Coming Chaos, Inflation & Gold

Today the former Special Assistant to the President of the United States for Economic Policy and former member of the U.S. President’s Working Group on Financial Markets spoke with King World News about coming financial chaos, runaway inflation and gold in part II of this remarkable three part interview series that will be released today.  While in the White House, Dr. Philippa “Pippa” Malmgren served as financial market advisor in the White House and functioned as the liaison between the White House and the Federal Reserve.

Dr. Malmgren formerly headed the Global Asset Management business for Bankers Trust in Asia, out of Hong Kong, and was also Chief Currency Strategist for Bankers Trust Company, and former Head of Global Investment Strategy at UBS.  Dr. Malmgren was also a senior consultant to Deutsche Bank, and currently advises the largest sovereign wealth funds, hedge funds, and pension funds in the world.

Eric King:  “You were a member of the President’s Working Group on Financial Markets, what about this idea that the price of gold is managed by the West?”

Dr. Malmgren:  “There are times when the presence of extremely large players, like governments, will move the price way more than normal….

“That’s the thing, when the market gets unbalanced it tips really far to one side, which was the situation at the time when we had this big debacle in the gold price.

You just have to whisper at it (the price of gold), and you can move it big time.  Are governments good at that?  Yes, they are good at that.”

Eric King:  “I interviewed Dr. Anna Schwartz before she passed away.  What an amazing woman, (she was) in her 90s and she was still working full time.  She co-authored that book with Milton Friedman, ‘A Monetary History of the United States.’  But she was talking with me about how paralyzing runaway inflation is to the economy.  I just had you go back and look at a speech (from the 90s) where Alan Greenspan was discussing five times, ‘creating money without limit,’ and that this would lead to runaway inflation.  This idea of runaway inflation, it comes at a tremendous expense and a paralyzation of the economy doesn’t it?”

Dr. Malmgren:  “Not only that, but I think central bankers feel that they know exactly how to fix an inflation, but they know nothing about how to deal with a deflation.  So given a choice between the two problems, they are always going to lean towards inflation as easier to deal with.

But they forget that it’s a political problem.  Back in the 1970s my father was the Co-Chief Economic Advisor to President Ford, (along) with Alan Greenspan.  And everyone forgets that between 1973 and 1979 when Paul Volcker was brought in, it took 5 years of really heavy argument before anybody agreed on which was a bigger problem, unemployment or inflation.

We call those years, ‘The Stop-Go Years,’ because they kept dealing with one, and then reversing and dealing with the other.  So you were ‘stopping-and-going’ the whole time.  5 years of having deep uncertainty about what is the nature of the problem and what is the government doing about it, that’s pain, real pain.

So the idea that, ‘Oh, don’t worry.  If we get little inflation we know exactly what to do,’ I think is absolutely not what it’s going to look like.”

Dr. Malmgren also added:  “What gasoline is to an American, onions are to an Indian.  That is their core food staple.  Those things (onions) have gone up 110% in the last 3 months alone, on the back of a previous 100% price hike in the prior 12 months.  These are not small price movements … So there are lots of specific bottlenecks that are going to cause unusual price movements.”

Eric King:  “This gets back to what Dr. Schwartz was warning about, the paralyzing effects that happen inside economies from great inflation.”

Dr. Malmgren:  “Well, that is true.  I wholly agree with it.  But I also say, look, at the end of the day, the magnitude of the debt that is held by the United States, and indeed by all of the industrialized economies that have a debt problem, is so great it cannot be paid down.  The human suffering involved would be so far beyond our capacity to withstand, so it has to be defaulted on.”