The Dollar Crisis by Richard Duncan

Book; 'The Dollar Crisis, the Causes, Consequence, Cures' by Richard Duncan

Published in July 25 2003

Publisher Wiley and Sons

New York, NY

ISBN - 10; 040821027

Review by Iroabuchi Onwuka

Introduction/Theme

The theme of the book is to warn the rest of the world on the coming danger of global crisis. This crisis will begin and end with the Dollars, and it is up to Americans and the rest of the world to heed the warning that trade deficit was making and hedge against the disaster.

Outline

The outline of the book is set in four parts.

Part 1, deals on "the extra-ordinary imbalances in the world Global economy and explain how they came about"

Part 2, deals on Global economic "disequilibrium"

Part 3, "severe recession in the United States and elimination of the U.S" dollars.

Part 4, "results from the imposion of a world wide credit bubble"

Overview/The Body

From all intended purpose, the book in question which earned the respect of many business analyst seem to dwell mianly on the middle of the controversy concerning the rise of reverse assets sice 1971. The weight of the matter is entirely placed on gold which for many years served as a means of foreign currency with direct respect to the United States. The simple logic of this whole idea is that existing perform niche of a country like the United States can obtain a stay of foreign currency in the US with direct dollars participation of their exchange of the dollars. The staying power of these countries depositing in the US is the bait on dollars which acquired its useful weight by view of its parallel to gold standard. Then lending practice of 'accounts receivables' and the major issue concerning (IOU). The role of gold is not to be taken for granted, not only gold in terms of intrinsic value but gold in action.

The composition of Reserve Assets according to Richard Duncan is as follow,

1, The monetary gold

2, Special drawing

3, Reserve position in the fund

4, Foreign exchange

a, currency and deposit; (i) monetary authorities (ii) with Banks

b, Securities (i) Equities (ii) Bonds and Notes (iii) Money market instrument and Financial derivatives.

5, other claims

Current monetary problem of the world in the much of the world has grown to export to U.S than import. But we can then argue that America's market is far more competitive because of this as such the verities on trade deficit is on a sign of shortfalls in business but perhaps not the main problem. Japanese trade deficit or large trade deficit does serve as an example for the current problems with the United States . In Asian market there is a much better example of the issue of trade deficit "Thai corporations found they could raise large sums on the international bond market, and foreign banks became increasing eager to lend in Thailand. By then, much of the incoming capital was in the form of "non-resident deposits" is short-term "not money" deposit in Thai financial institutions in order to benefit from the high interest rates on offer there. Equities investment also became increasingly short-terms and speculative in nature." Between 1986-95, the Thailand has a gain in 400% stock price - had lost 95% of its dollar term value. 1994 tightening of interest rate did not stop the flood of lenders.

Duncan also cited the case with Japan's case of trade deficit that it was overcapacity, that it was industrial capacity utilization, but it was also their linear investment inside the U.S market. The whole exercise is driven as a hedge for their currency. Duncan used the example of Jacques Rueff, 1961 of Fortune, "the functioning of the international monetary system was thus reduced to a childish game in which after each round, the winners return their marbles to the losers." If this piece is that hard to comprehend is because the whole meaning of international market is not fully understood.

Here we can inject that the very explicating of Duncan in international markets that "more specifically, the process works this way. When the U.S has an unfavorable balance with another country (let us take as an example France), it settles up in dollars. The Frenchmen who receive these dollars sell their to the Central bank, the Banque of France, taking their own national money, Francs, in exchange. The Banque de France, in effect, create these frances against the dollars. But then it turns around and invest the dollars expand the credit system of France, while still underpinning the credit system in the U.S."

What is happening here is that U.S was commercialising its power through the dollars. This was no game, it was the only way to help. Money the author tend to argue that the nature of excessive credit was due primary to large inflows of currency from different parts of world into U.S, which the banks had to use in other to lend. Easy credit was due to large inflows into the states.

Duncan however argued that in refference to GDP that "credit could not have expaned this rapidly in absolute terms or relative in GDP had the foreign capital inflows not drive up the money supply as it entered the banking system", and the reason was that "taking one step back, the foreign capital inflows would have existed had they not been created by the U.S current account deficit." He believes that it was industrial over-supply that led to the excess capacity of 1926 and then prices began to fall. This arguement is clearly wrong, the balance of value is on U.S currency.

International liquidity occured due to problems emerging from general lack of market direction. There was no value especially currency to speak off upon which all other currencies were measured. As such people did as they wished printed money as they wished. The U.S transfer all of which lacked value, what filtered into the world. We can agree that (a) consumption expendation (b) private investment (c) government spending (d) net.

The breakdown of GDP of 2002 will show that

(1) Gross domestic product, 10 082 personal consumption expenditure

(2) Gross private domestic investment

(3) Net exports of goods and services

(4) Government consumption expenditure and gross investment 1, 858

Conclusion/Summary

In the past gold was the sure sign of value leading to the war which became the instrument of action. Credit contraction would cause a recesion and prices would adjust outward, especially pegged for certain currency. The trade deficit is unavoidable. There is also the issue of Sovereign debt if the soverign wealth is used to extensively acquire real estate within a 'particular sovereign' market. The market experiences serious contraction which will jeopardise the market unless. From a world of mergers and acquisition, Enron, Global Crossing, Worldcom filed bankruptcy. Author Anderson one of the big four was happy to destroy the document that will implicate their accounting at Enron and the largest bankrupcies in the United States.

There is the debt versus income and there is fall in personal savings rate. Total consumer debt on bankruptcy filling trends. The movement from credit to debt "in absolute amounts. The government publicly held debt peaked in 1997 at US $3.8 trillion before falling back to U.S $3.4 trillion in 2001." The office of budget and management has forecast a deficit bonds. Speculations on China by the author..."if the banks continue to extend credit aggressively the cost that the government will have to bear to bail out China's depositors may quickly exceed fiscal policy resources if it has not done so already."

The political economy of the 20th century for example

1, Central banks

2, Paper money issued by governments

3, Income Tax

4, Fiscal Stimulus

5, Steel Tariffs

6, Agricultural Subsidies

7, Child Labor laws

8, Minimum wage laws in the economy advance countries

9, Anti monopoly laws

10, The international monetary fund

11, all social safety nets, including the U.S social security system which is neither Lassez faire nor solvent