Jim Sinclair Reminds Us All

My Dear Extended Family,

This is definitely the weekend of discontent. The amount of confusion in the community may well be at a spiritual level. It is as if readers have forgotten the message of more than ten years. The problem is in semantics, the meaning of words. So again for the multi thousandth time, let’s review as simply stated as possible.

Definitions:

Inflation is the increase of money supply.

Deflation is the failure of debt, both public and private.

QE is the non-economic purchasing of debt by a central bank and the funding of the same by other central banks rendering chart near meaningless. Non economic because the normal motivation for the purchase, appreciation or short covering, it not the motivating factor.

Premise:

Because of the size and condition of Western world debt deflation or the failure of debt, both private and public, cannot be permitted without replacing the lost funds back into the financial system or funding the gains on the defunct OTC derivatives held within the financial system.

Conclusion:

Increasingly difficult business conditions cannot be entertained because the problem is based on a balance sheet weakness situation now hidden from view by the decision of the FASB, the gatekeepers of accounting. The FASB allows financial institutions to value their complex OTC derivatives at what they decide, not market to true value, what something is worth to another at balance sheet closing time. Failure to produce an ebullient economic recovery demands the ultimate stimulus, QE, which is debt monetization on steroids, to prevent a collapse of the financial sector.

Therefore looking back to 2010 when the illustration of three stages of the skier was offered to you reflects the above prediction of how the economy and central bank’s activity will unfold. There is absolutely no change in the series of events that will pan out as predicted.

Deflation as outlined above is the key element in the analysis. Default on sovereign debt and losses such as the 2 billion estimated blown by Morgan is the form of deflation in the analysis.

The following will occur exactly as outlined in 2010.