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Interviewed by Louis James, Casey Research
US-Iranian saber-rattling or impending shoot-out? In
his usual, candid manner, contrarian investor Doug Casey talks about why he
believes it's serious this time… why the US is the greatest threat to
peace today… why Iran might move towards a gold standard… and
what smart investors should do.
L: Doug-sama, I've heard you say you think the US is setting Iran
up to be the next fall guy in the wag-the-dog show – do you think it
could really come to open warfare?
Doug: Yes, I do.
It could just be saber rattling during an election year, but Western powers
have been provoking Iran for years now – two decades, really. I just
saw another report proclaiming that Iran is likely to attack the US, which is
about as absurd as the allegations Bush made about Iraq bombing the US, when
he fomented that invasion. It's starting to look rather serious at this
point, so I do think the odds favor actual fighting in the not-too-distant
future.
L: Could they
really be so stupid?
Doug: You know
the answer to that one. We're dealing with criminal personalities on both
sides, and criminals are basically very stupid – meaning they have an
unwitting tendency to self-destruction. One thing to remember is that most of
those in power in the West still believe the old economic fallacy that war is
good for the economy.
L: The old
broken-window fallacy. Paraphrasing Arlo Guthrie,
it's hard to believe anyone could get away with making a mistake that dumb
for that long.
Doug: People like
those in power still suffer the delusion that it was World War II that ended
the Great Depression for the US. Actually, it was only after the end of the
war that the depression ended, in 1946. In his book World Economic
Development: 1979 and Beyond, Herman Kahn documented long-term growth
throughout the 20th century. Between 1914 to
1946 – a very tough time, with WWI, the Great Depression, and
WWII – the world economy still grew at something like 1.8%. I believe
real growth would have been several times as great, were it not for the state
and its products. But people still believe that spending money on things that
explode and kill and destroy is somehow good for the economy.
L: I suppose
they think it's okay if it creates jobs here and destroys lives and
livelihoods "over there." But aside from the fact that it's not
safe to assume today's enemies are not capable of bringing the battle onto US
soil, it still ignores the fact that you're spending money on stuff that gets
destroyed – like broken windows – and that impoverishes us all.
Worse, the cost is not just economic.
Doug: That's
right. This coming war with Iran has the potential to turn into something
resembling WWIII, with enormous consequences.
Now, it's hard to speak with any certainty on such
matters, because most of what we have to go on are press reports. Governments
keep most really critical facts on their doings to themselves, and what you
read in the press is as likely as not just a warmed-over government press
release – in other words, propaganda. Meaningless, if not actively
deceptive. It is correctly said that in war, truth is the first casualty.
L: But we do
have the Internet these days, with indie reporters offering coverage ignored
by the talking heads in the mainstream media.
Doug: True; it
doesn't keep the chattering classes honest, but it does provide some
diversity of spin, from which we can try to infer what's really going on. And
from all the various sources – mainstream and alternative, Western and
from within the Muslim world – I have to say that it appears to me that
the Iranians are not actually developing nuclear weapons.
L: Then why do
they act in such aggressive and bombastic ways?
Doug: Western
powers are pushing them around, telling them what they can and cannot do, and
treating them like children or mental incompetents with no
right of self-determination. How else would you expect them to react? They
may have a collectivist theocratic regime, but it's also a proud and ancient
culture.
Now, as you know, I don't think there should be any
countries at all – not in the sense of the modern nation-state, and I'm
certainly no fan of the Tehran regime, but Iran is a sovereign state.
The Iranians resent people from other countries assuming the right to tell
them what they can and cannot do with their uranium enrichment program, just as
people in the US would if Iranians told them what to do with… well,
anything.
L: Do you have
specific data to substantiate your view that Iran is not focused on creating
nuclear weapons?
Doug: I was just
reading about an official report that says that Iran is still not able to
enrich uranium to the level needed to make nuclear weapons.
Uranium occurs in two isotopes with half-lives long
enough to make it possible to find reasonable amounts of them in the earth's
crust: U235 and U238. Most of it is U238 – 99.3% – but it's the
U235 that's fissile, meaning, it's the one you want for making nuclear
reactors and weapons. So you have to enrich your uranium – to about
20%-30% U235 to make reactor fuel and 90% or better to make weapons.
L: That's why
the Russians are able to sell "downblended"
uranium from decommissioned nuclear weapons for use as reactor fuel. So,
you're saying the reports indicate that Iran is not capable of enriching
uranium beyond the level needed for reactors?
Doug: Yes. But
again, I have to stress that reliable information is very hard to come by.
Remember when the US accused Iraq of having a program to develop so-called
weapons of mass destruction? Apart from the fact that, except for nuclear
weapons, that term is a complete misnomer, they had no such thing. It was
either lousy intelligence or outright fabrication – and I suspect the
latter. So how can we trust what they tell us today? Only a fool would be so
naïve.
L: Indeed.
Doug: In any
event, why shouldn't Iran have nuclear weapons? I wish none of these
countries had them, but they do. No one stopped China, no one stopped North
Korea, Pakistan, Israel, India, France, nor any of the others in the
disreputable club that have them.
L: Wasn't it
too late to intervene by the time those countries announced their nuclear
capabilities?
Doug: I don't
think so. Israel was friendly, so Western powers looked the other way. North
Korea was too rabid, so they were left alone. The other countries are too
big. The cat's out of the bag at this point; any country
can develop nuclear weapons, if it really wants to. But it's easier and
cheaper to bribe a general – or maybe just a supply sergeant – in
India, Pakistan, or Russia to get what you want.
Moreover, with the US on the rampage, prosecuting its
counterproductive and unwinnable War on Terror, a lot of governments,
especially ones unpopular in the West, have got to be thinking about
acquiring nuclear capabilities. If Saddam had actually had nukes, the US
would have left him alone, just as they've left the Kims
to rot in the workers' paradise they've made out of North Korea. It makes
sense for a country stricken from the US's official "nice" list and
moved over to the "naughty" category to have some nukes. Everyone
needs and wants a slingshot to keep the bully of the block at bay.
If you oppose nuclear proliferation, your first target
should be US foreign policy, which is the biggest impetus behind the scramble
to arms.
L: What about
the argument that Iran would use nuclear weapons on Israel, if it had them?
Doug: That's
ridiculous. It's true that just one or two nukes would turn most of Israel to
glass, but it's a matter of mutually assured destruction (MAD), just as the détente
between the US and USSR was. Israel is reported to have about 200 nuclear
weapons, and the Iranians know it. Even if they launched a successful first
strike against Israel, they would get wiped off the face of the earth in
response. The regime in Iran is repressive and borderline lunatic, but they
aren't that stupid. No way are they going to attack Israel with nukes.
They not only cannot, but should not, be singled out
for exclusion from the nuclear club.
L: But they're
part of the axis of evil, don't you know?
Doug: Speaking of
evil, it's evil to initiate the use of force or fraud. If Iran enriches
uranium or even builds tools for war, that's not evil per se. But
using force to stop them from doing something that is not in itself wrong is wrong, and that would make Iran's
attackers the axis of evil.
In my mind, the US is the biggest threat to peace in
the world today. I can easily imagine those in power in the US starting a war
over any silly pretext, real or imagined. It could easily happen by accident
at this point. Things go wrong. Maybe some young hotheads in Iran's
Revolutionary Guard decide to take a boat out and attack a US frigate –
launch a few RPGs at it before they're blown out of the water. Then the US
feels it needs to mete out some punishment and launches a strike against the
base the boat came from – which would be attacking the Iranian mainland
– and the thing spins completely out of
control. Could happen at the drop of a hat. Maybe the commander of a US ship
has a streak of General Jack D. Ripper from Kubrick's Dr. Strangelove
in him. Maybe the Russians or the Chinese – who are aiding the Iranians
– mount a false-flag incident, because they want to see the US get
involved in another tar baby.
L: So…
another case of not just doing the wrong thing, but the exact opposite of the
right thing, with economic, political, and ultimately physical world
consequences.
Doug: That's
right. Just look at what they're doing now, trying to isolate Iran from the
world with an embargo. That could be seen as an act of war.
L: Well, wait
a minute. A blockade is regarded as an act of war, but if Western countries
decide to harm their own economies by not trading with Iran, that's
unfriendly, but not force or fraud.
Doug: Well, it
would be forcing citizens in those Western countries to pay higher prices for
things, denying them the choice of buying oil from Iran if they wanted to.
But I agree; that's more a matter of criminal tyranny and stupidity than an
act of war. Still it sure is prodding Iran, throwing rocks at the hornets'
nest, as the US did with Japan before WWII. The Japanese basically have no
domestic oil production and were getting their oil from the US and the Dutch
East Indies. The US cut off both supplies, backing them into a corner,
leaving them little choice but an aggressive response.
At any rate, I think all of this could backfire on the
US. Since the Iranians apparently can't clear deposits through New York,
where international dollar trades clear, they've made a very commonsense move
to cut the US out of the middle and sell their oil directly to India, without
using dollars. I think other countries will follow – and then what?
Iran isn't going to want bushels and bushels of rupiah or yen or whatever. I
think the odds favor them turning to gold. It's said that's one of the means
of payment the Indians will be using.
Gold is the logical choice and the next step in the
demise of the US dollar as the world's reserve currency. There's a lot of
demand for the dollar to buy and sell oil. If countries stop using it, demand
for the dollar would fall, at the very time the US is greatly increasing the
supply of dollars. The day is coming when trillions of dollars outside the US
will only be spendable inside the US. At that point it's game over for
the dollar.
L: You've
talked about the world going back onto a gold standard before. What do you
say to the people who say that gold is a barbaric relic from the past that
doesn't work in a modern economy – they can't go around with pockets
full of doubloons to buy cars or chests full of treasure to buy houses…
Doug: Such people
are not thinking rationally and are economically ignorant. As always, we
should start with a definition: what is money? The short answer is that it's
a store of wealth and medium of exchange. For reasons we've discussed and as
Aristotle outlined over 2,000 years ago, gold is simply the best form of
money ever adopted. And in our modern world, you don't have to physically
cart the stuff around. You can, but you can also transfer ownership of
physical gold electronically, through services like GoldMoney.com.
L: Note: We do
endorse GoldMoney.com as a convenient and reliable way to own, trade, and
transfer gold, but readers should be advised that Doug is an investor in it.
Doug: Right. I
like to put my money where my mouth is.
L: Okay, so you
see this trend being bullish for gold, clear enough. But most of the gold
ever produced in the world still exists in purified form in various vaults
around the planet. Gold doesn't get used up like silver does, so there's
plenty of supply. So, would the physical need for gold as money really impact the price of gold and related equities, or would
that be more a function of governments further debasing their currencies?
Doug: Well, it's
estimated that there are some six billion ounces of refined gold in human
possession around the world, or, somewhat less than one ounce per person.
Global gold production is said to be about 80 million ounces a year, or about
a 1.3% annual increase in the supply of gold. That would be the steady,
"natural" rate of inflation if we were on a gold standard. The
amount of various currency units in the world is increasing at a much, much
faster pace than 1.3%. Nobody really knows, not even the Fed, but depending
on how you define the money supply, it would take $10,000 to $50,000 –
or more – per ounce to back all of the dollars in existence with gold.
Whatever the correct number is, I expect gold's price in dollars to increase
dramatically as the world moves closer to and eventually adopts a gold
standard.
L: So, any
investment implications beyond the obvious? Buy gold and silver for prudence
and protection, buy gold stocks for speculative
leverage?
Doug: That's the
basic recipe. And diversify your holdings internationally. You can never tell
when the government of your home country will have a psychotic break.
L: What do you
say to the people afraid that in a world so traumatized as to go back onto a
gold standard, the risk of owning any paper asset, including gold stocks,
would be too high? No one will trade gold stocks for a can of dog food in a
Mad Max world…
Doug: That's a
valid concern. You can't eat paper, and even owning shares in a gold mine may
not be of much use in a real economic cataclysm – the US government
shut down gold mining during WWII as a nonessential industry. It could happen
again. But that's why, as you said, we own gold for prudence, and the stocks
are strictly speculative vehicles.
But let's have some perspective. The security of your
stock portfolio may become the least of your concerns if the US starts a war
with Iran that touches off WWIII. If that happens, the US government and
population will both turn hysterical, and the whole country will be locked
down like a prison. What was once America will become even more of a police
state than it is now. Who knows where that would
end?
So, one of the most intelligent things you can do is as
I've been saying for years: diversify your assets and your physical presence
internationally. Having some place you like to spend time off the beaten
track, where you can ride the storm out, should be top priority for everyone
who can afford it. Preparing for the worst at home should be top priority for
those who can't.
L: Would you
care to put odds on open war between the US and Iran?
Doug: I'd say
it's highly probable within the next two to four years – say, between
50% and 75% – that an actual shooting war will break out.
L: Not much
time to prepare. I sure hope all our readers are doing what they can.
Doug: Me too.
L: Right then.
Thanks for your thoughts and guidance, Doug.
Doug: You're
welcome. We'll talk again soon.
[To get an even better sense of how badly a US-Iran war
could hurt the American economy, watch our free video. It's the first step to take to
prepare yourself and your investments for what lies ahead.]
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