Aftermath

Guest Post by Mario Rotondo

I have followed Jim Rickards since I heard him speak at a Casey financial symposium ten years ago.  That was followed by a debate between him and Harry Dent.  Rickards argued for $10,000 gold (more on this later).  Dent predicted gold well under $1,000.  Rickards is doubling down on his prediction and in his new book ‘Aftermath’ claiming that we shall soon see who was right.

This newest book is the last in a quartet.  The others; Currency Wars, The Death of Money and The Road to Ruin were sequels.  Aftermath closes the books on America’s debt based economic empire and it’s a deeply troubling read.  In fact Rickards compares these four editions to the four Four Horsemen of the Apocalypse in the Book of Revelation, not only as a metaphor but in fact, identifying each of the four.  It’s a daunting analysis.  I thought it was so important a message from such a credible source that my brothers and sisters on TBP would find it worth hearing.

This book is full of intriguing vignettes and loaded with valuable insights and investment suggestions so condensing it cogently presents a challenge, especially considering that my last book report was 50 years ago.  Before I screw anything up let me say: Read this book.

Central banks going back to 2008 have struggled unsuccessfully to restart the economy.  They instituted Zero Interest Rate Policy for seven years.  The Bernanke/Yellen team created 4 trillion dollars in a completely unprecedented money printing binge called Quantitative Easing (QE). QE had three parts ending in 2014 and increasing the money supply from $800 billion to 4.5 trillion.  That money sat idle as people were saving, reducing their debt and corporations were rebuilding their balance sheets.  That reduced monetary velocity had absorbed the inflationary effect of all that money printing.

That excess money now sits like kindling waiting for a spark to ignite inflation.  Inflation is, according to Rickards, primarily a psychological phenomenon.  The debt delusion can continue for only as long as there is confidence in the dollar.  Confidence in the dollar (and government, I proffer) is a constant focus throughout the book. Once that confidence is lost there is monetary and societal Hell to pay.  This is the first  chapter in the book.  It’s title is: No Way Home.

The chapter entitled ‘A House in the Langley Woods’ is about his experience with the CIA.  He takes the reader through what it’s like to enter the main facility, the internal vibe of those employed there and how compartmentalization works where separate teams work autonomously on projects so that none of the participants knows the objectives of the larger plan-or plot.  Rickards has worked with the CIA on several projects including mock economic warfare attacks from belligerent nations and studying markets for signs of a pending terrorist attack.  It was begun after U.S. airline stock futures tanked just before the 9/11 attacks.

Another such effort was his participation in an intelligence program called the Committee on Foreign Investment in the United States; CFIUS (siff-e-ous).  It was a committee comprised of the highest officers in the government including the Secretaries of State, Defence, Energy, Homeland Security and the Attorney General.  Their job was to pass on pending sales of U. S. financial transactions by foreign governments.   It would, for example, never allow the Russian government to buy the CBOE nor companies associated with national defense.

It was started after the 2006 attempt by the UAE to buy American ports.  That provoked a political firestorm the state did not want repeated.  He then tells the story of a Canadian investor who was a minor player in Canadian mining companies.  He sought to greatly enhance his holdings by meeting with the dictator of Kazakhstan in order to corner more of the uranium market.  He hired Bill Clinton to blaze a trail.  What follows is a byzantine series of transactions which pull off the deal, eventually swallowing up a significant portion of American uranium production.

It’s new name became Uranium One.  Rickards explains how although other officers on the Siffeous committee wielded power depending on the subject, in this case the Secretary of State held the ace card.  It was Hillary Clinton.  The transaction was approved, although it was exactly the sort the committee was created to strike down; the sale of sensitive resources to a belligerent nation: Russia.  Rickards plainly states that the deal went through because Barack Obama and Hillary Clinton wanted it to go through.

It completely bypassed the committee on a subterranean parallel track within the intelligence community.  The deal generated hundreds of millions of dollars for the Clintons (and their compatriots one assumes).  CIA head James Clapper ushered the deal past the Siffeous committee.  It truly was an “inside job” identified so by an insider in the front row.

This temerity of this caper stunned me.  Even after a lifetime of governmental distrust and contempt, this naked racketeering left me shaken.  What fool could imagine that this was a one-off event?  More likely it is standard operating procedure by high government officials and the intelligence ‘community’ (only government could weaponize a lovely sentiment like community).

Contemplate the ramifications. Bringing drugs by the trainload into the U.S.?  The insurance pay-offs of the fallen towers in New York?  The financing of Google, Facebook and other tech companies that are now strangling freedoms around the world?   Peak oil?  And it’s all there for everyone to see.  Remember this when some politician tells you in some righteous tone “no one is above the law”.  Bullshit.

In a chapter entitled ‘The Point of No Return’ Rickards explains that the debt to GNP ratio has now been stretched to the breaking point.  Central bankers are betting on unlimited confidence in the dollar discounting the effects of debt.  Rickards claims this is their Achilles heel.  Confidence can be lost ‘instantaneously’ once a critical threshold is met.  In the physical world this is known as a “phase transition”.  It represents that tipping point when enough people sense that inflation is inevitable and seek to exchange dollars for tangibles; hard assets, property, fine art, gold, etc.

A debt to GDP ratio of 60% is considered healthy.  But spending by pandering politicians from Reagan on started a never ending spiral to a 105% ratio presently.  If you add in the contingent liabilities-37 trillion dollars (social security, medicare, veteran benefits and pensions, etc.) the debt ratio would be over 1,000%.  Once confidence is lost it is nearly impossible to regain.  He gives reasons to suspect that we now stand on that precipice.  He is a student of Ernest Hemmingway and uses his line about bankruptcy as instructive to where we are: he went bankrupt “gradually then suddenly”.  Clearly Rickards senses that we are at the ‘suddenly’ phase.

Richards lists seven ‘Investment Secrets’.  In fairness to the author and in the interest of time I’ll pass on explaining each one.  He advises a healthy portion of your investable funds be in cash so you can buy up depressed assets after the crash.  The crucial investment that even a casual Rickards reader has heard him tout again and again is gold.  He again restates his target of $10,000 per ounce.  It’s a figure he comes to by mathematical calculation.  He suggests a physical gold investment of 10% of one’s total wealth minus home equity, business equity and sources of income.

He sites one of the titans of finance to make his case for gold: J P Morgan.  In the course of his testimony before Congress in 1912 Morgan made what Rickards calls the most profound and lasting statement in the history of finance:

Question:  The control of credit involves the control of money, does it not?

Morgan:  The control of credit?  No.

Question:  But the basis of banking is credit, is it not?

Morgan:  Not always.  That is evidence of banking but it is not the money itself.  Money is gold and nothing else.

There is so much more I’d like to hit on but time forbids.  Here are some tidbits to whet your appetite:

• Unbeknownst to their customers every hedge manager he knows has significant holdings in physical gold.
• Why Jerry Ford will be seen as a very good president one day.
• What Godzilla teaches us.
• China is Madoff
• Expect an expanding trade war with China
• The fragility of complex systems
• The student loan debt is larger than the ‘08’ mortgage debt by a multiple
• The doomsday clock

He ends the book examining the worse case scenario and it is apocalyptic.  It’s not only the financial order in question but the societal order as well.  I type these words one day after 2 massacres happened 13 hours apart in Texas and Ohio by psychos from opposites sides of the political spectrum.  He imagines a power grid breakdown; a Fukushima like event.  Perhaps rogue elements crash the world wide web. There are plenty enough black swans circling overhead to strike fear in the heart of any sober realist.  He notes that It takes only 3 days for a breakdown of society.  Consider the Katrina storm in New Orleans.  Day one the storm hits.  Day two the store shelves empty.  Day three there is chaos in the streets.

The Mandibles is a novel based on Rickards writings.  It’s about how a family copes with daily life after such a breakdown.  It’s next on my reading list.  Maybe I’ll submit another report on that book as well.  In the meanwhile: Read Aftermath.

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