James Rickards and James Grant Interviewed

By on November 14, 2011

James Rickards, senior managing director of Tangent Capital Partners, was interviewed by Bloomberg’s Deirdre Bolton regarding his new book Currency Wars: The Making of the Next Global Crisis. James Grant, publisher of Grant’s Interest Rate Observer, was also on hand.

Grant began the interview bringing up the idea of the gold standard, which he believes deserves intelligent discussion, but has been scorned by academics. Grant said material progress is cumulative while financial progress is cyclical. He stated you can go back to a simpler and more efficacious system, while the system we currently have is doomed in its complexity. Rickards chimed in, “if you’re about to drive over the cliff, going backwards isn’t a bad thing to do.”

Jim Grant - Grant's Interest Rate ObserverBolton brought up Ben Bernanke, who being a student of The Great Depression, believes economies linked to gold recover more slowly. Rickards said Bernanke wrote a paper in the 1990’s critical of the gold standard. Rickards added the gold standard, in the late 1920’s, was flawed due to the exchange mechanism which got the price wrong. He said they went back to the pre-WWI price, while in the meantime a tremendous amount of money had been printed, which was massively deflationary. This probably contributed to the depression, and according to Rickards, is a fair criticism. ¬†Rickards said if the price of gold had been set at $50 per ounce The Great Depression probably could have been avoided.

Grant made historical reference to the 18-month Depression of 1920-1921 which was ended when the Fed tightened money, interest rates were raised, and the government ran a budget surplus. Rickards mentioned he believed interest rates should have been raised in 2009 and banks allowed to fail which would have led to massive unemployment, but the economy would be growing today. Rickards said the Fed is repeating the mistakes of Japan so no one should be surprised that there is no growth. Rickards said the best case is that we’re headed for a lost decade, but the worst case is much worse.

Rickards said the Fed thinks they can dial the money supply like a thermostat, but they are dealing with a nuclear reactor with fuel rods and control rods and if they get it wrong they have a catastrophe.

Grant and Rickards commented further on the Fed, whose intentions are good, but attempts to impose prosperity through financial means are “leading to incalculable harm,” according to Grant. Rickards also discussed his time at the Resolution Trust Corporation (RTC). The two continued their discussion of gold and paper money.

The interview can be seen in its entirety in the video below:

 

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