Jim Sinclair: Federal Reserve Action Announces New Loan System To Member Banks

Dear Friends,

The Federal Reserve action today formalizes what has been its policy from almost day one of the credit and default derivative meltdown and credit market lockup.

What is occurring is THE MONETIZATION OF BANKRUPTCY. The predictable result of monetizing bankruptcy is a significant increase in inflation and a sharply lower dollar.

The result of a sharply lower dollar is sharply higher gold regardless of the dress up process being applied to the US dollar and gold today. The dress up is to prevent a stinging rebuff for the Federal Reserve paying a FARCE price for bankrupt derivative packages purely to keep the banks solvent.

This action speaks negatively for 30 year US Treasury bonds. What needs to be understood is that there are more than $20 trillion dollars worth of credit and default derivatives out there.

The next key point is that nominal value of this over $20 trillion of credit and default derivatives becomes full value when the derivative fails to perform. This comes on a modest capital injection into a bond guarantee company that facilitates pinning a tin AAA debt rating on them - something that is a total fallacy.

The problem at the heart of the deteriorating credit lockup situation is OTC credit and default derivatives that have failed to perform.

The inviting conclusion then is that $200 billion is a pimple on the ass of an elephant. Nobody in his or her right mind wishes to see what is coming in 2011. The only protection is hard assets of any type, shares (preferably not US companies) and the Federal Reserve Gold Certificate Ratio, modernized and revitalized.

This time gold is not going to crater after achieving its maximum market valuation. That nullifies every top caller from $248 to middle-late 2011 without exception as well as those now so inclined. This will make mining companies very attractive businesses.

Respectfully yours,

Jim