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(Interviewed by Louis James, Editor, International Speculator)
[Editor's Note: Your editor caught up with Doug
Casey backstage at the New Orleans Investment Conference, where we both had
just given talks.]
L: Doug, I
know you're no fan of either presidential candidate – a pox on both
their houses – but we got more questions today about what would happen
to our investments if one or the other would win than just about anything
else. So, what do you think – does it matter? Should we play things
differently, depending on which one wins?
Doug: Well, I
have to first say that I'm the worst US political handicapper ever. I don't
have my finger on the pulse of hoi polloi in the barrios, ghettos, and
trailer parks. Nor do I claim to know what Gen-Xers
in the city are thinking, nor what passes for the white middle class in the
suburbs, nor the oldsters in their retirement homes. I'm not a political
animal. The only US presidential election I ever called right was the last
one; I thought Obama would win. But then, in New Orleans, I was chatting with
James Carville – who definitely is a political animal – and he
doesn't know either.
That said, my gut feeling is
that Obama is going to win again. That's partly because the incumbent always
has the advantage, and partly because the mainstream media – which is
where most people both get their information about what's happening in the
world and how to interpret it – seem to overwhelmingly favor Obama.
L: I thought
you didn't like making predictions...
Doug: I don't,
but purely for entertainment purposes, I'll stick my neck out and predict an
Obama win. Perhaps a deeper reason for this is that the electorate itself has
become corrupted – even more than they were four years ago.
L: When more
than half of voters receive some kind of government subsidy or another, they
can always be counted upon to vote for more government largess, and the game
is essentially over?
Doug: It's a
serious problem of mass psychology. Most people today think that whenever
there's a problem, it's the government's job to "do something"
about it. Obama is – at least as far as his rhetoric goes – much
more activist about "doing things" than Romney. On the other hand,
all politicians are enthusiastic and skilled liars. So Romney might go wild
with social programs, all the while saying something idiotic about trying to
save capitalism.
L: People are
afraid and one paycheck away from being evicted, and Obama's the one
promising two chickens in every pot.
Doug: Exactly.
The election of 1932 is noteworthy in that context: a time of economic
crisis, depression, and politicians promising "bold measures." The
key is that the Depression unfolded on Hoover's watch, so he gets the blame.
But he actually does deserve a lot of blame. If he'd cut taxes and spending
radically and deregulated, it would have been a short readjustment, like the
1921 depression after World War I. He did the opposite. In point of fact,
Hoover started many socialist programs along the lines of the New Deal
programs FDR later became famous for. The Hoover Dam, for instance, was a
major public-works project such as the Public Works Administration would
later undertake, meant to create jobs. He also increased the top income-tax
bracket from 25% to 63%.
Most people don't know this, but Roosevelt …
L:
…campaigned against such measures.
Doug: Yes, he
campaigned on a free-market platform that seemed to offer hope that he would
do the right things; and then, once in office, he turned around and did the
exact opposite. He raised the top tax rate even further, first to 79%, then
81%, then 88% – and with that last one, in the middle of World War II,
he dropped the income level it applied to from $5 million to $200,000.
Contrary to popular belief, this did not get the US out of the Great
Depression, but made things worse. The only reason he's regarded as a hero
today is that he had the singular good luck to enter office in 1933 –
when the worst part of the Depression was over. But he did make it worse, and
people still think Roosevelt's programs helped, and most people believe it
was the war that ended the Depression. In fact, real recovery didn't begin
until after the war.
L: Flash
forward to today. If things are similar, that would make Obama the incumbent
with the socialist track record, and Romney today's FDR. Romney's the one people
see as a businessman who knows how to do things to help the economy –
even though as governor, he implemented a socialized medicine program before Obama tried to.
Doug: The problem
is that the US hasn't really had a liquidation of malinvestment
as it did from 1929 to 1933. So I think whoever is elected now is going to
get blamed. Romney is an empty suit. He's said that he doesn't plan to cut
welfare, wants to spend much more on the military, and he has other spending
proposals that make him nothing more than Obama-light. This is actually what
Republicans have almost always done, because most have no principles –
certainly none in modern times.
L: So what
happens if Romney wins? A lot of people seem to believe it will make a huge
difference.
Doug: Well, he
might be better for taxpayers in the short term; but, for the long run, it
would be very unfortunate if Romney wins. That's because he would be
associated with free-market economics, as Republicans almost always are. A
real pity. The social and economic disaster that's looming over the next four
years would incorrectly be blamed on capitalism.
I'm convinced the Greater Depression has started. We've gone through
the leading half of the storm. Obama got the eye of the storm, and now we're headed
into the trailing edge of the storm, which is going to be even worse than
what we saw in 2008-2009.
L: It'd be
just as the Great Depression, which resulted from government interference in
the economy, is usually blamed on the "unrestrained laissez-faire
capitalism" of the 19th and early 20th centuries.
Doug: Exactly.
And if two Great Depressions were seen to be caused by free enterprise, that would deeply entrench a highly
destructive error and have long-lasting consequences. From a long-term point
of view – if you care about posterity – it's actually better if
Obama wins. Then socialist-style ideas might get more of the blame for the
train wreck.
On the other hand, the continuing global economic
crisis (and much worse to come) would be a great excuse for Obama to open the
floodgates on all kinds of really, really stupid ideas.
L: As a
second-term president with no possibility of re-election to worry about, he
could go wild, no holds barred.
Doug: Yes. He'd
have time and a free hand to firmly entrench many seriously bad ideas in
Washington. And once a new program gets its own bureaucracy, with its own
buildings, it's impossible to get rid of. Lenin was right when he said,
"The worse it gets, the better it gets."
L: So we're
damned either way?
Doug: I'm afraid
so. I've said it before: there's no way out but through the wringer. We get a
deepening of the Greater Depression regardless of who wins. If Romney wins,
it gets blamed on capitalism, which would be a long-term disaster. But if
Obama wins, we'll get a Krugman-Stiglitz wet-dream
of a government. That would be a complete near-term disaster.
L: So if I had
terminal cancer and I voted, Romney would be my man?
Doug: Maybe, if
you didn't think you'd last more than a year or so. You'd likely get to keep
more of your money while you lived. But there's another important difference:
the federal bureaucracy is now thoroughly populated with Obama's
apparatchiks. Romney couldn't save the US from the Greater Depression, even
if he were a real free-marketeer – which he
most assuredly isn't. But he could expunge a lot of those poisonous
parasites, replacing them with his own crew. We'd still have just as many
parasites, but perhaps of a slightly less toxic variety. And even if they
were just as bad, they'd still take a while to get going, so there'd be a
reprieve for that time, at least.
L: You're
absolutely sure there's no way Romney could save the day – even if he
revealed himself to be a Ron Paul clone, once he got into the White House?
Doug: No. The
state itself has too much momentum in the wrong direction now. As I've
pointed out before, any serious changes would result in a talking-to by the
heads of the various Praetorian agencies. If he survived that, the Supreme
Court would strike down most of what he did, and the Congress would legislate
against it. And the people would riot, as if they were Greeks. As you pointed
out, when the people realize that they can vote themselves free lunches
rather than work for them, a democracy is doomed.
L: Who was it
who called democracy "an advance auction on stolen goods?"
Doug: H. L.
Mencken, a genius – one of my favorites. But what he actually said was
that "every election in a democracy is an advance auction on stolen
goods." We covered the futility of trying to get the "right"
person elected in our conversation
on Ron Paul. The state is corrupt, the politicians are corrupt, and the
final straw, the electorate is corrupt. There's no way out but through the
storm.
L: Famous last
words.
Doug: I know, but
that's the way I see it. It's as with Wile E. Coyote. He runs off a cliff,
and you logically think he's going to fall right away. But he doesn't –
his feet keep windmilling in the air, and the law
of gravity doesn't kick in until long after he should have dropped. The US
now resembles nothing more than a hapless cartoon character.
In essence, the things we think must happen
usually take much longer than we imagine possible. But once they start, they
usually happen much faster than we imagine possible.
But I'll go out on a limb again and say that I'm
reasonably certain the economic house of cards that the US and other
governments have been propping up since 2007 will collapse not just within
the next four years, but likely in 2013 and 2014. It's happening in Europe
now – they really have reached the end of their rope. It'll happen
shortly in Japan as well, the most indebted society in the world. It'’s going to happen in China. And that's going to
bring down the resource-oriented countries – Brazil, Australia, South
Africa, Canada, Russia. It's going to be a worldwide
cataclysm.
This whole debt issue, by the way, is critical. As I've
said numerous times, you get wealthy by producing more than you consume and
saving the difference. The opposite, consuming more than you produce, results
in the depletion of wealth, either as savings are drawn down or debt is
accumulated. You're either destroying the productive capacity of past
accumulations of capital or mortgaging the productive capacity of future
accumulations of capital. Either is bad economics, whether for a household or
a country; and we're seeing both – and will continue to see both,
regardless of who wins the next US election.
With the idiots who run the world's central banks doing
their best to keep interest rates at near zero – actually severely
negative in real terms – they're discouraging saving and encouraging
even more debt.
There are no political solutions. The economic problems
are bigger than any politician. There's no way out. I pity the poor fool who
wins this election.
L: Let's look
at the short term again. If Romney wins and lots of investors think he'll
"fix" the economy, there could be a surge in the stock market based
on nothing more than expectations. On the other hand, if Obama wins and
investors expect higher taxes, they could sell in advance of that happening
– people are talking about "tax-gain selling" this year in
addition to tax-loss selling.
Doug: I really
don't think any of that matters. People think the
economy rests on a base of psychology, but they are wrong. What makes an
economy work is not confidence and not consumption, but production. What
makes an economy grow is savings – accumulation of production in excess
of consumption that can be invested in new things.
If Romney wins, people start spending on consumption
again because they're confident, but that's not a good thing. What needs to
happen is for past mistakes to be fully and truly liquidated, and the economy
needs to be freed so that people can produce more, consume less, and save.
Then we can build a real solid foundation for future growth. All the
conventional hack economists, however, believe that the banks should lend
more to enable people to consume more, and that will stimulate production.
That's going to make things worse. It will be production catering to
unsustainable patterns of consumption – further exacerbating the
problem, which is that the US and many countries have been living way above
their means for a long time.
L: I agree,
but economic fundamentals are subject to transient headwinds and tailwinds. A
lot of investors – including many gold bugs – think that if
Romney wins, he'll be good for the economy, and that will make people less fearful,
and that will reduce gold's luster as a safe haven. The driving reality is
the trillions of currency units that governments around the world have
created – an interesting side note is the recent all-time-high that gold reached in euros – but
prices are fixed at the margins. Very near term, even incorrect expectations
could impact prices, could they not?
Doug: I think it's
a mistake to try to predict mass psychology on a short-term basis like this.
Too volatile. A bad day on American Idol could change things
drastically.
But here's how I read it. Romney is a not particularly
thoughtful pragmatist with no real principles. If he
wins, he'll probably implement just as many wrong-headed socialist ideas as
Obama would, varying only in their details and pet interests, not in their
essential nature. Just like Obama, he's going to try to use the government to
fix the economy, and that's the exact opposite of what needs to be done; the
government needs to get out of the way and let economic activity go where it
will. He'll "do something." He'll just tart up his actions with
different rhetoric.
So things are going to get much worse whoever wins, and
if it's Romney, it's more likely that he'll resort to military adventurism to
"wag the dog" more quickly. Obama has continued the
war in Afghanistan and likes to take credit for the extrajudicial killing of
Osama Bin Laden – he's so drone-happy, I almost wonder if he's the
president who'll activate Skynet – but Romney is
clearly the more hawkish of the two, and that's one of the worst things about
him.
L: So, don't
vote... But we've already said that.
Doug: Well, if
you insist on voting, consider pulling the lever for Gary Johnson, the
ex-governor of New Mexico, on the Libertarian ticket. The die is cast for the
next few years. The US deficit will continue ballooning and the Fed will keep
printing up dollars, regardless of who wins. But if you care about the
consequences of this election, the main consequence to consider is the impact
on the next round in 2016 – assuming the US still has elections by
then.
Things will be so bad in the next few years, people will be looking for something different.
They'll have no hope, and they'll want serious, radical change. If Romney
wins, the Democrats will take the White House in 2016 for sure, and that will
likely mean Hillary. She's perhaps the most dangerous Democrat possible, a
real-life version of Dickens' Madame LaFarge, or
perhaps a reincarnation of Evita Peron. About the
worst person I could think of to ever become president. She would totally
wipe out whatever little is left of America by then.
On the other hand, if Obama wins, the Republicans will
probably win in 2016. By then, things will be such a mess, so chaotic, it
will be time for a general to step into the ring. People in the US love their
military now – a strange thing to see for someone who remembers how
hated the military was during the Viet Nam war. No one would have dreamed of
voting for a general back then. But now, a right-wing general who's perceived
as being decisive and incorruptible could play the role of the "man on a
tall white horse" who can lead the nation forward. And that would not
only increase the chances of more stupid, wasteful wars, it could really turn
the US into a true police state. He'd treat the country like a military camp.
L: If we're
damned if we do and damned if we don't, what's a person to do?
Doug: The only
thing to do is to stop thinking politically. Stop looking for political
solutions to socioeconomic problems; political solutions are poisonous,
certainly at this point. The political system is terminally corrupt –
it needs to be flushed.
Look to take care of yourself first. If you're not in a
strong, stable position, you won't be able to help your family, friends, and
others you care about. As cold-hearted as it may sound, the right thing to do
in a period of social disintegration and economic collapse is to look out for
#1. Make sure you're not a liability to yourself and others. Charity begins
at home – that's the first order of business.
Second, after you're secure, look out for your friends
and family – at least the ones who will listen and you can move to take
action in a sensible direction. This is the best thing you can do for them,
but it's also a selfish thing to do for yourself; you'll need all the allies
you can get, going forward into turbulent times.
If you have time and energy left from that, you can
start looking into what influence you can have on the larger world. Which is to say, only at that point can you afford to think
politically. But that's pretty far down on the hierarchy of importance
these days.
L: Investment
implications. Is there no "Obama play" or Romney play" –
some trade you might rush out and implement depending on who wins?
Doug: No. The
only certainty I see is increased financial chaos. An argument can be made
for catastrophic deflation, but I believe we'll see the opposite. The Fed has
promised a minimum of $40 billion a month in new liquidity. And at some point
the banks, which are generally not lending much, will start doing so. When
all the cash they are sitting on starts flooding into the economy, we'll see
inflation in earnest and interest rates of 10%, 20%, even 30%, just like in a
banana republic. That's going to trash the US dollar. And since most savers
save in dollars, that's going to wipe out the productive class, worldwide.
Furthermore, as we've pointed out before, there's a
super-bubble in government bonds. I call them a triple threat to your wealth:
interest rate risk, credit risk, and currency risk. Rick Rule has taken to
calling them "reward-free risk." Just as the tech bubble burst in
2000, and then the real-estate bubble burst, the next one is the bond bubble,
with immense destruction of capital.
I continue to say that, as impossible as it sounds,
that all markets are overpriced. There is simply nothing in the whole world
– not stocks, not bonds, not real estate – nothing that I can say
without qualifications is cheap. So, with everything riding high, you've got
to continue accumulating gold and silver to protect yourself from financial
chaos, and you've got to diversify yourself internationally to protect
yourself from government chaos. To speculate, of course, there are the gold
stocks. They're a leveraged bet on government continuing to do the wrong
things.
I've said it before and I'll say it again: the
governments of the world consider people to be their property. Right now,
they see their subjects as milk cows, but when things get really rough, they
might see them as beef cows.
L: The end is
nigh. Good thing you're an optimist.
Doug: [Chuckles]
We should make sure new readers understand that you're not just being
sarcastic. I do think things will get even worse than I think they will, but
I also believe they will subsequently get even better than I can imagine them
being, thanks to the longest trend of them all, the
Ascent of Man.
L: Indeed.
Thanks, Doug.
Doug: My
pleasure.
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