I have mixed feelings about Duncan's analysis and his message. For instance, he's completely right about the nature of the problem and the situation. For example:
“When we broke the link between money and gold, this removed all constraints on credit creation,” Duncan argued. “This explosion of credit created the world we live in, but it now seems that credit cannot expand any further because the private sector is incapable of repaying the debt it has already, and if credit begins to contract, there’s a very real danger that we will collapse into a new Great Depression.”I see this as completely right: the abandonment of gold standard started the problem. We replaced a sound money-based economy with a credit-based economy, essentially completely under the control and at the the whim of central bankers. He goes on to say,
Duncan noted that policymakers believe that if they allow credit to contract, there will be a new depression.Again, I am in complete agreement. As I've said many times, infinity is a really nice concept in math, but it's a rotten way to run an economy. The money supply can't expand infinitely. It has to end sometime, and I fear we're just about there. Things that can't go on won't go on, and nothing goes on forever.
“So they are going to do whatever it takes to keep credit expanding,” he added. “And that means more quantitative easing (QE), and when the Fed does QE3, everyone knows that stock prices are going to go higher," he said.
“If this credit bubble pops, the depression could be so severe that I don’t think our civilization could survive it,” Duncan noted.
This is why I disagree with his proposed solution. In an interview on GBTV last night, Duncan says we can't cut government spending because that would stop about 1/3 of the activity in the economy (take the 1.3 trillion deficit spending out of the 4.2 or so trillion budget) and that would cause a crash and depression. His answer is we need to do more deficit spending. We got into this mess by expansion of credit and expansion of the money supply, but his solution is more credit expansion and more creation of money from thin air. The difference is that he says we shouldn't just bail out banks and put money into "roads and bridges"; we need to put the money into (wait for it...) green energy and alternative power methods. Aaaarrrrrrggggghhhhh!!!!
Just another highly degreed fool. "We got into this massive hole by digging and digging, so we need to get out by digging more." Electric cars will have their day, and the market will develop new energy sources, but these will happen in the fullness of time. If you gave a battery company a trillion dollars today you won't have a 50 or even 10 times better battery in a year. To use an old analogy, if you put 9 non-pregnant women in a room you won't get a baby per month for 9 months.
If there's a chance of not going over the cliff into a seriously bad depression, which honestly does bring the potential of TEOTWAWKI, as Duncan says, and perhaps a world war, hope lies in the opposite direction. Get the government out of the way, lower taxes, lower regulation. Start serious efforts to balance the budget - the "cut, cap and balance" idea that was going around a few months ago.
It may not prevent the collapse, but it may help.