3 Min. Gold News – Jim Rickards – Bloomberg – January 2, 2015

3 Minute Gold News

A Quick Read for Busy People

A 3 minute synopsis of an interview with Jim Rickards, New York Times bestselling author of The Death of Money and Currency Wars, by Scarlet Fu and Pimm Fox from Bloomberg TV.

Topics:

Interest Rates
Jobs
European Central Bank
Stocks and Housing Bubbles
Interest Rates Are High

 

 

Rickards - Brisbane

Jim Rickards

Interview link
Bloomberg TV
with Josh Wright – Bloomberg Economist

INTEREST RATES

Jim expects weaker growth going into 2015 and the job situation is not nearly as good as people view, so he believes the Fed won’t raise interest rates.

The Fed has said their decision would be data dependent.

If you lose one $50,000/year job and create two $10,000/year jobs, then you’ve created two jobs but what that does for the economy is very weak — you’re basically replacing full time jobs with part time jobs.

If you want to take one number that consolidates both parts of the Fed’s dual mandate of improving the labour market and creating inflation, that number is real wages.

When real wages go up that means employees can demand a raise, and that’s a precursor of inflation. It also means labour market conditions are getting tight.

So real wages going up means Janet Yellen has acheived one goal, which is improving the labour market, and then she just has to worry about her other goal — inflation.

That’s when the Fed will raise rates.

But real wages are flat right now.

So if you want one thing to watch then real wages is the one thing.

JOBS

Labour force participation is at an all time low and it doesn’t show any signs of picking up. There’s a higher quit rate for employees, but that doesn’t count the 37.8% of the US working age population who are on the couch.

Janet Yellen cares deeply about creating jobs but the Fed hasn’t done a very good job of it.

EUROPEAN CENTRAL BANK

ECB President Mario Draghi is Jim’s favourite central banker because Draghi understands that central bankers are basically impotent.

Draghi’s policy is basically to say little and do less.

He’s not going to do any large scale quantitative easing — not for stimulus purposes. The only reason Draghi will act is if they get outright inflation (because he has a price stability mandate), or if he needs to do it to save the euro.

He’s not going to print money to stimulate the economy because it doesn’t work.

Printing money doesn’t create jobs.

Central banks don’t make a difference, but the markets care what the central banks do and Draghi understands that. So, if the European Central Bank raises rates with very weak growth, then it’s a form of tightening which will basically tank the US stock market.

The stock market has been thriving on free money — Wall Street loves free money.

It would be good to see interest rates rise if the economy was strong but we don’t have a strong economy.

STOCKS AND HOUSING BUBBLES

We have two bubbles — stocks and housing prices.

Asset prices are up. No question about it. Wealth effect is very weak but the asset prices are up. So all they’ve done is create new bubbles.

This is all they do.

They create them and they burst.

INTEREST RATES ARE HIGH

Interest rates in the United States are extremely high in real terms.

Real rates are high and nominal rates are low.

Real rates are what matters.

Real rates are what determines investments, real rates can be inflationary or deflationary.

Real rates are extremely high and Janet Yellen is concerned about that.

Even a modest move in interest rates by the Fed would tank the stock market.

The Fed has said they want inflation. They’re getting deflation. So how are you going to raise rates in a deflationary environment?

It would make a stronger dollar — which is deflationary.

One of the ways to get inflation is to cheapen your currency. That’s what the currency wars are about.

So is the Fed going to raise rates, strengthen the dollar, and slow down the economy in a world where they need inflation?

There’s a conundrum here and it doesn’t add up.

………………………………………

Gold is $1,189.80 US per ounce via Kitco.

ECB President Wants QE Sharing for Greece with Germany’s Cash? via Project Syndicate.

Germany Wants ECB President to Stop Talking QE for Greece with Germany’s Cash via Zerohedge.

Deflation is Contagious — Turkmenistan Devalues its Currency via AFP and Yahoo! News

……………………………………….

 

Wag the Dog (Drums of War and Back Room Banker Passes)
words and music Elaine Diane Taylor
© 2014 Intelligentsia Media Inc. All rights reserved.
SOCAN/ASCAP
from the album Preparing for the Fall available soon on iTunes

Another Week on Wall Street
words and music Elaine Diane Taylor
© 2013 Intelligentsia Media Inc. All rights reserved.
SOCAN/ASCAP
from the album Coins and Crowns available on iTunes

 

 

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