Four time bestseller writer Jim Rickards says the FED “throwing in the towel” on rate hikes is signaling a big problem for the economy.
Rickards says, “The FED was tightening to get ready for the next recession…”
“You need to cut interest rates somewhere between 4% and 5% to get out of a recession. How do you cut interest rates 4% if you are only at 2.25%? The answer is you can’t. You have to get to 4% before you can cut 4%, and that’s what the FED was trying to do…
How do you raise rates in weakness to get ready for the next recession without causing the next recession that you are preparing to cure? That was the conundrum. I never thought they would get it right.
And, as of now, it looks like they didn’t get it right. Meaning, they tightened so much to get ready for the next recession they slowed the economy.”
Rickards says even more, “Bernanke painted them into a corner, and they can’t get out.”
“There is no escape from the room… the FED has proved that they can’t get out of this. They got into it, but they can’t get out of it because every time they try, they sink the stock market. They sink the housing market. They raise the specter of recession. They slow economic growth. They don’t want that. So, they sort of pause and maybe tiptoe back into it, but they really can’t get out of it.”
Note: Four time bestseller author Jim Rickard is right to some extent. But only to a certain extent. Jim Rickard suffers from a lack of imagination. The best example can be demonstrated by the example of a beggar from Trump’s biographical book:
Donald Trump once walked across Manhattan and at the entrance to the subway he was approached by a beggar asking for money. Trump got upset and went to the beggar saying, “While you’re at zero, I’m minus 2.3 billion.” How did you think of asking me for money?”
Just as a beggar asking for Donnie’s money, he couldn’t imagine negative numbers, so Jim Rickard can’t imagine negative interest rates. Jim Rickard can’t imagine getting a 2.25% interest rate 4% lower. It’s simple: 2.25 – 4 = -1.75
Negative interest rates are possible. Who borrows money will get some extra money free. But remember, just as big loans are only possible for someone, so negative interest rates (when they do) will only be for someone again. Bankruptcy can be done with grace, and the ability to imagine negative numbers is necessary.