3 Min. Gold News – Jim Rickards – Bloomberg – October 6, 2014

3 Minute Gold News

A Quick Read for Busy People

A 3 minute synopsis of the interview with Jim Rickards, New York Times bestselling author of The Death of Money, by Matt Miller and Olivia Sterns of Bloomberg TV.

Topics:

No Inflation Alarms
U.S. Economy is Weak
The World
Gold
Debt-to-GDP
QE 4 in 2015
FED in 2015
The Great Depression
Gold and China
Bitcoin

Jim Rickards

Bloomberg Interview Link

October 6, 2014

NO INFLATION ALARMS

Labour force participation is going down. What Janet Yellen is looking at is real wages.

Forget about the unemployment rate — that’s almost an artifact at this point because labour force participation is declining.

Yellen is concerned about inflation. She wants to have easy money to create jobs until she’s worries about inflation. What is she really looking at? She’s looking at real wages.

When real wages go up it means people can get a raise.

When people get a raise that’s when the inflation alarms go off.

Real wages are flat to down — actually down lately. So she’s not concerned at all.

She’s got so much slack, because labour force participation is down, real wages are going nowhere, and so she’s got no inflation concerns at all.

That means Jim doesn’t see them raising interest rates until 2015.

U.S. ECONOMY IS WEAK

Some of the issues are demographic and some of them are structural. It’s a little bit of both.

The important thing is that regardless of the cause the U.S. economy is weak.

50 million Americans on food stamps. 26 million Americans unemployed or underemployed. 11 million on disability, which in some cases is a new form of unemployment.

The economy is weak for structural reasons. Janet Yellen is trying to address the structural problem with a liquidity solution — it doesn’t work.

That’s why the FED forecast has been wrong by orders of magnitude five years in a row.

The IMF forecast has been wrong five years in a row also.

Madame Lagard was candid about it though, saying it’s getting boring and they’re wrong every year.

It’s because we’re in a Depression and not a cyclical recovery.

THE WORLD

The rest of the world is slowing down.

Japan fell off a cliff in the second quarter and China is slowing down, which is contributing to the Hong Kong situation.

It’s obvious the world is slowing down, but the idea that the U.S. is going to pull the world up is that lately the U.S. has had a strong dollar.

GOLD

Gold hasn’t changed much in value for 5,000 years.

If the U.S. dollar is your numeration, then when you say gold is up or down then Jim sees it as gold being constant and the dollar going up and down against it.

What we have is a strong dollar right now.

The U.S. is bearing the entire cost of global structural adjustments — and the U.S. can’t afford it.

We threw Europe and Japan a lifeline through the strong dollar, but the U.S. is going to have to pull the lifeline back and use it themselves.

DEBT-TO-GDP

Everyone in Washington is high-fiving because they cut the deficit in half in the last couple of years. It went from $1.4 trillion to 700 billion.

But the debt-to-GDP ratio is still going up and that’s the one that matters.

The reason it’s going up — the numerator is going down, but if the denominator is going down faster then we still have deficits.

The debt is growing faster than the economy is growing. So the deficit has come down but the debt-to-GDP ratio is still going up.

The Geneva report that came out a few weeks ago showed it. There’s more debt, more leverage, and more piling on of debt globally than ever before.

HOUSEHOLD DEBT

The only reason the U.S. economy got a little bit of a lift in the second quarter was partly because people were willing to take on a little bit more debt. They seem to be moving in the other direction lately.

Households taking on more debt isn’t sustainable.

GOLD AND THE EURO

Gold in terms of the Euro is doing better because the Euro itself is going down.

We usually take the U.S. dollar price of gold as our benchmark.

QE 4 in 2015

The taper is going to end this month or next month.

Everyone expects the FED to raise interest rates in 2015. People are debating whether it will be March or July.

It’s nonsense.

They can’t possibly raise rates because the economy is weak. Janet Yellen isn’t seeing anything on her dashboard that tells her to raise rates.

Jim expects it to come to QE 4 in the middle of 2015.

The printing presses are on hold but they’re going to have to keep printing. There is no other way.

The reason is that they’re using a liquidity solution to a structural problem.

It won’t work. But they think it will work so they’re going to keep trying.

FED in 2015

Everything changes on January 1st.

There have been vacancies on the board of governors of the Federal Reserve.

On January 1st Janet Yellen is going to fill those vacancies. The governors are going to be at full strength. The Presidents are going to be dovish. Yellen is going to have her feet on the ground and no longer be the new kid on the block, who wasn’t going to just step in and blow up Ben Bernanke’s policy. Her dashboard is still not blinking red.

At best, she won’t raise rates and she’ll probably go to QE4.

We’re in a Depression. You can’t solve a Depression problem by printing money.

You have to solve it with structural changes.

THE GREAT DEPRESSION

Look at the Great Depression. At the beginning of World War II the U.S. completely restructured the economy.

Jim isn’t rooting for war, he’s just saying they did drastic structural changes.

What does that mean today?

Fiscal policy. Keystone Pipeline. Obamacare. Regulation. Break up the banks.

These are the things that will get the economy moving – not printing money.

GOLD AND CHINA

We have two things going on at once – the physical gold market and the paper gold market.

The prices are not widely different between physical and gold, or there would be an arbitrage, but you look at the physical demand from China coming out of the Shanghai gold exchange.

Jim spoke to people in Hong Kong, and the Chinese are bringing in gold through Central Asia using the People’s Liberation Army – assets, armoured cars, basically off the books.

Along with mining outputs and Hong Kong inputs, China has acquired 3,000 – 4,000 tonnes of gold in the last five years.

That’s almost 10% of all the official gold in the entire world — enormous acquisitions.

People say that if the gold goes from the GLD warehouse in London to a safe warehouse in Shanghai, what difference does it make? There’s no difference because the total supply hasn’t change.

The total supply hasn’t changed but the floating supply may have changed. The London gold is in the floating supply and the Shanghai gold is not.

So, the gold available to support the paper market is shrinking.

BITCOIN

Jim has his doubts about the specific Bitcoin currency, but the technology of digital currency will be around.

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Jim Rickard’s book The Death of Money is available through Amazon.

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