WSJ
By :Chris Oliver
April 18, 2012, 10:50 p.m. EDT
Capitalism is dead, credit new king, says Duncan
MarketWatch
HONG KONG (MarketWatch) — The world needs to
clue in to changes to its economic system, including the
death of capitalism, according to noted financial author
Richard Duncan, who warns that attempts to turn back the
clock on our credit-driven economies could be cataclysmic
What’s evolved is a new global economic paradigm that no
longer follows the old script and won’t respond favorably to
fiscal austerity, says Duncan, who believes the global
economy has remained on the brink since the global crisis.
“I think this represents a new economic system,” Duncan
told Marketwatch in a telephone interview from his office in
Bangkok. “The biggest impediment the world faces in
overcoming this crisis is the broadly held misconception
that we are operating in a capitalist system.”
Recognizing that the world operates on a different set of
rules from the laissez-faire capitalism of the 19th century
is among the key arguments in Duncan’s 2012 book, “The New
Depression: The Breakdown of the Paper Money Economy.”
While it might seem like an arcane economic question,
Duncan said that, in fact, the stakes are huge.
Global policy makers are running out of time to take
advantage of opportunities offered up by the new system to
help resolve the crisis, or otherwise face sliding into a
corrosive period of economic contraction and rising
geopolitical tensions, he said.
“The danger is that this new economic paradigm will
collapse through debt deflation,” Duncan said.
Stuck with ‘creditism’
Duncan sees the global economy as having undergone a
fundamental transformation during the past 43 years. Since
changes in 1968 that freed the Federal Reserve from holding
physical gold in reserve against dollars in circulation,
total global credit has expanded 50 times, or from about $1
trillion to $50 trillion in 2007.
Over that period, credit creation and consumption, or what
Duncan calls “creditism,” took hold as the growth dynamic
behind the global economy, displacing capitalism, which he
says relied upon sound money, hard work and capital
accumulation.
Attempts to break the global economy’s reliance on credit
creation as a driver and reboot back to earlier ways won’t
work, said Duncan, who sees “sound money” policy
recommendations as a recipe for disaster.
Underscoring the system’s dependence upon credit is the
fact that there were only nine occasions in the past five
decades when total system credit in the U.S. grew less than
2% annually.
However, each one of the slower credit-growth years was
accompanied by a recession that ultimately was brought to an
end by another round of massive credit creation, Duncan
said.
Duncan believes that true capitalism died in 1914, when
nations across Europe abandoned gold-backed currencies,
running up huge deficits in preparation for what would come
to be known as the Great War.
More recently, changes wrought by the global credit
explosion can be seen in the behavior of U.S. Treasury debt,
where rates at which the Federal government borrows have
remained low, even as the national debt has doubled in just
a few years.
Duncan said that governments can now prop up their
economies through government spending longer than would have
been thought possible a few years ago, owing to the new
dynamic.
“I’m recommending making use of this new economic system.
Borrow money at the government level at very low interest
rates and then invest that money and change our world for
the better.” Duncan said.
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