Eric King:  “Jim, what is your biggest takeaway at this moment in the aftermath of all of this chaos and the Cyprus banks reopening?”

Sinclair:  “There is a public relations campaign that is gaining momentum in the amount of articles being published by brokerage firms, commentators, and newspapers.  There is now a definite desire to communicate to the public that there may be a chink in the armor of ‘too big to fail.’ 

The message is that depositors may be considered as lenders, whereby their deposits will be taken in exchange for shares in the banks or financial institutions, rather than what’s happened up to now which is their deposits have been guaranteed by the bailouts.

It’s a scare tactic, but it is having an impact because it’s growing....

Continue reading the Jim Sinclair interview below...


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“The effect of this is there is now a distinct desire to withdraw the excess cash from the banking system, with the definitive question of what to do with it?  How would you like to be an international company with over $100 billion in the bank?  How would you feel if you believed 40% of the money could simply be stolen?

For individuals, the two most common investments for people are residential real estate and the stock market.  So it is in fact happening that some of this excess cash now being stored in banks is moving even more into residential real estate, and this may also well be what sustains the stock market from a very serious correction which is technically called for here.

So it seems we have a last ditch effort to change the effects of QE, where we have only gotten a sideways movement in economic indicators to some sort of an uptrending line.  It’s a huge gamble because if it doesn’t significantly impact the economy, it will clearly weaken the banks which are already weak in the first place.

The reason it will weaken the banks is if the banks lose deposits of cash and near cash deposits, the strength in assets of the bank are reduced while the liabilities remain the same.  So this is a huge gamble, an attempt to resuscitate the economies around the world with the risk that they are setting up another banking crisis.”

Eric King:  “How do you see things unfolding in the future?”

Sinclair:  “The immediate prediction by economists is that this will be an attempt that will succeed in having a sustaining effect on an economic recovery.  What they are not taking into consideration is that it will weaken the banking system.

So the gamble the central planners are taking here is outrageous in terms of win or lose because the “lose” side of this continues to reduce the tools central planners have to work with.  There is no tool except quantitative easing, and trying to force the hoards of cash deposits out of the banking system, in fear of being confiscated, into real estate, stocks, and other parts of the economy, and it is an extremely dangerous gamble. 

What if it fails?  What do they do then?  They have used virtually all of their tools at that point.  You can’t use fiscal stimulation because of debt.  You’ve used monetary stimulation to the absolute extreme and done nothing.  Now, forcing money out of the banking system and into the economy, if it were to fail, will deliver to us another banking crisis.

This is the absolute and ultimate economic ‘Hail Mary’ play.  If this pass is not caught in the end zone, if the economy doesn’t turn up and sustain an improvement, the cost of doing this is jeopardizing an already fragile international banking system.  This would also be taking place in an environment of virtually no further tools left to central planners to create a recovery.”

Sinclair also had this to say regarding gold:  “So the fight we see going on in the gold market between the increase in the physical buyers in the last two weeks, while at the same time the paper traders attempting to significantly decrease the price of gold, the physical buyers have been standing up and taking that supply of paper, and then standing for delivery.  This dramatic increase in physical buying is directly related to the Cyprus disaster.

This battle taking place between let’s say between $1,550 and $1,650 is the final battle to determine who is the ultimate arbiter of price in the gold market -- the paper gold traders, which are simply an arm of the US government, or the physical buyers around the globe.

The money that is now being scared out of the banks is only in a small way finding itself into the gold market.  But that is the motivation, the energy, and the fuel of the physical buyers in gold.  So the battle we see going on in the gold market now as to who is champion, physical or paper, is a product of this last great “Hail Mary’ play to try to improve economic circumstances.

So the catastrophic danger here is if the central planners fail they will have totally run out of tools and this thing will implode because they will have inherently weakened the banking system at the most inopportune time.  This is one of the most dangerous and potentially fatal gambles in history.”

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. 

© 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 audio interviews with John Maudin, Rick Rule, Bill Fleckenstein, Dr. Paul Craig Roberts, Gerald Celente, Michael Pento, Nigel Farage, Eric Sprott, Rob Arnott and James Turk are available now.  Also, be sure to hear the other recent KWN interviews which include Marc Faber, Felix Zulauf and Art Cashin by CLICKING HERE.

Eric King

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