Dear Mr. Sinclair,

This afternoon on JSMineset you stated the following, "Stop QE and everything will all come falling down including the US dollar in an amazing flop."

I know as you do that business conditions within the United States are terrible and that no meaningful Main Street led recovery is in the cards for the near future.  I surmise that this is the premise of your statement.  My questions surrounds that fact that:

1. Sustained QE leads to massive monetary inflation that eventually leads to price inflation.

2. Halting QE leads to an even more rapid deceleration in business activity with increasing corporate failures and the destruction of confidence in the economy.

This appears to be a "no win!" You have taught us that every hyperinflation is born out of a "currency crisis or crisis of confidence."

Is the impetus for hyperinflation a politicized blunder?  The halting of QE?  Can you elaborate on the Chinese and their tolerance of our monetary and political policies and how it relates to the countdown? There are only a few days to go…

Best Regards,
CIGA Marc

CIGA Marc,

It is simple. The present green shoots we do have (and they are meagre) are a result of Cash For Clunkers and QE. Any improvement coming in Gross Domestic Product is totally a product of the above. You have already seen what has happened to auto sales post government stimulus. CIT is hanging on by a thread and Capmark went belly up today.

The inviting conclusion is that a curtailment of QE would blast long bonds higher, drop the economy lower and bring on a more broad based crisis than we have already seen. In that event the dollar would fall in comparison to Asian currencies and the euro.

It is reasonable therefore to conclude, for political reasons alone, curtailment of QE with elections coming up in 2010 would cause the present administration to lose the strong control they presently have and as such is unlikely.

Continuance of QE, such as purchases of our own debt at auction, would continue to expand the US dollar supply and therefore weigh on price.

The type of inflation that can occur under both scenarios is hyperinflation, a currency, not an economic event. This is why it is so hard for people to understand as their definition of inflation versus deflation is sophomoric.

The Chinese have been quite public about their concern over continuing QE and therefore in my opinion are responsible for the occasional Hawk Talk from the Fed. The Chinese have been public and clear on their desire for a Super Sovereign Currency dollar alternative. That is why the US Treasury has paid some small lip service to this probability.

The Chinese might take a century to unwrap a stick of gum, but they do not have much patience past November of this year concerning their desired goals where the US dollar is concerned. All of this reflects back to the mid-July 09 China/US Financial Summit that got major downplay in the media.

The bottom line is the dollar is going suffer a terribly cold winter, and Alf is more correct than any of us on the price of gold.

Jim

Dear Jim,

You know of course the law in the US that states any financial instrument over $10,000 going in or out of the US has to be declared. This applies to US and foreign citizens alike!

All it takes is a stroke of a pen to say you can only take up to $10,000 out of the US…

Do you think this is coming soon?

Best
CIGA BT

CIGA BT,

Reduction, not elimination. It will of course be to fight terrorism and organized crime.

Jim

Jim,

This is still a very bullish chart. Breakout gap continues to pull around 100 GLD. Closing of the gap on shrinking volume will generate a bullish setup.

CIGA Eric

Click chart to enlarge in PDF format

Jim,

This could be a failure of the consolidation pattern since June.  Watch closely now as long bonds continue to trace out a large head and shoulders formation.

CIGA Eric

Click chart to enlarge in PDF format