Doug Casey Interview

Doug Casey was interviewed by the Daily Bell recently. This is one of his better interviews, as he touched a number of important issues.

Daily Bell: Hello, Doug. Please update us on your perspective regarding the US economy? Is it a recovery yet?

Doug Casey: I don’t see a real recovery until they stop debasing the currency, radically cut government spending and taxation and eliminate most regulation. In other words, cease doing the things that caused this depression. And that’s not going to happen until there’s a collapse of the current order.

Things have cyclically improved since the height of the crisis of 2008-09. The trillions of currency units created by the Federal Reserve have jammed the stock market higher and kept the big banks from going under. What surprises me is that retail prices have not moved as significantly as I would have expected. The reason, I believe, is that most of that money is still sitting in financial institutions. It has gone into cash out of fear, into stocks because they represent real wealth with earning power and into various speculative assets like artwork and collectible cars. Real estate has recovered somewhat, not because of strong fundamentals but strictly because of money creation.

This isn’t going to last because the way you get wealthy is by producing more than you consume and saving the difference – not by consuming more than you produce, and borrowing the difference. With the Fed keeping interest rates at artificially low levels, hoping to increase consumption, they’re making it very foolish to save – when you get ½% or 1% on your savings. So people are saving less and they’re borrowing more than they otherwise would. This is a formula for making things worse, not better. They are, idiotically, doing exactly the opposite of what they should be. Although, I hasten to add, I hate to pontificate on what the Fed “should” do. In point of fact, the Fed should be abolished; the market, not bureaucrats, should determine interest rates. We wouldn’t be in this pickle to start with if the government wasn’t involved in the economy. In fact, if it wasn’t for the state, I suspect we’d all have a vastly higher standard of living, and would be colonizing the Moon, Mars and the asteroid belt.

I expect that we’ll go out of the eye of the storm this year; it’s overdue, actually. The analogy I like to use is that the leading edge of the storm was in 2007, now we’re in the eye of the hurricane, and when we move into the trailing edge it’s going to be much, much worse and last much, much longer than it was in the leading edge.

Daily Bell: There are those – especially these days – who don’t believe that central bank monetary inflation matters. The argument is that commercial banks provide the monetary inflation via loans. What’s your take?

Doug Casey: Both are very bad. Let me say, again, that the Fed serves no useful purpose and it should be abolished. Central banks create “super money” by buying government or other debt with new currency units that they credit to the sellers’ accounts at commercial banks. That’s the actual engine of inflation. But it’s greatly compounded in the commercial banking system through fractional reserve lending – which would not be possible without a central bank. Fractional reserve lending allows banks to multiply the money supply several times. If $100 of Fed super money, freshly created, is deposited in a commercial bank like Chase or Citibank, then $90 can be lent out with a 10% reserve, the current number. That money is redeposited. They’ll then lend out 90% of that $90, or $81, and then 90% of that $81, so it multiplies. Central banking and fractional reserve lending go hand-in-hand. Without a central bank, any bank that engaged in fractional reserve banking would be considered guilty of fraud and, when discovered, would be punished by a bank run, followed by criminal charges. The point to be made here is that the entire banking system today is totally unsound and totally corrupt.

In a sound banking system you have two types of deposits – checking account (or demand) deposits, and savings account (or time) deposits. They are completely different businesses. With demand deposits, you pay the bank to store your money securely, and write checks against it. A bank should no more lend out demand deposit money than Allied Storage should lend out the furniture you’re paying them to store.

Savings accounts are completely different. Here you lend money to a bank, perhaps at 3%, and they relend it at 6%, making 3% to cover costs, risks and profits. A sound bank not only has to match the maturities of its deposits with the maturities of its loans, but must insure loans are both highly secured and self-liquidating.

These principles have been totally lost. Today banks operate as hedge funds. But it’s important to understand the way banks used to work and should work. As an aside, if someone were to set up a well-capitalized 100% reserve bank in a tax haven, especially using gold as an alternative currency, it would be immensely successful in the years to come – when most all conventional banks will fail.

Doug Casey: Market risk is huge today, but political risk is even bigger. One indication of that was, when the banks in Cyprus went bust some months ago, the government essentially confiscated everybody’s account above 100,000 euros, in what they called a “bail-in.” You could see that happen absolutely anywhere. The same thing could be true of your pension fund. The government could confiscate that and tell you they’ll give you something on the never-ever plan, like some form of Social Security in exchange for your private pension plan. It’s already happened in a half-dozen countries, without very much press coverage.

When they start doing things like that, it’s close to “game over.” The world’s economic/financial system is going to reset, and you don’t want to have significant assets in a form that they can easily confiscate. So I think owning real estate in the right places in the world is important, as is having gold and silver abroad. You’ve got to be diversified politically and internationally. That’s absolutely critical because if you aren’t, you can’t escape from your masters’ tax farm.

You need several options. It seems like people haven’t learned anything from what happened in Russia in 1917, Germany in 1933, China in 1948, Cuba in 1959, or Vietnam in 1975. Rwanda, Cambodia, Yugoslavia, Zimbabwe, Ukraine, Syria … there are lots of examples and these things can and will eventually happen almost everywhere. When the chimpanzees go crazy, you don’t want to be where they are. You’ve got to have a Plan B. You’ve got to have a crib out of that political jurisdiction. Acting like a plant, and staying put, isn’t a good survival strategy for a human.

The entire interview can be read here.

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