“Here’s the point I make in my book, in 1998 Wall Street got together and bailed out a hedge fund. Then in 2008 the central banks and bailed out Wall Street. In the next crisis, who is going to bail out the big banks. In other words, each crisis gets bigger than the one before. Each bailout gets bigger than the one before. We’re now to the point where we’ve exceeded the capacity of the central banks to “save the day.” When the next crisis hits… where’s the money going to come from next? The Fed balance sheet has expanded from $800 billion to $4 trillion to deal with the last crisis. The problem is they have not normalized and are still at the $4 trillion mark. What are they going to do in the next crisis… Go to $8 trillion? What’s the limit? There is an invisible limit. The Fed knows it. They’re not prepared for the next crisis right now.”
“Where is the money going to come from if you have to reliquify the system? It has to come from the International Monetary Fund (IMF). They have the only clean balance sheet left. We’re focused on trillions of Special Drawing Rights (SDR’s), or world money, that they will print. These outcomes are very predictable based around the models and complexity theory.”
When asked about the Federal Reserve plan to reduce its balance sheet by the Modern Wall Street host, Rickards responded, “I wish they had done it eight years ago. Creating liquidity to deal with the crisis in 2008 was what they were supposed to do. I’ll give them credit QE 1 (quantitative easing), but QE 2 and QE 3 were just experiments by Ben Bernanke. I’ve spoke to Ben Bernanke about this and those are his words, not mine. He indicated that thirty years from now scholars will look back and tell us if we did a good job.”
“Right now, it’s not working. We never got growth [in the economy]. The Fed in 2009 and 2010 when it set out on QE 2 never thought we would be in 2017 with a $4 trillion balance sheet and less than 1% growth – but here we are. I’ll give Janet Yellen for starting the process – but it should’ve been done seven or eight years ago.”
Jim Rickards joined Modern Wall Street and host Olivia Bono-Voznenko outside of the New York Stock Exchange in order to discuss his latest book, “The Road to Ruin” along with a series of topics focused on currency wars, the Federal Reserve and the looming recession facing Trump.
When asked about whether he is suggesting an inevitable economic catastrophe or whether the system is setting up for disaster he responded, “Both items are true. It is the way we’re structured and the risk in the system that will lead to a catastrophe. I would distinguish between a financial panic seen in 1998 and 2008, and a normal business cycle. Right now I think we’re more vulnerable to the business cycle. I think we’re headed into a recession.”
Jim Rickards is a New York Times best-selling author of The Road to Ruin. He is a lawyer who worked on Wall Street for decades. Currently, he advises the U.S intelligence community and military outlets on topics covering currency wars and international economics.
When asked about the confidence that is currently boosting the markets, Rickards’ remarked, “First off, I don’t put a lot of stock in confidence reports… There is a high correlation between consumer confidence and the stock market. The reason consumers are confident is because the stock market is going up. As soon as the stock market goes down, consumer confidence is going to plunge. So what could cause it? Imagine that snow is building up on a mountainside. You could look at it and see its unstable and know it is going to collapse. All it takes is one snowflake to come along, start a slide and disturb others while gaining momentum. The next thing you know the whole avalanche is coming down. Who do you blame? The snowflake or the system as a whole?”
“What I am doing is looking at the system as a whole. It is the instability of the system that we need to be concerned about… There are lots of things that could cause it. That’s not the important aspect to focus on. My advice to investors is get gold now. Don’t go all in, I recommend 10% of your investable assets. That’s not 50% or 100%. That’s your insurance if everything I am saying is wrong, you won’t get hurt with that slice of gold… But if things do get bad and fall apart you’ll be very happy to have it.”
Offering his insights the author explained, “I’ve looked at it and understand the details but it is almost meaningless. I think this is for show and something of a “trophy” for Donald Trump’s first hundred days. They want to put a stake in the ground and begin negotiation but the numbers [on the tax bill] don’t add up and it would never get through the U.S Congress with the present form.”
“It is completely devoid of detail and even the points given don’t give specifics. It is an interest starting place and a good discussion point but I don’t take it very seriously at all. There will be a tax bill later on in the year though.”
When asked how the market has responded in the past months to the talk about the tax plan he pressed. “President Trump was elected in November and the U.S market went up with the S&P jumping 100 points, the Dow Jones went up 1000 points – because of the possibility of the Trump tax cuts. Then in December the Dow Jones went up another 1000 points because of the possibility of the Trump tax cuts. Then again in January the market went up another 1000 points because of the Trump tax cuts. This is bubble behavior. The market went up three times based on the same tax cuts.”
“[The President] is only going to cut taxes once. The market seems to react at every rally opportunity. There is an old saying on Wall Street “buy the rumor, sell the news.” Late today the U.S stock market averages turned down because they took a look at the tax cut proposals released today and it didn’t have a lot of the things they wanted with details expected. It is a one page press release, so we still have more to see. I think the market is going to reserve judgement.”
“If, in fact, the proposed tax bill doesn’t come anywhere close to what Trump is describing the market is going to sell off because they cannot meet expectations.”
Jim Rickards joined Sky News Australia while speaking from New York City he delved into the expectations of the Trump tax plan proposals, what the political landscape shows the general public and how the market could react.
When asked about his read on the proposed “largest tax reform in U.S history” Rickards did not hold back. “In a carnival or circus you used to have something called a side show. It would have funny acts with sword swallowers, flame swallowers or living mermaids. I view this whole thing as a side show. I don’t think that analysts should take it very literally. I think it is very difficult for viewers outside of the United States to understand. Most democratically elected parliamentary systems operate under where when the Prime Minister directs something, if they have a working majority, it becomes the law. While there is usually some debate, the leadership typically gets what they want.”
Jim Rickards joined Stephen Guilfoyle on The Street to discuss his latest take on the numbers that will move the Fed in through its decision making process. During the conversation Jim Rickards and Mr. Guilfoyle, also known as “Sarge” on Wall Street, cover how the Federal Reserve will continue to push rates higher and potentially trigger a recession.
To begin the discussion Sarge prompted Rickards’ on his read regarding the trajectory of monetary policy in the United States. Rickards noted, “I see the Federal Reserve raising rates in June — the market is getting there, they’re not quite ready yet though. The Fed is on track to raise rates four times a year until 2019 in order to get the Federal funds rate at 3.25%. The expectation is rate hikes in March, June, September, December in a sequence until 2019.”
“There are only three reasons that the Fed might his a “pause button.” There are only three reasons they would do so. First, if job creation falls below 75 thousand per month, which is a pretty low hurdle. Second, if the stock market fell out of bed and I don’t mean 5%. If the Dow was to fall more than 2000% that would cause the Fed to pause. The third thing would be disinflation. Inflation is currently moving toward the Fed’s goal but if it started to move the over way [you could see the central bank take a pause]. If you don’t see those things then expect the Fed to raise four times a year.”
The bestselling author went on to note, “This has nothing to do with the business cycle. This is where I think Wall Street has got it wrong in assuming “you’re raising rates when the economy is strong, so the economy is strong” which has been true for seventy years – it’s not true now. They’re raising rates into weakness. The Fed has to get rates up so that they can cut them in the next recession. They skipped a cycle and now have to make up for lost time.”
Jim Rickards is an American economist and bestselling author who just released the paperback version of his book The Death of Money. Rickards’ is a currency wars expert who has advised the United States government on issues related to currency wars and international economics.
When asked whether the Fed could cause the next recession Rickards’ pressed, “They might. That’s the finesse. Can you raise rates in order to prepare to cure the next recession, without causing the recession you’re trying to cure? I think the answer is probably no. For the first time ever the Fed is tightening into weakness. Now the Fed is tightening for a completely different reason than the business cycle. They’re trying to make up for lost time.”
When asked whether the Federal Reserve is acting on partisan reasoning Rickards’ did not hold back in expressing, “I have recently written on just that where I noted – Donald Trump owns the Fed. What I mean is he’s got three vacancies that he’ll be able to fill. There is a lone Republican on the Federal Reserve’s board with Jay Powell. He’s been alone ‘in the sandbox’ for years and he’s going to potentially three Republican replacements joining him to take up four seats. Janet Yellen [the chairman of the Federal Reserve] is up in January 2018.”
“While that will need Senate confirmation, expect President Trump to name her replacement by November – if not sooner. So that will allow for a fifth Republican on board. Then, Stanley Fischer term with end in June 2018. That will allow for six seats to be filled. At that point Lael Brainard will be the last remaining board member from a Democrat. No president has had that many vacant seats at one time since Woodrow Wilson… You’d have to go all the way back to the creation of the Fed in 1913 when Woodrow Wilson had a vacant board except for two automatically filled seats.”
“Trump owns the Fed. Whatever Trump wants, he’s going to get. The question is, what does Trump want? A lot of speculation is that he’ll want ‘easy money’ because he’s talking about a cheaper dollar. [Expect Trump] to put ‘hard money’ people on the board to not fight the currency wars but to fight the trade wars.”
The Street host then asked whether Rickards’ whether he expected practitioners rather than academics to be appointed? Rickards took the case to point saying, “I think there will be a mixture. The leading candidate right now to replace Janet Yellen is Kevin Warsh. He was on the board before and there is no reason for him to go back on the board unless he’s going to be chairman.”
Rickards’ signals, “If he is seen being appointed to one of the vacancies, you know he’ll be the future chairman. That would make Yellen a lame-duck from day one. I think we will see people appointed who will believe that interest rates should already be at 2%.”
Jim Rickards joined The Lance Roberts Show to discuss Trump’s first 100 days in office, the Fed and what he has identified as The Death of Money. During the conversation Rickards calls attention to the biggest underreported story facing Trump and what to anticipate in the economy going forward.
Lance started the conversation asking about Rickards impressions on Donald Trump’s initial first weeks in office and the “bumps out of the gate” coming out. Rickards began by noting, “Historians and pundits like to talk about the first 100 days of a president. It is a big deal because there is no doubt that a President’s power is at its peak just after the election. The second term and lame-duck periods are difficult to getting much done. With Trump it has been a mixed bag. He’s had some high profile legislative failures. They failed with repealing Obamacare and it appears it is going to take longer than expected with tax reform.”
“On the executive order side, this has been a revolution. Whether you look at climate change, more military spending the U.S profile in the middle east, trade and tariffs, etc. Trump has done a lot of what he said he was going to do. So, on the one hand a lot of activity and promises kept. I would think that to continue but with some high profile failures also… Most presidents get Congressional Honeymoon, but it appears Trump’s got more of a burning bed.”
James Rickards discusses the cyclical nature of the markets and how they always repeat themselves time and time again throughout history. This time, it is never different. Gold will rise again.
