Doug Casey Revisits the Greater Depression and Explains the Realities of Investing in the 21st Century

Interview with Scott Smith
The Daily Bell
Jun. 15, 2010

The Daily Bell is pleased to present an exclusive interview with Doug Casey (left).

Introduction: Doug Casey has appeared on hundreds of radio and TV shows, and has been the subject of articles in People, US, Time, Forbes, The Washington Post, and numerous other publications. For nearly three decades, Doug Casey and his team have been correctly predicting major budding trends in the overall economy and commodity markets.

Daily Bell: We asked you a number of questions nearly a year ago about fiscal and monetary issues – as well as the state of the world. You weren't especially optimistic then. We can't imagine your mood has improved much, has it?

Doug Casey: Well, my personal mood is fine. But the economy's mood is likely to go from merely grumpy to psychotic. The Greater Depression began, I believe, in 2007, and will get much worse because not just the US government, but every major government in the world, has been doing not just the wrong things but exactly the opposite of the right things.

The right thing would be for these governments to get totally out of the picture. What they are doing instead is inserting themselves further into the economy. But I suppose this is what the average person wants them to do because, idiotically, the average person thinks that the government is some kind of a magic cornucopia and is the solution to their problems – when actually government is the basic cause of all these problems. Its only products are taxes, regulations, and inflation – along with wars, pogroms, persecutions and the like. Government produces nothing. So I guess I'm not overly sympathetic to them; they are pretty much going to get what they deserve in the years to come.

The Greater Depression is on a temporary hiatus at the moment because the stimulus measures and extra debt these governments have created to deal with the crisis have given the appearance of a recovery; but in the months to come, things are going to devolve back to the financial chaos of a year or two ago and actually get much, much worse. I hate to make such a gloomy forecast, if only because people that draw wacky conclusions from sources like Nostradamus, the Bible, and the Mayan calendar are so prone to do so. But I'm not talking about the end of the world, just a bit of a social and economic upheaval – and we've had plenty of those over the centuries.

So, in brief, we're kind of in the eye of the storm at the moment, but I expect this thing is going to be much worse on the other side of the hurricane. And it's not going to be brief; this could linger on for years with a lot of consequences, not just the obvious economic and financial ones.

Daily Bell: You thought the euro and the dollar were both on their way out last time we spoke – though you gave no timeline. Can you give us your thoughts on where we are with these currencies – euro first and then the dollar? Is the bailout going to work for the euro?

Doug Casey: Absolutely every currency in the world is going to reach its intrinsic value in the next few years, and basically every currency is nothing but toilet paper. Basically all the governments are going to wind up destroying their national currencies. That won't be just an academic thing; it will have the consequence of destroying a lot of the middle classes around the world. That will likely create ugly political and sociological fallout.

In particular the Euro, which is a totally artificial construct, is a dead duck. As I said last year, if the dollar is an "IOU nothing," then the Euro is a "who owes you nothing." The bailouts are completely insane, counterproductive, and the opposite of what should be done. It's not just Greece. The EU is going to have to bailout Spain, Italy... in fact the whole structure is rotten. The EU will try to bail itself out, which is rather absurd.

Daily Bell: Let's follow up on Europe. We've spoken about the euro but now give us your thoughts about Europe itself. Can the EU stand – why or why not? Will there perhaps be a smaller EU?

Doug Casey: I think the EU is almost certainly going to break apart. It's Frankenstein's monster, cobbled together. You have countries with very different cultures. Europe is famous for having had thousands of wars with each other since before the days of the Roman Empire; a history of Europe is a history of warfare. I see no reason why that will change. Of course the EU is something that is supposed to keep them from going at each other's throats again but the EU will actually cause more conflict, resentment, and hatred – not less.

The way to improve matters would have simply been to taken down barriers to travel and trade, which would have been fine. In other words, get rid of regulations and taxes, and make the states less powerful. But what they have done, idiotically, is centralize power in Brussels, and add yet another layer of bureaucracy. This has created more resentment, not less, between different national groups.

Daily Bell: You can see it happening right now. The Germans hate the Greeks for causing them loss of capital and the Greeks hate the Germans for not subsidizing them anymore.

Doug Casey: You don't need a gigantic, and necessarily corrupt and inefficient bureaucracy – with an arcane rule-book the size of the London phone directory – to enable free trade and free travel. What you need is simply to abolish the existing restrictions. But the prevailing philosophy and psychology in Europe is deeply socialistic, so of course they took the wrong approach. It's why in a couple of generations Europe will be fit for nothing but to be a source of maids and houseboys for the Chinese.

Another reason the EU is going to break up is because the tendency all over the world is towards smaller political units, not bigger ones. Before this is over I wouldn't doubt that Canada breaks up into a number of different enclaves, and I don't mean just Quebec. I think over the next 50 years, the US itself will start to fall apart; no way is a young Hispanic in California going to submit to paying 25% of his income to subsidize an old Anglo woman in Massachusetts. That is true of most countries in the world; they are artificial constructs. Every country in Africa was created out of whole cloth by European invaders, and that is one of the main reasons why Africa is such a Hell-hole. It was divided up with no regard whatsoever to cultural and linguistic and tribal boundaries.

The good news is that you don't have to worry about a world government, which a lot of people think they need to worry about. One favorable consequence of the Greater Depression will be the bankruptcy of most of the world's governments. As a result, they'll become less powerful. The nation-state, which has been around since the middle of the 17th century, is actually going to start disappearing in the years to come. I see that as a good thing. The EU is going to be the first to go.

Daily Bell: What's your take on Britain and the pound? Is Britain also subject to sovereign risk?

Doug Casey: Britain used to be somewhat different from other countries in Europe, because of its Common Law tradition. But now it seems well on its way to devolving into a society very much like that portrayed in the movie "V for Vendetta." Fantastic flick, incidentally; I recommend it. But, as far as sovereign risk goes, their debt is junk. Pity the poor fool who owns it, especially with interest rates as low as they are.

Daily Bell: How about America? How are America's finances?

Doug Casey: The era of one trillion dollar plus annual deficits is definitely here. And those are just the official deficits, which are going to be running a trillion or a trillion and a half dollars per year for the indefinite future. And on top of that you've got $100 trillion of unfunded liabilities of Social Security, the Medicare, the Medicaid. In a few years, you are going to have Obama-care, which is going to make the problem considerably worse. Then add on the probable federal bailouts of numerous bankrupt states like New York and California. And then hundreds of billions more for the FDIC, which is also totally bankrupt. Just like Fannie and Freddie. Then the Pension Benefit Guarantee Corp., will be hundreds of billions more – that hasn't hit the front pages yet. General Electric is just like a gigantic, 30-1 leveraged hedge fund; that's going to be bailed out too! Amtrak, which despite its outrageously high fares, continues to loose a couple billion dollars a year; of course that's just chicken feed in today's context. And of course these wars – and supporting military bases in over 100 countries.

Furthermore the ethical fiber of the country has eroded. You've got 40 million Americans getting food stamps; that number is going much higher. People feel no shame in living on extended unemployment benefits. No shame in living in a house for a year or more after defaulting on the mortgage. No shame in gaming the system – which is encouraged by a plethora of laws. America was once a great idea – in fact America IS an idea, much more than a place. But now it's just another corrupt nation state.

So, I don't see any way out, I just think it's going to get worse for the United States.

...Continued