“Imagine a car driving down an icy road late at night. The road is windy and the car hits a patch of ice and begins to spin out,” Jim Rickards opens to a room of Mays Business School finance students.
“Now imagine taking a picture of the car while it spins out. Nothing seems wrong when you only look at the photo,” he continues. “That’s how policy makers are looking at our economy. They see the snapshot and claim “nothing is wrong’â€”maybe a dent or small scratch on the car. But we all know that the trajectory of the car is headed for disaster.”
Economist and author Jim Rickards recently offered students, faculty and guests at Mays an analysis of the nation’s current financial situation and some possible outcomes in the future. (view more photos)
Rickards is a nationally renowned economist, lawyer and investment banker. A frequent guest on CNBC, Bloomberg TV and other top business shows, he is “one of today’s leading experts in national economic security and monetary policy,” finance department head Sorin Sorescu says in an email to Mays colleagues. Rickards currently holds the position of senior managing director at Tangent Capital in New York City and also advises high-ranking officials in the U.S. and abroad on financial issues.
Rickards’ recent book, Currency Wars, examines the interaction between macroeconomics and national security. It offers a pragmatic analysis of our nation’s current financial situation, as well as what the road ahead might look like.
Famous for his predictions of the Federal Reserve’s major moves (including “Operation Twist 2” and the collapse of the Lehman Brothers), Rickards told students, “When you have the right analytical method, your ability to look over the horizon is greatly increased.” He emphasizes that learning the “warning signs” is extremely valuable knowledge.
The framework for Rickards’ analytical method is derived from his extensive historical knowledge.
Currency Wars, which he defines as “the devaluation of one country’s currency against that of another in order to increase exports and economic growth,” are seen throughout history. According to Rickards, the world saw its first currency war from 1921 to 1936, when the end of World War I brought massive war reparations for Germany (who “turned their currency to litter,” he says). The period of 1967-1987 marked another currency war, as the U.S. abandoned the gold standard and entered into a debt crisis shortly after.
Rickards argues that the world is currently facing its third currency war. He puts the problem simply: “Too much debt, not enough growth.” Drawing from the Keynesian formula (consumption + investment + government spending + exports — imports = gross domestic product), Rickards explains that “government spending is not the engine it once was,” primarily due to the massive devaluation of currency.
He offers four potential outcomes for the current crisis: multiple reserve currencies, a new currency called SDR controlled by a central bank, a return to the gold standard and lastly, chaos.
“The Fed thinks they’re playing with a thermostat when it comes to the economy,” Rickards says. “When it gets a little warm, they make small tweaks to “fix’ the problem â€¦ they need to realize they’re really playing with a nuclear reactor. One wrong tweak and the planet will be melting.”
Finance major Travis Crawford ’13 says, “Rickards brought to light aspects of the financial world that are rarely looked upon.” He adds that Rickards’ lecture “presented interesting aspects and valuable insight of currency devaluation and how it affects the current financial situation.”
Categories: Executive Speakers