James G. Rickards (http://www.tangentcapital.com) and James Turk, Director of the GoldMoney Foundation, talk about the European sovereign debt crisis and the European Central Bank buying Italian bonds. They talk about the ECB's role in the crisis and how it is becoming increasingly politicised, in contrast with its predecessor of sorts -- the Bundesbank. They talk about the possible differences between Jean-Claude Trichet and his successor Mario Draghi. James Rickards explains how Europe is developing a common fiscal policy with a common Treasury, in the form of the European Financial Stability Facility (EFSF), which will dictate fiscal policy to many member countries -- such as Greece -- in exchange for rescue funds. Rickards is bullish on the euro, among other reasons because the eurosystem owns 10,000 tonnes of gold.
Rickards and Turk debate whether or not central banks really own the gold they claim to own, and talk about how the current currency war -- with countries competing to see who can devalue their currencies the most -- is a disastrous zero-sum game. They discuss the problems facing countries whose currencies are appreciating rapidly, such as Brazil and Switzerland, and what these countries might do to curb this appreciation.
They comment on the recent debt-ceiling debate and how the compromise reached, despite all the headlines, does not actually include any real cuts, including only cuts in proposed increases. Rickards mentions his four possible scenarios for the future of the international monetary system: SDR, gold, multiple reserve currencies or chaos.
They talk about the potential for hyperinflation as the US government continues to rely on debt, instead of revenue, to finance an increasing portion of its outlays. Jim Rickards sees the potential for both deflation and hyperinflation and explains that it will depend largely on the actions of the Fed, with Bernanke leaning more in the direction of more money printing.
They discuss South Korea's recent acquisition of 25 tonnes of gold, as well as Indian and Chinese buying. Rickards explains that China is trying to bypass the world market by buying directly from miners.
James G. Rickards forthcoming book is: Currency Wars. The making of the next global crisis.
This interview was recorded on August 4 2011 in London.