Saturday, July 11, 2015

Jim Rickards Shares his Conversation with Ben Bernanke

We have mentioned here many times that it is very hard for those of us on the outside of the system to get information from those who are inside or have been inside. Whenever someone is willing to share that kind of information, all we can do is say thank you. 

In this case Jim Rickards has written a new article in which he shares his recent conversation with former Fed Chairman Ben Bernanke. The article is very interesting of course. Jim quotes Mr. Bernanke as saying he does not see "anything that looks like a threat" to the financial system right now, despite all the problems that do exist. This agrees very well with other sources I have talked with who work inside the system. 

I think this is very hard for many outside the system to grasp or believe. But I do believe the feeling inside the system is that the various well known systemic risks can be successfully managed. Jim Rickards still feels they may be over confident and not see the next crisis coming. Time will tell how all that turns out. 

Below are some quotes from this new article by Jim Rickards.

"On May 27, I had the privilege of spending time with Ben Bernanke, former chairman of the Federal Reserve System, in Seoul, South Korea. We were both there as keynote speakers at an international financial forum sponsored by the leading business publication in Korea.
The theme of the conference was currency wars and their impact on Korea. Our audience was interested in how monetary policy and exchange rate fluctuations affected Korea versus its trading partners and competitors, especially China, Japan and Taiwan.
Above all, the audience wanted to learn how Fed policy on interest rates would affect the dollar, and what impact policy would have on developed economies and emerging markets.
In addition to the formal presentations, our event sponsors organized a small VIP reception that included Bernanke and me along with the CEOs of the Korea stock exchange, the Korea Banking Institute, the Korea Federation of Banks and the Korea Financial Investment Association.
There were about 10 of us in all representing the financial elites of Korea and some distinguished scholars and economists from Japan; Bernanke and I were the only Americans. The setting was private and allowed us ample time for one-on-one discussions before the main conference commenced.
My conversation with Bernanke began casually enough.  . . . .
My added comments:
Readers may ask how those inside the system could feel so confident when we see all these problems everywhere around us. For what it's worth, I can offer these thoughts on that question. I think those inside the system have a lot more information than we do to work with. Those who think they do not realize the potential problems within the present system are in error, I believe. They know there are many problems and risks. However, they believe that the models and tools they have available can allow them to manage the problems and risks. If another crisis does arise, they feel they can contain the damage (like ring fencing Greece for example). 
If all that fails, I believe they do have a backup plan to reset the system and start over more quickly than most people would think possible. It wouldn't be their first choice, but if they have to they can use the global gold reserves as a last resort to reset things and restore confidence so long as public trust in their leadership is not completely destroyed in the crisis.
Does this mean I know they really can manage all this? No, not at all. No one (including the best and brightest in the world) can know the future. There are some risks they cannot possibly manage. Some examples would be world war, an emp attack by a global power, a radiation burst from the sun that takes out the electronic system we depend on today, major cyber attacks on stock markets, etc. No one could possibly be sure of managing risks like these.
In addition, it's possible that the models they are using are not the right models and they might get surprised by a crisis they don't see coming. This is what Jim Rickards talks about in his writings and speeches. Jim states clearly that he feels they are using the wrong models. Experts like Nomi Prins have made similar comments. Even an expert from the Dallas Fed said the models being used are not reliable in a recent CNBC interview. So there are highly credible people making this argument.
The point I am making from this article on Ben Bernanke is that it shows you very clearly the feeling that exists inside the system. Despite what some may think, there is not a general feeling that we are on the brink of another global crisis. There is no panic inside the system that I can detect at this time that things are going to spin out of control. Even if there were such fears by some on the inside, those inside the system cannot express that fear in public because their job is to maintain public confidence in the system.
Events can always change things, but for now I think this Ben Bernanke article provides an accurate picture of the view inside the system right now. We should really hope they are right because another major global crisis now could be much worse than the 2008 crisis was. Those who think such a crisis will somehow lead to things eventually being better could be wrong as well. I doubt most people really want to find out.

No comments:

Post a Comment