Is the U.S. Economy Headed for a New Great Depression? Jim Rickards Explains

In short

This podcast features Jim Rickards discussing the concept of a 'new great depression' characterized by depressed growth and escalating debt. He differentiates depression from recession, highlights the slow recovery from past market crashes, and explains how the velocity of money, not just its supply, drives inflation and deflation. Rickards critiques the Federal Reserve's reliance on frequentist statistics and the 'bubble' in which economic elites operate, advocating for Bayesian forecasting. He outlines an investment strategy for a deflationary environment, emphasizing true diversification across asset classes like cash, gold, silver, real estate, and treasury notes, and analyzes the implications of gold's rising price as a sign of dollar devaluation.

Key takeaways

• A 'depression' is defined by sustained economic growth below its potential, not merely declining GDP, and is exacerbated by debt outpacing income growth.
• The velocity of money is a critical factor in inflation and deflation; low velocity, driven by high savings and reduced spending, points towards deflation.
• Traditional financial advice of diversifying with many stocks within one asset class is insufficient; true diversification requires spreading investments across various asset classes like cash, gold, silver, real estate, and treasury notes.
• The Federal Reserve's reliance on frequentist statistics and the 'bubble' of economic elites hinder accurate forecasting, making Bayesian methods more suitable for uncertain times.
• A significantly higher dollar price for gold (potentially $14,000-$15,000/ounce) would indicate a severe collapse in the purchasing power of the US dollar.

Chapters

1. 00:40

   The New Great Depression & Predictions

   Jim Rickards discusses his book 'Aftermath,' which predicted a pandemic and social disorder, leading to a 'new great depression' characterized by depressed growth.

2. 01:20

   Defining Depression: Depressed Growth

   A depression is characterized by sustained economic growth below its potential, not just declining GDP, and is exacerbated by debt growing faster than income.

3. 02:20

   Historical Market Crashes & Recovery

   The 1929 stock market crash saw an 80% decline and took 25 years to recover (until 1954), highlighting the severity and duration of true market downturns.

4. 03:00

   Inflation, Deflation, and Money Velocity

   Rickards explains that inflation is driven by the velocity (turnover) of money, not just the money supply. Low velocity, as seen with high savings rates, leads to deflation.

5. 05:00

   The Weakest Recovery & Lost Output

   The 2009-2019 economic recovery was the weakest in US history, demonstrating 'depressed growth' where actual growth significantly lagged potential.

6. 06:00

   Gold Standard & Central Bank History

   Discusses how raising the price of gold (like FDR in 1933) can combat deflation. Reviews the history of US central banks, noting periods of prosperity without one.

7. 08:00

   Financial Crises & Escalating Bailouts

   Financial crises occur regardless of a gold standard, but each subsequent bailout (e.g., $7 trillion in 2020) is larger, suggesting a limit to this strategy.

8. 11:00

   Bayesian Forecasting vs. The Fed's Bubble

   Contrasts the Fed's 'frequentist' approach (requiring vast data) with Bayesian statistics, which allows for better forecasting with limited data, especially when elites are in an 'echo chamber.'

9. 13:30

   Investment Strategy for Deflation & Diversification

   Recommends an investment strategy for deflation including cash, treasury notes, real estate, gold (10%), and silver. Emphasizes true diversification across asset classes, not just within stocks.

10. 15:20

    Gold's True Value & Buffett's Play

    Calculates gold's potential price at $14,000-$15,000/ounce based on money supply backing. Explains that a high dollar price for gold signifies a collapsing US dollar, and discusses Warren Buffett's investment in Barrick Gold.

Get the next Rich Dad Radio Show: In-Your-Face Advice on Investing, Personal Finance, & Starting a Business recap

A short recap of every new episode, by email. Free for up to 5 shows.