Jim Rickards joined Alex Stanczyk at the Physical Gold Fund to discuss current destabilizing factors that could drastically impact investors. During the first part of their conversation the economic expert delved into gold positioning for the future, the expanding threats from North Korea and liquidity in global markets.
To begin Rickards’ was prompted on his latest analysis over North Korea and the international threat the country poses going forward. The currency wars expert urged, “The fact is, the threats from North Korea, even if not to the mainland, still threaten U.S territory. There are a lot of Americans living there. As this escalation continues in sequence the problem is not new.”
“The threat of North Korea has been going on for decades and has escalated since the mid 1990’s. Bill Clinton and George W. Bush both offered sanctions relief for the country in exchange for program reductions. The Obama administration essentially did nothing for eight years. I do think the Trump administration at least deserves credit for clarity.”
Jim Rickards is the editor of Strategic Intelligence and is the New York Times best-selling author of The Road to Ruin. Rickards’ worked on Wall Street for decades and has advised the U.S intelligence community on international finance, trade and financial warfare.
“Trump has identified that he is not willing to negotiate to arrive at negotiations. They have indicated to North Korea that if the regime wishes to come to the table what the White House must see is a verified cessation of weapons programs. In exchange they could offer potential sanctions relief and even the possibility of integrating the North Korean economy into the global economy. The North Koreans are actually very rich in natural resources and could be a commodity driven exporter.”
“The U.S is not going to be bullied. It will continue to operate in South Korea with joint military exercises. One by one the North Koreans have come to understand missile technology and it seems like they are within the final steps toward miniaturization of weapons.”
Expanding on the threat Rickards’ highlighted that, “Kim Jong-un is very dangerous if you consider the submarine technology he is pushing for the country. His ability to launch a submarine based ballistic missile is makes him a very different threat from land based aggression. It is possible to position a submarine to within range of an intermediate ballistic missile attack where it does not have to have intercontinental ballistic technology. This situation is extremely vulnerable and growing.”
“Because of the threat of North Korea, it could be a catalyst toward market collapse. Stocks are going toward a shock and the market has not priced it in… we could be looking at crisis as soon as next week if both of these risks converge.”
Switching gears away from the North Korean situation, Rickards’ examined domestic destabilizers. The author of Road to Ruin highlighted the severity of the debt ceiling and what it means for the economy. Rickards went on, “There are two really big, but separate, deadlines converging on September 29th.
“The first is the debt ceiling. This has to deal with the borrowing authority of the U.S Treasury and to be able to pay the bills of the government.”
“That authority includes the money to cover social security, medicare, medicaid, military and all of the operations within the budget. Until it is authorized, the Treasury is essentially running on fumes. They are running out of cash. They need Congress to authorize an increase in the debt ceiling so they can borrow money so they can pay for their bills. The problem is that Congress is not functional right now.”
“The second event converging is the budget. The budget is the authorization of government spending. September 29th, that is the last Friday of the month and the last business day that operates on the fiscal year budget. There are two ways deal with the budget. One, Congress could vote and pass a budget. The other thing that can be done is a continuing resolution (CR) and it is a vote by Congress that agrees to agency spending and delays new spending to a later date.”
“This is important to note because it faces a hard-stop on September 29. The debt ceiling does not have to happen on the same date but because of the lack of Treasury funds it is very likely that by the end of September it could run out of money. That means there are two meteors striking in Washington with the budget and debt ceiling increase. They are both subject to the same malfunctions in Washington. It is not clear that the White House would be afraid of a government shutdown. While the military and essential agency operations will still be functioning, there will be a lot of favorable agency departments that will be shut down.”
“There will be major outflows demanded of the Treasury due to various entitlement programs by the first of the month for October. That complexity compounds on top of all of the other serious national security issues described. All of this is one more reason why investors should have allocations of gold and to also have cash on hand.”
Rickards then turned to warn how liquidity can be frozen by governments. The New York Times best-selling author urged that, “In October 1987, the major U.S stock market, and in particular the Dow Jones, fell 22% in one day. That kind of a drop would be 4,000 Dow points. When I explain that move to investors they typically respond that there are measures in place to freeze the market and stop such a loss.”
“My immediate reaction is, which makes you feel more concerned; thousand point drops, or a closed exchange? At least with a significant point drop you can still get out at a price. If you shut the market down, that’s Ice-9. My thesis is that if you shut down one market the demand for liquidity then just moves to another market, requiring another sector shutdown.”
Speaking on what assets people can invest in to be secure, Rickards left the path forward clear. He urged, “There is a name for a store of value that does not have counterpart risk – it’s called money. People say I have money in the bank, but they really don’t. They have a bank deposit which is an unsecured liability of an unsecured and occasionally insolvent institution. People claim to be nervous if they buy gold, but under such circumstances I would be nervous if I didn’t have any.”