Small Package, Tons of Truth

Economic trends today are a litany of awful: high personal debt, stratospheric government debt, persistent trade deficits, declining living standards, government out of control, cycles of bubbles, zero return on savings, unemployment, and the ever-higher cost of living.

Everyone complains about these all the time. They make it hard to live a normal life. They produce vast anxiety. Some in this list are wrecking lives every day. They make us feel trapped with no options. And the problems are mounting by the day. Solutions seem beyond the political system as we know it.

What if all these problems have the same fundamental cause, the same root? This is the argument of Addison Wiggin and Samantha Buker in their fantastic book The Little Book of the Shrinking Dollar. There is a lot of truth packed in these pages. It is just about the best primer on the problem I’ve ever seen. I take it back: It is the best primer on the subject now in print.

While reading, I kept thinking this is the book I’ll give Mom, my neighbor, my dentist, that guy at the church who puzzles about economics and my outlook in particular, and maybe I need a stack of them to hand out to people who are deeply frustrated about the way things are going.

To find the answers to today’s burning economic questions, it is not enough to watch the business news or comb through the papers. Nor should it be necessary to plough through a 1,000-page treatise to figure out what’s wrong with the world. Wiggin and Buker explain all the essential points and connect the dots between many seemingly disparate problems, but in a small and entertaining book. And the answers make sense.

The merit of this book is that it ties all these far-flung things together and points to a unified cause. As they argue, these are not acts of nature or historical accidents that just so happen to be visited upon this generation. The dollar, for example, is shrinking for a specific institutional reason. So it is with the bubbles, the debt, the rising prices, the stock market instability and the falling living standards. Wiggin and Buker manage to explain them all in an analytically rigorous way that doesn’t put the reader to sleep.

Here’s the key thing. Something absolutely game changing happened in 1971. The dollar was untied from its last link to gold. The regime proclaimed it to be a new day. No more golden fetters! From now on, money would be backed by nothing but itself. Just paper, nothing more. The age of liquidity had arrived!

This was just one of many awful political decisions made by the Nixon administration, and there is no evidence that the administration thought it would turn out to be that significant.

But the problems started immediately. They could be summed up in one word: inflation, meaning a constantly falling purchasing power of money. But that was just the beginning. The problems grew and grew, and the issues spread like a disease, eventually affecting the whole of life.

And here we are 41 years later and the problems are spreading and are too numerous to list. The solution is to make the money sound again and eliminate impediments to economic adjustment, but these ideas are regarded as too drastic and far flung. To solve the problem is not a technical one; instituting a gold standard or permitting competing currencies or allowing private alternatives to the dollar are all great ideas that could be put in place without much trouble. The real problem is that none of these solutions would not benefit the elites; on the contrary, the solutions to our problem would unseat the elites.

As a result, the spreading of the problem gets ever worse.

It’s like that scene in the Dr. Seuss book The Cat in the Hat Comes Back. Think of the pink color as fiat money. As Wikipedia describes the plot:

“The mother has left Sally and her unnamed brother alone for the day, but this time, they are instructed to clear away a huge amount of snow while she is out. While they are working, the cat turns up and snacks on a cake in the bathtub with the water running, and leaves a pink residue. Preliminary attempts to clean it up fail, as they only transfer the mess elsewhere, including a dress, the wall, a pair of $10 shoes, a rug, the bed and then eventually outside. The cat reveals that Little Cat A is nested inside his hat. Little Cat A doffs his hat to reveal Little Cat B, who reveals C and so on. A ‘spot killing’ war then takes place between the mess and Little Cats A through V, who use an arsenal of primitive weapons, including pop guns, bats and a lawn mower. Unfortunately, the initial battle to rid the mess only makes it into an entire yard-covering spot.”

Paper money is that pink residue that is spreading and spreading. But unlike in The Cat in the Hat Comes Back, there is not Little Cat Z to clean up the mess before Mom gets home.

Government cannot and will not control spending so long as the money grows on trees courtesy of the Fed. The Fed will not stop printing so long as its sponsoring government needs more money. With the paper money proliferation comes ever more indebtedness on the part of individuals, business and government. With this comes cycle of booms and busts, with each bust being “cured” by more of the thing that made the boom happen in the first place. It is sheer madness, since debt on this level amounts to a serious interference with freedom itself.

I’ve waited a long time for someone to write a tract that covers all the problems that paper money causes in our time. There are so many, and it takes a sophisticated mind to put it all together and a talented writer to make the argument sparkle.

Consider this passage on the absurd heights of the federal debt, and the silly idea that getting the rich to pay more can cure the problem. Wiggin writes:

“…charming gesture from a dead man in Coral Gables, Fla. He left his home and $1 million in cash to the government — for the purpose of paying down the national debt. His 1929 Spanish-style home — 3,900 square feet, six bedrooms/five baths, in need of ‘updates’ — grossed $1.175 million at auction. The deceased’s generosity won’t go very far: Uncle Sam blew through his inheritance in less time than it took you to read about this — 17 seconds.”

That passage had me laughing out loud. Actually, there are passages on every page that just make your eyes pop. He is also a very challenging intellectual, offering surprises at every turn.

For example, he thinks that the Occupy Movement isn’t so bad after all, that deflation would be very much welcome, that it doesn’t matter that much which political party is in control, that nations can and will fully default on their loan portfolios, that the decline in American prosperity (in some forms) actually stretches back 60 years and that there is a case for renouncing your citizenship. There are provocative arguments like this on every page.

There is another feature of this book that makes it unique. It is not just about explaining how the world works. It is about treating the serious financial problems that people face right now. It is not easy to get a return on your money in today’s environment, but I’m pretty sure that if there are ways to do so, you will find them in this book. Every few pages, he offers a small call-out that is a financial workaround anyone can use.

In this sense, this book is actually very subversive. It explains things you aren’t supposed to know. It offers opinions that are not supposed to be spoken aloud. And it offers tricks and tips for getting around the problem. He writes as if he is convinced that there is always an escape hatch for a person who is determined not to get fleeced. He digs very deep to find these, and offers them to readers who are gracious enough to buy and spend time with this little gem of a book.

Personally, I can’t think of anyone who wouldn’t benefit from The Little Book of the Shrinking Dollar. The business page will never look the same, if you even bother to read it after soaking in all the pithy wisdom in these pages.


Jeffrey Tucker,
for The Daily Reckoning

The Daily Reckoning