Today’s economic woes are comparable to the Great Depression, James Rickards L’77 asserts in his latest book, The New Great Depression: Winners and Losers in a Post-Pandemic World.
“It may or may not be worse, but it’s pretty bad,” said Rickards, who has penned several bestselling books on economy and finance.
The nation’s response to the coronavirus pandemic — namely, lockdowns and business restrictions — has bludgeoned both the current economy and people’s spending habits, which Rickards said will affect Americans for generations.
While some might point to an apparently rebounding stock market, Rickards argues those numbers don’t reflect reality.
“People turn up their nose at small business, but small- and medium-sized businesses collectively make up 50 percent of all jobs and 45 percent of the GDP,” he said. The other half of the country’s economy largely comprises the biggest companies: Apple, Microsoft, Amazon, Facebook, Google and Tesla.
“You can’t lock down half of the economy and not have severe economic repercussions,” Rickards said.
Rickards, the editor of a financial newsletter named, Strategic Intelligence, is the author of five other books. An investment advisor, lawyer, inventor, and economist, he has held senior positions at Citibank, Long-Term Capital Management, and Caxton Associates.
Rickards begins his latest book, published by Penguin Random House’s Portfolio, with an examination of COVID-19’s origins and global spread and the governmental response. He examined hundreds of medical and scientific research papers to gain an understanding of the virus before launching into exploration of its economic ramifications.
“I felt strongly that I wanted to do both in the same book so the reader could get a really good history and scientific explanation on the pandemic — and also the economic aspects of it,” he said.
Unemployment is a major issue, and it’s underreported, Rickards said. He estimates the national rate is more than 11 percent, which includes people who lost their jobs and are not actively job-searching.
“If you’re a bartender where all the bars are closed, there are no jobs, but that’s not counted as unemployed,” he said.
Another problem is how long-term quarantining has affected the American psyche and subsequent behavior.
“Just because restaurants are open doesn’t mean people are going to the restaurants,” he said. “We have higher saving rates, reduced leverage, less partying, and just because things reopened doesn’t mean people are getting on planes.”
Looking at past pandemics — the Black Death and the Spanish Flu, for instance — shows that society generally rebounded to its “new normal” after about 30 years, said Rickards, citing a recent study. To expedite that process, Rickards believes a massive shock to the economy could help undo the effects of the shutdowns.
“From George Washington to the end of the Trump administration, we’ve racked up about 22 trillion dollars of national debt, and piled on $7 trillion more in the last two years,” he said. “This is unprecedented.”
The answer, he says, is inflation. Printing more money is ineffective, Rickards said, because it doesn’t involve the velocity, or turnover, of money. For example: At a restaurant, you tip your waiter, who then uses that money to pay for a taxi, whose driver then spends that money on gas. That dollar had a velocity of three. If you stay at home and watch TV instead, your money has a velocity of zero.
“Money times velocity equals GDP,” Rickards said. “If you don’t have velocity, you don’t have an economy.”
Instead, Rickards said the dollar must be devalued against gold, which has successfully spurred inflation twice in our nation’s history: once under FDR and again, although inadvertently, under Nixon.
Rickards also makes suggestions on managing and increasing wealth, particularly with his expectation of impending inflation. He recommends having 10 percent of investible assets in gold and working to diversify one’s remaining savings and assets. That means having a combination of equities, real estate and cash, and investing in assets protected by inflation, including residential real estate and natural resources.
“I hope [the book] sends the message that you’re not helpless,” Rickards said. “Even in difficult circumstances — in a pandemic, in a depression, there are ways to make money, but you have to understand the problem and do the right analysis.”