The Death of Money

By James Rickards

Disclaimer: To really make this a worthwhile read, I’d recommend that you first check out Guide to Investing in Gold and Silver, by Mike Maloney, as it provides the background or monetary system history that’s missing from Rickards’ book. Without some understanding of how the system works and has been working for the last 15 or so years, you’re going to miss the value in Rickards’ arguments or just find yourself totally lost. On To the Review…

Written in 2014, The Death of Money follows up where Rickards left off in his previous book, Currency Wars. He cites his experience working with the US government and federal agencies like the FBI and CIA to support his outlook for the future of the US dollar and its place in the global economy.

Truly, this book could be called, The Impending Lack of Confidence in the US Dollar, or something to that effect, because the ‘death of money’ and the coming collapse of the international monetary system is directly connected to the fate of the greenback.

Financial Warfare

Rickards uses examples of events from the last century to support his view that it’s only a matter of time before people lose confidence in the dollar. He starts by describing his involvement with Project Prophesy and the CIA and FBI, arguably the government’s two most important security agencies.

Prophesy was started after 9/11, in direct response to the pre-September 11th shorting of American Airlines and United Airlines. Millions of dollars were made by a bunch of short sellers who seemingly had the ability to see into the future, making massive bets on the demise of these companies. Rickards’ experience working with some of the largest banking organizations in America made him an obvious choice to work on a team that created a system to identify short-selling trends.

It’s not only terrorists that use the financial system to wreak havoc on targeted nations, however, as seemingly innocent countries partake in financial warfare, too. As Rickards explains,

the US also placed financial sanctions on Syria, actions that caused the Syrian pound to plummet 66% against the US dollar, in the course of just one year (July 2012 to July 2013). When combined with levels of inflation that rose as high as 200%, the Syrian government had no choice but to do business in their allies’ currencies (Rickards, 57).

This is just one example of the power of financial warfare and why it’s been such a popular and effective tactic throughout the ages. With the integration of the modern day global economy, it’s just that much easier to wage war in the financial markets. In the future, wars will start in cyberspace and systems such as the one created by Project Prophesy will be a country’s first line of defense.

Financial warfare is a commonly known threat, within the G20 and some of the other developing nations. However, it may be most prevalent within the BRICS nations: Brazil, Russia, India, China, and the newly added South Africa. These countries recognize their vulnerability to the US dollar and have taken enormous steps to insulate themselves against this massive umbrella, by creating their own BRICS nations banking system where trade can take place without the participation of the greenback.

The Eurozone

Rickards believes the Euro will play a major role in the future of the global economy, as their policies better reflect good economics. Specifically, the European Central Bank’s (ECB) belief that savings and trade are the best routes to growth, versus the Federal Reserve’s (Fed) borrowing and consumption model.
Coming out of their sovereign debt crisis of 2010 to 2011, the ECB’s plan for growth was detailed in the Berlin Consensus, which consisted of the following seven pillars*:

• Promotion of exports through innovation and technology
• Low corporate tax rates (most American Fortune 500 companies have bank accounts in Ireland)
• Low Inflation
• Investment in productive infrastructure (Gotthard Base Tunnel in Switzerland, for instance)
• Cooperative labour-management relations
• Globally competitive unit labour costs and labour mobility
• Positive business climate

(* Rickards, 121)

While Rickards says that both the EU and the US have been able to keep inflation rates low in recent years, Europe has done it without having to print anywhere near the same amount of money. He says that,

going forward, they have a lower potential for inflation than the States, as well. China, on the other hand, struggles with inflation because they continue to try to match the Federal Reserve’s printing of the dollar with their Yuan (Rickards, 122).

Rickards believes that this reality will draw more future investment and thus strengthen the Euro against its competitors, sealing it as a pillar within the global monetary system and its future with the Special Drawing Rights (SDR or World currency), which is controlled by the International Monetary Fund (IMF). The strength of the EU is further supported by Robert Mundell, who wrote about a single currency area in his 1961 article, A Theory of Optimum Currency Areas:

“In a currency area compromising many regions and single currency, the pace of inflation is set by the willingness of central authorities to allow unemployment in deficit regions…Unemployment could be avoided…if central banks agreed that the burden of international adjustment should fall on surplus countries , which would then inflate until employment in deficit countries is eliminated…a currency area…cannot prevent both unemployment and inflation among its members” (Mundell, The Death of Money, 125).

Rickards explains Mundell’s comments in context of the EU. To put it simply, he says that if capital from a wealthy nation shifted to a poor country, or some of the unemployed people in a poor country moved to a country where there was more capital, the unemployment problem could be solved without inflation (Rickards, 125).

This is a very effective explanation of Mundell’s comments and one that can’t be ignored when evaluating the EU’s place in the global economy.

The International Monetary Fund, at a Glance

As Rickards briefly describes in the Eurozone discussion, the International Monetary Fund (IMF), created at the 1944 Bretton Woods Conference (in the US), will play a major role in handling the collapse of the international monetary system. The IMF controls the distribution of what could be considered ‘world currency,’ the Special Drawing Rights (SDR). SDRs are made up of, or backed by, the 4 major currencies in the world: US Dollar, Japanese Yen, British Pound Sterling and the Euro. I found this section of the book particularly fascinating, as I had very little knowledge of the interworking of the IMF and the role it plays in the global economy. This section alone makes the book worth reading, in my opinion.

A lack of confidence in the US dollar will have a devastating effect on the global economy and will severely handicap the IMF’s ability to manipulate the markets in response to this crisis. Rickards believes that the answer is adopting the Chinese Yuan into the SDR basket.

Over the last 5 years, the course of action taken by the Chinese would indicate their inclusion in the SDR basket is exactly what they’re trying to achieve. As they continue to be both the largest producer of gold ounces and the largest consumer, they consume all domestic ounces produced and import ounces through the Shanghai Gold Exchange. The imported ounces are bought by government sovereign wealth funds and delivered to vaults within Shanghai. Sporadically, the Chinese have released updates on their gold holdings. Most recently, they have raised their official gold holding to around 1600 tons, which most believe is drastically understated from their actual position. This makes sense because they’ve continued to buy gold even throughout this very depressed gold market.

Rickards’ Conclusion

Rickards states:

Whether the loss of confidence in the dollar results from external threats or internal neglect, investors should ask two questions: What comes next and how can wealth be preserved in the transition?
“The dollar’s demise will take one of three paths. The first is world money, the SDR; the second is a gold standard; and the third is social disorder. Each of these outcomes can be foreseen, and each presents an asset-allocation strategy best able to preserve wealth” (Rickards, 292).

There is no way to tell which of these paths the dollar will take; you definitely need to arm yourself with the knowledge from this book and delve more deeply into these scenarios on your own.

Rickards goes on to give seven signs of warning that an unravelling is near*:
• The price of gold – rapid movements in the price, beyond the very typical 100 to 200 dollar swings
• Gold’s continued acquisition by central banks
• IMF governance reforms – Larger voting rights given to China and/or the inclusion of the Chinese Yuan into the SDR basket of currencies
• The failure of regulatory reform
• System Crashes- Repeats of the flash crash seen on May 6, 2010
• The end of QE and Abenomics – QE is over, for now, with the Fed raising rates in December 2015
• A Chinese Collapse – Started January 2016

(*Rickards, 295)

Takeaways – Rickards’ Investment Advice

The book ends with some really valuable investment advice that can be put into action, should it jive with your overall investment style:

• Gold – 10 to 20% of total investible assets
• Land
• Fine Art
• Alternative Funds
• Cash – A crash will deflate the market, cash allows you to buy low

~(Rickards, 298)

My Take on The Death of Money

I feel this book is a must-read for anyone interested in preserving their wealth, and unless you’re a billionaire that likes to piss away their money, I’m guessing that goes for pretty much everyone. That said, there were some parts of the book that I found a bit tedious, but you can use my review as your guide to identifying the sections where there’s real value to be gleaned, because all and all, it has some of the best and most current information out there. Pick up a copy and dive in!
Until next time,

Brian