When the economy crashed in 2008, few people were in a better position than Danielle DiMartino Booth to witness the crisis as it unfolded. At the Dallas Fed, she’d been sidelined for years for warning that housing was in a bubble. That changed very quickly when Lehman Brothers collapsed, and from 2009 to 2015, she became the eyes and ears for Richard Fisher, on of the most important dissenting voices within the Fed.
As Bernanke and Yellen flooded the market with helicopter money, massacred savers and pension funds with a decade of zero percent interest rates, exploded the Fed’s balance sheet to the tune of trillions, and dragged the US economy through one of the worst “recovery” periods in history, Danielle was there, right in the thick of it. And now, she’s written a book to explain what the hell happened—and what happens next.
This was the first in-depth financial book I’ve read. It did not disappoint. Danielle’s writing has a sarcastic and witty edge that is both insightful and incisive. She has the enviable ability to take dry technical analysis and make it entertaining.
At the same time, this is not a lightweight book. To someone who is unfamiliar with the financial world and is still confused by things like the subprime mortgage crisis or the housing collapse, this is not a good entry point (for that, I’d suggest The Big Short).
However, for someone with some passing familiarity on the subject, who understands the basics of finance and the Federal Reserve, and has a growing sense that something, somewhere, is very very wrong in our economy, this book is fantastic.
I’m not in total agreement with Mrs. Booth. The most pertinent point of disagreement was probably this:
Though [Ron] Paul made some good points [with his book End the Fed], America is not a banana republic. It needs a strong and independent central bank.
A country that grants a quasi-government entity a monopoly on the right to counterfeit money is much closer to a banana republic than the likes of the Roman Empire, which endured for one and a half millennia because their monetary system was anchored to gold. But if I only read books or listened to sources that I always agreed with, I would be locking myself in an intellectual prison of my own making.
Towards that end, Danielle DiMartino Booth offers a fascinating and unique perspective that I’ve found to be invaluable. If, like me, you feel that something is deeply wrong in our economy and want to know what it is, or if you believe that we’re on the verge of another economic collapse and want to educate yourself on the things that are driving it, I highly recommend this book.
Financialization is what happens when the people-in-charge “create” colossal sums of “money” out of nothing — by issuing loans, a.k.a. debt — and then cream off stupendous profits from the asset bubbles, interest rate arbitrages, and other opportunities for swindling that the artificial wealth presents. It was a kind of magic trick that produced monuments of concentrated personal wealth for a few and left the rest of the population drowning in obligations from a stolen future. The future is now upon us.
Quite a bit of that wealth was extracted from asset-stripping the rest of America where financialization was absent, kind of a national distress sale of the fly-over places and the people in them. That dynamic, of course, produced the phenomenon of President Donald Trump, the distilled essence of all the economic distress “out there” and the rage it entailed. The people of Ohio, Indiana, and Wisconsin were left holding a big bag of nothing and they certainly noticed what had been done to them, though they had no idea what to do about it, except maybe try to escape the moment-by-moment pain of their ruined lives with powerful drugs.
And then, a champion presented himself, and promised to bring back the dimly remembered wonder years of post-war well-being — even though the world had changed utterly — and the poor suckers fell for it. Not to mention the fact that his opponent — the avaricious Hillary, with her hundreds of millions in ill-gotten wealth — was a very avatar of the financialization that had turned their lives to shit. And then the woman called them “a basket of deplorables” for noticing what had happened to them.
The accumulated monstrous debts of persons, corporations, and sovereign societies, will be suddenly, shockingly, absolutely, and self-evidently unpayable, and the securities represented by them will be sucked into the kind of vortices of time/space depicted in movies about mummies and astronauts. And all of a sudden the avatars of that wealth will see their lives turn to shit just like moiling, Budweiser-gulping, oxycontin-addled deplorables in the flat, boring, parking lot wastelands of our ruined drive-in Utopia saw their lives rendered into a brown-and-yellow slurry draining clockwise down the toilet of history.
I especially got a kick out of that last part.
Seriously, though, this guy hits the nail squarely on the head. We’re headed toward a massive economic reset, which is going to transform the world as we know it. I was in high school when the 9/11 terrorist attacks happened, and the Great Recession had a much bigger impact on my life. When the Greater Recession hits, it’s going to be a lot worse.
That said, I disagree that the only thing we can do is to sit back and watch the world burn. Every problem is also an opportunity. The bigger the disaster, the more opportunities that open up after it.
Without a doubt, though, now is the time to prepare.
I had a really fascinating experience last year that has turned into something of a journey of discovery. It’s still ongoing, and I’m sure it will affect my writing in years to come.
It started with family history. Long time readers of this blog will know that I’ve been interested in family history for some time. My sister is a professional genealogist who specializes in Czech records (she keeps a blog here), and I got started by helping her.
In the United States, the census records are only useful to about 1850. Before that, you have to get into land records, probates and wills, and local courthouse type stuff to really go anywhere. But in the Czech lands, the Catholic Church has kept meticulous parish records going back to the 15th and 16th centuries. They’re handwritten in old German and totally unindexed, but the books are all digitized and available online.
As I worked on this research with my sister, I started to wonder: how far back can we push these lines? What are the limits?
The Czech lands were part of the Holy Roman Empire, under the Austrian Habsbugs. In the 15th century, the Hussite Wars shook things up quite a bit, and that’s about as far back as the Catholic parish records go. But the noble genealogies were very well kept, and go back quite a bit further. If one of your lines connects to the nobility (which is very possible, given how many bastard children were running around), you can push back really far.
But past the 8th century, things start to get sketchy. Most of the nobility in Europe are descended from the barbarian tribes who invaded the Roman Empire: the Goths, the Franks, the Vandals, etc. Same thing with the Slavs and the Byzantine Empire, though the Byzantines held out much better than the Western Roman Empire (it was the Turks, not the barbarians, who eventually did them in).
The trouble is that when these barbarians took over, they tried to establish their legitimacy by fabricating genealogies. Plenty of royal European lines go back all the way to Adam and Eve, but how reliable is that really? As rulers of Christian lands, of course they would try to connect themselves to famous characters from the Bible.
The Dark Ages might not be as dark as we think they are, but in terms of records and record-keeping, they certainly are. The largest and most civilized empire in the world had just collapsed, with barbarians running amok in the countryside and the Persians threatening the last vestiges of the empire in the east. Very few historians have documented this era, and it was a huge dark spot in my own understanding of the world.
So I set out to study it. I scoured Wikipedia, subscribed to the Western Civ podcast, and listened to the entire History of Rome by Mike Duncan (excellent podcast, by the way). The Roman Empire had dominated Europe right up to the early middle ages, and I wanted to learn why it had fallen.
That led to a journey of discovery all in itself. Roman history is a fascinating subject in its own right, and the four or five centuries from the Punic Wars through the reign of Marcus Aurelius are very well documented. Rome faced a lot of challenges, and even a few existential threats, but for more than a thousand years they dominated the known world.
So why did they fall?
The more I studied about the Romans, the heavier this question weighed on me. I learned about Diocletian and the Tetrarchy, the crisis of the third century, and Constantine the Great—a period of Roman history that was much less familiar to me. And then things started to click.
My Czech ancestors were serfs. They emmigrated to Texas shortly after the last vestiges of serfdom were abolished in 1848. Under serfdom, they were little better than slaves. The land they lived and worked on was owned by the Hukvaldy Estate, and they were bound to it by feudal law.
When Diocletian became Augustus, the Roman Empire was reeling from half a dozen existential crises, including an economic collapse. The money was so worthless, most of the empire had resorted to a barter economy. Diocletian established a system of exchange where people could pay their taxes with trade goods rather than money. However, the only way for that system to work was 1) for everyone to take the profession of their parents, and 2) for no one to move without Imperial permission. Otherwise, you might have too many pig farmers in one province and not enough blacksmiths in another.
In other words, the system of feudal serfdom that my ancestors labored under had its roots in the reforms of Diocletian. But it went much deeper than just one man. Diocletian reforms were necessary because the Roman economy had collapsed, and the economy had collapsed because for more than a hundred years, the Empire had been in massive debt, and had serviced its debts by devaluing its currency.
The Roman Empire fell because of deficit spending, government debt, and currency devaluation over the course of several generations. In 1913, the United States established the Federal Reserve, beginning our own process of currency devaluation. Our national debt has doubled every eight years since 2000, when the stock market peaked as measured in gold. Right now, our debt-to-GDP is 104%. One hundred four percent.
And that’s just our sovereign debt. Our household debt is north of $12 trillion, or another 73% of our GDP. The largest portion of that is student loans, which cannot be resolved through bankruptcy.
Is it any wonder that the middle class is shrinking? We’re following the same path that Rome followed, except where they merely walked, we’re running headlong. With our modern communications, the pace of life is so fast that I suspect we’re completing the cycle in a fraction of the time.
And then you realize that what passes for money these days isn’t “money” at all, but government paper backed by government debt. What happens when we default? What happens when the credit markets freeze up and contagion spreads across the global economy? What happens when you wake up one morning, only to find that all the ATMs are down, the banks are all closed, and everyone’s accounts are all frozen?
So what started as an interest in family history took me down a rabbit hole where I learned all about how Rome fell, and how we’re following in the footsteps of Rome. It led to a keen interest in monetary policy and our global monetary system. It also gave me a new hobby: coin hunting.
The Romans devalued their currency by melting down the old gold and silver coins, and minting new ones mixed with copper. Over time, the melt value of the coins went down, and that’s exactly what’s happening to our US currency now.
Before 1965, dimes and quarters were made from 90% silver. After, they were made from copper with a thin nickel coating. Nickels have always been made from a 75/25 copper-nickel alloy, however, and pennies were all 95% copper until 1982. Right now, the melt value of a US penny is actually 1.8¢. At the height of the “jobless recovery” it was closer to 4¢.
Now, it’s illegal to melt down pennies because they are currently legal tender. However, as the currency continues to inflate, the penny will become even more worthless, eventually reaching the point where it doesn’t make sense to make anymore. Right now, the material cost alone of each zinc penny is 70% of the face value. Canada has already discontinued minting pennies, and we aren’t far behind.
I started dabbling in copper hoarding. But as I went through lots of pennies, I started coming across some really old ones. Which got me to wondering if maybe the numismatic value of some of these coins eventually might be more than their melt value. After all, when everyone’s melted down their copper pennies, a complete collection of Lincoln cents is going to be something special.
So I started building a collection of Lincoln cents. Then I got into state quarters, first as a cool Christmas gift for one of my nephews, then for myself. Then I got into Jefferson nickels, and started finding silver.
Right now, I have a complete set of Lincoln Memorial cents. They’re all from circulation, and some of them are pretty beat up, but there are a few really nice ones in there too. My wheat cents collection is much less complete, but the coolest piece is a 1909 VDB in very fine condition, with all the wheat berries still showing. That’s a $10-$15 penny that I found in a normal coin roll.
It’s a fun hobby, and it comes around full circle to what got me started down this rabbit hole in the first place. Each one of these coins is a small piece of history. That 1909 VDB is more than a hundred years old. I’ve got coins that my parents and grandparents would have used, and a penny for every year of my father’s and mother’s lives. With a bit of luck and a lot of patience, I’ll be able to find a penny for every year of my grandparents’ lives as well.
So yeah, it’s been a fascinating journey of discovery, and it’s still ongoing too. I just got started with Roosevelt dimes, and I’m catching up on Mike Duncan’s Revolutions podcast, which is just as interesting as his History of Rome. Turns out that the French Revolution also happened because of deficit spending and a runaway government debt. Surprise, surprise.
Life is a giant rabbit hole when you’re curious about everything!
I just watched a fascinating interview with a 1960s White House intern who claimed to have an eighteen month affair with President John F. Kennedy. But the most interesting thing wasn’t the affair itself, but the way the President’s staff, the “fourth branch” of government (AKA the media), and the entire general public of 1960s America seemed more intent on keeping the secret than on facing the truth about JFK’s many affairs.
It seems that my parents’ generation had so much trust in their government that nobody would even raise the question–that to raise doubts about the integrity of the man who held the highest office in this country would itself be unconscionable. Rather than face the facts, the American public seemed unwilling to do anything that would shatter the gilded image of the man who led the free world. And that, quite frankly, is a mindset that I simply cannot understand.
In contrast, my own generation has very little trust in our government. We’ve been raised in an age of ambiguity, where the enemy doesn’t wear a uniform or pledge allegiance to a flag, but live quietly among us, until they strap a bomb to their bodies or turn a commercial airplane into a weapon of terror. Or at least, that’s the excuse our government gives us for an increasingly invasive security regime that infringes on our basic liberties, enables the military to hold us in detention indefinitely, and sends our soldiers overseas to fight increasingly senseless wars to “liberate” the people of oil-rich nations who don’t even want us there. As if that weren’t enough, the economic crash has taught us that all that stuff our parents taught us about equality and opportunity is really just a pack of lies–that the rich get bailouts while the rest of us foot the bill, and all that stuff about changing the world and being whatever you want to be…yeah. Lies, all of it.
My Dad had an interesting rebuttal to all this, though. He said that it wasn’t his generation that put the president on a pedestal–it was his generation that tore the pedestal down. During the 60s and 70s, the Vietnam era and the rise of the hippy movement, his generation fought back and made it acceptable for us to question the president, or to criticize the government, or to do all the things that we take for granted today. In fact, he said that we’re the ones who are backsliding into complacency, with our deafening echo chambers, our social media inanities, our reactive attachment to corporate brands and advertising, and our almost religious sense of entitlement.
I’m not totally convinced he’s right, but I do think there’s a fundamental gulf between these three generations. Our grandparents’ was the silent generation, where people were expected to keep to their own business and not rock the boat. Our parents’ generation was one of top-down media, where ABC, NBC, and CBS ruled the airwaves and told us all what to think, buy, and believe.
Ours is a much more peer-to-peer generation, but I worry that we’re turning into a collection of mindless herds who are turning the culture wars into a messy riot where we abandon civil dialog and rational thinking for a much more destructive mob mentality that isn’t really building anything, but tearing it all down.
Sometimes, it gets so frustrating that it makes me yearn for the days of the frontier, when anyone could leave it all behind and reinvent themselves somewhere out in the west. That’s probably why I’m so drawn to science fiction, where space is the final frontier. There really are times when I wish I could go to the stars and escape to it all, and I think that shows in my writing.
Maybe that’s why I feel so compelled to write Star Wanderers. It’s basically 80% wish fulfillment, about a guy who goes from planet to planet on the kind of spaceship I wish I had. It’s not all rosy, of course–space can be a cold, dark, and lonely place–but so can this world, when you’re lost and you don’t really know what you’re doing with your life.
Anyhow, those are just some of my random late-night thoughts about the situation in this country and how much things have changed over the decades. If I had a time machine and got a chance to go back to the 60s (after seeing The Empire Strikes Back on opening night, of course), I don’t know I’d be able to recognize this as my own country. But really, I don’t think I recognize anything as my own country anymore. Like Van Gogh, all I can say is the sight of the stars makes me dream.