Table Of ContentContents
Preface
Chapter 1: How Credit Slipped Its Leash
Opening Pandora’s Box
Constraints on the Fed and on Paper Money Creation
Fractional Reserve Banking Run Amok
Fractional Reserve Banking
Commercial Banks
The Broader Credit Market: Too Many Lenders, Not Enough
Reserves
Credit without Reserves
The Flow of Funds
The Rest of the World
Notes
Chapter 2: The Global Money Glut
The Financial Account
How It Works
What Percentage of Total Foreign Exchange Reserves Are
Dollars?
What to Do with So Many Dollars?
What about the Remaining $2.8 Trillion?
Debunking the Global Savings Glut Theory
Will China Dump Its Dollars?
Notes
Chapter 3: Creditopia
Who Borrowed the Money?
Impact on the Economy
Net Worth
Profits
Tax Revenue
Different, Not Just More
Impact on Capital
Conclusion
Note
Chapter 4: The Quantity Theory of Credit
The Quantity Theory of Money
The Rise and Fall of Monetarism
The Quantity Theory of Credit
Credit and Inflation
Conclusion
Notes
Chapter 5: The Policy Response: Perpetuating the
Boom
The Credit Cycle
How Have They Done so Far?
Monetary Omnipotence and the Limits Thereof
The Balance Sheet of the Federal Reserve
Quantitative Easing: Round One
What Did QE1 Accomplish?
Quantitative Easing: Round Two
Monetizing the Debt
The Role of the Trade Deficit
Diminishing Returns
The Other Money Makers
Notes
Chapter 6: Where Are We Now?
How Bad so Far?
Credit Growth Drove Economic Growth
So, Where Does that Leave Us?
Why Can’t TCMD Grow?
The Banking Industry: Why Still Too Big to Fail?
Global Imbalances: Still Unresolved
Vision and Leadership Are Still Lacking
Notes
Chapter 7: How It Plays Out
The Business Cycle
Debt: Public and Private
2011: The Starting Point
2012: Expect QE3
Impact on Asset Prices
2013–2014: Three Scenarios
Impact on Asset Prices
Conclusion
Notes
Chapter 8: Disaster Scenarios
The Last Great Depression
And This Time?
Banking Crisis
Protectionism
Geopolitical Consequences
Conclusion
Note
Chapter 9: The Policy Options
Capitalism and the Laissez-Faire Method
The State of Government Finances
The Government’s Options
American Solar
Conclusion
Notes
Chapter 10: Fire and Ice, Inflation and Deflation
Fire
Ice
Fisher’s Theory of Debt-Deflation
Winners and Losers
Ice Storm
Fire Storm
Wealth Preservation through Diversification
Other Observations Concerning Asset Prices in the Age of
Paper Money
Protectionism and Inflation
Consequences of Regulating Derivatives
Conclusion
Notes
Conclusion
About the Author
Index
Copyright © 2012 Richard Duncan.
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Preface
When the United States removed the gold backing from the dollar in 1968, the
nature of money changed. The result was a proliferation of credit that not only
transformed the size and structure of the U.S. economy but also brought about a
transformation of the economic system itself. The production process ceased to
be driven by saving and investment as it had been since before the Industrial
Revolution. Instead, borrowing and consumption began to drive the economic
dynamic. Credit creation replaced capital accumulation as the vital force in the
economic system.
Credit expanded 50 times between 1964 and 2007. So long as it expanded,
prosperity increased. Asset prices rose. Jobs were created. Profits soared. Then,
in 2008, credit began to contract, and the economic system that was founded on
and sustained by credit was hurled into crisis. It was then that the New
Depression began.
There is a grave danger that the credit-based economic paradigm that has
shaped the global economy for more than a generation will now collapse. The
inability of the private sector to bear any additional debt strongly suggests that
this paradigm has reached and exceeded its capacity to generate growth through
further credit expansion. If credit contracts significantly and debt deflation takes
hold, this economic system will break down in a scenario resembling the 1930s,
a decade that began in economic disaster and ended in geopolitical catastrophe.
This book sets out to provide a comprehensive explanation of this crisis. It
begins by explaining the developments that allowed credit in the United States to
expand 50 times in less than 50 years. Chapter 1, How Credit Slipped Its Leash,
looks at the domestic causes. Chapter 2, The Global Money Glut, describes the
foreign causes, debunking Fed Chairman Bernanke’s global savings glut theory
along the way. Chapter 3, Creditopia, discusses how $50 trillion of credit
transformed the U.S. economy.
Chapter 4, The Quantity Theory of Credit, is introduced. This theory explains
the relationship between credit and economic output. Therefore, it is an
indispensible tool for understanding every aspect of this credit-induced calamity:
Description:Why the global recession is in danger of becoming another Great Depression, and how we can stop itWhen the United States stopped backing dollars with gold in 1968, the nature of money changed. All previous constraints on money and credit creation were removed and a new economic paradigm took shape.
