Jim Rickards - The New Great Depression

I was privileged to get an advance copy of Jim Rickards new book  - The New Great Depression. Followers of Jim Rickards won't be surprised that this new book has the same high quality of in depth analysis that is a hallmark of Jim's previous books. As the title suggests, Jim takes a deep dive into the potential long term impact of the Coronavirus pandemic on the economy. 

Jim takes on this topic with no partisan political agenda which is what makes his analysis valuable to me. A search for the best information without regard to any political agenda is what is needed and Jim delivers that in this book in my view.

While the book delves into the economic impact of both the pandemic and the response to the pandemic, readers may be surprised at the amount of time Jim devotes to the virus itself. Like most people who have followed this pandemic since it showed up on the radar in early 2020, I have seen lots of "experts" offering a wide variety of information and recommendations on how we should deal with this virus. Along with that has come some contradictions and confusion as we discovered the "experts" don't always agree.

This book has the best collection of both pure information on the actual virus as well as a summary of the various "expert" theories about it I have seen so far. Putting all this information together in one book is a valuable service to anyone who wants to understand this virus and the related pandemic. Since it is possible that your life could be at stake some day during this pandemic, knowing as much as possible about the actual virus is a goal everyone should have.

Below I have listed the six Chapter Titles in the book and the Conclusion. For each chapter I listed some of the key questions Jim answers with the best information he had at the time of the writing of this book. This should give you a feel for what is covered and how it might be beneficial to your own understanding of this virus and all the related impacts we will see from it in the years to come, both medical and economic.

          The New Great Depression

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Chapter One - A New Virus From China to a Town Near You

What is the Coronavirus? 

What do we actually know about it? 

What is still unknown about it?

How did the Coronavirus actually get started? 

What responsibility does China bear related to this global pandemic?

Chapter Two - One Hundred Days - Chronicle of a Lockdown

The lockdown response to the virus:

The correct response?    or

One of the greatest blunders in economic history?

Chapter Three - The New Great Depression

What is a depression?

Did the pandemic and lockdown response start a new depression?

If so, how long might it last?

Chapter Four - Debt and Deflation Derail Recovery

Is the biggest challenge for the Fed going forward inflation or deflation?

Does the Fed prefer inflation or deflation?

Is money printing stimulus?

Is MMT (Modern Monetary Theory) already the unofficial US monetary policy?

Chapter Five - Civilization's Thin Veneer

What are the psychological impacts on society from a global pandemic and the related economic fallout?

What are two kinds of mental health damage potentially caused by COVID-19?

How long can an orderly society be maintained during periods of prolonged severe distress?

Chapter Six - Investing in a Post Pandemic World

How can the average person outperform the markets?

What portfolio is best right now to hedge against both deflation and inflation?

What asset offers the most flexibility in this uncertain pandemic and post pandemic environment?

Conclusion

Which two Presidents attempted to use gold to deal with economic problems?

Which of the two used gold more successfully?

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Added comments: In this book, Jim lays out three possible paths forward the virus might take based on similar pandemic events from the past. It is important to understand the worst case scenario in case that one does unfold (for both medical and economic reasons). We all hope we do not get the worst case scenario and that vaccines will reduce the impact of this virus as much as possible. But even a vaccine that is effective against the current version of the virus does not mean we are out of the woods. This is why I feel it is important for everyone to learn as much about this virus as possible. We are all impacted in one way or another and will have to make important decisions going forward on how to deal with it.

Note to readers: Unless something very dramatic happens that could actually change the present monetary system in a significant way, I do not have any further posts planned for the blog going forward at this time since I do not foresee any such events on the near term horizon.

Added note 1-20-2021; Now that a new Administration is in office, a question may arise as to whether we will see any significant change in our monetary system as a result? At this time my answer would be no -- so there is no need for further analysis or articles at this time. Only if something truly significant arose that would impact everyone directly in their daily lives would I see any reason to cover it here. At this time, I see nothing along those lines on the near term horizon. The most likely scenario is simply a continuation of the same system we have now unless it cannot continue to function, as we have said here many times. The most intense part of the US political drama has past now and nothing about all that suggests any major changes in the system are coming soon.

South China Morning Post - How China's Digital Currency Will Thwart the US Dollar Trap

The South China Morning Post runs this interesting new article that argues that China will use its lead in "blockchain technology" to implement a new "digital" renminbi. The article goes on to further say that China will use this new system to avoid US sanctions and bypass the SWIFT system. It also predicts that by 2028 China will surpass the US economically and this new digital currency system will be a key part of that. 

I sent this article to a leading global expert on Fintech who knows where things stand around the world in terms of the potential use of blockchain technology for digital currencies by central banks. He has worked in this arena every day for years with banks, central banks, and private companies exploring the potential use of blockchain technology. I view him as without question one of the leading experts in the world on this topic. 

Below are three key points I felt were stated in the SCMP article and then the response to those three key points by this global expert. He offered these comments exclusively for readers here, but prefers them to be unattributed.

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1-China is by far the global leader in "blockchain technology" which will support the new "digital" Renminbi system China is building.

Response:

"It is an interesting claim to fame: there is not much to be had in the leadership of blockchain technology - it is a relatively simple technology, with a lot of complicated moving parts that don't particularly add a lot of value in the real world. As such, there are not a vast array of levels of competence possible in the field - you either know what it is, or you don't - and you either use a distributed system, or you do not. My comments would be on this topic, that even if leadership in blockchain was such that it could be distinctive, and thereafter, emphatic - it is still by all accounts, at this time, inconsequential to hold leadership in this expertise. If China believes it has something of an accolade in proclaiming this - it is an odd misunderstanding of technical capacity, or of prowess."

2-This system will allow China to bypass SWIFT and US sanctions and eventually dethrone the US dollar a global reserve currency in years to come.

Response:

"Any system can bypass SWIFT or the US Sanctions if it is independent of SWIFT or the USD. Obvious examples to date are Ant, WeChat, and any other payment platform not used by an institution that also uses USD. Just like the Brazilian local payment system is independent of the Chinese political sanctions lists. It is again - a very poorly developed claim and the SCMP should know a lot better - as should whoever called for this article's existence. 

There's no real link to the claim that distributed ledgers can cause or catalyze any form of technical incentive against Dollar superiority - Dollar superiority is legislative and economic. The US is an innovative, rule of law, consumer protection, and thought leading superpower. China is a constantly moving bureaucracy of personal political connections. As we've seen with Jack Ma, say the wrong things at the wrong time, and your business evaporates. 

As a place to park your money.... I don't see China's brand, or economic stability, being sufficient to challenge even the GBP or the Yen, as a reserve currency yet. Chinese "banking assets" are still around the USD 2 trillion mark - the US is almost 10 times this (according to the Central Bank of each nation).  The US is a reserve currency because it is large, very predictable, and most of the time (more than most) very rational. And that's not the nature of the Chinese system yet".

3-China is in the process of surpassing the US and will do so by 2028 using this new system as a key part of that accomplishment.

Response:

"The link made here is not a logical statement. The simple rebuttal to this claim is -- what if the US got a similar new system, tomorrow? Nothing would change in the US, nor the rest of the world really - in terms of US dollar sovereignty. The US has had one of the world's worst payment systems for 30-40 years - and still does. Blockchain does not automatically bring any additional technical capacity to an economic system - and there are better systems out there than blockchain platforms for this purpose (from Mexico's SPEI, to Tonga's NPS) - so the premise of the understanding conveyed in this article is not factual. 

What blockchain does do - and may do - depending on the exhaustive list of well known options available to the any blockchain program (Chinese or otherwise) is give limited or unlimited access to review every single payment, partial payment, and balance, of anybody - and any party who has ever received or sent payment to any other affiliated party. 

Do you want to make a political donation? The system operator will immediately know. Your friend from school who you once gave Y50 to cover a pizza order at university, who then went on to be a radical dissident - or agitator - 30 years later? Guess who's on their way to your house?

Until this is desirable - it would stand to reason that China would decrease its standing of its chances to offer the world a unified, suitable means of exchange, if the authoritarian government was to announce any form of financial surveillance platform, like the one they claim this might be." 

Please read the full article in SCMP here

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Added comments: This expert also offered this general editorial comment:

"Without wanting to be too harsh on the Chinese - I guess that from their perspective - blockchain holds a certain amount of logic, to a mid-level, technology-promoting party official. Like communism itself, blockchain appears to be an ideal or simplistic system to run or use for certain purposes. In reality it becomes incredibly complex and burdensome to manage at scale, or beyond theory. 

The claims here are very similar to a claim that China has found a new economic system that is more useful and better than the simplistic systems used in the West, and in adopting this new concept of self verifying (but ultimately unstable) record keeping software, it will enable China to out perform the West (specifically the US) economically. 

Claiming that their blockchain leadership is an asset, is again, so similar to claiming that their newest version of communism is far superior to everyone else's communism, that they will rise to the top of the economic food stack because of it. I have a lot of respect for parts of China's miracle - but I don't see their next wave of advancement being linked to the claims of this article, in any way. Although we do wish them luck with their research!"