Financial Crisis

Greece votes an emphatic no in the Sunday referendum, what happens next?

euroVivek Kaul

“The Greeks invented democracy and, let’s not forget, tragedy,” writes Chris Allbritton in The Daily Beast. And the fact that the country invented democracy had a very important role to play in it being accepted into the Eurozone in the first place. Eurozone is essentially a term used in order to refer to the countries using the euro as their currency.
As Neil Irwin writes in The Alchemist—Inside the Secret World of Central Bankers: “Greece…was where democracy was invented, the birthplace of the European idea, the original European empire.” But all that was in the past.
Greece voted an overwhelming 61.3% no in the referendum held yesterday, to decide on the following question:
““Should the proposal that was submitted by the European Commission, the European Central Bank, and the International Monetary Fund at the Eurogroup of 25 June 2015, which consists of two parts that together constitute their comprehensive proposal, be accepted? The first document is titled ‘Reforms for the completion of the Current Programme and beyond’ and the second ‘Preliminary Debt Sustainability Analysis.’’”
The referendum essentially asked Greeks to decide whether they were ready to suffer from more austerity measures, like the government cutting back on pensions, raising taxes etc., so that the it could be bailed out again by the economic troika of the European Central Bank, the European Commission and the International Monetary Fund (IMF).
To this, the Greeks have voted an emphatic no. The question is what happens next? Will this democratic decision of the Greeks turn out to be a tragic one in the days to come? ““Greece has just signed its own suicide note” – Mujitba Rahman, head of European analysis at the Eurasia Group risk consultancy, told the Financial Times.
But the reality of the situation is not as unidimensional as that. Allow me to explain.
The Greek banks are running out of money. As former US treasury secretary Lawrence Summers wrote on his blog: “The referendum is probably the second most important event of the week in Greece. However it turns out, Greek banks will run out of cash early in the week, probably on Monday [i.e. today].”
Currently, the Greek banks are shut. Cash withdrawals from ATMs are limited to 60 euros a day and are likely to be cut further. This can’t be a good scenario for ordinary Greek citizens. Further, it would be stupid to think that those who voted ‘no’ would have not realised that voting ‘no’ would mean trouble ahead. So to that extent people are ready to bear some amount of economic pain.
Also, an economy cannot function without currency. In fact, fearing precisely this scenario, the Greeks have been stocking up on food. As The Globe and Mail reports: “Already, some basic items such as medicines were running low as cash supplies ran short and payment systems ceased to exist. Many Greeks have been loading up on food staples for fear that supermarkets will be unable to buy products.”
The Greek government employees need to be paid on July 12. How will that payment be made? Governments in the past have resorted to issuing IOUs or scrips. The Greece government could do the same as well. The problem here is that the confidence in scrips issued by a bankrupt government wouldn’t be very high.
The Greek politicians believe that with a ‘no’ vote they are in a better negotiating position with the economic troika and other leaders in Europe.  As Panos Skourletis, the Greek labour minister said: “The government can go now with a very strong card to continue negotiations [with creditors].”
The reason for this is very straight forward—with a ‘no’ vote the fear that Greece will exit the euro is even higher.  And this is something that will strike at the very heart of the euro, given that it is ultimately a political idea, which hopes to bring the entire region closer through economic integration, with the hope of preventing any future wars in the years to come.
One of the first things that is likely to happen if Greece exits is that the country will redominate all its debt in its new currency, which is likely to be the drachma. Also this will set a precedence for other countries like Spain, Portugal and Italy. And this can’t be good for the entire idea of euro.
Further, though no German politician will publicly admit to it, but the euro has tremendously helped increase the German exports. In 1995, German exports made up for 22% of the gross domestic product (GDP). By 1999, this number had run up to 27.1%. In 2004, five years after the euro came into being, the German exports to GDP ratio stood at 35.5%. In 2008, the number reached 43.5%. As the impact of the financial crisis started to spread around the number fell to 37.8% in 2009. Nevertheless, the German exports to GDP ratio has recovered since then and in 2014 stood at 45.6%.
With the euro becoming the common currency across most of Europe, the exchange rate risk that businesses had to face while exporting goods and services was taken out of the equation totally. This has benefitted Germany the most, given the productivity of its business.
And will Germans want to get rid of this advantage by chucking out the Greeks and start a process which questions the entire idea of euro? As Niels Jensen writes in the Absolute Return Letter for July 2015 titled A Return to the Fundamentals? : “Germany…actually benefit[s] from the damage that Greece has done to the value of the euro. Poor domestic demand as a result of challenging demographics have made exports the most likely way to secure decent economic growth, and a relatively weak euro has been tremendously helpful in that respect. Imagine how much stronger the euro would have been if every member country had the fiscal discipline of Germany!”
The public posture maintained by the German leaders has been very aggressive. As Sigmar Gabriel, the deputy chancellor of Germany said: “With the rejection of the rules of the euro zone… negotiations about a programme worth billions are barely conceivable.”
There are a spate of meetings scheduled between European leaders today and tomorrow. And this is where some hard decisions will have to be made. If the politicians continue to believe in the idea of euro and the Eurozone, then they will have to treat Greece with kid gloves and not push for more austerity.
On July 20, 2015, Greece has to make a payment of 3.5 billion euros to the European Central Bank for a bond that is maturing. I guess things would have become much clearer in the Eurozone and Greece by then.
So, watch this space.

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)

The column originally appeared on Firstpost on July 6, 2015

How the Federal Reserve caused the Great Recession


This column is slightly different from the ones I usually write. On most days the idea is to write on something which is currently happening. This column doesn’t fit that formula.

In this column I wanted to write about how our world view plays a huge part in what we think and the decisions that we make, and how those decisions can turn out to be majorly wrong in the long-term, even though when we were making them they seemed to be the perfectly correct thing to do.

The dotcom bubble started to burst in early 2000. Soon after on September 11, 2011, several airliners were hijacked, of which two flew into the iconic World Trade Center in New York and one into Pentagon. The American economy which was going through tough times in the aftermath of the dotcom bubble collapsing, got into even more trouble after 9/11.

Alan Greenspan, who was the Chairman of the Federal Reserve of the United States, at that point of time, recalls in his book The Age of Turbulence that the American economy had been in a minor recession for a period of seven months before September 2001. And in the aftermath of the attacks, the reports and statistics streaming in painted a very worrying picture.

Americans had stopped spending on everything other than the items they would need in case there were more attacks. Sales of grocery items had gone up; so had sales of security devices, insurance, and bottled water. On the flip side, businesses like travel, entertainment, hotels, tourism, and even automobiles were majorly hit.

The American economy is very consumer driven and if consumers stop spending, then the economic growth immediately collapses. This was likely to happen in the months that followed September 2001.

With spending collapsing, there was a danger of the minor recession turning into a major one. To prevent this, Greenspan, as he had in the past, decided to cut interest rates. The federal funds rate, which was at 3.5 percent before the attack, was cut four times and brought down to 1.75 percent by the end of the year, starting with the first rate cut of 50 basis points, or half a percentage point, on September 17, 2001, six days days after the attack. (One basis point is one hundredth of a percentage). The federal funds rate is the interest rate at which one bank lends funds maintained at the Federal Reserve to another bank on an overnight basis. It acts as a sort of a benchmark for the interest rates that banks charge on their short and medium term loans.

Central banks cut interest rates in the hope that consumers would borrow money to spend and businesses would borrow money to expand, and so the economy would grow. As James Rickards writes in The Death of Money—The Coming Collapse of the International Monetary System: “We all asked ourselves how we could help [in the aftermath of the attack]. The only advice we got from Washington was ‘get down to Disney World … take your families and enjoy life’.”

People did borrow and spend, but they went overboard with it. America’s new bubble after dot-com was real estate and it was built on the belief that anyone could make money in real estate. As Stephen D. King puts it in When the Money Runs Out: “The white heat of the 1990s technological revolution was replaced by the stone cold of a housing boom.”

Between January 2001 and mid-2003, the federal funds rate was cut by 550 basis points to one percent. The interest rate stayed at one percent for little over a year.

The Federal Reserve did not want the United States to become another Japan. Japan had been in a low growth environment since the collapse of the stock market and the real estate bubbles, starting in late 1989. Prices had been regularly falling. In an environment of falling prices(or deflation) consumers keep postponing consumption in the hope of getting a better deal in the future. This leads to businesses suffering and the economic growth collapsing.

Ben Bernanke, who would takeover as the Chairman of the Federal Reserve from Alan Greenspan in 2006, joined the Federal Reserve in 2002 as a governor. Bernanke was a scholar on the Great Depression of 1929.

In one of the first speeches that Bernanke made after joining the Federal Reserve he said: “Whenever we read newspaper reports about Japan, where what seems to be a relatively moderate deflation—a decline in consumer prices of about 1 percent per year—has been associated with years of painfully slow growth, rising joblessness, and apparently intractable financial problems in the banking and corporate sectors … the consensus view is that deflation has been an important negative factor in the Japanese slump… I believe that the chance of significant deflation in the United States in the foreseeable future is extremely small… So, having said that deflation in the United States is highly unlikely, I would be imprudent to rule out the possibility altogether.”

This fear of not becoming another Japan and at the same time not engineering another Great Depression led to the Federal Reserve keeping interest rates low much longer than it should have. This led to the real estate bubble which would finally start bursting in 2007-2008.

As Barry Eichengreen writes in his brilliant new book Hall of Mirrors—The Great Depression, The Great Recession and The Uses—And Misuses—Of History: “With benefit of hindsight, we can say that the Fed overestimated the risk of deflation and responded too preemptively and aggressively. As a student of Japan and of the Great Depression, Bernanke may have been overly sensitive to the danger of deflation at this point of time. In other words, history may be useful for informing the views of policy makers of how to respond to certain risks, but it may also shape and inform outlooks in ways that heighten other risks”

Bernanke’s world view led to the Federal Reserve keeping interest rates low much longer than it should have. Over and above this, the inflation data that was coming out at that point of time may also have had a role to play. As Eichengreen writes: “Distorted data may have also contributed to the Fed’s exaggerated concern with deflation. Contemporaneous data showed the personal consumption expenditure deflator[the inflation index that the Federal Reserve follows], cleansed of volatile food and fuel prices, falling to less than 1% in 2003, dangerously close to negative territory. Subsequent revisions revealed that inflation in fact had already bottomed out at 1.5% and was now safely on the rise.”

This led to Federal Reserve maintaining low interest rates, when it should have been raising them. In the process, the Fed ended up fuelling the real estate bubble, which finally led to the bankruptcy of Lehman Brothers in September 2008, and the start of the current financial crisis, which was followed by what is now known as the Great Recession.

The column originally appeared on The Daily Reckoning on May 29, 2015

Writing on the wall: Global debt has shot up by $57 trillion since 2007

3D chrome Dollar symbol“Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds nought and six, result misery.” – Charles Dickens, David Copperfield

The McKinsey Global Institute recently released a very interesting report titled Debt and (not much) deleveraging. In this report they found that between 2007 and the second quarter of 2014, the total global debt had grown by $57 trillion. The total global debt as of the second quarter of 2014 stood at $199 trillion or 286% of the global GDP.
In 2007, the total global debt had stood at $142 trillion or 269% of the global GDP. This means an increase in debt at the rate of 5.3% per year. What is interesting is the comparison between 2000 and 2007, which allows us to analyse the increase between 2007 and 2014 in a much better way.
In 2000, the total global debt was at $87 trillion or around 246% of the global GDP. Between 2000 and 2007, the global debt went up at the rate of 7.3% per year.
In comparison, the global debt between 2007 and 2014 has gone up by only 5.3%. Further, between 2000 and 2007, the total global debt went up by 2300 basis points to 269% of the global GDP. In comparison, between 2007 and 2014, the global debt went up by 1700 basis points to 286% of the global GDP. One basis point is one hundredth of a percentage.
So, yes the growth in debt has slowed down since 2007, but the debt is still growing. And that is something to worry about. As the McKinsey report points out: “Seven years after the global financial crisis, global debt and leverage have continued to grow. From 2007 through the second quarter of 2014, global debt grew by $57 trillion, raising the ratio of global debt to GDP by 17 percentage points [1700 basis points]. This is not as much as the 23-point increase[2300 basis points] in the seven years before the crisis, but it is enough to raise fresh concerns.”
In fact, the breakdown of the total global debt makes for fairly interesting reading. The growth in household debt has slowed down considerably to 2.8% per year between 2007 and 2014. Between 2000 and 2007 this was at 8.5% per year. This rapid increase in global debt was the major reason behind the global financial crisis.
In the aftermath of the financial crisis, the governments around the developed world have printed a lot of money to drive down interest rates, in the hope of people borrowing and spending more, and economic growth returning. But that hasn’t happened. People don’t seem to be in the mood to make the same mistake again and end up with excess borrowing, as they had in the past.
While the rate of rise in household debt has slowed down considerably, the same cannot be said about government debt. The total government debt all around the world had stood at $33 trillion as of 2007. It has since jumped to $58 trillion, a jump of $25 trillion, at the rate of 9.3% per year.
During the period 2000 and 2007, government debt had increased at the rate of 5.8% per year to $33 trillion (from $22 trillion).
Governments all around the world in the aftermath of the financial crisis have increased their expenditure, in the hope of reviving economic growth. The countries which were in the biggest mess in the aftermath of the financial crisis saw their governments raise the most amount of debt. “Not surprisingly, the rise in government debt, as a share of GDP, has been steepest in countries that faced the most severe recessions: Ireland, Spain, Portugal, and the United Kingdom,” the McKinsey report points out.
This explains the dramatic jump in government debt since 2007. As the McKinsey report asks: “This raises fundamental questions about why modern economies seem to require increasing amounts of debt to support GDP growth and how growth can be sustained.”
In the past very few countries have been able to repay their debt, once they have crossed a certain level. In fact, one of the rare occasions in history when a country did not default on its debt either by simply stopping repayment or through inflation was when Great Britain repaid its debt in the 19th century.
The country had borrowed a lot to finance its war with the American revolutionaries and then the many wars with France in the Napoleonic era. The public debt of Great Britain was close to 100 percent of the GDP in the early 1770s. It rose to 200 percent of the GDP by the 1810s.
It would take a century of budget surpluses run by the government for the level of debt to come down to a more manageable level of 30 percent of the GDP. (Budget surplus is a situation where the revenues of a government are greater than its expenditure.) Between 1815 and 1914, tax revenues of the British government exceeded its expenditure by several percent of the GDP. (Source: Thomas Piketty’s Capital in the Twenty-First Century). It is worth remembering here that this was during a time when Great Britain ruled large parts of the world.
There have been a few other examples of countries repaying their debt. In the aftermath of the Second World War, the total government debt in the United States was at 121% of GDP. In the United Kingdom it was at 238% of GDP. Both the countries brought down these huge ratios over the next two decades. The United States through strong economic growth and the United Kingdom through austerity i.e. the government cut down on its expenditure and hence, borrowed lesser.
In the recent past, Canada brought down its government debt level from 91% of GDP in 1995 to 51% in 2007. This happened because of strong global growth as well as commodity exports. But such examples are rare. The point being that countries more often than not tend to default once their debts reach high levels.
What does not help is the fact that most developed countries are not going to see fast economic growth in the foreseeable future. As the McKinsey report points out: “To generate the growth needed to begin reducing government debt ratios in the most indebted nations today would require real GDP growth rates far higher than are currently projected. In our model, GDP in Spain, France, Portugal, the United Kingdom, and Finland would have to grow by two percentage points more than the current forecasts, reaching real growth rates of 3.6 to 5.5 percent a year. The Japanese economy would have to grow almost three times as fast as the consensus outlook—2.9 percent vs. 1.1 percent.”
So, it doesn’t look like that economic growth will come to the rescue of the total global government debt. How about austerity? In many parts of Europe, economic growth is likely to be negative in the near future. As Mark Blyth writes in Austerity—The History of a Dangerous Idea: “As the economy deflates, debts increase as incomes shrink, making it harder to pay off debt the more the economy craters. This, in turn, causes consumption to shrink, which in the aggregate pulls the economy down further and makes the debt to be paid back all the greater.” In this environment if the government cuts down on its expenditure (and in the process its borrowing and absolute debt) it hurts the economy further. The private sector has cut down on its expenditure and if the government does the same, economic growth collapses further.
Taking all these factors into account it can safely be said that—all is not right on the global front. 

(Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek) 

The column originally appeared on Firstpost.com on Apr 7, 2015

Rajan doesn’t have much scope to cut repo rate further

ARTS RAJAN
The Reserve Bank of India(RBI) governor Raghuram Rajan presented the first monetary policy for this financial year, yesterday. He kept the repo rate at 7.5%, after having cut it by 25 basis points(one basis point is one hundredth of a percentage) each in January and March, earlier this year. Repo rate is the rate at which RBI lends to banks and acts as a sort of a benchmark to the interest rates that banks pay for their deposits and in turn charge on their loans.
Rajan further said that “going forward, the accommodative stance of monetary policy will be maintained.” This meant that the RBI would continue to bring down the repo rate subject to a few factors.
First, Rajan said that the banks had not passed on the earlier cuts in the repo rate to the end consumers by cutting their base rates or the minimum interest rate a bank charges its customers. Without this happening there is no point in the RBI cutting the repo rate. (In a column earlier this month I had explained why banks are not cutting their base rates. You can read it here).
Secondly Rajan said that “ developments in sectoral prices, especially those of food, will be monitored, as will the effects of recent weather disturbances and the likely strength of the monsoon.” The northern part of the country has seen unseasonal rains and that has led to rabi cop being damaged. This is expected to push food prices up. Governor Rajan wants to monitor this for a while and see how it pans out, before deciding to cut the repo rate further.
Third, the RBI is watching what the government is doing on the policy front to “ to unclog the supply response so as to make available key inputs such as power and land.” And fourth, the Rajan led RBI is watching “for signs of normalisation of the US monetary policy”. This essentially means that the RBI is closely observing as to when the Federal Reserve of the United States, will start raising interest rates in the United States.
Depending on how these factors play out, the RBI will decide if and when to cut the repo rate further. But the question is how much room does the RBI have to cut the repo rate any further? Rajan has often said in the past that he wants to maintain a real interest rate level of 1.5-2%. Real interest is essentially the difference between the rate of interest (in this case the repo rate) and the rate of inflation.
The current repo rate at which the RBI lends stands at 7.5%. In the monetary policy statement released yesterday RBI said: “The Reserve Bank will stay focussed on ensuring that the economy disinflates gradually and durably, with CPI inflation targeted at 6 per cent by January 2016.”
If we consider the rate of inflation of 6% and add a real rate of interest of 1.75%(the average of 1.5% and 2%) to it, we get 7.75%. The current repo rate is at 7.5%, which is 25 basis points lower than 7.75%.
What if, we consider the latest rate of inflation as measured by the consumer price index? For the month of February 2015, the inflation stood at 5.4%. If we add 1.75% to it, we get 7.15%, which is lower than the prevailing repo rate of 7.5%. If we add 1.5% to the prevailing rate of inflation, we get 6.9%, which is sixty basis points lower than the prevailing repo rate of 7.5%.
What both these calculations clearly tell us is that there is not much scope for the RBI to cut the repo rate further. At best it can cut the repo rate by another 50 basis points. This is assuming that Rajan maintains his previous stance of maintaining a real interest rate level of 1.5-2%.
As of now there is no evidence to the contrary. As Rajan had said in September 2014: “Have we artificially kept the real rate of interest somehow below what should be the appropriate natural rate of interest today and created bad investment that is not the most appropriate for the economy?”
This is a very important statement and needs to be dealt with in some detail. Look at the accompanying chart.
The government of India between 2007-2008 and 2013-2014 was able raise money at a much lower rate of interest than the prevailing inflation. The red line which represent the estimated average cost of public debt(i.e. Interest paid on government borrowings) has been below the green line which represents the consumer price inflation, since around 2007-2008.
And if the government could raise money at a rate of interest below the rate of inflation, banks couldn’t have been far behind. Hence, the interest offered on fixed deposits by banks and other forms of fixed income investments was also lower than the rate of inflation, between 2007-2008 and 2013-2014.
This essentially ensured that household financial savings fell from 12% of the GDP in 2009-2010 to 7.2% of the GDP in 2013-2014. As the rate of interest on bank fixed deposits was lower than the rate of inflation, people moved their money into real estate and gold. Household financial savings is essentially the money invested by individuals in fixed deposits, small savings scheme, mutual funds, shares, insurance etc.
If the household financial savings rate has to be rebuilt, the rate of interest on offer to depositors has to be significantly greater than the rate of inflation. Given this, a real rate of interest of 1.5-2% that Rajan has talked about makes immense sense, if household financial savings need to be rebuilt all over again.
And if a real interest rate of 1.5-2% has to be maintained then the RBI doesn’t have much scope to cut the repo rate further—around 50 basis points more.

The column originally appeared on The Daily Reckoning on April 8, 2015 

Dear Reader, are you still invested in gold?

gold
In my previous avatar as a full time journalist working for a daily newspaper with a very strong business section, I happened to interview many gold bulls. This was primarily during the two year period between September 2008 and September 2010, in the aftermath of the financial crisis that broke out in mid September 2008.
I got a lot of predictions on what levels the gold price would run up to in the years to come. Almost each one of these bulls agreed that gold will cross $2,000 per ounce (one ounce equals 31.1 grams). Some of them thought gold would touch anywhere between $5,000 and $10,000 per ounce.
The highest prediction I got for gold was $55,000 per ounce. The trick with all these forecasts was that none of these gentlemen predicting the price of gold, gave me a date i.e. by such and such date, the price of gold would be at this level. All of them just gave me a price.
Interestingly, more than four and a half years later, gold prices have not gone anywhere near the levels the gold bulls had predicted. The logic offered was very straightforward—with all the money being printed by central banks all around the world, very high inflation would be the order of the day.
And in this environment people would do what they have always done—buy gold. This expectation drove up the price of gold and it touched around $1,900 per ounce, sometime in August 2011. After this, the price fell and currently stands at around $1,220 per ounce. In fact, the price of gold never even crossed $2,000 per ounce, let alone crossing $5,000 per ounce.
There are important lessons that emerge here. As Humphrey B. Neill writes in The Art of Contrary Thinking: “The whole field of economics remains a “guessy” one. Little, if any, progress has been made over the years in attaining profitable accuracy in economic forecasting. And, mind you, this condition still exists, notwithstanding the extraordinary volume of statistics that is now available…which was not known to former forecasters.”
The Art of Contrary Thinking was first published in 1954 (even though I happened to read it only over the long weekend and I really wish I had read this book a decade back), and what Neill wrote then still remains valid.
Another interesting point that Neill makes is that people love opinions and forecasts which are definitive. Almost every gold bull I have interviewed over the years has told me with great confidence that the price of gold is going to explode in the years to come. And it’s the confidence with which they spoke that made their forecasts believable at the point of time they were made.
As Neill writes: “Forcing oneself to be definitive and specific can cause more wrong guesses and forecasts than anything I can think of. It has given rise to the cynical expression: “Often in error, but never in doubt.” It is this writer’s contention after over 30 years’ acquaintance with, and observation of, economics and Wall Street that being positive, specific, and dogmatic is about the most harmful habit one can fall into.”
What was true in the mid fifties when Neill wrote the book is even more true now, in the era of television and the social media. When you have to voice your opinion in 30 seconds or write everything that you know in 140 characters, there is no opportunity to be nuanced. You have to be as definitive as you can be, because that is what people love and there is no space for a detailed argument.
But as we have seen very clearly in the case of gold this clearly does not work. “The fault likes (1) in the pernicious desire of writers in the financial economic field [like yours truly] to forecast—to be oracles. Once bitten, it is difficult to effect a cure! Readers (2) are equally at fault in expecting that anyone can predict economic or market trends accurately and consistently,” writes Neill.
The gold bulls have been way off the mark in their predictions until now. One reason for this lies in the fact that all the money printing carried out by central banks hasn’t led to much conventional inflation. The reason as I have explained (you can read the pieces here and here) in the past lies in the fact that people haven’t borrowed and spent money at low interest rates, as they were expected to. Given this, a situation where too much money chases too few goods and leads to inflation, never really arose. Though a lot of this newly printed money found its way into financial markets all over the world.
The broader point here is that it is very difficult to predict human behaviour. As Neill writes: “you may have all the statistics in the world at your finger tips, but still you do not know how or why people are going to act.” And given this, just because people have borrowed and spent money when interest rates were low in the past, doesn’t mean they will do so again.
Where does that leave gold? Will gold prices go up again? The answer is kind of tricky. Let me quote Nassim Nicholas Taleb here. As Taleb he writes in Anti Fragile: “Central banks can print money; they print print and print with no effect (and claim the “safety” of such a measure), then, “unexpectedly,” the printing causes a jump in inflation.”
James Rickard author Currency Wars: The Making of the Next Global Crises says the same thing: “They can’t just keep printing…All major central banks are easing…Eventually so much money will be printed that this will lead to inflation.”
What no one knows is when this will happen. And a forecast which does not come with a time frame is largely useless. What this also means is that if you are still betting your life on gold, please don’t. Okay, I think I am making a forecast again. Let me stop here.

Disclaimer: This writer has around 10% of his portfolio still invested in gold through the mutual fund route.

The column appeared on The Daily Reckoning on Apr 7, 2015