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It was my
good fortune to receive an advance copy of Jim Rickards'
new book, “Currency
Wars”. It is a great book, and I highly recommend it.
The book is
split into three parts, with the first part being almost surreal because it
reads more like a novel than non-fiction. It details Rickards’
participation in an exercise at the Warfare Analysis Laboratory near
Washington D.C. This group is one of the Defense Department’s leading
venues for war games and strategic planning, but in a first-ever event, the
game in which Rickards joined was not a
war-fighting simulation. Rather, several dozen people from the military,
academic and intelligence communities fought a global financial war using
currencies and capital markets to support national interests. Rickards and two colleagues were invited to give the
simulation some real-world, Wall Street expertise about markets, which they
certainly did.
I guarantee
that when you start reading this part, you won’t put the book down
until you learn the outcome of the war. It reads better than a suspense
novel, even though the ending is somewhat anti-climactic and predictable.
While I won’t spoil it for you by divulging the ending, I will note
that gold has a big role to play. In fact, gold reappears throughout the
whole book.
In the
second section, Rickards analyzes the first two
currency wars (CWI and CWII). He provides an interesting historical account
of the global monetary twists and turns, ups and downs that marked much of
the twentieth century, with keen insight into the motivations why these
currency wars were fought. CWI lasted from 1921 to 1936. Even though CWII
came much later – from 1967 to 1987 – both wars were fought by
competing national interests, which brought into the battle competitive
devaluations and other interventionist actions of government. It is
noteworthy that currency wars are a product of the post-Classical Gold
Standard period that began in the aftermath of World War I, when the monetary
role of government began to morph, as gold was driven out of day-to-day
circulation, and then expand in new ways never before seen.
The final
section of the book explains why the world is now fighting Currency War III,
which Rickards believes began in 2010. He
speculates that there are three possible outcomes from CWIII – paper,
gold or chaos. Each of these alternatives is analyzed in detail, providing
readers with much food for thought.
It has been
said that book reviews are supposed to include something critical.
Nevertheless, I have nothing negative to say about “Currency
Wars”. It is a great book, and you will not be disappointed with it.
But I do have one important thought to keep in mind as you read it.
US real
income and living standards peaked in early-1973, less than two years after
President Nixon closed the gold window. As their closeness in time suggests,
these two events are interconnected. The world’s financial system
experienced a profound change from the edicts of Mr. Nixon’s pen, with
the consequence that private enterprise was negatively impacted.
The harmful
effects from abandoning gold still impair economic activity today because the
necessary discipline has been removed from the monetary system, creating the
global imbalances, debt loads, insolvent banks, risky derivatives and other
problems that plague our world. So as economic activity sinks ever deeper
into an abyss, think about the cause. Namely, governments have created this
mess, so we cannot rationally expect governments to get us out of it, which
is something I have intuitively understood for some time but was also the
main conclusion I reached from Rickards’
book. Whether Rickards intended readers to reach
that viewpoint, I am not sure. Nevertheless, it is clear to me, the answers
and the direction we need so urgently now to avoid falling further into the
abyss will not come from government, but rather from private enterprise and
hard work, the source of all solutions, and indeed all wealth.
My point is
that money should not be a weapon used to fight perceived national interests.
We have learned from the last century that currency wars can lead to shooting
wars. The Warfare Analysis Laboratory hopefully recognizes that reality. So
the role of providing currency should instead be returned to where it
rightfully belongs – with private enterprise. The logic for doing so is
simple and straightforward.
Aside from
the fact that war is a product of government and not private enterprise,
governments do not have bottom-line accountability. In contrast, if companies
do not deliver a product or service that people want, they go out of
business. Governments, however, do not close up shop and disappear, even when
the outcome they create is horrific. So in my view, the sooner this
incontestable tenet is recognized, the sooner we will reach the end of CWIII,
and thereby avoid another global shooting war.
Article
originally published by James Turk on www.fgmr.com
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