The global economy is currently in the midst of a depression that will continue indefinitely because policymakers are using the wrong tools to address the underlying structural problems, according to James Rickards, senior managing director at the U.S. firm Tangent Capital and author of the best-seller Currency Wars: The Making of the Next Global Crisis.
Mr. Rickards, who will be one of the keynote speakers at the Cayman Investment Forum 2013 on Thursday, believes rising stock markets are widely misinterpreted as an indication of economic recovery. Instead, they are indicative of another stock market bubble created by the wrong economic stimulus measures.
“The current economic climate is unlike anything the global economy has experienced since before World War II.
“The world is in a depression and one has to go back to the 1930s for close comparison,” he said in response to questions by conference organizer Certified Financial Analysts Society Cayman.
“However, almost no one alive today has any living memory of the 1930s. Therefore, investors and everyday citizens are confused because no one has any experience living through a depression.”
Mr. Rickards argues that depressions are not cyclical but due to structural factors. However, most economic remedies currently undertaken by policymakers and central bankers, such as monetary easing, aim at cyclical improvements rather than structural change, for example by changing tax laws, labor mobility or regulatory policy. As a result, he does not expect the depression to end soon.
“I expect the depression will continue indefinitely with periods of low growth interrupted by recessions and with volatility in asset prices. This is because depressions require structural solutions and policymakers are using cyclical and liquidity-based remedies instead of structural solutions.”
Despite this gloomy perspective, he said, he does not want to be drawn into an emotional assessment of the world economy going forward. “I avoid optimism and pessimism and try to stay focused on objective and scientific analysis.”
In his book Currency Wars, Mr. Rickards describes a global economy that sees national banks in a competition to debase their national currencies to support their weakened economies at any cost.
Mr. Rickards said following his earlier career in tax law and hedge funds, he became an investment adviser and author because he is concerned that Wall Street and traditional wealth managers do not serve investors well.
“Better approaches are available through research, writing and by applying the benefit of experience.”
To understand what is happening in the world economy today and obtain a broader perspective, investors should read economic history.
Mr. Rickards said works by Austrian economists and complexity theorists are particularly valuable and recommends authors such Friedrich Hayek, John Maynard Keynes, John Stuart Mill, Milton Friedman and Irving Fisher, as well as complexity theorists and network scientists, including Steven Strogatz, Duncan Watts, Per Bak, Benoit Mandelbrot and Joseph Tainter.
Mr Rickards said he is a frequent visitor to the Cayman Islands. “I have visited the Cayman Islands about 15 times in the past forty years and it is always a pleasure to return. The professionalism of the legal, accounting and asset management talent is quite high, and it is interesting to engage professionally with such a high caliber group.”
At the Cayman Investment Forum he will provide a global market overview from the perspective of derivatives and hedge funds investing and their impact on the ongoing economic landscape.
The event, organized by the CFA Society Cayman Islands, will be held at the Marriott Beach Resort on Thursday.