By Chet Yarbrough
By James Rickards
Narrated by Walter Dixon
JAMES RICKARDS (AUTHOR, LAWYER, ECONOMIST)
This is a disturbing book because it brings a wolf to the door. The wolf may blow your house down whether it is made of brick or straw.
Herman Cain (Previous Presidential candidate, Tea Party Activist who believes in returning to a gold standard for the American dollar. Most recently, President Trump tried, unsuccessfully, to have Cain appointed to the Federal Reserve Board.)
President Trump’s harangue about the independence of the Federal Reserve is old news. Packing the Federal Reserve has been done before. The selection of Herman Cain reflects on an Executive branch that lives in the past.
James Rickards infers the sky is falling because we are in a war that cannot be won without returning the American dollar to a gold standard. The argument is that returning to a gold standard will create a level playing field for currency that will stabilize the economy and break down barriers to free trade; i.e. not free trade exactly but regulated trade. Somehow, currency backed up by gold will be more stable than the full faith and credit of a government—really?
What is roiling the market today is a trade war; not currency manipulation.
Gold was over $1600 per ounce when Rickards was published. It ranged between $1529 and $1800 per ounce since this was published. Without a fixed standard, Rickards argues national economic security is at risk. Rickards argues that America has fought two currency wars in its history and is now in the middle of its third war, using weapons that cannot defend America in a currency war.
America is part of a world market; not a singular self-sufficient economic island.
Trade wars between nations is twentieth century thinking. World interconnection through travel, media, and education demand constructive cooperation between nation-state economies. It is economic improvement of all nations that makes each nation stronger. As national economies improve, free trade flourishes. It is a waste of human life to engage in restrictive trade policies or artificial standards of value like gold.
BEN BERNANKE (CHAIRMAN OF THE FEDERAL RESERVE 2006-2014)
Rickards believes Bernanke, in 2012-13, misreads a primary cause of the depression. Rickards believes Bernanke is steering the U.S.’ economy into a ditch. He argues that “quantitative easing” is a road to hyper-inflation and economic calamity because it artificially stimulates the economy with newly printed money that has no intrinsic value.
Rickards goes on to suggest the Euro crises are examples of currency instability and the unpredictability of many battles being fought in the currency wars. His assessment is that political interests of China and Germany are the only glue that keeps countries like Greece from economic collapse.
Rickards is an attorney and an economist. That makes him capable of structuring an argument about the economy with more credibility than a bumbling blogger. However, to this bumbler, Rickards’ arguments are specious.
First, other economists disagree with Rickard’s considered argument about the gold standard, Ben Bernanke for one. Second, what evidence is there that one country’s decision to return to a gold standard will reduce economic conflict among nations? Finally, history shows Rickards to be wrong in terms of America being steered into a ditch. One can reasonably argue that Bernanke’s, Geithner’s, and Paulson’s actions kept America out of a ditch.
In contrast, it appears President Trump may be steering the American economy into an economic ditch.
Countries are run by different government philosophies, different national interests, and rely on different economic resources—how will creating a gold standard for currency in one country or all countries reduce conflicting self-interests? The currency war will not be changed with a return to the gold standard; i.e. currency wars will continue and evolve based on whatever standard is used for currency to determine value.
The gold standard is not a magic bean that can be exchanged for a milk cow. There is no bean stock to golden egg land.
Geo-political thinking and self-interest do not change because of a gold pegged American dollar. Currency conflicts will not disappear; i.e. they will re-set to commodity wars, or maybe bitcoin wars. America is as capable as any post-industrial nation to compete on that basis.
Rickards observes the trillion-dollar American Treasury bill hoard held by China and sees the sword of Damocles raised to slice America’s neck. Why would Jack want to kill the goose that lays the golden eggs? America is “Mr. and Mrs. Consumer” on steroids.
Currency wars are real but America has fought them before with results that have made it the bully of the world. Maybe America needs to learn how to be a little more humble rather than gamble on a currency play or trade war that has as much chance of causing as curing world economic collapse.
Consumption is threatening humanity. Human resource should be deployed to improve living standards of all people, but economies that strictly focus on consumption are killing the golden goose.
Work on the environment is truly an improvement that “lifts all boats”. Better waste management, clean water, clean air, and education are investments with infinite returns. Wars of any kind between nations is twentieth century thinking.