An introduction to lawyer, portfolio manager, government adviser, lecturer, and author James Rickards could easily be five pages long. Sifting through his CV, it’s easier to pick the things he doesn’t do rather than listing all the different jobs and responsibilities he holds and has held over the past decades. This is what is keeping him busy at this moment:
He is the chief global strategist at West Shore Funds, is a registered investment advisor, and he edits the financial newsletter Strategic intelligence. He advises the department of defense and also lectures at Johns Hopkins University among others. What he is best known for, however, are his two best-selling books about the global financial system, “Currency Wars” (2011, Portfolio Penguin) and “The Death of Money” (2014, Portfolio Penguin).
Both books have defined and predicted important trends in financial markets that the mainstream media and other commentators frequently overlook or pick up on years later.
Epoch Times spoke to Mr. Rickards about his new book “The New Case for Gold” (Portfolio Penguin, 2016), the coming reform of the financial system and China’s role as a source of global market volatility.
Read about why the Fed didn’t hike rates at its last meeting and why gold is the real money in part I of this exclusive interview with James Rickards. Skip to 14:16 in the video to directly delve into financial system reform and China.
Epoch Times: In your new book you quote the book of Revelations in the Bible, a quote about the new Jerusalem where the streets are paved with gold. But before we get to the new Jerusalem, there is some volatility according to the Book of Revelations. Where do you draw the parallels with our financial system at this moment?
James Rickards: I’ll leave the biblical interpretation to the scholars, I’m more of a financial analyst and a gold analyst. Clearly central banks have pulled out all the stops, they printed trillions of dollars, they’ve swapped trillions of dollars. They guaranteed the money market funds in 2008 and the guaranteed all the bank deposits. They did everything possible.
We might have avoided something worse that might have happened, like the Great Depression, but none of that policy has been reversed. The Fed’s balance sheet is still bloated. A lot of the swap-lines are still in place. They haven’t been able to normalize policy since 2008.
So what’s going to happen in the next crisis? And these crises come every seven to eight years. We go back to 1987, the stock market fell 22 percent in one day. Not a year, not a month but one day, 22 percent. By today’s Dow Jones Index that would be the equivalent of 4000 Dow points.
Now if the stock market fell 400 points I guarantee it would be on every evening business show, front page news, every website. Imagine if it fell 4000 points. That’s the equivalent of what happened in October of 1987. In 1994 we had the Mexican Peso crisis. Then we had a surprise interest rate hike, Orange county went bankrupt. In 1997/1998 we had the Asian financial crisis, the Long Term Capital Management (LTCM) crisis.
I was the general counsel for LTCM, and I negotiated that bail-out. I had a front row seat on that one. I know exactly how close global markets came to a complete collapse. We were within hours from shutting every exchange in the world. People forget about that but that’s exactly what happened.
In 2000 we had the dot.com crash, 2007 the mortgage crash, 2008 the Lehman and AIG panic. These things happen like clockwork. Every six, seven, eight, nine years. It’s been seven years almost eight years since the last one. How long do you think before another one comes? And yet they haven’t normalized policy, so what’s the Fed going to do the next time.
Are they going to print another $4 trillion? Legally they could, but they are at the outer limit of what they can do without destroying confidence. And confidence is the key to the whole thing.
Epoch Times: You talk about the concept of world money in your book, sponsored by the International Monetary Fund (IMF).
Mr. Rickards: So what you are going to see is world money. You are going to see the IMF print Special Drawing Rights (SDR). It’s a geeky name but it’s a kind of world money printed by the IMF. They’ll flood the world with trillions of SDRs. It might work because people don’t really understand what SDRs are. It might just blow by everybody.
At best it will be highly inflationary. At worst it won’t work because people will say, we’ve lost confidence in these other kinds of paper money and fiat money, why should we have any more confidence in that.
And then you’ll see a gold buying panic and the dollar price of gold would skyrocket. It would be better if the leading financial and trading powers in the world sat down today in relatively calm times and did something like Bretton Woods and reform the international monetary system.
I think if they did, gold would play a role. I am not saying it would be a strict gold standard but I am saying gold would have some role. I don’t think that is going to happen. I think we are going to see a crisis first. Going back to your version of the Book of Revelations you have to have some rough times before you get to the good times.
The powers will come together. They will reform the international monetary system, but they’ll do it in a state of collapse and panic rather than in a calm, orderly state.
In that world, people are going to go on their own gold standard. They’re not going to wait for the financial powers to create a gold standard, they’re going to have a gold standard of their own. They’re going to dump paper money, get into gold to preserve wealth. It won’t even be a question of “Gee will it go up? Will I make gains?” like buying stocks and bonds. It’ll just be to preserve wealth so they’ll actually have something left. So we talk about all this in the book “The New Case for Gold.”