Jim Rickards: Get Ready For the Scottish Exit

Jim Rickards joined the London based, Tip TV Finance show to discuss what to expect from Brexit, a Scottish Exit and what’s ahead in the global economy. The discussion covered the economist and bestselling author’s analysis while also digging into history as an indicator for the future.

The interviewer started the conversation by highlighting the United Kingdom’s triggering of Article 50 to leave the European Union. He asked Rickards whether he believed the U.K was on The Road to Ruin which prompted, “No. I think this is a very positive development. The U.K never should’ve been in the EU to begin with. It is not really part of Europe. It is culturally, legally, politically different. It was always a marriage of convenience at best.”

“The U.K has a very powerful common law tradition. Europe has a civil law tradition. This goes back to the late Roman Empire and updated through the Napoleonic Code. The basic European approach was “if you have a question, write a rule and if you have another question, write another rule.” Common law, which was really invented in the U.K, carried over to the U.S and other countries. This allows for what judges call equity. It is the ability to consider things that are not specifically written down in an effort to achieve fairness. These are two very different ways to approach law and regulation. They are not compatible in combination though.”

“The U.K never joined the euro currency, so this is much less of a traumatic separation than if France was to leave the EU. This should go smoothly… This makes a lot of sense.”

Jim Rickards is the bestselling author of “The Road to Ruin” and has just released the paperback version of his book “The Death of Money.” Rickards is a lawyer and economist who has worked on Wall Street and also advised the U.S intelligence community on currency war activity. Rickards was one of the few economic analysts in London prompting audiences on how to react to Brexit.

When asked about whether the U.K had a timely entrance and exit of the EU Rickards noted, “It probably should’ve never gone in but it was certainly the right time to get out. Europe is getting more integrated and has to. When critics note that Europe has a monetary union but not a fiscal union and that it is a fatal flaw they don’t realize that it was a flaw by design. They decided to do half of it at first in order to gradually move toward a fiscal unification. That’s what is happening now. They are moving toward a unified system of bank regulation with unified insurers. The U.K was never on board with any of that… This is a good separation where both will be considerable trading partners.”

When prompted on his read for a possible Scottish exit from the U.K and what the implications would be, Rickards pressed, “These are not the things that cause chaos because they are heavily negotiated with significant time in between deals. Markets have time to adjust. The problem with Scotland leaving is that the U.K has sold much of its gold under Gordon Brown and will certainly not give it up.”

“When Scotland leaves the U.K and the Bank of England it will be existing with no pound and no gold. It makes sense for Scotland to join the European Union’s monetary system if a Scottish exit were to happen because the members collectively have 10 thousand tonnes of gold. Scotland could in effect “piggyback” on the European Union’s gold… I think the dynamic for Scottish independence is very strong and hard to reverse.”

When asked about the realities of what has been feared since the global financial crisis, The Road to Ruin author pushed back, “Everything that was dangerous in 2008 is bigger and more dangerous today. In 2008 the message was “the banks are too big to fail.” The largest banks then are even bigger today and have a larger percentage of all the banking assets, the derivatives books are much larger.”

“The worst thing that can happen in a system is an exponential function of scale. That simply means, if you double the system – you don’t double the risk. We have more than double the system. We’ve increased the risk exponentially. That is not captured in any central bank model because they are using a lot of models that are completely obsolete and do not reflect reality.”

“We are now beyond the ability of central banks to deal with these problems. I reflect back to 1998 and the Russian based Long Term Management Crisis. Wall Street was left to bailout a hedge fund. Then in 2008 central banks bailed out Wall Street. In the next crisis, who is going to bailout the central banks? Each crisis gets bigger and more dangerous than the one before. We are now at the limit with central banks. The balance sheets are stretched. No central bank has normalized since 2008. The Federal Reserve printed $4 trillion of new money but that money is still on the balance sheet and has not got back to the proper levels.”

“We’ll either have to go to a supranational solution with the special drawing rights (SDR), or what I call world money, from the International Monetary Fund – or gold. These are extreme solutions but that is where we are headed.”

When asked how to prepare for a potential crisis on the horizon Jim Rickards pressed, “I recommend a 10% allocation of physical gold. Paper contracts will be terminated. When you want gold the most, when it is soaring to the multiple thousand dollar level per ounce, you’ll find that your contract is terminated. Don’t put it in the bank… The banks will likely be closed, at least temporarily. Even if I am completely wrong, you won’t get hurt with that kind of allocation.”

Finally, when prompted on whether Trump would be “at the wheel” when a potential economic shock hits Rickards noted, “It is entirely possible… The thing with Trump is that it could very well happen on his watch. It won’t be his fault, but it will be his misfortune. You can’t control the timing of these things. A weakened president when these things happen is a very dangerous thing. Combined with the fact that his chief strategist, Steve Bannon, is highly motivated by what he views at the “2008 bailout.” I don’t expect this White House to be inclined toward a bailout solution… If [an economic shock] happened, Trump would get the blame. That’s what happens with all presidents.”

To listen to the full conversation covering a Scottish Exit and more – CLICK HERE.

If you would like to learn how to get your FREE copy of Rickards’ book The Road to Ruin – CLICK HERE.


Craig Wilson, @craig_wilson7
for the Daily Reckoning

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