Is the Clock About to Strike Midnight?

20 March 2012, 20:59

Sam Townsend

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“Is the Clock About to Strike Midnight?”

(An Economic and Investment Update)

 The US Dollar Index has resumed its rise against other currencies. Gold and silver have fallen as one would expect with a rising dollar.  However, oil and food remain expensive and shortages are possible. A bear market rally of large degree, which has lasted for nearly three years, has followed the first major leg down of an historic bear market with a deep retracement, and financial markets are vulnerable to sell-offs. All of this as the Global Financial Crisis shows unmistakable signs of continuing.

Global economic fundamentals remain under increasing stress; weak stock market internals show decreasing investor participation, lagging volume, and divergences between markets that, along with a lack of investor fear and mature price patterns of most markets, telegraph significant declines and gut-wrenching volatility ahead.

 The stock market surely has for centuries been the best leading indicator of the economy as it is of the prevailing psychological mood which swings from extremes of positive and negative mood at varying degrees of trend. When stock prices rise, the economy is expected to expand, though typically on a lagging basis.

 EWT believes, as do I, that the indicators of the pending debt doom are flashing red. All the central banks are desperately trying to re-inflate the debt bubble they have created but have managed, thus far, only to keep world debt levels flat.  Menacingly, the payments of principal and interest are so large that they could swamp the world’s taxpayers and producers of real economic wealth. Simultaneously, the market values of assets backing the debts continue to fall, thereby lessening the collateral backing of existing loans.[i]

 Intangible financial assets represent claims against current or future tangible assets, economic performance, or services; and the creation of such exploding financial claims on governments, businesses, households, and investors alarmingly accompany declining real tangible wealth. This real wealth – not just intangible “representational” wealth – is being consumed even as these intangible claims on real wealth are being created.

Massive debt defaulting results in deflation – an implosion of claims on real wealth that include paper currencies that are borrowed into existence by the global banking system. These “fiat” currencies have value only because governments say that they do and so long as people continue to accept them. Holders of U.S. dollars and debt around the world are getting very anxious.

The exodus from debt has already begun. Private lending has severely contracted since 2006, yet the overall debt level has contracted little. This is because sovereign debt of governments has tripled in the last ten years, to more than $30 trillion, as debt-engorged governments have become lenders, squeezing banks and businesses out of the marketplace.  As occurs in deflationary declines, marketplace business, investor, and household participants have urgent needs for liquidity and prefer these “near money” assets to things they might buy with it.

Repayment of public debt depends entirely on the taxpayers or the assets that government can otherwise redistribute from private asset holders. Federal, state, and local debt has exploded beyond levels that can be repaid or even serviced. Per capita debt levels are higher in the United States than in Greece. Governments at all levels in the United States and in most of the world have been borrowing to spend more than what the taxpayers want to contribute and have been promising benefits that unborn generations must subsidize.

More and more states and local governments are not meeting their debts, yet they do not stop spending and promising to avoid facing revolts by their citizens, the majority of whom now depend upon some degree of government largesse. States and local governments cannot print money, and their unavoidable and continuing spending cutbacks are also highly deflationary – as European governments are now experiencing. EWT warns that “a [deep] borrowing and spending contraction among states and municipalities is nigh”. Municipal bankruptcies are occurring or state governments have intervened in their affairs as insolvency of government and financial institutions loom larger.

Further failures at all levels of government threaten to become epidemic and, logically, are inevitable. Just do the math.

Health insurance and other entitlements and even pensions increasingly cannot be funded. Expect insolvency by the states themselves as well, and, as EWT reminds, “And bankruptcy – reneging on debt – is deflation. Investors think they have money when they hold a bond, but bond values are going to melt away.”

The Greek economy is in its fifth year of contraction and is accelerating downward. The other European economies are also weakening, and even major export economies including Germany, India, Brazil, Japan, and China. As Bill Buckler reports in The Privateer, Brazil and Australia, major exporters, recently “recorded their biggest trade deficits in year. . . . Elsewhere in Asia, trade is plummeting as customers in the US and Europe either cannot or are too afraid to borrow.”[ii]

EWT stated that “… the change from lending profligacy to lending conservatism will usher in the deflationary crash. Major banks are depositing huge sums of cash in central banks around the world; that is, they are not lending much money to anyone.” Deposits and other debt liquidity are moving to safer havens. As the global financial structure is crumbling, global debt is being ignored by almost all stock market investors at their own peril.

EWT warns: If the yield of T-Bills (U.S. Treasury debt less of less than 1-year maturity) rises rapidly, the financial crisis is imminent! They warn that investors who wait for “The Great Crash and Depression” will be too late. Over the last month or so, rates on Treasury Bonds have risen sharply. It seems likely that, for T-bond yields to resume their decline (and demand for bonds and their prices to increase) that global stock market prices will soon repeat, and probably exceed, the sharp declines of late 2007 to early 2009.

Similarly, EWT cautioned that, along with stock market declines, higher-risk debt and general commodities values should plunge again but even more severely than they did from 2007 into 2009, as credit markets implode and deflationary depression accelerates.

Bill Buckler writes, that the goal of our modern “economic managers” (statist politicians and central bankers) “is to preserve an economic system which can only survive by consuming real wealth. . . . The stated goal of central bankers and the other ‘powers that be’ in the financial world is to revive lending to rescue their economies. Their REAL goal is to do whatever it takes – anything that they find ‘necessary’ – to prevent the markets from once again crashing and exposing the REAL value of financial ‘assets’. . . . Sustainable economic ‘growth’ is only possible in a situation where more is being produced than is being consumed.”[iii] This has not been true in the U.S. for some time.

As we present in our “The Coming Investment Ice Age” multi-media publishing, not only stock prices may soon crumble, but also prices of bonds, annuities, other forms of debt, general commodities, and wages. This is a story about the ending of the biggest, fastest and most explosive financial con game in recorded history. The “powers that be” will not ultimately be successful in preventing an historic deflationary contraction.

This is why we urge investors and those who advise them to diversify into “sustainable living investments”, which are tangible and which actually directly produce and maintain life’s necessities.

Sustainable living investments preserve values, provide returns, and protect lifestyles even as conventional investment are found wanting.

See this and other blogs and sustainable living wealth and resource management information that facilitates abundant sustainable living where people actually live and work – even in Harm’s Way – at www.PreparedALHWays.com.

There you can also find key information and other useful resources, including our viral video “The Coming Investment Ice Age” video and blog at The Coming Investment Ice Age – Video.

www.PreparedALHWays.com, published by ALHWays LLC – ALHWaysTM is our acronym for “Abundant Living in Harm’s Way – always and in all ways”.  This Web site features multi-media publishing and programming and reports related to the rapidly growing sustainable living movement.  It explains how families, businesses, and individuals can benefit right where they live and work. Our desire is to engage people personally in order to connect them with the expertise and other resources that will help them develop local solutions tailored to their unique needs and circumstances.

We have also published Time to Head for the Ark which explains Abundant Living in Harm’s Way, why it’s the best way to live, why it is now both necessary and urgent, and how to gain and maintain it. I urge you to get a copy, if you have not done so yet – you may order a copy at www.TimeToHeadFortheArk.com.  In the book, I emphasize three key aspects. They are:

  • Health and Wholeness – physically, relationally, and spiritually;
  • Wealth and Resource Management – especially “sustainable investments” which preserve asset values and lives and provide meaningful returns in diverse economic conditions;
  • Abundant Sustainable Living in local communities and economies – in good times and bad and under a wide variety of circumstances.

Many people are concerned about the serious nature of today’s problems which may even be unprecedented. ALHWays LLC publishes “What To Do About the News”TM at www.WhatToDoAboutTheNews.com – a relevant multi-media commentary on today’s headlines and what to do about them that applies lessons learned and strategies we present. PreparedALHWaysTM and its related sites, media and growing network of colleagues, associates, and business and ministry partners are coming together to help people live and work well  in “therapeutic” communities, especially as our Creator designed and provides.

By God’s grace and faithful stewardship and preparation, the clock need not be about to strike midnight for you and yours. That’s my prayer. May our Lord bless you in every way.

Sam Townsend


[i] The Elliott Wave Theorist, published by Elliott Wave International March 14, 2012, P.O. Box 1618, Gainesville, GA, 30503, Ph: 770-536-0309, www.elliottwave.com. For quotations or attribution where indicated “EWT” herein. Robert Prechter and his EWI are superb technical market analysts, but this Report gives this master technician and trading champion’s market charts a rest and emphasizes the historically distressed economic fundamentals that are worrisome globally.

[ii] The Privateer, 2012 Mid-March Issue, #699, www.the-privateer.com.

[iii] The Privateer, 2012 Early March Issue, #698, www.the-privateer.com/sub.html.