Jim’s Mailbox

Posted at 7:38 PM (CST) by & filed under Jim's Mailbox.

Jim Sinclair’s Commentary

The following is a little monetary history from CIGA Rusty Bayonet:

“The painful experience of runaway inflation and the collapse of the Continental dollar prompted the delegates of the Constitutional Convention to include the gold and silver clause in the United States Constitution so that the individual states could not issue bills of credit.”

A few things to think about today:

  1. Where will the next Administration find themselves a Paulson? Regardless of your feelings concerning his actions you must give him credit for his brilliance. His mission is to hold things somewhat together until at least November 2nd and to a maximum of 89 days following that. His performance has been nothing short of a miracle in finagling.
  2. Paulson and Bernanke are not stupid men. Why did they let Lehman go bust when they knew full well of the consequences?
  3. Gold is not part of the problem. It is part of the solution.
  4. You do know that the rally in the US dollar is a product of the mechanics of unwinding massive spreads causing short covering. That makes it a game of musical chairs. When it ends no one knows, but when it ends everyone will hear the blast.
  5. If some major players gave notice to the Comex for delivery of 2000 contracts per month, in ten months the exchange would have to novate (unilaterally declare a contract null and void in all or in part) the gold contract and go to cash trading only. This would unseat the gold banks as the paper tigers of the bullion market pricing, giving the seat to the international cash market. That would only be a repeat in gold of the novation of the silver contract at the Comex in 1980 by “sellers only,” and margin at 100% in silver during the Hunt Crisis. What happened before, just like “The painful experience of the runaway inflation and collapse of the Continental dollar prompted the delegates to the Constitutional Convention to include the gold and silver clause into the United States Constitution.” would this time be the modernized and revitalized Federal Reserve Gold Certificate Ratio.

Dear Jim,

Clearly, “Bretton Woods II” is all about “The revitalized and modernized Federal Reserve gold certificate ratio”. As you said before: The revitalized and modernized Federal Reserve gold certificate ratio will be tied to a reintroduction of M3. It will not be tied as in the pre-Bretton Woods Agreement. The Treasury Department will have nothing whatsoever to do as the open market will do it for the department.

Jim, can you tell us anything more? Have you been contacted by world leaders? What are the chances that this will happen?  Do you still believe that it will be at a level of $1650 USD with 1 EUR = 2 USD?

Ciga Stefaan,
Belgium

  • On September 26, 2008, French, and current European Union president, Nicolas Sarkozy, said, “we must rethink the financial system from scratch, as at Bretton Woods.”
  • On October 8, 2008, Argentine President Cristina Fernandez de Kirchner said “the financial world crisis will need a strong regulation in the matter of financial markets and capital movements throughout the world. A new Bretton Woods will be needed”.
  • On October 13, 2008, British Prime Minister Gordon Brown said world leaders must meet to agree to a new economic system. “We must have a new Bretton Woods, building a new international financial architecture for the years ahead.” However, Brown’s approach is quite different than the original Bretton Woods System, emphasizing the continuation of globalization and free trade as opposed to a return to fixed exchange rates.
  • Italian Economics Minister Giulio Tremonti has said that Italy will use its 2009 G7 chairmanship to push for a “New Bretton Woods.” He has been critical of the U.S.’s response to the September-October 2008 economic crisis, and has suggested that the dollar may be superseded as the base currency of the Bretton Woods system.
  • On 20 October 2008, Tremonti told the Italian daily Corriere della Sera that proposals for a new Bretton Woods had been spread for many years by Lyndon LaRouche.

Dear Stephan,

You make too much of the spin title of “Bretton Woods the Second.”

The present US Administration is a lame duck so that should give you a clue. The problem is a meltdown of OTC derivatives combined with the world’s love of phony assets and earnings that OTC derivatives provided.

The general feeling is that the EU would like to see the US Fed take an official position as the lender of last resort to the EU. It is already so what is the big deal?

The FRGCR, modernized and revitalized, is in the future and not now.

Regards,
Jim

Dan,

Thanks for all your hard work in these very interesting times. I hope all of you at JSMineset know there are many of us out here who are grateful that your forum exists. As gold is the uber currency, I thought you might be interested in this offering.

Best,
CIGA Butch

Europe on the brink of currency crisis meltdown
The crisis in Hungary recalls the heady days of the UK’s expulsion from the ERM.
By Ambrose Evans-Pritchard
Last Updated: 10:52AM GMT 26 Oct 2008

The financial crisis spreading like wildfire across the former Soviet bloc threatens to set off a second and more dangerous banking crisis in Western Europe, tipping the whole Continent into a fully-fledged economic slump.

Currency pegs are being tested to destruction on the fringes of Europe’s monetary union in a traumatic upheaval that recalls the collapse of the Exchange Rate Mechanism in 1992.

“This is the biggest currency crisis the world has ever seen,” said Neil Mellor, a strategist at Bank of New York Mellon.

Experts fear the mayhem may soon trigger a chain reaction within the eurozone itself. The risk is a surge in capital flight from Austria – the country, as it happens, that set off the global banking collapse of May 1931 when Credit-Anstalt went down – and from a string of Club Med countries that rely on foreign funding to cover huge current account deficits.

More…

Thanks Dan and Butch,

The numbers say that the developing world debt (4 trillion) is peanuts compared to the OTC (quadrillion plus) mess in the West.

The bottom line is that all paper money is going in the crapper, causing increased velocity of money a la Weimar through the unleashing of inflation of a lifetime during stinking business conditions.

Selecting a currency based on which is deeper in the hole is madness, but then so is the world of finance.

The problem of selection suggests gold will reach a  price a lot higher than my call.

Regards,
Jim