Well, as Jack Webb used to say, Richard Duncan, in his new book, keeps providing "just the facts, ma'am," relentlessly, almost morbidly, page after page. In so doing, he limns the outlines of some terrible financial/economic policies carried out by U.S. leaders that have resulted over time in what he terms the "New Depression." It makes for sobering reading.
For 25 years, the Bretton Woods model for the world's financial system held, but with President Johnson insisting, with the urgings of his Council of Economic Advisers (Arthur Okun, Gardner Ackley), on a "guns and butter" fiscal policy as being a workable solution to his political ends (victory in Vietnam and launching the War on Poverty), Bretton Woods began unraveling and reached its culmination under President Nixon who was forced by circumstances (and his own unenlightened policies) to end the convertibility of the dollar into gold in 1971. What could have saved the world from this lamentable action? As Duncan writes (p. 87), "To preserve the international monetary system, the U.S. should have reduced government spending, increased interest rates, and induced a recession." Good luck with that.
(Ironically, that's the prescription the IMF has imposed on lesser nations for decades now when they had debt problems, as Duncan is at pains to point out.)
Duncan recommends, among other things, a major restructuring (and downsizing) of U.S. financial institutions, including the restoration of a clear separation between investment banking and commercial banking, strict and close supervision of derivatives trading, and massive deficit spending by the U.S. government to develop a new technology-driven industrial base. Without drastic action, Duncan argues, all will be lost, albeit slowly, as in Japan.
One comes upon the astonishing statement toward the conclusion of his book (p. 205) with regard to monetary policy that the U.S. government should be "(blocked) from increasing the money supply. . . or at least (be) strictly limit(ed in) the amount of money (it) is allowed to create. For instance the money supply could be increased in line with population growth, and attempts to avoid recessions by increasing the money supply would not be allowed. . . . A central bank would not be required, as there would be no monetary policy to conduct. . . ." When he wrote that paragraph, Mr. Duncan obviously was in a mood to take no prisoners.
Readers will immediately think of Rep. Ron Paul's (D., TX) current crusade against the Fed. But I remember when Chairman Wright Patman (D., TX) of the House Banking Committee succeeded in getting Congress in 1974 to pass H. Con. Res. 133, which was aimed at exactly the same target. H. Con. Res. 133, later incorporated into a statute, directed the Fed to set money and credit growth goals "commensurate with" ordinary growth expectations, and to report back semiannually on its success, or lack thereof in reining in money growth. This is the origin of the present-day dog-and-pony show that brings the Fed chairman before Congress to report on whatever that suits the Fed to report on. The actual statutory requirement for setting boundaries for growth of the monetary and credit aggregates lapsed years ago at the quiet urging of then-Chairman Greenspan, and died without a whimper of complaint from Congress. Been there, done that.
Duncan deserves credit for suggesting reforms offering a way out of what seems intractable problems the U.S. government has created for its citizens. The last sentence in the chapter on recommended reforms provides guidance for those of us who do not expect a deus ex machina or anything other than continuing woes. "Therefore, while working to achieve a benevolent outcome, it would also be prudent to prepare for a pernicious one. In economic upheavals down through the centuries, gold, land, and a broadly diversified investment portfolio have preserved many a fortune."
In what seems to be an aside, Duncan notes that the IMF has (apparently limitless) authority to create SDRs, and that these SDRs could fulfill the role of an international currency. When one juxtaposes this notion with the unenviable record of the U.S. government's leaders since 1960, it could lead one to wonder whether the world (literally) might not be better off if national economic/financial decisions were made from a global perspective by "unelected bureaucrats" parked at the IMF or Brussels. Multinational governance is pretty much happening in the European Union, and as much as criticism is leveled against the meritocrats who are now running the place, they at least have not stumbled into the kinds of crises that Messrs. Greenspan & Co., political appointees all, have engineered over here. Of course, there is always the issue of authority. Americans traditionally are loathe to give over their autonomy to such "unelected bureaucrats," but Americans also have shown they can be bought (cf. Sens. Nelson and Landrieu). Whatever, Duncan and myself are in agreement that the present American political system doesn't work.
In conclusion, this book is a worthy successor to Duncan's previous book, "The Dollar Crisis," and complements Michael J. Panzner's "Financial Armageddon" and, of course, Reinhart and Rogoff's grim read, "This Time Is Different."
The publisher, CLSA books, Hong Kong, is new to me. It would have been more than a good idea to have included an index, and for some reason it wasn't thought necessary.






