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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 Lelde Smits of Finance News Network
Currency Wars and The Death of Money
Collapse of the International Monetary System
Signs of Less Confidence
How it Will Unfold
When it’s Likely to Unfold
FED’S Next Moves
Finance News Network
Interview with Jim Rickards
April 2, 2014
CURRENCY WARS AND THE DEATH OF MONEY
The Death of Money is a prequel and a sequel to Currency Wars.
Currency Wars opened with a couple of chapters about the first financial war game conducted by the Pentagon.
There’s a geopolitical aspect to it. They did it at a top secret laboratory outside of Washington.
They had a Russia team and a China team, and they played it out over a couple of days.
The Death of Money tells the back story of Jim’s involvement with national security matters prior to 2009 — that’s the prequel.
The sequel is to take the story of Currency Wars forward into what he expects to be the collapse of the international monetary system.
COLLAPSE OF THE INTERNATIONAL MONETARY SYSTEM
The international monetary system has collapsed three times in the past one hundreds years — so it’s not meant as a scary statement.
It collapsed in 1914, in 1939, and again in 1971.
It happens every thirty or forty years, and you can see another one happening now.
Jim wants to warn people about it.
You’re not helpless. There are things you can do in your portfolio today that will help you weather the storm.
The Death of Money talks about how it’s likely to fall apart, what’s likely to come next, and how investors can survive it.
The catalyst will be a simultaneous or instantaneous loss of confidence in paper money.
Paper currency, U.S. dollars or Australian dollars, are not backed by anything — except one thing — confidence.
Confidence is fragile. If it’s abused or lost then that’s the end of the system.
People will not want the money, they will want hard assets.
SIGNS OF LESS CONFIDENCE
One place showing a sign of less confidence is Saudi Arabia.
The U.S. has stabbed Saudi Arabia in the back by cozying up to Iran, and saying Iran will now be the regional power.
Saudi Arabia has been a big prop under the U.S. dollar as the world’s reserve currency. They say oil has to be priced in U.S. dollars.
What if they change it to Euros? Or Yuan?
Another sign is that Putin has said he wants to turn his back on the U.S. dollar.
Another is that the Chinese are buying gold.
When you look around the world you see all these threats to the U.S. dollar.
HOW IT WILL UNFOLD
The next collapse will be like nothing in history because it will be bigger than all the collapses in history.
There’s a scientific bases for this. When you increase the scale of a system, let’s say you triple the size of the system, you don’t triple the risk. You increase it by a factor of ten or one hundred.
This is not well understood and policy makers don’t think about it this way.
They look at longs and shorts, and look at the net risk.
Jim says you should look at the gross risk and understand the exponential relationship.
So, because the system is bigger the collapse will be exponentially bigger. And we won’t have any experience with it.
WHEN IT’S LIKELY TO UNFOLD
We won’t know exactly when.
Jim jokes that friends ask him to call the day before, so they can sell their stocks and buy gold. Haha.
He says it’s like an avalanche. You can see the snow building up. You know it’s going to collapse. You don’t know exactly when.
Jim’s advice? Don’t ski there.
Whether it’s tomorrow, or next year, or two years from now, it’s still dangerous.
You need to prepare for that and keep away.
Jim says that three to five years feels about the right time frame to him.
He doesn’t think we’re going to make it ten years — too much instability.
Financial panics happen so frequently: ’87, ’94, ’98, 2000, 2007, 2008. We can see the tempo.
We also know the next one will be bigger than any one before because the system is bigger.
The combination of the increased tempo and the increased scale tells Jim that we’ll have a major financial panic, probably within three years.
FEDERAL RESERVE’S NEXT MOVES
The FED tapered in December 2009, meaning a little less money printing. They’re still printing a lot of money, just less.
That was a blunder.
We’ll possibly have a recession in the U.S. this year.
Janet Yellen will realize it was a mistake by the summer, so Jim expects they will pause then, and not increase the tapering — they’ll still print money, but they will stop decreasing the amount they print.
Maybe later this year they’ll actually increase the money printing, which is consistent with their thesis that they think they can print unlimited amounts.
They’re going to find out the hard way that they cannot.
Another Week on Wall Street
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