Will 'new Great Depression' hit US economy in coming months? Finance author James Rickards predicts deflation

James Rickards said in an interview recently that the problem now is deflation and not inflation and expressed little hope over Joe Biden's economic policies


                            Will 'new Great Depression' hit US economy in coming months? Finance author James Rickards predicts deflation
James Rickards and the US economy hit by coronavirus pandemic (Publications Agora France/Wikimedia Commons, Getty Images)

The outbreak of the coronavirus pandemic has badly hurt the world economy and America is no exception. Millions have lost their jobs and the government has come up with successive relief measures to help common US citizens cope with the hardships. The general expectation is that with the roll-out of the Covid-19 vaccine, the US economy could expect better days ahead.

But while stock markets have reacted to the good news, experts are surprised that the economic forecasts are not bright even after the arrival of the remedy for the deadly virus that has claimed more than 1.8 million lives worldwide and over 361,000 in the US. 

Five-time best-selling finance author James Rickards has come up with a gloomy prediction in this scenario. According to him, all the money printing aimed at reducing the effects of Covid-19 pandemic is not going to see inflation but the opposite. 

The author explained his thoughts on this. “Let’s say I go out to dinner and I tip the waitress. The waitress takes a taxi home, and she tips the taxi driver. The taxi driver takes the tip money and puts gas in his car. In that example, my $1 tip had a velocity of three: the waitress tip, the taxi tip and the gasoline. So, my $1 produces a velocity of three. My $1 produces $3 of goods and services. That’s velocity, but what if I stay home, don’t go out and don’t spend any money?” USAWatchdog quoted Rickards as saying in an interview. 

'Problem at the moment is deflation, not inflation'

Rickards adds: “In that case, my money has a velocity of zero. $7 trillion times zero is zero. If you don’t have velocity, you don’t have an economy. The $7 trillion is the base money supply, and that could be $8 trillion or $9 trillion... and that by itself does not produce inflation. What you need is turnover, and we are not getting that.”

The author, whose latest book (releasing next week) is related to the state of the economy in the pandemic-hit world ('The New Great Depression: Winners and Losers in a Post-Pandemic World'), says the problem at the moment is deflation and not inflation. He said the debt is too high and growth too slow and called people’s tendency to save more than spending a “wrong psychology”.

Rickards’s new book has predicted rough times for the American economy but also said that not every asset will be a loser. “In August of 2020, gold hit a new all-time high. Silver is not at an all-time high, but it has performed very well."

"Actually, if you break down asset classes with silver, gold, stocks, bonds, oil, etc., the number one performing asset class was silver, and the number two was gold. Silver was up about 47%, and gold was up about 25% give or take. Gold and silver outperformed stocks and all of the other asset classes, but they are going to go a lot higher and they have to…,” he told USAWatchdog’s Greg Hunter.

“Gold is going to $15,000 per ounce, and by the way, that is my forecast... Silver will be three figures ($100 or more per ounce). Deflation is a bigger problem than inflation, and everybody hates inflation, but you need inflation... What you have to do is inflate the debt away. The debt is $22 trillion... we will devalue the dollar by 50%, and that is what you have to do,” he added. 
 
Rickards, editor of Strategic Alliance, a financial newsletter, who and serves on the Board of Advisors of the Center on Economic and Financial Power at the Foundation for Defense of Democracies in DC, said the process will take almost two decades and the US will require four percent inflation to do it.

According to him, gold and silver will become much higher in the coming days and the central banks, which are net buyers of gold, will continue to do the same. He also advised everybody to have gold and silver. Rickards also gave some tips on how to survive “The New Great Depression” in his latest publication. 

The finance expert also expressed less enthusiasm about the incoming Joe Biden administration. He predicted Biden’s policies would be harder for the US to recover than if Trump got his second term. “Biden Administration policies will impose major headwinds on an economy that is already struggling,” he was quoted as saying.

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