If you think the end of the global economy as we know it is nigh, the latest book by James Rickards, The Death of Money: The Coming Collapse of the International Monetary System will worry you further. Even for those who don’t think we’re staring into the maw of the financial abyss might become concerned after reading this book. It’s a fast-paced look at the history of money — and the way it has been manipulated — that takes us into the near future.
While the book is interesting, and raises a number of points for consideration, there are times when it becomes overly apocalyptic in tone, and some of the solutions in the book don’t seem overly tenable to me. (Although I’m not an economist, so I could be totally off.)
If you’re looking for an interesting and fast-paced read, this is the book for you.
How Did We Get Here?
The book starts off kind of slow. The first bit deals with 9/11, and assertions that terrorists likely made money off the disaster, since they knew what was coming.
There is a great deal of detail that goes into describing the advisory role Rickards took in helping the government analyze the financial aftermath of 9/11 and develop an algorithm to possibly predict large terrorist operations via market activity. This is the slowest part of the book. Once you slog through this information, you get to the meat of the book, and things pick up.
Rickards takes a look at how we got to where we are today, looking at the global economy, and how the financial system arrived at the 2008 crisis. He looks at the China, Europe, and emerging markets as well as the United States.
He places a lot of the blame for the financial crisis, along with the slow recovery (he claims that we aren’t actually in recovery, and that we have been in a depression for years), on outdated models that no longer apply. Economists and policy-makers, he says, are shutting their eyes to the realities that beset the markets, and this will eventually bring about the collapse of the financial system as we know it.
He doesn’t see an end to quantitative easing in the United States, and he does have a point. The taper will be difficult to accomplish without economic bloodshed, and he is right that “forward guidance” doesn’t seem to really help anyone, or provide much true stability to the markets. Since a lot of the recent economic stability is based on quantitative easing in the United States and elsewhere, Rickards is right when he points out that the end of QE could be problematic.
Rickards train of thought is interesting, and I like that he dismisses Tea Partiers and Paul Krugman alike. He sets himself as a reasonable alternative to both camps, pointing out that it’s not an either-or proposition.
A lot of the information is interesting, and he is one of the few who seems to really worry about what mounting student loan debt could mean for the future of the economy. While there are rumblings of a “student loan debt crisis” in America, it isn’t treated too seriously yet, and I like that Rickards devotes an entire subheading to the problem and the potential implications.
So, here we are, relying heavily on a fiat currency that is only as good as confidence in the dollar remains, and that confidence, Rickards claims, has been undermined by the fact the United States and her people are in debt, and digging deeper — all the while ignoring the realities of a global market and relying too much on past economic models to provide guidance for the future.
What’s Next, and How You Can Prepare
Rickards believes that the dollar will be irrelevant by about 2020, and that the way we view money will be completely changed. So the book isn’t really about the death of money, but more about the death of the current financial system, and the death of the dollar as the premier world currency.
I found it extremely interesting that he floats the idea of using special drawing rights via the IMF as a global currency, rather than relying on the dollar as a de facto world reserve currency. He says that the dollar will still exist but it will need to be backed by more than assurances from the U.S. government.
Backing it with IMF special drawing rights (and if you don’t know about those, this book is interesting just for a primer in the IMF’s currency) is one solution.
But special drawing rights is inferior compared to gold. Rickards is in favor of backing the dollar with gold again, referring to it as the only “true money.” The logistics of basing our currency on gold is one that would be difficult to contemplate. People like to sneer at paper Federal Reserve notes, but the real “money” we have is mostly expressed in ones and zeroes.
The “money supply” when you start looking at the situation from that standpoint means that it would be difficult to base our currency on gold — unless we are completely rebuilding the financial system following a total breakdown of society. Other economists point to the debilitating deflation that would likely result from an attempt to put us on a gold standard.
Rickards doesn’t claim to know exactly how the end will come, though. He doesn’t know whether deflation will get us or whether it will be hyper-inflation that ends our current system. So he poses an answer to the following question, asked toward the end of his book.
In the face of extreme inflation, extreme deflation, or a condition of social disorder, which investment portfolio is most likely to remain robust?
Rickards suggests that you create a portfolio that includes the following asset allocation:
- 20 percent gold (actual gold, not paper gold)
- 20 percent land
- 20 percent alternative funds, like private equity and hedge funds
- 10 percent fine art
- 30 percent cash
Yes, the guy who believes that we are facing a financial apocalypse thinks that the largest single asset in your allocation should be cash. However, this recommendation comes with a caveat: Cash is great because it’s liquid and offers a hedge against deflation.
You should have it until just before the crash (pay attention to the signs) and then use it to immediately get into one of the other alternatives before the cash becomes worthless. Rickards also suggests that you should consider the Singapore dollar and the Canadian dollar ahead of the U.S. dollar, and also even consider the euro.
I’m going to be honest. Because of the way I grew up, and where I live, I am more likely to “invest” in food storage, a shotgun and a rifle (I grew up hunting), fishing tackle, outdoor gear, and emergency preparedness supplies. If an economic collapse comes with a side of social disorder, I’d rather know I’ve got the means to feed myself than a fine painting or gold coins that no one else will want.
At the end of the book Rickards suggests there is a way back from the brink. He says that governments and central banks can still prevent the problem. But it doesn’t hurt to be prepared.
Overall, I found the book an interesting read, even if I don’t necessarily agree with all of the conclusions Rickards draws (but, really, he probably knows more about this stuff than I do, so I guess I can’t really complain). Once you get past the first part of the book, it’s even more interesting, and it goes pretty fast. Rickards is an engaging writer with a viewpoint that offers an alternative to a lot of what you read about in the mainstream.
What do you think? Are we heading for economic collapse? How would you invest to prepare?