Richard Duncan first came to the public's attention with his
2003 international bestseller
The Dollar Crisis
, a book which basically saw him predict the global economic
crisis that came soon afterwards.
The New Depression
is his third book, and he spoke to Benzinga to tell us about
First of all, could you provide a little background on
I have spent most of my career working in Asia. I worked out to
Hong Kong in 1986, and started my career then. Since then, in
backward order, I was the global head of investment strategy for
ABN AMRO Asset Management based in London. Earlier on I was at
the World Bank in Washington as a financial sector specialist for
a couple of years. Before that, I was in Bangkok as the head of
the research team for Salomon Brothers and James Capel
What led you to write this book?
This is my third book on the global economic crisis. The first
one was called
The Dollar Crisis
, and it was published in 2003. The other books have followed on
from that. The reason I wrote that is because I lived in Thailand
during the Asia crisis. I was here from 1990 to '96. It hadn't
quite started in '96. It was completely obvious that Thailand had
been drawn into an enormous economic bubble. I was managing quite
a big research department, so I could see how that worked. I
initially didn't understand what had caused it, and I didn't
understand why it didn't pop sooner. After it did pop, I had a
chance to figure it out and I realized that it wasn't just
Thailand, it was all the Asia crisis countries. Furthermore, I
also realized that the same thing had happened in Japan for the
same reasons, and more or less the same things were happening in
the United States. It was only a matter of time before this
crisis of global imbalances led to a worldwide economic disaster.
That was the theme of
The Dollar Crisis
The second book came out in 2009 after the crisis had started.
It was called
The Corruption of Capitalism
. It laid out a long series of policy mistakes made by the United
States that led us to this disaster. This new book is very
specifically focused on the role that credit has played in
creating the global crisis.
You believe that the current economic system in place in
the U.S. is not capitalism?
That's right. I think the biggest misperception to resolving this
crisis is the misunderstanding that we have a capitalist economy.
For example, the
ran a two-week-long series called "The Crisis in Capitalism".
That's a waste of time. We don't have a crisis in capitalism.
Capitalism died out a long time ago. We have a completely
different kind of economic system now.
You call that creditism?
Capitalism was an economic system that was driven by the private
sector. The government had very little role. The growth dynamic
of capitalism worked like this - businessmen would invest, some
of them would make some profit, they would accumulate that
capital (hence capitalism) as savings, and they would repeat the
process. Investment, profit, savings. That was the growth dynamic
under capitalism, and that was slow and hard. Our system hasn't
worked like that for decades. First of all, the U.S. government
spends 24% of the U.S. GDP at the federal level. On top of that,
the Central Bank creates the money and manipulates its value.
That's not capitalism. Even more important than that, the growth
dynamic now is completely different. Rather than being driven by
investment and capital accumulation, our economic growth dynamic
has been driven by credit creation and consumption, then more
credit creation and consumption. That has created very rapid
economic growth for the last 40 or 50 years. The problem is that
this new debt-fuelled economic paradigm, creditism, can't create
any more growth because the private sector can't bear any more
debt. Total debt in the U.S. first went through $1 trillion in
1964. Over the next 43 years, it expanded 50 times to $50
trillion in 2008. Then the private sector defaulted and couldn't
pay its debts. It created the world we live in and made it much
more prosperous than it might have been otherwise. It was only to
have so much credit because we broke the link between dollars and
gold, starting in 1968. The law was changed. The Fed was no
longer required to keep it in gold backing. The paper currency
was the foundation upon which the $50 trillion of credit was
What are you aiming to achieve with the book? Who is it
My main target is public opinion. I would like to influence
public opinion, thereby influencing policy makers' opinion. At
the same time, it's also directed at investors who work at an
institutional level and a retail level. It's not really that
complicated to understand. In the book, I introduce something I
call the Quantity Theory of Credit, that is a very useful
analytical framework for understanding how we got into this
disaster, what the policy response is, and why the policy
response is what it is, what's going to happen next and how
that's going to impact asset prices.
What will happen if the U.S. stays on the creditism
There doesn't seem to be any way for it to stay on the path,
other than by the government borrowing much more money. When the
private sector effectively defaulted in 2008, we would have
spiraled into a new great depression then and there had the
government not jumped in with trillion dollar budget deficits
every year, financed to a certain extent by paper money creation.
It's that government life support that kept us from collapsing
into a great depression. We must continue to have that in order
to prevent us from collapsing into a great depression in the
What needs to be done to prevent that? True
I don't think there's any way to go back to true capitalism. A
lot of people, libertarians for instance, they all have good
intentions but they seem to think we can all take one step back
and find ourselves in some sort of laissez faire Garden of Eden.
What they don't realize is that if you take one step back, you
fall off a cliff and out civilization crumbles. The government
has three options. Every economy is made up of four components.
There's personal consumption and expenditure, business
investment, net trade, and government spending. You add those
together, and that's the GDP. In the U.S. now, the government's
spending about 24% of GDP. Here are the options. The first is to
do what the Libertarians say they want and radically reduce
government spending, in which case the economy in the U.S. and
around the world will immediately spiral into a great depression
with disastrous economic and geopolitical consequences. That's
not a very good idea. The second option is for the government to
continue doing what it's doing now, which is borrowing and
spending massive amounts through trillion dollar budget deficits,
financed in part through quantitative easing. Keep spending the
way they've spent now, essentially mostly directed at consumption
purposes. That's the second option. They could probably keep
doing that without difficulty for another five years, and maybe
even as long as ten years. In ten years from now, they will go
bankrupt just like Greece, and then we will collapse and enter a
great depression. That's better than the first option, but that
isn't a very good option either. The third option is for the
government to keep borrowing and spending, but to change the way
it's spending. Rather than spending on consumption related
purposes, the government should invest very aggressively in
transformative 21st century technologies, on such an aggressive
scale that they can't possibly fail to succeed. I'd like to see
them put a trillion dollars in solar energy over the next ten
years, and another trillion in nanotechnology, and another
trillion in genetic engineering and biotechnology. That would
give the U.S. an unassailable lead in 21st century technologies.
We could develop new industries that the government could tax,
new products that would balance our trade deficits. Essentially,
it would assure generations of future prosperity, and we could
all live happily ever after.
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