Saturday, October 03, 2009

Jim Rickards: Federal Reserve needs to cut US Dollar in half over next 14 years

Jim Rickards managing director of market intelligence for scientific consulting firm Omnis, sees the US dollar cut in half over the next decade or so, in a CNBC Interview. [Hat Tip: TruthFN]

Some notes and excerpts:

Expect: 4% inflation in 14 years that will cut the US Dollar in half
Explains SDRs as solution to the Triffin Dilemma
recommends 10% gold 90% cash
SDRs-printing money but still nothing behind it
No solution for national security implications
Central banks are hoping for a "stable steady" decline of the US dollar and not a collapse


“Unannounced product of G20, the IMF anointed as global Central bank...
"IMF is issuing Debt for the first time in history"
“Displace the dollar with SDRs
“If you own Gold you are fighting central banks in the world. Central banks hate gold because it limits their ability to print money. But the market is the market, the market will do what it wants even the central banks are not bigger than the market.”



My comment:

It seems odd for an expert to prescribe a portfolio of 90% cash and 10% gold when the risk of a dollar collapse is construed as significant.

A dollar collapse means the loss of the basic function of the currency as medium of exchange, store of value and the unit of account on an international scale.

That would only mean inflation going berserk. Who would want to hold cash (US dollar) in an environment where money is rapidly losing purchasing power?

This would seem self contradictory.

2 comments:

Anonymous said...

Holding cash in the inflationary environment is not a contradiction for two reasons: (1) short term interest rates will go up so you might get, say, 5% interest on cash in a world of 4% inflation, so that's OK, and (2) you don't have to hold cash for the next 14 years; it's a good parking place for a year or so until visibility improves then you have the option to switch to things like undeveloped property, fine art or more gold; it's the optionality that makes the cash attractive - you don't lose money.

benson_te said...

Anonymous,

Thanks for your comments.

Since, in my view, inflation is a product of government policy, hence interest rates will lag, not lead, inflation rates at the onset of the cycle until its climax.

The moment interest rates surpasses the rate of inflation, it would most likely be the end of the inflation cycle and that’s where your scenario comes in.

Besides assuming a static 4% inflation annual rate presumes inflation behaves like a domesticated dog acting under the orders of the masters.

Since inflation is a market consequence arising from policy actions, the risks is for the possibility of an overshoot. Hence, why would anybody even talk about a dollar crisis-if only inflation can be tamed?