The New Depression: The Breakdown of the Paper Money Economy

The New Depression: The Breakdown of the Paper Money Economy

Richard Duncan

Language: English

Pages: 179

ISBN: 1118157796

Format: PDF / Kindle (mobi) / ePub

Why the global recession is in danger of becoming another Great Depression, and how we can stop it

When 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. Economic growth ceased to be driven by capital accumulation and investment as it had been since before the Industrial Revolution. Instead, credit creation and consumption began to drive the economic dynamic. In The New Depression: The Breakdown of the Paper Money Economy, Richard Duncan introduces an analytical framework, The Quantity Theory of Credit, that explains all aspects of the calamity now unfolding: its causes, the rationale for the government's policy response to the crisis, what is likely to happen next, and how those developments will affect asset prices and investment portfolios.

In his previous book, The Dollar Crisis (2003), Duncan explained why a severe global economic crisis was inevitable given the flaws in the post-Bretton Woods international monetary system, and now he's back to explain what's next. The economic system that emerged following the abandonment of sound money requires credit growth to survive. Yet the private sector can bear no additional debt and the government's creditworthiness is deteriorating rapidly. Should total credit begin to contract significantly, this New Depression will become a New Great Depression, with disastrous economic and geopolitical consequences. That outcome is not inevitable, and this book describes what must be done to prevent it.

  • Presents a fascinating look inside the financial crisis and how the New Depression is poised to become a New Great Depression
  • Introduces a new theoretical construct, The Quantity Theory of Credit, that is the key to understanding not only the developments that led to the crisis, but also to understanding how events will play out in the years ahead
  • Offers unique insights from the man who predicted the global economic breakdown

Alarming but essential reading, The New Depression explains why the global economy is teetering on the brink of falling into a deep and protracted depression, and how we can restore stability.

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which is extraordinarily low. The government demand to borrow money is very high, but the government supply of new fiat money (i.e., the money created by the Fed) is also extraordinarily high. Fiat money creation is financing the government’s budget deficit. When a central bank creates money and uses it to finance the government’s budget deficit, it is said that the central bank is monetizing the debt. With QE1 and QE2, the Fed monetized part the U.S. government debt. That is the main reason U.S.

old-time religion and are determined to cut government spending now—at a time when only government spending is keeping the economy afloat. The Democrats have no discernible ideas at all. President Barack Obama relied too heavily on the advice of many of those responsible for causing the crisis and has no contingency plan to implement now that the second down leg of the collapse has begun. Finally, the Libertarians are actively promoting policies sure to bring about immediate economic hell, in

would not prevent economic collapse, however. It would destroy the savings of the middle class, as it did in Weimar Germany during the 1920s. It would also cause devastatingly high rates of interest. Finally, it would completely destroy the value of the dollar and the value of all the other fiat currencies affected by hyperinflation. Although hyperinflation would not be a solution, if the past is any guide, politicians would resort to it as a desperate expedient nevertheless. Andrew White wrote a

EXHIBIT 1.7 Total Credit Market Debt Held by the Creditors Source: Federal Reserve, Flow of Funds 1945 2007 Total $ billions $355 $50,043 Household Sector 26% 8% Financial Sector 64% 73% including: Commercial banks 33% 18% Life insurance companies 12% 6% Savings institutions 7% 3% GSEs & GSE-backed mortgages 1% 15% Issuers of asset-backed securities 0% 9% Money market funds 0% 4% Mutual funds 0% 4% Others financial sector 11% 14% Rest of the World 1% 15% Miscellaneous 9% 4% 100%

to GDP fell very sharply during the decades following the war, TCMD to GDP only contracted slightly, from 158 percent in 1946 to a low of 132 percent in 1951. (See Exhibit 9.3.) EXHIBIT 9.3 Debt to GDP: World War II to 2010 Source: Federal Reserve, Flow of Funds Accounts of the United States, second quarter 2011 After the war, government spending (in absolute terms) declined until 1948. Then it began to surge once again. Exhibit 9.4 illustrates rather dramatically the explosion of government

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