Transcription of Finance News Network Interview with James G. Rickards - author, economist, lawyer, investment banker and portfolio manager at West Shore Funds
Lelde Smits: Hello I’m Lelde Smits for Australia’s Finance News Network and joining me today in Sydney to discuss his latest book is author, economist, lawyer, investment banker and portfolio manager at West Shore Funds, Jim Rickards. Jim, great to speak with you Down Under.
Jim Rickards: Great to see you Lelde. It’s fantastic to be here. Love Australia.
Lelde Smits: Before “The Death of Money” “Currency Wars: The Making of the Next Global Crisis” was released in 2011. How does Death of Money expand on your original piece?
Jim Rickards: It’s a great question. I tell people it’s a prequel and a sequel and here’s what I mean – Currency wars opened with a couple of chapters about the first financial war game conducted by the Pentagon. And, there is a geopolitical aspect to what I am doing as well and we did it at a top secret weapons laboratory outside of Washington and we had a Russia team and a China team and we played this all out over a couple of days.
Well, a lot of people asked me, they said, “Well Jim, that was fascinating, I loved that part of the book. What where you doing there? How did you get invited? Why did the Pentagon call you to ask you to facilitate/participate in this war game?” So I sort of tell the back story of my involvement with national security matters prior to 2009. So, that is the prequel.
The sequel is to take the story of currency wars forward into what I expect to be the collapse of the international monetary system.
Lelde Smits: So Jim what exactly do you mean when you say, ‘The collapse of the international monetary system’?
Jim Rickards: When I say that Lelde, you know people say, “Well that’s sort of a provocative scary statement.” But, I point out that the international monetary system actually has collapsed three times in the past hundred years. It collapsed in 1914, 1939 and again in 1971. So, these things do happen every 30 or 40 years or so. You can see another one happening now. So I want to kind of sort of warn people about that. And, you’re not helpless. There are things you can do in your portfolio today that will help you weather the storm. We talk about, how it is likely to fall apart, what is likely to come next and how investors can survive it.
Lelde Smits: The title itself Death of Money reads as a dire prediction of things to come. What do you believe will be the catalysts to the downfall?
Jim Rickards: It will be a sort of simultaneous or instantaneous loss of confidence in paper money. You know, people say paper money, you know dollars, Australian dollars, US dollars, is not backed by anything – and that’s true. It’s only backed by one thing which is confidence. And if confidence is abused, it’s fragile and if it’s lost, then that is they end of the system. People don’t want the money. They want hard assets.
Lelde Smits: Where are you seeing signs of less confidence now?
Jim Rickards: Well one place is Saudi Arabia. You know the US has sort of stabbed Saudi Arabia in the back by cozying up to Iran, saying Iran will now be the regional power. Saudi Arabia has been a big prop under the dollar. They say oil has to be priced in dollars. What if they change it to Euros or Yen? You know, Putin has said he wants to turn his back on the dollar. The Chinese are buying gold. So you look around the world you see all these treats to the US dollar.
Lelde Smits: You write that, “The next financial collapse will resemble nothing in history”. If we have nothing to compare it to how do you envisage it will unfold?
Jim Rickards: Well, the next collapse will be like nothing in history because it will be bigger than all the previous collapses. And this is actually, there is the scientific basis for this. When you increase the scale of the system, let’s say you triple the size system. You don’t triple the risk, you increase it by a factor of ten or a hundred.
This is not well understood as policy makers don’t think about it that way. They look at longs and shorts and look at the net risk. You are supposed to look at the gross risk and understand the exponential relationship. So, because the system is bigger the collapse will be exponentially bigger and we won’t have any experience with it.
Lelde Smits: So when is this likely to unfold, what timeline have you put on the collapse?
Jim Rickards: It is the question I am asked most frequently. People want to know. They almost say, “Hey Jim, call me the day before. I’ll sell my stocks and buy gold.” But, we won’t know exactly when. But, my comparison level, it’s like an avalanche. You can see the snow building up, you know it’s going to collapse. You don’t know exactly when. My advice is, don’t ski there. Whether it is tomorrow or next year, or two years from now, it’s still dangerous. You need to prepare for that and keep away.
Lelde Smits: What’s your personal feeling over when it could happen?
Jim Rickards: You know, three to five years feels like the right timeframe. I don’t think we’re going to make it to ten years. There’s too much instability. These financial panics have happened too frequently. You know, 87, 94, 98, 2000, 2007, 2008, we can see the tempo and we also know the next one will be bigger than any one before because the system is bigger. So the combination of the increased tempo and the increased scale tells me that we’ll have a major financial panic – probably within three years.
Lelde Smits: Finally Jim, if we can finish with an outlook. You’ve made some bold claims about the dire future of the international monetary system. What do you think the US Federal Reserve will do next and how does this align with your predictions for the death of money?
Jim Rickards: Sure, it’s interesting that it is actually perfectly aligned. Because, the Fed [US Federal Reserve] tapered in December, tapering means reducing asset purchases, a little bit less money printing. They are still printing a lot of money by the way, they are just printing less. That was a blunder. They’ve tapered into weakness. We’ll probably or possibly have a recession in the United States this year. I think Janet Yellen [US Federal Reserve Chair] will realise that by the summer [June – August 2014] so I expect a pause in the taper. They won’t increase right away but they’ll just stop reducing.
A pause in the taper, maybe later this year they’ll actually increase asset purchases which means more money printing later in the year. And, that is completely consistent with the thesis which is they think that they can print unlimited amounts – they are going to find out the hard way they cannot.
Lelde Smits: Jim Rickards, thank you so much for speaking to us in Sydney about The Death of Money and all the best for its release.
Jim Rickards: Thank you.