Tuesday, July 22, 2014

The Significance of a BRICS Development Bank

Jim Rickards, Senior Managing Director at Tangent Capital, explains how the new bank differs from the World Bank and the International Monetary Fund.

- Source, CNBC

Sunday, July 20, 2014

Jim Rickards talks Financial Warfare & Eric Schneiderman targets Barclays

New York Attorney General Eric Schneiderman accused Barclays of allegedly telling its customers that it would protect them from high frequency traders, while actually doing the exact opposite and accommodating them. Erin takes a look.

Then Erin brings you part two of her interview with economist and author Jim Rickards. They discuss reserve currencies, BRIC nations, and the IMF in the context of financial warfare. After the break, Erin brings you the best of week. Catherine Austin Fitts, Divya Narendra, Cullen Roche, Marshall Auerback, and Marc Chandler all weigh in.

- Source, Russia Today

Thursday, July 10, 2014

Jim Rickards: No Exit For The Fed

The Federal Reserve, the central bank of the U.S., is nearing the end of its ability to manipulate the U.S. economy without producing consequences worse that those it set out to avoid in 2008. The Fed has no good exits from seven years of market manipulation. If it continues its current policy of reducing purchases of assets, the so-called “tapering,” it risks throwing the U.S. into a recession. If it reverses course and pauses the taper and later increases asset purchases, it risks destroying confidence in the dollar among foreign creditors of the U.S. Both outcomes are potentially disastrous, but there are no good outcomes on the horizon. This is the result of manipulating markets to the point where they no longer function as markets providing useful price signals and guiding the efficient allocation of capital. Today markets are a mirage, created by the Federal Reserve, which is caught in a prison of its own device.

Fed Is Wrong about Recovery

Since 2007, the Fed has tried to revive the U.S. economy through monetary ease. It began with a series of interest rates cuts, but by late 2008 interest rates had effectively reached zero and the Fed resorted to money printing, called quantitative easing or “QE” as a way to continue to stimulate nominal growth and aggregate demand. The money printing is done by purchasing bonds from banks and paying for the purchases with money that comes from thin air. This money printing has continued in three programs over six years called QE1, QE2 and QE3. The most recent program, QE3, began in September 2012 and was open-ended as to duration and the amount of bonds being purchased.

By late 2013, the Fed’s balance sheet has swollen to over $4 trillion due to the money printing. Because U.S. growth appeared to be stronger in late 2013 and the unemployment rate had fallen sharply, the Fed began to reduce the rate at which it printed money. This was the “taper” of asset purchases. However, the data on which the Fed relied was highly misleading. U.S. growth had been propped up by inventory accumulation. The declining unemployment rate had been caused not by job creation but by people dropping out of the labor force.

In fact, the Fed had not tapered into economic strength, it had tapered into weakness. This quickly became apparent when U.S. growth in the first quarter of 2014 showed a decline and as the U.S. labor force continued to shrink. Many other negative signs appeared including weak retail sales, declining real wages, lackluster consumer confidence, and a cooling-off in the housing market. In short, the U.S. economy was showing signs of sharply declining growth if not outright recession.

Why Tapering Is Nothing New & Why the Fed Needs To ‘Untaper’

This should not have come as a surprise. Those who focused on the tapering in December 2013 did not recognize that the Fed had tapered twice before. The end of QE1 in June 2010 was, in effect, a 100% taper. The end of QE2 in June 2011 was also a 100% taper. So, the famous taper of December 2013 was actually the third time the Fed had tried to withdraw from money printing. The first two times were failures as evidenced by the fact that the Fed had to launch new money printing programs after each withdrawal. By early 2014, it appeared that the taper of QE3 would also be a failure.

Depending on economic data in coming months, the Fed may have to pause the taper before it is completed late in 2014. Even if the Fed does not pause the taper but completes the process of reducing new asset purchases to zero, it appears likely that the Fed will have to increase money printing in 2015 in what will no doubt be called QE4. The U.S. economy has not shown an ability to achieve self-sustaining growth, so continued Fed money printing is needed to keep the economy growing at all.

Monetary Expansion Comes at a Price

But money printing carries its own risks. Foreign creditors of the U.S. are watching the Fed’s money printing closely and are visibly uncomfortable. Major creditors such as Russia and China are taking steps to insulate themselves from the potential for inflation in the near future if the Fed’s QE money printing programs continue.

Treasury data shows that net foreign purchases of U.S. Treasury debt have dropped sharply over the past year. Russia has been dumping U.S. Treasury debt since late 2013, partly as a result of fear of U.S. economic sanctions and partly out of concern about the fate of the U.S. dollar. Both Russia and China have been buying enormous quantities of gold to hedge against possible U.S. dollar inflation.

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Tuesday, July 8, 2014

Gold Demand Shock Coming From China Credit Crisis

Spoke to head of global commodities trading at LBMA bank. He expects a #gold "demand shock" from #China credit crisis. May be game on there.

- Jim Rickards via Twitter

Sunday, July 6, 2014

China's Giant Ponzi Scheme Won't End Well

(Video cannot be embedded, please click image to view)

The Daily Ticker's Aaron Task and Lauren Lyster discuss the drop in Chinese stocks and economic growth coupled with rise in rates.

- Source, Yahoo Finance

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Friday, July 4, 2014

Wealth Management Products in China are a Ponzi Scheme

I have a whole chapter in the book, "The Death of Money", just on China. You know, the wealth management products are a Ponzi and that's not from me, the Chairman of the Bank of China said they're a Ponzi, so you've seen the Chinese banking officials saying the same thing.

The problem is the money's going into real estate so if you're a state-owned enterprise, and you produce steel or glass or any of the cement or any of the components for construction and you just wanna roll steel and build buildings…

I've been out there, I expect you have too, I've seen the ghost cities, I've seen them as far as the eye can see -- completely empty.

And people say, "Well, they'll fill up in the years ahead." No, they won't. I mean, that migration from the countryside to the cities is largely over, number one. Number two, it doesn't take into account obsolescence. You can't mothball a building; you have to occupy it and maintain it.

So, this is wasted investment. If you adjust the Chinese GDP for the amount that's wasted, it would already be lower...

- Source, James Rickards via FXStreet

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Wednesday, July 2, 2014

I Expect a Pause in Taper Later This Year

I expect a pause in the taper later this year. But, look, this could run on well into 2015 but the problem is the scale of it.

In 2008, all we heard about was "too big to fail"; well, guess what, the five biggest banks in the U.S. today are bigger than they were in 2008. They have a larger percentage of the banking industry assets, their derivatives books are significantly bigger, you know, so the problem is that the whole thing is bigger, which means that... risk is an exponential function of scale; when you triple the system, you don't triple the risk, you increase it by a factor of ten or more and this is what we're up against, this is what we're facing.

Could start anywhere, could start in China.

- Source, James Rickards via a recent FXstreet interview

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Saturday, June 28, 2014

Crash of the Global Currency Market and Insolvency of the U.S. Dollar

"Everything that was 'too big to fail' in 2008 is bigger and more dangerous today," says New York Times bestselling author James Rickards. Rickards predicts the crash of the global currency market and insolvency of the U.S. dollar in his latest book, The Death of Money: The Coming Collapse of the International Monetary System. "We're waiting for the catalyst that will cause this catastrophe to come tumbling down."

Reason Managing Editor Katherine Mangu-Ward sat down with Rickards to discuss the future of money and a return to the financial stability of the gold standard in an event co-hosted by the Charles Koch Institute.

- Source, Reason TV

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Thursday, June 26, 2014

Ugly Financial Crisis to Jolt US Within 5 Years

A financial catastrophe worse than that of 2008 will hit us within five years, says James Rickards, best-selling author and senior managing director at Tangent Capital Partners.

"The meltdown in 2008 was not a meltdown. It was sort of a half-meltdown," he told Dennis Kneale of Newsmax TV in an exclusive interview.

While Lehman Brothers was the only major financial institution to completely collapse, others were close to it, said Rickards, author of "The Death of Money: The Coming Collapse of the International Monetary System."

But the Federal Reserve stepped in to prevent financial firms from going under. As a result, "the Fed truncated" the avalanche, he explained.

"Think of it as a bunch of dominoes falling. All the dominoes are going to fall, but if I drop a steel curtain between two dominoes, that's going to stop. That's what the Fed did."

Rickards believes "things should have been allowed to crash" in 2008. "All the banks should have been nationalized by the government, the stocks should have been wiped out, the bondholders should have taken a haircut and the clean banks should have been re-IPOed," he argued.

"That's hope and faith in the American people and entrepreneurship. That's what I advocate. The government doesn't believe in itself. So when you start to go down, but instead of hitting bottom, you truncate it and guess what, you're flat-lining forever," he asserted.

But the Fed's tactics didn't change the dynamics, Rickards maintained, as bad debt and leverage haven't gone away. "That's all still there. Except now, it's worse, because in 2008, what did we hear about? 'Too big to fail,' right? Well guess what, the five biggest banks in America today are bigger than they were in 2008," he insisted.

"So everything about '08 that was too big to fail is bigger today. Those dominoes are still waiting."

Meanwhile, the Fed has printed $4 trillion during the last six years. "So, they've got no more drive power," Rickards contended. Liquidity crises arise every five years, he said. "So what's going to happen when the next liquidity crisis comes?"

It won't be pretty. "The next time it happens, it's going to be bigger than the Fed, that's why they're not going to be able to stop it," he predicted. The fact that the financial system is bigger than in 2008 will make this crisis worse, Rickards added.

"The depression of 1920 was as sharp and as hard as what happened in 1929 and 2008. But the government let it go and guess what? It was over in 18 months and we had 10 years of prosperity and Roaring Twenties," he said.

"But that actually is a very healthy process. But because we haven't allowed the system to heal in all these other crises, the next one is going to be so big that the outcome is likely to be money riots and social discord and then you'll see a neo-fascist response."

Rickards compared today's economy to the San Andreas Fault, because "underneath these forces are building up."

"We're in a depression — not a recession — a depression."

He warned that the deflationary forces from the depression and the inflationary forces from policy are pressing against each other.

"They're fighting each other to a standstill, but that's going to snap, that's exactly like two tectonic plates crashing into each other," Rickards declared. "It's going to be ugly for investors, it's just a matter of time."

As for the timing of the crash, "it could come tomorrow," he said. "I'm not predicting tomorrow, but three years seems like a long time for this, five years definitely a long time."

So what will cause the collapse?

"The correct answer, the scientific answer is it doesn't matter, and what I mean by that is, it's like the snowflake in the avalanche," Rickards explained.

"The snow's building up and it's building up, and you're looking at it. An expert can say, hey, it's unstable, it's going to fall down. So here comes a snowflake, it disturbs a few other snowflakes, it starts to slide, it starts to shoot, gains momentum and the whole thing comes tumbling down."

And what might be the first snowflake to move?

"It could be a failure to deliver physical gold," Rickards suggested. "Physical gold is disappearing, there's a mountain of paper gold. . . . So a failure to deliver could cause panic buying of gold."

Other possibilities include "an IMF-global type of failure, a prominent suicide, a natural disaster such as Fukushima," he said, referring to the March 2011 Japanese nuclear accident. "It could be a lot of things. . . . What's important is the rock that's already in the system."

For investors seeking to cope with the crisis, Rickards recommended a 10 to 20 percent exposure to gold — "10 percent for the conservative investor, 20 percent for the aggressive investor."

Meanwhile, corporations have record amounts of cash on their balance sheets. "That wealth is highly concentrated in a relatively small number of companies," he stated. "Apple, Google, IBM they've all got records amounts of cash."

But why do they have that cash? "This is what the IMF calls precautionary savings," he explained. The companies "build up the cash so when the next panic comes — and it will be coming — they know that they'll have to fund themselves internally for six months because the commercial paper market will go. So it's not a source of strength," he noted.

"They're not going to spend that cash or use that cash, they're holding it. . . . They're holding it because they're scared to death of liquidity evaporating. But it's not going to stop this global meltdown because that's much bigger than these corporations."

Rickards also warned that the United States isn't doing enough to thwart the "financial warfare going on behind the scenes, some of it obvious, some of it behind the scenes."

He believes the "greatest single threat" to the nation is "cyber financial warfare, the combination of a financial attack done in cyberspace."

"Everything the United States is doing is making the situation worse. China's on the attack, Russia's on the attack, Saudi Arabia will soon be on the attack," he stressed.

When it comes to the banking system, "we should break up the big banks. JPMorgan should be five separate banks. That way one of them goes down, too bad, but it didn't take down the system," Rickards claimed.

"We're actually enabling the banks to get bigger, we don't understand the fiscal properties at risk. Everything about what the U.S. is doing from a policy perspective is moving in the wrong direction."

- Source, Money News

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Tuesday, June 24, 2014

Sunday, June 22, 2014

When This Bubble Pops it is Going to End Very Badly

I actually had breakfast with some of the leading private equity investors and CEOs this morning and, you know, privately they'll say, look, the bank covenants are gone, cost of funds is very close to zero, they've got more leverage than they've ever had, the U.S. inner stock exchange has greater leverage than they've ever had, so it looks good but this is a bubble being supported by zero interest rates, high leverage.

We all know what happens, they will collapse sooner than later.

You know, stocks could actually be higher by the end of the year, based on, I expect, the Federal pause, the taper around the middle of the year. But in the long...this is a bubble. The problem is bubbles, they last longer than we think, but when they pop, it ends very badly. This is all being floated by zero interest rates and leverage.

- Source, James Rickards via FXStreet

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