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Is the Threat of U.S. Debt Default Serious?
Will the FED Ever Taper?
CBC News – The Lang & O’Leary Exchange
Interview with Jim Rickards
October 7, 2013
IS THE THREAT OF U.S. DEBT DEFAULT SERIOUS?
The threat of a US debt default should be taken seriously. A lot of disastrous things happen because people on two sides misunderstand each other.
A classic example is World War I. None of the crown heads wanted a world war but they got one because they misunderstood each others intentions. It’s not unlike what is happening in Washington right now.
Jim thinks the White House is trivializing the depth of feeling on the part of the conservative Republicans, about the fact that the US is going broke and needs to do something sooner rather than later.
It’s hard to get leadership when there’s 535 congress members and there’s no leadership coming from the White House. Economists think the White House will blink at some point, so we’re on a collision course.
Jim doesn’t see an easy way out, and believes the markets should take it seriously.
Gold simply moves inversely to the currency.
In July 2011 the US dollar reached an all time low, and gold reached an all time high in August 2011. That wasn’t a coincidence.
The dollar became stronger so gold went down. Gold is down 30% from its high.
Very recently, since September, the FED‘s decided not to taper, that has weakened the dollar and gold is back up again.
So it’s volatile and it moves around.
Central banks are buying. They’re not day traders. They’re buying it in anticipation of the long term decline of the US dollar, and they’re hedging their positions.
WILL THE FED EVER TAPER?
The quantitative easing will continue, not for the rest of our lifetimes, but until the US dollar collapses. Jim believes that will happen sooner rather than later.
We should expect the US dollar to go down, US inflation to go up, and gold to go up.
The US is in a depression and has been since 2007.
Depressions are structural problems and do not respond to cyclical or liquidity solutions.
The FED is trying to solve a structural problem with a cyclical solution. We need structural solutions that have to come from the Congress. Things like: fiscal policy and labour cost regulation.
Quantitative Easing will be seen as the greatest economic blunder in history.
The FED is working from a false set of assumptions. Who’s to say there’s any relation between quantitative easing (QE) and unemployment? There’s no experience, no data and no models because there’s never been QE before.
It’s not a victimless crime because there are $400 billion in transfers from savers to banks. Banks get zero cost funds but savers get zero on their savings.
So the pockets of everyday Americans are being picked and then handed over to the bankers and hedge funds. It’s actually the crime of the century.
10% – 20% of your total assets in gold, not 50% or 100%. Never go all in in any asset class.
Jim expects gold to go up to $7,000 per ounce over time.
So if you make five times your money on 20% of your asset portfolio then that gives you 100% insurance in your portfolio.
Fine art is doing extremely well. “Fine art behaves the way gold would behave if the Central Banks didn’t intervene.”
Land will do well.
There’s a place for cash. Jim says he may not have it for long, but it has good optionality, and it protects you against deflation.
Another Week on Wall Street
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from the album Coins and Crowns