The Great Credit Contraction
The Great Credit Contraction is a book by Trace Mayer, J.D. which covers the credit contraction of our times, in the face of quantitative easing and ongoing efforts to reflate.
This book gets straight to the point, which can be a little intimidating at first glance. The book deals with the idea that we are currently witnessing a flight of assets to safer and less-risky assets: Assets are moving down the pyramid.
Since debt deflation and a reduction in credit is something that we are actually living through at this moment, I find that this makes a lot of sense to me. Ben Bernanke and his team are trying very hard to get assets to move back up the pyramid, but people are being stubborn and they are continuing to save and move to assets with a lower level of perceived risk.
With high unemployment, bleak prospects, and a world that is growing increasingly competitive, all of the mal-investment is slowly being revealed. We’ve already seen this in the housing sector in the U.S., and it is possible that we will continue to see asset values essentially “vaporize” into thin air as it is revealed that the foundations those values were built upon were less stable than believed.
Powerful points that I learned from reading this book
Trace covers a wide array of topics related to the great credit contraction and its consequences, and he even looks at privacy issues, as well as giving us his take on whether gold confiscation will rear its ugly head again.
I learned a few valuable lessons from this book, first among them being that we can, and perhaps should use gold as our measuring stick of progress, instead of the dollar. If gold and commodity prices follow each other roughly over time, then if our investments are growing in terms of gold and silver, then we can also say that our investments are creating wealth in real terms. Notice that this is a completely separate idea from actually buying and holding gold and silver.
Gold can also be a valuable asset to hold as stored wealth with the lowest risk of capital. Derivatives can vanish into thin air and credit can collapse, and even Treasuries can end up giving you a negative rate of return, but if everything burned down to the ground, gold would still be there. When gold is left free and in the hands of the people, then instead of being a cross to crucify mankind on, it turns into mankind’s protection and savior from the destructiveness of the credit cycle and of rampant central banking. This may be the most important way to view gold, rather than viewing it as a speculative investment.
What could be improved
Gold is mentioned as having “intrinsic value” more than several times, but as any true follower of the Austrian school of economics knows, value exists only in the eye of the beholder. 🙂 To be fair, Trace does say that if gold didn’t exist, then the market would choose suitable alternatives; it would prefer the alternative with the lowest cost of capital.
I also would have liked to see more explanation behind assertions such as “Gold remains money everywhere, at all times.” While it may be true that if you are on a jet plane and crash on a remote island, then the local villagers will probably accept your gold as money, it does not follow that such a statement is true in and of itself. I think that the book would benefit with more background surrounding these statements, such as the properties of gold that led the market to choose it as money.
If you are interested in learning more about The Great Credit Contraction and the role that gold has to play, then I would recommend giving this title a read. Trace Mayer is a very intelligent writer who is not trying to sell any get rick quick schemes or peddle misinformation; I feel that he truly believes in what he writes, and you will be able to learn something from his unique perspective on things.
If you are interested in reading more of Trace Mayer’s thoughts, he recently wrote the guest post The Great Credit Contraction And How To Use Gold As Money here at Invest It Wisely, and he also writes at Run To Gold and How To Vanish.