1. After the War on Cash, Get Ready for the War on Gold

    India’s decision to make 1,000- and 500-rupee notes worthless (see story above) is having devastating ripple effects in the Indian economy and the market for gold. The consequences of the decision are both appalling and encouraging — appalling because they show governments’ ability to destroy wealth, and encouraging because they show the ingenuity of individuals operating under the thumb of an oppressive government.

    One immediate consequence is that paper money began trading at a discount to face value. In plain English, you might be able to sell your illegal 1,000-rupee note to a middleman for 750 rupees in smaller denominations. You would get legal tender for your worthless 1,000-rupee note. The middleman presumably has some connection with the banks that allows him to deposit the funds without being harassed by the tax authorities. It’s not unusual for bonds to trade at a discount due to changes in interest rates or credit quality, but this is the first time I’ve ever seen cash trading at a discount (although I did predict this development in Chapter 1 of  my new book, The Road to Ruin  released today).

    The second distortion is that gold is selling in India for over $2,000 per ounce at a time when the world market price is about $1,275 per ounce. This is because Indian citizens are rushing to buy gold for cash. The gold dealers can then deposit the cash for full value. This is just another form of discount on the face value of the cash. It’s not that gold is more valuable; it’s just that your $2,000 is worth only $1,275 (in rupee equivalents) when it comes time to buy the gold.

    Click here to read how, by Friday, Nov. 11, the entire banking system in India was beginning to run out of cash and alternative forms of payment such as gold and barter were emerging. Don’t think of this as something that happens only in poor countries.  Click here to see how  similar scenes will play out in the U.S. and Europe as elites become more desperate to take your money.

    – Jim Rickards, Meraglim™ Chief Global Strategist

  2. China Is Going Broke, and the Chinese Government Can’t Stop It

    As recently as 2014, China seemed like an unstoppable financial juggernaut. The GDP of China had surpassed that of the U.S. using a purchasing power parity (PPP) measure. (I don’t consider PPP the best way to measure GDP. I use a measure that still shows the U.S. as the world’s largest economy. But many publications were shouting, “China’s No. 1!” when the PPP news was revealed.) China’s hard currency and gold reserves exceeded $4 trillion, and its economy was growing at over 8% per year.
    Suddenly, conditions have changed for the worse — much worse. Growth has slowed to 6.7% per year, and even that is overstated. Much of the “growth” is from wasted infrastructure investment that should be written off before the cement dried. China’s debt-to-GDP ratio (counting provincial debt and state-owned enterprises) exceeds 200%, about double the U.S. and not far behind profligate Japan.
    Most worrying of all, China’s reserves have fallen by almost $1 trillion and continue to bleed at a rapid rate. These capital outflows are driven by businesses and individuals who worry about the devaluation of the yuan. Any party holding yuan balances will lose money measured in dollars, euros or gold unless they can get the money out of China. Capital outflows from China explain the booming housing markets in New York, Vancouver, Sydney, London and Melbourne. Chinese are buying luxury condos they don’t even live in just to get their money out of China and into hard assets in another currency.
    We’ve seen these capital flight crises before, in the U.K. in 1992, Mexico in 1994 and Argentina in 2000. They always end with a “maxi-devaluation” designed to stop the bleeding once and for all. U.S. stocks fell 11% in August 2015 when China devalued by 3%. A new 20% devaluation by China would probably push U.S. stocks down 30% or more in a borderline panic scenario.
    Crises like these can be avoided for a time but always end the same way.  Click here to see why  a currency shock from China, with ripple effects around the world, is growing closer by the day.
    – Jim Rickards, Meraglim™ Chief Global Strategist
  3. Ken Rogoff Is out to Steal Your Money. He Just Can’t Decide How

    This new article by Ken Rogoff has three ideas to steal your money. The first is negative interest rates. The second is the elimination of cash (governments can do this by declaring the $100 bill worthless, just as India did last week with the 500- and 1,000-rupee notes). The third way is to set higher inflation targets. Rogoff wants to raise the Fed’s inflation target from 2% to 4% per year. At a 4% rate, the value of a dollar is cut 75% between the time you’re 30 years old until a normal retirement age of 65. The money you save in your younger years is nearly worthless by the time you need it.

    Why should we care what Ken Rogoff thinks? Because Rogoff is not just another big brain. He’s a professor of economics at Harvard University and the former chief economist of the International Monetary Fund. More importantly, his name is frequently mentioned as a possible nominee for a seat on the Board of Governors of the Federal Reserve. If Rogoff were on the Fed board, he’d be in a position to turn his confiscatory ideas into policy. But even if Rogoff remains at Harvard, his views are highly influential on economic policy in general. Rogoff is not alone in his views.

    If you do not already have a 10% allocation of investible assets to gold, it’s time to make that allocation.  Click here to see why  gold is almost the only way to avoid the plans for confiscation that Rogoff and others have in mind.

    – Jim Rickards, Meraglim™ Chief Global Strategist

  4. All Systems Are “Go” for a Fed Rate Hike in December, With More to Follow

    Federal Reserve Vice Chairman Stanley Fischer is seen during the Federal Reserve Bank of Kansas City’s annual Jackson Hole Economic Policy Symposium in Jackson Hole, Wyoming, August 29, 2015. REUTERS/Jonathan Crosby

    We’ve warned you for months that the Fed is on target for a rate hike in December. We said this before the election of Donald Trump as president and made the point that the rate hike was not dependent on the outcome of the election. The December rate hike was baked in before the election. This was due to rising inflation fears, the desire to hike rates so the Fed can cut them in a recession and the Fed’s political decision not to raise rates at the November FOMC meeting because of the pending election and a desire to lay low.

    We’ve also told you that there are only four voices at the Fed worth listening to — Janet Yellen, Stanley Fischer, Bill Dudley and Lael Brainard — all of the other Fed heads can safely be ignored.  Click here to see how one of those power players, Stan Fischer, has now confirmed our view that the rate hike is coming. That comes as no surprise. What is surprising is Fischer’s comment that he is “reasonably confident” that a Fed rate hike would have no spillover effects in emerging markets. That’s troubling and almost certainly represents wishful thinking on Fischer’s part. In fact, there’s already a global dollar shortage. A stronger dollar resulting from a Fed rate hike could tip emerging markets into a full-blown liquidity crisis.

    November was volatile because of the election. December may be even more volatile as the Fed leans into the dollar shortage and makes matters much worse.

    – Jim Rickards, Meraglim Chief Global Strategist

  5. India Abolishes 500 and 1,000 Rupee Notes to Fight Corruption

    We’ve been warning investors for months about the war on cash. This war has been in full swing in Europe and the U.S. for a long time. Governments plan to use negative interest rates, confiscatory taxes and other techniques to rob savers of their wealth.

    In order to do this, they have to force savings into digital accounts at large government-controlled banks. As long as savers can hold cash, they can avoid many of these confiscation techniques. Therefore, governments must eliminate cash.

    The latest battleground in this war is India. In a shock announcement on Nov. 8, India declared that 500- and 1,000-rupee notes are no longer legal tender. Imagine that — the money in your wallet or purse is instantly made worthless by government decree. That’s what happened. There were limited exceptions for hospitals and gas stations. Naturally, gas lines formed everywhere, and some people rushed to hospitals to prepay for future medical care with now worthless bank notes.

    The other exception to worthlessness was if you deposited the notes in the bank. There you would receive “digital credit” in your account. Of course, the tax man was waiting at the bank to ask you where you got the money. Those without an acceptable answer can expect trouble from the Indian Revenue Service. 

    Click here to read why  this is not the end of the war on cash. It’s just the beginning.
    – Jim Rickards, Meraglim Chief Global Strategist