Above is an interesting interview with Jim Rickards, author of the best selling book Currency Wars, shown last night on ABC’s The Business (by far the best business/finance show in Australia).
In the interview, Rickards explains why he believes the outlook for the global economy remains weak, and why actions by the Reserve Bank of Australia (RBA) are unlikely to be effective in rebalancing growth as the mining boom fades.
Key points from the interview include:
- US economy is weaker than everyone thinks. Economic and income growth remains tepid, and there are still large numbers of Americans either unemployed, on food stamps, or on disability. Given this weakness, Rickards does not believe that the Fed will unwind quantitative easing as quickly as everyone thinks.
- The Chinese economy is also fragile. Growth has been artificially inflated by excessive ponzi lending, which has been channeled into unproductive fixed asset investment. As such, China is facing a significant adjustment.
- The RBA is foolish in pursuing lower interest rates in an attempt to lower the exchange rate. Such a move is likely to significantly increase imported inflation without materially boosting exports, which are instead reliant on higher productivity, better education, and innovation.
- The RBA would have been better-off issuing longer-term infrastructure bonds to foreigners and using these funds to build well-targeted, productivity enhancing, infrastructure. That way, it would have supported growth, whilst also expanding the nation’s future productive capacity, productivity, and living standards.
- The RBA also could have printed money and used these funds to buy gold. That way, it would have placed downward pressure on the currency, whilst also getting to keep the gold.
Overall, the interview provides an interesting alternative perspective.
The original HD video can be viewed here.