The Goal of Currency Wars is Inflation

I expect a collapse in the value of currencies relative to real goods, real assets and real services. This will happen to all currencies, not just the dollar. I don�t expect a word where people lose confidence in the dollar and the euro does really well. On a relative basis, I�ve been bullish on the euro for some time. In the endgame, however, if people lose confidence in the dollar this will be inflationary in all countries around the word and I don�t think that any currency will be able to withstand it. When I say �the death of money� what I really mean is the loss of confidence in the purchasing power of money. That�s very likely to be a global phenomenon not confined to any particular country.

Currency wars are part of the picture because the way you fight a currency war is by cheapening the currency, cutting rates and quantitative easing. We saw that recently with the announcement of more quantitative easing from Japan, which took the markets by surprise and caused the Japanese Yen to fall by over 2 percent in a single morning. That is a huge move in the currency markets.

Another big factor in currency wars is the question of paying sovereign debts. It�s the sovereign deficits that are really the problem and the question is how to deal with them. One way to deal with them is through inflation, which, of course, is the goal in a currency war. The problem is that not everybody can devalue against everybody else all at once. You have to take turns. So it goes back and forth and back and forth. That�s what happened in the 1920�s and 1930�s and it�s happening again today.

- Source, Jim Rickards via Proactive Investors

Stock Market Reality Check

James Rickards

Listening to mainstream market commentary on television and reading the financial press leaves one with the impression that the economic recovery is gaining strength and that stock market indices, at or near all-time highs, will go higher still.

The litany of market happy talk is impressive. The unemployment rate has dropped to 6.1%, down about 4 percentage points from its peak, and is expected to go lower in the months ahead. The economy created about 230,000 jobs per month in the first half of 2014, which brings the increase in jobs to nine million since the economic recovery began in mid-2009. Interest rates remain low, which supports high asset valuations in stocks and housing. Inflation is tame and expectations about future inflation are well anchored. To hear the stock market bulls tell the story, all is right with the world.

But all is not right. In fact, the fundamentals of the U.S. economy are in awful condition and are getting worse. Almost everything about the happy talk story is superficial, and falls apart under scrutiny. There is an alternative narrative of bad news that is seldom discussed on mainstream business channels but is well known to analysts. When these adverse trends are taken into account one conclusion in inescapable. The stock market and economic fundamentals are on a collision course. One or the other will have to swerve. Either the economy will have to improve rapidly and unexpectedly and reverse its fundamental weakness, or inflated stock values are heading for a precipitous fall. The evidence suggests that the latter is more likely.

The first weak link in the happy talk chain is the nature of job creation. For example, it was reported than 288,000 jobs were created in June. But full-time jobs declined by 523,000 while part time jobs increased by about 800,000. The widely reported increase in net jobs masked a disastrous loss of full-time jobs offset by a huge increase in part-time jobs. The part-time jobs offer fewer hours, lower pay and few benefits. They may be better than no job at all, but they are not the kind of jobs that will support discretionary consumer spending on which the economy relies for growth.

This trend in part-time jobs is not new. There are 7.5 million people working part-time on an involuntary basis compared to about 4.4 million doing so in 2007. This rise in part-time jobs is expected to continue because it is driven in part by Obamacare, which does not require coverage for part-time workers. Employers are aware of this and simply cut full-time jobs and replace them with part-timers to reduce insurance costs.

Nor is there any comfort in the declining unemployment rate. Much of the decline is attributable not to job creation but rather to the decline in the number of people looking for work. Once people stop looking for a job, they are no longer technically �unemployed� and the unemployment rate drops even though no job has been found. As columnist Mort Zuckerman said, �You might as well say that the unemployment rate would be zero if everyone stopped looking for work.� Only 62.8% of Americans participate in the work force today � the lowest level since 1978.

The news gets worse. Not only is labor force participation low, and full-time employment collapsing, but the productivity of those working is now in decline. This decline in productivity is another drag on growth. The reason for it is even more disturbing. Productivity is declining because capital expenditure has slowed. Businesses are keeping up with demand by employing part-time workers instead of investing in the plant and equipment needed to make full-time workers more productive.

Not surprisingly, this triple-whammy of declining full-time jobs, declining productivity and slowing capital investment means that real wages are stagnant. If workers can�t make more, they can�t spend more without borrowing. Borrowing is more difficult because home equity has not recovered from the 2007 housing crash and lending standards are the most stringent in years. Companies won�t invest in equipment if consumers can�t spend.

The result is a death spiral of lower consumption, lower investment, declining productivity, stagnant wages, and underemployment all feeding on each other and making the overall economy weaker. This is the real reason for the shocking 2.9 percent decline in first quarter GDP. It was not the result of �cold weather,� which by the way happens every winter.

There are other signs of ill health in labor markets. In a dynamic labor market, net job gains reflect large numbers of new jobs and lost jobs as employees confidently quit their jobs in the expectation of finding new ones. But evidence reported by Goldman Sachs and James Pethokoukis of the American Enterprise Institute shows that job turnover has declined sharply as employees are extremely reluctant to quit their jobs in an uncertain environment. This tends to lock-out the unemployed who lose job entry opportunities and to weaken wage growth as employees lose leverage to demand raises.

Labor force participation is unlikely to rise significantly partly because of generous benefits that provide an adequate lifestyle for those out of the labor force. The U.S. has over 50 million on food stamps, 11 million on disability, and millions more on extended unemployment benefits. Prospective loss of these benefits creates a high hurdle to motivate a return to the workforce.

The news from abroad is no better. China is slowing precipitously and may be on the brink of a credit collapse. European growth is near zero and even the mighty German economy, the locomotive of Europe, is slowing partly because of weaker demand from Ukraine, Russia and China.

Against this backdrop, mainstream voices are beginning to call U.S. financial markets a bubble. The New York Times recently featured a front page story with the title, Welcome to the Everything Boom, or Maybe the Everything Bubble. The conservative Bank for International Settlements in Switzerland recently warned that stock markets had become �euphoric.� Even Janet Yellen of the Federal Reserve, the institution with the worst record for spotting asset bubbles, said that valuations of some securities �appear stretched.�

So, the conundrum is complete. Stock indices march to all-time highs while economic fundamentals fall apart. The two will be reconciled either with a spectacular turnaround in growth or a spectacular collapse in stock prices. The problem is that a turnaround in growth can only come from structural reform, not money printing. Structural reform is the job of the White House and Congress, not the Federal Reserve. Since the White House and Congress are barely speaking, no help should be expected from that direction. Therefore a stock market collapse is almost inevitable and is probably coming soon.

- Source, James Rickards via Darien Times

BRICS Development Bank A Significant Step Away From The Dollar

Jim Rickards appears on CNBC where he discusses the gradual move away from the use of the US dollar by countries such as China and Russia.

The Significance of a BRICS Development Bank

Jim Rickards, Senior Managing Director at Tangent Capital, explains how the new bank differs from the World Bank and the International Monetary Fund.

- Source, CNBC

Wealth Management Products in China are a Ponzi Scheme

I have a whole chapter in the book, "The Death of Money", just on China. You know, the wealth management products are a Ponzi and that's not from me, the Chairman of the Bank of China said they're a Ponzi, so you've seen the Chinese banking officials saying the same thing.

The problem is the money's going into real estate so if you're a state-owned enterprise, and you produce steel or glass or any of the cement or any of the components for construction and you just wanna roll steel and build buildings�

I've been out there, I expect you have too, I've seen the ghost cities, I've seen them as far as the eye can see -- completely empty.

And people say, "Well, they'll fill up in the years ahead." No, they won't. I mean, that migration from the countryside to the cities is largely over, number one. Number two, it doesn't take into account obsolescence. You can't mothball a building; you have to occupy it and maintain it.

So, this is wasted investment. If you adjust the Chinese GDP for the amount that's wasted, it would already be lower...

- Source, James Rickards via FXStreet

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I Expect a Pause in Taper Later This Year

I expect a pause in the taper later this year. But, look, this could run on well into 2015 but the problem is the scale of it.

In 2008, all we heard about was "too big to fail"; well, guess what, the five biggest banks in the U.S. today are bigger than they were in 2008. They have a larger percentage of the banking industry assets, their derivatives books are significantly bigger, you know, so the problem is that the whole thing is bigger, which means that... risk is an exponential function of scale; when you triple the system, you don't triple the risk, you increase it by a factor of ten or more and this is what we're up against, this is what we're facing.

Could start anywhere, could start in China.

- Source, James Rickards via a recent FXstreet interview

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Governments Manipulate Currencies Globally

By Casey Research

"Currencies are in effect the ocean" that all the fish, including the great white shark, fear, says investment manager and author of Currency Wars, James Rickards. Sometimes the ocean is calm, but in times like ours it becomes a much more hostile and dangerous environment. Find out how currencies interact globally and why governments manipulate them so much, in this video.

Listen to James' entire presentation at the latest Casey Research Summit � and those of 30 other well-known economists, authors, and investment pros � on CD or MP3. Learn more.


The article James Rickards: Currency Wars � The Making of the Next Global Crisis was originally published at caseyresearch.com

Rickards Predicts Collapse of Global Monetary System

The collapse of the monetary system awaits the world in the near future, says financial expert James Rickards. Russia and China's desire to rid the US dollar of its global reserve currency status is an early sign of the �increasingly inevitable� crisis.

�China has three trillion dollars, but they are buying gold as fast as they can. China worries that the US is going to devalue the dollar through inflation so they want to have a hedge if the dollar goes down, so the gold will go up,� Rickards told RT.

As one of the key events in support of his forecast, Rickards points to the words uttered by Russian President Vladimir Putin at the 18th International Economic Forum in St. Petersburg that took place earlier this month.

�Putin said he envisions a Eurasian economic zone involving Eastern Europe, Central Asia, and Russia. The Russian ruble is nowhere near ready to be a global reserve currency, but it could be a regional reserve currency,� he said, as quoted by ETF Daily News.

Rickards� book about the demise of the dollar was released in April under quite an apocalyptic name � 'The Death of Money.' However, the author is surprised that the events are unfolding much faster than he predicted.

�If anything, the tempo of events is faster than expected. Therefore, some of these catastrophic outcomes may come sooner than I wrote about.�

Last Wednesday, China and Russia signed a historic US$400 billion gas deal which will provide the world's fastest growing economy with the natural gas it needs to keep pace for the next 30 years. Experts say this could be the catalyst that dethrones the greenback as the world's reserve currency.



The best-selling author writes that the �linchpin� of the collapse is the approaching failure of the dollar since it is at the foundation of the system. Powerful countries such as Russia, China, Iran, and India do not rely on the US in their national security and would benefit from the US economy being weaker, thus desiring to break free from the dollar standard.

He elaborates that the dual collapse �looks increasingly inevitable.�

�The mistakes have already been made. The instability is already in the system. We�re just waiting for that catalyst that I call the snowflake that starts the avalanche,� he said, as quoted by ETF.

There are three big international factors that are pressuring the dollar right now � Russia, China, and Saudi Arabia.

�Since the 1970s, Saudi Arabia [has been] the leader in what�s called the petrodollar. It basically means that Saudi Arabia and, by extension, OPEC, price oil in dollars, so the world market is in dollars.

�Russia is a major natural resource exporter; they price their exports in dollars as well. But Russia now is engaged in a financial war with the US around the issues in Crimea and Ukraine.�

The threats to the dollar are �ubiquitous,� the author states in his book. The only way the US can pay off its $17 trillion debt is with inflation, which would drive other countries away from the dollar while the accumulation of gold by Russia and China presages the shift to a new reserve asset.

�The next time we will have a liquidity crisis in the world it�s going to be bigger than the ability of central banks to deal with it. The IMF will basically have to bail out the world by printing the SDRs (an international reserve asset created by the IMF in 1969 to supplement its member countries' official reserves). By that time, you will see the SDR emerge as the new global world currency,� Rickards told RT.

- Source, Russia Today

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Jim Rickards & Keith McCullough Unplugged on Fed, USD, Gold, Economy & More

Controversial best-selling author James Rickards sits down with Hedgeye CEO Keith McCullough to discuss a number of important subjects in this wide ranging interview such as the FED, USD, the flagging economy and much more.


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Why the Gold of Countries is Not Safe in New York

"I think it�s not safe. It is physically safe, but the US government might steal it. If you have a financial panic and there is a collapse of the dollar, and the US government sees a need to back the dollar with gold to restore trust, there is a risk that the US will confiscate that gold. The US government would add that to the US gold supply, create a new gold backed dollar, turn to the countries (whether the Netherlands, Italy or France) with a certificate and say they could get their gold back in the new system. That�s what I mean with re-writing the rules of the game."

- James Rickards, author of Currency Wars

China is Too Dependant on Investment

China has become so dependent on investment to power its economy that it is going ahead with such projects although the capital is ultimately wasted, he said.

"That does create jobs and growth in the short run, but if you can�t use it, you�ve wasted it," Rickards said.

China�s leadership, worried about a downturn in exports, wants domestic consumption to take on an increasingly important role in the economy. There is talk of floating the yuan and letting market forces shape its state-owned companies.

But as the country outgrows the planned economy, there are signs it is having trouble managing credit and that it's banks may be in trouble.

- Source, CBC:

http://www.cbc.ca/news/business/slowing-chinese-gdp-growth-worries-investors-1.2559940

Slowing Chinese GDP Growth Worries Investors

Jim Rickards, an American economist and investor, believes China will never return to the 9.9 per cent growth rate it has had over the past 30 years.

�When you�re starting from a very low base, you can grow very rapidly with very little input,� he said in an interview with CBC�s The Lang & O� Leary Exchange.

The economic miracle was powered by rural peasants migrating to the cities, forming households and producing cheap consumer goods for the West. But now fewer people are moving into cities, many Chinese are already approaching the middle-class and there are cheaper countries to manufacture goods.

�Beyond that China has mismanaged its economy. It has a lot of structural problems that could cause much more rapid collapse in the growth,� said Rickards, author of the soon-to-be released book The Death of Money.

He points to China�s �ghost cities� in which apartment buildings, hotels and shopping malls go up on vacant land, with no one to live there.

- Source, CBC:

http://www.cbc.ca/news/business/slowing-chinese-gdp-growth-worries-investors-1.2559940

Minter Talks Trash & Best of with Jim Rickards, Cullen Roche, and James Turk

Our lead story: Here's an interesting matter for you to ponder as you head into your weekend: Why is the internet in the US so darn slow? In short, it's because telecommunication companies have divvied up the market in such a way that Comcast, Time Warner, Verizon, and AT&T are all in a position to operate with virtually no competition. Erin gives you the details.

For our interview today, we invite "Junkyard Planet" author Adam Minter to come on and talk trash. He gives some amazing insight into the ways trash can reveal the health of the economy, comments on shipping costs and the prospect of the alliance of the 3 biggest shipping companies, and explains why he believes that we still aren't seeing a roaring recovery in the global economy yet.

For our Best Of the Week, we bring you the best clips from Cullen Roche, James Turk, and Jim Rickards. And "In the Margins," Edward and Erin bring you some of the most interesting comments we received from social media. Watch to catch up on what's happening with Boom Bust around the web.

- Source, Russia Today:

www.rt.com

Jim Rickards - Chinese Miracle Slows

China Wants Out of the Dollar

Nothing gets printed there that they are not in agreement with. It basically calls for a de-Americanization of the world. It is a signed op-ed go up � calling for de-Americanization and basically saying that the global dollar has been abused by the US. 

The intentions are clear, China wants out of the dollar, but they do not have the capability. This could be kind of a five- year project, which they are now pursuing in earnest. This is a shoving match between China and the US. behind the scenes at the IMF.

- Jim Rickards

When the Dollar Collapses

- Source, Jim Rickards via Twitter:

https://twitter.com/jamesgrickards/status/389954645679824896

We Could Do Without A Central Bank

James Rickards, author of the bestselling book, Currency Wars, explains why he thinks the United States could do without a Central Bank.

- Source, Fora.tv:

http://fora.tv/2013/09/10/Jim_Rickards_Bernanke_and_the_Fed/James_Rickards_We_Could_Do_Without_A_Central_Bank

Deflation Blowback is Coming

James Rickards, author of the best-selling book, Currency Wars, explains how the United States' manipulation of the dollar caused inflation in China and will eventually cycle back.

- Source, Fora.tv:

http://fora.tv/2013/09/10/Jim_Rickards_Bernanke_and_the_Fed

I Would Expect that this Depression Will Continue Indefinitely

�[But] most of them don�t understand what�s going on in the economy. They�re using the wrong models. Everyone is using cyclical models�expecting some kind of robust recovery�they�ve been wrong every single time, [and] the reason is that we�re not in a cyclical recovery�We�re in a depression. We are in a depression for the first time since the 1930s�[So] if you�re curious and you want to know what a depression feels like, it feels like this because we�re in one.�

�The problem with a depression,� James continued, �is that it�s not a business cycle. It�s a different [economic] condition and so cyclical remedies such as monetary easing don�t work�You need a structural remedy and that means changes in tax laws, labor mobility, regulatory policy, fiscal policy etc�I don�t see any resolution of the structural issues on the table and therefore I would expect that this depression will continue indefinitely.�

- Source, Bull Market Thinking:

http://bullmarketthinking.com/james-rickards-when-the-international-monetary-system-collapses-its-going-to-be-about-how-much-gold-you-have/

The FEDs Are Inflating

�The Feds are inflating the [stock] bubble as they did in the late-90s, and as they did in the mid-2000s with money printing and monetary easing�[it's] just money printing. It�s another bubble that will end badly, but the thing with bubbles is they can go on a lot longer than you expect. I mean it could go on well into next year before correcting.�

- Source, Bull Market Thinking:

http://bullmarketthinking.com/james-rickards-when-the-international-monetary-system-collapses-its-going-to-be-about-how-much-gold-you-have/