3 Min. Gold News – Jim Rickards – Max Keiser Interview – Sept. 14, 2013

3 Minute Gold News

A Quick Read for Busy People

3 minute synopsis of a recent video interview with Jim Rickards, author of Currency Wars, senior managing director at Omnis, with Max Keiser of http://www.maxkeiser.com

This interview is packed with specific examples from both Max Keiser and Jim Rickards, and I recommend watching the whole Keiser Report episode, with Max Keiser, Stacy Herbert and Jim Rickards as their guest.

Topics:

Federal Reserves Policy Affecting Emerging Markets

No Anchor in the Financial System

Petro Dollar History

Return to a Gold Standard?

A New Coming Financial Collapse Bigger than 2008

QE1, QE2 and QE3

The Bond Market

Taper

Gold

……………………………………..

Jim Rickards

Max Keiser Interview
September 14, 2013

Interview begins at 12:17

Federal Reserve Policy Affecting Emerging Markets

Jim is just back from safari in Africa, and says that bankers are more dangerous than rhinos because rhinos can only charge one person at a time, where bankers can take out entire countries and populations.

The FED relationship to the BRIC and emerging markets is like a drunk driver who runs down pedestrians and then blames the pedestrians for being in the way. Jim was in South Africa to attend an investment conference where he met the top institutional investors in the country, some of the wealthiest individuals, and government officials, and said you find out what their opinion is on what the FED is doing to the entire world.

The FED officials, reserve bank governors, say they know what is going on in the emerging markets but that they do not care. The FED says that it’s their job to take care of the United States economy and the rest of the world is on its own.

Jim believes that when you are manipulating every market in the entire world then you cannot be so careless about it. They are like a drunk driver running everyone else off the road. A lot of these markets are not that big, relative even to Europe.

When the FED calls interest rates down to zero, everyone wants to do the carry trade. They borrow dollars, then buy the local currency, invest in foreign assets, make a spread, leverage it up, and make a lot of money.

Well, as soon as the FED hints that they are going to raise interest rates, so called tapering, then everyone unwinds the carry trade. So they are now just massively dumping assets in Indonesia, Malaysia, Singapore, South Africa and elsewhere, dumping the currencies.

South Africa has seen their currency go from 8 to the dollar to almost 11 to the dollar in a matter of weeks. This is incredibly disruptive and damaging to them. The FED just says, “It’s your problem. You’ve got central banks so set your own policy.”.

So, is South Africa supposed to raise interest rates when their unemployment is sky high?

No Anchor in the Financial System

Jim believes the problem is that there is no anchor in the financial system right now.

From 1870 to 2010 we either had a gold standard, or from 1980 to 2010 we had a dollar standard (not as good as a gold standard but at least a standard).

Since 2010 we’ve had no standard. So everyone is adrift, and Jim doesn’t think the FED can be so dismissive of these markets.

The Petro Dollar History

The gold standard was abandoned in 1971 and between ’71 – ’79 we really had a period of chaos. They didn’t know if we should have fixed rates or floating rates, or go back to gold. The U.S. was disparaging gold and actively dumping gold and insisting on a dollar standard.

The Arabs were very worried, so Henry Kissinger cut a deal where the Arabs agreed to sell their oil in exchange for dollars, and the U.S. agreed to maintain the value of the dollar.

That agreement was backed by FED chairman Paul Volcker, and Ronald Reagan, carried through both the Republican and Democrat administrations, by Bush, by James Baker, Robert Rubin, and Bill Clinton.

So it was going to be a “King Dollar” period. It wasn’t a gold standard, but a dollar standard, and that worked fairly well from 1980 to 2010.

But in 2010, Obama, Geithner and Bernanke tore up the dollar standard. They decided they wanted to cheapen the dollar, import inflation, cut interest rates, and everyone else was on their own.

So there was now no standard at all and a new period of chaos.

So the deal with the Arabs had been torn up. America was not going to maintain the value of the dollar. The Arabs wanted to know what they were going to get for their oil. Paper money that the U.S. says it’s going to cheapen?

Now the Arabs are exploring a lot of alternatives. The GCC, a cooperation inside the Persian Gulf, may create a common currency. Europe is creating a Ruble zone. You’re seeing the emergence of regional reserve currencies.

Korea, Japan and China, despite all the tension around the islands, are seeing their three way trade exploding, and they are starting to accept each others currencies. The BRIC, led by Putin, are going their own way.

So what we’re seeing is the slow diminution in the role of the dollar. It won’t be overnight or immediate.

It’s kind of like U.S. foreign policy, if the U.S. does not care, If the U.S. is not in charge, then nobody is in charge and we are seeing that play out in Syria. Same thing with the dollar.

If the dollar is not the global reserve currency then we have jump ball. You don’t know what you’re going to get.

Return to a Gold Standard?

Jim sees a return to a gold standard as a possibility but not in the immediate future.

He believes there has to be a collapse of the dollar first, as a collapse of the Petro Dollar deal. Then it will have to be replaced with something. Jim believes that will either be the SDR, Special Drawing Rights, which is the IMF world money, or gold, or some combination of the two, but it remains to be seen.

A New Coming Financial Collapse Bigger than 2008

The dollar standard is definitely collapsing. The United States is abandoning the dollar standard. It’s not that we’re under attack, we are abandoning it ourselves.

Jim says a collapse is definitely coming because there have been no structural reforms or changes.

He also believes it will be bigger than 2008.

We heard that the banks were too big to fail, but now the five biggest banks are bigger today. They have a larger concentration of all bank assets, their derivitive books are larger, the leverage is larger, we have new bubbles coming up, such as student loans. We don’t have sub-prime mortgages anymore but the student loan market is over a trillion dollars and is an accident waiting to happen. So the conditions are there.

Here’s the difference between the last collapse and the coming collapse: not only will it be bigger, but it will be bigger than the FED.

The last time the FED bailed it out. Now they have taken their balance sheet from 800 billion to over 3.2 trillion in the last four years. We haven’t had a crisis since 2009. There’s no shortage of liquidity, and yet they’ve taken their balance sheet over 3 trillion without a liquidity crisis.

What are they going to do if they have a liquidity crisis which Jim expects? They can’t take it to 6 trillion. They are at the limit.

The FED is technically insolvent on a mark to market basis.

The only clean balance sheet in the world is the IMF, International Monetary Fund. So when this crisis happens the only way you can re-liquify the world is by printing SDRs (Special Drawing Rights).

QE1, QE2 and QE3

Jim believes that QE1 was the legitimate role of a Central Bank. When there’s a liquidity crisis you’re supposed to provide liquidity, according to the description of a central bank going back to the 19th century. The FED didn’t do it the right way, but they were right to provide liquidity.

But once QE1 was over it was not about liquidity anymore.

QE2 was about propping up GDP because financial velocity was imploding. That’s micro-managing the economy and that’s not the FED’s job.

QE2 and QE3 were completely wasteful.

Jim believes we will look back and see it as the greatest failed experiment in history.

So now with a balance sheet of 3.2 trillion what will they do if there is a new liquidity crisis?

Jim believes that though there may not be a legal limit to the FED balance sheet there is a political limit and a practical limit.

Bank of England and Bank of Japan are no better, and the People’s Bank of China has printed more money than the FED. So the only place there will be new money printing is from the IMF.

The Bond Market

The FED is manipulating everything so it’s hard to look at history and see how it’s going to play out now.

There is such a thing as an expanding market with expanding credit, more demand for loans, and interest rates should go up. That is a normal cycle of good expansion. That’s not what we’re seeing. Japan and China are buying less U.S. securities and the FED may taper, which would tend to increase interest rates.

Jim says that while he spends time saying what the FED wants, just because you want something doesn’t mean you get it.

The FED wants either really low real rates or even negative rates. They want a situation where inflation is higher than the 10 year bonds. What’s been happening is the opposite.

Nominal rates are going up and inflation is going down, which means real rates are getting higher. This kills the economy.

Tapering

Jim’s view is that the FED won’t taper but that it is a really close call.

He believes there is financial repression going on and that the banks are captive buyers of the treasury.

Gold

Jim is definitely still bullish on gold. His call is that it will be $7,000 per ounce or higher.

……………………………………

Another Week on Wall Street
words and music Elaine Diane Taylor
© 2013 Intelligentsia Media Inc. All rights reserved.
SOCAN/ASCAP
from the album Coins and Crowns

Another Week on Wall Street

See the bankers wave the Wall Street wands
See the conjured piles of paper green
Now they’re betting all their tricks go wrong
They’re betting the world as you know it
If they win
You lose the whole world as you know it

Ever seen a long con?
Ever seen a tampered wand?
Ever seen the betters sipping tea?
Making bets just sipping tea
Well don’t talk back
Your betters
Your bankers are having a tee, hee, hee

Heyo heyo, just another week on Wall Street
Heyo heyo  just another week on Wall Street

A little grease (Greece) is floating out to sea
Little PIGS (Portugal, Italy, Greece, Spain) are bobbing up and down
So send a storm and we’ll see
when the tide goes out who’s naked on the beach

Ever seen a long con?
Ever seen a tampered wand?
Ever seen the betters sipping tea?
Making bets just sipping tea
Well don’t talk back
Your betters
Your bankers are having a tea, hee, hee

Heyo heyo, just another week on Wall Street
Heyo heyo  just another week on Wall Street

Who’s that wizard hiding behind that hedge?
Who’s that wizard hiding behind that hedge (fund)?

See the bankers wave the Wall Street wands
See the conjured piles of paper green
Now they’re betting all their tricks go wrong
They’re betting the world as you know it
If they win
You lose the whole damn world as you know it

Ever seen a long con?
Ever seen a tampered wand?
Ever seen the betters sipping tea?
Making bets just sipping tea
Well don’t talk back
Your betters
Your bankers are having a tea, hee, hee

Heyo heyo, just another week on Wall Street
Heyo heyo  just another week on Wall Street

4 thoughts on “3 Min. Gold News – Jim Rickards – Max Keiser Interview – Sept. 14, 2013

  1. Pingback: Federal Reserve Policy Affecting Emerging Markets | Money

  2. Pingback: Federal Reserve Policy Affecting Emerging Markets « Libertarian Investors

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