Whenever someone as smart as David Stockman (President Reagan’s Director of the Office of Management and Budget) writes a 768-page book (The Great Deformation), it makes me nervous, for two reasons: I don’t have the time to read 768 pages, but if I don’t I might miss something important. So I was gratified that a much brighter and more capable person came along and read it for me – Robert G. Anderson – and then published his review on Gary North’s website. Since GN’s website is a subscription-based website I am only going to share with you the most pithy, cogent and profound parts from his review of Stockman’s book:
If Stockman is right about public “peak debt” having finally been reached after a century of evolving fiat money and credit, then the final “day of reckoning” worldwide is upon us. I’m not as sure about his timing yet, since that will not be knowable until a massive public bond sale failure or government default materializes. When that happens, and I do agree with Stockman that it’s coming, two things will initially happen: interest rates will skyrocket, and prices of financial assets will collapse.
That’s an economist’s way of saying that if something can’t continue, it will stop. What can’t continue is the buying of US government treasuries by the Federal Reserve with impunity. It’s fake paper money (digital money) that the government uses to fund its deficits of a trillion dollars every year. For the moment all is well: interest rates are low, the bond market is quiet, credit agencies still think the US is safe, the stock market continues to throw off any concerns about these matters and ratchets higher and higher. Even gold, the real money, is declining in dollar terms, indicating (falsely) that all is well.
But Anderson says that at some point all of this will coming to a screeching halt:
Obviously, with this outcome will come a massive decline in the material stand of living worldwide as the international social division of labor is undermined. Somehow, some way, the economic madness of a century of fiat money and credit must be, and will be, abandoned. Thereafter, if the world is wise enough to have learned that sound money is the only path to a promising economic future, a recovering market order will choose gold as its medium of exchange again. I know I’ll not live to see this happen, but I do believe it’s somewhere in our distant future.
I take some comfort in this. Since gold is real money and always has been, when the fake fiat paper money schemes collapse, people will return to gold (and probably silver) to make exchanges. What makes me nervous is his comment that “the international social division of labor [will be] undermined” beforehand. In doing some research for an article on Germany (which I will publish here later on today), I uncovered what happens when the division of labor is disrupted and people are forced to go back to barter just to eat. This happened Germany following the end of the Second World War, and before its economic “miracle” began. People would ride in carts 100 miles into the countryside to barter what few household goods they had left for potatoes, apples, and other produce, just to stay alive. It was horrifying.
So I’m glad I don’t have to wade through 768 pages of Stockman’s book, and neither do you. But I’m sorry the news isn’t better.