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TOPIC: DISCUSSION THREAD: Episode 10 - Jim Rickards

DISCUSSION THREAD: Episode 10 - Jim Rickards 7 months 3 weeks ago #1

  • NathanEgger
    Nathan Egger
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A big interest of ours here at MacroVoices is Gold, and the role that it plays in macroeconomics. We're hoping our listeners share that interest, and that Jim Rickards is a fitting guest as we undertake a 2-part series on "The Yellow Metal." We've brought Jim onto the show to help us with the big picture as it pertains to Gold, and you'll be hearing from Rick Rule next week on MacroVoices, and this should bring a very different perspective to the subject.

Jim seems to see "nothing but blue skies" when it comes to Gold, but as I assume you've heard on the show, Erik takes a slightly different view. I'd love to hear from you guys on where you stand on Gold - are you in, out, undecided? We think that this is all about the USD, and ones time horizon, but that Gold has a very bright future indeed, longer term.

For those listeners who have been followers of Erik's quarterly publication, The Peak Oil Investor Newsletter, you may have heard Erik mention, towards the end of this week's show, that he has postponed this project for the time being (at least) as the launch of MacroVoices has been taking center stage, and the bulk of his available resources. Your input on whether or not to maintain the publication of the newsletter will be valued.

Thank you for listening!
Last Edit: 7 months 3 weeks ago by NathanEgger.
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DISCUSSION THREAD: Episode 10 - Jim Rickards 7 months 3 weeks ago #2

  • Loni
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Hi Erik,

I can't make sense of Jim's following argument What is your take?

Jim argues that since currencies can not devalue at the same time, but everyone can devalue against gold, that is a way for central banks to create inflation. He also cites the Roosevelt devaluation as an example, which is not relevant since that was an era where money was backed by gold. How is this move going to create inflation in today's system? If say tomorrow we wake up and some central bankers announce that gold price is now $10,000 an ounce, will asset prices rise, will daily living expenses rise? Gold is not an input in any of these. I can see that if a society has a strong culture of saving in gold (say in India) after a massive revaluation, some people may liquidate some of their gold and bid up assets, buy more services etc. and create some inflation. But for that to occur (i) a society needs to be actively saving in gold and (i) enough amount of gold must be sold to buy other products and services to create an inflationary effect. In cases like US, Western Europe etc, where is the inflationary effect going to come from? Would this revaluation trigger bank credit to increase? Banks are in the game of borrowing and selling USD, Euro etc. Central banks will use other tools to push lending than revaluing gold...

The other effect of such a revaluation may be to change the balance of power between countries/central banks. If and when another Bretton Woods type meeting is to be created to renew the monetary system, one may argue that having gold may be one component in determining whose voice counts more at the table. I would argue that military power, size of one's economy, other resources may be at least as important. But say that US wants to prepare for such a potential restructuring meeting. When would US want to revalue gold? Before China, Russia etc. buy tons of gold, or after? It would make sense for US/Europe to increase the price quickly so that it becomes more expensive for Russia, China to purchase gold and sell more of their resources and finished products in the process of accumulating gold. If such a revaluation is done after years of gold accumulation by these central banks, how is that going to benefit the big gold holders like US/Europe? I guess what I am driving at is that, I don’t see any powerful party to gain a clear advantage by increasing the gold price at the later stages of the gold accumulation phase.
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DISCUSSION THREAD: Episode 10 - Jim Rickards 7 months 3 weeks ago #3

  • ErikTownsend
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Hi @Loni,

Good catch! I remember wondering myself when Jim said that during the interview. Obviously I can't speak for Jim, but I can give you a guess at where I think he was coming from.

That conversation was about the case for gold, and how as nations enter competitive devaluation, gold is the one "currency" that cannot be devalued against itself. So I think the main point Jim probably intended was that it makes a strong case for buying gold on speculation that all other currencies will devalue against it. That part of the argument I agree with completely, as it summarizes why I am very bullish on gold long-term.

To the point of "creating inflation" within the non-gold currency systems, I agree Jim did say that, but my guess is he meant 'inflation' in the sense of the money supply. All those other nations can increase the size of their money supply (devalue). Gold can only increase its money supply with major new sources of supply, and none are known to exist globally. So in that sense, central bankers can "create inflation in all the currencies of the world at the same time", meaning the size of those currencies' money supplies will increase, the value per unit of the currency will decrease in real purchasing power terms, and consumer prices will go up in nominal terms in those currencies.

It's that last point of prices of real things (like commodities) going up in nominal terms that would lead most non-economists to declare "Inflation is occurring in all these currencies at once". Now if you use the "other definition of inflation" - the one that has to do with consumers having more money to spend and so they bid prices up and that causes their costs to increase and that begs wage inflation...Now if we're talking about that whole process of the economy heating up to the point where too much money is chasing not enough goods and services, I am not aware of any reason those things would occur in reaction to all the central banks devaluing against gold in unison, and my guess is that's not what Jim meant. I think he was just talking about prices going up in all currencies because all those currencies are being simultaneously weakened in real purchasing power terms.

Hope that helps!

Erik
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DISCUSSION THREAD: Episode 10 - Jim Rickards 7 months 3 weeks ago #4

  • joemanc
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I just remembered this listening to the interview, but regarding the discussion on helicopter money - we've already had helicopter money. If you'll recall in 2008, an economic stimulus package was passed and taxpayers received a rebate check ranging from $300-$1200. Obviously it did not do anything since the collapse happened anyways.
What would helicopter money look like in 2016? $5,000 per taxpayer? Use or lose within 90 days?

en.wikipedia.org/wiki/Economic_Stimulus_Act_of_2008

Enjoyed the interview.
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DISCUSSION THREAD: Episode 10 - Jim Rickards 7 months 3 weeks ago #5

  • tankumo
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Great interview!!!!!

One day yes the government will have to revalue gold at higher price, but I suspect gold would have gone up a lot before the government does that.

I also look at gold:silver ratio, now the ratio is telling me silver is relatively cheap, perhaps investing in silver would not hurt.
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DISCUSSION THREAD: Episode 10 - Jim Rickards 7 months 2 weeks ago #6

  • Buckeye
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I would Erik to discuss IN DETAIL how regular folks go, buy and store physical gold w/o getting ripped off...Would be fascinating!
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DISCUSSION THREAD: Episode 10 - Jim Rickards 7 months 2 weeks ago #7

  • NathanEgger
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@tankumo - I too have been watching the gold:silver ratio, and I'm liking the long silver:short gold pairing which has been working quite well lately. I have no positions currently, but am definitely paying close attention to this relationship.
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