james rickards/the death of moneywhat do you think of rickards book and his recommendations?
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Are you asking anyone, or Travis in particular? I like Rickards, have read his books, subscribe to his newsletter, and watch him whenever he turns up for interviews or debates. I find very little to disagree with, except the book title “The Death of Money” which is both ominous and impossible. There will always be money, only its form will change as it always has. The book is actually about the U.S. dollar eventually ceasing to be the world’s reserve currency, which is certainly not the death of money.
I like most of the recommendations but I cannot invest in fine art or farmland.
But I have followed or implemented most of his other ideas on assets…namely, hard ones
with a smattering of ultra high quality stocks.
Weath’s Daily’s take on China, Global currencies. Depression/Recession etc. Free weekly subscription at: http://www.wealthdaily.com/ It’s going to pop By Geoffrey Pike | Friday, April 3rd, 2015
China has come a long way for a communist country.
Beginning around 1980, the Chinese government loosened restrictions on agriculture and let in a glimpse of the free marketplace. Since that time, the most populated country on the planet has had unprecedented growth.
Never in the history of man have so many people been lifted out of poverty in such a short period of time. Hundreds of millions of Chinese have been able to escape grinding poverty and make something of a life in the big cities.
To be sure, the Chinese people are still very poor by American standards in general, but it is nonetheless remarkable how far this country has come.
China has become far freer over the last several decades. Meanwhile, in the United States, government seems to get bigger and more invasive. For every law that is repealed, it seems a thousand new ones pop up — and that may be generous.
The Chinese economy actually has a benefit over the U.S. economy in the sense that there is less red tape in many areas. There is no equivalent of the Americans with Disabilities Act in China, for example.
With all of that out of the way, we should not delude ourselves that China has somehow overtaken the United States. In terms of GDP, it is not always easy to believe the accuracy of numbers. It is hard enough to believe the U.S. government’s numbers, and these are probably far more accurate than the numbers coming from the Chinese government.
We also must remember that China is four times the size in terms of population. So if the GDPs are equal, the U.S. still has a GDP per capita that is four times as much.
The communist officials in China are not really communist. The Chinese economic system is not communist. But Chinese officials are Keynesian. They are mercantilists, and they are economic fascists.
We should not fear China in an economic sense. If the Chinese get richer because they move to a more market-oriented system, then it benefits all of us. It means more global demand.
Unfortunately for China, the economy has some major issues.
Start With the Currency
You can get a decent idea about the wealth of a society in today’s world just by looking at the currency. It is no coincidence that many of the third-world nations have very unstable currencies that are often under the threat of some kind of hyperinflation.
For some reason, there is still talk about the Chinese yuan (also called the renminbi) taking over the U.S. dollar as the world’s reserve currency. This isn’t to say that it is impossible for the U.S. dollar to lose its status, but it doesn’t mean another fiat currency has to take its place. In today’s digital world, many countries just trade with their own currencies, with little need for a middleman.
But at this stage of the game, there is almost no chance that the yuan is going to be used as a reserve currency, particularly because it is not freely floating. You can’t openly trade yuan on currency exchanges the way you can with dollars or euros or yen. For this reason alone, the Chinese currency cannot be a contender as a reserve currency until the policy is changed.
A secondary reason that the yuan will not replace the dollar anytime soon is that the Chinese central bank creates new money out of thin air like there is no tomorrow.
This sounds kind of crazy at first, considering the Fed just finished another massive round of quantitative easing late last year. The European Central Bank and the Bank of Japan are both engaging in unprecedented monetary inflation as well. But in terms of bubbles, China is in a world of its own.
Incidentally, the U.S. Treasury Secretary, Jack Lew, recently stated that China will have to loosen its financial controls before the yuan can be considered for inclusion in the IMF’s basket of reserve currencies.
The U.S. Treasury Secretary, of course, has issues of his own to deal with. But in this case, he is absolutely right. It’s not that being part of the IMF should be much of a big deal, but the underlying point about the tight controls on China’s currency is correct.
Meanwhile, in China, officials are attempting to prop up a softening economy. Many analysts are suggesting that the Chinese central bank should — and will — cut interest rates further. They see this as the best remedy.
The First Recession (or Depression)
China has only entered the modern world in the last few decades.
For most of the 20th century, it was a really poor country. It has never had a modern-day recession because it was already near rock bottom. You could say most of the 20th century was one giant depression for the Chinese economy.
Now, things are booming in China. There are big cities with a lot of skyscrapers, massive infrastructure, and businesses as never before. Young people actually have some hope of living a good life.
Unfortunately for China, its trend upwards is not going to be a straight arrow. There is going to be a major bump in the road in the form of a recession, or more accurately, a depression.
It is always amazing how long things can take to play out. It is amazing how politicians and central bankers are able to kick the can down the road just a little bit further.
It was two years ago that 60 Minutes originally ran a story about the ghost cities in China. The central bank policies of easy money and easy credit, along with government incentives, have led to a massive real estate bubble. It is perhaps the biggest misallocation of resources this world has ever seen. It makes the U.S. real estate bubble of the last decade look mild.
The Chinese have built major cities with almost nobody living there. They are going for prices that middle-class America could barely afford. How is a Chinese worker who earns one-quarter the amount going to afford it?
And it isn’t just real estate. The Shanghai Stock Exchange Composite Index has nearly doubled just in the last year. It is looking to be the equivalent of the NASDAQ bubble of the late 1990s.
This has all been induced by Chinese central planners. The Chinese central bank can go ahead and lower rates more and ramp up more monetary inflation, but it will only delay the problem. It won’t solve it. It will make the misallocations and the final day of reckoning that much worse.
This current artificial boom is not going to end well for the people living in China.
The Implications
This doesn’t mean China is finished. It will go through a really bad recession/depression. Hopefully Chinese officials will do the right thing and let the market correct the situation without too much interference.
As stated earlier, Americans should hope for a richer China. It really benefits everyone in the long run. At the same time, we should not think a Chinese depression will not affect America or the rest of the world.
The U.S. government has its own problems to deal with, both fiscally and monetarily. There have been resources misallocated in the U.S. too, although not to the same extent as in China. But just a Chinese recession/depression by itself will affect global trade, especially since Americans buy so many products made in China.
This won’t be devastating to American consumers, but it will affect them. It could also affect the U.S. Treasury if Chinese officials decide to stop loading up on U.S. government debt. In an economic downturn, they might have to tap some of their reserves, so what better place to start than with U.S. dollars?
This could actually be a blessing for Americans, as it could force Congress to tighten its belt a bit without China as a buyer of its debt.
A Chinese downturn is going to be painful for everyone, but especially the Chinese. We can only hope that some good will come out of it in the form of some fiscal and monetary sanity in the future.
When the Chinese bubble finally pops, make sure you are not in the way.
Until next time, Geoffrey Pike for Wealth Daily Best2ALL!-Benjamin
Very good article Ben. In Rickard’s “The Death of Money” is an excellent chapter entitled “China’s New Financial Warlords.” It begins: “To contemporary Western eyes, China appears like a monolithic juggernaut poised to dominate East Asia and surpass the West in wealth and output in a matter of years. In fact, China is a fragile construct that could easily descend into chaos, as it has many times before.”
Central Planning of economies just doesn’t work. I wonder how many times that needs to be proven in how many countries, before some of our Marxist university professors (ironically, while collecting six figure salaries in some cases) will finally be convinced.
So are you saying, no, zero central planning? No development of intrastructure and just let the world run amok? I have seen in person and on video places like that where little planning seems to have happened. I hope we never get to that chaotic state.
Hi Gene – no, I was using this specific definition:
“DEFINITION of ‘Centrally Planned Economy’ An economic system in which economic decisions are made by the state or government rather than by the interaction between consumers and businesses.” – from Investopedia
Capital is misallocated to a bizarre degree in such systems, hence all the “ghost cities” in China right now, and the fact that a ton of coal there can reap about the same profit as the value of a pickled egg.
Gene my friend and mentor of many years suggested Knocking At The White House Door: https://thekingsbridge.wordpress.com/ Best2ALL!-Benjamin
Thanks Sogiam, China is a fascinating country that needs more attention, as it is surely
going to grow further in world influence. It is thought-provoking to look at the similarities and contrasts between the US and China. Usually the differences are more noticeable, but the similarities are instructive:
Both countries rose to world prominence quickly after a period of dramatic economic growth powered by the ability of individuals to pursue their private economic interests.
Both countries benefitted during their rise from a predominate set of societal, philosophic, and family values. Both countries had explosive growth in net exports,
though for different reasons…in the US the inventive and creative technology was very important, in China cheap labor applied to industrial output was the main driver.
Both countries during their rise esteemed hard work, accumulation of wealth, and business and entrpreneurial ability. rise.
Abundant or expanding availability of natural resources was a key component of America’s rise to power. China has a disadvantage in this regard but is compensating for it by its acquisition of corporate assets in hard asset areas, and international trade agreements.
Despite differences in official and practical ideology, in both cases government played a key role in the development of key infrastructure, and favoring of heavy industrial capability.
Today there are some interesting similarities. In the US, state power is increasing despite our official ideology…we are becoming more like China in this respect. For example, we are edging closer to Chinese attitudes on censorship of the internet, the power of the state to surveil individuals, and controls directed at controlling or confiscating capital.
And as China moves towards their version of free market capitalism, the US is moving towards socialism, as the economy is more and more dominated by constituents receiving government welfare and subsidy, such as social security, the education establishment, the medical establishment, the military, local, state and federal bureaucracies, to say nothing of foodstamps, or welfare to the unemployed or impoverished. Both countries are in financial danger from massive banking and real estate bubbles. China’s consumer consumption is still far below ours, but they are gaining ground rapidly and we are falling, so the two countries are converging in this respect.
From an investment perspective, I think China is a far superior bet number-wise, and
there are a lot of attractive investment possibilities in Chinese companies. For example, I would prefer to buy CHL than VZ, or CNOOC versus CVX, or ASHR versus a US small cap index. Government control of things over there makes me nervous…though the Fed and the US government to not exactly make me feel secure, either. I currently have no position in the stocks mentioned, or any other Chinese-based security.
sogiam Great analysis,,, we agree almost exactly though I would add the factor of the 50 million or so surplus of men to women of child producing age,which may well mean trouble and recent news of AIIB which means they are escalating the economic conflict with US. I feel the word “War ‘ is very overused and is being bastardized and diminished in meaning,,,,,not to say that monetary conflict might become military confrontation.
Another reason for the rapid growth is their noting the Hon Kong model of open /free markets and adaptation to the mainland culture at the end of English sway.
China-I currently have no open positions in Chinese equities either Hendrix although I have played BABA, BIDU, and the solar stocks mentioned below. From zacks: 4/2/15
China Stock Roundup: PetroChina, CNOOC Results Disappoint – Analyst Blog
Performance of Most Actively Traded US-Listed Chinese Stocks
The table given below shows the price movements of 10 Chinese companies with the highest three-month average trading volume on U.S. exchanges. Price movements over the last five days and during the last six months have been included.
Ticker Last 5 Day’s Performance 6-Month Performance
BABA-3.4%-4.3%
VIPS+3.2%+59.8%
SFUN+7.3%-37.6%
JD+0.4%+16.8%
BIDU-0.8%-0.5%
TSL+1.8%+9.5%
CTRP+2.1%+5.1%
WBAI-5.8%-67.5%
YGE-21.3%-39.3%
YOKU-7.9%-28.1%
Next Week’s Outlook:
Stocks gained during another week of volatile trading, boosted by comments from the central bank governor and official data. Better-than-expected manufacturing data indicated that the government’s stimulus measures were having their desired effects. Additionally, the PBOC governor indicated that further stimulus measures were on the anvil.
However, losses on Tuesday and RSI data indicate that a larger selloff may be in the offing. At the same time, the government continues to implement reform measures, which is a particularly encouraging sign. For instance, an insurance system for bank deposits will commence on May 1. This will remove all existing restrictions on interest rates since it implies that lenders will be allowed to fail.
No major economic reports are slated for release til Apr 9, except for HSBC services PMI. This means that market movement will be sentiment driven. Any announcements from the government, central bank or other official agencies will be of great assistance to the markets in the days ahead. Best2ALL!-Benjamin
I’m worried about banking/financial/real estate contractions in both markets
Anyone have any comments about Jim Rickards “Impact System”?
Hi! I am wondering the same thing about IMPACT…It sounds too good to be true…
Me too. Jim Rickard’s “Impact System” sounds good & I would like to join, but worried by ?apparent need for broker approval, which sounds too complicated.
Broker approval is probably required because many of his recommendations will
be on options.
May I suggest that we consolidate conversation on Rickards’ ideas to the other thread ?
I’d like a single thread on Rickards Impact system.
How do i start/get to a thread on Jim’s Impact system ?
Jerald: http://www.stockgumshoe.com/2015/05/microblog-jim-rickards-impact-system/
searched Rickards Impact Best2You-Ben
Some genetics research study indicates that danger for depression arises from the influence of a number of genes acting together with
ecological or other factors.
James Rickards just saw a article today April 13, 2017, says April 21, 2017 is going to be the day of world currency, U.S.A. day of reckoning. James is a has been. Keeps enough money to take money from people who like to have their ears tickled with prognostic Babel.
I signed up for the IMPACT pitch a couple of years ago. Early results were good but overall results have been very poor. Other than his Brexit predictions and Trump election, the other recommendations have been pretty much losers. I would say overall I am down about 60% between IMPACT and Currency Wars.