3 Min. Gold News – Jim Rickards – Everything Financial – Nov. 3, 2013

3 Minute Gold News

A Quick Read for Busy People

A 3 minute synopsis of the recent interview with Jim Rickards, best selling author of Currency Wars and Senior Managing Director at Tangent Capital, by Dennis Tubbergen of  Everything Financial Radio.

Topics:

Will the FED Ever Taper EQ
What Should Listeners Do?
Currency
Gold Market Manipulation

Jim Rickards

Everything Financial Radio
Interview with Jim Rickards
November 3, 2013

WILL THE FED EVER TAPER EQ

Jim said all summer and in the days leading up to the so called “Tapering Announcement” that the FED would not taper QE, meaning they would not reduce asset purchases, and would maintain them at $85 billion per month.

Jim based that on the FED’s own comments in May, when Ben Bernanke first said they were going to reduce asset purchases (taper) if the economy grows in accordance to their forecast.

The FED’s forecasting is always wrong by a lot.

If you look at dozens of speeches and remarks and interviews and testimony of senior FED officials, some more dovish than others, that it was all data dependent.

The last bits of data before the tapering decision were far weaker than the forecast and therefore Jim said they would not taper. If they had tapered they would have been tapering into weakness and we’d be heading straight for a recession today.

We have another decision coming up in a matter of days. They’re not going to taper for the rest of the year. Partly because of the weakness induced by the government shutdown, the debt ceiling debate, and all that.

Maybe they’ll taper some day. Jim expects that if they change their asset purchase policy in the next year it will be to increase asset purchases and not decrease them.

The easing might not ever end. We have a Gordian Knot but the FED tied the knot themselves.

They painted themselves into a corner but they were the ones doing the painting.

There are no good options.

If they taper:

They could taper, but they’ve tapered before. We had QE1 and QE2, we’re now in QE3.  They ended QE1, 100% taper, and they ended QE2, also 100% taper, and both times the economy went into a funk. Base money supply stopped expanding, the stock market went down, and the market screamed for relief. Both times they had to start a new QE program.

So the history of this is that when they taper the economy falls apart.

A lot of people talk about inflation, and Jim believes that’s a legitimate concern, but that the FED should be more worried about deflation.

Jim believes we’re very close to deflation. We’re not quite in it the way Japan was, but we’re getting close. That’s a dangerous state of affairs and might be a continuation of a depression.

If they don’t taper:

If they keep printing they risk creating asset bubbles, and creating a stock market crash, and banks are doing everything possible to do rinky dink asset swaps called off balance sheet transactions. We’re building up more systemic risk.

We’ll probably get a financial panic worse than 2008.

So you can taper and get something that looks like a depression or you can keep printing and get something that looks like a financial panic.

Jim doesn’t see a middle path – a little bit of tapering and a little bit of printing. That’s not a feasible path.

So we’re going to get a train wreck. We just don’t know whether it’s a deflationary train wreck, or hyperinflation with a market crash and an asset bubble collapse.

They have no good options but it’s their own fault.

WHAT SHOULD LISTENERS DO?

Jim talks about this in his book Currency Wars. He has some troubling scenarios on FED policy, but what he tells the readers is that maybe you can’t save the system, but you can save your net worth.

Jim recommends physical gold for 10 – 20% gold in your portfolio. Don’t buy old gold or antique coins, unless it’s from the Roman Empire, just buy American Gold Eagles straight from the US Mint or a reputable dealer.

He recommends you don’t go all in for gold, but if we have a disaster anything like what he expects then gold will perform very well. That will give you insurance on the rest of your portfolio.

Jim also recommends fine art, and there are some good, well managed fine art funds. That has been Jim’s best performing asset in the last five years, next to gold. He also recommends land and cash. Cash gives you very good protection in deflation, which we can’t rule out. It also gives you good optionality, if you want to learn more as events unfold and then pivot into another asset class.

CURRENCY

The best currency in the world is the Euro. The Euro is strong and getting stronger.

The US dollar will be getting weaker because the FED wants it to be weaker. The reason for that is, we talked about the dangers of deflation, that means the FED has to cause inflation to offset the deflation.

There are a couple of ways to do that. You can cheapen your currency and that increases your import prices.

Everyone says that if you cheaper your currency that’ll help exports which is good for jobs and the economy. Sounds good but it’s actually not true. There’s no record of cheapening your currency to help exports – all you get is inflation, which is what the FED wants.

People forget that the US imports more than it exports.

So if you cheapen your currency then your exports are a little cheaper, but your imports are more expensive.

That’s exactly what the Treasury wants.

So look for the dollar to get weaker. Look for the Euro to get stronger. Probably the yuan is going to get weaker as well. People who think the dollar is the best currency, the strongest currency, Jim thinks they don’t understand the problem.

Jim does not see a country, with the possible exception of the Euro which is not one country but seventeen countries going to a gold standard. The Euro zone together has 10,000 tonnes of gold and the US has 8,000 tonnes of gold.

Some people talk about the Chinese yuan, but that’s at least a decade away, maybe longer, and maybe never.

There is a currency out there that could replace the US dollar sooner rather than later and that’s the SDR.

SDR stands for Special Drawing Rights.

This is issued by the IMF, the International Monetary Fund.

The way to think about it is that the FED has a printing press, and they can print dollars. The Bank of Japan has a printing press and they can print yen. The IMF has a printing press also, and they can print these SDRs and hand them out to its members.

It’s completely unaccountable. No one elects the IMF. It’s just a group of Finance Ministers and heads of State. It is self perpetuated and self appointed beurocrats, if you will, but they can print this money.

They’re not new. They’ve been around since 1969.

Jim believes that before you see a gold backed currency you’ll see these SDRs try to move to center stage.

According to the IMF website they have a ten year plan, and Jim believes they would probably like to roll it out gradually over a ten year period, or longer.

But there will be a financial panic some time in the next three to five years that will be worse than what happened in 2008.

In 2008 there was an acute liquidity shortage and the FED reliquified the world. They didn’t just print money, trillions of dollars, they also have swap lines with other central banks, they trade currencies. The FED issued guarantees and did a lot of stuff to prop up the banks in the tens of trillions of dollars to keep the system liquid.

When there’s another financial panic a few years from now what’s the FED going to do?

The next time there’s a liquidity crisis it’s going to be bigger than the FED and bigger than the other central banks.

The only institution that can create money in a way that doesn’t exceed their capability, so to speak, is the IMF.

We’ll still have dollars, we won’t have SDRs in our pockets, but it will lose its reserve currency status and lose it’s significance in international balance of payments.

If the SDR fails then Jim believes we’ll go to a gold standard, but that it won’t be a country that creates a gold backed currency, but that it will be maybe a gold backed SDR administered by the IMF and the G20.

GOLD MARKET MANIPULATION

There’s no question that they are manipulated. The Central Bank operates through an institution in Switzerland, the Bank for International Settlements, BIS, which is the central bankers’ Central Bank.

All of the heads of the world’s central banks meet there once a month and talk about the financial system. That is where the BIS intervenes calling it policy. Jim calls it manipulation because they intervening secretly in the gold market.

It’s in the footnotes of the BIS financial statements.

In addition we’re seeing hedge funds manipulating the market. They use futures contracts, trading paper gold, and they’ll use the COMEX and wait until there’s five minutes left in the trading day and you dump the equivalent of 200 tonnes on the market. That’s a huge order and slams the price.

That is going on in the paper gold market, but if you look at the physical gold market there is a huge demand from all over the world, from small investors to the biggest investors in the world.

Russia has increased their gold reserves 70% in four years, from 600 to 1,000 tonnes.  China has increased their reserves by 300 – 400% in four years, from 1,000 tonnes to between 3,000 – 4,000 tonnes.

So while paper is being manipulated the physical gold is disappearing off the shelves.

Jim thinks it’s just a short time before the paper gold game ends and the price moves significantly higher. Jim believes it will eventually reach $7,000 per ounce.

……………………………………

Wag the Dog (Currency Crash and Drums of War)
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©2013 Intelligentsia Media Inc. All rights reserved.
SOCAN/ASCAP
available soon on iTunes

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

As featured in Episode 1 of bestselling author Mike Maloney’s documentary series – Hidden Secrets of Money

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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

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3 thoughts on “3 Min. Gold News – Jim Rickards – Everything Financial – Nov. 3, 2013

  1. Pingback: The Küle Library

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