Doug Casey on Mowing Down Green Shoots

(Interviewed by Louis James, International Speculator)

L: So, Doug, we’re sitting here in Vancouver, epicenter of many of our investments, thinking about the future. Meanwhile, the U.S. Treasury has announced some mind-boggling debt auctions for next week. Any comments?

Doug: Yes, the size of this auction coming up, $235 billion, is really rather shocking – especially when you consider that that’s roughly the cost of the entire Viet Nam war. That was considered off the scale and lasted ten years. This action is just in one week. It’s an amount that annualizes to $12 trillion – and it’s still just starting.

They are going to have to borrow even more money to bail out all of the other banks that are going to fail (which is going to completely bankrupt the FDIC) and all the pension funds that are going to fail (which are insured by the Pension Benefit Guarantee Corporation). And there are lots of other financial catastrophes still on the runway.

This $235 billion is just a drop in the bucket – and I’m not entirely sure where they’re going to get this money. If I were a foreigner and I already owned massive amounts of U.S. debt, would I want to buy that much more? That’s especially questionable when any intelligent person can see that interest rates are being artificially suppressed. That makes buying this debt a guaranteed loss. It just doesn’t make any sense to me.

The Chinese have, say, $2 trillion in foreign-denominated reserves, of which they say about $1.4 trillion is U.S. paper. They realize they’re holding a burning match; they want to get rid of what they have, not buy more. But here’s the scary thing: even if the Chinese lent the U.S. all their $2 trillion of FX, it would only cover this year’s U.S. borrowing. Where is the U.S. going to get next year’s? Because next year, it’s going to need even more.

Let me be as clear as possible. There’s no way out of this without major structural changes. It’s not going to be just a disaster. Catastrophe is a better word.

L: Well, we heard today that the government of Dubai did a public offering of debt, and it had to be rescued by Abu Dhabi, because no one else would take it. We’ve heard other, similar stories. You’d think that at some point, these people would begin to worry that there might be a limit to how much debt they can peddle.

Doug: It seems to me that it’s almost the endgame for this financial system. Since the depression of 1929 to 1946, we’ve had a worldwide economic boom; in its early stages it was quite real, since it was based on the savings that were accumulated during the depression. But over the last generation, starting in the 1980s, we’ve had a phony boom, driven entirely by debt.

The whole world is awash in debt. Individual consumers are head over heels in debt. State and local governments are head over heels in debt and going bankrupt. National governments all over the world are deeply in debt. And businesses that are catering to old patterns of consumption are going to find they have no earnings to service their debt with, and their assets are unsalable at acceptable prices.

One of the problems we’ve got here is that people confuse paper money with real capital. This is an important distinction that’s being overlooked. Capital is actually just another word for “savings” – the excess of production over consumption. I can’t emphasize that enough.

Unfortunately, people are used to thinking of capital as being the same as the dollar bills or other paper money in their wallets – and that can be created out of thin air. But capital can’t be created out of thin air.

So, I’m very concerned that all these governments are going to destroy the world’s monetary system in tandem. I don’t know exactly how it will end up, but it’s going to be really ugly. This is compounded by the fact everybody is looking to the governments to solve these problems. Government is the cause of these problems. And the people it employs are not the best and the brightest (how that ridiculous canard ever got traction astounds me) but the poorest and worst part of humanity.

Boobus americanus is looking to the type of people employed by their DMV or the TSA – albeit sporting prestigious degrees and expensive suits – to solve a millennial economic crisis. Good luck, suckers.

There are lots of reasons I say that the Greater Depression is going to be even worse than I think it’s going to be.