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3 minute synopsis of a recent video interview with Jim Rickards, author of Currency Wars, Senior Managing Director at Omnis, by Lauren Lyster from Yahoo! Finance – The Daily Ticker
We’re in a Depression
Yahoo! Finance – The Daily Ticker
Interview with Jim Rickards
October 10, 2013
Jim believes Janet Yellen will be different than Ben Bernanke. She is more of a hard shell believer in the benefits of monetary easing (QE).
Certainly Bernanke believed in QE. He looked at the Great Depression and said the FED blundered and we need to print money,
But Bernanke has been very stop-go. The FED ended QE1, they started QE2, then ended QE2, then they started QE3 fifteen months later. So it’s been on again off again.
Janet Yellen is more likely to say, “You know what? We need to print money. We’ve got to have some goals, and we’re going to keep printing money until we hit those goals.” Just like Mark Carney at the Bank of England is doing.
What if it turns out that there is no relation between money printing and unemployment? Everyone assumes that’s the case, but unemployment is a structural problem.
WE’RE IN A DEPRESSION
We’re in a depression and depressions are structural.
We’ve had four years of zero rates and zero rates as far as the eye can see. The labour force participation is declining, and growth has been anemic.
A lot of people don’t know what a depression is, and they think it’s a continuous decline in GDP. That’s not the definition. The definition of a depression is a long sustained period of below trend growth.
It’s the gap between the 3% – 4% trend and 1% – 2% actual growth that keeps getting larger and you never make that gap up. You may get up to trend but you never make up that gap.
You can have recessions in a depression.
Jim expects a recession next year.
This recovery is four years old. We’re almost at the end of normal cyclical recovery anyways, and we have government shutdown, less government spending, and lower labour force participation,
How many people are productive and how many of them are working?
Fewer and fewer people are working so Jim doesn’t see where the drivers of growth are coming from.
“Helicopter money” is the popular image of the FED going around in helicopters pushing money out. That’s not literally what happened, but there is a theory of “helicopter money”.
Here’s the problem:
Today the FED is printing money and trying to drive it through the banking system to get it to people to spend.
It’s not working because the banks are not doing their job.
People don’t want to borrow and banks don’t want to lend.
The idea of “helicopter money” is to take the bank out of the equation. Give the money straight to the people and get them to spend it. How do you do that? With tax cuts.
In other words, you need Congress to cut taxes, and the FED would whisper in the Treasury’s ear, “Don’t worry about the deficit. If it goes up from $700 billion to $1 trillion we’ll monetize it, we’ll keep a lid on rates, we’ve got your back. Go ahead and spend the money.”
So you cut Social Security taxes, maybe expand an income credit, and try to get the money to people with a high propensity to spend. The FED will then print the money. That’s the theory of “Helicopter Ben”.
This probably won’t work because when people get the money they are going to deleverage. They are going to pay student loans and pay home equity loans.
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from the album Coins and Crowns