January 31, 2012.....Bob Brinker's Moneytalk guest-speaker on Sunday was James Rickards. Rickards was an outstanding speaker and I have a treat for you.
Guest writer, FrankJ, has written a very comprehensive summary of this third hour of the program for us:
"Third hour guest: James Rickards, author of Currency Wars: The Making of the Next Global Crisis Bob asked his guest why he wrote this book. Rickards answered that he wanted to explain how international money systems work and put thing in plain English. He mentioned the International Monetary Fund’s creation of a global currency, the SDR (see below).
BB: Is there any appetite for a single global currency? Rickards said yes there is and pointed out that since 2008 the Federal Reserve added over $2 trillion to its balance sheet, but the next time a crisis occurs, the Federal Reserve will not be able to handle it. Like the Fed, the IMF has a printing press and can churn out Special Drawing Rights, (SDRs) so the next time there is a panic, it will be papered over with SDRs. SDRs have been around since 1969 but little used until 2009 when a few hundred billion were printed and “handed out."
In answer to Bob’s question on what the author would have done if he were in Ben Bernanke’s position, Rickards explained that he “would have closed a lot of the banks.” Wipe out the stock holders, give the bond holders a haircut, strip out the bad assets and put them into a government holding entity with the intent to sell them eventually. Then “IPO” the cleaned up bank so that it was in a position to lend. Rickards said that banks today are not in a position to lend because they have so many bad debts and they are investing in government bonds.
BB: Is there any appetite for a single global currency? Rickards said yes there is and pointed out that since 2008 the Federal Reserve added over $2 trillion to its balance sheet, but the next time a crisis occurs, the Federal Reserve will not be able to handle it. Like the Fed, the IMF has a printing press and can churn out Special Drawing Rights, (SDRs) so the next time there is a panic, it will be papered over with SDRs. SDRs have been around since 1969 but little used until 2009 when a few hundred billion were printed and “handed out."
In answer to Bob’s question on what the author would have done if he were in Ben Bernanke’s position, Rickards explained that he “would have closed a lot of the banks.” Wipe out the stock holders, give the bond holders a haircut, strip out the bad assets and put them into a government holding entity with the intent to sell them eventually. Then “IPO” the cleaned up bank so that it was in a position to lend. Rickards said that banks today are not in a position to lend because they have so many bad debts and they are investing in government bonds.
Bob challenged Rickards’ nationalization stance and the author responded that in effect, the government has already nationalized them, in a stealth manner, but they placed the cost on the taxpayers instead of on management, the stockholders and the bondholders.
Bob said that they (government/taxpayers) got their money back. Rickards said they only got it back because Fannie and Freddie are the “backdoor bailout mechanism.” He said that it was “all rigged."
The “all rigged” comment prompted Bob to ask if there was some under the table conspiracy and what was meant by “rigged.” Rickards reiterated that the stockholders and bondholders of banks did not take the hit they should have and that Fannie and Freddie, banks, the home mortgage industry, Congress and the Treasury are acting in concert to place a floor under housing prices. Bob asked the guest if he would have closed Fannie and Freddie. Answer: “Sure."
Bob asked him what condition the housing market would be in if that had happened and Rickards said housing would be down an additional 20-25% and unemployment would be much higher. 2009’s economic pain would have been worse but Rickards believes we would be better off today. He linked governments inaction during the depression in 1919-1920 to a quick recovery, and said the depression of the 1930s lasted longer than it should have because of government’s attempts to intervene. Rickards said that today, businesses are sitting on their cash because of the uncertainty about what government might do next.
After the break, talk turned to Europe and James Rickard said the Euro would hang in there. He thinks Angela Merkel “gets it” because she IS NOT and economist.
Caller David asked if we should raise taxes to get out of debt? JR explained three ways to solve the debt problem: 1) Default (which the US will not do). 2) Inflation – he said government is “working hard to create inflation.” 3) The third method is to grow the economy. He said we have an anti-growth government with this administration. Go pro-growth with an elimination of the corporate income tax and capital gains taxes. Go to a personal flat tax, break up the big banks, ban derivatives.
Bob said that they (government/taxpayers) got their money back. Rickards said they only got it back because Fannie and Freddie are the “backdoor bailout mechanism.” He said that it was “all rigged."
The “all rigged” comment prompted Bob to ask if there was some under the table conspiracy and what was meant by “rigged.” Rickards reiterated that the stockholders and bondholders of banks did not take the hit they should have and that Fannie and Freddie, banks, the home mortgage industry, Congress and the Treasury are acting in concert to place a floor under housing prices. Bob asked the guest if he would have closed Fannie and Freddie. Answer: “Sure."
Bob asked him what condition the housing market would be in if that had happened and Rickards said housing would be down an additional 20-25% and unemployment would be much higher. 2009’s economic pain would have been worse but Rickards believes we would be better off today. He linked governments inaction during the depression in 1919-1920 to a quick recovery, and said the depression of the 1930s lasted longer than it should have because of government’s attempts to intervene. Rickards said that today, businesses are sitting on their cash because of the uncertainty about what government might do next.
After the break, talk turned to Europe and James Rickard said the Euro would hang in there. He thinks Angela Merkel “gets it” because she IS NOT and economist.
Caller David asked if we should raise taxes to get out of debt? JR explained three ways to solve the debt problem: 1) Default (which the US will not do). 2) Inflation – he said government is “working hard to create inflation.” 3) The third method is to grow the economy. He said we have an anti-growth government with this administration. Go pro-growth with an elimination of the corporate income tax and capital gains taxes. Go to a personal flat tax, break up the big banks, ban derivatives.
Bob asked about China’s manipulation of their currency. Rickards shot back that the US is the biggest manipulator of currency in the world, via quantitative easing. He said QE was designed to reduce the value of the dollar in the currency markets. It did not cause inflation in the US as some predicted, it caused it in China. Rickards says that inflation will now come to the US in the form of higher prices for imported goods. Bob disagreed and predicted inflation would remain low in 2012.
Caller Alan from Illinois wanted to get back to the old days of the savings and loan when lenders were limited in what they could loan on, borrowers had to put down 20%, and have a steady job. He suggested that without Fannie and Freddie we would not have had the bust. Rickards agreed with his recollection and gave his own history lesson as to how Congress raised the FDIC protection to $100,000, which had the unintended consequences of banks and S&Ls making risky loans. Rickards said that when he started in banking, the rule was, “a loan should hold up in all phases of the business cycle,” but this notion has gone away with the securitization of loan packages."
Honey's Comments: Thank you FrankJ, for that great summary of this Moneytalk guest-speaker. You certainly covered all the high points.
As you pointed out, Brinker immediately jumped on Rickard's comment about Fannie and Freddie being "all rigged." Then Rickard really hammered his point home by saying he would have closed them altogether.
Another interesting point is that Rickards said that Merkel is the only head of state in the world "who gets it"-- for the reasons that you stated.
Rickard's response to David's call was a bit disturbing. As you wrote, he said that the United States would never default because we have the printing press. We might never default, but what will we be able to buy with those dollars if they keep running the printing press? Like Rickard's said, "Good luck buying a loaf of bread."
As you wrote, Rickard's third method to get out of debt was to have a pro-growth policy. I found it refreshing that unlike Bob Brinker, Rickard's had no trouble actually saying, "The Obama Administration" when he point out that we now have anti-growth policies with the Obama Administration.
I laughed out loud when Rickards said that inflation is picking up now and we can expect to see higher inflation this year as a result of increasing Chinese import prices, and the "Fed's misguided currency policy." Brinker broke his own policy of not disagreeing with his guests while they are on the air -- guess he just couldn't help himself since he has been preaching no inflation for so long.
FrankJ and I rate the James Rickards interview an 8 on a scale of 1 - 10. I recommend downloading this program from the KSFO560 archives FOR FREE Moneytalk on Demand. It will be there until Sunday morning. Go to KSFO.com Click on "Listen/Seven Day Archives/Sunday" Then download hours 1-2, 2-3, and 3-4pm.
Dixiegeezer sent this amazing picture tonight. Please enlarge it to see the surprise in the bird's mouth:
6 comments:
Frank J, Thanks for the Rickard summary, and thanks to HB for posting it.
longtimelistener:
Thank you. If you did not hear the interview in the third hour you can listen to it at KSFO's hourly archives for Sunday, 3 PM.
KSFO 560.
And thanks HB for posting it.
--Frankj
It was my pleasure Frankj....Thank you so much!
Would you like to rate that guest-speaker on a scale of 1 - 10?
I would rate the overall segment about an 8 for how it held my interest.
I'm not qualified to say whether his notions of how to "fix" things would have worked, but he spoke clearly about what should have been done, and didn't give any ground to BB when pushed.
-- Frankj
Bob Brinker had a caller, Larry in Lancaster, who Brinker said goes to the head of the class. If the class was on international economics and finance Mr. Rickards would be at the head of the class. Not as a student but as the professor. If I had the choice of signing up for a graduate level class and the choice of teachers was Bob Brinker or Mr. Rickards, I would not select the man who calls himself America's most trusted financial advisor. I think Rickard's resume is far more impressive than Brinker's and I feel he was one of the best guests to ever appear on Moneytalk.
Mr. James G. Rickards
Senior Managing Director for Market Intelligence, Omnis
Mr. James G. Rickards is Senior Managing Director for Market Intelligence at Omnis, an applied research organization. He is also co-head of the firm's practice in Threat Finance & Market Intelligence and a member of the Board of Directors. Mr. Rickards is a senior counselor, investment banker and risk manager with extensive experience in capital markets including portfolio and risk management, product structure, financing and operations.
Prior to Omnis, Mr. Rickards held senior executive positions at "sell side" firms (Citibank and RBS Greenwich Capital Markets) and "buy side" firms (Long-Term Capital Management and Caxton Associates). Mr. Rickards has been a direct participant in many significant financial events including the 1981 release of U.S. hostages in Iran, the 1987 Stock Market Crash, the 1990 collapse of Drexel and the LTCM financial crisis of 1998 in which he was the principal negotiator of the government-sponsored rescue. He has been involved in the formation and successful launch of several hedge funds and fund-of-funds. His advisory clients have included private investment funds, investment banks and government directorates. Since 2001, Mr. Rickards has applied his financial expertise to a variety of tasks for the benefit of the national security community.
Mr. Rickards is a counselor-at-law in various state and federal courts and has held all major financial industry licenses. He has been a frequent panelist and moderator at professional conferences in the fields of securities, derivatives and hedge funds and is active in the International Bar Association. He has been interviewed in The Wall Street Journal, The Washington Times and "Squawk Box" on CNBC and has published an Op-Ed in the Washington Post.
Mr. Rickards is a graduate school visiting lecturer in finance at Northwestern University and the JHU School of Advanced International Studies. He is a member of the Advisory Board of Shariah Capital, a firm specializing in Islamic finance. Mr. Rickards is also a member of the International Business Practices Advisory Panel to the CFIUS Support Group of the Director of National Intelligence.
Mr. Rickards holds an LL.M. (Taxation) from the New York University School of Law; a J.D. from the University of Pennsylvania Law School; an M.A. in international economics from the JHU /SAIS, and a B.A. degree with honors from The Johns Hopkins University.
There might not be a guest segment this coming weekend. This Sunday is Super Bowl Sunday. I'm sure many of you remember a year ago when Bob Brinker, after doing the first two hours of Moneytalk, skipped out on the final hour so he could watch the game. Listeners were left with a taped "Best of" Moneytalk segment.
It seems incredible from a man who loves to joke that the NFL can't compete with Moneytalk.
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