Jim Rickards joined Keith McCullough on HedgeyeTV to discuss the economy, his book Death of the Dollar and the systemic crisis risk in the market. Jim Rickards candidate interview on HedgeyeTV is truly a no-punches held back session of economic focus and uncovers what to expect in the future for finance.
When Keith McCullough jumped into the question and answer segment, he began by asking about Rickards recent conversation with former Treasury Secretary Timothy Geithner. Rickards explained, “My question to him was, if there was an economic crisis tomorrow – what would the policy response be? Would the government simply go up to eight or twelve trillion on the balance sheets for the Federal Reserve? Would they turn to the International Monetary Fund and the special drawing rights (SDR)? The IMF has a clean balance sheet, they’re leveraged three to one and could print a couple trillion SDR’s. They could just flood the market with those. Geithner surprised me and said neither. That really surprised me coming from someone that worked at the IMF and is one of the few people that truly understands the SDR system.”
“What he indicated was that they [the Treasury and Federal Reserve] would use guarantee everything.” Which would mean that the Federal Reserve would guarantee the system and the demands being met. “Which they did do, to some extent, where they guaranteed every money market fund in America when a reserve fund failed following the Lehman Brothers collapse. They did not have to – that’s not the law. They guaranteed every bank deposit in America – even in excess of the limit.”
Jim Rickards is a lawyer and an economist who has written a handful of New York Times best selling books. His most recent Times bestseller The Road to Ruin is out now. Currently, Rickards is releasing the paperback version of his book Death of the Dollar; A New World Money. Rickards has advised the U.S government and members of the intelligence community on economic warfare and the systemic crisis risk of currency wars.
Rickards goes on to note that he thought it was particularly interesting because Geithner is very plugged into the upper echelons of government and finance. Jim Rickards breaks down that systemic crisis risk by remarking, “To me that’s not just one person’s opinion. That’s the distilled wisdom of the super elites.” To analyze the point being made in his books and the core thesis that Rickards poses he notes that, “In 1998 Wall Street bailed out a hedge fund. In 2008 the central banks bailed out Wall Street. In 2018, if not sooner, who’s going to bail out the central banks?”
“Each crisis gets bigger than the one before. Each bailout gets bigger than the one before. If the central banks are the eye of the storm, if they’re the institutions we’re losing in – what good is the guarantee? It’s like getting insurance from AIG in October of 2008. You don’t want it because they’re going bankrupt. Any guarantee is only as good as the institution giving you the guarantee. If there is a crisis of confidence toward the government, in fiat money, in central bank money then it is not clear to me that a guarantee would work as expected.”
“I would separate business cycles from panics. Sometimes they go together. In 1929 and 2008 they went together. In October 1987 and September 1998 we had financial panics that came very close to blowing up the whole system. There was no recession. In 1989 and 2000 we had business cycle recessions with no panic.”
The interviewer the pressed Rickards on a gold surge in response to monetary policy following a systemic crisis. He asked whether the market would see temporary deflation and a drop in the price of gold before it rises? “History shows that in the immediate and early stages of a panic, gold goes down. In a panic, a liquidity crisis, you don’t sell what you want, you sell what you can. In 2008 anyone who wanted to sell mortgages but couldn’t sold gold and got cash in return. That’s only temporary though.”
After reflecting on short plays and the markets Rickards notes, “This is a bubble. You can make a lot of money in a bubble. Alan Greenspan called a bubble in 1996 and it didn’t pop until 2000. That is a long time to be on the sidelines.”
Keith McCullough then pressed Rickards on the French elections and what he thought the outcome might be. The bestselling author and macroeconomic analyst noted, “I was going around the world in the days before November 8 saying Trump was going to win. I don’t particularly have high regard for claims unless there is method into it. That’s where the flaws are going to be. Here’s the thing with the French election… this one is genuinely too close to call. I am going to go with consensus that Macron and Le Pen will move forward. There is a 30% undecided… that’s jump ball. With four candidates we have six possible outcomes.” Now in retrospect, Rickards was right with his consensus pick for the two candidates in the race for the next president of France.
To summarize toward the end of his discussion while speaking on populism and the negative sentiment in the world Rickards pointedly remarked, “I think the potential for social unrest is a very big deal. I think it’s getting worse. The income inequality seen in the data from the Gini coefficient is now tied with Mexico (The Gini coefficient being the measurement of income inequality). When I grew up, Mexico was the ultimate oligarchical society… All during the nineteenth century, we were losing manufacturing jobs. Even as late as the 1980’s when Detroit and the auto industry was collapsing, people would simply relocate for work. The history is we destroy jobs and we create them. That is not happening now. We destroy jobs but we’re not creating them.”
“With populism and social unrest… when things get out of control there is pushback. Look at the local police force. Today they have kevlar armor, flash-bang grenades. I don’t care if U.S special operations have that… but that is a little frightening. They’re banging down doors to simply serve warrants. The point is, they could turn the police force into the military. This could be left or right.”
To catch the full interview covering systemic crisis with Jim Rickards on Hedgeye TV – CLICK HERE.