Exploring the Rickards reset

Although we associate Another's views with an overnight repricing apocalypse in which all paper burns, he took care on a couple of occasions to say that if the transition to gold was managed right, all would benefit.

The suggestive power of these remarks was given full form by FOA, who began his Gold Trail series of musings with, "Truly, the stream [gold market] is being prepared for the great flood that must come, will come!" The great change would be freegold. The composition of the European Central Bank reserves was a harbinger. The powers that be were preparing the way.

None of this is news to any of you, but please note how widespread this idea is becoming. Recently, even Greg Hunter, a very basic kind of zero hedger, alluded to the preparations being made for the new (post dollar) monetary order. 

This scenario originates with Jim Rickards, or at least he is its most popular mainstream proponent. Rickards says the monetary reset can only happen when major powers in gold deficit accumulate the precious metal at a certain proportion to national GDP. He mentions China and sometimes Russia and China as lagging and says that gold prices are kept down to allow China to accumulate what it needs for parity in a new gold-backed monetary regime.

In Rickards' view, launching into the new arrangement before China is ready would create a revanchist, outsider state and the world wants China at the table. By the same token, the dollar dies the day China is deemed to have caught up in the gold accumulation game. Gold is repriced by agreement. It's as if world leaders had read Another and want to avoid armageddon. 

This scenario is compatible with China encouraging private gold accumulation; with Venezuela, Germany and others repatriating their gold stocks. It is not so strong on the geopolitical side.

The first objection we might raise is that with the declared U.S. gold holdings, the U.S. would be the gold superpower, dwarfing the other monetary system participants, which few would want to agree to. Rickards would certainly counter with the point that as a proportion of the world's largest economy. U.S. gold is not outsized and the targeted, proportional accumulation of other nations would bring all participants into balance. 

The greater test is in goodwill and intentions. History teaches us about arms races. These are partly public, partly secret. 

If gold will confer an advantage in the post-dollar monetary regime, why wouldn't states accumulate it in secret? Wouldn't they understate production and purchases in order to build secret stockpiles? When the music stops and the true reserves are declared, cheaters will be declared winners.

Another told us of really large deals managed by cutouts for giants (including governments). We should believe him and make the small leap of trust that this is also happening today. Has George Soros warehoused the bullion GLD delivered to him or has it passed on to other hands? Or has he fulfilled his mission, as Goldman and JPM are accomplishing theirs?

The Rickards scenario has merit (and Rickards is well connected) and it is not exclusive of other outcomes. States may be moving toward a new system as he describes. They might do so openly and honestly or competitively in secret. They may be heading toward freegold or towards a basket of currencies / commodities / gold. The SDR may be mixed up in this or not. 

Or Rickards may be on to an initiative that will fail. Or Rickards may be flat wrong about everything.

Another of Jim Rickards' memes is the currency war. Interestingly, this meme lives in its own space and is unconnected to the new monetary order except that he says currency wars bring forth new monetary orders.

Rickards sees currency wars as random incidents, somewhat ad hoc, planless, ill-considered.

But currency war is a controlled demolition of the fiat system. You would start a currency war as a countdown to the new system. It would incentivize laggards to climb onto the new monetary regime. The question then becomes, who started the current currency war? Was it an accident or by design? Isn't this the signal that China has attained its gold quota?

More important, this is not the post-war period and the world is no longer just the anglosphere plus Western Europe. Can there now be sufficient cooperation to launch a new monetary system?

Another foresaw either a "natural" dollar crash or one engineered by a nuclear option in which some cowboy pulled the gold trigger first, vaporizing competing currencies overnight.

Choosing between cooperation and anarchy, the latter seems more natural in the world. The easy stuff yields to cooperation not the hard stuff.