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Paper Promises: Debt, Money, and the New World Order (Englisch) Gebundene Ausgabe – 7. Februar 2012
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"A compelling sketch of how the indebtedness of much of the developed world will eventually unravel. Rapid credit creation has always been a double-edged sword, associated with economic growth and democratic expansion of opportunity, but also inevitably leading to asset bubbles. In Paper Promises, history serves as a guide for the new order."
Tim Harford, author of Adapt and The Undercover Economist
This is a remarkable book from one of the most respected economics journalists on the planet. Every page brings a fresh insight or a new surprise. A delight.”
[Coggan] covers terrain with characteristic calmness and objectivity, avoids over-simplification, and laces his arguments with his trademark erudition . The book is free from the shrieking ideology that afflicts virtually all contemporary debates over money. Indeed, it offers a clear explanation of the fresh ideological divisions that have arisen over how to deal with the crisis Paper Promises shows that both Occupy and the Tea Party have real reason to be angry The book should be taken very seriously.”
"Writing with a lucidity that enables him to convey deep insights without a trace of jargon . [Paper Promises is] the most illuminating account of the financial crisis to appear to date.”
"Bold and confident ... Coggan covers the terrain with characteristic calmness and objectivity, avoids over-simplification, and laces his arguments with his trademark erudition ... The alphabet soup of acronyms, from SIVs to CDO Squareds, is blissfully lacking ... Finally, the book is free from the shrieking ideology that afflicts virtually all contemporary debates over money. Indeed, it offers a clear explanation of the fresh ideological divisions that have arisen over how to deal with the crisis ... the book should be taken very seriously."
Publishers Weekly, October 31, 2011
Coggan traces history's tug of war between monetary shortage and excess' in this engaging and timely book about the current financial crisis . Thoughtful and thorough.”
Kirkus, November 15, 2011
Comprehensive . A helpful analysis for anyone who wants to know how the world got into the present financial mess, which issues need to be addressed and what the consequences might be.”
Nassim Nicholas Taleb, author of The Black Swan
This book stands way above anything written on the present economic crisis.”
Joshua Rauh, Kellogg School of Management, Northwestern University
Times of London
A smart and witty analysis of the current economic storm, set in the context of the history of money.”
Philip Coggan is a well-known financial journalist . He now proves to be an exceptional banking and economic historian.”
Management Today (UK)
Fascinating and authoritative, with the rigour and depth to satisfy an economist and the accessibility and pace to engage the layperson If everyone read Coggan's book we might just be a little more circumspect if and when the next burst of irrational exuberance overtakes the economy”
In this context of mildly hysterical panic in financial circles, Philip Coggan's book adds a welcome note of calm analysis.”
Tyler Cowen, Marginal Revolution
”A very good and sensible introduction to the history of the recent economic crisis . Recommended.”
With the developed world facing fiscal and monetary crises, Coggan's new book, Paper Promises, is a veritable enigma machine for investors who wish to decipher today's headlines.”
"Writing with a lucidity that enables him to convey deep insights without a trace of jargon&hellip. [Paper Promises is] the most illuminating account of the financial crisis to appear to date."- John Gray, New Statesman -- Dieser Text bezieht sich auf eine andere Ausgabe: Gebundene Ausgabe.Alle Produktbeschreibungen
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Starting in the United Kingdom in the late eighteenth century, the Industrial Revolution resulted into accelerated economic growth, significant population increase, and more trade across the developed world and its colonies. This burst of activity required more official money that remained based on precious metals until WWI. The United Kingdom led the way once again with the adoption of the gold standard among developed economies in the first half of the nineteenth century. The absence of universal suffrage allowed the upper or creditor classes to whom central bankers usually belonged, to favor a policy of sound currency backed by gold, regardless of the pain inflicted to the lower social classes. WWI resulted into the suspension of the gold standard and the massive increase in paper money.
Power shifted to debtors during the inter-war period due to the widespread adoption of democracy and the impossibility to restore the gold standard because of the burden of international debts, especially war reparations. During this period, the global money supply expanded, resulting in more paper money relative to gold. The crisis of 1931 resulted into a deflationary trap and the shift toward the modern welfare state to try to mitigate the effects of persistent mass unemployment in the 1930s. Widespread trade protectionism compounded the difficulty for governments of advanced economies to manage the economic cycle during this period.
Under the leadership of the U.S., the Bretton Woods system of fixed exchange rates was introduced in 1944 and remained in place until 1971. This system was built on the control of capital flows and the confidence of international investors in the U.S. economic policy. Currencies were linked to the U.S. dollar, which was itself linked to gold. Only central banks were able to convert paper money into the gold that the U.S. owned. During this period, economic activity far outstripped the supply of precious metals.
Confidence in the U.S. economic policy broke down in 1971. The final link with gold was removed by the U.S. The combination of paper money and the adoption of floating exchange rates, in the developed world at least, resulted into a massive increase in the volume of debt. Governments, mainly in the developed world, further fueled this debt bonfire by making more and more unfunded promises to their (ageing) electorates. The past decades witnessed first runaway inflation, then a series of bursting asset bubbles from the 1980s onwards. During the same period, the increase in consumer prices was constrained thanks to globalization, technological advances, and the greater role of women in the workforce.
The current global debt crisis, which started in 2007-2008, has witnessed the return of the problems associated with the 1930s, i.e., debt/deflation spiral and the paradox of thrift. Central banks have not hesitated to sacrifice the value of their currencies to protect the financial system.
To his credit, Mr. Coggan clearly articulates the likely long-term consequences of this debt crisis, i.e., inflation, stagnation, and default.
1. High inflation is very tempting to the central banks of heavily indebted countries. However, creditors will push back by asking for the same real rate of interest, regardless of the level of inflation. Furthermore, quantitative easing (QE), which also sacrifices creditors' interests to the benefit of those of debtors, is an unproven tactic that is unlikely to work. As Mr. Coggan learns from Lee Quaintance and Paul Brodsky, two hedge fund managers, printing money and extending credit do not create wealth. QE at best redistributes wealth; at worst may temper its creation.
2. Low interest rates, which reward debtors at the expense of creditors, and low growth, go hand in hand. The cost of capital and the return of capital tend to be at the same level. Therefore, if this is the case, the Western world is following a deeply flawed strategy. Electorates will push sooner or later their representatives to erode the debt, in real or nominal terms, to try to escape from stagnation. Nonetheless, creditors will push back as it was noted previously.
3. The temptation to default is also high. The political unpopularity involved in paying "greedy" (foreign) creditors will overwhelm any other issue associated with a default. The best that creditors can do is to cut off (temporarily) the defaulting debtors from access to further borrowing.
It does not matter which of these three scenarios ultimately gets the upper hand, writes Mr. Coggan. Debt is unlikely to be repaid in the form of money with the same purchasing power as when it was lent. Breaking these paper promises will damage the interests of both debtors and creditors.
Many developed Western economies are unlikely to escape from this crisis by achieving high growth due to population and productivity constraints as well as higher energy prices. Some developed countries will be able to muddle through; others will be ensnared into a debt trap. The developing countries will have to review their options under these circumstances.
Mr. Coggan concludes his examination of the history of money and debt by looking at the outlines of a new international currency system resulting from a world economy in crisis. The U.S. and China are at odds with each other about the outlines of this new system. China prefers a system of fixed exchange rates, the U.S. a system of floating exchange rates.
In summary, Mr. Coggan does a great job in making a complex subject accessible to a wider audience.
The book starts with a brief look at money in history before moving the C19 and then C20 and most of the book looks at the period from the depression onwards. The impact of tight money in the depression is carefully examined. Beyond that the Bretton Woods settlement that was in place during the rapid economic growth after WWII and the post Bretton Woods era of freely traded rapidly inflating currencies and the GFC is studied.
The book has a lot of well chosen quotes including the observation the Alan Greenspan displayed asymmetric ignorance in that he knew when a downturn was happening but did not detect bubbles. Coggan also points out how gold was trading at $35 an ounce in 1971 at the end of the Bretton Woods agreement and now trades at $1900, so the modern world has devalued in 40 years as much as Rome did in 200.
The last chapters of the book are fascinating. Coggan looks at how the build up of debt in the latter half of the C20 for Social Spending has been managed by substantial population growth as well as productivity growth and that at least the first, and possibly the second is reducing and that the debts accumulated today cannot be paid off. There will have to be reductions in the debt burden either explicitly or through currency devaluation. Coggan does miss however, that budgets can be balanced as was done by Germany, Singapore, Australia's last competent government and various Scandinavian countries.
The book doesn't give firm recommendations and fairly describes various positions on monetary and fiscal policy. The final chapters don't give a recommendation but rather a description of the serious problems that many countries around the world are now facing. The books tone and insight are very much like The Economist magazine for which Coggan now writes for. The clear, succinct style is a great strength in looking at a complex issue like money. The book is very much worth reading for anyone interested in finance and economics.
Lastly, the target audience is probably general investor type. It is not laden with industry jargon, so it's well written for someone with familiarity with investments and with an interest in the financial market operations.
Only reason for 4 star is that I haven't read enough on the subject yet to know what a 5 star would be.
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