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A synopsis of an interview with Jim Rickards, New York Times bestselling author of The Death of Money and Currency Wars, by Erin Ade, from RT Boom Bust.
Jim is the Chief Global Strategist for West Shore Funds, former general counsel for Long Term Capital Management, and a consultant to the US Intelligence community and the Department of Defense.
Topics:
Currency Wars Timeline
Where Currency Wars Are Currently Focused
China
Trade Between US and China
TPP (Trans-Pacific Partnership)
Jim Rickards
CURRENCY WARS TIMELINE
We’re not always in a currency war, but when we are they can last ten or fifteen years and don’t have a logical conclusion.
We’re five years into this one.
In 2011 we had a weak US dollar and in 2015 we have a strong US dollar. In currency wars it goes back and forth, back and forth.
Jim expects the US dollar to get weaker from here because it’s hurting exports and bringing deflation into the US in the form of lower import prices.
WHERE CURRENCY WARS ARE CURRENTLY FOCUSED
The action is in the US dollar/euro and US dollar/yen.
There was a reason for the weak US dollar in 2011.
In 2010 the whole US economy was hanging by a thread, and the US is the biggest economy in the world.
So they said to the rest of the world, “If we go down then we take the rest of you with us. We need a cheap dollar right now to get the US economy moving.”
And it worked.
But then the problem was that Japan needed a lifeline — it’s like a line of thirsty soldiers and one canteen of water. Japan needed the US to pass them the canteen.
So from December 2012 into 2013 was Abenomics — the weak yen. It was trashed from 90 to 123 yen/dollar where it is today.
So who is suffering?
You have a weak dollar and a weak yen. Who is suffering?
Europe — we had a strong euro then.
When everyone was saying that Europe was falling apart Jim was saying that it wasn’t, and that the euro was a strong currency.
But Europe had two recessions in five years.
So then we passed the canteen to Europe.
Europe had negative interest rates in the middle of 2014, and European QE in the middle of January 2015 — so now we have a weak euro.
One problem.
The US allowed the weak euro on the assumption that their own growth was strong enough to support a strong dollar.
It wasn’t. So they’ll have to take the canteen back.
Look for the US dollar to get weaker and the yen to get stronger from here.
CHINA
The one place where there’s a lull in the fighting is China.
The interesting thing going on there is that the Chinese yuan and the US dollar are pegged.
Think about that — the two biggest economies in the world have a de facto peg. That’s half way to the old Bretton Woods system.
Why are they pegged?
China wants to get into the SDR (world money) basket of currencies at the IMF and the US has veto power that could keep them out.
So the US says, “If you want to get into the SDR, which we control through the IMF, you have to be on your best behaviour. That means at least pegging to the US dollar and not cheapening the yuan.”
China’s economy is slowing down so normally they would weaken their currency but they haven’t.
TRADE BETWEEN US AND CHINA
Erin puts forward that all eyes in Washington are on the TPP (Trans-Pacific Partnership) but that Jim is looking at something different. He’s looking at the Bilateral Investment Treaty (BIT) between the US and China.
There’s a summit happening in September between President Obama and President Xi, and everything is leading up to a BIT.
What the US is saying to China is that the trade is good and we’re buying your manufactured goods so how about letting in our banks, insurance companies and our foreign investment with a few more degrees of freedom.
That’s a big deal.
Right now geopolitical relations between the US and China are worse than they were but economic relations are better.
Geopolitical tension includes China building fake islands in the South China Sea and militarizing them.
There are six countries surrounding the South China Sea and China is claiming the whole thing apart from 12 miles of beach.
Also, Chinese cyber hacking is dangerously out of control — they hacked the personnel files of people who apply for security clearance with the US government.
Those files contain everything — including vulnerabilities. So China now has a playbook to blackmail and compromise Americans who have security clearance. It’s very serious.
But at the same time it’s very cordial on the economic side.
The US and China are “Frenemies”.
TRANS-PACIFIC PARTNERSHIP
The US has excluded China from the TPP.
At the same time China has excluded, or at least the US didn’t join, the Asian Infrastructure Investment Bank (AIIB).
So they’re each doing a big play without the other.
It’s like two tree houses with two different groups of kids.
Over time Jim expects that if relations warm up then China will join the TPP and the US will join the AIBB.
In the Cold War they called it “Two Scorpions in a Bottle” — they were both afraid to sting because the other would sting back and they’d both die.
Jim Rickards can be found on Twitter and at James Rickards Project.
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Preparing for the Fall is a solo contemporary folk 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 intended as individual investment advice. We’re all watching which way the wind is blowing.
Elaine Diane Taylor 