The Dollar Crisis

Causes, Consequences, Cures

Wiley, 2005

15 min read

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What's inside?

A prescient and provocative forecast of a massive economic correction in the wake of U.S. credit excesses.

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Comprehensive
Analytical
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Recommendation

Subsequent events have proven this book to be somewhat prophetic. Richard Duncan offers a very good, although somewhat dry, exposition of the international financial structures that emerged in the wake of the failure of the Bretton Woods system. The author is reasonably evenhanded in his assessment of these structures, noting that they made extremely rapid development possible, but at the great risk of economic crisis. In the wake of the subprime mortgage setbacks of 2007 and 2008, few well-informed people would argue with the author’s indictment of excessive credit expansion. Still, many might argue with his conclusions, especially with his support of a global central bank and a global minimum wage. For those seeking a clear, informed exposition of the systemic vulnerabilities that culminated in the global credit crisis of 2008, getAbstract suggests this book as an excellent starting point.

Summary

Bubbles in Brief

The Bretton Woods system which stabilized international currency around the gold-backed U.S. dollar, fell apart in 1971, when President Richard Nixon determined that those who held American dollars could no longer exchange them for gold. This led to economic problems, such as asset bubbles.

The Bretton Woods system had a built-in check on credit creation. Because dollars were convertible into gold, the finite amount of American gold reserves capped the supply of dollars. Until 1970, the precious metal was the world’s most common reserve asset (a status now held by foreign currencies). After Nixon ended gold’s convertibility, the share of reserve assets in gold dropped. By 2000, it was negligible. Because the amount of gold is limited, it provided a discipline that prevented countries from running large deficits. Gold flowed out as deficits rose. The outflow of gold led to higher interest rates and credit contraction, bringing about recession, lower prices, more competitive exports and a restoration of the trade balance.

The modified gold standard built into the Bretton Woods system worked reasonably well until the 1960s, when U.S. deficit spending...

About the Author

Robert Duncan has worked as a financial analyst in Asia for more than 16 years. In 1993, he was one of the first to warn of the impending collapse of the Thai economy.

Richard Duncan

The Dollar Crisis

Causes, Consequences, Cures

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Bubbles in Brief

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