Absolutely every currency in the world is going to reach its intrinsic value in the next few years. Basically all the governments are going to wind up destroying their national currencies. That won’t be just an academic thing; it will have the consequence of destroying a lot of the middle classes around the world. That will likely create ugly political and sociological fallout. Words: 3299
Lorimer Wilson, editor of www.FinancialArticleSummariesToday.com, provides below further reformatted and edited [..] excerpts from Scott Smith’s (www.thedailybell.com) original interview* with Doug Casey regarding his views on a number of fiscal, monetary and political issues of the day:
The Economy’s Mood is Likely to Go from Merely Grumpy to Psychotic
The Greater Depression is going to get much worse because not just the U.S. government, but every major government in the world, has been doing exactly the opposite of the right things.
The right thing would be for these governments to get totally out of the picture. What they are doing instead is inserting themselves further into the economy. I suppose this is what the average person wants them to do, however, because, idiotically, the average person thinks that the government is some kind of a magic cornucopia and is the solution to their problems when actually government is the basic cause of all these problems. Its only products are taxes, regulations, and inflation – along with wars, pogroms, persecutions and the like. Government produces nothing so I guess I’m not overly sympathetic to them; they are pretty much going to get what they deserve in the years to come.
Financial Chaos of 2 Years Ago to Return Soon and Get Much, Much Worse
The Greater Depression is on a temporary hiatus at the moment because the stimulus measures and extra debt these governments have created to deal with the crisis have given the appearance of a recovery but in the months to come, things are going to devolve back to the financial chaos of a year or two ago and actually get much, much worse. I’m not talking about the end of the world – just a bit of a social and economic upheaval.
We Are In the Eye of a Financial Storm
I expect this thing is going to be much worse on the other side of the hurricane and it’s not going to be brief. This could linger on for years with a lot of consequences, not just the obvious economic and financial ones.
Basically Every Currency is Going to be Destroyed
Absolutely every currency in the world is going to reach its intrinsic value in the next few years. Basically all the governments are going to wind up destroying their national currencies. That won’t be just an academic thing; it will have the consequence of destroying a lot of the middle classes around the world. That will likely create ugly political and sociological fallout.
In particular the Euro, which is a totally artificial construct, is a dead duck. The bailouts are completely insane, counterproductive, and the opposite of what should be done. It’s not just Greece. The EU is going to have to bailout Spain, Italy… in fact the whole structure is rotten. The EU will try to bail itself out, which is rather absurd.
The EU is Going to Break Apart
The EU is a Frankenstein’s monster, cobbled together. You have countries with very different cultures. The history of Europe is a history of warfare and I see no reason why that will change. Of course the EU is something that is supposed to keep them from going at each other’s throats again but the EU will actually cause more conflict, resentment, and hatred – not less.
The way to improve matters would have simply been to take down barriers to travel and trade, which would have been fine. In other words, get rid of regulations and taxes, and make the states less powerful. What they have done, however, is centralize power in Brussels, and add yet another layer of bureaucracy and this has created more resentment, not less, between different national groups.
You don’t need a gigantic, and necessarily corrupt and inefficient bureaucracy – with an arcane rule-book the size of the London phone directory – to enable free trade and free travel. What you need is simply to abolish the existing restrictions but, with the prevailing philosophy and psychology in Europe being so deeply socialistic, they took the wrong approach. It’s why in a couple of generations Europe will be fit for nothing but to be a source of maids and houseboys for the Chinese.
Canada and the U.S. Will Break Apart
Another reason the EU is going to break up is because the tendency all over the world is towards smaller political units, not bigger ones. Before this is over I wouldn’t doubt that Canada breaks up into a number of different enclaves, and I don’t mean just Quebec. I think over the next 50 years, the U.S. itself will start to fall apart; no way is a young Hispanic in California going to submit to paying 25% of his income to subsidize an old Anglo woman in Massachusetts. That is true of most countries in the world; they are artificial constructs. Every country in Africa was created out of whole cloth by European invaders, and that is one of the main reasons why Africa is such a Hell-hole. It was divided up with no regard whatsoever to cultural and linguistic and tribal boundaries.
Governments Will Become LESS Powerful
The good news is that you don’t have to worry about a world government, which a lot of people think they need to worry about. One favorable consequence of the Greater Depression will be the bankruptcy of most of the world’s governments. As a result, they’ll become less powerful. The nation-state, which has been around since the middle of the 17th century, is actually going to start disappearing in the years to come. I see that as a good thing. The EU is going to be the first to go.
The U.K.’s Debt is Junk
Britain used to be somewhat different from other countries in Europe because of its Common Law tradition but [that is not the case] now. Their debt is [also] junk. Pity the poor fool who owns it, especially with interest rates as low as they are.
The U.S.A. is Financially and Ethically Bankrupt
The era of one trillion dollar plus annual deficits is definitely here – and those are just the official deficits, which are going to be running a trillion or a trillion and a half dollars per year for the indefinite future. In addition, they’ve got $100 trillion of unfunded liabilities of Social Security, the Medicare, the Medicaid. In a few years, they are going to have Obama-care, which is going to make the problem considerably worse. Then add on the probable federal bailouts of numerous bankrupt states like New York and California; then hundreds of billions more for the FDIC, which is also totally bankrupt; then the bailouts for Fannie and Freddie; then the Pension Benefit Guarantee Corp. which will be hundreds of billions more; then there is General Electric [which] is just like a gigantic, 30-1 leveraged hedge fund and is going to be bailed out too; then there is Amtrak, which despite its outrageously high fares, continues to loose a couple billion dollars a year – and then there are these wars and supporting military bases in over 100 countries.
Furthermore the ethical fiber of the country has eroded. You’ve got 40 million Americans getting food stamps; that number is going much higher. People feel no shame in living on extended unemployment benefits. No shame in living in a house for a year or more after defaulting on the mortgage. No shame in gaming the system – which is encouraged by a plethora of laws. America was once a great idea – in fact America IS an idea, much more than a place – but now it’s just another corrupt nation state.
I don’t see any way out, I just think it’s going to get worse for the United States.
Things Could Get Ugly in China
I have always been a big bull on China. The good news is that Maoism and communism have collapsed totally, but the bad news is that one of their leading imports has been stupid ideas from the West – first Marxism, then Keynesianism in more recent years. They have ignited a gigantic real estate bubble in that country which is going to bust with the consequences of bankrupting most of their banks and bringing down real estate speculators, which are widespread in China. The size of their bailouts, in response to this crisis has been even bigger proportionate to the size of their economy than in western countries, so I think it’s got the potential to be very ugly in China. In the long run, however, after they get through this misadventure over the next ten or fifteen years, China is going to be resurgent again.
America Will Continue to Lack Strong Leadership
One of the problems with Obama is that he is a sincere believer in all these destructive actions that he is taking. At least Bush, who was a numbskull – at once thoughtless, unintelligent, arrogant, and certain – at least kind of talked the free market talk. At least he probably didn’t really believe in all the stupid domestic economic policies he implemented – like the Medicare Drug Benefit, No Child Left Behind, TARP, and so many more -but that was probably only because he had no core beliefs and Obama apparently does – and all his appear bad. Obama, unlike Bush, has a high IQ, but he has the instincts of a Chicago ward healer, or small-time community organizer. He’s a statist, through and through.
We will see who comes after him; I believe he will be a one-term president. I am sure the next guy will even be scarier than he is, since we’ll then be in the throes of a real crisis. God forbid should Americans then opt for a strong leader, in the mold of leaders in the 1930s and 40s!
Further Armed Conflict With Muslim Countries
Bad economic times usually lead to war for all kinds of reasons. One reason is because people tend to blame other people for their problems and that leads to war. Another reason is that, idiotically, a lot of people believe that war can cure economic problems.
Something resembling WWIII has already started; you might describe it as a continuation of the Crusades. The war with Islam has been going on since the Muslims invaded Spain. They were turned back at the Battle of Tours in 732, then Europeans invaded the Middle East in 1095, then the Muslims reinvaded Europe, and were stopped at Vienna in 1683, then the Europeans colonized the Muslim world throughout the 19th century – so this has been going on between Islam and the west for 1300 years now – and I expect it is heating up again. Although it’s camouflaged as the War on Terror – which is ridiculous, because terror is a tactic, not an enemy. The US has stuck its nose into the tar baby of Iraq and Afghanistan, maybe Iran, or even Pakistan, is next on the dance card – and they are all Muslim countries.
The ‘Recovery’ of the American Economy is Just PR
It is a delusion. Maybe it’s more than a delusion. Maybe it’s an outright lie, although I suppose it’s possible they just don’t know any better. Look, the whole US economy has been directed and oriented toward consumption, not production, for generations. Artificially high levels of consumption, financed by debt. This is coming to an end, and there are a lot of people in economically unsustainable occupations that will have to become unemployed, and find new jobs at much lower wages. They’re competition isn’t other Americans and Europeans; it’s billions of smart and motivated Chinese and Indians, among others. The same is true for a lot of companies, as well.
The “recovery” is mostly PR because, for some reason, the political apologists who masquerade as economists think this is all a matter of psychology, not reality. They believe if you think everything’s going to be all right, everything will be all right. So, they put out happy PR. This is basically Wile E. Coyote economics, where after he runs off the edge of the cliff, he doesn’t start falling until he realizes he’s walking on thin air.
The Greater Depression Is Going to Get Worse and Last For Many, Many Years
This is going to develop into the biggest thing since the industrial revolution. What you’ve seen so far is just the overture to the main opera which is yet to come and we’re a long way from the fat lady singing.
Most of the nation-states of the world are on their way out; they’re anachronistic at this point. Just as nation-states replaced kingdoms, and kingdom’s replaced tribal forms of organization. I think that nation-states – where you give your loyalty to some government because you were born in a certain geographical area – are going to lose the loyalty of their subjects in the years to come. They’ll prove unable to provide needed services, and will mostly be disliked for burdensome taxes and regulations.
The Internet has changed the game. Your real countryman will likely be people that you find that you share values with, no matter where in the world he might be. That’s who you are going to be loyal to. Not some guy with whom you have little in common with the same passport. Most of your fellow citizens today are basically liabilities to you, recipients of your tax money. I expect the Greater Depression is going to last quite a while, and it’s going to turn a lot of what you see today completely upside down, things are going to be very different. I think the world is going to re-organize itself in ways that are going to impress people in the future as very different than what we have today.
How One Should Invest During Such Times
I don’t like the stock market, because when the stock market’s cheap, dividend yields are typically in the 6-8% range. Not so terribly long ago, in the mid-80’s, markets like Spain, Belgium and Hong Kong were all yielding 15% in current dividends, selling to half to one times book value, and 2, 3 or 4 times earnings. I think things can get much worse than they were in the 80s, so I don’t think stocks are the place to be.
Bonds are even worse. Bonds are a triple threat to your capital. You have the currency risk, and I talked about currencies earlier. You’ve got the interest rate risk; interest rates are going to go much, much higher and bonds fluctuate inversely with interest rates. Then you’ve got the credit risk, whether or not the person you lent the money to will ever pay it back. Bonds are now the worst possible place for your capital.
3. Real Estate
Real estate is a disaster that’s not nearly over yet. You’ve still got real estate bubbles in China, Australia, and Canada although I think they’re popping even as we speak. Real estate is going to get hurt much worse. Property has been driven to absurd levels by government policies making borrowed money easily available. It will be an object of taxes from bankrupt governments, it will be crushed by higher interest rates.
4. Gold Bullion
I guess gold is the least bad thing to be in. I say that because gold is no longer where it was even 10 years ago, $250-$300 an ounce, it’s up 4 or 5 times in price. Not withstanding that, it’s still probably the best place to be because it’s the only financial asset that’s not simultaneously somebody else’s liability. You know what they say about a depression? Everybody loses, the winner is just the person who loses the least.
A good bit of your personal possession of gold and silver should certainly be outside the political bailiwick of your government, because your government will increasingly treat you as a milk cow in the future, simply because they are all bankrupt. Their first interest is to maintain themselves. The government is an entity onto itself, like a corporation, like General Motors. It’s not “the people”; it’s a thing which puts it’s own interests first. As such, you have to insulate your wealth from where they can get at it because they think that your wealth is their wealth. Therefore, the gold and silver you save should mostly be outside your native country.
Silver and gold are headed up a lot higher, if only on a speculative basis, because fear is going to drive people into them wholesale in the future. After that starts happening, greed is going to drive people into them too. Of course prudence on the part of people who know what’s going on is what’s taking them higher right now. So these are three very powerful factors, emotional factors, which will underpin gold and silver in the future. I don’t know how high they are going to go, and I don’t know when I’m going to sell them. Perhaps when I see a picture on the front cover of Newsweek magazine with a golden bear tearing apart the New York Stock Exchange. That will probably mean, among other things, that the time has come for me to sell all my gold and buy Dow Jones stocks – but we’re a long way from that now.
5. Precious Metals Stocks
From the speculator’s point of view, the nice thing about these governments printing up trillions of new units of their currencies is it will ignite bubbles in other places in the investment world, and it is possible that they are going to ignite a bubble in the world of precious metals, and perhaps a bubble in the precious metals stocks. And it’s possible to get 20, 50, or 100 to 1 return on your money in these volatile small – actually micro cap or nano cap – stocks.
6. Agricultural Commodities
I think that agricultural commodities are in a good buying area right now. If you are able to buy productive farmland in the right location, that’s also something that’s likely to treat you well in the future from an economic point of view.
We are in a kind of a twilight zone and I don’t see any screaming bargains anywhere in the world today. If you’re a competent investor, you really only want to buy when you see screaming bargains someplace. Although I try to look everywhere, every country in the world, in every market, and every type of investment, there’s nothing yelling out “buy me” at the moment. So stay liquid, mainly in gold and wait for the bubbles that will get ignited.
I would like to see money once again become nothing but a medium of exchange and a store of value and that means it is going to be a commodity and gold historically has always been the best commodity to use because it has unique characteristics that make for good money. Gold is uniquely well suited for money. You don’t need a government currency or central banks.
*http://thedailybell.com/1128/Doug-Casey-Revisits-the-Greater-Depression-and-Explains-the-Realities-of-Investing-in-the-21st-Century.html (Doug Casey, with his team, has been correctly predicting major budding trends in the overall economy and commodity markets for nearly three decades.)
– The above article consists of reformatted edited excerpts from the original for the sake of brevity, clarity and to ensure a fast and easy read. The author’s views and conclusions are unaltered.
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