Stansberry Radio Interview Series: The smartest man in the financial world
We here at the Crux are excited to introduce the new Stansberry Radio interview series…
Today and every Saturday, David Newman, senior producer of the Stansberry Radio Network, will bring you the most valuable ideas from the most intriguing guests from all shows.
These interviews will cover topics like investments and trading, personal finance and personal freedom, entrepreneurship, education, how to start a business, how to save money, and the books you need to read.
This week, our founder Porter Stansberry interviews best-selling author, attorney, and top portfolio manager James Rickards. They discuss the ideas behind Rickards’ latest book, The Death of Money: The Coming Collapse of the International Monetary System.
Since 1976, Rickards has participated in the formation and growth of globalized capital markets and complex derivative trading strategies. In the 1990’s, he served as lead counsel in the Long-Term Capital Management hedge fund bailout, sponsored by the Federal Reserve Bank of New York. Rickards clients include private investment funds, investment banks, law firms, and the US national security community.
Porter says when it comes to global finance and economics, Rickards is “pretty much the smartest person in the whole world.”
In The Death of Money, Rickards explains that the global currency system is progressing to a post-dollar world… And this implies huge risks for anyone who has most of their assets or most of their savings in dollars. He shows readers the power of converting unreliable currency into real wealth: gold, land, fine art, and other long-term stores of value. “Only nations and individuals who make this provision today,” he writes, “will survive the maelstrom to come.”
What you’ll read below is complicated, but don’t let that scare you. Rickards has a knack of taking the complicated and making it easy to understand.
To learn more about the coming “death of money,” read on…
Originally published on the Stansberry Radio Network on April 17, 2014:
Porter Stansberry: Jim, it seems like global, central bank intervention to keep asset prices up is beginning to slip. Is this how you see it?
Jim Rickards: I think that’s right, Porter. They’ve been keeping it up for a long time, and one of the things that analysts and some others have missed – because people have been talking about the collapse of the system – is the collapse of confidence. It is definitely coming… But don’t underestimate the ability of governments to keep the game going… maybe longer than we all expect.
Stansberry: Let’s talk about what’s coming next at the Fed.
Rickards: Janet Yellen… I’m sure she’s a wonderful lady; I know she’s three times smarter than I am, but she should be in a university. She should not be running the central bank, largest, most powerful economy on Earth…
She’s kind of out in the clouds, you know.
Stansberry: I agree and I have a good question about that. I did a little bit of math before we came on the show together. If the Fed has created roughly $3 trillion in reserves, and the U.S. economy has created roughly 6 million jobs since ‘09, that comes to $500,000 in new central bank reserves per new job.
The question I have for you is… why is the central bank’s policy lever so inadequate to fulfill their dual mission [low unemployment and moderate inflation]?
Rickards: A lot of people question how you could you print almost $4 trillion and not get inflation. There are a couple of reasons for that…
It’s like making a ham and cheese sandwich. You can’t do it with just the ham, you need the cheese. The money printing is the ham, but the cheese is what’s called “velocity,” or the turnover of money.
They can print all the money they want, but if people don’t want to borrow it, don’t want to spend it, and they’d rather stay home and watch TV than go out and take their friends to dinner, then you’re not going to get inflation.
That’s the kind of mode we’ve been in for the last five years, and that’s because we’re in a depression. We’ve been in a global depression since 2007, one that is very largely behavioral and psychological.
The Fed has to basically change the psychology and get people out there lending and spending money again.
So that’s one impediment, but the other problem is that depressions are structural. That’s the difference between a depression and a normal recession and recovery cycle. A normal business credit cycle is cyclical, meaning that the economy gets a little hot, the Fed tightens policy, the economy cools down, unemployment goes up and they say, okay, that’s enough.
So now they ease policy, jobs are created, and the economy goes up again. It’s like a sound wave… It goes up and down, up and down. It’s the same business cycle we’ve seen over and over 20 times or so since World War II.
That’s not what we’re in today… This is not a normal business cycle-type recovery. Depression is a structural problem. And you cannot solve a structural problem with a cyclical liquidity solution. The Feds are trying to use money to solve a problem that cannot be solved by money. It can only be solved with structural changes and a change in confidence.
The problem is they think it can. The fact that it’s not working doesn’t deter them, because they think they can print enough money to get the economy going. It won’t work. It’s like treating cancer with aspirin and it’s not going to be very effective. But because they think it is, they are going to keep printing… and ultimately collapse confidence in the dollar itself.
Stansberry: All right. Let’s talk about The Death of Money. I have to admit, I have been completely wrong so far. I’m shocked that we haven’t seen any kind of great fleeing from the dollar or the U.S. Treasury market. I would have thought that our creditors would have reacted with a lot more angst and they haven’t. Why do you think people continue to hold on to the dollar despite the fact that the woman now driving the bus [Janet Yellen] is out of control?
Rickards: They’re all kind of in it together. China’s the biggest external creditor [to the U.S.]. Do you think China wants the dollar to collapse? China is the dollar’s biggest friend. China wants a strong dollar because they hold $3 trillion of U.S. dollar denominated debt. There’s an old joke in banking, if I owe you a million dollars, I have a problem, but if I owe you a billion dollars, you have a problem.
They don’t want to rock the boat…
However, Russia’s acquiring gold, China’s acquiring gold, and Saudi Arabia feels “stabbed in the back” [by our current administration]. These [countries] are three important legs to the stool supporting the dollar… and they’re all looking for ways out.
[Confidence in the dollar] is not something that’s going to gradually, gradually drip away. It’ll start that way, but then it’ll accelerate and feed on itself. It’ll happen before people know it.
Stansberry: Before you go, would you do one small thing for us? That is, would you tell me what you are doing personally to hedge against the risk of a global systematic monetary collapse?
Rickards: My optimal portfolio is about 20 percent gold, 20 percent land, 20 percent fine art, 20 percent cash and 20 percent alternatives like hedge funds.
Stansberry: Jim, thank you very much for joining us today.
Rickards: You’re welcome.