JIM RICKARDS: Here's How To Trade A World Of Currency Wars And Potential Collapse

James Rickards Spring 2013 1

Jim Rickards of JAC Capital Advisors and Currency Wars fame gave a presentation last week at Jim Grant’s Spring 2013 conference titled “Easing at the Zero Bound: Beyond QE & the ‘Foolproof Way’.”

Rickards is a prominent gold bull and has been tweeting a lot about the difference between physical and paper gold in light of the precious metal’s recent price collapse.

The presentation discusses Federal Reserve monetary policy and the future of the international monetary system.

Rickards lays out four options for the future – a world with multiple reserve currencies, a system based on IMF Special Drawing Rights, a new gold standard, and total collapse.

He also gives some trade ideas to play the uncertainty surrounding the future of the system.

We start with the quantity theory of money, which links the money supply to prices

The money supply has exploded since 2008 as the Federal Reserve has expanded its balance sheet through quantitative easing

Even though the money supply is expanding, the velocity of money is tanking

The Fed needs to figure out how to remedy falling money velocity

And it's already tried quite a bit

The Fed's models rely on an outdated view of financial markets

Markets are more like complex systems, which tend to move away from equilibrium, rather than toward it

And complexity and interconnectivity has increased considerably over time

There are a few different paths forward for the international monetary system

The first is a world of multiple reserve currencies, as opposed to just one (the U.S. dollar)

Another is a system revolving around IMF Special Drawing Rights

There's also a return to the gold standard

The United States holds the most gold in the world

Unless you count the euro zone as a single entity

The stock market is nowhere near a high in gold terms

Here are some trade ideas

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