Doug
Casey Interviewed by Louis James, Editor, International
Speculator

Recently:
Doug Casey
on Medications and Massacres

L:
So Doug, the G20
declared that there will be no currency war. Other than a belly
laugh, any reactions?

Doug:
First, we should define what a currency war is. I’d say it’s a competition
between governments to devalue their respective currencies, accomplished
by creating lots more new dollars, euros, yen, or what have you.
The idea is to increase exports and decrease imports, with the supposed
bonus of stimulating the economy. It’s an idiotic idea, proof that
the people struggling for control of the world’s economy are both
knaves and fools. The worst part is that people apparently think
somebody actually can and should try to control the economy. The
world is imitating Argentina.

I believe that
Argentina is still a member of the G20, although hanging on by its
fingernails. It would be interesting to see the transcript of the
meeting and see what the Argentine representative said, because
they’re inflating the currency down here at a rate of about 30%
per year, even while they’re trying to maintain an artificial exchange
rate. My suspicion is that the general level of economic knowledge,
competence, and ethics among the participants of that conference
is not much above that of Argentina.

L:
That may be, but it strikes me as being… just so ridiculous. I
mean, the US is printing money by the helicopter load and sending
much of it abroad, which prompts other countries to try to do the
same. Bernanke
says it isn’t so, but everyone can see it is. How can they say
there’s no currency war? Is this an attempt at a Big
Lie?

Doug:
The new Japanese prime minister has come out and said that the Bank
of Japan needs to redouble its efforts to create new yen. The Chinese
are creating yuan in hyperdrive. The Europeans are doing the same
with the euro. In the US, they’re printing new dollars at a rate
of about 100 billion per month. And that’s just among the four big
players. It’s as though they believe their own lies and think that
the driving force of an economy really is public opinion. Believing
that, they have no problem admonishing people to pay no attention
to the man behind the curtain; everything will be fine as long as
people believe it will be.

This reminds
me of the story of the guy who jumps off a 100-story building and
yells as he passes the 50^th floor, “So far, so good!”

L:
Does anyone even know if it’s possible for the G20 economies to
grow at a rate that would make their deficit/debt levels manageable?

Doug:
I understand that it would take growth on the order of what made
China famous in the previous decade, but if anything their growth
rates are going down. I think they are heading toward collapse.
That’s in part because of the ongoing currency debasement, but also
in part because the inevitable response of these governments to
the harmful effects of that debasement is to impose more rules,
regulations, and controls.

Consider again
the example of Argentina. The government here recently made it illegal
for newspapers to publish advertisements that include prices for
things like food. Since Argentina now has price controls for food,
they say it’s unnecessary and will only excite the public. This
is the kind of thinking that permeates the economic establishment
today. Everywhere.

I should pause
and emphasize, however, that as difficult as Argentina is for doing
business, it’s a fantastic place to live. I doubt that will be true
of the US in a few years.

L:
Sounds pretty crazy, and this is a place that already prosecutes
journalists for publishing inflation statistics that contradict
those of the government. It does seem par for the course worldwide,
however, for governments to intervene in the marketplace, cause
disruptions, and then use those disruptions as mandates for establishing
new regulations and laws.

But Doug, let
me push back a little here. You’ve been saying for some time now
that we are on the verge of exiting the eye of the storm. I look
at the data, I look at the logic, and I can’t disagree with you,
but this has lasted several years now… Why should anyone think it’s
going to happen now?

Doug:
Fair question. I could point out that the recent negative GDP numbers
from Germany – and all of Europe – are extremely bearish: the endgame
for the EU can’t be too far off. A number of large US retailers
are closing scores, even hundreds, of stores. The earnings of fast-food
outlets are falling as people find they can’t afford to eat out.
But still, even if the natives are restless, they’re still not out
in the streets with their torches and pitchforks. Perhaps this summer…

But really,
this is an almost philosophic question. The economy consists of
the values and actions of seven billion people, all doing different
things for a million different reasons. It’s hard enough to make
any prediction about such a complex system; it’s extremely difficult
to get both the prediction and the timing of the events right. That
said, I admit to sometimes conflating the imminent with the inevitable.

L:
It’s like a sort of Heisenberg’s uncertainty principle for economics.

Doug:
That’s a good analogy. People may be growing tired of hearing me
predict the same gloomy near-term economic outcome, but that doesn’t
make me wrong. Here at Casey Research, we have an economic model
of the way the world works. It’s not our model exclusively (people
who would like to know more should do a search for “Austrian
economics“). This model has been shown to be correct and to
have excellent predictive power time and time again over the last
century. It’s been shown to be totally correct in the recent past
as well. But knowing you’re right doesn’t necessarily give you the
power to know when you will be proven right. It’s
just not possible to be absolutely certain when something inevitable
like this has in fact become imminent. We’re talking about predictions
that are far more complicated than predicting at 11 o’clock that
the hands on the clock will point at the number 12 in an hour.

Despite the
difficulty, it’s very important to have a model that has predictive
power; seeing where things are going is extremely valuable, even
if you can’t be sure exactly when things will happen.

L:
It’s certainly got to be better than a model predicated on assumptions
that are defined by the whims of politicians.

Doug:
Quite right. I’m sorry if some people are perturbed by our inability
to make things happen on a certain time schedule, but I think they
should look at our track record and give us some credit for being
right about how things are happening. We predicted
the debt crisis, the currency crisis, the housing crisis, and the
direction of precious metals – accurately and years before others.
I think we will soon be shown to be absolutely correct about the
direction of the bond market, which is now peaking. It may sound
brash, but I feel quite certain that will be shown to be right on
all the major trends we are now predicting.

L:
Back to the G20: as ridiculous as their denial of the currency war
currently under way is, the conclusion they drew is no laughing
matter. Just as you said, despite their denials, they claim the
situation requires new currency controls. The noose tightens.

Doug:
Yes. Despite what they say, these people clearly feel an urgent
need to gain control of the situation. They’ve caused immense chaos,
and at some level they probably know it. Of course, they would never
dream of accepting responsibility and rolling back any of their
economically suicidal policies. Their only response – always and
ever – has to be new rules and regulations. They are clamping the
lid on the pressure cooker even tighter. These people are truly
stupid, in the clinical sense of that word. No matter how badly
their meddling backfires, their answer is always more meddling.
I’m sorry I can’t tell you the day and the hour this thing will
blow, but I’m absolutely certain it will.

L:
How can they be so blind?

Doug:
Bastiat explained it 200 years ago. They see only the immediate
and direct consequences of their actions and pay no attention to
– or deny – the delayed and indirect consequences of their actions.
If the United States, say, devalues its currency by 20%, an immediate
effect inside the United States is that everything is 20% cheaper
for foreigners. Labor and products are cheaper for foreigners, so
exports may increase and make it seem like the economy is getting
a great boost.

But this is
typical fallacious economic thinking. There are extremely important
delayed and indirect effects that are ignored in such a case. Among
them is that people don’t want to save a weak currency. If people
don’t save, you can’t build capital, and without capital it’s impossible
to have investment, and progress is diminished. Another ignored
consequence is that domestic businesses face increased import costs.
Politicians may shrug that off, saying people can buy American cars
instead of German or Japanese cars, but many businesses rely on
equipment, technologies, and raw materials from abroad. Moreover,
all businesses, families, and individuals consume energy, much of
which is imported from abroad. Further, if the currency is devalued
20%, it means Americans can buy that much less of foreign businesses,
and foreigners can buy that much more of US businesses. Frankly,
I couldn’t care less what the nationality of buyers and sellers
might be. But Americans will be hurt by a weak US dollar as surely
as Zimbabweans were hurt by a weak Zim dollar.

People forget
that in 1971, when Nixon devalued the dollar, the Swiss franc was
$0.23, and the German mark was $0.25; today they’re $1.08 and $1.31,
respectively. The Japanese yen was 300 to the dollar; today it’s
about 90. The success of these countries was partly because of strong
currencies. A strong currency helped them become rich and prosperous.
Of course, most governments are now deeply in debt, and that’s a
powerful incentive to destroy their currencies.

L:
The very currency war the G20 is denying.

Doug:
Yes, and the result is that you don’t just get one currency devaluing,
but all currencies devaluing against real assets, commodities, goods,
and services. I do believe that within the foreseeable future all
these paper currencies are going to be devalued to zero – in other
words, they will reach their actual intrinsic values.

This is extremely
serious, because the productive people of the world – the ones who
actually consume less than they produce and save the difference,
which is what all economic growth and progress depends upon – will
be wiped out. When their savings vanish, it’s going to create a
social and political earthquake right off the Richter scale.

L:
Okay, but I’m not going to let you off the hook here. Tune in to
your guru sense please, and tell us: Do you still see 2013 as the
year when the global economic house of cards starts visibly falling
apart?

Doug:
Well, never say never. Almost anything is possible. I don’t think
it will happen, but I can’t say it’s impossible that government
efforts around the world to paper over the crisis won’t succeed
for a while longer. But even if that were to happen, it would only
make the ultimate crisis that much worse.

Here’s what
it boils down to: if you see a tidal wave coming at you and you’re
not exactly sure when it will hit, it doesn’t actually matter. You’ve
got to get out of its way. You’ve got to get to high ground. Period.
This is the bottom line for me. Stating this as loudly and clearly
as possible is my role in today’s economic discourse.

L:
When it comes to a house of cards like this, it’s better to be a
year early than a day late.

Doug:
It’s like Rick says in Casablanca: “If that plane leaves
the ground and you’re not with him, you’ll regret it. Maybe not
today, maybe not tomorrow, but soon and for the rest of your life.”

I hate to sound
like a broken record, but the investment implications remain very
clear: sell bonds; general equities are overpriced; real estate
is dangerous. Gold and silver aren’t cheap, but they’re the only
safe havens available right now. Well, I could add productive farmland
to that short list, but it takes a lot of management – owning precious
metals is much simpler.

L:
Okay Doug, I appreciate your candid responses. We’ll talk again
soon.

Doug:
My pleasure, as always.

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March
1, 2013

Doug
Casey (send him mail)
is
a best-selling author and chairman of Casey
Research, LLC., publishers of Casey’s
International Speculator.

Copyright
© 2013 Casey
Research

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