![]() ![]() ![]() Where this boundary is no one knows, but as he says, it’s best no one finds out the hard way!Īddressing the idea of using fiscal policy to spend the US and other countries out of a recession by going further into debt, he cites research by professors Carmen Reinhart and Kenneth Rogoff, which shows that once a nation’s debt/GDP ratio passes the 90% level, the stimulative impact from additional debt is negative, with median growth rates falling by about 1%. There are some academics who see no problem with the Fed printing an unlimited amount of money, but Rickards believes this is flawed as there is an invisible confidence boundary beyond which everyday citizens will lose confidence in the Fed and the US dollar. So any QE4 plan would start from a higher base (almost R4trn) compared to R800 billion when QE1 was first initiated. And these, are now bubbles waiting to burst. In addition, he argues, the beneficial wealth effects of previous QE programmes never transpired into additional borrowing and consumption by consumers, only into higher asset values which have, in turn, translated into bond and equity market bubbles. A fourth round of quantitative easing (bond purchases, or QE4) would be another alternative tool to soften the blow of a recession however the Fed has not normalised its balance sheet, which has expanded from US$800bn to US$4.4trn by printing new money in previous rounds of QE. Meanwhile, at the beginning of 2019 the Fed Funds rate was 2.5%, so it is impossible to cut it by 3% to 5% to fend off another recession. Rickards contends that the Fed is not ready for the next recession, since, according to historic research it takes 300 to 500 basis points (3-5%) of interest rate cuts to pull the US economy out of recession. I will touch on the themes I consider to be most relevant today: the Fed, public debt and income inequality. Rickards contends that this crisis never really ended and that more is to come. There is a large focus on the “aftermath” of the 2008 Global Financial Crisis (GFC) and policy actions taken by central bankers to revive growth. Investors, therefore, should be primarily concerned with preserving their wealth in the years ahead. He believes that a US recession – even a global economic crisis – is coming and that the US Federal Reserve (Fed) will be powerless to fight it. In this, his latest forward-looking tome, Rickards holds quite a pessimistic view of what is likely to unfold from the current global economic conditions. He is the author of Currency Wars: The Making of the Next Global Crisis (2011) and five other books. ![]() The author, James Rickards, is an American lawyer, speaker, gold speculator, media commentator, author on financial topics, and precious metals expert. “Aftermath: Seven secrets of wealth preservation in the coming chaos” touches on many economic and geopolitical scenarios and themes, some undoubtedly unpleasant, but nevertheless makes for a fascinating read. ![]()
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