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The Greatest Crash: How contradictory policies are sinking the global economy Paperback – 1 Nov 2011
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"Radical thinkers might have a point" - Financial Times, FTfm, 3rd October 2011
About the Author
David Kauders is an investment manager. He was educated at Latymer Upper School, Jesus College Cambridge and Cranfield School of Management. David has been described in the financial press as a maverick", a superbear" and by the Sunday Telegraph Money as no ordinary manager ... his prediction came to fruition".
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The key to his diagnosis is the concept of the `system limit'. In other words when the amount of global indebtedness exceeds the capacity of the debtors to repay. This is where we are now and Kauders makes it clear that when this has happened lenders will either not lend at all to what they fear may be profligate borrowers or only at a cost that ensures the borrowers' total burden increases. On the other hand those borrowers who recognise the mess they are in prioritize paying down the debt. In either case, economic activity withers and both borrowers and lenders, deprived of their raisons d'être, become poorer. He shows too how both lending more in the form of printing money, bail-out and writing-down debt results in more default and collapsed economic activity, while austerity in the form of deficit reduction through cuts and increased taxes has the same effect.
The reason that what has happened is `The Greatest Crash', putting 1929 into the shade, is because between the Wars the level and extent of public and private debt were far lower than now and also because sixty years of post-War socialism in the West has created a climate of expectation and entitlement that extends almost to the bottom of every society and imposes obligations on politicians that did not exist in the 1920s and 1930s.
Kauders makes cogent links between the expansion of delegated government in the UK and massive cost burdens on the productive part of the economy which are in a particularly perverse way stated to be activities that count as growth. He makes the simple and unarguable case that for healthy economic conditions credit must be invested to make a profit out of which the debt can be serviced and repaid allowing further credit to be generated. He shows how for many years credit has been used chiefly to fund consumption with debt service postponed to some rosy future. And his analysis of the consequences of PFI by which government got schools and hospitals `having it now and paying for it later', is both masterful and frightening.
In the final chapter, he puts forward some suggestions for easing or removing the system limits. These are generally based on the idea that civilisations and societies decline because they over-invest in complexity. They add levels of control and constraint that stifle evolutionary ideas and enterprise while imposing unproductive costs. Suggest to you the EU, anyone? He refers also to the need to reform professions and probably the first to be tackled are the lawyers who have greedily encouraged the `compensation culture' to which Kauders refers; who have battened and grown fat on the ramifications of business practices and regulation and happily dug their trotters into the trough of restraints on freedom of speech and opinion.
Not everything Kauders says makes sense. I found the suggestion that some form of Islamo-Communism might arise as a global movement especially hard to entertain. Nor do I think there was some `golden age' when the professions were not hidebound and self-preservative. Left to themselves the doctors would never have accepted the NHS sixty years ago. Kauders offers a description of `tax-farming' which is utterly different to the one I was taught - that tax-farming was the handing over of the right to collect (as well as the risks of non-collection) in return for a guaranteed sum less than the total possible collection.
As with many polemicists, Kauders' language and construction is frequently less than clear. The book could have done with some tighter editing and the layout is not appealing. Still, these are but niggles. It should be compulsory reading for intelligent citizens, politicians and academics.
So if he now predicts the global economy is facing its greatest crash, I believe we all ought to pay him heed. This book is succinct in explaining his views. The world's debt is causing the crisis, he says. No amount of government device can avoid the crash but will only have the effect of deferring the inevitable which he predicts will be deflation.
Mr Kauders illustrates that all parts of society have contributed to the current dire circumstances. The governments of the western world encouraged the cycle of boom and bust by allowing the bank's to create irresponsible debt. The populace have indulged in a spending spree principally by taking loans secured on property and the scale of the impending disasters was hidden by poor accounting standards and sleight of financial mis-management by the various government agencies.
A collective delusion of easy wealth attainment appears to have overtaken the western world. Mr Kauders explains that such collective delusions are not new and cites Tulip Mania and the South Sea bubble as examples.
As the opposing policies of austerity and stimulus will both have undesirable consequences in solving the crisis Mr Kauders suggests that alternative methods must be found based on principles than on credit and debit. He suggests a couple of ideas of his own but is hopeful the market itself will readily offer up fresh ideas if left alone by the interfering politicians whose efforts can only exacerbate or defer the problems.
In the meantime he offers his advice as to the best investments to protect and preserve one's capital in this slow motion crash. I suggest you buy the book to find out what this advice is. After all Mr Kauders deserves some reward for his efforts!
Mr Kauders is a lucid and convincing writer with a singular, firm and assured grasp of those facts which have led the West to this current financial mess.
As far as global and international economy goes I am definitely a layman. I found this book extremely difficult to understand. It came across very clearly that the economy is unstable and unsustainable at its current level of debt but I could not understand much more of the why's and wherefores' or of the possible remedies to this global problem
I am obviously not the intended market for this book so feel unable to give a true, informed review. The general style is good and the layout, also the printing quality but I am unable to make a judgement on the content.
Personal read 1/5 for the above reasons.
Group read 1/5 as I feel it would baffle a normal reading group but would probably provide immense discussion opportunities for those interested in economics and finance.