Posted at 7:20 PM (CST) by & filed under Jim's Mailbox.

Dear Jim,


Today’s Financial Times had an article entitled “Fund Heads Voice Short Selling Fears.

The first paragraph said “Three associations representing fund managers in Australia, The UK and the US have joined forces to warn that their industry would be damaged if market regulators publish detailed information on short selling trading positions.”

What else is there to say? Evidently, the old song refrain… "let the sun shine… let the sun shine in” is not a favorite of the fund industry.

Respectfully yours,
Monty Guild


The unwise sold the Euro and bought US dollars due to this. Although the Euro is ugly it is a beauty compared to the US dollar.

Respectfully yours,
Monty Guild

RPT-ECB FOCUS-ECB faces lengthy wait for rate cuts to hit home
Wednesday, January 07, 2009 10:30:03 PM (GMT-08:00)
Provided by: Reuters News
By Krista Hughes

FRANKFURT, Jan 7 (Reuters) – If the European Central Bank was really hoping to start the new year with hard evidence that record interest rate cuts are helping the economy, it must be feeling disappointed.

ECB President Jean-Claude Trichet [ID:nLU207563] has batted back questions about the chances of another move this month by saying the bank was focussed on the impact of its 1.75 percentage points in cuts since October.

Yet indicators show little sign that euro-zone households and businesses are feeling the full benefit.

Average corporate borrowing costs have actually increased in the last few months, judging by corporate bond yields, and persistent financial market tensions are also dulling the pass-through of lower official rates to the real economy. (See [ID:nL798350] for factbox)

Meanwhile, with the euro zone economic outlook worsening by the week and inflation already well below the ECB’s 2-percent ceiling, having fallen to 1.6 percent in December, the ECB may have little time to wait and see.



Jim Sinclair’s Commentary

Deliveries out of Comex warehouse – the plot thickens.

It has been reported to me that the Comex is trying to argue people out of taking delivery of gold from the warehouse.

Tomorrow I am going to check my records to see who is the auditor for the warehouse.

You know on 9/11 all that gold was smashed in the cellar vaults when the Twin Towers came down.

I assume there was no damage to even one bar, nor was even one bar pocketed in the process of backhoe removal of debris.

Wasn’t all the floors of the collapsed Twin Towers about 6 inches thick when it was all over?

Maybe the Comex warehouse holds one very large and ugly bar of gold accounting for 75% of the ounces.

"In today’s world anything is possible." Quote from Bernie Madoff.

I love the following writer:

“We have made at least 15 calls and they are now asking WHY I want delivery.
They say it will cost a lot of money to sell it back to them. Ha!
Because I am from MTS they think I fell off a turnip truck.
–CIGA Hslm P."


I saw this article today and thought it was a nice confirmation of information Dan and Monty have been giving us for several weeks, not to mention Points 10 and 11 of your 9/1/06 Formula. Once again I found striking parallels in the language:

Jim’s Formula 9/1/06 Points 10 and 11:

10.  If the investment by non US entities fails to meet the exiting dollars by all means, the US must turn within to finance the shortfall.

11. Assuming the US turns inside to finance all maturities, interest rates will rise with the long term rates moving fastest regardless of prevailing business conditions.

CIGA Richard

NY Times article 1/7/2009:

China’s voracious demand for American bonds has helped keep interest rates low for borrowers ranging from the federal government to home buyers. Reduced Chinese enthusiasm for buying American bonds will reduce this dampening effect…

Click here to read the full article…

Dear Jim,

I bought this on EBay today. Nothing like repeating history, eh?


Fort Wealth Trading Co. LLC
ext 104


Dear JB,

The question is what did you pay?



Hey Jim,

The statistical extremes reported by the non-reportable and commercial traders suggest that the down D-wave has terminated. Yet, fear keeps most players on the sidelines until a large chunk of the A-wave advance has already taken place. I expect one more dip over the summer, then a big move above $1,000 starting Fall 2009.

I’ll keep you posted.

Click any chart to enlarge all in PDF format

Gold Wave Analysis - 20090108_100731 COT FO CSWA - 20090108_100731 COT FO NRSWA - 20090108_100731

Posted at 4:44 PM (CST) by & filed under In The News.

Dear CIGAs,

Screw them once, but not twice!

You think the Chinese are going play nice, and hold all those Treasuries?

If you believe that you are academic ass.

That would be getting screwed twice.

They will not.

China may put new curbs on overseas investments
Wed Jan 7, 2009 11:44pm GMT

SHANGHAI, Jan 8 (Reuters) – China’s Ministry of Commerce may ask Chinese companies to apply for approval from the ministry if they want to invest $100 million or more overseas, it said in new draft rules published late on Wednesday, after a few major Chinese companies reported big book losses on investments abroad.

Companies may also need the ministry’s approval if they want to invest in countries which have no diplomatic relations with China, foreign infrastructure projects or highly risky countries or regions, it said in new rules that were published to seek public feedback until Jan. 20.

Hit by the global financial crisis some Chinese firms have seen the value of their overseas investments dwindle, with the country’s second biggest insurer, Ping An Insurance (Group) (2318.HK) (601318.SS), booking a loss of about 15.7 billion yuan ($2.3 billion) on its investment in Fortis NV (FOR.BR) (FOR.AS).

The country’s $200 billion sovereign wealth fund, the China Investment Corp (CIC), has also suffered heavy paper losses on its high-profile stakes in U.S. private equity firm Blackstone Group (BX.N) and bank Morgan Stanley (MS.N). ($1=6.834 Yuan) (Reporting by Lu Jianxin; Editing by Jonathan Hopfner)


Jim Sinclair’s Commentary

Who caused all this pain? The OTC derivative manufacturers, that is who.

Who will pay for all this pain? What blood suckers are out there counting their billions without any consideration for those that suffer?

Read the legal sites and you will see how they are spending their time and money – by hiring major names in defence attorneys.

They are hiring the best bankruptcy attorneys to devise methods of insulating their billions from those that lost it all to them. The Madoff situation is egregious, yet not different from the Hedge Fund managers raiding good, decent, and growing situations. It is no different on the chat sites that flow rancour to benefit their own positions.

How long will the public remain silent like lambs after the slaughter, wrapped and packed in cold silence? These people are criminals worse than Willie Sutton, worse than any mobster ever has been.

They are Ivy League snobs that will be dealt with, BECAUSE THAT IS NATURE’S WAY.

I feel the pain and suffering of the masses out there. I know exactly how bad it is going to get. I have been there, seen it, and have done my utmost to protect you.

These people do not care a fig about you. May they all burn in their personal hell. Their time is drawing close and they will not be the last man standing.

Pink slips pile higher amid deepening recession
AP Economics Writer

WASHINGTON (AP) — Pink slips are piling higher as companies scramble to cut costs even deeper to survive the country’s economic and financial storms.

Just days into the new year, managed care provider Cigna Corp., aluminum producer Alcoa Inc., data-storage company EMC Corp. and computer products maker Logitech International were among those announcing layoffs to cope with a recession that has just entered its second year. The flurry of job cuts suggest the employment picture will remain grim this year.

A barometer on layoffs is expected to show Thursday that the number of newly laid off people signing up for state unemployment insurance last week rose to 540,000, up from 492,000 in the previous week, according to economists’ projections.

The number of people continuing to draw jobless benefits is projected to stay near 4.5 million, demonstrating the troubles the unemployed are having in finding new jobs.

Electronic unemployment filing systems have crashed in at least three states in recent days due to the crush of newly jobless Americans seeking benefits.



Jim Sinclair’s Commentary

Weimar is here, the Dollar is DEAD and Gold is alive.

Changing Gold’s weightings in the Commodity Index is a sick joke by sick amoral people in a totally criminal world.

Protect yourselves because nobody else will protect you.

I can direct you, educate you, desire your safety for you and believe in you, but it is you who must take action.

In six months nobody will be able to help you. You are your own responsibility.

God helps those that help and believe in themselves.

Obama calls for ‘dramatic action’


Jim Sinclair’s Commentary

I was there 10 years ago. There is only one excuse here – EGO.
He was going to show us.
He made himself clear.
He called it a non-producing asset.
He made it clear Gold would never produce.
He invited other central banks to follow his lead.
Listen to nothing else.
He made an ass of himself then and now.
He would be better advised to say, "I was wrong then and now."

Gordon Brown’s decision to sell half of the UK’s gold reserves ‘cost UK £5billion’
Gordon Brown’s decision to sell off part of the country’s gold reserves 10 years ago cost the public purse nearly £5billion, official figures show.
By Christopher Hope, Whitehall Editor
Last Updated: 7:47PM GMT 07 Jan 2009

The sale of more than half of the country’s gold reserves between 1999 and 2002 has proved to be deeply controversial.

Critics say that signalling such a large sale of bullion to gold traders helped to drive the precious metal to a 20-year low.

In 17 auctions, Mr Brown as Chancellor of the Exchequer sanctioned the sale of 395 tonnes of gold.

Figures released by the Treasury show that the total proceeds from the sales was around $3.5billion. According to a Parliamentary answer, if the gold was sold last month, on December 15, it would have raised $10.5billion.

The difference – $7billion – would be worth £4.7billion if the proceeds were converted into pounds yesterday.

The figure, which moves with the value of gold, is far higher than previously thought. Grant Thornton calculated two years ago that the figure lost to the Exchequer was £2billion.

The news comes as the Government considers whether to sell major public assets, including a stake in the Royal Mail and the bookmaker the Tote, to raise funds for public finances.



Jim Sinclair’s Commentary

If you think Gordy did some dumb things before in his notable career this will be his Maximus Opus! The planet is headed towards Weimar.

Printing money is not the solution, Gordon
From The Times
January 9, 2009

Printing new money is a Zimbabwe-style policy which will simply lead to rising prices and stagflation

Sir, Gordon Brown is contemplating a Zimbabwe-style policy to get him out of his economic troubles — simply print more money (report, Jan 8). It will produce the same effect — stagflation.

When governments print money and spread it around, people do feel richer. So they do go out and spend, which is what the Government wants. But all this new spending just pushes prices up again, the new money buys less, and eventually people realise that they are actually no better off. By that time, businesses have to abandon all the investment they have made to capture the extra money, which just adds to our troubles.

Furthermore, the new money that government creates is not dropped uniformly across the economy. It goes into government industries and agencies, and is supposed to spread out from there. This can take a long time, and have many perverse effects on the way. And while the rest of us are cutting back, a spending boost for our bloated public sector is unlikely to be popular.



Jim Sinclair’s Commentary

This is just the stuff Weimar is made of.

US commercial paper outstanding grows with Fed help
Thu Jan 8, 2009 11:06am EST

NEW YORK, Jan 8 (Reuters) – The U.S. commercial paper market expanded the most since November in the latest week as the new year began, with much help from the Federal Reserve, Fed data showed on Thursday.

The U.S. central bank’s support of this cornerstone of short term funding for companies’ daily operations, is a key factor helping to buoy the market, analysts said. The commercial paper market has been sharply eroded by the global credit crisis since summer 2007.

"We don’t know to what extent the Federal Reserve played a role in the latest increase," said Tony Crescenzi, chief bond market strategist with Miller, Tabak & Co. "But increasingly the private sector has been gobbling up commercial paper and the Fed has not been a sole buyer," Crescenzi added.

More information about how much the Fed contributed to last week’s rebound in commercial paper will come with the weekly data on bank borrowings from the Fed and the central bank’s support to financial institutions and securities markets which the Fed is due to release at 4:30 p.m. EST.



Jim Sinclair’s Commentary

When you do the same thing again anticipating different results what did Einstein say you were?

An Afghanistan ‘Surge’ Is a Losing Battle
So why is Mr. Obama betting on it?
By BRAHMA CHELLANEY | From today’s Wall Street Journal Asia

Vice President-elect Joe Biden’s visit to Afghanistan this month — even before President-elect Barack Obama’s inauguration — will underscore the new administration’s priority to ending the war there. But their planned "surge first, then negotiate" strategy isn’t likely to work.

The Obama-Biden team wants to weaken the Taliban militarily then strike a political deal with the enemy from a position of strength. This echoes what the Bush administration did in Iraq, where it used a surge largely as a show of force to buy off Sunni tribal leaders and other local chieftains. Current Joint Chiefs of Staff Chairman Michael Mullen has already announced a near-doubling of U.S. troops in Afghanistan, to up to 63,000, by mid-2009.

Sending more forces into Afghanistan is a losing strategy. The Soviets couldn’t tame the country with more than 100,000 troops. With the backing of Robert Gates, whom Mr. Obama will keep on as defense secretary, Central Command Commander General David Petraeus is thus looking for ways to win over local commanders and warlords — the mainstay of the Taliban. General Petraeus wants to explore truces and alliances with local tribal chieftains and guerrilla leaders and set up lightly trained local militias in every provincial district.

This idea turns a blind eye to the danger that such militias could terrorize local populations. It is also naïve to expect an Iraq-style surge-and-bribe experiment to work in Afghanistan, whose mountainous terrain, myriad tribes, patterns of shifting tribal and ethnic loyalties, special status as the global hub of poppy trade and history of internecine conflict set it apart from any other Muslim country. In a land with a long tradition of humbling foreign armies, payoffs won’t buy peace.


Jim Sinclair’s Commentary

All that protected the Weimar citizens from their officialdom and the Papiermarc was Gold.

All that protects you against your elected officialdom and the Papierdollar is Gold.

Some day the Rentendollar will come. That you can be sure of.

Study history or become history.

Jim Sinclair’s Commentary

Stop trading and start insuring. It is never too late, just less useful.

Play your index fund manipulations if you wish.

Play your gold bank quarterly earnings statement games if that makes you happy.

Listen to the paid anti gold for lobbyists as you seek to be more wrong than right.

Do all of the above if you will, but at the end of the day (which is coming sooner than you think), the dollar is dead and Gold is king. Weimar is coming and will not be escaped. Weimar can be a bad or even worse than the historical experience.

This is no longer about investment or trading, this is about survival financially, physically and spiritually.

Our retirees are in the cross hairs of time and misplaced trust. Your retirement programs from self directed to corporate will be assimilated into government run programs. The Democrats will cut benefits that you had feared the Republicans would. You are going to be culled from the gene poll in four years.

Harry Schultz lead a parade years ago into money in one country, citizenship in another and body in a third when people thought such a thing was bonkers.

Now it is gold in the mayo jar and Gold shares in non US Gold shares that are incorporated in one country with no operations in the country of incorporation. Only as many units of your venue currency in the country of domicile and other places to go. No EFTs, no agents between you and yours and Gold as INSURANCE, not trading!

In the end even the Chinese will lose their cool and face, because maintaining both is going to cost them simply too much.

The dollar is dead, past tense. It is over, worthless and more are realizing it by the day.

Stop trading and starting insuring.

China Losing Taste for Debt From the U.S.
Published: January 7, 2009

HONG KONG — China has bought more than $1 trillion of American debt, but as the global downturn has intensified, Beijing is starting to keep more of its money at home, a move that could have painful effects for American borrowers.

The declining Chinese appetite for United States debt, apparent in a series of hints from Chinese policy makers over the last two weeks, with official statistics due for release in the next few days, comes at an inconvenient time.

On Tuesday, President-elect Barack Obama predicted the possibility of trillion-dollar deficits “for years to come,” even after an $800 billion stimulus package. Normally, China would be the most avid taker of the debt required to pay for those deficits, mainly short-term Treasuries, which are government i.o.u.’s.

In the last five years, China has spent as much as one-seventh of its entire economic output buying foreign debt, mostly American. In September, it surpassed Japan as the largest overseas holder of Treasuries.

But now Beijing is seeking to pay for its own $600 billion stimulus — just as tax revenue is falling sharply as the Chinese economy slows. Regulators have ordered banks to lend more money to small and medium-size enterprises, many of which are struggling with lower exports, and to local governments to build new roads and other projects.



Jim Sinclair’s Commentary

What is it? Who did it? Weimar is here, you just don’t know it yet!

Thank you, all of you cowboys and cowgirls in the OTC derivative bankers, brokers and hedge funds biz. You killed us all and yourselves as well.

That last part is still to come. Look over your shoulders, as in time your clients, those you devastated both client and otherwise, and the law looking for a scapegoat is going to get you all.

I understand prime-real estate in Brazil is in demand. Brazilian extradition attorneys are extremely busy.

Turks and Caicos passport mills are running full tilt.

Dr. Patangi has a long line of prior Greenwichites as clients. Puts on Greenwich CT are in a confirmed bull market.

There is a glut in for sale business jets at Westerchester Airport, New York Custom suit tailors are having hard times. Upscale street pharmacies are experiencing boom times in Westchester, NY.

Did you get any mail from Madoff?

NY unemployment claim systems overwhelmed

ALBANY, N.Y. (AP) — New York’s unemployment claims systems have crashed, overwhelmed by tens of thousands of jobless New Yorkers trying to call or log in at once ahead of this week’s filing deadline.

State labor department officials say the problem started Monday and caused the phone banks at the state’s toll-free claims center to shut down, followed by the online filing system. Leo Rosales, an agency spokesman, says as many as 10,000 people per hour were trying to log into the system.

Technicians are trying to bring the systems back online Tuesday afternoon but officials couldn’t say when they’ll be back up and available.

Rosales says the system failure shouldn’t delay newly unemployed workers from getting benefits because they have until the weekend to file claims.



Jim Sinclair’s Commentary

On the lighter side from Zimbabwe, compliments of the Darwin Awards via CIGA Marty Mitchell.

After stopping for drinks at an illegal bar, a Zimbabwean bus driver found that the 20 mental patients he was supposed to be transporting from Harare to Bulawayo had escaped.

Not wanting to admit his incompetence, the driver went to a nearby bus stop and offered everyone waiting there a free ride. He then delivered the passengers to the mental hospital, telling the staff that the patients were very excitable and prone to bizarre fantasies.

The deception wasn’t discovered for 3 days.

Jim Sinclair’s Commentary

Everyone on the bandwagon while the bandwagon is still there to be had!

The Dollar is dead.

Philippines, Turkey Sell $2.5 Billion of Dollar Bonds (Update2)
By Clarissa Batino and Lester Pimentel

Jan. 8 (Bloomberg) — The Philippines and Turkey sold $2.5 billion of bonds in international markets, joining a push by developing nations to take advantage of a decline in borrowing costs to finance budget deficits.

The Philippines sold $1.5 billion of 10-year notes to yield 8.5 percent, or 6 percentage points more than U.S. Treasuries, while Turkey sold $1 billion of eight-year bonds to yield 5.01 percentage points above Treasuries. Brazil and Colombia each sold $1 billion of bonds earlier this week.

The Philippines sale, which is triple the amount it issued all last year, will help the government arrange financing for a stimulus plan that aims to pull the Southeast Asian nation out of its worst economic slump in eight years.

“The Philippines has a first-mover advantage and good timing before the rest crowd international debt markets,” said Vishnu Varathan, a regional economist at Forecast Singapore Pte. “Chances are that credit will become tighter down the road given the huge fiscal expansion of governments including the U.S.”



Jim Sinclair’s Commentary

Do you feel Mother Nature might be unhappy about spaceship Earth carrying so many criminals supported by so many other criminals that are left free to run amuck?

Flu Found Resistant to Main Antiviral Drug
Published: January 8, 2009

Virtually all the flu in the United States this season is resistant to the leading antiviral drug Tamiflu, and scientists and health officials are trying to figure out why.

The problem is not yet a public health crisis because this is a below-averageflu season so far and the chief strain circulating is still susceptible to other drugs — but infectious disease specialists are nonetheless worried.

Last winter, about 11 percent of the throat swabs from patients with the most common type of flu that were sent to the Centers for Disease Control and Prevention for genetic typing showed a Tamiflu-resistant strain. This season, 99 percent do.

“It’s quite shocking,” said Dr. Kent A. Sepkowitz, director of infection control at theMemorial Sloan-Kettering Cancer Center. “We’ve never lost an antibiotic this fast. It blew me away.”

The single mutation that creates Tamiflu resistance appears to be spontaneous, and not a reaction to overuse of the drug. It may have occurred in Asia, and it was widespread in Europe last year.



Jim Sinclair’s Commentary

Let us all pray for Neil Young’s well being.

As Forrest Gump says, "That is all I have to say about that."

He Has a Heart of Gold and a Car of Biodiesel 

Near the midpoint of his sprawling, deeply satisfying show at Madison Square Garden on Monday night, Neil Young asked a simple question: “Where did all the money go?”

Near the midpoint of his sprawling, deeply satisfying show at Madison Square Garden on Monday night, Neil Youngasked a simple question: “Where did all the money go?” He sang this line and repeated it, for emphasis or symmetry. And a few moments later he issued variations on the wording — “Where did all the cash flow?/Where did all the revenue stream?” — that confirmed that it wasn’t such a simple question after all.



Jim Sinclair’s Commentary

What a dangerous world we live in. If the crooks do not get you and you sidestep your elected officials then the nukes will. Damn!

Former Pentagon chief predicts Iran crisis soon

WASHINGTON (AP) — William Perry, who headed the Pentagon during a 1994 nuclear standoff with North Korea, predicted on Thursday that President-elect Barack Obama will soon face a nuclear crisis with Iran.

Iran is "moving inexorably toward becoming a nuclear power," with ominous implications for the Middle East, Perry said.

"It seems clear that Israel will not sit by idle while Iran takes the final steps toward becoming a nuclear power," Perry told a conference on foreign policy challenges facing the incoming Obama administration. The former Clinton administration defense secretary held out hope that more vigorous U.S. and international diplomacy could reverse North Korea’s nuclear weapons program. But he was less confident about stopping Iran’s ambitions.

"President Obama will almost certainly face a serious crisis with Iran," Perry said. "Indeed, I believe the crisis point will be reached in his first year in office. So on the nuclear front, President Obama will face a daunn!ting set of problems, none of which can be solved unilaterally."

Iran denies that its nuclear program is intended to build weapons. The Bush administration, while dismissing Iran’s claims of pursuing only peaceful uses of nuclear power, declined to negotiate directly with Iran.

Obama has said he favors "tough and direct diplomacy with Iran without preconditions," and that his administration, working with allies, will seek a comprehensive settlement with Iran to end its nuclear ambitions.


Posted at 4:18 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

Due to time constraints associated with trading I have to keep things short today – gold rebounded off of support near yesterday’s lows further reinforcing the area near $837 – $840 as an initial support level. The bounce put gold back above the 20 day moving average which is helpful but it will need to recapture the 10 day moving average which comes in exactly at today’s session high to put the bulls back in charge. Right now there is no clear advantage to either the bull or bear side.  As long as the market can hold above the $828 – $830 level you have to favor the bulls however. Judging from the sharp ramp up in open interest even as the market has fallen, the shorts are digging in their heels and attempting to hold the line just below $866 or so. Some of this selling is no doubt associated with commodity index fund rebalancing so until we get the COT data it is going to be mostly guesstimates as to who is doing what in regards to selling. I do feel quite confident however that the bullion banks are capping gold on the rallies into the highs. For now let’s say that gold continues to consolidate.

Crude oil backed off further from the $50 level while palladium could not hold the $200 level. Copper gave up all the gains that it managed to ridiculously acquire as the ninny index funds went diving into the red metal to add copper longs to their holdings. They are now all under water. Nice move guys. They are now hoping that the $1 trillion economic stimulus plan being put forth contains lots of new electrical wiring components. Who knows – maybe they will get lucky and look like geniuses.

I want to repeat from yesterday – until the index funds complete this rebalancing act attempting to get an accurate read on these markets is a fool’s errand. This is all about money flows – pure and simple – nothing else matters right now.

There were 114 deliveries in the January gold contract assigned this morning. Interestingly enough, JP Morgan futures has been the biggest stopper so far in January. Selling continues to come out of Fortis although not in the size seen back in December. Open interest continues to increase in the January indicating that more buyers are planning on taking delivery in January. Guys – listen up – if you merely exchange warehouse receipts and DO NOT REMOVE THE METAL FROM THE WAREHOUSES, you are wasting your time. The bullion banks will beat you with an ugly stick unless you strip them of their background support. Meanwhile perhaps we can get some numbers from the Comex warehouses that actually tell us something that people can believe.

Open interest is beginning to rapidly build in the April contract as funds roll out of the February in preparation for that contract’s delivery process later this month. Total open interest has rocketed the last few days which indicate plenty of fresh sellers are lurking around.

The Dollar was generally weaker today although it did move up off its worst levels of the session as the day wore on. It is barely holding its footing above the 100 day moving average and looks like it has had a technical failure near the 85.00 level.

Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini


Posted at 5:01 AM (CST) by & filed under General Editorial.

Dear CIGAs,

The US Dollar will replace the US Dollar come The Revitalized and Modernized Federal Reserve Gold Certificate Ratio, not tied to interest rates, but rather gold value held by the Fed/Treasury versus a measure of international liquidity.


The Rentenmark replaced the Papiermark. Due to the economic crises in Germany after the Great War there was no gold available to back the currency. Therefore the Rentenbank, which issued the Rentenmark, mortgaged land and industrial goods worth 3.2 billion Rentenmark to back the new currency. The Rentenmark was introduced at a rate 1 Rentenmark = 1:1012 Papiermark, establishing an exchange rate of 1 United States dollar = 4.2 RM.

The Rentenmark was only an intermediate currency and was not legal tender. It was, however, accepted by the population and effectively stopped the inflation. The Reichsmark became the new legal tender on 30 August 1924, equal in value to the Rentenmark.

The monetary policy spearheaded by Hjalmar Schacht—the Central Banker—together with the fiscal policy of German Chancellor Gustav Stresemann and Finance Minister Hans Luther brought the inflation in Germany to an end.

The Rentenbank continued to exist after 1924 and the notes and coins continued to circulate. The last Rentenmark notes were valid until 1948.


Coins were issued dated 1923, 1924 and 1925 in denominations of 1, 2, 5, 10 and 50 Rentenpfennig. Only small numbers of Rentenpfennig coins were produced in 1925. A few 1 Rentenpfennig coins were struck dated 1929. The 1 and 2 Rentenpfennig were minted in bronze, with the remaining coins in aluminium-bronze.


The first issue of banknotes was dated November 1, 1923, and was in denominations of 1, 2, 5, 10, 50, 100, 500 an 1000 Rentenmark. Later issues of notes were 10 and 50 Rentenmark (1925), 5 Rentenmark (1926), 50 Rentenmark (1934) and 1 and 2 Rentenmark and dated 1937.


Click image to enlarge


The Federal Reserve Gold Certificate Ratio is the mechanism of the Rentendollar.

More On the Federal Reserve Gold Certificate Ratio
Author: Jim Sinclair
Posted On: Thursday, August 14, 2008, 7:20:00 PM EST

Why will the effort to call any top in the gold price be a waste of time for the gold-ignorant gurus?

Prior to being reduced to zero percent and then removal from the books, there was a direct link between the value of US Treasury gold held (a fixed price of gold then) as a percentage of the growth of the US money supply. As an example, when the cover was deemed to be 25% that meant that as the money supply expanded the value of gold had to be expanded by 25% as well.

Because the price of gold was fixed, the gold cover clause as this device was known, mandated an automatic change in the Federal Reserve Discount rate in order to depress the demand for funds in the US economic system.

There is an argument that says as the dollar was becoming a primary reserve currency and world trade was growing at record rates, the automatic changes in a monetary system were restraining the true wishes of the Administration and Federal Reserve.

After the demise of the Bretton Woods Agreement, everything financial moved towards a floating non-system. The move away from fixed points towards a fully floating financial system was the process of removal of all financial ALARMS. No longer was there a currency parity rate that when hitting the lower or upper bands rang an ALARM. The concept of financial crisis no longer existed.

The movement of any currency up or down, as the Euro recently did, would have been considered a financial crisis.

We have just witnessed multiple central bank interventions that are accepted by the establishment’s international investment community as a dandy deed in the cover up of other serious systemic weaknesses. As a result, upper and lower bands have been considered and implemented. To benefit the plan, the lower limit of $1.49 will not be defended yet in time the market will. $1.49 is only a point after which no great undertaking of intervention will be applied. Let the apples fall from the tree, if they please, as per today.

There is no return to a FIXED anything, but there is a clear indication of a return to the relationship of floating financial alarms, a marriage between the thesis of Bretton Woods and the floating sins of our Financial Fathers.

The Revitalized and Modernized Federal Reserve Gold Certificate Ratio will be tied to a broad measure of money supply, M3 or another new definition of liquidity.

The gold that the US Treasury has held primarily at the New York Federal Reserve will be valued at market at the time of adoption of this mechanism. Please understand that regardless of the arguments concerning the number of ounces the Federal Reserve/Treasury holds, since it will never be audited, accept what is said as correct.

Now the floating increase or decrease in monetary aggregates will mandate a change in the value of the gold held by the US Treasury.

The US Treasury will never have to buy or sell any gold because vehicles will be created that are immediately traded on exchanges that will speculate on the changes in the broad base monetary aggregate in terms of the gold price. That will serve the needs as the aggregates increase.

This is in fact a public way to view the aggregate change by changing the value of another asset, which is a means of balancing the balance sheet of the USA as it was at the day of adoption.

It is not convertibility. It floats and is not fixed.

When the need is greatest (.52 USDX or $2 Euro)) it will be seen as an acceptable return to a form of disciplined central banks actions. It will be a reinstatement of an alarm mechanism but with parts that float.

The market value of gold on that day will be a pendulum-starting point, not a fixed price. The broad measure of money supply on that day will be 100 on the liquidity index.

Assuming the dollar is at .5200, the adoption of this mechanism could mark the low of the US dollar for this chapter of the financial history of the USA.

There are other items that will have to fall into place if that is to be the dollar saver from a complete Weimar Experience. This is the major criterion for success.

I assume it is January the 14th, 2011 and gold is trading at $1,650 or higher. Then I would assume the price of gold to trade $100 above and below the price of gold on that day according to changes in the liquidity index.

If the USA would like to avoid a Weimar experience in the US dollar this is the key ingredient to preventing that.

The US dollar is headed in the direction of the Weimar Experience in order to satisfy significant financial failures. Some smaller entities will be rescued by Federal Money, exploding the US Federal Budget deficit and putting the weight of more newly created dollars on the inherently weak dollar.

There is a 70% possibility that since central banks have moved to floating currency parities that the modernized and revitalized Federal Reserve Gold Certificate Ratio will follow under the pressure of future systemic and grave financial circumstances.

Posted at 5:21 PM (CST) by & filed under In The News.

Dear CIGAs,

For all us Boys and Gals out here in CIGA land, Dr. Bill Harvey asks us to watch the following, Knowing why Dr. Bill has the Dr. as his title will explain it all.

Jim Sinclair’s Commentary

Disappearances and suicides: hedge fund managers specializing in destruction and distortion take note.

You don’t need Russian oligarchs as clients – some of the gold crowd would scare the hell out of the Russians.

I know a fellow named Rusty Bayonet that really qualifies, and god help us all if he brings his friends.

Thinking about that, I would not want the Green Hornet, Dr. Bob, CIGA Arlen, Big Tatanka and a host of angry others after me.

Financial people have to learn that they cannot play with people’s lives and always just walk away. When these nerds destroy markets they destroy thousands of people’s savings, most often without cause or reason.

When you make your living by ripping off market after market, once people identify who you are it is no longer what the nerds think is a simple and impersonal game.

Hiding is becoming less easy as freedom of information will certainly not protect you under a new administration.

Where I am concerned, I know exactly who and where you are.

‘Austria’s Woman on Wall Street’ on the Run?
By The Staff at

Sonja Kohn may be literally running for her life.

The woman once known here as "Austria’s woman on Wall Street" has disappeared. Kohn collected more than $2 billion from rich investors in Russia and across Europe for Bernard Madoff through her firm, Bank Medici. Touting her connections, she promised investors entrée to bigger fish in the finance world, including Madoff. Some say it’s not out of the question that she’s hiding from Russian clients (do we dare say, perhaps, the Russian mob?) who trusted her with their cash and have had their wallets hit even harder by the Russian stock market and plummeting commodity prices.

"With Russian oligarchs as clients, she might have reason to be afraid," a Viennese banker who knew Kohn and her husband told The New York Times.

This has left Bank Medici – which funneled money to the alleged ponzi schemer Madoff — in the hands of Austrian regulators. People who know her are even afraid to talk on the record, since being linked to Madoff these days isn’t, exactly, the best idea. A Bank Medici spokeswoman characterized Kohn, who has also served as an adviser to Austria’s economic affairs minister, foreign affairs minister and the Vienna Stock Exchange, as a "victim," but wouldn’t say where Kohn was.

Bank Medici had $2.1 billion in exposure to Madoff’s investment securities through hedge funds run by the bank, but it says it had no liquidity problems.



Jim Sinclair’s Commentary

Turkey is going to negotiate with whom on behalf of whom in the Israel/Hamas situation?

Turkey denies reports of arms deal with Israel clip_image002[1]2009-01-07 01:59:03

ANKARA, Jan. 6 (Xinhua) — Turkish Defense Minister Vecdi Gonul Tuesday denied reports that an arms deal was signed between Turkey and Israel ahead of the Gaza operation, local Dogan News Agency reported on Tuesday.

The arms deal has nothing to do with the attacks. No military agreement was signed (with Israel) during our governments," the report quoted Gonul as saying, adding that the agreement in question was signed many years ago and its contents were not related with the recent political developments.

Turkish government came under fire after some media reports suggested that an arms deal worth 167 million U.S. dollars was signed with Israel ahead of the Gaza operations.

According to the reports, Turkey and Israel have a strong partnership in military equipment and arms. The trade volume between the two was 2.6 billion dollars in 2007, among which some suggest 1.8 billion dollars is attributed to military equipment trade.

Turkey has maintained one of the harshest rhetorics against Israel over its incursion in Gaza.


Dear Friends in China,

Respectfully, you are at best only partially correct. It was the unbridled, unregulated, unlisted, false evaluated worthless and to be ever worthless OTC derivatives manufactured primarily in the USA that has turned a normal economic correction into a terminal currency debacle.

I am amazed that even you will not say it the way it is. It must be so embarrassing to know you bought into the madness and acquired a mountain of eternally worthless crap OTC derivatives that you will not admit to in fear of loss of face.


U.S. blame game cannot change facts of financial crisis clip_image002 2009-01-07 19:22:19
By Xinhua Writer Huang Xin

BEIJING, Jan. 7 (Xinhua) — Plagued by the financial crisis that originated in the United States, the world economy has been thrown into chaos. While countries are battling the crisis, outgoing U.S. Treasury Secretary Henry Paulson has been playing a blame game.

Paulson said a failure to address the rise of emerging markets and resulting imbalances was partly to blame for the global financial crisis. The current U.S. Federal Reserve Chairman Ben Bernanke is also part of the game. He sees savings from countries like China as a cause of the property bubble in the United States.

Their remarks made headlines but cannot change the facts. It is widely accepted that the U.S. low interest rate policy, which encouraged excessive spending and caused the sub-prime crisis, was at the root of the problem.

The Fed used this policy to save the country’s economy from a contraction in the 1990s, when China and other emerging economies had no large trade surplus or savings.

Apparently, Paulson has mixed up cause and effect by suggesting that emerging economies pushed down U.S. interest rates.



Jim Sinclair’s Commentary

All that protected the Weimar citizens from their elected officials and the Papiermarc was Gold.

All that protects you against your elected officials and the Papierdollar is Gold.

Some day the Rentendollar will come. That you can be sure of.

Study history or become history.

All That Shimmers is Gold

The safe haven status of gold is starting to shine brighter and brighter, according to Jurg Kiener, CEO of Swiss Asia Capital. He explains his bullish outlook on the precious metal to CNBC’s Oriel Morrison.

Click here to view the video…


Jim Sinclair’s Commentary

Bloomberg loves to spin gold costs. Toronto analysts are simply CLUELESS. Gold share bear Hedge Funds just love it.

The key question here is was their project loan produced as recourse or non-recourse? If it was non-recourse and New Gold is accounting on International or Canadian GAAP then the derivative which produced the non-recourse must be charged or credited to the project. Ask them which, not me.

New Gold to Halt Operations at Brazil Mine on Costs
By Rob Delaney

Jan. 2 (Bloomberg) — New Gold Inc., the Vancouver-based company that produces precious metal in Mexico, Brazil and Australia, halted output at one of its three producing mines because of high costs.

New Gold stopped operations at its Amapari mine in Brazil because lower-grade ore and rising quantities of waste material drove costs too high, the company said in a statement. New Gold is exploring options including a new processing facility for handling ore stockpiled at the site.

The company’s stock fell 16 cents, or 9 percent, to C$1.61 at 4:10 p.m. in Toronto Stock Exchange trading. The shares dropped 65 percent last year.

New Gold had planned to mine the Amapari deposit until the third quarter of 2009, according to the statement.


Jim Sinclair’s Commentary

Look Forward To:

1. States issuing IOUs for State Tax Refunds, possibly to vendors as well.
2. Potential CONFISCATION of your IRA’s and other Retirement Plans including corporate into the Federal Social Security Funds.

This would impact two bird with one stone.

One of those birds is the turkeys with IRAs or any type of retirement program that neither you nor your family will ever get to spend (buying power wise).

The other bird is the Czar of the centrally planned government who then sits in the Cat Bird Seat of Financial Power now able to count and direct your hard earned retirement dollars.

Since the Fed has become the largest "wild-ass" hedge fund due to its recently acquired assets, why not become the Social Security Fund with all your IRAs and corporate retirement accounts full of OTC derivatives? Maybe Madoff can be recruited from a Federal airbase infirmary to run the new Social Insecurity Hedge Fund.

It will happen, sorry!

Maybe Lenin will turn out to be the world’s greatest economist and political philosopher if measured by new governments adopting his programmed and planned economy.

I am my own retirement program because like Harry Schultz we will never retire. Both of us would rather burn out than rust out.

California may delay tax refunds amid budget impasse
With Gov. Arnold Schwarzenegger’s veto of Democrats’ $18-billion package of tax hikes and cuts, the state could begin issuing IOUs as soon as Feb. 1. GOP legislators join a suit against the package.
By Jordan Rau and Evan Halper 
January 7, 2009

Reporting from Sacramento — State officials on Tuesday braced for the possibility of delaying tax refunds to millions of Californians, along with student grants and payments to vendors, as the latest round of budget negotiations between Gov. Arnold Schwarzenegger and Democratic legislators collapsed.

With little more than a month’s worth of cash left in the state treasury, the governor and lawmakers have been unable to agree on how to erase a budget gap projected to reach $41.6 billion by the middle of next year. Democrats announced Tuesday that two weeks of discussions had ended in an impasse and sent Schwarzenegger the $18-billion fiscal package they passed last month. The governor vetoed it, as he had promised to do.



Jim Sinclair’s Commentary

Not every such incident is as it appears or is reported, especially when this gets around to the nerd Hedge Fund Managers who specialize in destruction, believing all stories of violence are only on prime time TV. Want to borrow some of my rage? I have plenty to spare.

German billionaire kills self, family says
updated 9:54 p.m. EST, Tue January 6, 2009

(CNN) — German billionaire Adolf Merckle, one of the richest men in the world, committed suicide Monday after his business empire got into trouble in the wake of the international financial crisis, Merckle’s family said Tuesday in a statement.

Merckle, 74, was hit by a train in the southwestern town of Ulm, police said.

His family said the economic crisis had "broken" Merckle.

He was number 94 on the Forbes list of the world’s richest people. He had fallen from number 44 on the Forbes 2007 rich list as his fortune declined from $12.8 billion to $9.2 billion in 2008.

Merckle’s business empire included interests as diverse as cement-maker HeidelbergCement and generic drug-maker Ratiopharm. But he lost hundreds of millions of dollars, including company capital, betting against Volkswagen stock last year.

The state government of Baden-Wuerttemberg rejected his petition for financial assistance, and he entered bailout talks with several German banks.


Jim Sinclair’s Commentary

Pakistan is now considered the Greatest threat the US has.

Hadley: Pakistan Poses Biggest Threat to the US
Wall Street Journal – USA
By JOHN D. MCKINNON WASHINGTON — The biggest foreign policy challenge awaiting President-elect Barack Obama’s is not Iraq or Afghanistan but Pakistan, …

Bush adviser: Iran, Pakistan key Obama challenges
The Associated Press
Outside the Mideast, the next administration’s top priority should be stabilizing an increasingly volatilePakistan, Stephen Hadley said. …

Pakistan indignant over India accusation
Houston Chronicle – United States
ISLAMABAD, PAKISTAN — Pakistan on Tuesday forcefully denied a suggestion by India’s prime minister that official Pakistani agencies were involved in …

Pakistan rejects India ‘propaganda’ – Qatar
Pakistan has rejected as "propaganda" comments by India’s prime minister that Pakistani authorities must have know about and supported last November’s …

Pakistan demands access to Mumbai crime scene
Daily Times – Lahore,Pakistan
Talking to reporters in Islamabad, she asked India to stop the ‘blame game’ and cooperate with Pakistan against terrorism. India had admitted that Pakistan …

Pakistan calls for foreign support, not troops
The Associated Press
KABUL, Afghanistan (AP) — Pakistan’s president called Tuesday for foreign allies to provide more support — not more troops — to help win the battle against …

Posted at 4:05 PM (CST) by & filed under Trader Dan Norcini.

Dear CIGAs,

“Behold the madness which the hedge funds and index funds have wrought!”

That is really all one needs to know to explain today’s price action across the entire gamut of commodities, gold included. I warned yesterday that the dipsticks that run these pestilential institutions will spin on a dime and do the exact opposite of what they did the day before whenever their little black boxes tell them to. The “strategy” of these ninnies consists of throwing money en masse into whatever markets their algorithms tell them to or withdrawing it all at once should the same computer command them to do so the very next day. This is what passes for trading nowadays. Let me let you in on an apparently little-known secret – this is not trading – trading is a skill that some of us have been plying for many, many years which consists of long, hard hours of research and analysis, meticulous planning and sound money management techniques. What we have today among the index funds is more closely akin to craps, which is better suited to Las Vegas or some other gambling casino.

What has set off this particular rash of idiocy is the rebalancing of the various commodity indices which have lowered the weightings of some commodities while raising the weightings of others. This has resulted in both front running ahead of the actual date that the new changes go into effect as well as some preliminary action by the funds. Again – no questions asked – no attempts to finesse a movement of positions – what we get is a big “KERPLUNK!” with enormous sums of money being shoved into markets or withdrawn from markets irrespective of the effects of such massive one-sided  flows. There was once a time when large traders knew how to slowly and gradually move money into and out of markets in a manner which allowed them to position themselves somewhat furtively by making only minimal disruptions to prices. Those days are long gone since we now  have the Pac-Man crowd and the Mortal Kombat generation who are manning the trading desks at these firms. Maybe they are looking for the combination of the right keys to press to produce a power move that will allow them to gobble up all the competition. Nothing else can explain this display of such ineptness and clumsiness. Personally, I am insulted to be grouped in the category of a trader if these people define what trading consists of.

Regardless, gold was beaten down as a result as were many other commodities which only yesterday were soaring upwards only to abruptly reverse course and puke out all of those gains. That is why I said you have to be careful trying to read too much into the price action of these markets right now because they are being governed by other factors than fundamentals. It is all a money flow game which is why scalping, or short term trading is about the only way to trade these things right now, at least until the fools running these hedge and index funds calm down a bit.

Let me make one further comment about the reduction in the gold weighting in some of these indices – Do any of you recall back in 2006 just prior to the midterm elections here in the US when Goldman Sachs inexplicably made a change in their commodity index and reduced the weighting of unleaded gasoline? That resulted in a huge sell off in that market which “fortuitously” knocked the price of gasoline lower right in front of the elections. Hmmm. Those who own the index can of course do whatever they want with it but I personally feel that this is another area where shenanigans are much too likely. Given the lack of ethics that mark out society, especially in our financial system (can anyone say Madoff), the cynic in me says that anything is possible nowadays and that there is far too much room for “politics” to influence the weightings assigned to various commodities in some of these indices. That is why I still prefer the old reliable CCI or the Continuous Commodity Index over these others. Unfortunately it seems like very few of the index funds use that particular index when assigning money to the various commodity markets.

There are various estimates out there about the amount of gold contracts that will need to be sold in order to bring the funds down to the respective weighting in gold so as to bring themselves into alignment with the new changes to a couple of the indices. I will not bore you with the details but suffice it to say, this is where the selling is coming from. It was also probably given a good kick lower by the appearance of more of the usual selling as gold neared the $880 resistance level. I will say one thing about all this – if you really know the fundamentals of a market and if those fundamentals are bullish, then you can take advantage of the short-sighted stupidity of the funds as their actions present opportunity for traders of convictions who are also well-capitalized. If they insist on indiscriminately throwing away everything of value even at prices below value, then use that to your advantage. The simple fact is that these bozos are here to stay so smart traders (you know – the ones who actually use their brain to trade) will adapt to their presence.

Technically, and take this with a grain of salt because of the reasons mentioned above concerning the index rebalancing, gold has stalled out at $880 and is probing for buying support. The last two days have seen that emerge below the $840 level. That will need to continue to prevent further technical damage to the market as it is now trading below the 10 day moving average (short term bearish) and is threatening to close below the 20 day moving average (again – short term bearish). It is still above the 40, 50 and 100 day moving averages so the longer term is friendly. The area near $830 is very important from a technical perspective as it must hold to prevent a break down due to fund liquidation which will occur should shorts be able to shove it below this level and hold it there as there are sell stops under that level. The onus is on the bulls to prove their mettle.

It did not help paper gold any that the mining shares seem to be confirming the bearish divergence that has been showing up among some of the technical indicators on the HUI and the XAU. The HUI needs to hold the 263-260 level on a closing basis to keep the chart from turning negative. The XAU needs to hold the 107 level to also keep things looking up for the bulls.

The commodity currencies were blasted today which is to be expected considering that most of the commodity world was also beaten with an ugly stick. We will want to watch the Aussie, Kiwi and Loonie to see how they act during this price dip. If they can garner enough fresh buying to push up through the 100 day moving average, then I will feel a lot better about a bottom in the entire commodity complex. Right now, things look iffy. Some individual markets have nice price charts forming for bullish moves while others are still suspect. By the way, palladium did manage a close over the $200 level although not in a fashion strong enough to yet make a believer out of me. It has a nice rounded bottom formation alongside of a larger double bottom potential but needs to get above the 100 day moving average or at least manage a stronger close over the $200 level. The reason I mention it is because it and platinum would seem to have some of the worst fundamentals going for them among the metals so if they can bottom, it will certainly not hurt the case for gold. I should mention there is some chatter than platinum has become too cheap in relation to gold – same goes for silver… that may bring on silver/gold and platinum/gold spreading.

The Dollar was weaker against just about all of the other majors with the exception of those commodity currencies. This was not yen carry trade unwinding that occurred today because while the yen was higher, so was the Euro, Swissie and Pound Sterling.

Crude oil has confirmed the resistance at $50 which I mentioned yesterday and looks to have stalled out for now. It looks like the funds were able to defend their short positions near the 40 and 50 day moving average. The next test will be to see if it can bounce off the confluence of the 10 and 20 day moving averages near the $42.50 level or whether the bears can push it down through those. Failure there and it should attempt a retest of the potential double bottom near the $35.50 level. A bounce from there will have some believing that a long term bottom has been put in.

Bonds showed further signs of weakness today but the downward collapse looks to have halted for now. We might very well get a bit of a more orderly market in the bonds with some good two-sided trading instead of the lop-sided one way trading in there that we have seen of late. After all, a 9 point vertical run up followed by a 9 point vertical meltdown does not exactly qualify for an “orderly” market.

Click chart to enlarge today’s hourly action in Gold in PDF format with commentary from Trader Dan Norcini


Posted at 6:20 AM (CST) by & filed under JSMineset Editor.

Dear CIGAs,

Thank you to everyone who has signed up on our Compendium Volume 2 Pre-Order list. We have had a huge number of requests and will be offering those who signed up an opportunity to purchase the set before it goes on sale to the rest of our readers.

If you have emailed you are on the Pre-Order List. If you haven’t yet signed up, check out the details of how to do so at the following link:

For those on the list we expect the Compendium Volume 2 to be available by the end of the month. Pre-Orders will get priority shipping before everyone else. A VERY LIMITED reprint of Compendium Volume 1 will also be available for those of you new to the site.

Thank you all for your continued support! You all help to make this site what it is.

Best regards,
Dan Duval
JSMineset Editor

Posted at 6:08 AM (CST) by & filed under General Editorial.

Dear CIGAs,

They say it cannot occur HERE.
They say it cannot happen NOW.
They Are SO wrong. It is happening here and now!

German Papiermark
From Wikipedia, the free encyclopedia

The name Papiermark (English: paper mark) is applied to the German currency from the point in 1914 when the link between the Mark and gold was abandoned, due to the outbreak of the First World War. In particular, the name is used for the banknotes issued during the hyperinflation in Germany of 1922 and especially 1923, which was a result of the Germans’ decision to pay their war debt by printing banknotes.

Jim Sinclair’s Commentary

All you need to do is erase the words above “pay their war debt” and replace with the phrases, “compensate failed OTC derivatives and their manufacturers,” and you have the Papierdollar with all the same results both present and forthcoming.

Excerpts from Wikipedia’s article on Hyperinflation:

1. Since hyperinflation is visible as a monetary effect, models of hyperinflation center on the demand for money. Economists see both a rapid increase in the money supply and an increase in the velocity of money. Either one or both of these encourage inflation and hyperinflation. A dramatic increase in the velocity of money as the cause of hyperinflation is central to the "crisis of confidence" model of hyperinflation, where the risk premium that sellers demand for the paper currency over the nominal value grows rapidly.

The second theory is that there is first a radical increase in the amount of circulating medium, which can be called the "monetary model" of hyperinflation.

In either model, the second effect then follows from the first — either too little confidence forcing an increase in the money supply, or too much money destroying confidence.

2. “Governments will often try to disguise the true rate of inflation through a variety of techniques. These can include the following:

* Outright lying in official statistics such as money supply, inflation or reserves.
* Suppression of publication of money supply statistics, or inflation indices.
* Price and wage controls.
* Forced savings schemes, designed to suck up excess liquidity. These savings schemes may be described as pensions schemes, emergency funds, war funds, or something similar.
* Adjusting the components of the Consumer price index, to remove those items whose prices are rising the fastest.

None of these actions address the root causes of inflation, and in fact, if discovered, tend to further undermine trust in the currency”

3. In the confidence model, some event, or series of events, such as defeats in battle, or a run on stocks of the specie which back a currency, removes the belief that the authority issuing the money will remain solvent — whether a bank or a government. Because people do not want to hold notes that may become valueless, they want to spend them in preference to holding notes that will lose value. Sellers, realizing that there is a higher risk for the currency, demand a greater and greater premium over the original value.

Under this model, the method of ending hyperinflation is to change the backing of the currency — often by issuing a completely new one. War is one commonly cited cause of crisis of confidence, particularly losing in a war, as occurred during Napoleonic Vienna, and capital flight, sometimes because of "contagion" is another. In this view, the increase in the circulating medium is the result of the government attempting to buy time without coming to terms with the root cause of the lack of confidence itself.

4. Since hyperinflation is visible as a monetary effect, models of hyperinflation center on the demand for money. Economists see both a rapid increase in the money supply and an increase in the velocity of money. Either one or both of these encourage inflation and hyperinflation. A dramatic increase in the velocity of money as the cause of hyperinflation is central to the "crisis of confidence" model of hyperinflation, where the risk premium that sellers demand for the paper currency over the nominal value grows rapidly. The second theory is that there is first a radical increase in the amount of circulating medium, which can be called the "monetary model" of hyperinflation. In either model, the second effect then follows from the first — either too little confidence forcing an increase in the money supply, or too much money destroying confidence.

In the confidence model, some event, or series of events, such as defeats in battle, or a run on stocks of the specie which back a currency, removes the belief that the authority issuing the money will remain solvent — whether a bank or a government. Because people do not want to hold notes that may become valueless, they want to spend them in preference to holding notes that will lose value. Sellers, realizing that there is a higher risk for the currency, demand a greater and greater premium over the original value. Under this model, the method of ending hyperinflation is to change the backing of the currency — often by issuing a completely new one. War is one commonly cited cause of crisis of confidence, particularly losing in a war, as occurred during Napoleonic Vienna, and capital flight, sometimes because of "contagion" is another. In this view, the increase in the circulating medium is the result of the government attempting to buy time without coming to terms with the root cause of the lack of confidence itself.

In the monetary model, hyperinflation is a positive feedback cycle of rapid monetary expansion. It has the same cause as all other inflation: money-issuing bodies, central or otherwise, produce currency to pay spiraling costs, often from lax fiscal policy, or the mounting costs of warfare. When businesspeople perceive that the issuer is committed to a policy of rapid currency expansion, they mark up prices to cover the expected decay in the currency’s value. The issuer must then accelerate its expansion to cover these prices, which pushes the currency value down even faster than before. According to this model the issuer cannot "win" and the only solution is to abruptly stop expanding the currency. Unfortunately, the end of expansion can cause a severe financial shock to those using the currency as expectations are suddenly adjusted. This policy, combined with reductions of pensions, wages, and government outlays, formed part of the Washington consensus of the 1990s.

Whatever the cause, hyperinflation involves both the supply and velocity of money. Which comes first is a matter of debate, and there may be no universal story that applies to all cases. But once the hyperinflation is established, the pattern of increasing the money stock, by whichever agencies are allowed to do so, is universal. Because this practice increases the supply of currency without any matching increase in demand for it, the price of the currency, that is the exchange rate, naturally falls relative to other currencies. Inflation becomes hyperinflation when the increase in money supply turns specific areas of pricing power into a general frenzy of spending quickly before money becomes worthless. The purchasing power of the currency drops so rapidly that holding cash for even a day is an unacceptable loss of purchasing power. As a result, no one holds currency, which increases the velocity of money, and worsens the crisis.

That is, rapidly rising prices undermine money’s role as a store of value, so that people try to spend it on real goods or services as quickly as possible. Thus, the monetary model predicts that the velocity of money will rise endogenously as a result of the excessive increase in the money supply. At the point when ordinary purchases are affected by inflation pressures, hyperinflation is out of control, in the sense that ordinary policy mechanisms, such as increasing reserve requirements, raising interest rates or cutting government spending will all be responded to by shifting away from the rapidly dwindling currency and towards other means of exchange.

During a period of hyperinflation, bank runs, and loans for 24-hour periods, switching to alternate currencies, the return to use of gold or silver or even barter becomes common. Many of the people who hoard gold today expect hyperinflation, and are hedging against it by holding specie. There may also be extensive capital flight or flight to a "hard" currency such as the U.S. dollar. This is sometimes met with capital controls, an idea which has swung from standard, to anathema, and back into semi-respectability. All of this constitutes an economy, which is operating in an "abnormal" way, which may lead to decreases in real production. If so, that intensifies the hyperinflation, since it means that the amount of goods in "too much money chasing too few goods" formulation is also reduced. This is also part of the vicious circle of hyperinflation.

Once the vicious circle of hyperinflation has been ignited, dramatic policy means are almost always required; simply raising interest rates is insufficient. Bolivia, for example, underwent a period of hyperinflation in 1985, where prices increased 12,000% in the space of less than a year. The government raised the price of gasoline, which it had been selling at a huge loss to quiet popular discontent, and the hyperinflation came to a halt almost immediately, since it was able to bring in hard currency by selling its oil abroad. The crisis of confidence ended, and people returned deposits to banks. The German hyperinflation of the 1920s was ended by producing a currency based on assets loaned against by banks, called the Rentenmark. Hyperinflation often ends when a civil conflict ends with one side winning. Although wage and price controls are sometimes used to control or prevent inflation, no episode of hyperinflation has been ended by the use of price controls alone. However, wage and price controls have sometimes been part of the mix of policies used to halt hyperinflation.

Hyperinflation and the currency

In times of hyperinflation, gold is a store of value whose value cannot be printed out of existence.

As noted, in countries experiencing hyperinflation, the central bank often prints money in larger and larger denominations as the smaller denomination notes become worthless. This can result in the production of some interesting banknotes, including those denominated in amounts of 1,000,000,000 or more.

* By late 1923, the Weimar Republic of Germany was issuing fifty-million Mark banknotes and postage stamps with a face value of fifty billion Mark. The highest value banknote issued by the Weimar government’s Reichsbank had a face value of 100 trillion Mark (100,000,000,000,000; 100 billion on the long scale).[6] [7]. One of the firms printing these notes submitted an invoice for the work to the Reichsbank for 32,776,899,763,734,490,417.05 (3.28×1019, or 33 quintillion) Marks.[8]

* The largest denomination banknote ever officially issued for circulation was in 1946 by the Hungarian National Bank for the amount of 100 quintillion pengő (100,000,000,000,000,000,000, or 1020; 100 trillion on the long scale). image (There was even a banknote worth 10 times more, i.e. 1021 pengő, printed, but not issued image.) The banknotes however didn’t depict the number, making the 500,000,000,000 Yugoslav dinar banknote the world’s leader when it comes to depicted zeros on banknotes.

* The Z$100 billion agro cheque, issued in Zimbabwe on July 21, 2008, shares the record for depicted zeroes (11) with the 500 billion Yugoslav dinar banknote.

* The Post-WWII hyperinflation of Hungary holds the record for the most extreme monthly inflation rate ever — 41,900,000,000,000,000% (4.19 × 1016%) for July, 1946, amounting to prices doubling every thirteen and one half hours.

One way to avoid the use of large numbers is by declaring a new unit of currency (an example being, instead of 10,000,000,000 Dollars, a bank might set 1 new dollar = 1,000,000,000 old dollars, so the new note would read "10 new dollars".) An example of this would be Turkey’s revaluation of the Lira on January 1, 2005, when the old Turkish lira (TRL) was converted to the New Turkish lira (YTL) at a rate of 1,000,000 old to 1 new Turkish Lira. While this does not lessen the actual value of a currency, it is called redenomination or revaluation and also happens over time in countries with standard inflation levels. During hyperinflation, currency inflation happens so quickly that bills reach large numbers before revaluation.

Some banknotes were stamped to indicate changes of denomination. This is because it would take too long to print new notes. By time the new notes would be printed, they would be obsolete (that is, they would be of too low a denomination to be useful).

Metallic coins were rapid casualties of hyperinflation, as the scrap value of metal enormously exceeded the face value. Massive amounts of coinage were melted down, usually illicitly, and exported for hard currency.

Governments will often try to disguise the true rate of inflation through a variety of techniques. These can include the following:

* Outright lying in official statistics such as money supply, inflation or reserves.
* Suppression of publication of money supply statistics, or inflation indices.
* Price and wage controls.
* Forced savings schemes, designed to suck up excess liquidity. These savings schemes may be described as pensions schemes, emergency funds, war funds, or something similar.
* Adjusting the components of the Consumer price index, to remove those items whose prices are rising the fastest.

None of these actions address the root causes of inflation, and in fact, if discovered, tend to further undermine trust in the currency, causing further increases in inflation. Price controls will generally result in hoarding and extremely high demand for the controlled goods, resulting in shortages and disruptions of the supply chain. Products available to consumers may diminish or disappear as businesses no longer find it sufficiently profitable (or may be operating at a loss) to continue producing and/or distributing such goods, further exacerbating the problem.