Posted at 7:15 PM (CST) by & filed under General Editorial.

My Dear Friends,

I have just had the pleasure of seeing one of our associates arrive from Africa.

Because of meetings here, today’s work will be somewhat abbreviated.

Stay the course!

Regards,
Jim

Posted at 3:04 PM (CST) by & filed under In The News.

Jim Sinclair’s Commentary

Please read the following:

Bloomberg brought this on by a suit for freedom for information for which we are all grateful, but their reporting on it takes the award for the least words about anything.

Reuters is somewhat more forthcoming.

Please keep in mind any agency or bank fighting to hide figures has something really awful to hide.

According to early definitions, the Fed had the legal right to lend to financial institutions, individuals and partnerships with these funds. They had full and legal rights to make these determinations themselves without oversight.

Fed Urges Secrecy for Banks in Bailout Programs
By Jonathan Stempel
Thursday, August 27, 2009

NEW YORK — The U.S. Federal Reserve asked a federal judge not to enforce her order that it reveal the names of the banks that have participated in its emergency lending programs and the sums they received, saying such disclosure would threaten the companies and the economy.

The central bank filed its request on Wednesday, two days after Chief Judge Loretta Preska of the U.S. District Court in Manhattan ruled in favor of Bloomberg News, which had sought information under the federal Freedom of Information Act.

Preska said the Fed failed to show that revealing the names would stigmatize the banks and result in "imminent competitive harm." The Fed asked the judge not to require disclosure while it readies an appeal.

"Immediate release of these documents will cause irreparable harm to these institutions and to the board’s ability to effectively manage the current, and any future, financial crisis," the central bank argued.

It added that the public interest favors a delay, citing a potential for "significant harms that could befall not only private companies, but the economy as a whole" if the information were disclosed.

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Jim Sinclair’s Commentary

All of this occurred in 1932 exactly the same way it is happening now.

MOPE is an accepted school of economic thought adhered to by all of the financial world.

MOPE has gotten us here (2000- 2007) but economic law is still in effect.

Wall Street really believes that the worst is behind us, but it is not. That is the explanation of why the companies of the Walking Wounded and Critically Terminal are leading this rally.

It occurred before in history and is once again on stage, acting out the drama.

It is full of noise and fireworks indicating nothing more than speculation.

Stocks led by four wounded horsemen
Struggling financial firms Citi, BofA, Fannie Mae and Freddie Mac are dominating late summer Wall Street trading. Uh-oh. Who says speculation is dead?
By Paul R. La Monica, CNNMoney.com editor at large
Last Updated: August 27, 2009: 8:19 AM ET

NEW YORK (CNNMoney.com) — They say you can’t trust the government. Don’t tell that to Wall Street traders.

A bizarre trend has emerged during these hazy, lazy days of late summer. Overall market volume is unsurprisingly wafer-thin, but a big chunk of trading has been in just four financial companies that have received a healthy dose of support from Washington in order to make it through the credit crisis.

For the past few days, Citigroup (C, Fortune 500) (which taxpayers now own a third of), mortgage giants Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) (which were placed under government conservatorship last September) and Bank of America (BAC, Fortune 500) (which has needed $45 billion in bailout funds) have been far and away the most actively traded stocks on the New York Stock Exchange.

In fact, these four wounded horsemen of the financial sector comprised 40% of the overall trading volume on the NYSE on Tuesday. These stocks haven’t just been active, they’ve been surging.

This is kind of scary. It suggests that the late-summer portion of the almost six-month long market rally is being fueled more by speculation and momentum, not real optimism about a potential recovery in the financial sector and the overall economy.

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Jim Sinclair’s Commentary

From John Williams’ www.shadowstats.com, a service you should subscribe to. This is the truth of the MOPE statistics:

- Gross Domestic Income Down 2.1% in 2nd Quarter, with Record 4.6% Annual Decline 
- Housing and Durable Goods Not Signaling Recovery

Jim Sinclair’s Commentary

There simply is NO question.

The FDIC will have to go to the US Treasury and borrow all the funds required to meet all their commitments, thereby increasing the US Federal deficit to spiritual levels not contemplated in estimates so far.

FDIC List of Problem Banks Surges, Putting Reserve Fund at Risk
By Alison Vekshin

Aug. 27 (Bloomberg) — The U.S. added 111 lenders to its list of “problem banks,” a jump that suggests rising bank failures may force the Federal Deposit Insurance Corp. to deplete a reserve fund that shrank 40 percent this year.

A total of 416 banks with combined assets of $299.8 billion failed the FDIC’s grading system for asset quality, liquidity and earnings in the second quarter, the most since June 1994, the Washington-based FDIC said in a report today. Regulators didn’t identify companies deemed “problem” banks.

The U.S. has taken over 81 banks this year, including Guaranty Financial Group Inc. in Texas and Colonial BancGroup Inc. in Alabama, amid the worst financial crisis since the Great Depression. The surge forced regulators to charge banks an emergency fee to raise $5.6 billion for its insurance fund, which fell to $10.4 billion as of June 30 from $13 billion in the previous quarter, the agency said. The total was the lowest since the savings-and-loan crisis in 1993.

“We’re right in the middle of the cycle and it’s a very tough place to be,” said James Chessen, chief economist at the American Bankers Association, a Washington-based industry group. “We’ll have another couple of more quarters where banks will be working through these loan-loss problems.”

An $11.6 billion increase in loss provisions for bank failures caused the decline in the reserve fund, the FDIC said. If the fund is drained, the FDIC has the option of tapping a line of credit at the Treasury Department that Congress extended in May to $100 billion, with temporary borrowing authority of $500 billion through 2010.

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Jim Sinclair’s Commentary

We are headed for a very cold winter in the dollar.

MOPE continues to try to sell the dollar reverse case and that being a further unwind of the US economy and financial system is somehow good for the US dollar. That is an interesting but twisted view that will not have legs due to the law of supply and demand.

A Shocking Fall
by Egon von Greyerz – Matterhorn Asset Management

This month we will discuss what is likely to be a major change both in sentiment and in the economy in the next few months. The autumn of 2009 will be full of shocking surprises in the banking sector, in financial markets and in the world economy.  The events that we outlined in our previous newsletter, “The Dark Years Are Here” are going to start unfolding. There will also be shocking falls in stockmarkets, in the dollar and in bond markets. But these falls will create major opportunities for investors which we will also discuss.

The syndrome of hope and false expectations

Some readers might feel that we are prophets of doom and that there is only gloomy news coming out of Matterhorn Asset Management. For people who want only good news we suggest that you listen to politicians or read the newspapers or your average stockbroker’s forecast. This is where you find the good news. But if you do listen to these people, remember that virtually nobody warned you about the events in the last couple of years, and that today most of these people are saying that the worst is over. And this is also what stockmarkets are telling us, isn’t it? These “optimists” whether they are politicians, bankers or from the media all make their living based on good news and this is why they will continually tell you lies and never warn you about the risks.

Investments are all about managing risk and our responsibility is to understand risk and warn investors when risk is unacceptably high. We have done this for many years and we will continue to do it. Sadly most investors base their investment decisions on hope. When government, private and corporate debt explodes the risk to the economy becomes very high.  And when bank credit  is growing exponentially and bank leverage is 50 times or more, this is very high risk. When derivatives reach $ 1 quadrillion with virtually no reserves against this astronomical exposure then investors should run for cover.

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Jim Sinclair’s Commentary

How can you believe that there is safety in the US dollar or US dollar certificates?

Obama’s Spending Spree, Budget Numbers "Have All Gone Mad," Analyst Says
Posted Aug 27, 2009 09:00am EDT by Heesun Wee

When retail expert and all-around economy watcher Howard Davidowitz appeared on Tech Ticker in February declaring the worst was yet to come for the U.S. economy and that Americans’ standard of living has changed permanently, our comment boards lit up.

But surely with the latest rally off the March lows, bearish Davidowitz is more bullish, right? Not a chance. Look at your financial history books.

Two of the biggest rallies of more than 40 percent occurred during the Great Depression, says Davidowitz of Davidowitz & Associates,a retail consulting and investment banking firm. "People were sucked in and ultimately were destroyed," he says. It’s a warning to today’s investors, who are hoping to extend the rally.

Don’t get Davidowitz started on the economy or fundamentals. "Barack Obama’s numbers have all gone mad," Davidowitz says. The Obama administration recently announced the U.S. budget deficit will be $9 trillion during the next decade; $2 trillion higher than the original forecast.

And, the proposed price tag for health-care reform? "Minimum $3 trillion," Davidowitz says. "One trillion? Are you kidding?"

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Jim Sinclair’s Commentary

Yahoo Finance has gone slightly to the bear side.

“In the Tank Forever”: U.S. Consumers, Retailers in a "Death Spiral," Davidowitz Says
Posted Aug 27, 2009 07:30am EDT by Peter Gorenstein

Retail maven Howard Davidowitz paid another visit to Tech Ticker this week. And despite signs of improvement in consumer confidence and retail stocks rising, Davidowitz is steadfast in his belief the consumer is dead.

Rather than summarize, let me just highlight some of his best one-liners:

On retail:

* "The retail business is terrible… It’s almost all negative."

* "We’re going to close hundreds of thousands of stores."

On the consumer:

* "They’re still over leveraged, they’re losing jobs, their credit has been cut back."

On America:

* "We are in the tank forever. As a country we are out of control, we’re in a death spiral."

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Jim Sinclair’s Commentary

Knock them down and then stomp on them.

Those who lose homes may face state tax hit
Kathleen Pender
Tuesday, August 25, 2009

Californians who lose their homes in a foreclosure, short-sale or deed in lieu of foreclosure this year could be hit with a state income tax on canceled or forgiven debt.

A state law that temporarily exempted many homeowners from this tax at the state level expired at the end of last year. Attempts to revive it have not been successful.

The state law was similar to a federal one that exempts many homeowners from federal tax on canceled mortgage debt. The federal law remains in effect through 2012.

The state-tax hit could be substantial and the rules are complex. People in mortgage trouble should consult a qualified tax professional.

Normally, when a lender forgives debt, the forgiven amount is taxed as income.

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Jim Sinclair’s Commentary

Last month you went to the casino and lost $500,000.

This month you went to the casino and lost $400,000.

Things are really great. You have a "GREENSHOOT."

Go long the gambler.

U.S. economy shrinks at 1 pct rate in Q2
08.27.09, 09:51 AM EDT

WASHINGTON, Aug 27 (Reuters) – The U.S. economy contracted more slowly than expected in the second quarter as smaller declines in consumer spending and exports offset a record inventory liquidation, government data showed on Thursday, while corporate profits rose.

The Commerce Department said gross domestic product, which measures total goods and services output within U.S. borders, fell at a 1 percent annual rate, unchanged from last month’s estimate.

Analysts polled by Reuters had forecast output shrinking at a 1.5 percent pace in the second quarter after collapsing 6.4 percent in the January-March quarter.

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Jim Sinclair’s Commentary

Carried by CNBC, this article is not from "Whackedout.com." It is a serious article to be taken seriously by thinking people.

This means the FDIC will have to come to the US Treasury to borrow the funds required to meet these requirements.

The funds will have to be provided. The US deficit will rise exponentially.

The dollar must and will decline geometrically. The law of supply and demand dictate this.

Here is where the Karma of Economic Law flattens the dogma of MOPE.

1,000 Banks to Fail In Next Two Years: Bank CEO
Published: Thursday, 27 Aug 2009 | 11:44 AM ET
By: Natalie Erlich

The US banking system will lose some 1,000 institutions over the next two years, said John Kanas, whose private equity firm bought BankUnited of Florida in May.

“We’ve already lost 81 this year,” he told CNBC. “The numbers are climbing every day. Many of these institutions nobody’s ever heard of. They’re smaller companies.”

Failed banks tend to be smaller and private, which exacerbates the problem for small business borrowers, said Kanas, who became CEO of BankUnited when his firm bought the bank and is the former chairman and CEO of North Fork bank.

“Government money has propped up the very large institutions as a result of the stimulus package,” he said. “There’s really very little lifeline available for the small institutions that are suffering.”

More…

Posted at 3:03 PM (CST) by & filed under Jim's Mailbox.

Jim,

That’s enough analysis for me today, but I had to comment on your posting…

"All of this occurred in 1932 exactly the same way it is happening now." The words of a man that understands.

Time and price is more consistent with 1942, but debt liquidation and savings rate changes from 2000 to 2009 do not reflect the changes that took place between 1929 to 1942. If such is the case, the ABCD pattern of 2000- will be much bigger than 1929-1954. If such is the case, gold as a tool to monetary reform has barely moved to the upside.

CIGA Eric

LCSCAI  ZScore

Jim,

Love your site.

I hope you can answer this question:

How will the Treasury and Fed remove the liquidity from the economy and stave off inflation if much of the currency is in the hands of John Q. Public via the stimulus packages. I.E. – construction projects, Neighbourhood Stabilization Programs, Mortgage Assistance to families at risk of foreclosure, etc.? What are they going to do, ask for it back?

I am perplexed.

Regards.
CIGA Greg

Dear Greg,

Regardless of the many articles to the contrary, THERE IS NO PRACTICAL way to drain all the international liquidity created.

There are many academic approaches, but none can function without slamming the economy of the US and Euroland into a tailspin of epic proportions.

What I am telling you is absolute and incontrovertible FACT.

That is why this entire drama is so dangerous.

All the best,

Jim

Dear Jim,

John Williams’ www.shadowstats.com work is unmatched.

MOPE positions rising nominal stock prices and bouncing consumer confidence as leading economic indicators. This works as long as you don’t check the engine under the hood. Lift up the hood, and you’ll find rising deficits, a falling dollar/rising gold, and monster bear markets in bonds and equities when priced in a stable currency such as gold. MOPE makes for good entertainment, though.

CIGA Eric

Hi Jim,

I can hear it now: Bernanke to Lockhart – “Mr. Lockhart, do you care to revise your statement, Sir?”

Best,
CIGA Bernie

Real US unemployment rate at 16 pct: Fed official

The real US unemployment rate is 16 percent if persons who have dropped out of the labor pool and those working less than they would like are counted, a Federal Reserve official said Wednesday.

"If one considers the people who would like a job but have stopped looking — so-called discouraged workers — and those who are working fewer hours than they want, the unemployment rate would move from the official 9.4 percent to 16 percent, said Atlanta Fed chief Dennis Lockhart.

He underscored that he was expressing his own views, which did "do not necessarily reflect those of my colleagues on the Federal Open Market Committee," the policy-setting body of the central bank.

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Jim,

You were right. Big, short, and most downplayed news of 2009.

"It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."
– Henry Ford

Regards,
CIGA Eric

Fed urges secrecy on banks in bailout programs
Thu Aug 27, 2009 12:27pm EDT
By Jonathan Stempel

NEW YORK, Aug 27 (Reuters) – The U.S. Federal Reserve asked a federal judge not to enforce her order that it reveal the names of the banks that have participated in its emergency lending programs and the sums they received, saying such disclosure would threaten the companies and the economy.

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Inverse Relationship between USDX and Stocks
by CIGA Eric 8/27/09

  • Down dollar/Up stocks; Up dollar/Down stocks since 2000.
  • As the credit troubles intensify, the correlation between the USDX and stocks has tightened.
  • Keep in mind that a sustained rally in the USDX would imply weakness in stocks.  This is an unacceptable combination for policy makers.  This provides the foundation of the often cited rhetoric that there’s no political will in Washington to fight inflation (hyperinflation).
  • Let this serve as a reminder that there’s a distinction between talk of a strong dollar (MOPE) and reality of such an outcome.

(Click chart to enlarge)

UDXvsSP500

Posted at 6:15 PM (CST) by & filed under In The News.

Thoughts For The Day:

The FDIC decision to set high thresholds for private equity to buy banks will result in a decrease on what private capital will pay for busted banks. If private money can’t bid up the price, then the regular buyers of busted banks, if there are any left, will make lower bids that will cost the FDIC more money.

Commercial real estate loans start coming due in large amounts. US Banks have more than $250 billion in unrealized loans on their books in commercial loans. There are estimates by reasonable and accredited people that forecast as many as 500 regional banks could go bust on unrealized losses on loans on their books. This is a massive problem. There is a trillion dollar problem out there. With the shadow banking system in disarray there is no one to turn to. This also feeds into some SIVs. Interpretation of this is an awful problem which only the FDIC can functionally handle, and they will have to go to the treasury. That will further increase the US Federal Budget deficit. That will in turn put additional downward pressure on the US dollar.

 

Jim Sinclair’s Commentary

Times this figure by a minimum of two and there is only one case for the dollar: BEAR.

Decade of Debt: $9 Trillion
BY JONATHAN WEISMAN AND DEBORAH SOLOMON

Plunging tax receipts, soaring spending and a sluggish recovery will push the nation’s deficits dramatically higher over the next decade, creating new complications for President Barack Obama’s domestic agenda.

The deteriorating budget picture, detailed Tuesday in separate White House and congressional reports, comes just as Democrats and Republicans prepare to resume the battle over Democratic plans to spend $1 trillion overhauling the nation’s health-care system.

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Jim Sinclair’s Commentary

To put things into REAL perspective:

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Jim Sinclair’s Commentary

This has to be comic relief.

Obama’s Deficit Projections Assume That Congress Will Stop Spending
Aug 26 2009 12:00AM

One of the reasons why the Obama administration had to up their deficit projections for the next decade up a couple of trillion recently is because they finally had to face reality on their projections for economic growth.  They were predicting 3% economic growth starting in April of this year, and 4% growth from next year through 2013.  And then they based their calculations for tax receipts based on that growth.

The problem?  The economy hasn’t grown that fast, and isn’t likely to grow at the screaming-fast 4% rate next year or any year in the near future.

So Obama and his people took were finally honest with us and changed their projections.  But here’s another problem with those projections: They presume that Congress will stop spending above the rate of inflation for the next decade.  And that’s even more unlikely to happen than 4% economic growth.

Oh, and these protections also assume that the Democrats will let the government spending on things like food stamps and Head Start that was inflated by the “stimulus” bill deflate back again to their previous levels.  Which isn’t going to happen either.

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Jim Sinclair’s Commentary

Glee amongst the Green Shooters today was at spiritual levels.

Better look further before declaring a party.

Empty Bank Branches Add To Supply In Retail Real Estate
By A.D. PRUITT
* AUGUST 19, 2009, 12:02 P.M. ET

The ruins of Washington Mutual’s aggressive and unorthodox growth strategy is no more apparent than in the Windy City, where roughly 75% of the bankrupt bank’s branches have gone dark.

It’s a stark harbinger of what looms ahead for recession-battered retail real estate. A growing number of vacant branches being dumped on the market due to mergers and Chapter 11 filings are poised to push vacancy rates higher and exacerbate weak property values.

During boom times, WaMu opened about 170 branches in the Chicago area. The growth spurt underscored the Seattle company’s ambition to be the Wal-Mart of retail banking. WaMu attempted to build a presence in "Chicagoland" from the ground up by opening brand new branches to attract customers. It was a nontraditional strategy given that banks usually purchase an existing bank or branch network to expand into new regions.

As WaMu struggled, it shuttered about 60 branches in Chicagoland before it went bankrupt and was acquired by JPMorgan Chase & Co. (JPM) earlier this year. Subsequently, JPMorgan Chase closed about 70 more branches in the area, leaving only 40 of the original WaMu branches open, a company spokesman confirmed. Nationwide, Chase has closed nearly 400 one-time WaMu branches.

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Jim Sinclair’s Commentary

This is one you can take to the bank, if you can find a solid one anywhere.

We still have some too big to folds full of worth less than valued paper.

There’s no will to fight inflation
As we’re already seeing outside the US, central banks won’t stop printing money if it means choking off growth. Don’t expect anything different from the Fed.
By Bill Fleckenstein
The world’s central banks are loath to take away the punch bowl. Lest you think otherwise, consider the path forged by the Reserve Bank of Australia.

After recently suggesting it might raise interest rates sometime soon, the bank had a change of heart. I quote from the minutes of its Aug. 4 meeting:

"A particular source of uncertainty was whether the recent growth in household spending was due mainly to temporary government handouts, in which case it would probably soon fade."

We’ll see a variation of the Bloomberg headline for that story — "Australia’s RBA sees danger of raising rates too soon" — often in the days ahead. That’s because all of the central banks will be particularly reluctant to snuff out any "green shoots" in the economy.

And, when you remember that business is booming in Australia versus America (via its strong housing and commodity markets), you can only imagine how slow the Federal Reserve will be to take away the punch bowl here. This is all the more true given the political heat it will face as the unemployment problem proves to be particularly intractable.

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Jim Sinclair’s Commentary

The Chairman of the Fed did not protect his personal credit. This explains a lot.

Bernanke Victimized by Identity Fraud Ring
Exclusive: According to court documents, the Fed chairman and his wife were swindled in 2008 by a skilled team of crooks.
By Michael Isikoff | Newsweek Web Exclusive
Aug 25, 2009

If ever there were living proof that identity theft can strike the mighty and powerful as well as hapless consumers, look no further than the nation’s chief banker: Ben Bernanke. The Federal Reserve Board chairman was one of hundreds of victims of an elaborate identity-fraud ring, headed by a convicted scam artist known as "Big Head," that stole more than $2.1 million from unsuspecting consumers and at least 10 financial institutions around the country, according to recently filed court records reviewed by NEWSWEEK.

Last summer, just as he was dealing with the first rumblings of the financial crisis on Wall Street, Bernanke learned that a thief had swiped his wife’s purse—including the couple’s joint check book. Days later, someone started cashing checks on the Bernanke family bank account, the documents show. "It’s fair to say he was not pleased," said one close associate of Bernanke, who asked not to be identified discussing what the Fed chairman considers a private matter.

The theft of the Bernanke check book—never publicly revealed until now—soon became part of a wide-ranging (and previously underway) identity-theft investigation by the Secret Service and the U.S. Postal Inspection Service. The probe culminated in recent months with a series of arrests, criminal complaints, and indictments brought by federal prosecutors in Alexandria, Va. The targets: members of a nationwide ring that used an inventive combination of old-fashioned thievery and high-tech fraud to loot the bank accounts of unsuspecting victims.

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Jim Sinclair’s Commentary

What comes after minus junk rating? The LA rating signed with each bond certificate by the Governor

Service lowers Detroit’s bond status to below junk
1:52 p.m. CDT, August 26, 2009

DETROIT – Mayor Dave Bing says Moody’s further downgrade of Detroit’s bond status to below junk is more evidence that city operations need restructuring.

The international investors service has dropped Detroit’s bond rating from Ba2 to Ba3. Other certificates also have been downgraded. The outlook for other ratings are revised to negative.

Moody’s says Detroit’s negative general fund balances are "expected to be larger than previously reported," and the city is unlikely to meet plans to eliminate accumulated deficits.

Bing says in a release Wednesday that he wants to work with city unions to "make Detroit leaner, more efficient and financially sound."

He has asked for a 10 percent wage cut and other concessions to help trim a $300 million deficit.

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Jim Sinclair’s Commentary

The Green Hornet says the number goes up every day.

Crime really pays. The question is did the warden get his check?

3,900 stimulus checks went to prison inmates
By STEPHEN OHLEMACHER (AP)

WASHINGTON — The federal government sent about 3,900 economic stimulus payments of $250 each this spring to people who were in no position to use the money to help stimulate the economy: prison inmates.

The checks were part of the massive economic recovery package approved by Congress and President Barack Obama in February. About 52 million Social Security recipients, railroad retirees and those receiving Supplemental Security Income were eligible for the one-time checks.

Prison inmates are generally ineligible for federal benefits. However, 2,200 of the inmates who received checks got to keep them because, under the law, they were eligible, said Mark Lassiter, a spokesman for the Social Security Administration. They were eligible because they weren’t incarcerated in any of the three months before the recovery package was enacted.

"The law specified that any beneficiary eligible for a Social Security benefit during one of those months was eligible for the recovery payment," Lassiter said.

The other 1,700 checks? That was a mistake.

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Sinclair2 v2

Jim Sinclair’s Commentary

Mark his reappointment as the day of transition from the FOMC to the White House on monetary policy.

Bernanke May Redefine Fed Mission in Financial-Market Stability
By Craig Torres

Aug. 26 (Bloomberg) — Ben S. Bernanke’s renomination allows him to redefine the Federal Reserve’s mission as he expands its power over financial markets and pulls back on a credit surge the central bank used to keep the economy from collapse, economists say.

Bernanke’s agenda during the next four years will include elevating the Fed’s role in reducing excessive risk in major financial institutions, figuring out how to curtail asset bubbles, and scaling back $1.2 trillion of monetary stimulus.

“He will have the opportunity to permanently change the structure of the Federal Reserve system,” said Vincent Reinhart, a former director of the Fed’s Monetary Affairs Division who’s now a resident scholar at the American Enterprise Institute, a Washington-based research group.

President Barack Obama nominated Bernanke, 55, for a second term yesterday, lauding the Fed chairman for helping “put the brakes on our economic free fall.”

Bernanke, a former Princeton University economist, has already set in place numerous changes since he took over from Alan Greenspan in February 2006. He’s forced more cooperation between bank supervisors and staff economists and steered the Fed toward greater transparency. He’s also made his office more accessible, explaining his actions to the public on the CBS Corp. television program “60 Minutes” and at a town-hall meeting in Kansas City, Missouri.

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Jim Sinclair’s Commentary

The dollar cannot, and will not remain the primary reserve currency.

74 days to go.

French President: Dollar Can’t Remain World’s Only Reserve Currency

PARIS -(Dow Jones)- French President Nicolas Sarkozy said Wednesday that the dollar can’t remain the world’s only reserve currency, as the rise of emerging powers such as China and Russia challenge the U.S.’s prominence.

"The political and economic reality of a multipolar world will have to find sooner or later a translation on the monetary level," Sarkozy told foreign ambassadors, gathered for a yearly reception at the Elysee Palace. "A multipolar world can’t count upon one currency only."

Sarkozy also said that he won’t allow the euro to be the only currency to bear the weight of foreign exchange market adjustments as has happened in the past.

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Jim Sinclair’s Commentary

From the Washington Post, the Center for Public Integrity questions the integrity of the massive publicly funded foreclosure prevention program. Once again a government initiative is named for exactly what it is not.

Subprime Lenders Getting U.S. Subsidies, Report Says

By Renae Merle
Washington Post Staff Writer 
Wednesday, August 26, 2009

Many of the lenders eligible to receive billions of dollars from the government’s massive foreclosure prevention program helped fuel the housing crisis by issuing risky subprime loans, according to a report to be issued Wednesday by the Center for Public Integrity.

Under the $75 billion program, called Making Home Affordable, lenders are eligible for taxpayer subsidies to lower the mortgage payments of distressed borrowers. Of the top 25 participants in the program, at least 21 specialized in servicing or originating subprime loans, according to the center, a nonprofit investigative reporting group funded largely by charitable foundations.

Much "of this money is going directly to the same financial institutions that helped create the sub-prime mortgage mess in the first place," Bill Buzenberg, executive director of the center, said in a statement.

For example, J.P. Morgan Chase, Wells Fargo and Countrywide, which has been bought by Bank of America, are eligible to receive billions of dollars under the program, according to the report.

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Jim Sinclair’s Commentary

What is wrong with this picture?

The world is mad.

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Jim Sinclair’s Commentary

The FDIC sets guidelines for financial criteria for private non-bank, non-financial private capital to purchase busted banks.

The requirements basically eliminate most private capital and funds outside of China, Russia and the Middle East. This reveals the critical weakness of the FDIC capital position.

As their capital disappears, the public and known weaknesses of the FDIC call for a bailout, even a unique one, like paying off obligations in short term non marketable US Treasuries.

Seized Texas Bank Sold to Spanish Firm
Guaranty Deal Shows FDIC’s Willingness to Broaden Search for Buyers
By Binyamin Appelbaum
Washington Post Staff Writer
Saturday, August 22, 2009

The federal government is casting more broadly as it seeks buyers for a growing number of failed banks, including entertaining bids from foreign firms and seeking to attract new investors to the industry by easing restrictions.

The results were on display Friday, as regulators seized Guaranty Bank of Texas and immediately sold its branches, deposits and most of its assets to Spain’s Banco Bilbao Vizcaya Argentaria.

The failure of Guaranty, with $13 billion in loans and other assets, was the 10th-largest in U.S. history and the fourth-largest since the financial crisis began last year.

Regulators have sharply increased the pace of seizures this summer after months in which they left many unraveling firms untouched. The resulting spike in failures appears at odds with other signs that the economy is starting to mend, but analysts say the failures actually are an important step toward recovery. The seizure of a bank is in many ways the end of a problem, as the federal government absorbs the losses before selling the healthy parts to a new owner, setting the stage for renewed lending.

The greatest threat to that process is the dwindling supply of buyers. Guaranty is the 106th bank to fail since the beginning of 2008, and some healthy banks have sated their appetites for acquisitions. Regulators liquidated a Nevada bank last week after failing to find a buyer.

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Jim Sinclair’s Commentary

Before you read this excellent article lets clear up a major mistake inherent but not said here. The total dollar increment of the Chinese reserves at the high did not exceed $800 billion. It is not the total 2.1 trillion in reserves. You think they are stupid then you are stupid? They have NO dollar problems.

Now read the tables.

Why Is China Investing Overseas?
August 26, 2009
Erik Bethel

Chinese Premier Wen Jiaobao recently gave a speech mentioning that China will use its foreign exchange reserves, the largest in the world, to support and accelerate overseas expansion and acquisitions by Chinese companies.

At the end of 2008 China had US$1.9 trillion in foreign exchange reserves. Today, that number is over US$2.1 trillion.

China’s Foreign Exchange Reserves 2009 (US$Bn)

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Source: State Administration of Foreign Exchange

China has three main reasons for undertaking overseas M&A.

First, Beijing is looking for a way to diversify its massive holdings of US debt securities given the possibility of a U.S. dollar devaluation (yet, ironically, a dollar devaluation relative to the yuan means greater purchasing power abroad—another incentive for outbound investment).

Secondly, China is tapped out of most major commodities including iron ore, copper, oil and timber. The country simply cannot continue to grow at 9% per year (as it has for 30 years) without securing a stable supply of commodities.

Third, many Chinese firms want to move up the value chain and are looking to acquire retail and distribution assets, or firms that have proprietary technology, in order to complement their factories.

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Jim Sinclair’s Commentary

Do you really believe this hopeless group can lead us out of our present problems or even find their own way out without stealth actions?

EXCLUSIVE: House quietly gives ‘bonuses’ to top aides
Says student-loan subsidies needed in hiring market
By Stephen Dinan
Originally published 08:43 p.m., August 25, 2009, updated 04:18 a.m., August 26, 2009

A month after they voted to punish some corporate executives for taking hefty bonus payouts, members of the House of Representatives quietly gave their own staffers a new potential bonus by making even their top-earning aides eligible for taxpayer dollars to repay their student loans.

The change, which took effect in May, means House employees earning up to $168,411, or the top level, are now eligible for government-funded subsidies to help pay down their student loans.

House officials defend the change as a job-related benefit necessary to keep the government competitive in the hiring market – the same argument corporate chieftains used to defend their own pay scales.

"There’s still a tremendous demand for high-end Hill talent even in this current job market. Expanding eligibility for the benefit allows us to retain valued and seasoned personnel who might otherwise be lured away to more financially lucrative pursuits," said Kyle Anderson, a spokesman for the House Administration Committee.

The committee, which has jurisdiction over internal House employment, salaries and expenses, directed House officials to make the change.

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Jim Sinclair’s Commentary

Fine the company and there is no blame.

A kid in the ghetto boosts a car and goes away for 10 years in Attica.

Judge Rips SEC on BofA Pact
AUGUST 26, 2009
BY JESS BRAVIN

Federal judge Jed S. Rakoff fired a new shot in his challenge to a $33 million settlement by Bank of America Corp. over investor disclosures, saying the government’s justification for letting individual executives off the hook is "at war with common sense."

The Securities and Exchange Commission reached the settlement with the bank last month. The agency charged that a Bank of America proxy statement in November misled investors about bonuses for employees at Merrill Lynch, …

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Posted at 3:54 PM (CST) by & filed under Jim's Mailbox.

Commercial Bank Credit Growth Still Contracting
by CIGA Eric 8/26/09

Fractional reserve banking is like a shark, credit must continue to expand (swim) or it faces death.  As a result, the unprecedented panic, as reflected by the speed and magnitude of the coordinated quantitative easing, to unclog the credit markets and restart lending process.  An economy is either rising at a rising rate or business activity is falling at an increasing rate. As long as Commercial bank credit continues to decay and cash assets soar, don’t buy the green shoots hype.

Click charts to enlarge

TBC2

 TBC

 

Dear Jim,

Zimbabwe, here we come!

CIGA Dr. Bob

Daily Policy Digest

"In 1981, the trillion dollar figure was such a novelty that President Ronald Reagan declared it incomprehensible.  "If you had a stack of thousand-dollar bills in your hand only 4 inches high, you’d be a millionaire," the president said then.  "A trillion dollars would be a stack of thousand-dollar bills 67 miles high."

Federal Spending & Budget Issues
August 26, 2009

ZIMBABWE, HERE WE COME!

It used to be the government’s budget picture was measured in billions of dollars.  No longer.  Trillions, that’s the yardstick of the 21st century, says the Associated Press (AP).

In 1981, the trillion dollar figure was such a novelty that President Ronald Reagan declared it incomprehensible.  "If you had a stack of thousand-dollar bills in your hand only 4 inches high, you’d be a millionaire," the president said then.  "A trillion dollars would be a stack of thousand-dollar bills 67 miles high."

Now consider the mileage in this:

The government faces nearly a $1.6 trillion deficit in the fiscal year that ends Sept. 30, according to government budget officials.

It faces a cumulative 10-year deficit of about $9 trillion; that’s $30,000 for each man, woman and child in the United States.

It’s publicly held debt is projected by the White House budget office to total a whopping $17.5 trillion by 2019 — a figure so big it is three-quarters of the nation’s entire economy — and big enough that it would send Reagan’s stack of thousand-dollar bills into satellite orbit.

The Congressional Budget Office (CBO) and the White House Office of Management and Budget (OMB) have some other numbers to ponder:

The unemployment rate will peak in coming months at 10 percent, but will begin to drop in 2010, according to the White House; CBO says it will be slightly worse, averaging 10 percent for all of 2010.

The recession will cause the economy to contract 2.8 percent this year, the White House said, more than doubling its prediction from earlier this year; both government agencies expect the economy to grow next year by 1.7-2 percent and continue expanding in 2011 at a 3.5 percent clip.

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Jim,

Pensioners, widows, kids in the ghetto… God, they will stop at nothing. All of this is so they can have air-conditioned tennis courts, a collection of expensive cars and four homes, most of which are empty 51 weeks of the year. These people are a disease.

CIGA Pedro

Californians Lose $1 Billion From Unconstitutional Bond Sales
By David Dietz and Karen Gullo

The Compton school board didn’t seek voter approval for the deal. From 2002 to 2007, California school districts collected a total of $1 billion for construction during a bond refinancing spree set off by falling interest rates.

None of these deals should have been done, Brown says. The constitution bans school districts from taking on additional debt in a refinancing of taxpayer-approved bonds without a public vote.

In every case, the prohibited transactions added to school district debt and increased property taxes for at least the next decade, bond records show. Banks pitched the deals to schools on the premise that refinancing would save taxpayers money and provide extra cash.

The deals were dominated by UBS AG and Piper Jaffray Cos., which collected fees up to four times the U.S. average for bond sales, public records show.

“This was a hell of a cute scheme,” says Lee Buffington, treasurer of San Mateo County, just south of San Francisco. “These guys had a gold mine going and thought nobody was watching.”

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Posted at 9:40 PM (CST) by & filed under In The News.

Question of the Day:

Is it intentional or serendipity that the Bernanke reappointment is announced on the same day news of the Federal Reserve losing their fight in a Freedom of Information action to release the details of their financial dealings with the OTC derivative decimated financial industry is released?

If it is intentional to show confidence in central bank management by the Administration, what can be done for the necessary many encores?

 

Jim Sinclair’s Commentary

This is first of many states holding lawn sales. What a hell of a disgrace all this is.

Thank you manufacturers and distributors of OTC derivatives.

California puts on a garage sale to raise funds
Richard Procter, Chronicle Sacramento Bureau
Tuesday, August 25, 2009

(08-25) 15:29 PDT Sacramento — Most weekend garage sales don’t offer over 500 used vehicles – but then again, most garage sales aren’t put on by the state of California.

State officials on Tuesday kicked off what has been dubbed "The Great California Garage Sale" – by posting surplus state property on eBay and Craigslist.

The internet sales will be accompanied by a warehouse sale in Sacramento on Thursday and Friday at the California Department of General Service’s Surplus Property Warehouse.

Among the 20 items listed on eBay (seller: great-ca-garage-sale) are 15 vehicles autographed by Gov. Arnold Schwarzenegger. Rather than sign identical vehicles, the governor signed a variety of 12 different car models.

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Jim Sinclair’s Commentary

Trader Dan: It looks like you might be right.

This article is unbelievable but it was carried by Reuters.

This is totally nuts!

Cash for Refrigerators’ Debuts in Fall. Really.
Tue Aug 25, 2009 10:03am EDT
By Joe Walsh

Before heading home to face the anger at the now infamous health care "town halls," Congress rushed through an extension to what was then considered a popular program: Cash for Clunkers. Then, like much of the August break, Cash for Clunkers went sideways as critics picked apart the program’s weaknesses, consumers stopped showing up with so many clunkers, and dealers started making noise about something as simple as when they might actually get the rebate money that the government promised.

So, what do you do when you have a poorly-conceived and ill-managed project winding down (Clunkers expires at 8 p.m. eastern on August 24)? Kick off another one, even more poorly thought out, and gloss it with an equally catchy name: Cash for Refrigerators. Beginning in the fall, consumers will have access – through existing state-level energy efficiency incentive programs – $300 million in stimulus funds made available as rebates for energy efficient appliances.

So far, so good. If a consumer is out buying an appliance to replace an existing or broken-down one, it is better that they choose an energy efficient model. But, what about special incentive program purchases? Who is the buyer and why are they buying?

The answer is that the most well-educated and most discerning consumers become aware of and make use of special rebate programs for energy efficient appliances. These are not impulse buyers. Some may actually be committed to greening their kitchen and just waiting for the right incentive push, but I doubt it. In other words, my perception is that most of the $300 million will go to middle-class households that already may have a relatively efficient refrigerator, like Clunkers, it won’t get at the really dreadful stuff in use in the lowest income households.

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Jim Sinclair’s Commentary

With the USDX down from above 120 to 78 and change, people are now waking up.

Undermined faith in the US dollar means a currency event which develops into hyperinflation.

"There has been a lot of disappointment with the way the U.S. credit crisis was handled," says Claire Dissaux, managing director of global economics and strategy for Millennium Global Investments Ltd., a London investment firm specializing in currencies. "The dollar’s loss of influence is a steady and long-term trend."

"In a new twist to an old refrain among economists, who have long worried about the effects of growing U.S. debt, they say that the huge liabilities the U.S. is taking on to dig its way out of crisis could ultimately undermine faith in the dollar."

As Budget Deficit Grows, So Do Doubts on Dollar
By NEIL SHAH

LONDON — The U.S. economy may be showing signs of recovering from the financial crisis, but the jury is still out on the future of the U.S. dollar.

While many analysts expect the dollar to strengthen in coming months as the crisis fades and the U.S. economy turns toward growth, a growing chorus of investors is expressing concern about the longer-term outlook for the greenback.

In a new twist to an old refrain among economists, who have long worried about the effects of growing U.S. debt, they say that the huge liabilities the U.S. is taking on to dig its way out of crisis could ultimately undermine faith in the dollar.

"There has been a lot of disappointment with the way the U.S. credit crisis was handled," says Claire Dissaux, managing director of global economics and strategy for Millennium Global Investments Ltd., a London investment firm specializing in currencies. "The dollar’s loss of influence is a steady and long-term trend."

On Tuesday, the Obama administration added fuel to concerns about the dollar, saying the U.S. will run a cumulative budget deficit of $9 trillion over the next 10 years, $2 trillion more than it had previously projected.

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Jim Sinclair’s Commentary

These are the same people that are going to run GM and your health program.

Stimulus Checks Mistakenly Sent to 1,700 Inmates, Federal Agency Says

The inspector general’s office for the Social Security Administration is looking into the problem as part of its broader audit on stimulus spending. The Social Security Administration acknowledged the $425,000 glitch following a report that nearly two-dozen inmates in Massachusetts had wrongly received the $250 stimulus checks.

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Jim Sinclair

Last week on CNN radio:

http://thewallstreetshuffle.com/podcasts/082109-Seg2.mp3

 

Jim Sinclair’s Commentary

And so it continues on all fronts.

People I employ have reliable internet and computer access deep in the bush.

Tanzania stabilizes Internet infrastructure
Rebecca Wanjiku 
25.08.2009 kl 17:46 | IDG News Service

Tanzania has become the first beneficiary of the Internet infrastructure project led by AfriNIC, aimed at improving resilience to distributed denial of service attacks by setting up copies of root servers.

Tanzania has become the first beneficiary of the Internet infrastructure project led by AfriNIC, aimed at improving resilience to distributed denial of service attacks by setting up copies of root servers.

The Tanzania Internet Exchange (TIX) point has received a copy of the "K" DNS root server operated by RIPE NCC, the regional Internet registry in Europe. The root server is expected to improve scalability and resilience in case of DDoS attack, and reduce the delay in data passing between clients and servers.

"I am very happy AfriNIC plays a very active role, even in areas outside their core task to develop Internet infrastructure and human capacity in Africa — the partnership with AfriNIC made the project a lot easier," said Frank Habicht, TIX manager.

The root server will improve Internet stability in Tanzania by ensuring any external disruptions do not affect local Internet users and that all users connecting via the exchange point can share information faster.

Tanzania is the fifth African country to get a root server; Kenya has two, South Africa has three, Egypt has three and there is one in Cape Verde island.

"This deployment is very critical as it helps to address the issue of "access" in Tanzania, and it is an important milestone towards our objective to contribute more to the Internet infrastructure development in our region. We are looking forward to more deployments of this kind in the coming months," stated Adiel Akplogan, CEO, AfriNIC.

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Jim Sinclair’s Commentary

Concerning the conscience of wall street:

"To expect any consideration from Bankers is like trying to move the wolves of the Ukraine to pity in the middle of winter."
–Honore de Balzac

 

Jim Sinclair’s Commentary

The FDIC must be bailed out. That is all there is to it. How it is done can be creative but it has to be done.

In 2003 when discussing this inevitable development I suggested that the insured depositors will eventually be paid in non-marketable short term treasury instruments, not cash.

U.S. regulators prep defenses to survive bank crisis
Tue Aug 25, 2009 12:39pm EDT
By Karey Wutkowski

WASHINGTON (Reuters) – U.S. regulators are set to buttress their defenses this week against a slew of sick banks still facing closure and the risks to the dwindling fund that protects depositors.

The Federal Deposit Insurance Corp has been looking at expanding the pool of potential bidders for distressed banks, providing some capital relief for troubled assets that will soon be brought back onto banks’ books, and charging further industry premiums to replenish the insurance fund.

All of these moves are geared to get the banking industry, and the agency charged with ensuring the industry’s safety, through a financial crunch that is coming to a head.

"We’re working through this problem. We’re not at the beginning, we’re not at the end," said James Chessen, chief economist for the American Bankers Association. "We’re in the middle and it’s painful."

Regulators have shuttered 81 banks so far this year, compared with 25 last year, and three in 2007. Analysts say the wave of failures is far from over. Richard Bove of Rochdale Securities said on Sunday that 150 to 200 more U.S. banks will fail in the current banking crisis, which started with a dramatic fall in housing prices that sent the economy into a recession and caused many borrowers to default on their loans.

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Jim Sinclair’s Commentary

Were we not just recently lied to concerning the improving condition of the housing market?

U.S. Home Prices Tumble 6.1% on Surging Foreclosures
By Kathleen M. Howley

Aug. 25 (Bloomberg) — U.S. home prices fell 6.1 percent in the second quarter from a year earlier as a record number of foreclosures eroded the value of real estate.

The rate of decline slowed from the first quarter’s 7.1 percent drop, according to a report today from the Federal Housing Finance Agency. Measured monthly, prices rose 0.5 percent in June after a 0.6 percent monthly gain in May, the Washington-based agency said.

Prices fell in June in four of nine U.S. regions covered by the report as banks seized real estate from delinquent borrowers. About 4.3 percent of U.S. homes, or one in 25 properties, were in foreclosure in the second quarter, according to an Aug. 20 report from the Mortgage Bankers Association in Washington. That’s the most in three decades of data.

“Foreclosures have a tangible negative impact on prices,” Gleb Nechayev, a senior economist at CBRE/Torto Wheaton Research in Boston, said in an interview before the price index was released. “It’s very stressful not just for individual households, but for whole neighborhoods.”

Today’s report measures percentage changes in values using repeat data on individual properties. It doesn’t provide specific dollar figures.

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Jim Sinclair’s Commentary

Here is today’s double talk, MOPE and media drivel comment and prediction award.

Recovery won’t improve unemployment
Optimism about the economy may be growing, but don’t expect that to mean job growth, too
By Jia Lynn Yang, writer
Last Updated: August 25, 2009: 1:44 PM ET

NEW YORK (Fortune) — The mood regarding the U.S. economy may be inching, ever so slowly, toward optimism. But don’t expect to see much improvement on the jobs front anytime soon. The economy’s following a script for a jobless recovery, and unemployment is likely to stay high, if not get slightly worse.

The Congressional Budget Office painted a worsening picture for joblessness on Tuesday: The CBO sees unemployment peaking at 10.4% next year from an average of 9.3% this year, before it falls to 9.1% in 2011.

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Jim Sinclair’s Commentary

This morning "Money Bunny" Courtney D. of Bloomberg fame outlined the bearish case for the Pound Sterling:

1. Economic conditions are not improving.
2. Great Britain will find trouble selling its ever increasing debt.

That sounds to me like a double dip depression just like what the US is facing.

RI gov to shut down state government for 12 days
Aug 24, 8:03 PM (ET)
By RAY HENRY

PROVIDENCE, R.I. (AP) – Rhode Island will shut down its state government for 12 days and hopes to trim millions of dollars in funding for local governments under a plan Gov. Don Carcieri outlined Monday to balance a budget hammered by surging unemployment and plummeting tax revenue.

The shutdown will force 81 percent of the roughly 13,550-member state work force, excluding its college system, to stay home a dozen days without pay before the start of the new fiscal year in July.

The closures come as the worst recession in decades has eliminated hundreds of millions of dollars in tax collections and pushed unemployment to 12.7 percent, the second-highest jobless rate in the nation behind Michigan.

Carcieri predicted the state’s fiscal future could grow even bleaker.

"There are going to be inconveniences for the public, and there are going to be sacrifices, as I said, for state employees," Carcieri said at a Statehouse news conference. "These steps right now are unavoidable if the state is to live within its budget, live within its means."

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Jim Sinclair’s Commentary

Maybe we can make this professor the "Run on Banks" Czar.

What if you had more than the FDIC guaranteed amount? How about the rescuer needs a fast rescue?

“"There is no reason to run to the bank," said Joydeep Bhattacharya, a professor of economics at Iowa State University, who has studied bank panics.”

Vantus Bank told: Sell or fold

Vantus Bank is at risk of becoming the first bank in Iowa to fail as a result of the current recession and rising bad loans.

The Sioux City bank has received notice from federal regulators that its plan to increase its capital was unacceptable. The bank must be sold or liquidated by Sept. 30, a filing with the U.S. Securities and Exchange Commission showed.

If it closes, Vantus Bank, founded in 1923, would be the first Iowa bank since 2000 to fail.

Vantus was the 22nd largest of Iowa’s approximately 400 banks in terms of total assets at the end of the first quarter. It has 13 locations in Iowa, including Ankeny, Johnston and West Des Moines, as well as Sioux City.

The bank’s problems stem from loans that went bad, including those to Regency Homes, the state’s largest homebuilder before it collapsed last year, and to Des Moines developer Bob Knapp for the Equitable Building renovation.

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Jim Sinclair’s Commentary

Here comes China in the G8 category!

Bash that F-TV? F-TV will attack the figures.

China edges ahead of Germany in race to be ‘world export champion’
By Ralph Atkins in Frankfurt
Published: August 25 2009 03:00 | Last updated: August 25 2009 03:00

Chinese exports narrowly edged ahead of those from Germany in the first six months of the year, new figures showed yesterday, in a fresh sign that Germany’s status as the world’s leading exporter is at risk.

China exported goods worth $521.7bn in the first six months of this year, while Germany’s total was $521.6bn, the Geneva-based World Trade Organisation reported.

Such export figures are closely followed in Germany, Europe’s largest economy, which has national elections next month. Sales of its industrial products have largely powered the economic growth in recent years, and throughout the economic crisis the government of Angela Merkel, chancellor, has defended strongly the country’s export-driven economic model.

Germany has long been braced for the much faster-growing Chinese economy to assume its "world export champion" title.

However, the likely value of German and Chinese exports for the full year remains uncertain and will depend heavily on exchange rate movements in coming months. A strong euro would help flatter Germany’s figure. Germany’s export businesses have also shown signs of reviving in recent months.

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Jim Sinclair’s Commentary

75 days to go

Senator warns of hyperinflation rivaling the 1980s
@ 10:04 am by Michael O’Brien
August 25, 2009

The economy could spiral into hyperinflation not seen since the early 1980s if the Federal Reserve does not tighten its monetary policy soon, Sen. Chuck Grassley (R-Iowa) warned Tuesday.

Grassley, speaking about the renomination of Federal Reserve Chairman Ben Bernanke to a second term as head of the Fed, asserted that Bernanke’s ability to hold down inflation would be the metric by which the Fed’s success would be measured.

"We won’t know for a year if he’s done a good job so far, because he shoveled money out of an airplane to save banks and the financial system," Grassley said in a conference call with Iowa reporters. "But shoveling money out of an airplane to solve problems can be inflationary — in this case, hyperinflationary — if he doesn’t start mopping up some of the money that’s out there."

Grassley, the ranking member of the Senate Finance Committee, said that inflation as a result from government spending on bailouts could result in inflation rivaling rates in 1980, when it hit a peak of 13.5 percent.

"The Fed has the ability to put money out, it’s got the ability to take money back in, and if they don’t do that, we will have hyperinflation worse than we had in 1980 and ’81," Grassley said. "And I hope he demonstrates that ability."

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Jim Sinclair’s Commentary

A fair and reasonable estimate is the US Federal deficit multiplied by 2 and US unemployment multiplied by 1.6

Unemployment, Deficits To Be Far Worse Than Stated: White House
JIM KUHNHENN | 08/25/09 11:15 AM

WASHINGTON — The federal government faces exploding deficits and mounting debt over the next decade, White House and congressional budget officials projected Tuesday in competing but similar economic forecasts.

Both the White House Office of Management and Budget and the nonpartisan Congressional Budget Office predicted the budget deficit this year would swell to nearly $1.6 trillion, a record, and far above the then-record 2008 budget deficit of $455 billion.

But while figures released by the White House foresee a cumulative $9 trillion deficit from 2010-2019, $2 trillion more than the administration estimated in May, congressional budget analysts put the 10-year figure at a lower $7.14 trillion.

One reason for the difference: The CBO projection is based on an assumption that all the tax cuts put into place in the administration of former President George W. Bush will expire on schedule by 2011 as dictated by current law. President Barack Obama’s budget baseline, however, hews to his proposal to keep the tax cuts in place for families earning less than $250,000 a year.

Beyond the 10-year forecast, the nation will face further challenges posed by rising health care costs and the aging of the population, the CBO said. "The budget remains on an unsustainable path" over the long-term and will require some combination of lower spending and higher tax revenues, it said.

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Jim Sinclair’s Commentary

Quantitative easing is the pure and simple electronic creation of money that will continue to practical infinity.

75 days to go

Goldman’s Hatzius Says Fed Balance Sheet Could Hit $4 Trillion 
By Thomas R. Keene and Liz Capo McCormick

Aug. 25 (Bloomberg) — Jan Hatzius, chief U.S. economist at Goldman Sachs Group Inc., said the Federal Reserve could double the size of the central bank’s balance sheet again if needed to support economic growth.

A rise in the balance sheet to $4 trillion is a “possibility,” Hatzius said in an interview on Bloomberg Radio in New York. “It is going to depend on not just what inflation does, but also on whether the economy does move back to a slower growth pace.”

Fed Chairman Ben S. Bernanke has cut the main U.S. interest rate to almost zero and more than doubled total assets on the central bank’s balance sheet to unclog credit markets and help meet banks’ demand for cash. Fed officials have started to phase out such programs, deciding this month to let a $300 billion program to purchase long-term Treasuries expire in October.

The size of the Federal Reserve’s balance sheet has increased to $2.02 trillion as the central bank purchased assets aimed at lowering interest rates, as of the week ended Aug. 12.

The Fed must now guide the world’s largest economy back to growth and reduce unemployment approaching 10 percent while shrinking the balance sheet to prevent a surge in inflation, Hatzius said.

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