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 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' inflation numbers from www.shadowstats.com http://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
March 21, 2010