Debt and Delusion: Central Bank Follies that Threaten Economic Disaster (Deluxe Edition) (Hardcover)

by Peter Warburton (Author)

Editorial Reviews

Review
"... a classic 'Financial Reality Bites' read of the highest order." -- John Mackenzie, Safehaven.com, May 8, 2005

"A great book...about this present generation's massive debt...[and] about how Western Civilization has become too dependent on debt." -- David N. Vaughn, Gold Letter, Inc., February 6, 2004

"An undeservedly obscure work of financial economics, Peter Warburton's Debt and Delusion... has become a cult classic among financial contrarians." -- Robert Blumen, Mises.org Daily Articles, August 11, 2004

"What happens if there's an end to this booming economy? That question is clearly answered [in Warburton's] Debt and Delusion." -- J. Tim Thompson, The Trumpet, March/April 2000

Product Description
It’s been almost seven years since I wrote Debt and Delusion. So naturally, readers have a right to ask, "Why produce an updated version at this time?" There are at least three reasons, the cheapest of which is that the author is surprised and flattered to find that it is in demand and there has long ceased to be any supply.

More than that, like an abandoned mine, the book stands as a monument to what was already known about the global credit expansion and the strains in the financial system before the halving of equity market prices from the early 2000 peaks. Most importantly, and sad to say, this equity market trauma foreshadows even more disastrous results of the financial folly that has reached proportions unimaginable in the summer of 1998. And so, the primary function of the book -- "as a timely warning of the perils that lie ahead" -- remains valid.

Debt and Delusion exposes serious flaws in the development of the global financial system starting in the early 1990s, singling out the world’s largest central banks for special criticism. Their negligent oversight has permitted an explosion of corporate and household credit that has fueled a succession of false markets in stocks, bonds, and property. Alarmed by the monster so created, the U.S. Federal Reserve has spent much of the past five years staving off the evil day when foolish lending turns into bad debt.

Far from being the architects of economic stability and low inflation, the world’s central bankers have ushered in a new era of financial fragility and latent instability. Innovations in the use of derivatives, structured products, and other complex financial instruments have been applauded by the central banks on narrow technical criteria. But these supposed bastions of conservatism have failed to comprehend the wider implications for financial stability.

From poorly documented home loans to sub-prime auto loans to subordinated corporate debt and junk bonds, permanently easy access to credit has compromised economic management in the U.S., U.K., and other English-speaking nations and has fostered an illusion of prosperity and well being.

Lamentably, this staggering collective flight from reason has been endorsed by the economics establishment.

The failure of many of the finest economic minds to engage with the rapid evolution of our financial structures and institutions has led to a superficial assessment of this unprecedented credit experiment. Only now, as various credit markets face the inevitable tests of higher interest rates and the realistic pricing of credit risks, is the threat of a pandemic of debt-related distress beginning to be taken seriously. Government budgets, already strained by the weight of social support, have limited scope to respond.

In short, tougher economic times lie ahead, when personal debts will hang more onerously than for 75 years. Debt and Delusion recommends a hasty! reappraisal of the debt requirements of corporations and households alike.

Peter Warburton
September 2005

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Product Details

• Hardcover: 348 pages
• Publisher: WorldMetaView Press (September 1, 2005)
• ISBN-10: 0977079333
• ISBN-13: 978-0977079339
• Product Dimensions: 9.1 x 6.1 x 1.3 inches
• Shipping Weight: 1.6 pounds (View shipping rates and policies)
• Average Customer Review: 5.0 out of 5 stars See all reviews (5 customer reviews)
• Amazon.com Sales Rank: #473,813 in Books (See Bestsellers in Books)

Customer Reviews

Most Helpful Customer Reviews

34 of 35 people found the following review helpful:

5.0 out of 5 stars Good Discussion @ Mises Institute Website, August 12, 2004

By	Ray (Oak Park, Illinois USA) - See all my reviews

This review is from: Debt and Delusion: Central Bank Follies That Threaten Economic Disaster (Paperback)

Robert Blumen discusses Peter Warburton's "Debt and Delusion: Central Bank Follies that Threaten Economic Disaster" at the Ludwig von Mises Institute Website.

"Published in 1999, the work rapidly went out of print but has since become a cult classic among financial contrarians. Although not written from an Austrian point of view, the argument parallels an Austrian view of money and banking in many aspects.  My purpose in writing this article is to present Warburton's main argument and to interpret it through an Austrian lens." -Robert Blumen-

Its central premise concerns the lessons learned from the 1970s when the developed world flirted with hyper-inflation. "Warburton's story begins in the aftermath of Volker's triumph. The conundrum facing governments at the time was: how to enable governments to continue to live beyond their means, without suffering inflationary consequences?"

What follows is a very plausible explanation about how, "Central bankers offered a program to solve this dilemma, the centerpiece of which was a change in the method of financing government debt.   Deficit finance bonds would be sold to private investors through existing financial markets. This would place the bonds in the hands of investment funds, rather than on the books of commercial banks as would have been the case had they returned to the old style of monetization.  The subsequent explosion in the size and breadth of bond markets is illustrated by a few snapshots of gross issuances: less than $1 trillion in 1970; $23 trillion by 1997 and nearly $43 trillion by 2002.

The conundrum:

As he wryly noted:

"Periodic bouts of price inflation, the tell-tale signs of a long-standing debt addiction, have all but vanished.  The central banks, as financial physicians, seem to have effected a cure. . . . Few have bothered to ask how the central banks have accomplished this feat, one which has proved elusive for more than 20 years. As long as inflation is absent, who really cares exactly what the central banks have been up to.

The solution to this puzzling anomaly is to identify the source of demand for government bonds. For this, we must examine "what the central banks have been up to."

"Debt and Delusion argues that the institutional changes...have confined the price adjustments resulting from monetary expansion to the financial system. The character of the 80s and 90s inflation differed from that of the 70s. In recent decades, price changes following money quantity changes have been in stocks and bond prices, rather than wages and consumption goods prices."

Very good read,

(...)

5 of 5 people found the following review helpful:

5.0 out of 5 stars How things got so messed up, December 19, 2008

By	Roebear (PA, USA) - See all my reviews

If you want to know how the economy got so screwed up, spend some time reading this book and you will know MUCH more than you would in 20 years of watching the talking heads on TV trying to feed you the party line via the news or wall street shows!!

4 of 4 people found the following review helpful:

5.0 out of 5 stars A tour de force, February 28, 2009

By	Conor J. Sen - See all my reviews (REAL NAME)

If someone were to say to me, "Prove that the 2007-2009 financial crisis had its origins long before George Bush, Alan Greenspan, the 2001 rate cuts, subprime mortgages and greedy Wall Street CEOs" I would have them read this book. Written in 1999, it's staggering how much Peter Warburton, who I had never heard of before reading this book, understood. It's dense but fairly short, less than 300 pages not counting appendices. One of his key insights is explaining how the credit growth of the 1980s and 1990s didn't lead to inflation. Namely, businesses borrowed huge sums of money in order to increase productive capacity, and by increasing supply, prices were held in check. This book should appeal to Austrians and Keynesians alike, which is a rarity for these types of books. Highly recommended.