Books called ‘the death of’ something or ‘the end of’ are almost never about the literal end of that thing. Money can’t die, after all – if all else fails, we can use ringpulls, or marbles, or spoons. So the book isn’t about the death of money per se. It’s about the decline of the dollar era, and what might come after it if the dollars fails as the reserve currency of choice. Rickards believes “the Fed’s insolvency is looming. As the dollar’s 9/11 moment approaches, the system is blinking red.”
The reason for this is that the US Federal Reserve has mismanaged the financial crisis and recovery, in Rickards view. Rather than let things correct themselves after an asset bubble, stimulus spending and QE has been pumped into the markets to prop everything up. Things need to unwind, but the government is scared of triggering a deflationary spiral that they can’t control or tax, and that makes their unaffordable. Instead, they are desperately trying to generate inflation. The result is a tension between inflationary and deflationary forces, Rickards argues. At some point something will snap and there will be either runaway inflation or deflation and default.
What makes it ‘the death of money’ is that there’s no safety net this time. When the bubble bursts, there’s nothing left for a bailout. “Since the Fed has printed over $3 trillion in a period of relative calm, it will not be politically feasible to respond in the future by printing another $3 trillion.” The inevitable collapse will bring global depression. Confidence in the dollar will evaporate, and a new monetary system will emerge. I could be backed by the IMF’s special drawing rights (a de facto international currency), possibly by gold, or something else entirely. Either way, it will be the end of US economic hegemony.
Looking around at economic affairs, the author is convinced that other people can see this coming too. China has openly rebuked the US over its debt ceiling squabbles, and is in talks with fellow BRICS over rebalancing global economic institutions to give them more power. China, Russia and others are stockpiling gold in vast quantities, and trying to reduce their vulnerability to a collapse in the value of the dollar.
One might think that the end of the dollar would play into China’s hands. But in an illuminating chapter, the author shows why China’s economy is also unsustainable. It’s just the mirror image of the West’s debt problem. Where we have debt for consumption, China has debt for investment, whether or not the infrastructure was called for – hence China’s state of the art ‘ghost cities’. Rickards believes the country has missed the window for the expected transition towards greater consumption, and now faces a collapse of its own. Unlike the US however, China can afford the bailout.
Russia won’t win out either. (“The Russian economy is best understood as a natural resource extraction racket run by oligarchs and politicians who skim enormous amounts off the top and reinvest just enough to keep the game going.” Ouch.) Britain and Japan are both pursuing their own inflation-based drives for nominal growth – “out on a limb, with printing presses, insufficient gold, no monetary allies, and no plan B.” Surprisingly, the currency that comes out best is the Euro, which Rickards believes is more resilient than people realise.
I’ve read plenty of gloomy books, but few as convincingly gloomy as this one. I suspect many of us share Rickard’s concerns, but in a vaguer and less informed way. Grounds for optimism or hope of a lucky escape will not survive reading the book, and it may prompt a few people to run out and buy gold and land.
It has bestseller written all over it, but the book does have its problems. Rickards pins all of the blame for the financial crisis on the central banks and government. He lambasts the “arrogance of the Phd” at the Federal Reserve and compares them to Soviet Russia in their central planning ambitions – if only they could get out of the way and leave it to the markets! He largely ignores the reckless and often fraudulent behaviour of the financial industry, which gorged itself on the Fed’s low interest rates and continues to be an eager participant in the current asset bubble. Another oversight is energy, which doesn’t feature in the analysis here at all, despite the many interconnections between oil and the dollar.
Rickards’ obsession with gold will get plenty of attention. The internet gold sites that already quote him widely will find plenty to get excited about. Others are likely to be more sniffy, especially about the lengthy discussion on a return to the gold standard. That’s a step too far (not impossible in theory, but it would be fear and desperation that took us there) but we shouldn’t throw the baby out with the barbarous relics. Gold clearly has a role in the global economy, and that role appears to be growing whether we like it or not.
As always with books on money, I feel like there is something missing on the solutions side. That’s a feeling that I owe to a similarly titled book, Thomas Greco’s The end of money and the future of civilization. Greco does something Rickards doesn’t, and throws open the possibility of entirely new forms of money, personalised, decentralised, and democratic. He doesn’t know what they look like, but he predicts that someone will eventually ‘do for money what Skype did to the phone’. I don’t know what that new money is either, but if the alternative is ever-greater forms of top-down money control, then it can’t come soon enough.
- The Death of Money is out today from Penguin.