Current state of financial system explained

This is X22 interviewing Jim Rickards. It’s a year old but still relevant, and in fact covers some important topics. Rickards’ claim to fame is that he was legal counsel for Long Term Capital Management when the hedge fund went bankrupt. As a result, he has a deeper understanding than most of the vulnerabilities of financial markets.

In the interview, he mentions some financial crises that didn’t crash the markets. The markets dropped a little, but recovered quickly. That’s only because of market interventions by central banks and their banking partners. Arguably, each of those market interventions made the whole system more fragile by creating moral hazard for taking on too much risk. Eventually something is going to happen that will overwhelm efforts to intervene.

What we don’t know is when it will happen. We don’t even quite know exactly what will happen, though we can make an intelligent guess of a rough approximation. The right way to approach those unknowns is to make yourself less fragile against known hazards of

  • default: someone owes you money and doesn’t pay you back. That somebody could even be a bank or a broker.
  • falling asset prices: the market price of assets you own falls, but any debt you have will still be worth the same! You might end up owing more than you own.
  • price inflation: the buying power of your money is falling. Sometimes quite rapidly.

The way to deal with the hazards of a doomed financial system is to keep some of your net worth in precious metal, because it has ZERO counterparty risk (assuming it’s physical coins or bars that you have in your own possession, not an intangible promise), some in ready physical cash in as safe a place as you can keep it away from hazards like fires, floods, pests that chew paper, and theft, and whatever you need for routine transactions in the safest place you can put it–probably an “insured” account at a bank. Check your bank’s credit rating. It’s no guarantee that your bank won’t fail, but at least you can do due diligence to make sure that yours isn’t the first domino to fall!

Someone complained in the comments under this video that Jim Rickards carries the party line about Russia invading the Crimea (for those who aren’t aware, Russia did not invade the Crimea. They have treaty rights to it, and the locals even voted to remain under Russian rule, partly because there are many local Russians, but also because they don’t want to be part of the heavily-indebted and hopelessly corrupt Ukraine). Unfortunately, someone as well-connected as Mr. Rickards is under intense pressure to tow the party line. You burn bridges by speaking truth to power. We’re just lucky that someone as well-connected as he is, is willing to talk to the serfs like us. Most people at his station in life would dole out bad advice through one of their hirelings.

Namaste! The Divine within me honors the Divine within you. I tell stories about lessons I've learned the hard way. Follow @KalkinTrivedi on Twitter.