Servias Ministries Blog

What we don’t know may come back and bite us.  Cash is king… still!  The U.S. consumer has once again painfully learned that lesson.  401-K’s are being tapped for emergency cash thus people are once again mortgaging their future to maintain their current paradigm, not unlike the U.S. Government.  We were once the largest creditor nation and have shifted 180% to become the largest debtor nation.  People want to blame Bush or Obama but the problem was well on its way to fruition when both men took office.  Bill Clinton opened the doors wide for the housing crisis and Greenspan was the partner in crime.  Their “anything goes” view of the financial markets opened a door that could not be closed.  Once opened, it was like opening a pharmacy to a drug addict.

Ben Bernanke is now attempting to navigate the country through this financial mess.  The problem is that his expertise (Analysis of The Great Depression) has a flaw that may prove to be his demise.  During the Great Depression, the U.S. Dollar was tied to gold, today it is not.  In the 1930’s during the global depression, investors flocked to the U.S. Dollar since the U.S. was more stable and the Dollar was backed by gold.  Now, no major currency is backed by gold and money is circling the globe looking for the “best” safe haven.  In an earlier blog, I mentioned that the true U.S. deficit in present day value is roughly $202 Trillion.  Once the market figures out that the U.S cannot continue its current path, the Dollar is at risk of collapsing.  If this were to happen, other countries and their currencies are at risk since the American economy is so intertwined with them.  Hard assets are the best insurance to protect wealth.  Gold and silver continue to be the best insurance policies against the sharks in the water who want to extract the wealth from average citizen.

Reduce your debt, it’s your best investment.  However, keep enough cash on hand to weather any financial storm that may arrive.

When politicians use the “labeling” game to classify future obligations of the nation, bad things will happen… maybe not today or tomorrow, but sooner than later.  According to Laurence J. Kotlikoff, professor of economics at Boston University, if you look behind the curtain of the U.S. Balance Sheet and analyze the numbers, we’re toast.  Asset and liability classification and valuation is important to the creditor.  In order to loan money against an asset, the issue is all about repayment.  If there are too many liabilities demanding future cashflow than any prudent creditor would not extend new credit to a borrower.  It makes no sense.

The following interview sums it up:

http://finance.yahoo.com/tech-ticker/%22enron-accounting%22-has-bankrupted-america-u.s.-deficit-really-202-trillion-kotlikoff-says-535354.html?tickers=udn,tlt,tbt,uup,TIP,%5Egspc,GLD&sec=topStories&pos=9&asset=&ccode=

In the world of Economics these opposing forces are observed and analyzed on a moment by moment basis.  Financial analysis programs on super computers are attempting to predict which of these two views will prevail in the markets around the world every minute of every day.  It’s like watching a herd of antelope running in one direction and then suddenly one in the herd detects danger and moves the whole herd toward a new destination.

When faced with an unknown event, our two year old granddaughter looks to mommy or daddy for safety.  If they project confidence, the child is comforted.  If they look uncertain, she begins to fret.  Investors are looking for someone who is truly confident of the future… and they are not finding that person.

Those in power of the money supply are like a child with a new chemistry set.  There are experiments that will prove to be successful but the ingredients for those are already used up.  Now the child still needs to see some results so he begins to mix chemicals without knowing the consequences of his actions.  Adding hydrochloric acid to water is relatively safe, adding water to hydrochloric acid may produce a disaster.

The universe is constantly expanding and the sun contains an abundance of energy beyond this planet’s greatest need.  However, we do not have the knowledge or infrastructure to take advantage of this abundance.  Our petrochemical infrastructure has peaked and will use up more of our resources to maintain our current paradigm.  This will increase uncertainty and curtail expansion of the economy.

The Federal Reserve continues to shrink the middle class by bailing out those who failed to maintain prudent investing and borrowing practices.  Near zero savings rates are designed to extract wealth from savers and give it to the financial institutions so that they can improve their balance sheets.  This policy forces savers to seek a return on investment in riskier instruments in hope of stable income.  This spells disaster for that middle class person who spent their entire life saving for retirement only to watch it confiscated by low rates and/or risky investments.  What a travesty!

What does one do in this environment?  Turn to Our Heavenly Father.  One Word from HIM produces all the confidence you need to pursue a direction.  Fear, uncertainty, and doubt melt away as HIS Word goes forth.  Why?  We know HIS Word originates out of Love for HIS children whereas politicians tend toward self interest at the expense of the populous and our long-term interests.

Where is the best place to invest?  In those areas sanctioned by Our Heavenly Father.  If you are in business, invest in your calling.  If you are in a ministry, invest in your calling.  If you are in neither, invest in a calling that is producing good fruit.  Either way, lay up your treasures in Heaven where there is no corruption.

Professor Black makes a compelling case against asset valuation issues contained in the banks’ balance sheets:

Revelations 18:10  Standing afar off for the fear of her torment, saying, Alas, alas, that great city Babylon, that mighty city! for in one hour is thy judgment come. KJV

Until recently, this Scripture seemed more allegorical than literal.  Not any more!  Let’s assume that Mystery Babylon consists of three aspects: financial, political, and religious.  These three areas have one thing in common: greed.  Whether it be greed for power or money or stature, the evil source is the same.  Money greases the wheels of Mystery Babylon and with over $449.2 Trillion in derivatives around the globe as well as perception-based currencies, Mystery Babylon is set to fall, yes, within an hour.

Having been associated with the Information Technology (IT) profession for 37 years, it is clear to me that Babylon can literally fall in an hour.  The Internet, texting, world phones, automated stock trading algorithms, and instant information have provided the needed infrastructure for Babylon to fall within 60 minutes.

IT used to be an 8 to 5 job.  Now it is 24×7 on-call job.   We have servers that run 525,600 minutes per year (just as the song indicates), we are never offline.  There are now redundant servers that insure 24 hour access, 365 days per year.

I tend to think that “the hour” would come at 9 AM Eastern time.  Europe’s markets are still open and most of the Western world is open for business and trading.  The speed of information is now fast enough where investors could place orders to dump stocks and bonds at a very high rate of speed and would cause Wall Street to suspend trading.  All sellers and no buyers would cause the market to plummet.  Leveraged hedge funds would dump everything to raise cash.  Banks would suspend lending until they could assess the balance sheet damage of borrowers.  Little known provisions to call notes would force borrowers to either pay up or file bankruptcy.

Money is now mostly electronic in nature and the Internet is robust enough to handle a large volumes sell orders be fearful investors.

The politicians would scurry around trying to figure out what law could be passed to fix the problem.  Church leaders would attempt to calm their flocks who relied on the traditions of man rather than the Revelation from Our Heavenly Father.  All of this could happen literally in one hour.

The final stages of economic collapse are based on two things: debt and fiscal mismanagement.  This is true for individuals, corporations, and countries.  Our presumption that we can conquer economic history and defy the laws that have held true in the past is simply arrogance.  Just as in the Book of Judges, the Israelites repeatedly did not learn their lesson, the West is doomed once again to not read and understand history.

The sovereign debt worldwide is of Biblical proportions and there is no way to repay the debt in today’s real monetary value.  Depreciation of fiat currency is the preferred method of response otherwise default on sovereign debt could get ugly much quicker.  The sum of perspectives of all individuals with money on a global basis  will determine when the inflection point occurs.  On a bigger picture, when Our Heavenly Father opens the eyes of the people and they see what is behind the curtain of the Wizard of Oz, they will realize that tangible value is the only store of wealth.  At that point the velocity of fiat money will increase as they try to buy up tangible value with their increasingly worthless dollars or other currencies.  That is why hyperinflation has a much greater probability than deflation.  Deflation occurred during the Great Depression because Roosevelt had a Dollar peg to gold which kept a restriction on the number of dollars in circulation and those dollars had a tangible value relative to the gold backing them.  Those dollars were being hoarded by people in an attempt to retain their wealth.  Other goods and services had less demand than the gold denominated dollars so their prices declined.

There will be a further disintegration in the Rule of Law and extreme taxation that will fuel the economic collapse.  In a sense, the Rule of Law has already been in a slow train wreck with the redefining of Law and the intent of the originators.  Those with ample treasuries are often able to circumvent the law using superior law firms or political influence.  The tampering with the tax code continues to look for ways to extract wealth from the population to fund fiscal mismanagement rather than putting fiscal policies under the magnifying glass.

China controls 97.3% of all rare earth minerals.  These rare earth minerals are required for wind technology, electric car technology, and military applications.  With this control, China offered manufacturing companies a 40% discount for rare earth minerals if they relocated to China.  With continued movement of manufacturing to China, the West continues to lose its manufacturing employment infrastructure, a fundamental support base for monetary value.  A country’s monetary base is really based on it ability to produce tangible output now and in the future.  Movement to a service based economy has created a vulnerability in a volatile world.

Shale natural  gas was supposed to be a multi-century solution to our energy problems but the toxic emissions from all of those extra wells are causing environmental problems.  See: http://www.dallasnews.com/sharedcontent/dws/news/localnews/stories/DN-gasdrilling_03met.ART.State.Edition1.3563c6c.html

Saudi Arabia is reducing its exploration plans with an excuse that it is saving those reserves for future generations, another confirmation of peak oil.  On April 20th, the BP oil spill began and the implications continue to develop.  There continues to be a high probability of a major hurricane in the gulf to stir up those 5 million barrels of oil that have leaked out and push them inland.  If that happens, it will close refineries and power plants close to the gulf who rely on large amounts of water for the processes.  The aging energy infrastructure coupled with the end of cheap oil provides a price floor for oil.

BP may not survive this oil spill for the claim that 75% of the oil is gone may prove to be false.  The media reports have been well managed painting an optimistic picture but the lawsuits will overtake BP’s ability to  survive.

The UK Energy Resource Center is reporting that governments are grossly underestimating the coming resource scarcity.  Classification of the various grades of oil misrepresent the overall energy value of reserves, up to 30% of reserves.  Heavy oil cost much more to refine versus “light” crude.  Only destruction of demand offsetting the decline of supply will keep the price of oil down.  In the meantime, China and India’s energy requirements are rising. Economic growth is currently tied directly with energy consumption.  See: http://www.guardian.co.uk/business/2010/jul/11/peak-oil-energy-disruption

Peak Oil is a frightening story and the government does not want the bad news of peak oil to be distributed especially in the current weak economy according to Robert Hirsch.   Over the last century, oil was cheap therefore economic expansion was achieved without restraint.  $100+ oil will contract the economy and those in power do not want the public to move to even a more defensive posture than currently taking place.  The U.S. is vulnerable to the price swings because we export 60-70% of our consumption whereas Russia is an exporter with substantial reserves.

In the current system: Economics directs politics and politics directs wars.

Bankruptcies are on track to exceed 1.6 million this year.  Not good.

The economic numbers show that we are in a downturn (after they are revised).  The U.S. Dollar is not stable and global investors are keeping a close eye on the “quantitative easing”.  The amount  of money that will be pumped into the system may trigger hyperinflation which would show up early in the price of oil.  If the price of oil rises, you can expect further contraction in the U.S. economy and if it sustains over $100/BBL, a severe contraction is all but assured.