Wednesday, June 15, 2022

James Rickards: What is Going to Happen to the US Dollar? Will it Plunge and Gold Soar?

Trading partners won’t stand still while you cheapen your currency. They will react by cheapening their own currencies in tit-for-tat devaluations. That’s the nature of currency wars and it was a major reason why the Great Depression lasted so long instead of just a year or two.

Countries can retaliate against trading partners to get a cheap currency by intervening in foreign exchange markets, lowering their interest rates (to discourage capital inflows), imposing capital controls and using other forms of manipulation.

As I said earlier, the world is now in an acute phase of a long-standing currency war.

The yen (JPY) is collapsing because the Bank of Japan needs help with exports to fend off another recession. The euro (EUR) has crashed because the ECB also wants to keep interest rates low and exports high to help member economies.

The Chinese yuan (CNY) is falling rapidly because China’s economy is suffering from the effects of its ridiculous zero-COVID policies and softer demand from the U.S., the EU and Japan. The same is true in pounds sterling (GBP) because the U.K. is on the brink of a recession.

In effect, the second-, third-, fourth-, sixth- and seventh-largest economies in the world (China, Japan, Germany, the U.K. and France) and others comprising over 40% of global GDP are free-riding on a strong dollar by pursuing cheap-currency policies.

The question is how long will the U.S. stand for this? The U.S. clearly does not mind the strong dollar for the time being. The Fed’s interest rate and quantitative tightening policies point toward an even stronger dollar ahead.

As long as U.S. growth is solid, the U.S. might not mind being a financial life preserver for the rest of the world by allowing its trading partners to pursue cheap currency policies. This can help fight inflation in the U.S. by making foreign imports cheaper when paid for in strong dollars.

History shows this won’t last. The Fed’s policies will put the U.S. into a recession by late this year or early 2023. That may help kill inflation, but it’s a nightmare for politicians running for reelection in 2024. Suddenly, the Fed may slam the brakes on rate hikes and even begin rate cuts as they did in 2019.

When that happens, the U.S. dollar will plunge and the dollar price of gold will soar. Currency wars don’t end quickly. They do take time to play out. The U.S. is propping up the world today with its strong dollar approach because policymakers think we can afford it.

When a recession hits the U.S., that policy will change fast. It always does.

- Source, James Rickards

Sunday, June 12, 2022

Currency Wars: A Race to the Bottom

What are the benefits of a cheap currency relative to the currencies of major trading partners? The answer depends on whether you are considering political benefits or economic benefits.

The political benefits are obvious and explain why currency wars (the act of cheapening your currency) have broken out periodically over the past 100 years. A cheaper currency makes your exports cheaper from the perspective of a foreign buyer.

If Indonesia is considering buying wide-body jets for their national airline, they can look at the Boeing 787 or the Airbus A350 among other choices. Manufacturing costs for Boeing are primarily in U.S. dollars while Airbus manufacturing costs are mostly in euros (although both manufacturers source various components and inputs from around the world).

If the euro is weak against the U.S. dollar, it means that Indonesia will probably get a better deal from Airbus. A sale by Airbus ripples through the supply chain and helps create export-related jobs and produces other exogenous economic benefits to the company and its host countries (primarily Germany and France).

The perceived benefits of a cheap currency are not limited to more exports and export-related jobs. A cheap currency is also a way to import inflation. This happens because citizens of the cheap-currency country need more of their currency to buy imports from trading partners.

For example, if a U.S. computer costs $1,500 and the euro is valued at $1.20, then it takes €1,250 to buy the computer. If the euro drops to $1.05 (about where it is today), it takes €1,430 to buy the same computer, a 14% price increase relative to the stronger euro.

Of course, actual supply chains of global manufacturers are more sophisticated than this simple example. Manufacturers will often maintain a set price in both currencies and absorb any profit or loss against their margins or hedge the exchange rate fluctuations in futures markets. Still, the basic dynamic remains and does play out over time.

It sounds strange for a country to import inflation at a time when inflation is surging in many places. But the inflation wave is relatively recent. From 2008–2021, disinflation and outright deflation were serious problems in many developed economies.

Deflation is still a problem in Japan and may become a worldwide problem if higher interest rates used to fight today’s inflation result in a global recession. In any case, the art of fighting deflation with a cheap currency is tried and true.

So the political benefits of a cheap currency are clear. Political leaders can claim that exports are up, imports are down (which helps the balance of trade and GDP), export-related jobs are being created and the risks of deflation are being mitigated. That’s a nice package of accomplishments for any politician to run on.

But is any of this true? The claims are clear but what about the economic reality?

It turns out most of the claims about a cheap currency are illusory, temporary or both. It may appear that the finished prices of exports look cheaper to a foreign buyer when the seller’s currency is cheaper. But this ignores the nature of global supply chains.

Labor costs and technology research and development for an Airbus may be incurred in euros, but the aluminum for the airframe comes from Russia, subcomponents may come from Southeast Asia, avionics may come from the United States and so on.

A cheaper currency means that the prices of those inputs go up since it takes more local currency to buy the components. That’s crucial. Very few sophisticated big-ticket exports are made entirely in one country. A cheap currency makes foreign inputs more expensive, and those costs offset the benefits of a cheap currency in terms of labor and local inputs.

It’s also the case that many commodities have global markets and are priced in dollars. To the extent that local demand is inelastic (as is the case for food and energy), a country with a cheap currency simply has to pay more for those goods.

A cheap currency is like a hidden tax (that’s what inflation is) that is paid for dollar-denominated imports. That leads to demand destruction in other categories of goods and services and may lead to job losses in local industries as consumers spend more on unavoidable imports...

- Source, James Rickards

Friday, June 10, 2022

Jim Rickards: Insolvency, Quantitative Tightening and the Gold Price

In this video, Jim Rickards unpacks what it means for investors if central banks are trading insolvent. 

Jim argues while it is certainly a possibility, it ultimately won't have much of an effect, due to the Fed's hidden asset, the gold certificate.

Thursday, June 9, 2022

James Rickards: Biden’s Loose Lips May Sink Ship

There’s already one going on in Ukraine. But did President Biden just increase the chances of another shooting war, this one with China? Let’s get started, first in Ukraine…

Russia’s assault is slow and brutal, but it is proving effective in achieving Russia’s goals.

Those objectives include building a land bridge from Russian territory to Crimea (and possibly beyond to Odessa), cutting Ukraine off from access to the Sea of Azov and the Black Sea and surrounding Ukrainian troops in the east behind a wall of control that runs roughly from Kharkiv to Kherson and Mykolaiv.

Once that wall of control is established, the Ukrainian army trapped behind the line will have no choice but to surrender or face annihilation.

Media Silence

It is estimated 10,000 or more Ukrainian army troops in eastern Ukraine are under Russian artillery barrage. This battle may take weeks to play out, but Russian victory is likely given the extent to which the Ukrainians are outnumbered and outgunned.

If the Ukrainian forces fall, there will be little left in the east to stop a Russian consolidation that would give control of about a third of 
Ukraine to Russia.

This unfolding battle is not what you’ll be hearing about in legacy media outlets in the West. But don’t be lulled into false confidence by propaganda and bad reporting.

Russia is winning the financial war, and they’re winning on the ground. Meanwhile, the U.S. continues to pursue a policy of escalation against Russia.

Poking the Bear Even Harder

Biden and the Pentagon seem to have no understanding of the dangers of escalation and no capacity to act with the needed restraint. We’ve seen this play out already in Ukraine where the U.S. has first supplied weapons, then money, then intelligence, then financial sanctions and more.

Russia has responded in kind with its own countersanctions and its own advanced weaponry including anti-drone missiles and precision artillery strikes. The latest move in the wrong direction comes from Biden.

Biden announced Tuesday that he intends to send advanced rocket artillery systems to Ukraine. That’s a complete reversal from the day before, when he said the U.S. would not deliver the rockets to Ukraine.

The administration justified its initial refusal to send them on the grounds that Russia may perceive the move as a step too far, a serious provocation. What changed in the course of a day? Did they suddenly decide that it wasn’t that provocative after all?

Regardless, this type of vacillation is indicative of a policy team that doesn’t really know what it’s doing from one day to the next...

- Source, The Daily Reckoning via James Rickards

Monday, June 6, 2022

Jim Rickards: Has Russia Created a Massive Energy Investment Opportunity?

In this interview, Jim Rickards is asked whether an energy investment opportunity is on the horizon as a result of the onshore sanctions imposed on Russia. 

Rickards explains while that is a logical prediction, it is somewhat clouded by the green push to renewable energy sources.

Friday, June 3, 2022

David Brady: The Dollar is Scheduled for Demolition

Tom welcomes back David Brady, CEO, and Co-Founder of Global Pro Traders. 

David discusses the changes that have occurred in the markets since his last appearance on the show nearly two years ago. 

He believes another massive rally is coming for gold and that the Fed will reverse course. 

Countries never chose to default they always inflate their debts away. 

Markets today are centrally managed. What we have is not free-market capitalism.

- Source, Palisade Radio

Saturday, May 28, 2022

Jim Rickards Hits Back at Peak Inflation Criticism; Talks Bitcoin Erasing Money

In Jim Rickards' discussion with our Daniela Cambone, the NYT best-selling author said, "inflation can go a lot higher," because the Fed cannot do anything about supply shortages ranging from food to oil. 

Real wages are, "negative, they're going down," and with rising inflation, people will not spend money elsewhere which can slow the economy further, he asserts. 

If the Fed continues down its projected path of rate hikes, "then they will cause a recession, it will absolutely happen," Rickards predicts. 

He paints a grim picture of the coming digital dollar that can be seen as a, "totalitarian mechanism," comparing the new technology to a full surveillance state which is already being played out in China. 

"Bitcoin is part of a larger digital environment that has erased the concept of money," Rickards concludes, saying we are in a current state of "moneyness," due to the definition of money being unknown.

Friday, May 20, 2022

Bitcoin Vs Gold: One Year Later, Which Is King? Jim Rickards and Max Keiser Reflect

It's been one year since gold financier Frank Giustra debated MicroStrategy CEO Michael Saylor in the ultimate gold vs. bitcoin standoff.  

New York Times best-selling author Jim Rickards, and Max Keiser from the Keiser Report and Orange Pill Podcast, reflect back on the unsettled debate. 

They discuss whether gold or bitcoin has a stronger case one year later.

Saturday, May 14, 2022

Rickards says the minimum gold price is $15000 per ounce in the not too distant future

Wednesday, May 11, 2022

James Rickards: The World is Moving Towards Gold

Five-time, best-selling financial author James G. Rickards says, “We could be in a recession right now,” but the title of his most recent book “The New Great Depression” says where we are definitely going soon. Rickards says, “The current crisis is not like 2008 or even 1929. 

The New Depression that has emerged from the COVID pandemic is the worst economic crisis in U.S. history.

Most fired employees will remain redundant. Bankruptcies will be common, and banks will buckle under the weight of bad debts. 

Deflation, debt and demography will wreck any chance of recovery, and social disorder will follow closely on the heels of market chaos.”

Rickards says there are many negatives to the current economy, Covid, inflation, war, sanctions, supply destruction, and on top of all that, Rickards says the Fed will ultimately kill the economy with a policy mistake. Rickards explains, “Probably in May they are going to have quantitative tightening, which means you actually reduce the money supply. 

So, this is triple tightening: Three interest rate hikes, no more taper and doing quantitative tightening at a very rapid rate. What just happened? We had a down quarter. 

 The economy was at recession levels in the first quarter, and the stock market is on the way down. So, here we go again. The Fed is tightening into weakness. It’s tightening into certainly a stock market bubble, and they are probably going to destroy the markets again.”

Inflation, according to Rickards, is very serious, and he explains, “It is the worst inflation in 40 years. You can’t argue about it, it’s there. The inflation we are seeing now does not come from the demand side.

It’s from the supply side. It’s because of the war in Ukraine. That’s a supply side disruption. It’s also from the ‘Zero Covid’ policy in China. 

 They locked down two of the biggest cities in the world. . . . There are multiple reasons for supply chain disruptions. By the time you pay for gas and groceries, if you can, there is not much left over. That’s going to kill discretionary spending.”

Rickards says the signs that gold is going way up are global. Rickards contends, “The world could not destroy the dollar, but we could.

If you are putting sanctions on dollars and kicking people out of dollar accounts why would I want dollars? The U.S. destroyed trust.

If you want to get away from the dollar, there is not a currency or bond market you can go to, but there is gold. Gold is money good, and it’s the only form of money the whole world can agree on.”

Rickards says the minimum gold price is $15,000 per ounce in the not-so-distant future. Rickards says depending on the backing and math, it could go up in value much higher. 

 Rickards likes silver, too, and food for the common guy. Food prices are going to go much higher according to Rickards, and in some places in the world, he expects out right starvation.

- Source, USA Watchdog