3 Min. Gold News – Jim Rickards – Keiser Report – Nov. 19, 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 Tangent Management Partners LLC, with Max Keiser of the Keiser Report.

I recommend watching the whole Keiser Report episode with Max Keiser and Stacy Herbert, and Jim Rickards as their guest.

Topics:

Federal Reserve Profit
No Economic Recovery
Housing Prices
Fine Art Market
Gold
Bernanke vs. Yellen
Iran and Saudi Arabia
Currency Wars

Jim Rickards

Max Keiser Interview
November 19, 2013

Interview begins at 12:24

FEDERAL RESERVE

The Central Banks in the US, the UK and Europe did not have to pay out $1.6 trillion because of artifically low interest rates. What this means is that each of these countries issues debt. The question is who buys it.

In a normal market investors buy it.

In today’s markets the Central Banks buy it to a great extent. But when they buy it they own the bonds and they earn interest on the bonds.

So they have zero cost of funds because they’re issuing currency that pays no interest. And they’re making money on the asset side because they buy the bonds.

So they make very large profits, at least with regard to the FED, the FED gives that money to the Treasury, so they get low interest rates, which reduces the government’s cost of borrowing, and then they get a dividend from the FED every year which helps to reduce the budget deficit.

Jim compares it to two drunks leaning on each other so neither one falls down.

What’s happening though, because of the taper talk and interest rates going up, is that if you looked at the FED’s assets as if it were a hedge fund (and it kind of is like a bad hedge fund), and if you marked it to market, then the FED would be insolvent today.

It would wipe out their capital. They’re leveraged almost 100 to 1 at this point and a very small decrease in the asset value would wipe out the capital.

So now they’re getting closer to the point where they’re not going to be able to pay these dividends over to the Treasury without becoming insolvent. That will make the US budget deficit worse.

The same phenomenon in Japan and the UK.

NO ECONOMIC RECOVERY

Real wages are going down and the cost of living is going up. If wages are flat, in real terms you’re worse off, and if wages are going down then you’re much worse off.

There is no recovery.

Mark Carney made a comment about “Maybe we’ll raise interest rates in 2015”. in the computer business you have something called vaporware. That’s when you make an announcement but there’s no ‘there’ there- there’s no substance behind it. This is the Central Bank equivalent of ‘vaporware‘.

What does Carney know about where employment’s going to be in two years? All the Central Banks are just experimenting. We’re just guinea pigs in their experiment.

The idea that he can talk about where employment is going to be in two years is nonsense.

HOUSING PRICES

We have duel asset bubbles in stocks and housing.

When they say rising housing prices are supporting a recovery, well it’s the Central Bank money printing that’s supporting the housing prices. That’s not fundamental; it’s just another bubble. It will come back down to earth at some point.

No one knows exactly when but late 2014 or early 2015 – it’s just another bubble.

If prices are going up and interest rates are going up, and I have to borrow more, how does that support consumption?

People are ‘over borrowed’ to begin with. They are trying to deleverage, they not running out to bid up the price of houses.

Now, at the high end they are. But that’s not the real economy.

The way you grow is with investment. Consumption should follow investment. So you make a smart investment, you add productivity, you create value, and that’s how an economy grows.

From that you get higher real wages and consumption.

The Central Bankers have it backwards. They’re trying to recreate the lending and spending, Debt and Consumption Model, but there’s nothing to support it except money printing.

FINE ART MARKET

Fine art has intrinsic value that doesn’t really change. People are paying higher and higher dollar prices for art, but the fine art market is not going up, the dollar is going down. So we pay more dollars for our art.

In the US, one hundred year old family money is the ‘old money’. When you come to Europe these dynastic fortunes are two, three or four hundred years old.

When you ask people who have that kind of wealth how they survived the Thirty Years War, Napoleon and Louis IV, they say, “A third, a third, a third”. One-third gold, one-third land, and one-third fine art.

So when they’re burning down the village ten miles away you take your art off the wall, you put your gold in a bag, you ride away, you come back ten years later, you put your gold back, put your art back on the wall, and you should be able to get back title to your land.

That’s how you preserve wealth in the long run.

So at a time when currencies are destablized, and Central Banks are trashing currencies, gold should be a part of the portfolio, but art should be also.

Central banks care about gold but they don’t care about art.

The rising prices in fine art is not trickling down to the gold market because the FED doesn’t care about art.

Ben Bernanke doesn’t wake up in the morning and say, “Gee, I’ve really got to crush the art market today.” He just doesn’t care.

That’s the same with other collectibles and other hard assets.

GOLD

But the FED cares a lot about gold.

Gold is money. Gold is a reserve asset. It was officially demonetized in 1973, but thanks to the French who rejected to the US position, it was never completely eliminated from the international monetary system.

This is why China is aquiring thousands of tonnes, why Russia has increased its gold reserves by 70% in the last four years. They know that when the international monetary system collapses, which it will, (it’s collapsed three times in the past hundred years – 1917, 1939 and 1971), it’s not the end of the world.

The next time it happens it means that the major trading and financial powers have to come together and reform the system. They’re going to sit down at the table.

It’s like a game of Texas Hold’em – how big is your pile of chips?  Gold are the chips. That’s why China is acquiring it.

China has purchased several thousand tonnes in the last four years. Are they dopes? Or do they know something most people don’t?

Jim would say they’re not dopes.

BERNANKE VS YELLEN

Yellen is more hard shell, inflexible and more ideologically driven, than Bernanke. She’s more model based, academically driven, impervious to the real world, and she’s going to print more money.

She’ll look at her models no matter what the market is doing. Most Keynesians do. In theory it works fine, but not in the real world. Neither does her brand of monetarism or her brand of monetary ease.

She wouldn’t say “Let them eat iPads.”, of course. But watch her behaviour and listen to her speeches. Look at her academic papers, look at the people who are supporting her. She is fearless when it comes to money printing.

Bernanke pursued the Stop-Go policy. People talk about tapering but the FED has tapered twice already. They had a 100% taper at the end of QE1, and 100% taper at the end of QE 2. It failed both times. So we know tapering doesn’t work.

Yellen doesn’t want to do Stop-Go. It’s just going to be Go-Go.

IRAN AND SAUDI ARABIA

A minority party in Russia introduced a bill banning the holding of US dollars in private hands, but it probably won’t be passed into law. This could undermine faith in the US dollar.

Jim calls it “straws in the wind”. If you’re a legislator why would you do this unless there was some genuine concern.

The much bigger play going on in the world is that Saudi Arabia feels that the United States has betrayed them. President Obama is very close to anointing Iran as the regional hegemon of the Middle East. Jim recently spoke to an expert who is very plugged into the negotiations.

This would be the end of the Petro Dollar deal –  where they take our dollars and we provide their security. Obviously we’re undermining their security by promoting Iran.

So there’s an emerging alliance among, of all people, Saudi Arabia, Egypt, Israel and Russia. Together their interests would not favour the dollar. It would favour their security and the security of Israel.

It’s an interesting allignment. The US is withdrawing. There won’t be a vacuum in the Middle East, it will be filled by these new alliances.

CURRENCY WARS BOOK IMPACT

Jim was the first one, in 2011 in his book Currency Wars, who said that the FED might confiscate the gold belonging to other countries in New York.

Since then we’ve seen Germany and others withdraw their gold.

Jim thinks he might have contributed to starting the debate of “Hey, Where’s our Gold?”.

There’s been cooperation between the emerging alliance but it’s becoming more solidified. If the US deals, so called, we’re going to unfreeze $50 billion and we’re going to let Iran ship oil and get paid in US dollars. Right now they can ship oil all they want but they cannot get paid in dollars or euros. Suddenly they’re going to be allowed back into the international monetary system. This is going to put downward pressure on the price of oil. They’ll be selling oil and getting paid in US dollars. And Iran is going to be using the dollars to support their nuclearization program.

The time of the Petro Dollar is in the process of falling apart. Once Saudi Arabia decides that the US doesn’t have their back, then what interest does Saudi Arabia have in supporting the US dollar?

Jim isn’t saying this happens overnight. These are “straws in the wind” – the emerging GCC, Gulf Central Bank, creating their own currency, perhaps pricing oil in that currency, perhaps the rise of the SDR, perhaps a regional Ruble reserve currency in the Russian periphery.  There’s a North East Asian region and a lot of regional things emerging. The BRICs are doing a lot of things.

Jim isn’t saying that any one of these things eliminates the dollar overnight. He’s saying that they all point in the same direction over a matter of years to the diminution of the US dollar as the global reserve currency.

NEW BOOK

Jim’s new book, The Death of Money – The Coming Collapse of the Monetary System., comes out April 8, 2014. Available for pre-order now .

…………………………………..

Another Week on Wall Street (Crash the Banks version)
words and music Elaine Diane Taylor
© Intelligentsia Media Inc. All rights reserved.
SOCAN/ASCAP
single available on iTunes

……………………………………

Another Week on Wall Street
words and music Elaine Diane Taylor
© 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

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