The Road To Ruin
Rickards’ Latest Book Predicts Financial Lockdown for Looming Crisis
In my opinion, The Road to Ruin is a book that everyone should read, no matter their interests. James Rickards is at his best as he foretells how the world’s elites will deal with the impending financial crisis, which he believes will hit us by 2018.
ICE NINE
The premise of Road to Ruin is to reveal a plan set out by the world’s elites to freeze the financial system in the face of crisis. No longer will the governments of the world turn to quantitative easing (QE), but will “ICE NINE,” as Rickards puts it, everyone’s financial assets, essentially locking down the world’s financial system. This will mean shutting down the stock exchanges, freezing bank accounts and controlling anything and everything financial in people’s lives.
The effects of QE weren’t felt by the average Joe, because most of the QE was filtered into America’s too big to fail companies, and mainly banks. A financial system lock down, however, will, without a doubt, be felt by everyone. Fortunes will be frozen in their trading accounts, unable to buy or sell. Bank accounts will be frozen, leaving us with a bare minimum in the way of available cash to buy food, if we are willing to line up and wait our turn at the ATM.
You may be thinking it will never happen, but unfortunately, as Rickards points out, this plan has already been executed, albeit on a smaller scale, in Cyprus in 2012.
Cyprus is the best example of this new way of dealing with a financial crisis, as the European Union was concerned about the contagion of the Cypriot crisis and, therefore, shut down their financial system. The residents of Cyprus had their bank accounts frozen, left to rely on a daily stipend that was plagued by massive lineups. Basically, most had to get by with whatever cash or tradable items they had in their possession.
Those with over $100,000 Euros on deposit with Laiki Bank and Bank of Cyprus were given a haircut of 10% on their deposits . This haircut is referred to as a ‘bail-in,’ and it was used to help re-capitalize the failed banks, reducing the cost to the rest of the European Union.
Economic Theory
Rickards’ points out, on numerous occasions, that the Federal Reserve and other central banks around the world are using wrong and outdated models to forecast the future of the world’s economy. Rickards states,
“General equilibrium models also suffer from fallacy of composition. Elites assume local equilibria can be aggregated into a larger equilibrium called the economy. This is like inferring the totality of human nature from a strand of DNA without ever meeting a human.” ~The Road to Ruin pg.210
Equilibrium systems do not have memory, and as Rickards points out, this is a major sticking point when using it for financial market modelling. To further explain his position, he uses a comparison of an economist using equilibrium theory and Ricardian principles (referring to David Ricardo’s, The Principles of Political Economy and Taxation) to examine markets, and the physicists of today using Newton’s theories to explain the universe when Einstein’s Theory of Relativity would do a much better job.
Interestingly, physics is a fantastic way to examine how complex subjects are examined. Newton’s theories came first and work well for the world that we live in, day to day, while Einstein’s Relativity works best on a grand scale, mainly space. Finally, Quantum Mechanics is best used to explain the quantum world, which wasn’t even considered during Newton’s days.
Parlaying this analogy to economics, I much prefer Rickards’ breakdown of financial tools, Complexity Theory, Behavioural Psychology, and Bayesian Statistics, as he uses a different method to look at each aspect of the financial markets, just as physicists do with their theories of nature.
The Cycles of Life and Financial Markets
Whether it is Kondratieff wave theory or William Strauss and Neil Howe’s (authors of The Fourth Turning) analysis of the cycles of generations, we are in a crisis period of world history, or ‘winter,’ so to speak. Winter periods are characteristic with major historical turning points; decisions made by the people in crisis will dictate how the next major generational cycle will take form. Fear will either drive us to a prosperous spring or lead us down a very dark path.
Rickards adds to this sentiment and points out,
“They wait for an exogenous shock, a natural disaster or financial crisis, then use fear created by shock to advance their vision. New policy is presented to mitigate the fear.” ~The Road to Ruin – pg.89
“Fear is contagious, like a virus” ~The Road to Ruin pg 295
In my mind, it’s clear that both the Canadian and American voting public have been affected by the turmoil of the last 8 years. As leaders, both Justin Trudeau and Donald Trump are better known for everything but a political background, which certainly speaks to the public’s desire for something ‘different’ in a political leader. The question that remains to be answered is whether the public have chosen wisely or emotion has once again skewed judgement.
Fascism
The Road to Ruin goes much further than I thought it would into the realm of government control over markets and people’s everyday lives. While most believe what we see today to be a further push toward socialism, Rickards states,
“Facism is not in our future, it is here now.” ~The Road to Ruin pg.256
Those who follow the ‘alternative media’ have been exposed to this line of thinking for more than a decade, with 9/11 truly being one of the most polarizing events this world has ever seen, on a number of levels.
What is fascism? Rickards summarizes Jonah Goldberg’s 2008 book, Liberal Fascism, when he says,
“fascist regimes may be quite unalike. Some are murderous such as those of Hitler and Stalin. Some are doctorial such as those of Mussolini and Franco. Some operate within democratic frameworks such as those of Wilson and FDR. What unites them is a shared view that the state is the exclusive mediator of human activity…action through state power” ~ The Road to Ruin pg.257
Over the last decade, whistle blowing on the activities of governments and elites has hit the mainstream, with Julian Assange and Edward Snowden becoming household names. My question is whether the claims by these people were really heard. With the picture that Rickards paints, I would tend to say that they have not been, or rather, the claims were heard but not fully understood.
Special Drawing Rights
How will the elites resolve the financial crisis once they freeze the system? Well, Rickards believes that they will institute more fiat currency, Special Drawing Rights (SDR). SDRs are controlled by the world’s central bank, the International Monetary Fund (IMF) and are backed by the world’s largest currencies; the American dollar, the Euro, the Japanese Yen, the British Sterling, and finally, its most recent member, the Chinese Yuang.
The Chinese have gained access to this privileged currency group with their massive accumulation of gold, over the last decade. China is the number 1 producer of gold in the world and the number one consumer, engulfing each ounce that it produces within its borders.
Rickards pointedly states:
“The elite agenda is to hoard gold and substitute special drawing rights as the currency of world trade and finance” ~The Road to Ruin – pg.59
If you want to know more about SDRs, I highly suggest reading Rickards’ previous books, Currency Wars and The Death of Money. These books take a much more in-depth look at the subject and are good reads.
Rickards’ Financial Toolkit
Rickards is one of the most trusted financial minds in the world and his rolodex is proof of how far his reach really is. The Road to Ruin is laced with commentary from the conversations he has had with some of the heaviest hitters in the American Financial world. Along with this commentary, Rickards reveals the financial toolkit that he uses to examine the state of the world’s financial system, which includes:
- Behaviour Psychology – The key to understanding behaviour psychology, according to Rickards, is to realize that human behaviour in financial markets is irrational and inefficient. For those interested in the topic of the irrational behaviour of humans, check out Dan Ariely’s Predictably Irrational; it’s a great read and a little scary if you apply what he says to your own life!
- Complexity Theory – Rickards explains Complexity theory using 4 main attributes: diversity, connectedness, interaction and adaption. A system which has these attributes is complex and, therefore, is much harder to predict or forecast than the equilibrium systems that most economists of today use to model capital markets.
- Casual Inference or Bayesian Statistics – Bayesian probability says that certain events are path dependent, or simply, they have memory. In a random process such as the tossing of a coin, the preceding coin toss does not affect what is going to happen with the next coin toss. In a complex system, such as the stock market, events occurring over the course of time have an effect on the buying and selling that occurs, making the possible outcome more or less likely.
In closing, The Road to Ruin covers a lot of important information that people need to be either reminded of or alerted to. The bottom line is that we live in a world in transition, where crisis and turmoil is more common than stability. I believe Rickards’ message is to be cognizant of the outcomes of a flawed financial system, the motivations behind the elites who control the governing bodies of the world, and finally, to prepare yourself and your family for the freezing of your financial assets.
“Society does not get endlessly richer and more sophisticated. Periodically things collapse. It is not the end of the world. It is the end of an age.” ~The Road to Ruin pg.297
Check out James Rickards’ new book, The Road to Ruin. You won’t be disappointed!
In Rickards’ conclusion to the book, he gives the reader a portfolio for weathering the impending storm. Now, I think it only fair to Rickards that you purchase the book to find out what’s in that portfolio. I will, however, review a few financial products that I believe will help those who want to prepare for the financial future that Rickards is predicting, over the course of the next month or so. Stay tuned!
If you enjoyed this article and don’t want to miss another financial product review or investment idea, become a Junior Stock Review VIP now, for FREE!
Until next time,
Brian Leni P.Eng
Founder – Junior Stock Review
