It’s been almost seven years since I wrote
Debt and Delusion. So naturally, readers have a right to ask, "Why produce an updated version at this time?" There are at least three reasons, the cheapest of which is that the author is surprised and flattered to find that it is in demand and there has long ceased to be any supply.
More than that, like an abandoned mine, the book stands as a monument to what was already known about the global credit expansion and the strains in the financial system before the halving of equity market prices from the early 2000 peaks. Most importantly, and sad to say, this equity market trauma foreshadows even more disastrous results of the financial folly that has reached proportions unimaginable in the summer of 1998. And so, the primary function of the book -- "as a timely warning of the perils that lie ahead" -- remains valid.
Debt and Delusion exposes serious flaws in the development of the global financial system starting in the early 1990s, singling out the world’s largest central banks for special criticism. Their negligent oversight has permitted an explosion of corporate and household credit that has fueled a succession of false markets in stocks, bonds, and property. Alarmed by the monster so created, the U.S. Federal Reserve has spent much of the past five years staving off the evil day when foolish lending turns into bad debt.
Far from being the architects of economic stability and low inflation, the world’s central bankers have ushered in a new era of financial fragility and latent instability. Innovations in the use of derivatives, structured products, and other complex financial instruments have been applauded by the central banks on narrow technical criteria. But these supposed bastions of conservatism have failed to comprehend the wider implications for financial stability.
From poorly documented home loans to sub-prime auto loans to subordinated corporate debt and junk bonds, permanently easy access to credit has compromised economic management in the U.S., U.K., and other English-speaking nations and has fostered an illusion of prosperity and well being.
Lamentably, this staggering collective flight from reason has been endorsed by the economics establishment.
The failure of many of the finest economic minds to engage with the rapid evolution of our financial structures and institutions has led to a superficial assessment of this unprecedented credit experiment. Only now, as various credit markets face the inevitable tests of higher interest rates and the realistic pricing of credit risks, is the threat of a pandemic of debt-related distress beginning to be taken seriously. Government budgets, already strained by the weight of social support, have limited scope to respond.
In short, tougher economic times lie ahead, when personal debts will hang more onerously than for 75 years. Debt and Delusion recommends a hasty! reappraisal of the debt requirements of corporations and households alike.
Peter Warburton
September 2005
WorldMetaView Press specializes in the kind of books you’re not likely to find in a typical bookstore. Our authors are excellent writers. They are recognized experts in their fields. And, most important of all, they are independent thinkers -- a quality that is all too rare in this time of political correctness, economic orthodoxies, and groupthink.
That’s why we’re pleased to bring back into print Dr. Peter Warburton’s classic, Debt and Delusion. Peter has updated the book with a new Preface and fresh charts in the Appendix. The book’s index has also been greatly improved, making it easier to find what you’re looking for. The most visible change, however, is the gold stamping, leather-like cover, and fine endpapers that make this edition quite suitable as a gift.
One word of warning: The opening pages will scare the hell out of you. But, while he may be a voice crying in the wilderness, Peter is more like the Apollo-cursed Cassandra, whose prophecies were always accurate but never believed.
The Editors
WorldMetaView Press
Table of Contents
List of Figures
Preface
Acknowledgements
Chapter 1 -- Clearing of the Mist
Chapter 2 -- Inflation: Public Enemy Number One
Chapter 3 -- The Pied Pipers of Zurich
Chapter 4 -- Banks Reproved and Re-invented
Chapter 5 -- The Rise and Rise of the Financial Markets
Chapter 6 -- Throwing Caution to the Wind
Chapter 7 -- Risk Markets and the Paradox of Stability
Chapter 8 -- The Illusion of Unlimited Savings
Chapter 9 -- The Bloated Bond Markets
Chapter 10 -- The Erosion of Credit Quality
Chapter 11 -- The Phoney Auction of Private Savings
Chapter 12 -- The Separation of Financial Value from Economic Reality
Chapter 13 -- Diminishing and Vanishing Returns to Debt
Chapter 14 -- Confronting Economic Reality
Chapter 15 -- Borrowed Time
Appendices
Glossary
Bibliography
Index
