The Daily Bell is pleased to present an exclusive interview with Doug Casey.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: Welcome, Doug. Let's jump right in. Are you still convinced we are heading into a "Greater Depression"?
Doug Casey: Yes. There is no question in my mind about that. Governments all over the world have created trillions of currency units since 2007 in the mistaken idea that it would create prosperity. The Americans – but also the Europeans, the Chinese and others – have papered things over for the short run mainly by inflating the stock markets, artificially depressing interest rates, and slowing the fall of the real estate market. All that extra currency has made people think they're richer than they are, and has encouraged extra consumption – which is a large part of the problem. Now they're out of bullets.
We are coming out of the eye of the hurricane and it's going to be much, much more serious than it was in 2007, 2008 and 2009. That's because all those currency units they created are causing tremendous price rises on the retail level. It's going to be devastating for the average guy.
Daily Bell: How long do you expect it will take before there is a complete breakdown in confidence of the US dollar?
Doug Casey: It's happening right now. The Chinese – or at least their central bank – have more US dollars than anybody else, and they want to get rid of them. They are trying to offload those dollars, for instance in Africa, to get rid of them for real wealth. Nearly everybody in the world feels this way. The new deals that they cut, with the Iranians and the Argentines for instance, are almost like barter deals. Nobody wants to use the paper currency of an unreliable third party. The US dollar is like an Old Maid card; nobody wants to get stuck holding it.
I think in five years the dollar will have lost its reserve status completely. It may be more like two or three years. I hate to put such a near-term time frame on something that's so momentous in size. But I don't see any way out.
Daily Bell: Will there be accompanying civil unrest – rioting, looting and assorted acts of criminal behavior?
Doug Casey: Almost certainly. I think the riots we have seen recently in London, the various flash mobs we have seen around the US, and even the rioting that happened in Vancouver, are just an overture. When people don't have jobs – and actual unemployment in the US is running at over 20% if it is calculated the same way it was 30 years ago – they become very unhappy, while they have lots of time on their hands. Combine that with the fact a vastly higher number of people live in cities than was the case in the '30s – trouble always arises from cities. Combine that with skyrocketing inflation and a generally collectivist/statist psychology on the part of all segments of the population, and the result is inevitable. Living in a big city, or even a suburb, impresses me as a mistake.
Daily Bell: Is there any way of stopping this train wreck from occurring?
Doug Casey: Right now the US Government is spending over a trillion and a half dollars more than they are taking in – but that's as good as it's going to get. We're already in the best of all possible worlds, considering what's happened. It gets vastly worse from here. As unemployment and business failures start going up the government's deficit will rise to $2 trillion per year. They talked about cutting $2 or $3 or $4 trillion, but that's over 10 years and it's loaded towards the end of the 10 years; their supposed cuts are inconsequential, trivial, and meaningless. In addition, there's no reason to believe that spending won't skyrocket from here, because Congress is going to change next year, and again two years after that. They'll all have new cockamamie spending ideas. So this is all a complete charade.
To answer the question, the only ultimate cure for this is that interest rates go back up to the 12 or 14% level, which would reward prudent savers and punish borrowers. But that's just a start. Military spending should be cut 90%, with the closure of all foreign bases, covert operations, and aid. Regulatory agencies like the SEC, the FDA, HUD, USDA, DOE, OHSA, FAA, EPA, etc., etc. should be abolished. The Fed should be abolished and gold reinstituted as money. The national debt should be overtly defaulted on for numerous reasons, but certainly because it acts as a mortgage on future generations. But none of that's going to happen, rather than the opposite. These prescriptions, while economically and morally correct, are a complete political pipe dream.
A big part of the problem is that people have been consuming more than they have been producing. So the way to get the economy back on track is for people to produce more than they consume and save the difference. High interest rates encourage that. But the government is opposed to high interest rates, partly because it runs counter to Keynesian theory and partly because it would greatly accelerate the bankruptcy of the government.
Let's say interest rates go from the 2% level they are now to a 12% level. That's going to mean that interest payments on the whole national debt – which has basically been financed short term and has to be rolled over annually – will go from say $300 billion per year (2% of $15 trillion) to $1.8 trillion per year. The deficit, therefore, must increase by another $1.5 trillion dollars a year if you do the single most important thing to slow down this train wreck.
So, I think they have actually gone beyond the point of no return. There's no way to avoid a genuine catastrophe, much worse than what happened in the 1930s. There are several ways this could end, but I suspect the government will choose the worst alternative. I suspect the destruction of the US dollar is in their minds. How are we going to get rid of all this debt? Well, destroying the US dollar is the only way. Their first priority is saving the US Government.
But they're not considering that the people who will be hurt the worst are the prudent people, people who have saved dollars. They will destroy the prudent parts of society that actually try to produce more than they consume and save the difference. Prudent middle class workers are going to be wiped out, and the people who borrow and are deeply in debt are going to be rewarded by having their debt wiped out. That's perverse. It is going to wipe out the middle class in the US and all over the world. Everywhere in the world, people have preferred to save in US dollars where they can, and those people are going to be wiped out. Perhaps even worse, it's going to put the US government temporarily back on a manageable financial basis. That means they won't have to fire all their employees or disband all these agencies and get rid of the military, which is what should be done. They'll wind up destroying the productive parts of the economy to save the government; the parasite will kill the host. It's a total disaster, with wide-ranging consequences, and it's going to happen in this decade.
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