Rickards: The Fed’s Strategy Doesn’t Add Up (Video)

Jim Rickards spoke to ABC News Australia about the long-term costs of devaluing currency. Sustained economic growth cannot come from devaluation when the entire world is cheapening currencies at once. Instead, people just lose their purchasing power and global inflation is the long-term result. Like Peter Schiff, he warned that the Federal Reserve won’t be raising rates any time soon and that the world faces a fiscal crisis bigger than the crash in 2008.

Highlights from the interview:

“This currency war really started in 2010, and I’m not at all surprised that we’re here in 2015 and it’s still going on because as I’ve said, when you’re in a currency way, it can go on for 5, 10, 15 years. That’s not unusual… so this war has been going on since 2010 and it’s going to continue…

“I think all these countries are going to find out that when you cheapen your currency, you don’t really get the growth you want in the long term. In the short run you get a little pop, a little help in exports, we’ve seen that in Europe and elsewhere. But in the longer run, the problem is global growth is slowing down. So this is just different trading blocs or countries stealing growth from their trading partners, but it’s always temporary because it’s tit for tat because the other country devalues…

“Last year, Ticky, I was the one saying they (the Fed) won’t be able to raise rates at all, and at the time it was sort of a March/June debate. Well now the March people are gone and we’re talking about June/September. I think maybe we’ll get the September and be talking about the December at that point. But you’re right, the whole world is kind of holding their breath. It’s sort of sad when so much talent, brains, money, and capital are wasted on the whims of one very small group of people, but that’s where we are…

“The Fed says they want inflation, that’s not a secret. They’ve said they have a 2% goal, privately, some of these governors I’ve spoken to say they wouldn’t mind seeing 3%. So the Fed wants inflation. The Fed says they want to raise rates, and they’ve given markets no reason to believe they will not raise rates. But a rate increase make the dollar stronger, which is deflationary. How does that add up? The answer is it doesn’t add up. Something’s got to break… The Fed looks at something called core inflation, which factors out food and energy. But the reason they do that aren’t because food and energy aren’t important, but because they’re volatile and they tend to be mean-reverting. So the core kind of looks like the overall index when all is said and done…

“If the Fed raises rates and you have a strong dollar, and the Saudis keep the lid on the price of oil, which is deflationary, that combination is going to cause a lot of debt to go bad. That’s a bigger number than the subprime crisis in 2007.”

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