Servias Ministries Blog

In 1968, the U.S. has $1 Trillion in debt.  Today the U.S. debt is now estimated at $50 Trillion.  Money had gold backing back in 1968 but today it is only a credit instrument, no different than a Treasury Bond.  Gold restrained credit from being created and minimized bad investment decisions since there was a limit on what could be lent.  With a restriction in lending, only the best opportunities would be funded.  Risk was therefore minimized by the lender.  Borrowers had to qualify and their projects had to prove they could cash flow the loan.

Debt and credit are two sides of the same coin.  One person has an asset and the other person has the offsetting liability.  The dramatic expansion of credit caused the strong pace of globalization.  The financial sector has become the largest borrower within the U.S. debt structure.  In 1945, it accounted for 1%.  Now it accounts for over 30%.  In the 1950’s the U.S. was a manufacturing based economy but now we are a service-based economy.  China now has many of our manufacturing jobs.

Over the last 45 years, this transition was accommodated by rising home prices and Americans were extracting “equity” from their homes to fund their lifestyle.  This minimized the pain of transition from a manufacturing-based to a service-based economy.  But now, the environment is changing.  Housing is no longer assumed to be forever growing in value.  The Fed is desperately wanting to keep inflation alive but the average American is no longer buying into the plan.  This 4 1/2 decade sustained expansion brought about by credit expansion is now at the end of its cycle.  A bust cycle is needed to cleanse the system.  Generally speaking, the bust must be similar in breadth to the boom cycle.  Either the length or depth must compensate for the extended boom cycle.

The private sector can no longer handle any more credit and this began in 2008.  Inflation is currently masking the reality by distorting the numbers.  The transition of the market to globalization brought forth a 95% drop in labor costs.  This is a one-time event and it impacted the prices of manufactured goods during the transition.  This is why the price of a PC has moved from $2,800 to $500.  The labor factor is the major ingredient in the decline of the price.  American workers built the first PC’s and now those same PC’s are built in China at 5% of the labor cost thus the consumer price index (CPI) has appeared to be reasonable but does not reflect the future challenges.

If we weren’t in dire straights, the Fed would not keep the interest rates at 0% through 2014.  Global stock and asset prices have been the beneficiary of the credit expansion policies of recent years.  Last year’s budget deficit of 8% kept the economy looking better than it would have with a balanced budget.  This deficit is keeping the U.S. economy on life support.  As long as the government spends on consumption, the hole will only get deeper.  The constituency does not want their consumption payments to drop and Congress will accommodate that request.

Low interest rates can only be supported by massive money printing.  This cannot be sustained forever.  Unless honest money arrives on the scene soon, Our Heavenly Father only knows how ugly this will get.  We must get back to honest money that cannot be manipulated.

The move toward making money all electronic is the essence of control.  This computerized environment enables a select few to control the masses in very short order.  Without personalized money, i.e. currency and coinage, those in control of the banking system can evoke stifling power at a moment’s notice.  An all electronic environment can control communications by shutting down cell towers, the Internet, and major telecommunications trunk lines.  When people conduct business with currency and checks, they bypass the controlled system hence the move to eliminate those mediums of exchange.

Creation of money is now done on a pure electronic basis.  In a stroke of a key, money is created out of nothing and this allows those in control to do what they think is best even though they do not have the perspective of Our Heavenly Father.  How much money is enough?  Only Our Heavenly Father knows.

The control of money can now be administered from a central location.  Commerce could be shut down in a matter of minutes or hours.  Emergency Executive Orders are in place to initiate such an act in the U.S.  What are we to do, move to another country where there is more individual freedom?  The answer lies in the Heavenlies.  We must pray for Thy Kingdom come, Thy Will be done.  The physical will ultimately line up with the spiritual.  The less money you have, the less control man can have on you.  Jesus’ ministry was not known for the size of His ministry funds.  If He needed to feed the multitudes, He expressed enough Love over a small sample of food to multiply it enough to satisfy the thousands.  He was in command of the “GOD” particles and those particles cannot be controlled or manipulated by man.  The Kingdom economy looks like a more efficient system to me AND it eliminates man’s quest to control.  Selah!

A fundamental expression in nature is a wave.  The following image provides a simple expression of a measurable wave:

However, waves can also rotate as shown below:

Cycles are a reality of life and at the most fundamental level we observe expansion and contraction.  Muscles are developed by expansion and contraction, stress and rest.  Our sleep patterns are cycles to allow us to be restored on a daily basis.  Economies work the same way.  Men do not make perfect decisions on expanding their business.  Some ideas simply fail.  Financial capital is directed toward those ideas and pursuits and they don’t produce the expected fruit.  Just as with a plant, you must prune away the unproductive branches for they are using resources the fruitful branches need.  It is also true with a nation’s economy.  Extended expansion needs an offsetting contraction.  However, politicians in their quest for power try to keep the economy in an expansionary mode in order to get reelected.  Since most citizens don’t understand the need for contraction, they oblige by reelecting the politician who promises them a rosy future.

As an entrepreneur for the past 27 years, I have grown accustomed to the cycle.  There have been lean years and there have been exceptional years.  Throughout those years, we have learned to live below our means.  It is easy to live up to a higher income but it is brutal when you attempt to contract your family budget.  However it can be done.

America has over-expanded for the last few decades and the piper wants to be paid.  The only question will be how much economic carnage will occur.  Historically, other economies crashed and burned after they attempted to do the same thing.  The world did not end but there was extreme pain.  This time looks no different.  Those who have followed this blog have been encouraged to downsize their needs and budget, get out of debt, and minimize financial risk (if possible).  Only Our Heavenly Father knows the timing when the unraveling will be in full swing.  That is why I encourage readers to seek HIS Face.  HE can and will guide each of us through the tumultuous times.  Love and peace will sustain us individually as the contraction gets into full swing.

Warren Buffett recently posed the question, “Would you rather own all the farmland in the U.S. or own gold?”  Most of us would say farmland since we know that it would produce food to be consumed by society.  However the better question to ask is, “Would you rather sell your farmland for gold or a fiat-based currency that was printed out of nothing?”  Would you rather auction off a scarce commodity and receive gold or US Dollars or Euros?  Since the US Dollar has lost over 90% of its value in the last 50 years, why would you want to sell a producing asset for a declining asset?

The recent drop in gold, silver, and related stocks is a buying opportunity for those who believe the above paragraph.  With the long term decline of a fiat currency, gold becomes a productive asset in its relative rise in value.  Gold and silver mining companies will soon return to the “utility company” status they once held during the Great Depression.  Their dividends will be similar to utility companies.

There is total denial that the Greek default will have a substantial impact on the global banking system.  The Euro is in deep crisis.  Portugal and Spain are the next targets for this contagion.  The losses are a real threat to the banking system.  Youth unemployment in Greece is at 51.4%.  80,000 Greeks attempted to storm the government buildings recently.  Greece has contracted by 15% and is contracting by 7% this year.  How many countries can contract by 25% and reasonably recover in the short term?  The Rule of Law is disintegrating in Southern Europe.  People are now terrified of the unknown.  The mainstream media would have us believe that all is well.

Now that one bond group of Greek obligations has defaulted, we must consider the other groups that have yet to experience a cash transaction requirement.  Until a bond is at redemption or an interest payment is required, it has not legally defaulted for nonpayment.

Bank bonds, Hellenic Railway bonds, Urban Transportation bonds, etc. will all be impacted by default.  How big will the line be tomorrow as all Greek bondholders seek to make their insurance claim?  This reminds me a slow motion train wreck.