Tuesday, March 11, 2008

The Dollar Crisis

This is the title of an excellent book by Richard Duncan. Although the book is a couple of years old now, I only came across it a couple of weeks ago and I have found it an excellent analysis of the last forty years and an explanation of why the dollar must inevitably collapse.

I therefore heartily recommend Mr Duncan's book to readers of this esteemed blog, especially anyone who regularly has to talk to anyone who refuses to believe that we truly are in a terrible financial situation.

However, although Mr Duncan's analytical breakdown is fabulous, with more graphs than you can shake a pie chart at, his solution to the problem is taken directly from the usual statist barrel of economic misconception and ratcheted interventionism. For instance, and here I'm paraphrasing wildly, he would like a world government police to introduce minimum wage compulsion throughout the world and he would like this same world government to run a global world bank to manage our way out of this crisis.

One almost weeps for the hidden Austrian soul of Mr Duncan, which has come so close to surfacing out of the murk of monetarism and Keynesianism and a belief in the intrinsic goodness of government, which has then been dragged back down again into the dead marshes of economic orthodoxy.

"The government just isn't BIG ENOUGH yet," is the cry of many of our Austrian foes, but for this author to have so presciently seen and to have so clearly explained the nature of the beast, and to have then concluded that the solution is MORE government is to have witnessed Frodo Baggins reach the pier inside Mount Doom, after his epic journey defeating the greatest statist minds of Middle-Earth, and then to put the ring of statist power on and declare himself its master. What Mr Duncan's book needs is a Gollum to drive it over the edge. However, despite this lack of a denouement, there are occasional glimpses of such a creature lit up inside rays of Gladden Field sunshine. The first of these rays is on the first page of chapter one. For there, right in front of your eyes, sits the following remarkable quote:

"There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as a result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved." – Ludwig von Mises, 1949


Unfortunately, this prelude of greatness remains unfulfilled as Duncan annoyingly keeps regurgitating his "greater government" thinking throughout the rest of the book. But his analysis is still brilliant. Plus, other occasional gems of thinking emerge, for instance those covering the collapse of gold as the world currency, as induced by World War I, and those covering the introduction of the Bretton-Woods agreement, as induced by World War II.

Another amazing ray of sunshine also emerges blinking into the light on the final page of the final chapter (prior to a two page conclusion). Duncan describes five scenarios which could overwhelm Bernankeism. These briefly are (1) A world trade war; (2) A stratospheric rise in US property prices caused by a dollar inflation bubble; (3) A meltdown of the world market in derivatives; (4) A policy freeze by the US Fed caused not knowing which way to turn; (5) A decline in US interest rates to 0%.

Personally, I reckon we've had (2) and (3), we're currently experiencing (4), we're heading towards (5), and that (1) is only a matter of time. But I digress. Here's what Duncan had to say about those five scenarios, back in 2005:
Any one of the first four scenarios could undermine the dollar standard, but the final scenario, where interest rates fall very near 0%, would certainly deal it a fatal blow. From that point, the only option left to stimulate aggregate demand would be to drop paper money from helicopters. That too would fail, however, for who would accept paper dropped from helicopters in exchange for real goods and services? Hyperinflation would quickly set in. Economic transactions would then be conducted through barter rather than via the medium of a debased script. Eventually, a gold standard would re-emerge.
To come so close, and yet to remain so far out of reach is excruciating, especially the use of the dreaded "aggregate" term. The unspoken assumption is, it seems, that anything is preferable to a gold standard, ANYTHING! And we must do all that we can to avoid it. But why? It is the apocryphal elephant in the room simply begging to be seen. It is what we had before World War I, when international trade was balanced, as Duncan himself states, and it is what we will probably have afterwards, once the dollar collapses, as Duncan himself admits, if governments fail to do the "right thing" (Ha!).

But somehow there is this feeling, fed by nearly 100 years of anti-gold Keynesian sentiment driven by gold's inability to be pushed around by government tyrants, that to go back to this barbarous relic would be the end of humanity and that any measures taken to avoid it, including a world government, a world central bank, or even a world police force, are therefore to be desired.

I won't even go into the fascist horrors of what a world government would be like, without economic calculation, without migratory consequences to overbearing taxation and regulation, and without any fiscal challenge to a single world paper currency, but at least Duncan does mention the gold standard. And although he hasn't seen that the obvious solution is its re-adoption, despite his amazing breakdown of what is wrong with a fiat currency standard, many of his other non-Austrian readers may come to see this elephant in the room.

Then when the dollar collapses, as it inevitably must, as Duncan claims, and then some John Galt character comes forward suggesting a re-adoption of a worldwide gold standard to get us back on track again and out of the hands of the central bank counterfeiters, at least the idea will be out there and therefore more likely to be found acceptable.

One can only hope.

In the meantime, if you would like to know how to persuade your non-Austrian colleagues to believe in our Austrian analysis of the world currency situation, but they refuse to listen to anything except orthodox language because all Austrians are by definition mad, then look no further than Richard Duncan's The Dollar Crisis. Overall, Angloaustria gives it eight out of ten. If Mr Duncan had recommended the eventual re-adoption of the gold standard, it would have scored ten out of ten. But where would the fun be in life if everyone agreed with everyone else?

1 comment:

Anonymous said...

Hi Jack, I liked your review of my book, The Dollar Crisis. Thanks for the 8 out of 10 and for recommending it. By the way, I just couldn't see any other way to prevent the global bubble from imploding than the recommendations I made (the ones you didn't like). Anyway, it looks like it's too late now. With kind regards, Richard Duncan