Archive for December, 2011

The Future of Euro

Tuesday, December 13th, 2011

Confidence in a currency determines its future.  If people believe in the currency, they will store the generated value of their life’s work in terms of that currency.  They will place the money received for their labor into a bank for future consumption.   They expect the “value” to be protected until such a time they need the money to purchase goods and services.  They also expect interest payments for the privilege of the safe use of their money until they need it.  These interest payments should insure that value is retained into the future.  The primary  function of money is to store value.  Only as a store of value can it then be used as a medium of exchange.  This has been the underlying view of German monetary policy since WWII.

The Eurozone must tighten its monetary policy to survive.  Austerity measures are required by those countries who have attempted to sustain their lifestyle by borrowing.  Germany is dictating controls over those countries in trouble and this equates to a loss of sovereignty for them.  This policy forces the affected countries into recession with a strong potential of depression.  Greece is already there.  Their stock market is down 90% from its all time high.  The big question is will those countries bring the rest of Europe into a severe recession and will it spread to the rest of the globe.

2012 will see one to three nations exit the Euro.  You should expect a revolution to occur in at least one country which will need to be managed by those in power.  There are no established rules for exiting the Euro.  January 1 is its 10th anniversary and it appears that it will not survive another decade.  As a country exits the Euro, it will nationalize its own currency and preexisting sovereign debt is subject to default.  This is where the financial exposure is for the rest of the globe.  Once default occurs,  holders of that debt must claim the loss on their financial statements thus exposing the weakness that has been hidden by lax accounting rules.  This could have a cascading effect on the global financial market and worries central banks.

There is a high risk of recession in 2012.  We do not have the normal pre-conditions for a recession.  The high level of debt that has prevailed and a cleansing process is needed to remove this high level of debt.  The balance sheets of those who are holding that debt will take a major hit.  I am concerned that the instability of the Euro will adversely affect the U.S. financial markets and produce additional “MF Global’s”.

Real Wealth versus Derivative Wealth

Sunday, December 11th, 2011

Real Wealth is land, mineral resources, productive plants, durable goods, and human production creating the productive capacity of a nation.  Titles and stock certificates represent direct ownership of real wealth and is equivalent to real wealth.

Money (paper) wealth is debt which includes are forms of contracts which includes bonds, notes, loans, deposits, life insurance,, and pension obligations.  Money wealth does not represent the direct ownership of any real asset.  However it does represent an interest in  real assets of the direct owners.  The wealth of a nation is not increased when paper wealth is increased but the existing wealth is only inflated in terms of prices.

If people have confidence in paper assets, they will continue to buy paper assets.  But once they lose confidence, they will convert their paper assets to real wealth.  When this happens, interest rates on debt rise dramatically to lure asset holders back.  Greek 10 year notes are 30% while U.S. 10 year notes are 2%.  The market has lost confidence in Greece’s paper assets.

When paper wealth grows beyond the ability to absorb it with debt, the central bank’s goal is to depreciate the value of the paper wealth back to manageable levels by a continuous inflation.  

Exponential change (accelerating change) is on its way.  Growth requires energy in large amounts and there is no new scalable energy source out there.  As the energy costs increase due to greater scarcity and cost of extraction, complex systems will become simpler. and so will our lifestyles.

We fool ourselves at our peril.  Thinking that the future will simply be a continuation of the last 40 years is denial of the seriousness of the situation.  As the complex system breaks down, the rules will be changed.  Politicians will throw anyone under the bus to keep his or her job and lifestyle.

If you can’t accurately assess the risks, be careful about how you invest.  Futures and options risks have risen dramatically with the demise of MF Global.  Beware, you may not be insulated from the fallout of the risk-taking decisions of those connected at the top.  The insiders will pull their money first leaving the rest of us looking up at the undersides of the infamous bus.

Prepare for a different lifestyle

Saturday, December 10th, 2011

The world system is in dire straits from an economic point of view.  Right now, the Euro is the focus.  Financial institutions have embedded time bombs of derivatives in their balance sheets.  MF Global was a fine example of how quickly fortunes can reverse.  Once the dominoes fall in Europe, the focus will move to the U.S. Dollar.

Once the U.S. Dollar is in the crosshairs of the major financiers there will be volatility and fear will overtake greed.  There is no way out except by Divine intervention.  The U.S. Military are located around the world for the purpose of “National Security” or for the protection of our current lifestyle.  But as the global economic system deteriorates, desperation will replace common sense, especially among the poor and unemployed.  A simpler lifestyle will result from this crumbling system.  You can choose to accept it now or wait until it is forced on you.  The choice is yours.

Although governments and media have tried to convince us that gold and silver are barbaric relics of the past, none of them are selling their gold reserves.  Of all the known official gold reserves of governments around the world, 57-60% are stored in New York City Federal Reserve.  If things get dicey, President Obama may confiscated those reserves held for other governments and move them to a safe location such as West Point.  He would use the International Emergency Economic Powers Act (IEEPA) of 1977 to accomplish this.

Other countries would not be happy with the forced conversion of their gold to be paid back in U.S. Dollars.  This is why  Venezuela’s central bank has requested its 99 tons of gold holdings from the Bank of England, according to a bank statement sent by e-mail (citing the institution’s president Nelson Merentes).

It might be time to take a refresher course on gardening and convert some of that bermuda grass beauty to tillable land.  I hope you haven’t put too much herbicide on your lawn.  The body doesn’t process it well.  This great chemical experiment of the last six decades will soon prove to be wrong.  Biblical-based farming techniques will replace chemicals as the farming method of choice.  Range fed cattle will return to become the preferential method of raising cattle.

Mass transit rail systems will flourish as people reduce their automobile usage.  Europe figured this out decades ago.  The fat and happy American will slim down.  Hard assets will once again reign as stores of value.  I expect silver to return to its “Love” ratio of 16 to 1 with gold.  This convinces me that the average guy can do well by investing in silver and I am an average guy.  Gold may be subject to some type of restriction going forward so it is not as exciting as the prospects for silver.  Removal of all debt should be your immediate focus.  The fine print in many contracts is designed to protect the lender in case of extreme economic difficulties.  Keep some cash on hand in case a Bank Holiday is declared at some point.

Things were going so well in the 1960’s!

Time Bombs

Friday, December 9th, 2011

Maturing Bonds need to be refinanced and the bond auctions are coming soon for European countries shown below.  If no buyers show up, the yields will skyrocket or the central banks will create more money to buy the bonds with.  This will further mortgage our future into chaos.  Can the house of cards remain standing past April?



Delays in Government Reporting of U.S. Financial Condition

Tuesday, December 6th, 2011

With regards to statistical reporting, I have never found a delay to result in better than expected news.  With Christmas season in full swing, it would appear that the powers that be will try to protect the season of increased consumer consumption and prevent an emotional response to the delayed report.  If the report contained good news, the normal response would be to release numbers early and get a bump on the retail spending.  With a tentative release of December 23rd, the spending cycle will be all but complete.  John Williams of reported:

A Christmas Present from Uncle Sam. I called the U.S. Treasury, today (December 5th), to confirm the scheduled December 15th release of the 2011 Financial Statements of the U.S. Government, the GAAP-based (generally accepted accounting principles) accounting of the government’s financial operations for the 2011 fiscal year ended September 30th.

The advice received was that the release has been delayed until Friday, December 23rd, which is as close to Christmas Eve as the government can get. Given the way prior releases of these statements have been handled, though, the 23rd still has to be considered as a tentative release date, and I offer no comment as to any implications of the new timing and the potential for burying unhappy political news. Beyond an initial analysis of the GAAP financial statements, once released, I shall include an assessment of the key elements of the government’s finances as part of the updated Hyperinflation Report. The timing of that report will be discussed in the next regular Commentary.

John Williams’ December 4th Overview:

> – There Is No Sudden Economic Recovery, Just Bad-Quality Numbers and Deteriorating Labor Conditions
> – Latest Jobs Level Still Well Below Pre-2007 and Pre-2001 Recession Levels
> – November Unemployment: 8.6% (U.3), 15.6% (U.6), 22.6% (SGS)
> – Money Supply M3 Annual Growth at 2.7% in November
> – Potential Euro Disintegration Is Nothing Like the Looming Dollar Collapse

Unfixable: a critical 1:11

Sunday, December 4th, 2011

For the past four years I have been writing on the impending challenges ahead for mankind.  Energy depletion, chaos in the financial markets, and population-based resource shortages.  The following video encapsulates those views in a one hour and eleven minute video.  Set aside this time and view the presentation.  When the chaos comes, we must not be in denial of the problem.  We can prepare ourselves and our family for the turbulence ahead.  The wisdom from above is the only solution to the problems facing mankind today.


Is Economic Marshal Law Coming in 2012?

Thursday, December 1st, 2011

The coordinated action of six major central banks to stimulate the global financial system this week warns us of how fragile the system is:

China is in the midst of a huge investment bubble that has propped up raw materials (base commodities) markets around the world.  If it bursts, Australia, Africa, the Middle East, South America, all have high risk of severe contractions.  A vicious downward spiral of economic activity would occur.

Weak European Countries are all but lost.  This will increase money printing.

The developed economies will go after individual’s wealth by taxation.  Double taxation will become the standard.  You just thought that money was yours.

Volatility in the price of gold, silver, and oil will keep the average investor in anxiety.

Prices at the local level will continue to rise and cause people to reduce their expenditures on discretionary items and further the contraction.

It’s getting ugly out there!  A Bank Holiday (closing of banks so that you cannot withdraw funds) may be upon us.


VP Joe Biden reveals the fact that President Obama was considering a “Bank Holiday” during their transition and sought John Corzine’s opinion.  Mr. Corzine made bad bets on the European market and led MF Global into bankruptcy and there is a lot of money missing.  The  following excerpt is from:

About $200 million in customer funds missing at MF Global may have surfaced at JP Morgan Chase in Britain, the New York Times said, citing people briefed on the matter.

During MF Global’s last days, it overdrew an account at JPMorgan, the newspaper said, citing a person close to the matter. MF Global transferred roughly $200 million in the days before the firm filed for bankruptcy, the paper reported.

MF Global filed for Chapter 11 protection on October 31 after the New York-based company revealed it had made a $6.3 billion bet on European sovereign debt, spooking investors.

Regulators are trying to determine what happened to the missing money and whether MF Global may have improperly mixed customer funds with its own, a violation of industry rules. The total shortfall at the brokerage is estimated to be just under $1 billion.

The Administration is asking this guy’s advice?  Our Heavenly Father’s advice is the only words of wisdom worth anything at this point.  The complexity of the financial system is above any individual’s understanding.