(Interviewed by Louis James, Editor, International Speculator)
L: Doug, we've
had a lot of questions from readers about the apparent push governments are
making to go to paperless currency – all electronic, no cash. Do you
think that's likely, and what would be the implications?
Doug: I think
it's probably inevitable. It's not just cash, but the whole world is becoming
increasingly digital. Credit cards already work very
well all around the world, and everyone in the world, it seems, will soon
have a smartphone – or at least everyone who might have any cash.
But it's not just a question of evolving technology.
Governments hate cash for lots of reasons, starting with the fact it costs a
couple of cents to print a piece of paper currency, and they have to be
replaced quite often. As the US has destroyed the value of the dollar, they've
had to take the copper out of pennies, and soon they'll take the nickel out
of nickels. Furthermore, with modern technology, counterfeiters –
including unfriendly foreign governments – can turn out US currency
that's almost indistinguishable from the real thing. And the stuff takes up a
lot of space if it's enough to be of value. So sure, governments would like
to get rid of tangible currency. They'd like to see all money kept in banks,
which are today no more than arms of the state. But it's not so simple:
increasing numbers of people trust neither banks – most of which are
insolvent – or currencies – most of which are on their way to
their intrinsic values.
L: Hm. On the
technology front, when I was in central Africa a few weeks ago, plastic money
was accepted happily everywhere I went – Rwanda, Burundi, the DRC, and
Kenya – though not by street vendors yet. And I had access to the
Internet everywhere I went, even in the middle of the jungle…
Doug: Yes, the
move towards digital currencies is already happening, and not just as a
result of government efforts. Remember Bitcoin. And, as you know, I'm
a big fan of Goldmoney.com,
which is leading the way to a sound digital currency. Although Goldmoney.com
has bowed to government pressure and has suspended its service allowing
customers to transfer funds among one another, it's another sign of the
L: Yes, and
Goldmoney.com is not the first attempt, nor will it be the last. We should
mention to new readers that you are an investor in Goldmoney.com.
Doug: The world's
going to digital currencies is in part a good thing, because it's convenient.
But it's definitely a double-edged sword, because of government involvement
in the field. If it were a strictly market phenomenon, I'd have no problem
with it. It'd be just another choice. But if the state runs it, it would
reduce people's choices – and privacy. But that's entirely apart from
the fact that government – and I know this assertion will be shocking
to most readers – has no business creating currency or minting money.
Money, of all things, should be a purely market phenomenon. Government, as an
institution, inevitably and necessarily corrupts everything it touches. Money
is far too important to be left to the tender mercies of the state.
L: Sure. A
completely digital currency would be an unlimited license to print and spend.
Need to give people more welfare? Just tap a few keys, and it appears in
their bank accounts. Need to buy more missiles? Just a few more taps on the
keyboard… But the privacy issue is even scarier: digital money would
seem like Big Brother's dream come true. They wouldn't even have to
send their minions out to go through people's trash. They could see
everything anyone ever spent money on and where they were physically when
they did it, search for activity nearby, and much more, just by having
computers report the details of people's accounts.
They would justify it with a host of phony excuses ranging from the so-called
War on Terrorism to the so-called War on Drugs. Maybe they'll tie it in to
their disastrously failed War on Poverty. As the War on Islam heats up, one
front will be an attack on the excellent Muslim hawala
system, which allows cheap and reliable transfer of money between countries;
that system, which is kind of a private SWIFT network, is excellent for
evading FX controls. Ironically, Islamic countries are some of the very worst
perpetrators of currency controls.
that's why the informal network exists in the first place? But yes, they gotta stop those evil money launderers from washing their
money and hanging it out to dry…
Doug: Don't get
me started on "money laundering." It's a completely artificial
crime. It wasn't even heard of 20 years ago, because the "crime"
didn't exist. Now, everyone speaks of it as though it were a real crime, like
murder. It's ridiculous, and further proof of the
totally degraded state of the average person worldwide, absolutely including
US citizens – what we used to call Americans. The government proclaims
something as a law, and "sheeple"
robotically assume it's part of the cosmic
firmament. If an official tells them to do or not to do something, they roll
over on their backs like whipped dogs and wet themselves out of fear. The War
on Drugs may be where "money laundering" originated as a crime, but
today it has a lot more to do with something infinitely more important to the
state: the War on Tax Evasion.
Incidentally, not that a US citizen can open an account
with a Swiss bank anyway any longer – except with at least seven
figures and loads of paperwork – but now the policy in Switzerland is
to insist that clients prove that their funds are all tax paid. The situation
is out of control. And the world's governments are increasingly working together
to make sure no one slips through the net.
L: Gotta keep the cattle in line.
right; the US has sent swarms of agents all around the world to bully and
cajole bureaucrats in other countries into giving them access to bank account
information and to impose income taxes in places that didn't have them. In
Uruguay, where I was last week, for example, there was no income tax two
years ago. Now there is. And they're trying to do the same thing in Paraguay.
That's about the last personal-income-tax holdout among the larger countries
of the world.
L: When I was
in Paraguay last, they had passed an income-tax law, but it was being blocked
from implementation by the legislature itself, on procedural grounds. I was
told that since all of the legislators are deeply corrupted, none of them
want to have to account for their income, and that's why the measure will
never be implemented. "Never" seems a bit optimistic, but it
reminds me of your call to make corruption your friend. At any rate, why would the
US government care if other countries have income taxes – so they can
have tax treaties with them?
Doug: I'm sure that's
part of it. A bigger part may be that countries with high tax burdens want
so-called tax harmonization, so it's less tempting to businesses and
individuals to leave their borders and go where they can benefit from a lower
tax burden – or pay no taxes at all. Governments all around the world,
in spite of their differences, share a concern about their income streams
– especially since most of them are absolutely bankrupt now – and
their bureaucracies work together closely when it suits them. For example,
the reason why you get asked if you are carrying more than $10,000 in cash on
you when you board an international flight these days, even in a tiny African
or South American country, is that it's an OECD standard that's been…
enthusiastically encouraged. When it first started, it was only $3,000, but
that generated too much work for them, so they raised it to $10,000. But all
the bad ideas in the world now seem to be coming out of the US.
You know, up until the Bank Secrecy Act of 1971,
Americans didn't have to report foreign bank accounts or brokerage accounts.
Reporting income generated by such accounts was required, but the existence
of the accounts themselves was not required. The rules and reporting
requirements have now become so draconian that most foreign banks don't even
want to see a US taxpayer darken their door, let alone open an account for
one. It's a cancer, spreading out from the US.
L: So, is this
trend inevitable? At some point will Big Brother know everything about all
Doug: Yes. And if
they can't get everything they want from you off your cell phone, which will
probably also become your wallet with a digital credit-card app at some point
in the near future, they will be able to monitor everything physically via
the swarms of tiny spy drones they will flood the skies with. The technology
will soon make this cheap as dirt, and computational power is increasing
rapidly to the point where it will be possible to process all the images.
L: Only if the
people don't divulge everything they are doing and whom they are doing it
with on Facebook and Twitter.
Ah, yes, Facebook, the CIA's most successful covert op. I idiotically opened
a Facebook account some years back because someone convinced me it would be a
good way to keep in touch with old school friends I'd lost touch with. Now I
get scores of people who want to friend me every month, and I know very, very
few of them. It will be one-stop shopping for Homeland Security to round up
the usual suspects when they feel the time is right. I hate Facebook and
never use it for anything. I wonder how many of my Facebook friends are actually government stooges out looking for somebody to
L: A sobering
Doug: I have to
say that the prognosis for privacy is very grim. The only possible saving
grace I can see is that the snoops may end up with information overload, most
of it worthless or irrelevant. That's what seriously impeded the East German
and Romanian secret police. But with computer technology getting better and
better, there's not much reason to believe Homeland Security will be buried
the way the Stasi was with its primitive technology.
I really see no way to stop
this trend, nor hide from it – at least in the US or Europe. There's
one thing, however, we can hope for: the coming collapse
of the modern nation-state. This will happen, sooner or later, in Europe
and North America, at least. This is a possible bright side of the building
worldwide financial collapse; it might bring down Big Brother… although
it's more likely, I'm afraid, that he'll redouble his efforts to control
everything. Unfortunately, the immediate aftermath of that collapse is likely
to be very unpleasant, especially for those in the most developed and
The best way to insulate yourself
from this, therefore, is to live in a country whose government doesn't have
the power, financial resources, or technical ability to do these things. As
per our last conversation, Africa might be a good place to get
out of harm's way, but it's a bit too far off the beaten path for my taste
and has way too many problems. That's why I like Latin America.
L: What about
the hope that if people get pushed too far, they may rebel? Everyone has
things they don't want made public, even those with absolutely nothing
nefarious about them. A total lack of privacy would seem intolerable, after
some – probably short – period of time. As Princess Leia told
Governor Tarkin in the original Star Wars
movie: the tighter they squeeze their fist, the more people will slip through
their fingers. Or maybe not. It is, frankly, very dismaying to me that the
Big Brother concept has been turned into a "reality" TV show.
Doug: People may
think it's funny now, or even an egalitarian ideal
to live in a society in which no one has any secrets, but that won't last. If
only in relation to currency controls – what we started out talking
about – I think there's something to your Star Wars quote. The
more total the monitoring and control the state achieves over the legal
economy, the more it will push people into the black market. We saw that in
Soviet times. Stringent and very intrusive state monitoring, compulsion, and
punishment only made the informal market flourish all the more. I'm sure this
will happen. Even North Korea has an active black market. But I don't like
that term. What's called "the black market" is really the free
market; it's heroic. The legal market – with all its taxes and
regulations – is actually the one in need of either radical reform or
L: But the
monitoring beyond finance – your drone swarms – might make
noncompliance too risky for most people to try.
Doug: True. And
maybe the US will get not just 10% of the population hooked on stuff like
Prozac, but 20% or 50%. As Aldous Huxley pointed out in Brave New World,
it's much easier to control zombies. That's another reason why I think that
hope for the future rests in what are today derided as corrupt Third-World
countries. If you're going to have a ridiculous number of impossible laws,
corruption is a good thing. Increasingly, what matters is not the number or
even nature of laws on the books in the place you live, but the amount of
actual control the state has over private individuals. Corruption subverts
idiotic laws; it's the next best thing to abolishing them.
L: I've often
said that on paper, the US is freer than Mexico, but in fact, Mexico has
become much freer than the US, in spite of its legally powerful socialist
government. The average Mexican considers tax evasion to be a universal
given, but US taxpayers fear their government – a letter from the IRS
can cause instant weight loss.
certainly true that in Argentina, where I'm building a new home, people don't
fear their government. Well, not in the police-state sense, anyway; they see
it as more of a nuisance. It's probably more accurate to say they are
resigned to their government destroying the economy periodically than to say
they actively fear it. If I get pulled over for speeding in Argentina –
which itself would be highly unusual – I feel that I have nothing to
fear at all, whereas back in the US, I could end up getting tased, have my car taken, and do jail time for saying or
doing the wrong thing, even without harming anyone. Any contact with the
police in the US brings an increasing risk of a lethal outcome these days. I
understand that there are about 40,000 SWAT raids on real and imagined
targets every year, and the number is growing fast.
Another contrast: in Argentina, most people despise the
police and military, whereas in the US, they are apotheosized. This tells you
a lot about the psychological states of these populations – it's a very
bad trend in the US.
L: On the
subject of Argentina, perhaps we should mention that readers who'd like to
meet you could head down there for the upcoming harvest
Doug: Well, I'm
in the middle of one right now, but another is coming up next week, and
there's still time to sign up for that one. Sure – we have a lot of
readers, and I've enjoyed meeting many, but it would be nice to get to know
more of them. And it's a nice time to get away from the dying days of winter
in the northern hemisphere and come to a place where the weather is pleasant
and the wines are fantastic. And I'm really tickled with our world-class gym,
spa, and all the rest of it.
L: Very well.
Doug: Well, this
highlights the importance of owning gold, but not for investment purposes or
even for the financial prudence we've spoken of before, but for a
different kind of prudence: privacy – and even freedom.
One thing that has changed since we started having
these conversations – back when gold was trading at about $600 per
ounce – is that having approached $2,000 per ounce, and being likely to
surpass that level soon, governments are going to start clamping down on gold
more and more. Back when gold was under $300 an ounce, it wasn't convenient
to carry large nominal sums in gold – it was too bulky, too heavy. A
roll of hundred-dollar bills was less trouble. But now you can hide $20,000
in one hand using gold. This has not gone unnoticed by the bad guys, and
customs and immigrations forms of several countries have started asking not
only if you are carrying more than $10,000 in cash, but specifically gold.
Incidentally, to keep up with this type of thing, I urge readers to sign up
Man, which has a great, free daily letter.
L: I agree;
it's an excellent publication. That's an interesting admission for Big Brother
to make, asking people to declare cash and gold; in effect, it admits gold's
value as money… But okay, if the state achieves total monitoring and
control of the legal economy, and the informal economy becomes much larger,
would that not greatly increase the demand for gold? The black market is, as
you say, a free – if somewhat chaotic – market, so, according to
you and Aristotle, would not gold emerge as the money of choice in that
market? And would that not add to the speculative reason for owning gold in
addition to the reasons of prudence?
Doug: Yes, and
yes. Other sub-trends speculators might look for, within the overall trend of
digitalization of our world, would lie in various new technologies this will
make possible. Many of them would be very positive and profitable for those
who deploy them commercially first. This is the sort of thing Alex Daly keeps
tabs on in our Casey Extraordinary Technology letter.
reminds me of what you said about our phones becoming our wallets. You
already don't really need a physical card to make most revolving credit
purchases, just the information on the account. Not only do we buy all sort
of thing online these days with this information, but there are chips that
transmit gas-card info to gas pumps so we don't even need to get our wallets
out to fill up our tanks. Who knows where that will end up, but I can imagine
that as phones and computers (and what used to be TVs) all merge into one
technology – which already includes payment systems – money will
get folded into this technology as well.
Doug: I fully
expect that, even though I still don't own a cell phone and really loathe the
things. As an individual human being, I'm going to keep on paying for things
in cash for as long as I can – and to me, gold is the real cash of the
world. But as a speculator, I think there's a lot of money to be made
investing in the developers of these technological innovations.
L: Good luck
with that fight. As Locutus of Borg said,
"Resistance is futile. You will be assimilated." There are computer
chips in clothing, in cars – heck, it won't be long before they're in
our food and in the drinking water… Only to help doctors monitor our
health, of course.
Doug: I know, I
know. The prison planet we live on could get pretty ugly before it frees up
again. I fear that before things get better, they will have to get much
worse, and our world will soon come to resemble a cross between Huxley's Brave
New World and Orwell's 1984 – or maybe Soylent
Green if it gets really bad.
cheerful thought, Doug.
Doug: You know I
call 'em like I see 'em.
I hope many of our current readers will look into The Casey Report as well, if only because this
month has part two of a long article that I'm rather fond of, titled Evil,
Stupidity, and the Decline of America, which examines the root causes of
the pickle the West is now in.
But the greater the invasion of privacy, the greater
the need for privacy there will be – and the market will respond. I
doubt you'll need stolen eyeballs for retina scans, as in the movie Minority
Report, but technologies that identify you to the monitors as a Boy Scout
from Iowa (with a perfect grade-point average, totally clean driving record,
and no arrests or interrogations) will certainly become available. Clean
digital identities should become highly lucrative commodities, all the more
so for being illegal. But, with any luck, when the revolution comes –
and it will, even though it will be most unpleasant, inconvenient, and
dangerous – I hope it turns out more like the revolutions in V for
Vendetta or the American Revolution than the one in France under
Robespierre. In any event, there's no doubt in my mind that things will get
much worse before the world reboots and gets better again.
that's marginally better. As has been observed before, as in the times of
chattel slavery, for example, when laws become unjust, just people must
Doug: Just so.
Maybe we'll all have our chance to play Robin Hood against an evil king.
L: Right then.
Thanks for your thoughts… I'll have to take a closer look at our
technology picks for my own investment portfolio.
Doug: You should.
And you're welcome. Talk to you soon. In the meantime, live, and be well
L: Until next