3 Min. Gold News – Jim Rickards – CCTV America – Dec. 18, 2013

3 Minute Gold News

A Quick Read for Busy People

A 3 minute synopsis of the recent video interview with Jim Rickards, author of Currency Wars, Senior Managing Director at Tangent Capital, by CCTV America.

Topics:

Ben Bernanke’s Impact as FED Chair
QE 1, QE 2, QE 3 and Soon QE 4
The Role of the Federal Reserve
Impact of High Interest Rates
Tapering in 2014

Jim Rickards

CCTV America
Interview with Jim Rickards
December 18, 2013

BEN BERNANKE’S IMPACT AS FED CHAIR

Jim believes that Bernanke will go down in history as one of the worst chairmen of the FED, and the chairman who actually destroyed the Federal Reserve.

You have to give it time. It will take time to play out.

They should not have bailed out insolvent banks in 2008. They should have closed the insolvent banks, stripped out the bad assets, through IPO have clean banks, and get the economy moving again.

Asset prices should have been allowed to go lower so they could bounce back in a classic V pattern.

Instead Bernanke papered over it.

He trashed their balance sheet with $4 trillion in assets with very long durations, which means they are volatile.

The FED is probably insolvent on a mark-to-market basis. It is probably moving towards having a negative cash flow if they do this reverse repo they’ve been talking about.

Putting it all together, Jim thinks Bernanke has pretty much destroyed the institution.

If you could go back to 2009 and say to the chairman, “Mister Chairman, in 2014 you are going to have a $4 trillion balance sheet, no significant growth, and low nominal growth. Would you do it again?”. Jim doesn’t think he’d do it again.

QE 1, QE 2, QE 3 AND SOON QE 4

Jim gives Bernanke a partial credit for QE 1. Maybe a C – in a good school, in the sense that there was a liquidity crisis in late 2008, and there did need to be a liquidity flood from the FED.

But the classic school of Central Banking is:

– lend freely
– lend against good collateral
– lend to solvent banks

Bernanke did one of the three.

He lent freely, but it was not always good collateral (he got a lot of junk from Bear Stern), and they were not solvent banks.

Insolvent banks should have been shut down. By the way, the FED and Bernanke caused the crisis. So he’s like the guy who burns down your house and then shows up with the fire hose and says, “Let me put out the fire.”. Why does he get credit for that?

THE ROLE OF THE FEDERAL RESERVE

They should not be trying to manipulate every market in the world and they should not be central planners. That is what they are currently doing.

The FED should raise interest rates. Let’s reward savers. Why are we rewarding banks, hedge funds and oligarchs? We should be rewarding savers.

Right now there’s a $400 billion per year wealth transfer from everyday Americans to the oligarchs, to the Jamie Dimons and the Hedge Fund kings, in the form of zero interest rates.

So you’re an everyday American and you put your money in the bank and you get zero. On the banks’ side they’re paying zero, but they’re lending it out on a spread, leveraging it up and making enormous profits to pay themselves bonuses.

So we’re taking money from everyday Americans and giving it to the rich.

Income inequality in America is at an all time high. It’s now worse than Mexico.

When Jim was growing up Mexico was your classic oligarchical society, and today the US is worse.

Let’s drive the economy with savings and investment and not consumption and debt.

IMPACT OF HIGH INTEREST RATES

If you have negative real rates and inflation is higher than the real rate, then no matter how high the rate, as a borrower you are actually getting free money – the bank is paying you to borrow.

What will happen is the FED is actually trying to create inflation. It’s a scary thing when the Central Bank wants inflation and can’t get it. They’ve been trying since 2007.

Look at what they’ve done:

– cut rates
– QE 1, QE 2, QE 3
– currency wars
– forward guidance
– operation twist
– nominal GDP targeting

They’ve tried everything and it’s all failed. Inflation’s not taking off.

This shows you how powerful the deflation is. That’s their worst nightmare, and that’s why Jim expects them to keep printing.

TAPERING IN 2014

Jim does not expect them to taper tomorrow.

He does expect they will have to taper in 2014 because they are in the process of destroying the balance sheet and they have to stop somewhere.

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