(Interviewed by Louis James, Editor, International Speculator)
[Editor's Note: Your editor, Louis James, caught up with Doug Casey backstage at the New Orleans Investment Conference, where we both had just given talks.]
L: Doug, I know you're no fan of either presidential candidate - a pox on both their houses - but we got more questions today about what would happen to our investments if one or the other would win than just about anything else. So, what do you think - does it matter? Should we play things differently, depending on which one wins?
Doug: Well, I have to first say that I'm the worst US political handicapper ever. I don't have my finger on the pulse of hoi polloi in the barrios, ghettos, and trailer parks. Nor do I claim to know what Gen-Xers in the city are thinking, nor what passes for the white middle class in the suburbs, nor the oldsters in their retirement homes. I'm not a political animal. The only US presidential election I ever called right was the last one; I thought Obama would win. But then, in New Orleans, I was chatting with James Carville - who definitely is a political animal - and he doesn't know either.
That said, my gut feeling is that Obama is going to win again. That's partly because the incumbent always has the advantage, and partly because the mainstream media - which is where most people both get their information about what's happening in the world and how to interpret it - seem to overwhelmingly favor Obama.
L: I thought you didn't like making predictions...
Doug: I don't, but purely for entertainment purposes, I'll stick my neck out and predict an Obama win. Perhaps a deeper reason for this is that the electorate itself has become corrupted - even more than they were four years ago.
L: When more than half of voters receive some kind of government subsidy or another, they can always be counted upon to vote for more government largess, and the game is essentially over?
Doug: It's a serious problem of mass psychology. Most people today think that whenever there's a problem, it's the government's job to "do something" about it. Obama is - at least as far as his rhetoric goes - much more activist about "doing things" than Romney. On the other hand, all politicians are enthusiastic and skilled liars. So Romney might go wild with social programs, all the while saying something idiotic about trying to save capitalism.
L: People are afraid and one paycheck away from being evicted, and Obama's the one promising two chickens in every pot.
Doug: Exactly. The election of 1932 is noteworthy in that context: a time of economic crisis, depression, and politicians promising "bold measures." The key is that the Depression unfolded on Hoover's watch, so he gets the blame. But he actually does deserve a lot of blame. If he'd cut taxes and spending radically and deregulated, it would have been a short readjustment, like the 1921 depression after World War I. He did the opposite. In point of fact, Hoover started many socialist programs along the lines of the New Deal programs FDR later became famous for. The Hoover Dam, for instance, was a major public-works project such as the Public Works Administration would later undertake, meant to create jobs. He also increased the top income-tax bracket from 25% to 63%.
Most people don't know this, but Roosevelt ...
L: ...campaigned against such measures.
Doug: Yes, he campaigned on a free-market platform that seemed to offer hope that he would do the right things; and then, once in office, he turned around and did the exact opposite. He raised the top tax rate even further, first to 79%, then 81%, then 88% - and with that last one, in the middle of World War II, he dropped the income level it applied to from $5 million to $200,000. Contrary to popular belief, this did not get the US out of the Great Depression, but made things worse. The only reason he's regarded as a hero today is that he had the singular good luck to enter office in 1933 - when the worst part of the Depression was over. But he did make it worse, and people still think Roosevelt's programs helped, and most people believe it was the war that ended the Depression. In fact, real recovery didn't begin until after the war.
L: Flash forward to today. If things are similar, that would make Obama the incumbent with the socialist track record, and Romney today's FDR. Romney's the one people see as a businessman who knows how to do things to help the economy - even though as governor, he implemented a socialized medicine program before Obama tried to.
Doug: The problem is that the US hasn't really had a liquidation of malinvestment as it did from 1929 to 1933. So I think whoever is elected now is going to get blamed. Romney is an empty suit. He's said that he doesn't plan to cut welfare, wants to spend much more on the military, and he has other spending proposals that make him nothing more than Obama-light. This is actually what Republicans have almost always done, because most have no principles - certainly none in modern times.
L: So what happens if Romney wins? A lot of people seem to believe it will make a huge difference.
Doug: Well, he might be better for taxpayers in the short term; but, for the long run, it would be very unfortunate if Romney wins. That's because he would be associated with free-market economics, as Republicans almost always are. A real pity. The social and economic disaster that's looming over the next four years would incorrectly be blamed on capitalism.
I'm convinced the Greater Depression has started. We've gone through the leading half of the storm. Obama got the eye of the storm, and now we're headed into the trailing edge of the storm, which is going to be even worse than what we saw in 2008-2009.
L: It'd be just as the Great Depression, which resulted from government interference in the economy, is usually blamed on the "unrestrained laissez-faire capitalism" of the 19th and early 20th centuries.
Doug: Exactly. And if two Great Depressions were seen to be caused by free enterprise, that would deeply entrench a highly destructive error and have long-lasting consequences. From a long-term point of view - if you care about posterity - it's actually better if Obama wins. Then socialist-style ideas might get more of the blame for the train wreck.
On the other hand, the continuing global economic crisis (and much worse to come) would be a great excuse for Obama to open the floodgates on all kinds of really, really stupid ideas.
L: As a second-term president with no possibility of re-election to worry about, he could go wild, no holds barred.
Doug: Yes. He'd have time and a free hand to firmly entrench many seriously bad ideas in Washington. And once a new program gets its own bureaucracy, with its own buildings, it's impossible to get rid of. Lenin was right when he said, "The worse it gets, the better it gets."
L: So we're damned either way?
Doug: I'm afraid so. I've said it before: there's no way out but through the wringer. We get a deepening of the Greater Depression regardless of who wins. If Romney wins, it gets blamed on capitalism, which would be a long-term disaster. But if Obama wins, we'll get a Krugman-Stiglitz wet-dream of a government. That would be a complete near-term disaster.
L: So if I had terminal cancer and I voted, Romney would be my man?
Doug: Maybe, if you didn't think you'd last more than a year or so. You'd likely get to keep more of your money while you lived. But there's another important difference: the federal bureaucracy is now thoroughly populated with Obama's apparatchiks. Romney couldn't save the US from the Greater Depression, even if he were a real free-marketeer - which he most assuredly isn't. But he could expunge a lot of those poisonous parasites, replacing them with his own crew. We'd still have just as many parasites, but perhaps of a slightly less toxic variety. And even if they were just as bad, they'd still take a while to get going, so there'd be a reprieve for that time, at least.
L: You're absolutely sure there's no way Romney could save the day - even if he revealed himself to be a Ron Paul clone, once he got into the White House?
Doug: No. The state itself has too much momentum in the wrong direction now. As I've pointed out before, any serious changes would result in a talking-to by the heads of the various Praetorian agencies. If he survived that, the Supreme Court would strike down most of what he did, and the Congress would legislate against it. And the people would riot, as if they were Greeks. As you pointed out, when the people realize that they can vote themselves free lunches rather than work for them, a democracy is doomed.
L: Who was it who called democracy "an advance auction on stolen goods?"
Doug: H. L. Mencken, a genius - one of my favorites. But what he actually said was that "every election in a democracy is an advance auction on stolen goods." We covered the futility of trying to get the "right" person elected in our conversation on Ron Paul. The state is corrupt, the politicians are corrupt, and the final straw, the electorate is corrupt. There's no way out but through the storm.
L: Famous last words.
Doug: I know, but that's the way I see it. It's as with Wile E. Coyote. He runs off a cliff, and you logically think he's going to fall right away. But he doesn't - his feet keep windmilling in the air, and the law of gravity doesn't kick in until long after he should have dropped. The US now resembles nothing more than a hapless cartoon character.
In essence, the things we think must happen usually take much longer than we imagine possible. But once they start, they usually happen much faster than we imagine possible.
But I'll go out on a limb again and say that I'm reasonably certain the economic house of cards that the US and other governments have been propping up since 2007 will collapse not just within the next four years, but likely in 2013 and 2014. It's happening in Europe now - they really have reached the end of their rope. It'll happen shortly in Japan as well, the most indebted society in the world. It''s going to happen in China. And that's going to bring down the resource-oriented countries - Brazil, Australia, South Africa, Canada, Russia. It's going to be a worldwide cataclysm.
This whole debt issue, by the way, is critical. As I've said numerous times, you get wealthy by producing more than you consume and saving the difference. The opposite, consuming more than you produce, results in the depletion of wealth, either as savings are drawn down or debt is accumulated. You're either destroying the productive capacity of past accumulations of capital or mortgaging the productive capacity of future accumulations of capital. Either is bad economics, whether for a household or a country; and we're seeing both - and will continue to see both, regardless of who wins the next US election.
With the idiots who run the world's central banks doing their best to keep interest rates at near zero - actually severely negative in real terms - they're discouraging saving and encouraging even more debt.
There are no political solutions. The economic problems are bigger than any politician. There's no way out. I pity the poor fool who wins this election.
L: Let's look at the short term again. If Romney wins and lots of investors think he'll "fix" the economy, there could be a surge in the stock market based on nothing more than expectations. On the other hand, if Obama wins and investors expect higher taxes, they could sell in advance of that happening - people are talking about "tax-gain selling" this year in addition to tax-loss selling.
Doug: I really don't think any of that matters. People think the economy rests on a base of psychology, but they are wrong. What makes an economy work is not confidence and not consumption, but production. What makes an economy grow is savings - accumulation of production in excess of consumption that can be invested in new things.
If Romney wins, people start spending on consumption again because they're confident, but that's not a good thing. What needs to happen is for past mistakes to be fully and truly liquidated, and the economy needs to be freed so that people can produce more, consume less, and save. Then we can build a real solid foundation for future growth. All the conventional hack economists, however, believe that the banks should lend more to enable people to consume more, and that will stimulate production. That's going to make things worse. It will be production catering to unsustainable patterns of consumption - further exacerbating the problem, which is that the US and many countries have been living way above their means for a long time.
L: I agree, but economic fundamentals are subject to transient headwinds and tailwinds. A lot of investors - including many gold bugs - think that if Romney wins, he'll be good for the economy, and that will make people less fearful, and that will reduce gold's luster as a safe haven. The driving reality is the trillions of currency units that governments around the world have created - an interesting side note is the recent all-time-high that gold reached in euros - but prices are fixed at the margins. Very near term, even incorrect expectations could impact prices, could they not?
Doug: I think it's a mistake to try to predict mass psychology on a short-term basis like this. Too volatile. A bad day on American Idol could change things drastically.
But here's how I read it. Romney is a not particularly thoughtful pragmatist with no real principles. If he wins, he'll probably implement just as many wrong-headed socialist ideas as Obama would, varying only in their details and pet interests, not in their essential nature. Just like Obama, he's going to try to use the government to fix the economy, and that's the exact opposite of what needs to be done; the government needs to get out of the way and let economic activity go where it will. He'll "do something." He'll just tart up his actions with different rhetoric.
So things are going to get much worse whoever wins, and if it's Romney, it's more likely that he'll resort to military adventurism to "wag the dog" more quickly. Obama has continued the war in Afghanistan and likes to take credit for the extrajudicial killing of Osama Bin Laden - he's so drone-happy, I almost wonder if he's the president who'll activate Skynet - but Romney is clearly the more hawkish of the two, and that's one of the worst things about him.
L: So, don't vote... But we've already said that.
Doug: Well, if you insist on voting, consider pulling the lever for Gary Johnson, the ex-governor of New Mexico, on the Libertarian ticket. The die is cast for the next few years. The US deficit will continue ballooning and the Fed will keep printing up dollars, regardless of who wins. But if you care about the consequences of this election, the main consequence to consider is the impact on the next round in 2016 - assuming the US still has elections by then.
Things will be so bad in the next few years, people will be looking for something different. They'll have no hope, and they'll want serious, radical change. If Romney wins, the Democrats will take the White House in 2016 for sure, and that will likely mean Hillary. She's perhaps the most dangerous Democrat possible, a real-life version of Dickens' Madame LaFarge, or perhaps a reincarnation of Evita Peron. About the worst person I could think of to ever become president. She would totally wipe out whatever little is left of America by then.
On the other hand, if Obama wins, the Republicans will probably win in 2016. By then, things will be such a mess, so chaotic, it will be time for a general to step into the ring. People in the US love their military now - a strange thing to see for someone who remembers how hated the military was during the Viet Nam war. No one would have dreamed of voting for a general back then. But now, a right-wing general who's perceived as being decisive and incorruptible could play the role of the "man on a tall white horse" who can lead the nation forward. And that would not only increase the chances of more stupid, wasteful wars, it could really turn the US into a true police state. He'd treat the country like a military camp.
L: If we're damned if we do and damned if we don't, what's a person to do?
Doug: The only thing to do is to stop thinking politically. Stop looking for political solutions to socioeconomic problems; political solutions are poisonous, certainly at this point. The political system is terminally corrupt - it needs to be flushed.
Look to take care of yourself first. If you're not in a strong, stable position, you won't be able to help your family, friends, and others you care about. As cold-hearted as it may sound, the right thing to do in a period of social disintegration and economic collapse is to look out for #1. Make sure you're not a liability to yourself and others. Charity begins at home - that's the first order of business.
Second, after you're secure, look out for your friends and family - at least the ones who will listen and you can move to take action in a sensible direction. This is the best thing you can do for them, but it's also a selfish thing to do for yourself; you'll need all the allies you can get, going forward into turbulent times.
If you have time and energy left from that, you can start looking into what influence you can have on the larger world. Which is to say, only at that point can you afford to think politically. But that's pretty far down on the hierarchy of importance these days.
L: Investment implications. Is there no "Obama play" or Romney play" - some trade you might rush out and implement depending on who wins?
Doug: No. The only certainty I see is increased financial chaos. An argument can be made for catastrophic deflation, but I believe we'll see the opposite. The Fed has promised a minimum of $40 billion a month in new liquidity. And at some point the banks, which are generally not lending much, will start doing so. When all the cash they are sitting on starts flooding into the economy, we'll see inflation in earnest and interest rates of 10%, 20%, even 30%, just like in a banana republic. That's going to trash the US dollar. And since most savers save in dollars, that's going to wipe out the productive class, worldwide.
Furthermore, as we've pointed out before, there's a super-bubble in government bonds. I call them a triple threat to your wealth: interest rate risk, credit risk, and currency risk. Rick Rule has taken to calling them "reward-free risk." Just as the tech bubble burst in 2000, and then the real-estate bubble burst, the next one is the bond bubble, with immense destruction of capital.
I continue to say that, as impossible as it sounds, that all markets are overpriced. There is simply nothing in the whole world - not stocks, not bonds, not real estate - nothing that I can say without qualifications is cheap. So, with everything riding high, you've got to continue accumulating gold and silver to protect yourself from financial chaos, and you've got to diversify yourself internationally to protect yourself from government chaos. To speculate, of course, there are the gold stocks. They're a leveraged bet on government continuing to do the wrong things.
I've said it before and I'll say it again: the governments of the world consider people to be their property. Right now, they see their subjects as milk cows, but when things get really rough, they might see them as beef cows.
L: The end is nigh. Good thing you're an optimist.
Doug: [Chuckles] We should make sure new readers understand that you're not just being sarcastic. I do think things will get even worse than I think they will, but I also believe they will subsequently get even better than I can imagine them being, thanks to the longest trend of them all, the Ascent of Man.
L: Indeed. Thanks, Doug.
Doug: My pleasure.