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The Taylor rule, named for its proponent economist, John B. Taylor, should guide monetary policy. The rule utilizes positive feedback loops by including actual inflation in its equation while offering simplicity and transparency. It is not perfect, but, to paraphrase Winston Churchill, it is better than all the others. The combination of the Taylor rule and a flexible gold standard should make central banking a boring occupation, which is exactly the point. The more drama that can be removed from central banking, the more certainty that will be provided to entrepreneurs, who are the real source of jobs and wealth creation.

Other suggestions to reverse the impact of complexity include elimination of the corporate income tax, simplification of the personal income tax and reductions in government spending. Opposition to ever larger government is not ideological; it is merely prudent. When the risk of collapse is in the scale itself, the first-order benefits of government programs are dominated by the invisible second-order costs. Smaller is safer.

What the recommendations above have in common is that they all shrink or simplify the financial system or, in the case of gold, build bulkheads against collapse. Critics will say that many of these proposals are backward looking to a time of less government and less complexity in banking, fiscal policy and monetary policy. They will be right and that is exactly the point. When you have moved to the negative marginal-return section of the complexity input-output curve, going backward is a good thing to do because society will be more productive and more robust to catastrophe.

If remedial policies are not adopted and events do spiral out of control, the Pentagon will inevitably be called upon to restore order in ways that the Treasury and Fed cannot. The threats envisioned in the Pentagon’s 2009 financial war game are becoming more real by the day. Secretary of Defense Robert Gates, upon being briefed on the financial war game, said it was “an eye-opening experience” that “reflected some shortcomings in the ability and willingness of different parts of the government to share information.” Gates did not mention the U.S. Treasury by name; however, my experience is that the Treasury and the Fed need to work more closely with the national security community to help the country prepare for what may lie ahead.

As I noted at the outset, a book on currency wars is inevitably a book about the dollar and its fate. The dollar, for all its faults and weaknesses, is the pivot of the entire global system of currencies, stocks, bonds, derivatives and investments of all kinds. While all currencies by definition represent some store of value, the dollar is different. It is a store of economic value in a nation whose moral values are historically exceptional and therefore a light to the world. The debasement of the dollar cannot proceed without the debasement of those values and that exceptionalism. This book has tried to offer fair warning of the dangers ahead and be a compass to help steer away.

Social and financial collapses have happened many times but are easily ignored or forgotten. Yet history does not forget, nor do complex systems refrain from doing what they are wont to do. Complex systems begin on a benign organizing principle and end by absorbing all available energy while destroying the system itself. Capital and currency markets are complex systems and will collapse in the end unless they are broken up, contained, compartmentalized and descaled. Currency wars are ultimately about the dollar, yet the dollar today is just a jumped-up version of a former self due to derivatives, leverage, printing and the derogation of gold. It is not past time to save it. Still, the time grows short.

ACKNOWLEDGMENTS

My sincere gratitude to those who helped me with this book begins with thanks to Melissa Flashman, my literary agent, who was instrumental in moving Currency Wars from concept to project to reality. Her support never wavered