A note to our Russian Readers:
You have an exceptional opportunity to stop the decline in the value of the Ruble and elevate it to a reserve currency through the following conversion opportunities:
1.Partial convertibility in gold at $1035.
2.Partial convertibility in crude oil at $147 per barrel.
3.Partial convertibility into a basket of crude and gold.
4.A full convertibility of the above.
5.A form of the Federal Reserve Gold Certificate Ratio that I have written about many times.
6.Same as above with all new sovereign bond issues.
All of this is much more effective than the failed attempts to stabilize.
When a currency has a convertibility aspect to it, conversion almost never occurs.
Jim Sinclair’s Commentary
This scholarly missive written by a fellow who truly understands speaking the language of the initiated presents the non conversion of Monetary Base into M2.
That may be another reason that the US Treasury and the Fed have moved to QS. If QS in fact does pump money directly to those most apt to spend it, converting Monetary Base into M2 and accelerating it, then watch inflation roar as business decelerates to the downside to some degree. Of course there will be things like putting GE’s financing under a FDIC guarantee. Does anyone put their funds into the GE Bank & Trust? There isn’t one so what is the FDIC doing guaranteeing debt with its quickly deteriorating balance sheet and for how much is the guarantee per $1000 bond? I suspect they are 100% guaranteed.
Don’t forget one of the tools of attempted repair inthe1930s was an increase in the price of gold to offset the deflationary thinking and create more money for stimulation methods that unfortunately failed.
QS might work to some degree and that may be why US equities did a key reversal today.
Perhaps the most important driver of the US dollars recent appreciation is not a fundamental but a technical factor. The meltdown of prices in the commodity complex, particularly energy, has generated a very strong impulse for US dollar strength. Whilst many commodity end-users were outright cash buyers, other buyers that were investing or speculating in commodities as a newfound asset class over the past five years would typically fund their position with US dollar-denominated credit, in effect, creating a US dollar short position. Now that these commodity carry trades are being unwound, it exacerbates commodity weakness and contributes to US dollar strength. In addition, US investments in foreign markets, particularly equities, were primarily un-hedged and large amounts of those monies are now being repatriated which holds similar bullish US dollar effects.
Dollar Strength Sustainability
How sustainable are these four fundamental and technical factors in underpinning US dollar strength?
The trade and current account deficits should continue to narrow for several more months or perhaps quarters. As the US economy falls deeper into recession, imports should begin to decline more precipitously due to declining volume. This collapse along with rising export receipts will narrow the trade deficit and continue to lend support to the US dollar.
Despite the US dollar supportive narrowing of the trade and current account deficit, the pace of improvement may begin to slow for several reasons. First, once the prices of energy and other commodities stabilize, trends in import prices will no longer help lower overall import expenditures. Furthermore, stabilized import prices will also stop contributing to improved terms-of-trade. Second, it seems that a synchronized global recession is on the horizon. If so, then exports will once again decelerate despite US dollar competitiveness. As the growth of economies representing our important export markets slows or even falls into recession, weaker export growth will result. The combined effect of these counter-veiling trends is that the incipient narrowing of the US trade deficit may be short lived.
Perhaps the key factor will be the length of the time it takes for global de-leveraging to run its course. No one knows precisely how long it will take for investors and speculators to unwind US dollar-denominated commodity and other carry trades. It could be one month or half a year. However, once complete, the strongest driver for recent US dollar strength de-leveraging — will dissipate. At that juncture, FX traders and investors will once again re-focus their attention on the supply of US dollars being pumped into the US economy and on the global system and investors willingness to hold additional Greenbacks in their portfolio.
The weight of US dollar supply
It is beyond the scope of this paper to itemize the growing cumulative costs of the various aspects of the bailout. Suffice to say that the supply of US dollars is dramatically growing and measured in the trillions. To best measure this aggregate growth, lets look at the growth of the Feds balance sheet and the monetary base.
After remaining relatively stable for more than a year through August 2008 at around $825 billion, the monetary base has exponentially exploded. BCA has recently highlighted that in the past eight weeks, the monetary base has grown 38% to $1.142 trillion, and shows no signs of slowing down.1 Yet these reserves injected onto the balance sheets of the banks have not been disseminated into the broader economy. This is apparent by the ratio of M2 to base money, which over the same time period since end August, has plummeted from 9.1 to 7.8 (see Charts 1 & 2). This is not surprising since most of the capital injected into banks has been used to repair and shrink the balance sheet (i.e., write-off bad assets) rather than expand it. So fractional bankings normal stimulatory impact through the money multiplier has by-in-large not been activated.
Jim Sinclair’s Commentary
The paper market for gold will NOT be able to hold back this type of demand, but will try as long as their warehouse remains capable of supporting their devious destructive machinations to pick your pocket in order to fill theirs. For your information, my wife and I were members of the Comex.
I respectfully ask you to take delivery of your positions as you can afford to. Why pay wild premiums to buy gold when you can buy a nearby gold future at no premium and take delivery?
Friday, November 14, 2008
The mainland is seriously considering a plan to diversify more of its massive foreign-exchange reserves into gold, a person familiar with the situation told The Standard.
Beijing is considering changing its asset allocations during the financial tsunami in order to build up gold reserves "in a big way," the source said.
China’s fears about the long-term viability of parking most of its reserves in US government bonds were triggered by Treasury Secretary Henry Paulson’s US$700 billion (HK$5.46 trillion) bailout plan, which may make the US budget deficit balloon to well over US$1 trillion this fiscal year.
The US government will fund the bailout by printing new money or issuing huge amounts of new debt, either of which will put severe pressure on the value of the greenback and on government bond yields.
The United States holds 8,133.5 tonnes of gold reserves valued at US$188.23 billion. China holds gold reserves of just 600 tonnes, worth only US$13.89 billion.
Jim Sinclair’s Commentary
This alone creates at least a very strange situation that the legislative now wants to see. Can you imagine what the Obama Administration will do to get both the Fed and the USA Treasury to come clean?
I would suggest that both the Fed and the Treasury have no hope of hiding the facts in a short period of time.
A word of advice to those presently concerned by the lack of oversight:
The matter might be good to face up to while the Bush Administration can still issue Presidential pardons.
Bailout Lacks Oversight Despite Billions Pledged
Watchdog Panel Is Empty; Report Is Unfinished
By Amit R. Paley
Washington Post Staff Writer
Thursday, November 13, 2008; A01
In the six weeks since lawmakers approved the Treasury’s massive bailout of financial firms, the government has poured money into the country’s largest banks, recruited smaller banks into the program and repeatedly widened its scope to cover yet other types of businesses, from insurers to consumer lenders.
Along the way, the Bush administration has committed $290 billion of the $700 billion rescue package.
Yet for all this activity, no formal action has been taken to fill the independent oversight posts established by Congress when it approved the bailout to prevent corruption and government waste. Nor has the first monitoring report required by lawmakers been completed, though the initial deadline has passed.
"It’s a mess," said Eric M. Thorson, the Treasury Department’s inspector general, who has been working to oversee the bailout program until the newly created position of special inspector general is filled. "I don’t think anyone understands right now how we’re going to do proper oversight of this thing."
Jim Sinclair’s Commentary
The French just figured this out. No, it is a statement to the USA to stop trying to run things at this type of gather.
Sarkozy-US dollar no longer only currency in world
11.13.08, 06:49 AM EST
PARIS, Nov 13 (Reuters) – The U.S. dollar can no longer claim to be the only currency in the world, French President Nicolas Sarkozy said on Thursday ahead of a Washington meeting of G20 leaders to discuss the international financial system.
‘I am leaving tomorrow for Washington to explain that the dollar cannot claim to be the only currency in the world…, that what was true in 1945 can no longer be true today,’ he said at a prizegiving ceremony.
Jim Sinclair’s Commentary
Beggars never stop begging. This is all about OTC derivatives and most certainly not the false flag of mortgages. The OTC derivatives broke them and caused this total disaster rather than a simple recession.
Freddie seeks gov’t aid after $25.3B loss
Friday November 14, 2:38 pm ET
By Alan Zibel, AP Real Estate Writer
Freddie Mac seeking $13.8B in government aid after posting 3rd-quarter loss of $25.3 billion
WASHINGTON – Freddie Mac is asking for an initial injection of $13.8 billion in government aid after posting a massive quarterly loss Friday.
The mortgage finance company is making the first request to tap the $200 billion promised by the Treasury Department to keep it and sibling company Fannie Mae afloat after the two were seized by federal regulators in September. Freddie Mac said it expects to receive the money by Nov. 29.
The McLean, Va.-based company posted a loss of $25.3 billion, or $19.44 per share, for the third quarter. The results compare with a loss of $1.2 billion, or $2.07 a share, in the year-ago period.
Analysts were divided about whether Fannie and Freddie’s losses would ultimately exceed the government’s $200 billion pledge. And that may partly depend on the extent to which Fannie and Freddie are used by the government as a tool to ease the foreclosure crisis.