Doug Casey on the Global Economy

by kungfugirl on March 21, 2012

World Globe

I’m writing you today from stunningly beautiful Cafayate, Argentina, where I have been enjoying the gorgeous scenery, the delicious local Torrontes and Malbec wines, and the company of some of the most interesting people in the world.

Yesterday we attended a small informal talk where Doug Casey shared with us his views on where we are currently in the global economic meltdown. Contrary to popular belief (which is the essence of Doug, and just one of the many things I love about him), Doug believes that things are not “getting better” but in fact we are close to exiting what he calls “the eye of the storm”…that somewhat calm spot in the middle of the financial hurricane that started in 2007 and continues to this day.

Despite the recent plethora of supposedly “good news” (a recent research paper from UBS reports that the economy is improving, and the DOW is over 13,000 so people are “happy”), Doug doesn’t see how we can avoid an upcoming catastrophic event (and I agree).

While nobody has a crystal ball, Doug believes that we will eventually have massive inflation in the U.S., although interestingly we might have a catastrophic deflation first.

There are trillions of dollars still “sitting on the sidelines” not being lent out…there is no borrowing, as anyone who has tried to obtain a loan recently has learned the hard way.

So how might we experience a massive deflation in the short-term?

Well, one of the biggest industries in the world is the financial industry itself—it makes up a huge portion of the world’s economy. And right now this industry is sitting on trillions of new currency units that governments and central banks from around the world have created out of thin air to save the financial institutions and attempt to stimulate the economies of the world.

However, this is neither normal in terms of world history nor healthy, and Doug believes that at some point all of this “make-believe capital” or funny money could be wiped out, causing us to experience a massive deflation in the short-term.

However, in the long-term, Doug doesn’t see how we can avoid massive inflation. The U.S. is still running an annual trade deficit of some $600 billion, and those dollars are going outside of the U.S. But countries such as Iran, Russia, China, and India have already started settling many of their transactions in gold, not in U.S. dollars.

Additionally, central banks around the world have been accumulating gold, and all it will take for the world to realize that U.S. dollars are nothing more than hot potatoes is for one country (Doug postulated that maybe China would be first) to introduce a gold-backed currency. If China introduced a gold-backed yuan, for example, who on earth would want anything to do with U.S. dollars?

These dollars would be quickly dumped by everyone holding them, and would necessarily and quickly find their way back to the U.S., where due to our legal tender laws all transactions must be settled in U.S. dollars.

This flood of dollars entering the U.S. would cause massive inflation, inflating American shares, property, wheat, etc…everything.

So Doug doesn’t see how things can really “get better” under these circumstances….and with the number of people on food stamps close to 50 million and the real unemployment rate as calculated by John Williams of ShadowStats close to 28%, it doesn’t seem like things are really even all that “good” now.

(And this isn’t even factoring in various “black swan” events that could happen…war with Iran or another country, riots, another terrorist attack, etc.)

But what if the government can somehow “save us” and actually raise taxes or cut spending to the degree needed?

Well, really, what can they cut?

A full 85% of our spending goes to:

  • Social Security (politically impossible to cut),
  • Medicaid (politically impossible to cut)
  • Medicare (politically impossible to cut), and of course
  • Military (politically impossible to cut)

“They” (the government) have put forth a plan to cut $1 trillion over ten years, but while this may seem like a lot of money, it’s barely a drop in the bucket…over ten years that is $100 billion per year which is only 8% of the current annual deficit!

But many people believe (and I hope you are not one of them, dear reader…) that governments have the power and do create prosperity. While I am not an anarchist per se (I’m still figuring out exactly what I believe in that realm!), I also don’t believe that governments create anything of intrinsic value.

Governments by their very definition produce nothing, and I completely agree with Doug when he says that the way you become wealthy is by producing more than you consume and then saving the difference. This creates capital, which you can then use to make investments and to create more wealth.

However, right now the government is encouraging and rewarding the exact opposite of this! By keeping interest rates so artificially low they are encouraging people to consume more than they produce, which destroys wealth.

Basically, just like Zimbabwe, Doug believes we are heading towards a dollar disaster. The Zimbabwean government printed all of the Zimbabwean currency units they so desired, but this didn’t create capital….instead, it destroyed their society.

I want to thank Doug for allowing me to share this small excerpt from his talk with you! He is a very, very smart guy, as is all of the Casey Research team, and if you haven’t subscribed to at least their free daily updates yet I would highly encourage you to do so. You can find them and sign up at CaseyResearch.com. (I’m unaffiliated, other than the fact that I’ve been a happy subscriber for years and do own a homesite with Kung Fu Guy at La Estancia de Cafayate).

What about you? What do you think lies ahead for the global economy and what are you doing to prepare yourself? I’d love to hear what you think!

To your financial success,
— Kung Fu Girl

Print Friendly

About the Author:

Susan Fujii, aka , is an SEC Accredited Investor who believes that anyone can learn to be financially independent.

Susan has authored 199 posts on Kung Fu Finance, and you can connect with her on .

Want to master your finances? Join us now.

Why don't you join our community on your journey to financial mastery.
Sign up below for the FREE Kung Fu Finance newsletter.

Leave a comment!

{ 5 comments… read them below or add one }

Ivan H. March 21, 2012 at 10:17 am

Thanks, KFG. I agree. If we step back and look objectively at what has happened over the past few years, nothing has been fixed. It “feels” like it at times because we’re floating. But nothing fundamentally has been fixed. And rather than letting the markets correctly reflect the situation, the government has interceded, which is usually not a good thing.

I’ll give them credit for being “smart” though (manipulative is probably more accurate), the government took money from taxpayers and gave it to the financial firms who turn around and essentially pump it into the stock market, which makes it look like everything is getting better. Combine that with zero interest rate environment, which makes some businesses look better than they are.

People might see the stock market rise, but I doubt people are feeling happier. Instead, people are probably feeling strained because they’re too burned/scared to get back in and they feel like the boat is leaving without them. For sure people are feeling poorer because they are earning next to nothing in the bank and CD’s (what a rip-off!).

On a more positive note for us savers and wealth-builders, it’s a good idea to have cash available when deflation hits harder. Make your shopping list of stocks and stuff to buy on the cheap.

Reply

Steve March 21, 2012 at 5:10 pm

Hi Kung Fu Girl,

The future, save as muchas possibe, in whatever form you can to protect and preserver your wealth if you have any.

Funny you commented on the thought I had there other day, the Gov. plan to reduce the deficit by 1.2 trillion over 10 years, or 100 billion per year. That Is Laughable. Now I am not a smart may but running a trillion dollar a year deficit is beyound me. Point of fact the U.S. debt now is 16 trillion, we are paying the intrest, but we are not paying the debt but growing the debt. That is like paying minimum payments on the credit card and then when maxed out get another credit card. It is the same thing, printed money, money created out of thin air.

That’s a pretty simple analogy. But is is a true analogy. At what point does the U.S. not have a lender after they have used up to faith of Their Global lenders, and then went back to the Public and borrowed all the saving from the public. At that point the only option left is continuous printing of new money and continued quantitative easing.

Regardless of deflation or inflation the result is the same. If you cannot retre the debt, which we are not doing, and continue to grow the debt, which we are. The end result is the same.

The scary part is all the devistation, mental defeatism, anarchy, loss of liberty, loss of living standards, eventuallyt loss of life and totalitarian government that will result until the U.S. Loses it’s positon as the reserve currency and bankrkupts itself.

I don’t like to think this way, It may not happen in my lifetime, and me be different than I see it, The U.S. will survive, but the road to change will probably be a very hard one.

Live Debt free, own you home outright, and fight the good battle. And above all build the family long term wealth, and figure out how to protect it and pass it on to the future generations, but also enjoy it as you build it.

Steve

Reply

Gilbert March 22, 2012 at 2:39 am

Hi KFG,
I’ve been reading a lot about this interest rates but I still don’t know how it works. My question is how does the government keep the rates “artifically” low? Who should really control the interest rates? the market? If the market should control the rates, how can it be controlled then? supply and demand? how can we know if the rate is “artificial” or not? I’m sure you can explain this in plain english as you did in fractional reserve banking….

i hope you can also make a blog about how to read financial statements of companies… i’ve been searching the web on how to read financial statement but it seems that my gut is telling me that they are not truly trustworthy…can you recommend a site or a reading material that can provide guidance on this dilemna of mine (i’m sure this is also a need for some of your readers).

i’m learning a lot from this blog & i’m always looking forward to reading it…let’s kick some bad ass….(“,)

Reply

Cathy March 22, 2012 at 1:38 pm

KFG, Go to Jeff Berwick’s site Anarchast and find out that anarchy, or anarcho capitalism, is the moral way for a society to be structured. Also, read Hans Herman Hoppe’s works on the matter. You can find much of his writing on Mises.org. After you’ve read Hoppe’s work, you’ll slap your head and say to yourself, “How could have been snookered all these years?” I’ll tell you how: government school and the government owned media…

Good luck.

Reply

Kent March 26, 2012 at 12:26 pm

Hello KFG,
I agree with you completely on your assessment of Doug Casey’s brilliance and insightfulness on financial and economic matters. I have read all of his books, starting with Crisis Investing in 1979, and I have been subscribing to his newsletters for over 30 years. But one area, by Casey’s own admission, where he has performed poorly is forecasting the timing of the economic events that he foresees. For example in his recent talks he has been pointing out that we have already entered the economic and political crisis that he refers to the Greater Depression. Interestingly, he said essentially the same thing in his book Strategic Investing which was published in 1982. Here’s a quote from page 36: “The Greater Depression has begun.” During this same time period, when the DJIA was in three figures and housing prices were a fraction of what they are today, he was predicting a stock market crash and falling real estate prices.
My point is not to discount Doug Casey’s insightfulness, but instead to demonstrate how difficult it is to predict the timing of things, even when they are inevitable. Without the intervention of governments and central banks to artificially stimulate the economy, we might have seen a “greater depression” in 1982. But it would have been a lot less severe than the one we will eventually see when the stimulus-induced supports begin to fail.
The question now is, are we in the eye of the storm or can the economy be manipulated to give the appearance of stability for a few more years? I certainly don’t know how it will play out or when the next big event will occur. Therefore, I think it is important to have a strategy that will work for a variety of outcomes. Because I don’t know what is going to happen when, I can’t live my life as if the world as we know it will end tomorrow. Nor, can I expect the relative stability of today to continue. What I do know is that throughout history empires have had a life cycle – they are born, they grow, they mature, they decline and eventually die. This is neither good nor bad; it’s just the way it is. My coping strategy is based on the recognition that the empires of the West are mostly in decline. The best strategy is exactly what you advocate at Kung Fu Finance: develop and maintain financial independence, be adaptable and be mobile. Most importantly keep your mind sharp and informed so that you can enjoy rather than worry about the challenges that lie ahead. Steve Jobs expressed it well:
“Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma– which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your own inner voice. And most important, have the courage to follow your heart and intuition. They somehow already know what you truly want to become. Everything else is secondary.”

Reply

Leave a Comment

{ 4 trackbacks }

Previous post:

Next post: