The Power of Money and End Times: Two New Books on the U.S.

I was lucky to have a week-long vacation on Martha’s Vineyard recently; it was my first occasion to spend any length of time on the island. During the week, I read two essential books on the state of the United States. One was “The Power of Money: How Governments and Banks Create Money and Help Us All Prosper” by Paul Sheard. Paul was the Global Chief Economist at Standard & Poor’s and, during the first iteration of quantitative easing, wrote the seminal piece on quantitative easing (QE): .

The second book I read was “End Times Elites, Counter-Elites, and the Path of Political Disintegration” by Peter Turchin, a professor at the University of Connecticut. He is a primary driver of a new field, , that uses historical data to gauge the current health of a country.

The Power of Money

I had the good fortune to receive “The Power of Money” in May 2023, during the latest fight over the debt ceiling. Sadly, most politicians haven’t read the book and have little to no understanding of how our current financial and banking system works. According to Mr. Sheard, if they did, there would be no debt ceiling law and little angst over the current level of around $32 trillion of government debt.

And that government debt never gets paid back because maturing bonds are rolled into new debt, i.e., new investments in government bonds. Your money is someone else’s debt, so the only way to reduce debt is to reduce money, and nobody will volunteer to have less money.

Before Democrats get too happy with Mr. Sheard’s opinion on debt, I should mention that another chapter makes the case that fears of wealth inequality are exaggerated. It says that in capitalism, inequality is a feature, not a bug, and that many benefits to society (such as jobs) flow from that wealth.

One criticism I have with the book is that Mr. Sheard exaggerates how much money is created when the government runs a deficit. Most deficit spending is financed through bond sales, so the only time a government deficit creates money is when a commercial bank buys the new debt: Any time banks buy an asset, new money gets made.

Mr. Sheard understands the plumbing of the financial and banking system, but like most economists, he misses the sociological nature of that system and that societal power dynamics influence mechanics. There is a reason why the Federal Reserve cannot provide an overdraft to the government, and since 1981, the Federal Reserve has only been able to buy government debt in the secondary market after it had already been issued.[i] It’s worth noting that the

End Times

This is a much more pessimistic book. Professor Turchin made his name partly by predicting in 2010 in Nature that the United States was headed for turmoil and violence around 2020.[ii] The new book builds on Professor Turchin’s last book, “Age of Discord,” and is less math-oriented, making it more inviting.

Professor Turchin is not an economist; he started as an ecologist, and he approaches economics from a sociological perspective. The book’s main points are that a society with an overproduction of elites caused by massive wealth inequality leads to intra-elite competition and population immiseration caused by declining real wages and a reduction in well-being. He says that, without a course correction, any such society is headed for big trouble. (The irony didn’t escape me as I read about elites while on Martha’s Vineyard!)

Most revolutions are fomented by dissatisfied elites rather than by disorganized masses. Elites begin to outnumber the positions available and begin to stoke social divisions in discontented masses.

He uses historical data to study when societies begin to break down and finds that the above characteristics are present. He points to our current stress starting in the early 1980s when the power dynamic between elites, government, and the masses began shifting to benefit elites in what he calls a wealth pump, moving wealth up from the masses to the wealthy.

Professor Turchin’s prescription for avoiding worsening conflict is an FDR-style program to move money from the wealthy to the masses. However, leaving politics aside, Professor Turchin points out that the high levels of immigration favored by some on the left drive the wages of groups down.

A proper critique of Professor Turchin’s thesis would require extensive time to do research that I lack. That said, I am sympathetic to the risks of wealth inequality, and I am curious about the concept of elite competition stoking unhappy masses. Of course, as Yogi Berra (who also has a movie about his life out) said: “It’s tough to make predictions, especially about the future.”

For those so inclined, there is also an older book, “The Nature of Money” by Geoffrey Ingham, that merges the technical and sociological aspects of money and the economy.

[i]Garbade, Kenneth B, “Direct Purchases of U.S. Treasury Securities by Federal Reserve Banks”, Federal Reserve Bank of New York Staff Reports, August 2014, https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr684.pdf

[ii] Turchin, Peter, “Political instability may be a contributor in the coming decade”, Nature, February 3, 2010,https://www.nature.com/articles/463608a

These are the opinions of Financial Advisor Tim Hayes and not necessarily those of Cambridge Investment Research. They are for informational purposes only and should not be construed or acted upon as individualized investment advice. Content provided via links to third-party sites should not be considered an endorsement of content that we cannot verify completeness or accuracy of.

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Tim Hayes

Tim has offices located in Boston and South Dartmouth, Massachusetts. He is licensed to handle securities in six states, including Massachusetts, Rhode Island, New Hampshire, Connecticut, Maine, and Florida. Moreover, he can provide investment advisory and financial planning services to clients in all 50 states.
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