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The New Depression: The Breakdown of the Paper Money Economy Hardcover – April 3, 2012


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Product Details

  • Hardcover: 179 pages
  • Publisher: Wiley; 1 edition (April 3, 2012)
  • Language: English
  • ISBN-10: 1118157796
  • ISBN-13: 978-1118157794
  • Product Dimensions: 6.4 x 0.8 x 9.3 inches
  • Shipping Weight: 14.4 ounces (View shipping rates and policies)
  • Average Customer Review: 4.2 out of 5 stars  See all reviews (76 customer reviews)
  • Amazon Best Sellers Rank: #256,407 in Books (See Top 100 in Books)

Editorial Reviews

Amazon.com Review




Q & A with Richard Duncan, author of The New Depression

Richard Duncan
This is a very ambitious book. Its theme is that a new credit-driven economic system has replaced Capitalism in recent decades and is now at risk of breaking down into a New Great Depression. Is that correct?
Yes. In 1968, when the United States stopped backing dollars with gold, the nature of money changed. The distinction between money and credit became blurred and the constraints on credit creation were eliminated. Over the next 40 years, total credit in the US expanded 50 times from $1 trillion to $50 trillion. That explosion of credit financed unprecedented global prosperity. There is now a grave danger that this new credit-fuelled economic paradigm will break down into depression because the private sector cannot bear any additional debt.

But why do you call this a new economic paradigm? Isn't that just the way Capitalism works?
No. Capitalism was an economic system in which the private sector created growth through a process of investment, profit and capital accumulation (hence Capitalism), in an ongoing cycle. The government played very little role. Our economic system has not worked like that for decades. The US government now spends $25 out of every $100 spent in the economy (25% of GDP) and the central bank "creates" the money and manipulates it value. That is not Capitalism. Moreover, the economic dynamic is no longer driven by investment and capital accumulation. Our system is driven by credit creation and consumption. Creditism is a more appropriate name for it. Creditism has created extraordinarily rapid growth for decades, but now seems to have hit its limit to create more growth because the credit that has already been extended can no longer be repaid. Therefore, no further credit expansion appears possible.

Why do you believe credit growth is so vital for economic growth?
Since 1952, there have only been nine years when total credit (adjusted for inflation) grew by less than 2% in the United States. Every time there was a recession; and the recession did not end until there was another large surge of credit expansion.

In this book you introduce the Quantity Theory of Credit. What is that?
The Quantity Theory of Credit is an adaptation of the centuries-old Quantity Theory of Money--adapted to make it pertinent to this new age of fiat money. It is a simple, but powerful, analytical framework that explains all aspects of this crisis: its causes, the government's policy response to it thus far, what's likely to happen next and the impact that future developments will have on asset prices.

On the topic of asset prices, will this book help individuals make better investment decisions?
Yes. Chapter Seven lays out scenarios of how events are likely to unfold between now and 2015; and describes how asset prices would be impacted under each scenario. Chapter Ten discusses why asset prices now move in unexpected ways compared with the way they would be expected to behave within a Capitalist system. It also discusses the prospects and consequences of inflation and deflation, as well as the advantages offered through diversification.

Finally, do you believe the global economy will collapse into a New Great Depression and what will happen if it does?
The flaws of our new economic model, Creditism, are all completely obvious now. However, there are extraordinary opportunities that exist within this system that we as a society have not yet grasped. They are described in Chapter Nine. My goal in writing this book was to point out what those opportunities are so that we can avoid the terrible economic calamity that may be inevitable otherwise. Should we fail to understand and take advantage of the opportunities our new economic system presents, the economic and geopolitical consequences are likely to be dire. Chapter Eight, Disaster Scenarios, spells out just how bad things could become if we don't come to grips with the nature of our new economic system and implement a bold and imaginative strategy that ends this crisis.




Review

'The book is well worth reading for its analysis.' (The Economist, 7th July 2012)

More About the Author

Since beginning his career in Hong Kong in 1986, Richard Duncan has served as global head of investment strategy at ABN AMRO Asset Management in London, worked for the World Bank in Washington D.C., headed equity research departments in Bangkok and consulted for the IMF. He is now chief economist at Blackhorse Asset Management in Singapore.

Richard has appeared frequently on CNBC, CNN, BBC and Bloomberg Television and is a well-known speaker. He studied literature and economics at Vanderbilt University (1983) and international finance at Babson College (1986); and, between the two, spent a year backpacking around the world.

For updates on the author's views, please see his website/blog, Economics In The Age Of Paper Money:
http://www.richardduncaneconomics.com/

Customer Reviews

I am happy to report that, much to my surprise, this book is none of these things.
George F.
In The New Depression, Mr. Duncan convincingly dismantles Bernanke's Global Savings glut theory and explains to Mr. Greenspan what the "Conundrum" is all about.
Pedro Voltaire
That Duncan has a lot of very intelligent things to say in this book leads me to the view that all his opinions deserve serious consideration.
Lance B. Sjogren

Most Helpful Customer Reviews

76 of 76 people found the following review helpful By Tom G on April 9, 2012
Format: Hardcover Verified Purchase
The New Depression is an important book. I think the subject matter is beyond the grasp of a mass market audience but not at all boring or too complicated for those with some financial education or a keen interest in the subject. I mention this point because a few chapters necessarily lay a logic foundation for what follows and that requires some discussion of money and credit. Don't be scared off by my mild caveat.

This tightly written 179 page exposition explains the credit based economy since 1968. This book brings it all together and explains how we arrived at the economic ledge and the limited policy options remaining. Duncan starts by quickly showing how the expansion of credit has driven our economic growth. America continued it's economic expansion after leaving the gold standard by switching to an economy of credit/spending from saving/investing. It explains America's financial relationship with China/Asia and how we're all in this together and none are without sin. The progression he presents is absolutely convincing and sweeps away the confusion and incompleteness of the piecemeal theories that dominate financial market discussions. This understanding is monumentally important to the investor who stands stunned looking at a world of negative interest rates and wondering about inflation versus deflation. It's truly a matter of financial survival for many of us.

This book is not about blame or angry opinion but a mature and rational analysis. Terrible policy decisions were made in the past. The continuum of folly brought us to the credit collapse of 2008. Duncan places you in the shoes of the Fed chairman and the Treasury Secretary as they stand on the ledge discussing what to do next. Shocked themselves, they wonder what is politically possible and how much time have we left. Want to be the fly on the wall and hear the truth? Get the book. Worth every nickel.
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176 of 188 people found the following review helpful By Lance B. Sjogren on April 14, 2012
Format: Hardcover Verified Purchase
This is the first book I have read by Duncan and I find it very thought provoking. Note that Duncan approaches the subject of the contemporary economy from an American perspective, and I, also being an American, will discuss it from a US-centric perspective.

I believe his most central concept is that we currently operate under an economic system that is based on an ever-increasing expansion of credit, which he calls, for lack of a better word, "Creditism". He seems to substantially share the view of the Austrian school of economics that this state of affairs, which was triggered by the abandonment of the gold standard, and aggravated by a virtual elimination of any capital reserve requirements for the issuance of debt, is a tragic one.

A number of other books I have read recently on the economic crisis have also emphasized the key role that debt expansion has played in the economy being where it is today. He is perhaps unique, however, in asserting that debt is in fact now the cornerstone of our economic system.

He asserts that economic growth or decline is caused by the expansion or contraction of credit, and provides what appears to be some pretty good evidence of how ups and downs in the economy were caused by fluctuations in total credit. ("TCMD" Total Credit Market Debt) And that overall there has been an exponential increase in TCMD over the last 60 years or so, which was the cause of the prosperity that has prevailed during that period.

That assertion makes a good deal of sense to me, although another explanation of the prosperity of the late 20th century that some have made is that it was driven by the availability of abundant cheap energy. That seems to me to also be a pretty credible hypothesis.
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77 of 83 people found the following review helpful By Fritz R. Ward TOP 1000 REVIEWERVINE VOICE on May 30, 2012
Format: Hardcover Vine Customer Review of Free Product ( What's this? )
Richard Duncan knows more about economics than most people; certainly more than most politicians. He understands that expanding credit expands the money supply and causes inflation. But the inflation is not generally felt throughout the entire economy. Rather, expanded credit makes some investments seem profitable when they really are not. Resources are misallocated, and eventually those investments fail, often dragging down large parts of the economy with them. The 2008 real estate crisis that led to our current depression (let's be honest and call it what it is) is a prime example of what happens when credit is extended beyond what a population would naturally save or invest.

Duncan's observations in this area are not new. Austrian economists have for years argued that the entire business cycle is best explained by credit expansion, often at the behest of governments trying to manipulate the money supply. What is new is the scope of expansion. As Duncan notes, previously the creation of money for the purpose of extending credit was at least partially restrained by the gold standard and by the requirement that banks maintain significant reserves should their depositors want to access their money. Both constraints have since been lifted, and the government can extend credit at will. But eventually the bill must be paid, and at this point, neither households nor corporations can continue to run up debt, and this means a large amount of investments need to be liquidated at a lower level.

Or perhaps not. Classic Austrian economics suggests that you should let the market sort out which investments are truly profitable and let prices fall. But Duncan argues we cannot afford that option.
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