Only if we understand the roots of the global financial crisis of 2008 and 2009 and its probable evolution can we prevent a recurrence. The crisis originated in the international monetary system – in the global imbalances arising from the wealth effect of the excess liquidity created by US financial deregulation and loose monetary policy. How could the imbalances be so large and so long-lasting? Because the US dollar was the major reserve currency, and the United States creates reserves through its current account deficit and capital outflows. The way to prevent future crises is to establish a more stable international monetary system. This book proposes such a system based on a new global reserve currency: paper gold.

The economic crisis took almost everyone by surprise. Despite large and widening global imbalances in current accounts, confidence prevailed – confidence in the US financial and political system and its financial regulations; in its capital market, the largest in the world; and in its rock-steady monetary policy institutions. Few economists expressed serious concerns about the US housing bubble and a disorderly unwinding of rising global imbalances.