(Interviewed by Louis James, Editor, International Speculator)
This interview was first published on March 10, 2016.
Editor's note: Today, we're continuing Louis James' interview with Doug Casey on the “Greater Depression.” Yesterday, Doug shed light on the scary state of our current economy…and how the average American's standard of living is rapidly declining.
Below, Doug shares what you can start doing today to protect yourself from this inevitable financial collapse…and what he's doing with his own money to prepare.
Louis James: Pulling back to the big picture, it occurs to me that your frequent comparisons between the decline of the U.S. empire and that of Rome could help people out here. You’ve been talking about The Greater Depression for a long time, but that’s because it’s a long process. If you had been a Roman commentator deploring the deterioration of Rome, I don’t think future historians would judge you a fool if you’d predicted the fall of the city to the Vandals a couple decades before it happened. When the Vandals do finally show up, it’s like an exclamation point at the end of a sentence. When the bigger-and-badder-than-2008 crash you expect shows up, that too would just be the exclamation point at the end of a sentence we should have been heeding all along.
Doug: That’s exactly how I look at it. While we’re at it, we could also compare the fall of the U.S. to the end of Athens. From the so-called Golden Age of Pericles, when they overspent on boondoggles like the Parthenon and the Acropolis, to the stupidity of the Peloponnesian War, which they lost against the Spartans. That resulted in the end of Athens. It was an empire that very much presaged that of the U.S., even more than that of Rome. I mean, the city continued, but it was the end of the civilization as a dominant one in the world. The U.S. national debt and unfunded mandates are the equivalent of the Acropolis, and the Forever War against “terrorism” is the equivalent of the Peloponnesian War.
Civilizations are like any other man-made construct. They rise and they fall.
L: But what to do?
Doug: If you want to survive, you batten down the hatches and try to get out of the way of the coming storm. Longtime readers know my formula: Liquidate, Consolidate, Create, and Speculate. But as dangerous as the markets are today—and they are very dangerous—I have to stress again, because it can’t be stressed enough, that your main danger is politics. It’s what your government is going to do to you when things start really falling apart.
L: How can people protect themselves from that?
Doug: The main thing is to diversify. Just as you mitigate risk by diversifying your investment portfolio, you mitigate political risk by putting your assets and your time into different countries. It’s hard, but you must do this. Everyone living in the Americas has forefathers who did this, and they should do the same.
L: Roger that. What about market trends? What do you see ahead for Wall Street, the dollar, and other assets?
Doug: The big one to watch is the bond market. The bond market is much, much bigger than all the stock markets put together. With these negative interest rates, the bond market is not just in a bubble, it’s in a super-bubble. There is absolutely no question in my mind that it’s going to collapse at some point. It’s going to be a true financial disaster. I call it a triple threat to your capital. First, it’s a threat because interest rates are at all-time lows, and therefore bonds are at all-time highs. When interest rates rise, as they must do sooner or later—and I think they’ll go up into the high teens, as they did in the early 1980s—bonds are going to be devastated. Second, there’s the currency the bonds are denominated in. Every single currency in the world today is nothing more than a floating abstraction, backed by nothing of tangible value, so bondholders will lose as those currencies reach their intrinsic values. And finally, there’s the risk of default.
L: Even in the U.S.?
Doug: Absolutely. The world is so awash in debt, a lot of it is going to get defaulted on. The U.S. is not exempt from the laws of economics.
So, it’s perverse. There’s a “flight to safety” today into bonds—and that’s the very worst place possible to put your capital.
L: So, if I sell my bonds, what do I buy?
Doug: You know, I had lunch yesterday with a rich Austrian guy I know in Punta del Este. He sees things much the same way we do. And I had dinner the night before with a rich Belgian guy, who also sees things largely the same. Both of them—and, incidentally, they don’t even know each other—are convinced that Europe is in a totally hopeless situation. They don’t see the U.S. as a viable alternative any more than I do. So, both are buying a lot of gold, and real estate in South America.
I’m also selling naked calls against the euro, naked puts against wheat, silver, gold, sugar, and coffee. And, needless to say, gold mining stocks which—despite the fact that mining is a horrible business—are again going to have their day in the sun.
(Editor’s note: Selling naked calls is a bearish trade. It pays off if the price of the asset falls or stays the same. Selling naked puts is a bullish trade. It pays off if the price of the asset rises or stays the same.)
L: Understood. But wait. South America? A continent where most governments are openly socialist?
Doug: Yes, that’s true, but the situation in Europe is worse. In many ways, the problems down here are less severe than the ones we have in the U.S.—and Canada is going to go through the meat grinder as well.
L: The governments may be more socialist on paper in South America, but they are less competent at extracting money from citizens. And living well is much less expensive in Latin America.
Doug: Right. Much less expensive, a lot fewer people. And it doesn’t have millions of migrants breaking down the door, looking for free food and shelter. And Argentina, in particular, is likely to have a genuine boom. My friends will stop making jokes about my having put a lot of money down here, and will think I was a genius. Actually, I just came for the lifestyle…
L: Hm. So, if the U.S. is like Athens in its last days, who steps into the vacuum after it falls?
Doug: I think it will be the Chinese. If the ruling elite in the U.S. don’t start World War III first—which they very well might do. The most dangerous loose cannon in the geopolitical world today is the collapse of the Saudi regime, which is absolutely inevitable. That could turn into a tipping point for the whole world. When the regime goes down, it’s completely assured that the U.S. will send troops in to “maintain order”…
L: Of course—all our oil got under their sand, somehow.
Doug: [Laughs] That’s right. I can’t say what sequence of events will be set off, but it will be major, and neither the Russians nor the Chinese will just sit by and watch quietly. But then again, the U.S. might get into it directly with China, as they are already sabre-rattling in the South China Sea. Or who knows, it could be something totally out of left field that we can’t even guess right now…like the assassination of Archduke Ferdinand in 1914.
L: Good point. Just look at the rise of ISIS. It caught the entire global intelligence community completely flat-footed. We’re not just talking about some terrorist coup like the massacre in Paris last year, but a group no one was paying any attention to suddenly seizing a large chunk of the Middle East—and holding it.
Doug: Yes. It just goes to show how worthless the U.S. intelligence apparatus is. They didn’t predict the Korean War, they didn’t predict Castro, they didn’t predict the collapse of the Soviet Union, they didn’t predict 9/11…they never predict anything important. All they do is cost us all scores of billions of dollars per year, stirring up trouble around the globe. Worse, they are building a government within the government—the Deep State. They are a greater danger to the people than any of the perceived threats they are supposed to guard against. They’re as dangerous as the Praetorian Guard was in Rome.
L: The Praetorian Guard takes on a life of its own. So, back to our Roman metaphor…the republic is clearly gone, Caesar is gone, where does that put us? Is the U.S. in a time comparable to that of Augustus? Or have we gotten to Nero yet?
Doug: Oh, we’re way beyond any of that. We’re probably at the equivalent of the time of Septimius Severus. That’s when things really started to fall apart in earnest in the third century. That means political and economic chaos.
L: Until the barbarians breach the gates.
Doug: And they are not far off. I’m glad to be living in peaceful Uruguay—and soon-to-be-booming Argentina.
L: Okay then. Thanks for your thoughts. I hope our readers take heed.
Doug: So do I. Until next time.
L: Be well.
Editor's note: Doug is predicting a tectonic shift that could crash our financial markets.
He says when it hits, the firestorm will be huge—much worse than what happened to the U.S. economy in 2008. Most people will say it was unpredictable…but Doug has a way to start preparing (and prospering) today. You can learn more in this free video. (It may be the most important one you watch all year.)