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A 3 minute synopsis of the interview with Jim Rickards, author of Currency Wars: The Making of the Next Global Crisis and the forthcoming book The Death of Money: The Coming Collapse of the International Monetary System, by Erin Ade from RT Boom Bust
This is what Jim’s been saying for three years —
In December 2013 when the FED tapered, Jim wrote a few op eds and said to look out for the recession of 2014. He said the FED was tapering into weakness.
He doesn’t have a crytal ball, he just took the FED at their word.
The FED said that tapering (the reduction of asset purchasing, which is a form of monetary tightening) was data dependant.
But they didn’t live up to their own criteria.
If you look at December, growth was a little bit higher in the third and fourth quarters. Since then that’s been revised downwards (which was not a surprise).
They also said that the other two metrics were inflation and employment.
The unemployment rate was coming down, but the employment situtaion was not good. Labour force participation was collapsing. The number of people working in the US is no higher than iit was fourteen years ago.
So there’s no growth in employment.
And inflation is way below the FED’s target.
So just looking at their own criterea, they should not have tapered in December. They did.
They based it on a forecast, and the FED has the worst forecasting record of any major economic institution.
So when Jim heard the FED say they thought things would get better, it’s a pretty good sign that things are going to get worse.
We’ll have a recession this year.
In Europe, you go back three years and you had people running around with their hair on fire saying the euro was collapsing, Greece was going to get kicked out, Spain was going to quit, there would be a northern tier and a southern tier, and Jim said three years ago that it was all nonsense.
He said the euro would hang together, they would add members (which they have), and that the euro was strong and getting stronger.
That’s exactly the way it’s played out.
The reason is that all the major areas — Europe, the United States, Japan and China — all have to make structural adjustments.
We have a structural depression in the world. You cannot solve a structural problem with monetary solutions, which everyone is trying to do.
The only one who has made the structural changes is Europe. Things like labour mobility, fiscal policy, and getting their houses in order.
As a result they’re beginning to get capital influence, largely from China, because China is full up on dollars. They don’t want any more US dollars and they’re starting to invest in euros.
Jim has been bullish on the euro for years and it’s played out.
He’s been very bearish on the US economy and that’s also playing out.
THE WEAK LINK IN THE US ECONOMY
The weak link is structural: a basket of public policy. It’s not monetary.
If printing money can fix the problem then the economy would have been growing robustly a couple of years ago.
That’s what the FED expected, but it hasn’t happened because we have a structural problem and not a liquidity problem.
Structural solutions are fiscal policy like lowering taxes, eliminating the corporate income tax, eliminating taxes on overseas earnings, lowering individual income tax, getting rid of capital gains taxes, improving the education system, and building the Keystone pipeline.
These aren’t monetary issues, they are fiscal policy issues. and a package of those policies would see the economy take off.
Europe is going to head higher for a number of reasons.
1. If the structural problems are solved then they can add to the labour force.
There’s a group of college educated adults who don’t have jobs and are living at home with their parents. They will take an entry level position, with training and advancement, at a world competitive wage.
2. Europe has capital inflows.
3. They are unifying their fiscal policy and banking policy.
This is in the works and you can see it coming.
At that point a eurozone backed bond would be in a position to displace the US dollar as the global reserve currency.
Jim doesn’t think deflation is over in Japan because their problems are structural.
Japan, as well as the United States, are both experiencing inflation and deflation at the same time.
Deflation is the natural consequence of a depression, which the world has been in. On the other hand you have money printing, which is typically inflationary.
They are evenly matched.
We could have a very quick deflation or if there’s a psychological change and an increase of the velocity of money, then inflation could quickly spin out of control, like in the 1970s.
It could go either way.
Japan isn’t having the inflation because the deflationary force is so strong.
The US has made the same mistakes as Japan did, by propping up the banks and keeping assets on the balance sheet that should have been written off. If they didn’t then new restructured banks could started up with clean balance sheets and we could grow from there.
The US has repeated the mistakes of Japan in the 1990s and it’s no surprise we’re not growing very well.
Another Week on Wall Street
words and music Elaine Diane Taylor
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