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Synopsis:
Revealed
– the secret to surviving the coming global economic collapse.
(Interviewed
by Louis James, Editor, International
Speculator)
L:
So Doug, you're off to FreedomFest
2012 shortly, where people will be able to hear your latest thoughts on
many subjects. Maybe you can give us a sneak preview on whatever is uppermost
on your mind today.
Doug:
FreedomFest should be especially outrageous, since I'll be tag-teaming with
my friend Jeff Berwick of the Dollar Vigilante for a featured lunch.
I'm not sure exactly what topics we're going to discuss, but I hope we aren't
prosecuted for breaking too many federal, state, and local statutes at one
sitting.
Anyway,
lately I've been thinking about the EU's rising tide of troubles. We talked
about this last January, when
I said it was coming, but it seems to me that at this point it's rapidly
coming to a head. A major financial and economic catastrophe in Europe is
unavoidable. From there, it's likely to spread out to the whole world.
L:
I fear you're right, but the latest headlines have it that the EU bigwigs are
taking measures to make it easier for Greece's new pro-bailout government to
honor its austerity obligations. Doesn't that mean the EU has dodged the
bullet for now?
Doug:
As far as I can tell, they're doing absolutely nothing except print up more
currency, in hope that will move the problem further into the future, when a deus
ex machina device will magically appear.
I
haven't seen any hard numbers published as to exactly what Greece has to cut
to meet its EU-imposed austerity obligations, nor how that fits into Greek
budgetary realities. But, as usual with popular reporting, the terms used are
inaccurate, which makes clear thinking impossible. These idiots aren't even
capable of framing the problem, much less solving it.
First
of all, it's not "Greece" we're talking about, but the Greek
government. It's the Greek government that's made the laws that got people
used to pensions for retirement at age 55. It's the Greek government that's
built up a giant and highly paid bureaucracy that just sits around when it's
not actively gumming up the economy. It's the Greek government that's saddled
the country with onerous taxes and regulations that make most business more
trouble than it's worth. It's the Greek government that borrowed billions
that the citizens are arguably responsible for. It's the Greek government
that's set the legal and moral tone for the pickle the place is in.
Second,
the term "austerity" is used very loosely by the talking heads on
TV. It sounds bad, even though it just means living within one's means…
or, for Europeans, not too insanely above them. But who knows what's actually
included or excluded from what the EU leaders think of as austerity? Take the
Greek pension funds, for example: exactly how are they funded? I'd expect
that private companies make payments to a state fund, as Americans do via the
Social Security program. I suspect there's no money in the coffers; it's all
been frittered on high living and socialist boondoggles. Tough luck for
pensioners. Maybe they can convince the Chinese to give them money to keep
living high off the hog…
L:
Social Security. Now there's a misnomer. No one I know my age or younger
actually expects to ever get a penny of that money back.
Doug:
Yes, my generation, the Boomers, will have totally looted what little
viability is left in it by the time you never get your check. Sorry, Lobo. It
was our supposed "Greatest Generation," however – who are
mostly gone now – who really got a cushy ride. But the point at the
moment is that just because the Greeks voted – basically to stay in the
EU in hopes of economic benefits outweighing the pain of whatever the
austerity requirements are – that doesn't mean they'll actually be able
to deliver. Once the new half-measures begin to bite, I expect to see more
angry mobs back out on the streets. These people have become so corrupt that
they think the government is some kind of a magic cornucopia, when first and
foremost it's really just a vehicle for institutionalized theft.
And
it's not just austerity, and it's not just Greece, nor even Spain,
which has formally asked for a bailout. All of these European economies are
rigidly regulated: first, by their national governments; and then, even
worse, by this extra layer of unbelievably oppressive regulation from
Brussels. I understand there are some 30,000 people working for the EU,
making new rules and regulations like an army of spiders, spinning their
webs, sucking the life out of their victims. None of these rules are
constructive. They're a waste of time at best, and most are actively
destructive – like for instance, the EU rules telling the French how to
make cheese.
I
was reading in David Galland's report
from Portugal last Friday that the EU forced the Portuguese to destroy
half of their fishing fleet. Not because there was anything bad, dangerous,
or wrong with the boats, but because they were too good and the Portuguese
were too successful as competitors; it's life imitating Atlas
Shrugged. He also said that most of the oranges grown in Portugal are
either thrown in the trash or trucked to Spain, where they can't be eaten but
must be made into marmalade, which is then sent back to be sold to the
Portuguese. Apparently about half of the chickens in Portugal are about to be
executed – just killed, not eaten – because they were raised in
conditions the EU doesn't consider appropriate. The list goes on and on, and
the madness is happening all over Europe.
The
proposed austerity measures will change absolutely nothing important; at best
they'll just lengthen the economic agony. Instead of austerity programs,
cutting back marginally on the salaries of public employees and national
pensions, all these hordes of Eurocrats should be summarily fired, and their
agencies totally abolished. The markets should be liberated.
And
individuals should plan for their own retirements. They should behave like
adults, not children who spend today with no thought for tomorrow, as state-sponsored
retirement benefits encourage them to do.
L:
Excessive regulation and disincentives to production created by government
intervention in the economy. Can you give us some examples of this happening
and what the consequences are?
Doug:
The classic example is the Roman Empire
after it passed through its time of troubles in the third century. After 50
years of utter chaos, constant crisis, and recurring civil wars, Diocletian
gripped it in a stranglehold, regulating everything from top to bottom. I
suppose, given a choice between chaotic violence and a police state, people
will opt for the latter – as if there are no other alternatives. He
instituted all manner of price controls and "people controls,"
including forcing sons to take up their father's occupations. The ultimate
collapse of Rome and the success of the barbarian invasions wasn't due to
superior barbarian military technology or tactics, but Roman economic
collapse. Romans were actually deserting the empire to live among the
so-called "barbarians," where they could both be free and
prosperous. History is repeating itself.
L:
That's pretty dramatic, Doug. You think Europe is in a similar death spiral
now?
Doug:
Yes. Those governments are all bankrupt. But much more serious than financial
bankruptcy is their total moral and intellectual bankruptcy. At this point
the Europeans are so craven and degraded they deserve to be indentured
servants of the Chinese, which they will be. The debt they are using to
finance their bulging bureaucracies, bloated welfare rolls, giant pensions,
and so forth is largely coming from the banks. But the banks are all bankrupt
too, partly because they've lent so much capital to bankrupt governments. So
you've got two sets of bankrupt institutions trading debt back and forth
between themselves. It doesn't help to say that it's the PIIGS that are in
the worst shape, because it's the banks in the supposedly wealthier countries
that own the PIIGS's debt. They are all tied together.
It's
much worse, on a global scale, because Europe is China's largest trading
partner. When the EU really goes into reverse and suffers a major economic
collapse, the Chinese are going to lose their main customers – and end
up owning a lot of chateaux. That also means the Chinese will stop buying the
raw materials – commodities – they use to make what they sell to
the Europeans. That will hammer the Australian, Brazilian, Canadian, and
other resource-driven economies.
And
the problems
with Japan are even worse, though somewhat different, than the ones in
Europe. Chronically corrupt and now depopulating
Russia is headed for a fall; its economy produces nothing but raw
materials and weapons. The problem is truly global. The headlines keep
pointing at Europe right now, but the EU is just the tip of the iceberg the
global economy is aimed at.
L:
In this context, it's not encouraging that the French have not only elected a
socialist president, but a socialist parliament. I'd be fighting severe
nausea right now if I were a French taxpayer.
Doug:
And France is not one of the PIIGS on the periphery, but one of the two big
countries at the core of the EU. I don't understand how anyone can conduct a
profitable business in France today. It seems heroic to me, if anyone can do
it, but it's getting just about impossible. And now France is going to slide
a couple standard deviations further to the left. If I were a Frenchman with
any money, I would get my money and myself out of France – tomorrow
morning.
L:
I read somewhere that Cameron in the UK announced that French people with
money were welcome in the UK.
Doug:
I heard that too. But if I were a Brit, I'd also liquidate my assets and get
out; there's no reason to believe the situation is any better in Britain.
It's just not currently in the news. These governments are completely out of
control, forces unto themselves, and they view their populations as milk
cows. Governments all over the world are following Diocletian's example.
L:
If it's happening all over the world, what's the point of packing up and
leaving?
Doug:
Well, there really is almost no place you can run, no one place where it's
reasonably safe to be a citizen these days. We're heading toward a time like
in the book, Atlas Shrugged, when the productive people in society are
just going to stop producing. Why should anyone work hard to create value
when a substantial portion of that value will get diverted into fighting off
regulators and other government goons, only to have half of what you do make
seized to pay for those very same thugs?
L:
Are you telling all the Atlases out there that it's time to shrug?
Doug:
I think so, on a moral basis. I'm sick and tired of supporting my oppressors.
It makes me feel like dissipating my capital on high living, simply because
that will deny it to the state. It's perverse, how they've structured society
with incentives to be a consumer, not a producer. Why save, when it's likely
your savings will be stolen?
L:
Well… I guess that explains why you're building a house in a beautiful
but rural corner of Argentina. You're on strike, no longer wanting to be your
brother's financial keeper. But Argentina's government is just as scary as
any other.
Doug:
Yes, but that's why I'm an Uruguayan resident, have my bank accounts in
various jurisdictions other than Argentina – or the US, for that matter
– and I'm also working on becoming a Paraguayan taxpayer.
L:
But Paraguay doesn't have a personal income tax…
Doug:
Exactly. And this is my message to the Hank
Reardens of the world: become a "permanent
tourist." There's no such thing as a real tax haven anymore –
even Swiss bank accounts, if you can get one, are not what they used to be.
You ask what the point is of leaving when all governments look at their
subjects as milk cows? Well, a tourist is an honored guest who spends money
in the local economy; he's welcome and largely left alone. No one place is
perfect – certainly not Argentina – but if you distribute your
life across various jurisdictions, none of them consider you to be their cow.
I simply prefer Argentina as a place to spend most of my time. Other
countries are to be used for different things for different reasons.
L:
So where's the least-bad place to have your corporate office these days?
Doug:
I think you've got to look at Singapore. Hong Kong is still very good. Dubai
offers some advantages in that part of the world. Other than that, you've got
to go to a place where the government is small and incompetent.
L:
Hence your interest in Paraguay.
Doug:
Exactly. But that's not a place I'd actually want to live; it's a backwater,
with little more than farms and a capital that's like a small Midwestern city
with colonial architecture in the center. The weather is unbearably hot
during the summer. I also have to caution readers that the OECD is pressuring
Paraguay to adopt a personal income tax – though none has yet been
implemented, and it's currently a good place to be a taxpayer.
L:
The US is still an economic powerhouse and a place where a lot of people make
a lot of money…
Doug:
Yes, it's shocking to me, though, how the US has gone downhill. In past
decades, if anyone wanted to set up a business, the US would almost certainly
have been the best place to do so. But it has become less and less so over
the years. Now it's just asking for trouble. But everything is relative. I'd
advise anyone with capital to deploy it elsewhere, not in the US, because it
has just become too dangerous, financially and morally. But if I had nothing,
if I were a landless serf struggling to live in Nigeria or Burma or
Venezuela, sure, I'd try to make it to the US. Bad as it's getting, it's
vastly better than where they come from – and will likely be for years.
The
fact that there are some 50 million people relying on food stamps these days
– about one in six US citizens gets money for food – just goes to
show how bad things are getting. And worse, government agencies are trying to
get more people on to these programs, instead of helping them to stand on
their own two feet. According to a Wall Street Journal article I was
reading the other day, Republicans
and Democrats alike have blocked reform of the food stamp program, even
minimal and sensible reforms like means testing. The program is projected to
spend more than $700 billion over the next ten years.
L:
Gee, Doug: doom and gloom and dark despair. But that's not a new tune for
you. Let's suppose that your analysis is essentially correct; what makes you
think that the pot's about to boil over? How can we know that this is not
just more grumbling from a permabear?
Doug:
Well, it's true: "inevitable" is not the same thing as
"imminent." When people see that something is inevitable –
and I'm guilty of this mistake myself – they tend to believe those
things are also imminent, even when that's not so. But the inevitable is
inevitable, and that means it must happen. We usually can't predict
exactly when – and such things often take far longer to arrive than we
imagine they possibly can – but once things to start unravel, they tend
to accelerate quickly. The crisis seems far off for a long period of time,
and then suddenly it's upon us.
It's
much like the ground rush effect when you're sky diving. When you first exit
the plane, typically at around 7,500 feet for a 30-second free-fall, it seems
like you could fall forever. That's partly because it takes 5 or 10 seconds
to reach terminal velocity and partly because of the way geometry plays with
your visual perception. At around 2,500 feet, though, you can see the ride is
coming to an end. By 2,000 feet, you don't need to look at your altimeter to
figure when to pull, because you're feeling urgent ground rush. Europe is
under 1,000 feet, and even if they do pull the ripcord, they'll find there's
no chute… just a bunch of dirty laundry their economists packed as a
joke. It's pointless to talk about anything but a very, very hard landing.
Unfortunately, when we're talking about the economy, the analogy breaks down
a bit. That's because you actually don't need a parachute to go sky diving.
You only need one to go sky diving twice.
L:
[Laughs]
Doug:
Let me change the metaphor. Europe is in hot water. One of the things that
has me thinking the water in the pot might hit its boiling point this summer is
that people generally prefer to riot in the summer… for all kinds of
reasons. Feeling ripped off by "the system" is a really big one.
Take the bank runs in Greece – to the tune of a billion dollars a day.
If I were a resident of any European country, I'd definitely run to the bank
and get cash. Sure, it's just paper, but that's better than nothing if the
bank fails and governments don't bail it out quickly enough.
Even
the US has seen many bank failures since 2008, but the FDIC and the Fed
always paper it over. And yet, more and more people are recognizing that the
system rests on nothing more than confidence. More and more people are going
to physical cash in their physical possession all over the world. Most people
don't have a lot of financial sophistication, but they read enough and see
enough, and have enough sense to be scared. When that's the case, they'd
rather have more cash in their pockets or mattresses than they would
normally. That's because money left in banks can become suddenly inaccessible
if there's a problem with the banking system, or if the government declares a
bank holiday, or if the government just takes it, alleging tax evasion or
money "laundering"…
Note
to those living in the US: this can happen to you, too. I'd definitely
recommend building up a stash of twenties and hundreds, enough for several
months' living expenses, in case banks suddenly don't have cash on hand.
Better yet, put it in gold and silver, because you never know what the banks
will give you when push comes to shove – or if anyone will accept what
the banks give you in exchange for goods and services you need …
especially if Bernanke dumps too many hundred-dollar bills from helicopters.
All these paper currencies are rapidly headed for their intrinsic values. And
when they reach them, billions of people all over the world are going to feel
very, very pissed off – and basically at the same time.
During
the last Argentine crisis, some people thought they were being smart, keeping
their savings in dollars in banks. Well, the government declared a bank
holiday, and when the banks opened, their dollars were converted to pesos
– and devalued by about 75% to boot. Essentially the same thing
happened in the US when Roosevelt devalued the dollar.
L:
So… the short version would be that what's inevitable may or may not be
that imminent, but on such matters, it's better to be a year early than a day
late?
Doug:
That's exactly right. And I really do think we're getting close to the edge
of the precipice.
You
know, people can read this and just view it as entertainment, or dismiss it
as just another opinion. But it's like the old oak that was there for a
hundred years and looked like it would last another hundred years, but fell
suddenly in a storm. Only then did we see that it was hollow and had long
been close to collapse. That's where the world's financial situation is: it's
rotten to the core because of fractional reserve banking and fiat currencies,
and totally corrupt because of state intervention in the marketplace.
L:
I remember how we – people who understood market economics – all
knew the Soviet Union had to collapse from its internal contradictions and
economically self-destructive policies. But we didn't know how long it could
last, and sometimes it seemed like it would be forever. But then when it came
unglued, it fell apart with breathtaking speed.
Doug:
Just so. But when the Soviet bloc collapsed, at least the West was there to
help them out. Who's going to bail out the West? A giant reset button will
get pushed, with unpredictable results. Personally, I am buying more gold
every month. I anticipate a genuine world-class and world-spanning crisis.
And it wouldn't just be financial and economic; everything will be in turmoil
– society, the military, culture, education, art, science –
everything. Really interesting times are coming up here. But on the bright
side, I have a low threshold of boredom. I admit I'm something of both an
adrenalin and an entertainment junkie.
L:
Right. But for those of us still working to amass the kind of capital it
takes to be able to regard a global calamity as an adrenalin rush, it should
be noted that this crisis will bring loads of opportunities to those who see
it coming and prepare.
Doug:
Word to the wise. More on that in future conversations.
L:
And our newsletters, of course.
Doug:
Of course. The markets are going to be full of great speculations for the
next few years. And, eventually, some great investments as well. I trust that
by now our readers know the difference.
Without fail, governmental meddling in the market creates
economic dislocation ripe for exploitation. Get in on the right play ahead of
the curve – like betting against Fannie Mae before the real estate
market collapsed in 2008 or buying gold in the early 2000s – and you
can make a fortune.
The trick, of course, is to anticipate such moves before
they happen. In hindsight, the action that precipitated the aforementioned
opportunities – governmental incentives to banks to lend to those who
couldn't afford to buy homes (which led to the real estate collapse), and
escalating sovereign debt worldwide (which helped spur the 21st-century
gold rush) – is clear now.
Equally clear to us is the fact that there are now many
budding profit opportunities for speculators. One of the best is waiting to
reward those who look
beneath the surface of the gold market. Energy, technology, and foreign
markets are also creating outsized opportunities for gains... but only for
those who take the time to dig beneath mainstream economic news.
It would be well worth your time to do so.
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