Jim Rickards, author of the best-seller Currency Wars, sees the world's central banks embroiled in a "race to debase" their currencies in order to restore – at any cost – growth to their weakened economies.
In the midst of the fight, the U.S. Federal Reserve wields oversized
power due to the dollar's unique position as the global reserve
currency. As a result, actions by the Fed create huge percussive ripples
across the battlefield, often influencing events in ways little
understood by the players – and especially by the Fed itself.
In Rickards' words, the policymakers at the Fed "think they are
dialing a thermostat up and down, but they're actually playing with a
nuclear reactor – and they could melt the whole thing down": It will play out in all markets. When I say collapse, it is a loss of confidence in paper money.
Take the Fed, for example. The Fed has printed almost $3 trillion
since 2007. Now, that is without a liquidity crisis. I mean, we did have
a liquidity crisis in 2008. And the first round – I would say QE1 was a
legitimate central-bank response to liquidity crisis. But QE2 and QE3:
we will look back over them and we will see them as enormous blunders in
one of the greatest failed experiments in economic history.
But the problem is, the Fed printed trillions of dollars without a
liquidity crisis. What is going to happen when we do have a liquidity
crisis, which I expect in the next couple years, where there is a 2008
panic starting again? What are they going to do? Print $6 trillion? $9
trillion? There is a limit on what they can do. And so at some point, it
is going to get handed over to the IMF, and they are going to have to
print SDRs (special drawing rights). That is the IMF world money.
Because none of the central banks have clean balance sheets at this
point; they look like hedge funds.
And so it really is a loss of confidence. Confidence is the key word – a loss of confidence in paper money