Eric King:  “Jim, we just had the piece from Switzerland discussing US money velocity on KWN and how it is at the lowest level in 50 years.”

Sinclair:  “That is a fact.  The velocity of money is at an all-time low in recent history.  The general interpretation is that in order to have inflation you need to have the velocity of money sharply accelerating, and that very low levels of velocity of money without any periods of even modest improvement is the definition of a deflationary environment.

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“The possibility that deflation would be permitted, meaning not resisted by central banks, is something that no central planner would consider at the present time.

The velocity of money can change very, very fast.  In every single event in the history of money where you’ve had significant inflation reach degrees which are called hyperinflations, they led into it with very low levels of velocity of money.  Then, when loss of confidence took place in the currency, the unwillingness to hold the currency resulted in significant increases in the velocity of money, and ultimately the collapse of the currency.

It was interesting that you just had the piece on KWN which brought up the velocity of money because this is the first time, Eric, that we have seen the mainstream media working overtime in an attempt to make a set of circumstances (in Cyprus) seem more difficult than in fact they really are.  MSM (mainstream media) usually glosses over trouble and spins it positively.  But you and I know the facts of what took place in Cyprus.  The MSM has been spinning this situation in Cyprus as infinitely more difficult than in fact it really is. 

Reading what they have reported you would have to come to the conclusion that the takeaway from Cyprus is that very significant amounts of money, rather than being bailed out, have instead been confiscated.  This has the effect of frightening people with large sums of money in financial institutions.  The idea that a confiscation could take place of even a minor percentage, but certainly the MSM quoted and incorrect number of 40%, has to get us all wondering if the funds we have in the banks are in fact safe?

So far, the money that has been put into the economy from TARP to QE has gone in to basically rescuing the balance sheets of both sovereigns and financial institutions.  The money that has come in to the system has filled an undefined but real ‘black hole’ of loss because of derivatives. 

So the money which has come in from TARP and QE really hasn’t found its way into the economy because it is not coming out of the banks because it doesn’t exist, having filled the black hole of a loss.  Generally this money would find its way into the economy through bank lending, but that hasn’t happened.

Now, the velocity of money could be significantly impacted if all of those large depositors inside financial institutions got the idea that 40% of that money could be confiscated, or any amount of the money could be confiscated.”

Eric King:  “Jim, It seems like what you are saying is the mainstream media is going to be used going forward to increase the velocity of money by scaring the hell out of people.”

Sinclair:  “Yes.  I think what we have seen so far is just the beginning of the use of MSM to frighten money out of savings and into the economy.  This is particularly true when you look at the incorrect reporting of what the Dutch Finance Minister supposedly said. 

The velocity of money has been the biggest drag in terms of creating any significant recovery.  So the velocity of money has now been targeted, and it is to be increased through the use of fear in the mainstream media regarding confiscation of money in financial institutions.

KWN releasing the piece covering the fact that the velocity of money in the US is at 50 year lows could not have been timed any better.  I now believe that going forward the velocity of money will be made to increase, either by loss of confidence, or through the fear being generated by the mainstream media regarding the safety of leaving money in banks and other financial institutions.”

Sinclair also had this to say regarding gold:  “Right now the price in the market for gold is clearly not being made by the paper guys.  The price of gold is now being made by the physical buyers, and that is a quantum leap in change in the character of the gold market to the degree that I haven’t seen since 1979.  Of course the world witnessed a massive rise in the price of gold when that took place.  History is about to repeat.  I would also add that as we see an increase which I have described in the velocity of money, that is also extraordinarily bullish for gold going forward.”

IMPORTANT - To read the KWN piece Sinclair referred to covering money velocity CLICK HERE.

IMPORTANT - What may be Bill Fleckenstein’s greatest audio interview ever is available now covering the Cyprus disaster and more, and you can listen to it by CLICKING HERE. 

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Eric King

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