Books: What happens when the dollar collapses?

This book's Doomsday scenario may be overwrought, but it should alert us to real economic dangers, says Anthony Hilton.

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Last Updated: 31 Aug 2010

In the depths of the Cold War in the 1960s, the fashion was for books and films on how to survive a nuclear attack. Civilians were instructed to shelter under the stairs inside tents soaked in urine - no mean feat in itself, given people would have only four minutes' warning. Subsequently, they had to live on their stockpiled cans of sardines while learning how to grow vegetables under awnings that should protect them from the radiation fallout. The result was not what the authors intended.

Whether these ideas would have worked was beside the point anyway. The picture painted of life in the nuclear winter was so bleak that no-one wanted to survive.

Today the fashion is for books about the coming economic rather than nuclear cataclysm. The latest - Jim Mellon and Al Chalabi's Wake Up! - sets itself apart, however, by telling its readers not only that bad times are just around the corner, but also what they should do to prepare for and survive a global economic depression, which, they predict, will be far more painful even than anything experienced in the 1930s.

However, their prescriptions are so severe and disruptive that only a nutter would adopt them - selling the house, paying off all debt, avoiding shares and banks, making sure all taxes are paid so that the surviving taxman does not come after you, converting all cash into gold and sitting in rented accommodation until the economic world falls apart around us.

There have always been odd sects that run up huge debts and then climb the highest mountain because they have convinced themselves the world is going to be flooded next Friday. They tend to be very financially embarrassed come Saturday. They might well lap this book up, but mainstream readers are more likely to shrug and move on. Nor is that necessarily irrational.

Most of us enjoy life rather than devote all our time preparing for its end.

But if the authors' solutions are unsatisfactory, their description of the global economic and geo-political disease is powerful. They describe how the west has become profligate, complacent and out of condition, with America and Britain in particular living beyond their means.

The consequences can be seen in the bankruptcy courts and the balance-of-payments figures. They are not the only lessons that are being ignored.

The rise of China to challenge the US is compared with the rise of Germany to challenge Britain in the period that led to the First World War.

The transformational impact of technology and the creation of new industries is similar to the run-up to 1929. The massacres and pogroms of history are cited as evidence of how societies under pressure turn on their minorities in the most savage way possible. The suggestion is that our veneer of civilisation will quickly peel off and the world will become an unpleasant place when the west starts battling for the economic scraps.

What will bring all this to a head is the collapse of the dollar, which will come when the world realises that even America cannot pay its bills.

The US authorities will hike up interest rates to try to support the currency, and that will destroy all those living on debt.

Stock markets, property markets - every sort of market will collapse. Consumption will crash, businesses will fail, unemployment will rise to between 30% and 50%, and trade will be strangled by protectionism.

No-one will invest, those with money will save it and the world will sink into deflation.

Well, it could happen, but the real value of the book is that it should alert people and leaders enough to make sure it doesn't. The problems are indeed huge, but people are generally aware of them, and the adjustment process - outsourcing jobs to India, higher oil and commodity prices - is already under way.

We also probably have longer than the authors would have us believe. Imbalances in debt or trade can persist for very much longer - for decades longer - than economic theory might allow. Indeed, as John Maynard Keynes once said: 'Markets can remain irrational longer than investors can remain solvent.'

In Shakespeare in Love, a character's response to one disaster after another, each of which appears about to overwhelm him, is that something will turn up, though he has no idea what. The wonderful thing is, in economics as well as in art, it usually does.

Wake Up! Jim Mellon and Al Chalabi Capstone £12.99 MT price £10.99 To order, visit www.mtmagazine.co.uk Anthony Hilton is financial editor at the London Evening Standard.

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