Jim Rickards and Alex Stanczyk, The Gold Chronicles May 2020
*New Book under development on the Pandemic and Depression
*Why Scientists without expert knowledge of the economy may not be the best source for determining economic policy
*Why discernment of the various views of scientists with opposing views on how to deal with Coronavirus is important
*Unemployment Claims have exceeded 38m in the US
*There has never been a time when the stock market does not accurately reflect what is happening in the real economy
*S&P 500 is a cap weighted index where a few major companies dominate the index. Major companies which are doing well do not reflect the stock market as a whole or the rest of the economy
*Algorithms that decide the majority of trading in markets today were written before the Pandemic
*Deflation, Inflation, Hyperinflation
*The psychology of inflation and what leads to increase of velocity of money – quantity theory of money versus phase transitions in psychology
*In a deflationary environment where the Fed has printed close to $10T but still cant get inflation leaves one tool left in the toolkit.. raising the price of gold
*Raising the price of gold would require open market operations in gold – Fed printing money to buy gold or to sell gold in order to maintain a specific price range measured in USD
*Raising the price of gold as a tool to get inflation in the USD during prolonged and massive deflation is not a theory, it has been used in the past
*Expectations of continuing deflation in the short to mid term, but inflation must be created, the trick for the Fed is making sure it sticks the landing
*Scenarios for gold price and inflation numbers if the Fed overshoots and ends up with higher inflation than it wants
*Censorship and deplatforming of people from major media platforms such as YouTube and Twitter
*The polarization of views of people around the world in terms of freedom vs authoritarian approaches to governance, and where it is leading
*The “inner fascist” – #NeoFascistGene
*Essential versus Nonessential Businesses and Occupations
*United States Code: Law enforcement officers, judges, public officials violating Constitutional rights under color of law versus emergency powers granted during threats to national security
*Reparations for China such as seizing/cancelling UST’s or delisting Chinese company stocks on US exchanges
*Will reparations move the US and China closer to kinetic warfare
Listen to the original audio of the podcast here
Physical Gold Fund presents The Gold Chronicles with Jim Rickards and Alex Stanczyk offering insights and analysis about economics, geopolitics, global finance, and gold.
Alex: Hello. My name is Alex Stanczyk. Welcome to Episode 93 of The Gold Chronicles. Today is
May 21, 2020. I have with me my friend and colleague, Mr. Jim Rickards. Welcome, Jim.
Jim: Thank you, Alex. It’s great to be with you.
Alex: Before we dive into the podcast, I want to let everyone know that they can access an
archive of podcasts and transcripts going back several years at PhysicalGoldFund.com/podcasts.
For those of you who are new to the podcast, Jim Rickards is a bestselling author of numerous
books, and he’s a well-known and respected expert in geopolitics and a number of other subjects.
At different times throughout his life, he’s been a lawyer, an economist, a hedge fund guy, and
he’s been tapped off and on by the U.S. intelligence community for his insights and perspectives.
Jim is one of the smartest guys I know, full stop. He’s been a friend and mentor for many years
now. If you haven’t read Jim’s books, I encourage you to do so. His books include Currency Wars:
The Making of the Next Global Crises, The Death of Money: The Coming Collapse of the
International Monetary System, The Road to Ruin: The Global Elites’ Secret Plan for the Next
Financial Crisis, and Aftermath: Seven Secrets of Wealth Preservation in the Coming Chaos. For
those of you who are interested in gold or new to gold and want to know more about it, Jim has
also written The New Case for Gold. Many do not know, but we’ve codeveloped that using
material from these podcasts as well as Jim’s research and his own amazing mind.
We have a lot of topics today, so let’s jump right in. Jim, like me, you’re a lifelong learner, you’re
always doing research, and you’re always reading. If you had to name one topic right now that is
holding your focus, what is it and why?
Jim: I have to say it’s two topics that are joined together; they’re kind of inseparable. And you
could say that they’re obvious ones. It’s the pandemic and the economic depression. Why?
Because they’re big topics you should know about.
I’m actually working on a new book that’ll be coming out. It’s on a very fast track. Often, I take a
year and a half or two years to write these books, but my publisher said, “We want this one
yesterday.” So, we’re working very hard on it and will be announcing it soon. We’ll have an
Amazon page and all that stuff, but I’m working on it.
It’s on the pandemic and depression, the two topics I mentioned, and should be one of the first
books on the topic. When you do research, you think, “Well, how do you research a pandemic if
we’re in the middle of one?” The answer is, there’s a lot out there, but you have to go back to
I find that my day consists of waking up in the morning and writing as long as I can write. Usually
after two or three hours, my brain turns to Jell-O. I can’t do a lot more than that, but writing for
two or three hours on the pandemic. For relaxation, I’ll read a book on the pandemic of 1918,
and then I’ll go to bed and dream about pandemics. It’s sort of all-absorbing right now.
It’s a fascinating topic. I certainly don’t claim to be a virologist or epidemiologist, but I’ll point out
some things. Epidemiology is about half medical science and half math. I’m not a doctor, but I’m
pretty good at math. Once you establish a certain number of factors or make assumptions about
the inputs based on the best available information, it’s just super linear mathematics. I’m pretty
comfortable with that. Of course, when you get over to the depression side of it, public policy
and so forth, that’s what I do for a living, that’s what I do all the time.
I’ve read a lot of peer reviewed papers. I can’t raise my hand and say I have two degrees from
Johns Hopkins, so I think that makes me an honorary doctor even though I’m not one. But on a
serious note, the epidemiologists and virologists are saying to people like me and others, “Hey,
shut up. What do you know about virology or epidemiology? We’re in charge here.”
I say, “Well, fine. How come you’re dictating economic outcomes?” In other words, if you want
to say that an economist doesn’t understand epidemiology, I can raise my hand and say what
does an epidemiologist know about the economy?
The answer is what we call team science, people working together and sharing views. I think
we’ve fallen into a trap of letting the scientists dictate economic outcomes without enough
economic input,so I’m not shy about treading on their territory, because they’re treading all over
my territory. Indeed, America’s territory, which is, do we really need to shut this economy down
to the extent that we did?
There’s certainly room for mitigation, nobody really would argue with that. Why don’t we cool it
with the handshakes, there’s a time and place to wear a facemask, and social distancing in line is
not a bad idea. There’s stuff like that, but I’m very doubtful that we needed to go to the extremes
that we did.
Every time they say, “We’re saving lives,” I say, “Okay, you probably are, but you’re also costing
lives. Alcoholism, drug addiction, suicide, domestic violence, so-called deaths of despair.” Let’s
not discount that at all. When you add it all up, I think there are probably some better solutions.
The short answer is, I’m immersed in the research for this and working hard at writing. We’ll have
something for readers and listeners around mid-summer.
Alex: Outstanding. I’m looking forward to that.
You mentioned there’s a lot of talk about listening to the scientists and that type of thing.
Something that concerns me a great deal about that is that there was a time in human history
when the scientists were actually burning people alive for disagreeing with their views. I think we
need to be super careful about that, especially as it affects things like our freedom and liberty,
our ability to earn and feed our kids, and those kinds of things, which we’ll talk more about in a
Jim: I agree with that. It is good to listen to scientists. The problem is, even when you put the
fringe thinkers, the conspiracy theorists, and the people with bad intent to one side – and that’s
not always easy – filtering is an important part of it. You say, “Okay, I’m just going to read peer
reviewed scientific papers or even an interview or an article from someone who’s a well-regarded
epidemiologist” or whatever. What I find is that the scientists don’t agree. It’s not as if the
scientists are all saying one thing and you’re like, “You’re a dope if you don’t listen.” No, I’ve got
a stack of research on my desk here of one guy saying you have to wear a face mask, the other
guy saying they do absolutely no good, they’ll make you sicker because you’re recycling carbon
I’ve got two PhDs telling me opposite things. Yes, I’m all for listening to science, but you need to
kind of fish with a big net, so to speak.
Alex: Absolutely. It’s where discernment comes into play.
We’re three months into varying degrees of stay-at-home, and right now, despite stock markets
being pretty happy based on what the Fed’s doing of basically buying everything in sight, just this
morning there was another 2.4 million unemployment claims filed. This brings the total to over
38 million in just nine weeks.
Credit cards, auto loans, mortgages, and rents aren’t being paid. The media has been remarkably
quiet about how many small businesses are failing. I’d really like to know more about that.
Something I’m curious about is your view on what this looks like moving forward. I know we’re
in a massive sort of deflationary environment. We’re seeing food supply chains having problems.
What does the market psychology have to look like to lead to more inflation and possibly even
hyperinflation versus a massive deflation?
Jim: That’s a five-part question, so let me try to unpack it a little bit. The first thing I would say is
that there’s never been a time when the stock market was less reflective of the economy. Put
differently, the disjoint between what’s going on in the real economy and what’s going on in the
stock market has never been greater.
People say, “Come on, Jim. Don’t you know the stock market is a discounting mechanism? It looks
forward. Today’s stock price isn’t about today’s economy, it’s about where the economy is going
to be six months or even a year from now. It’s this great discounting mechanism, so get with the
I say, number one, I have a rather good idea of what the economy is going to look like six months
or a year from now. It’s going to look awful, so don’t lecture me about the discounting mechanism
of the stock market, because that’s not what the stock market is doing.
Number two, can we please bear in mind that the S&P 500 is a cap weighted index? The Dow
Jones is not. There’s a complicated formula behind the Dow Jones, so it’s a different story. But
the S&P 500 – which most institutions say is our benchmark, our bogey – is a cap weighted index.
This means the larger your market capitalization, the more weight you carry in that index.
It’s not as if they add up the prices of 500 stocks and divide by 500. That’s not what they do. They
take the market capitalization, which might have nothing to do with earnings or anything else.
The S&P 500 is really the S&P 5 or maybe the S&P 6. There are five or six companies. This isn’t
mysterious; we all know who they are. It’s Facebook, Amazon, Netflix, Apple, Google or so-called
Alphabet, and Microsoft. If you add up their market capitalization, they dominate that index.
Whatever they do, the S&P is going to do.
Firstly, don’t tell me that the stock market is discounting the future, because the stock market is
completely detached from the future. Secondly, the stock market is five or six companies. The
other 495 are just treading water or going down. Yes, there are some particular companies that
may be doing well such as Zoom and some pharmaceutical companies. That’s always true.
Why wouldn’t Facebook, Google, Amazon, Netflix, Apple, and Microsoft do well? They’re all
digital. Amazon has physical delivery, but they’ve got that pretty well sorted out. It’s online
execution followed by physical delivery. The rest of them are all online. Google doesn’t ship
anything to my house, it’s a search engine. It’s a lot more than that, it’s a big advertising platform,
of course, and it’s a bunch of other things.
But these companies have not suffered from working from home or from people in quarantine.
In fact, in a lot of ways, they’ve prospered. Should those stocks be going up? I don’t know, I’ll
leave it to investors, but maybe they should. Don’t confuse a cap weighted index where five or
six companies dominate the index and those companies are relatively unaffected by the
pandemic with the health of the stock market as a whole or the health of the economy. They’re
One more thing. I believe the correct number is 95%, but I’m certain it’s over 90% that all the
trading on the New York Stock Exchange is done by robots. When I say robots, I’m not talking
about order matching systems where I’m a seller, you’re a buyer, there’s a computer somewhere
that connects us, and you’re done. I’m not talking about that. That’s been around since the ‘90s.
I’m talking about a situation where the computer itself makes the decision. How does it make the
decision? You have algorithms. When were the algorithms written? Probably before the
pandemic. I wish everyone well, but some 27-year-old H-1B visa engineer in Silicon Valley has
never even been to the New York Stock Exchange, and they’re the ones writing these algorithms.
These haven’t been updated for the pandemic or the new depression, but they contain their basic
code, which is buy the dips and read headlines. So, they’re scanning all these headlines, and they
do have a buy the dips buy. When stock prices get low enough and somebody’s got some good
news, okay, buy them, bid them up.
And then the people with the 401(k)s, what are they doing? They’re not trading stocks; they’re
in index funds. They’re along for the ride. So, all this stuff is going up, and I’m looking at what you
mentioned earlier, 38 million unemployed. We’re talking about GDP in the second quarter. I get
100 emails a day from various research services. They’re only the good ones, because I don’t read
a lot of junk. Every time they update, they say it’s worse than we thought.
Second quarter GDP might be down – again, on an annualized basis – 40%. That’s $8 trillion of
annual output if you annualize it. Now, it’s only one quarter, so I don’t know, maybe it’ll be off
the bottom in the next quarter. But even if you divide by four, you’re talking about $1-$2 trillion
of lost output. You can’t tell me that’s not going to have repercussions that go well into the 2020s.
Alex: Just like we were talking about on our last podcast, these are next Great Depression
Alex: Talk to me about the psychology. What causes velocity of money to pick up? We talked
about this a lot in the past, and there are two schools of thought. One school of thought says
money creation leads to inflation, but I think you and I both agree that that sets the foundation
for that, but it won’t happen unless there’s velocity.
In your view, what has to happen psychologically? What are the things we want to be watching
for that will start to lead towards more inflation and then ultimately, if it does happen, some kind
of hyperinflation of the U.S. currency?
Jim: You put your finger on it. It’s psychology, but what kind of psychology? It’s the psychology
of expectations. Inflation will happen when enough people think inflation’s going to happen. I
understand that’s a circular argument, but that’s what recursive functions look like. That’s how
complexity theory works.
So, what’s the expectation today? The answer is deflation. No one’s expecting inflation. There
are a few Milton Friedman followers out there or a few monetarists, a few Neo-Keynesians, who
still think that printing money causes inflation.
I would first suggest that the last 12 years refutes that notion. The fact is printing money causes
inflation if velocity is constant. Yes, the quantity theory of money, if you hold velocity constant
and you expand the money supply at a rate that exceeds the potential real growth of the
economy, then the difference is going to be inflation.
The problem is velocity is not constant. This was Milton Friedman’s great mistake. In fairness,
through a lot of his career from the 1950s to the 1980s, velocity actually was constant. So, if that’s
what you observed and that was your assumption, then Friedman’s notion that inflation is a
monetary phenomenon would be correct except that the input is not correct.
Velocity started to crash in 1998. That’s an important point. This is not a 2008 phenomenon or a
2020 phenomenon. By the way, velocity did decline after 2008 and is declining right now, so I’m
not saying those events had no impact. They continue to drive velocity down, but the steep
decline started in 1998. And guess the other time when velocity crashed: the 1930s.
A blunder I see time and time again with analysts, Wall Streeters, trades, and programmers is,
“I’ve got a time series to do the correlations and regressions.” I’m like, “Yeah, fine. How long is
your time series?” “Oh, 20 years.” “Okay, why don’t you try 80 or 90 years and see what has
happened in the past facing these conditions?”
Velocity is just the turnover of money. Let’s say I have some money and I have a choice. I can put
it in the bank to sit and spend very little. That’s what I’m doing now; I’m not going out a lot. I take
a walk in the sun, but I haven’t been to many restaurants or bars or trips or airports in months.
So, I can put it in the bank or I can go spend it or I can invest it. Those are my choices.
What am I going to do? Well, it depends first on opportunity. Right now, it’s hard to spend money.
We’ve actually been trying to support some local merchants, caterers, and restaurants with
takeout meals just to try to help out a little bit, but you don’t have much opportunity to spend
Beyond that, and more importantly, what is my expectation for inflation? Well, it’s negative. I
expect deflation. What happens to money in deflation? The value of money goes up. You don’t
get much interest. It’s not like a dividend or interest, but the actual real value of money goes up
in deflation. So, what do people do in deflation? They save money, they save more, and you fall
into what Keynes called the liquidity trap.
How do you get out of the liquidity trap? You have to get people to spend that money. How do
you do that? You have to change their expectations, their psychology. Okay, how do you do that?
Central banks have shown that they don’t know how to do that. If printing $5 trillion and then
printing another $5 trillion – which is what they’re doing; the Fed balance sheet is going to cap
out based on what we know now at around probably $10 trillion – if that doesn’t do it and that’s
all you have in your bag of tricks – interest rates are zero and you’re going to print $10 trillion – if
that doesn’t cause inflation, which it won’t, then I would say you’re worthless. You can’t do what
you say you want to do.
This has been true for 12 years. The Fed’s been trying to get just 2% inflation for 12 years, and
they haven’t been able to do it. Well, how are you going to get 4%-5% inflation? That is what you
need to get out of this debt problem.
There is one way to do it, and only one way that I can see, which is, you have to raise the dollar
price of gold. That gets people’s attention. I’ve said before: If the Board of Governors of the
Federal Reserve System went into a room, closed the door, took a vote, walked out, and Jay
Powell walked up to the microphone and said, “Ladies and gentlemen, as of now, the price of
gold is $5000 an ounce. If you think that’s cheap, we’ll buy it from you and print the money, of
course. If you think that’s expensive, sorry. If you think it’s cheap, come and get it. We’ve got the
gold in Fort Knox. If you think it’s cheap, come and get it, and we’ll deliver the gold. If you think
it’s expensive, sell us the gold, we’ll buy it, and we’ll print money.”
The point is, if you make it a two-way market, your buyer $4995, your seller $5050, gold is $5000
an ounce in that example. The point of doing that would not be to enrich gold holders or owners,
and they don’t care. The point would be to change expectations, exactly what we’ve been talking
about, because the world of $5000 gold is also the world of $400 oil and $20 copper. And there’s
your inflation, because everything would go up.
This has been done twice, by President Roosevelt and President Nixon, so it works.
Alex: Yes, that’s what I was just going to say. This isn’t just theory; this has happened already.
Jim: It happened twice. Roosevelt did it on purpose, and Nixon did it by accident. The result both
times was that we got inflation. I was looking at the numbers. I was kind of familiar with them,
but I went back and checked. From 1933 to 1936 – the Great Depression is usually defined as
1929 to 1940 – in the middle of the Great Depression from ’33-’35, the stock market was going
up 20%-30% a year. One year was 5%, but it was booming.
It had gone down 90%, so when you’re down to 10%, even when you go up 30%, that’s only three
points. You haven’t made it back. It recovered the 1929 high in 1954, so it took 25 years to come
back. We could be looking at that kind of situation, but FDR devalued the dollar against gold not
to enrich gold holders. In fact, he confiscated all the gold first. He did it to change the psychology,
and it worked.
Alex: What could lead to a hyperinflation? Do you see any percentage chance of something like
that happening? What are the odds, and what would have to happen for that to occur?
Jim: I want to be very clear; I see deflation for now and deflation into next year. When I talk
about hyperinflation, don’t expect it to pop up next month. I certainly don’t; I expect deflation.
But you are going to have to get to inflation because of the debt burden. Our debt-to-GDP ratio
is catching up to Italy, and we’re probably not that far behind Lebanon and Greece at this point.
You’re not going to be able to borrow your way out of the problem. You’re not going to be able
to make the U.S. economy productive enough to pay off that debt or even sustain. You don’t
have to pay off the debt, but you do have to roll it over and sustain it, and we’re going to fail
those tests with the kind of productivity we’re capable of.
If you can’t borrow and spend your way out ,and if you can’t grow your way out, what else can
you do? You can inflate your way out, and that’s the American way. America’s been doing that
since the Revolutionary War. That’s what we do. We used to be pretty good at it, but that’s back
when we had gold, so we’re not good at it today.
I don’t know how long it’ll take the Fed to wake up. I’m telling you the answer, and if Jay Powell
were on this call, maybe it’d be nice to have a nice conversation. No central banker, no PhD
economist, nobody in a tenure position at MIT, Harvard, Yale or Chicago wants to talk about gold.
They just don’t. I know a lot of them. I’ve met Fed chairmen, vice chairmen, and governors. I’ve
met them all, and they don’t want to talk about gold. They don’t want to have the conversation
we’re having right now.
We talked earlier about having science on your side. I’ve got history on my side, which is that this
is the only way we’ve ever been able to get inflation. Now, here’s the point. Let’s say that they
do it. Let’s say that we’ve got to get the dollar price of gold up.
Remember, when the dollar price of gold goes up, gold isn’t really going up. What’s happening is
the dollar is devaluing. It takes you more dollars to get your ounce. I think of gold by weight. If it
takes you more dollars to get your ounce, well, that’s a nice win for someone who has gold. But
what you’re really doing is devaluing the dollar, which is inflationary. That’s the whole idea.
They’ll wake up eventually when the damage gets bad enough, but it’s just hard to say when.
Here’s the danger: You can segue from deflation to inflation pretty quickly by doing what I said,
which is getting the dollar price of gold up. But there is the danger that you shoot past the mark.
You’ve got to stick the landing. Six percent inflation would be fine. It would be very damaging to
a lot of investors, and those investors need to look out for that. That’s a separate issue, which is
what kind of portfolio would you have to prepare for this, but you start with gold.
Six percent inflation would wipe out the debt in about 12 years or less. It would cut the value of
the dollar in half. Twelve years is not long, and if you could cut the debt in half, nice job. The
problem is, you try to get to 6% and end up with 12%-14%, which we did see in the 1970s.
People forget that in 1977, the United States issued Swiss franc denominated bonds, because
nobody wanted dollars. They were called Carter bonds. You had U.S. treasury bonds
denominated in Swiss francs, because institutional investors said, “We trust the Swiss franc; we
don’t trust the dollar.” Then inflation peaked at around 15% in 1980. That’s when gold went to
$800 an ounce.
Yes, it’s hard enough to get inflation, although I just told you how to do it, but it might be even
more difficult to fine tune it in such a way that you don’t get into hyperinflation. So, you cannot
rule out hyperinflation.
Alex: So 15%, 1980, $800 an ounce. That was a pretty famous secular bull in gold, and we’re
talking almost a 25-fold increase from the ‘70s.
Jim: That’s right. Again, I’m sure you know this. Let’s say gold hit $2000 an ounce in the next few
months, which I think is entirely possible, maybe even likely. That would top the all-time dollar
price of gold, which was $1900 an ounce in August 2011.
Let’s say it goes to $2000 an ounce. In real terms, that’s less than January 1980. In nominal dollars,
yes, that’s an all-time high, nice going. But in nominal dollars, that $800 an ounce in 1980 looks
closer to $3000 an ounce. It’s going to get closer to $3000; it’s just got to get to $2000 first.
Alex: On to some more edgy topics. There’s been a big discussion lately about censorship,
suppression of discussion, commentary, and deplatforming people from things like YouTube,
Twitter, etc. Just this morning, there was a host on one of the main media outlets pushing to have
the President deplatformed from Twitter.
Jim: Mika Brzezinski?
Alex: I wasn’t going to name any names, but I’ll let you do that.
Jim: I will.
Alex: All right. At the risk of that happening to us, the whole censorship, deplatforming,
whatever, there are certain things that really need to be talked about. I want to ask you some
questions that I think lot of people are hesitant to talk about, but we’re going to do it.
This is my view, and maybe you can put it into your own words or what you think you see
happening here. I think that we’re seeing a polarization of the people. Not just in America, but
I’m talking globally. My view is that it’s not really about political parties but about how people
see the difference between freedom and not freedom.
In other words, some people seem okay with losing it, and others don’t. There are different
personalities, different levels of education and intellect on both sides of the argument, but I’m
seeing this happening more and more. Each side seems to consider the other side as naïve about
everything, maybe ignorant, dumb or whatever you want to fill in the blank with, and that the
other side is wrong.
What I want to know from you is, how do you view this? Do you see this as one side or the other
coming to their senses, or do you see it ending up in a much more difficult, challenging
Jim: I think the latter. First of all, I agree with your overview. There’s a lot more that could be
said, but as kind of a synopsis just to put a finer point on that, I mentioned I’m working on this
new book on the pandemic and the depression. Last fall, I was working on another book, and I
just put that on the shelf. I can’t deal with that right now because this other book is on a fast
track. I’ll come back to it.
Remember what the world looked like last fall before COVID-19, before this virus, before the
pandemic, before the depression. What was going on last September and October? You had riots
in Paris. Remember the yellow jackets. I’m not going to try to say it in French, because I’m not
good at it. There were riots in Barcelona that had to do with separatism. You had riots in Beirut,
kind of the Cedar Revolution 2.0, the secular society pushing back against the warlords,
Hezbollah, and others. You had riots in Santiago, Chile, because they raised the public
transportation fee 4 cents or something, and all of a sudden, they’re burning down every subway
and bus station in Santiago. Oh, and Hong Kong was maybe the biggest tinderbox of all.
I was stepping back and saying, wait a second; riots in Paris, Beirut, Barcelona, Santiago,
Hong Kong, and other places. As Stephen Stills wrote, “Something’s happening here.” There has
to be a thread. It can’t just be coincidence that ten major cities around the world, maybe more,
are rioting all at the same time.
I think it does go to what you’re talking about, which is liberty versus oppressive government and
income inequality. Taxes are a funny thing. They can put a tax on you, and you pay it. Put more
tax on you and you’ll pay it. But there comes a time when you’re like, you know, I’m out of here.
I don’t know what I have to do. Maybe you’ve got to move to Puerto Rico or drop off your
passport on the way out of town or whatever, but there’s a tipping point, a critical threshold, the
straw that breaks the camel’s back. Take whatever metaphor you like.
When you see riots about a four-cent transit fee increase, that’s the tipping point. It wasn’t about
the four cents. It was about 30 years of increasing taxation that finally pushed too far. That was
already there before these shutdowns arrived.
Behind every government bureaucrat is a neo fascist. There’s something in the human DNA that
just wants to tell other people what to do. I personally don’t have it. I have a missing gene. I have
enough trouble keeping myself pointed in the right direction, so I’m not big on telling other
people what to do, but a lot of people are.
When you have a crisis of this kind, the inner fascist comes out. The governors, the mayors, the
Center for Disease Control, the epidemiologists, their kind of inner fascist comes out. They’re not
limited to getting supplies where they’re needed, personal protective gear, ventilators – although
the ventilator thing turned out to be a fiasco that probably killed more people than it saved.
Masks, intensive care units, whatever it was, getting that stuff to people in need is a big deal.
That’s what leadership is about, and that’s what your executive position should be about. Let’s
get help to people who need it as fast as possible. There was a lot of wrestling about that.
Who was it, the governor of Michigan? Gretchen Whitmer. They love coming up with lists of
essential and nonessential businesses. In my opinion, if it’s your job, it’s essential. If it’s what you
do to put food on the table for your family, it’s essential. So, that’s an arbitrary distinction. She
decided they’ll shut down barber shops, hair salons, gyms, all that stuff, but she prohibited the
sale of paint and carpets. Why? It’s not like they’re using lead-based paint, it’s not like there are
noxious fumes, it’s not like carpets are going to spread coronavirus. If you’re working in my house,
come on in and work. It’s not like we’ve got 50 people watching a football game. Why paint and
carpets? The answer is, it’s the inner fascist. She can’t resist bossing people around.
We saw it with the hair salon owner in Dallas, Texas, who was arrested and sentenced to a week
in jail for cutting hair. Okay, you could have given her a $200 summons on what’s called a
violation. Violation is not a crime. When you get a speeding ticket, that’s actually not a crime.
Reckless driving is a crime. A speeding ticket is called a violation. You could have given her a $200
violation and said, mail it in, and she probably would have paid it. But no, they arrested her.
There was this Atilis Gym in New Jersey the other day where they were arresting customers. The
cops were waiting outside and handing out summons. They have to ask your name, and a guy
wouldn’t give his name. Why should he? Have you got a warrant? What’s this all about? Who
gave you the right to stop me on the street and demand my name? It’s like people trying to
escape Nazi Germany when they asked to see your papers. That’s what we’ve come to.
Not to belabor the subject, but this has empowered a lot of political leaders. Their inner fascist
is out, the neo fascist is out. They can’t wait to tell people what to do. And just to make it worse
– and I’ll leave it at this – there’s what I call the liberal progressive ratchet. You know what a
ratchet is. You turn it one way, but it doesn’t turn back. It doesn’t mean you can turn it more the
next minute, but it does mean it never goes back.
Someone said to me the other day, New York City is taking all these streets offline, city streets
are closed to traffic. They will never be reopened. When this thing is over, you’re going to find
that the mayor wanted to close those streets all along. All he needed was an excuse, so don’t
expect them ever to reopen.
That’s the problem with all of this. I can pick on Mayor de Blasio and the streets in New York, but
it’s true across the board. When they start issuing these orders, the virus diminishes, and it’s kind
of safe to go outside, but they’re not going to reverse the orders. Some of them, yes, but a lot of
them you’ll find that they were trying to do it all along. This was their excuse.
That’s the liberal progressive ratchet. I have studied the history of fascism, and you’ll find that it
came from progressives and socialists. Mussolini, who was the father of 20th century fascism,
said that his greatest inspiration was Woodrow Wilson.
Alex: Amazing. Two quick comments on this and we’ll move on to two more things before we’re
done here. For me, number one, the whole concept of allowing a politician to pick winners and
losers economically is extremely dangerous. Basically, what that means is this politician gets to
decide that this business gets to prosper, and this business gets to fail. These people get to feed
their kids, and these people do not. That is a very dangerous slippery slope.
The second thing that I find really interesting, because you know I have a background in the
military and a brief law enforcement background in the military as well, there is a video done by
a police officer talking about how certain actions by governors and also police officers are
violating constitutional rights of U.S. citizens.
I got really curious about this and looked it up. It’s USC Title 18 on the U.S. Department of Justice’s
website. USC Title 18, Section 242, basically says that any law enforcement officer, judge or public
official that denies or infringes on a U.S. citizen’s constitutional rights under color of law –
meaning the governor writes an executive order, they pass some kind of law or whatever that is
contrary to what a United States citizen’s rights are under the constitution – that’s actually a
Jim: That’s right, but the U.S. Code is a big document. You referred to Title 18, which is the U.S.
Criminal Code, and you’re right about that part of Title 18. But there are other titles in the United
States code that deal with national security, and they’re a lot scarier than the one you’ve just
read. I cover this in Chapters One and Two of my book, The Road to Ruin.
As a side note, I’m regularly active on Twitter and do a lot of public speaking and have been living
on Zoom lately, so I get a lot of questions and answers. One of the things I’m hearing a lot is that
my books, including Currency Wars which came out in 2011, are selling extremely well. Of course,
my publisher is thrilled, and I’m happy about it too, but it’s odd to see a ten-year-old book still
selling almost like a bestseller, not quite. People say, “Jim, I wish I’d read your book two or five
years ago.” Well, Aftermath came out in November 2019 and has only been out six months. Pick
it up and read it now. It tells you everything that has happened in the past six months.
I say, “First, thanks for buying the book. Second, it’s not too late. Maybe you would have been a
little bit ahead of the curve if you’d read it two or five years ago, but it’s not too late, because
this is going to get worse, and these trends are going to continue. It’s not too late to get into
some of the allocations we talked about.”
In my book, The Road to Ruin, that came out in 2016, the first two chapters talked about what
we’re talking about now. A lot of these laws were enacted, and some of them go back to the
Trading with the Enemy Act of 1917, but these laws were enacted in the 1950s as we were
preparing for a nuclear attack.
The question was, what would the United States do in the event of a nuclear attack? It’s called
COG, Continuity of Government. I have a friend who’s working on COE, Continuity of the
Economy. I’m sure we all wish we’d figured that one out a couple years ago. But with Continuity
of Government, they’ll land helicopters on the mall in front of the Capitol, members of congress
will come out to the helicopters, and they will be taken to either Raven Rock or Mount Weather
not too far away in Virginia. Raven Rock is kind of on the Pennsylvania-Maryland border not too
far from Camp David.
They have underground complexes there that can talk to each other and in theory run the
government. So, the government’s figured out how to take care of themselves, but they haven’t
really thought much about taking care of us. Abraham Lincoln declared martial law and
suspended habeas corpus, and that was constitutional, because we have a law that says you can
declare martial law and mobilize the National Guard.
Having said that, Alex, you make a particularly good point. I think the International Emergency
Economic Powers Act of 1977 makes the president a financial dictator in the event of a national
security issue, and I think we’ve got those galore.
The laws that exist that empower government officials to act in an emergency capacity in ways
that we would normally regard as dictatorial are already on the books. You don’t need Nancy
Pelosi or Mitch McConnell to pass these laws. They’re there, but they were done in preparation
for nuclear attack. Well, how about a pandemic? It’s maybe not too far removed.
These executive orders issued by the governors, to the extent that people have been able to
litigate them – and not everyone has the resources or the time – they’re winning almost every
time. I notice the governors are losing these cases in their own state courts. Wisconsin Supreme
Court overruled the governor’s shutdown, and the governor of Texas went the other way and
overruled a local judge who would imprison this lady who runs a salon.
Citizens are winning these cases for exactly the reason you mentioned, which is that the executive
authorities, which would be mayors and governors, are exceeding their authority. They’re just
doing stuff and making stuff up without legal authority. And the police who are executing these
orders are probably breaking the law. I’m sure they just think they’re doing their duty, but they’re
probably breaking the law when carrying out an unconstitutional order.
Alex: My perspective warrior code-wise is that the job of these people is to protect the citizens,
not to mess with people who are just going about their daily lives trying to do their thing.
Jim: I was wrestling with that. As I said, I’m writing this new book, and one of the things I included
in the introduction is that I can’t just write a book. Obviously, you can make money on a book,
but I asked myself, am I doing something that is exploiting the hardship of others?
I said the answer is no if two things are true. Number one, you have to offer advice and guidance
and help people. So, if the book helps people, then I’m very comfortable with that and I’m glad it
can do that.
But I’ve also put in a big thank you. I said there’s a lot of problems to go around, a lot of disaster,
but we have a lot of heroes. Doctors, nurses, emergency medical workers, attendees, people just
cleaning the streets or cleaning rooms, disinfecting, everyday citizens, the National Guard, the
Army Corps of Engineers that built a hospital in the Javits Center like overnight, and Franklin
Graham who put up a tent hospital in Central Park. A lot of heroes.
But I had to hesitate a little bit when I got to the police. I’m like, well, whose side are they on?
Are they doing what the Army Corps and Franklin Graham and many others are doing, or are they
the shock police?
I don’t know. You can’t generalize. I’m sure there are plenty of cops who are heroes, and you
have to say that, but it did make me think. I think both is the right answer.
Alex: I wanted to ask you about the upcoming 2020 presidential election, but we’re going to save
that for the next podcast, because there’s something else I want to hit really quick, and we’re
just about out of time.
There have been some mentions of reparations for China. There are some folks who believe that
China has some responsibility in terms of how damaging this pandemic has been, and there’s talk
of reparations. One theory is that it might take the route of cancelling their treasuries. I don’t
know if that’ll happen. I’d like to get your opinion on that.
The second thing is there’s also been some discussion of delisting Chinese companies on U.S.
Ultimately, the third part of this is, does this move us closer to war?
Jim: The answer is yes, yes, and yes. Let me break that down a little bit. First of all, there are
plenty of ways. You know as well as anyone the oldest joke in banking: If I owe you $1 million, I
have a problem, but if I owe you $1 billion, you have a problem, because you have to collect from
me. I can just default and sleep in tomorrow, and it’s your problem.
But what if I owe you $1.4 trillion? I’ve been dealing with this for over a decade. All these national
security forums saying, “China has us over a barrel, we owe them $1.4 trillion, they’ve got us by
the …” Whatever. It’s not true; the opposite is true. If I owe you $1.4 trillion, you’ve got a big
problem, because I’ll think about whether I want to pay you or not.
It is a great resource for the United States to compensate ourselves for Chinese damages. One
scenario would be you’d go into the good old federal district court with probably an 800-page
complaint, maybe a class action, maybe not, maybe there’s some other statutes. And you would
sue China for about, let’s say, $1.4 trillion.
Let me just pick a number out of the hat. The lost wealth is multiple trillions including how much
the stock market went down, the lost output – we’re into the multiple trillions. So, let’s just pick
a nice, round number of $1.4 trillion. You win the case, but now you have to collect. That’s always
the first thing lawyers learn. You might think, oh, you learn how to win a case. No, you learn how
to collect in case you win.
You just basically get a marshal or somebody to serve the Fed and say, “We’d like you to freeze
the Chinese account to pay us the $1.4 trillion they owe us.” Well, that’s technically not a default;
that’s a perfectly legal process. If they let China come in to defend themselves, let them hire
Covington & Burling or one of these deep state law firms, and defend themselves, maybe they’ll
win. But maybe the Plaintiff will win, and they’ll owe us $1.4 trillion.
At that point, you’re not defaulting on the bonds, you’re just collecting. You’re seizing an account
which, by the way, people always ask me what I think about cryptocurrency. I say I love them.
The dollar is the greatest digital cryptocurrency in the world, but the Fed and the Treasury keep
those ledgers. That’s one way to think about it.
Another thing – and the president could do this today with one phone call without litigation – you
could freeze the Chinese account. You don’t have to seize it. You could, but you don’t have to
take it. Just say, “Hey, China, they’re still your bonds, no worries. They’re accruing interest, and
we’ll keep close track of that. Oh, by the way, you can’t sell them until further notice. And we’d
like to see you on your best behavior.”
You could do that. That’s not a default or stealing their property. That’s freezing the account,
which we’ve done. The U.S. is exceptionally good at this. That’s how we got Bayer Aspirin in World
War I. We took it from Bayer AG because they were Germans, and we used the Trading with the
Enemy Act of 1917 to get ourselves an aspirin company. And we did it to Iran. We do it to people
So, it’s a bigger ticket, but you don’t have to steal the money. You take it. You could just freeze
it, hold it, and not let the Chinese have it until they shape up. People say, no, you can’t do that.
You’ll destroy the U.S. government securities market, you’ll destroy the credit of the United
I was general counsel and Chief Credit Officer at one of the largest government securities dealers
for ten years, so long before I stepped into the hedge fund world and a lot of other things, I spent
my life in the government bond market. So, I would say, wait a second. If the United States has
$22 trillion of debt – which we do – and you take $1.4 trillion away so you don’t have to pay that,
I like your credit better. I think you just improved your credit because you don’t have to pay as
People need to think hard about these things. I think the Chinese need to think hard about these
things. I’ve been to China quite a bit and met with everyday people, peasants, and government
officials. The everyday Chinese people are very nice. I love China, but the government officials
are evil, for want of a better world.
But you say, “Jim, don’t you have the smartest people, the greatest scholars, the greatest
resources and intelligence service? Can’t you figure this out?” The answer is no. They really have
a hard time figuring out Washington. I tell people that Americans have a hard time figuring out
Washington as well, so it’s not just the Chinese.
Things that may seem obvious to you and me are a lot less obvious to the Chinese. It’s not
because they’re dumb, it’s just because there’s a cultural outtrade where they can’t quite bridge
the gap. But if I were China, I would be trying to figure this out, because I think it’s real.
You asked, “Then can that lead to a shooting war?” That was the history of the 1920s and what
my first book, Currency Wars, was about. In the 1920s, you had a knockdown, drag out currency
war. By the 1930s, it had turned into a trade war and the Great Depression, and by 1939, Hitler
That sequence of first currency wars, then trade wars, then shooting wars has proved true in the
past. The currency wars started in 2010 and is what I talked about in my book. The trade wars –
pick a date. You could say January 2018 when Trump slapped tariffs on Chinese washing machines
and solar panels, and that got a lot worse.
And now, even that’s going on three years ago. Are we at the stage where a shooting war is on
the table? Well, the President and Secretary Pompeo sent congratulations to the new president
of Taiwan, and they were not treating her like a regional governor of a communist Chinese
providence. They were treating her like a head of state.
That’s the kind of thing that, combined with everything we’re talking about, could set the Chinese
off. I would say, if we did seize or freeze their $1.4 trillion of treasury bonds, which we may end
up doing, do they jump over the straits to Taiwan or do something crazy in the South China Sea
or crash into India? I don’t know, but I don’t think you can rule it out.
Alex: It’s been a great discussion today. I really appreciate it, as always. I know you’re in your
undisclosed location off the grid, so you take care of yourself out there.
Jim: I call it the corona-free mountain.
Alex: Excellent. Stay safe, and until next time, thanks a lot, Jim.
Jim: Thanks, Alex.
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