That is the not-so-subtle subtitle of Jim Rickards' bestselling
book, "The Death of Money". As you might gather, the portfolio
manager at investment-management firm West Shore Group doesn't
foresee a smooth ride ahead for investors. Think 2008, but worse.
Reuters sat down with Rickards recently, to chat about how much we
should be trusting the numbers in our bank accounts.
Q: Most people assume that the money in their wallets is safe and
secure. But is it really?
A: No, for two reasons. First, as we saw in the 1970s when we had a
period of high inflation, the dollar's value was cut in half in only
five years. So that can happen very, very quickly.
The second vulnerability is that the dollar is actually a digital
currency. People look at Bitcoin and call it that, but so is the
dollar. An overwhelming percentage of transactions these days are
digital, starting with the trillions of dollars in the Treasury
market. The last time people had actual paper bonds in safe deposit
boxes was in the 1970s.
In the old days, the government had ways of shutting things down
entirely in times of crisis, like arranging bank holidays or closing
stock exchanges. With a digital currency, we could all be very
vulnerable during the next financial panic.
Q: Your book is called "The Death of Money". What does that mean to
A: What that means is a potential loss of confidence. There is
always going to be some kind of money in the world, whether it is
clamshells or Bitcoins. Anything can be money as long as people have
confidence in it. But the minute that confidence is lost, it ceases
to function as money.
And once it is lost, it is very difficult to regain. Money is money
up until the moment it isn't. So the real question is, what dynamics
are at play that could cause people to lose confidence in the
dollar? That's why when the Federal Reserve is printing money in
order to stimulate the economy, it is playing a dangerous game.
Q: What kind of time frame are we looking at, for a potential loss
of confidence in the dollar?
A: A lot of people are focused on the single snowflake that causes
the avalanche. They want to know when it's going to happen and what
it's going to look like. Of course, I don't know that any more than
anybody else. But what you can be certain of, is that there is going
to be an avalanche.
Another good metaphor is the earthquake. The other day I stood on
the San Andreas Fault, and nothing was moving. That doesn't mean
everything is stable; it is just a matter of time. That is what I
believe about the financial system. I would say it is a matter of a
couple of years [until a major crisis], not 10 years or more.
[to top of second column]
Q: And what will be the size of the next crisis, in your opinion?
A: The next financial panic will be the largest in history. I was
involved in the Long-Term Capital Management affair, as a general
counsel - and even then, we were hours away from taking down every
market in the world. That time, Wall Street bailed out a hedge fund.
Fast forward to 2008, and this time it was the Feds who bailed out
Wall Street. Each bailout is bigger than the last. When the next
panic happens, it will be bigger than the Fed. And then what are we
going to do? Just keep printing trillions of dollars?
Q: So what should individual investors do, as a result?
A: I would
advise that people look at what Warren Buffett is doing. For one of
his most recent deals, he went out and bought a railroad - a hard
asset that makes money moving other hard assets, like coal and
Of course, individual investors can't go out and buy railroads, but
they can invest in the same spirit, and look at hard assets. You can
buy gold, maybe with a 10 percent portfolio allocation, which will
give you some protection. You can buy land, or fine art, or stocks
with a focus on energy, transportation, natural resources, water and
agriculture. A portfolio like that will help preserve your wealth in
this current climate.
Q: Where might the next panic begin?
A: It could begin in a lot of different places. But one place to
keep a close eye on is China, which is on the verge of a major
credit collapse. That could be the one snowflake that starts the
(Follow us @ReutersMoney or at http://www.reuters.com/finance/personal-finance
Editing by Lauren Young and Andrew Hay)
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