Doug Casey on the Greater Depression

Q: Doug, you’ve been, as one subscriber recently dubbed you, “the town crier of America” for some time now, warning about what you call the Greater Depression. Do you really see that as being what’s ahead for America? You have seen the country seemingly headed for the precipice before, but it somehow missed going over the edge… what makes you think that it’s going to happen this time?

Doug: Clearly it’s a judgment call. There are things that could put off what I see as the inevitable, for another cycle. It seemed in the ‘70-‘71 recession that things could have gone over the edge. Even more so in the ‘74 recession. Things were even more serious in the ‘80-‘82 recession. And actually, in the early ‘90s, it once again looked like we were going to bite the dust.

But every time, the government came to the rescue. As unemployment went up, businesses started to fail, and the stock market went down, they “solved” these problems by lowering interest rates and printing up money. And those things are not the solutions to the problem but are ultimately the cause of the problem.

When you have a house of cards, you should let it collapse – and build a proper house. Using the financial equivalent of chewing gum and bailing wire to build the house of cards even higher can’t prevent it from eventually falling after it reaches some ridiculous height. Fifty stories? A hundred stories? That’s exactly what they’ve been doing, and it’s going to be a big mess to clean up.

As to whether we’re actually going into the Greater Depression now, can I be certain about that? Well, perhaps not. Perhaps friendly aliens will land on the White House lawn and gift us with a magical technology that will solve all these problems. It’s a judgment call, and I don’t see any way out of it this time.

As bad as things were in the past, we’ve never had six or seven trillion dollars outside of the U.S. We’ve never had such an acute and chronic balance of trade deficit as we have today – which, incidentally, is a sign that the country is consuming more than it’s producing. We’ve never gone into a really nasty downturn with interest rates already at historic lows.

I think the odds of this being the start of the Greater Depression are extremely high.

I don’t see any green shoots.

Q: Don’t see ‘em, or don’t believe ‘em?

Doug: There’s always a certain cyclicality to everything. In the episode from 1929 to 1933, it didn’t go straight down. In 1930 and 1931, people thought they saw signs of recovery along the way. I think it’s going to be very much the same way this time.

One thing to remember is that while the depression that started in 1929 may have come to a bottom in 1933, it took a long time to recover. There was a cyclical recovery in 1937, and why was that? Roosevelt had the good luck to have been elected dead flat at the bottom. So it wasn’t his policies that cured the last depression, it was luck and good timing, combined with the fact that they were creating a lot of money after Roosevelt took the dollar off the gold standard. That resulted in a false recovery, from 1933 to 1937, and it went downhill again.

People say that World War II cured the depression, but in fact, it made it worse. As bad as things were in the ‘30s, they were worse during the war in the ‘40s. You couldn’t get shoes. You couldn’t get gasoline. You couldn’t get tires. You couldn’t get just about anything that was being used for the war. The war prolonged and deepened the depression. The thing that ended the depression was not the war but the fact that since people could not consume, they were forced to save. That delayed consumption resulted in a huge amount of savings, and that’s what caused the recovery in the late 1940s.

The point I’m making is this: You’ve heard the old saying that history doesn’t repeat, but it rhymes? I’m afraid that for many reasons, the government is doing just about everything possible to push the economy over the edge. First of all, the government is much more powerful than in the 1930s. People are much more used to thinking of the government as being the solution to the problem, instead of being the cause. They are going to make exactly the same mistakes – but bigger this time.

They are going to wind up destroying the currency.

It’s probable that American will end up in a war, for a number of reasons.

What we’re looking at is something that’s going to be long, dismal, and really unpleasant – much worse than what happened in the ‘30s and ‘40s.

Q: Okay, so this is what you see coming, and it’s a big part of why you advocate setting up a crib outside of the U.S. We get a lot of questions from readers about that, which you’ve answered with your comments about Argentina and Thailand, etc. But we also hear from those who don’t want to leave or feel they can’t for any number of reasons. Is there a way for those who stay to insulate themselves from the coming Greater Depression? There are fixed-rate, long-term mortgages, as we spoke of last week – what else can people do?

Doug: For those who stay in the U.S., the answer to the economy’s problem is going to be the same as the answer to every individual’s problem: you have to produce more than you consume and save the difference. Regardless of what happens to the economy in general, if you do that as an individual, you will survive and prosper.

But remember, it’s not going to be easy.

Listen, all the real wealth in the world is still going to exist. It’s just going to be reallocated from old owners to new owners. And you can become one of the new owners of the wealth that people have created over the millennia by producing more than you consume. That’s the key. It’s also just the opposite of what most Americans have been doing for the last couple of generations.

I’ve got to say, however, that there are a lot of reasons not to want to stay in the U.S. Government controls of all sorts are going to become more stringent. There’s going to be a lot more state surveillance, a lot more police activity. The crime level is going to go up as things get bad – the government is going to respond to that. Despite the fact that everyone’s got a flat-screen TV and a McMansion, I think it could get quite unpleasant in the U.S.

Q: If things really get that chaotic, do you think the U.S. could slip into open revolution? If things turn as ugly as you say, the government will go for people’s guns, and there are a lot of those in the U.S. who have sworn to use them rather than lose them.

Doug: Yes, I’ve met some of those people. I think it could get that unpleasant, I really do.

One of my favorite songs is Al Stewart’s “On the Border,” and one of the lines from that song I like a lot is: “On the wall, the colors on the map are running.” This has happened throughout history. These arbitrary lines on maps are not written in stone. They can change very easily for all kinds of reasons.

People say that the U.S. Civil War – which is a misnomer; it should be called the War Between the States – settled the issue of entities leaving the U.S.

I don’t think so. I think it could happen in any of a number of ways, formally or informally over the next generation or two. If the entity controlled by those in Washington looks at all the same in 100 years, or even 50 years, I’ll be very surprised.

Things change.

Why people think that borders and governments are set in stone is actually beyond my comprehension. People forget that there are areas of France, Spain, and Britain, to name just a few among old and stable European countries, where even today, people are actively talking about leaving. And they’re at least as stable as the U.S. is – and notice that I call it the United States, not America. As far as I’m concerned, America has disappeared. America was an idea, not a place, and it’s been replaced with the United (by force) States.

Even though Doug sees perilous things in store for the U.S. economy, every crisis holds opportunities to profit – for those who can recognize and act on them. Read the report of Casey Chief Economist Bud Conrad on his favorite investment of the year… an almost sure-fire way to make money, because this particular economic development is literally inevitable. Click here to learn more.

Jul 01, 2009