For the first 11-and-½ months of 2015, the Federal Reserve effectively kept the financial markets in limbo. By seemingly focusing its efforts more toward PR than policy, the Fed appeared to have lost the confidence of the broader markets. While attempting to navigate this political controversy, Janet Yellen and the Fed spent the year saying one thing (rates are going up) while doing another (nothing).
Even as the Fed reverses course by now making dovish statements regarding the shallow and gradual path of subsequent rate increases, its indecisiveness may end up costing it.
According to at least one man, the world renowned economist and capital strategist James G. Rickards, the Fed has already sealed its fate by waiting too long to act. To his credit, Rickards has consistently made this claim for the past several years, and has not suddenly or spontaneously arrived at a critique of the Fed. Rickards has without a doubt been one of the loudest and steadiest voices in discourse about the global economy and the proper role of central banks within it.
Those in the gold investing community are often familiar with Rickards for his piercing insights on how gold and fiat money are pitted against one another in the global financial system. Despite numerous appearances on a variety of business news networks over the past 5 years or so, Mr. Rickards remains a mostly unknown commodity to the mainstream financial news viewer. This is unsurprising given his advocacy for fixing the world’s broken monetary regime, one that he criticizes in his two best-selling books, Currency Wars and The Death of Money.
Far from reflecting the mainstream conceptions of the typical “anti-banking zealot,” Rickards was trained as a lawyer, later studied international economics, and spent three decades working for Wall Street firms. He brings all of his formal understanding of finance, law, and economics to his critiques of the central banking system.
In this way, Mr. Rickards is an obvious torch-bearer for movements against the corrupt and brazen enrichment of the banking cartels at the expense of the general public. In most cases, the banking establishment rests assured that its detractors will be idealistic liberals who are easy to discredit; there is no such defense for Rickards, who confronts the banking elite on their own turf.
Too Little, Too Late
Among other criticisms of the Federal Reserve laid out in his previous work, Rickards has repeatedly warned that the Fed “missed its chance” to raise rates when the U.S. economy briefly heated up earlier this year. This may have given the central bank time to progressively hike rates to a point that if they had to be cut later on, there would be enough room for the Fed to do so and have a sufficient effect on the economy.
Instead, the Fed put off raising rates to avoid spooking the markets, and has now boxed itself into the corner where it must raise rates during a potential economic downturn. Rickards has stressed that “raising into weakness” is a folly for the Fed. He cites the distinct possibility that any economic downturn (or even recession) would force the central bank to cut rates again, not only undermining the current Fed strategy but also comically showing how the Fed has exhausted all of its tools for artificially reflating the U.S. economy. Imagine a giant Tommy Gun—or maybe a bazooka?—that looks powerful but has forever expended its ammunition.
What is the expert Rickards’ prescriptions for making the financial system work for the average person again? It is fairly clearly encapsulated in a pair of quotes attributed to the author:
“When you own gold, you’re fighting every central bank in the world. That’s because gold is a currency that competes with government currencies and has a powerful influence on interest rates and the price of government bonds. And that’s why central banks long have tried to suppress the price of gold. Gold is the ticket out of the central banking system, the escape from coercive central bank and government power.”
“A gold standard is the ideal monetary system for those who create wealth through ingenuity, entrepreneurship, and hard work. Gold standards are disfavored by those who do not create wealth but instead seek to extract wealth from others through inflation, inside information, and market manipulation.”
The opinions and forecasts herein are provided solely for informational purposes, and should not be used or construed as an offer, solicitation, or recommendation to buy or sell any product.