Jim Rickards: The Mother of all Elections
In one of his latest interviews, economist and bestselling author Jim Rickards went for a flash round interview session while on the Keiser Report. Max Keiser, someone not afraid of asking pressing questions and sharp commentary spoke with Rickards’ about Donald Trump’s economic policies so far and what to expect from the elections in Europe.
When asked about bilateral deals with Japan and the meeting with the leader of Japan, Shinzo Abe and Trump he responded, “This is the future of trade, at least for the next four years, maybe the next eight. We will see bilateral deals all over the place. Trump is all about “The Art of the Deal.” This is a one-on-one, ‘you give me something and I give you something’ – which is Trump’s style. I think the Japanese are following the Trump lead. We will continue seeing an increase in bilateral deals unfold.
Jim Rickards is a New York Times bestselling author of The Road to Ruin (claim your FREE copy here) and has consulted the U.S government regarding capital markets and maintains clients ranging from institutional investors to government directorates. Rickards’ previously worked on Wall Street where he was the principal negotiator overseeing the rescue of LTCM by the Federal Reserve in 1998.
When asked by Max Keiser about rising interest rates and inflationary reactions Rickards directed, “It has to become inflationary sooner or later. We have $20 trillion in debt. You don’t have to pay off the debt but you do have to roll is over. You do have to make it sustainable. We are on a unsustainable path. Meaning the Debt-to-GDP ratio is going up.”
“Debt is going up about 3% a year, a little more. Growth has been about 2% a year. If you grow your debt at 3% and income at 2%, it sets you on the path to Greece. U.S debt to GDP ratio is about 105%, which is well past the 90% danger zone that Rogoff-Reinhart have identified. Let alone the 60% danger zone that Angela Merkel identified. The U.S is on the path to Greece but there is a ready, sure-fire way out of it and that is inflation. The problem is that the U.S Federal Reserve has been trying to get inflation for 8 years and has failed. It is a sad day when a central bank wants inflation and can’t get it. They’re not going to stop until they get it.”
“The interesting thing is that right now there are vacancies on the Federal Reserve’s Board of Governors. Trump is going to be able to fill those. I expect announcements very soon. Janet Yellen is up this time next year. They will be announcing her replacement, potentially, as early as December. Trump is going to completely remake the Board of Governors. I am watching that very closely. Trump wants a weaker dollar. Well how do you get a weaker dollar? You don’t get it with higher interest rates, you get it with lower interest rates. You could see a combination of higher fiscal spending and monetary ease. There is a name for that and it is called helicopter money and that will get you inflation.”
When Keiser asked about the global job picture and the overall influence escalating outside of central banks he responded, “The great flaw of this monetary experiment we have had for the last eight years is velocity. The Janet Yellen’s and Ben Bernanke’s of the world all come from Milton Friedman. What Friedman said was that velocity was constant. If you had a maximum, real GDP that could be achieved and you didn’t want inflation – and wanted real GDP and nominal GDP to be the same velocity all you had to do was dial up the money supply to the amount roughly equivalent to potential real GDP [with the belief] you were going to get maximum growth with no inflation or deflation. It was central bank nirvana.”
“It turns out that whole theory is garbage because velocity is not constant. Velocity has been plunging. It did not start in 2008, it started around 1998 around the time of Long Term Capital Management (LTCM) Crisis along with the Asian and Russian financial crisis. The real problem is not how much money you can print, the question is ‘can you get velocity?’ That’s a psychological and behavior psychology. They have not cracked that code.”
Max Keiser then pressed Rickards’ on currency wars and the Trump accusations of Germany manipulating its monetary policy he responded, “It is always hard to know what Donald Trump is thinking. He has been calling China a currency manipulator. The fact is, for the past year, China has been propping up their currency. It is true that in past years they did run a cheaper currency. The market wants China to take it down. If Trump wants a cheaper yuan – be careful what you wish for.”
“With regards to the euro, I have been very bullish on the currency and have been for a long time. When everyone else was saying that ‘Europe was falling, Greece was going to get kicked out and Spain was going to quit’ – I said nonsense. It is a roach motel like “Hotel California, where you can check in but you can never leave” it… They have expanded the European monetary zone. My estimate is the next member will be Scotland after they leave the UK. Look to see a much stronger euro over the next six months. Not immediately, and certainly not in the next few weeks, because there is much concern about the uncertainty over the French and Dutch election.”
“The ‘mother of all elections’ is Germany. The polls have been tightening for Angela Merkel and I think she is going to win. She is going to get a lot of help from Mario Draghi in the following sense. The Germans don’t want a weaker euro, the rest of Europe does. Greece, Spain and Italy want a weaker euro – but Germany wants a stronger one. Germany is paranoid about inflation, it is in their DNA. The only way you are going to get a stronger euro is if Draghi tapers the asset purchases and maybe even raises interest rates from the current negative level. I expect he will do that by the summer in order to strengthen the euro and help Angela Merkel’s election chances. This is one of those examples where the politics and economics get mashed up. It is not going to help Draghi if Merkel loses.”
When asked about German elections and the desire for a stronger euro Rickards took hold, “It is the ‘Fourth Reich’ in that Germany is taking over Europe through monetary, not military means. Germany is an export powerhouse not because of a cheap euro, lately the euro has been cheap and that has given a boost to some of the peripheral countries, but Germany does is not with a cheap euro. Germany does it with technology, innovation, codetermination, a good educational system, etc. They do want domination of Europe, they don’t want a cheaper euro and desire a strong euro.”
Jim Rickards literally wrote the book on gold,The New Case for Gold – and when asked by Keiser about his take on the latest gold developments after U.S elections he responded, “To highly a research report from Merrill-Lynch that indicated ‘bond yields are rising, gold is rising’ and historically that has lead to a couple of very real stock market crashes. Maybe that is a fair warning. When you see correlations like this, the important conclusion is that right now yields are going up and gold is going up which shows they are moving in the same direction, not opposites. That is not because of financial panic but because of fear of inflation.
“Inflation comes from the fact that Trump is talking about fiscal expansion. I would expect that to persist. I would also expect the Fed to raise interest rates in March. That could send the economy in the opposite direction… Right now the Fed is talking tough on raising rates while trying to get out ahead of inflation and people fear inflation. My expectation is that we are going to tighten at the wrong time, slow the U.S economy, have to back off and then rates will come back again causing a rally in bonds.”
To catch the full interview on the Fed and European elections with Jim Rickards on The Keiser Report click here.