L: So Doug, we’re on the cusp of a major turning point of U.S. Federal Reserve policy. “QE or not QE?”, that is the question. What do you think, is The Bernanke going to pull the handle on the toilet he’s thrown the dollar into, or let it mellow for a while?
Doug: I think he’ll be forced to pull the handle, and create trillions more dollars. The government has over a trillion of debt it has to roll over in the months to come, plus it has to finance a trillion-dollar deficit – at a minimum. The Chinese and the Japanese want to get rid of the paper they have – they’re not going to buy more. The only logical buyer is the Fed, so the dollar’s fate is sealed, as far as I’m concerned. Meanwhile, there’s something else important on my mind I’d like to talk about: the U.S. so-called Civil War.
L: [Blinks] Ah… Okay. Why now?
Doug: Several reasons. For one thing, we’ve just passed the sesquicentennial, or 150th anniversary of its start. For another, it’s one of the most misunderstood events in American – and world – history, with consequences that still affect us today. And also, because we might be within a few years of seeing trouble on that level in the U.S. again.
L: Are you saying the economic crisis will turn into a revolution?
Doug: No, not necessarily, but it could. I think Stephen Jay Gould was right with his concept of punctuated equilibrium in terms of geological history. Basically, it holds that things progress very slowly for long periods of time, then evolve very quickly after some catastrophic event upsets the balance. You can make the case that human history is like that too. A good example is France of 1789. Nothing had really changed, politically, for centuries. Then a tipping point was reached, and the totally dysfunctional and corrupt monarchy was overthrown. Unfortunately, it was replaced with something even worse – Robespierre and the Terror – and then Napoleon, who was really just a beta version of Hitler or Stalin.
Anyway, things can change rapidly and radically when they reach a certain point. It’s like water; when it heats to 212° Fahrenheit, it changes into steam, which is totally different. I think a case can be made that we may be at a point like that now in the U.S. I think that 1861-1865 was like that for the U.S as well. Anyway, today’s world is a different topic. Let’s retro-rock for the moment.
L: Right then; where to start?
Doug: First, as always, with definitions. It’s incorrect to call it a “civil war.”
L: Can a war ever be civil, anyway?
Doug: No, but that’s not the point. A civil war is a conflict between two factions for control over the government. The Spanish Civil War of the 1930s was a real civil war. The unpleasantness of 1861-65 in America wasn’t. It was a war of secession – albeit a failed one. The Confederates never wanted to take over the government in Washington. To the contrary, they wanted no part of it.
L: Or as L. Neil Smith puts it, it was the “Second American Revolution.”
Doug: That’s a good way to look at it as well. Just as the 13 colonies wanted to shake off their rulers in London in 1776, four-score and five years later the 11 states of the South wanted to shake off their rulers in DC. In 1865, however, the wrong side won.
L: I understand what you mean about the wrong side winning, but many of our readers don’t share our context. Honest Abe freed the slaves. “A house divided cannot stand.” America wouldn’t exist today – QED.
Doug: To the victors go the spoils, but what’s more important, the writing of the history books. A whole complex of myth has been created about the War Between the States, and it’s politically incorrect to hold that there was any justice to the Southern cause. As with most everything everyone believes, a great deal of it is inaccurate – sometimes wildly inaccurate, or even the complete opposite of accurate.
First, Honest Abe (who we debunked a little in our conversation on presidents) didn’t care about the plight of the slaves. He did not free them right away, and when he did free them, his “Emancipation Proclamation” did so only in the South. He was losing an unpopular war – his move was a desperate attempt to incite insurrection in the south, and thereby debilitate his enemy. So, although slavery was a bone of contention, it was only one cause for the war. Myth incorrectly portrays it as the cause. That makes the victors look righteous. More important, and basic, were the economic causes. The U.S. had significant tariffs on imported machinery and goods, which benefited Northern manufacturers and penalized Southern planters. I urge anyone who’s interested in the whole area to get Lincoln Unmasked by Thomas DiLorenzo.
Second, a house divided should not stand. The argument was that America needed to remain one strong country to fight off powerful European nations that might turn hostile. That’s bunk. America had already fought off the mighty British Empire twice, and Europe – as always – was embroiled in its own problems. If peaceful secession had been allowed, the two countries would have been each other’s largest trading partners and allies. But even if the danger of foreign aggression had been real, it would not justify forcibly keeping people in a union they no longer wanted to be part of. It’s like a husband forcing a wife he loathes – and who despises him – to stay married to him because their crops will fail if they don’t work together on the farm. Other solutions could be found. But even if true, nothing justifies the use of force on someone who does not consent and does not aggress.
L: Well, the South did start the fight by firing on Ft. Sumter.
Doug: Yes – a stupid move. If they had just gone about their business, and waited for the North to fire the first shots, people around the world would have seen it as they themselves described it: the “War of Northern Aggression.” Hubris is the root cause of so many unnecessary failures throughout history. Hubris was behind the first battle of Ft. Sumter. Anyway, even though nobody was killed in the battle, it inflamed the North, and the war was on. And it’s very hard for a small agrarian society to beat a large industrial society.
But the point I was making was a matter of principle – the right of secession. I have zero inclination to defend the South in any other way. The Confederate government turned the South into a police state, just as the Federals did the North. But they had a right to secede. If any group of people decides to leave a larger group, that is not aggression and there is no ethical way to stop them. Secession may have costs, and there may be contractual obligations to be dealt with, but secession itself is not violence.
L: I would call it a fundamental human right. No one should be forced to be part of a group they don’t want to belong to. The same is true if it’s a marriage, a church, a labor union, or a nation.
Doug: Right. So, if the South had been allowed to secede, there would have been two Americas, the USA and the CSA. If that had happened, the enormous loss of life and destruction of property would have been avoided. Both North and South would have been far richer and more free – and the South would have avoided being a backwater for hillbillies for the next century. The war was a total disaster in every way, and if Europeans or others had wanted to attack, the war so weakened America, it actually created the most appealing invitation possible to do so.
Getting back to the point about Honest Abe, if the South had split off, slavery wouldn’t have lasted long anyway. It was an uneconomic, dying institution. Chattel slavery is an economic institution, not to be confused with the abduction and imprisonment of individuals for other criminal purposes. It only works for brute labor – in other words, in an agrarian economy. The industrial age put an end to slavery the world over – I think Brazil was the last to give it up, in 1888. It would have happened even sooner in the South. So the war was unnecessary and pointless from every angle.
L: Okay, but you spoke of lingering effects... This is all very interesting, but why does it matter now?
Doug: Well, principles always matter, and I do believe in the right to secession. Oddly, so does the U.S. government, when it suits it – when it comes to other peoples in far-off lands, like Kosovo and Sudan. Consistency has never been Uncle Sam’s strong suit. But to answer your question, there are two things that I think are important legacies that may become even more important in the years to come.
First is that since the slavery issue was settled by force, instead of by consensus, it wasn’t truly settled – one side’s views were imposed on the other’s by force, and, predictably, the losers dug their heels in and did everything possible to resist the foreign solution. That resulted in the Jim Crow laws, the Ku Klux Klan, and general race hatred that bedeviled the former slaves for more than 100 years. It still divides the U.S. along racial lines today.
People who think this was all solved by Martin Luther King and believe we now all live happily in one big multicultural family are sticking their heads in the sand. These forcibly united states are not one homogeneous culture. The melting pot has stopped working. The U.S. is perhaps now more deeply divided than ever, along several different cultural lines, race being a part of the mix. Yes, blacks and whites are getting along better now than they did 50 years ago. But that’s not a function of anti-discrimination laws and forced integration. It’s a function of technology and communication. I’m of the opinion that the U.S. would never have had the kind of serious race problems its had if Lincoln had simply let the South go its own way. Blacks in Canada or Brazil haven’t had the kind of problems we’ve seen in the U.S. The War Between the States created hatreds and distortions that lingered for generations.
L: Just to make sure we’re clear here; you are not saying that abolishing slavery was a bad thing, nor that every day the laws enabling slavery were on the books was not a horrific violation of human rights. All you are doing is pointing out – as a matter of history and economics – that the way the matter was dealt with has consequences. Right?
Doug: Right. Slavery is an institution of pre-industrial societies. It existed all over the world, across countries, cultures, and races, for thousands of years. It only really started disappearing with the beginning of the Industrial Revolution, in the mid-1700s. It’s completely inconsistent with a free-market, capitalist society, partly because capitalism rests on strict property rights. And the primary and most basic form of property is your own body. One person can’t own another.
But another legacy of the war is that it turned what had been a confederation of sovereign states, joined together out of mutual interest, into one super-state. That set the stage for the vast and destructive expansions of central government power we’ve seen since then, including the Federal Reserve Act, the Income Tax, Prohibition, involvement in the World Wars, FDR’s New Deal, Lyndon Johnson’s Great Society, the Forever War on Terror, and the current government’s mind-boggling fiscal irresponsibility. One thing flows from the other.
At this point the Super State is out of control. It took a long while for the whole contrivance to build up the head of steam it now has. I think it’s overheating and looks close to blowing. The War Between the States was a major turning point, and unfortunately the country turned in the wrong direction.
L: Good grief, Doug. You make me feel like I really am sitting on a powder keg with the fuse lit…
Doug: Well… You are. A close friend, who’s a generation older than I am, was just telling me that I never have anything nice to say. I can see that it seems that way, but I didn’t fill the keg, and I didn’t light the fuse. I’m just trying to warn people of what I see; every thinking person should take immediate steps to protect their property and person. If I’m wrong, you might spend more than necessary on some “insurance” – but you buy insurance because the future is uncertain.
L: It is what it is, and if the world is in trouble, speaking the truth is going to sound negative. Here’s something positive: as bad as it’s gotten, the state has not locked you up. They use the so-called General Welfare clause of the U.S. Constitution for everything else, why not use it as a justification for arresting you for undermining the economic recovery with your negative commentary? They think the economy’s engine runs on confidence, not production (though we both know it’s just a con job). So you’re a threat to national security. When they arrest you for being an “attitude terrorist,” we’ll know things have gone unmistakably and undeniably too far. You’re more than a gadfly, you’re our canary in the coal mine – watching for what happens to you could give us our last signal to head for the exits before they are slammed shut.
Doug: Glad to be of service. Actually, I may not be such a great coal-mine canary, because I have every intention of staying out of the U.S. when it gets that bad. Going back to the Civil War, if you’re smart you’ll follow the lead of Rhett Butler who – as I recall in Gone with the Wind – spent most of the war in Europe.
L: What would be your signal that it’s time to head for an extended stay in Argentina, Panama, Switzerland, Thailand, or wherever people have set up their vacation homes/redoubts?
Doug: Hm. Good question. It already makes my skin crawl every time I arrive in the U.S. and have to go through Customs and Immigration… The recent conviction of Bernard Von NotHaus for economic terrorism for circulating warehouse receipts for gold and silver comes pretty close. The use of black-armored riot police to crush an annual block party at Western Illinois University comes close as well. There’s something new every day. Since the death of Osama, the U.S. has ramped up its terror fear factor several notches. Boobus americanus is being trained to “See something, say something.” You’ve now got nincompoops like Alberto Gonzales saying domestic terrorists are everywhere, and Charles Schumer saying the TSA has to monitor trains like it does airplanes.
The writing on the wall is pretty clear.
L: And the pressure is building. But you still come back to the U.S. for conferences – what would it take to make you stay away completely?
Doug: I’m not sure, but fighting in the streets would show that the pressure cooker is blowing its gaskets. What happened in Wisconsin a while back is a straw in the wind. I’ll be interested to see how things go this summer. There’s a good chance we’ll start out of the eye of the storm and back in to the hurricane before the year is out.
L: Something to think about. Okay Sunshine, you say you always like to look on the bright side – any investment implications you can comment on constructively?
Doug: Well, you could invest in private prison corporations; they will probably do well as the state incarcerates an ever-larger fraction of the population. You could look for companies that sell weapons and armor to law enforcement agencies. But those things are intolerably slimy in today’s world – entirely apart from the fact that stocks are generally overpriced.
I’m sticking to basics: go short government bonds and long on vital commodities: energy, agriculture, and precious metals. And I'm keeping my eyes open for the appearance of new bubbles, which will arise from the trillions of new currency units The Bernanke will create. This is nothing new, but that doesn’t make it any less important.
L: Commodities took it on the chin last week, with oil and gold correcting pretty sharply. That doesn’t make you nervous?
Doug: Not at all. The dips are buying opportunities. As you know, when the prices of the underlying commodities correct, the prices of the shares in the related companies – especially the junior exploration companies you focus on – correct even more sharply. As long as you believe the trend remains solid, that extreme volatility creates terrific bargains.
L: And we do believe the trends we’re betting on remain very solid. Everything the governments of the world have done in response to the economic crisis is only making the situation worse. The world is slipping into an inflationary spiral that’s going to send commodities prices much higher.
Added to this volatile mix are uprisings in the Muslim world, fear of technology in the wake of the Japanese earthquakes, and all sorts of other black swans settling around us. Each one sends shock waves of panic through the global financial system, and gold, which I’ve always seen as a “fear barometer,” responds.
Doug: Agreed. Gold is not in a bubble as some of the talking heads like to say – but it will be, and a huge one, at that. We have not yet entered the Mania Phase of this bull cycle for precious metals, making the weakness we see now – and are likely to see over this summer – a great opportunity to build positions in great gold speculations before the mania hits.
L: You’re singing my song. Well, if things have to get worse before they can get better, I guess we could say that the gathering, darkening storm-clouds are a sign that a clearer new dawn may not be that far off.
Doug: There you go – and if you plan well enough, there’s no need for you to wait right in the path of the hurricane. We can’t control the whole world, but we can control ourselves and prepare for what’s coming.
L: Indeed. As the saying goes, in life, there are drivers, passengers, and road kill. I am doing my best to drive my life in the direction I want it to go.
Doug: That’s the best any of us can do, and, not to be overly promotional, that’s the goal of our publications. We want to increase personal freedom by helping people attain greater financial freedom.
L: There’s a great, positive note to end on, so let’s stop there.
Doug: Until next week, then.
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