Tags: Rickards | Chaos | Global | Currency

James Rickards: Chaos Brewing in Global Currency Arena

Friday, 18 Nov 2011 01:50 PM

The decline of the U.S. dollar as the world's reserve currency and the lack of anything to fill the void will allow for continued loose monetary policies that will end up creating market chaos, says investment banker, hedge fund manager and author James Rickards.

The dollar now accounts for about 60 percent of global currency reserves, down from 70 percent in 2000, Rickards says.

In the past, governments would buy dollars to serve as anchors to their own currencies, and the global economy remained in balance.
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However, hefty spending in the U.S. along with loose monetary policies have flooded the world with greenbacks, thus disrupting the anchor-like relationship the dollar had with other countries.

A gold standard would be the choice prescription for such a scenario, but the powers that be will reject it because it would mean giving up control over money supply and other facets of the economy.

So expect chaos to ensue when currencies come crashing.

"Today, with multiple reserve currencies and no anchor, no gold standard, instead of one Central Bank behaving badly you've got many Central Banks behaving badly and it's a race to the bottom," Rickards tells Yahoo's The Daily Ticker.

The gold standard attaches the value of a currency to gold, and therefore, prevents policymakers from printing money or spending beyond their means.

In many different forms, the gold standard sounds like a good idea, except to those in power.

"The power elites hate it because it takes away their ability to print money. When you print money, you rig the game, you control the game, you create inflation," Rickards says.

Inflation, often the result of collapsing currencies, is good for the elites and bad for everyone else, Rickards adds.

"Inflation has winners and losers. Average Americans tend to lose. If you have a pension, retirement savings, an insurance policy, an annuity, you lose. If you are a speculator, you know how to hedge, you buy land and fine art and you are wealthy, you win," he says.

World leaders have been working for months now to preserve the euro's stability by propping up debt-ridden Greece with the hope default fears won't spread to larger Italy and Spain.

So far, all countries are sticking with the euro, but if one country defaults, banks holding that country's sovereign debt will feel the pain, and banks exposed to those banks may suffer as well, including those in the U.S.

Such fears have prompted a warning from Fitch Ratings, whose analysts say contagion stemming from the European debt crisis is threatening ratings applied to the U.S. financial sector.

"Fitch believes that unless the eurozone debt crisis is resolved in a timely and orderly manner, the broad credit outlook for the U.S. banking industry could worsen," Fitch says in a statement.

"Fitch's current outlook for the industry is stable, reflecting improved fundamentals at most banks combined with ratings lower than at pre-crisis levels. However, risks of a negative shock are rising and could alter this outlook."

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The decline of the U.S. dollar as the world's reserve currency and the lack of anything to fill the void will allow for continued loose monetary policies that will end up creating market chaos, says investment banker, hedge fund manager and author James Rickards. The...
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