Book Review: Bad Money

Posted by Dan Hung

September 10, 2009

The title, Bad Money: Reckless Finance, Failed Politics, and the Global Crisis of American Capitalism, pretty much sums up the book’s thesis. This is actually Kevin Phillips’ third book on the subject matter, the first two being - American Theocracy and Wealth and Democracy. I haven’t read the first two of his books, but he freely admits in the introduction to Bad Money that the book is somewhat of a rehash of his first two books. In fact, he discusses almost not writing a third book until he realized that those topics he warned us of in his previous books were finally coming to fruition and that the 2008 election cycle might truly be a pivotal moment in American and world history.

Kevin Phillips has been warning of the dangers of the “financialization” of our economy, ineffectual politics, and overreliance on foreign debt and oil for years. In Bad Money, the reader is finally offered a glimpse of the consequences of “American Capitalism.” As a former historian and former Republican strategist, Kevin Phillips provides a unique perspective on the economic and political motivations of many of America’s foreign and domestic policies over the last century and demonstrates for the reader how it has shaped the society we live in today. From the beginnings of “financial mercantilism” and “dollar diplomacy” to our recent binge on debt and dangerous dependence on foreign oil, Phillips draws parallels between our “period of American triumphalism” and the rise of the British and Dutch empires which preceded ours. The observations are not inspiring. In Phillips’ eyes, wayward politics guided by a lack of foresight particularly with respect to energy policy and a reliance on excessive debt coupled with our societal deification of finance have left our nation vulnerable and on the precipice of fading relevance as the world’s economy matures around us and realigns away from us.

From the above description, it’d be easy to writeoff Bad Money as just another “sky is falling”, “doom and gloom” conspiracy theory. But, Kevin Phillips does not at all present his thesis in such a manner at all. Instead, he lays out easily verifiable facts and observations and goes to great lengths not to pontificate on could-have-beens or what-ifs. In fact, while ample guidance is given to the reader of the conclusions that are to be drawn, it is the reader which ultimately is given the choice of deciding. Is America already a superpower in decline? Or, can we right the wrongs of the past and forge ahead as a relevant and admired world power? What cannot be argued, is that mistakes have been made not just in the last 8 years, but over the course of the last century as our nation’s rise to wealth and comfort has lulled us into state of satisfied hubris.

This book is a must read for anyone who wonders about all the media hoopla over OPEC nations discontinuing the denomination of oil in dollars or is confused about attention being paid to US Treasury issue bid-to-cover ratios. Bad Money provides a terrific primer of some of the most important political and economic issues facing our nation today. As respnosible citizens, we should all be getting better informed on these topics and asking ourselves just how we can make a difference.

Political and social implications aside, this book also provides a great macroeconomic primer for investors. The topics of international trade, currency exchange, and peak oil are discussed in depth throughout the book and will ultimately shape much of the long term discussion in world markets over the next several decades. As an investor, improving clarity as it relates to these topics will go a long way to enlighten your investment decisions as you look for alternative asset classes and international diversification for your portfolio.

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