Jim Rickards, fully James "Jim" G. Rickards

Jim
Rickards, fully James "Jim" G. Rickards

American Lawyer, Portfolio Manager and Economist, Author of best-selling Financial Books, Editor of Strategic Intelligence (financial newsletter), Director of The James Rickards Project (an inquiry into the complex dynamics of geopolitics and global capital)

Author Quotes

A prohibition on the hoarding or possession of gold was integral to the plan to devalue the dollar against gold and get people spending again. Against this background, FDR issued Executive Order 6102 on April 5, 1933, one of the most extraordinary executive orders in U.S. history. The blunt language over the signature of Franklin Delano Roosevelt speaks for itself: I, Franklin D. Roosevelt . . . declare that [a] national emergency still continues to exist and . . . do hereby prohibit the hoarding of gold coin, gold bullion, and gold certificates within the . . . United States by individuals, partnerships, associations and corporations.... All persons are hereby required to deliver, on or before May 1, 1933, to a Federal reserve bank . . . or to any member of the Federal Reserve System all gold coin, gold bullion and gold certificates now owned by them.... Whoever willfully violates any provision of this Executive Order . . . may be fined not more than $10,000 or . . . may be imprisoned for not more than ten years. The people of the United States were being ordered to surrender their gold to the government and were offered paper money at the exchange rate of $20.67 per ounce. Some relatively minor exceptions were made for dentists, jewelers and others who made legitimate and customary use of gold in their industry or art. Citizens were allowed to keep $100 worth of gold, about five ounces at 1933 prices, and gold in the form of rare coins. The $10,000 fine proposed in 1933 for those who continued to hoard gold in violation of the president?s order is equivalent to over $165,000 in today?s money, an extraordinarily large statutory fine. Roosevelt followed up with a

In 1922, the inflation turned to hyperinflation as the Reichsbank gave up trying to control the situation and printed money frantically to meet the demands of union and government workers. A single U.S. dollar became so valuable thatAmerican visitors could not spend it because merchants could not locate the millions of marks needed to make change. Diners offered to pay for meals in advance because the price would be vastly higher by the time they finished eating.

Right now, we are on the precipice now. When you are on the precipice, it doesn?t mean you fall off immediately, but you are going to fall off because you can see the forces in play. What I tell clients and investors is it?s not as if we are going to make some mistakes and some bad things are going to happen. The mistakes have already been made. The instability is already in the system. We?re just waiting for that catalyst that I call the snowflake that starts the avalanche. You don?t worry about the snowflakes; you worry about the snow and that it?s unstable and it?s just waiting to collapse. That?s what the system is right now; we are just waiting for a catalyst. People ask me all the time, what could it be? Technically, my answer is it doesn?t matter because it will be something. It could be a failure to deliver physical gold. It could be an MF Global financial failure. It could be a natural disaster. It could be a lot of things. The thing investors need to understand is the catalyst doesn?t matter. It?s coming because the instability is already there.

The one true advantage of SDRs is that very few people understand them, and there?s no political accountability.

Workers receive raises in nominal terms, while wages adjust downward in real terms. This is a form of money illusion or deception of workers by central banks, but it works in theory to lower real unit labor costs.

America has, in fact, run trade deficits large enough to wipe out its gold hoard under the old rules of the game. Still, the idea of the gold standard was not to deplete nations of gold, but rather to force them to get their financial house in order long before the gold disappeared. In the absence of a gold standard and the real-time adjustments it causes, the American people seem unaware of how badly U.S. finances have actually deteriorated.

In 1998 Wall Street bailed out a hedge fund. But in 2008 the government bailed out Wall Street. This time it wasn?t a hedge fund that was in trouble, it was all the major banks. We all heard about ®Too Big To Fail¯ ? well, those banks that were too big to fail in 2008 are even bigger today. They have a larger percentage of the total bank assets and far more derivatives. This is true around the world. The central banks are bigger, too. The whole system is bigger and more leveraged today than it was in 2008 which is setting us up for the next crisis.

SDR issuance can be viewed as test drive prior to

The problem with velocity is that it is a psychological phenomenon. It depends on how you feel. Keynes called it famously animal spirits. There might be newer ways to describe it, using behavioral economics or sociology. The Fed is trying to change behavior with various forms of manipulation and kind of lying to the public about what?s actually going on. But so far that behavior has proven to be very resistant to change. People don?t want to buy. Therefore, the Fed can print all the money it wants. If people won?t borrow it and won?t use it they?re not going to get inflation. They?re also not going to get the nominal growth that is needed to support the enormous amount of debt that we have.

Worse yet, when the public realizes that it is being deceived, a feedback loop is created in which trust is broken and even the truth, if it can be found, is no longer believed. The United States is dangerously close to that point.

As you may know, the Shanghai Accord is a secret plan created by the G-4 (China, the U.S., the Eurozone and Japan) on the sidelines of the G-20 meeting in Shanghai, China, on Feb. 26. The plan is to strengthen the euro and the yen and ease the dollar. With the Chinese yuan pegged to the dollar, this combination gives China financial ease and a competitive advantage over its trading partners. The Shanghai Accord will be an operative reality in global currency markets for the next several years.

In markets today, the dead hands of the academic and rentier have replaced the invisible hand of the merchant or the entrepreneur

So the dollar is money, money is value, value is trust, trust is a contract, and the contract is debt.

The result is a standoff between natural deflation and policy-induced inflation. The economy is like a high-altitude climber proceeding slowly, methodically on a ridgeline at twenty-eight thousand feet without oxygen. On one side of the ridge is a vertical face that goes straight down for a mile. On the other side is a steep glacier that offers no way to secure a grip. A fall to either side means certain death. Yet moving ahead gets more difficult with every step and makes a fall more likely. Turning back is an option, but that means finally facing the pain that the economy avoided in 2009, when the money-printing journey began.

You will not be able to use them, touch them or feel them. You will not be able to spend them. You will not have them. SDRs are not going to be walking-around money. You?ll still have dollars, but the dollars will be a local currency, not a global reserve currency.

Both continued money printing and the reduction of money printing pose risks, albeit different kinds.

In our time, the aureate has become brazen?the golden has become brass. A return to true value based on trust is long overdue.

The author also reports on an IMF annual meeting in Tokyo and goes on the road with IMF ?missions? as they monitor large and small governments around the world. These missions are the key to forcing governments to conform to the ?rules of the game? as established by the global monetary elites.

The solutions to this systemic risk overhang are surprisingly straightforward. The immediate tasks would be to break up large banks and ban most derivatives. Large banks are not necessary to global finance. When large financing is required, a lead bank can organize a syndicate, as was routinely done in the past for massive infrastructure projects such as the Alaska pipeline, the original fleets of supertankers, and the first Boeing 747s. The benefit of breaking up banks would not be that bank failures would be eliminated, but that bank failure would no longer be a threat. The costs of failure would become containable and would not be permitted to metastasize so as to threaten the system. The case for banning most derivatives is even more straightforward. Derivatives serve practically no purpose except to enrich bankers through opaque pricing and to deceive investors through off-the-balance-sheet accounting.

broad-based tax cut . . . accommodated by a program of open market purchases . . . would almost certainly be an effective stimulant to consumption.... A money-financed tax cut is essentially equivalent to Milton Friedman?s famous helicopter drop of money.... Of course . . . the government could . . . even acquire existing real or financial assets. If . . . the Fed then purchased an equal amount of Treasury debt with newly created money, the whole operation would be the economic equivalent of direct open market operations in private assets.

inflation is the stealth destroyer of savings, capital, and economic growth.

The best thing a small investor can do is to have about 10% of investable money in physical gold. When I say investable assets I would exclude your home equity and any equity in your business. Put that into a separate category and take everything else into the category of your investable assets: Money that you have available to buy stocks or bonds. Put 10% of that in physical gold. Don?t buy paper gold like an ETF because when they close the exchanges your ETF is just a share and the gold will be unavailable to you. Also, put it in a safe place. Not in a bank because the banks may be closed, too. That would be your insurance. So even if you?re losing 60 or 70% on your other investments, gold could be going up three, four or five hundred percent.

The Treasury and the Fed resemble two drunks leaning on each other so neither one falls down. Today, with its 50-to-1 leverage and investment in volatile intermediate-term securities, the Fed looks more like a poorly run hedge fund than a central bank.

Debt used to finance government spending is acceptable when three conditions are met: the benefits of the spending must be greater than the costs, the government spending must be directed at projects the private sector cannot do on its own, and the overall debt level must be sustainable.

Ironically, solutions are not hard to devise. These solutions involve breaking big banks into units that are not too big to fail; returning to a system of regional stock exchanges, to provide redundancy; and reintroducing gold into the monetary system, since gold cannot be wiped out in a digital flash.

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Jim
Last Name
Rickards, fully James "Jim" G. Rickards
Bio

American Lawyer, Portfolio Manager and Economist, Author of best-selling Financial Books, Editor of Strategic Intelligence (financial newsletter), Director of The James Rickards Project (an inquiry into the complex dynamics of geopolitics and global capital)