Sinclair: “The concept that our financial leaders are in some sense geniuses that foresee the future and calculate every move based on their ability to divine what will be the result of their actions, is absolutely false.  The IMF made a massive mistake here.

The IMF has now put itself into a very difficult position.  The IMF must now support Cyprus, even in the face of the rejection of the attempted confiscation of partial bank deposits, or let the Cyprus banking system seek its own solutions to its banking problems, which would be Russian Corporations, or Russia itself.

If Russia was to save the Cyprus banking institutions, then, basically, a sovereign nation has trumped the IMF....

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“I believe this is unacceptable to the IMF because it would mean that the IMF would not carry the clout which it has carried over the years as a group of many nations.  If one nation can turn the switch ‘off’ against the IMF, it’s going to be very hard to turn that switch back ‘on’ at the IMF.

This now rejected proposal of a tax on depositors was a total shift in strategy that had existed so far in the rescue operations of banks.  If you change your strategy, you break a promise because you have acted in a certain way where all other major nations are concerned.

If continually over years you have a strategy, and then all of the sudden decide that, well, Cyprus is too small or that the Russians are not in your league socially, and you let Cyprus go on its own and Russia makes the repair, the IMF loses by having broken a promise.

You create promises with nations not necessarily by your word, but most certainly by your actions.  The actions up to now have been consistent in that no depositors would be injured.  The central banks have worked together, either through swaps or through direct actions in order to meet any and all contingencies.  That simply cannot stop now, especially in light of what’s just happened in Cyprus.

If there is a spread to other smaller countries of the fear of confiscation from the depositors in order to meet the obligations of their errant banks, you will begin bank runs everywhere.”

Eric King:  “Can the IMF recover from this?”

Sinclair: “Yes, but it will be very difficult.  The IMF only has one choice if it wishes to remain the spokesperson monetarily for the world, and that choice is to rescue the Cyprus banking system, exactly the same way they treated Spain, Portugal, Italy, etc.”

Eric King:  “How much of a victory is this for Putin and Russia?”

Sinclair:  “It’s a huge victory.  Even though most people won’t understand it, those people who make decisions will, and do very well understand it.  Putin has faced down the International Monetary Fund, which by the way is located in Washington, DC, and is in fact Washington itself.  So in the sense of a Cold War, you have Washington vs Moscow, and Moscow won this round.”

Sinclair also added:  “There is no question now that there is a paradigm shift in gold toward the physical market.  A paradigm shift in the longevity of the paper futures markets, which as I said before will now move towards a physical market.  The West will end up losing control of the ability to manipulate the gold market much sooner as a result of this debacle in Cyprus.

I remember back in the 1970s there was the assumption that the bullion banks were geniuses, and that under no circumstances did they ever make a mistake in anything they participated in.  That was absolutely false then as much as it is now.

Back in 1979 when the gold price broke over $400 for the second time, I had been under pressure because I was the buyer the first time gold broke over $400, and subsequently down gold went.  Well, in came the Middle-East to the gold market. 

The minute I saw the Middle-East come in to the gold market I bought back every gold contract I had sold to protect myself and then doubled my position which literally sent the gold banks into total and absolute retreat.  They had been overrun.  Gold then moved from that roughly $400 area in late 1979 to $887.50 at the beginning of 1980, gaining the most over the shortest period of time in the entire 1970s bull market. 

Right now we have had a significant change in the world financial landscape and paradigm.  The fact that Russia has faced down the IMF is not any different from the day I faced down the gold banks in late 1979.  What I believe this means for gold is that its slavery to the Fed is over and it’s on its way to freedom from US manipulation.

The important point here, besides the fact that what we have just witnessed is a clear and decisive Russian victory and an IMF defeat, what is absolutely crucial is for investors to understand that a wrong decision by the IMF here could create runs on banks throughout the entire Western world that make the likes of what we have seen previously in Greece and Spain look likes child’s play.

What I am saying is that another major mistake here by the IMF could destabilize the entire Western financial world in such a way that it simply could not recover without unprecedented turmoil and destruction.  The bottom line here is Lagarde took on Putin, but Putin has checkmated both her and the IMF the same way a Russian grandmaster chess player would destroy his opponent.”

Sinclair also predicted: “Cyprus cannot, will not, absolutely must not leave the euro.  They know that quite well.  So the break of the euro market down into the 1.28 area must have sent shock waves through decision-makers in euro land.  Cyprus must be rescued because they cannot be allowed to leave the euro.  In the end, however, all of this will create a demand for other alternative ways of being able to support the value of money, and gold will benefit enormously from it.”

IMPORTANT - Jim Sinclair is holding a meeting in New York today, March 20th at 2 PM EST, but it is entirely sold out at this point.

UPDATE - The incredible KWN audio interviews with MEP Nigel Farage, billionaire Eric Sprott and the former US Treasury official Dr. Paul Craig Roberts are available now and you can listen to them by CLICKING HERE.

© 2013 by King World News®. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed.  However, linking directly to the blog page is permitted and encouraged.

The interviews with Michael Pento, Nigel Farage, Eric Sprott, Dr. Paul Craig Roberts, Egon von Greyerz, Rob Arnott, James Turk, Jim Sinclair, John Embry and Andrew Maguire are available now.  Also, be sure to listen to the other recent KWN interviews which included Marc Faber, Felix Zulauf and Art Cashin by CLICKING HERE.

Eric King

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