James Rickards, the best-selling author, has a new book out called “The New Case for Gold.”
Rickards, who was at Long Term Capital Management in 1998 when the firm’s implosion cratered the market and created one of the first modern bailout program as a result of the Asian currency crisis, makes a case based on a new monetary system for $10,000 an ounce gold.
He posits that the only way to redeem the international monetary system needs to go back to a gold standard — despite central bankers aversion to such a system — in order to get monetary policy back in control.
In his analysis, Rickards says, central bankers will need to re-inflate the monetary system through a gold standard as they attempted to do in the midst of the Great Depression. Rickards look at global money supply and calculates the value of gold at $10,000 for a modest price based on 40% backing of currency, if you take the backing up to 100% and the price nears $50,000 an ounce.
He says the pricing can not be so low as to create a deflationary spiral by suppressing the price below $5,000 or so. At that lower bound level, central banks would have to pull too much currency out of the market, creating negative growth and prices.
The impetus for this action may come from Christine Lagarde, who leads the International Monetary Fund, who is essentially the central bankers’ banker.
Rickards previous bestseller was called “Currency Wars,” which is a playbook for the last seven years of international trade as China, Japan, Europe and US central bankers played with value of currency as an engine for economic growth. It’s called Beggar Thy Neighbor” policy of cheapening your money to spur growth against your counterparties.
The impetus for the gold standard is when the “Beggar” nations lose the market confidence in their currencies. Barring an IMF intervention of issuing its own fiat currency called Special Drawing Rights, the central banks will have to have a gold standard to back up their currencies.
Rickards timing on this action is in his shorter term outlook. His thought is that the markets have seen once-in-a-century events happening every seven to eight years dating back to the late 1980’s.
So since we are eight years since the 2007-2008 Great Recession and we have not seen any meaningful recovery from that event, except for the continuing run up of inflating central banks balance sheets to create anemic growth.
From the perspective of current financial headlines, you can see that the monetary efforts of central banks are moving to “never have tried this” events, such as negative interest rates and changing financial laws, where money market funds can put up gates to cease redemptions during a crisis.
Rickards is not looking at this from a central banker conspiracy, he cites policy papers and talks by the global banking establishment as proof of the thinking on this subject.
From Lagarde, ECB chief Mario Draghi, Fed head Janet Yellen as well as former financial policy chieftains, Larry Summers, Robert Rubin and Alan Greenspan.