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Annihilation of U.S. Dollar Coming - Jim Sinclair

By Greg Hunter’s USAWatchdog.com
October 30, 2013


http://youtu.be/8IQ_TBJHrcU

Renowned gold expert Jim Sinclair says financial calamity is just around the corner for America. Sinclair contends, “We are facing the annihilation of currency. We are facing the shift of America as the leading and most influential nation of the world to some form of banana republic. . . . If it wasn’t for food stamps, we would be facing long lines of people waiting for free food.” For gold, everything hinges on the U.S. dollar, and Sinclair says, “I think the dollar gets hammered. I believe we are headed for hyperinflation.” One of the many black swans, according to Sinclair, is the possible abandonment of the U.S. dollar by Saudi Arabia. If Saudi Arabia stopped selling oil only in U.S. dollars, what would that do to the buying power of the buck? Sinclair says gasoline would be “$10 a gallon very soon, without a doubt.”

Sinclair predicts retirement funds and bank deposits are going to be taken by the government. How much of your money could you lose? Sinclair says, “In Cypress, it was a total of 83%. . . . Cypress is the blueprint, and it’s what we are going to experience here in the United States.” Jim Sinclair, who has just accepted the position as Chairman of the Advisory Board for the establishment of the Singapore Gold Exchange, says, “The exchange will trade physical gold only and not future gold. . . . You have to make delivery.” Meaning, there will be no naked short selling or manipulation of this new market. Sinclair says, “This will emancipate gold from the paper price.” How high will gold go? Sinclair predicts, by 2016, “Gold will be $3,200 to $3,500 an ounce.” By 2020, Sinclair predicts, “Emancipated gold will be $50,000 per ounce.” Join Greg Hunter as he goes One-on-One with Jim Sinclair of JSMineset.com.

www.usawatchdog.com




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Ruby was used for the movie to show off Technicolor

The book is one big allegory for the political/monetary landscape of the day. All the characters and situations represent actual people, situations and events of that time. Dorothy, the simple salt-of-the-earth farm girl wore silver slippers not knowing the nature of their magic or that she could use it, representing the power silver put in the hands of an unwitting populace. The Wizard of Oz (as in the abbreviation for ounce) himself I believe, represented the smoke-and-mirros swindle of demonetizing silver in favor of a gold-only system which put power in the hands of the criminal elite banksters, etc.

Sinclair, Schiff, Celente

All wacko birds.

On some great and glorious day, the plain folks of the land will reach their heart's desire at last and the White House will be occupied by a downright fool and complete narcissistic moron.

downvoted

because I like Schiff and what he has to say. I am not all-knowing so... I am open to change my mind if there is any evidence of Schiff being the type of bird McCain always refers to...

"When the people fear the government, there is tyranny. When the government fears the people, there is liberty."

-Thomas Jefferson

It was sarcasm

I guess fellow members don't know I'm a cynic yet. As a Brew master I was interviewed by a magazine and was described in the article as WILY, lol.

On some great and glorious day, the plain folks of the land will reach their heart's desire at last and the White House will be occupied by a downright fool and complete narcissistic moron.

SteveMT's picture

It's hard to tell sometimes, believe me.

I believed it, and so apparently did 13 others. There are so many infiltrators here that it is hard to tell sometimes. My recommendation is to make it more obvious next time. Exs: (satire) lol, (joke). I'm presently having a discussion with one of these people that is for real. Who knows who is logged on here; it's a wide-open website, and I wouldn't have it any other way. Neither would Ron Paul. It goes with the territory called Liberty.

okay my bad...

Just figured you may have some info I was not aware of.. There was the video about Sinclair down below and Celente is hated on here frequently for how he treated the Dr. a while back.

PS Keep brewing; I enjoy good beer!
Been wanting to get into home brewing for a while now

"When the people fear the government, there is tyranny. When the government fears the people, there is liberty."

-Thomas Jefferson

Oh wow, look, another idiot

Oh wow, look, another idiot talking about how a dollar collapse is IMMINENT! YOU HAVE TO BUY GOLD NOW!

This guy doesn't realize how the US dollar and the banking system works. The only way there will be hyperinflation is if productivity dampens massively.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

Hyperinflation is a

Hyperinflation is a very specific monetary/currency related event where people lose confidence in a currency for some reason. It could be triggered for a variety of reasons. Rising prices, perception of loss of value, a central bank monetizing a countries debt, another country rejecting the use of the currency in trade, etc etc. It's a mass human psychology event. It has nothing to do with productivity dampening. It's not high price inflation either.

Give me control of a nation's money and I care not who makes the laws - Mayer Amschel Rothschild

You are correct that

You are correct that non-fundamental reasons can cause a loss of confidence in a currency.

But, you have to realize that there is already a large built-in demand for US currency, in the form of taxation. The government demands taxes get paid in US dollars. That creates a hell of a lot of demand for it.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

Really

So why not go 200 trillon in debt and give every person in America 500 billion dollars .. what do you think that would do?

Because then you would have

Because then you would have massive inflation.

The government should only "print" money, or run deficits, such that production will arise to meet that new money.

To put it in another way, if the productive capacity of the economy grows by 3%, and the government prints money such that credit creation increases by 3%, you will have a neutral price level.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

SteveMT's picture

There are many countries buying our debt.

They are the ones with the massive inflation and/or who are already bankrupt. You neglect to consider the U.S. life style being enabled by other countries buying our debt.

If they didn't buy our debt,

If they didn't buy our debt, someone else would buy our debt. Have you seen how popular US debt is? Which is a big reason why it is sold: it provides a risk-free, safe, interest-bearing standard for the economy.

The US doesn't HAVE to borrow to spend. It issues the currency. It can print money all it wants. The biggest downside to doing this is that it will cause short-term interest rates to fall.

As I previously mentioned, banks use reserves to buy US debt, in what is considered a very good and safe investment. If the US didn't offer that debt, the reserves would sit on their balance sheets. As a result, there would be little reason for the banks to borrow reserves short-term(very similar to the situation we have now, where banks are being encouraged to be more liquid). As aforementioned, the natural interest rate would be zero. This could propagate into lower long-term interest rates. With a huge source of income gone, banks might turn to riskier investments.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

SteveMT's picture

"Someone else would buy our debt?" Who else?

Everyone else is bankrupt. The others are already enslaved by the same banksers that you apparently love so much. If we just printed money in a vacuum without the other world bankers going along with this scam, then our interest rates would be very much higher, which would implode our economy.

I am making the assumption,

I am making the assumption, that they would stop buying our debt for political reasons, not fiscal ones. Presumably, if China and Russia got together and said "we are going to buy US debt, in order to sink their economy", you'd just see others buy US debt. And the US government doesn't even have to sell US debt; it just does so in order to keep interest rates down and to provide an interest-bearing asset to the banks.

Why would the US government just "print money in a vacuum"? If the US government spent too much money (let us say they handed everyone 100 million dollar checks), you wouldn't have the production to meet the new dollars, and you'd have inflation. But why would the government do that?

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

Why r u Here

You are a central planning endorsing stooge, Kenyesian Idiot .. go back and post on moveon.org

Ah, "I can't prove you wrong,

Ah, "I can't prove you wrong, so I am simply going to insult you".

As far as I know, the economic principle I talked about above doesn't belong to any ideology. Well, I guess the ideology of those who believe in math.

I am not advocating or not advocating for central planning. All I am saying, is that in the current situation, with the US dollar being the currency, and with the value of the currency being regulated by the central bank on a non-convertible, floating exchange-rate basis, this is the resulting economic situation. Ultimately, the US dollar is what is legal tender, and what is used to pay off liabilities, taxes, etc. Literally, you cannot pay your taxes with gold or oil or silver...you need to pay them in dollars. Practically, that is how the economy works as well...payments are conducted in US dollars.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

yes

You're correct.

The libertarian mantra that dollars are as worthless as toilet paper and that fiat currency has no intrinsic value is all wrongheaded.

As you said, the government wants to be paid in dollars at the point of a gun, therefore people value it and there is a demand for it. People value dollars because they don't want to go to jail when they use gold certificates or other currencies and get arrested for money laundering or tax evasion.

Google -
"Robert Kahre gold coins"
"Nothaus liberty dollar"

Well, people value dollars

Well, people value dollars for many others reasons as well. I am just saying, that baseline, dollars have value because they are required to pay off your taxes, the consequence of not having said dollars being jail time or confiscation of real assets.

But in practice, the dollar has a lot of other value. In the rare periods where tax rates go down and credit creation also goes down, demand for the dollar is hardly changed. Yet when tax rates go up, and credit creation goes up, there is generally inflation.

You can think of it in the way that most people's liabilities are valued in dollars. Your mortgage, student loans, etc. That has to be paid back as dollars.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

SteveMT's picture

"People value dollars?" What people?

Petrol dollars are forced upon the world. No choice is involved. Just ask what's left of Libya and Iran. There is no definition for the word dollar. The dollar has been debased to nearly oblivion.

Fantastic. I will take all

Fantastic. I will take all your dollars then, since you don't see any value in them.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

SteveMT's picture

Dollars are created from debt.

There is no value there, only trust and hope. Don't you know this?

Test question:

If you found a $1oo bill from one hundred years ago what would you have today versus 5- $20 gold coins that totaled $100?

Hey Fuckstick

You are the one throwin insults .. so listen to your own advice

So what happens when thw world De-Americanizes and we lose reserve status then what will happen

Math my ass idiot .. why print more with GDP growth, why not let the money you hold gain value .. so yes you endorsed central planning

Sinclair understands all too

Sinclair understands all too well how the banking system works, which is why he's predicting the collapse of the dollar when the rest of the world realizes that there is no escape from the debt bubble resulting from the unbacked dollar and concludes, as he has, that it's now QE to infinity, which will lead to the abandonment of the dollar, otherwise known as hyperinflation.

Reasonable people can debate whether it's wise to go all in on Sinclair's conclusion of what will happen and that gold is the best protection - there's always the (albeit unlikely) austerity option, and the (even more unlikely) economic growth possibility - but on the question of whether or not he understands the banking system there is absolutely no doubt that he does.

Never trouble trouble til trouble troubles you. Fortune Cookie

"Sinclair understands all too

"Sinclair understands all too well how the banking system works, which is why he's predicting the collapse of the dollar"

But why would he? Money creation has been very limited these past few years. If money creation accelerates (illogically), the federal reserve can easily cut it off. If it accelerates logically, then production should rise to meet it.

"when the rest of the world realizes that there is no escape from the debt bubble resulting from the unbacked dollar"

What do you mean by "debt bubble"? The US government issues the currency. They can never be spending-constrained.

"that it's now QE to infinity, which will lead to the abandonment of the dollar, otherwise known as hyperinflation."

Why? QE is not money-printing, despite what some economists will tell you.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

The hyperinflation process

The hyperinflation process that Sinclair fears occurs when government debt buyers run dry leaving the Fed as the debt purchaser of last resort.

The longer that QE continues, the more dollars that are created out of thin air, the greater the risk that potential debt purchasers begin to fear that the dollars with which they will eventually be repaid will be worth far less than those they would use to purchase the debt.

As debt purchasers run dry the Fed is forced to step in with more QE, additional money that will lead to rising prices. As prices rise, dollar holders - both currency holders and holders of debt denominated in dollars - look for ways to protect themselves from the depreciating dollar. They spend their dollars and sell their debt. As the dollar is sold, prices rise even more, leading to more selling, even higher prices, and eventually the risk of a complete loss of confidence in the paper dollar.

That's the hyperinflation scenario that Sinclair and the gold bugs fear, and they protect themselves with gold.

Of course the Fed could stop QE, but if they did interest rates would rise, leading to an increase in the government's interest payment obligations, leading to a need to either raise taxes to meet these obligations (yea, right) or a need to float even more debt, requiring potentially even more Fed QE.

That's why many analysts are beginning to conclude that the Fed is trapped. They can't stop the QE (unless the economy takes off) but every month that goes by without tapering more and more dollar holders start worrying about the purchasing power of their holdings.

Thus, unless we see growth, (which seems unlikely especially with socialists running the government), the likely scenario is further QE, thus increased risk of dollar collapse.

Of course there's always austerity, but when somebody comes across a politician selling austerity please let me know 'cause I want a picture and and autograph of this rarity for posterity.

Never trouble trouble til trouble troubles you. Fortune Cookie

"The hyperinflation process

"The hyperinflation process that Sinclair fears occurs when government debt buyers run dry leaving the Fed as the debt purchaser of last resort."

On this note, government debt is a very hot commodity. During every debt ceiling crisis, the yields on government debt went up, the rates went down. People don't even think that the government will default on debt...the are just afraid of ancillary effects.

"The longer that QE continues, the more dollars that are created out of thin air"

QE doesn't create dollars. Reserves/QE has very little influence on the money supply. Dollars have been created by thin air ever since 1971 (and arguably before that since 1913, and arguably before that int he era of free banking).

I mean, just look at the effect current QE has had on inflation. Zero, zilch, nada. Why hasn't the 3 trillion in QE caused massive inflation, as Peter Schiff, Ron Paul, and presumably Sinclair predicted?

"the greater the risk that potential debt purchasers begin to fear that the dollars with which they will eventually be repaid will be worth far less than those they would use to purchase the debt."

They will only be afraid of this if there is runaway inflation, which QE has little practical bearing on. In fact, the greatest effect it had on price levels was psychological...idiots were scared of inflation, and ended up going into commodities, gold and silver included, as a result...they were hedging against hyperinflation. They are now realizing that there hasn't been anywhere near the predicted inflation, and are more skeptical that it is going to happen. So they're starting to leave those commodities.

I mean, didn't Peter Schiff predict gold would be 10,000 by now? I definitely hear people in 2009 saying that by 2011 gold would be over 20,000...what happened?

"As debt purchasers run dry the Fed is forced to step in with more QE, additional money that will lead to rising prices."

Nope. The government doesn't have to issue debt. They just do it to provide interest-bearing assets to the economy in lieu of higher-risk endeavors.

"As prices rise, dollar holders - both currency holders and holders of debt denominated in dollars - look for ways to protect themselves from the depreciating dollar."

I think the run up on gold is exactly this...and as people realized their hysteria was not called for, they started to sell those "inflation-protected" assets.

I would reckon that debt holders, in an uncertain economy, will pursue dollars. Because dollars can be used to extinguish their debt.

"Of course the Fed could stop QE, but if they did interest rates would rise,"

This is very doubtful. QE doesn't have much effect on bond rates, I would reckon, because QE is specifically the federal reserve exchanging reserves FOR bonds.

You are correct that if the federal reserve stopped and reversedQE, that interest rates would rise. Why? Because the banks now have less reserves. They need liquid cash to settle debts (with presumed bad balance sheets). Demand for dollars would skyrocket, the cycle you described would happen in reverse with people craving the dollar and assets falling in nominal terms. The overnight lending rate would have to go up.

To the point that government debt is considered as-good-as-cash, yields would not fall, because people would be willing to put money into government debt because it could still settle a debt. However, at a point, yields would fall and rates would rise as people would say "I can't afford to buy your debt. I need this money to pay down my debts". But again, the government only sells debt to take reserves out of the system and provide an interest-bearing asset to the economy.

I mean, how much interest is the government paying on debt held by the Fed?

"That's why many analysts are beginning to conclude that the Fed is trapped."

That is because most analysts do not understand the banking system.

"Thus, unless we see growth, (which seems unlikely especially with socialists running the government), the likely scenario is further QE, thus increased risk of dollar collapse."

To note, that Germany's government is approximately 10,000 more socialist than America's, and yet their growth has been incredibly good.

Of course there's always austerity, but when somebody comes across a politician selling austerity please let me know 'cause I want a picture and and autograph of this rarity for posterity.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

Putting aside your incorrect

Putting aside your incorrect assumption that I agree with the conclusions of Sinclair, Schiff and others that hyperinflation is likely, and returning to my original point - that they do understand the banking system and that it is inaccurate of you to say that they don't - of this I am sure because I have read and listened to both gentlemen for many years, years after I personally learned how the banking system works.

It would, however, be accurate of you to say that you disagree with their conclusions about the general reaction to the Fed's actions, because that's the actual source of your disagreement.

Just give 'em a little credit for their intelligence, for goodness sakes.

Now that this is cleared up, answer me these questions...

1. How can you say that QE doesn't add dollars to the general economy?

Clearly, it does. When the Fed purchases bonds from a primary dealer they do so with funds that didn't previously exist. Sure, they can remove those funds by selling the bonds (provided that they can get the same price, which they won't be able to do if interest rates rise) but the process of purchasing the bonds not only creates money out of thin air, it seeds the potential creation of much more money by the banking system.

2. Do you not see that the Fed's actions enable overspending politicians, and if you do see, do you not see this as problematic?

You said that the government doesn't need to issue debt. But in the real world today it clearly does. If one starts with the reality that politicians will provide supporters as many freebies as they can get away with providing, in an era where balanced budgets are not required, politicians will overspend, and in order to fund the overspending they must borrow. The alternative is raising taxes, and since the livestock doesn't like that politicians avoid this funding method in favor of borrowing.

Now if the borrowing were limited to only the current money stock then there would be a limit to the borrowing. Eventually, as the borrowing grew lenders would demand higher and higher interest rates, so the borrowing would have to be tapered as eventually interest rates would rise to rates that would scare off even the most aggressive investors.

But as long as the Fed is there to pick up the slack with new money created out of thin air, politicians can continue to overspend until something happens to stop the process.

That "something" could be (not necessarily WILL be) the livestock waking up to the fact that they actually ARE being taxed to pay for the overspending, taxed via the inflation tax. But that realization is unlikely to occur until folks actually can see and feel the tax, which might not happen until price inflation increases, which becomes much more likely to happen if the Fed follows the Krugmans of the world who are calling for even more QE.

Never trouble trouble til trouble troubles you. Fortune Cookie

"that they do understand the

"that they do understand the banking system and that it is inaccurate of you to say that they don't - of this I am sure because I have read and listened to both gentlemen for many years, years after I personally learned how the banking system works."

No, I do not think they do. They don't understand how the banking system works, as I will explain below.

"1. How can you say that QE doesn't add dollars to the general economy?

Clearly, it does."

If this is so clear, why has inflation been so low since QE was started?

"When the Fed purchases bonds from a primary dealer they do so with funds that didn't previously exist."

OK
"Sure, they can remove those funds by selling the bonds (provided that they can get the same price, which they won't be able to do if interest rates rise)"

OK

"but the process of purchasing the bonds not only creates money out of thin air"

No, this is where you are wrong. When the government spends money, regular money, then it is actually adding money to the economy. Money that you and I spend. When the government purchases bonds from the banks, it is merely changing the structure of their assets. It is giving them a short-term, non-interest-bearing asset in exchange for a longer-term, interest-bearing one. The funds that the federal reserve gives to the banks goes to their reserve account at the fed. They can't "loan them out". They can loan it to other banks, use it to meet their liabilities (where QE is the government allowing them to bypass the natural decline in their assets if they had to unload them quickly), or use it to meet reserve requirements.

The way that QE is connected to money creation is, that, let us say, banks in general saw a lot of credit-worthy customers, but didn't have enough liquidity to meet reserve requirements(which are nowadays miniscule) or their liabilities. Instead of forcing the banks to sell off assets(and therefore having to accept reduced value), the federal reserve exchanges their assets for reserves, which they can then use to meet the above two things. Then, the bank will be able to make the loan, thereby raising the effective money supply (causing inflation).

As you can see, the QE has a tangential effect on the money creation process. In fact, the reason that QE is/has generally failed, is because Berneke himself doesn't understand the banking system. Because ultimately, QE takes assets OFF the books of banks...they are in fact losing interest in exchange for short-term reserves. In the case where the government buys bank-issued bonds in exchange for reserves, the banks have just exchanged a short-term liability for a long-term one. Essentially, they've been given extra liquidity, but their books are still in terrible balance.

Moreover, banks cannot find enough credit-worthy customers in order to create money and improve their financial state. QE doesn't change that...reserve requirements and even short-term liquidity are hardly a bother to banks if they feel that they have a credit-worthy customer they can make a profit on.

"Do you not see that the Fed's actions enable overspending politicians, and if you do see, do you not see this as problematic?"

Fundamentally, the government doesn't "have" to sell debt. It would be like, in a game of gin rummy, getting angry when the dealer awards you points without having taken them from someone else first (best analogy I could think of in a short notice). He's the dealer...he gets to make points out of then air.

The reason that government sells debt, fundamentally, is to alter the short-term interest rate. Government spending naturally increases the reserve level of banks. As reserves get larger, short-term interest rates drop...the reason being, that with so many reserves, banks do not have to think about the risk of having to borrow money from the Fed, redemption of banknotes, meeting reserve requirements, etc. The short-term interest rate heads towards zero. Moreover, government debt provides the market with, what has generally been, a safe, risk-free, good-interest bearing asset. Typically, one that beats inflation.

If short-term rates get too low, THEN you have the fear of bad credit being created. Now, if the banks "do nothing", they aren't even going to be beating inflation. The risk-reward curve gets altered, and banks will take more risk to get reward. You can kind of see how government debt pushes interest rates up...why would a bank give you a 30-year mortgage at 3% when they can buy a 30-year government bond and get 3%?

In fact, my opinion is that the government might have to crush reserve levels in order increase interest rates, because government debt is too-good of an investment...uncertainty is dropping government debt to such low rates, that the general rate is dropping too quickly for banks to make profit quickly enough to improve their financial situation. Normally, banks would counter this by going for higher-risk investments; this is something else we want to avoid. We aren't getting this because the banks are so terrified of risk (rightfully so). The Fed is worried that if they crush reserves, and perhaps use other tools to raise interest rates (like perhaps artificially set rates on government bonds), you'll kill investment since the interest costs go up. But, I would argue that lowering rates isn't going to increase the pool of credit-worthy customers. Increasing the rates might decrease that pool, but it may also give the financial sector more valuable(higher profit) assets.

"You said that the government doesn't need to issue debt. But in the real world today it clearly does."

I hope I clarified this, above.

"politicians will overspend, and in order to fund the overspending they must borrow. The alternative is raising taxes, and since the livestock doesn't like that politicians avoid this funding method in favor of borrowing."

If government really does "overspend", this will cause inflation. As much as they need to destroy that inflation, they don't need to borrow, they need to tax. Taxation takes money out of deposit accounts, which would have been spent, and directly influences inflation; borrowing CAN take money out of deposits if issues to the public, but when issues to the central banks, borrowing simply reduces reserves.

"Eventually, as the borrowing grew lenders would demand higher and higher interest rates"

A real-world counter point to this, might be that government borrowing has exploded since 2007, and interest rates have only gone south. Higher interest rates, at face, would likely attract more investors. It is just that higher rates usually come because of a decrease in the attractiveness of the underlying asset. Just to clarify.

"But as long as the Fed is there to pick up the slack with new money created out of thin air, politicians can continue to overspend until something happens to stop the process."

Look, if this is true, then why wouldn't people make investments knowing that only this new money creation is funding government borrowing? Why do they seem to be unworried about something "stopping" the process?

"taxed via the inflation tax"

1) Inflation is like, what, 1.5%?
2) Inflation is typically covered by wage growth.
3) Inflation lowers the debt burden.

Plan for eliminating the national debt in 10-20 years:

Overview: http://rolexian.wordpress.com/2010/09/12/my-plan-for-reducin...

Specific cuts; defense spending: http://rolexian.wordpress.com/2011/01/03/more-detailed-look-a

As you can see, the QE has a

As you can see, the QE has a tangential effect on the money creation process.

It's more than tangential. The government sells debt, some of it to the banks. When the banks sell the debt they bought from the government to the Fed, the Fed pays the banks with money created out of thin air.

You can argue that it's the act of the government spending the money paid to them by the banks for the debt that actually creates money, but the fact is that the Fed is the critical player in this process without which new money would not be created. The Fed seeding banks with this new money then enables banks (via the fractional reserve process) to potentially increase the money supply even further. It is this potential (represented by the Fed's bloated balance sheet, more than triple what it was at the start of the crisis) that concerns guys like Sinclair and Schiff, and me as well.

If short-term rates get too low, THEN you have the fear of bad credit being created.

Bad credit is being created right now due to too low interest rates, in the form of leveraged asset purchases. Higher asset prices is one of the Fed's goals, and they're achieving it, but what happens every time they even hint at tapering QE? The market drops. So they appear to be trapped. If they taper the market drops, damaging consumer psychology and the potential for spending that the Fed so desperately wants. But if they continue QE and the market continues to move higher and higher there's the risk that they are building a massive asset bubble, a tower built on a shaky foundation, and the higher it goes the greater the damage when the process stops.

"Eventually, as the borrowing grew lenders would demand higher and higher interest rates"

A real-world counter point to this, might be that government borrowing has exploded since 2007, and interest rates have only gone south.

Yep, exactly. Thanks to the Fed's massive QE.

"But as long as the Fed is there to pick up the slack with new money created out of thin air, politicians can continue to overspend until something happens to stop the process."

Look, if this is true, then why wouldn't people make investments knowing that only this new money creation is funding government borrowing? Why do they seem to be unworried about something "stopping" the process?

Depends on whom you mean when you refer to "people". People like Sinclair and Schiff (and me) DO make investments based on the concern that the process will stop at some point. Other people might not because they don't understand what's happening, or because, like you, they discount the risk.

But the troubling thing is that there ARE increasing signs that others, even other sovereign US debt holders are also beginning to worry.

You really should watch the video.

Never trouble trouble til trouble troubles you. Fortune Cookie