This is no conspiracy theory.

There is no secret group that meets secretly to make secret plans to run the global economy. All is done in the open. The global money elite is well known—the G7 leaders, the central banks, the IMF, the World Bank, the Council on Foreign Relations, major hedge-fund managers, corporate CEOs, and others. Similarly, their monetary and financial policies are all on public record. But what is “secret” is that there is little media coverage of this elite and their policies and even less understanding by the general public of international financial and monetary affairs. Hence the global elite can get away with a good deal. And they have been doing so for decades. So says Wall Street veteran and best-selling author James Rickards.

Rickards believes the policies of the elite class will lead the world into severe economic crisis, and soon. Two titanic economic forces are now positioned against each other: deflation and inflation. The situation is unusual, and few—even the elites—can say how it will end. Rickards believes that deflation will likely occur first, soon to be followed by massive inflation, much of it engineered by that class to lessen the enormous debt burden that the world’s governments, corporations, and individuals have amassed over the last few decades. Rickards believes that this economic crisis will create social chaos, which will only embolden the elites to take more severe actions to control the problem.

The author does not believe in stock- piling food and hiding in bunkers, as he perceives the coming crisis to be simply part of a normal economic cycle. Rickards’ basic thesis is that the global monetary system instituted at Bretton Woods in 1944—based on the U.S. dollar as the global reserve currency—is coming to an end. A new global monetary regime and a new reserve currency will be set up in its place. This system will still include the dollar, plus the world’s other major hard currencies. What is new is that it will now include the Chinese renminbi and, most importantly, the IMF and its global currency—SDRs (Special Drawing Rights). This currency is available only to governments as a credit facility to provide liquidity, especially in a crisis. This new assortment of currencies may also include gold, a commodity not considered to be real money since the U.S. left the gold standard in 1971.

The normal economic cycle, however, has been affected by the economic policies of the elites, who have followed a Keynesian-monetarist program that focuses on running government deficits, manipulating interest rates, and printing money. They did this to keep the global economy stable and growing. But Rickards contends that these policies, adopted to avoid normal recessions, forestalled regular economic downturns, making them less frequent but far worse in the event. He cites several crises, each more severe than the previous one—the 1999 dot-com and the 2008 housing bubbles in particular. These crises he calls foreshocks. And now the mother of all bubbles—one that impacts almost all asset-holding classes worldwide—will explode. Rickards calls this the earthquake.

What the economic elites’ policies have done for decades, since 1999 especially, is to produce massive amounts of cheap money that has now accrued to various asset holders and created enormous financial bubbles (overvalued assets). All of this really began when Richard Nixon ended the gold standard, by which the American dollar was pegged to gold at $35 per ounce. Once freed from gold, global elites had far more means to “manage” the world economy. They could now increase debt and interest rates and manipulate money supplies. The idea arose that governments could now manage economies better than the market forces that prevailed under the old gold standard.

Not only are assets overvalued nowadays, but prevailing policies have also created easy credit that has led to an enormous global debt problem. America’s government debt is now $21 trillion—over 100 percent of GDP. (Sixty-five percent is usually considered the threshold of danger.) With corporate and consumer debt added, this number triples. In fact, the entire planet is now deeply in debt. And this debt can never be repaid. Few people realize how great a number a trillion is. If one counts at the rate of one number per second, it would take 30,000 years to reach one trillion. The elites are aware of this problem, and they have plans to correct it.

What, then, is this “secret plan?” Again, there is no secret here. In his first chapter Rickards outlines some of these policies—seizing assets, preventing sales of assets, confiscating precious metals, and so forth. Rickards collectively calls them the “ice-nine” option, after Kurt Vonnegut’s book Cat’s Cradle, in which a scientist invents a special water molecule (ice nine) that freezes at room temperature. If introduced into a large body of water it would freeze the entire global water sup- ply in minutes, ending all life on earth. So, too, the moneyed elites can freeze all assets and all asset transactions, thus creating economic hardship in minutes.

The author cites many historical cases in which such a thing has actually happened. In 1914 the U.S. government shut down the stock market for four months to avoid a liquidity crisis caused by war debts in Europe. In the 1930’s Franklin Roosevelt carried this privilege further than any previous President had done. He shut down every American bank for a week, outlawed the ownership of gold, and then pegged gold to the dollar to stabilize the economy. And in 1971 Richard Nixon instilled a wage and price freeze. Such actions are not unique to America. The governments of Cyprus, Greece, and Argentina shut down banks and businesses in response to recent economic crises. And President Obama made an agreement with Germany’s Angela Merkel in 2014 to coordinate such policies at a global level among the G20 nations.

Again, few people are aware of these powers. The public is familiar with “bail-outs,” whereby governments and banks provide money to failing businesses, especially firms deemed “too big to fail.” Yet few people have heard about “bail-ins,” by which governments and banks can legally seize customers’ bank deposits during a crisis. Bank deposits are actually loans made by the bank to customers. And the bank can simply call these loans in a crisis. They must compensate depositors by exchanging deposits for bank stock. But in time of crisis that stock would be devalued and in many cases could not be resold—ice-nine. Bail-ins have recently been used in Italy, which is currently experiencing severe economic problems.

Rickards knows the intimacies of financial crisis from personal experience. He was the chief legal council for Long- Term Capital Management when that firm faced bankruptcy in 1998. And he spends an entire chapter discussing the significance of this event. LTCM was a highly respected firm that hired only the best and brightest. Surely, it could never fail. When it did fail, no “expert” had predicted the event. Most importantly, the case of LTCM showed how a seemingly small bankruptcy almost created a liquidity crisis that would have plunged the entire glob- al economy into prolonged recession, if not depression. In the end, that crisis was averted when several major banks bailed out the company.

Rickards suspects that the global elites are not even aware that their policies created the current crisis. He contends that they are not scheming actors who purposely drove the world economy to the brink of disaster, but simply ignorant. The real problem with the world’s moneyed class is that their paradigm—what he calls the Keynesian-monetarist synthesis—is outdated. It still clings to economic models based on the certainty that if governments will only take action—deficit spending, the manipulation of interest rates, and the printing of money—all the world’s economies can be adequately managed. They believe in an equilibrium model of economics, which assumes that these economies will naturally return to some sort of balance, given the right government policy. Rickards sees this as the ultimate flaw in their view of the world, and hence their policy prescriptions.

He contends that economics can best be explained by complexity theory. Economies are massive interactive social systems. Like all complex systems, they can expand and contract, often rapidly. Rather than try to manage systemic stability, it is better to prepare for rapid systemic shifts, including the inevitable collapse. Rickards provides no specific policy prescriptions. Instead, he advocates what essentially is a conservative economic approach, at the public and the individual levels. Money and wealth must be prudently managed. Abstract theories should be avoided, and distortions of the market and other problems should be expected and prepared for. Rickards believes, too, that the reliance on free trade is another error in economics made by the elites. Trade is not, and never can be, free. It is always politically determined, and it must be prudently man- aged by governments and firms.

Rickards, who views economic crisis as inevitable, writes almost as a fatalist. Yet he foresees not the end of the world, but the end of an age. After it, the United States will no longer be the sole world power but a player among other powers. For conservatives this is welcome news. American profligacy has carried a very high price. Rickards advocates reducing individual debt, holding plenty of cash, and buying precious metals (especially silver) as stores of value capable of weathering the coming storm. He does not, however, note that the present situation, which the global money elites certainly helped to create, required as well the unwitting complicity of many Americans—including conservative Americans—who have abandoned the old American values of hard work, thrift, and simple living. They are deeply in debt today because they desire—even believe they deserve—the lax consumerist life, a self-indulgent attitude that shares responsibility for the predicament all of us are now facing. 

 

[The Road to Ruin: The Global Elites’ Secret Plan for the Next Financial Crisis, by James Rickards (New York: Portfolio/Penguin) 352 pp., $29.00