Today Jim Sinclair warned King World News that something clearly has Western central banks terrified right now. Below is what Sinclair, who was once called on by former Fed Chairman Paul Volcker to assist during a Wall Street crisis, had to say.
Eric King:
“Jim, Bloomberg had a story headlining on their site over the weekend
claiming that depositors may lose as much as 60% on deposits in Cyprus.”
Sinclair: “This
is all because of the one quadrillion dollars in derivatives that are
in the financial system. Six years ago the Bank for International
Settlements (BIS) at that time reported that the amount of derivatives
already outstanding exceeded one quadrillion dollars. This number is
unimaginable to most human beings.
“But the real size
of derivatives outstanding is well over one quadrillion dollars, and
something clearly has our central banks terrified right now. We
already know that Bernanke has led the US to significant amounts of QE,
and the same is true of euro land. Maybe they are now looking at what
the real cost of the derivatives will be and saying to each other,
‘Nobody can create that much money.’
What
we may be seeing now is the fact that the central banks can no longer
make the depositors whole. They are hitting the wall. This means that
money is absolutely going to look to leave the financial system if
indeed the final decision in Cyprus is to take money from deposits. We
will know the answer as to what has truly been decided in Cyprus at
some point during the April 13 to April 15 time frame.”
Eric
King: “Jim, what you are saying here is that we are entering another
phase where we can expect a dramatic increase in chaos as the one
quadrillion dollars in derivatives causes more financial destruction?”
Sinclair: “Absolutely.
When people say that the Cypriot banks lost because of being in Greek
debt, what was one of the Greeks’ greatest sins? They used
over-the-counter derivatives in order to hide the real condition of
their balance sheet.
Depositor
money, brokerage money, and clearing house money have been tangled up
in the mountain of derivatives as the banks have used this cash to
speculate in an attempt to make huge bonuses for bank executives.
Unfortunately, most have lost their ass. This means that in many cases
depositor money has already been wiped out.
What
do you think happens when Buffett reports that he made $10 billion in
derivatives? Somebody else lost $10 billion and it was most likely one
financial institution. There is no question that what we are seeing
right now is not isolated to Cyprus. It has happened everywhere, but
is has been camouflaged by making the depositors and the banks whole.
What Cyprus will reveal is that losses do not stop with the bank’s
capital. Losses roar right through bank capital and take depositors’
money.
What
people don’t realize is that the derivatives, especially the ones
created between 1991 and 2007, are never-ending manufacturers of
greater size of paper obligations because you have to put these
additional items onto the derivative chain as the markets have certain
events take place such as a downgrade of debt. God help us when we
have a meaningful downgrade of US debt.
So,
clearly our central banks are now very uncomfortable. They are worried
about something of significant size which has yet to be revealed to the
public. I guarantee you that whatever it is will have to do with the
derivatives created between 1991 and 2007.”
Sinclair also added: “As
money flees the financial system, one of the top items being purchased
will be physical gold. Right now the gold market is engaged in an
enormous fight between physical and paper. But two to three years from
today people around the world will come to realize that gold is for
your savings, and currencies are for doing business.
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