Jim Rickards: How the Federal Reserve Bank are going to bungle monetary policy in 2022

hi i'm shay russell from abc bullion and joining me today is none other than jim rickards jim how are you today i'm fine shay how are you good thank you now look you need a little introduction to the bullion audience you've been a guest of abc bullying in the past you have appeared on the youtube channel before you are a investing uh so you're a macro expert you are a prolific author i know that you know there's plenty of books that you've written on the currencies on gold and also the new great depression which we did talk about in our previous interview but today we want to talk about gold and what the fed is going to do next now first and foremost this is primarily a bullion audience let's talk about gold and i'm going to start with one key question why should everybody own gold well there are a number of reasons to share and you're you're as much of an expert as anyone but it's the key the key factor is it's a diversifying asset let me explain what i mean by that when you say um you know diversify your portfolio everyone agrees there's a lot of economic science behind it of course diversification is good it's powerful what diversification does if it's done correctly it should increase your total return without increasing your risk meaning anybody can get a high return at a high risk i can you can say jim i want you to manage my money i go to a casino bet at all on red if i win i come back say hey look how much i made but of course if it comes up black it loses everything so that's a high risk high reward and in the in the long run not winning that proposition but the question is can you increase the return without increasing risk or can you increase the return more than the amount of risk that's what diversification does for you but here's the problem shay most people don't really understand diversification i run out of people all the time and go i'm highly diversified i've got 50 different stocks in 10 different sectors technology uh consumer non-durables uh services mining etc i'm highly diversified and i say no you're not you may have 50 stocks but you have one asset class which is stocks and they become highly correlated in certain conditions so yeah you may have a lot of different stocks fine but but but if the stock market's going down they all tend to go down together if it's going up they all tend to go up together you're not really diversified if you're in a single asset class real diversification means having numerous asset classes that are not highly correlated to each other so i have a slice of stocks absolutely by all means have some government bonds i like you know for in the american investor a lot of global investors in fact you know 10-year treasury notes uh but you know australian government bonds for the australian investor etc um have some land have some real estate have some venture have some so-called alternative assets hedge funds if you can get in they can be hard to get into etc venture uh and you know natural resources oil energy water and then uh some gold and some silver so that's real diversification because you know gold will not uh correlate the stocks if sometimes it does but but often they move in opposite directions uh gold doesn't the gold correlates the bonds a little bit but then you've got to throw in inflation which helps gold and does not help bonds and so forth and so so what i just described oh by the way i forgot to mention a significant slug of cash um maybe as much as 30 percent and i actually call it the barbell portfolio so you know barbell i got two heavy ends and a connector you know so over here are your deflation hedges and your deflation hedges would be um you know uh bonds uh utilities you know and then you have your inflation hedges and they might be um you know normal stock portfolio gold etc but cash is in the middle cash is the thing that connects the two and cash has a couple interesting properties but people say why would you have cash it has no yield well um it has a very low yield there's no question about that but in a deflationary environment which you cannot rule out i'm sure we'll talk about inflation uh in this interview but um you can't rule out deflation and deflation cash can be your best performing asset because the nominal value is pretty much unchanged but the real value goes up because every dollar is worth more in a deflationary world the other thing that cash does is the exact opposite of leverage a lot of the assets i mentioned include stocks no stocks bonds and hedge funds and others and gold for that matter they're volatile they have some volatility cash has zero volatility it's just cash and so what it does is it reduces the the volatility of the overall portfolio so you can have volatile assets on either end of the barbell but cash kind of damps that down a little bit helps you sleep at night and then the third thing it does and this is not very well appreciated cash gives you optionality it has embedded optionality so we live in an uncertain world that's kind of obvious but um how long how deep is the uncertainty how long will the uncertainty go on we we don't really know but um but so what that means is if you place your bets and say okay i really want to get into bonds and i think there's a place for bonds they get into bonds and all of a sudden here comes the inflation those those bonds are going to do very poorly um if you get into stocks and it becomes a recession the stocks are going to do poorly so these bets can be good nets but they can also it can also be a mistake or you can do a private equity fund um can't do very well some have but it's completely illiquid um don't expect to get your money back early from henry kravis he won't give it to you as you're locked up for seven years so the point is the the the purpose of cash is as we get more clarity as some of these things you know primary fed policies central bank policy inflation deflation the new um coleman variant that's uh that's running around this uh uh uh omicron omnichrome um uh as we get more clarity on these things the person with cash has the optionality you can pivot if all of a sudden inflation comes in way higher than expected you can go buy some gold uh but if deflation appears you can buy some bonds so um you preserve that so think of cash is uh it's kind of an at the money call option on every asset class in the world that sounds like a pretty valuable option well that's what cash gives you so uh so a big slug of cash in the middle maybe as much as 30 just so that you can reduce volatility and be nimble uh but but real diversification is going to be stocks bonds alternatives venture hedge natural resources cash gold they're all going to be in the portfolio and that will perform well in every state of the world you know someone will do better than others but that's the point that's what diversification gives you now i just wanted to touch on something you said just so other people can actually go away and research about it if they wish to your barbell strategy that you just talked about then fabulous strategy by the way um you wrote about that in the big drop one of your books i believe didn't you correct yeah so i also think that books a little bit hard to get these days it's a collector's item is that correct well that's correct uh my i have a great relationship with my publisher very globally it's penguin random house and i've had six uh six national bestsellers and hopefully more on the way but the only book i wrote that it was not the penguin random house i got a waiver for them uh is the big drop uh published by laissez faire press in uh baltimore and uh it uh it was never in bookstores it was uh it was done as an uh if you subscribe to you know one of our financial newsletters you got a free copy of it so it was never in bookstores it was never on amazon so any copies that exist are sort of traded almost like underground goods now you can you can find it um if you find it on amazon it's only because there's there's a secondary market some independent book seller is posting it on amazon or maybe uh at ceb i don't know but they're hard to get uh there weren't that many of them in circulation a bit of a collector's item but a very interesting book every now and then i pick it up and go on you know we were a little bit ahead of our time there talking about um the use of the financial system to create a surveillance state kind of thing that's going on in china right now with central bank digital currencies there's a lot in that book which was written oh uh around 2015 if i'm not mistaken so six years old but a lot of it's just coming true today so yeah the big drop is sort of a fun fun thing if you can find it yeah look i don't want to talk up a book that yeah that is almost impossible to get i do have a copy of it and i i thoroughly enjoyed it um but the barbell strategy uh i do believe through uh your financial newsletter strategic intelligence uh you know there's more information in there so people can either find that in australia through fat tail media uh or with uh is it published by agora financial in the us strategic intelligence uh yeah well the the gore financial owns a uh uh owns their own press called laissez faire books or leslie fair publishing but that they're the tech the publisher but yeah it is part of the the aurora uh family uh but um you know i make the uh make the point the thing is if you knew that we were gonna have inflation you would know exactly what to do you'd buy gold you buy you know you keep away from bonds et cetera if you knew we were going to have deflation you would also know exactly what to do you'd buy a lot of 10-year treasury notes or you know australian government notes etc but we don't know i mean i can i could argue both ways as a lawyer you always learn to argue everything about the life the point is there are signs there are there is a lot of data that would argue by the way and so in um an uncertain world in a world where either inflation or deflation could arrive very quickly in greater measure than one expects how do you prepare for that world and that that's where the barbell comes in right so we are going to touch on the uncertainty of inflation and deflation in a moment but first and foremost i want to do a touch on about central banks buying gold now this year we have seen an increase in the majority of uh you know eastern european central banks independent of the ecb increasing their gold holdings now i believe in your interview with kerry stevenson who runs the gold conference you mentioned that japan has either increased their gold holdings or just announced that they own more gold than was first thought what is this telling us essential banks moving into gold um more rapidly than you've seen in the past or is this a sign of things to come uh both they they are accelerating their purchases and i do think it's a sign of things to come now when you talk about retail student everyday investors americans love america but kind of giving up on americans and gold they they just uh there are you know there are people who have positions and you know your hedge funds will have paper gold they'll do gold futures but the everyday american has been uh oh 40 years at this point of being miseducated on the topic of gold so they uh that they're not uh very much indigo you go around the world you get very different results you know switzerland germany they they austria they love gold uh of course china asian countries i think australians have a much better sense than americans do so uh there are the buyers of gold but you say well okay who are the big buyers of gold the answer is the central banks now right there that should tell you something so these are the most powerful most plugged in most heavily monetary institutions in the world and they're the ones buying gold now they would have you believe that gold's not money it goes there's no purpose you know it's a you know they the the first ones to say john maynard keynes said it was a barbarous relic which he never said by the way he said something uh he said that he said use the phrase barbra swelling in reference to the gold exchange standard of the 1920s which was a hybrid gold foreign currency standard but the foreign currency is not gold so he said that's barbara shrolic but he never said that about gold and himself and actually again toward the end of his life he favored a brett woods he favored a gold a global currency called the backward backed by gold and you know it's not guesswork there are papers they published at the time and that was rejected by the united states which kind of ran the show um partly because our uh well not to get two down release but our debt or under secretary of the treasury who was our representative at bretton woods was a stalinist agent he was a communist this didn't come out until the 90s after the fall of the soviet union when a lot of classified information was released kgb files etc but it was revealed and fully documented the book by ben style called uh donald brenton woods that he was a communist agent so what was hi what was he trying to do by insisting that by running kane's idea off the road insisting that the us dollar be the anchor he was trying to destroy the british empire which he did because he knew that there were far more claims on the back of england and they had gold and that would be inherently unstable that would do real sterling as one of the global reserve currencies and undermine the british empire which it did so um that's a little uh a little bit of a backstory but it goes to the point that uh keynes was an advocate for gold at different times in his career and and at the end of his career and that when the central banks are buying i should tell you something now i've said for years um you know i've always pointed to russia and china russia has almost quadrupled their gold reserves in the last 12 years starting in 2009 through 2020 uh 2021 they've almost quadrupled pardon me from about 600 tons to about 2400 tons china the same uh not quite uh from about 600 tons to about just under 2 000 tons that they report but they're non-transparent they have a lot more gold than that stashed into something called safe the state administration on foreign exchange which is a secretive chinese style wealth fund run by an expianco guy by the way he knows what he's doing um and they they're non-transparent people's bank of china is kind of transparent safe is not untransparent so every six seven years what you'll see is the people's back in china will announce but we've increased our goal research by 400 tons or 500 tons or whatever as the case may be and well it sounds like they went out the night before and about 600 tons you good luck trying that you can't do it but what it means is that that safe took some of the the hidden goal that they had been acquiring slowly and move in an accounting entry moved it over to the people's bank of china and boom there's 500 tons overnight but of course they had it all along and they still do so they probably have more so russia and china are big acquirers again triple-a and quadrupling their gold reserves but now we're seeing it in a lot of other countries um uh in the philippines vietnam uh mexico uh iran is a major buyer but non non-transparent turkey has drastically increased its gold reserves these are these are major countries uh and they're they're adding so so i look at that and this is very good data from the imf and the world gold council so you can find this information but the one that was just like not doing anything was japan they had about 600 tons but they had 600 tons for 30 years i went back to my people the other day it was like thirteen that was boring who cares about japan 600 times and then just about um at this point about six months ago so late last summer um they bumped it by uh lee was it was 50 tons perhaps more you look at the exact number but it was over 50 tons overnight it just went from you know 600 times 650 times just like that well here's what you know the same thing i said about russia you can't buy 50 tons overnight you couldn't even do it in a month i mean the the dealers would be working the order would be disrupted to the market it would show it will leave a lot of fingerprints put it that way but what it tells you is two things number one japan had the gold all along they had it in some side car or side account or ministry of finance hidden account what as the case may be and they chose to move it over to their reserve position which they can do that's an accounting entry but they had to have they had to have had the gold all along because you can't buy that much that fast so then that basically the question well why all of a sudden why now after decades of holding your goal level constant you go a sudden step up in a big way a lot of possible answers to that one you know china's making noises about invading taiwan well if you're going to be taiwan might not be japan while you're at it it's just another chain of violence as far as the chinese are concerned um and after this happened right around the time move shortly after um the u.s debacle and afghanistan which was you know the worst foreign policy uh military disgrace humiliation in u.s history that i can remember i don't know how far you'd have to go back to find a worse uh turn of turn of events um and and that there was well all of a sudden allies all over the world knew israel um japan taiwan they're questioning the united states like hey we're we thought you're we're under your nuclear umbrella you stand by us two victory thing here you leave americans behind enemy lines so um so perhaps now this is speculation but perhaps japan sees the threat to taiwan feels they may be in the in the sights of the chinese feels the united states may not be as reliable as one had thought and said well we have to we now have to step up a little bit financially militarily etc and they're doing that but it but that aside that's a little geopolitical speculation but that aside the gold is real they put it on the books so the biggest buyers in the gold in the world are the central banks by the way from 1970 to 2010 central banks were not sellers now some bought some sold but one on that they were net sellers we had browns bottom in 1999 when the uk sold half their gold at the lowest price in uh about 60 years they literally hit the bottom of about 200 an ounce to give or take um but um but since 2010 central banks in the aggregate have been net buyers and that buy is accelerating so what does that tell you it tells you that the most knowledgeable players in the world are adding gold to their reserves because they consider that a prudent hedge to the us dollar if you have your star inflation or to collapse the confidence in central bank currencies generally um or they're just saying hey we're we're part of the club uh by the way here's a good uh trivia question for you uh the sherry if you're if you're not in a bar with a lot of brainy economists around i asked them better put them a drink on this ask them what percentage of u.s reserves are in gold the the answer in china is about two percent uh russia is about 20 um you know what the percentage is for the united states it's going to be point five percent seventy seventy five percent seventy five seventy five percent the us does not rely on euros and nazi dollars and canadian dollars for its reserve position a little bit um but um 75 of us researchers are in gold so don't let don't let any central banker don't let uh jay power or johnny ellen or any of these others tell you the gold's not the monetary asset we have the largest gold stash in the world and 75 percent of our reserves are in gold so that's the u.s you know as they say watch what they do not what they say um look i know you made a comment before about risking getting into the weeds for things but i'll be honestly honest jim that's why people love your interviews because you do get into the weeds of things and you do give people the detail behind them um i did say i was going to get to the fed after this question but you said something interesting so i'm going to follow that thread for a moment you talked about how central banks were net sellers of gold from 1970 to 2010 now obviously you know in the past decade we've reversed a 40-year trend uh and this is pure speculation but how long do we think central banks are going to continue to be net buyers of gold i would say indefinitely uh i get everything you know changes in time but um the the when people talk about the price of gold and i'll just use us dollars as a benchmark because that's a good global that's why it could be on australian dollars or any currency um people say well gold went up and then they say gold went down you know um but what the gold really didn't do anything gold is is an element it's atomic number 79 it's a very nice very attractive metal what changed was the dollar price though that's what people mean when they say gold went up they mean the dollar price went up and if they said gold went down that mean the dollar price went down um well but what does that really mean is that is that telling you something about gold or is it telling you something about the currency uh and i would say when the dollar price of gold goes down that means the dollar got stronger each dollar buys you a little more gold and when the dollar price of gold goes up i would say the dollar got weaker because each dollar buys you a little less gold uh when you translate into weight i always think about gold by weight that's why i keep talking about tons and so forth uh metric tons so um so fluctuations in the dollar price of gold tell you more about dollars than they do about gold it tells you about the strong dollar and the weak dollar so as the dollar so as the dollar price of gold goes up what it means is that the dollar is getting weaker now so if you want to know the dollar price of gold just do a long term forecast on the currency and you'll get to the dollar price to go very quickly so so when you say you know is gold a good asset is it a good diversifier um is the price going up in the long run great questions and where i think about it is well what's going to happen to the dollar in the long run up or down well what's the history of all central bank currencies what's the history of all fiat currencies what's the history of inflation that they all go down over time not not all at once um and that's another source of confusion because people look at well the dollar euro cross rate uh whether you say euro to dollar cross rate is that is the most heavily traded liquid you know foreign exchange cross rate in the world by far so uh and in the past i would say two months a little more the the um euro has fallen from about a dollar twenty two today it's about a dollar thirteen that's a significant decline in the value of the euro and a significant increase in the value of a dollar so a lot of times when people say the dollar is stronger or weaker they're actually not thinking about gold along the ways we just discussed they're thinking about some dollar index but if you if you peel back the layers of the onion for every index dow jones bloomberg fed it's all basically the euro style of crossroads so yeah there's some canadian australia and yen and sterling there's some other currencies in there but the euro is the line of shares all these indices are really euro dollar quest rates so people say the dollar's stronger well it's another saying the euro is weaker um but the currencies tend to trade within a range they'll get here or go here but they're not like stocks you know major currencies they don't go to zero i mean zimbabwe yeah but the australian dollar europe they're not going to zero but they don't go to the moon the way apple stock or amazon does they're they can be stronger weaker but they tend to trade within a range which makes it makes them interesting to trade because you can spot those inflection points so right now when people talk about the strong dollar they're really referring to the dollar value of a euro but you could have a situation where uh gold is going much higher in dollar values that would be as they say the weak dollar and yet the the euro could be falling faster than the dollar so people people always look at the euro and they say strong dollar weak dollar compared to the url my only advice is look at the dollar price of gold use that as your thermometer your doctor walks into them they see the patient they don't know anything unless the person they do they take their temperature so if you want to if you want to put a you know we don't use mercury thermometers anymore they put a little x-ray thing on your head but whatever it is if you want to take the dollar's temperature look at the dollar price of gold all right now we could sit here and talk about gold all day but i do want to move on to the fed because you threw out an idea one in one of your most recent australian interviews that i think was a little bit controversial uh now first and foremost uh the fed has been uh the federal reserve bankers for clarification has been talking about how inflation in the u.s is transitory and they've been quite steadfast in that view uh they've committed to ending tapering uh that they finally put that commit commitment out in november and now they have i believe as recently as last week they dropped the word transitory about inflation from their language so this is a significant step because they have said all along that it is transitory and that it's nothing to get worried about but you put out a controversial view that it's possibly not an inflationary environment that we are going to see in the u.s next year then it might be deflation can you please explain how you're able to go against the grain and why you think this well um professional just in terms of your your overall comment um i did say that and i'll just be clear i'm really talking about disinflation rather than depletion we could have deflation that's when prices drop but what i was and so i'm not ruling that out but what i was expecting is just inflation meaning we'll still have some inflation but it'll get lower so it so it'll go from i mean i think the last uh monthly um report year over year was about um it was well over five percent but it was it was the highest in 30 years so that's kind of very hot inflation but i would see that trending down in the coming months to you know four percent three percent kind of get back down to that you know good you know good old 1.6 where we're so where we were stuck for years during the uh the period from 2009 to 2019. so you still have a little bit of inflation but it's it's disinflation in the sense of the the rate of inflation is lower than it was before so inflation coming down um put it that way um and i one of the best guys investing uh and financial analysis i've ever found is that the fed because they're always wrong whatever they do if you do the opposite or assume the opposite you'll be a very it's a good starting place for your analysis you can do a little more work than that but it's a good starting place so i was about four four five months ago i was very uncomfortable because i my view is that the inflation we were seeing was temporary transitory if you want to use that word that it would be coming down it would get into disinflation and i found myself in agreement with the fed and that made me really uncomfortable maybe i'm wrong you know but so i was happy the other day when they threw it when they threw transit to it overboard and said i got on the inflation bandwagon i said okay well now now i feel more relaxed because i'm disagreeing with them and that's a good place to be so um yes they they did get rid of that i think um i mean let's bear in mind we just went through jpel's reappointment um announcement and he's gonna have a senate confirmation hearing and there's a political aspect to this so he didn't want to be on the wrong side of that politically whether i'm not saying there's some you know behind the scenes deal with the white house it's not possible but we don't have to assume that i think it was just jp the washington politician as much as the central banker saying okay i'm getting beaten up over this let's just take that off the table um but uh uh the uh stronger inflation that we saw in march april may june and basically the most of the summer a lot of that were what are called base effects meaning so how do we actually report inflation in the united states we do it on a monthly basis uh but it's year over year annual loss so take the month of may or the month of june you know the month of july 2021 compare it to may june july 2020 and take that year over year increase and then annualize it kind of you know times 12 if you want a little more to it than that and that's your inflation rate well what was going on in 2020 it's the lockdown it was covered i mean the us economy was flat on its back so of course you had price decline so when you get a year down the road to 2021 you would expect those prices to be higher not because everything's out of control but because the prior year was so weak and if you're doing it year over year which is how they do it you're going to get some pretty hot numbers and we did so the real so that was to be expected and not cause for concern um the real crunch came more recently in september october and now i think we'll be getting the november numbers in the matter days and uh there the um the the third quarter 20 23rd quarter was one of the strongest quarters we had a steep drop and then we had the bounce back in the third quarter one of the strongest quarters in u.s economic history so the base effect went away and now you really are looking at something that's maybe a more legitimate comparison and it was still a little hot so then you're like well okay is that covet is that supply chain because supply chains was not as big a factor maybe the supply chain was breaking down a year ago but nobody was buying anything because nobody went outside uh now all of a sudden the shoppers are back and we're finding bare shells again you know it's not just the paper goods aisle at costco it's uh our one of our big box stores it's uh um it's everything you know sad to say liquor stores don't have all your favorite ones so um so we're seeing supply chain effects and um and that would tend to make prices go up because we have a lot of money in the economy and shortage of supply people are going to bid up prices and then there's you know labor shortage et cetera so there are a number of factors in play but then it still still begs the question is it transitory notwithstanding those factors because you you only get coded once so you only get supply chain breakdown once then it just becomes the same state um or is it um is is something going to change now that's the that's a big debate there are two sides to it i still lean to the view that um that the the disinflation is going to you know get get the upper hand and part of the reason i say that is uh real incomes are not going out that much uh this new kobe barrie that's going around i don't have to tell australians about lockdowns but we have our own uh and um and that's that's bound to slow the economy the supply chain is bound to solve the economy so if prices get too high in in that world you could actually tip into a recession so you know four dollars and fifty cents uh this us dollars i know everyone in the world thinks we have cheap prices but a year ago americans were paying 225 a gallon for gas and today we're paying over four dollars a gallon for guests well okay fill up your tank but that's less money for everything else you know dining out movies clothes whatever else you want to buy so it hurts all those discretionary uh consumer discretionary categories if more money is going into the gas tank so um so you could have a set up for for actual certainly disinflation i don't know how to go so far as to say deflation disinflation meaning inflation is transitory and if it gets worse than that you can even see a recession i'm not right now and i'm not making a hard and fast forecast but you can see that trend now i can take off my deflation output on my inflation hat and yeah just look at the money supply look at the government spending look at the supply chain constraints and say well wait a second if the government's spending you know trillions upon trillions in deficit spending which we are and there are more bills more legislation in the pipeline which will they'll get amended in some ways it's not final yet but it'll probably go through with another two trillion dollars of spending that much spending in an economy where they uh with declining labor force participation supply chain bottlenecks uh a new brand of uh code going around uh what does that do to prices well that might give you an inflationary boost so um so the the best answer is there are good arguments both ways i don't want to sound like people but i don't want to put a second ground either i lean to the um transitory campaign to the disinflationary camp i think part of what j pal is doing is for you know political consumption um but uh but we'll just have to state but again it goes back to what we talked about at the beginning of the interview the power diversification if you have that diversified portfolio it doesn't mean that every asset class screams in every state of the world but some of them will and they should give you good total returns uh without too much risk uh look that is a fantastic answer and i actually really like how you know you swapped your hats between disinflation thank you for the correction and inflation um i might wrap up with my final question today on uh jay powell being confirmed uh again for the fed uh you know does this mean we're going to see you know further dovish policy coming out of powell or do you think he'll be able to navigate between the doves and the hawks that sit across the fed board well he'll have to do some of that and bear in mind um even with powell be nominated for his existing seat and then um i guess laura brainer has been nominated for vice chairman so she still she was already on the board of governors but that's the promotion good for her she's she's one of the big brains there but they still have i believe three vacancies so if joe biden wants to dodge fed he can have it because he just has to fill those seats and it's generally the i've been in the board of governors room and i've spoken to a number of governors and other insiders at the fed and had a little insight into the process generally it's a really consensus-driven organization and remember that one of the reasons paul walker resigned in the 1980s was he almost lost a vote i didn't actually lose it but you don't want um you know you don't want seven four votes so you don't want six five votes coming out of coming out of the board of governors uh you want them to be you know eleven to nothing or you know nine to two or something like that always a couple of the centers but if if biden fills those vacancies with doves and powell's trying to take a hard line and he has a couple supporters but not that many he doesn't want to lose a vote uh and so so it begs the question does he persuade others to come along with him or does he join the dub camp but uh and that that remains to be seen but what you don't want at the federal close votes again 9-2 is fine 11 nothing fine but you don't want and and if if biden puts in the three doves as a concession to the fact that he uh did not make lil brander of the chair she's the super dog uh uh idol i respect her as an economist but she's definitely in the darkness camp um it biden and it's not really biden because honestly he's not all there it's the people behind him uh but if they feel that they have to go with doves in the vacancy and the senate majority bear majority confirms them um you could end up with a more douglas board by the way what j-pal is doing right now is hawkish uh he because they laid out in november they laid out the tapering plan and it's always like watching a movie in reverse shave so you watch the movie and then you play it backwards so how do they how's the fed type well first they cut raise they cut cut cut then they get to zero then when they're zero they don't they don't want to go negative so they're not going to get negative so then they start curious they start buying bonds they print up money filling out the banks with money and then they get these huge excess reserve positions and all this quantitative easing etc when they decide to tighten they play that in reverse so they don't raise rates what they do is they they reduce the money supply they reduce base money quantitative tightening instead of quantitative easing and then when they get to the point where they are not buying any net government securities they'll still do the rollovers of course but they're not adding to the money supply they're not adding to their portfolio government securities then and only then will they begin to actually raise rates the famous liftoff so they laid out a plan they said we're going to start typing in november which the 20 the 21 which they did will be finished by i think it was june you know sometime middle next summer uh at a 20 billion per month tempo for you know six or eight months however many months and that would reduce the purchases to zero by the time they got to next summer and then they would look around a little bit and they would lift off and then was that being two rate increases in the second half of 2022 maybe you know 1 20 22 1 early 20 23 maybe remains to be seen but that's just the whole thing in reverse so first you know instead of buying securities stop buying securities bring your purchases to zero pause and then raise earth so you're watching the thing in reverse now what powell said the other day is that we may um uh taper a little bit faster we may pick up that tempo and he didn't say this in so many words but a logical inference would be well okay if you're going to accelerate the taper that means you're going to accelerate the liftoff because you'll be done with the taper you're going to raise weight sooner and the odds of two maybe three rate increases and late 2022 went up so that's what so pal is laid out a tightening program now i'm i'm looking at a few things number one the fed is always wrong so that's my default position number two a lot of reasons to be concerned about the us economy right now we'll know more in a few days based on some new data that's coming out but uh um you know if we're if things are really slowing down because the supply chain things are really slowing down because of the new cobie variant and new lockdowns and travel restrictions it's going on all over the world it's not just the u.s but the u.s is certainly affected by it um and those are all headwinds to u.s economic growth do you really want to be tightening probably not so one of several things is going to happen either they're going to blunder into a situation where they're tightening into weakness which by the way is exactly what they did in 2014 uh because you go back to when was the last taker well they announced it in 2013 it was a big uproar but they started in late 2013. they finished the taper in late 2014 they then promised us the liftoff which they didn't get around to until december 2015. it took a whole year to get to the left off and then they raised rates over the course of 2016 2017. well what happened the fourth quarter of 2018 the stock market uh fell um uh 20 in three months from october first to uh december 24th what i call the christmas eve massacre 2000 uh sorry uh [Music] sorry 2019 i believe i think i think i'm uh no no yeah it was 2019 sorry um but the stock market fell 20 in three months in other words they did exactly what i see them doing again they tightened into weakness and then what did jay pal do between christmas and new year's that year he said hmm we gotta think about this and then what they do next they cut rates and what they do next they started you know when they got to zero they started quantitative easing again so they they went through the whole um easing cycle and then they went through a whole tightening cycle and that screwed up almost sank the economy and then they went to easing again now they want to show the tightening cycle wrong wrong policy at the wrong time they may put that they may spook the stock market they may put the us economy in a recession they'll probably have to backtrack so just to summarize all that j pal is in charge he is tightening he makes to be seen at these vacancies if they get filled anytime soon they may not um tilt him a little more in a dovish direction but for right now he's not he just said he's going to accelerate the taper that's probably the wrong medicine at the wrong time and that's part of why i see disinflation not inflation look jim that is an incredible place to leave our conversation uh now just for anybody watching uh you've got some fabulous books out that actually cover a lot of what we've talked about today but in more detail obviously it goes without saying the new case for gold i'd be crazy to not mention that one uh then we've got the new great depression which is your most recent one and that's sort of a precursor of what's ahead uh you know that's really just directing people to what he's yet to come which i think is fascinating uh and also to your book currency wars i know this was written quite some time ago there's still a lot of relevance in that book and i definitely think investors should check that one out as well thank you it's uh it's the books uh i'll be 10 uh 10 years old this month and uh still selling very well happy to say and a little bit of a classic uh but yeah that's uh there's stuff in there about ukraine still in headlines today yeah now it's a fantastic book and obviously like your children i won't ask you which one was your favorite um but i just want to say um from everybody here at abc bullion i want to wish you and your family a very merry christmas and a happy new year thank you chef thank you and with all the viewers merry christmas merry christmas and i'll see you next year you

Channel: ABC Bullion

Views: 54,116

Keywords: Gold, Silver, Gold Bullion, ABC Bullion, Australian Gold, Gold Price, Australian Bullion Company, Jim Rickards, Inflation, US Federal Reserve, Reserve Bank, jim rickards, jim rickards gold, james rickards, Interest Rates, jim rickards interview, federal reserve, Shae Russell

Id: HIxH0gjIJUM

Length: 42min 4sec (2524 seconds)

Published: Thu Dec 09 2021