Geopolitical and economic signals from Russia and China are heralding the first indications of a coming collapse of the US dollar, Currency Wars author James Rickards exclusively told The Bullion Desk in an interview.
Rickards highlighted several factors, including central bank gold stockpiling, recent defaults among Chinese firms and events in Crimea as signals that his apocalyptic forecasts for the dollar are coming to fruition.
In his latest book, The Death of Money, Rickards highlighted seven signs that would indicate that the global economy is taking the path down his predicted route.
These include continued gold acquisition by central banks, the end of quantitative easing in the US and Japan and a Chinese collapse. He also highlighted the potential for the rise of regional currencies en route to the dollar’s demise.
“I put these signposts in the book, but then, when I pick up the morning papers, I can see that we are clearly passing them one by one.”
For instance, he said that central banks – particularly in rapidly developing nations with large current account surpluses, like Russia and China – are expanding their central bank gold holdings.
“As far as gold is concerned, we know Russia has increased its gold reserves 70 percent in the last four years, and China has increased its gold reserves several hundred percent. Other central banks have stopped selling – many of them are actively acquiring,” Rickards said.
“And so we see a trend towards some sort of gold standard or at least to use gold as a hedge against paper liabilities,” he added.
Central banks were net buyers of gold in most of 2013, adding a net 37.3 tonnes of gold to their coffers in December alone, with those of Russia and Turkey accounting for around 90 percent of that figure. Both of these countries again recorded inflows in the latest IMF figures released earlier this week.
China has not updated the IMF on its official gold stockpile since 2009 when they had under 1,000 tonnes, but many believe they have about 3,000 tonnes. Rickards believes the number may be slightly higher, in the 3,000-4,000 tonne range.
He also said that Russia’s annexation of Crimea – leading to the adoption of the rouble as official currency – was proof of his prediction of the emergence of regional currencies.
“We know that Russia wants to turn its back on the dollar, and this is a step in that direction,” he said.
In the US, he also sees several warning signs coming to fruition.
“Our budget deficit in the US is coming down, but our debt to GDP ratio is still going up. Policy-makers are saying they have cut the deficit from 10 percent of GDP to about three or four percent, but growth is only at two percent, so the debt to GDP ratio is still going up – we are still on the path to Greece.”
“I don’t see a lot of recognition of the problem. The actual cause of these problems is that the models the policy-makers are using do not accord with reality.”
“The Fed wants [benign] inflation but they are not getting it. They have tried everything – QE1, QE2, QE3, Operation Twist, currency wars, forward guidance and nominal GDP targeting – but none of their measures has had the desired effects,” he adds.
The most likely outcome is some sort of catastrophic collapse, he said. “You could have a hyperinflationary outburst, followed by collapse and social disorder, followed by some sort of neo-fascist deflation.”
Flowing from this, he said, the US currency will be devalued against gold – meaning large increases in the dollar price of gold.
Rickards predicts gold at $9,000 per ounce if the world moves to a quasi-gold-backed currency.
“This is how things played out between 1921 and 1934 in Germany, so there is a precedent,” he said.
But he says that there may be hope for investors even in such dark times. “Perhaps you, the individual, cannot stop the catastrophe, but you can protect yourself.
“You don’t have to wait for a gold standard, you can put yourself on a gold standard by going out and buying some physical gold.”
(Editing by Martin Hayes)