On the tails of President Obama’s world-wide trip to reconcile our country with the Muslims, Congressman J. Randy Forbes (R-Virginia) gave an outstanding speech discussing whether America is a Judeo-Christian nation. I recommend that you watch the video here.

North Korea may be preparing for its third nuclear test, a show of defiance as the United Nations considers new sanctions on the dictatorship for conducting an underground nuclear explosion in May, according to a U.S. government official.¹

North Korea's reclusive regime has defied the international community to push ahead with its nuclear program, which it describes as a deterrent against possible U.S. attacks. Washington says it has no intention to attack and expresses fears that North Korea is trying to sell its nuclear technology to other nations.²

Binyamin Netanyahu is expected to endorse a “two-state solution” in a much-heralded speech this weekend, but he may stall on American demands to freeze Jewish settlements in the West Bank.

The Israeli media have predicted that when he speaks at Bar Ilan University in Tel Aviv on Sunday night, Mr. Netanyahu will recommend an immediate resumption of negotiations with the Palestinian Authority, but will also set out some demands, including that the Palestinians should recognize the state of Israel as the homeland of the Jewish people.

Mr. Netanyahu has in the past opposed the creation of an independent Palestinian state, arguing that such an entity would soon fall under the control of the Iranian-backed Hamas, the Islamist movement that rules the Gaza Strip.³

US long-term interest rates continued to test important levels on Thursday as investors worried about the level of national debt and whether the Federal Reserve might have to raise interest rates to combat inflation.⁴

Americans are cutting back on spending as unemployment surges, home prices continue to drop and wealth evaporates, signaling any economic recovery will be slow to develop. The drop in net worth is one reason Americans are boosting savings, blunting the effect of the tax breaks and income supplements from the Obama administration’s stimulus plan.

“It’s going to be very difficult to have any recovery in consumer spending without jobs and incomes recovering first,” said Christopher Low, chief economist at FTN Financial in New York. “The probability of a debt-financed consumer spending binge like we saw in the last expansion is essentially nil.”⁵

I encourage our readers to watch Peter Schiff on The Daily Show as he gives an excellent summary of how we got into this crisis and what he feels is still to come. Watch the video here.

Gov. Arnold Schwarzenegger vowed Wednesday to let California government come to a "grinding halt" rather than agree to a high-interest loan to keep the state afloat if he and the Legislature do not close the yawning budget gap in coming weeks.

State finance officials say California coffers will be empty in late July unless the projected $24-billion budget shortfall is resolved quickly. Schwarzenegger said that emergency borrowing would be too expensive and that his threat to block it was necessary to prod lawmakers into swift action.⁶

Art Laffer wrote an excellent article in the Wall Street Journal this week. In the article he said, “It's difficult to estimate the magnitude of the inflationary and interest-rate consequences of the Fed's actions because, frankly, we haven't ever seen anything like this in the U.S. To date what's happened is potentially far more inflationary than were the monetary policies of the 1970s, when the prime interest rate peaked at 21.5% and inflation peaked in the low double digits. Gold prices went from $35 per ounce to $850 per ounce, and the dollar collapsed on the foreign exchanges. It wasn't a pretty picture.

Now the Fed can, and I believe should, do what it must to mitigate the inevitable consequences of its unwarranted increase in the monetary base. It should contract the monetary base back to where it otherwise would have been, plus a slight increase geared toward economic expansion. Absent this major contraction in the monetary base, the Fed should increase reserve requirements on member banks to absorb the excess reserves. Given that banks are now paid interest on their reserves and short-term rates are very low, raising reserve requirements should not exact too much of a penalty on the banking system, and the long-term gains of the lessened inflation would many times over warrant whatever short-term costs there might be.

Alas, I doubt very much that the Fed will do what is necessary to guard against future inflation and higher interest rates. If the Fed were to reduce the monetary base by $1 trillion, it would need to sell a net $1 trillion in bonds. This would put the Fed in direct competition with Treasury's planned issuance of about $2 trillion worth of bonds over the coming 12 months. Failed auctions would become the norm and bond prices would tumble, reflecting a massive oversupply of government bonds.”

To read the entire article, click here.

The stock market continues to consolidate in a narrow range. The Dow and Nasdaq did hit new intraday recovery highs this week. The Dow hit 8877 for a high on Thursday. That is only 123 points away from our 9000 target, which my friends, is close enough (for government standards).

There are many indicators flashing warning signals and world markets have been on a tear so the market is getting more vulnerable. A perfect time frame would be mid July for a test of these highs or possibly new highs but not worth waiting for. The green shoots will turn out to be astro turf and nothing real.

We continue to lose jobs at an alarming rate. The job numbers are made better by massaging the statistics. The government creates jobs each month by what is known as the birth/death model. This is a model where the government guesstimates how many jobs were created by new businesses that were started up but are not yet in the system. Last month these new startups created over 200,000 jobs. In this environment? Believing in the tooth fairy has more credibility. That leaves us with an economy that is still on the decline albeit at a slower pace and the markets have rallied over 38% off the lows. It is vulnerable. Protect yourself.

The U.S. dollar traded slightly lower this week as it tested support again and bounced back up on Friday. More calls to end the dollar's reserve currency status is now the norm and eventually will take place. Not if...when. Don't wait for “when,” take action now! They are telling us exactly what is going to happen. The dollar is going to decline (likely collapse)…further eroding our purchasing power and making everyday goods more expensive.

Our country, many of our corporations, and too many citizens are deeply in debt. This comes at a time when interest rates are very likely to head substantially higher in the coming months and years. The time to take action is now! Diversify out of dollars. Buy gold and silver. Buy income-producing farmland. Food will be king! Buy foreign currencies. Put your money in tangible assets.

Treasuries dropped to a new low this week as the government had to once again sell bonds to keep the machine running. Rates have ramped up over the past few months and this has a direct effect on home mortgages. The rising mortgage rate is choking off new refi's and new purchases as well. For a government that has told us repeatedly that the way to recovery was stopping the imploding housing market, this is not a good development but highly predictable. Too much debt and the continual need to borrow more is a recipe for disaster. The basic laws of economics apply to the United States just like they do for Zimbabwe.

Gold and silver succumbed to profit taking this week as gold has not yet given the necessary closes over $1000. My view is that these metals will soar when the dollar starts its inevitable breakdown. I would rather be 6 months early and own my gold and silver than to be scrambling trying to find some as the dollar is tanking. In my view, there will be a physical shortage overnight when it starts to happen. Plan on a buy and hold for a 4-year period.

What should individuals, families, churches, and businesses be doing to prepare for inflation and higher interest rates? Start by purchasing items that you know you are going to need in the future and put them in storage. Buy items with a long shelf life now while they are still relatively inexpensive. Our church is now buying paper products, cleaning supplies, light bulbs, food, and other things we know we are going to consume or use in the future.

Families should have at the minimum a 30 day supply of food, water, medicine, and other essential supplies on hand at all times. Once you have prepared to meet the short-term needs of your family, then begin to purchase a 30-90 day supply. This will allow you to not only provide for your family but also give you the ability to share with your neighbors and friends who may not be able to prepare.

During these turbulent times, or as the Bible predicted “perilous times,” it only makes sense to be like the ant in Proverbs and prepare while you can for the “winter” that is coming. 

¹http://apnews.myway.com/article/20090612/D98OQAP00.html

²http://news.yahoo.com/s/ap/20090612/ap_on_re_as/as_koreas_nuclear_6

³http://www.timesonline.co.uk/tol/news/world/middle_east/article6482077.ece

⁴http://www.ft.com/cms/s/0/68ca2d04-55f2-11de-ab7e-00144feabdc0.html

⁵http://www.bloomberg.com/apps/news?pid=20601087&sid=a1X58Upr8MhE

⁶http://www.latimes.com/news/local/la-me-arnold-budget11-2009jun11,0,4348474.story

⁷ Market commentary is provided by Mr. Steve Meyers of Grainbelt Commodities, Marco Island, FL