My summer reading list: Debt, deflation & democracy

August 12, 2011

For those of you with the good sense to ignore the financial markets and enjoy the waning days of summer, below are some of the books — new and old — sitting on my table:

1. “Reckless Endangerment: How outsized ambition, greed, and corruption led to economic Armageddon”
This excellent volume by Gretchen Morgenson and Josh Rosner tells the back story of the housing crisis and its sponsors in Washington, many of whom remain in positions of power today.

2. “Chairman of the Fed: William McChesney Martin Jr., and the Creation of the Modern American Financial System
This book by Robert P. Bremner is a fascinating look at the man who guided the US central bank in the years after WWII. Chairman Martin spanned the terms of Presidents Truman through Nixon, a story Bremner tells well and with great attention to detail. We described the book in a recent Reuters.com post, “Are U.S. regulators worsening E.U. credit squeeze?”

3. “Inside the Nixon Administration: The Secret Diary of Arthur Burns, 1969-1974
When I ordered the Bremner book, another volume by Arthur F. Burns and Robert H. Ferrell caught my eye. For Americans to understand the origins of the current economic malaise, a study of the Nixon years, when growth slowed and housing became the national obsession, is critical.

This gem of a memoir covers the years 1969 through 1974 and provides a very thoughtful and human account of the Burns era at the Fed. Henry Kissinger, John Connally and many other key political figures of the day are scattered throughout its pages. Burns tells the insider story of Washington in a way you don’t see or hear today.

The Burns memoir also shows how different the concerns and priorities in Washington were four decades ago, but also how little has changed. “My efforts to prevent the closing of the gold window,” Burns wrote, “working through Connally, [Paul] Volcker, and [George] Schultz — do not seem to have succeeded. The gold window may have to be closed tomorrow because we now have a government that seems incapable, not only of constructive leadership, but of any action at all. What a tragedy for mankind.”

Sound familiar?

4. “The Modern Corporation and Private Property”
This is probably the most important book ever written on the behavior of large corporations. The authors, Adolph Berle and Gardiner Means, document the anti-democratic, anti-capitalist bias of large enterprises and describe why big banks and companies eventually seek to subvert the rule of law and democracy itself. Reading this classic 1932 book is essential to understanding the socialist tendencies of the managers of large corporations and how American corporate law has deprived shareholders of their most basic property rights. The authors write:

The property owner who invests in a modern corporation so far surrenders his wealth to those in control of the corporation that he has exchanged the position of independent owner for one in which he may become merely recipient of the wages of capital… [Such owners] have surrendered the right that the corporation should be operated in their sole interest …

Indeed, the last 70 pages of this book could have been written yesterday.

5. “The Debt-Deflation Theory of Great Depressions”
Finally, a key piece of reading for all people interested in economics and finance is this essay by the great American economist Irving Fisher. His writing was published by the journal Econometrica in 1933 and is available from the Federal Reserve Bank of St Louis. Fisher’s essay is something I like to talk about because he understood the role of money and credit in the American system.

As we noted this week in The Institutional Risk Analyst:

The prospective deal by Barack Obama and his counterparts in the fascist states of Europe to float the western economies on a sea of new monopoly money issued by the IMF is the final betrayal of American values. In place of the fiat dollar, Washington will instead worship the golden calf of the SDR and declare the jubilee. But no such expedients will change the basic fact that the problem facing BAC, EU banks and the G-20 nations is the same, namely debt deflation and a lack of demand that stems from it. Irving Fisher was right in 1933 and he is only reaffirmed by today’s events. Until we restructure insolvent banks and markets, and thereby create the conditions for credit expansion, there will be no economic growth in the US or EU.

 

 

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My reading list is now running a deficit.
Finishing 13 Bankers, and hope to start Reinhart & Rogoff; This Time Is Different.
Would really like to skip and start your No.1 recommendation.

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