The Death of Money, by James Rickards

death of money rickardsBooks 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.

9 Comments on “The Death of Money, by James Rickards”

  1. clarenceswinney April 3, 2014 at 2:29 pm #

    OLIARCHY

    Millions are out of work . 8.1 million are on Social Security Disability.

    42 million need Food Stamps tp feed their families. Millions work for a low low low minimum wage. The majority of jobs created by Obama pay a minimum wage which does not support a family of four.

    It is time for strong leadership. Increase the Minimum Wage to $10.10.

    Remove Bush huge tax cut where to date the top one percent have deducted $1,050 Billion from their income taxes. Tax highest incomes at a high rate. Top ten percent own more wealth than 90%. They have the wealth to “Buy Votes” and are doing it.

    We must revive the once mighty Middle Class. Vote to help the Middle Class.

    Clarence Swinney Political Economic Historian

  2. DevonChap April 3, 2014 at 4:10 pm #

    I’m sure Rickards forecast 12 of the last 2 recessions. Doom-mongering books sell, but almost never come true. You might as well watch this:

    http://info.moneyweek.com/urgent-bulletins/the-end-of-britain/?infinity=gaw~UKGOO-BRAND-SPART-Brand~UKGOO-BRAND+PHRAS+End%20of%20Britain~36334909622~end%20of%20britain~p&gclid=CIuN0djYxL0CFabLtAodDigA-w

    If no one has an interest in the collapse of the dollar, why will everyone let it happen? A slow decline like that of the Pound (which went through 2 World Wars) seems more likely. While I have sympathy for the view that we need to work through our debt I accept that would be rather radical. And if Rickards is right them the Positive Money ‘let’s spend spend spend’ people are wrong.

    • Jeremy April 8, 2014 at 11:36 am #

      It’ll be a bestseller because Rickards has a dedicated following of goldbugs and doom-mongers that talk up his books on the internet. He is a whole lot smarter than the debates in which he is quoted, it’s fair to say. It’s a far cry from Money Week’s crass alarmism-as-marketing, which is why he should have chosen a better title for the book.

      The thing is, plenty of people do have an interest in replacing the dollar – albeit without the collapse if at all possible. China and Russia would love to see the end of US economic hegemony, and are already discussing what comes next. It remains to be seen whether they get something together before the US asset bubble collapse or after, but the writing is on the wall either way.

      • DevonChap April 8, 2014 at 12:52 pm #

        “plenty of people do have an interest in replacing the dollar.” Hence slow decline. This was obvious even without financial crashes or idiot political deadlock. The declining share of global GDP from about 50% in 1945 to 20% now isn’t the issue, it is that China will soon be a bigger economy and the global reserve currency naturally goes to the biggest economy. The Yuan is the only likely global replacement to the dollar but that will take a lot of time since China doesn’t seem to want the global reserve role.

        Not sure what is really new here.

        • Jeremy April 8, 2014 at 1:11 pm #

          The federal reserve climbing a tree it can’t get down from is what’s new. That and the debt problems in China that make its currency less robust than it might seem.

          • DevonChap April 9, 2014 at 1:44 pm #

            If something can’t go on forever (like ultra low money) it won’t. Eventually it will be resolved.

            If China is as weak as you say then the dollar is still safe for want of any replacement.

          • Jeremy April 9, 2014 at 3:36 pm #

            Yes, but how it is resolved is what matters. Will it be resolved in an orderly or disorderly fashion?

          • DevonChap April 10, 2014 at 12:40 pm #

            Like most things, little bit of crisis followed by muddling through. We need to resist the idea everything needs a plan. We can’t plan very well, we just don’t have the information.

  3. amandahickeyblog April 3, 2014 at 8:14 pm #

    Nikko – I haven’t time to read this book … but this book review makes for interesting reading about global financial systems. x Mum

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