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Paper Money Collapse: The Folly of Elastic Money
Paper Money Collapse: The Folly of Elastic Money
by Thomas Mayer
Edition: Hardcover
Price: £10.80

6 of 6 people found the following review helpful
5.0 out of 5 stars More Compelling Logic and More Compelling Evidence, 16 Sept. 2014
I read Schlicter's first edition of this book some three years ago. It was a revelation, for the first time enabling me to understand the world of economics amongst the fog of mainstream mantra and data.

As in the first edition, Schlicter does this by clearly explaining what money is, and how it has changed from a commodity currency into the highly elastic paper (fiat) money of today. With devastating logic he explains how this elasticity must inevitably lead to currency collapse. He supplements this analysis with a history of fiat money systems, all of which have failed, from the Jin Dynasty of the twelfth century onwards.

But the second edition is slicker, albeit 25% longer. For example, his analysis of historic fiat money systems is extended into the twentieth century, resulting in greater empirical punch.

Whilst the conclusion of this edition is the same, in that we can only return to a balanced economy with a system of inelastic money, the analysis is more positive in that Schlicter speculates on methods of stable transition whereby this could be achieved. He also provides an insight into Bitcoin and other cryptocurrencies; how they are conceptually sound but subject to risks of technical fraud and regulatory crackdown. Of course, any holder of an inelastic cryptocurrency that became generally accepted would generate unparalleled riches!

All in all, what I learned from Schlicter's first edition enabled me to understand many events of the last three years. I also felt more confident in my investment decisions as, although timing is always unpredictable, to understand the fundamental position is essential. And the second edition illustrates this point; for example, massive quantitive easing of the last three years has been matched by a decrease in the velocity of money as banks are reluctant to lend, so the Genie of high inflation has so far been contained.
Comment Comment (1) | Permalink | Most recent comment: Sep 22, 2014 1:47 PM BST

Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown
Paper Money Collapse: The Folly of Elastic Money and the Coming Monetary Breakdown
by Detlev S. Schlichter
Edition: Hardcover

57 of 59 people found the following review helpful
5.0 out of 5 stars Compelling Logic and Compelling Evidence, 18 Sept. 2011
Schlicter's analysis is certainly controversial, and I must admit that I started reading Paper Money Collapse with a degree of scepticism. However, the logic of his argument is compelling and, upon concluding the read and reflecting, the reason behind many recent world economic events becomes evident. A good example is the inability of western economies such as Japan and the US to stimulate growth, despite repeated attempts at monetary expansion.

He begins with a clear explanation of what money is and how it works; how it began as a pure commodity currency, morphed into a paper currency backed by gold, changed again through the process of Fractional-Reserve Banking and has today (as it has in past times before collapsing) become a fiat currency where Central Banks can create money at will and at no cost. Currency created through Fractional-Reserve Banking is somewhat elastic and that created by Central Banks is infinitely so.

It is this elasticity that allows monetary expansion to distort and unbalance the economy, and to induce short term stimulus in certain sectors but zero real growth overall in the long term. It also has the important side effect of generating inflation. As the process continues monetary stimulus is destined to have less and less effect whilst the inflationary consequence is intensified, with the inevitable result of hyperinflation and currency collapse.

Schlicter underpins his analysis with descriptions of historic paper money systems, all of which failed. Our present system of paper money, particularly after 1971 when the US abandoned The International Gold Standard, displays numerous symptoms analogous to the historic examples cited.

What is the solution? Schlicter is uncompromising; only after the effect of previous credit expansions have been unwound and we have returned to a system of inelastic money (albeit possibly including an element of Fractional-Reserve Banking) can the economy begin to grow naturally and spontaneously. We should look to the period of The Classical Gold Standard between 1890 and 1914 which enjoyed economic prosperity notwithstanding a modest rate of deflation throughout.

I confess that one reason for my reading this book was to see what I could do to adapt my personal circumstances to what is, by any measure, potential financial disaster. Schlicter claims that this is not the purpose of his book yet he goes on to suggest that gold acquisition is preferred strategy. However, he also points out that in 1933 Roosevelt confiscated all privately held gold!

I'm not sure what I'm going to do, but I certainly would not want to be dependent upon government bonds or pension obligations for my retirement.
Comment Comment (1) | Permalink | Most recent comment: Mar 27, 2013 7:00 AM GMT

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