National debt is at $545,668 per household and growing!

National debt at $545,668 per household
Published: May 30, 2009 at 2:51 PM

WASHINGTON, May 30 (UPI) — Federal debt last year amounted to a record $545,668 per U.S. household — a 12-percent spike in just one year, government sources said.

The increase burdens each household with an additional $55,000 in national debt for just 2008, USA Today reported Saturday.

The increase can be pinned on the explosion of federal borrowing during the recession and an aging population that is driving up the costs of Medicare and Social Security.

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No government can live with that burden without taking unprecedented action at one point.

Regards,
CIGA Christopher

The following is an important website you should check often.

http://www.usdebtclock.org/

Jim Sinclair’s Commentary

Alf’s 3rd wave is beginning.

Gold refiner responds to demand for gold bars
The news feeds on this site are independently provided by Adfero Limited © and do not represent the views or opinions of the World Gold Council.
Tuesday, 19th May 2009 (87 views)

Gold refiner and producer Argor-Heraeus has switched its focus to gold bars in order to meet rising demand.

The company, based in Ticino, Switzerland, is responding to increased investment in solid gold as a result of the global economic crisis by manufacturing a larger number of bars, AFP reports.

Argor-Heraeus chief executive Erhard Oberli told the news source that he had "never seen anything like" the current levels of demand since he started working in Ticino around 20 years ago.

He added that gold has been "out of fashion in Europe" in recent years, but that has "changed totally", with bars seen as a "safe haven" by investors who have lost confidence in financial markets.

Delivery times for gold bars have risen from ten days to around two months and the firm is moving production activity from its semi-finished products arm to increase supply.

Speaking to Reuters recently, president of the RPG Foundation DH Pai Panandiker predicted that gold supplies will "shrink" as mines mature, making the precious metal an ideal choice for long-term investment.

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Jim Sinclair’s Commentary

In terms of disturbance to the social order, there is no more serious a problem than the brushed aside, aided in avoidance, increasingly default prone pension programs in terms of what they are worth versus the normal climbing commitments to pay out.

Bailouts are sure to come as it is quite evident, assuming you can add one and one with the result of two, that the agency has no financial capacity to cover the problem even though they make bald faced claims otherwise.

A guaranty is only worth what the guarantor is worth. Should that lesson not be evident now?

You have to love this entity taking the 5th.

I wager you I could give them better advice then what they got from the Wall Street firms at 1/10th of what they paid.

Shortfall Triples at U.S. Pension Guaranty Agency
By DARRELL A. HUGHES and JOHN D. MCKINNON
MAY 21, 2009

The federal agency that backstops corporate pension plans reported that its deficit tripled in the last six months, to $33.5 billion. Despite the shortfall, the agency said it has enough assets to pay benefits for many years, even if the holder of one of the largest retirement programs, General Motors Corp., were to file for bankruptcy.

The news came as the Pension Benefit Guaranty Corp.’s former director invoked the Fifth Amendment in response to lawmakers’ questions about possible mismanagement under the Bush administration. The PBGC’s inspector general last week issued a report saying that the former director had violated prohibitions on contacting bidders that were seeking investment contracts.

The former director, Charles Millard, has denied allegations that he had inappropriate contacts with several Wall Street firms that won contracts to advise the agency, and said his actions were approved by agency counsel. But his attorney, Stanley Brand, said in a statement that it was best if Mr. Millard didn’t testify at a Senate hearing Wednesday, in what he described as a "biased and hostile environment."

The PBGC deficit stood at $11 billion, compared with its long-term obligations, as of Sept. 30. The agency attributed the deterioration of its finances since then to the assumption of pension-plan obligations from insolvent companies, as well as investment losses and the current low interest-rate environment.

The PBGC also warned that distressed companies are likely to terminate more pension plans, leading the agency to take on more of those obligations.

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Jim Sinclair’s Commentary

If S&P lowers their "make believe" credit rating on Great Britain’s debt, the S&P will have to do likewise on US debt in time.

I am sure that Gitmo will still be there so these executives of S&P will have a fine view of the Caribbean from their new airy chicken coup homes. Swimming lessons will be provided on a water board. The group will be lead nude by dog collar and leashed to the swim lessons by that nice lady in all those old pictures.

Who knows, they might like it.

Britain’s debt outlook lowered to negative
Britain’s debt outlook lowered to negative from stable by Standard & Poor’s

LONDON (AP) — Britain faces the unsettling possibility of seeing its debt rating downgraded, after credit ratings firm Standard & Poor’s said Thursday it has revised the country’s outlook to negative from stable.

Though the ratings agency reaffirmed the country’s long-term triple-A credit rating — reserved for the least risky bond issuers — it said the outlook had deteriorated because of massive borrowing to deal with the recession and the banking crisis.

The outlook revision does not trigger a formal re-evaluation of Britain’s rating — unlike being put on credit watch — but does mean that policy makers have to be aware that a downgrade may happen if public finances do not improve.

The pound slumped by over 2 U.S. cents to just below $1.56 after the news, but recovered most of its ground to trade around $1.57.

Meanwhile the FTSE share index fell nearly 140 points, or around 2.8 percent, though like other markets around the world it was facing selling pressure after the U.S. Federal Reserve warned that the U.S. economy would shrink by more than anticipated this year.

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Jim Sinclair’s Commentary

Sorry, he is wrong. The day of reckoning for the US dollar has already come and gone.

I promise you an arctic freeze for the dollar this winter. It will be cold and ugly!

Day of reckoning looms for the U.S. dollar
Alia McMullen, Financial Post  Published: Wednesday, May 20, 2009

The U.S. dollar’s day of reckoning may be inching closer as its status as a safe-haven currency fades with every uptick in stocks and commodities and its potential risks – debt and inflation – are brought under a harsher spotlight.

Ashraf Laidi, chief market strategist at CMC Markets, said Wednesday a "serious case of dollar damage" was underway.

"We long warned about the day of reckoning for the dollar emerging at the next economic recovery," Mr. Laidi said in a note.

Mr. Laidi said economic recovery would weigh on the greenback as real demand for commodities, coupled with improved risk appetite, caused investors to seek higher yields in emerging markets and commodity currencies. This would draw investment away from the U.S. dollar, which was dragged down by growing debt and the risk quantitative easing would eventually spark a surge in inflation.

The U.S. dollar slid against most major currencies Wednesday, hitting a five-month low of US$1.3775 against the euro and pushing the Canadian dollar up US1.21¢ to a seven-month high of US87.69¢.

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Jim Sinclair’s Commentary

Goodbye Standard and Poors.

UK JOINS THE PIGS – GOLD IS YOUR ONLY PROTECTION
May 21st, 2009 by Egon von Greyerz

We have told investors that the rating of US and UK sovereign debt is a farce and that they both will be downgraded.

Today the UK is on its way to joining the PIGS countries as Standard and Poor’s lower the UK’s AAA outlook from “stable to negative”. The PIGS countries are the hopelessly weak European countries (Portugal, Ireland, Greece and Spain) which have all been downgraded this year. The UK government deficit is estimated to reach £175 billion in 2009 (it will probably be a lot higher). This represents 12.4% of GDP.  Total UK government debt is forecast to reach £800 billion or 57% of GDP.

In our February Newsletter, “The Bankrupt saving the Bankrupt”, we took the UK economy as an example of the bankrupt state of the world economy. Therefore, it should be no surprise to our readers that the UK will be the next country to be downgraded.  So it is not the slightest bit unexpected that the UK is joining the poorest of the major European countries.

The implications of the UK downgrade are much more serious than that. In our May newsletter, “It ain’t over ’til the fat lady sings”, we stated that the US AAA rating is a farce. The US government deficit is forecast at $1.8 trillion for 2009. That is 13% of GDP. US government debt will reach at least $13 trillion, and probably a lot more, this year. That is almost 100% of GDP! So the US figures are much worse than the UK figures. It is only a mater of time before US debt is downgraded. But downgrading it to AA is just the beginning since US government paper is junk and the US government bankrupt.

Take our word, US government debt will be downgraded very soon. Either the market will force the downgrade by dumping the US dollar and US government debt or Standard and Poor’s will wake up do the inevitable deed. But a downgrade of the debt of the  world’s reserve currency has such serious ramifications for the world economy that S&P’s will drag their heels and probably wait until the market forces them.

We have forewarned  our investors and readers about these events for quite some time.  In our Commentary last week, “Goodbye Dollar – Hello Gold“, we stated “….that the era of the dollar as a reserve currency is coming to an end soon and that the strongest and safest currency is gold”.

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This weekend I assured you that “Pay to Play” was key to the majority of pension fund money now decimated by the players.

The failure of pension funds and the misdeeds to get the money under management is going to drive pensioners and all those that planned some day to retire right out of their minds.

In State Pension Inquiry, a Scandal Snowballs
By DANNY HAKIM and MARY WILLIAMS WALSH
Published: April 17, 2009

The inquiry into corruption at the New York State pension fund started simply enough. Alan G. Hevesi, the former comptroller, was accused of using state workers as chauffeurs for his ailing wife.

But by the time Mr. Hevesi resigned his office in late 2006, investigators for the Albany County district attorney’s office were examining a more troubling problem: allegations that Mr. Hevesi’s associates had sold access to the state’s $122 billion pension fund, using one of the world’s largest pools of assets to reward friends, pay back political favors and reap millions of dollars in cash rewards for themselves.

“We knew this was not going to be a case we could handle ourselves in Albany County,” recalled P. David Soares, the Albany County district attorney.

In 2007, Attorney General Andrew M. Cuomo’s office and then the Securities and Exchange Commission took over the inquiry, which has ballooned into a sprawling investigation involving some of the most prominent players in New York’s political and financial worlds.

Hundreds of investment firms have been subpoenaed. Three people have been criminally charged and another has pleaded guilty to a felony. And the scandal has grabbed the attention of Wall Street, as members of the investment establishment’s top tier now face scrutiny.

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Jim Sinclair’s Commentary

Maybe you can fool some of the people some of the time and that time has worn itself out. To call mark to market a gimmick was a top in foolishness.

Criticism of U.S. accounting changes mounts
IASB said the rationale for watering down fair value is “crazy”
Duncan Mavin
Published: Monday, April 20, 2009

Wall Street lobbyists and U.S. politicians are damaging the credibility of corporate reporting and hurting the interests of investors around the world by pulling-back on fair value accounting, a top international accountant said.

The comments from Tom Jones, vice-chair of the International Accounting Standards Board, come after U.S. standard-setters unilaterally decided to dilute the controversial accounting rule earlier this month.

In an interview with the Financial Post, Mr. Jones warned of “a loss of credibility” and said the rationale for watering down fair value is “crazy.” He also cited concerns about political interference that could undermine the independence of accounting rule setters, a fear that was echoed by other senior accountants Monday.

In early April, the U.S. Financial Accounting Standards Board pledged to backtrack on fair value accounting under intense pressure from Wall Street and demands from Congress. U.S. lawmakers had even threatened to take the matter into their own hands rather than leave it to the accountants. The resulting FASB rule changes released on Friday allow banks to use judgment rather than market prices, to value financial instruments.

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China ain’t dopes. China knows that energy shortages will reappear within a few years and they want to be covered. Within a few years China will be the world’s largest economy.

Respectfully yours,

Monty Guild
www.GuildInvestment.com

UPDATE 4-China lends Russia $25 bln to get 20 years of oil
By Robin Paxton and Vladimir Soldatkin

MOSCOW, Feb 17 (Reuters) – China has agreed to lend Russian oil companies $25 billion in return for supplies from huge new East Siberian oilfields that will power its economy for the next two decades.

Russia’s state oil champion Rosneft (ROSN.MM) and pipeline monopoly Transneft (TRNF_p.RTS) on Tuesday signed a long-delayed deal to borrow the money from China Development Bank during talks in Beijing, sources close to the deal told Reuters.

"We agreed on supplies of 15 million tonnes of oil every year over a period of 20 years," Russian Deputy Prime Minister Igor Sechin told state news channel Vesti 24. He said a separate loan deal was signed but gave no further details.

Transneft Vice-President Mikhail Barkov said his company would receive $10 billion of the loan and Rosneft the other $15 billion. Rosneft declined to comment.

"The maturity is around 20 years and this credit is linked to supplies," Barkov told Reuters. "It is a historic event and the start of a big journey."

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There are economic laws even if the lawless demons of the Hedge Funds deny their existence. It is these laws that will lay low the many Crocouses of today. They can hire their legions of attorneys but their heads will be on the stake.

On Public Credit
by David Hume  (26 April 1711 – 25 August 1776)

It appears to have been the common practice of antiquity, make provision, during peace, for the necessities of war, and to hoard up treasures before-hand, as the instruments either of conquest or defence; without trusting to extraordinary impositions, much less to borrowing, in times of disorder and confusion. Besides the immense sums above mentioned, which were amassed by Athens, and by the Ptolemis, and other successors of Alexander; we learn from Plato, that the frugal Lacemonians had also collected a great treasure; and Arrian and Plutarch take notice of the riches which Alexander got possession of on the conquest of Susa and Ecbatana, and which were reserved, some of them, from the time of Cyrus. If I remember right, the scripture also mentions the treasure of Hezekiah and the Jewish princes; as profane history does that of Philip and Perseus, kings of Macedon. The ancient republics of Gaul had commonly large sums in reserve. Every one knows the treasure seized in Rome by Julius Caesar, during the civil wars: and we find afterwards, that the wiser emperors, Augustus, Tiberius, Vespasian, Severus, etc. always discovered the prudent foresight, of saving great sums against any public exigency.

On the contrary, our modern expedient, which has become very general, is to mortgage the public revenues, and to trust that posterity will pay off the incumbrances contracted by their ancestors: And they, having before their eyes, so good an example of their wise fathers, have the same prudent reliance on their posterity; who, at last, from necessity more than choice, are obliged to place the same confidence in a new posterity. But not to waste time in declaiming against a practice which appears ruinous, beyond all controversy; it seems pretty apparent, that the ancient maxims are, in this respect, more prudent than the modern; even though the latter had been confined within some reasonable bounds, and had ever, in any instance, been attended with such frugality, in time of peace, as to discharge the debts incurred by an expensive war. For why should the case be so different between the public and an individual, as to make us establish different maxims of conduct for each? If the funds of the former be greater, its necessary expences are proportionably larger; if its resources be more numerous, they are not infinite; and as its frame should be calculated for a much longer duration than the date of a single life, or even of a family, it should embrace maxims, large, durable, and generous, agreeably to the supposed extent of its existence. To trust to chances and temporary expedients, is, indeed, what the necessity of human affairs frequently renders unavoidable; but whoever voluntarily depend on such resources, have not necessity, but their own folly, to accuse for their misfortunes, when any such befal them.

If the abuses of treasures be dangerous, either by engaging the state in rash enterprizes, or making it neglect military discipline, in confidence of its riches; the abuses of mortgaging are more certain and inevitable; poverty, impotence, and subjection to foreign powers.

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Jim Sinclair’s Commentary

I put my money where my words are. These words are in the same place.

Peak Oil… What about Peak Gold?
by Jon Herring on 1/23/2009

Over the years, I’m sure you have heard a lot about “peak oil” – a condition whereby the remaining reserves of oil become harder to find, harder to extract and of lower quality. This results in declining production, even in the face of rising demand.

But you probably haven’t heard much about “peak gold”, where a very similar scenario is playing out.

In a free market, increasing demand and rising prices provide a significant incentive for producers to increase the supply of an item. And that’s usually how it works. But that’s not what is happening in the gold market.

Demand is certainly increasing. According to the United States Geological Survey, the demand for gold reached 1,133 tonnes in 2008, an 18% increase from the previous year. In dollar terms, this represented a 51% increase to an all-time record $31.8 billion.

2008 was also the year when the price of gold hit an all-time high over $1,000 an ounce. In fact, the price of gold has risen every single year since 2001.

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The graphical representation of the Formula illustrates an accelerating down trend. Yet despite this fact gold investors, possibly CIGAs, continue to display fear and lack of conviction. It is this fear and disorganization that allows bullion banks to pick our pockets regardless of the fundamentals. Anger turned inward makes for easy prey. Anger turned outward creates formidable opposition.

You two are the conduit for turning that anger outward. I just handle the Z scores.

Have a nice evening,
CIGA Eric

Click charts to enlarge in PDF format

Dear Mr. Sinclair,

Is this at all possible? Could you comment please?

Thank you,
CIGA N

The G-20’s Secret Debt Solution
by Larry Edelson   11-13-08

If you think this weekend’s G-20 meetings in Washington are only about designing short-term fixes to the financial system and regulatory reforms for banks, hedge funds, brokers, mortgage companies and investment banks … think again.

Behind the scenes, a far more fundamental fix is being discussed — the possible revaluation of gold and the birth of an entirely new monetary system.

I’ve been studying this issue in great depth, all my life. And given the speed at which the financial crisis is unfolding, I would be very surprised if what I’m about to tell you now is not on the G-20 table this weekend.

Furthermore, I believe the end result will make my $2,270 price target for gold look conservative, to say the least. You’ll see why in a minute.

First, the G-20’s motive for a new monetary system: It’s driven by and based upon this very simple proposition …

“If we can’t print money fast enough to fend off another deflationary Great Depression, then let’s change the value of the money.”

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Dear CIGA N,

Maybe not in this form, but at some time this will happen. Gold will basically be a control factor. That is a form of FRGCR.

I rather doubt that the G20 will do much other than yell and scream at each other for more Quantitative Easing from Washington in their area of economic concern.

I have learned never to say never with respect to other’s opinions.

I doubt it, now.

Regards,
Jim

I invite you to read the following news article from Chinastakes.com. The Chinese often make official statements through a non-governmental expert. As the article suggests, when you become the world’s largest debtor nation, you cannot push others around to cure your debt problem. I have taken the liberty of highlighting sections of special interest.

When the exogenous event of dollar repatriation, the dollar short squeeze and the realigning of carry positions is over (very soon), the dollar will drop like a stone.

Respectfully,
Jim Sinclair

Before Saving the US
November 11,2008
by CSC staff

The nature of the current global financial crisis is the biggest debt crisis in America’s history. The issuer of the world’s reserve currency, the US has been borrowing for quite a long time without any limit. America’s trade, international payment and fiscal deficits have existed for over 40 years (a fiscal dividend once occurred during Clinton’s administration but deficit soon returned). Statistics show that America’s internal and external debt exceeds $60 trillion, over 400% of the country’s annual GDP of a bit over $14 trillion. Of that total, family debt (including mortgages), financial and non-financial firms’ debt, and municipal and national debt come to about $15 trillion, $17 trillion, $22 trillion, $3.5 trillion, and $11 trillion, respectively, though it is hard to tell how these debts have been split up among foreign governments, financial firms, companies, and individuals.

To relieve the crisis, the US must repay its debts, and to do that it needs to live a more frugal life instead of asking others to continue lending it the money to maintain its over-consumption.

The first thing the government needs to do is reduce spending and the deficit. Correspondingly, the US needs to cut military disbursement, stop its global expansion and the robbing of oil resources from other countries. Companies should also become thrifty and avoid highly leveraged operation. Families and individuals should stop anticipating their income to buy houses and travel globally. Instead, they should warmly welcome foreigners to travel to and spend money in the US.

China Should Raise Conditions

But if the US must ask China to buy some portion of its national debt, what kind of conditions and principles should China we raise?

The principle should be the same as the basic principle upheld by the US and IMF when "saving" other countries in crisis: cut fiscal disbursement and both the government and the people should save money. Besides that, there are six points: first, the US should cancel the limits on high-tech exports to China, and allow China to acquire advanced technology and high-tech companies from the US; secondly, the US needs to open its financial system to Chinese financial institutions, allowing all Chinese financial firms to open branches and develop business in the US; third, the US should not prevent Europe from canceling the ban against selling weapons to China; fourth, the US should stop selling military weapons to Taiwan; fifth, the US should loosen its limits on numbers of Chinese tourists and allow them to travel freely to the US; and sixth, the US should never restrain China’s exports to the US and force RMB appreciation in the name of domestic protectionism and employment pressure.

If the US should refuse to agree to the six principals, that only means it doesn’t really need China to save its market and buy its national debt. Then China’s choice is quite simple: rationally adjust the structure of its foreign exchange reserve assets and avoid the risk of the US national debt according to market rules.

What is worth special attention is that the prerequisite for China’s purchase of US national debt is that China has enough foreign currency to meet the exchange demand when hot money is flowing out in large scale. Otherwise China will have to sell US debt to relieve its lack of foreign exchange currency, which will lead to sharp depreciation of China’s dollar assets. What is even worse, China may immediately suffer a financial crisis led by the lack of foreign currency.

So if the US wants China to help save its market, the US government and the IMF must admit China’s right to manage its foreign exchange independently. Once large scale hot money outflows occurs, China has the right to take effective measures to restrain the speed and amount of hot money outflow, and the US and IMF can’t blame China for it. This is the most important prerequisite, even more important than the six principles mentioned above. If the US can’t agree to it, China may trap itself when saving the US. When exchange crisis happens in China, who can promise the US and the IMF won’t hit China when it’s down?

(The author is a professor at Central China University of Science and Technology. The piece is translated from his article on China Business News)

Link to full article…

Welcome to the make believe world of what is left of the young lions. These people are clearly the top of the mega-speculative feeding chain and are now trying to eat each other.

Gold is the inverse of the dollar. Dollar strength is a product of short-term demand and short covering. This short covering emanates from enormous unstable risk carry trades and OTC derivatives written thereupon being buffeted by changing interest and cross rates, even if the changes are only window dressing.

What that means is large supply and demand emanating from our dear friends who are the same people who have basically killed the international financial systems. They are back again causing the US dollar to run contrary to the interests of fighting deflation as you will read below.

This dollar strength is not fundamental nor will it last one day longer than it takes the young lions to close or square their positions.

Welcome to the make believe world of what is left of the young lions. They are now trying to eat each other.

Jim Sinclair’s Commentary

To understand what is happening that so far has confused if not demoralized you, it is time to read the following. The key points are underlined.

Remarks by Governor Ben S. Bernanke
Before the National Economists Club, Washington, D.C.
November 21, 2002

Deflation: Making Sure "It" Doesn’t Happen Here
“Although a policy of intervening to affect the exchange value of the dollar is nowhere on the horizon today, it’s worth noting that there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt’s 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly.”

Of course, the U.S. government is not going to print money and distribute it willy-nilly (although as we will see later, there are practical policies that approximate this behavior). Normally, money is injected into the economy through asset purchases by the Federal Reserve. To stimulate aggregate spending when short-term interest rates have reached zero, the Fed must expand the scale of its asset purchases or, possibly, expand the menu of assets that it buys. Alternatively, the Fed could find other ways of injecting money into the system–for example, by making low-interest-rate loans to banks or cooperating with the fiscal authorities. Each method of adding money to the economy has advantages and drawbacks, both technical and economic. One important concern in practice is that calibrating the economic effects of nonstandard means of injecting money may be difficult, given our relative lack of experience with such policies. Thus, as I have stressed already, prevention of deflation remains preferable to having to cure it. If we do fall into deflation, however, we can take comfort that the logic of the printing press example must assert itself, and sufficient injections of money will ultimately always reverse a deflation.

I need to tread carefully here. Because the economy is a complex and interconnected system, Fed purchases of the liabilities of foreign governments have the potential to affect a number of financial markets, including the market for foreign exchange. In the United States, the Department of the Treasury, not the Federal Reserve, is the lead agency for making international economic policy, including policy toward the dollar; and the Secretary of the Treasury has expressed the view that the determination of the value of the U.S. dollar should be left to free market forces. Moreover, since the United States is a large, relatively closed economy, manipulating the exchange value of the dollar would not be a particularly desirable way to fight domestic deflation, particularly given the range of other options available. Thus, I want to be absolutely clear that I am today neither forecasting nor recommending any attempt by U.S. policymakers to target the international value of the dollar.

Although a policy of intervening to affect the exchange value of the dollar is nowhere on the horizon today, it’s worth noting that there have been times when exchange rate policy has been an effective weapon against deflation. A striking example from U.S. history is Franklin Roosevelt’s 40 percent devaluation of the dollar against gold in 1933-34, enforced by a program of gold purchases and domestic money creation. The devaluation and the rapid increase in money supply it permitted ended the U.S. deflation remarkably quickly. Indeed, consumer price inflation in the United States, year on year, went from -10.3 percent in 1932 to -5.1 percent in 1933 to 3.4 percent in 1934.17 The economy grew strongly, and by the way, 1934 was one of the best years of the century for the stock market. If nothing else, the episode illustrates that monetary actions can have powerful effects on the economy, even when the nominal interest rate is at or near zero, as was the case at the time of Roosevelt’s devaluation.

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Jim Sinclair’s Commentary

Judging from historical review, employing Quantitative Easing as a tool to fight deflation over a significant period of time will serve to depress the value of the currency in the long term.

Bernanke May Seek New Tactics as Fed Rate Nears 1%
By CB Online Staff
(Excerpts from article)

`Quantitative Easing’

The Bank of Japan, struggling against deflation, slow growth and consumers’ reluctance to spend, brought its policy rate close to zero before turning in 2001 to a so-called quantitative easing strategy of increasing money in accounts held for commercial banks. The policy lasted for five years, before the central bank began to draw down reserves and raised its benchmark rate to 0.5 percent, where it has been since February 2007.

The Fed has flooded the economy with so much cash that excess reserve balances at banks, or cash surpluses beyond what banks are required to hold against deposits, soared to $136 billion for the two-week period ending Oct. 8 compared with an average of $1.4 billion in the same month last year.

“The Federal Reserve has already entered a regime of quantitative easing,” said Brian Sack, vice president at Macroeconomic Advisers LLC who also worked with Bernanke as an economist in the Monetary Affairs Division.

As their liquidity programs dump excess funds into the banking system, it’s become more difficult for the Fed to keep the rate at which banks lend overnight to each other in line with policy makers’ 1.5 percent target

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Jim Sinclair’s Commentary

As violent moves take place both in rates (Lie-bor) and de-leveraged assets, currency value in today’s world reflects the short term currency demand and supply having nothing whatsoever to do with underlying fundamentals.

Dollar fundamentals are dire. Combine the facts that the largest denomination of reserves held by central banks previously having indicated a desire to diversify, and that dollar based institutions hold more OTC toxic derivatives than others, the dollar long term direction is DOWN.

What is taking place now is the crazy speculators in complex trades creating un-real prices in terms of trend, screwing up the world one more time.

Currency Carry Trade

What does it mean?
A strategy in which an investor sells a certain currency with a relatively low interest rate and uses the funds to purchase a different currency yielding a higher interest rate. A trader using this strategy attempts to capture the difference between the rates, which can often be substantial, depending on the amount of leverage the investor chooses to use.

Investopedia Says…
Here’s an example of a "yen carry trade": a trader borrows 1,000 yen from a Japanese bank, converts the funds into U.S. dollars and buys a bond for the equivalent amount. Let’s assume that the bond pays 4.5% and the Japanese interest rate is set at 0%. The trader stands to make a profit of 4.5% (4.5% – 0%), as long as the exchange rate between the countries does not change. Many professional traders use this trade because the gains can become very large when leverage is taken into consideration. If the trader in our example uses a common leverage factor of 10:1, then she can stand to make a profit of 45%.

The big risk in a carry trade is the uncertainty of exchange rates. Using the example above, if the U.S. dollar was to fall in value relative to the Japanese yen, then the trader would run the risk of losing money. Also, these transactions are generally done with a lot of leverage, so a small movement in exchange rates can result in huge losses unless hedged appropriately.

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Jim Sinclair’s Commentary

The supposed upcoming new Bretton Woods Agreement is more concerned with:

1. Unregulated hedge funds now screwing up the exchange markets making Bernanke’s fight against deflation ineffectual.
2. The implementation of Quantitative Monetary Easing.
3. The implementation of Fiscal Stimulus on a Global basis.

There is no chance of any new monetary order when the old one is presently acting like a Category 4 twister.

Yen Near Highest This Week as Stock Decline Crimps Carry Trades
By Ron Harui and Stanley White
(Excerpt from article)

Leaders of the Group of 20 industrial and emerging nations, due to gather Nov. 14-15 in Washington, will consider steps ranging from raising bank-capital standards to regulating hedge funds to address the financial crisis. Member nations’ finance ministers called for interest-rate cuts and increased government spending after meeting this week in Sao Paulo.

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Conclusion:

Since gold is the inverse of the US dollar and the dollar strength is purely from enormous money flows seeking to readjust their positions, it is quite short term. It could end as early as one minute from now.

When it does end, the dollar dives and gold roars.

Gold will trade at $1200 and at $1650.

Respectfully,
Jim