The Death of Money by James Rickards

James Rickards' book The Death of Money follows his Currency Wars. I read the latter and am working my way through the former. Consider reading either; it would be well worth your while.

Here's an excerpt from the beginning of Part Two of The Death of Money:

In Shakespeare's The Merchant of Venice, Salanio asks, "Now, what news on the Rialto?" He's looking for information, gathering intelligence, and attempting to identify what's happening in the marketplace. Salanio doesn't intend to control the business unfolding around him; he knows he cannot. He looks to understand the flow of news to find his place in the market.

Janet Yellen and the Federal Reserve would do well to be as humble.

If you know anything about how free markets - left to function without interference - actually work, you'll appreciate this. Free markets provide information, via price discovery, that allows people to make rational decisions about buying and selling - whether the item bought or sold is tangible, like a house, or intangible, like stocks and bonds. When the central bank interferes with price discovery, people don't really have the information they need to make good decisions, and so they curtail their buying and selling. The economy suffers as a result.

Hence central bank "activism" - another word for interfering in the natural functioning of the economy - as practiced, for example, by Janet Yellen, while intended to stimulate economic activity, really has the effect of slowing down the economy. The slowing down occurs because people don't have the confidence to act on buy and sell decisions. They lack this confidence because they don't trust the information available to them, that information being the prices that exist in the economy for various items. The prices are not trustworthy because they have been influenced by the central bank's attempt to artificially stimulate the economy by pushing money into it.

You can read the rest of the chapter, "The Ruin of Markets," for a more detailed explanation. But it's just one chapter worth reading in this excellent book. The chapter concludes with this:

Unlike Shakespeares' Salanio, we can no longer trust what the markets tells us. That's because those who control them do not trust the markets themselves; Yellen and the rest have come to think their academic hand is more powerful than Adam Smith's invisible one. The result has been the slow demise of the market utility that, in turn presages the slow demise of the real economy - and of the dollar.

Rickards writes well, and knows what he's talking about - a compelling combination. Before you buy the story of an economy building strength after the 2007-2008 Great Recession, consider the picture Rickards' presents in this chapter and the rest of his well-researched book. And just to be clear, you don't have to buy into the "doom and gloom" scenarios that paint a civilization heading for the stone age after the dollar and all fiat money collapses, resulting in a return to barter. Rickards doesn't point us in such a direction. But you'll want to contrast his carefully drawn, amply footnoted arguments with the typical sunny, upbeat "forecasts" pumped out by Washington and Wall Street.

We'll return to more ideas from this excellent book in future posts.