Jim Rickards: Money Printing Leading To Deflation?

The pop you heard was the head of Gold bugs all over the world. Jim Rickards, noted gold bug and proverbial bull, levied a major one on all his followers.

Tell me if you heard this before: all the money printing is going to lead to hyperinflation.

Welcome to the world of Keynesian economics.

Nevertheless, as I have stated on a number of occasions, it is not inflation that is the problem. Get real, if the Fed and other central banks were getting inflation, they would not be printing so hard. The reason they churned the presses up is because of deflation.

This is what Rickaards had to say:

“Let’s say I go out to dinner and I tip the waitress. The waitress takes a taxi home, and she tips the taxi driver. The taxi driver takes the tip money and puts gas in his car. In that example, my $1 tip had a velocity of three: the waitress tip, the taxi tip and the gasoline. So, my $1 produces a velocity of three. My $1 produces $3 of goods and services. That’s velocity, but what if I stay home, don’t go out and don’t spend any money? In that case, my money has a velocity of zero. $7 trillion times zero is zero. If you don’t have velocity, you don’t have an economy. The $7 trillion is the base money supply, and that could be $8 trillion or $9 trillion . . . and that by itself does not produce inflation. What you need is turnover, and we are not getting that.”

What Rickards fails to mention is that this is nothing new. All those years touting inflation, what happened.

Here is the velocity of money for the last 40 years.

The velocity of money is now at 1 for the United States. To make matters worse, the U.S. is better than all the other major currencies who are below 1.

He goes onto to say:

Rickards says, “Initially, the problem right now is deflation and not inflation, but deflation. There is too much debt. Growth is too slow, and the psychology is wrong because people are saving and not spending.”

Imagine that will you? How could that be possible? We are told money printing leads to hyper-inflation. Yet here is one of the most noted Gold advocates saying there is deflation.

At least he got something right.

Sadly, he then gets unhinged. Here is his forecast.

Gold is going to $15,000 per ounce, and by the way, that is my forecast.

Does he understand what he is saying? He just admitted that we are in a period of deflation and yet he says Gold is going to $15,000 an ounce? Gold has an incredible correlation to inflation, ringing in at 98% historically.

Thus, how can we be in a deflationary period and Gold take off? Is he now proclaiming it is a hedge against deflation?

Of course, let us not forget this tidbit where he believed things would be in 2018.

Source

January 2021 Gold Price: $1,920.

CNBC had a discussion about it.

https://www.cnbc.com/2016/06/10/is-10000-gold-on-the-horizon-one-commodities-expert-says-yes.html

Then we get this lovely piece from him:

Rickards says this will be a process that will take almost two decades, and the U.S. will need 4% inflation to do it.

Source

Two decades at 4% inflation? What is he smoking?

Here is a chart showing the last 25 years of inflation in the United States.

Source

Notice how it has only touched 4% once in the last 12 years. Even before that, it was over 4% a couple times yet could not sustain it.

The NGDP of the US is under 4% now and likely heading to 2%. How in the world does anyone think we are going to have 4% sustained inflation over 2 decades in an accelerating deflationary environment?

Could the price of Gold head higher? Certainly although I think the fact that it stalled out is a warning sign. Things are in chaos yet Gold pegged the $1,900 range after reaching it all time high. It easily could move passed it although my guess, if it does, it will not be for long.

When people figure out that the recession/depression that is coming is deflationary, not inflationary, then I see Gold taking a hit. Watch the 2015 low on your chart. If that does not hold, expect it to push down towards the $1,000.

As a side note, that is my guess as to when to buy Gold. We will see a commodities run starting in a couple years, perhaps 2023, which should benefit Gold. But the 30 years cycle is about to hit later this decade which could carry it much higher.

But $15,000? I wouldn't bet on it.

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