Hidden Forces Podcast Summary

Episode Title: War with North Korea, De-Dollarization, and a New Federal Reserve Board
Host: Demetri Kofinas
Guest: Jim Rickards
Date: October 12, 2017

Overview

This episode features financial expert and author Jim Rickards discussing three central themes: the outlook for the Federal Reserve's leadership and monetary policy, the looming threat of war with North Korea and its geopolitical ramifications, and the rising momentum of global de-dollarization. The conversation is timely, insightful, and covers urgent topics at the intersections of finance, geopolitics, and international power dynamics.

Key Discussion Points & Insights

1. The Federal Reserve: Leadership Changes and Monetary Policy

• Alan Greenspan’s Legacy and Gold:

  • Rickards revisits Alan Greenspan’s views and influence, noting how Greenspan was long sympathetic to gold before and after his term as Fed Chairman, describing a “shadow gold standard” during his tenure.
  • [02:35] Jim Rickards: “Prior to being Fed chairman… he was a gold buy bug. Since leaving the Fed he was pro gold. But somehow we’re supposed to believe that while he was Fed chairman he did not.”
  • Rickards posits that Greenspan monitored gold as a barometer for effective monetary policy even if the US wasn't officially on the gold standard.

• Debate on Monetary Policy ‘Honesty’:

  • The discussion references biographer Sebastian Mallaby’s take: that “honest monetary policy” eliminates the need for gold, but Rickards counters that gold itself is a tool for honesty.
  • [06:26] Jim Rickards: “One form of honesty is actually to use gold as a benchmark. And I think that’s what Greenspan did… It helped him get credit for an honest monetary policy.”

• Fed Chair Prospects – Kevin Warsh:

  • Rickards predicts with high confidence that Kevin Warsh would be the next Fed chair, emphasizing Warsh’s pragmatism and non-ideological approach.
  • Warsh’s preference for rule-based policy and the Taylor Rule is nuanced; Rickards explains that applying such rules over time could even justify holding off on rate hikes.
  • [07:33] Jim Rickards: "I’m very encouraged by the fact that Kevin Warsh will be the next chairman of the Fed because he’s not a PhD economist, thank goodness.”

• Interest Rate Strategy & Recurring Mistakes:

  • Rickards asserts the Fed is raising rates “to be able to cut them” in the next crisis, not because the business cycle justifies it.
  • He critiques the Phillips Curve as a myth and references historical errors (like 1937’s tightening) the Fed is keen not to repeat.
  • [11:44] Jim Rickards: “The Phillips curve is like a unicorn... it doesn’t actually exist. It’s just a construct that doesn’t sync up with reality.”

• Fed Board Appointments and Trump’s Influence:

  • With up to six of seven seats becoming Trump appointments, Rickards remains skeptical that dramatic policy change will follow.
  • [18:35] Jim Rickards: “You can say it’s Trump’s board, but it’s really Warsh’s board… they’re all constrained by the real economy, by their fear of deflation, and by the need to get rates up because they blew it in 2010.”

2. The North Korea Crisis: Timelines, Scenarios, and Geopolitical Risks

• Forecasting War: Rickards’ Unusual Timeline Call

  • Rickards boldly predicts a hot conflict with North Korea within 6-8 months, citing rapid advances in North Korean ICBM and nuclear capabilities.
  • [23:50] Jim Rickards: “I don’t do dates when I don’t have enough information… here’s one where there’s good reason… he’s blown away every intelligence estimate… the only thing he doesn’t have so far is the ability to miniaturize and ruggedize the warhead.”

• North Korea’s Capabilities & “Breakout Mode”

  • Rickards details how North Korea has consistently beaten intelligence timeframes for weapons milestones.
  • [25:08] Jim Rickards: “Breakout is when you say, ‘I don’t care, I’m just going for it’... he’s in breakout. We’re looking at an existential threat.”

• China’s Limited Leverage & Russia’s Lifeline

  • Rickards disputes the notion that only China controls North Korea (“all roads go through Beijing”), highlighting Russia’s crucial support via financial channels and energy supplies.
  • [29:08] Jim Rickards: "North Korea shares a border with Russia… Putin is shipping in coal. He is North Korea's lifeline."

• U.S. Strategy and China’s Role

  • He foresees the U.S. engaging China for tacit approval before military action, offering assurances regarding reunification and buffer zones.
  • [32:55] Jim Rickards: “We’re not going to reunify the Korean Peninsula under our terms. We’re just there to stop the ICBM... and decapitate the regime.”

• Potential Outcomes and Human Cost

  • Even in the “best case,” Rickards concedes immense humanitarian fallout in South Korea could result, cautions that advanced U.S. “secret weapons” might minimize casualties, but huge uncertainty persists.
  • [33:46] Jim Rickards: “Estimates… are kind of 100,000 [casualties]... but that’s without factoring in a secret weapon.”

• Global Order and Market Complacency

  • Kofinas stresses that any conflict would fundamentally shake the global system, and Rickards agrees market participants are severely underestimating the risk.
  • [36:48] Jim Rickards: "We're seeing [signals] every day and the markets are ignoring them. The markets are sleepwalking off a cliff."

3. De-Dollarization and IMF Power Shifts

• SDRs, IMF Voting, and BRICS Influence

  • Rickards explains the IMF’s structural constraints: major policy moves require 85% approval; the U.S. has a veto at just over 16%.
  • BRICS nations, now with nearly 15% of the vote and growing, are demanding more influence; Rickards’ “BRICS Plus V” (adding Venezuela to BRICS) could soon block U.S.-favored IMF initiatives.
  • [39:49] Jim Rickards: “BRICS Plus V can stop an initiative… that quid pro quo is the end of the dollar [as reserve currency].”

• Yuan-Based Oil Trading and Bypassing US Sanctions

  • The rise of yuan-based oil contracts, convertible into gold, is highlighted as evidence of an accelerating trend away from the U.S. dollar and the dollar-payments system.
  • [42:02] Demetri Kofinas: “It also undermines US sanction regime, which brings us back to North Korea and this reconceptualization of the geopolitical framework.”

Notable Quotes and Memorable Moments

• [03:12] Jim Rickards, on Greenspan:
  “Since then he’s been giving speeches… saying very positive things about gold. So prior to being at the Fed he was pro gold. Since leaving the Fed he was pro gold. But somehow we’re supposed to believe that while he was Fed chairman he did not.”

• [10:45] Demetri Kofinas, on Warsh:
  “So you think Kevin Warsh is a shoo in or what?”

• [11:44] Jim Rickards, on the Phillips Curve:
  "The Phillips curve is like a unicorn... It doesn't actually exist."

• [18:35] Jim Rickards, on Fed board appointments:
  “So you can say it’s Trump’s board, but it’s really Warsh’s board...”

• [23:50] Jim Rickards, on North Korea:
  “I don’t do dates when I don’t have enough information to make a smart forecast. But I don’t mind doing dates if I think I do… he’s blown away every intelligence estimate…”

• [35:06] Demetri Kofinas, on global risks of war:
  “We're talking about a complete shift in perspectives around sort of the stability of geopolitics…”

• [36:48] Jim Rickards, on markets’ risk blindness:
  “The markets are sleepwalking off a cliff.”

• [39:49] Jim Rickards, on IMF:
  “BRICS Plus V can stop an initiative… that quid pro quo is the end of the dollar.”

Timestamps for Key Segments

• [02:35-04:50] Greenspan’s gold philosophy and shadow gold standard
• [07:16-09:31] Kevin Warsh and potential Fed policy continuity
• [15:10-18:11] The Fed’s logic for raising rates and QE’s real (lack of) impact
• [22:50-28:40] North Korea’s weapons progress and timeline for conflict
• [29:08-32:24] Russia and China’s true roles in the North Korea equation
• [36:48-39:29] How markets are ignoring geopolitical warning signs
• [39:49-42:02] IMF voting, de-dollarization, and yuan-denominated oil trading

Conclusion

This episode delivers a candid, highly informed discussion of three major issues affecting the world’s financial and geopolitical stability. Jim Rickards offers a rare, precise timeline for North Korea conflict risk, dissects the policy inertia at the Fed regardless of presidential appointments, and illuminates the quiet but powerful shifts away from dollar hegemony. The themes and warnings raised remain relevant for investors, policymakers, and anyone seeking to understand the forces shaping our uncertain world.