Quis custodiet ipsos custodies qui-tacet consentit?
Who is guarding the guards?
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Last week I had the opportunity to chat with a fellow who used to manage 400 brokers in an investment firm in Memphis. Naturally, our conversation turned to the unrecoverable U.S. debt and the prospect that China might suspend buying Treasuries, as my acquaintance was quick to add, they did back in 1982. That being the year I graduated from high school, my financial memory did not go back that far. So, today I began digging in the news archives with the hopes that I might find some indicator from the past that would give me a clue to the future. What I found useful turned out to be less than a week old -- and terrifying.
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The following letter is an excerpt from an editorial by Jim Sinclair, the former Precious Metals Advisor to Hunt Oil and the Hunt family for the liquidation of their silver position.
My Dear Friends,
You can take your waves, percentages, algorithms, quants and quarks and throw them directly into the basket. The time for lines and squiggles are behind us. The common shares of the US dollar are and have been in a long term downtrend. That downtrend is 81 days 75 days from implosion. [Letter originally written on August 19, 2009.] The selling of the US dollar and US dollar instruments is increasing in international markets, making it ever more difficult to manipulate the popular US dollar index, the USDX.
The price of gold is all in the dollar, times 100.
The manipulators have built a fundamental spring into gold by their capping activities.
COT has cooked its own goose.
Where the price of gold is concerned, there is no other focus of interest as all points of interest have but one common denominator.
That entity is the US dollar.
The Fundamental illustration below is dollar flow momentum.
Click chart to enlarge.
China holds in its hands the future of the category, “Foreign Purchasers of US bonds.”
China wishes the annihilation of the Fed policy of “Quantitative Easing.”
The Fed wishes to accommodate China.
The US Treasury is absolutely opposed to any such consideration as it would cement the present Administration into a one term wonder.
The US Treasury must win this battle because the boss of this opposition has the power to appoint the new Chairman of the Fed, either Summers or Geithner.
Political control of the US Fed and therefore of monetary policy is in the cards.
China as spokesman for the BRICs has publicly stated their desire for the institutions of a Super Sovereign Currency. This is not intended as an immediate substitute for the dollar as a reserve currency but rather an alternative in new commitments.
Only the misinformed assume the desire for an SSCI [Super Sovereign Currency Index] is a desire for a total exchange of dollar reserves.
The desire of the BRICs and in truth all other major trading nations is for dollar diversification in order to break away from the dollar dictating their futures. It means a significant decrease in purchases of US dollar denominated instruments.
Selling is not required for substantial depreciation in a major currency.
Momentum collapse in buying is all that is required for a severe depreciation in any major currency. [Federal Reserve Accounts For 50% Of Q2 Treasury Purchases]
The USA in all probability will not be able politically to deliver support for the SSCI, however political control of monetary policy is CERTAIN as the Fed cannot win this contest against the Administration in the form of the US Treasury.
Bernanke becomes a team player or a team player will replace him.
The later is becoming a probability as it is hard to trust a prior adversary.
The depreciating dollar was a tool of Roosevelt’s failed anti-deflation program that like monetary stimulation is believed to have been abandoned too soon in the 30s by Administration intellectuals. Because of this, the US dollar is out of the picture for serious Administration consideration other than as a sales issue on US treasuries.
It is my understanding that the BRIC countries, not China alone, have given the US until early November to deliver.
As a result of the above I see 81 days 75 days left for the US dollar.
The gold price has but one criteria and that is the US dollar. Armstrong and Alf are correct on the levels awaiting the gold price.
I know $1224 and $1650 are certain.
Respectfully yours,
Jim
So there you have it folks. The sun is setting on the dollar -- albeit a little sooner than I expected.
As I mentioned in the comments of a previous article, I have not been invested in the stock market since the DOW hit 14,000. Instead, I have moved my money into non-perishable food, water, guns and ammo. My next quest, during the days the dollar has left, is to buy as many pre-1965 silver coins as possible. Yes, gold may be headed through the roof but, I don't want to be caught holding Krugerrands when a silver nickel will buy a loaf of bread.
Don't panic. -- The dollar may be lining up for a cliff dive but, you don't have to jump with it. -- Just prepare. Do it now.
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Still a stickler for charts or require a detailed second opinion? Read Monetization of USTreasurys In Isolation by Jim Willie, CB. Editor, Hat Trick Letter.
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