Thoughts on Markets

Wednesday, June 04, 2008

Jawboning Improves the Dollar - More on Debt



The big news from yesterday was the deceptive words of "Big" Ben of the notorious Federal Reserve. (By the way, in case you do not know, the Federal Reserve System is owned by the member banks and has no oversight checking on its operation. It has never been audited. Thus, it operates with autonomy.) Big Ben blamed all the bubble creation of Greenspan and himself on inflation. Wow, what an excuse that is! Inflation, not the Federal Reserve which expanded credit and "money" supply which resulted in the price inflation, is totally responsible. He stated that a stronger dollar is needed to curb the inflation (meaning, price inflation). That is very true. However, there is a serious problem.

Our financial institutions, including banks are in deep trouble over, not only, sub-prime mortgages, but becoming more apparent now both prime loans and credit card debt with the resulting bankruptcies. Nevertheless, Ben's words encouraged the dollar bulls and the precious metals, oil, and base metals took hits as the dollar moved upward on the basis of the jawboning.

The Federal Reserve is nestled somewhat uncomfortably on the horns of a dilemma. On the one hand what is needed to curb inflation is, indeed as reduction in the supply of dollars. However, were interest rates to be raised and the supply reduced, the feeble economic recovery would end and we would have a much deeper and longer lasting recession. Yes, I do believe we are presently in a recession. It is only the master mathematicians of the federal government who have been able to hide this fact by manipulating the economic data to their benefit.

By the way, Ben's jumping on the dollar breached another frontier. That is normally the purview of the Secretary of the Treasury. But of course, it is no biggie for Big Ben who has expanded the power and authority of the Federal Reserve well beyond what it has been historically. Nothing new in governmental or pseudo governmental agencies and departments.

Gold is moving up a bit to 883.50 and silver is at 16.67 with its last tick downward. The rhetoric moved the dollar higher for the shorter term.

By the way, looking at currencies, the Euro has backed down from its recent highs and looks to be not as strong for some time. Perhaps, the next tick on the interest rate in Europe will be upward. We will know after the next meeting. Have you noticed that the Brazilian Real is racing upward against virtually all currencies. Its economy is booming, as well. Possibly, a good place to have investments.

Back to the study of debt:

We looked at some laws and principles of lending yesterday, and I want to tackle one more today. Let's examine De. 15:1-3, "At the end of every seven years you shall grant a remission of debts. And this is the manner of remission: every creditor shall release what he has loaned to his neighbor; he shall not exact it of his neighbor and his brother, because the Lord's remission has been proclaimed. From a foreigner you may exact it, but your hand shall release whatever of yours is with your brother."

This is an interesting and important law. Yes, I say, "Law." Every word of the Sovereign God of all is a law. I remember being on a military transport ship crossing the oceans. Every word coming over the public address system was to be given as an order. It was the Captain's communication with all personnel on the ship and every announcement was to be as if the Captain, himself were speaking. The bible is the Word of our King, thus, it is law to all people whether or not they accept it. Rushdoony almost always referred, correctly, to scripture as the "Law Word" of God. We must see it as such.

The passage from Deuteronomy gives laws explicitly to the lender. First, loans to his brother or neighbor in the household of faith were to be forgiven, if not sooner paid, at the end of seven years. There was to be a Sabbath from debt to be enjoyed by all of the members of the covenant people. Second, to fully indicate the special and peculiar nature of loans to the professing believers, the passage considers loans to foreigners different. The lender was allowed to collect the loan to foreigners even beyond the seventh year. He was not told to exact it from the foreigner as a command, but was allowed to if he desired to do so.

I believe there is an implied command to all of God's people in the Sabbath from debt. That is, that no one should be in debt for longer than seven years. God's preferred way throughout scripture is debt free living for His people. This gives His people a freedom to change jobs or relocate in minimum time to answer His call more rapidly than a person tied down with debt. Debt free living is a blessing which is enjoyed almost as much as being freed from the law of sin unto death by the saving blood of Jesus Christ applied to believers by the Holy Spirit. The burden of debt hangs greatly on the back of a believer.

I would suggest that you meditate upon the subject of debt, search the scriptures for more insight and pray that King Jesus would show you the way to greatly reduce and eliminate any debt that you have. In this day of increasing price inflation, many of us use credit cards. However, credit card debt requires some of the highest interest rates. Use the cards, if you must, but be sure to pay the balance on time to avoid the interest. That is the only way credit cards should be used.

If you have a balance on your credit cards, remember that every purchase incurs interest until such time as the balance is reduced to zero. You no longer have the "grace period" available when balances are paid on time monthly.

More on the next posting. Please, post or send your comments and suggestions to me. I appreciate all criticism.

Best to each, Doug

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