James Rickards: This Crisis Will Affect Us for Generations, Expect a Very Weak, Slow Rebound

James Rickards is the New York Times bestselling author of Aftermath, The Road Road to Ruin, The Death of Money, Currency Wars, and The New Case for Gold, which have been translated into sixteen languages. He is the editor of the newsletter Strategic Intelligence and is a member of the advisory board of the Center for Financial Economics at Johns Hopkins University. As an adviser on international economics and financial threats to the Department of Defense and the U.S. intelligence community, he served as a facilitator of the first-ever financial war games conducted by the Pentagon. He lives in New Hampshire.

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James Rickards: Get Ready for Social Disorder

"Yet even this three-system analysis I just described (pandemic > economy > politics) does not go far enough. The next phase has been little noticed and less discussed.

It involves social disorder. An economic breakdown is more than just economic. It leads quickly to a social breakdown that involves looting, random violence, fraud and decadent behavior.

The Roaring ’20s in the U.S. (with Al Capone and Champagne baths) and Weimar Germany (with riots and cabaret) are good examples.

Looting, burglary and violence in the midst of a state of emergency are the shape of things to come.

The veneer of civilization is paper-thin and easily torn. Most people don’t realize how fragile it is. But they’re going to learn that lesson, I’m afraid.

Expect social disorder to get worse long before it gets better."

- Source, James Rickards

James Rickards: Geopolitical and Monetary Impact of the China Virus?

James Rickards, New York Times bestselling author of The Death of Money and Currency Wars, gives his opinion about the possible demise of fiat currencies.

How is this all going to play out and how far are governments going to take their money printing?

Will the fiat based system survive the coronavirus crisis, or will it implode under all this newly created debt, out of thin air?

- Video Source, Jay Taylor Media

James Rickards: Complex Systems Collide, Disease and Financial Contagion

Zooming out a bit, and as I’ve argued before, the pandemic is a prime example of complex systems colliding into one another…

Investors and everyday citizens are focused on how the COVID-19 pandemic (one complex dynamic system) is crashing into the economy (another complex dynamic system) and influencing the political process and the upcoming U.S. presidential election (still another complex dynamic system).

Analyzing the operations of one complex dynamic system is difficult enough; most analysts can’t do it because they’re using the wrong paradigms.

Analysis becomes far more challenging when multiple complex systems interact with each other and produce feedback loops. That’s where the real so-called “Black Swans” reside.

And this crisis is the blackest swan most people alive today have ever seen, especially if Rogoff’s insight is correct — 150 years is a very long time.

That’s not to minimize in any way recent events like 9/11 or the 2008 financial crisis. Both were devastating. But neither led to a virtual lockdown of the entire economy like we’re seeing now. The current crisis simply has no precedent.

What we’re seeing is a full-fledged global contagion.

Biological and Financial Contagions

Let’s discuss the word “contagion” for a minute because it applies to both human populations and financial markets — and in more ways than you may expect.

There’s a reason why financial experts and risk managers use the word “contagion” to describe a financial panic.

Obviously, the word contagion refers to an epidemic or pandemic. In the public health field, a disease can be transmitted from human to human through coughing, shared needles, shared food or contact involving bodily fluids.

An initial carrier of a disease (“patient zero”) may have many contacts before the disease even appears.

Some diseases have a latency period of weeks or longer, which means patient zero can infect hundreds before health professionals are even aware of the disease. Then those hundreds can infect thousands or even millions before they are identified as carriers.

In extreme cases, such as the “Spanish flu” pandemic of 1918–20 involving the H1N1 influenza virus, the number infected can reach 500 million and the death toll can run over 100 million.

A similar dynamic applies in financial panics.

It can begin with one bank or broker going bankrupt as the result of a market collapse (a “financial patient zero”).

But the financial distress quickly spreads to banks that did business with the failed entity and then to stockholders and depositors of those other banks and so on until the entire world is in the grip of a financial panic as happened in 2008.

Still, the comparison between medical pandemics and financial panics is more than a metaphor.

Disease contagion and financial contagion both work the same way. The nonlinear mathematics and system dynamics are identical in the two cases even though the “virus” is financial distress rather than a biological virus.

But what happens when these two dynamic functions interact? What happens when a biological virus turns into a financial virus?

We’re seeing those effects now...

- Source, James Rickards

Jim Rickards: Worst Recession in 150 Years

The stock market had another big day today, spurred by the Fed’s massive recent liquidity injections.

But you really shouldn’t be terribly surprised by the rally. Even the worst bear markets see substantial bouncebacks. And you can expect the market to give back all of its recent gains in the months ahead as the economic fallout of the lockdowns becomes apparent.

This bear market has a long way to run. And we could actually be looking at the worst recession in 150 years if one economist is correct. Let’s unpack this…

My regular readers know I have a low opinion of most academic economists, the ones you find at the Fed, the IMF and in mainstream financial media.

The problem is not that they’re uneducated; they have the Ph.D.s and high IQs to prove otherwise. I’ve met many of them and I can tell you they’re not idiots.

The problem is that they’re miseducated. They learn a lot of theories and models that do not correspond to the reality of how economies and capital markets actually work.

Worse yet, they keep coming up with new ones that muddy the waters even further. For example, concepts such as the Phillips curve (an inverse relationship between inflation and unemployment) are empirically false.

Other ideas such as “comparative advantage” have appeal in the faculty lounge but don’t work in the real world for many reasons, including the fact that nations create comparative advantage out of thin air with government subsidies and mercantilist demands.

Not the Early 19th Century Anymore
It’s not the early 19th century anymore, when the theory first developed. For example, at that time, a nation that specialized in wool products like sweaters (England) might not make the best leather products like shoes (Italy).

If you let England produce sweaters and Italy make shoes, everybody was better off at the end of the day. It’s a simple example, but you get the point.

But in today’s highly integrated and globalized world, where you can simply relocate a factory from one country to the next, comparative advantage has much less meaning. You can produce both sweaters and shoes in China as easily as you can produce them in England and Italy (and much more cheaply besides).

There are many other examples of lazy, dogmatic analysis among mainstream economists, too many to list. Yet there are some exceptions to the rule.

A few economists have developed theories that are supported by hard evidence and do a great job of explaining real-world behavior. One of those economists is Ken Rogoff of Harvard.

The Worst Recession in 150 Years

With his collaborator, Carmen Reinhart and others, he has shown that debt-to-GDP ratios greater than 90% negate the Keynesian multiplier through behavioral response functions.

At low debt ratios, a dollar borrowed and a dollar spent can produce $1.20 of GDP. But at high ratios, a dollar borrowed and a dollar spent will produce only $0.90 of GDP.

This is the reality behind the phrase “You can’t borrow your way out of a debt crisis.” It’s true.

Meanwhile, the U.S. debt-to-GDP ratio was about 105% even before the crisis. It’s only going higher. We’re just digging a deeper hole for ourselves.

So when Ken Rogoff talks (or writes), I listen. In his latest article, Rogoff offers a dire forecast for the recovery from the New Depression resulting from the COVID-19 pandemic.

He writes, “The short-term collapse… now underway already seems likely to rival or exceed that of any recession in the last 150 years.”

That obviously includes the Great Depression and many other economic crises.

This is something you should really consider before you decide the coast is clear and it’s time to jump back into stocks.

- Source, Jim Rickards via the Daily Reckoning

James Rickards: Trump Says “No” to World Money

Over the course of 13 years as a media commentator and nine years as a bestselling author, I’ve had frequent occasion to state the following:

“In 1998, Wall Street came together to bail out a hedge fund. In 2008, the Federal Reserve stepped forward to bail out Wall Street. Each crisis was worse than the one before. In the next crisis, who will bail out the Fed?”

This was more than just rhetoric. It was a clinical description of a pattern of worsening crises on an approximately 10-year tempo, along with escalating bailouts.

Now the worst economic crisis in U.S. history is here and the Fed itself is in need of a bailout.

But what is the source of that bailout?

We now know part of the answer. A few weeks ago, the U.S. Congress passed a $2.2 trillion bailout bill called the CARES Act. This is the law that provided $349 billion in small-business loans, which are forgivable if the employer does not lay off its employees.

That fund has dried up already with most businesses getting either no money or not enough to survive more than a few weeks.

Also buried in that law was a $425 billion bailout fund for the Treasury to recapitalize the Fed. Since the Fed operates like a bank, they will leverage that $425 billion of new capital into $4.25 trillion of new money printing to buy corporate debt, municipal bonds, mortgages and other assets in order to keep liquidity in the system.

Still, that’s also a temporary solution when many more trillions of dollars of new money will be needed.

U.S. GDP is expected to lose an annualized $6 trillion or more in output in the second quarter. I estimate that 50% of retail and 90% of office rents aren’t being paid right now. Many small businesses will fail and probably never reopen.

I had always suggested that the IMF has the only clean balance sheet and would be the only source of liquidity in the world once the Fed was tapped out.

That’s exactly what we’re seeing now. The world is turning to the IMF for help. And that means printing the world money called special drawing rights (SDRs) to bail out the global financial system in the current economic and financial crisis.

SDRs were used in a small way during the 2008 financial crisis. They did not have much impact because the quantity was relatively small (about $250 billion equivalent) and it took a long time to get done. The SDRs were issued in August 2009, almost a year after the acute phase of the crisis and after a recovery had already begun.

Still, the 2009 issuance was a good dry run in preparation for the next crisis. Now the next crisis is here.

The world has never been so deeply in debt.

Societies with low debt burdens are robust to disaster. They can mobilize capital, raise taxes, increase spending and rebuild when the crisis is over.

But heavily indebted societies are much more brittle. They just don’t have that flexibility. Meanwhile, panicked creditors demand repayment that causes distressed sales of assets, falling markets and default.

That’s the situation we’re facing today.

Still, nothing this momentous happens without a heavy injection of politics, especially while Donald Trump and his “America First” agenda are in place.

A normal SDR printing exercise requires that the total SDRs be issued to all IMF members in proportion to their voting rights in the IMF. This means that U.S. adversaries such as Iran and China would get part of the bailout money along with more needy countries in Africa and Latin America.

The U.S. is now holding up the new issuance of new SDRs for exactly this reason.

We’ll see how this impasse gets resolved. Perhaps new SDRs will be issued right away. But as the depression lingers and the Fed’s impotence is exposed, the issue of printing a trillion SDRs will be back on the table.

China may have their own conditions such as a diminution in the role of the dollar as a global reserve currency. The U.S. may be more desperate when the time comes. Either way, this issue will not go away.

SDRs were originally intended as a kind of “paper gold.” Once the IMF starts the printing presses, investors will probably favor real gold as the proper antidote.

Below, I show you why gold is coming back to the global monetary system. As you’ll see, It can be done either in an orderly fashion, or a chaotic fashion.

- Source, James Rickards via the Daily Reckoning

James Rickards: Globalization is Dead

James Rickards: Are We Facing the Greatest Depression? Worst Economic Crash in History?

Just how dire of a situation are we looking at? Will the COVID-19 outbreak lead to one of the greatest economic depressions of the modern era?

How far will governments go to bailout its people and its businesses?

Nothing like this has ever been attempted before and the ramifications could be felt for years to come.

Join James Rickards and Pippa Mamgren as they take on these questions, plus many more in their recent interview with Trigger Nometry.

- Source, Trigger Nometry

Jim Rickards on How to Protect Your Wealth During the COVID-19 Crisis

Jim Rickards speaks with our friend, the publisher of Paradigm Press, Pete Coyne about the COVID-19 Crisis. 

As is often the case, Jim Rickards has been one step ahead of mainstream analysts through the entire COVID-19 crisis. 

He predicted it would be global catastrophe in early February, well before markets caught the fever. So what does Jim see happening next? 

The answer is unsettling: A complete monetary system shutdown. Starting in the US. Then spreading outwards. At the end of such a scenario, the entire global financial system shuts down, and any Federal Reserve intervention may no longer be effective. 

It’s worth pointing out that this is a scenario Jim has highlighted for several years as the bookend of this historic bull market. 

The difference now is, it appears to be in motion. So what, if anything, can you do to shelter your wealth?

- Source, The Daily Reckoning Australia

James Rickards: Defending Your Wealth During This Global Crisis, A Strategy Guide

Join Hedgeye CEO Keith McCullough for a very special conversation with Strategic Intelligence editor James Rickards.

Keith and Jim dive deep into the current market chaos, key economic ramifications, the failure of central banks to arrest the recent decline and how investors can protect their wealth amidst the market tumult.

- Source, Hedgeye TV

Jim Rickards: Covid-19, The Next Great Depression is Here

Jim Rickards Has Been Warning About an Economic Collapse for Years, Now it is Here

Financial advisor, commentator and author of books like Aftermath, Currency Wars and the Road to Ruin, and with a Twitter following of over 130,000, Jim Rickards has been warning of the day markets seize up, in a new different crisis. 

He spoke to Ticky Fullerton from New England where he is holed up with family and was asked what he made of the US government's massive $2 trillion stimulus.

- Source, Sky News Australia