Review of Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism (Hardcover)

For those who have read Kevin Phillips' American Theocracy: The Peril and Politics of Radical Religion, Oil, and Borrowed Money in the 21stCentury, many of the themes in the current work will sound familiar.In this book, as well as American Theocracy, he reminds us that previous empires such a 17th century Spain, 18th century Holland, and the late 19th and early 20th century Britain all succumbed to financialization as their global power reached its peak.He argues the the United States is now in a similar position.In the last 30 years financial services have grown from 11% of GDP to 21%, and manufacturing has declined from 25% to 13%.A reversal of roles that Phillips sees as very unhealthy.

This huge growth of the financial sector was not without adverse consequences: in the last 20 years public and private debt has quadrupeled to $43 trillion.How this came about has been expertly explained in another book called The Trillion Dollar Meltdown: Easy Money, High Rollers, and the Great Credit Crash by Charles Morris.There was easy money as the Federal Reserve was lending money at less than the rate of inflation.Money was risk-free for the lender since they collected fees up front and sold the securitized loans to investors.When this process was repeated millions of times, one ends up with hard-to-value securitized debt throughout the global economy.Then when housing prices start to decline and homeowners start to default on their mortgages on a grand scale, you have a global crisis of American capitalism.(Bear Stearns alone was estimated to be holding $46 billion worth of bad money.)

As in American Theocracy, Phillips writes that the oil industry is another component of the current crisis.In the US oil production peaked in the 1970s, on a global level it is peaking right about now.And with the ravenous appetite for oil from newly industrialized countries such as China and India, prices will continue to go up.The US still gets "cheap" oil relative to Europe since oil is priced in dollars, but that advantage may soon disappear.The weakening dollar is forcing OPEC countries to move to Euros and other currencies.And some oil producing countries such as Iran and Venezuela are moving to other currencies for reasons other than economic.

The author began his career as a Republican strategist, but he has long since disavowed them.Having a monetary policy of free money, a fiscal policy of tax cuts and increased spending, and an ideology of unregulated market fundamentalism, the Republicans have lost most of their credibiltiy.This does not mean Phillips has gone over to the Democratic side.He believes that Bill Clinton was instrumental in the financialization of the economy, and that currently Hillary and Obama are beholden to investment bankers and hedge fund managers.What used to be the vital center in Washington is now the "venal center."

The conclusion of this volume is very gloomy.Phillips believes that we are at a pivotal moment in American history when the economy has been hollowed out, we are saddled with trillions of dollars of debt, and our political leaders are dishonest, incompetent, and negligent.Given that all that may currently be the case, it may be instructive to further meditate on the empires of the past.Spain, Holland, and Britain all managed to survive and even thrive, hopefully the US will do the same.



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Review of Game Over: How You Can Prosper in a Shattered Economy (Hardcover)

The Game Leeb writes about is whether or not alternative energy systems can be developed before there is painful economic collapse."Game Over" refers to a world where the easily extractable energy and mineral resources are gone (peak commodities) and we haven't developed the alternative technologies to maintain our society in the absence of low cost oil.Leeb outlines how energy and other resource limitations have come to dominate global economics.He explains the familiar concept of peak oil, and introduces the concept of absolute peak oil, the point where the energy cost of oil production just matches the energy extracted. Further Leeb goes on to describe how the extraction of minerals, water and even food are coupled to energy production.Leeb is concerned with the problems of building out of the most common alternative energy systems to a large scale.

Much of this book is recycled material found in Leeb's earlier work
The Oil Factor: Protect Yourself and Profit from the Coming Energy Crisiswhich made a more technical presentation of most of the economic ideas in the first few chapters.As in the The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel this book is written for a more general audience, but unlike his other books which are mainly directed at individual investors, the first three sections of Game Over are directed to the broader questions of how our complex and technological society can deal with resource limitations, which have been magnified by rapid economic development of Asia.Only the last section of the book is directed to investment choices for individuals.

One weak spot in the book is a chapter on the costs of complexity, which comes off as a bit of a political rant against the costs of having bad regulations and archaic ownership systems that make it difficult to move to solutions to the Energy supply problems. He might have added some material about how the demand for safety, adds to energy costs over time, as in pollution controls and automotive safety features making cars less efficient.

For a book emphasising alternatives to oil, Leeb says surprisingly little about global warming. He seems to underestimate the size of US coal reserves and so doesn't discuss the CO2 production problem. My suspicion is that when things get tough, concerns about our ecological commons will be swamped by immediate and local economic concerns.Another item almost entirely left out of the discussion is population control.In a world where change is driven by the billions in the third world expanding their consumption patterns, it seems Leeb is implying its already too late to do anything about overpopulation.

Leeb's investment advice has been fantastic.My interpretation of his oil price indicator was a market sell signal in late 2007. A big question right now is how long will the deflationary fears and trends last. This book's advice is based on the premise that the pain of deflation is so threatening to government revenues that inflation will be manufactured to keep the housing market from collapsing.His advice is premised on the view that the stimulation needed to solve the short term problems(thanks George) will flip us into a world of inflation that will make the 70's look like a cakewalk. Leeb paints a very nasty and depressing picture of our economic future. The rapid consumer growth in Asia has pushed up the Malthusian day of reckoning that much closer.Leeb's depressing picture may well prove prophetic unless we see some tremendously clever improvements in our industrial, land use, trade and energy policies combined with some timely technical advances in energy development.

Ignore Leeb's warnings at your own peril.



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