Monday 28 May 2007

Interview: "The Dollar Crisis" by Richard Duncan

While I am finishing Richard Duncan's book, please see here for an interview in which the author explains his analysis and proposed solutions. This man is no Chicken Little - he's worked for the International Monetary Fund and the World Bank. The problems he describes are very real and very important.

As I understand it, America is like a gourmet and the Far East is his favourite cafe. With the party of friends he brings, he is by far its most important customer - but he pays for the meals in IOUs. He's been such good business that the cafe has borrowed from the bank to build an extension and hire extra staff.

But some start to worry that America won't be able to settle the now-enormous bill. What to do? If he pays up, he runs out of money and stops visiting the restaurant. America will go on a diet of bread and water and the cafe will go bust. On the other hand, if the restaurant accepts that his IOUs are worthless, it's bust anyway.

One solution is to look for new customers before the crisis hits, so the cafe can keep going. And another is to outlaw IOUs - if you haven't got the cash, you don't get the meal.

So Mr Duncan proposes:

(a) a global minimum wage, so poorer people around the world can have the money to buy the goods and services the Far East is geared up to provide.

(b) a global bank, to oversee financial balances between countries and prevent these credit problems recurring.

Meanwhile, America must face a much lower standard of living for a long time, until he's out of the hole he dug for himself. And maybe he'll be allowed a discount on his debt (i.e. inflation). The cafe is going to suffer a loss; the question is whether the business can find a way to survive it.

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