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Neue Zuercher Zeitung (NZZ) Switzerland, February 17, 2014 Interview with Jim Rickards by Christof Leisinger Translated

from German by Alex Gloy

The financial system will collapse in a few years


An interview with Jim Rickards is not for the faint hearted . The American lawyer, banker , risk manager and portfolio manager says we should expect a collapse of the financial system within the next three to five years. The media- savvy bestselling author is promoting his latest book "The Death of Money", due to be published by April. Rickards has gained extensive experience in international capital markets over more than 35 years. He participated in the rescue of the hedge fund Long-Term Capital Management in 1998. Rickards is not surprised by the recent weakness of emerging market currencies, being part of a potentially prolonged episode of a currency war. The United States initiated the most recent currency war in 2010 with the intention to cheapen the US dollar. With the "greenback" being the world 's reserve currency, consequences of local monetary policy are felt everywhere . While the U.S. Federal Reserve Bank (Fed) claims to focus on promoting economic growth in the United States, it's policies forced emerging countries to raise interest rates to stabilize their currencies . The U.S. government and the Fed need to generate a certain amount of inflation. One option is to weaken the currency in order to raise the cost of imports. In the past, investors were enticed to purchase securities globally with money borrowed thanks to low interest rates and plenty of liquidity. As soon as the Fed indicated an end to its generous monetary policy, the process reversed and led to turmoil in emerging markets . Continued volatility is to be expected since the Fed currently does not know what to do. This is about to change in the second half of the year. The already modest US economic data will be even more disappointing , and the Fed would possibly be compelled to increase asset purchases once more. Rickards fears the Fed is tapering into weakness, and will trigger a recession in 2015. The labor participation rate in the US, he points out, has fallen to the lowest level since 1978. Too few jobs with too low wages have been created, causing 15 million Americans to depend on food stamps. 26 million Americans are underemployed , 11 million people receive disability insurance while the introduction of Obamacare acts as a new tax . While the construction and automotive industry have been temporarily boosted by low interest rates, recent data points to a worrying increase in inventories. Overall, the U.S. economy is in a rather bad shape . While the Fed publishes optimistic growth forecasts, those have regularly turned out to be wrong in the past, says Rickards. According to Rickards, the United States are on the same path as Greece despite the recent increase in debt ceiling. The US has accumulated a lot of debt recently. While it previously funded the Second World

War, today it has nothing to show for the increase in debt. Weak growth leads to a further increase in the debt-to-GDP ratio despite a decline in the federal deficit, undermining confidence in the dollar. In the short term the dollar might strengthen again due to turbulence; in the long term , however, the lack of spending discipline is a problem. Rickards boldly predicts a collapse of the world financial system within the next three to five years. The writing is on the wall due to insufficient restructuring of the financial sector and risky strategies by markets participants. Already, the world financial system collapsed in the years 1914, 1939 and 1971. The world didn't end, but the financial system had to be reformed every time. The IMF's Special Drawing Rights (SDR) or even gold could play a major role during the next reform.