Atlas Monitor | 9 Sept 2014
[youtube https://www.youtube.com/watch?v=KYW5OGWfqJc?feature=player_detailpage&w=640&h=360]
Investment guru and financial analyst Jim Rickards breaks down a potential global financial and economic cataclysm.
Financial analyst Jim Rickards is also a consultant-advisor to the CIA and the Director of National Intelligence for financial threats and asymmetric warfare and is predicting what he calls a “financial Pearl Harbour” that will see a 70% crash in value on the stock market that will unleash a $US100 trillion meltdown in its aftermath.
Rickards notes that the US federal debt has reached catastrophic proportions at $17.5 trillion along with $127 trillion in unfunded liabilities; as well as a spiralling downward trend in economic return on the US dollar that has dropped from a $2.41 return from every dollar invested during the post-WWII boom years of the 1950s and 1960s; to $0.41 during the stagflation period of the 1970s and 1980s; to currently $0.03 which will soon go negative.
Rickards warns that the US could fall into a 25 year depression which he notes has occurred twice before; in the late 1880s and most famously during the Great Depression of the 1930s.
According to Rickards the ‘Fed’ and the Treasury and currently the greatest threats to US national security due to their reckless monetary policy; more of a threat than Al Qaeda and ISIS.
Rickards notes that one of the key indicators that the US intelligence community (IC) is paying close attention to is the misery index which is currently at 32.89 (it was at 27 during the Great Depression) and which the IC believes could spark civil unrest in America at any time.
Rickards says that the Fed is insolvent on a mark to market basis and that this is admitted privately; albeit reluctantly, by members of the Fed’s board of governors.
Although the Fed has a capitalization of $56.2 billion; its balance sheet holds a stunning $4.3 trillion in unfunded liabilities and is currently leveraged at 77-1 (it was leveraged 22-1 before the 2008 GFC) and is a ticking time bomb according to Rickards.
Kentucky Senator Rand Paul endorses Rickards view and has made the analogy with the current US financial position to the fall of Rome.
‘Super-critical’ indicators include the stock market cap to GDP ratio which is currently at 203% compared to 183% prior to the recession and 204% prior to the dotcom bubble burst. This means that presently the (over)value of company stocks on the stock market is twice their value in terms of their contribution to the GDP; which has created a major market distortion and indicates an historic market crash is imminent. Prior to the Great Depression it was 83% .
Rickards, who has launched several successful Wall Street hedge funds, notes that the gross notional value on derivatives is $710 trillions dollars; a sum ten times global GDP ($72.6 trillion).
One of the key flash points that could serve as a catalyst for a crash is the foreign ownership of US debt that can be dumped at any time by holders such as China and Russia. Rickards notes that this has already started.
Rickards helped lead the CIA’s Project Prophesy which detects market signals that can indicate threats to US national security such as the anomalous trading in United and American Airlines stocks immediately before the 9/11 attacks. He also noted that Russia was dumping US treasuries leading up to Crimea’s secession from Ukraine and assimilation into Russia. Rickards explains that Russia sold off its US debt holdings in an effort to mitigate the effects of predicted economic sanctions that would follow the events in Crimea. China also dumped a significant portion of its US debt simultaneously.
Interestingly Belgium started buying up US debt at the same time Russia and China were dumping which Rickards regards suspicious because the volume of US treasuries being bought exceeded Belgium’s current account surplus. He concludes that it was not in fact Belgium but perhaps the Fed using Belgium as a front. The true identity of the buyer is known to the IC according to Rickards.
The fall of the petro dollar is another potential flash point according to Rickards who suggests that countries buying and selling oil can drop the US dollar as the oil trading currency at any time. The likelihood has increased given President Obama’s political realignment in the Middle East which threatens the US ‘special relationship’ with Saudi Arabia through indications that suggest Iran has been newly anointed regional hegemon by Obama.
The US-Saudi relationship is one of the foundations of the petro dollar through a long standing agreement that stipulates that US would guarantee Saudi national security in return for pricing oil in US dollars which now seems threatened given US overtures towards Iran exemplified by the recent nuclear deal.
China and Russia’s $400 billion oil deal also threatens the status of the petro dollar; as is the current hoarding of gold by China which is replacing the US dollar as the safe haven for oil revenues and foreign exchange reserves.
China’s economic vulnerability due to its highly leveraged banking system is also another potential flash point that could trigger a US financial collapse. Rickards notes that China has an enormous ‘shadow banking’ industry that has ballooned by over 4000% since 2005 and could infect the global economy in an economic downturn. Rickards also notes that 50% China’s economic growth is driven by construction which includes ‘white elephants’, ‘trophy projects’, and ‘ghost cities’ which even the chairman of the Bank of China has characterized as fundamentally a Ponzi scheme.
Rickards believes that the Chinese economy could soon ‘hit the brakes’ which will precipitate a global crisis. He suggests that the IMF will be the only institution that could prop up the system by issuing Special Drawing Rights (SDRs) and effectively become the central bank of the world.
A 25 year depression could ensue as well as ultimately ‘the death of money’; according to Rickards.
