Dear Reader,

One of my simpler pleasures is to soak in a tub while reading short stories and essays. Mencken, Wodehouse, Konrad and lately quite a bit of the always profound Argentine writer, Jorge Luis Borges.

A line from his story The Writing of the God (in the altogether excellent Penguin classics collection The Aleph) struck me as highly analogous to the many tenacious problems now tormenting the global economy. And that line is… 

 “… in the languages of humans there is no proposition that does not imply the entire universe; to say “the jaguar” is to say all of the jaguars that engendered it, the deer and turtles it has devoured, the grass that fed the deer, the earth that was mother to the grass, the sky that gave light to the earth.”

The analogy I drew was that virtually every major challenge humanity is now facing traces its roots back to overreaching government. 

While that observation may seem a stretch, if true, it is of no small importance to how we as individuals, and as investors, chart our course.

So is it true? Is the government the root of all that ails?

Certainly it isn’t responsible for the Japanese tsunami and, if you’ll excuse the pun, the fallout from that?

Tsunami, no. One must make exceptions for the uncontrollable convulsions of planet Earth.

But nuclear problems – absolutely.

For two reasons. First and foremost, back in the developmental dawn of nuclear power, no private insurance company, or even consortium, would offer early-stage nuclear plants insurance. As a consequence, in stepped the Nuclear Regulatory Commission with government-backed insurance.

An old-time nuclear engineer I met told me that the early-stage plants were actually quite dangerous, pushing the envelope as they did on man’s engineering capabilities at the time. Private insurers, seeing the risks for what they were, made the risk/reward calculation and sat on their hands. The government, however, felt no such restraint.

But does that mean that, absent the government, nuclear power generation would have been stillborn? Not at all. Given the size of the potential prize at stake – a good share of the market for base-load power – the companies involved would have gone back to the drawing board, and stayed there, until a safer model could be designed. Which is to say one that could garner the stamp of approval of private insurance.

While this would have delayed the ramp-up to nuclear power, the plants that were ultimately built would have been safer and some of the early incidents that defined nuclear power as unstable and dangerous could have been avoided.

Secondly, in response to Three Mile Island and Chernobyl, the government unleashed a mass of regulatory goop over the industry… goop that effectively gummed up the nuclear power industry to the point where further development was made uneconomic and downright painful. The net result was to effectively freeze the industry in time. 

The Fukushima nuclear power plant currently grabbing headlines was commissioned in 1971 – 40 years ago.  

That the aging plant didn’t just blow up after a 9.0 earthquake and a tsunami should be used to confirm the technology, not refute it. But just imagine how much safer nuclear power would be if government hadn’t meddled in the first place – by offering insurance when no one else would, and then tossing the baby of its own creation out with the bathwater at the first sign of trouble?

It is not a stretch in the slightest to think that, absent the government’s intrusions, pebble bed reactors or even something better would have already been widely deployed and nuclear power would be recognized for the nearly perfect energy source it is. Instead, it is still struggling to shrug off its bad reputation – a reputation that has just taken another huge setback thanks to the problems at Fukushima. Problems that coulda, shoulda been entirely avoided.

Adding to the problems confronting nuclear is the government’s insane meddling with the storage of nuclear waste. The most incredible example being the selection of the Yucca Mountain nuclear waste repository and the conditions the government put on the operators. Namely, before approval, the facility had to be proven to be able to contain the waste safely for 10,000 years.

What a dim view of humanity’s future these members of officialdom must have if they think that over the next 50 years, humanity can’t come up with ways to either reprocess the waste and/or avoid it altogether. Simply sealing the waste in lead-lined cement blocks alone would hold it very safely for the next  50, 100… 200 years. More than enough time to address the situation.

Trying to meet its arbitrary standards at Yucca, the government spent over $10 billion – before coming to the conclusion that it is impossible, and so it needs to find an alternative site. Therefore, like Borge’s jaguar’s connection to the universe, the problems nuclear energy is facing, including that of the current crisis in Japan, are easily traceable to the consequences of past governmental actions.

What about the current economic issues now weighing so heavily on the world?

Readers of even more than a few days know our view that the blame belongs almost exclusively at the feet of government. 

From trying to control the economy by controlling the money supply and artificially dampening interest rates to produce “loose money”… to stealing money from current and future generations in order to bail out stakeholders in banks… to setting up the equivalent of a Nuclear Regulatory Agency for mortgages in the form of Fannie Mae and Freddie Mac – then agreeing to buy any loan, no matter how bad… and… and… and…

A picture indeed tells a thousand words. The chart here paints just one portrait of the sort of destructive meddling the government and its flunkies so regularly engage in. It paints for all the world to see – or at least those who are paying attention – the root cause of the price inflation that will only worsen from here, and the impending rise in interest rates that will soon take bond holders out at the knees.

Already, virtually all of life’s essentials are soaring in price – the exception being housing, which, thanks to the gross overbuilding triggered by the aforementioned loose money and looser lending standards, has been structurally damaged by a huge overhang in supply.

I could go on, as you well know, but won’t. I stand by my contention that in the same way every proposition can be traced back to the universe, so can every major problem now confronting humanity be traced back to government – and I defy you to find the exception (if you do, shoot it my way at david@CaseyResearch.com).

Which brings me to the question of why. As in “Why do the actions of society’s controlling force, government, so often result in such a bad outcome?”

The Rotted Roots

To get to the answer, we first have to define what a government is.

In my view, at its core, government is nothing more than a group of individuals who have organized in such a way that they are able to control the actions of other individuals.

No matter whether operating under the banner of democracy, theocracy, dictatorship or some other moniker, the individuals who make up a government are rarely anything special, even though those outside of government usually treat them that way. To the extent that they share a trait, it is that they have a taste for power, and given it, will fight to retain it. But you could say that about most individuals.

Had Khaddafi, the media’s current set piece villain, chosen a different career, he would raise no eyebrows standing on the other side of the meat counter as he inquired if you wanted the fat trimmed off your rib-eye.

But show him, or the house painter down the street, the path to power and some supporters to help get them there, and you have an entirely different organism – government.

Because it is illustrative in understanding the differences between humans as individuals and the individual operating as a unit to control other individuals, I want to share an email I received this very morning from dear reader and correspondent Jacques T.

While it would have made a worthy entry for our Friday Funnies feature, I repurpose it…

If you start with a cage containing five monkeys, and inside the cagehang a banana on a string from the top, and then place a set of stairs under the banana, before long a monkey will go to the stairs and climb toward the banana.

As soon as he touches the stairs, you spray all the other monkeys with cold water. After a while another monkey makes an attempt with same result... all the other monkeys are sprayed with cold water. Pretty soon, when another monkey tries to climb the stairs, the other monkeys will try to prevent it.

Now, put the cold water away.

Remove one monkey from the cage and replace it with a new one. The new monkey sees the banana and attempts to climb the stairs. To his shock, all of the other monkeys beat the crap out of him.

After another attempt and attack, he knows that if he tries to climb the stairs, he will be assaulted.

Next, remove another of the original five monkeys, replacing it with a new one.  The newcomer goes to the stairs and is attacked. The previous newcomer takes part in the punishment... with enthusiasm.

Then, replace a third original monkey with a new one, followed by a fourth, then the fifth.  Every time the newest monkey takes to the stairs, he is attacked. Most of the monkeys that are beating him up have no idea why they were not permitted to climb the stairs. Neither do they know why they are participating in the beating of the newest monkey.

Finally, having replaced all of the original monkeys, none of the remaining monkeys will have ever been sprayed with cold water. Nevertheless, none of the monkeys will try to climb the stairway for the banana.

Why, you ask? Because in their minds, that is the way it has always been!

This, my friends, is how Congress and the Senate operates... and is why, from time to time, all of the monkeys need to be REPLACED AT THE SAME TIME.

One obvious lesson from that citation – a lesson first made viral by Pavlov in the early 20^th century – is that humans, like all the lower animal forms, are easily trained through trial and error, especially when rewards and punishments are involved. But even the lack of a treat or a torment can be instructional – for instance, if walking through a particular door results in no reward or punishment, you won’t hesitate to walk through that door again.

And so it is that past experience will always influence and usually dictate the future actions of each of us as individuals – only a deranged person will place their hand on a hot stove twice.

In sharp contrast to the individual, however, a government, if left to it, will touch the hot stove over and over and over again. For proof of that contention, look no further than the nearest history book. There you will find example after example of government’s repeating the same mistakes over and over again. Perhaps the classic of the genre being Hitler’s stubborn insistence on following Napoleon’s footprints into the snows of Russia.

But why?

To make clear the key difference between an individual and a group of individuals acting as a government, I would introduce you to an individual we’ll call Jasper Jenkins, or JJ for short.

Jasper is a regular Joe. Raised in a rather average family, of average means, in an average neighborhood, in an average kind of place. Absent any seriously bad luck, Jasper will pursue his life’s goals and interests in something akin to a pachinko ball. Which is to say, bouncing from experience to experience, breaking left or right depending on life’s unpredictable twists and turns, but also based on the perception, learned from experience.

Being altogether average, JJ will seek safe choices and learn that following a well-worn path is the safest path of all. Which means falling in line with societal norms and rarely, if ever, deviating from what his fellow citizenry considers an acceptable range of actions. For instance, finding himself short on cash, he won’t rob a bank or take to mugging old people for their pension money.

Implied in this entirely pragmatic approach to life is that early on Jasper learns to rely heavily on social proof to guide his way. Or, put another way, if he sees that the majority of other average folks are doing something  – or not doing something – he will fall right in line and act accordingly.

There are, of course, people who don’t live the life predictable. Those individuals – I would like to think many of you dear readers included – are unafraid of taking the path less traveled and are actively skeptical about commonly accepted beliefs.

Those relatively rare individuals are likely to be far more alert to the possible consequences of broader actions – actions taken by a government, for example – and by so doing override the herd instinct.

Case in point, while the specific data is not readily available (at least not with a quick search), it appears that despite a litany of draconian and dangerously racist new regulations unleashed by the Nazis on taking power – most of which was very directly aimed at the Jewish population – only about 30% of that population emigrated prior to the darkest days of Hitler’s regime. Of those that didn’t emigrate, 90% were ultimately killed.  

But I drift.

The point is that to greater or lesser degrees, we humans – as individuals – act in what we perceive as our self-interest, with the expectation of a predictable and acceptable consequence.  

Group us into a government, however, and a different modus operandi quickly takes over – and next thing you know, it’s no bananas for anyone.

The Difference

While certain human traits will be discernable in a government – fear, anger, greed, hunger – once constituted, a government quickly morphs into a complex creature that is capable of hugely disruptive and destructive actions, almost without regard to the broader consequences.  

Thus, while Jasper Jenkins, the individual, would never dream of borrowing way, way above his ability to repay – Jasper Jenkins, the government official, feels no such reservation.

On the contrary, Jasper Jenkins, the government official, is free to ignore the societal consequences of his actions as a member of government.

After all, it is not he who is personally taking on any debt or making any commitment that he will personally have to live up to. And given that each new promise he makes and each new dollar he spends – of other people’s money – help ensure that he will remain in power, he does so with no hesitation.  

My dear friend and partner Doug Casey likes to say, “Do whatever you want in this life, as long as you are willing to accept the consequences.”

As individuals, we know this to be true, and so we temper our actions to avoid unpleasant consequences.

But when actions have no consequences, as they don’t to the individuals constituting most governments, most of the time, then virtually any action by the government can be taken, no matter the ultimate consequences to the citizenry.

(Underscoring the point, if, like the warrior kings of yore, the president and members of Congress knew they were expected to lead from the front, the odds of us engaging in foreign military adventures would be nil.)

This, then, is the disease that courses through the organism of government, a disease that paradoxically allows the government to grow – by providing rewards for political pandering and the spending that engenders – despite the havoc that its actions wreak.

It’s why governments around the world so readily ignore the multitude of examples of failed socialist economic systems that populate the history books, and return to that particular hot stove time and time again. It plays well with the crowd, even while it eats away at the standard of living.

And so it is that the small roots planted in Philadelphia in 1776 have grown into a government now spending upwards of $2 trillion more than it takes in on an annual basis; that sends troops and missiles to all corners of the world; and that has eaten large holes in the Constitution and the Bill of Rights. For the current political class, the consequences a decade down the road are of no concern – by the time the vultures come home to roost (they hope), they’ll be happily pensioned off to their farm in Virginia.

Of course, just because it has the world’s largest and most virulent government certainly doesn’t make the U.S. the worst of the lot. I’ll choose the U.S. president and Congress over any Saudi royal, African despot or cadre of Asian comrades any day. But being “better” in this context in no way counters the argument that governments are actively destructive.

Is there any value to be found in these rantings?

In my strongly held view, I think that understanding government as the root cause of today’s biggest problems is essential to charting a course that will help you avoid the worst. Further, it is my contention that understanding the nature of government has never been more important, because based strictly on the scope of their regulatory reach and the size of the role they play in the global economy, the institution of government has never loomed larger.

And One More Thing…

Because they are mere mortals, the individuals making up today’s government will naturally be guided by the political lessons of the not-so-distant past – with no lesson clearer than that a majority of the population can be easily bought into complacency.

Based on that observation, the trend for continued high levels of sovereign spending and no resolution of the unpayable obligations to pensioners is well intact.

Underscoring that point, the current Congress, despite operating under the theme of “tough on spending,” now appears willing to settle on shaving just $60 billion off the $2 trillion deficit. Shameful, some might say. Predictable, I contend.

Unfortunately, as Doug and I discussed earlier this week, the ultimate consequence of all this misappropriation of resources – leading in time to the collapse of the dollar and worse – is not likely to be less government but more. Because the public has also learned, in a way most Pavlovian, to look to the government when times get tough.

And that leads to some direct and not very pleasant consequences for us as individuals…

• More taxes – we are in the lull ahead of a very big tax storm.
• More control over the levers of wealth production.
• More regulation.
• Exchange controls to keep the individual and corporate wealth from getting out of the net.
• More confiscations.
• More inflation.
• Outright defaults, likely starting with foreign holders of Treasury debt, based on some charge of impropriety or currency manipulation that warrants punitive action.
• More militarization – to better control those individuals who chafe under the growing bureaucracy.
• More war.
• More sovereign debt.

All of which adds up to increased encroachment on personal freedoms. If you feel that the noose is tight now, wait a little.

Ultimately, we are on our own, each of us as individuals, in dealing with what’s coming. Most will choose to follow the followers, hoping for safety in numbers. Others, hopefully you, will see that the well-worn path is headed for a cliff.

Fortunately, there are actions you can take to protect yourself, and even profit – but that doesn’t mean that those actions are necessarily easy or can be taken without some inconvenience and risk.

Focusing as it generally does on the broad strokes, this is not the service to go into detail on what actions you can take now. But I will mention that many dear readers have built significant net worth – the sort that allows them a much wider range of options when it comes to finding personal freedom – by subscribing to our International Speculator service.

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In the final analysis, the world we live in is a complex place. And it is no help that many of the sources we look to for information and clarity – most notably government officials – are actively attempting to delude. Among other common practices in this regard, they are unapologetic in changing the way inflation, GDP and unemployment numbers are calculated and reported.

But as complex as it is, there are certain fundamental truths that you can discern, if you just step back a bit and think things through. I hope that today’s musings, as long winded as they may be, have been helpful in that regard.

This is no time to be complacent.

Friday Funnies

Tractor Love

(Ed. Note: Okay, I admit I had to read the punch line on this first joke three times before I got it. See if you can do better!)

Cletus is passing by Billy Bob's hay barn one day when, through a gap in the door, he sees Billy Bob doing a slow and sensual striptease in front of an old green John Deere.

Buttocks clenched, he performs a slow pirouette and gently slides off first the right strap of his overalls, followed by the left. He then hunches his shoulders forward and in a classic striptease move, lets his overalls fall down to his hips, revealing a torn and frayed plaid shirt. Then, grabbing both sides of his shirt, he rips it apart to reveal his stained T-shirt underneath. With a final flourish, he tears the T- shirt from his body and hurls his baseball cap onto a pile of hay.

Having seen enough, Cletus rushes in and says, "What the heck are you doing, Billy Bob?"

"Jeez, Cletus, ya scared the bejeezers out of me," says an obviously embarrassed Billy Bob. "But me'n the Ol' Lady been havin' trouble lately in the bedroom d'partment, and the therapist suggested I do  'something sexy to a tractor'."

The Magic Elevator

A fifteen-year-old Amish boy and his father were in a mall. They were amazed by almost everything they saw, but especially by two shiny, silver walls that could move apart and then slide back together again.

The boy asked, “What is this, Father?”

The father (never having seen an elevator) responded, “Son, I have never seen anything like this in my life, I don't know what it is.”

While the boy and his father were watching with amazement, a heavy-set old woman in a wheel chair moved up to the moving walls and pressed a button. The walls opened, and the lady rolled between them into a small room. The walls closed and the boy and his father watched the small numbers above the walls light up sequentially.

They continued to watch until it reached the last number… and then the numbers began to light in the reverse order.

Finally the walls opened up again and a gorgeous 24-year-old blonde stepped out.

The father, not taking his eyes off the young woman, said quietly to his son...

“Go get your mother.”

That’s It for Today!

As always, thanks for reading and for being a subscriber to a Casey Research publication.

Until next week!

David Galland
Managing Director
Casey Research