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Book Review : The End Of Alchemy: Money, Banking and the Future of the Global Economy


The author of this book – The End Of Alchemy: Money, Banking and the Future of the Global  Economy – is the former Governor of the Bank of England, Mervyn King. After reading this book, I can state that either I know more about Global Markets and Economics than this person, this author; or that this book is just meant as a blatant defence of the Central Banking System, more so the Western Banking System. Frankly, the author looks at Western Banking in isolation, which given the connectivity of Global  Markets, is outright erroneous. Further, the author has tried to  mount a robust explanation of the Crisis of the Economy, and yet has failed to confront the many, many errors that have happened, as clearly documented in other Books, some which have been Reviewed on my blog.  What can I read into this, when someone so clearly knowledgeable and brilliant, ignores such obvious things?


THE PLUSES
The initial part of the book starts well, with the examination of the onset of Alchemy, the alchemy of Fiat Currency, and the true impact of the breakdown of Bretton Woods and the move away from the Gold Standard.  It was frankly heartening to  read one of the foremost bankers of our times confront this ticklish issue head-on; this is indeed a rarity. This and a couple of other points earned it the 2 stars that I rate it; the last 30 – 40% of the book doesn’t even rate 0 stars. It is this part, this excellent examination of a lesser known aspect of banking that makes this book a must read.

To be fair, the author has brought to the public notice a few significant contributions – for  example, on pages 122-125, in the chapter on Radical Uncertainty, he raises the difficulty in using current prevalent analytical models to predict future trends, something which I myself have noted in my field, Logistics & Demand Forecasting. The author’s pertinent application of this reality to banking is absolutely top-notch. As another example,  on Page 172-173, the author has confronted the specter of controlling risk, of the need for being process-centric for banks. Another example – on page 208, comes a frank admission from the author  - “as we learnt how inadequate our understanding of the Economy and the financial system was”. Such gems rescue this book.  

THE MINUSES
For starters, this is a book for westerners, written by a westerner, and on a western topic. This is exclusively a Western / Developed Economy book only; and the author himself has implied quite categorically – Page 291, economic growth has fallen back across the developed world, inflation fell across the industrialised world Page 318, Page344, Page 348 – interest rates close to 0, Page 350 – as an impartial protector of western interests; in fact on Page 361, the author questions the attempts of EMs to protect their industries – with a blanket wand of liberalization being his recommendation! So, EMs should open up just like that, without any reciprocal opening of The West? And, the combination of Free Trade and American Power was a stabilizing Force- Pagge 350? Really? For which Markets & Nations?

While the pluses are distributed throughout – as in a brilliant paragraph on Page 360; the fact remains that the arguments presented in the latter half of the book do not make any sort of sense. I am sorry, I know he is a highly adept expert, but there is no other way to phrase this – nonsense can only be called nonsense, and utter nonsense at that. The solutions are half-baked, not thought through, and error ridden. For example,  on Page 353, he argues with ending Veto power of the IMF biggies, and reinforce its reforms, calling this a reform! This wont work, as we all are aware of American arm-twisting dependent countries, ensuring voting in their favour without using Veto.

On Page 361 he advocates Western countries push liberalization in trade of services; this without taking into account the EMs internal realities; you cannot just open up an Economy just coz Governor of the Bank of England says so! And you further should not issue blanket recommendations without a   proper analysis of both sides. On page 26 while assessing a sample reform plan, the author implies that wide banks lending, financed by equity would eliminate alchemy [my take – possible], removing risk of bank Worst of all, the reform plan he proposes – ex Pg 360 – is Brilliant, but… hampered by a pro-west, one-sided anaemic look and incomplete analysis of its import.   Further, its complete miss on all real-world and real economy factors – like crony capitalism. Vested interests, demand and supply scenarios, comparative competiveness on a national scale, available resources, PCI, Poverty, rampant illegalities, inequality in real terms from an eastern POV,  make this entire book a pie in a biased western sky book.  

CONCLUSION
I cannot call this book good by any stretch of my imagination, let alone knowledge. Riddled with errors {from my POV}, focused only on The West and protecting its interests, in an increasingly connected world – this is not a good book. It has some significant pluses  - its lucid explanation of Alchemy, the many many brilliant insights spread throughout the book {Example : Pgs. 274 275 284 288 293 304 307 } – which makes it a must read. Yet, it misses way too much, is wrong on too many points, and tells a one-sides, completely biased look at reforming the system, without even acknowledging the real problems of the real Economy.  It comes across as a book written by a theoretical western economist with no  knowledge of the real economy, or of the East. In conclusion – I agree with the Chinese friend – who remarked about the western world’s management of the Economy and banking – you havent quite got the hang of it yet. Well, even today-  the west hasn’t quite got the hang of it.

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