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During my trip to
Canada
earlier this month I had the privilege to visit with a few old friends.
One of my favorites, GH, related a story some 60 years ago when he was a
small boy.
It seems that
GH’s parents were fearful of an exclusive upbringing in the city of
their male prodigy, so once a year for a month or so he was sent to the
family farm in Virginia
for a little broadening of his horizons. GH relates this story sometime
in his childhood at about the tender age of 5 or 6 years. One morning
he was sitting at the kitchen table with his Grandmother while she was
churning butter. He was listening to his Grandmother relate a story
while churning her butter with the rapt attention of a child. Every
once in a while she would cast a glance out the kitchen window at a hawk that
was circling high above her chicken coop in the backyard. At one point
in her story she noted the hawk had cupped his wings and was diving for the
chicken yard. Grandmother calmly in one fluid motion released the churn
handle on the down stroke, turned and produced a heretofore unseen shotgun on
the up stroke, stood and stepped to the back screen door. Without
hesitation she kicked open the screened door, shouldered the shotgun,
discharged a single round, whereupon the hawk disintegrated into a cloud of
feathers. She neatly stepped back into the kitchen and set the shotgun
back behind her chair and sat down before the screen door spring could pull
the door back closed. Without missing a beat she resumed her churning
and her story as if nothing ever happened. GH related that at that
moment in time he realized that he was not to ever question his Grandmother’s
judgment for the rest of his life. It seems that Grandmother knew
exactly where to look for the threat and then upon recognition, was not
afraid to take quick and decisive action to protect her assets.
In this age of
overwhelming data at our very fingertips we are sometimes slow to recognize
the threat due to data overload. The Federal BLS produces reams of data
that are calculated in a fashion that would make an embezzler blush. In
order to clear our minds a bit I direct your attention to the following graph
of National Totals of State General Sales Tax Revenues.
Note
that the trend is up for the last few years: +9%, +7%, + 6%, +2%, 0%
and -9% (based on the first 3 quarters of ’09 yoy). These numbers
are not inflation adjusted. If we use John Williams’s inflation
numbers from www.shadowstats.com you
will see that the situation is much worse than appears at first glance.
(True inflation is close to 10% and true unemployment is over 20%.)
Sales tax numbers probably show a much clearer view of general commerce than
most data, as it is harder to manipulate them. From the above chart
(even without any inflation adjustment) it is pretty clear that there are few
“green shoots” to crow about.
We are entering a
K-wave winter and the end of a debt super cycle. It will not be over
until much of the debt that has been built up in the last cycle has been
washed out. Transferring private debt to public debt does not wash it
out. Very little debt has been washed out so far in this cycle.
Government revenues are down sharply but their spending is at an all time
high and growing fast. This is leading to even more debt (which will
only make the correction worse). The Old Testament speaks of a 50-year
jubilee where all debt was forgiven twice per century. Fifty years was
roughly the time period of a long life span during that
age. Fighting the debt reset with more government debt will
only make the ultimate resolution more painful. We are in a U shaped
depression and will not pull out until the debt is washed out and everything
is reset. At that point the economy will boom but you must preserve
some wealth so you can participate in the future.
There can only be
one end to the madness that has brought us here and that is a debt
default. It can either come in the form of bond default or currency
default (or both). Hyperinflation is a currency default. A bond
default is where we stiff our bondholders and pay them a reduced amount or
nothing at all. Since about half of our bondholders are foreigners this
could lead to some rather hard feelings. At best they would never loan
us money again (except at loan shark rates) and at worse they could take up
arms. Having trouble borrowing funds would force our governments to
balance their budgets, as borrowing would be out of the question for years to
come.
For the record I
would like to state that I am an optimist and do believe in God’s
abundance for his children. Life will go on just as it does in Zimbabwe
today and other countries after a default. Things will be different but
in many respects life will continue on and humankind will continue to
progress. We will learn the harsh truth that we can only do for
ourselves. Government promises to take care of all our bills, our
housing, our food, our problems, our future worries and our health care are
just fairy tales. We must look to ourselves and to each other with the
help of God for our daily needs. Governments never give us anything;
they simply take. Small governments take a small amount and large
governments take…everything.
Bonds are
guaranteed certificates of confiscation in a K-wave winter. If you are
thinking of moving out of your “safe bonds” and into precious
metals do not wait until the last moment. Whenever you smell smoke in a
crowded theatre, immediately head for the exits. The exits are never
large enough for everyone to get through to safety in a panic.
The bond market is enormous (on the order of 130 trillion). The
precious metals market is tiny. Best to be one or two years early than
one or two minutes late.
Remember
GH’s Grandmother and keep an eye on the real threat. When the
hawk comes to visit your chicken yard it is too late to formulate a
plan. Recognize the threat, be ready and take action if you want to
have any chickens left.
The purpose of
life is a life of purpose.
Larry Laborde
Silver
Trading Company
www.silvertrading.net
Larry lives in the occupied South with his wife Puddy
and sells precious metals at the Silver Trading Company. Larry can be
contacted at llabord@aol.com.
You can view his web site at www.silvertrading.net.
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