Jim Rickards: Debt, The Death of Money and Gold

[Ed. Note: Jim Rickards’ latest New York Times bestseller, The Road to Ruin: The Global Elites’ Secret Plan for the Next Financial Crisis, is out now. Learn how to get your free copy – click HERE. This vital book transcends geopolitics and builds from his historic book The Death of Money to prepare you for financial crisis.]

Jim Rickards joined Greg Hunter of USAWatchdog to discuss his book The Death of Money and the debt ceiling issues facing Trump and Congress. During the interview the two discuss everything from what to expect from Federal Reserve policy to gold prices in the coming months and years.

To start out the interview Jim Rickards was asked on the national debt where he contends, “The debt ceiling is very important. The United States runs budget deficits year after year. In the last 50 years we have only had minimal surplus years under Nixon and Clinton. We currently have $20 trillion of debt. The Treasury cannot just borrow however much they want. The U.S Congress limits the Department of the Treasury’s ability to borrow, what is called the debt ceiling. When the Treasury wants to borrow more, you have to raise the ceiling ceiling by the legislative process – an act of Congress.”

“Officially the existing debt ceiling ran out on March 15 and the Treasury cannot borrow any more money. Right now the Treasury is within tax season so it has positive cash flow. They have more in than going out and will not need to borrow at the exact moment. That is strictly temporary and a function of tax season in. Once we get through April, the shoe is on the other foot.”

“They’re going to hit a “hard ceiling” probably by August, if not sooner. Then the issue becomes whether Congress gives the Treasury the authority to borrow more money. The problem is when passing a debt ceiling bill, the “strings attached” deals that come with them. You gain some members in doing deals and lose others. We saw that with the health fiasco and the repeal of Obamacare failed not because of Democrats but because of Republicans who could not agree amongst themselves.”

“While there is the debt ceiling, there is also the ability to spend. The Congress has to authorize that also – the budget process. The U.S government works on the fiscal year and does not have a January 1 year. It actually starts October 1 and typically requires a budget to be in place by  September 30. We don’t have a budget yet for the year we are in right now. Congress will pass a “Continuing Resolution.”

“What it says is that the government can continue spending what they spent the year before but cannot spend any more or on anything new. Right now we are still in a continuing resolution period but that expires on April 28 – a couple of weeks away. If you hit that and do not extend a continuing resolution, the government cannot spend. The government shuts down.”

“My point, and the point of my book The Death of Money, is that these are what I call “snowflakes” building up to create an “avalanche.” The avalanche is the instability of the financial system as a whole. The concentration of banks, the size of ‘too big to fail’ banks, the interconnectedness of the system and a quadrillion dollars in notional value of derivatives – all massively unstable. What does it take to cause that avalanche and a loss of confidence in the system.”

“When you say that the government has to shut down and Congress cannot borrow. I am not saying the system is going to collapse in the next 30 days, what I am saying is that the system is very vulnerable to collapse and it will collapse sooner than later. These are the kinds of things that can cause it. We’re really playing with fire. What I would do as an investor is to make sure I had at least 10% of my assets in physical gold.”

When Greg Hunter asked about the ability of President Trump to govern Rickards’ responded, “The president’s maximum power is right after the election. That’s why people talk about “The First 100 Days.” That is when it is expected a president will get the majority of their important legislation through… Trump has already squandered part of that.”

“He’s up against extreme opposition and the failure to repeal Obamacare had ramifications that go way beyond healthcare. It sends a signal to members of Congress, especially those up for election in 2018, on how things will play within their districts. They have to evaluate whether the president is a strong leader who is getting things done and to “jump on that bandwagon.” Or in contrast is the president wounded, with popularity ratings down in which a “distancing” from the president is needed.”

Greg Hunter then pressed beyond Trump to ask about Rickards’ for his read on the U.S dollar (the main focus in The Death of Money, his bestseller). Jim Rickards contends, “You can see a global financial collapse coming. The science of complex system and dynamic systems show that these things happen. Extending from 1998 to 2008 to today. That’s the straightforward science. From there what is the ‘reaction function’ after the collapse happens – how do you put things back together again?”

“There aren’t that many choices. One is the gold standard, one is the special drawing rights (SDR). First they are going to try a “guarantee route” that former Treasury Secretary Tim Geithner talked about and will offer ‘happy talk’ from the central banks, which won’t work. They’ve already tried those things and are at the limit of confidence that people will accept.”

“If they take up the special drawing rights (SDR) option and it does work, it will be only because nobody understands it. Regular people cannot get SDR’s. The SDR goes to countries only. The International Monetary Fund can issue SDR’s to countries for use to purchase oil, to settle their balance of payments, foreign direct investments and currency swaps. If this option is taken it will require the IMF to print trillions in SDR’s to do so, that is going to be highly inflationary. While I am not saying the dollar will not ‘exist’ in this scenario, it would no longer be the global reserve currency.”

When pressed on economic activity going forward Jim Rickards remarked, “Right now in Spring 2017, the Federal Reserve is on a tightening path which I expect leads to an interest rate hike in June. The economy is very weak, don’t believe all the “happy talk” you hear. Look at workforce growth, population growth or productivity levels which are the drivers of real economic growth. They’re going very poorly. You are looking at 1% real growth, maybe a little better, but nowhere near where we need to dig our way out from our budget deficits and the national debt. Those numbers don’t add up.”

“The Fed is tightening anyway even in the face of weakness because they have a different agenda. They want to get rates high enough so they can cut them in the next recession. That is what happens when you keep rates artificially low for eight years. The zero interest rate policy and quantitative easing will be looked back on as a massive failure. The Fed is now trying to catch up.”

“Raising rates in a weak economy very well may cause a recession. In the short run, I expect headwinds for gold because of the activity. By the summer, I expect the economy will stall out and the Fed will have to flip. That would make it the ninth flip flop since May 2013 from tightening to easing. Under such conditions I would expect a tailwind for gold, causing it to jump much higher.” [Ed. Note: To see Rickards full expectation of gold – find more .]

To catch Jim Rickards full conversation on the Death of Money and more with Greg Hunter CLICK HERE.

If you’d like to learn how to get you FREE copy of Jim Rickards most recent New York Times bestseller – CLICK HERE.

Thanks for reading,

Craig Wilson, @craig_wilson7
for the Daily Reckoning

The Daily Reckoning