I’m finally back from beautiful Vancouver, BC, where I must say there were no signs whatsoever of recession, let alone a depression! The streets were bustling, stores were packed, and restaurants and clubs were busy with lines to get in…definitely no signs of economic malaise!

And yet, Doug Casey believes we are smack in the middle of the eye of the storm, and the Greater Depression is upon us. (And I happen to agree, despite the outward signs of economic prosperity).

And unfortunately, Doug believes it’s going to last a long, long time and be much longer and worse than we experienced in 2008-2009.

I love Doug. He’s an incredibly intelligent, articulate, open-minded, and well-thought-out guy who backs up everything he says (and believe me, much of what he says is quite controversial to mainstream thinkers…) with facts, data, and proof.

Many people think he’s “radical”, because he’s a self-proclaimed “Libertarian Anarchist”, but I find his thinking to be sound and rational, and he has an amazing investing track record (which is what we are all about here on Kung Fu Finance!).

And, he’s an extremely entertaining speaker.   🙂

Doug, as usual, was one of my favorite speakers at the Agora Financial conference. He gave a passionate talk for 40 minutes on the Greater Depression and how we got here, and also how we can prepare ourselves for the future he envisions.

With his usual optimism, he declared that the situation is hopeless, yet not serious…and proceeded to explain to us in detail exactly how we got to where we are today (the excessive bloating of the United States government), exactly what we need to do to eliminate the problem (see below), and exactly what we need to do as investors to prepare ourselves for the inevitable (see below).

The main thrust of Doug’s talk was this pie chart that shows the breakdown of the U.S. government’s spending by function in 2010:

U.S. Government 2010 Outlays

You would think we could each live in a marble palace for $3.5 trillion...

The U.S. government is completely bankrupt, and the bankruptcy is 100% the fault of the U.S. government (yes, the banks, brokers, and real estate industry are somewhat complicit, but at the end of the day, the fault lies with the government).

Doug believes that government is the “nub of the problem” because of his definition of government,

“Government is an organization that has a monopoly of coercion and force within a geographical area.”

And of course, everybody (or as Doug would say…”anybody but a psychopath”) wants to limit the amount of force used on society.

But unfortunately government is pure force. (KFG Note: look no further than the TSA!)

Doug believes that government has only 3 legitimate functions:

  1. An army to protect you from force outside its borders
  2. A police force to protect you from force inside its borders
  3. A court system to allow you to adjudicate disputes without resorting to force

These are the only legitimate functions of government because government is an instrument of coercion and should therefore be limited.

This is Doug’s belief in a nutshell, and why he so vehemently disagrees with those who want to increase the size of government and implement ever more new “government programs”.

He believes it’s crucial to distinguish between “government” and “society”:

The essence of government is force, whereas
The essence of society is voluntary cooperation.

Everything that the government provides or that people think it provides is taken from society. The government doesn’t have any magic ability to “do” anything…it simply takes what it needs from people who are forced to do things.

And whenever the government pretends to actually “do something”, like they did with the infamous “Super Committee” last year that was supposed to analyze the budget and determine how to reduce the then $1.2 trillion, it’s a complete charade.

Every time the government mentions a number it morphs into a ten-year period, instead of an annual period, which means that at best we would have gotten $150 billion per year (instead of the $1.2 trillion we needed back then), which isn’t even a drop in the bucket.

He dug into a bit of history before diving into the budget, and noted that we are going into the biggest crisis in modern history—he believes it’s the biggest thing since the industrial revolution.

If you have delicate sensibilities, you may want to skip down a bit…

Doug divides the U.S. into 3 classes:

  1. the rich
  2. the poor
  3. the middle class

We don’t have to worry about the rich because they “control the strings of government” and can drive the politicians and hire accountants and lawyers and investment advisors and travel agents….so they can “get out of dodge” before they get eaten (which Doug is sure that they will).

And Doug says we can forget about the poor people, because they will survive somehow—it’s easy to survive…Doug said there’s always dumpster diving (!) and since the government is in the business of bribing the poor people while cementing them to the bottom of society, they will do just fine.

The middle class, on the other hand, is going to get killed. This is the group who produces more than they consume and saves the difference, and Doug believes they are going to get absolutely destroyed in the years to come.

It’s been happening gradually over the past 50 years, but it’s going into hyperdrive right now, and the government is making it very hard for us to produce more than we consume and save the difference. And people are saving in dollars, and Doug believes of course that the dollar is going to be destroyed, which is a big problem.

So Doug believes the middle class will be destroyed and will be very unhappy and will look for radical solutions.

The Grotesque U.S. Budget

Diving into the U.S. Federal Budget as displayed in the pie chart above, you can see that all of the expenditures of government are divided into ten functions.

1. Department of Defense — 24% of the budget

This is the biggest chunk, at $850 billion or 24%…

Until 1946, the United States did not have a Defense Department—we had a War Department (for official declared wars, of which we haven’t had since 1946—they are all undeclared now) and a Department of the Navy (for “miscellaneous adventures”).

But as part of the debasement of everything, including language, the Department of “Defense” doesn’t actually “defend” the U.S. anymore; instead it actively creates danger for the U.S. by having its armies all over the world bombing innocent people and provoking terrorists.

The U.S. spends more on this so-called “defense” than does the rest of the world combined.

Doug had a great quote here,

“All this money going into the Defense Department, that big red thing, $850 billion, is like buying a giant gold-plated hammer, at which point everything starts looking like a nail…and that’s a very dangerous thing.”

To put it in perspective, the cost of WWII was “only” $288 billion!

Of course the dollar is not worth now what it was then, so that’s about $4.1 trillion in today’s dollars…but still, all of WWII was $4.1 trillion, and today that is about what they are spending in Iraq and Afghanistan alone (according to Doug, “fighting primitive people with AK-47’s who hide in caves!”).

It’s completely out of control, but Americans love and trust our military.

Doug believes that the military budget should be cut by 90%…but instead, it’s likely to go up.

2. Social Security – 20% of the budget

$706 billion…

Doug did not mince words on social security, declaring it is nothing but a Ponzi scheme where late entrants have to pay off earlier entrants, justified by alleging that people are too irresponsible to save for themselves so it’s for their “own good”.

(KFG Note: I think part of this is just the change in times, though…frankly, people didn’t used to have to “save for themselves”…everyone had defined benefit plans that paid them a guaranteed pension when they reached retirement age. Some people are irresponsible, sure, but many more are just clueless on how to save/invest for themselves because if they had a decent job, they never used to have to save for their own retirement).

It takes 6.2% non-tax-deductible off the top of incomes of employees, plus another 6.2% off the top of their employers, so that’s $13,000 every year for every working person that goes to buy government debt, but that debt is not an asset…it’s just something that somebody else has to pay off in the future! It’s not a real asset.

And there is no more “lockbox” for social security—all social security revenues go into government general revenues.

Social security is a “bankrupt swindle”, according to Doug, but he admits it’s not going away—there are simply too many people relying on it. But when it is inflated out of existence, those people are going to be in big trouble.

3. Income Security — 17% of the budget

$624 billion

This category is a catch-all for many different agencies of welfare spending:

  • Foodstamps for 45 million
  • Unemployment benefits for 12 million more
  • Housing assistance for millions more
  • Pensions for federal employees
  • 8.8 million are on social security disability…for every 16 workers, there is 1 person on social security disability (Doug believes there will be 10% on this soon)

Doug is frustrated because to him, this category should not even belong under “something the government does”, and yet most people think that this is what government is for.

4. Medicare — 13% of the budget

Fastest growing, $451 billion

Like the “income security” category above, Doug believes this is simply ridiculous and should not be a function of government.

He believes it’s a philosophical question, and says that it’s growing like crazy and will be bigger than social security in the next few years with the baby boomers retiring.

Regarding philosophy, here’s Doug’s…

“Look, when you reach a certain age, your body starts to desert you and you become an active liability to your fellows. In pre-industrial societies, when you became a liability to your fellow citizens, you would walk out into the forest or step on an iceberg and take a one-way journey to the great beyond.

It was only the most cowardly, despicable, and degraded people who would hang around and cause everyone else to take care of them.”

Of course if you were a very valuable person and a loved person, then your fellow citizens were happy to do that for you (and Doug believes that’s the way it ought to be).

Doug pointed out that people ought to get a grip and realize that we get old and die, and that this is a moral principle…you should take care of yourself rather than rely on the government to take care of you.

He pointed out the distinction between healthcare and medical care, too…healthcare is what you provide for yourself (e.g. diet, exercise, lifestyle) and is strictly individual. Medical care on the other hand is for emergencies, and Doug believes it’s something you just pay for.

(Doug said he himself doesn’t have medical insurance…when he has a problem he goes to a facility in South America and pays 20% of what it costs here in the U.S. to get the same or better level of care.)

5. Health – 10% of the budget

$369 billion

This is Medicaid, and Doug did not mince words here.

He believes that Medicaid is for people who are so unproductive that we have to pay for them, and he went on a bit further, which I think I will say “you had to be there” for… (Black Friday, Walmart, welfare checks, abolish public housing and foodstamps, get off of the couch, walk around, lose weight…)

Anyway, Doug believes “Health” is only going to get worse…because now we have Obamacare which is “Medicaid for everybody”!

6. Education, Training, and Social Services $125 billion

Doug believes in education but feels like with health care that it is something you should do for yourself and should not be a function of government.

Of course he states it a bit more strongly than that…

“The last thing I would do with kids is put them in the hands of government employees in a system to indoctrinate them…if you have kids in public schools you should be ashamed of yourself! School is something that should be done by parents, churches, organizations…”

And Doug believes higher education is even worse…it’s wonderful if you need to earn a trade: doctor, lawyer, engineering, or if you need a class with lab work, but otherwise it will bankrupt you psychologically today (because of “the leftist idiots populating most spots on campuses today”…) and will bankrupt you financially, too, turning you into a serf.

“If you have college-age kids today, don’t send them to college, please, it’s idiotic!”

90% of the colleges and universities should go bankrupt and they will go bankrupt if the US government ever withdraws aid from them, but that’s not likely because everybody believes in education (and Doug does, too…just not indoctrination).

7. Transportation — 3% of the budget

Amazing, that $92 billion is only 3% of budget!

This category includes things like highway maintenance, Amtrak subsidies, the FAA…

And of course Doug believes this should all be completely privatized.

AND, of course this includes the illustrious TSA which has expanded like a cancer and should be abolished!

The TSA is the new Gestapo, and Doug went off here (and I agree!)…saying where on earth do they GET these middle-aged people? What were they doing before that they would rather take such a degrading job, groping other people?  It’s mind-boggling!

(KFG Note: I’m with Doug—let’s get rid of transportation)

8. Administration of Justice — 2% of the budget

A teeny-tiny slice, just 2% or $55 billion…and one could argue that this is actually a reasonable function if you’re going to have a minimal government!

This includes police and courts, but Doug believes that still far too much money is spent on it. This is the category that incarcerates 2.3 million people, and that doesn’t include the tens of millions more on parole or in “the system”.

The Constitution is a complete dead letter.

There are only three crimes listed in the Constitution:

  1. Counterfeiting
  2. Piracy
  3. Treason

And Doug can argue whether even those should be crimes, but those are the only three listed in the Constitution.

But of course today there are over 5000 categories of federal crimes listed (so Doug pointed out that chances are excellent that we had already committed a felony today!).

9. Other—3% of the budget…

Then we come to “Other”, or $119 billion per year…

This includes general science, NASA, community and regional development, agriculture, and more…

These are all of the 3 and 4-letter agencies, and Doug talked about a few mainly for our entertainment.   🙂

On the Department of Indian Affairs…

$2.7 billion annually for the Department of Indian Affairs. Doug pointed out,

“The wars with the Indians ended 125 years ago, and it’s always been the most corrupt of the agencies, and the Indians hate it!”

On the FCC…

Then there is the FCC…which should be abolished as it serves no useful purpose. It has a $1.2 billion per year budget, which Doug said is completely trivial.

But here he brought up a great point…the cost of these agencies isn’t necessarily the money within their budgets, but the cost they force the free market to incur.

For example, the problem is not that the average employee of the FCC makes $147,000 a year, but that the real cost is in making people hire unnecessary accountants and lawyers and such to abide by their rules…that’s the real cost of these agencies, not their budgets.

“If I could abolish that damn agency I’d put them all on a permanent pension of $145,000 per year just to go away and not do anything.”

On the FDIC…

“The FDIC still has $3 billion to cover $1.2 trillion of liabilities in banks…it’s a “sticker principle” agency — the only purpose they serve is to put a sticker on the bank to make the bourgeoisie think their money is actually safe.”

On National Parks…

“National Parks…1/3 of US territory…should all be privatized…all dead capital and shouldn’t be in hands of beaurocrats at all.”

On the USPS…

“The USPS is a dead man walking, costs $8 billion per year…the employees after it’s auctioned off can go work for UPS or FedEx.”


“Everybody remembers the astronauts on the moon…another turf-protecting beaurocracy that’s slowing down the conquest of space. It’s $14 billion of assets should be auctioned off to entrepreneurs who can use those assets properly.”

10. The biggie….Net Interest.

This is the elephant in the room, but it’s a baby elephant right now.

Right now, all government debt is short-term, held in treasury bills of 1-year or less financed at close to 0% interest.

Currently our $16 trillion cumulative deficit costs us about $200 billion a year in interest, but Doug believes interest rates are going to go not just to the levels they were at thirty years ago, but will go even higher than that…he doesn’t know when, but he is sure it will happen. Rates are not going to stay at all-time-lows forever when they are creating trillions of new dollars all over the world.

Eventually the interest rate component alone is going to squeeze everything out.

There’s no way out… So what’s the bottom line?

Doug said it’s actually much more serious than this, because this is only the Income Statement side of the equation.

If you look at the balance sheet, it’s much, much worse. Look at the net present value of Medicaid, Medicare, social security, the Veteran’s Administration, Financial Insurance, and all kinds of other unfunded liabilities…and it’s maybe $200 trillion!

And it’s going to get worse. So the U.S. government is bankrupt, and we should remember that it is financial calamities that bring down not just governments, but also societies.

It was financial collapse that brought down the Athenian empire, the Peloponnesian Wars, the Roman Empire, the French Revolution of 1789…the good news of course in France was that they got rid of their ruler, but they replaced him with Robespierre, then Napolean…worse to worse to worse yet! Russia in 1917, and the financial collapse of Germany in the 20’s that gave rise to Hitler…it’s a sad fact.

Doug is worried about what will happen to the U.S.

Right now, it’s the people with “the most rabid, statist, collectivist ideas who have the bully forum”, and after we get into this chaos (and Doug doesn’t know nor care whether Romney or Obama is elected…he is worried about the next one, because that’s when we’ll be in the middle of a raging crisis) that Americans will reach for a left-wing general (because they love the military)…

Or they will look for somebody who’s a “savior” and will “do something” and “save them”, and the government will resurge as something worse, just like all those other governments did.

(It’s a Libertarian dream that the U.S. government will go bankrupt and whither away, but Doug doesn’t see that happening.)

Solutions…What Would Doug Do?

He cautioned us that this was more for entertainment since these solutions would never be adopted, but he did give us a 5-part solution:

1. “Eliminate 100% of all these government agencies. It’s not enough to cut them back or prune them…they’re like a cancer; you need to eliminate them completely. And the US economy would BOOM! Just by getting rid of all these agencies in that 3% category.”

2. Abolish the Fed and use gold as money.

3. Cut the military back 90%, “because the last thing this country needs is a bunch of nuclear explosions going off on the landscape.”

4. Abolish the IRS…because at this point the government doesn’t need much money!

5. Default on the national debt. Very important. Radical, but Doug would absolutely do it.


  1. Because he doesn’t believe that the next generations of Americans should be turned into indentured servants to pay off the debt that earlier generations have incurred from high living. Doesn’t believe in slavery.
  2. Because he believes in punishing the people who have helped the government do all these degradations by buying their debt…they should get exactly what they deserve for lending money to the government, which is zero.
  3. Because although the government at this point has almost ceased to exist, it will be impossible for the government to borrow to expand more.

What should you do as an individual?

1. Own physical gold.

Doug said that he bet most of us don’t have very much physical gold, just a trivial amount, and he believes we should have a LOT of gold.

It’s the only asset that is not simultaneously someone’s asset and a liability. It’s not an investment, it’s money. An investment is something when you allocate wealth to create more wealth, but gold doesn’t do that, it’s an asset.

2. Diversify politically and internationally.

Because government is the root of all these problems.

3. Learn to speculate effectively.

It’s difficult to invest in this unpredictable politically-driven world.

But…all these distortions will create gigantic misallocations of capital and there will be some wonderful speculations where it will be possible to stay ahead of these problems.

So, you have to learn to speculate…right now the best speculation he sees is to short bonds.


Whew. Well that’s a lot to digest, and I won’t do such an in-depth post on each and every speaker, but because it’s Doug I really wanted to share with you!

Please let me know what you think in the comments…I’d love to hear your questions and reactions!

To your financial success,
— Kung Fu Girl

P.S. Doug was featured on RT.com today, and it’s a great clip….there is even a clip of the official announcement when Nixon severed the dollar from gold in 1971! I encourage you to check it out if you have time!