Quote of the day—James Rickards

The Federal Reserve does not understand that money creation can be an irreversible process. At a certain point, confidence in money can be lost, and there is no way to reconstitute it; an entirely new system must rise in its place. A new international monetary system will rise from the ashes of the old dollar system, just as the dollar system rose from the ashes of the British Commonwealth at Bretton Woods in 1944, even before the flames of the Second World War had been extinguished.

When the inevitable crash came, the losses were not apportioned to those responsible—the banks and bondholders—but were passed on to the public through federal finance. From 2009 to 2012, the U.S. Treasury ran a $5 trillion cumulative deficit, and the Federal Reserve printed $1.2 trillion of new money. Similar deficit and money-printing programs were launched around the world, as derivatives creation by banks continued unabated. Only a portion of the private debt defaults were written off.
The bankers’ jobs and bonuses were preserved, but nothing was achieved for the benefit of citizens. A private debt problem had been replaced with public debt larger than the private debt had ever been. These debts are unpayable in real terms, and defaults will soon follow. The defaults by smaller nations like Greece, Cyprus, and Argentina will be through nonpayment of bonds and losses for bank depositors. Defaults for larger nations such as the United States will come from across-the-board inflation that will steal from savers, depositors, and bondholders alike.

James Rickards
2014
The Death of Money: The Coming Collapse of the International Monetary System
[I mentioned this book a month ago and said, after consuming about 25% of it, that it is a good book. I have finished the book and I stand by that assertion.—Joe]

15 thoughts on “Quote of the day—James Rickards

  1. I’ve observed many times that economics isn’t a science. Sadly, we see this all the time. And economists in positions of power show this more than most.

    A good example is the bizarre dogma that inflation is good, and that the “two percent inflation target” should be the holy grail of economics policy. The correct answer, as was clearly explained by people who could actually do rational analysis, like von Mises and Hazlett, is that the natural and normal price behavior is a gradual drop in prices as productivity increases.

    • Imagine if by government decree your ruler had to be shortened 2-5% every year. Same for a gallon of milk or gas, and adjustments made to your bathroom scale downloaded to it automatically.

      This whole “minimum wage” mess only exists because the measure of value is not fixed as it should be. The $10 bill found in my dad’s classic car that he’s restoring bought $50 worth of goods the day it was printed.

      • I’ve seen an analysis that shows the cost of skilled labor, in gold, has remained roughly constant for 2000 years. Apparently, a Roman in the days of Cicero paid the same for a good suit (toga) as one would pay today, with both prices expressed in ounces of gold.

        • The Toga was formal wear, so the measure is a good suit for a formal occasion, like the tail coat, and I believe you are correct. We’re getting gradually poorer this last year, incrementally, day by day.

  2. It’s already a game of musical chairs in the real estate market. Supplies are tight and prices are up 20% YoY. And lumber is up. A few years ago you could buy a 2×4 for $1 and change now it’s $7 and change. And paper is going up along with most prices at Costco and Amazon. Instead of $10, it’s now $20 for packages at Costco and Amazon.

    And since wages too are going up it’s looking like it will not be the stagflation that we had in the 70s. Just raw inflation.

    However, it won’t be seen by most people as a default by the government, so the shock effect of values going to zero like in 1929 seems unlikely. Instead, workers will just demand more and more and blame capitalism [and us] as the root of evil. And we’ll side towards the left even more until goods are no longer available at any price.

    This is not a game that will benefit us unless picking up the leftovers is winning.

  3. Might I also suggest Karl Denninger’s ,(The Market Ticker), book, Leverage. He shows how we haven’t had one quarter of growth since 1973 that has not been out paced by money printing.
    No matter. We have watched this happen so many times, in so many places it’s border line dementia if you can’t see it happening here.
    The only thing I would argue is that money never dies. It just changes form. A hundred green dollars is only worth ten of the new red dollars now. Your money is no good. I want gold. etc.
    Inflation/deflation, Same dance of thieves.
    The trick they never teach in school is that money has only the value your goods, services, and resources give it. Not the government.(just ask a Venezuelan.) And it is most often used to steal that which is tangible.
    The only thing that can be different in all this is how we react. (Since 1860 it’s been pretty sheep like.) We’ll see. Like it or not, here we go again.

    • Yes. At some point, reading von Mises, it dawned on me that “value” (or “price”) are psychological concepts, and are individual. For example, in a sale, or trade, each party exchanges his property for something else that he, right now, values more. That and only that is what makes trade among free people possible.
      “Money” is merely an object that, by cultural consensus, is widely accepted as a recognized expression of value, or in other words, an intermediate thing so you don’t have to be limited to direct barter. You can exchange A for money, and then separately (possibly later and/or some distance away) that money for B; A and B never need to be present at the same time and place. For that to work, the “money” has to be non-perishable, not readily forgeable, etc. Gold does this well; salt or cannabis or sea shells less so, though any of those can be or have been used at some point.

  4. I believe there is a significant disconnect in the perception of the writer. Remove the word “not” from the first sentence and then you’ve got it basically right. In other words, the coming collapse is intentional, long in the works, and well planned.

  5. Economics IS a science….just one that is controlled by emotions.

    The USA has gotten away with running unimaginable deficits for
    decades simply because the dollar has been the ‘benchmark’
    currency since WWII and because both economically and militarily
    we have been the 800# gorilla in the room since then.

    Even during
    the Cold War no other country including the USSR could match us
    militarily….they could engage in MAD using nukes…but the couldn’t
    actually outfight us conventionally….and they KNEW THAT. So the
    politicians in Mordor On The Potomac decided that since we were
    the big ape on the planet we could do whatever the hell we wanted
    economically….so THEY could all get rich. And that is exactly how
    they ran the system. They refused to grasp the fundamental reality
    that what cannot continue WILL NOT.

    We have allowed corruption and greed to put the country into a fiscal
    hole SO DEEP it is simply impossible to climb out of conventionally.
    The only solution to our debt is either total collapse….or total war.
    There is no paying this debt. And with the CCP breathing down our
    necks both economically AND militarily it won’t be long before the
    dollar loses it’s benchmark status and things quite literally go to hell
    for almost ALL of us.

    • I say that economics isn’t a science because the answers depend on your politics.

      In physics one doesn’t speak of “conservative physicists” and “liberal physicists” — the answers don’t change depending on the politics. If you’re in a field where politics matter, it isn’t a science. So economics isn’t, and nowadays climatology isn’t either. (It probably was at one time, decades ago.)

      • These days even “science” isn’t science. It’s a religion used to browbeat people into believing what they are supposed to believe regardless of objective evidence.

  6. Inflation hurts poor people, and those who can only sell their labor the most. It helps anyone who already has an asset. The laborer wakes up and goes to where he can get work, and Inflation has done its evil while he slept. If he charged $20 per hour, which is what I paid two years ago for trenching, that $20 today will only buy him what $19 bought him last month. He doesn’t realize that yet, nor does the man contracting for his work, who thinks, this guy wants $21 today when last month he only charged me $20!! The laborer is always behind the curve, and especially now when the Consumer Price Index is calculated without the goods and services most needed by poor people, fuel and bread. Since the Government discovered it was to their advantage to minimize the inflation rate in the late 80’s and thereby with a stroke of the pen help save Social Security, and any other regular payments they have to make that are inflation adjusted, the CPI is as valuable as a beauty contest judged by blind men using a telephone.

    The fifteen dollar minimum wage proponents point to the 1967 minimum wage as their target, and they are either ignorant or willfully blind (I’ll take Willfully blind for $100, Alex) to the economic situation as it developed for the next fourteen years. There was the recession of 1969, of which famously some editorial writer at the Wall Street Journal said, “Civilization as we know it is crumbling”, and other people predicted that the demand for engineers would never be so great again. Later there was the famous Stagflation. And THAT took a remarkable man almost his entire first term to cooperate with Volcker of the Federal Reserve to wring the inflation out of the economy.

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