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The New Depression: The Breakdown of the Paper Money Economy (9781118157794): Richard Duncan: Books. Q & A with Richard Duncan, author of The New Depression Richard Duncan This is a very ambitious book. Its theme is that a new credit-driven economic system has replaced Capitalism in recent decades and is now at risk of breaking down into a New Great Depression. Is that correct? Yes. In 1968, when the United States stopped backing dollars with gold, the nature of money changed. The distinction between money and credit became blurred and the constraints on credit creation were eliminated. Over the next 40 years, total credit in the US expanded 50 times from $1 trillion to $50 trillion. That explosion of credit financed unprecedented global prosperity. There is now a grave danger that this new credit-fuelled economic paradigm will break down into depression because the private sector cannot bear any additional debt. But why do you call this a new economic paradigm? Isn't that just the way Capitalism works? No. Capitalism was an economic system in which the private sector created growth through a process of investment, profit and capital accumulation (hence Capitalism), in an ongoing cycle. The government played very little role. Our economic system has not worked like that for decades. The US government now spends $25 out of every $100 spent in the economy (25% of GDP) and the central bank creates the money and manipulates it value. That is not Capitalism. Moreover, the economic dynamic is no longer driven by investment and capital accumulation. Our system is driven by credit creation and consumption. Creditism is a more appropriate name for it. Creditism has created extraordinarily rapid growth for decades, but now seems to have hit its limit to create more growth because the credit that has already been extended can no longer be repaid. Therefore, no further credit expansion appears possible. Why do you believe credit growth is so vital for economic growth? Since 1952, there have only been nine years when total credit (adjusted for inflation) grew by less than 2% in the United States. Every time there was a recession; and the recession did not end until there was another large surge of credit expansion. In this book you introduce the Quantity Theory of Credit. What is that? The Quantity Theory of Credit is an adaptation of the centuries-old Quantity Theory of Money--adapted to make it pertinent to this new age of fiat money. It is a simple, but powerful, analytical framework that explains all aspects of this crisis: its causes, the government's policy response to it thus far, what's likely to happen next and the impact that future developments will have on asset prices. On the topic of asset prices, will this book help individuals make better investment decisions? Yes. Chapter Seven lays out scenarios of how events are likely to unfold between now and 2015; and describes how asset prices would be impacted under each scenario. Chapter Ten discusses why asset prices now move in unexpected ways compared with the way they would be expected to behave within a Capitalist system. It also discusses the prospects and consequences of inflation and deflation, as well as the advantages offered through diversification. Finally, do you believe the global economy will collapse into a New Great Depression and what will happen if it does? The flaws of our new economic model, Creditism, are all completely obvious now. However, there are extraordinary opportunities that exist within this system that w[6532] 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 was no longer 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. Over the following four decades, total debt in the United States expanded fiftyfold to $50 trillion. That explosion of paper money–denominated debt transformed the world by generating unprecedented wealth, profits, jobs, and tax revenues. In 2008, however, that debt could not be repaid, and The New Depression began. In The Dollar Crisis, Richard Duncan explained why a severe global economic crisis was inevitable given the flaws in the post–Bretton Woods international monetary system. In The New Depression, he 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. The economic system that has 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. This book describes what must be done to prevent it.
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