In Thursday’s post on JSMineset.com, Jim Sinclair reminded investors of his long-standing slogan for the global financial crisis: QE to Infinity
“QE to infinity – there is no other choice,” the life-long gold market consultant stated. “There is no other functional tool in anyone’s toolbox to stop camouflaged runs on the bank.”
Therefore, he wrote, “QE to infinity in the Western financial world is assured. As a result, gold in the $2,000s is coming soon.”
How can Sinclair assure this outcome? Well, no one sees into the future with anything resembling crystal clarity, but Sinclair is studied on matters of central banking, money printing and the psychology of politicians and the most likely social consequences of their actions during financial crises.
For the most part, Americans believe that as the sole superpower of the world, the U.S. is not subject to the same rules as foreigners must abide by. During the first half of the 20th century, the German people, too, believed that they were special.
In his book, When Money Dies: The Nightmare of the Weimar Collapse (1975), its author Adam Fergusson describes the events, attitudes of politicians and public as well as the consequences of Weimar Germany’s monetary policies following WWI which led to the collapse of the Reichsmark.
There are some parallels to today’s crisis with the financial catastrophe of 1919-23 in Germany (and Austria) to support Sinclair’s thinking up to this point.
“The Chancellor [Karl Wirth, 1921-22] would accept no connection between printing money and its depreciation. Indeed, it remained largely unrecognised in Cabinet, bank, parliament or press. The Vossische Zeitung [German newspaper] of August 16 declared that the opinion that the flood of paper is the real origin of the depreciation is not only wrong but dangerously wrong.”
—When Money Dies
“S&P has shown really terrible judgment and they’ve handled themselves very poorly. And they’ve shown a stunning lack of knowledge about basic U.S. fiscal budget math. And I think they drew exactly the wrong conclusion from this budget agreement.”
—Treasury Sec. Timothy Geithner on S&P downgrade of U.S. debt
“In Berlin the Majority Socialists and the Independent Socialists joined forces in a demonstration to protest ‘against the enemies of the Republic’”
“July 24 produced demonstrations against profiteering, capitalism and Fascism in Frankfort, where inoffensive citizens were molested, windows were broken, and one man kicked to death.”
—When Money Dies
“The ‘Occupy Wall Street’ movement has resonated around the world . . . Unlike some of the ‘anti-capitalist’ and ‘anti-globalisation’ movements that have sprung up and died down over the past couple of decades, this is directly linked to a sense of failure of capitalism itself. It is also intimately linked to working class discontent and rage at the conspicuous enrichment of the super-rich continuing through an enormous decline in working class living standards, unprecedented since the 1920s.”
—Red Scribblings – A blog for socialists politics, critical analysis and debate
“In spite of his robust common sense, the man in the [German] street is beginning to believe what some interested industrialists are telling him, so that he seems almost readily to subscribe to the false doctrine that it is good for trade that a government, by inflationary finance, should habitually spend more than its income.”
—When Money Dies
“O’Neill [Treasury Sec. Under President Bush] said he tried to warn Vice President Dick Cheney that growing budget deficits-expected to top $500 billion this fiscal year alone-posed a threat to the economy. Cheney cut him off. ‘You know, Paul, Reagan proved deficits don’t matter,’ he said, according to excerpts. Cheney continued: ‘We won the midterms (congressional elections). This is our due.’ A month later, Cheney told the Treasury secretary he was fired.”
“I will not support any plan that puts all the burden of closing our deficit on ordinary Americans. We are not going to have a one-sided deal that hurts the folks who are most vulnerable.”
—President Barrack Obama
Clearly, the US is not at the stage of 1922 Germany, but the stage for a replay to some extent has been set in that U.S. budget deficits of 10% of GDP (not including unfunded liabilities, which exceed a projected $1.6 trillion cash-basis shortfall) is the first step toward a Weimar scenario. A first step!
No one knows how the endgame will play out in resolving unsupportable debt levels, but it’s sure not going to include the Chinese continuing the game of mopping up debt issuance from Treasury.
Morgan Stanley’s Global Head of Economics Stephen Roach dismisses the notion that China’s $1 trillion-plus holding of Treasuries provides the needed disincentive to the Chinese to sell the bonds.
“After all, where else would they place their asset bets? Why would they risk losses in their massive portfolio of dollar-based assets?” Roach asked rhetorically. “China’s answers to those questions are clear: it is no longer willing to risk financial and economic stability on the basis of Washington’s hollow promises and tarnished economic stewardship. The Chinese are finally saying no. Read their lips.”
Recent data from the Fed’s H.4.1 shows a meaningful decline in Treasuries held by foreigners at the Fed. The trend line of increased holding throughout the crises has finally been broken; holding are now beginning to decline at a time when holdings must increase at the same rate as the Treasuries are issued and rolled over.
For those interested in following Treasury holding by foreigners (not broken down by country), zerohedge.com provides a link and commentary on the Fed’s H.4.1 reported, issued weekly.
Jim Sinclair says gold’s going to $2,000 and beyond, with a final target price well above $10,000 as the crisis in Europe eventually makes its way to the U.S., ground zero.
Additional articles published by Beacon Equity Research can be found on their website at www.BeaconEquity.com
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