He was an advisor on capital markets to the director of National Intelligence in the office of the U.S. Secretary of Defense, where he took part in the secret war games sponsored by the Pentagon. The game's goal was to explore the potential outcomes and effects of a global financial war.
Washington, DC -- (ReleaseWire) -- 04/17/2014 --Nationally Syndicated Financial Myth Busting Radio Show with Host Dawn Bennett, CEO of Bennett Group Financial Services, LLC, on April 6, 2014, interviewed Jim Rickards, author of "The Death of Money: The Coming Collapse of the International Monetary System."
The show airs live on www.WMAL.com each Sunday at 11 am EDT. It now has over a year’s worth of achieved interviews for listeners free on-demand at http://www.financialmythbusting.com.
Dawn discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included Rock Legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN as well as take podcasts on the road and forums for interaction. The show is a great complement to Dawn’s monthly investing seminars that take place at Tysons Corner in McLean, VA, where she discusses investing.
When we first spoke with Jim Rickards, we learned that in 2009, he was an advisor on capital markets to the director of National Intelligence in the office of the U.S. Secretary of Defense, where he took part in the secret war games sponsored by the Pentagon. The game's goal was to explore the potential outcomes and effects of a global financial war, said Ms. Bennett.
A few years later, Mr. Rickards published his first national best seller, "Currency Wars: The Making of the Next Global Crisis." As we found out l ast time when we spoke with him, there’s a very dangerous global financial crisis brewing out there and is inevitable, she said.
Mr. Rickards has just published the sequel to "Currency Wars," entitled "The Death of Money: The Coming Collapse of the International Monetary System."
In his book, "The Death of Money," he points to a number of developments that are in favor of the ongoing breakdown of the confidence in the U.S. dollar as the world's reserve currency. These developments not only happened in the U.S., but other countries, such as Russia, China, and Japan.
Here are some of Mr. Rickards thoughts:
“In the war game, we could only use financial weapons. We put forward a scenario where Russia and China combine their gold reserves, issue a new currency backed by gold, and most importantly they say hereafter any Russian oil or gas exports and any Chinese manufactured goods could only be paid for in this new currency, and if you wanted some, you either had to earn it or deposit gold and get the currency. It was a way of turning their backs on the dollar. Now, literally, that was a stretch that was very forward-leaning at the time, but, of course, the whole purpose of a war game is to think outside the box and think of new threats and scenarios. We got a certain amount of ridicule at the time, but in the last five years, Russia has increased its gold reserves 70 percent.
“China has increased its gold reserves several hundred percent. No one knows the exact number, because they're not transparent about it. So, they haven't actually eliminated or stopped using the dollar, but they're getting closer to that point. They're acting exactly the way we expected they might. To see how this is playing out in the real world, you have this situation in Crimea. Of course, Crimea is now part of Russia. As they have taken it over.
“No one thinks we should have a military response, but we immediately went to economic sanctions, which is a form of financial warfare, exactly what we were advising the Pentagon, and Russia has threatened to escalate. We have sort of token sanctions that won't do very much, but if we have more meaningful sanctions, the Russians would come back, and they could dump their holdings of U.S. Treasury bills, cause the U.S. interest rates to go up, sink our stock market, sink our housing market. They could unleash their hackers to close the New York Stock Exchange. There's a lot they could do, so it is a very dangerous wo rld, and it's playing out not in military space, but in financial warfare space.
“The U.S. has been at a full-scale financial war with Iran since 2011. We haven't used military forces against Iran, but we kicked them out of the dollar payment system. Then we got our allies, and we kicked them out of the international payment system, which is based in Belgium. They were in a situation where they could sell oil, but they couldn't get paid for it, at least not in any currency that you would want, like dollars or euros or yen. This caused a run on the Iranian banks. People took their money out, tried to buy dollars on the black market so they could pay smugglers to bring in goods. Iran had to raise interest rates to stop the run on the banks, so we caused sky-high interest rates, hyperinflation, collapse in currency, and all kinds of economic turmoil in Iran.
“Now, what happened last December, President Obama lifted a lot of these sanctions, and don't think that Putin wasn't watching, 'cause he could see that the U.S. wasn't willing to really push it as far as we could. I'm sure he took some comfort from that, but what we did when we started these negotiations with Iran on their uranium enrichment program and their nuclear weapons program, we were, in effect, giving them a green light. They still have their plutonium producing reactors and still have their centrifuges. They're still enriching uranium, but we're in talks with the United States. This was taken by Saudi Arabia as a stab in the back, cause the whole of the petrodollar deal is that we agreed to protect the Kingdom, basically, protect the national security of Saudi Arabia, and they agreed, operating through OPEC, that oil could only be priced in dollars.
“Well everyone needs oil, so if oil is priced in dollars, that means you need dollars. That was a key support under the dollar. Well, now Saudi Arabia is saying, ‘Look, if you're saying Iran is the regional power, and you're cozying up and having détente with Iran, then that's a stab in the back to our national security, so why should we support the dollar?’ So, you combine all these things, China acquiring gold, Russia acquiring gold, the ruble is now the official currency of Crimea, Saudi Arabia feeling betrayed, no one of them is dispositive, but you put them all together, you can see one-by-one the legs are being ripped out from under the platform that's holding up the dollar.
“Russia's got a lot of natural gas. China needs a lot of natural gas. They're building pipelines and other transportation mechanisms through central Asia. If they get that trade going, and Russia says, ‘Look, we'll take the yuan or the renminbi in payment," and China says, ‘We'll take rubles,’ and then they can build up those currency balances. Remember they're two members of the BRICS: Brazil, Russia, India, China, and South Africa. Russia and China are the two biggest members of the BRICS. They're working on a multilateral bank that would replace the IMF, at least for their purposes. All these things are threats to the dollar. My concern is that the people in charge of the dollar, at the Federal Reserve and the Treasury, take it for granted. They take confidence for granted. Confidence is fragile. It can be lost very easily. It's very hard to regain and it's almost as if they're ignoring these world developments, but investors, obviously, should not.
“What does the collapse of the dollar mean? One thing it means is inflation, because if people start dumping dollars and our interest rates have to go up, obviously, that will sink our stock and housing markets. The Fed has printed so much money that if people don't want it, the circula tion of that money would increase, and that is highly inflationary. So, the people most at risk I'd say is people with savings in the bank, or having an insurance policy or annuity or retirement income, anybody with a kind of fixed income is most vulnerable. People need to protect themselves. I recommend putting 10 percent of investable assets in gold. If these things don't happen, you only have 10 percent, and gold goes sideways, so it's not really going cost very much, but if it does happen, and the dollar collapses because of inflation and loss of confidence, then gold will go up by multiples. That's an insurance policy against these bad outcomes.
“I don't think Janet Yellen is committed to tapering. She has tapered, chaired a couple of meetings where they've tapered. The next meeting is April 30, 2014. These are meetings of the Federal Open Market Committee where Janet Yellen is the chairwoman. They will taper another $10 billion April 30, 2014 and that's certainly expected, but they're tapering into weakness. The U.S. economy is fundamentally weak right now.
“Watch what h appens in June or July. My expectation is that she will pause the taper, but they won't increase asset purchases, but they'll stop decreasing asset purchases. Asset purchases are the way they print money. I think she'll go to pause, which means that they'll continue to print the amount they are, which is about $55 billion a month. It's down from $85 billion, but they'll continue at that level, and then I expect them to actually increase asset purchases again later in the year when all this weakness becomes apparent. She'll go back to easing, that's where her heart is. Remember, she is very model-based. She's a professor; an egghead, and she's not thinking about the dollar in international terms. She's just looking at her domestic models, and they tell her to print more money, and that's just another threat to the dollar. Well what's going to be the straw that actually breaks the Federal Reserve's back or Janet Yellen's back? There's got to be something out ther e, worldwide, it just is so apparent to so many people, but not to them. As far as the Fed's concerned, I honestly don't think Janet Yellen can spell gold. I mean she doesn't think about it. She wasn't trained to think about it. She's never had to discuss it. Her colleagues don't discuss it. They don't think about it in monetary terms. But people do, because they understand it's real money at the end of the day.
“The Fed has the wrong models. They use what are called equilibrium models. An equilibrium model says the economy is norma lly in equilibrium. If you disturb it, and obviously 2008 was more than a disturbance, it throws it out of whack, and then you have to apply policy and bring it back to equilibrium. That's how they think about the world. That's not how the world works. The world is actually a complex dynamic system, and that block of uranium that you've got, if you shave it certain way and bang it together, it causes a nuclear explosion and kills a million people. So, that's how complex systems work. It's the difference between a thermostat and a nuclear reactor. The Fed thinks they have a thermostat. If their house is too cool, they can dial it up. They think they've got a thermostat, but they're actually toying around with a nuclear reactor, and they're going to melt down the system.”
About Bennett Group Financial Services LLC
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About Dawn Bennett
Dawn Bennett is CEO and Founder of Bennett Group Financial Services. She hosts a national radio program on www.WMAL.com called Financial Myth Busting http://www.financialmythbusting.com. She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett or firstname.lastname@example.org