Sunday, October 2, 2011

Ready for If Money/ US $ Dies?

The Greater Depression is on, says Doug Casey. Next up, a true US Dollar crisis...

SHOULD DOLLAR-DUMPING turn from trickle to flood, watch out. Exploding prices – aka exorbitant inflation – will compound the problems we saw in 2007-2009. Catastrophe will come when everybody realizes that the Dollar is an "IOU nothing".

That's the big picture according to Casey Research chairman Doug Casey. An optimist at heart, however, Doug Casey identifies in this interview with The Gold Report some reasons to be hopeful...

The Gold Report: Are the US government's debt, plus the money creation since the financial crisis began, really explosive circumstances that will bring catastrophic results? Or will it just result in a huge, but manageable, hangover?

Doug Casey: Both, but in sequence. One thing that's for sure is that although the epicenter of this crisis will be the US, it's going to have truly worldwide effects. The US Dollar is the de jure national currency of at least three other countries, and the de facto national currency of about 50 others. The main US export for many years has been paper Dollars; in

Nobody knows the numbers for sure, but foreign central banks, and individuals outside the US, own US Dollars to the tune of something like $6 or $7 trillion. Especially during the recent crisis, the Fed created trillions more Dollars to bail out the big financial institutions. At some point, foreign Dollar holders will start dumping them; they are starting to realize this is like a game of Old Maid, with the Dollar being the Old Maid card. I don't know what will set it off, but the markets are already very nervous about it. This nervousness is demonstrated in gold having hit $1,900 an ounce, copper at all-time highs, oil at $100 a barrel – the boom in commodity prices.

Some countries are already trying to get out of Dollars, but it could become a panic if the selling goes from a trickle to a flood. So, yes, it's a time bomb waiting to go off, or maybe a landmine waiting to be stepped on. If atheatre catches fire and one person runs out, soon everybody rushes toward the door and they all get trampled. It's a very serious situation.

TGR: If panic erupts on the US Dollar, would products manufactured in the US become super-cheap or super-expensive?

Doug Casey: They would become super-cheap. Everybody says that devaluing the Dollar will stimulate US industry because the products will become cheaper and foreigners will buy them. This is a huge canard everybody repeats and nobody thinks about. Yes, it is true for a while, but if devaluation were the key to prosperity, Zimbabwe should be the most prosperous country in the world as it has already collapsed its currency.


TGR: Given that the US is the world's biggest consuming nation, wouldn't fleeing the Dollar create a big consumer vacuum in the international community? Doesn't the rest of the world want to keep up the high level of exports to these US consumers?


TGR: But other countries currently produce enough of what the US wants. With US Dollars, that trade won't look good on their side eventually.

Doug Casey: The problem is the US doesn't produce enough in return. The US has been lucky to have a currency that has, so far, been accepted by everybody. But when everybody realizes that the Dollar is an "IOU nothing" on the part of a bankrupt government and a society that doesn't really produce anything anymore, it's going to create a worldwide catastrophe. Those $7 trillion held by foreigners are going to become instant hot potatoes.

TGR: Considering what you said a moment ago, that the world doesn't need to stimulate consumption, you must find some irony in the Obama administration's plan to stimulate consumption again in the US as a way to spur some economic growth.






TGR: Will this affect only North America and Europe?




TGR: Your outlook on China fits right in with something you've been saying for years – about this being the "Greater Depression," which is also the topic of your upcoming presentation at the sold-out Casey Research/ Sprott Inc. "When Money Dies" summit next month in Phoenix. Your opening general session talk is entitled, "The Greater Depression Is Now". We are now four years into it, based on your 2007 start date.

Doug Casey: Actually, depending on how long a historical scale you look at, you could say that, for the working class in the US anyway, the depression started in the early 1970s. After inflation, after taxes, their take-home pay hasn't risen in real terms for 40 years. But the definition of a depression that I use is "a period of time during which most people's standard of living drops significantly."

Net savings shows that you're living within your means and putting aside capital for the future. In the US, people have been living above their means for many years – that is what debt is all about. Debt means that you are borrowing against future production, which is exactly what the US has been doing.

TGR: So, how long will this Greater Depression last?



TGR: You say that the US government is the root cause of this problem. Isn't that putting too much blame for a worldwide problem on one nation?

Doug Casey: The institution of government itself is the problem, and the problem is metastasizing like a cancer all over the world. But, sad to say, the US is the most serious offender because it is currently both the most powerful and the most aggressive nation-state. It has been greatly abetted by the fact that the US currency has been accepted globally. The US Dollar is, in effect, the reserve that backs all the other currencies in the world. That is why the US government has been the most destructive from an economic
point of view. Furthermore, military spending – which in the US equals that of all the other militaries in the world combined – is purely destructive. It serves no useful economic purpose at all. The military is no longer "defending" anything – least of all liberty. It's actively creating enemies
and provoking conflict. So, yes, I think the US government is actually the
most dangerous force roaming the world today.

TGR: Do you see that changing after the next election?

Doug Casey: No. I think the chances of Obama being reelected are high, simply because more than half of Americans are big net recipients of state largesse. The US has turned into a larger version of Argentina politically, where the electorate is effectively bribed to vote for the biggest thief. It is likely to turn out much worse than Argentina, however. Unlike the Argentines, the US government is fairly efficient. And, unlike Argentina, the US is rapidly turning into a police state.

Electing a Republican might be even worse, though. With the exception of Ron Paul and Gary Johnson, the potential Republican candidates absolutely make my skin crawl. So, no, there is no help on the horizon. The US government is spending about $1.5 trillion more this year than it takes in, and it is not going to cut that. In fact, foolish spending to bail things out will increase. And, worse than that, the Fed has artificially suppressed interest rates for three years. Interest accounts for roughly 2% of $15 trillion official national debt, or $300 billion per year. As interest rates inevitably rise, that interest amount will grow. At 12% – and I'm afraid they'll have to go even higher than that – it would add another $1.5
trillion just in interest payments.

I absolutely see no way out without a collapse of the US currency and a total reordering of the US economy.


Doug Casey: Nothing is certain, but when the Dollar disappears – and it's going to reach its intrinsic value soon – what are people going to use as money? Will we gin up another fiat currency like the Euro? The Euro is likely to fail before the Dollar. My suspicion is that people will want to go back to gold. It's not because gold is anything magical, but simply the one of the 92 naturally occurring elements that – for the same reasons that make aluminum good for planes and iron good for steel girders – is most useful as money. In fact, the reason that gold has risen as high as it has is that the central banks of third-world countries – places that don't have large gold reserves, such as China, India, Korea, Russia, even Mexico – have been buying the stuff in size.

TGR: The concept of going to a gold standard seems impossible in the sense that there is only so much gold above ground – 6 billion ounces? Maybe $11 trillion worth? But it's only a fraction of the US GDP. Even with gold at $2,000 an ounce, that leaves an immense gap. In that scenario, how do you convert to a gold standard?

Doug Casey: In terms of today's Dollars, gold should probably be a lot higher than it is. I don't know what the number will be, because a lot of those Dollars will disappear in bankruptcies; they will dry up and blow away. It's like a real estate development that was worth $1 billion on somebody's books; when it fails, that's $1 billion destroyed. It's a
question of the battle of inflation (with the government creating Dollars to prop things up) against deflation (where businesses fail and wipe out Dollars). But put it this way: the US Government reports it owns about 265 million ounces. Its liabilities to foreigners alone are at least $6 trillion. If they were to be redeemed for a fixed amount, that would require roughly $22,000/oz. gold. And that doesn't count Dollars in the US itself.






TGR: What bubbles might speculators look to exploit?


    Interest rates are artificially low, and as interest rates rise – which they must – bonds will fall; Bonds are denominated in currencies, and most currencies, let's say Dollars, are going to lose a lot of value; The credit risk of most bonds, certainly those issued by governments, is high.





The Gold Report, 28 Sep '11

Jorganizer Hamdani
024-7060.9694 (flexy)
hope 4 the best n prepare 4 the worst
knowing is nothing without applying

No comments:

Post a Comment
