After “Currency Wars” Comes “The Death Of Money”

During the winter of 2009, James Rickards , lawyer, fund manager and advisor in capital markets director of National Intelligence and the Office of the Secretary of Defense participated in a war game sponsored by the Pentagon in the Physics Laboratory Applied Johns Hopkins University (APL). The goal was to understand the potential consequences of a global financial war. Two years later, published Rickards’ Currency Wars: The Making of the Next Global Crisis “, a book that became a bestseller in the United States.

After participating in this financial war games secret facilities Warfare Analysis Laboratory APL, Rickards made a historical analysis of international monetary policy over the last century, and an assessment of both the factors and policies that led the debacle of 2008 as those adopted subsequently. Rickards This led to the conclusion that a global financial crisis more dangerous than the already suffering not only was brewing but it was inevitable. Thus, in “Currency Wars” Rickards drew the fateful outcome path of international financial chaos would result from the first currency war of this century: the fall of the dollar as world reserve currency and the eventual replacement of fiat money by the return to gold standard.

“The world is becoming closer to the end of the game” Rickards warns that just write the sequel to “Currency Wars” titled ” The Death of Money, The Coming Collapse of the International Monetary System “.

Available for sale from April 2014, “Death of Money” takes the alarming predictions contained in “Currency Wars” and performs a thorough analysis of how the functioning of the international monetary system could collapse and what new system could emerge to replace .

While “Currency Wars” says Rickards, “global macroeconomics looked at through the lens of the exchange rates, including periods in which they were linked to gold and the most recent period of floating exchange rate,” The Death of Money “makes it more broadly taking into account not only the exchange rates and the dollar, but also fiscal policy and the need for structural change in the U.S., China, Japan and Europe.” In addition, Rickards adds: ‘”Currency Wars” featured extensive use of history to develop their main arguments on the dollar and gold, while “The Death of Money” is based less on history and more on the dynamic analysis. “

Although for some the world economy seems wrapped in a cloak of relative calm financial markets and enthusiastically embrace zero interest rates and monetary easing policies undertaken by the U.S. Federal Reserve, Rickards warns about the prevalence of confirming its forecast trends of an impending storm.

Monetary solutions threaten to undermine confidence in paper money.

As announced in 2011, Rickards believes that Federal Reserve policies aimed at import inflation to the U.S. economy a few years will continue well into 2015 and perhaps beyond (in order to avoid deflation brought about by an economic depression and the inherent “deleveraging”). Rickards also points to other processes that could be contributing to the loss of confidence in the dollar as world reserve currency: “The U.S. fiscal policy, the accumulation of gold by Russia and China, the printing of money from Japan and the United Kingdom and the emergence of regional groupings such as BRICS. “

According to Rickards, the inexorability of the next global financial storm because “the world is facing structural problems, but is trying to solve short-term solutions. A structural problem can only be solved with structural solutions, including changes in fiscal policy, labor policy and regulation and creation of a positive business climate. The type of monetary solutions being implemented are not a response to the structural problems we face. Monetary solutions threaten to undermine confidence in paper money. In the end, the combination of structural problems without addressing and reckless monetary policy invariably lead either extreme deflation to hyperinflation atrocious, to the “stagflation” or a collapse of confidence in the dollar. “

I hope the Mexican economy overtake the U.S. economy in the coming years.

If the stability of the dollar is at risk, how fit other key regions Rickards analysis? Asked about Mexico, the second largest trading partner of the United States, Rickards predicts:

“The economies of Mexico and the United States are closely linked because of NAFTA and immigration. And this will continue. However, the U.S. will be less important in the future for Mexico, and China will become increasingly important. U.S. see an increase in inflation in the coming years due to its reckless monetary policy. Mexico should be able to avoid inflation due to its energy exports and its relatively cheap labor. The result will be a gradual strengthening of the Mexican peso against the U.S. dollar, something that is already happening. Mexico will also be a major magnet for Chinese investment. All in all, anticipate that the Mexican economy will surpass the U.S. in the coming years. Mexico begin to dissociate to some extent U.S. linked more closely to the rest of the world, especially Europe and China. “

The Euro is the strongest currency in the world and continue to strengthen.

Against the dollar, Rickards also optimistic about the European Monetary Union (EMU), so it insists that “the Euro is the strongest currency in the world and will continue to strengthen.”

However, some analysts point out that a greater appreciation of the euro could threaten the integrity of the euro zone. Why Rickards does not think so?

“Most analysts do not understand the dynamic behavior of the euro. Mistakenly assume that if growth is weak, unemployment is high and banks are insolvent, the currency also has to weaken. This is not true. The strength of a currency does not depend on the current state of the economy, but interest rates and capital flows. At present, Europe has high interest rates compared to the U.S. and Japan, and is receiving large capital inflows in China. “

Do you think that Germany will defend the euro at any price?

“Germany benefits from euro more than any other country, as it facilitates the purchase of German exports to its European partners. Citizens across Europe are in favor of the euro, and that protects them from the commonly experienced devaluations their old currencies.No country will leave the euro. New members will be adhering each year. Germany will do what is necessary to defend the euro and EMU. Based on this, the euro will be much stronger. “

Spain was successful structural adjustments to leave behind its major problems, unlike the United States where unaddressed structural problems lie ahead painful economic adjustments.

What about Spain? Increased levels of poverty, per capita income level in 2003, debt approaching 100% of GDP, mass unemployment … is not a strong currency the opposite of what the country needs?

“The difficulties that Spain has faced in the last five years are part of a structural adjustment necessary for the country to compete more effectively. Most of this adjustment has already been completed and Spain is poised for good growth in the coming years. Unit labor costs have declined over 20% since 2008, which makes the Spanish labor market is more competitive with the rest of the world. Unemployment is hard but gives Spain a huge reservoir of untapped labor available now that new capital into the country. The increase in the activity rate among the unemployed will allow the Spanish economy grow much faster than their general demographics suggest. The euro has given Spain a strong currency, which is very attractive for foreign investors. Ford and Peugeot have recently announced major new investments in Spain and could wait. The Chinese capital is also willing to invest in Spanish infrastructure. Spain was successful structural adjustments to leave behind its major problems, unlike the United States where unaddressed structural problems lie ahead painful economic adjustments. “

Considering the impact on national security issues involved in the analysis of Rickards and the mere possibility that threatened the stability of the dollar, we could expect a worried U.S. intelligence community draw the attention of policy makers. Not the case, says Rickards:

“Several government agencies, research institutes and private companies have continued to simulations in wars and attacks on financial systems capital markets from one year in 2009, and have been a consultant and participant in many of them. However, these communities connected to national security and private actors who have made their own simulations have had very little impact in policies that carry out the Treasury Department and the Federal Reserve. The Department of Defense and the intelligence community are concerned about the future stability of the dollar, but the U.S. Treasury is less concerned. This has created some tension between those who see the danger and can not do much about it and that may affect the dollar policy, but do not see the danger. “

The Federal Reserve can cause deflation or inflation, but can not generate real economic growth and stable.

In any case, Rickards argues that if their predictions come true (and in his opinion it is only a matter of time), the collapse of the dollar would lead to a new “reset” in the world than gold regain its historic role as patron of the monetary system International. Hence, in short, what happens after the end of fiat money depends on who is better positioned in terms of reserves of the precious metal.

Can you avoid the point of no return on the road to the “death money”?

“The tipping point may have already passed,” Rickards laments, “but the consequences have not yet been unleashed.”

For Rickards, the future of the world’s largest economy yet, and therefore, the international monetary system, depends on decisions paradoxical: “The Federal Reserve has cornered itself. If measures are taken to reduce asset purchases, the economy will enter a recession with deflationary consequences. If it does eventually undermine confidence in the dollar. Both outcomes are bad, but there are no good options. This is the result of fifteen years of market manipulation by the Federal Reserve that began with the Russian crisis of Long-Term Capital Management LP (LTCM) in 1998. The Federal Reserve can cause deflation or inflation, but can not generate real economic growth and stable. “