"The Death of Money" by James Rickards

I am about half way through so this might be premature.

Rickards seems to be telling the story of the death of the dollar and the international monetary system due to deflation. It seems for half a century at least we’ve been fighting underlying deflation pressure but never really naming it publicly. Specifically that we do inflationary things that are damaging and cumulative.

So imagine that the following were really driven by attempts to avoid deflation:

De-pegging from gold and the oil embargo (justifying symptom)

Inflation during Carter’s term

Iran Contra and electing the actor Regan to pump things up with star wars etc.

Iraq 1

Iraq 2 and 911

2008 meltdown and austerity

More pending austerity over oil derivatives

That all these things might be explained by a perpetual fight with deflation. From what I can tell deflation comes when most people lose confidence in their system. To me, despite the many reasons provided by the author for deflation, its plausible that it ultimately results from fake jobs that lack necessity and have no dignity, security, sense of contribution or future. To me capital itself and capital as a class seems to be becoming obsolete. Maybe we can replace the capital side of the economy with distributed automated organizations? I am saying I think the capitalist is obsolete, not the innovator. Excessive executive compensation is a symptom. Just like index funds can outperform or equal managed funds so also might a computer program (DAO) do better than typical management but because we have thousands of overlapping mutual reigning down taxation driven blind money on firms we have inflated management compensation and ridiculously call it wages or earned income. This system looks set to deflate.

Will SAFE and its coin help? In a sense a system that can replace money is a DAO. SAFE is a system of distribution designed to replace a tainted factional system.

If you do read the book, Rickards seems like a Bush crony and the book seems like a mea culpa in a way about stuff like 911. He goes ahead and ignores Carlyle group insider trading etc., and tries to pretend the BA and its backers weren’t complicit, but implicit seems to be the idea they were just trying to avoid a deflationary disaster that would sink the rich and government budgets at the same time. In deflation government revenue gets switched off, it also provides a profit hiatus, its an economic black plague. Author also does a lot of bragging that seems out of place in book on a serious subject.

If we deflate do we go steady state, assuming we avoid civil strife? The population too can become simply exhausted and depressed over debt and insecurity. You can get it from demographic changes but its also possible to exhaust a population to the extent that they just start to horde stuff when you take more and more from them and want to provide less and less. Steady state might be lean but is there fear that it’s also feudal? He chides China’s prospects quite a bit but as he does so I keep thinking he is describing the US.

Putting on my Economist’s hat temporarily, this is a graph of the rate of inflation in the United Kingdom from 1264 to 2007. Thank the British for keeping such accurate records for such a long time:

The blue line is the annual rate of inflation, as you can see it swings wildly up and down each year, mostly according to harvest yields. This is a log plot, so the actual variance in prices of a basic basket of goods could swing by 10x or 20x year to year - this is an enormous reason why the quality of life of our ancestors was dreadful relative to today - they had no idea if they would starve to death next year or not, and that makes investing into the future a very hard decision to make.

This was the pattern of prices up until the 1870s whose stagflation depression ruined the British Empire - after that, annual swings becomes very modest, and inflation went from an average of zero to an average of 4-5% or so. Such high annual inflation is unprecedented historically - the 16th century bout of inflation of 1% annually sustained was at the time considered so severe that price controls were introduced (they failed) and enormous efforts were made to reign it in, which eventually succeeded when new gold and silver mines became available in the new world in the 17th century and the crown no longer needed to debase the currency.

The green line is actually vastly more interesting, at least as an economist. It is a log plot of the variance in price inflation over time, and it has shown a power law curve of reduction of annual variance since records began - in fact, the price variance history recorded by the Roman Empire in Rome of a basket of goods from 100 AD to 300 AD (according to Imlah) also fit onto this power curve perfectly, so one could view, from this measure alone, that the Roman Empire to Spanish to British to US empires are all continuous, though there was some discontinuity during the breakup of the Roman Empire as there was during the breakup of the British Empire (i.e. WW1), but fascinatingly the power law curve of price variance always resumes its course, at least in the past 2,500 years.

Regarding the Rickards book, I’d suggest viewing it from the perspective of this graph. This graph puts into perspective a lot of silly notions about money, in particular viewing anything which has happened in the past century as at all relevant in the bigger picture of things. If you start thinking in terms of centuries, the true structural breaks were around 1550 and 1860 when the price inflation curve changed direction. Both those occasions marked a complete refactoring of Western civilisation into a whole new form.

Niall

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Thank you. But will you proffer any situation that could engender deflation? And stagflation, was that Milton’s and something inflation plus increasing unemployment coupled with no growth? Seems like enough of that could deflate things? In the book he makes it sound like there are all sorts of proven reliable cures for inflation but nothing anyone would ever want with regard to deflation.

Inflation = a transfer of a percentage of all money in circulation to the money printer i.e. it’s a tax on all wealth. Think of people’s pension funds being hacked down every year.

Deflation = a transfer in the opposite direction i.e. from those who pay tax to everybody with wealth. Think of people’s pension funds being added to every year (hence the popularity of deflation in countries with lots of old people i.e. Japan and Germany).

For obvious reasons, historically governments (and kings!) are highly tempted to print money as it’s a very easy way of raising taxes without needing tax collection. Historically, deflation has therefore not been a problem anything like as much as inflation.

However these recent times are very unusual. Bretton Woods had industrial workers get pensions invested in their own employers - this ensured a virtuous circle of investment which let post-WW2 corporations grow. Unfortunately, it creates an enormous problem when those workers retire, it sucks out investment.

Also, older people don’t consume. Germany and Japan have seen it first as they have the fewest young people - basically consumption drops off a cliff, because people already have all the stuff they want, their houses are full. Lack of demand for stuff means prices drop which also suits the old, and the corporations have to squeeze their margins, which removes even more money for investment. This is a big reason why corporations are amassing enormous cash piles right now instead of investing - they see no return on investment, and can’t think of anything else better to do with the money (daft US corporation tax rules don’t help). Also, those cash piles are enormously misdistributed, the top ten cash piles represent almost all of it, so most global corporations have no spare cash and are fighting in a race to the bottom.

This is why we’re seeing deflation, and why the US, UK and Japan all started printing money recently. The EU is expected to announce an enormous money print this week, indeed the Swiss just broke their peg to the Euro in preparation for the announcement.

Niall

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Deflation! Rickard’s China pessimism, is breathtaking, its financial warfare in itself.

Personally speaking, I think China will run into a Japan style halt sooner rather than later. Probably within 10 years - I certainly don’t expect China’s nominal GDP to much exceed the US nominal GDP before growth collapses into Japanese style stagflation.

Why? At present rates of growth (~7%) they’ll have doubled GDP in a decade and will be richer than the US, though not per capita. They have very severe roadblocks between now and then, most especially in lack of mass education, limits on pollution and that a good chunk of their older workers have stunted IQ from malnutrition, these same reasons held back the US in the 1970s until enough less encumbered workers came up to replace them to enable another spurt of growth.

One very impressive thing though is that their government is very keenly aware of the structural problems before them, and even better they take measures to ensure all their senior people properly understands those problems. I don’t think anyone can claim that of any recent US government unfortunately. It’s actually a big area where Continental European leadership scores big over Anglo Saxon leadership where being completely ignorant of an important topic somehow doesn’t disqualify you from power.

Niall

Speaking of that Rickards prescription for most problems seems to be flog the poor. Its always make the poor work more for less or some variant of allowing the rich to tax the poor. Anything else especially anything backed by Krugman is inflationary and doing nothing to stave off a deflationary monster. Wages are not sticky according to Rickard, you can cut them with purely positive effects and should be lauded for doing so- lazy workers etc. He doesnt seem to get that the highest wages are an end in themselves and profits are just a means to an equivalent end. Its all pro new German Reich and pro South Africa and pro W admin. Everything else is not backed by empiracle data and is outdated.

To me he is trying to egg on a new French revolution with his own head on a stick. Tone later in the book is sinister but I trudge on with it.

Too often writers on economics veer into the US culture wars sadly rather than sticking to the evidence. As much as Piketty’s book was basically “Why the French economic approach is right and the US approach is wrong” he does present plenty of empirical results where various people went out and tried out an approach, and recorded the outcomes. Over the decades that has built into a rich tapestry of policy approaches to choose from, and without doubt some are far better than others in terms of outcome, and especially so in terms of equalising opportunity (I personally am luke warm on equalising income, I am very hot on equalising opportunity). The US used to study the outcomes of its policy initiatives and adjust them appropriately before the 1980s, however since then much if not most policy is decided on the grounds of belief rather than having anything to do with evidence, not helped by an enormous public underfunding of those who study the effect of public polices and which vacumn has been filled by partisan interests i.e. lobby groups. Well okay, that’s a bit harsh - some state governments when run by a competent governor have had evidence based policy making as good as anywhere, but it’s awfully dependent on the governor’s team. Most other rich countries have well paid professional civil services, and these tend usually to try their best to follow the evidence, though inertia and overcoming vested interests is always a problem anywhere.

If you haven’t ready Piketty, it might be an idea to follow up Rickards with Piketty, they are almost opposites, though of the same coin actually - they’re both on the same ground, and neither is actually particularly radical.

Niall

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Ive gone through Pickety, but I need to do it again and probably again…

Since the dawn of tech or agro tech its like we’ve replaced daily food prep with 8 plus hrs of drudgery and for Rickard’s group its always about doubling down on this crowd control stuff, despite their rhetoric they do not believe in liberty for all. They are bitter angry elitests that are very much against liberty for most people. For them you’re a convicted criminal the day you were born outside their group and guilty of a debt you can never repay so get to work boy!

Well, the idea of you working off your original sin during your lifetime is very Catholic! :smile:

One of the more significant contributions of Germanic Protestantism to exported European culture was the concept that if you are poor and remain poor, it must be because of your moral failings - similarly, if something unexpected happens which lands you in penury, it must be because you are a bad person or did something very bad. This is really a new twist on the medieval notions of trial by combat and trial by ordeal, both highly Germanic notions rather than English incidentally. I suspect this is a big reason why the US become so dominated by those notions too as most emigrants were Germanic historically.

I think Rickard’s caucus would say they would believe in earning liberty rather than inheriting it or getting it for free. The assumption there is that you only truly value that which you have personally earned or own as property. I would personally agree mostly with that, which is why I so strongly support equality of opportunity to personally earn whatever you set yourself at. I would however say that people also truly value some public goods they had absolutely no part in earning, things like being free of pollution, free of crime and even just plain ideas. Indeed, the US culture wars are all about minority groups valuing ideas they wish to impose on everyone else rather than just practice personally and locally.

Regarding the eight hour drudgery, I don’t think this can be avoided for the majority. Most of the work which creates value involves a lot of people doing drudge work, it’s unavoidable. Some ancient societies ran a rotating roster such that every citizen took turns in doing the drudge work so the pain was spread evenly, indeed some communes still do this. Most religions have rituals for making drudge work more meaningful. However since the introduction of money instead of barter, it is more efficient to specialise, and that usually means specialising into some form of drudge work.

Incidentally, programming software is probably one of the most well paid drudge work in contemporary society. Most programmers get a tiny cubicle and a computer supplies them with a daily quota of things to fix, most of which are mistakes by other programmers in other cubicles who weren’t paying attention or no longer care. The pay and conditions relative to other drudge work like washing dishes is excellent, but it’s not hugely different from working on a conveyor belt really.

Niall

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Luv that response. But automation was supposed to reduce drudgery not make it more accute. I know we’ve tried stuff like prozac and LSD, but we need the automation to work as in safe access to the good life for all!

Liking the final part of Rickards book much more. More compassionate tone. Interesting on gold.