The New Depression: The Breakdown of the Paper Money Economy

by Richard Duncan

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. 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 DepressionIntroduces 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 aheadOffers 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.

Genres: Economics, Finance, Money, Ebooks, Nonfiction

179 pages, Hardcover

First published January 1, 2012

Reviews

[Samson · Rating 4 out of 5]

In the past 4 years, I have read a lot about the origin of the Great Recession; most of them blame it on greedy bankers, deregulation, over-consuming society, crooked credit-rating agencies. This book by Duncan provides a more fundamental and macro view of it. He attributes it to the break-down of Bretton Wood, the end of gold standard and the proliferation of paper money, I.e. credit. It is quite refreshing. I have never formally studied Economics, but I feel I learnt a lot just by reading his explanation: budget deficits, account surplus, their relationship with foreign exchange reserves, the Quantity Theory of Money, etc.
I do not have enough training to either support or refute his arguments, but they did strike a few chords in me. I have always been wondering: the boom time that we have been seeing in the last 30 years, is it sustainable? The expansion of credit did provide us with unprecedented growth, wealth and progress, but like everything else, there is a limit, and apparently we are at or very close to it.
Though the author provides a plausible action out of this, the conclusions he drawn are mostly very grim. With the current toxic politics, I do not see how sensible actions can be possible. Here is what I will do:
1) Buy and store some gold bars
2) buy a piece of land on which I can grow my own food
3) install solar panels and maybe some other form of renewable power generator.
Next 5 years are not going to be fun.

[J Roberts · Rating 4 out of 5]

There’s a cartoon going around the internet that goes a little something like this. There’s a bunch of professors in an auditorium, and their focused on a board that lists all of the good things that can happen with green initiatives like energy independence, green jobs, livable cities, etc. One of the scientists stands up and says, “What if it’s a big hoax and we create a better world for nothing?”

The book was a quick read; I finished it in a couple days. I wouldn’t say that it was a simple read, but it did keep me engaged enough to prevent me from putting it down. To begin with, I found myself disagreeing with the interpretation of some of the data in the opening sections of the book. Particularly, I found the idea that gold was somehow not a fiat currency a bit absurd. As I understand what happened to the Spanish Empire’s economy after it’s influx of gold, I knew that gold’s value is just as arbitrary as any other item that defines the value of a resource. The author eventually covers out the concept of crowding out, but this was near the end of the text, so my skepticism remained through most of the book.

That skepticism allowed me to remain impartial while reading the book. Being impartial was necessary for following this book. The author did an excellent job of presenting the facts without the use of any clouded political rhetoric. This was perhaps the greatest strength of the book, as emotion has worked itself into far too many discussions of our current economy. There were plenty of times where the author could have correctly pointed out that one ideology or another was better suited for a situation,yet he did not. Historical charts and graphs are on just about every other page of this book, and one can easily see where the issues arouse on the timelines. Again, the author deemed it best that we do not dwell on those points. Rather than name calling, the issue is presented in a neutral manner and solutions are presented in a similar fashion.

Unfortunately, this gets me back to my original point. What happens if we create a better world for nothing? And better yet, given the political discourse that comes about from economic turmoil, what happens if we do nothing to create a better world? The author goes over the credit issues that resulted in our last two world wars. While our society is armed with a wealth of knowledge surround the events that led up to these past conflicts, we seem unable to do anything in spite of this information. The author offers several scenarios and likely outcomes. Given what has happened throughout history, I’ve already come to my own conclusions.

[Colemn Labrador · Rating 4 out of 5]

If you think you've read every explanation available on the 2008 recession, this book will make you think again!! Really gets down to the roots of things and will give you a fresh take on where the infamous dip in the global economy in 2008 really started.

[Charles Moody · Rating 4 out of 5]

There is an abundance of books out there now describing our current economic mess. I found this one clear, compelling, and very unsettling, in part because it stood much of what I thought I knew about economic theory on its head. My assumption had always been that after credit-induced bubbles such as the one leading up to 2007, the economy would have to go through deleveraging and a decline in asset prices as it regained its footing in fundamentals. Fiscal stimulus by Congress or quantitative easing by the Fed could try to make sure this correction didn’t happen too suddenly and disruptively, but it would still happen and ultimately needed to, in order to return to “real” economic growth rather than just debt-induced asset inflation. Duncan argues, as I understand it, that there really are no fundamentals left in our economy other than credit creation. When households cannot take on any more debt, government must, on a scale previously unthinkable. Unfortunately, Duncan’s analysis of our predicament is so compelling that, at least to me, his own solutions seemed inadequate.

[Wm · Rating 3 out of 5]

I expected this to descend into a political polemic, but the author's views will surprise most. It is well documented explanation of why modern governments must keep expanding the total supply of credit/debt or collapse, and why collapses occur when credit contracts.

The explanations transfer over easily to Spain and Greece where austerity is creating depression-like conditions, and why the US Federal Reserve is printing money like its going out of style trying to keep the total supply of credit at 54 trillion and growing.

[Laura · Rating 3 out of 5]

I was with the author until Chapter 9--that's where he lost me. Up until then, Duncan presented pretty convincing economic theory (and he assumes you have a base level of understanding in economic and baking principles, activities, and terminology). In Chapter 9, when he presented his capstone theory of government borrowing to spur investment, I realized Duncan has a massive blind spot: he truly believes that a central government can allocate resources effectively, without waste, fraud, cronyism, or corruption. He does not take into account human nature. Duncan assumes that government will take on a central-planning-type role in the economy. History shows this has never worked well and that instead of leading society to a utopia (which Duncan states in a couple of places could happen if his ideas were implemented), central planning takes society in the opposite direction. However, I think his economic theories are accurate in many ways and he presented several interesting "food for thought" nuggets for me. The most notable one is the relationship between economic hardship and totalitarianism, as almost all economic disasters in the 20th century led to types of totalitarian governments.

[Michael Riedler · Rating 4 out of 5]

For the first time I understood what trade balances really mean, also how FX reserves are accumulated. I was always wondering how the hell would a central bank accumulate foreign currency if private companies are the ones who trade. It was also interesting to read this in 2017 which provides more context on what happened.

Overall, the underlying principle that the power structure of today's economy shifted significantly from investment and savings to consumption and borrowing, hence, credit in the system is the main driver for growth.

Great read!

[otto365 · Rating 4 out of 5]

It is a nice read. What I liked most in this book was his recommendation of how you should allocate your porfolio based on different asset classes.
What I didn't like at all is how he follows suit, dedicating a whole chapter on the COVID-19 pandemic. If I want to read about the pandemic, I can pick a book about the subject. The book is already short, but it could be even shorter without that chapter.

[Yuni Amir · Rating 5 out of 5]

A good read for everyone who is trying to understand what went wrong after Bretton Wood.

I borrowed this book from the national library. After reading it, I will buy a copy for myself. A comprehensive reference on the paper money economy - the mismatching between the system and the actual conditions.

[H.J. Chammas · Rating 5 out of 5]

Great book that explains how the economy works and enables readers predict economic cycles. Richard Duncan is a great economist who explains complex economic principles in very simple manner. I recommend every one to subscribe to his Macro Watch

[Charles Sheppard · Rating 5 out of 5]

Helps to Understand how the New Economy Works

This book changed my view of investing.I revived my entire portfolio In part because of this book.I am still trying to grasp the implications of an economy based on credit and Fiat currency.

[Justin · Rating 3 out of 5]

not too dense or actionable (at least for someone who doesn't buy individual stocks)

[Charlon · Rating 5 out of 5]

Great economic analysis. Highly recommended.

[Cory Wallace · Rating 5 out of 5]

Excellent read to discuss money manipulation to keep the economy upright while trying to control inflation. There are some good insights in this book.

[Gilbert Ross · Rating 4 out of 5]

Tough read because of not having an economic background but very good book on how the economy runs.

[Luis · Rating 5 out of 5]

The author keeps it simple.

Excellent historical account and analysis of our fragile economic system. The more you know about what the banks are doing behind closed doors, the more you can do to prepare financially.

[Mark Henson · Rating 5 out of 5]

This is an excellent expose on the US debt crises. It is an easy read; compact and to the point, with simple charts of economic data and not much straying into the realm of political opinion. Our macroeconomists are using an old money paradigm that became outdated with the abandonment of the gold standard. Since our money supply is a fiat currency, backed by "faith" the new measure of our money supply is actually the supply of credit. The massive deleverageing of 2008 and beyond is a new problem that has resulted in massive monetary and fiscal stimulus that has no end in sight. The author completed this work in 2011 and has telegraphed the next moves by the Federal Reserve, and it isn't pretty.

[Becky · Rating 5 out of 5]

I thought when the US went off the gold standard that we were in serious trouble. It appears to be the case. It is shocking to me when the author states that we are no longer a capitalistic society. This basically changes the way we should be thinking about ourselves. It is obvious that the life style we know could be gone in a minute. The author makes the scenario where Hitler came to power much more understandable. His solution is interesting. Obviously,we all need to become better acquainted with the financial world and how it effects each one of us.

[Fill · Rating 4 out of 5]

Excellent book. The author presents some strong opinions and his remarks are sometimes exceedingly sharp, not to mention his alarmist predictions (which are intended to get your attention). But the underlying analysis is convincing and fascinating; his ultimate conclusion and recommendation on how to proceed is compelling. There is a lot to get out of this book and a lot of good for thought about our modern global economy.

[Nikhil Mahadea · Rating 1 out of 5]

A rogue economist, no doubt. Check the number of citations he has on Google Scholar.

His predictions of a "new depression" and the "breakdown of paper money" was completely wrong. The dollar is still king. Be careful of who you listen to, especially if you're an investor. You're much better off reading books of highly cited mainstream economists, than a very low cited "economist."

[Nick · Rating 4 out of 5]

A fairly bleak outlook for the next generation (and yes it may well last that long). An interesting look at the causes of the long credit boom, that goes far beyond just the RMBS, Fannie/Freddie fuelled boom of the 21st Century.

[Thomas · Rating 5 out of 5]

Excellent read...

[Katie · Rating 5 out of 5]

A slow but informative and incredibly interesting read.

[Heather · Rating 3 out of 5]

Really eye opening. Wish some of our politicians would read it and start solving some of our problems.

[David · Rating 5 out of 5]

Excellent perspective. Hard to argue with the logic since it is based on historical fact. Easy read if you're interested in economics.

[Song Trường]

ok

[Sai Ganesh · Rating 5 out of 5]

Perfect book to understand the modern economy. Some of the predictions made seem to be coming true.