“Military men are dumb, stupid animals to be used as pawns for foreign policy.” ~ Henry Kissinger (Committee of 300?)
- Russian Prime Minister Putin is correct! The FedRes’ policy of massive creation of money out of thin air is stoking inflation worldwide. It is already leading to rampant food price inflation and will cause starvation worldwide. It is destabilizing the entire world!
Putin: U.S. Monetary Policy Is ‘Hooliganism’
By Ira Iosebashvili , WSJ blogs
Russian Prime Minister Vladimir Putin slammed expansionary U.S. monetary policy, calling it “hooliganism”, in remarks that followed more veiled criticism from China after Standard & Poor’s Corp. cut the outlook on its U.S. debt rating this week.
“We see that everything is not so good for our friends in the States,” Putin told lawmakers Wednesday. “Look at their trade balance, their debt, and budget. They turn on the printing press and flood the entire dollar zone — in other words, the whole world — with government bonds. There is no way we will act this way anytime soon. We don’t have the luxury of such hooliganism,” he said.
Even as Putin blamed the U.S. for printing money — something for which Russia was criticized during periods of hyperinflation in the 1990s — other Russian officials said there is no alternative to the U.S. dollar and declined to discuss cutting the country’s dollar holdings.
Russia has the world’s third-largest international reserves after China and Japan, with the biggest part in U.S. government debt. However, Russia appears to have cut its direct Treasury holdings significantly in recent months, according to data from the U.S. Treasury. Russia can be seen as benefiting from the recent policy of the U.S. Federal Reserve, linked to higher commodity prices. But an increase in dollar supply and low interest rates could also lead to a commodities bubble that could wreak havoc on Russia’s finances if oil prices later collapse.
Moscow is also battling inflation, which the International Monetary Fund sees hitting 9.3% in 2011. In remarks to the lower house of parliament Wednesday, Putin said he sees inflation remaining below 7.5% if the country has a good harvest, following last year’s severe drought.
China earlier this week called on Washington to adopt “responsible” measures to protect its bond holders, in a cautiously worded response to the S&P decision that reflects Beijing’s awkward position as the U.S.’s biggest creditor.
- Mr Gold, Jim Sinclair, gives us his expert perspective on the coming monetary collapse and the quadrillion dollar derivatives financial WMD that the MSM is not talking about! Take heed when the maestro speaks: no BS, no propaganda and very good advice from straight talking Mr Sinclair! Excerpts:
Interview: Jim Sinclair on Gold and the World Financial System
By Ron Hera
Hera Research Newsletter (HRN): Thank you for speaking with us today. You are one of very few people who have tried to warn investors about OTC derivatives. Why are OTC derivatives a problem in your opinion?
Jim Sinclair: Over the counter (OTC) derivatives are the reason we are going through what we are going through now. An OTC derivative is a kind of wager on what something will do. Up until 2009, most of these wagers had very little, if any, money behind them and, if the direction you bet on didn’t come to fruition, the amount of leverage resulted in extraordinary losses. There was a major rollover in derivatives tied to real estate in 2008, as well as in other types, such as those tied to sub-prime auto loans.
HRN: Did OTC derivatives destabilize the financial system in 2008?
Jim Sinclair: Absolutely.
HRN: Don’t financial institutions use risk cancellation models to hedge risks using OTC derivatives?
Jim Sinclair: Before the failure of Lehman Brothers, OTC derivatives losses would have almost netted out to zero. You can consider derivatives like a string in a circle with various knots representing all the derivatives transactions. When Lehman went broke, the string broke. When Lehman couldn’t meet its obligations on derivatives, they could no longer be netted out to zero. That’s why the banks went down, and that’s why you had the government bailouts and quantitative easing (QE).
HRN: OTC derivatives are the real reason for the bank bailouts?
Jim Sinclair: That is a fact which can in no way be argued away.
HRN: Hasn’t the problem been cleaned up by the Dodd–Frank Wall Street Reform and Consumer Protection Act?
Jim Sinclair: The pile of OTC derivatives is over $1 quadrillion. After 2008, the International Monetary Fund (IMF) adopted a new method of valuing them called value to maturity. Value to maturity assumes all of them will function, which is a cartoon. The derivatives pile hasn’t contracted. Basically, it has expanded, but value to maturity reduced the notional value from over $1 quadrillion to under $700 trillion. The amount outstanding is the same as it was in the first place.
The flavor of the present moment is credit default swaps against the solvency, or lack thereof, of sovereign nations. New derivatives have some margin behind them, but they only work if they are not called upon. If a nation’s debt was in fact to default, it would happen very quickly without a great deal of run up before. Most people would expect a rescue to be coming. Let’s say a rescue didn’t come, those credit default swaps would simply not be able to function and down again would come the banking system.
HRN: Are you saying that the financial system is less stable today than it was in 2008?
Jim Sinclair: It appears more stable but that’s only an appearance. The entire equity rally took place almost to the day from when the Financial Accounting Standards Board (FASB) relaxed the mark to market rule. It allowed financial institutions to make up whatever value they wanted for their worthless pieces of paper. If they used the real values, the banks would have come down.
HRN: Wasn’t the FASB change a temporary measure to halt the decline in mortgage-backed securities?
Jim Sinclair: It wasn’t just mortgage-backed securities. It was all the paper on bank balance sheets. The balance sheets of banks appear to be in good shape but they’re not. In fact, they will need a lot more funds.
HRN: Then the financial system is still vulnerable?
Jim Sinclair: They’ve kicked the can down the road. The purpose of QE, in other words the printing of money, is to maintain some degree of integrity in the financial system. Bear in mind that the grease for the wheels of equity markets is liquidity, meaning that if you create a lot of money, it goes into the hands of banking institutions and international investment houses. So, the equity out of thin air market has been sustained by QE.
HRN: What can the government do to prevent another crisis?
Jim Sinclair: You can assume that what’s been done already will be done again. There are no other tools in a practical sense. The idea that there won’t be a continuation of QE is nonsense.
HRN: Can the government bail out the banks again?
Jim Sinclair: The central banks will buy the government debt. That’s called quantitative easing.
HRN: Doesn’t QE undermine the dollar?
Jim Sinclair: The dollar is an exercise in psychology. It’s a piece of paper with a promise to pay but there’s nothing in which it can be paid. It’s legal settlement for debt but there’s nothing that it’s convertible into. To maintain confidence, it’s necessary to maintain the stature of a currency. In an arithmetic sense, if you go into a market to sell a supply of apples, and if you’re the only seller, you can get a nice price. If more sellers, meaning more apples, come into the market, there goes the price of apples. QE creates more dollars, which increases the supply.
HRN: If the dollar is loosing value because of QE, what about the Euro?
Jim Sinclair: If you look at the dollar or the Euro or the Yen, or even the Swiss franc, it’s a race to the bottom amongst all currencies. All countries everywhere are creating more paper every day. It’s a relative valuation, rather than a valuation based on an objective reference. What happens in the European Union immediately affects the dollar.
HRN: You mean the sovereign debt crisis?
Jim Sinclair: There’s too much focus on the Euro countries. There’s no difference between the economic union of Europe and the union of the states in the United States. The states of Europe have been revealed to be insolvent. How about the states of the United States? Out of New York, Illinois, California, etc., how many are solvent? The focus of the media has been on the Euro. The U.S. should stand in front of a mirror. The states of the economic union of America are in no better shape.
HRN: The news media is ignoring the U.S. sovereign debt crisis?
Jim Sinclair: In George Orwell’s Nineteen Eighty-Four, there were loud speakers constantly teaching the people what Big Brother wanted. The loudspeakers today are financial television. How much attention has financial TV put on the insolvency of U.S. states? It’s been mentioned, but not like the solvency problems of Portugal, Greece, Spain and Ireland, which have gotten hours, days, weeks and months of constant coverage. The solvency of New York, Illinois and California has been brought up but fleetingly at best.
HRN: So, the solvency problems of U.S. states are like an elephant in the room that no one is talking about?
Jim Sinclair: How can you say that the Euro is a disaster based on the financial condition of the states of the economic union of Europe, when the states of the economic union of the United States are in equally bad shape and in some cases worse? There’s no difference. If you want to analyze the Euro based on the weakness of its member states, how can the dollar be strong when the states of the United States are as weak or weaker?
HRN: So, the Euro could rise against the U.S. dollar, despite the European sovereign debt crisis?
Jim Sinclair: Sure it can. The question is, can the dollar go lower? The Euro could go to $1.50 or higher.
HRN: But the U.S. dollar is the world reserve currency. Doesn’t that guarantee its value?
Jim Sinclair: Only by default. It remains so because central banks own dollars. If central banks could exchange them for gold or other currencies without a major dislocation, they would.
… to goto the entire interview click here!
- I have no doubts that the Chinese are diversifying out of the USD and into hard assets. Gold and silver are the obvious choices. They are about to explode higher than most people think possible. Top callers and short sellers will be massacred. This is a freight train that can bash the bullion banksters to bits. Have the bullion banksters been successful for the past few weeks in bringing prices down? Obviously not!
China Proposes To Cut Two Thirds Of Its $3 Trillion In USD Holdings
by Tyler Durden, ZeroHedge
All those who were hoping global stock markets would surge tomorrow based on a ridiculous rumor that China would revalue the CNY by 10% will have to wait. Instead, China has decided to serve the world another surprise. Following last week’s announcement by PBoC Governor Zhou (Where’s Waldo) Xiaochuan that the country’s excessive stockpile of USD reserves has to be urgently diversified, today we get a sense of just how big the upcoming Chinese defection from the “buy US debt” Nash equilibrium will be. Not surprisingly, China appears to be getting ready to cut its USD reserves by roughly the amount of dollars that was recently printed by the Fed, or $2 trilion or so. And to think that this comes just as news that the Japanese pension fund will soon be dumping who knows what. So, once again, how about that “end of QE” again?
China’s foreign exchange reserves increased by 197.4 billion U.S. dollars in the first three months of this year to 3.04 trillion U.S. dollars by the end of March.
Xia Bin, a member of the monetary policy committee of the central bank, said on Tuesday that 1 trillion U.S. dollars would be sufficient. He added that China should invest its foreign exchange reserves more strategically, using them to acquire resources and technology needed for the real economy.
And as if the public sector making it all too clear what is about to happen was not enough, here is the private one as well:
China should reduce its excessive foreign exchange reserves and further diversify its holdings, Tang Shuangning, chairman of China Everbright Group, said on Saturday.
The amount of foreign exchange reserves should be restricted to between 800 billion to 1.3 trillion U.S. dollars, Tang told a forum in Beijing, saying that the current reserve amount is too high. Tang’s remarks echoed the stance of Zhou Xiaochuan, governor of China’s central bank, who said on Monday that China’s foreign exchange reserves “exceed our reasonable requirement” and that the government should upgrade and diversify its foreign exchange management using the excessive reserves.
Tang also said that China should further diversify its foreign exchange holdings. He suggested five channels for using the reserves, including replenishing state-owned capital in key sectors and enterprises, purchasing strategic resources, expanding overseas investment, issuing foreign bonds and improving national welfare in areas like education and health.
… to continue reading click here!