Doug Casey on the Economy

Since World War II, and especially since 1971 when the link between the dollar and gold was broken, governments around the world have accepted the Keynesian theory of economics, which boils down to a belief that printing money can stimulate the economy and create prosperity. The result has been to create huge amounts of individual and government debt. It has become insupportable. All it has done is purchase a few extra years of artificial prosperity, and we're heading deeper into a very real depression as a result.


Let me define the word "depression." It's a period of time when most people's standard of living declines significantly. It can also be defined as a time when distortions and misallocations of capital – things usually caused by government intervention – are liquidated.

We have been consuming more than we have been producing and living above our means. This has been made possible by: 1) borrowing against projected future revenues and 2) using the savings of other people. The whole thing is going to fall apart. A new monetary system of some type is going to have to necessarily rise from the ashes.

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Doug Casey on Gold

Casey writes:

Historically – actually just up until the decades after World War I, when world governments started issuing paper currency with no relation to gold – the metal was cash, and it was used as money everywhere, on a daily basis. I believe that will again be the case in the fairly near future.

The question is: At what price will that occur, relative to other things? It’s not just a question of picking a dollar price, because the relative value of many things – houses, food, commodities, labor – have been distorted by a very long period of currency inflation, increased taxation and very burdensome regulation that started at the beginning of the last depression. Especially with the fantastic leaps in technology now being made and breathtaking advances that will soon occur, it’s hard to be sure exactly how values will realign after the Greater Depression ends. And we can’t know the exact manner in which it will end. Especially when you factor in the rise of China and India.

A guess? I’ll say the equivalent of about $5,000 an ounce of today’s dollars. And I feel pretty good about that number, considering where we are in the current gold bull market. Classic bull markets have three stages. We’ve long since left the “Stealth” stage – when few people even remembered gold existed, and those who did mocked the idea of owning it. We’re about to leave the “Wall of Worry” stage, when people notice it and the bulls and bears battle back and forth. I’ll conjecture that within the next year we’ll enter the “Mania” stage – when everybody, including governments, is buying gold, out of greed and fear. But also out of prudence.

The policies of Bernanke and Obama – but also of almost every other central bank and government in the world – are not just wrong. These people are, perversely, doing just the opposite of what should be done to cure the problems that have built up over decades. One consequence of their actions will be to ignite numerous other bubbles in various markets and countries. I expect the biggest bubble will be in gold, and the wildest one in mining and exploration stocks.

When will I sell out of gold and gold stocks? Of course, they don’t ring a bell at either the top or the bottom of the market. But I expect to be a seller when there really is a bubble, a mania, in all things gold-related. There’s a good chance that will coincide to some degree with a real bottom in conventional stocks. I don’t know what level that might be on the DJIA, but I’d think its average dividend yield might then be in the 6 to 8% area.

The bottom line is that gold and its friends are no longer cheap, but they have a long way – in both time and price – to run. Until they're done, I suggest you be right and sit tight.

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Doug Casey on Ben Bernanke

He's either a knave or a fool – possibly both. But the odds are he's just an educated fool, an archetypical, clinical example of one. Either way, it's bad news for the U.S. and global economies...

Cutting taxes is always good for any economy, and so is minimizing red tape, with the U.S. tax code being among the worst masses of red tape in existence. But the kind of seismic shifts needed – like eliminating capital gains taxes entirely, and income taxes as well – are not politically viable. It does no good to make marginal improvements to a system that is fundamentally flawed and broken. Bernanke is proposing a band-aid where amputation is needed...

He may just have a complete lack of honesty. And absolutely a complete lack of understanding of economics, finance, history, and monetary theory – a shameful but perhaps predictable state for someone who's lived his whole life in an ivory tower. The man has been wrong about everything he's ever said about the U.S. economy...

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Doug Casey on War

Louis James interviews Doug Casey

L: Nothing like a good war to distract people from their own misery – and their own responsibility for their individual circumstances.

Doug: That's right, at least until their house gets blown up or their son gets killed. Nothing like a good foreign war against an invariably evil and subhuman enemy to distract people from local problems. And, of course, there are actually fools out there that believe war stimulates economies.

L: Yes… Can't tell you how many times I've heard that WWII ended the Great Depression – they told me so in school, so it must be so. Alas, the dumb masses.

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Doug Casey on the Greater Depression

“This is the Greater Depression…and it’s going to be worse…far worse…than the Depression of the ’30s,” said Doug Casey.

“We’re just in the eye of the hurricane now. It seems calm. But the other side of the storm is going to hit soon. And it’s going to be much worse…”

Doug proceeded to list all the reasons this storm will cause more devastation than the ’30s tempest.

For one thing, people have much more debt. There was relatively little consumer debt in the ’20s. Credit cards hadn’t been invented yet. And if you wanted to buy something from a store you had to pay for it in advance. They had ‘lay-away’ plans. You could pay a little each month. Then, when you’d finished paying for it, they’d give you the merchandise. Generally, people still believed in saving money.

Other reasons:

There was no expensive social-welfare establishment.

There were few bailouts and few boondoggles.

The US government had little debt and was relatively little-involved in the economy.

The US had a positive trade balance.

The US was still a growing, dynamic economy…and the world’s leading exporter.

And the US wasn’t involved in any foreign wars. Its military expenses were trivial compared to those of today.

People wanted to invest in the US. The US dollar was backed by gold.

“Now, smart Americans are getting their money out of the US,” said Doug. “This time it’s going to be much worse.”

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Doug Casey on Fixing the Economy

Casey has solutions:

“1. Central banks, starting with the Fed, should be abolished. They serve no useful purpose. The US has 260 million ounces of gold. That can be used to back what’s left of the currency. What price, I don’t know – $10,000 an ounce?

“2. Urgently disband 95% of the government. I would go all the way, but I’m a gradualist. It’s not radical – it just means going back to the original ideas of the Constitution

“3. Withdraw troops from all countries around the world. End the insane wars in Iraq and Afghanistan. Cut the military back about 95% too. All these V-2 rockets and carriers are just junk, expensive junk. Their main purpose is going to be excellent dive sites for people of the next century.

“4. Abolish, totally, absolutely, the whole income tax and whole IRS.

“5. US government should default on the debt. That’s the honest way to handle it. They will likely do it subvertly with inflation over time, but I would prefer overtly.

“What are the chances this is going to happen? Slim to none, and slim’s out of town. It ain’t going to happen. Thus, they chose an uncontrolled collapse, not a controlled one.”

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Doug Casey on the Economy

Is Limited Government an Oxymoron?