In 1971, President Nixon imposed national price controls and took the
United States off the gold standard, an extreme measure intended to end
an ongoing currency war that had destroyed faith in the U.S. dollar.
Today we are engaged in a new currency war, and this time the
consequences will be far worse than those that confronted Nixon.
Currency wars are one of the most destructive and feared outcomes in
international economics. At best, they offer the sorry spectacle of
countries' stealing growth from their trading partners. At worst, they
degenerate into sequential bouts of inflation, recession, retaliation,
and sometimes actual violence. Left unchecked, the next currency war
could lead to a crisis worse than the panic of 2008.
Currency wars have happened before-twice in the last century alone-and
they always end badly. Time and again, paper currencies have collapsed,
assets have been frozen, gold has been confiscated, and capital controls
have been imposed. And the next crash is overdue. Recent headlines about
the debasement of the dollar, bailouts in Greece and Ireland, and
Chinese currency manipulation are all indicators of the growing
conflict.
As James Rickards argues in Currency Wars, this is more than just a
concern for economists and investors. The United States is facing
serious threats to its national security, from clandestine gold
purchases by China to the hidden agendas of sovereign wealth funds.
Greater than any single threat is the very real danger of the collapse
of the dollar itself.
Baffling to many observers is the rank failure of economists to foresee
or prevent the economic catastrophes of recent years. Not only have
their theories failed to prevent calamity, they are making the currency
wars worse. The U. S. Federal Reserve has engaged in the greatest gamble
in the history of finance, a sustained effort to stimulate the economy
by printing money on a trillion-dollar scale. Its solutions present
hidden new dangers while resolving none of the current dilemmas.
While the outcome of the new currency war is not yet certain, some
version of the worst-case scenario is almost inevitable if U.S. and
world economic leaders fail to learn from the mistakes of their
predecessors. Rickards untangles the web of failed paradigms, wishful
thinking, and arrogance driving current public policy and points the way
toward a more informed and effective course of action.
