James Rickards Warns Weak Dollar Vulnerable to Collapse

In this excerpt from his book The Death of Money, James Rickards delves into closed-door U.S. Department of Defense talks regarding the dollar’s stability.

Institutional Investor

April 28, 2014

Introduction to book excerpt by Robert Stowe England

With the story of the California teenage stowaway who flew to Hawaii April 20 via a jet’s wheel well, cable news pundits have bantered plenty about perceived weaknesses in airport screening procedures. But rather than the shortcomings in full-body scanners that leave nothing to the imagination, the Achilles’ heel of U.S. security may instead be something dispensed every day at airport foreign exchange kiosks the world over. The U.S. dollar, despite a very modest rebound from its 2011 low against other major currencies, has remained weak for several years. If the dollar, the world’s leading reserve currency, were to fall, it could bring down the global monetary system.

That warning is the key theme of The Death of Money: The Coming Collapse of the International Monetary System, the latest book by market strategist James Rickards, published by Penguin imprint Portfolio. Rickards has more than 35 years of experience in finance. Presently he is a portfolio manager at West Shore Group, a Haddonfield, New Jersey–based investment fund firm set up in 2013; senior managing director at Tangent Capital, a New York–headquartered merchant bank that provides services to managers of alternative assets; and an adviser to the U.S. intelligence community on international economic and financial threats. In 1998, as general counsel of Greenwich, Connecticut–based Long-Term Capital Management, he was the chief negotiator for the highly leveraged hedge fund firm during its $3.6 billion bailout by a consortium of 14 Wall Street banks and supervised by the U.S. Federal Reserve of New York after suffering $4.6 billion in losses.

“The system is actually reaching criticality,” Rickards says in an interview with Institutional Investor. By that, he means that a variety of factors threaten the role of the dollar as the world’s leading reserve currency, including persistent dollar weakness against other currencies, the inability of the U.S. to grow sufficiently to prevent its debt levels from rising as a proportion of gross domestic product and the building of gold reserves in China and Russia. Meanwhile, banks are loading up on what Rickards views as dangerous derivatives, subjecting the global financial system to an increasing level of hidden risk. Rickards says that instead of focusing on what he calls a “failure of imagination” on the part of the Treasury and the Fed, U.S. officials need to institute a plan to move forward with a new international monetary regime.

Book Excerpt Begins Here:

One purpose of war is to degrade the enemy’s will and economic capacity. Surprising as it may sound, wealth destruction through a market attack can be more effective than sinking enemy ships, when it comes to disabling an opponent. Financial war is the future of warfare, and no one works harder to see the future than senior Defense Department official Andy Marshall.

Seated at a table in a secure Pentagon conference room on a rainy fall morning in September 2012, Marshall moved forward in his chair. Around the table were three prominent investment managers, three SEC officials and several think-tank experts, along with members of Marshall’s staff. Our carefully selected group was there to discuss financial war.

“That’s interesting,” Marshall said. What prompted his comment, after an hour of complete silence on his part, was our discussion of China’s stockpiling of gold and its possible use as a financial weapon in undermining the dollar’s exchange value.

Andy Marshall is called “Mr. Marshall” even by associates as a sign of respect, and at 92 years of age, he has earned the deference. His official title is Director of the Office of Net Assessment in the Office of the Secretary of Defense. Unofficially he is the Pentagon’s chief futurist, the man responsible for looking over the horizon and assessing threats to U.S. national security long before others even know they exist. Marshall has held this position since 1973, through eight presidential administrations.

Read more here.

 

 

Robert Stowe England is an author and financial journalist who has specialized in writing about financial institutions, financial markets, retirement income issues, and the financial impact of population aging.

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