This is Jim Sinclair’s May 21st, 2009 posting. We find it interesting that Mr Sinclair sees the death of the dollar in Rio de Janeiro, Brazil. It is very ironic that the strongest currency in the world for the last century has perished in the home of, not only Pele and five World Cup titles, but also one of the bastions of currency debasement and hyperinflation of the last century! Maybe Brazil will now finally be on the right course to reach its potential as a nation?

Mr Sinclair’s post below:

Dear CIGAs,

I bring to you the following with the specific permission of Alf Fields.

I have suggested to you often in the past that once the price of gold reaches into its maximum potential it will not repeat the fall of the 1980s.

I foresee gold re-entering the system in a new and unique form that does not include convertibility. It will not be tied to interest rates as it once was in its previous form.

I have written to you various times about the Federal Reserve Gold Certificate ratio, modernized and revitalized, which now may well be associated with an SDR form of an International Central Bank. The tie between the ratio and gold would be a measure of international liquidity considered zero or 100 on the day of adoption.

The following is Alf’s statement yesterday, with his permission to post:

“Gold cannot decline from its highs as it will be incorporated into the national and international monetary systems at that time.”
–Alf Fields, May 20, 2009

Now do you have any questions why Fund Wizard Paulson just got long a few billion dollars worth of Gold ETFs and a few major gold producers?

Finally a major event has taken place that is a US dollar milestone.

The financing and extremely important event is the arrangement between China and Brazil displaces the dollar as China becomes the major trading partner with Brazil. Since then the Real has been celebrating and the dollar has been depressed.

This is a once in approximately a century replacement of a trading currency that has always meant a dethronement of the deposed and coronation of a new currency king.

The last time this happened was when the US dollar supplanted the British Pound as the major trading currency and entity with Brazil 79 years ago.

It took the Brits 300 years to supplant the Portuguese Escudo with the British Pound.

Only twice has this occurred in 379 years. This is obscure to most but not to Mr. Paulson the hedge wizard. Obscure to most, but not to our gang at JSMineset.

The dollar died in Rio and that means everywhere.

The dollar is in for a very cold winter.

There is one thing that is absolutely certain and that is Gold is now headed to at least $1650 and in all probability much higher. This is happening NOW!

What more do you need to know?

The view from an Argentinian economist by the name of Adrian Salbuchi.

by Joel Skousen
World Affairs Brief

As the US Treasury Department continues to brag that the US has not yet been forced to make good on its guarantees of toxic debt held by the major insider banks (Citigroup, JP Morgan, Bank of America, etc) we find they have been using a back door to funnel money to their friends–AIG the world insurance giant holding the largest share of derivative contracts that guarantee those toxic debts against default. In point of fact, those debts are defaulting in ever increasing number, and AIG is having to pay out billions. But, those billions are being replenished by additional bailout funds from the Treasury–while the rest of the nation suffers from lack of credit. Why should the American taxpayer be bailing out gambling bets based on promises to pay that were utterly fraudulent? Now we find out that AIG is also the preferred avenue of funneling money into European banks. Lastly, what do all these insider banks have in common? They constitute the private owners of the Federal Reserve. It all begins to make sense why only the largest banks are receiving these funds and why the regulators continue to squeeze the smaller banks with millions in new surcharges–forcing them into liquidation. The fix is in.

International law professor Richard Cummings, writing for Lew Rockwell.com, says, “Fed Chairman Ben Bernanke has resisted calls from Congress that he release the names of the banks that were recipients of the bailout money the Fed gave to AIG to prevent it from collapsing. AIG insured its counterparties against losses from mortgage-backed derivatives. The Fed poured $85 billion into AIG, which paid out $37.3 billion of that money to counterparties that had purchased a certain type of derivative-based protection from AIG, called multi-sector credit default swaps.

“The counterparties have never been disclosed but the Wall Street Journal reported that they included Goldman Sachs, Merrill Lynch, UBS and Deutsche Bank. AIG and the Federal Reserve Bank of New York have unwound many of these contracts. To do this, they offered to buy the CDOs (collateralized debt obligations) that were originally insured by those agreements. The counterparties sold these assets at a discount, but were compensated in full in return for allowing AIG to extricate itself from the obligations. The counterparties also got to keep the $37.3 billion in collateral, according to the Wall Street Journal.

“While Bear Stearns was collapsing, Goldman Sachs boasted that it had insulated itself by buying insurance against the mortgage-backed derivatives. As it turns out, it was, in fact, rescued by the Fed when it bailed out AIG. In 2007, Lloyd Blankfein, Goldman Sachs’ CEO, received $70 million in compensation, including bonuses, $27 million in cash… At the time the New York Fed came to AIG’s assistance, Secretary of the Treasury Timothy Geithner was its head. Blankfein is still drawing down millions in compensation. The rationale for his compensation is the alleged profitability of Goldman Sachs, which raked in over $9 billion in 2006. It should also be noted that the bailout stopped Goldman stock from plummeting, thereby protecting not only Blankfein’s fortune, but that of Hank Paulson, the former chairman of Goldman Sachs, who was Secretary of the Treasury under George W. Bush.

“This is perhaps the greatest financial scandal in American history but most Americans are totally ignorant of it. On top of this, the AIG bailout enabled John Thain to pay out billions in bonuses while he headed Merrill Lynch, just prior to its sale to Bank of America, a recipient of billions of bailout money, this while the unemployment rate is headed towards ten percent and the market collapse has caused losses in the trillions. Were the names of the banks made officially public, there would be cries of outrage so loud as to be deafening, making any further bailouts dubious for political reasons. And while Bernanke has said that he would not permit the big banks to fail, the looting of America by some of the richest and most powerful people, such as Blankfein and Thain, goes on, with no end in sight. Pandit the bandit now says Citigroup is profitable, enabling its stock to rise above a dollar, generating a temporary euphoria in the market. The cheers going up on CNBC can be heard all the way to Warren Buffett’s coffers. And American tax payers are not only bailing out the American banks, they are also bailing out Europe.”

Toni Reinhold of Reuters answers “Who got AIG’s bailout billions?” “The Wall Street Journal reported… that some of the banks paid by AIG since the insurer started getting taxpayer funds were: Goldman Sachs Group Inc, Deutsche Bank AG, Merrill Lynch, Societe Generale, Calyon, Barclays Plc, Rabobank, Danske, HSBC, Royal Bank of Scotland, Banco Santander, Morgan Stanley, Wachovia, Bank of America, and Lloyds Banking Group.” I think it’s the large number of foreign banks that would be particularly irritating to the public if it knew the extent of this largess.

Who Owns The Fed?

Jim Quinn unravels for us the real link between all this insider dealing. Who really owns the Federal Reserve. It’s not the US government and its not you the taxpayer. “The average American does not know much about the Federal Reserve. The government and the Federal Reserve prefer to operate in the shadows. If the American public understood what their policies have done to their lives, they would be rioting in the streets. Henry Ford had a similar opinion: ‘It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.’

“Most Americans believe that the Federal Reserve is part of the government. They are wrong. It is a privately held corporation owned by stockholders. The Federal Reserve System is owned by the largest banks in the United States. There are Class A, B, and C shareholders. The owner banks and their shares in the Federal Reserve are a secret. Why is this a secret? It is likely that the biggest banks in the country are the major shareholders. Does this explain why Citicorp, Bank of America and JP Morgan, despite being insolvent, are being propped up by Ben Bernanke and Timothy Geithner?” It does, indeed.

Tony Rheinholt continues: “The U.S. Federal Reserve has refused to publicize a list of AIG’s derivative counterparties and what they have been paid since the bailout, riling the U.S. Senate Banking Committee. Federal Reserve Vice Chairman Donald Kohn testified before that committee on Thursday that revealing names risked jeopardizing AIG’s continuing business. Kohn said there were millions of counterparties around the globe, including pension funds and U.S. households.” What this means is that AIG is only paying out on SOME of its obligations, and US Pension funds are NOT on that list. In other words, the bailout monies are only going to a select few. AIG has absorbed $180B so far, with no end in sight, no transparency, and no sign of changing this pattern.

Proof that we haven’t even turned the corner yet comes from Greg Gordon and Kevin G. Hall of McClatchy Newspapers (itself a losing enterprise like dozens of other print media): “America’s five largest banks, which already have received $145 billion in taxpayer bailout dollars, still face potentially catastrophic losses from exotic investments if economic conditions substantially worsen, their latest financial reports show. Citibank, Bank of America, HSBC Bank USA, Wells Fargo Bank and J.P. Morgan Chase reported that their ‘current’ net loss risks from derivatives —- insurance-like bets tied to a loan or other underlying asset —- surged to $587 billion as of Dec. 31. Buried in end-of-the-year regulatory reports that McClatchy has reviewed, the figures reflect a jump of 49 percent in just 90 days.”

Not counted in those write downs, of course, are the funds they are getting through the back door, which are not accounted for publicly. “While the potential loss totals include risks reported by Wachovia Bank, which Wells Fargo agreed to acquire in October, they don’t reflect another Pandora’s Box: the impact of Bank of America’s Jan. 1 acquisition of tottering investment bank Merrill Lynch, a major derivatives dealer.”

Squeezing The Small Solvent Banks

The next part of the fix is the most evil, in my opinion. The Fed and the US Treasury have given trillions of paper dollars to insider banks, and yet they are letting the FDIC run short of money so that this “insurer” of the public’s deposits ($250,000 and below) can have an excuse to jack up the insurance premiums (surcharges) to member banks. These new “temporary” fees are more than most small bank profits, and will ensure that these banks fail.

As Paul Kiel writes in ProPublica, “It’s looking increasingly like the FDIC will have to turn to Treasury to help it weather the storm… FDIC’s deposit insurance fund has plummeted in the past year as a growing number of banks have failed. The fund relies on fees from member banks, and Bair held out hope that a recent bump in those feeswould provide enough cushion. But if it doesn’t, Bair said, people shouldn’t be nervous about their FDIC-insured accounts: ‘It is important for people to understand, we’re backed by the full faith and credit of the United States government. The money will always be there. We can’t run out of money.’” Then why has the fee increased? Why penalize the banks that have been conservative, and limited their growth for safety?

Bill Butler describes the “squeeze play” going on: “FDIC Chairwoman Sheila Bair announced last week that the quasi-public insurance monopoly would become insolvent in the next few months if it is not allowed to implement a one-time, draconian surcharge on all U.S. banks. This charge will, in some cases, wipe out last year’s profits. At the same time, the FDIC has requested an additional $500 billion ‘loan’ from Congress [notice that a loan requires the member banks to pay it off. A bailout would not. They choose to ask only for the loan as a justification for the surcharge].

“Small, solvent, well-run local and regional banks have objected. They rightly claim that they are not the problem. These banks have a solid and growing deposit base and many of them service their own loans and so did not get caught in the trap of originating bad loans and dumping them on the secondary mortgage market in federally-guaranteed bundles. Whether they know it or not, these banks intuit that, like Social Security, there is no FDIC “fund.” FDIC insurance, like social security, is just another government-coerced Ponzi scheme — a tax that, according to former FDIC commissioner Bill Isaac, goes immediately to the Treasury to buy “spending . . . on missiles, school lunches, water projects, and the like.”

“Rather than increasing their taxes and punishing their relatively good behavior, these small banks suggest that the FDIC look first to Bailout Banks, the Wall Street mega-banks that have received nearly a trillion dollars in unearned, government-supplied capital via the printing press, for any increased insurance premium/tax. Ms. Bair rejected these pleas by claiming that FDIC law does not allow her to ‘discriminate’ against banks based on their size. Clever [Actually, there is a basis for discrimination since the larger one's 1) caused the problem and 2) are the recipients of taxpayer backed funds]. What is really going is that the Bailout Banks are using the government and its insurance monopoly to help them gain market share by drastically increasing the operating costs of their smaller, better-run and scrappy competitors.” We are about to see the worst banks absorb the smaller sound banks–a great injustice, and totally engineered.

World Affairs Brief

Professor Simon Johnson of the MIT Sloan School of Management is interviewed on PBS by Bill Moyers.
Click on the link below and listen to Professor Johnson’s common sense, but politically controversial, solution to the present banking crisis.

The Interview

by
Hugo Salinas Price
Feb 6, 2009

Some readers may ask themselves, “What has gold to do with protecting jobs? Gold hoarders are certainly not creating jobs, and hoarding more gold will not help at all.”

Gold has everything to do with the loss of jobs in the US, and gold has everything to do with recovering jobs for the US economy.

Let me go back to the 60’s. During those years, the US and the world were on a Gold-and-Dollar Standard.

Back in the 60’s, countries were very careful about maintaining a constant monetary balance between their exports and their imports. They all wanted to be in a situation where they would export more than they imported, so that they would have increasing balances of gold or dollars in their Treasuries.

To state this more correctly, they all wanted to export more than they imported, except the United States.

The US didn’t care very much about maintaining a balance between exports and imports, because the US was able to pay for its deficit in trade (more imports than exports) by simply sending more dollars overseas.

Many economists warned about this trend, which was accompanied by a constant loss of gold during those years; some countries, notably France, refused to hold more and more dollars. The French asked for their gold – at $35 dollars an ounce – and this caused great disgust in Washington, D.C. and New York.

Nothing was done to stop the trend. In 1971, Henry Hazlitt, a good conservative economist, warned that the dollar would have to be devalued – that it would be necessary to raise the number of dollars which would be needed to obtain an ounce of gold – some months before the dam broke and the US was faced with the need to devalue, because the US stock of gold had become much too small.

What Mr. Hazlitt never imagined, was that instead of devaluing – which was the advice of economist Paul Samuelson, Nobel Prize winner, published the week before August 15, 1971 – Nixon followed the advice of Milton Friedman and simply “closed the gold window”. The US would henceforth not deliver any gold, at any price, to any foreign Central Bank who might wish to invoke the right to redeem its dollars for gold, according to the Bretton Woods Agreement of 1944.

Since that date, all world trade – or the better part of it – is carried on in dollars which are nothing more than fiat money. Since the rest of the world’s currencies were tied to gold through the dollar, all the currencies of the world also became fiat money – fictitious money, backed by nothing. That includes the Euro, of course.

What happened after that fateful date has overturned all order and harmony in economic relationships between the nations of the world.

Countries around the world began to accumulate more and more dollars as credit expansion in the US went forward, implacably. Central Banks had to accumulate these dollars in their Reserves, whether they wanted to or not. (Not having sufficient dollars would force other countries to devalue and destroy savings. The US cannot run out of dollars, it manufactures them.)

With no loss of gold to restrain the US and force it to stop expanding credit, US imports surged and exports waned. The monetary difference was “paid” in dollars.

Free trade was extolled by the US; every country that wanted to be in the good graces of the US had to bow to “free trade”.

Free trade is a good thing – but not for a country that is providing the world’s fiat money. This “free trade” was called “globalization”, meaning that the US could, and did, buy everything it wanted in the world, in any amount, at any time, by simply paying dollars for it.

There was no restraint to US credit expansion. It was a lovely time to be young and an American.

However, free trade means you buy where it’s cheapest, and the cheapest place to buy, in recent decades, was China , South East Asia and India ; the oil required to fuel the US economy was cheap and bought with dollars which it cost nothing to produce.

Thousands upon thousands of products and floods of oil came across the oceans to the US, and also to Europe, which began to pay in Euros for some of its imports: Euros which also cost nothing to produce.

US manufacturers, facing this competition from Asia, decided to move their factories to Asia instead of waiting for certain bankruptcy by competing against much lower-cost production.

That was how the US was de-industrialized.

It happened because gold was eliminated as a limit on credit expansion and money creation.

Had Nixon not gone off gold in 1971, China would have taken generations to create its industrial base. It would have been necessary for China to accumulate capital slowly, because its exports to the US would have been limited by the need for the US to pay up with gold for the amount by which Chinese exports exceeded its imports from the US.

The Chinese would have had to buy as much from the US, as they sold to the US; and since they were so terribly poor, there was not much they could have bought from the US.

Their growth would have been slower, but they would not now be facing over 20 million unemployed, as their markets dry up.

The US would never have allowed China to drain US gold from the Treasury by selling more to the US, than the US sold to China. But since payment was in fiat dollars and not in gold, the destructive effect of huge Chinese imports was not considered important by policy makers. And so, the US sailed into unemployment and had a great time doing it. Only now, that the party is over, are the grim facts visible: no jobs! Manufacturing is decimated.

The fiat dollar – unanchored to gold – was the greatest strategic gift that the US could have made to China. Now, they have a huge industrial base and the US has Oh, so little!

The damage is done. How to recover the industrial base of the US ? Not by slogans such as ” Buy American “, nor by protectionism.

What is required is to recover economic balance between the nations of the world so that they all can balance their exports with their imports. This is not done by protectionism, a false remedy to joblessness.

The world needs to return to gold as the international means of payment. All imbalances must be paid, monthly, in gold. No fiat money “payment” allowed!

If a nation does not have gold to export, it must do without or manufacture what it needs, itself: there you have the clue to restoring jobs in the US and in Europe. This is not “nationalism”, it is simply good economics.

The US has to limit its imports drastically, not by protectionism and tariffs, but by returning to the Gold Standard. Jobs will mushroom in the US beyond what anyone can dream as soon as its market must buy locally or not buy at all, for thousands upon thousands of articles. A return to gold, will achieve that aim very quickly, to be sure.

The Gold Standard is the friend and protector of the worker and of the investor, as well as the basis for harmonious relations between the nations of the world.

And by the way, the current financial disaster in the US is directly attributable to Nixon’s decision to “close the gold window”, because a monetary system based on gold is an obstacle to the criminal credit expansion perpetrated by the bankers. Gold based money puts shackles on bankers, forcing them to be careful. A fiat money system enables financial criminality – it’s as effective in restraining criminality in finance as tying up a dog with a string of sausages.

Feb 4, 2009
Hugo Salinas Price, President
Asociación Cívica Mexicana Pro Plata, A.C.
Mexico City

By Greg Hunter

While I was watching the wall to wall Inauguration coverage of Barack Obama there was a “man in the street” segment on one of the networks where people were being asked “What should the new President do about the troubled economy?” One man said “He should give money to all the homeowners who are in trouble and give some money to other homeowners too.” I think the idea of bailing out anyone and everyone is now in the vernacular of American society. How do you suppose people are getting the idea that everyone should get a financial rescue? Could it be story after story in the news everyday about how Citigroup, Bank of America or a variety of other banks are getting hundreds of billions of dollars in cash and government backing to keep them afloat? Maybe it’s the 200 billion given to AIG to keep it from causing systemic failure. It just couldn’t be the nearly 18 billion given to GM and Chrysler to keep them in business. Bailout fever is spreading like kudzu. The list of businesses and industries in need of a lifeline are like snowflakes in Colorado. Home builders, airlines, insurance companies, money market funds, states (41 are in financial trouble) and hundreds of cities around the nation are facing big budget shortfalls. Is that going to turn into some sort of bailout too? I was in North Carolina two weeks ago. While watching local television I heard the new Governor, Bev Perdue, say the state was 2 billion dollars in the red and that without federal bailout money there would have to be drastic cuts to the state budget. She was in Washington trying to get a piece of the TARP money and, why not, every other state governor is doing the exact same thing!!! Governors from around the country are asking the Federal government for a trillion dollars so they’ll not have to make some very hard choices.

With all this bailout talk, another word is starting to make it into the vernacular…Inflation!!! Before the Geithner confirmation hearing, former Fed Chief Paul Volcker, who I like to call “the Real Maestro,” gave a short testimony to vouch for tax dodging “Turbo” Tim Geithner. (He used Turbo Tax to do his returns.) The most newsworthy thing said were the few lines Volcker slipped in about his concern about inflation because of all the bailout money being created for the banks. No news organization I know of reported that little tidbit. Volcker’s fear of inflation should have been the real headline for the hearing because “Turbo” Tim was already a lock for Treasury Secretary. Later that night on Bloomberg Television, former SEC Chairman Harvey Pitt said he saw “no way” that there is not going to be inflation given the massive amount of money that will be spent for bailouts and economic stimulus. You won’t see that sound bite anywhere in the news either. When you talk about inflation you are really talking about consequences to monetary policy. Inflation was so feared by the founding fathers they wrote in the constitution that money shall be of “Gold and Silver.” That meant no fiat currency for economic stimulus packages and of course bailouts. We are a long way from the founding fathers and their kind of thinking. Today the government can print money until it runs out of trees, but what most people do not realize is there is an after effect for that kind of financial engineering. America has swept aside any talk of moral hazard and is embracing the toxic idea of a “bailout nation” for which the consequences risk our very survival as an independent country.