Currency Wars: The Making of the Next Global Crisis by James Rickards is an older book, written in 2012 but it maintains it’s relevance because not only does the book go far to explain current global economic conditions, it explains how we got to where we are today and the macroeconomic logic behind why nothing will likely change absent significant political will among the world’s economic cognoscenti in large private banks, central banks, and international financial organizations.
The book itself is 258 pages of text divided into three topical parts with notes, selected sources, and an index.
The first part describes what financial war is and how they start. Interestingly, it describes a wargame run by the DoD that took financial factors into account, at least partially. What is interesting about the wargame is the extent to which policy makers are unready, ignorant, or unwilling to take financial factors into account when thinking about defending national power.
The second and longest part discusses 20th century economic history and the course of the two major currency wars that occurred then. The first currency war began with the outbreak of WWI and ended in 1936. The second currency war began in 1967 as the dollar lost strength and redemptions at the Fed’s gold window increased substantially, which led to the closing of the gold window by President Nixon in 1971. The war continued with the stagflation of the 1970’s and did not finally end until 1986 and the Plaza accord which stabilized world finances.
The most provocative and thought provoking chapter is the sixth, which posits that Currency War III began in 2010 when the Fed instituted its quantitative easing (QE) program that is essentially just the Fed printing money which both increases liquidity and drives the value of the Dollar down.
Part three is a discussion of the various methods used by central banks and international organizations to manipulate the world economy. It also discusses the economic fallacies that have gained traction as conventional wisdom, the most common of these being the Keynsian idea that government spending spurs economic growth despite the fact that government spending represents either taxes taken from private pockets or created money that increases inflation and thus lowers purchasing power. Of great interest is his discussion of the role that gold currently does not have in economics but that it will probably regain when the fiat currency house of cards tumbles. He concludes with a discussion of the ways out of the trap central bankers have created and an analysis of the likelihood of which way will actually be used.
This is a fascinating look at international finance written in such a way that non-economists can understand. Perhaps not everything that Mr. Rickards predicts will come to pass, indeed some has not. However, he is prescient in predicting that the sovereign debt crisis in the EU will defy easy solution as indeed it has. He is most likely also correct that at some point China will have to radically devalue the Renminbi and we may be seeing the beginning of a move towards that with the recent Chinese stock market crash. One thing is clear, there is indeed a global currency war and there probably is no soft landing for the US or world. I highly recommend this illuminating and prescient tome to anyone who would like to understand the maneuverings in the world of global finance and how they impact the individual.