James Rickards–The Death of Money– interview – Goldstein on Gelt

James Rickards–The Death of Money– interview – Goldstein on Gelt


Transcription of interview with James Rickards
on September 7, 2015. Douglas Goldstein, CFP®, Financial Planner
& Investment Advisor James Rickards is the bestselling author of
The Death of Money and Currency Wars. He is also the editor of Strategic Intelligence. Douglas Goldstein, financial planner & investment
advisor, interviewed Rickards on Arutz Sheva Radio. Douglas Goldstein: You do talk in your book
about the next financial collapse. In fact, you’ve said it’s going to resemble nothing
in history. In the past, we’ve seen many financial collapses and some of them even
recently. Why do you think the next one is going to be so different? James Rickards: It’s mainly because of the
scale of the system and when I say scale I’m talking about size, you can measure it a lot
of different ways. You can look at the concentration of bank assets, the interconnectedness of
firms in the financial system, the gross national value of derivatives which now exceed ten
times global GDP. Round numbers global GDP is about 75 trillion of the initial value
of all the derivatives on the big banks, over 750 trillion, all of this data is available
from the BIS. If you use complexity theory which I do where
I’m a little bit heterodoxies that my analytical methods are different than what central bank
is using, what Wall Street is using although that’s a good scientific basis for it and
I’m going to get very good results but using complexity theory, one of the principles is
that the worst thing that can happen in the system is an exponential function of the scales
so if you double or triple the system which we’ve done since 2008, you’re increasing
the by a factor of 10 or more. So the next time this melts down, I just saw in the recent
history that the markets had melted down every 7 or 8 years so almost like clockwork. It
will be bigger than the central bank’s ability to control that’s why I think it will be
the worst in history. Douglas Goldstein: When you talk about this
with central bankers, what do they respond to you? James Rickards: I had a personal conversation
with Ben Bernanke recently, I’ve had dinners and lunches but you know one on one venues
or maybe small group of 7 or 8 with members of the board of governors. I’ve spoken to
regional reserve bank presidents, very senior, very plugged in staff, had monetary economics
so I’ve actually had the opportunity to meet with a lot of top officials and policy
makers and actually some foreign countries around the world and what’s interesting
is that they don’t really debate me when I sort of bring up these different concept
of analyses, I kind of get blank stares of like “What are you talking about?” Seriously,
I mean they are smart. They are actually probably smarter than I am. I’ve worked with Nobel
Prize winners. I was part of the long term capital management that was the hedge fund
that collapsed and almost destroyed global capital markets in 1998. So I’ve had a front
row seat on some of these catastrophic meltdowns that almost closed every market in the world.
I’ve seen that firsthand and these people have 160-170 IQs. They are twice or three
times smart as I am. So they are not dumb. They’ve got PhDs and they’ve got the quantitative
skills but the problem is they’re using the wrong models and it doesn’t matter how
smart you are, if you use the wrong model you will get the wrong result every single
time. Just go back and look at the past 20 years or so, they’ve missed the panic in
1994, the Mexican peso crisis, they missed the Asian Russian crisis in 1997-1998, they
missed the dot com bubble in 2000, they missed the mortgage bubble in 2007 and they’re
going to miss the next one too because they are using the wrong models. Douglas Goldstein: How likely is that do you
feel that some sort of collapse is going to happen and should people be panicking at this
point? James Rickards: I don’t believe in panic
and I do have some fairly calamities projections and estimates based on my algorithm method.
I’m not personally a doom and gloom person. I’m very optimistic. I wake up in the morning.
I go to work like everyone else. I’m kind of out there but I also don’t want to turn
a blind eye or turn away from what I’m saying or what my little methods are showing. I do
see some fairly catastrophic outcomes. Now as the probability, I would say it’s about
100%. I just based that on history on the fact that these systems do collapse periodically,
that as I say risk is an exponential function scale. So it’s about 100%. Now, you can’t say these have timing. It
could be tomorrow, possible it could be September 17th if the rates that could start the avalanche
but it could be next year, it could be three years. These are all possible outcomes and
that’s not just kind of guessing as to the timing. The method itself would say that you
can. It’s like earthquake science. In fact, the mathematics and the degree distribution
are exactly like earthquake science. Forest fires, solar flares and a lot of other phenomenon,
some natural and some manmade but no one knows when an earthquake is going to hit a fault
line. The predictability of seismologist is close to zero but we know where the fault
lines are, we know how bad it can be and helpless. Nobody thinks it’s a good idea to put a
nuclear power plant right on the center of the fault so let’s not do dumb things even
though we don’t know exactly when the next earthquake is coming. So as applied to financial
market, I can’t tell you the date when the meltdown will come, I can tell you the fault
lines are there, the tectonic plates are pushing against each other, the collapse will come
and what are
you waiting for. Douglas Goldstein: Right now, these days were
sort of in the depths of the beginning arguments of the next presidential election of America.
Do you think that either party has some solution to the problems that you’ve been making
people aware of? James Rickards: It makes my life a lot easier
because I don’t spend much time on politics. I care, I vote and I have my preferences.
I’m not saying that I’m completely divorce in the political process but I do look at
the candidates. I’ve spoken to a number of them and there’s one who I think kind
of gets what we’re talking about. I would say it would be Rick Perry. I spent a lot
of time with Governor Perry and we had some good conversations and he has been kind enough
to mention my books in our meetings and few of his speeches and campaign stuffs and so
forth. So I think Governor Perry has some insight here. I’ve spoken to Rand Paul,
I’ve spoken to Hillary Clinton so I’ve actually had some contact for the candidates.
They kind of get the problem but I do think that in Washington whether you’re Republican
or Democrat, you’re just [skeptic] to a lot of [issue] whether it’s lobbyist. The
banks really own Washington. I was in a private meeting with senior treasurer officials to
talk about what we’re talking about right now which is risk in capital markets and the
right ways to think about it and they were kind to do so and we spent about two hours
behind closed doors with the group responsible for this. At one point, I kind of interrupted
my own presentation. I looked at one treasurer official and I said I don’t because the
banks own this town and I expect him to jump out of his seat, be in outrage or something
and he just looked at me and said “You’re right, we can’t do very much. I think it’s
revealing. I sort of knew it was true but I was surprised to hear him admit it. A lot of the presses is [skeptic] to the banks.
They spent a lot of money around, there’s a lot of a lot of badges sign because our
found father wanted that constitution that didn’t allow things to happen quickly. So
I guess I’m skeptical that whichever part it went is really going to be able to do very
much about the situation. Douglas Goldstein: One of the fears that people
have is they think the world is collapsing and in your book you do talk about there are
safeguards that people can use and I’m talking about individual investors not from the government
level and you talk about things like gold and particularly talk about fine art. It’s
good if you can dive in a little bit more and explain why you think fine art is a good
hedge against the collapse in the market system. James Rickards: I’ve had an occasion to
spend some time in New York. You know in the United States when we talk about old money,
we’re really talking about money that’s maybe 100 or 150 years old so you know the
Rockefellers, the Vanderbilt or the. When you go to Europe, you run into a few families
and there’s one family in particular, the Colonna family in Rome, they’ve had their
money for a hundred years. That family really kind of immerses wealthy in the political
force in the 13th century so they’ve been going strong for 800 years. When you talk
to families like that and say the family survived the 30-year war and the war of the Louis XIV
and Napoleon and World War I and World War II etcetera, how do you do it and they look
at you and they say a third of third and the third and what they mean by that is one third
gold, one third land and one third fine art and a little cash on the side for your jet
and your yacht and all that but obviously fine art is a big part of the equation but
imagine you’re living in a village in Bavaria in 1620 and Wallenberg is burning down everything
in its path, you can take your painting off the wall, roll it up, take it in your backpack,
grab your gold coins, get on your horse and run away. After the burning is done, you come
back, you should be able to re-establish on your land, you put your painting back on the
wall, dump your gold coins in the table and you’re good to go and all your neighbors
have been burnt out. So it’s a tried and true way of preserving wealth through very
calamitous times. The thing I like about fine art in particular
is it’s not manipulated the way gold is. I mean gold is absolutely a core asset. I
recommended to have 10% of their investible assets in physical gold not bank contracts
and by the way but actual physical gold coins, coins or bars or whatever suits the individual
but for art a lot of people say “I don’t have $180 million to go out and buy Picasso
and very few people do but the point is there are some well-managed fine art fans out there.
Central bankers don’t wake up in the morning say we really have to see art market today.
I like to see art trade the way gold would trade but for central bank and political manipulation.
So yes have some gold but fine art I think is a good addition to portfolio, land obviously.
I also recommend cash and people are surprised for me to say that and say “Wait a second
Jim, you’re the guy talking about the death of money why would I have cash?” The answer
is you might not have it forever but it’s good to have right now because first of all
it’s a deflation hedge and deflation is kind of running around the world and it also
reduces the volatility of the rest of the portfolio. Finally, it give you great optionality
of things tilt one way or the other because I think both deflation and inflation are in
play. Once we have a little more visibility the guy with cash is a guy from pivot and
take advantage of those opportunities. So I think gold, fine art, land, cash all have
a role and just my own portfolio has some private equity, venture capital type investments,
and some start up tech firms so I think there’s a place for that also. Douglas Goldstein: How can people follow you
and follow your work? James Rickards: I’m very active on Twitter.
My Twitter handle
is @JamesGRickards and my website is www.jamesrickardsproject.com.

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