Stop-and-frisk sounds reasonable. In a tough neighborhood, a passerby who fits a profile is stopped and searched. If a gun is found, the person is arrested. If not, he is allowed on his way. This may be unconstitutional, yet most New Yorkers, especially an upper west side audience, turn a blind eye to extrajudicial conduct if it gets guns off the street and keeps New York safe.
As with every devil’s bargain, the devil wins. Stop-and-frisk has morphed into a shakedown operation with quotas and revenue goals to help New York meet its budget. Occasionally guns are found. More often an innocent victim is handed a summons on a trumped-up charge like blocking the sidewalk, sometimes at 1:00 a.m. when sidewalks are literally empty.
The victim is required to appear in court. Public defenders are assigned. Victims routinely pay $250 fines because the costs of maintaining innocence are too great. Fines go to the city’s bottom line to help it avoid going broke. The system amounts to a tax on being poor, black, an immigrant, or just in the wrong place at the wrong time.
A mile from Bed-Stuy is the headquarters of JPMorgan, one of the most corrupt enterprises in history. JPMorgan and its ilk, including Citibank, Goldman Sachs, and Bank of America, collectively paid more than $30 billion in fines, penalties, restitution, compliance costs, and disgorgement since 2009 in connection with a litany of civil and criminal claims. These claims include securities fraud and rigging markets in interest rates, foreign exchange, energy, silver, and gold. New claims keep arising.
Not one executive of these banks was charged with a crime. The U.S. Department of Justice refrained from criminal charges for fear of collateral consequences, including a run on the bank whose officer was charged. Innocent victims in Bed-Stuy suffer collateral consequences too, including lost jobs, unaffordable fines, and the stigma of a conviction. No one cares.
Injustice has always existed. The poor are always at a disadvantage to the rich when it comes to defending themselves in court. Still, what’s happening today—not only in New York, but throughout America—is new. It is not mere injustice, it is institutionalized, systematic injustice supported by military-grade armor and tactics. The injustice is driven not merely by bad intent, but by a need for money. The system now feeds on itself, unable to pay its way. Inputs exceed outputs, marginal returns are negative. Wealth extraction replaced wealth creation as the way to get along. This is the endgame of a complex dynamic system past the point of no return.
Joffe and Zeihan were not wrong, yet they missed the point about American decline. The decline was not material, it was social, as Chrystia explained. I made plain that America’s enemies would not attack by land or sea, but with gold and data processors. We both pointed to the enemies within—greed, self-serving elites, and incomprehension of systemic risk.
Then the debate was over. The audience voted; complacency won.
America was not in decline, at least as far as the upper west side was concerned. Chrystia and I congratulated Joe and Peter. We headed off in limos to a VIP dinner in a nearby penthouse. The elite bubble was intact, at least for the evening.
ACKNOWLEDGMENTS
This book is the third volume in a planned quartet on the future of the international monetary system and its implications for investors. That plan, and this book, would not exist without the support and encouragement of my super-agent, Melissa Flashman, and my publisher, Adrian Zackheim. Thank you, Mel and Adrian; let’s keep a good thing going.
Movies are a collaborative art with hundreds of unseen hands behind every film. Books are no different. Authors get credit, yet I’ve never written a manuscript that was not substantially improved by good editing. I’m fortunate to have two superb editors with me every step of the way, Niki Papadopoulos, executive editor at Portfolio/Penguin, and freelance editor Will Rickards. Niki and Will take different approaches, and I benefit from both. Leah Trouwborst provided valuable editorial direction for which I am truly thankful, and Bruce Giffords managed the production editing with patience and fine professional skill.
Sometimes a writer’s greatest challenge is not writing, but finding time to write. I have nothing but admiration and gratitude for the organizational talents of my business manager and media adviser, Ali Rickards. Without her ability to filter and prioritize media requests my schedule would drift like a leaf on the ocean. With her, we get things done.
One of the touchstones of this book is a recapitulation of the analytic method used by economist and banker Felix Somary as described in his memoir, The Raven of Zurich. I am immensely grateful to my Viennese friends Ronni Stoeferle and Mark Valek for calling Somary’s work to my attention. The Raven of Zurich has been out of print for more than thirty years. I doubt I would have encountered the book without the recommendation from Ronni and Mark. It has proved helpful beyond words.
I wish John Makin were with us to receive my thanks in person. Sadly he passed away just as I was completing the first draft of this book. He was a powerful influence on me as an economist, mentor, and, above all, friend. Dinners in Darien and Georgetown organized by John’s brilliant spouse, Gwendolyn van Paasschen, along with our correspondence and one-on-one chats in New York, served to illuminate and help organize my own amorphous views.
John had an uncanny ability to foresee financial crises and recessions beginning with his classic 1984 book, The Global Debt Crisis. That book was decades ahead of its time in describing the relationship between excessive debt and failing growth. He was the first prominent economist to warn of the 2007 recession, which grew into the Panic of 2008. John was a worthy successor to Felix Somary in his ability to synthesize economics, banking, and markets. We miss him greatly.
My family keeps me grounded and mediates between the writer’s need for solitude and the need for contact. All of my love and deep appreciation go to my wife, Ann, and our still growing family of Scott, Dominique, Thomas, Sam, James, Ali, Will, Abby, and the adorable pups, Ollie and Reese.
Everyone mentioned, and more unmentioned, contributed to the merits of this book. Any errors are mine alone.
NOTES
INTRODUCTION
The English-language translation of Somary’s memoir: Felix Somary, The Raven of Zurich: The Memoirs of Felix Somary (New York: St. Martin’s Press, 1986).
A vivid example is a chapter: Ibid., 40–43.
“The Russian-French alliance had reacted”: Ibid., 41.
“Europeans found the Chinese amusing”: Ibid., 68.
“Doubtless the King too had spoken in good faith”: Ibid., 74.
Churchill once sent a cable to Keynes: Noel F. Busch, “Close-Up: Lord Keynes,” Life, September 17, 1945, accessed August 7, 2016, https://books.google.com/books?id=t0kEAAAAMBAJ&q=%22a+cable%22&hl=en#v=snippet&q=%22a%20cable%22&f=false.
For example, Kahneman’s experiments show: This example illustrates a cognitive bias Kahneman called “risk aversion.” See Daniel Kahneman, Thinking, Fast and Slow (New York: Farrar, Straus and Giroux, 2011), 434–36.
CHAPTER 1: THIS IS THE END
“Nice, nice, very nice”: Kurt Vonnegut, Cat’s Cradle (New York: Dial Press, 2010), 3.
Under Larry Fink’s direction, BlackRock emerged: Some descriptions of Larry Fink’s management style and work habits in this material are from Carol J. Loomis, “BlackRock: The $4.3 Trillion Force,” Fortune, July 7, 2014, accessed August 7, 2016, http://fortune.com/2014/07/07/blackrock-larry-fink/.
“Fink . . . is a strong Democrat”: Ibid.
In the 1963 dark comedic novel: Vonnegut, Cat’s Cradle, 44–51.
The meeting’s final communiqué includes reference: See “G20 Leaders’ Communiqué, Brisbane Summit, 15–16 November 2014,” November 16, 2014, accessed August 7, 2016, www.mofa.go.jp/files/000059841.pdf.
Behind that bland language is a separate: See “Adequacy of Loss-Absorbing Capacity of Global Systemically Important Banks in Resolution,” Financial Stability Board, November 10, 2014, accessed August 7,
2016, www.fsb.org/2014/11/adequacy-of-loss-absorbing-capacity-of-global-systemically-important-banks-in-resolution/.
The report says bank losses: Ibid., 5 (emphasis added).
On Wednesday, July 23, 2014, the U.S. Securities and Exchange Commission: See “SEC Adopts Money Market Fund Reforms,” Harvard Law School Forum on Corporate Governance and Financial Regulation, August 16, 2014, accessed August 7, 2016, https://corpgov.law.harvard.edu/2014/08/16/sec-adopts-money-market-fund-reforms/.
On December 8, 2014, The Wall Street Journal: See Kirsten Grind, James Sterngold, and Juliet Chung, “Banks Urge Clients to Take Cash Elsewhere,” The Wall Street Journal, December 7, 2014, accessed August 7, 2016, www.wsj.com /articles/banks-urge-big-customers-to-take-cash-elsewhere-or-be-slapped-with-fees-1418003852.
On February 11, 2016, Federal Reserve chair Janet Yellen: Jon Hilsenrath, “Yellen Says Fed Should Be Prepared to Use Negative Rates if Needed,” The Wall Street Journal, February 11, 2016, accessed August 7, 2016, www.wsj.com/articles/yellen-reiterates-concerns-about-risks-to-economy-in-senate-testimony-1455203865.
On February 16, 2016, former secretary of the treasury Larry Summers: See Lawrence H. Summers, “It’s Time to Kill the $100 Bill,” The Washington Post, February 16, 2016, accessed August 7, 2016, www.washingtonpost.com/news/wonk/wp/2016/02/16/its-time-to-kill-the-100-bill/?postshare=8671455627637815&tid=ss_tw.
On August 30, 2016, Kenneth Rogoff: Kenneth S. Rogoff, The Curse of Cash (Princeton, NJ: Princeton University Press, 2016).
On November 10, 2014, the Financial Stability Board: See “Adequacy of Loss-Absorbing Capacity of Global Systemically Important Banks in Resolution,” Financial Stability Board, November 10, 2014.
On May 3, 2016, the Federal Reserve: “Restrictions on Qualified Financial Contracts of Systemically Important U.S. Banking Organizations and the U.S. Operations of Systemically Important Foreign Banking Organizations; Revisions to the Definition of Qualifying Master Netting Agreement and Related Definitions—Notice of Proposed Rulemaking,” Board of Governors of the Federal Reserve System, May 3, 2016, accessed August 7, 2016, www.federalreserve.gov/newsevents/press/bcreg/20160503b.htm.
Yet, in an extraordinary speech on May 24, 2016, David Lipton: David Lipton, “Can Globalization Still Deliver?” International Monetary Fund, May 24, 2016, accessed August 7, 2016, www.imf.org/en/News/Articles/2015/09/28/04/53/sp052416a.
A small sign posted on the members’ entrance: For a detailed and highly readable account of the financial panic of 1914 from the perspective of London banks and the U.K. financial system, see Richard Roberts, Saving the City: The Great Financial Crisis of 1914 (Oxford: Oxford University Press, 2013).
On Monday, August 3, 1914: For a detailed and colorful account of the closing of the New York Stock Exchange in 1914, and the rise of the Curb Market, including the source of this quotation, see William L. Silber, When Washington Shut Down Wall Street: The Great Financial Crisis of 1914 and the Origins of America’s Monetary Supremacy (Princeton, NJ: Princeton University Press, 2007), 104–15.
Research conducted by William L. Silber: Ibid., 110–15.
The conference itself was the end result: See Benn Steil, The Battle of Bretton Woods: John Maynard Keynes, Harry Dexter White, and the Making of a New World Order (Princeton, NJ: Princeton University Press, 2013).
It warned that markets were “euphoric”: “84th Annual Report, 2013/14,” Bank for International Settlements, June 29, 2014, accessed August 7, 2016, www.bis.org/publ/arpdf/ar2014e.htm.
The BIS report was followed on September 20, 2014: “Communiqué—Meeting of G20 Finance Ministers and Central Bank Governors, Cairns, 20–21 September 2014,” G20, September 21, 2014, accessed August 7, 2016, www.oecd.org/tax/transparency/automatic-exchange-of-information/implementation/communique-G20-finance-ministers-central-bank-governors-cairns.pdf.
Just a few days later: Luigi Buttiglione, Philip R. Lane, Lucrezia Reichlin, and Vincent Reinhart, “Deleveraging? What Deleveraging? Geneva Reports on the World Economy 16,” International Center for Monetary and Banking Studies, September 2014, accessed August 7, 2016, http://cepr.org/content/deleveraging-what-deleveraging-16th-geneva-report-world-economy.
The head of the IMF’s powerful policy committee: Transcript of the IMFC Press Conference, International Monetary Fund, October 11, 2014, accessed August 7, 2016, www.imf.org/en/news/articles/2015/09/28/04/54/tr101114a.
The U.S. Treasury’s Office of Financial Research: Office of Financial Research 2014 Annual Report, United States Department of the Treasury, December 2, 2014, accessed August 7, 2016, https://financialresearch.gov/annual-reports/files/office-of-financial-research-annual-report-2014.pdf, i.
Claudio Borio, head of the monetary department: Claudio Borio, “On-the-Record Remarks,” BIS Quarterly Review, December 2014—media briefing, December 5, 2014, accessed August 7, 2016, www.bis.org/publ/qtrpdf/r_qt1412_ontherecord.htm.
The United States has been under a state of emergency: President George W. Bush, Proclamation 7463, Declaration of National Emergency by Reason of Certain Terrorist Attacks, September 14, 2001, accessed August 7, 2016, www.gpo.gov/fdsys/pkg/WCPD-2001-09-17/pdf/WCPD-2001-09-17-Pg1310.pdf.
T. S. Eliot had a vision: T. S. Eliot, The Waste Land (New York: W. W. Norton & Company, Inc., 2000).
CHAPTER 2: ONE MONEY, ONE WORLD, ONE ORDER
“Massive progress has been made”: Remarks of Christine Lagarde, managing director of the International Monetary Fund, at a Bloomberg Panel, World Economic Forum, Davos, Switzerland, January 22, 2015, accessed August 7, 2016, www.bloomberg.com/news/videos/2015-01-22/lagarde-cohn-summers-botin-dalio-on-bloomberg-panel.
“You never want a serious crisis to go to waste”: Rahm Emanuel, as quoted in Gerald F. Seib, “In Crisis, Opportunity for Obama,” The Wall Street Journal, November 21, 2008, accessed August 7, 2016, www.wsj.com/articles/SB122721278056345271.
It first appeared in Fleming’s 1961 novel: Ian Fleming, Thunderball (Las Vegas: Thomas & Mercer, 2012).
While Soros is not the unofficial chairman: For an extended explanation of the concept of piecemeal engineering, see Karl R. Popper, The Open Society and its Enemies: Volume 1, The Spell of Plato (Princeton, NJ: Princeton University Press, 1971), 157–59.
John Maynard Keynes, an adviser to the Treasury: For a detailed examination of Keynes’s view of the role of gold in the Panic of 1914, see Roberts, Saving the City, 125–28.
Friedman built his academic reputation: Milton Friedman and Anna Jacobson Schwartz, A Monetary History of the United States, 1867–1960 (Princeton, NJ: Princeton University Press, 1993).
This economic conundrum was posed by: For more background on Triffin’s dilemma, including reference to Triffin’s congressional testimony and the relationship between deficits and reserve currencies, see “System in Crisis (1959–1971): Triffin’s Dilemma,” International Monetary Fund, accessed August 7, 2016, www.imf.org/external/np/exr/center/mm/eng/mm_sc_03.htm.
“We’re actually quite open to that”: Ben Smith, “Geithner ‘Open’ to China Proposal,” Politico, March 25, 2009, accessed August 7, 2016, www.politico.com/blogs/ben-smith/2009/03/geithner-open-to-china-proposal-017088.
The G7 use the Organisation for Economic Co-operation and Development: For extensive information on the OECD’s global tax project on base erosion and profit shifting (BEPS), see the OECD website, at “OECD, Base Erosion and Profit Shifting,” accessed August 7, 2016, www.oecd.org/tax/beps/.
Here’s what the G7 leaders: “G7 Ise-Shima Leaders’ Declaration / G7 Ise-Shima Summit, 26–27 May 2016,” G7 Ise-Shima Summit, May 27, 2016, accessed August 7, 2016, www.mofa.go.jp/files/000160266.pdf, 6–7.
In particular, Piketty advanced the thesis: French economist Thomas Piketty advanced the thesis that high tax rates have been associated with strong economic growth and equitable income distribution, while low tax rates have been associated with weaker growth and ex
tremes of income inequality. See Thomas Piketty, Capital in the Twenty-First Century (Cambridge, MA: Belknap Press, 2014).
Henry Kissinger offers a brilliant overview: For an in-depth history and analysis of the Westphalian state system, other historical forms of world order, and implications for policy today, see Henry Kissinger, World Order (New York: Penguin Press, 2014). The historical discussion of world order in this book draws heavily on Kissinger’s thesis.
One such attack virus: Michael Riley, “How Russian Hackers Stole the Nasdaq,” BloombergBusinessweek, July 21, 2014, accessed August 7, 2016, www .bloomberg.com/news/articles/2014-07-17/how-russian-hackers-stole-the-nasdaq.
In October 2015, the UN issued: For a detailed study in the relationship between climate change and the use of public finance for global climate change infrastructure spending, see “The Financial System We Need,” United Nations Environment Program, October 2015, download available, accessed August 7, 2016, www.unep.org/newscentre/Default.aspx?DocumentID=26851&ArticleID=35480, ix.
UN project adviser Andrew Sheng: Xiao Geng and Andrew Sheng, “How to Finance Global Reflation,” Project Syndicate, April 25, 2016, accessed August 7, 2016, www.project-syndicate.org/commentary/sdr-reserve-currency-fight-deflation-by-andrew-sheng-and-xiao-geng-2016-04.
Naomi Klein’s 2007 book, The Shock Doctrine: Naomi Klein, The Shock Doctrine: The Rise of Disaster Capitalism (New York: Picador, 2007).
Shock doctrine is an ideal tool: Popper, The Open Society and Its Enemies: Volume 1, The Spell of Plato, 157–59.
the Open Society Foundations: Ibid.
CHAPTER 3: DESERT CITY OF THE MIND
“Keynes asked me what I was advising”: Somary, The Raven of Zurich, 146–47.
LANL is the crown jewel: Extensive information about Los Alamos National Laboratory, including history, operations, security protocols, and a virtual tour, is available at the laboratory’s website, “Los Alamos National Laboratory,” accessed August 9, 2016, http://lanl.gov.
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