Bankruptcy of U.S. is ‘Mathematical Certainty,’ Says Former CEO of Nation’s 10th Largest Bank 

In The News Today

Posted: Nov 07 2010     By: Jim Sinclair      Post Edited: November 7, 2010 at 4:45 pm
Filed under: In The News

Jim Sinclair’s Commentary

Countries do not go bankrupt. The currency goes bankrupt. The debt is rescheduled.

Why do so many writers fail to understand this most important axiomatic fact?

Bankruptcy of U.S. is ‘Mathematical Certainty,’ Says Former CEO of Nation’s 10th Largest Bank Thursday, November 04, 2010
By Terence P. Jeffrey
(CNSNews.com) – John Allison, who for two decades served as chairman and CEO of BB&T, the nation’s 10th largest bank, told CNSNews.com it is a “mathematical certainty” that the United States government will go bankrupt unless it dramatically changes its fiscal direction.
Allison likened what he sees as the predictable future bankruptcy of the United States to the problems at Fannie Mae and Freddie Mac, whose insolvency he also said was foreseeable to those who studied their business practices and financial situation.
“I think the first thing we have to realize is where we’re going and to face it objectively,” Allison told CNSNews.com, when asked about the trillion-dollar-plus deficits the federal government has run for three straight years, the more than $13 trillion in federal debt, and the $61.9 trillion long-term shortfall the government faces (according to the analysis of the Peter G. Peterson Foundation) if the government is to pay all the benefits it has promised through entitlement programs.
“If you run the numbers, on all those numbers that you just talked about, which I think are accurate, very accurate, in 20 or 25 years, the United States goes bankrupt,” said Allison. “It’s a mathematical certainty.
“It reminds me very much of that story I told you about Freddie Mac and Fannie Mae,” said Allison. “We were running the numbers, and Freddie Mac and Fannie Mae went bankrupt, and we got there. In 20 or 25 years, the United States goes bankrupt.
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Jim Sinclair’s Commentary

There is a real possibility that this article is spot on.
This would give us a gold price of $1650 in a heartbeat.

Citi: Central Banks Are Going To Start Dumping Dollars In The Coming Weeks Joe Weisenthal | Nov. 5, 2010, 6:33 AM
QE2 is likely to serve as a reminder to central bank reserve managers that they still have way too many dollars, and that they need to diversify away.
That’s the argument from Citi’s Steven Englander:
With FOMC out of the way and largely meeting expectations, investors are looking for what comes next. We think that reserve managers will contribute to the next stage of USD weakness as QE2 confirms their worst fears about the Fed’s intentions and the quality of their reserves portfolios. To exacerbate their concerns, Global reserves have been growing very rapidly, on a headline basis about 11% over the last year and now are close to USD9trn (Figure 1). While Chinese reserves growth gets a large amount of attention, other countries reserves are growing similarly rapidly.
We believe this growth is involuntary and the implication is that central banks have a very large overhang of USD reserves. We think it is likely that reserves growth has picked up sharply over the last month and will lead to renewed dollar selling. The Fed’s QE2 announcement, while not a shock, just serves to remind reserve managers that they will have even more dollars in their portfolio if they do not move aggressively.
The historical record suggests that under these circumstances they are very likely to be dollar sellers in coming weeks. Needless to say, all the analysis in this note is based on publically available data. Moreover, we find that our results are more robust when based on aggregates rather than data published by any individual central banks, so none our analysis refers to any one central bank.
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Jim Sinclair’s Commentary

More waste of time meetings for photo opts and MOPE.

China tees up G20 showdown with US By Alan Beattie in Washington, Geoff Dyer in Beijing, Chris Giles in London
Published: November 5 2010 06:56
China has curtly dismissed a US proposal to address global economic imbalances, setting the stage for a potential showdown at next week’s G20 meeting in Seoul.
Cui Tiankai, a deputy foreign minister and one of China’s lead negotiators at the G20, said on Friday that the US plan for limiting current account surpluses and deficits to 4 per cent of gross domestic product harked back “to the days of planned economies”.
“We believe a discussion about a current account target misses the whole point,” he added, in the first official comment by a senior Chinese official on the subject. “If you look at the global economy, there are many issues that merit more attention – for example, the question of quantitative easing.”
China’s opposition to the proposal, which had made some progress at a G20 finance ministers’ meeting last month, came amid a continuing rumble of protest from around the world at the US Federal Reserve’s plan to pump an extra $600bn into financial markets.
Officials from China, Germany and South Africa on Friday added their voices to a chorus of complaint that the Fed’s return to so-called quantitative easing would create instability and worsen imbalances by triggering surges of capital into other currencies.
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Jim Sinclair’s Commentary
As embarrassing as it may be, GS (our crowd) is family.
So their failure to give credit can be forgiven.

Goldman Sachs’ $1650 Gold Ceiling Sounds Reasonable (Much as I Hate to Agree With Them) November 07, 2010
David Goldman
Gold has no natural price ceiling, and Goldman Sachs’ estimate is as good as any.
Remember: the reason that Asian central banks keep eating the dollars that the Fed prints is political. America, despite Barack Obama’s best efforts to shrink our strategic footprint, remains the world’s superpower. China and Japan, the dominant regional economies and the biggest dollar holders, hate each other much more than either of them hates us.
We are getting away with the monetary-policy equivalent of murder by resting on the laurels of our victories in World War II and the Cold War. We can’t do so forever, though, which is why gold represents a hedge against the eventual end of the dollar’s reserve role. It sells at twice the cost of production of the biggest gold miners. It’s not an ordinary commodity. It’s more like an option. And as the textbook will tell you, if you read the fine print, the price of an option when the probability distribution of possible outcomes is unknown is arbitrarily high.
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Jim’s Mailbox

Posted: Nov 07 2010     By: Jim Sinclair      Post Edited: November 7, 2010 at 4:48 pm
Filed under: Jim's Mailbox
Dear Friend of GATA and Gold (and Silver):
The episode of Jesse Ventura’s "Conspiracy Theory" program on the TruTV network that was broadcast Friday and featured GATA Chairman Bill Murphy has been posted in three parts at YouTube. U.S. Rep. Ron Paul, the Fed’s most informed critic in Congress, also has a big part in the program. You can watch it here:










Dear Jim,
What a few years ago was considered impossible, is now in the mainstream. Truth is at first ridiculed, then considered, then obvious. We are morphing from stage 2 to 3 right now.
CIGA Yahn Investments

Dear CIGA Y,
The only weak point in this article is that this situation is so close you can touch it.
Regards,
Jim

The age of the dollar is drawing to a close
Currency competition is the only way to fix the world economy, says Jeremy Warner. By Jeremy Warner
Published: 7:04AM GMT 05 Nov 2010
Right from the start of the financial crisis, it was apparent that one of its biggest long-term casualties would be the mighty dollar, and with it, very possibly, American economic hegemony. The process would take time – possibly a decade or more – but the starting gun had been fired.
At next week’s meeting in Seoul of the G20’s leaders, there will be no last rites – this hopelessly unwieldy exercise in global government wouldn’t recognise a corpse if stood before it in a coffin – but it seems clear that this tragedy is already approaching its denouement.
To understand why, you have to go back to the origins of the credit crunch, which lay in the giant trade and capital imbalances that have long ruled the world economy. Over the past 20 years, the globe has become divided in highly dangerous ways into surplus and deficit nations: those that produced a surplus of goods and savings, and those that borrowed the savings to buy the goods.
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Dear Eric,
$1650 is definitely still in play with major resistance at $1400 and $1444.
Get them down soon (on or before the first week of December) and January 14th 2011 called many years ago is still also in play.
Regardless of all that, it is only is a game since gold will trade at $1650 and higher.
Regards,
Jim

 
Gold and Silver Approaching Critical Zones CIGA Eric
A close and test as support of upper trading channel resistance will mark the onset of another plateau move (higher order function acceleration) for gold and silver. Upper channel resistance for gold and silver sit around $1,400 and 30, respectively.
Gold London PM Fixed:
Silver London PM Fixed:
The "normal" money flow footprint, shorting strength and buying weakness to control price, has short-circuited once again in 2010. Connected money is uncharacteristically buying rather than selling strength (to contain the advance). These flows, at first limited to the silver market, have spilled over into the gold market. These unusual money flows are illustrated in the follow charts:
Gold London P.M Fixed and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:
Silver London P.M Fixed and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest:
Ignore the flapping lips and spoon-feed analysis. Observe the markets and follow the money.
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Eric,
Be happy that we have food at any price. Currency induced cost push inflation has a direct and immediate impact on the mechanics of product distribution.
Such an event will last no less than 90 days.
Regards,
Jim

Food Sellers Grit Teeth, Raise Prices CIGA Eric
The cost of nearly everything we consume (food and energy) are soaring. Yet, despite this reality, the headlines and numerous experts continue to cite the fear of deflation and relatively tame year-over-year consumer price index changes as means to justify further quantitative easing (currency devaluation). Since the market is always right, it’s easy to figure who’s got it wrong.
Expect the food sellers, in other words food consumers (us!), to continue gritting their teeth as long as spot commodity prices are surging to new highs.
Spot Commodity Prices: CRB Spot Index (1947 – Present);
16-Raw Industrial Spot Price (1935-1947);
Great Britain Wholesale Price of All Commodities (1885-1935):
Soon the experts will be out in force recommending reallocation towards "hot" commodities despite the direction of the secular trends illustrated below.
Spot Commodity Price Index (CRBSPOT) to Gold Ratio:

West Texas Intermediate Crude Oil to Gold Ratio (Oil/Gold):
An inflationary tide is beginning to ripple through America’s supermarkets and restaurants, threatening to end the tamest year of food pricing in nearly two decades.
Prices of staples including milk, beef, coffee, cocoa and sugar have risen sharply in recent months. And food makers and retailers including McDonald’s Corp., Kellogg Co. and Kroger Co. have begun to signal that they’ll try to make consumers shoulder more of the higher costs for ingredients.
Source: online.wsj.com
From Bob
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