Jim Sinclair: On Geithner…

During testimony on his nomination, when Secretary of the Treasury Geithner was asked about errors made in the Great Depression, he replied: There were two:1. Monetary stimulation ended too soon.2. Heed was not taken of the dollar foreign exchange position. Think hard on the implications of both these points. The dollar rose into the Great Depression, acting as a break on American exports as protectionism was rising everywhere. You can be sure the present dollar rally as a place of refuge has no meaningful future.

RCM Comment: The following offers good insight into the recent US$ strength:

“The dollar buying is a result of CDS margin calls. No-one in the MSM etc will talk about this, as it exposes the mad system they have created and more importantly just how vast the CDS position is, relative to the real world. Every time the Stock Market starts tanking and the end of the financial world approaches, we get huge dollar buying, because CDS’s blow out and the margin calls go out. Most CDS’s are Dollar based.”
RCM Comment: For those of you asking about currencies I offer the following story as further evidence that the British pound is in for a pounding. The quantitative easing train has left the station and it is going to get ugly for this fiat currency. You may wish to refer to our Jan. 21st blog for more thoughts on this topic. The Bank of England’s Monetary Policy Committee has voted unanimously to seek Goverment permission to increase the amount of money in the economy as interest rate cuts lose their power to fight recession. The 9-0 vote by the MPC was revealed in the minutes of the meeting held on February 5. The Bank’s Governor Mervyn King will now write to Alistair Darling, the Chancellor, to ask for approval to introduce measures aimed at raising the supply of money in the economy – known as quantitative easing. The Bank hopes that by increasing the quantity of money in the economy it can encourage banks to increase lending and consumers to start spending

RCM Comment: To understand this story just think of credit default swaps (CDS) on US treasury debt as the proverbial ‘canary in the coal mine’. The US is mining the world’s wealth by issuing obscene amounts of debt. At some point the mine explodes and collapses with the outright refusal and/or inability of our trading partners to accept more IOUs. As we draw closer to this conclusion the CDSs will sound the alarm with ever widening spreads. NEW YORK, Feb 18 (Reuters) – The cost to insure U.S. Treasury debt with credit default swaps jumped to a record high on Wednesday as President Barack Obama unveiled another round of spending designed to stem home foreclosures. Credit default swaps on U.S. government debt widened 8.5 basis points to 90 basis points, or $90,000 per year for five years to insure $10 million in debt, according to Markit. The swaps had traded at less than 10 basis points a year ago. President Barack Obama on Wednesday pledged up to $275 billion to help stem a wave of home foreclosures that sparked the U.S. financial meltdown. Swaps protecting the sovereign debt of Germany also rose 12 basis points to 85 basis points on Wednesday, while swaps on Britain fell 4.5 basis points to 164.5 basis points, Markit data shows.