Wednesday, June 18, 2014

Jim Rickards Connects the Global Dots in New Article

In this new article Jim Rickards basically covers the global flash points that could lead to crisis similar to the post we made here just below. Rickards adds one other hot spot to watch: China.

It's kind of ironic that Jim Rickards writes a new article today very similar to the blog post below on here today. Rickards did add another hot spot we did not mention which is China.

Here is what he says about the potential for problems there:

"China is in the midst of a massive credit and property bubble. Many expected this bubble would burst in 2015; however, recent evidence is that the bubble is bursting faster and these problems may come to the fore in 2014. China has enough reserves to bailout its banking system, but not without consequences. Chinese growth will slow sharply and there will be spillovers in other markets as Chinese banks sell good assets in developed economies to raise cash to meet demands at home. Angry mobs will storm banks to demand repayment of the Ponzi scheme “wealth management products” that have been sold by the banks. These money riots will spread."

Again, because the global financial system is so interconnected now, trouble anywhere can quickly lead to trouble everywhere.

The US FED is also in a difficult position because they want to try and get out of the QE business and convince the markets that a recovery is underway. They want to imply that they will raise interest rates to reflect an improving enconomy and keep some level of support under the US dollar (which is clearly under attack around the world).

But the economy is not strong and may even be headed into recession. If they are not careful the FED could spook the stock market and start a sharp and severe selloff if they taper too much into weakness. But inflation is also finally starting to show up in official statistics. So they have to be careful not to let inflation expectations ramp up too much too fast. Rickards covers all that in his article predicting we will have a mess on our hands by 2015 that reminds him of the staflation of the 1970's.

Regional conflicts expanding, energy supplies under threat, inflation and deflation concerns, bubbles in many places around the world. All these are problems the Central Banks are dealing with. And they cannot allow interest rates to move up too sharply either. That could trigger investor flights from bond funds (FED mulls exit fees for bond funds). They have their plates full even as things appear fairly calm right now.

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