- Turk, James and John Rubino.
The Money Bubble.
Unknown: DollarCollapse Press, 2013.
ISBN 978-1-62217-034-0.
-
It is famously difficult to perceive when you're living
through a financial bubble. Whenever a bubble is expanding,
regardless of its nature, people with a short time horizon,
particularly those riding the bubble without experience of
previous boom/bust cycles, not only assume it will continue
to expand forever, they will find no shortage of
financial gurus to assure them that what, to an outsider
appears a completely unsustainable aberration is, in fact,
“the new normal”.
It used to be that bubbles would occur only around once in
a human generation. This meant that those caught up in them
would be experiencing one for the first time and
discount the warnings of geezers who were fleeced the
last time around. But in our happening world the pace of things
accelerates, and in the last 20 years we have seen three
successive bubbles, each segueing directly into the next:
- The Internet/NASDAQ bubble
- The real estate bubble
- The bond market bubble
The last bubble is still underway, although the first cracks
in its expansion have begun to appear at this writing.
The authors argue that these serial bubbles are the consequence
of a grand underlying bubble which has been underway for decades:
the money bubble—the creation out of thin air of currency
by central banks, causing more and more money to chase whatever
assets happen to be in fashion at the moment, thus resulting in
bubble after bubble until the money bubble finally pops.
Although it can be psychologically difficult to diagnose a bubble
from the inside, if we step back to the abstract level of charts, it isn't
all that hard. Whenever you see an exponential curve climbing to
the sky, it's not only a safe bet but a sure thing that it won't
continue to do so forever. Now, it may go on much longer than you
might imagine: as
John Maynard Keynes
said, “Markets can
remain irrational a lot longer than you and I can remain
solvent”—but not forever. Let's look at a chart of
the M2 money stock (one of the measures of the supply of money
denominated in U.S. dollars) from 1959 through the end of 2013
(click the chart to see data updated through the present
date).
You will rarely see a more perfect exponential growth curve than this:
if you re-plot it on a semi-log axis, the fit to a straight line is
remarkable.
Ever since the creation of the Federal Reserve System in the United
States in 1913, and especially since the link between the U.S.
dollar and gold was severed in 1971, all of the world's principal
trading currencies have been
fiat money: paper
or book-entry money without any intrinsic value, created by a government
who enforces its use through
legal tender
laws. Since governments are the modern incarnation of the bands of
thieves and murderers who have afflicted humans ever since our
origin in Africa, it is to be expected that once such a band
obtains the power to create money which it can coerce its subjects
to use they will quickly abuse that power to loot their subjects
and enrich themselves, as least as long as they can keep the game
going. In the end, it is inevitable that people will wise up to the
scam, and that the paper money will be valuable only as scratchy
toilet paper. So it has been long before the advent of proper
toilet paper.
In this book the authors recount the sorry history of paper money
and debt-fuelled bubbles and examine possible scenarios as the
present unsustainable system inevitably comes to an end. It
is very difficult to forecast what will happen: we appear to be
heading for what
Ludwig von Mises
called a “crack-up boom”. This is where, as he wrote, “the
masses wake up”, and things go all nonlinear. The preconditions
for this are already in place, but there is no way to know when
it will dawn upon a substantial fraction of the population that
their savings have been looted, their retirement deferred until
death, their children indentured to a lifetime of debt, and their
nation destined to become a stratified society with a small fraction
of super-wealthy in their gated communities and a mass of impoverished
people, disarmed, dumbed down by design, and kept in line by
control of their means to communicate, travel, and organise. It is
difficult to make predictions beyond that point, as many disruptive things
can happen as a society approaches it. This is not an
environment in which one can make investment decisions as one
would have in the heady days of the 1950s.
And yet, one must—at least people who have managed to save for their
retirement and to provide their children a hand up in this
increasingly difficult world. The authors, drawing upon historical
parallels in previous money and debt bubbles, suggest what asset
classes to avoid, which are most likely to ride out the coming
turbulence and, for the adventure-seeking with some money left over
to take a flyer, a number of speculations which may perform well as
the money bubble pops. Remember that in a financial smash-up almost
everybody loses: it is difficult in a time of chaos, when assets
previously thought risk-free or safe are fluctuating wildly, just
to preserve your purchasing power. In such times those who
lose the least are the relative winners, and are in the
best position when emerging from the hard times to acquire assets
at bargain basement prices which will be the foundation of their
family fortune as the financial system is reconstituted upon a foundation
of sound money.
This book focusses on the history of money and debt bubbles, the
invariants from those experiences which can guide us as the
present madness ends, and provides guidelines for making the
most (or avoiding the worst) of what is to come. If you're looking
for “Untold Riches from the Coming Collapse”,
this isn't your book. These are very conservative recommendations
about what to do and what to avoid, and a few suggestions for
speculations, but the focus is on preservation of one's hard-earned
capital through what promises to be a very turbulent era.
In the Kindle edition the index cites page
numbers from the print edition which are useless since the Kindle
edition does not include page numbers.
January 2014 