle.  In our walk we are to develop consciousness about our relationship with God.  This happens through our acceptance of Jesus Christ.  Another aspect of our walk is to develop faith.  Faith cometh by hearing the Word of God.  This walk of faith and consciousness is tested.  In Hebrews 11:17, Abraham’s faith was tried and tested.

An event known as a "black swan" may be upon us.  However, it is not a black swan to those who are anticipating a cleansing cycle.  Only those who have no clue will view an upcoming negative economic event as a "black swan".  The black swan was created by The Father.  The Europeans in their thinking concluded that there were only white swans.  They had incomplete knowledge.  In the Scripture, Our Heavenly Father reveals His character.  It is one of righteousness and lawfulness wrapped in love, grace, and mercy.  His mercy gives us an opportunity to turn from our wicked ways.  Ultimately we will participate in a cleansing cycle.  The cleansing cycle will be disastrous to many.  Their sand castles will be washed away.  Their reliance on material possessions will be shattered.  The perfect storm is forming.

What should I do?  I believe that it is time to enact a personal cleansing cycle.  Reduce and eliminate debt.  Remove unproductive assets.  Clean out the attic and closets.  Get rid of those things you acquired that you no longer have need of.  Bless someone with those things that are still usable but no longer useful to you.  As they say, "become lean and mean".  I have often thought that the people of the U.S. could empty their storage facilities and bless a third world country in its entirety.  Return to the fundamentals of The Bible.  Reread Scripture with a fresh perspective.  Search for those hidden revelations reserved for this time in history.  Once the global cleansing cycle begins, The Father will raise up those who are ready to receive His power and authority to enter into the fullness of their calling.

Paul Volcker, former Head of the Federal Reserve, recently called the current economic situation "the mother of all crises".  http://youtube.com/watch?v=2opw-iUaezs&feature=user

Jim Cramer (Mad Cramer) is now on the bandwagon for $1,600 gold. http://www.thestreet.com/_yahoo/video/cramerinterviews/10411623.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA#10411623

I expect the US dollar to lose at leat another 30% in value if not much more.  Your savings account will do the same.  You may want to diversify your assets.  A 5 to 10% position (of your liquid assets)in gold and silver is not unreasonable.  This simply acts as an insurance policy to offset the loss in value of your US dollar denominated assets.  You STILL need liquidity.  That is what a savings account is designed for.  For those who are broke, I believe that The Father is raising up those with gifts and callings to minister to those without just as He raised up Joseph.  God loves a cheerful giver.  Mystery Babylon exalts those who have accumulated material wealth, The Kingdom of God exalts those who give and serve.

On January 21st of this year I wrote about the expected downgrading of insurers.  See Brace Yourself: http://www.servias.org/?p=48 .

This is now occurring. MBIA Loses AAA Insurer Rating From Fitch Rating Agency Over Capital.  See : http://www.bloomberg.com/apps/news?pid=20601087&sid=aUKrtfm0u4yI&refer=home

This only reinforces the need to be vigilant in placing your finances in defense mode.  Do not be lulled into complacency.  Those that are in control will not give us an early "head’s up" to a financial entity problem.  The average person will be the last to know.

I received a question about buying silver.  Is there any difference in silver rounds versus 100 oz. silver bars?  No.  Either is good.  1 oz. Silver rounds can be sold in smaller increments as cash is needed.

In the Holy Scripture, there are examples of the destruction of a currency (or medium of exchange).  Often, currency destruction is associated with a famine.  In Genesis, Joseph was groomed by The Father for a ministry in the upcoming famine.  Man did not know of this impending event, only Our Heavenly Father knew.  Joseph was born of Rachel.  Her womb was barren but the Lord God Almighty open her womb that she might bare Jacob a son.  Israel (Jacob) loved Joseph more than his other sons.  The other sons were envious.  The Lord gave Joseph two dreams.  In these dreams Joseph would be exalted above his brethren and his brothers were not happy with this scenario.  Their anger helped propel Joseph to the fulfillment of his calling.  After a distinguished resume of preparation, Joseph met Pharaoh.  He was placed in a position as Treasurer.  However, his currency had not yet been accepted as the medium of exchange.  He had seven years of transition before his currency had become accepted by the population of the world.  Once the famine had taken hold of the land, grain had become the new currency.  Joseph was given the name Zaphnath-paaneah which means "treasury of the glorious rest" or "treasure in the field".  Both interpretations point to the same result.  Joseph was to oversee the treasure and it was coming out of the field.  It would also be for a rest period.  Most people do not view famines as rest periods.  They are effectively a "forced" rest period.

In 1995, my family was placed in a financial famine.  Up to that point, revenue had always flowed freely.  However in March of that year, the revenue was cut off.  It was a few months later when I finally asked The Father about the problem.  Initially I assumed that it was due to the normal course of a business cycle.  This time it was different.  The Father told me that I was in the Wilderness.  My response was "get me out".  His reply, "There is an appointed time for you to be in the wilderness and you will not leave early".  That response was not what I wanted to hear.  It was my custom to pray an hour before work everyday.  At that time I had a key to the church we attended and  I would go into the sanctuary an pray from 6 A.M to 7 A.M. daily.  During this wilderness adventure I tended to pray longer.  Why?  Often, I would wake up in fear.  I would go pray until peace came.  Why not?  I wasn’t going to generate any income that day anyway.  This was a "forced" rest.  My focus had to change.  It was necessary for me to live through a famine.  It was necessary to see that money had wings.

Proverbs 23:5 Wilt thou set thine eyes upon that which is not? for [riches] certainly make themselves wings; they fly away as an eagle toward heaven.

Fortunately my wilderness period only lasted eighteen months.  When My Heavenly Father spoke to me about the wilderness, He also told me to study the three feasts and their meanings.  On that very day, He told me, "The Church is in the Wilderness".  This forced time of rest was when I received the revelation of Tabernacles.  It provided me an appreciation of the relative value of riches.  I was able to relate to those who had no hope.  I experienced the emotion of what looked to be a "crash and burn" situation.

Servias Ministries was brought forth to play a role in the upcoming currency destruction event.  Its mandate parallels Joseph’s calling.  He did not preach a doctrine.  His salvation message was subtle during the first seven years.  His calling was to acquire assets for future distribution.  Joseph did not go buy a field and raise grain.  His mission was to acquire grain from those who were called to be hard asset providers (farmers in those times).  Servias Ministries is called to be a depository (storehouse) for assets.  As needs arise, Servias is structured to distribute assets as needed.  We believe Our Heavenly Father will provide the wealth to be stored.  It may come by investments.  It may come by people who are led to give.  We do not believe in coercing money from people.  We are not interested in persuading people to give.  We are interested in people who have the revelation to give.  In the past, I have been more interested in acquiring funds by personal investments than providing others a means of giving into this ministry.  The Father corrected that view in 2006 when He told us to start Servias Ministries.

Recent events indicate that the Federal Reserve will sacrifice the currency to keep the banking system solvent.  Banking system solvency is its mandate.  The current system is destined to a "forced" rest period.  A financial famine is on the horizon.  Last week we saw the edge of the cliff.  The Fed responded with a weekend plan to keep the system afloat.  We must remember that Our Heavenly Father oversees all the affairs of mankind.  He has a plan in place to sustain mankind through the coming turbulent times.  Each of us has an opportunity to respond to His plan.  The world has not honored "rest" periods.  Man has become to busy to rest.  In the pursuit of the almighty dollar, society has forgotten the commandment "Remember the sabbath day, to keep it holy".  Some of us rest but most don’t.  Restaurant workers and others never enjoy a sabbath.  When I was young hardly any businesses were open on Sunday.

As the destruction of one currency continues, another will arise in its place.  As for my family, we will invest in the Kingdom of God:

Matthew 19 "Do not lay up for yourselves treasures on earth, where moth and rust destroy and where thieves break in and steal; 20 but lay up for yourselves treasures in heaven, where neither moth nor rust destroys and where thieves do not break in and steal. 21 For where your treasure is, there your heart will be also.

In previous writings I have alerted you to the sequence of events that follows the bubble of greed.  Let’s review the cycle.  It all started in the 1980’s.  First, the economic system is growing at a slow and reasonable rate.  The Federal Reserve Bank (Fed) is expanding money supply at 3 to 4% to accommodate growth and expansion.  Fundamental principles of borrowing and lending are adhered to by both sides of the equation.  Chairman Paul Volcker had whipped inflation by raising interest rates into double digits.  This put the country into a recession.  The cleansing took place and all of the unproductive ventures were pruned from the system.  Ronald Reagan decided to reduce government and began to privatize.  The practice of defined benefit plans where the company supplies the worker with a pension was being dismantled.  IRA’s and 401K’s replaced those defined benefit plans.  The average Joe was expected to invest and produce a return equal to professional money managers.  The 80’s produced an unprecedented number of new investors.  New brokerage firms sprang up.  With the maturity of the internet, electronic brokerage firms flourished.  A new era began- technical trading.  In its early years, technical trading was accomplished by a specialized broker who set up multiple workstations in a trading room.  Traders would use charts and graphs to pick entry and exit points.  It worked for a while.  As more traders began to use technical analysis, the "big boys" with their high powered black boxes could determine what trading indices and formulas most traders were using.  Once they figured it out, they would set traps for the trading population.  They would force a stock up and lure traders in then sell it short and force the traders to take a loss.  Stocks are a zero sum game, a winner and a loser on every transaction.

The Big Boys are playing a game of perception.  The global financial economy needs to contract and de-leverage the excesses of investing that has occurred over the last 20 years.  Alan Greenspan will be found to be the perpetuator of this leveraging problem.  Most of the problem happened on his watch.  Bill Clinton’s era is where most of it started.  George Bush perpetuated it as well.  Big money wanted to keep the party alive.  Unchecked greed propelled this problem into the stratosphere.  U.S. Treasury Secretary Henry Paulson looks like an orchestra conductor.  Wall Street is the audience.  The average money manager is deep within the current paradigm.  The pension fund manager inherently believes that his portfolio will weather any short term problems.  His portfolio is designed to look out 50 years, not 50 months.  As long as Paulson can keep these people believing that all is well, the market may maintain a sideways movement.  However the chickens will come home to roost.

I view this time as a great time to add to your portfolio of hard assets.  With the recent $160 drop in the price of gold, I see this as a buying opportunity.  I hope that they can manipulate the price of gold to stay at this level for a number of months.  That will allow me to buy more gold and silver stocks as I can afford.  Energy prices remain strong.  The energy stocks have responded accordingly.

I believe the 15% drop in gold was orchestrated to settle down the markets.  Remember, gold is a barometer against the fiat currency health.  Gold goes up when the US dollar goes down.  It will be choppy ahead.  Rest assured that the powers that be will do everything necessary to "stay alive".

Some questions we have recently received:

Would you acquire the presidential coins that are being offered now in the newspapers or is this just a perception based offer?  No, I wouldn’t pay a premium for coins based on their rarity.

“I am not suggesting to hoard gold or silver.”
The quote above suggest to me that you are not investing in Silver any longer to protect yourself against the weak dollar. I took your advice in Oct 2003 and put all my cash into real silver. Do you now believe we should not do this now? My comment refers to the time when the possible collapse of the dollar.  At that time you should look to help people with the wealth you have acquired from my counsel.  Hoarding denotes fear.  Your current continued acquisition is based on a future need.  In Genesis, Joseph acquired assets for a future need.  Once the need was there, the assets were there to help others.  We’re doing the same thing.  Gold and silver are simply "tools", not to be worshipped.

I have a question about buying silver.  We have about $50K invested with E**** Jones because we know nothing about finances except there never is enough, and we were wondering what percentage of that 50K would be reasonable to buy silver rounds. And mostly, why? This is my wife’s idea and I do want to honor her.  I would own about $5,000 in silver rounds.  I would also consider buying a little each month.  In my investment account I would check to see exactly what the 50K is invested in.  I have invested in Chevron, Petrohawk, Pennwest Energy, Goldcorp, Yamana Gold, Southern Copper, etc.  See Disclaimer on the website.

In our previously posted "Brace Yourself"  http://www.servias.org/?p=48  posted on January 21, 2008, we specifically warned of the Domino Theory scenario.

Now the theory is now circulating among the mainstream media:

March 15, 2008

News Analysis

A Wall Street Domino Theory

By JENNY ANDERSON and VIKAS BAJAJ

The Federal Reserve’s unusual decision to provide emergency assistance to Bear Stearns underscores a long-building concern that one failure could spread across the financial system.

Wall Street firms like Bear Stearns conduct business with many individuals, corporations, financial companies, pension funds and hedge funds. They also do billions of dollars of business with each other every day, borrowing and lending securities at a dizzying pace and fueling the wheels of capitalism.

The sudden collapse of a major player could not only shake client confidence in the entire system, but also make it difficult for sound institutions to conduct business as usual. Hedge funds that rely on Bear to finance their trading and hold their securities would be stranded; investors who wrote financial contracts with Bear would be at risk; markets that depended on Bear to buy and sell securities would screech to a halt, if they were not already halted.

See: http://www.nytimes.com/2008/03/15/business/15risk.html?ei=5087&em=&en=385f57e170b3e482&ex=1205812800&pagewanted=print

Once the risk is published by the mainstream media in the U.S., it moves from "possible" to "probable" reality.  The mainstream media intimately understands that perception moves society.

In Code Red: International Banking Liquidity has serious problems  exactly three months ago (12/17/2007), we alerted you that perilous times in the financial system were ahead.  Do not delay in getting your house in order!  Investors in Bear Stearns had stock worth $30 on Friday only to wake up today with a $2 stock value.  The Federal Reserve will not protect the average person and will sacrifice anybody and anything to keep the current banking system alive.  That is their mandate.  The credibility of the U.S. Dollar abroad is tanking.  2008 will be a turning point in world history.  It appears that the party is over for the greedy who have been extracting wealth from the masses.  Their "secret" is out. 

Credit crisis reveals America’s secret financial market

Module body

Sun Mar 16, 12:18 AM

WASHINGTON (AFP) – The financial hurricane tearing through Wall Street has sparked vast losses at major banks, but it has also exposed a formerly secretive corner of America’s financial markets.

Millions of Americans track the Dow Jones Industrial Average and their stock portfolios on a daily basis, but the trillion-dollar trade in mortgage-backed securities, corporate and municipal bonds and other complex securities is mostly hidden and closed to amateur investors.

See: http://ca.news.yahoo.com/s/afp/080316/business/us_banking_stocks_finance

In a conference call on Friday Alan Schwartz, CEO of Bear Stearns, spoke about the substantial withdrawal requests by investors.  Customers wanted their cash.  Banks typically do not keep much cash on hand.  When they speak of cash on hand, they use the term liquidity.  If you are extremely liquid, you have most of your assets in cash or equivalents.  If you are illiquid, you may have sizable assets but little cash.  The assets cannot easily be converted to cash.  If you own a $100,000 house with no debt, you have an asset, but until you sell that house you are illiquid.  Cash is needed for immediate financial demands.  Schwartz admitted that Bear Stearns was in a liquidity crisis.

Bear Stearns is an investment bank and a PRIMARY DEALER IN U.S. GOVERNMENT BONDS. There are only a handful of Banks allowed to participate as a dealer. Although Bear Stearns is sizable, the bank is the smallest of the top U.S. government bond dealers.  Like all major bond dealers, they traded in mortgage bonds and derivatives.  This is where the problems arose.  You may have heard that Bear Stearns was in trouble last summer.  Their troubles have not ended.  See: http://www.iht.com/articles/2008/03/16/business/bear.php

The Federal Reserve cannot afford to let Bear fail.  If Bear Stearns were to fail, the whole global credit system would be at risk of a meltdown.  They will be merged with another investment bank.  What is an investment bank?  Investment banks help companies and governments raise money by issuing and selling securities in the capital markets (both equity and debt), as well as providing advice on transactions such as mergers and acquisitions. Until the late 1980’s, the United States and Canada maintained a separation between investment banking and commercial banks. (Wikipedia)

The fact that you and I know about this "run" is an indication that there will be more banks to experience this same reaction to the fragility of the system.  Implement your personal defense plan.  Live in moderation.  Prepare to help your loved ones who have failed to prepare… Love gives!

Within the last 48 hours, the International Monetary Fund (IMF) has issued a second warning to not only the United States but other countries as well.

IMF tells states to plan for the worst

By Krishna Guha in Washington

Published: March 12 2008 23:55 | Last updated: March 12 2008 23:55

Governments might have to intervene with taxpayers’ money to shore up the financial system and prevent a “downward credit spiral” from taking hold, the International Monetary Fund said on Wednesday.

John Lipsky, the IMF’s first deputy managing director, said: “We must keep all options on the table, including the potential use of public funds to safeguard the financial system.”  See http://www.ft.com/cms/s/0/ee21ddbc-f08b-11dc-ba7c-0000779fd2ac.html?nclick_check=1

Why didn’t this make the news in the U.S.?  The American Press is controlled by private, wealthy investors who have their own agenda.  The rich and powerful have an agenda that differs from the average person on the street.  The overall economic system has consistently deteriorated to the point of collapse.  If the average citizen understood the brevity of the current economic crisis, all of the current congressmen would be removed from office along with most of the staff of the other two branches of government.  Congressman Ron Paul is the only member of Congress that I am aware of that has been challenging the status quo.  Now that he has been eliminated from the Republican ticket, I can freely speak about his record.  Paul understands the problem.  He has been an irritant to the powers that be.  His questions to Ben Bernanke of the Federal Reserve (FED) have forced Bernanke to admit that monetary policy without a gold-backed currency would promote inflation and instability.

Why do you think gold traded at a price of $1,000 for the first time in U.S. history?  The U.S. dollar is declining in value worldwide.  The following chart shows the U.S. Dollar Index relative to other currencies:

As you can see, the Dollar is in a downtrend.  My expectation is that the Dollar will continue to downward trend to the .51 level. another 30% decline.  If all else is equal, gold would then trade at $1,425 to $1,650.  You can’t stop there.  Gold is the barometer that measures economic stability.  As the current system moves toward greater instability there will be a larger premium within the price of gold.  Gold retains value while paper currency loses value from inflation.  Silver has a similar nature.  Those in power have tried to convince the public that gold and silver were no longer money.  The prices of gold and silver have been rising against all currencies.  $3,000 per ounce is no longer unrealistic.

When a central bank has no restrictions tied to increasing the money supply such as a gold standard, they can issue as much money as they deem necessary.  By adding large amounts of cash to the system, they reduce the overall value of the currency relative to other countries.  This causes the decline in the value of the currency.  The Fed is injecting more and more cash into the system in an effort to save the banking system and will sacrifice the buying power of the U.S. Dollar to do it.  Holders of the dollar are losing value daily.  The only alternative to these holders is to trade their dollars for another asset.  This helps push the dollar to a lower value as well.  The U.S. authorities know that the dollar must decline but want an orderly decline, not a volatile free fall.  At some point, I expect a possible tipping point where large holders will run toward the exits.  If this happens gold will shoot up in a parabolic rise and at the same time the value of the U.S. Dollar will tank.  As I said earlier, the barometer is the price of gold.

Gold has consistently been a store of value throughout history.  I am not suggesting to hoard gold or silver.  All indications point to a gold-backed currency in the near future.  It will once again represent the primary medium of exchange.  Gold is a tool not to be worshipped.  It will be a medium of exchange allowing for the free flow of goods and services that we may flourish in an environment of "equal weights and measures".  Governments will not be able to manipulate "value" for their own agendas.  As former President Ronald Reagan once said, "Government takes from the needy and gives to the greedy."  Power without love as the motivating force is corrupting.  It will ultimately implode.

How would you like to be one of those who purchased the following stock in January of 2007 at $25.00 only to see it now worth $1.79?

Thornburg Mortgage is unable to meet margin call requirements by its lenders on $610 million.  Once the smoke clears this mortgage company will probably be out of business.  Another stock, Ambac Financial Group (ABK), is also in serious trouble.  Ambac is down 90% from its recent high.  However, Ambac’s problems have a greater repercussion than Thornburg.  Ambac is a primary insurer of financial instruments.  With this insurance "wrap", many securities were rated as "investment" grade securities.  This means that pension funds and other conservative investors could own these securities.  "Investment grade" is deemed to be highly secure.  However, if the guarantee by the insurer (Ambac) becomes worthless, then the "rating" of the security may fall below investment grade.  If that happens, then investors may have to liquidate their position and thus create a reduced demand for these securities.  The end result is the securities’ price is drastically cut.  Other holders of the security must then show unrealized losses on their balance sheets.  With additional losses, the holder must begin liquidating some of the assets to maintain financial stability.  This is a downward spiral.  Ambac is currenty insuring about $524 Billion of outstanding debt. See: http://www.washingtonpost.com/wp-dyn/content/article/2008/03/07/AR2008030700657.html

The financial institutions and the Federal Reserve are intimately aware of this issue.  They will find a solution to further prop up Ambac or the securities Ambac insures.  With a much lower stock price and performance, AMBAC will have difficulty raising enough capital to stay in business.  It did raise $1.5 Billion but I suspect that amount will have a high "burn" rate in the coming months as more debt securities heads south and Ambac is forced to pay out claims.

Banks face "systemic margin call," $325 billion hit: JPM

NEW YORK (Reuters) – Wall Street banks are facing a "systemic margin call" that may deplete banks of $325 billion of capital due to deteriorating subprime U.S. mortgages, JPMorgan Chase & Co, said in a report late on Friday.  See: http://www.reuters.com/article/ousiv/idUSN0832645120080308

Remember, when a bank loses money on a loan, the loss goes directly to the bottom line and forces the bank to contract its loans and investments.  If banks are leveraged 10 to 1 against their capital, this puts $3.25 Trillion into play.  Hopefully this isn’t the domino that causes all of the other financial dominos to fall.

Could it be that Our Heavenly Father is beginning the cleansing cycle?