Jim Rickards: Money Printing Will Destroy Confidence At Some Point

Gold Silver Worlds: In a recent online presentation organized by bullion service provider GoldCore, Jim Rickards explained the current economic environment and what it means to gold investors. His main premise is that central bank intervention is very destructive in the long term and that there is no economic recovery. Gold investors should keep part of their wealth in physical form, not as an investment, but rather as wealth protection.

Jim Rickards on deflation and the risk of collapse:

The system is now larger than 2008 — make the system bigger and you’re going to have a bigger collapse. We are further down the timeline.

The ultimate thesis is that deflation is the biggest problem in the world. The world wants to deflate but central banks and governments cannot have deflation – it increases the debt-to-GDP ratio, destroys tax collection, creates bad debts and hurts the banks. So central banks will do anything to avoid deflation. The way they do this is to print money. But if you print too much money then you’ll collapse confidence in the U.S. dollar.

The U.S. dollar is ultimately backed by confidence, as also said by Paul Volcker. The Fed is insolvent on a mark to market basis. I came to this conclusion himself, but insiders have also told me this privately; they won’t say it publicly.

Money is a perpetual non-interest-bearing note issued by an insolvent central bank. How long can that go on before people walk away from it?

On the fact that the economy is in a depression:

Rickards questions the consensus mantra of recovery and asserts that “we are in a depression and we have been in one since 2007.”

If the Fed had not done everything they’ve done, then things would have been much worse than they were in 2010. No question about that — unemployment would have been higher and growth would have been lower.

But we should have been much stronger today. We should be having 7% growth now. We can’t have 7% for a long time, but we can for a short time while people come back into the workforce. Instead we’re Japan — we’ve got 1.9% growth as far as the eye can see. So I would much rather have a little pain up front and then have robust growth.

Everyone wants a ‘V’ shape recovery, but you can’t have a ‘V’ unless you get to the bottom. We didn’t get to the bottom because the Fed truncated the ‘V’.

On the myth that the economy is recovering:

The Fed said we had “green shoots” in 2009. Timothy Geithner declared a recovery in 2010. Nobody has a worse forecasting record than the Fed. They do a one-year forward forecast each year…they have been wrong and off by orders of magnitude every year.

Listen to yourself …who cares about unlimited printing of money, who cares about bad forecasting, who cares about destroying confidence? I care. I think we all should all care.

 On the myth that it is not important how much is printed:

The Fed’s safety net of printing has holes in it. If the money printing could go on indefinitely then you would be right and I would agree with you but it cannot go on indefinitely. The Fed could legally print more than the $4 trillion they’ve already created — $8 trillion, $12 trillion, $16 trillion. Some people say that they can do that — legally they can but my view is that that will destroy confidence at some point.

People say why doesn’t the Fed just forgive the Treasury debt and make $4 trillion go away? They could do it legally but what would that do to the confidence?

On the 2 second attention span:

People are investing based on what they think is going on right now, because they have the curse of the 2 second attention span. So when the stock market is down 30% a couple of years from now, you can kiss those investments goodbye.

Even Warren Buffett is buying hard assets:

Look at Warren Buffett, he is getting out of cash and into hard assets as fast as he can — railroads and oil…Warren Buffett is buying hard assets as fast as he can.

I talk about this in Chapter 3 of The Death of Money’ the Fed is manipulating every market in the world with zero interest rates. I don’t like to be in manipulated markets, I’d rather be in things that retain their value.

On gold manipulation:

The IMF sold 400 tonnes of gold in 2010. We know 200 tonnes went to India and Sri Lanka. Where did the other 200 tonnes go that they dumped on the market? They are funded by U.S. taxpayers but they are not being transparent.

On making money with gold vs preserving wealth:

I have always recommended about 10% gold, not all in, not 50%. Do you want to make money or do you want to preserve wealth?

This article is brought to you courtesy of Gold Silver Worlds, who advocates to own physical gold and silver outside the banking system.