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The Dollar Crisis Paperback – March 23, 2005
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- ASIN : 0470821701
- Publisher : Wiley; Revised and Updated edition (March 23, 2005)
- Language : English
- Paperback : 336 pages
- ISBN-10 : 9780470821701
- ISBN-13 : 978-0470821701
- Item Weight : 1.12 pounds
- Dimensions : 6 x 0.76 x 9 inches
- Best Sellers Rank: #94,733 in Books (See Top 100 in Books)
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The dollar standard has allowed the US to finance incredibly large deficits by printing more dollars. The dollar standard has on the upside ushered in the age of globalization that has allowed Asian economies - first Japan, then the Tigers, and now China - to devolop by exporting to the US without importing equal amounts, leaving Asian central banks with large stockpiles of dollar reserves. And what can Asian central banks do with these reserves? About the only thing they can do is invest in US corporate stocks and bonds, T-bills, and US agency debt such as Fannie Mae and Freddie Mac. (We've been enjoying low mortgage rates because the Asian central banks buy up our debt so we can take out more.) And all these investments in return allow US consumers to buy more of their exports - call it vendor financing.
According to Duncan, these current account deficits and current account surpluses have already wrought havoc with the world economy: it caused the asset and stock market bubble in Japan in the 1980s; it caused the currency crisis in Malaysia and Thailand in the 1990s (Duncan was an analyst working in Thailand at the time and correctly predicted its occurence); and it is currently fueling the real estate boom in the US.
Asia's export-led strategies require that dollar reserves are reinvested in the US; this prevents their currencies from appreciating. Indeed, if the Bank of China or the Bank of Japan were to invest in the Euro or any other currency, the bankers and politicians of those countries would quickly protest because it would drive up their currencies and make their exports less competitive.
So then with the US increasing the world's international reserves at a rate of $600 billion a year, everyone is still happy for the time being. Asian countries are growing rapidly and American consumers have endless supplies of credit - using their homes as ATMs - however, this imbalance, unsustainable and in the long run, will precipitate an economic crisis. Even correcting this imbalance, if not done prudently, could precipitate a world economic slowdown.
This book was written before the recent decision by China to stop pegging the yuan to the dollar. This was a baby step in the right direction.
Duncan's analysis of the problem is very good, his policy recommendations, however, are questionable. He suggests, for example, giving global central bank status to the International Monetary Fund. That's a nonstarter for reasons obvious to Republicans. He also advocates a global minimum wage, giving workers more money to soak up excess supply. I can already hear the critics screaming no "world government."
The main problem that needs to be addressed - and Duncan stresses it many times - is that there needs to be a regulatory mechanism in foreign-exchange markets. Central banks intervene in currency markets for their own benefit - such creating an export strategy - instead of looking for ways to smooth global business cycles. China, with its revaluation of its currency, is looking to become a responsible global player - we hope. If the powers that be do not act in concert to coordinate a soft landing of the current imbalances, we will all be heading for some frightening times.
Richard Duncan goes to lengths to explain how we are part of a global economy and gives a plausible reason why the only way out of the coming depression, which mainly is the result of severe trade imbalances between the US/Europe and ASEAN countries, is for these third world exporting countries to raise their living standards. This will likely mean an internationally agreed minimum wage for all forms of labor. Only by using a flat playing field can free trade occur as it is intended to.
Other informative books to read in this gendre are "Crash Proof" by Peter Schiff (Dr Doom) Crash Proof: How to Profit From the Coming Economic Collapse (Lynn Sonberg Books)
The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel by Dr. Stephen Leeb.
Having read these and other publications I am now cashing in all my diversified US Dollar denominated investments held by a major Wall Street investment house, in order to buy quality foreign stocks and bonds directly from foreign stock exchanges using their own strong currencies. There are ways explained in this book on how to mitigate the coming extreme pain but we will all suffer a diminished life style.