Jim Sinclair Explains How QE3 Will Lead To The End Game

We read an excellent set of insights from Mr Gold (Jim Sinclair), who is known famous for his generosity in sharing his wisdom. In one of his latest articles, he explains how we got to the point where the last round of Quantitative Easing (QE3) was inevitable. With a high degree of accuracy, he explains the situation in the derivatives market and the manipulation of regulators as being one of the root causes of the huge financial problems we are facing. These kinds of facts are not reported in the media, for sure not the mainstream media. We appreciate Jim Sinclair for his honesty, integrity and generosity.

Mr Sinclair points to the real effects of Quantitative Easing (QE). In his view, QE will result in a failure of real business activity to pick up (the bailout of banks represents of course no real business growth) combined with the accumulation of bad debt in the balance sheet of the Fed. He believes we will continue to see both effects … until they become a trust problem. That will be the real end game. In his own words: “The end game is the perception of the weakness of the Federal Reserve’s Balance sheet, as it impacts confidence the US dollar and US interest rates.”

The summary below provides an excellent overview of where we stand, how we got here and where we are heading. One can easily deduct that our whole financial system today is based on one and only one thing: TRUST. As soon as trust in the known values and institutions is broken, the whole system could fall apart. In the same spirit, trust is also the only backing of today’s money (“fiat money”), being the opposite of a gold-backed monetary system.

  1. OTC derivative manufacturers and distributors sold fraudulent paper to almost every entity as clients of the Western world financial system. Inherently the OTC derivatives manufacturers and distributors had part of the transaction on their books. No problem as long as the entire scam was a “Daisy Chain,” a connected set of transactions that has the appearance of risk but when all netted out equals almost zero.
  2. Until Lehman was flushed, and flushed it was, most all OTC derivatives could have been netted to zero in a derivative resurrection bank. Losers would have rejoiced and winners would have declared war. However when Lehman was forced into bankruptcy it broke the “Daisy Chain” (a chain of near risk-less transactions when netted) of the OTC derivatives scam. At this point winners had won huge and losers had lost huge and there was no longer a means of repair to the quadrillion dollar scam. The problem has no practical solution other than transferring all losing paper to the balance sheet of the Federal Reserve where then it was anticipated no non-government “mark to market” audit would ever occur. It was the perfect hole to stick the junk into.
  3. The size of the OTC derivative market stood at one quadrillion one hundred and forty four trillion as reported by the Bank of International Settlement, the counter internationally.
  4. The Bank of International Settlements, seeing this outrageous number, changed their computer method of valuation to maturity assuming no failures and reduced the size of OTC derivatives of all kinds to a more acceptable but still huge number of $700 trillion notional value.
  5. In the first and second round of QE, the Federal reserve purchased OTC derivatives including the variety called securitized mortgage debt to remove them from the balance sheets of the Western world financial system, thereby improving the Western world’s financial institutions balance sheet and preventing an international industry wide bankruptcy. That means the Federal Reserve has impaired its balance sheet in order to repair some of the balance sheet integrity of the Western world financial system. The amount they have purchased is significant, but not compared to total outstanding above more than one quadrillion dollars.
  6. The reason for QE to infinity, QE3, is the failure of business activity in the Western world to pick up with early huge monetary stimulation so as to repair the balance sheet of the Western financial world financial system. The unseen crisis is the hidden weakness of the Western world financial system thanks to FASB (the gatekeepers of world accounting) which allows financial institutions internationally to hide their losses by valuing their paper at whatever the bank wants it to be with no reference to seek a market value, primarily because there is none to seek.
  7. The crisis not seen by Fed observers is the true balance sheet condition of the losses on the trillions of dollar of worth-less paper fraudulent paper because numbers are given but no independent mark to market audit has been or is likely performed.
  8. As QE3 to infinity moves ahead, the balance sheet of the Federal Reserve continues to acquire worthless paper in exchange for dollars. Junk moved onto the balance sheet of the US Federal Reserve as the common share of the USA, the US dollar, continues to expand exponentially.
  9. The end game problem is an extended recessionary business conditions going into 2015 to 2017 wherein the supply of dollars continually expands, the US Federal Deficit grows, US state deficit spending continues to grow and the quality of the Federal Reserve balance sheet proceeds to deteriorate further.

Jim Sinclair keeps on repeating that gold will move up sharply and will reach $ 3,500 sooner than it got to today’s price. Gold is the only safe haven, along with silver. It’s the ultimate protection against a financial system falling apart.

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