Jim Rickards on the Monetary Reset After the COVID-19 Crisis

hello and welcome i'm james Woodburn publisher of Jim Rickards strategic intelligence here in Australia today I'm joined by the man himself straight from his self-sufficient mountain farm in New England as well as our Australian investment director Nick Nick Hubble zooming in from his bulb home in London now I requested this call because the crisis we are seeing is something a Jim has not only called years in advance but it's also something here Nick have been helping prepare readers for and position their wealth for for a long time now so right now the vast majority of the world is under lockdown by physical and economic stock markets remain open as of today Thursday second of April although that could possibly change at any moment and we'll talk about the outcome the health pandemic that sparked all this was really the element of surprise but the freeze on huge parts of the world's economy is actually something Jim warned about back in 2016 in his book the road to ruin so I thought Jim let's start with you is this is this the first stage of ice 9 do you think it could be we're certainly dangerously are close and we'll have to watch carefully but just for the benefit of the viewers maybe I'll just take just a minute and explain what ice 9 is it it's an idea that I nicked from Kurt Vonnegut who wrote a novel in the 1960s called cat's cradle which I highly recommend a little bit of dark we called a dark humor dark comedy but in cat's cradle that there was a physicist who created an isotope of water called ice 9 and had the following properties it was frozen at room temperature but if you if a molecule of ice 9 came in contact with a molecule of water the water turned to ice and he had a small vial if you poured it into a stream let's say the stream would turn to ice but then through contact so would you know the rivers then the oceans and then all the water on earth and then life on earth would die so it was a doomsday machine of course this was written at the during the height of the Cold War when we were all worried about nuclear war so what I did I took that concept and brought it over to capital markets I made the point that you can close a particular venue if you have disorderly trading so let's say the stock market's crashing the circuit breakers don't work and they decide to close the stock market well they can do that but it doesn't alleviate the demand for liquidity people will simply go over to the money market and say well fine I'm redeeming my money market funds so then you have to shout the money market funds and then it goes over to the banking system and people queue up at the banks and just try to take all the money out of the banks and then you have to shut the banks and so forth in other words there's a kind of financial contagion to go along with our viral contagion that we're facing now where every time you close something the pressure goes to another venue and then it has to be closed and eventually you end up shutting down all the markets banks stock exchanges etc in the world at least temporarily till you come up with some kind of solution so that was the idea it's interesting to see that ice 9 has not become part of I was a standard financial jargon I see it all the time you know they don't credit me let alone Kurt Vonnegut who who came up with it but that's okay it's it's it's it's useful it's more than a metaphor actually the math is the same and it has become parlance so my book the road to ruin from 2016 described this phenomenon my my latest book aftermath came out last year but this book the road to and interestingly the you know like any author right check the Amazon right he's every now and then the road to ruin is selling even faster than some of my other books even though it's a few years old because it does have this explanation of ice 9 which we just talked about and then people say well that will never happen and I remind them no the the New York Stock Exchange was closed for five months from August 2005 sorry August 1914 to December 1914 at the beginning of World War one in 1933 our President Franklin Roosevelt closed all the banks in the United States by executive order all of them he didn't say when they would reopen in fact they reopened about eight days later but no one knew that at the time these the euphemism the banking holiday well it wasn't holiday that was they were closed by orders in 2013 all the banks in Cyprus were closed in 2015 all the banks in Greece were closed people in Athens were flying to Frankfurt with empty suitcases filling them up with Euro physical paper euro notes complying back to Athens because the banks were closed the ATMs are shut down the credit cards didn't work etc and so all these things have happened before they happen under duress under stress but the idea that you know that we never happened it's not true and then all I've done is take a step further and say yeah and it can be worse than that because they can be kind of closed down sequentially at least until monetary authorities come up with a solution so we're seeing the very early stages of that we've seen a couple trading halls on the New York Stock Exchange that's not the same as shut in the exchange but we hit these circuit breakers the floor of the Stock Exchange is closed now I think most people know that 95 percent or more of the trading is is robotic so you know the computers are doing fine but before the NIR Stock Exchange right now is closed I went to a bank the other day it was closed now there were other offices elsewhere I can do online banking but the banks are closed not by government order but just because of the virus so so we're seeing it happen in certain ways and I think people who assume it can't happen takes much for granted well you mentioned the nineteen thirties then that was really like a proper shutdown from the highest level so maybe I'll bring Nick here in gee do you think we're seeing something similar is this essentially is this a bear market or do you see a greater depression at player maybe Jim can expand on that as well after yeah I'm gonna steal Jim's metaphor really we're all looking up at the sky wondering which snowflake is gonna trigger the avalanche we should all be looking at the snowpack you know looking at where the avalanche is going to happen of regardless of what the snowflake is the triggers in and there's so many different things that could go wrong right now Jim profiles and every month every week and we've been laying them out in front of readers for so long now but what coronavirus has done is trigger all of them at the same time they're all in play all of the things we've written about that we've researched and looked into over the years they could all wrong and now chances are some of them will go wrong and so in the end then you need to be looking at where the real threats are other than coronavirus and you need to be focusing on what the financial threats are would you agree with that yeah I do and just to take it a step further this is not well I'll speak specifically about the United States and Europe but I a good reason to believe similar things are happening in Australia this is not a recession this is a depression so the truth you can look at 2008 you can look at 2000 in the US when we have the dot-com crash you can look at 1998 with the long-term capital management Russia look in 1994 with the tequila crisis in Mexico none of those financial panics or drawdowns really are the proper baseline for understanding what's going on now you have to go back to 1929 you have to go back to the Depression and the Great Depression and I remind people that in the Great Depression the Dow Jones Industrial Average our main stock market index fell 89% not 30 percent or 40 percent or 50 percent but almost 90 percent it was exactly eighty nine point two percent that's what that's what a depression looks like that's what a real bear market looks like so our stocks are down 30% okay that's that's a lot it's a lot of loss well it's a shock to most people I've heard of people getting there we have the these 401k plans tax deferred savings plans like a little personal superannuation fund and people are getting their monthly statements in the mail and they're just putting them in the trash there they're afraid to look at them but that's pretty bad but but that's nothing compared to what happened in 1929 so down 30% okay that's bad enough but imagine down 40% 50% 60% or more that's what we're looking at potentially this is one of the questions I'm asked most frequently lately is um you know is the bottle of man is this a safe time to you know kind of go back in the water and and and buy stocks and my answer is absolutely not I mean yeah you have a couple good days your little three-day rallies here and there but but the bottom side and this is just the first wave of repricing by the stock market with much more to go well you mentioned the bring back to Australia I mean that the stock market here is down 40% from the peak in in late February but also another record that Australia holds is that we've got the highest look or the largest household debt in the world lion's share of that debt is held by the banks so what happens perhaps that that's a question what happens when the financial freeze essentially with the banking sector well the first thing that happens of course is people just can't pay I mean you'll want to pay you want to stay current but if you have a large debt particularly in credit cards or you know some auto loans or some other asset category or borrowing cat category well if you if you've lost your job you just simply can't pay it or even if you maybe still have a job you're trying to increase savings or pay down other - etc so then at that point the loss falls on the bank so the consumer is kind of you know the damage is done but now the loss falls in the bank and the question is how solvent are the banks now okay the the Reserve Bank of Australia can print money and bail out the banks if they choose to although that's a pretty unpopular option that happened in 2008 Australia was not as badly affected in 2008 as I say the United States or Europe or some other areas Canon also held up fairly well but they may not be quite so lucky this time well if you start bailing out banks you're talking about political ramifications social unrest etc and you know if you have to nationalize the banks let's say and wipe out equity give their debt holders a haircut you know we IPO them perhaps these are these are major major disruptions and could result in banks being closed for some period of time so it doesn't it doesn't have to be a sort of full-on ice 9 although it could be on a global basis but you can have major disruptions even in a single country if their banking system is under that kind of stress Niall falls on that perspective based inaudible yes so there's a reason why banks need central banks and deposit insurance to back them up it's they can fail catastrophically they can implode and you know from the Australian perspective that did happen in 2008 it just happened in a secret way so the Australian banks were some of the first to request bailouts from the Federal Reserve and they did that through their branches in the US and you know there may be doing that now because it wasn't discovered until a long time later it was actually an American piece of legislation that forced the Fed to publish who had requested the bailouts the backdoor bailouts and it turned out that the Australian banks were on top of the list two of them in particular so this is a very real threat it did happen there not so long ago and the conditions this time around are worse well just add to that woody the you know you look at kind of a banking system class well just in the United States our Federal Reserve has already just now in the early days of this crisis they bailed out the so-called primary dealers they're the ones who make a market and government securities they bailed out the commercial paper market they bailed out the corporate bond market they bailed out the municipal bond market and so forth set up term asset lending facilities they're now in the process are basically bailing out the world through these swaps that we just talked about with other with a long list a longer list of central up foreign central banks so so the feds bailing out everything by the way don't call this stimulus this is not stimulus this is not going to get the economy going they're just keeping the lights on they're doing what they have to do I'm not criticizing anybody except I could go back you know 12 years and show you how we got here but you have to do this but all they're really doing is keeping the lights on they're keeping liquidity flowing they're keeping the plumbing from getting backed up if you will in the global financial system but that's all I mean so that maybe they stopped the bleeding from a liquidity point of view at least temporarily but that's not stimulus that's not going to get the economy moving that's not going to get that's not going to restore confidence so this is you know when I was a boy scout around 10 years old I learned how to fix and apply a tourniquet so someone who's bleeding to death well ok tourniquet might stop you from bleeding to death but it's not going to get you back on your feet anytime soon be the reports lately of this thing well I say stimulus in quote marks because actually say they're not really stimulus packages but Australia 330 plus billion I mean that's across the federal government the RBA and the individual states that's what they pledged to fight this thing obviously that's a drop in the ocean compared to the US I mean you're talking multi trillions I mean but what what's going to be the outcome then if these measures aren't going to work what are they going to lead to well they what they are as a temporary fix to mitigate some of the worst damage in the short run but they are not going to lead to growth and by the way you know when you say multi trillions I just with that respect of our Congress passed the law just a few days ago setting up a two point two trillion dollar rescue fund so this is uh you know fifty billion for the airlines and a hundred billion for hospitals and three hundred fifty billion for small business loans etc and an enormous amount of money but but buried in that 2.2 trillion was four hundred and twenty five billion for the Treasury to recapitalize the Federal Reserve now I've said for a long time you know the Fed is that I just mentioned they you know they guaranteed commercial paper corporate loans primary dealers you know municipal bonds corporate bonds etc they're guaranteeing all these markets but who's guaranteeing the Fed who's bailing out the Fed well we just found out it's gonna be the United States Treasury and so they're putting four hundred and twenty five billion dollars in new capital into the Fed so think of that as a Fed bailout but of course the Fed is operates like a bank so they're gonna leverage that ten to one so they're gonna take the four hundred twenty five billion in new capital and turn that into 4.25 trillion of money printing so you have to take that 4.25 trillion added to the 2.2 trillion from the Congress you're really looking at closer to seven trillion dollars of direct loans because that because the reason the president leveraged the balance sheet is because they're going to buy loans so you're looking at was seven trillion dollar injection the the Fed balance sheet is already past five trillion and now bearing in mind after the 2008 financial crisis from 2008 to 2014 the Fed bow she peaked around four and a half trillion they're already past five trillion they're on their way to seven or eight trillion dollars more than doubled where this whole thing started you know is there some limit well there's there's no legal limit actually but there could be a psychological limit there could come a time when people just wake up and say hey I don't know what's going on but this this is ridiculous I get me out of the dollar you know get me into you know gold or land or natural resources anything but but get me out of the dollar we we may find out the hard way that that point exists Nick and I were talking just yesterday in preparation for this conversation and we are talking about the u.s. packages that have been agreed in over there what does this do let's bring in Trump a little bit while we're on that topic Nick I mean what does that do for for Trump's chances do you think I mean that's what the latest monthly issue in strategic intelligence covered right yes it's a really strange situation because you've got the government you know forcing the economy sort of into lockdown and then that necessitates a government bailout so the two together you only make sense with each other but the problem is all of this is going to lead to political backlash because it is in effect a bailout and bailouts or not and politically popular and feasible an election year so the question becomes and with the election cycle coming up in the US and the US economy and the US financial markets dominating everything what will happen between presumably Joe Biden and Donald Trump and Jim you've recently covered this in the monthly issue so why don't you take it away sure and you know I don't do I don't do politics has to lead subject I kind of keep out of it as much as I can say hey vote for whomever you want that's not my job to you know promote one candidate or the other but the linkages between politics and economics are so dense it's so densely connective the state said you have to talk about politics if you want to understand economics and ultimately capital markets so that's right I mean I have a a model that based on predictive analytics that's a priori that I used to forecast US election results in question famously in 2016 when Hillary Clinton was given a 92 percent chance of winning I actually was on nationwide television in Australia with our friend ticky forward and and she asked me who was going to win and I said Donald Trump I said it'll be close we'll be up late which was true but Donald Trump would win and I said that on other broadcast as well so until about six weeks ago in that same model which of course I update showed Trump with a 74% probability of winning but there was an expectation that that would move get you know closer to 90% by Election Day well that's out the window because the the key variable the key explanatory factor was no recession so if the odds of a recession were less than 20% then Trump's odds of victory were upwards of 80% or in my case 74% because one was just the inverse of the other well now the recession is here in fact a depression is here that doesn't mean Trump's odds go to zero but you but what you do with this method you reset it at 50/50 make it a toss-up and then you update it as new information comes in Trump's not chumps not being blamed for the virus he's not being blamed for the pandemic he will be judged on his response function not that he caused it but how he handles it that's how he's being judged and you know the few blunders here and there was always the case but on the whole he's doing a good job and the American people see that but my point is if you're 50/50 that means there's a it's kind of a toss-up as to whether Joe Biden becomes president that's new now the market is working very hard to the stock market is working very hard to discount the effect of the coronavirus that's difficult because no one knows quite how bad it would be also discount the effect of the new depression of the economic drawdown that's even more difficult because we haven't seen anything like this and within living memory and so also a moving target it keeps getting worse the one thing the market has not tried to discount but will very shortly and this is another headwind is the prospect of a President Biden because Biden's platform is higher taxes more regulation the green New Deal well that it if he just had that's worried about that would cause stocks to decline on top of all the other bigger problems he already have so there's just especially what's one of the reasons I'm the only one I see stocks are far from the bottom they will come down a lot more because they haven't even begun to factor in the prospect of a president biden well it's a relief nicely into my next question really in your books we pride ourselves at strategic intelligence for trying to anticipate events and be two steps ahead of everyone and that's kind of what you've been doing over the last decade with your books i mean currency wars came out while globalization was still really the idea of the day the death of money came out when QE was fueling the new bull market really the big drop described exactly the experience the the crash that we were experiencing now the new case for gold was published before gold really truly expanded established his bull run the road to ruin described how government's would react to the next crisis and now we have your new book aftermath so in the spirit of trying to stay two steps ahead for your readers and your subscribers are we on track for the money reset anytime soon and what does the world look like after that right you know and you're right waiting the irony of writing these books is they were all intended as warning not just warnings they were certainly intended as warnings but their us intended to help people get ready for what was coming i mean i was recommending gold of eleven hundred dollars an ounce than 1,200 1,300 1,400 1,500 and everyone yawned and didn't buy it all now all of a sudden it's 1600 everyone wants it but you can't get it i mean the the mints are backordered the refiners in switzerland are closed some of the logistical operations you can't get physical gold well i'm not sure of the stage to the perth mint but I believe they are backward I know the us men is back order for the rest of the year so they're still producing gold coins but they're all spoken for you if you have a new order they won't return your call so so it's you know when people would say well you know Jim why don't you you know if you wouldn't mind call me the day before the Christ and I'll sell my stocks and buy some gold and my answer was first of all I won't know the exact date I'll tell you what's gonna happen they were two magnitude I won't know the exact day if I did I might be a little busy myself but but the rope the real point is what are you waiting for when the crisis comes it's already too late the market has gaped down the gold sound available the time to get it is when things were still relatively calm but but it's not too late you you know because this is gold is gonna go much higher and stocks are gonna go much lower and even though we've had some of that adjustment it's not by any means done so yeah leaning forward a little bit and seeing what's what's gonna come next unfortunately these complex systems have a way of crashing into each other my example is always March 2011 the Fukushima disaster in China and Japan you had an earthquake that turned into a tsunami that turned into a nuclear meltdown at a power plant that turned into a stock market crash so he had four separate systems you know seismology hydrology Rayleigh radioactivity and capital markets normally independent of each other but one complex system crashed into the other we're seeing something like that right now so pandemic just epidemiology by itself is a complex dynamic system it has now crashed into the economy and we're in a new depression that has crashed into the political arena which we just talked about with Nick with the prospect of and President Biden but it'll go further and and unfortunately the next step problem I see is actually social unrest that this the economic the you know the unfairness what happened in 2008 that memory is still fresh every day people suffered they are the big banks and the lease were bailed out Jamie Dimon still got was bonus even if you were your next-door neighbor we're unemployed for years so that that anger is still there now comes another wave even worse and as we start to see something similar where you know the rich are fine but everyone else is suffering you may see demonstrations you may see riots let's see what happens this summer at the at the conventions of the political parties hopeful nothing in the streets but you can't rule that out so I do see some kind of social unrest coming in but again these are reasons to have some some physical goals for example because one things I like about physical bullying it's not digital you know you can't hack it you can't freeze it you can't you know block it the way you can with other digital assets you know the a lot of Americans now tracing down to the bank trying to get some cash they want some physical cash you know in case the power grid goes out or you know electricity goes out you get the gas pumps don't work you know etc ATMs don't work what they're finding is they can't get their money you know you walk up to a teller and say like $10,000 in cash you know nice hundred-dollar notes or whatever they'll tell you to come back and make an appointment come back next week or I can't give you all that much because you know we've got other customers asking the same thing so I like to say when people say they have money in the bank I say well once you put your money in the bank it's not your money anymore it's the bank's money and they'll give it to you if they feel like it so that comes as there as a rude awakening to a lot of people so all this could be pointing towards social unrest on top of the economic crisis that were already in and I guess the way to just round that off is the you know the last time there's this big seismic change happened we had the Bretton Woods really didn't we is there a parallel to back then I mean that was really seen as a way of the elite to try and regulate the system with and create some cohesion and stability in the system would you say that the next reset will be more about control yes and yeah the reset is coming I'm not saying it's gonna happen tomorrow or next month the the first line of defense although I think it won't do much good is coming from the central banks and fiscal policy and monetary policy so I said mentioned earlier we're going to see four trillion US dollars a money-printing from the Fed and we're going to see two or three trillion dollars of additional deficit spending that's not we were on track for a trillion dollar deficit in fiscal 2020 anyway now put 2.2 trillion on top of that and the Congress is already talking about another bailout bill perhaps a trillion dollars or more so maybe we might have five trillion dollars of deficit spending five trillion dollars of money printing but but all that combined won't work and so six months from now or a year from now we'll still be in a an economic funk at which point if there's still this demand for liquidity is still a US dollar shortage you may see the IMF step in because they have relatively clean balance sheet you know the Fed is was so badly leveraged as I say they had to recapitalize it with four hundred twenty five billion dollars but and by the way other central banks are no better off if you look at the ECB or the People's Bank of China or the Bank of Japan they're there even worse than the Federal Reserve but believe it or not so I'm so when that's at its limit when that's run its course the only entity left in the world with a clean balance sheet they can print money is the IMF the International Monetary Fund they can print a form of world money called the the SDR or the Special Drawing right it's a geeky name but it's geeky on purpose because they don't really want people to understand what it is but what it is is world money from a world printing press and that can come but to do that you're going to need the approval of the Executive Committee and China Russia and a few other BRICS in Venezuela and other you know kind of rogue nations or adversaries the United States collectively can block that from happening unless their conditions are met and one of the conditions could be okay fine we'll approve the printing of the strs but you have to agree that the SDR is the new benchmark global reserve currency it doesn't mean the dollar disappears you know you can't fly than on stage you'll still need dollars if I go to Mexico I need Mexican peso so the dollar will be a local currency but important things like the price of oil earnings of you know the 100 or so largest global corporations settlement a balance of payments differences or balances denomination or reserve positions these will all be settled and stayed in STRs in this world money and that will be the price of getting the printing presses rolling at the IMF so that's that's a monetary reset even more significant in this way then the the Bretton Woods standard now will at work different question I'm doubtful but I believe it will be tried and to be tried you're gonna have to run the dollar off the road to get to to get the printing presses going on the SDR well I guess that brings us to how you preparing what you can do now now near the portfolio of investment solutions that you select and oversee for Jim's advisory here in Australia has been holding up pretty well through this crisis obviously no guarantees anything will continue of course but you also authored the special Australian chapter of aftermath aint specifically the Jim's Aussie readers so what are you telling readers readers specifically to do with their money the missed all this and now the covert nine teams had the dominant news story and just as social distancing is the solution to the virus I see that Financial distancing is a solution to what's happening in financial markets so basically what I think subscribers should be doing now is moving their money into investments that are not directly connected to the financial system now that doesn't mean so everything and run for the hills that means have some of your your wealth exposed to non-financial assets assets that don't rely on a counterparty to payout on claims so when you invest in the stock market you rely on you the company's management to do that fit you're allowing the stock market to be open your airline and your stockbroker to do what you're telling them to do and there are investments that provide decent return which don't require all of those counterparties but yeah you can hold the investment in your hand and so there's no one that you need to rely on for that investment to perform you know in the way that your intent so a lot of the recommendations that I see is coming alive right now and obviously people should have bought them already but for the newest subscribers the things that they should be focusing on are non-financial assets like the ones that we detail in that bonus chapter of aftermath that's great thanks Nick I think that's probably a good place to end we put on for 30 minutes down and so that's a good time to end so thank you very for making the time to have this conversation you really is appreciated as I said Jim you've been anticipating this crisis for many years now it is actually playing out on a note here in very hot so you're always very gracious with your time and your knowledge and I think all of our your readers and all of our strategic intelligence subscribers will really appreciate the thought that you put into your comments and T units so thank you both endure stay safe Thanks hi James we've been here publisher of Jim Rickards strategic intelligence here in Australia as you've seen Jim has been one step ahead of mainstream analysts through the entire covert 19 crisis he predicted it would be a global catastrophe in early February well before markets caught the fever so what does Jim see happening next well as he just told his us publisher Pete coin complete monetary systems shut down at the end of such a scenario the entire global financial system shuts down and any Federal Reserve intervention may no longer be effective it's worth pointing out that this is a scenario Jim has highlighted for several years as the bookend of this historic bull market the difference now is it appears to be in motion so what can you do to shelter your wealth here in Australia Jim and his team suggest the variety of possible protection measures and they've outlined them in a brand new financial pandemic shelter report now available to every Australian concerned about where we're headed simply click the link below this video and you can get access right now you

Channel: Fat Tail Investment Research

Views: 113,175

Rating: 4.8200936 out of 5

Keywords: The Daily Reckoning, DRAUS, Agora Financial, ASX, Stock Market, Financial markets, Investment Service, Australian Economy, Shae Russell, Investment Ideas, Jim Rickards, Monetary Reset, COVID 19 Crisis, Market Crash, Recession, Economic Depression, Nick Hubble, James Woodburn

Id: -FC6QqETVG0

Length: 33min 3sec (1983 seconds)

Published: Fri Apr 03 2020