Jim Sinclair: QE3 To Infinity-The Final End Game

Jim Sinclair has sent an email alert to subscribers discussing the background of the OTC collapse in the wake of Lehman Brothers, and WHY the Fed has no other options than to continue QE to infinity.  Sinclair states that the coming end game will be the recognition of the weakness of the Fed’s balance sheet, and a resulting collapse in confidence in 2015-2017.

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.
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.

Therefore the end game is the perception of the weakness of the lender of last resort, the Federal Reserve’s Balance sheet, as it impacts confidence the US dollar and US interest rates.

MUST READ!

From Jim Sinclair:

The final end game of QE3 to infinity, with a month or two off from time to time, will be a product of the long term viability of the Federal Reserve Balance sheet and the impact on the dollar there from.

Let’s review what has transpired and begin to look at what will happen:

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.
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 loser 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.
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.

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.
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.
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.
The crisis not seen by Fed observers is the true balance sheet condition of the loses 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.
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.
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.

Therefore the end game is the perception of the weakness of the lender of last resort, the Federal Reserve’s Balance sheet, as it impacts confidence the US dollar and US interest rates.

Now you know what brings about the end game.

In the future I will do small simple articles dealing with the impact on markets of a to be Bankrupt Central Bank, the US Federal Reserve. The end game could come sooner, but only if there was an independent “mark to market” audit of the Federal Reserve inventory of worthless paper which remains unlikely no matter who wins the election in November.

Those of you invested in gold and silver vehicles of all kinds (with the exception of ETFs and futures) rest well this weekend. $3500 will easily be a place gold trades. The Canadian dollar and blasphemy to the euro snobs, the Swiss franc, remain go to vehicles for cash positions. Yes cash because you to not have to pay to own them as you do with a sovereign paper with negative interest.

Your watchman,
Jim

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Comments

  1. Sounds very optimistic, I hope we do have until 2015.

  2. The financial industry and central bank of this nation, like all other large nations, has simply given up any pretense of their addictions to currency debasement. 
    They’re like the crack addict who has fallen into the gutter, who with no sense of shame, sheds any resemblance of will and self control,  left without even an iota of desire to reform, go cold turkey and dry out. 
    This will all end in tears and gnashing of teeth, I expect. There will not be a dry eye in the house.

    On a different topic, Harvery Organ’s post is very instructive of what is happening in SA with the striking miners and the effect on gold prices, with silver moving in sympathy. GLD and SLV are sucking up physical at light speed, faster than China, Russia and India combined, to make sure they have metals that stand for demand. That’s one enterprise I would not touch with a 10 foot pole. Organ thinks JPM is meeting this weekend with pucker factor at max, trying to figure how to get their butts out of the self-made hell of shorts and derivative implosions. Monday’s fireworks should be fun to watch if Asian PM action bumps prices up. Remember to think of your LCS when the prices start jumping next week. LOL

  3. At some point the debt has to be cleared.  Sinclair’s postulation is one of the more reasonable I have read recently.  However, there are always unintended consequences and black swans lurking around every turn. 

  4. “At some point the debt has to be cleared.”

    Indeed it does, Joe, but as far as the citizens of a nation in financial distress go, the sooner they default, the better off they will be.  We can look at the differences here by comparing Iceland to Ireland.  While Iceland has had a strong come-back from bankster abuse, Ireland is still wallowing in it and shows no signs of coming out of it.  Dragging this out is only done for the benefit of the banksters.  They are the ones who will lose their shirts if a country in which they have invested defaults on their debt.
     

  5. The entire derivatives markey needs to be declared null and void and all transactions cancelled. Of course that will crash major banks but the longer we wait the worse the fall.

  6. Here’s how I think that everything will happen before the US dollar collapse. First, there will be a lot of QEs which will cause high inflation. After that, coins such as the penny will be removed from circulation because their value will become useless. Then, more QE will arrive which will lead to hyperinflation and new banknotes such as the 1000$ bill will be introduced. Finally, the US dollar will crash.

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