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Currency Wars by Jim Rickards - Part II

|Includes: Randgold Resources Limited (GOLD)

Continuing on from part I, read on for part II of our review of Currency Wars by respected analyst and financier James Rickards.

Currency War II will be more familiar to investors today, having occurred during the lifetimes of many. Mr Rickards assesses a range of phenomena within this currency war, including but not limited to.

  • The Bretton Woods currency system, based on a dominant dollar anchored to gold
  • The failure of the London Gold Pool in 1968, when gold bullion outflow from the pool was running at the rate of 30 tonnes of gold an hour
  • The shock of 1971 when Nixon closed the Gold Window in the face of a run on US reserves

Currency War II is deemed to have come to an end by 1987 where “there was relative peace in international monetary matters, yet this peace rested on nothing more substantial than faith in the dollar as a store of value based on a growing US economy and a stable monetary policy by the Fed”.

Currency stability was contingent to what could not be guaranteed and gold was gone from international finance. The world was set for Currency War III to unfold.

Currency war III and intellectual dogma

This is where the analysis of currency wars becomes most relevant to investors today. Mr Rickards does not pull his punches in his concerns about intellectual dogma affecting the heart of US monetary and economic policy, Washington’s relationship with Wall Street, and the corruption of academia by high finance and financial economics.

As fans of Benoit Mandelbrot and Didier Sornette we were pleased to see the book take issue with concepts such the Efficient Markets Hypothesis and Value at Risk (VaR).

Mr Rickards has great concerns about current US policies potentially making matters worse rather than better and involving a reckless gamble with the heart of the US economy; the dollar.
“The entire system of fiscal policy, monetary policy, banking and risk management was intellectually corrupt and dishonest, and the flaws persist to this day”.

The chapters covering today’s currencies, capital, complexity, and futures of paper, gold or chaos are superbly considered and articulate. Their intellectual founding and careful prescriptions are closely aligned to our world view.

We will let you enjoy the book yourselves to discover the depth and weight of Mr Rickards’s diagnosis and prescription. Mr Rickards’s hope is that Currency Wars offers warnings of certain dangers and can be used like a compass to steer ourselves towards sounder financial foundations. He closes with a quote that distils much of our worldview and the rationale behind investing in precious metals.

Currency wars are ultimately about the dollar, yet the dollar today is just a jumped up version of a former self due to derivatives, leverage, printing and the derogation of gold. It is not past time to save it. Still, the time grows short. – James Rickards

A must read financial book

In our eyes Currency Wars has undoubtedly jumped up to join the pantheon of great books with affiliations to Austrian economics and sound money. I would recommend this book as being as worth reading as totems such as George Soros’ The Alchemy of Finance.

Investors that already share part of their worldview with ours may find this book as useful as Gold Wars and End the Fed, two books that are often cited as the bibles of precious metals investing. A reader’s time is well invested and investors may find a whole new perspective on the contemporary financial landscape and the power struggles within it.

I found it particularly revelatory to understand that the way to affect the US, is not to dump her bonds in an effort to collapse the Treasury market where the President can close the market to stop continued damage, but to undermine her currency and so much of trade that is denominated in US dollars.

We thus see in new perspective the recent currency and trade agreements being agreed by China, Russia and Japan that will not use the US dollar as their means of exchange.

As Mr Rickards urges gold is money par excellence. What prospect of returning to a sound money system, once more anchored by gold and silver? We have a currency war to witness before we find the answer. Thanks for the excellent read Mr Rickards.