The pace of disintegration of the US Dollar international monetary financial system is quickening. Understand that there is no stopping it now and gold will assume its natural role on the balance sheets of both central banks and the individual household as the reserve asset of choice. This gold will be physical and will not be tied to credit in any fashion. Gold will be an order of magnitude higher than present paper value dictates.
The Terminal Beginning Of The Western Financial World
by Jim Sinclair
My Dear Extended Family,
The real terminal beginning of the Western Financial world was this week.
Kicking the can down the road is limited by the practical viability of the US dollar and US Treasury Securities market.
QE will go to infinity because there simply is no other tool that can create the amounts of liquidity required instantly by the destruction of the Western world financial system. This destruction was delivered to us via those that have securitized everything.
When you add to this that no default will be declared a default by the International Swaps and Derivative Association you have a guarantee that QE will go to infinity at the cost of the US currency market first and the US bond market second. I put this epic event in the year 2015. I give the US dollar no longer than June of 2012 before the cracks in its armor are visible to all.
The deal that set this in place happened in December when the Fed was confirmed as the lender of last resort to the entire Western financial world when it granted in excess of $500 billion in US dollar swaps to the European Central Bank. The ECB then in turn lent those funds to its member banks to buy European debt in order to paint the auctions of the European debt as viable.
At the same time the Chinese have agreed to be a port in the storm to the euro itself, explaining why it is trading above 1.30 when in truth it should be trading below 1.20 under present circumstances.
The IMF did its part in planning a large rescue package should Greek debt be haircut to 30% of its issued value. The IMF bailout fund will be dollar financed by the Federal Reserve and China. When push comes to shove the IMF bailout funds will benefit to a degree from Chinese dollars as an outsider lender that the IMF, which has already laid the ground, work for.
What will have to be rescued is the banking a system of Euroland and elsewhere holding the debt of Greece. However, what makes you think that other European nations will not demand some degree of equal treatment as the US credit rating agencies continue to downgrade European sovereign debt and the debt of their banking system.
Clearly the International Swaps and Derivatives association will see no default in the Greek credit event because it is voluntary. To declare this as such is the final can kick because it will be met by a demand for equal treatment and that will require infinite QE to hold up the world banking system. This begins a march towards 2015 when gold has a cyclical chance of being full-valued for the time being. A march has begun towards the virtual reserve currency that will have a connection to gold. This march will be toward an equilibrium price of gold and will not repeat the 1980 fall in price.
It is the funds necessary to cover the euro debt haircuts for the banks holding this debt internationally plus the ISAD Credit Event and Determination Committee non-declaration of default that guarantees QE to infinity.
The US dollar may have until June of 2012 before it replaces the euro as the currency of deep concern. Gold can continue for a period of time being played by the hedge funds but its next test is not at $1500 but rather at $2111.
The ISDA is the vehicle that will necessitate QE to infinity by its non-declaration of what is clearly default.
The clock is ticking and Alf’s numbers are in the crosshairs of the gold price. Let us hope that things do not get that bad and gold does its natural task and tries to balance the international balance sheet of the USA. That would speak very poorly for the quality of life the Banksters have planned for our grandchildren.
Gold is going to and maybe beyond Alf’s numbers. Gold shares with real growing extractable ounces will perform as they did in 1979 and 1980.
“Non carborundum est.” Don’t let the bashers get you down. They are so wrong at exactly the wrong time.