Book Review: ‘The Death of Money’ by James Rickards

Rickards delivers a definitive analysis of the current state of the world financial system
April 4, 2014 5:41 am Last Updated: December 9, 2015 3:01 pm

Rumor has it most book reviewers don’t even read the whole book. In case of Rickard’s new book, “The Death of Money,” they’d be missing out on a definitive analysis of the world’s financial system, its components in their current state—and what to expect from the future.

At the end of the analysis, he comes to a pretty candid conclusion: “The coming collapse of the dollar and the international monetary system is entirely foreseeable. This is not a provocative conclusion.”

While this statement sounds like another round of doom and gloom, Rickards’s analysis is much more sophisticated than just that. His book is a tour de force analysis of history, cutting edge economic theory, and the individual players (countries, economic blocks, and people) who will shape our financial future. It is supplemented by Rickards’s wealth of personal experience and conversations with his exclusive network of international decision makers. Despite the technical nature of the topics, it never gets boring because Rickards writes in a very captivating and simple style.  

Dollar Decline

According to Rickards, only one outcome is certain. The dollar standard we have been living on since the 1970s, with the paper U.S. dollar as the main reserve currency, will come to an end one way or another.

The reason? Misguided fiscal and monetary policies of the Federal Reserve and the U.S. Treasury. Rickards manages to carefully explain the motives behind and the flaws about each policy and he comes down hard on corrupt politicians and arrogant doctoral standard central bankers.

“Planning is the central bankers’ baleful vanity, since, for them, markets are a test tube in which to try out their interventionist theories.”

In practice, this means deficit spending and money printing in the hope to stir up inflation to boost nominal growth, reduce debt to GDP ratios, and create a self-sustaining recovery.

This recovery will never happen, however, because the problems are structural, not cyclical. The U.S. economy is suffering from a balance sheet recession of too much bad debt, which hasn’t been written down, but rather papered over. Real incomes haven’t risen and consumers and businesses don’t want to spend and invest because of policy uncertainty in the system.

The financial sector has taken on a life of its own and is extracting wealth from the economy, rather than facilitating wealth creation. Rickards cites financial repression, derivatives, and too-big-to-fail banks as examples.

What Comes Next?

Because of an economy in depression and risky centralized policies, there is an international movement to undermine the dollar and move toward a multilateral solution.

Rickards cites the establishment of bilateral trade agreements bypassing the dollar and the nascence of international organizations such as the BRICS countries, the Gulf Cooperation Council and the Shanghai Cooperation Organization as examples of this movement.

While none of these organizations on its own are powerful enough to replace the dollar, its members are powerful as a group and have a forum in which to congregate—the International Monetary Fund.

“The convergence of the BRICS and SCO’s agendas on international monetary matters should be most worrying for traditional Western elites. … The BRICS and the SCO may have separate agendas in military and strategic affairs, but they are like-minded on the subjects of IMF voting rights, and they share an emerging antipathy to the dollar’s dominant role,” Rickards writes.

According to Rickards, if everything goes according to plan, the United States can do nothing against the IMF launching the next reserve currency. In fact, he said it has already accepted this path and is managing rather than obstructing it.

“According to its charter, the IMF is to function as the world’s central bank, a fact carefully disguised by nomenclature and by the pose of IMF officials as mere international bureaucrats dispensing dispassionate technical assistance to nations in need.”

In practice, this would mean creating a capital market for IMF money (Special Drawing Rights or SDRs) deep enough for companies and governments to use it. In addition, resources such as oil would need to be priced in SDRs. Then it could replace the dollar as international reserve currency. Its price would be determined against a basket of international currencies with the Chinese yuan getting a bigger weight.

According to Rickards, who has access to decision makers at the IMF and elsewhere, this process is already underway.

Gold

The book includes a brief but valuable section of what money is, namely an expression of value, and that all fiat money in circulation today is merely a debt contract. Rickards correctly concludes that gold is the purest form of money and makes a compelling case to return to a modified gold standard within the SDRs scheme.

“Banks may fail, exchanges may close, and the peace may be lost, but these events have no impact on the intrinsic value of gold. This is why gold is the true risk-free asset,” he writes.

Rickards also explained several historical gold standards (there not one “gold standard”) and said the world would have enough gold to back trade and commerce at a price of $9,000.

“A well-designed gold standard could work smoothly if the political will existed to enact it and to adhere to its noninflationary disciplines. A gold standard is the ideal monetary system for those who create wealth through ingenuity, entrepreneurship, and hard work.”

Players

After effectively disproving many misconceptions about central bank policy, gold, and asset bubbles, Rickards provides a succinct and accurate analysis of the different players at the table.

The United States, as previously mentioned, is suffering from structural problems and will see its global influence reduced because of past mistakes. On the plus side, it still has the world’s largest gold hoard and is strong in innovation.

On China, Rickards manages to see past the mirage of foreign exchange reserves and GDP growth, “China has produced real growth but has also produced waste, pollution, and corruption to the point that China has an unsustainable economic model hostile to any foreign investor from whom it cannot steal technology.” 

He correctly points to aging demographics, the world’s biggest credit bubble, and an abundance of mal-investments as some of China’s weaknesses. However, its biggest weakness is that it’s run by oligarchs, who are either Communist Party members or have the Party’s blessing, who make too much money in the current system to have any incentive to change it.

It is also these people—Rickards calls them financial warlords—who are syphoning capital out of the country at a record pace because they see the coming collapse.

On the other hand, China has amassed official gold reserves of about 4,200 tons and therefore will have a strong voice in shaping the new monetary future. On the side, Rickards also mentions Chinese financial warfare and cyberwarfare capabilities, issues that are largely ignored in Western society, but could tip the scales in China’s favor when the going gets tough.

Among all the economies in the world, Rickards’s curious favorite is the European Union. He cites the largest gold pool of an economic block (not as a single country), a huge pool of untapped labor (unemployed people can come in handy even if your population is shrinking), world-class infrastructure, and education as well as painful supply side reforms without money printing as positives.

While this fresh perspective is not without merit, it is puzzling, however, that Rickards sees the ongoing effort by the unelected leadership of bureaucrats in Brussels to centralize power and centrally plan economic affairs as a positive, whereas he correctly cites it as a negative for the United States and China.

Must Read

Rickards book is packed with cutting edge analysis and rational perspectives on pretty much every topic the world citizen has to know about. As of this moment, there is no other book offering explanations and solutions to the most pressing problems the world is facing, making “The Death of Money” an absolute must read. 

James Rickards is the author of the bestseller “Currency Wars.” He is a portfolio manager at West Shore Group and an adviser on international economics and financial threats to the Department of Defense and the U.S. intelligence community. “The Death of Money” is available for preorder and will be released on April 8. Follow James on twitter @JamesGRickards.