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Jim Rickards and Ed Steer: Eventually central banks will restore gold as the currency benchmark

Section: Daily Dispatches

By Ed Steer
Ed Steer's Gold and Silver Digest
Thursday, March 12, 2020

I had a short e-mail exchange with Jim Rickards on Tuesday. Here it is in its entirety -- and posted with his permission.

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Hi, Jim:

What do you read into this, if anything?

"A Shift in the Global Financial Order Is Upon Us" by John Authers, senior editor of Bloomberg News --

-- especially these paragraphs below.

"The Oil Standard era ended in the early 1980s. Markets -- and everyone else -- had lost faith in the ability of central banks to control inflation. Paul Volcker arrived at the Fed, raised rates more than anyone thought he would dare, provoked a recession, and convinced everyone that central banks could control inflation after all.

... Dispatch continues below ...


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"In conjunction with the Reagan/Thatcher approach to economic management, and then the collapse of the Soviet Union and the resurgence of China, that ushered in a quarter century of triumphalism for a new model anchored by broadly trusted central banks.

"That foundered in the financial crisis of 2007-09. Now we have reached a new juncture, where the fear is that central banks cannot control deflation. For the post-crisis decade, the U.S. has managed to stay distinct, thanks in part to the privilege of the world's reserve currency, and in part to the superior success of its corporate sector. It has done this even as Japan and Western Europe have sunk into negative interest rates while the emerging markets have stagnated. The twin shocks of the epidemic and the oil price now appear to have wounded confidence that the U.S. can stand alone.

"It certainly looks as though the world has at last arrived at a point that it appeared to have reached a decade ago. Some new financial order, to replace Bretton Woods and the system that Volcker built to replace it, is now needed. A decade of monetary expansion has delayed the issue. It is hard to see how it can be delayed much further. It would be wise to brace for disruption to match what was experienced at the end of the 1970s and the beginning of the 1980s."

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Hi, Ed...

I've heard the same complaint privately from Ben Bernanke and John Lipsky (former acting managing director of the International Monetary Fund).

The elites agree the system is unstable (or "incoherent," as Bernanke told me), but they don't have a good replacement.

The biggest problem is that when you try to benchmark the dollar (Up? Down? Sideways?), there is no benchmark. They're trying to measure something with no measuring stick. If the dollar is up against the euro and down against the yen at the same time, did it go up or down? That's the problem.

There is a way to benchmark the dollar and all other currencies so that they can be measured against the benchmark and against each other. It's called gold (by weight).

And there's a way to beat deflation and get inflation overnight. FDR did it in 1933 (intentionally) and Nixon did it in 1971 (by accident). It's called gold.

If the Fed bought gold at $5,000 per ounce and made a two-way market, gold would be $5,000 per ounce. The point is not to enrich gold holders but to get widespread inflation. The world of $5,000 gold is also the world of $150 oil and $75 silver. Every other price goes up at the same time.

So gold can solve the benchmark problem and the inflation problem. But that won't be tried until things get much worse. Authers anticipates a "new" system but he doesn't know what it is or how to get there. The answer to both questions is gold.

-- Jim

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So the last card that the Fed and the Wall Street banks have left in the deck is the gold/precious metals one. JPMorgan is certainly in a position to play it -- and benefit handsomely from it as well. But will they or not is the question -- and how bad will things have to get before they're forced to?
However, they and their cronies haven't been squirreling away gold and silver for all these years for no reason.

That moment may be in our future, but until that moment arrives, we're going to be on care and maintenance. During that period they're going to be swallowing up all the physical precious metals they can, plus their associated equities -- and covering every possible short position that they can in the Comex futures market -- which is what they're doing now.


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