Wednesday, August 20, 2014

Jim Rickards - "Disinformation Agent"? - Part II

Jim Rickards just did a new interview with a German media publication. When I saw this new interview I decided to title this article  Jim Rickards - "Disinformation Agent"? - Part II. Part I is just below and can be read here. We can use this new interview to select exact quotes and then compare those to the suggestions being made that Jim Rickards is a disinformation agent for the US government.

The format for this article will be that I will post selected quotes from the interview linked above. After those quotes, I will add some comments to analyze the quotes to see if they fit the suggestion that Jim Rickards is trying to mislead the public and acting as a disinformation agent.

Q: Why are you so concerned with respect to today’s financial markets?

JR: 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.

But then again: Without the various rescue packages and the stimulus programs of the central banks the economy probably would be worse off today.

JR: Understanding the global macro economy today in terms of a normal business or credit cycle is not the right way to understand the economy. That is why analysts and observers and policy makers are so confused. They keep waiting for the expansion to become self-sustaining and to growth stronger. But it hasn’t happened and they’ve been wrong with their forecast. If you look at the Fed’s forecast for example, the Fed has been wrong five years in a row and not by a little bit but by orders of magnitude.

Q: So you’re not convinced that the Fed chief Janet Yellen will succeed in making a smooth transition to a more traditional monetary policy?

JR: Not at all. They will finish the taper in October or November. But what they will find between now and the end of the year is that the data will be very weak. Therefore, by early next year, perhaps march 2015, just when people think they’re going to be rising interest rates, they will actually have to start QE4. So the Fed is trying the same remedies: The money printing goes on and the banking system continues to inflate which is setting us up for an even bigger crisis.

On the other hand, the risks of this super easy monetary policy seem to be quite contained. For example, there’s no violent outbreak of inflation so far.

JR: Of course, we haven’t seen that much inflation. A little bit in food and energy, but not that much. To have inflation you need two things: You need the money and that’s where the money supply comes in. A lot of analysts have looked at the expansion of the Fed’s balance sheet and the creation of money in the last five years and how this is going to create inflation. The reason those analysts are incorrect is that money supply alone does not determine inflation. People actually have to borrow the money and they have to use it. That shows up in something called the velocity of money or the turnover of money. I compare that to having a ham and cheese sandwich: You can’t just have the ham, you need the cheese also. If the money supply is the ham, you still need the cheese which is the velocity.

Q: So why is there no cheese in this sandwich?

JR: 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.

Q: What are the final consequences of all that?

JR: There are actually three different outcomes. I’m not categorical about which one it will be, but they’re all bad. One possible outcome is that the Fed actually does change psychology and change behavior and we will get inflation. But then it will very quickly morph into something more like hyperinflation. That means you’ll still have your Dollars but the value of the Dollar has been destroyed. Another possibility is that they keep printing money and then the collapse is very sudden and we have another financial crisis, worse than 2008/09. The central banks themselves will not be able to bail out the system again at which point they will require the IMF. The IMF will then have to print world money, so called Special Drawing Rights or SDRs. It will represent a massive money printing exercise which will be inflationary too, but from an entirely new source.

Q: And what about the third outcome?
JR: This includes a scenario where there will be essentially chaos when we have these collapses. And then riots begin because people see their savings wiped out. Broker firms fail, brokerage accounts are wiped out, inflation wipes out the value of savings, the stock market crashes 70 to 80%. This would be already the third time that this happens: People’s savings were wiped out in 2000 because of the dotcom bubble, they were wiped out again in 2008 because of the financial crisis and now they’re wiped out again, except even worse. That might be the last straw. That might lead to rioting. And that will provoke a neo-fascist response. They will try to use police, national guards, executive orders, mass arrests and so forth. Whichever of these scenarios will be happening, they all stem from the same source: Policy makers not understanding what they’re doing whereas banks are becoming too large.

Q: How can investors protect themselves from such an event?

JR: 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.

My added comments: As always readers should read the entire article linked above to get the full context. But I selected these quotes to examine the suggestion that Jim Rickards is acting as a disinformation agent for the US government (and/or the FED and big banks).

Please look at the quotes answers above and especially the underlined parts. To believe that Jim Rickards has been sent out to act as a disinformation agent requires believing that he was sent out to:

- place blame on the FED and big banks for the next big crisis

- accuse the FED of lying to the public

- state that FED policy is failing and wrong headed

- promote the idea that using the SDR from the IMF as a new global reserve currency "will represent a massive money printing exercise which will be inflationary too" (my comment: does this sound like an endorsement of using the SDR in this way?)

- suggest that one possible outcome to all the current problems is a complete breakdown in the system where the authorities will "use police, national guards, executive orders, mass arrests, and so forth"  in a "neo-fascist response"

- suggest the above "neo fascist" response will be a direct result of current "policy makers not understanding what they are doing"

- convince the public to buy physical gold (not paper forms of gold) as insurance against all the above and not to trust storing the gold within the current banking system

I am not sure I really need to offer in depth analysis as to whether all that supports the idea that Jim Rickards has been sent out to mislead the public on behalf of the US government and the FED and the present banking system. It seems absurd to me to make that suggestion after reading these direct quotes. But to each his own interpretation I guess.

Added note 01-01-2015:
Added note (1-01-2015): A question I get here regularly is how can people prepare for the upcoming change. On January 1, 2015 I wrote this blog article to address that question.


  1. I 'trust' none, but value good intel and analysis. Rickard and the doc are as good as the world has to offer.
    I thank them both, theyre in a not so big company of people that actually make sense.

  2. Thank you for reading the article and your comment.

    I agree. A healthy skepticism as you sort through the news and opinions and decide which information best serves your needs. I am trying to do the same thing with this blog. Larry

  3. At some point in their interviews most if not all of the "experts" say something to the effect that they're surprised that it's lasted this long. My concern is "they (the puppet masters)" have more rabbits up their sleeves which will allow them to continue this game for another X decades. Yes, I said decades and I said it because I’m one of those folks who’ve been waiting literally decades for something to happen. Howard Ruff and Dr. Gary North come to mind.

    I’ve seen suggestions that one of the rabbits might be exchanging 401K plans for government bonds. But I’ve seen none of the “experts” talk about what affect a move like that might have. I suspect we don’t hear them talking about that because “a crash is just around the corner” sells books and subscriptions where as “the crash has been put on hold for another decade” doesn’t.

    Here’s hoping we’ll start seeing interviews of people like Jim Willie, Jim Rickards, etc. where they’re asked questions like what will be the effect if the funds in 401K accounts are taken and exchanged for government bonds? Will that allow the game to continue and if so for how long?

  4. The best thing I think those of us outside the system can do is to follow the news, track the various opinions and forecasts over time to see who gets things right. That is what this blog is attempting to do as a public service for those who don't have time to read all the news stories and keep track of the opinions and forecasts over time. Then readers can decide what information sources best meet their needs. Larry