Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism [Audiobook] [Englisch] [Audio CD]

The short message from this book is that the U.S. economy is in trouble and that trouble is about to get worse. Why? Private and government debt and spending are out of control and the chickens haven't come home to roost yet in terms of higher interest rates and higher costs of imports, the government lies about inflation, the credit crisis isn't over by a long shot, peak oil production will cause prices to shoot through the roof, our manufacturing base is gutted, economic growth is going to be lousy, foreigners aren't going to keep taking dollars, and nobody likes us outside of the country. Are you ready to become a second-rate country?

Unless you want to see some of the excellent tables and charts in the book that document these points, you don't need to read the book. Mr. Phillips doesn't add much to that brief message except to make continual references to prior histories of other nations. You would do better to spend your time working on solutions to the problems.

The book is also very dated, focusing on the conditions of August 2007 and the levels of oil prices and debt problems then. As we all know, those were the good old days compared to June 2008.

The writing style is also annoying in that Mr. Phillips doesn't assemble his points into a logical pattern to "prove" what might come next. It's an overly qualitative and anecdotal approach to issues that have quantitative implications.

There's not a bit of advice in the book about what you can do to help secure your future: This book seems to be totally aimed at setting the agenda for the next president of the United States.

By avoiding completely America's habitual junior high school political patriotic pep rally approach practiced universally by politicians and pundits, Phillips provides uncompromising realism necessary to stem the relative and self-immolative economic decline of the U.S.

His book demonstrates overwhelmingly that the few, but not the people, benefited from what he terms the "financialization" of the economy over the last few decades at the expense of neglecting the manufacturing sector. With lots of hoopla, the expanding financial service sector was sold in the media while the manufacturing sector was neglected. Unrelentingly, the statistics prove that the manufacturing sector has been shrinking and that the massive financial service sector has been expanding, so that the latter now constitutes 20 to 2l percent of the GDP while manufacturing shrank to about 12 percent. This transition is correlated to a similar historical one between the agricultural and manufacturing sectors which started more than a century ago. No doubt major changes could not have been avoided in this transition, but the scope and overpromise of financialization was irresponsible, tragic and a giant fraud.

Co-joining this economic transition was an explosive growth in private debt while the media and pundits focused far too much on the public debt. Credit market debt quadrupled from 11 trillion to 48 trillion in the last few decades, massively outpacing public debt.

"Malfeasance of money" was maximized and revealingly "socializing of risk" (sort of what Walter Heller already formulated in the sixties as privatizing the profits and socializing the losses) was institutionalized with the aid of the Presidential Working Group on Financial Markets created in 1988 after the '87 crash. It included Fed Chair Greenspan, the Treasury Secretary, etc. Colloquially termed the Plunge Protection Team it enacted "Wall Street Socialism" and "socializing the risk" domestically and "financial mercantilism" abroad. 44 percent of corporate profits came from shuffling money around while only 10 percent came from manufacturing.

New debt instruments, CDO, SIV, derivatives of one sort or another, etc. enabled this pattern which was also boosted not just by Reagan but also by Clinton's Financial Services Modernization Act of '99, which dissolved the constraints and legal separation between banking, insurance and mortgages. (Clinton's patron was billionaire financier, Ron Burkle, who first contributed to him hugely and later hired him as a consultant, while Chelsea also was employed by a financial corporation after Hillary became a Senator of New York.)

Inflation statistics were changed so that they understated the inflation rate between 2 to 3 percentage pts. and overstated GDP growth. Under Bush, Jr. wars were declared while Bush urged consumers, unlike during previous wartimes, to continue to spend and travel. M-3 was eliminated by Bernanke in '06, though it was the ultimate indicator of inflation and was growing between 10 to 12 percent in '06 (by the way causing the Chinese to object to the dumping of M-3 since they could not gauge U.S. inflation accurately.)

"Bad Money," though not well-written and too narcissistic, does include illuminating and highly relevant statistics and graphs. Phillips places the horrible economic evolution into an historical comparative framework by referring frequently to Spanish, Dutch and British historical economic precedents. For an economic historian, this is a delight, though it falls short of being truly scholarly. But Phillips is not trying to write economic history. He is merely enlisting historical fact to shed additional light on recent U.S. economic events. And sure enough, historical comparisons aid tremendously in understanding the evolution and facts of America's current economic malaise.

Greenspan, for example, was impressed and seemingly highly influenced by the rising house prices of '75 and '79 when cashing out home equity provided massive consumer demand. Phillips believes that this aided in Greenspan's advocacy in encouraging the subprime mortgage mess and repeating, on a more massive scale, generating consumer demand by expanding enormously home equity loans between '01 and '06. Well, maybe Phillips did not fully gain insight into the Greenspan-Roland Arnall connection since Arnall with Greenspan's personal and monetary support started Ameriquest, one of the worst practitioners in the subprime mess.

In August '07, dramatic changes materialized, and the subprime mortgage bubble burst. In spite of having two oil Presidents and one oil V-P, oil's role was neglected as was manufacturing. Free markets were advocated, though not practiced in reality, and the mess was confronted by powerful and emerging foreign state oil corporations, foreign Sovereignty Funds, etc. which had all massively accumulated dollars and used them for nationalistic economic policies while America was under the false belief that the rest of the world would quite naturally follow America's wonderful capitalistic economy which, in reality, was undergoing economic self-immolation and suffering from imperial financial and military hubris.

Phillips's tome is interspersed with plenty of citations from those who advocated the financialization of our economy, including the religious Right which advocated "God Wants You To Be Rich" as well as those who warned of its consequences. Among the latter are the BIS in Basel, Switzerland, Kurt Richebacher, Alex Weber, Bert Ely, Hyman Minsky, et al.

The book cites Robert Reich's good point of ending treating hedge fund and private equity manager's income as capital gains and advocates, quite correctly, emphasizing "high value-added manufacturing and exporting" like Japan, Germany and Switzerland. Abandoning the hubris of military and financial imperialism would also help, Phillips adds by way of concluding, since both are drags on the U.S. future. In compliance with the Austrian School of Economist's notion that all credit expansions are followed by busts, the U.S. economy is now confronting another major example of this concept. All in all, Phillips' book is right on the mark serving the highly commendable purpose of dismantling enormous self-deceptions and delusions and rectifying massive fraud as well as re-orienting economic processes into a far better direction. Former IMF head Koehler seems to agree with Phillips when he recently judged the financial markets as a "monster."