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The New Depression: The Breakdown of the Paper Money Economy Hardcover – April 3, 2012
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Q & A with Richard Duncan, author of The New Depression
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.
Top Customer Reviews
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.
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.Read more ›
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.Read more ›
Most Recent Customer Reviews
Just an amazing book and it really helps an individual learn Macro investing.Published 8 days ago by Preston Pysh
I am over half way through "The New Depression". I am an individual investor who has read well over a hundred investing, economics, and forecasting books. Read morePublished 8 months ago by C. Lynn Bolin
In his analysis and exposé of the government’s life-support control of the economy through manipulating the credit and equity markets, Mr. Read morePublished 15 months ago by Raoul in Colorado
This impressive book coins the term "Quantity Theory of Credit" which places the growth (or decline) in credit squarely at the centre of world economic affairs. Read morePublished 18 months ago by Baraniecki Mark Stuart
Best description of the paper economy having replaced the stable gold standard. The chapters are brief and to the point with detailed charts of how the paper economy works. Read morePublished 20 months ago by John A.