Capitalism In Crisis

BFM talks to Richard Duncan, an economist and author of books including The Dollar Crisis: Causes, Consequences, Cures and The New Depression: The Breakdown Of The Paper Money Economy.

Points covered include:

- Not possible to go back to the gold standard

- Credit has expanded 50x since 1968 in the US
- Globalisation and economic prosperity resulted
- But further credit expansion has the risk of spiralling into another depression
- Should have stuck to the Bretton Woods system that would require exchange of dollars for gold
- Occasional recessions could have avoided huge gold drawdown but would have resulted more subdued global growth
- Tough spending choices should have been made eg. not spending of wars
- Not easy for governments to make spending decisions given competing agendas
- Things went well until the "creditism"of the late 2000s
- Is capitalism a solution to the world's dire problems?
- The handling of the bubble is very important and a reversal of that to a pre-bubble equilibrium as suggested by the Austrian school will result in a great depression that we would not live to see the recovery of.
- Investment into trasformative technologies and not consumption would be a way to deal with the credit bubble
- Policy responses for the global crisis has been largely correct but Fed still largely to blame for encouraging asset speculation
- Recently tapering didn't happen because the market overshot on interest rate rises that threatened the weak recovering economy
- Fed's challenge is to create enough money to support economic growth and some asset price inflation but not too much paper money that it causes the bubble to grow bigger
- Governments should invest in technologies that support very long term causes like energy independence
- Currency manipulation by China results in their version of a quantitative easing that dwarfs the Fed's QE - This played a key role in the economic bubble of the 2000s
- Credit expansion over the last 4-5 decades has had enormous effects on poverty reduction but continued mismanagement of credit would reverse these benefits and cause a collapse into a new great depression
- Difficult to preserve wealth at this point