Jim Rickards: In Depth Discussion of How He Sees the Aftermath of the Next Financial Crisis

Readers here know that we have long featured interviews and writings from Jim Rickards here on this blog. There are some simple reasons why. Jim is a recognized expert on financial and monetary systems and the problems that can result in major changes over time to those systems. Of course that this what this blog is all about. 

Beyond that, Jim has worked with various government agencies that try to anticipate how things might change in the financial system under different possible future scenarios. This means he is well versed on the thinking behind the scenes on that and also has been asked to provide input into that process. All of this makes him a valuable resource for anyone trying to learn about these issues.

Below I have embedded a very recent in depth interview Jim did while in Australia to deliver a presentation. This is very good discussion for those who want to hear Jim's latest thoughts on where things stand and what he continues to see coming at some point in the future (with the timing unknown to anyone per Jim).

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link to video (from Smallcaps.com)

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My added comments: This interview is somewhat of summary of Jim's most recent book Aftermath (available here), but with some interesting add on questions from the interviewer that you may enjoy. 

In the last half of this interview, in reply to questions about his work with various government agencies that try to anticipate future possible problems and scenarios in the financial system, Jim offers an interesting observation.

Jim says that while he has no problem in getting meetings with officials who are concerned about these issues, for the most part they do not really have any serious contingency plan ready if the kind of crisis he talks about does eventually come to pass. He says they will listen and even do financial war games, but don't really believe a crisis of the nature he talks about will actually happen.

These comments caught my attention because I have gotten the same impression from experts around the world that I do get input from now and then. There are many very bright people who constantly work on ideas and proposals for how a new or reformed monetary system might best serve the public (whether in a crisis situation or not), but my take on things is that they all pretty much agree that no consensus plan for what to do (that is ready to be implemented) actually exists at this time in the event of a failure of the present monetary system.

Jim talks in this interview about what he sees as being possible in the next big crisis. However, my take is that he also does not see that there is any real contingency plan on hand that could get the broad consensus needed to move forward very quickly. He notes that gaining consensus between IMF member nations is unlikely to be an easy task.

I believe this is why we are seeing more and more discussion of a future world where there are perhaps at least two major global blocs in competition to reform the present system. The western bloc led by the US and including the UK and the EU and the eastern bloc led by China and including the BRICS nations and Asia in general. Jim talks about the kind of negotiations that might take place between these two major blocs to try and move forward with some kind of new monetary system in the event the present one did fail and suggests the IMF is the most likely place for that to happen. He further explains how the member voting system at the IMF comes into play in any kind of effort to get a consensus plan. This is something we have emphasized here for some time based on input from experts who know how the IMF system works.

The primary point  to emphasize here is that we should not assume that there is some kind of agreed upon grand monetary system reset plan lurking in the background waiting to emerge in the next major crisis. All of the available evidence I have indicates that at this time, there is no global consensus for anything like that. 

This means it is important for all of us to monitor events, stay as informed as possible, and also have some kind of personal plan in mind in case some kind of temporary disruption of the existing system does eventually take place. If there is some kind of agreed upon transition plan ready to help us move smoothly forward out of a new major financial crisis, I am not aware of it. No expert that I hear from has advised that such a thing exists.


Added note: Later this week I will run an article that provides further evidence that China may be trying to move forward independently with its own monetary system reform with a new sense of urgency because of the proposed Facebook Libra project.

Jim Rickards Talks About the Potential for a "Perfect Storm"

In my recent interview with Jim Rickards to discuss his upcoming new book Aftermath, I asked him if he still predicts a new major crisis that will provide an impetus for major changes to our present monetary system. Jim offered this reply:

Q: For many years you have consistently forecast that we will some day another major crisis worse than the 2008-2009 crisis and that this could lead to major changes in the global monetary system. While working on "Aftermath", have you seen anything that would cause you to change that forecast?

A: "No. All of the trends not only confirm a coming crisis, but suggest it may be worse than I expected. Reaction functions not only include closed banks and exchanges and frozen accounts, but also social unrest possibly requiring martial law. There are also serious infrastructure threats that could involve a collapsed power grid or internet. On top of that, cyber threats are real and cyber wars have already begun. We cover all of these developments in Aftermath." (Amazon link to Aftermath)

Jim has now written some new articles that take a deeper dive into some of the events he says have the potential to come together ahead of the next US Presidential election and create a " Perfect Storm". Below are links to the articles with an excerpt from each for those who want to see what Jim has to say about this.


The Perfect Storm is Coming


"Do metaphorical perfect storms happen in politics and capital markets?

The answer is yes, provided the conditions of the perfect storm definition are satisfied. The multiple events that make up the true perfect storm must be independent and rare and come to converge in an almost impossible way.

. . . .

Today I’ll be discussing the components making up this perfect storm, and how I see them all coming together at the same time.  . . . . . 

. . . .

What are the three specific elements of the new perfect storm I see coming for markets? Read on  . . . ."            


  The Perfect Storm - Part II



"What are the three elements of the perfect political and market storm I see coming together this fall?


The first storm is impeachment.  ...

. . . .

The second storm is the 2020 election. ...

. . . 

But the third storm is the most dangerous and unpredictable storm of all: Spygate.

How do these three storms — impeachment, the 2020 election and Spygate — converge to create the perfect storm?"   . . . .   click here to read


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Jim says these events in the political arena leading up to the 2020 Presidential election are important to follow and could have significant impact on the markets:


"The next six months will present unprecedented challenges for investors. Markets will have to wrestle with fights over impeachment, election attacks and Spygate. Trump will be trying to improve his odds with Fed appointments and an end to the trade wars. Democrats will be trying to derail Trump with investigations, accusations and leaks."

It does seem like if we are going to see anything arise that could disrupt the current system and prompt some kind of major change, it is more likely to come from the political arena. That is where most of the energy for change seems to reside these days.

A quick review of the situation suggests that there are two large groups (that combined comprise a majority of the public) that want to see major changes take place. 

One large group supports President Trump. They see him as the disrupter of the status quo that they feel has ignored their interests for a long time. Even though he represents the incumbent in the upcoming election, people still view him as a change agent trying to reshape the system they see as controlled by an elite establishment that looks down on them as inferior in various ways.

The other large group (now ascending in influence in the Democratic Party) also wants major change from the existing system. But the changes they want are almost exactly the opposite to the kind of change President Trump and his supporters want. 

From our perspective here, we watch for any kind of new major financial crisis that might arise in this highly combative political environment. While we don't make too many predictions here, it is possible to reasonably predict how each side might react to a new major financial crisis to try and gain leverage politically.

If we got a crisis of the magnitude Jim Rickards talks about:

We can be pretty sure President Trump will blame the Federal Reserve and say that it's policies were ill advised and created the crisis. His supporters will certainly buy into that as many of them are already skeptical of institutions like central banks. President Trump could use any crisis to call for major changes that would decrease the power of the Fed and "reset" the monetary system. Potential Fed nominee Dr. Judy Shelton has talked about the idea of a new Bretton Woods Conference at Mar a Lago in media interviews like this one at the Financial Times (here is a new Wasington Post interview that also mentions a Mar a Lago monetary conference).

On the flip side, we can be pretty sure the other major political group that opposes President Trump will fully blame his policies for the crisis. They will say that his tariffs, sanctions, and trade wars crippled the global and US economy and brought on the crisis. They will call on the public to get rid of President Trump and offer major change initiatives like Modern Monetary Theory (MMT) and other policies that return "power to the people" and disrupt a system they also see as controlled by an establishment that puts "profits over people".

Interestingly, both of these large groups see the present system as needing major reform and putting the interests of elites or "the 1%" over the interests of regular people. They just have completely opposite views of what to do about that. In this environment, a new major crisis would probably elevate this already heated political conflict into all out war to gain political power and push through major changes for their side. 

So, our analysis here remains unchanged. Without such a major crisis, the status quo in our monetary system and monetary policies likely prevails and change takes place gradually over time. In a new major crisis, the odds of more rapid major change increase and are most likely to come from the political arena. We'll continue to monitor things and report what actually happens.

Added note 6-24-19: Regarding Jim's 3rd "storm" (Spygate), Fox News releases this tonight quoting two members of Congress saying there will be significant news coming out soon. The article states that part of the current ongoing investigation will look "into the involvement of foreign intelligence services". If very high ranking former US intelligence officials are charged with crimes, we need to watch how the global markets react to that very closely. And if foreign intelligence services actions are called into question, it is all the more reason to monitor markets closely. As an example, it is possible the sharp rise in gold may be trying to tell us its possible something potentially unsettling is on the horizon. 

Added news note 6-25-19: The US Dept. of Justice issues this news release that Merrill Lynch Commodities, Inc. agreed to pay $25 million "to resolve the government's investigation into a multi year scheme to mislead the market for precious metals futures contracts" traded on the Comex. Things like this don't increase people's confidence that the markets are a fair and level playing field. Also, many in the precious metals community have alleged this kind of activity was taking place in those markets for a long time. Just before he passed away in April 2019, former CFTC Commissioner Bart Chilton gave this final interview where he talked about his efforts to expose market manipulation in the silver market back in the 2008-2012 time period. He does reveal some information in this interview that had not been made public before. 

Jim Rickards Discusses His New Book - "Aftermath"

Readers here know that I have followed Jim Rickards for many years because of his extensive understanding of the issues we cover here and because he has talked about the potential for major monetary system change. That is what this blog was created to watch for.

Jim has written a series of best selling books on these issues and in July 2019 will be releasing the latest one titled "Aftermath".  Jim kindly agreed to do a brief Q&A on the upcoming book which is just below. After that a brief summary will follow.

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Q: Should readers read your earlier books (Currency Wars, Death of Money, The New Case for Gold, and The Road to Ruin) before they read the new book "Aftermath"?

A: I'm grateful to all of the readers of my books, but there's no need to read them in any particular order. The books are a chronicle of the post-2009 period. There's a lot of economic and monetary history, but they track developments through Bernanke, Yellen and now Jay Powell. There's a cumulative element so reading Aftermath will incorporate many of the points touched upon in the earlier volumes, albeit in shorter form. Hopefully, someone reading Aftermath first will be encouraged to read the earlier books and complete the entire quartet.

Q: What were some main themes you wanted to cover in "Aftermath"?

A: Many of the trends identified in my earlier books have moved much closer to a critical threshold (point of collapse) and so deserved deeper analysis. These include passive investing, robo-investing, Chinese debt, gold accumulation by Russia and China and the role of crypto-currencies in a global monetary reset. Other new themes are the rise of Trump (not covered in the earlier books) and the exact dimensions of life in the aftermath of a new crisis. Currency Wars and The Death of Money warned that a crisis was coming. The Road to Ruin put you in the middle of a crisis and showed the official response function, (which I called "Ice Nine"). Aftermath takes you to the post-crisis environment as a way to show you what you can do now to survive it.

Q: For many years you have consistently forecast that we will some day another major crisis worse than the 2008-2009 crisis and that this could lead to major changes in the global monetary system. While working on "Aftermath", have you seen anything that would cause you to change that forecast?

A: No. All of the trends not only confirm a coming crisis, but suggest it may be worse than I expected. Reaction functions not only include closed banks and exchanges and frozen accounts, but also social unrest possibly requiring martial law. There are also serious infrastructure threats that could involve a collapsed power grid or internet. On top of that, cyber threats are real and cyber wars have already begun. We cover all of these developments in Aftermath.

Q: Do you plan any more books to follow "Aftermath" or will this one complete the series?

A: I expect to write more books, but there's nothing underway right now. After writing five books in eight years, I may just step back and develop new themes or topics. The international monetary quartet (Currency Wars, The Death of Money, The Road to Ruin and Aftermath) is done and stands on its own. I'm not sure how much more there is to say on the topic. It's all there in the books.


Q: Modern Monetary Theory is something new that has gotten a lot of attention lately. Do you discuss that theory in this new book? Do you think MMT will have a significant impact on our monetary future?

A: I have a full chapter on Modern Monetary Theory in Aftermath. It's called Free Money (Chapter 5). The best way to understand Modern Monetary Theory is to quote Gertrude Stein: "There's no there there."

Q: Is there anything else you would like readers to know about "Aftermath" or any other topic we discuss here from time to time?

A: Aftermath took longer to write than I expected when I started. That was partly due to other obligations and partly due to an injury I suffered in the summer of 2018 that required some time off for recovery. That said, I'm actually pleased with the publication date, July 23, 2019. That happens to be the exact 75th anniversary of Bretton Woods (July 23, 1944), which is appropriate because the book discusses the need for a new Bretton Woods. Also, it will come out in the middle of the 2020 election season. The book is not overtly political but it does discuss many subjects that will be a big part of the election debate including Modern Monetary Theory, debt and deficits, economic growth and the role of the Fed. Anyone interested in the presidential election cycle will be better informed if they read Aftermath.

Thank you for taking time from a busy schedule to offer these comments as we await the launch of "Aftermath" this coming July. It follows a line of best sellers and I have no doubt that will continue with "Aftermath".

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Summary: Jim Rickards has the ability to delve into complex topics in a way that most of us without an academic background in macro economics can easily understand. In the interview above Jim provides us with some interesting tidbits. His new book will include a full chapter on Modern Monetary Theory which is timely since that will surely be debated in the upcoming election cycle. Also, Jim just provided us with an update to his long standing forecast that changes that will impact our present monetary system are coming. Jim often says that forecasts can change over time as new data is received. In this case, he not only says his forecast for a new crisis leading to major change is still in play, he adds that the latest trends suggest to him that the crisis he predicts may be worse than he expected.

Anyone who has read any of Jim's books I think would confirm that they cover a lot ground and that you will learn some fascinating history. I have no doubt that the same will be true for "Aftermath". Readers can find "Aftermath" here.


Added note 5-13-19: With the US-China trade dispute flaring back up, readers may find this recent article by Jim of interest. --  "The Trade War is Back"