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Jim Sinclair’s Commentary

Gold is headed to and through $1650. Greg Hunter points out a major and present reason why.


Dear CIGAs,

I have been telling you for months there is going to be a double dip in the economy.  Nobel Prize Winning economist Paul Krugman also thinks the economy is so bad we need to keep on stimulating the economy.  In a New York Times Op-Ed piece last week, Krugman said, “. . . somehow it has become conventional wisdom that now is the time to slash spending, despite the fact that the world’s major economies remain deeply depressed.”  In short, cut backs, or austerity, is not what the economy needs right now. (Click here for the complete NYT Op-Ed from Krugman.)

In a nutshell, Mr. Krugman thinks America will do no harm in the short term if the U.S. government prints money to prop up the economy until it can stand on its own.  He thinks it is a myth to believe in “invisible bond vigilantes” who financially attack countries with sky high debt.  Krugman wrote, “Bond vigilantes are investors who pull the plug on governments they perceive as unable or unwilling to pay their debts. Now there’s no question that countries can suffer crises of confidence (see Greece, debt of). But what the advocates of austerity claim is that (a) the bond vigilantes are about to attack America, and (b) spending anything more on stimulus will set them off.   What reason do we have to believe that any of this is true? Yes, America has long-run budget problems, but what we do on stimulus over the next couple of years has almost no bearing on our ability to deal with these long-run problems.”   

What evidence does Krugman give that America can keep printing money until things get better?  Interest rates on government debt are staying low.  For example, the 10 year Treasury is paying around 3%.  Krugman said, “Far from fleeing U.S. government debt, investors evidently see it as their safest bet in a stumbling economy. Yet the advocates of austerity still assure us that bond vigilantes will attack any day now if we don’t slash spending immediately.”   

What Krugman glosses over is the government has spent trillions keeping rates down and the economy going.  The Fed has bought at least $1.25 trillion in mortgage backed securities with money printed out of thin air.  There has been “quantitative easing” (code for money printing) to the tune of at least $300 billion to buy, what else, government debt.  Congress has raised the debt ceiling to more than $14 trillion.  That helped fund an $862 billion stimulus plan and a $700 billion TARP bailout for the banks. (Part of TARP has been paid back, but taxpayers are still owed around $296 billion.) Now, the Fed is considering ways to head off another plunge in the economy.  A recent Telegraph UK story said, “Fed watchers say Mr. Bernanke and his close allies at the Board in Washingtonare worried by signs that the US recovery is running out of steam. . . .Key members of the five-man Board are quietly mulling a fresh burst of asset purchases, if necessary by pushing the Fed’s balance sheet from $2.4 trillion . . .to uncharted levels of $5 trillion.”  (Click here for the complete Telegraph UK story.)

There is also evidence the government is buying its own debt from hedge fund manager Eric Sprott.  In December of 2009, Sprott took a hard look at who was buying Treasuries.  Sprott discovered a sector the Treasury Department calls “Households” that bought $528 billion in government debt by the third quarter of 2009.  The Sprott report said, “We must admit that we were surprised to discover that “Households” had bought so many Treasuries in 2009. They bought 35 times more government debt than they did in 2008. Given the financial condition of the average household in 2009, this makes little sense to us. With unemployment and foreclosures skyrocketing, who could afford to increase treasury investments to such a large degree? . . . -who is the Household Sector? They are a PHANTOM.  They don’t exist. They merely serve to balance the ledger in the Federal Reserve’s Flow of Funds report.”  (Click here for the Sprott report.)

In June of 2010, according to a CNN story, “Households” held nearly $800 billion in Treasuries.  This “phantom” buying has people like Eric Sprott thinking, “It makes us wonder if it’s all just a Ponzi scheme.”   Are “Households” and the world really flocking to the safety of Treasuries?  Or is the Fed becoming a buyer of last resort?  I think it is probably both.  When the government buys its own debt, it creates false demand and artificially depresses interest rates.    

The idea that interest rates are being magically held down by extreme demand for our ballooning debt is the real myth.   Krugman fails to recognize any downside of all this money printing.  Maybe he has fallen victim to his own prejudices.  As Krugman says in the beginning of his Op-Ed piece, “Much of what Serious People believe rests on prejudices, not analysis. And these prejudices are subject to fads and fashions.   

Milton Freidman, another Nobel Prize winner in economics, summed up the result of a loose monetary policy in his famous quote, “Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than in output.” If the country takes the path Mr. Krugman is suggesting, we might not have a double dip in the economy, but we will have some very big inflation because you just can’t have it both ways.

Link to full article…

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Dear CIGAs,


Last week, three stories acted as signposts for the direction of the U.S. Dollar.  The first is about a letter President Obama sent to members of the G20 (Group of 20 major industrial countries) in advance of next weekend’s meeting in Canada.  The President’s letter asked members to “reaffirm our unity of purpose to provide the policy support necessary to keep economic growth strong.”  The policy he is talking about is to print money and run monstrous deficits to keep the world economy afloat.  The talk in Europe is just the opposite.   The EU these days is all about austerity and budget cuts which are hardly pro-growth.  The Associated Press reported the story this way: In the letter, Obama said that the June 25-27 summit should also focus on efforts to stabilize public deficits in the “medium term,” a reference to the administration’s position that governments need to run huge deficits currently to provide the stimulus needed to ensure a sustained recovery but then move in future years to deficit reduction efforts. (Click here for the entire AP article.)

The second story illuminating the dollar’s path comes from Alan Greenspan.  The former Fed Chief gave a warning about how the U.S. may soon reach its “borrowing limit.”  A Bloomberg story quoted Greenspan saying, “The federal government is currently saddled with commitments for the next three decades that it will be unable to meet in real terms,” Greenspan said. The “very severity of the pending crisis and growing analogies to Greece set the stage for a serious response.”  (Click here for the Bloomberg article.)  Please note Greenspan’s reference for the U.S. “commitments” that it, “will be unable to meet in real terms.” That surely means the government will simply print money to pay its bills.  The Federal Reserve could end up being the buyer of last resort for America’s debt, and that is highly inflationary.

This brings me to the third story indicating the future direction of the dollar.  The headline says it all: “Gold hits record as investors seek alternate asset.”  (Click here for the complete story.)  The only conclusion you can draw is investors are seeking a stable store of wealth.  According to world renowned gold expert Jim Sinclair(, that spells trouble for the dollar.  Sinclair said, “. . . that’s not a pleasant conclusion because it speaks of a currency system in the entire Western world that is being significantly challenged.”

In an exclusive interview with, Sinclair compared the U.S. to Greece– the same as Greenspan.  Sinclair said the dollar’s true weakness has been concealed because the attention has been on Europe.  Sinclair said, “We’re rolling over in this so-called economic recovery . . . It’s not a pretty picture, and the focus will come off Europe as soon as all the currency traders have made all the money . . . (then) it’s coming right back here. . . You look over here and you see 33 states are headed towards bankruptcy.  What’s the difference between that and Greece?  There’s none.”

I asked Sinclair when will the dollar start plunging?  He said, “The time horizon, I think, is four months.”   A plunging dollar will quickly cause higher prices for goods and services and, if things get really bad, Sinclair says, “If, in fact, this thing gets out of control, you’ll see decreasing supply (of goods) because of economic disruption of the means of distribution.” 

Under an extreme loss of value for the buck, you can forget about cheap oil and gasoline.  Sinclair says, “If the dollar falls out of bed, they shoot to the moon.”  Sinclair thinks what is taking place now is a “change in psychology and a loss of confidence that are now beginning to show themselves in market terms.  You will still have the dollar around.  It will still be in bank reserves, but its buying power will be severely reduced.”

This change in psychology is driving gold to one record high after another.  Since 2001, Sinclair has been calling for gold to reach $1,650 a troy ounce by January 14, 2011.  Some of Sinclair’s contemporaries are calling for gold to be much higher by next summer.  $5,000 per ounce by June is one prediction.  Sinclair says, “. . . that only occurs if the whole thing goes splat,” and that is also a real possibility.

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Jim Sinclair’s Commentary

The dollar versus the euro is purely a mirror image. Market focus is a product of media. Media is a product of those investment banks doing the work of "gawd."

The investment banks are the product of their positions taken.

The following will take place. When? When Gold Sacks wants it to.

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Dear Greg,

The Fed audit, as proposed, is a useless exercise.


Dear CIGAs,


It seems every day I watch mainstream media there is a discussion about the ongoing so- called “recovery.”  Yesterday was no exception.  I was watching an anchor on MSNBC ask a guest why the “recovery” is so uneven and why it was hard to maintain upward momentum?  I yelled out to my TV, “Because there is no recovery!”  The “recovery” story is talked about as fact, no matter what the facts really are.”  For example, a story on housing just last week from the Wall Street Journal said, “Bank repossessions hit a record monthly high for the second month in a row, totaling 93,777–up 1% from April and 44% from last year.” (Click here for the complete story from WSJ.)  Bank repos up 44% in a year!  Why are “record” home repossessions not included in the “recovery”discussion?  Maybe because it wouldn’t sound like a “recovery” after all?  

Here is another “recovery” buster from yesterday’s Washington Post.  It says the President,“. . .urged reluctant lawmakers Saturday to quickly approve nearly $50 billion in emergency aid to state and local governments, saying the money is needed to avoid “massive layoffs of teachers, police and firefighters” and to support the still-fragile economic recovery.”  (Click here for the complete Post article.) “Emergency aid” sounds like a crisis and definitely not a “recovery” to me.  

In the most recent report from (out last Friday),  John Williams is, once again, forecasting a big dive coming in the economy.  Williams says, “I would describe the shape of this recession/depression as one tracing out the path of an inept skier trying out a ski jump: sharp decline, then some leveling out with a brief up-blip, followed by a renewed plunge with the potential for an unexpectedly disastrous landing.”  

I think many politicians know the economy is really not very good.  They might say the economy is recovering publicly, but privately they know it’s in the tank and headed deeper.  I think some are hoping the Federal Reserve will wave a magic wand and painlessly make everything better.  Those are the politicians who will fight a bona fide audit of the Fed.  Many think an audit would spark public outrage that would put it out of business.

I also think there are growing numbers in Congress who are afraid if the Fed maintains its secret powers, it will bailout its buddies in the financial industry around the globe and leave America bankrupt.  The final financial reform bill, officially know as the “Wall Street Reform and Consumer Protection Act of 2009,” has passed two similar versions in the House and the Senate.  

Now, both chambers have to get together and agree on the final language for just one bill that will be sent to the President to sign into law.  The language to audit the Fed has been watered down in the Senate version.  Republican Congressman Ron Paul and others are fighting to restore language that would make possible a full audit of the Federal Reserve.  And get this, powerful Democratic Representative Barney Frank is supporting Paul!  If Rep. Frank is for real on this and not just trying to look good to his constituents to get votes in November, then hats off to him and any member of Congress who supports a full Fed audit.  I can’t believe the mainstream media is completely ignoring this monumental story.  There is nothing more important, financially speaking, that Congress can pass right now.  Check out the video below that came out from the floor of Congress just last week: .

Link to full article…

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Dear CIGAs,

We would all like to think the U.S. will not suffer the same problems as Greece.  I am talking about drastic spending cuts to just about everything.  Teachers, police pensions and social programs are all going to take big cuts whether the Greeks like it or not.  It is not just the Greeks in financial trouble, but all of Europe.  You know it is bad when former Fed Chief Paul Volcker says, “You have the great problem of a potential disintegration of the euro.”  (Click here to see the full Reuters story.)  There is no way a pro like Volcker would say that if it was not already a distinct possibility.  

The fact is we already are dealing with too much debt and not enough money here in America.  Recent stories show the cracks in our economy getting bigger, not smaller, as the “recovery” camp would have you believe.  There are now 40 million U.S. citizens on food stamps—a new record.  It was reported just last Friday that “Up to 300,000 Public School Teachers May Lose Their Jobs This Year Due to Local Budget Cuts.”

Remember, states cannot print money; so, the Obama Administration is going to try to save teaching jobs with an emergency federal spending bill.  It will mean an additional $23 billion to the deficit.  Illinois has reportedly stopped paying its bills!  Contractors are owed $4.4 billion, and nonpayment may cause a wave of bankruptcies in that state.  There are nearly 3 dozen other U.S. states facing similar severe budget problems.  These are just a few stories from the last week or so showing the slow motion train wreck of a debt saturated economy.   

In the latest report from, economist John Williams says look out for another nasty downturn in the economy because the money supply (M3) is shrinking.  Williams writes, “. . . near-term economic activity will turn down, with major negative implications for the federal budget deficit, U.S. Treasury fundings, systemic solvency and the U.S. dollar. Such developments should place significant upside pressure on domestic inflation. U.S. difficulties eventually should dwarf the European sovereign solvency concerns. . .” 

So, what will perform well in this environment?  You better start looking for an exit if you are holding dollars, stocks or bonds.  According to Williams, “. . . the long-term outlook for the U.S. dollar and U.S. equity and credit markets remains bleak, while the long-term outlook for gold and silver remains extremely strong.”  

All the spending for things such as $23 billion to save teachers jobs is mushrooming the deficit in this country.  According to Williams, from March 31 to April 30, 2010, the government added $175.6 billion in debt.  Let me say this again, $175.6 billion in debt was added in a single month!  Because of high unemployment, tax collections are imploding.  This is not what you want to see while spending and money printing are exploding.  

Meanwhile, Nobel Prize winning economist Paul Krugman takes the opposite point of view.  Krugman wrote an op-ed piece last week called, “We’re not Greece.”  He says, “In short, we’re not Greece. We may currently be running deficits of comparable size, but our economic position — and, as a result, our fiscal outlook — is vastly better.”   He also says, “So here’s the reality: America’s fiscal outlook over the next few years isn’t bad. We do have a serious long-run budget problem, which will have to be resolved with a combination of health care reform and other measures, probably including a moderate rise in taxes. But we should ignore those who pretend to be concerned with fiscal responsibility, but whose real goal is to dismantle the welfare state — and are trying to use crises elsewhere to frighten us into giving them what they want.” (Click here for the complete Krugman op-ed.)  

These are just “crises . . . to frighten us into giving them what they want.”  You have got to be kidding.  When this blows up, and it will sooner than later, I wonder if the Nobel people will ask for their prize back?

Link to full article…

Posted by & filed under Greg Hunter,

Dear CIGAs,


Both the House of Representatives and the Senate have passed their versions of financial reform legislation.  Now, the process of reconciliation takes place between both bodies of Congress to iron out a final bill the President can sign into law.  There is plenty in the bill such as new consumer protection, increased power given to regulators to prevent systemic risk, and new powers to oversee the $600 trillion derivatives market.  These are just a few of the highlights, and there is no telling what will actually end up in the final bill.   (The derivatives problem alone can kill the U.S. economy.  I wrote about this in a post called “Can The Financial System Really Be Fixed? Some Say No.”)

“Too big to fail” 

The most important issues that could cause another financial crisis are not covered in the pending legislation.  The biggest problem is the enormous size of the institutions being regulated.  “Too big to fail” means they are simply too big, and shrinking them is not on the table.  Last month, Senator Sherrod Brown (D-Ohio) explained the size problem this way: “Fifteen years ago, the assets of the six largest banks in this country totaled 17 percent of GDP.  The assets of the six largest banks in the United States today total 63 percent of GDP, and that’s too (big)–we’ve got to deal with risk to be sure, but we’ve got to deal with the size of these banks, because if one of these banks is in serious trouble, it will have such a ripple effect on the whole economy.” 

After the Senate passed its version of financial reform, Representative Alan Grayson said, “Too big to fail means too big to exist.  We have to systematically dismantle the institution that caused the systemic risk to the economy and that, for sure, the Senate bill does not do.”  I don’t see any way we are going to see a breakup of the banks.  There are some amendments that will force banks to spin off risky trading operations.  The banks are against any trading restrictions or spin-offs.  So, getting that into a final bill is going to be tough. I don’t think the big banks will get appreciably smaller until after the next meltdown, and one is coming sooner than later.  

Big institutions take big risks.

There was a time when banks were not allowed to take on too much leverage.  The max was about 10 or 12 times capital.  During the Bush Administration, the caps on leverage were unlocked and banks took on insane amounts of risk.  During the last financial crisis, it was not uncommon for banks to be leveraged 40 times capital (sometimes even higher!)  The pending financial reform legislation doesn’t really address limits on leverage.  To be fair, President Bill Clinton signed into law the Gramm-Leach-Bliley Act (GLBA) in 1999.  That legislation repealed the Depression era laws of the Glass-Steagall Act and allowed banks to have unlimited growth and take on much more risk.  Without GLBA, also know as the Financial Services Modernization Act, the banks would have never grown “too big to fail.”  

Fannie and Freddie

Neither the House nor Senate bills address failed mortgage giants Fannie Mae or Freddie Mac.  The government took over these two institutions in 2008.  They have a combined taxpayer liability of more than $6 trillion!  There is not a mention of reform or how we are going to budget for this slow motion train wreck.  I guess if Congress just ignores a problem, it doesn’t exist or it will vanish all on its own.  Omitting this from financial reform legislation is too stupid to be stupid.  

The Fed gets more power!  

Finally, the big winner in all of this is the Federal Reserve.  The regulator who stood by and watched as the financial system spun out of control is going to be rewarded by getting more power!  These are the same people who fought regulation of the derivatives market and pushed for repeal of the Glass-Steagall Act.  The Fed will likely get authority to oversee a new consumer protection division for businesses such as mortgages and credit cards.  Also, the Fed will supervise the biggest and most complex financial companies.  This is like the proverbial fox guarding the hen house.  The pending legislation may force an audit of the central bank, but I wouldn’t count on any meaningful look at the secret deals of the Federal Reserve.  I hope I am wrong.  

Congressman Grayson recently summed up the importance of financial reform by saying, “We have a basic choice we have to make. Do we want a government of the people, by the people and for the people, or of Wall Street, by Wall Street and for Wall Street?  It is disturbing how much this government is by Wall Street and, therefore, you end up with bills that are for Wall Street.” 

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Dear CIGAs,

While the stock market was beginning its 376 point plunge yesterday, the Federal Deposit Insurance Corporation was quietly putting the best face it could on a banking system in serious trouble.  In a press release to update the status of the insurance fund, the big positive headline was, “FDIC-Insured Institutions Earned $18 Billion in the First Quarter of 2010–Net Income Highest in Two Years.”  FDIC Chairman Sheila C. Bair said, “There are encouraging signs in the first-quarter numbers . . . Industry earnings are up. More banks reported higher earnings, and fewer lost money.”   (Click here for the complete FDIC press release.)

I can appreciate Chairman Bair’s positive attitude, but “encouraging signs” do not mean we have turned the corner and brighter days are ahead.  The Deposit Insurance Fund, or DIF, has a negative balance of -$20.7 billion.  That is just a $200 million improvement from the all time record deficit of -$20.9 billion at the end of 2009.  I don’t see how these numbers are “encouraging.”    

I talked with FDIC spokesman David Barr yesterday about the shortfall in the DIF.  He said, “The FDIC is not broke.”  It has an additional “$63 billion in cash.”  He told me there is about $46 billion in three years of prepaid deposit insurance premiums and an additional $17 billion in cash for a grand total of $63 billion in “liquid resources” to close insolvent banks.  Let me get this straight–nearly 75% of the FDIC’s bailout money is from fees collected up front.  What happens when the FDIC burns through that?  Will they collect another 3 years of fees?  

Barr told me the FDIC is expecting to spend “$40 billion” closing troubled banks in the next 12 months.  He said, “It could be less and it could be more.”  Simple math says it will be more, way more.  There have already been 72 failed banks so far this year.  According to Barr, at the same time last year, there were only 33 failed banks.  In 2009, there were 140 total banks closed.  Bar freely admitted, “The pace (of bank closings) is greater this year.”  Barr expects more banks to fail in 2010 than 2009, but he would not give a number.  He said, “We don’t provide numbers because to us it’s not the numbers, it’s the cost.”   The latest list of “problem” banks from the FDIC now stands at 775.  73 banks were added to the list since the end of 2009.  That is nearly a 10% increase in less than 5 months.   

Reggie Middleton is an investor and analyst who owns  He was one of the earliest to warn of the impending downfall of Lehman Brothers and Bear Stearns.  Middleton told me, “If the FDIC had more money and manpower, it would be closing a lot more banks.”  Middleton also said, “Many of America’s 8,000 banks are insolvent or close to it because of mark to market accounting.”  Because of accounting rule changes, banks are allowed to value toxic assets for whatever they think they are worth, not what they actually are worth.  Some call this “mark to fantasy accounting.”   Middleton warns, “There is more risk now (in the banking system) than during the Lehman crisis because the pool of banks is smaller.”  

When I look at residential and commercial real estate, I see no “encouraging signs.”   I see frightening headlines like the one that came out just this week that says, “One in 7 U.S. homeowners paying late or in foreclosure.”  (Click here for the full story) Commercial real estate doesn’t look any better.  Some experts are forecasting $1 trillion in CRE losses before the banking crisis is finished.  The FDIC is acting more like the Resolution Trust Corporation of the early 90’s than a deposit insurance fund.  Let’s hope it does not run out of money anytime soon.