Jim Rickards – Capital & Conflict (Great Britain)
A guest essay from Jim Rickards, editor of Strategic Intelligence.
The greatest debt debacle of all time is staring us in the face. Don’t take it from me. The International Monetary Fund (IMF) agrees.
It’s one thing when frantic voices out of the mainstream warn about an impending debt apocalypse. It’s quite another when an elite mainstream source says the same thing. That’s what happened recently.
An IMF report highlights the fact that global debt is now $152 trillion and the global debt-to-GDP ratio is 225%. Both figures are considerably higher than they were both before and immediately after the last financial crisis.
One of the persistent myths since the panic of 2008 is that the global financial system has deleveraged and the financial world is now a safer place. Nothing could be further from the truth.
And this debt exists in a low-rate environment. Even the slightest increase in interest rates would blow up the debt levels even more. The fact is there’s no feasible combination of growth and taxes that will make this debt burden sustainable.
There are only two ways out – actual default by non-payment, or de facto default by inflation.
As I pointed out yesterday, in the UK, the Bank of England is desperate for inflation. That’s one of the reasons it’s content to see the pound keep falling.
And fall further it will: you can see why I think so in this video.
But there are three ways to get inflation that have not been tried yet.
And you can see them coming a mile away if you understand elite jargon and the elite message system…
The three new ways to get inflation are “helicopter money”, special drawing rights and raising the price of gold.
Helicopter money results when governments run larger deficits and central banks print the money to cover the deficits. Central banks have been printing money since 2008. The problem is banks won’t lend it and people won’t spend it.
Helicopter money cuts out the middleman. Governments just borrow and spend the money directly without waiting for the banking system to do the job. Central banks pick up the tab.
Special drawing rights (SDRs) are just world money printed by the IMF. The one advantage of SDRs is that very few people understand them, and there’s no political accountability. SDRs can work hand in hand with helicopter money.
If governments want to spend more but legislatures won’t let them, the IMF can hand out SDRs, and governments can spend those without waiting for their own legislatures to act. The IMF acts like the “central bank of the world”, and no one can stop it.
Raising the price of gold is the easiest way to get inflation. A higher dollar price for gold is practically the definition of inflation.
Governments can do this in a heartbeat. The Federal Reserve would just declare the price of gold to be, say, $5,000 an ounce and make the price stick using the gold in Fort Knox and its printing press to maintain a two-way market.
The Fed could sell gold when it hits $5,050 an ounce and buy gold when it hits $4,950 an ounce. That’s a 1% band around the target price of $5,000 an ounce. The band and the use of physical gold will make the target price stick.
If you don’t believe this can happen, just check the history books…
In 1934, President Roosevelt raised the dollar price of gold 70% and deflation stopped on a dime. The economy took off and so did the stockmarket. It works.
That’s the elite plan. Helicopter money, SDRs and a higher gold price are the trifecta of how to get inflation when all else fails.
These policies can be done individually or in combinations. This will be playing out in the next few years.
Don’t take my word for it
Look at what the elites themselves are telling us:
Adair Turner is a bona fide member of the global monetary elite. His title is Baron Turner of Ecchinswell, and he’s the former head of the UK Financial Services Authority. Today, he’s the head of a George Soros front organisation called the Institute for New Economic Thinking.
Turner wrote an article on 9 May 2016, called “Helicopters on a Leash”, in which he discusses debt monetisation (that’s the technical name for helicopter money). Here’s an excerpt:
The technical case for monetary finance is indisputable. It is the one policy that will always stimulate nominal demand, even when other policies — such as debt-financed fiscal deficits or negative interest rates — are ineffective… A small amount will produce a potentially useful stimulus to either output or the price level.
Here’s what Ben Bernanke had to say about helicopter money from his blog post on 11 April 2016:
In theory at least, helicopter money could prove a valuable tool. In particular, it has the attractive feature that it should work even when more conventional monetary policies are ineffective and the initial level of government debt is high… The fact that no responsible government would ever literally drop money from the sky should not prevent us from exploring the logic of Friedman’s thought experiment, which was designed to show — in admittedly extreme terms — why governments should never have to give in to deflation… In more prosaic and realistic terms, a “helicopter drop” of money is an expansionary fiscal policy — an increase in public spending or a tax cut — financed by a permanent increase in the money stock.
Bernanke called helicopter money a “Money-Financed Fiscal Program” (MFPP). That’s typical of how global elites use jargon to cover up their agenda. This is why SDRs are not called “world money” and the Federal Reserve is not called the “Central Bank of the US”. Elites use technical names to cover up the real programmes.
That’s OK. We see through the names and what’s really going on.
What’s the evidence that the elites are planning to start up the SDR printing press? Here’s an excerpt from an article dated 25 April 2016, by Andrew Sheng, former chairman of the Hong Kong Securities and Futures Commission and a professor at Tsinghua University in Beijing. Sheng’s co-author is Xiao Geng. The article is called “How to Finance Global Reflation”. Here’s what they had to say:
An incremental expansion of the SDR’s role in the new global financial architecture, aimed at making the monetary policy transmission mechanism more effective, can be achieved without major disagreement. This is because, conceptually, an increase in SDRs is equivalent to an increase in the global central bank balance sheet (quantitative easing)… Central banks… would expand their balance sheets by investing through the IMF in the form of increased SDRs.
This work on SDRs is not merely theoretical. China has already built a platform to expand borrowing and trading in SDRs. This is only the second platform of its type in the world. (The first SDR trading platform today is inside the IMF itself.)
Finally, what is the evidence that global elites are considering the use of government power to raise the price of gold as a way to get inflation?
Investors have often taken the view that governments try to suppress the price of gold, not raise it. That’s true when governments are trying to lower inflationary expectations. But today they have the opposite problem.
Governments are trying to defeat deflationary expectations. And there’s no better way to do that than let the price of gold go up in a convincing way.
There you have the roadmap for inflation on a national and global scale. The three new ways to get inflation are helicopter money, special drawing rights and raising the price of gold.