James Rickards is the Fox Mulder of Wall Street.
Like the fictional Mr. Mulder, the nonfictional Mr. Rickards, senior managing partner at Tangent Capital Partners, is disdainful of received wisdom and skeptical of government. Instead of the Federal Bureau of Investigation, Mr. Rickards’s bogeyman is the Federal Reserve.
But like David Duchovny’s television and big-screen character, Mr. Rickards is no wild-eyed nut. In conversation, he is cerebral; something of a modern-day Renaissance man who has woven economic history, experiences from a lifetime spent in financial markets, and an interest in the emerging field of complexity economics to construct a prism through which to view the global economy.
Look through that prism, and here’s what you see: a central bank that is actively debasing the value of the U.S. dollar, courting inflation and sparking retaliatory policies that will destabilize global currency markets for years to come; and feckless politicians whose profligacy has made the U.S. vulnerable to attack via nefarious manipulation of financial markets. All this will end badly unless policy makers get it together. Mr. Rickards doesn’t preclude a happy outcome, but it’s not his base case.
Welcome to Currency Wars: The Making of the Next Global Crisis, Mr. Rickards’s first book and something of a surprise hit since its publication last fall. The book has been reviewed favourably in the Financial Times, USA Today and Bloomberg Businessweek. It cracked the bestseller lists at the New York Times and The Wall Street Journal and it rose as high as No. 12 at Amazon in Canada.
Not bad for a book whose cover art depicts an army of machine-gun-toting greenbacks aligned against an allied force of euros, yen, British pounds and Chinese yuan.
(If you’ve read the book, and can do without a précis, jump to the Q&A with Mr. Rickards at the end.)
The cartoonish cover belies the seriousness of the pages. Mr. Rickards makes the case for a strong dollar without getting caught up in jingoist expressions of American strength, and makes the case for a gold standard while dismissing most gold bugs as fetishists. Texas congressman Ron Paul deserves the credit for making the Fed’s influence and the gold standard part of the mainstream conversation. But with Currency Wars, it’s Mr. Rickards who has articulated a thesis that will force the champions of mainstream monetary policy to justify their positions.
In print, Mr. Rickards has a tendency to wander a little too far into the fringe. For example, he suggests the U.S. Treasury and the International Monetary Fund essentially are in cahoots to introduce a global unit of exchange that would have the effect of further weakening the dollar. That would also make U.S.’s dismissal of all talk about changing the international monetary system an elaborate smokescreen. Mr. Rickards offers no evidence for this assertion. The argument is theoretical, and to accept it as truth, one must also believe that overworked policy advisers who struggle to see past the next election have time for Machiavellian pursuits of world domination.
These moments of implausibility become minor distractions. Mr. Rickards makes up for them by opening a window on how the U.S. is vulnerable to a financial crisis triggered not by the bursting of asset bubbles, but by the nefarious manipulation of financial markets by its foes. Mr. Rickards also joins the vanguard of thinkers who are starting to apply complexity theory to the study of economics and financial markets. Complex systems aren’t built; they evolve through the interaction of their component parts. They can’t be understood by examining only one of their parts; they require a lot of energy and are prone to collapse. For Mr. Rickards, this is a more realistic way to think about global financial markets. The problem, he argues, is the world’s central banks still are stuck on Keynes and Friedman.
Currency Wars is a conspiracy theory for the thinking person. Mr. Rickards foresees a likely return to the gold standard, but only because that will prove the easiest route to order after politicians eventually trigger a global financial crisis. However, he would prefer it if the world’s major economies signed the equivalent of an economic peace treaty in which each promised policies that resulted in a stronger dollar. That’s not far from what the Group of 20 says it is trying to achieve. A glimpse at Mr. Rickards’s future should provide some impetus for the G20’s leaders to get serious about their project.
