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 John Ward and Alex Stanczyk from The Gold Chronicles.
Topics:
Swiss Franc Depegged From Euro
QE in Europe
Greece ‘Grexit’
Ukraine Tension
Gold
Silver
Jim Rickards
February 9, 2015 interview – website where webinar will be posted
SWISS FRANC DEPEGGED FROM EURO
The timing of the decision to depeg the Swiss franc from the euro was a surprise to everyone, including Christine Lagarde, President of the International Monetary Fund (IMF), who was visibly angry and clearly had not been consulted.
But while the timing was a surprise the breaking of the peg was not a surprise.
The peg policy was unsustainable, so you may not know when it will break or the consequences, but you know it will break at some point. If you have to have a peg it means you’re fighting market forces.
If the market was going the way you wanted then why would you need a peg?
Everyone wanted Swiss francs because it seemed like a good store of value while there were fears the euro would break up. People were dumping euros and wanted to buy francs, so if you left market forces to work then the franc would trade up and the euro would trade down.
Switzerland didn’t want that — they’re dependent on exports and sensitive to exchange rates.
The market wanted Swiss francs but Switzerland didn’t want the franc to appreciate, so they had to print francs and use them to buy euros at the pegged rate. That’s how they maintained the peg.
Then they used the euros to buy euro sovereign bonds and other euro securities.
Guess what was happening. They were inflating their balance sheet, piling up massive amounts of euro securities and flooding the market with francs. If they didn’t break the peg they would end up owning every euro in the world.
It was unsustainable.
Watch for other currency pegs like Hong Kong and Denmark to break at some point also.
QE IN EUROPE
Mario Draghi, President of the European Central Bank (ECB), has been saying since the summer of 2012 that he would do whatever it takes for the euro to succeed, so the plan for quantitative easing (QE) was advertised well in advance.
QE does not stimulate the economy — it produces asset bubbles — it doesn’t create jobs or stimulate anything.
The ECB’s mandate is to create price stability, so they are doing QE to fight deflation.
In the US, the Federal Reserve (Fed) also wants nominal growth and jobs, so they keep doing QE, but the ECB won’t go beyond what they need to just bring price stability.
Draghi says little and does less. They haven’t started the program yet, and when it starts the National Central Banks (NCBs) will do the purchases, not the ECB.
In the US there is the Federal Reserve and in Europe you have the ECB, but in the European system of central banks each country also has their own national central bank.
Draghi is having the national central banks buy the bonds, so any losses from QE will fall on the national central banks and not the ECB.
Also, the ECB has been reducing their balance sheet, unlike the Fed which has blown up theirs up.
The European QE is just another example of the currency wars.
GREECE ‘GREXIT’
Jim has a long history of being the voice saying that Greece is not leaving the euro and is not being kicked out of the euro.
He does not believe there will be a ‘Grexit’.
It is serious issue though, because the past political party wanted to deal with the Troika and this party wants to confront the Troika, but it is still a negotiation.
Prior to going into the room, closing the door and banging out a negotiation, you do a lot of posturing. Even when you go into the room you do a lot of posturing before looking for common ground.
That’s what’s going on right now. They are posturing and the negotiations haven’t started yet.
The question you ask in this situation is, “What do I gain or lose by reaching an agreement or compromise, and what do I have to win or lose by walking away from the table?”
These are rational people and it is a classic zero sum game. If they don’t reach an agreement they are both worse off.
Greece leaving the euro would have catastrophic ripple effects. The euro would fall apart rather quickly and it would be the beginning of a global break down.
For Greece they have no available gold and would have a new paper currency that nobody wants. It would be disastrous for Greece.
They both want to reach an agreement.
They are both going to ‘blink’ and they are both not going to be completely happy with the new agreement.
But they will find a way.
The end of February is the deadline for the next Troika bailout loan. But they could do a bridge loan for 30 or 60 days from the IMF or Brussels, to give them time to rework a new agreement.
Expect volatility and good days and bad days.
If Jim is wrong and there is a Grexit then the catastrophic consequences are worse than any critic has predicted.
UKRAINE TENSION
What happened is a fait accompli, basically “I win.” Putin did whatever he wanted.
Last Wednesday Jim met with about fifteen national security professions in a closed door meeting. There were US ambassadors, CIA covert operatives, and people from the Treasury and the Security Council.
Jim told them that it was not a matter of trying to figure out what Putin wants. He believed they were mirror imaging, which is when one party thinks the other party believes the same way they do.
Putin doesn’t think like Americans think. Jim believes Putin wants Georgia and the Ukraine, and then he’ll want to move on to a few other places.
Jim believes that the US doesn’t have a well articulated set of goals for foreign policy, and that it’s important to know what you want and also what you don’t want and won’t allow.
Europe does not want sanctions on Russia but Obama does.
When people ask if there’s a potential for war Jim replies, “We’re in a war.” Sanctions are not a form of diplomacy they’re a form of warfare — economic warfare.
The alternative to sanctions is diplomacy. This is also what German Chancellor Angela Merkel is saying.
Merkel has said there is no military solution in the Ukraine, and she is right.
The economic warfare version of a thermonuclear bomb is to kick someone out of the SWIFT international clearing system — it would paralyze their economy.
Diplomacy is needed and that’s what Merkel wants.
GOLD
Gold trades like a commodity but Jim thinks of it as money.
A chart of gold and a chart of commodity indices that include gold show them trading in tandem until November/December of 2014. That’s when the indices plunged, due commodities like oil falling in price, and gold started to go up.
That’s when gold started to trade like money and not like a commodity.
It happened at the same time as there was a lot of gold outflow from the Fed in New York, as countries were repatriating their gold.
Jim said in his books that the Fed might seize sovereign gold. Now Germany and the Netherlands are repatriating their gold, and there is talk of it in France and Belgium.
Gold is now being thought of as money.
China and Russia are acquiring gold, and it’s like the pile of poker chips to bring to the table when the new monetary system is worked out. There’s price suppression going on, and while there’s not necessarily going to be a gold backed currency it does give you options, and China and Russia are backing up the truck.
It’s starting to look like a corner.
There’s never been a successful corner in the gold market before, and Jim’s not predicting it yet, but he’s watching it closely and it’s another reason to own gold.
SILVER
Jim isn’t a silver hater, he thinks it has a role to play, and owns some silver in his portfolio.
Silver will always tag along with gold so it’s good to hold, but gold has very limited industrial uses, and even jewelry is wearable wealth.
Silver has industrial use as well as monetary use, and will always move on both a monetary vector and an industrial vector. One could be pointing up and one pointing down — so it could be a mixed bag and muddy things.
Jim is not a silver basher, but he doesn’t usually speak about silver because he is a global macroist and not an industrial specialist.
Jim Rickards can be found on Twitter and at James Rickards Project.
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Today’s Gold:
Gold is $1,231 US per ounce via Kitco
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Artists know patterns using visual and musical ratios and fractals, and everything in a closed system goes through the four seasons.
We’re coming into a global economic winter to be followed by a bright spring with new technologies and opportunities.
Hold a little silver or gold and a little cash — to prepare in case of a few snowflakes.
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Preparing for the Fall is a boutique living room live solo album available on iTunes — featuring the singles Wag the Dog, Black Swan Dive, American Pie and Gods of the Copybook Headings.
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Wag the Dog (Drums of War and Backroom 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 on iTunes
Coins and Crowns
words and music Elaine Diane Taylor
© Intelligentsia Media Inc. All rights reserved.
SOCAN/ASCAP
from the album Coins and Crowns available on iTunes
Single featured in Episode 1 of Mike Maloney’s documentary series Hidden Secrets of Money.
The Gods of the Copybook Headings
words by Rudyard Kipling and music by Elaine Diane Taylor
©2014 Intelligentsia Media Inc.
SOCAN/ASCAP
from the album Preparing for the Fall available on iTunes
Another Week on Wall Street (Naked Short Selling and Fiat Currency)
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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Nothing on this site is investment advice. We’re all responsible for our own research and our own decisions on how the wind is blowing.
Elaine Diane Taylor 