Koos Jansen
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Koos Jansen
Posted on 24 Mar 2014 by

Interview Jim Rickards On The Death Of Money

I had the privilege to meet with Jim Rickards, while he was in The Netherlands for one day, to do an interview about his new book “The Death Of Money“. Accompanied by friend (and author of the book the The Big Reset) Willem Middelkoop we met at the hotel were Jim was staying and for one and a half hours we fired questions at him. Below you can read the highlights of the conversation.

March 12, 2014

Koos Jansen: Do you think there will be a collapse in the worldwide monetary system, including chaos, social unrest and bank failures because all policy makers will do too little too late?

Jim Rickards: My new book, The Death Of Money, is about the demise of the dollar. A world wide monetary collapse and the collapse of the dollar are the same thing. The dollar is the keystone of the system today, if the world loses confidence in the dollar the whole system collapses. Could there be disruptions, social unrest and other problems before the monetary system collapses? I think we’re seeing them already, in the Ukraine, in the Crimea and the Chinese navy sending vessels to these islands they are in disputes with near Japan. US monetary policy was also a contributing factor to protests in the Arab Spring’s early stages. We’re seeing signs happening already and that will continue.

I do expect that policy makers will continue to pursue the wrong policies, they won’t make the structural adjustments that are needed; unemployment remains high, growth remains weak and deflation continues to have us in its grip. These are all things that will lead to social instability, income and wealth inequality and we could see a lot of stresses before the collapse of the monetary system.

Central banks and governments have made it clear that the big banks can’t fail. That’s what they stated, all these too big to fail banks will not be allowed to fail. Now what are the consequences once they’ve said that? It invites reckless, parasitic and exploitative behaviour on behalf of the bankers. This allows them to grow too large which destabilizes the system. I don’t think we’ll see big bank failures along the way, but big banks will fail as part of the collapse. It’s the policy of too big to fail that leads to the dysfunction of the system that will lead to the collapse.

Jim Rickards Koos Jansen

Koos Jansen: Will the coming collapse of the monetary system be more severe than any prior one?

Jim Rickards: The point I’m making in the book is that the international monetary system has collapsed three times in the last one hundred year. In 1914, 1939 and 1971.  So it does happen, it’s not that unusual. When it happens it not the end of the world. What it means is that the major trading powers, the financial powers, come together and reset the system. There is actually a name for this, it’s “the rules of the game”. That’s not a phrase I made up, it goes back one hundred years. So the major powers will rewrite the rules of the game, but here’s the problem. The last crisis we had the Fed reliquify the world. There were tens of trillions of dollars in swap lines with the ECB, they guaranteed all the bank deposits in the US and they guaranteed all the money market funds in the US. It did prevent things from getting worse, but the problem is the Fed raised their own balance from $800 billion to $4 trillion after the liquidity crisis. We had a liquidity crisis in late 2008, but we haven’t had one in the last five years. So now what happens if we have a liquidity crisis tomorrow? They’ve got no more dry powder; they can’t go to $12 trillion.

The next crisis will be bigger than the last one, and it will be bigger than the Fed because they already trashed their own balance sheet. Then the only balance sheet left is the IMF’s.

Koos Jansen: Do you consider it a possibility the SDR will be the new world reserve currency backed by gold, like mentioned in Willem’s book The Big Reset? And following up on that, could it be all national currencies will be floating around such an SDR?

Jim Rickards: Yes, there is a probability the SDR will be the new global reserve currency. Gold and oil would be then be priced in SDR’s. It will be used for some of the balance of payments between countries, the creation of reserves and probably the financial accounts of the world’s largest corporations. So Siemens, General Electric and IBM will produce their financial statements in SDR’s, because they’re global corporations.

Koos Jansen: But will this SDR be backed by gold at a fixed parity?

Jim Rickards: It might be, this is where it gets interesting. That is not what our global leaders want. What they want is a paper SDR to replace the paper dollar. The question is, will people go along with that? Our global leaders may have to go back to gold not because they want to but because they need to restore confidence. It can go either way. The SDR project that will replace the dollar is already in the works. If the elites get enough time, they need about ten years, they will roll out a paper SDR. If the collapse comes sooner than that they’ll have to gold, or, if they insist on a paper SDR, they’ll have to go with martial law and neo-fascism.

Koos Jansen: Are you familiar with concept of freegold?

Jim Rickards: I’ve heard of it, I’m not really an expert on it.

Koos Jansen: Do you believe in Austrian economics?

Jim Rickards: My view is that Austrian economics has a lot to offer, but it is not a complete explanation of dynamics in capital markets. I consider myself a complexity theorist and I am one of those applying complexity theory to capital markets. Complexity theory is only about 55 years old as a science, but it is highly complementary to Austrian theory because it agrees with Hayek that the economic system has far too many autonomous agents of highly diverse views ever to be efficiently planned. If von Mises had been born 40 years later, he would have warmly embraced complexity theory.

Koos Jansen: If you were the president of the world, what would you implement as the most stable monetary system.

Jim Rickards: I favour what I call the King dollar. I’m a bit of an old school American. I don’t necessarily want the gold standard, and I don’t want the SDR’s, I want the dollar as the dominant currency in the world. I think America has the potential for a force for good in the world and therefore the American dollar as a global monetary standard to me would be a good thing. The problem is, the US government doesn’t agree. They don’t want a strong dollar, they want a weak dollar.

Willem Middelkoop: Is that the reason you began writing books? because you’re fed up with how the dollar is managed.

Jim Rickards: Absolutely.

Koos Jansen: Isn’t it always unsustainable if a national currency is used as the world reserve currency?

Jim Rickards: That doesn’t have to be, it can be. This is Triffin’s dilemma. What Triffin said in the sixties was that if one country issues the global reserve currency they need to run a persistent current account deficit because that’s the only way for the rest of the world to get enough money to finance world trade. But if you run deficits long enough you go broke. Now after 50 years the US is going broke.

There is another solution, which is real growth without money printing. What’s wrong with price stability, real price stability, why do we have to have inflation? Let people earn their dollars, or let the US maintain the value of it’s dollar with education, innovation, growth, productivity, good public policy, low taxes and a good business climate. These are the ways you drive growth, not by money printing. The answer is real growth.

Death of money, Jim Rickards, Koos Jansen, Willem Middelkoop

Koos Jansen: If the world starts to lose confidence in the dollar, will Yellen be forced to raise interest rates like Volcker did in the early eighties?

Jim Rickards: The problem is how do you raise interest rates when 50 million Americans are on food stamps, 26 million Americans unemployed or underemployed, 11 million Americans have disability, with all due respect to people with genuine disability, a lot of the disability is abused. My point being, given an extremely weak economy, given deflationary trends, given high unemployment and declining labour force participation how on earth do you raise interest rates? However, the market will raise interest rates in a way the Fed won’t be able to control. That’s when you may see… who knows? Debt restructuring of the treasury market…

Koos Jansen: More QE?

Jim Rickards: More QE and the Fed may use more financial repression. Why haven’t interest rates gone up already? Because of financial repression.

If there is a loss of confidence and the market wants to push rates higher, the Fed will respond by trying to suppress rates by printing money, which will lead to more loss in confidence. This will show up the foreign exchange market, it will show up in the price of gold and it will show up in some interest rates.

A lot of this will happen really quickly, it wouldn’t play out in one day, but we will see gold making moves of a hundred dollars in one day. People will say it’s a bubble, of course it’s not a bubble it’s a sign of panic. Then we’ll see gold moving five hundred dollars a day.

What I look at is the price of gold; to me gold is a constant. The price of gold is just the inverse of the value of the dollar. If gold goes up, what is actually happing is that the dollar goes down. When you see the price of gold jumping up what that tells you is that the dollar is collapsing. Even if the Fed is repressing interest rates, gold will tell you when the dollar is done.

Willem Middelkoop: That’s why the price of gold has to be controlled.

Jim Rickards: Yes, but a couple of thing on that. The Fed right now wants the price of gold to be higher. The Fed’s problem today is not inflation it’s deflation. The Fed wants controlled inflation and they can’t get it. So how do you get inflation? You have to change expectations. So allowing the price of gold to go up helps to increase inflationary expectations. It can’t go too far too fast, it can’t do what we just described. But the Fed wouldn’t mind if the price of gold would go to $1400, $1500, $1600 dollars because that would get people into an inflationary mindset; trying to get them spending more dollars, borrowing more etc. That’s what the Fed wants. Where the Fed is wrong is to think that they can just dial it up or down. They did do that in 2011 when gold went to $1900, the Fed was very fearful gold would go to $2000, a big psychological threshold, so they had to push it down. Right now I don’t think the Fed is doing anything to hold price of gold down, China might be.

Koos Jansen: Was it China behind the drop in the price of gold In April 2013, or was it maybe a collaboration between the US and China? A scenario could have been: China would support the dollar and in return could buy physical gold at extremely low prices.

Jim Rickards: Look, I’ll tell you what I know and what I don’t know.

When you’re a detective and you have a dead body and are looking for the killer, you’re looking for a motive. So who benefitted from the drop in the price of gold? China – they’re the most likely party. I know for a fact that SAFE, which is a Sovereign Wealth Fund that manages the foreign exchanges reserves of the People’s Bank Of China, bought 600 tons of physical gold through June and July 2013. I know this from the Perth Mint and Chinese dealers. At this moment the gold is on the balance sheet of SAFE but this can be flipped to the PBOC’s sheet like it happened in 2009.     

Whether the Chinese caused the drop price I can’t be sure, though I suspect it, but I know for sure they took advantage of it.

China right now has an interest in keeping the price low because they want to buy more. But at some point, if there will be inflation in the US, they want the price to go higher because that’s their hedge. That’s the reason they’re buying gold. All this talk about China backing the renminbi with gold is nonsense.

China has got $4 trillion dollars in reserves, their preference is a stable dollar. If the US devalues the dollar by 10 %, that’s a wealth transfer of $400 billion from China to the US. China’s hedge is gold, if the dollar would go down gold goes up.

Koos Jansen: China knows the US will need to devalue the dollar?

Jim Rickards: Correct.

Koos Jansen: Does SAFE buy it’s gold through the Shanghai Gold Exchange?

Jim Rickards: They have various ways.

Koos Jansen: How will the power be distributed in Asia after the monetary reset?

Jim Rickards: It will be based on gold.

A lot of analysts look at gold as a percentage of foreign exchange reserves, I think that’s meaningless. In the US gold represents 70 % of reserves, but the US can print dollars and they don’t need euros or Swiss francs. A better way of thinking about it is the amount of gold relative to the size of an economy in terms of GDP. Russia is on par with the US. China needs to have at least 4500 tons to get on par with the US.

In Chapter 6 of my book I write about the Shanghai Cooperation Organization, it’s not a treaty but a mutual cooperation organization between primarily Asian and central Asian powers. This is the primary forum for Russia and China to cooperate and stand up against the US. Eventually there will be two empires in Asia. Russia will have an empire comprised of Russia, eastern Europe and central Asia. China will have an empire comprised of the mainland, its immediate periphery and east Asia.

Koos Jansen: All the physical gold that’s exported to China is in 1 Kg 9999 bars. Gulf nations are remelting their 400 ounce London Good Delivery bars into 1 Kg 9999 bars through Switzerland. What’s your take on that?

Jim Rickards: In my view the 1 Kg 9999 bars will be the new Good Delivery standard. We’ll look back in a couple of years and wonder why we ever messed around in 400 ounce bars. The history of 400 ounce bars is interesting. They were intentionally made very large so people couldn’t have them – they were for central banks only or very wealthy individuals. In 1910 people used gold coins to pay for goods and services, then little by little central banks wanted to get rid of the gold coins, they wanted people to use paper certificates, which gave central banks more flexibility.

Koos Jansen: Will the Bundesbank get its gold back from the US?

Jim Rickards:  What a lot of people don’t understand is that the Bundesbank doesn’t want it’s gold back. The reason the Germans want to have it in New York is because they want to able to engage in price suppression. New York and London are markets for leasing, Frankfurt isn’t. For every ton of gold you remove from New York, there is 10 tons of paper gold that needs to be unwound. That’s why they’re taking eight years and that’s why they’re doing it in tranches.

There’s not such a leasing market in China either. Central banks are able to suppress the price of gold through the leasing market in New York. For example SAFE, a subsidiary of the PBOC, could call JP Morgan in New York and ask to actively lease their gold, which is partially stored in New York, and JP Morgan would do it.

Koos Jansen: Is the NSA Involved in financial warfare?

Jim Rickards: No, not to my knowledge. 

Willem Middelkoop: I know wealthy Americans taking measures like getting a second passport and moving their money offshore. Do you see this happening in your surroundings?

Jim Rickards: Yes, I see it all the time. There are billionaires who build vaults in their own houses because they don’t trust Brinks.

Willem Middelkoop: What does that tell you?

Jim Rickards: It tells me that they see what I see, in some ways, but their not willing to talk about it. They’re ready for the collapse but want to milk the system in the meantime.

Willem Middelkoop: Which part of all your activities do you like most?

Jim Rickards: Writing. That’s why I’ve done two books, and now I will start a new book project sooner than later. It will hopefully be a four book series. I have some sketches.

Koos Jansen: We’ll be looking forward to reading more of your books. For now, thank you very much for your time Jim.

Death of Money - Dust Jacket_150x150_p1

In Gold We Trust

Koos Jansen
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  • Mad5Hatter

    Bet Agatha knows, for sure, of course of course of course. There are
    dead bodies laying in the street, people are horrified. The murder
    weapons were identified, but who done it? Political leaders, charged
    with the responsibility of protecting, put out arrest warrants, being
    rather vague in terms, because you never know who really done it, at
    first, and perceptions can be mixed from the exact same scene, but they
    have suspicions based upon a history of related foul deeds, the
    syndicate is wide and far in its reach, based in the barrio, so, a man
    hunt is on for the killers, including but not limited to trigger men,
    witnesses, and the ring leader, so, the police are out in force, far
    reaching, rendering the field of play actually small, but
    political oppositions cry foul as the far reaching man hunt is on, but
    the political leaders will have none of that, there are dead bodies in
    the street, damn it, they have a job to do, damn it, and if they dont
    catch the perpetrators, the political leaders are tarnished by a
    majority of the masses, and so, the man hunt is really on, full blown,
    with body armor, night goggles, assault weapons, names and places, and
    the cops go to work, big time, ITS A ROUND UP in the barrio, as the cops
    enter the barrio in force, its a sweep, where the hoodies play, and
    start snatching many suspected witnesses, trigger men, and bosses, in
    the barrio, being rather unconstitutional assuming of course of course
    of course, that the killers in barrio even speak English, and are
    rightful US citizens and by the constitution have those constitutional
    rights, but the cops are not constrained, they have orders, they have a
    job to do, and after many round ups, and fire fights, the cops snatch
    many suspected in the foul deed or simply related by proximity or simply
    as remotely possible witnesses, even suspected witnesses are snatched
    in the barrio, and 100s are snatched, whether they like it not,
    coincidentally, including the ring leader, as sometimes, the cops just
    get lucky, and hall the suspected planner off to jail, and over
    exceedingly polite conversation, with coffee and donuts and bobbed
    apples bits, the ring leader gives it up, in that foreign tongue, the
    entire plan, but unsatisfied, the cops press their man hunts upon the
    entire criminal syndicate, someone, somewhere, somehow, has to put a
    stop to recurrent murder, and they identified the trigger men, hired by
    the ring leader and many other members of the syndicate, but killers and
    witnesses have rights, or do they, in the barrio, so, in steps the
    legal defense and political opponents, asserting that rights were
    violated and the political leaders actually planned it all, in one of
    the greatest spins of all time, so that they could come to the rescue of
    the imprisoned leader, raising a platform upon which to herald that
    opposition, take down those obviously misguided leaders, but in a
    misdirection, to gain more political support, as an excellent who dont
    it theory comes into play, and, of course of course of course, up steps
    many in the opposition ranks to support that defense, the money flows
    into the defense coffers, of course of course of course, but, the case
    is such a slam dunk, plea bargain is had, and off a perpetual vacation
    at taxpayer expense, but the people want to know, they gots to know, and
    are of course of course of course, the best in all the world as the
    trier of fact, of course, of course, of course, so first, the
    prosecution lays out its prima facie case before the public, and the
    masses get it, real quick to, the leaders have identified the murder
    weapon, the trigger men, the plan, and the confessing ring leader, but
    that is mostly ignored, of course of course of course, the opposition is
    determined to topple the political leaders, and support the defense
    with moral support, money, and public fervor, those damn political
    leaders have opposed the opposition, how dare they, and so, the case
    spills over into the public vortex, and many propose a multitude of
    theories, take your pick, anyone will do, of course of course of course,
    the more possible theories, the more doubt, of course of course of
    course, of how the political leaders actually did it, while the state
    prosecution explains the entire plot, weapons, trigger men, and leaders
    of the syndicate, and prosecution hire experts, as does the defense,
    because there are political hearts and minds out there to be won, damn
    it, and this is a political fight for human rights, to tarnish the
    political leaders, and these defense experts are top notch, especially
    when paid to only find and only conclude with the desired answer, and
    these experts inherently are very smart guys, and can intellectually
    create ennumerable possible other explanations, because they are just so
    smart, including the best theory of all, Mars Attacks, of course of
    course of course, and the more that experts battle it out, the more
    doubt created in the mass public mind, and so, in OJ like fashion, the
    trial is on for hearts and minds, the prosecution has experts as dose
    the defense, and one might possibly think, just possibly, of course of
    course of course, being very remote in the human experience, that both
    sets of opposing experts are very smart, that that is a net sum zero,
    even if creating more doubt in the public mind, but the prosecution has
    the scale tipper of the scales of justice, to wit, they have identified
    trigger men, their target practice, their weapons, and confessed ring
    leaders, even if acquired through rather aggressive means, shocking the
    sensitivity of very sensitives ones in the political dipole, and
    reasonable or unreasonable doubt pervades the public spectacle, and
    guess what, OJ got off, because damn it, there is always an unreasonable
    doubt exploitable by the opposition experts, be it based on political,
    racial, cultural, and money motivations, or whatever, because damn it,
    the leaders dont think like the opposition, like as if that is new, and
    because the opposition believes the political leaders are misguided,
    they must have guided the plan in fact, and should be taken down for it,
    those dirty pigs, and, in the mean time, OJ is sipping tea off cuba,
    laughing his head off at the circus being played out. Is not justice a
    wonderful thing? You have 1 in 10,000 chance of being wrongly convicted
    and hung, a price that must be paid, in any serious administration of
    justice, of course, of course, of course, but yet a sure thing reason,
    to let OJ off, of course of course of course.

    But only Snowbound in Siberia, the champion of treason, worshiped by
    the defense dipole, absolutely, cocsuredly, knows who done it, but for
    some damn reason, WONT GIVE IT UP. Go figure.
    And if you English professors are now all in fuss, get some relief,

  • atarangi
    • In Gold We Trust

      LOL

      • All Dutch at Dykes

        How good is your written Chinese, Koos, or don’t racial bigots need to achieve any particular level of proficiency in order to make cheap jokes?

        • Navigator

          50%of my college professional class in California were Chinese. They loved passing around jokes like this

        • Otto

          Pfffff man, don’t take everything so f-ing serious, lighten up. And maybe changing your thong to boxers might help a little.

        • RANT

          I’m Chinese and I think these jokes are stupid but funny enough to make me giggle. I think unlike most others, most of us have a healthy dose of self confident to be the butt of the joke and not be offended.
          My best friend is Irish and he always laugh like a little girl when I make drunken Irish joke.

    • jt4

      Had a girlfriend named Chin Tu Fat.

  • Salacious Monk

    So you saw the live Jim Richards? How tall is he?

    • In Gold We Trust

      Don’t recall, slightly less tall than me..

  • AltSocNet

    Rickards is on point on most of this. But couldn’t he have cleared up why Germany would ask for its gold if they don’t want it? Especially if they already knew they were not going to get it? Or maybe it was the interviewer’s job to make him clarify…

    • Navigator

      It’s political pressure from that part of the German public who want it repatriated.

  • Motley Fool

    The
    SDR ‘solution’ touted by Rickards remains doomed to failure.

    Using http://en.wikipedia.org/wiki/Special_drawing_rights as source, let us
    examine this non-solution.

    I will be altering some numbers for ease of calculation.

    Current SDR in existence : XDR 476.8 billion. Let’s call it 500 Billion.

    It has a currently defined value of 41.9% USD + 37.4% EUR + 9.4% JPY + 11.3% GBP. This basket weighting is reconsidered every 5 years. ( Just short enough when currencies are failing rapidly, right, right? :P )

    Of course, this definition has little meaning in and of it self, as it does not give you the value of one SDR.

    This is further defined as follows (currently): 1 SDR = 0.66 USD + 0.4230 EUR + 12.1 JPY + 0.1110 GBP.

    The currency crosses relative to USD is computed daily here : http://www.imf.org/external/np/fin/data/rms_sdrv.aspx

    Currently 1 SDR = 1,54335 USD.

    Let’s call it 1.5 USD.

    So at present there exists real value reserves of about $750 billion.

    Ok. So let us do a few gedanken experiments.

    First let’s assume Rickards is right and there is a currency collapse, and each of these currencies lose 90% of their value over one month at the same rate. So after the month each would be worth 1/10th of their current value.

    Firstly the currency crosses would be unaffected so the SDR would still be defined as 1.5 USD. However in real terms each of these currencies are now worth a tenth of what they were before. So the real value of all SDR falls to $75 Billion in real terms.

    Oops.

    Ok. So say we include gold today in this basket. Instead of playing around with the numbers too much let’s just call it 0.01 grams of gold added to the basket.

    Assuming gold priced at $1300, we get 0.418 USD for this 0.01 gram. So this means the SDR is now worth about 1.9 USD and gold makes up 22% of this new basket. This is close enough to Rickards estimate of 25% gold backing for illustrating the general idea.

    Let’s just call it 2 USD per SDR.

    So now we have the total SDR value of $1 trillion.

    Let us now repeat the same experiment with there being a currency collapse and each currency losing 90% of it’s value. We will also assume as Rickards does that gold remains constant and only currencies fluctuate, and so gold would be worth 10x as much in each currency than it was before this month long currency collapse. ( I should note that Rickards is wrong here. Gold does not remain constant in value. Both gold and currencies fluctuate in value.)

    So after the month 78% of the basket is now worth 7.8% in real terms, and 22% is now worth 220%. What percentage of the new basket is gold? Well (220/ 220 + 7.8)*100 = 96.6%.

    So what does this addition to for confidence in the failing currencies? That’s right! It further erodes it! Seeing this rapid rate of devaluation, people with simply start rushing to gold with
    even more haste.

    Oops.

    Before I forget to mention, presently SDR’s are defined as a call option “ for euros, Japanese
    yen, pounds sterling, or US dollars, SDRs may actually represent a potential claim on IMF member countries’ nongold foreign exchange reserve assets, which are usually held in
    those currencies.” – from wiki

    Notice the “or”. So if you were to trade your SDR’s you would get only one of these (rapidly depreciating) currencies. Presently you have no call option on a country’s gold reserves, but the moment we include gold in the basket, it must become such a call option.

    So, seeing this rate of devaluation, what are you going to exercise your SDR call option on? Gold, or one of these rapidly failing currencies? That’s right! Gold.

    Oops.

    Seeing as there are 500 Billion SDR’s and I defined them initially as 0.01 grams of gold, this means the whole stock is a call option on 5000 tonnes of gold. Ok. So this leaves some breathing room for the IMF to create more SDR’s. I am sure everyone will be very happy they can create extra call options on their gold. Haha. How much, well I don’t think more than there are
    gold central banking reserves, let’s call that 32,000 tonnes. So what happens if they want to create more SDR’s after this point…like the trillions Rickards think they can? Right.

    Oops.

    So in effect in this option we see that SDR’s simply become a call on gold, as currencies continue to devalue. It will become 99% of the basket, then 99.9% and so on till it is in effect the whole basket.

    Oops.

    Ok. So let us try and conduct a third gedanken experiment. This time we only include gold in the basket after our month of devaluation.

    So what happens this time? Well, the currencies are still continually losing value. We included the gold, because according to Rickards this will boost confidence in the SDR. Instead, what will we see, the percentage value that gold represents of the basket creeping up, just
    like before, and the higher it goes, the faster confidence is lost, and the faster it goes to 100% of the basket.

    Oops.

    In conclusion, all roads lead to FreeGold. ;)

    • Motley Fool

      The only criticism I can think to level at this critique is perhaps gold does not go to 220% of the basket. Perhaps once the value of the basket reaches 100% again, with gold making up the losses, confidence is restored.

      There are of course other complicated interplays here such as how much currency each monetary zone has relative to the amount of gold they have in reserve.

      Would the value of SDR’s stabilize in this scenario, and each of the currencies in turn? And what will the price of gold be at this point? And doesn’t the market always overshoot?

      Over time the end result remains though, gold will become the whole of the basket as currency values are eroded due to inflation. But it might get there by slower grind, after the initial big jump in percentage.

      Still, each currency would then be defined ito it’s gold holdings, and the ECB would still be using MTM.

      Now. How’s that different from freegold? ;)

    • In Gold We Trust

      I think the future SDR that possibly could replace the dollar as the world reserve currency will be totally different than the current one. Only its name will be the same as it’s managed by the IMF. I don’t see the current SDR replacing the dollar. #gold

      • Motley Fool

        Alright. So if the future SDR is in no shape, way or form like the current one, why even mention the SDR run by the IMF, and why has Rickards not given any clear definition of what he means by the future SDR?

        I could only assume he meant a change from the current one, so I extrapolated a change along the lines he suggested.

        • In Gold We Trust

          What I just wrote is my opinion, not Rickards’. I don’t know exactly how Jim sees possible forms of future SDR’s replacing the dollar (I did ask him about freegold). Personally I don’t favor a basket of thin air as the world reserve currency.

          • Motley Fool

            Well, I hope he takes the time to look at the posted article and comments. I would enjoy engaging him on the matter. :)

            Ciao

  • jt4

    Good interview. Informative.

  • Freda Peeple

    The three people in this infomercial for Rickards new book – “Why what I predicted in 2004 hasn’t happened yet, but will soon, honestly” are a bunch of uninformed charlarans.

    Just take this example: “China’s hedge is gold, if the dollar would go down gold goes up.”

    China has maybe 5000 tons of Gold, which at $1320 per oz is worth $211 billion; against this Rickards claims they have US$ assets of $4 trillion – a factor of almost 19 times. So, for the hedge to work, if the $ falls by 20% (as it has against the RMB in recent years) , Gold is supposed to go above $5000 per oz? You think the Chinese are falling for that kind of Get Rich Quick fantasy, or are using the $5.3 trillion A DAY FX market instead? Thats not a Chinese hedge – its a Dutch fantasy – “Tulips from Amsterdam” if you will

    You sheep need to wake up to the candy-coated lies and bullshit you are being fed here

    • In Gold We Trust

      Thanks for your kind comment Freda. One response and one question for you.

      I might add that Chinese exact FX reserves are $3.8. It’s estimated two-thirds are denominated in $ (for a fact, at least $1.2 is in US treasuries). That should change your sum a bit.

      Q: you’re calling me a charlatan, but why? I merely asked questions in this post. Or is it something else I’ve said?

      Regards,

      KJ

      • Freda Peeple

        Let me quote from the article

        “China right now has an interest in keeping the price low because theywant to buy more. But at some point, if there will be inflation in the US, they want the price to go higher because that’s their hedge. That’s the reason they’re buying gold. All this talk about China backing the renminbi with gold is nonsense.

        China has got $4 trillion dollars in reserves, their preference is a stable dollar. If the US devalues the dollar by 10 %, that’s a wealth transfer of $400 billion from China to the US. China’s hedge is gold, if the dollar would go down gold goes up.”

        I apologise if being confronted with your interviewees own exaggerations causes you discomfort – you should perhaps learn to keep better company, lest some of their charm rubs off on you

        As for yourself

        Koos Jansen: Do you think there will be a collapse in the worldwide monetary system, including chaos, social unrest and bank failures because all policy makers will do too little too late?”

        this is what is known as “a leading question” and is a recognised indicator of someone who is not trying to elicit information, but to promote a particular perspective: http://en.wikipedia.org/wiki/Leading_question

        The same is true of “Will the coming collapse of the monetary system be more severe than any prior one?” and I can only presume that this normally illegitimate form of guiding and shaping a conversation is your standard modus operandi viz. telling people what they should say next.

        Koos Jansen: Is the NSA Involved in financial warfare likely to be a story that will generate a few more page clicks?

        Jim Rickards: What has that got to do with anything? Are you fishing for the cheap headline again? No, not to my knowledge.

        So, yes, actually, it was indeed something that you said: how about saying something else to? – are you able to go on record as saying that you have not and will not receive any direct or indirect commercial benefit from plugging this book?

        • In Gold We Trust

          Re leading question: true

          Re next question: we all know Jim’s message so indeed I’m asking “along his message”

          Re NSA question: I think the NSA might be involved in financial warfare; stealing data from foreign companies and handing it over to US companies.

          Did I commercially benefit from this post? Yes, Jim boosted my daily visitors amount, I made a few dollars through my Google Adsense account. Shame on me right?

          • Freda Peeple

            No, Mr Jansen, the shame is on you for a different reason, as I initially indicated in my first post, and you have subsequently demonstrated – the confirmation bias snd csreful selection of your supposed facts:

            You picked me up on a 5% discrepancy in the amount of foreign investments held by the Chinese, although as I subsequently pointed out, not only was the $4 trillion figure attributable to Mr Rickards, but it was hardly material in the context of my general suggestion that the amount if gold held could not constitute a viable economic hedge to China’s exposure to the US$. Nonethelesd, 5% is 5%, and you seized upon it in an attempt to undermine and discredit my argument.

            However, you chose not to point out a rather larger error (25%) which I appear to have made in the opposite direction – namely my supposition that China has 5000 tons of Gold; in fact, only recently one of the ‘experts’ in this field was telling us that China probably hold 4000 tons – that was YOU, when interviewed by Matterhorn Asset Management

            So, its fair game to pick 5% nits when it serves to promote your opinion, but equally convenient to skip over much larger errors when they contradict your point of view. It is on THIS basis – and the agenda-laden style of “questioning” Mr Rickards – (who, 10 years after his predictions have failed to come true must surely by now be considered as “spoiled goods”) – that I consider you to be a charlatan, and the fact that you have a commercial incentive to promote clickbait merely confirms your motive

            You have a loyal following of eager disciples who will no doubt rally to your defence, but it is surely the very essence of “con men” that they instill confidence, and although you may find many willing sheep who will follow your selectively distorted narrative, those with actual knowlege and informed insight have started to cotton on. It began last week with your intemperate assertions about the Fed and the German gold, and the quality of your blog (and attendant comnents) has declined significantly since. A number of people challenged your integrity then; I am doing so now

          • Otto

            I am sorry, but you discredit yourself totally by this post. Attacking someone on not attacking your post? That is very peculiar behaviour. And wanting the US to be in the dustbin of history? Why? Which country do you prefer? And Koos a con man? What is you problem? Koos is a one man operation and he ‘s trying do his best for something he believes in. You might not believe everything he writes, neither do I, but willingly misleading people? He’s human so he might make a mistake, but naming him a con man has me thinking you have issues not relating to Koos’s blog. Maybe you bought Gold at $1750 and lost some money, He tough luck, Koos lost also.

          • Lulzasaur

            Hi Freda,

            Just curious on your thoughts then, on what you think about the dollar and the price of gold along with a time frame. You bring up some good points, but I would like to hear you expand on your thoughts.

      • davehazelwood

        China is also buying up billions and billions of hard assets in the USA. This is also a hedge along with their gold. Slowly but surely China is eating away at owning the USA. Slowly but surely the immigrants will soon be arriving and make the hispanic immigration look like small potatoes. What I am saying is the China can take over the USA without ever firing a shot because in less than 50 years they will OWN it ! All that will be left is for Obama (or his successor down the road) to hand over the keys to the White House to the Chinese. Have you heard about the Chinese city being planned for upstate NY and the terms asked? It’s already begun. Why ? Because our government is comprised of idiots who spend and spend and spend us into bankruptcy while our couch potato citizens can’t see beyond the next nfl football game and can of beer. amen.

    • Navigator

      The Chinese hedge with gold is a long term hedge not a short term one like most westerner speculators would think. The Chinese think in decades or centuries and in overall benefit for the family long term. You might think about doing this too.

      • lasvegaspersona :—)

        Gold is not a hedge at all – it’s the real deal. It is compressed (and suppressed) wealth.
        You don’t want to hedge promises with the real thing – you would want to hedge the real thing with promises. At least when you’re smart.
        Currencies are promises. Gold or (anything tangible) is the real deal.

        btw: the Chinese are hedging their gold by promising to not sell their dollars.
        They gain way more power by keeping their dollars.

        • lasvegaspersona :—)

          IBBC = PBOC

    • AK

      So, your claim is that Jim R. is full of it and the dollar will magically recover somehow? Let’s not forget that the dollar has lost 98% of its value since the inception of the Federal Reserve and that is BEFORE the serious money printing started. Since the financial crisis the printing presses have been in overdrive and it doesn’t take a genius to figure out that it won’t take another 100 years for the dollar to decline another 98%. The decline of the dollar will only accelerate and geo-political events will further speed up the process. The dollar is on borrowed time and the petro-dollar and the dollar as the primary global currency are coming to an end. That is a given and we see evidence of that every day as China and Russia are positioning themselves with their major trading partners to eliminate the dollar as a medium of exchange.
      You can huff and puff all you want and call everyone a charlatan but that won’t change the fact that the dollar will collapse as all global currencies have. The average life of a global reserve currency has been less than 100 years and we are quickly approaching that point.

      • Freda Peeple

        I think we both know that you are missing the point, don’t we: I’ll proceed on the assumption that you are being mischevious rather than just plain stupid

        I did not take issue with the notion that the USD is likely to collapse at some stage – on the contrary, not only did my illustration refer to a potential 20% fall, but I noted that a fall of such magnitude had already occurred vs the RMB (which is surely the relevant currency unit here).

        What I pointed out was that holding even 5000 tons ofgold would not offer an economically viable hedge – in fact, a far simpler and less visible strategy would be to hedge the exposure via the far deeper FX market, rather than gamble on Gold skyrocketing the moon.

        Just as I personally believe that the USD will fall in value very significantly, so I also believe that Gold will rise in price very significantly; but that is not a hedge strategy, it is a speculative stance, and there is no econometric model on the planet to suggest an efficient hedge ratio of 19:1

        So, my friend, you are picking a fight with an opinion that I not only didn’t express, but which I don’t hold; how about you try to present a plausible argument for why there aren’t easier, cheaper and far more obvious ways for the Chinese to go about hedging exposure to the USD?

        And finally, I find your innocent naivete absolutely charming – there is no formal “Reserve Currency” – it is a matter of market convention and habitual practice, rather than an official status. The simple fact is that, for the time being, there are more US dollars sloshing around than any other currency, so its convenient to use them – there is not going to be a fanfare and some glorified public declaration that the Dollar is No Longer the World’s Reserve Currency any more than there an established rule or any evidence of a 100 year cycle. The British Pound Sterling no longer rules the waves, but it is still very much in existence – there was no obituary, or ceremonial handing over the baton to the USA on the 100th anniversary of the Relief of Mafeking or Queen Victoria’s coronation as Emperess of India. Personally, I cant wait to see the USD – indeed the USA – condemned to the dustbin of history, but just because I would rather like that to happen doesn’t mean it will. Certainly not any time soon – and despite Rickards predictions, the USD is still very much Top Dog 10 years after his book foretold its imminent demise.

        • AK

          You claim that 5,000 tons would not be a viable hedge against a declining dollar. I don’t follow that. Let’s do the math. If they continue to import in excess of 2,000 metric tons annually, they could have in excess of 10,000 tons of Gold in two to three years. They currently have $1.2 trillion in U.S. dollar denominated paper that they are using to buy Gold and any hard assets including real estate, businesses, mines, etc.
          Clearly their intent is to divest themselves of as many dollars as possible without crashing the dollar which obviously would not benefit them,
          Assuming they can amass 10,000 metric tons of Gold and other assets and divest their U.S. paper to well below $1 trillion dollars, it seems to me that this gold and other assets would be a pretty effective hedge against a potential collapse of the dollar. If the dollar does collapse at some point, Gold denominated in dollars could easily go to $3k to $5k and beyond.
          10,000 metric tons of Gold valued at $5k due to a collapsing dollar amounts to $1.6 trillion, more than their current dollar denominated holdings. That seems like a pretty effective hedge to me.
          If you buy into the theory that the dollar and other fiat currencies will ultimately collapse, as they always do, then it is really not much of gamble to bet on the price of Gold denominated in other currencies to go to the moon, it is a certainty. So why would you hedge in the FX markets if all these currencies are engaged in a race to the bottom?
          As far as a formal “reserve currency”, I am well aware that the dollar is not the ONLY globally accepted currency. The role of the dollar will not diminish over-night, it will take years and even then there will be a role for the dollar but the day that we lose the dollar as the primary medium of exchange for energy, also knows as the Petro Dollar, the value of the dollar will plummet. We are seeing early signs of China and Russia pursuing energy trade in something other than the dollar and once that process starts, it will only accelerate. The U.S. has been vehemently defending the Petro Dollar but there is really not much they can do to stop Russia and China.
          For that reason alone I seriously doubt that the U.S. dollar will still be top dog 10 years from now, but my sense is the U.S. won’t just let that happen without a fight, so who knows….

          • davehazelwood

            Yes the dollar is an accident waiting to happen and it will be fatal. Many experts are now talking 10k per ounce of gold some 50K and a few 100K or more. All Russia has to do is to start accepting payment for its oil and gas in ANY currency EXCEPT dollars and it will start a rush of other nations doing the same none of which want to hold it because its inherent value is ZERO ! The USA is BROKE ! Once interest rates rise to even 4 or 5 % they won’t even be able to pay the interest on the debt. There is NO economic recovery either. It’s as bad or worse than just before the 2008 crash yet the banks are even more overextended and the stock market is acting like we are in the middle of a historic economic boom. It’s nuts really. All based on LIES in an attempt to keep it going as long as they can even though they know there is no way out but default, hyperinflation or WAR. Maybe that’s why all the war bells have been ringing lately ?

  • wasabibites

    Very interesting read.When the collapse happens there is an assumption of control.I do not believe Gov can control the Frankenstein they/bankers have created. Derivatives,reverse repo are a bad joke.What I see is a revisit of Wiemar Germany.Food riots.Notice B O trying to shut down the most productive farms through the EPA,fed water,why?Monsanto protection act,why?To control people through food,as all dictators have done..We will soon find out when no one can buy bread with a worthless dollar.

  • rowingboat

    “Whether the Chinese caused the drop price I can’t be sure, though I suspect it, but I know for sure they took advantage of it.”

    How about some big-money Western investors dumping gold for equities? In April last year some interesting things started to happen. Rising US inflationary expectations reversed course and declined rather sharply from the beginning of April to end of June (the bottom chart, first link below). Real long-term interest rates in the US, which been been in a multi-year downtrend since Sept 2008 rose rather sharply at the end of April (second link). And in an April 10th report a few days before the collapse, GS stated “The Federal Budget is shrinking rapidly” and predicted a deficit of 4.5% of GDP for first 3 months of fiscal 2013 and 3% or less in fiscal 2015. The deficit for fiscal 2013 later came in at 4.1%. All of this predicated upon an improving US economy, with Yellen recently providing further optimism by implying that short-end rates may rise, possibly as early as April 2015.

    http://www.acting-man.com/?p=25672#more-25672
    http://research.stlouisfed.org/fred2/series/DFII20?cid=82
    http://www.washingtonpost.com/blogs/wonkblog/wp/2013/04/23/the-deficit-is-falling-fast-can-washington-accept-victory/

    • AK

      Wow – now there is somebody drinking the cool-aid of the main stream media. A declining labor participation rate and the creation of part-time and low-paying jobs can’t possibly equate to a growing economy. The middle class is increasingly being squeezed by stagnating or declining wages in combination with rapidly rising costs in food, energy, health care and education – you know those things people spend money on every day.
      I seriously doubt that the big-money Western investors are getting rid of their insurance and dumping Gold. They know better than anyone what is coming.

      • rowingboat

        Just look at the bullion import/export data, stay focused on the physical flow. There’s been serious selling by Westerners. Much less bullion being ‘net imported’ into Switzerland in 2013 compared with prior years too, that’s big money.

        Some of the macroeconomic drivers for gold since 2001 have changed direction, and the data suggests some of this started happening last April. Just my personal observations. There are evidently former gold owners swallowing the cool-aid, believing that after tapering is done short term rates will rise. Isn’t this what Rickards wants to help save the USD? It’s certainly a negative for gold.

        I mean, Yellen comes out with her recent statement and look what happens again, not saying it’s the only factor, but from Keith Weiner on the weekend:

        The cobasis continued to drop like a base metal brick this week. Here we are in the middle of March, and the April contract is under heavy selling. And despite this, the buying pressure on the April contract was great enough to push the cobasis down to -0.65%. And the basis is now well within contango (at least in the new zero-interest rate normal world) of + 0.2%. The cobasis drops for farther-out months as well… It’s physical gold that came to market this week, folks. Physical gold metal was dumped on the bid.
        http://monetary-metals.com/monetary-metals-supply-and-demand-report-23-mar-2014/

  • Navigator
  • LuLu

    For those who are not aware of the 2010 Reforms and Governance Agreements of the IMF, G-20, etc. you may want to familiarize yourself with them. It will give you greater insight into what and why Jim R. is speaking of in regard to SDR’s.

    The only country yet to ratify these is the USA. Sen. Bob Corker and Congressman Paul Ryan have now introduced legislation that would conclude this agreement within weeks. Without it’s passing our congress the G-20 meeting on April 11th-14th will bring up changing the Executive Board membership in the IMF so that the US loses it’s primary veto power.

    Lots going on…just offering this to advance the discussion.
    Here is a link to a blog with more information regarding the above: http://philosophyofmetrics.com/

    I do not know the man who writes this but it does offer another voice that appears to be quite literate on the issue.

  • Michael Yates

    Jim talks as if he knows for certain, yet how can he? Only those on the inside and at high levels know those kind of things. So, is Jim really that connected? Is he bluffing? Time reveals all, one day we’ll see what this whole charade was about. In the meantime, giving a bump to one of the few advisors who’s trying to wake people up
    http://Www.vancouverfinancial.net

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