Jim Rickards: Central Banks Are Impotent (Video)

Jim Rickards, author of The Death of Money, spoke with Erin Ade on RT’s Boom Bust this week. He explained why central banks around the world are incapable of preventing the inevitable fallout of the current international currency wars. Rickards isn’t sure what will trigger the next big crisis – a debt crisis in the United States, a panic in China, or the coming Swiss Gold Referendum at the end of the November.

Here are some highlights from Rickards’ interview:

“You talk about lower gas prices giving consumers more discretionary income. Lower gas prices put more money in the pockets, it doesn’t mean they’re going to spend it. They could use it to pay off debt, pay off credit cards, pay off their kid’s student loans, pay down a mortgage, etc. Now there is an alternative to spending, which is saving, which is reducing debt, which is the same thing. So this easy connection between more money in their pockets and spending – that sort of treats the consumer like an automaton who doesn’t know what to do with the money… That’s not what happens in the real world. In the real world, people are deleveraging and saving…

I don’t consider these bullish indicators. They tell me that the economy is running out of steam. An economy is nothing more than two things: how many people are working and how productive are they. You can slice and dice it anyway you want. You can take GDP and divide it into government and private, exports, imports. You can finesse the data anyway you want, but at the end of the day, how many people are working and how productive are they? Well, guess what? Labor force participation is going down, which means fewer people are working. Productivity is actually going down… Real wages are stagnant. Fifty million people are on food stamps, seven million people who have part time jobs wish they had full time jobs. So the kind of thing you mentioned – this is noise. These are day-to-day data points that people get spun up about and talk around them, but they’re not the real story…

There’s the whole buzz today about the European Central Bank (ECB) buying assets, they’re doing quantitative easing. They bought about 2.5 billion dollars worth of assets. Versus the Fed, which has been doing almost a trillion dollars a year. A trillion dollars a year and the ECB does 2.5 million? That’s nothing. They’re going through the motions, but they’re not doing anything like QE. They’re not buying sovereign debt. They’re buying some asset-backed securities, and there aren’t even enough of those to have an impact.

Draghi, I do think, is the best central banker in the world. He understands the central banks are essentially impotent. When you’re impotent, you have to talk a good game. So Draghi says little and does less. The Fed is the opposite. The Fed doesn’t quite understand how impotent they are, so they’re out there yakking all day long and giving long speeches and all of that…

With labor force participation going down and productivity going down, there’s no way the economy can expand except by credit creation. You can create credit, but all you do when you do that easy money, you don’t actually create real wealth. You create asset bubbles. The bigger the asset bubble gets, it explodes and it does more harm than good. It puts you back worse than where you started. That’s where we’re heading for now…

Chinese investors have fewer alternatives. Chinese middle class investors are not allowed to invest in foreign stocks… They have invested in real estate… They don’t want to leave their money in the bank… The only two alternatives are gold, which they’re buying in enormous quantities. You look at the purchases coming out of the Shanghai gold exchange. They’re astounding. They’re in the thousands of tons per month, which is an enormous amount of gold. The other alternative are these wealth management products. They’re just like collateralized debt obligations…”

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