Jim Rickards: The Empire Strikes Back

Jim Rickards joined Max Keiser and Stacy Herbert for a exclusive interview on the global economy and the incoming Trump administration.  Max kicked off the show referencing the American humorist Ogeden Nash’s famous quote, “Some debts are fun when you are acquiring them, but none are fun when you set about retiring them.”

During the episode of Double Down Stacy Herbert pressed questions regarding Cuba’s proposal to pay down its debts with… rum.  The island nation has extended an offer to the Czech Republic to pay up its estimated $270 million in what it views as a valuable commodity.

To further examine this alternative to paper currency payments the invited guest was none other than Daily Reckoning contributor and bestselling author, Jim Rickards.  Rickards literally wrote the book on Currency Wars and has just released his latest New York Times bestseller, The Road to Ruin.  Both titles examine the global economy, what happens when nations seek a hard currency, like gold – and more.

When asked by Stacy Herbert “What do you say to the rum to settle debt?” Rickards did not hold back saying, “There is a humourous side to this and a sad side.  They don’t have hard currency and the Czech Republic has no interest in whatever currency Cuba is offering to put out.”

“This is part of a larger picture having to do with all major economies outside of the U.S trying to get away from the dollar based system.  One of the reasons countries are doing these kinds of swaps is what I call the Axis of Gold – Russia, China, Iran – diversifying away from the dollar and getting out from under sanctions.”

“This is going on in small ways all over the place.  It has one thing in common. Get out from under the dollar payment system.  The U.S has acted as a bully, and in some ways it has been an extension of foreign policy – but in others it is trying to throw its weight around at a time when people are losing confidence in U.S dollars and U.S debt anyway.  Little by little, countries are doing these kind of deals to get away from our payment system.”

Jim Rickards appearance with Max Keiser of the Kesier Report in Oct. 2016

Jim Rickards appearance with Max Keiser on the Kesier Report in October 2016

When asked about Trump’s new economic team and what he is focused on from the incoming administration Rickards responded, “What I am watching is what I have called ‘The Empire Strikes Back.’  Which is, what do Janet Yellen and her colleagues at the Fed think of Trump?  Trump during the campaign said he was going to “fire Janet Yellen” – well of course he can’t fire her. But he can make her life pretty miserable because there are two vacancies on The Federal Open Market Committee (FOMC).”

“Yellen is bent on raising rates.  Probably at the worst possible time and may sink the U.S economy which could cause a recession.  Of course they would blame that on Trump.  There is a very high level power struggle going on between Democrats on the Federal Reserve Board of Governors and Republicans everywhere else in Washington.”

Rickards went on to remark that, “A lot of people know that Janet Yellen’s term as Chair is over in 2018.  But, she has a separate term that goes until 2028.  She could remain on the board, though she won’t be chairman. She could stay on the Board for another ten years and be a dissenter and a “pain in the neck” for Trump.  This is going to play out in interesting ways.”

When prompted on his thoughts regarding China and its dollar policy he noted, “They are buying gold.  They are creating a hedge to U.S treasury.  So that way, if the U.S resorts to inflation (which we always do sooner or later) the treasuries will be worth less but the gold will be worth more.  Conversely, if we have price stability gold might not do much but the treasuries will pay off in real value.  So the Chinese win either way.  But they are still completely vulnerable. The U.S is on the path to being like Greece or Italy at this stage… But China is worse.  So, in this poker game I would rather be the U.S.”

In a brilliant shift, Max Keiser took it all back to Wall Street and the big banks asking what to expect from the Trump administration and banking?  Rickards quickly responded, “The banking system is inherently a ponzi.  They are not creating value.  They extract value from the system and give nothing back.  They can’t have it both ways.  You cannot have a government guaranteed liability side of the balance sheet and a free market asset side.  If you are going to have government guaranteed asset sides (FDIC) and subsidies for your liabilities you are going to have to regulate the assets.”

To catch the full interview with Jim Rickards click here.

Regards,

Craig Wilson, @craig_wilson7
for the Daily Reckoning

The Daily Reckoning