Thursday, October 2, 2014

Jim Rickards: Banks May Close in the next Crisis

Jim Rickards does new media interviews on a regular basis every week so it is not too hard to follow him and see if he offers anything new. In this new interview released on Saturday September 27th, he does add some comments I had not seen before. He suggests that when the next financial crisis happens (something he predicts) that he believes that the authorities may "close things down" instead of printing more new money.

Here are some quotes from the interview linked above:

"(Jim) Rickards attended Forex World Istanbul and delivered a presentation on currency wars at the event on Friday. I found the opportunity to ask a couple of questions to Jim following his book signing event. I am sharing this short interview and Rickards’ exclusive comments here."

"-What about the role of BIS, in today’s picture and can it have a future role like you described for the IMF?

-I think in terms of a central bank of the world that is really the IMF. The BIS is very important for two reasons. Number one: They are the primary intermedia for manipulating the gold market. That is not a mystery… BIS is manipulating the gold market. They are the intermedia between the central banks and commercial banks and other central banks (of the world). They have been doing that… That’s why they were created in 1930s and they have been doing it ever since. (Number two): … It is also a very important meeting place for the central bankers. One of my partners was David Mullins Jr. He was the vice chairmen of the Federal Reserve in early 90s under Alan Greenspan. He said that Greenspan did not like the (program) and stood off and David would go to the BIS place. You know it is a clubhouse. Only central bankers are allowed ... So it is a great place to change information.

Very interestingly BIS about a month ago issued a warning of systemic risk. They said that the system is getting dangerously close to collapse. A few weeks later the IMF issued a similar one. And then last week G-20 finance ministers meeting at Australia issued a warning. What was the last time you saw the three most powerful multilateral financial bodies BIS, IMF and G-20 issued warnings. I have never seen it before. They are telling you it is going to collapse. They see what I see and they are warning you. People would ignore it but when it happens they would be able to say we have told you. I think I have never seen anything like this. I have been in international finance since 1974 and I have never seen a situation like this…

I think the BIS is very important but I don’t see it is the world’s central bank I really think that role has been left to the IMF."

"-Last question Jim, you are telling us in your books that there would be a financial panic... Can you describe us what kind of events could happen during this financial panic? What are your expectations?

I think this financial panic would be different than the last one. The reason is that in all of the financial panics since 1971 the solution was to print money provide liquidity. But prior to 1971 historically the solution was to shut the doors. To close the stock exchange, close the banks, close funds so you can not get your money. That’s what Nixon did in 1971 he closed the gold door so you can’t get your gold. Since then 1987 stock market crash,1994 Mexico crisis, 1998 Russia LTCM dot com, 2007 mortgage crisis, 2008 panic; in all these crises the solution was to print more money.
My expectation is that next time money printing is not gonna work because they can’t print more, they have already printed a lot. So they gonna have to go to the old solution. We are already seeing this. For example, the SEC passed a rule last month saying that money market funds can suspend redemptions. This is the law. Now if you talk to the US investors who have money market funds they think it is cash. They think they can call the broker today and money is in the bank tomorrow. They gonna find it is not cash. It has actually closed the door. That’s gonna be a shock. So the financial panic itself will be as always a shock.... But the remedy is not gonna be printing more money. They could print SDRs but that is a little experimental. But, maybe in this case, they have to start closing things down. Which in the distant past that was always what they did."
My added comment: So here Jim not only re-confirms his prediction that another crisis is coming (and cites the BIS, IMF, and G20 as having warned it is coming), he goes on to say that during this crisis we can expect banks to close and access to money market funds (viewed by most people as cash) to be restricted. This is the first time I have seen him comment on this. Of course, if he ends up being right, we are going to see major changes in the monetary system and they will happen very quickly if it comes under crisis conditions like he suggests here.

I will reiterate that his views on this directly contradict the mainstream view of the future as presented by most mainstream financial media (like Bloomberg and CNBC). They do not suggest any kind of crisis like this will happen. And while the IMF and BIS and G20 have issued warnings, they continue to state that they believe the risks can be managed and over time mitigated. They do not forecast a crisis like Jim Rickards is predicting.

We will follow it here for as long as it takes to find out if Jim Rickards will be right or not. We will probably have a good idea by early in 2015, but it could be beyond that time frame too. Whatever time frame it is, we will follow it here for readers.

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