Doug Casey on Currency Regime Change

(Interviewed by Louis James, Editor, International Speculator)

L: Happy New Year, Doug! Whats on your mind these days have any new thoughts for the new year?

Doug: Well, the new currencies discussed in the news have caught my attention.

L: Ah, yes. Hugo Chavez is launching a new virtual currency among some Latin American and Caribbean countries called the sucre. It looks like its going to be little more than an accounting fiction among trading partners. But the new currency the Persian Gulf states are talking about launching, the so-called gulfo, that looks more like a serious contender. What do you make of this?

Doug: My first reaction is to say, Monkey see, monkey do. In imitation of the European Union, these people are monkeying around with what should be money. Thats gold, of course. But you know, Ive been surprised that the first of these Esperanto currencies, the euro, has lasted as long as it has. It was officially adopted in 1999, though not put into actual circulation as bank notes and coins until 2002. It started out with a theft, in that the old currencies that people had were only good for another three years. After that, your deutschmarks, guilders, francs, and what-have-you were good only for wallpaper. If you had any stuffed under your mattress, you found out what their intrinsic value was.

But the euro thats replaced them, too, is backed by nothing. Nothing but the good faith and credit of the participating governments which are all going bankrupt. The problems in the EU arent just with Greece, Italy, and Spain; Britain and France are being downgraded, and its going to get much worse.

L: But wait a minute, is the euro really backed by even that? Well, maybe good faith, whatever that is, but not the credit of the participating countries. What would that mean? Credit in what? You cant take euros to the German government and say, I want deutschmark for these. Certainly not gold. If the dollar is a floating abstraction, the euro is all the more so, trying to stay afloat on a void.

Doug: I agree. If the dollar is an IOU nothing, the euro is a who owes you nothing. When it collapses, a lot of people are going to suffer a big wealth haircut. Bernie Madoff swindled thousands of people out of billions. The euro will swindle millions of people out of trillions.

L: Right but then is it accurate to say that its backed by the good faith and credit of these governments? I dont think it is.

Doug: Thats a good point. The average urban peasant in Europe thinks his government is somehow watching out for him. I suppose thats true, at least the way a dairyman watches his cows, or a swineherd watches his pigs. But the euro really is backed by nothing. Though, at the moment, you could say its backed by Mercedes cars and Gucci bags anything you can trade euros for. But thats for a limited time. Im absolutely convinced the euro is going to fall apart it makes no sense at all. It might be convenient for the national governments to then blame the European Central Bank. There will be recriminations and bad feelings all around.

And yet, its had a period of relative success against the dollar, and since phony economics reigns everywhere in the world, its not surprising to see other countries wonder if they can pull off the same scam.

L: Sure: If it worked for them, why not for us?

Doug: Exactly. The thing is that in the case of the Gulf countries, nobody uses those currencies outside of the issuing countries. They are really non-entities and everyone would like to secure the advantages the U.S. dollar has for their own countries. When other countries use your currency as a reserve, or even as their own currency, you can print the things up by the truckload and ship them overseas in exchange for valuable goods. You can essentially export inflation.

Its a subtle fraud thats worked for the dollar and, to some degree, its started to work for the euro. People see that its backed by big countries that are perceived to still be wealthy, so they accept euros with some confidence. Its a colorful, arty, well-printed currency, which comes in denominations up to 500. Arabs would like to see their currency accepted with equal confidence.

L: Sure, why not?

Doug: Hell, Id like to have a government and print up my own currency too. And Chavez and his cronies in these nothing-nowhere countries like Honduras and Cuba would love to have a central bank that gets that kind of respect. The Cuban peso has zero value outside of Cuba, and almost zero value inside Cuba. Cubans dont use it if they can possibly avoid it, and never hold it. Its like the Old Maid card. And thats within a police state, where everyone has been indoctrinated over three generations about how their governments paper was actually better than gold. Lenin quipped that its best used for constructing urinals in an ideal socialist world. And of course if youre very wealthy, or a fool, you can certainly use it that way.

But its not going to work. I guarantee that where these things dont turn into total disasters, they will come to nothing. Anyone who is holding assets in sucres or gulfos, just like euros and dollars, is going to be left with nothing when the game of musical chairs stops.

Look at the sucre. Its supposed to be for trade between the participating countries. They wont actually issue paper money or coins. If they are just going to use it to settle trade between themselves, its just an accounting gimmick. The whole thing is ridiculous. The first trade in the sucre is supposed to happen between Venezuela and Cuba for a shipment of rice, any day now. What of real value could the Cubans possibly use to pay for this? They produce absolutely nothing but sugar and cigars.