Guest Post: Fred Hickey - If We Continue Down This Path, the Outlook is General Impoverishment for the Country
Submitted by Damien Hoffman of Wall St. Cheat Sheet
A few weeks ago, I asked Fred Hickey what he would do as chairman of the Federal Reserve.
In the remainder of our interview, I asked Fred whether we can avoid
recessions in a business cycle, what will happen to the US Dollar, how
our creditors are behaving, and what advice he can offer given the new
Damien Hoffman: Fred, can we create a perpetual business cycle where we don’t get recessions?
Fred: No. I have a quotation on my board here that says, “The final
outcome of the curve expansion is general impoverishment.” That means
if we continue down this path the outlook, unfortunately, is general
impoverishment for the country.
I hope that’s not how it’s going to play out. But I’m not
particularly optimistic with the current leadership that we have in
At some point the dollar is going to break down — really break down.
Right now there’s still a rush to safety from the worry about Europe.
But I don’t know why they’re so worried about Europe when we’re the
ones with the trillions of dollars of deficits.
Damien: It’s an ironic flight to safety. It’s almost a cosmic comedy.
Fred: It’s just a Pavlovian reaction. However, at some point that
won’t be the reaction and the dollar will get crushed. Eventually there
will be some recognition that this country is broke. No one seems to be
talking about this, but in a recent US Treasury foreign holdings report
I saw a flat line where the mainland Chinese were not buying our
treasuries anymore. Their position was holding; meaning, they were
buying just enough to offset the maturing bonds. Now we’re seeing
outright declines. This has gone on for several months and now it’s an
Damien: What about the Russians?
Fred: The Russians are also reducing their positions. They reduced
$10 billion in December and it’s dropped from a $140 billion almost to
$118 billion over the last few months.
The Russians have been out there saying they’re buying gold,
Canadian bonds, and diversifying their positions. Well, here they are
doing it. At some point, enough people around the world will say they
don’t want to be in dollars anymore and they will get out. It looks to
me that the Chinese and the Russians are getting out.
The smart guys are leaving the ship and it looks to me like we’re
replacing them with are our own printed money as well as hedge funds
who are borrowing money and buying treasuries. This is a very bad group
to have. Those are not long term holders. That could reverse very
quickly. If that happens you can have a dollar collapse.
Damien: So is gold the hard currency which will continue to win?
Fred: I never loose sleep with my big gold position, but I do loose
sleep when I have a big dollar position. I always see pullbacks in gold
as buying opportunities because what I’ve discussed are the big forces
really moving things. There are very few people on this planet that
understand the big macro picture behind the movement to gold. We’re now
in a 10 year bull market in gold. We ran a twenty year bear market, so
it might be a twenty year bull market. We may be only halfway through.
I’m not sweating $1100 gold as the top like so many others in this
country. They see bubbles everywhere in gold. They never saw the bubble
in real estate, never saw the bubble in stocks, never saw anything.
However, all these people in the U.S. see a bubble in gold. I don’t see
it. I sleep like a baby with my gold position.
Damien: Fred, given the situation our country faces, what type of advice do you give your children?
Fred: That’s a hard question. First, you must be willing to work
hard at anything you do. Try to find something you enjoy and you can
feel good about. It helps you work hard.
Save your money and don’t build up debts. I never get myself in any
kind of trouble because I never had any debt. So, if I’m wrong I’m
never going to get really destroyed because I don’t have leverage. Debt
is a four letter word. I’m an old fashioned guy.
Don’t ignore history. There are a lot of lessons to be learned that
many people seem to never learn. I have my kids reading what I consider
to be many of the investment classics.
Damien: That’s great advice especially keeping out of debt.
If most Americans just followed that one simple principle, we’d be in a
whole different position right now.
Fred: If most individuals and our government.
Damien: Right. Well, thank you very much for the rare interview, Fred. Our readers really appreciate you taking the time.
Fred: My pleasure. All the best.