The Luther quote you cited was him talking about Christians, not unbelievers.
Correct.
And how do you define "holy" that excludes God's wrathful justice on sinners? It appears to me that you have some obsession with the exclusion of God's anger, as if you think if God is angry at sinners, then He is angry at you, because you're a sinner, and you further think that to appease God's anger you must "get your duckies in a row." That sounds like your thinking is legalistic by nature, as if you don't think of your relationship with God as friendly, as if you can't see God's grace in that relationship.
But for certain, since the Bible says, "he who does not believe will not see life, but the wrath of God remains on him." So from this we see that believers have a grace relationship with God, and therefore God is friendly toward all who believe; but unbelievers are unregenerate and have no interest in obeying Christ, and the wrath of God remains toward them. What distinguishes those whom God loves from those whom God is wrathful toward is whether or not they believe the gospel (and in so doing have repented of their sins).
So then, when I quote the Bible saying that God is angry toward sinners, do you think you are included in that?
My problem isn't with God's wrath. My problem is with a conception of God's wrath that presents a faulty view of God.
You and I
are sinners. The fact that we are Christians doesn't change the fact that we are sinners--dirty, rotten, scoundrel sinners. The Old Man remains in us until the day this old mortal flesh expires. That is why the Christian must live penitently, in repentance. That means that insofar as we are sinners the Law speaks against us--and rightly so. So that the Law can, in its preaching, mortify my flesh and drag my knees to the ground in repentance, to grieve over my sin. But the beauty of the Gospel is that the condemnation of the Law does not destroy me. Through faith I behold God in Christ who forgives me all my sin and who is gracious beyond measure, and that I can freely come before and confess my sins, and know I am forgiven, and that grace super-abounds above and beyond all my abounding sin. Not that "if grace super abounds I may go on sinning"; but that if I am Christ's then I belong to God, and if I belong to God then I should no longer be captive to sin and the passions of my flesh--but when I am weak (and I am weak) and where I fail (and I do fail), I can always hope, trust, and be at peace in the Lord who gives me peace and comfort, saying I belong to Him.
So no, my relationship isn't built on legalism, but grace. But I do not ignore the dread truth of the Law and its just condemnation.
For the Law that condemns my unbelieving neighbor condemns me all the same--for sin is sin. The difference isn't in the Law or in the sin; but faith--for faith beholds God in Christ, trusting boldly in God's promises, and therefore beholds not a God obscured by the dread terror of the Law but beholds the God made incarnate in the living, breathing, suffering Jesus Christ.
And the love of God which He has for you and me who have faith is the same love with which He loves the whole world of sinners; for He who became flesh of the Virgin and embraced the shame and pain of the Cross did so for you and me, and He did so for all sinners.
Thus to present wrath and love as though God's wrath applies only to "those people" and God's love only applies to "me and my own" is a radical missing of the mark. It ignores the seriousness of the Law in its condemnation, which is meant to drive you and me as sinners to our knees in humble grief and contrition over our sins; and it ignores the full scope and beauty of the Gospel which is that God so loved the world that He gave His only begotten Son, so that whoever trusts in Him shall not perish but have life eternal.
Wrath is not an emotion God feels toward "the bad people over there". Wrath is when I behold God in the depth of my sin--in my sin, gazing through the condemnation of the Law, I can't see the God who loves me--who loves me in Christ and gives Himself to me in Christ--I see condemnation and death. Because I justly deserve condemnation and death in my sin.
Love, however,
God is love. God's love is not an emotion He feels toward those special people; but it is the universal truth of who God is toward Himself and all creation. For God loved before the foundation of all creation, and in that love He made all things, in that love He has caused all creatures to exist, including you and me. And it is that love that He, from beginning to end, intends to bring all things into its perfect conclusion in Christ. God loves the unregenerate sinner no less than He loves you and me. He loves the most contemptable sinner, the sinner who will never believe, just the same as He loves you and me--for that is God's love, without partiality, but full and perfect in Christ, who gave Himself for all upon the cross.
-CryptoLutheran