Doug Casey on The Return of the Crisis Creature

(Interviewed by Louis James, Editor, International Speculator

L: Doug, on March 3, you and I spoke about how to profit from the coming collapse of the euro. Prior to that, we talked about a major market correction on the way this year. Just last week, we saw a major confidence crisis hit the eurozone and the Dow drop 1,000 points in one day's intra-day trading. It looks to me like the beginning of a sequel to the film we saw in 2008: Return of the Crisis Creature. How do you see the latest market developments?

Doug: All of the problems we're confronting today were completely predictable – and, actually, were predicted by people watching the trends 30, 40, and even 50 years ago.

L: Not to mention our predictions of a currency regime change and a credit crisis in the International Speculator in 2006 and 2007. But who was predicting these things decades ago?

Doug: The Austrian economist Ludwig von Mises, for one. He never put a time horizon on his projections, but he did say that the Keynesian "spend yourself into wealth" economic policies that were being lauded and implemented all over the world would result in disaster. He was so obviously right, and the politicians and social engineers who used Keynes as an excuse to encourage entire countries to live beyond their means were so obviously wrong, who would have thought it would take decades for the whole thing to implode?

Harry Browne got it right -- not only what would happen but when it would happen, in his book, How to Profit from the Coming Devaluation, back in 1970. The '70s were in many ways an economic disaster. It was bad for investors in the stock market, the bond market, and the property markets, and currencies lost value all over the world as well. Things could have fallen apart then, but didn't for two main reasons: the distortions in the economy were much less serious than today's, and interest rates were much higher. I think that what's going to happen now, in the teens, is going to be like the 1970s, but much, much worse.

L: Those writers were spot-on, on many things, but the world economy, badly shaken as it is, has still not collapsed.

Doug: It has taken much longer for the chickens to come home to roost than many of us thought. One reason is that there's an immense amount of capital that's been accumulated around the world over the course of decades, if not centuries, and even spendthrift governments take time to dissipate that much real wealth. Second, the private sector is always creating new capital when production exceeds consumption, especially through investments in new technologies that increase production.

L: Yes, I've long thought that you'd have been right about The Greater Depression much sooner if it wasn't for the incredible boost in productivity unleashed by the proliferation of computers.

Doug: The computer revolution is ultimately going to be more important than even the invention of the printing press. Technology is the greatest friend of mankind in general, and the average man in particular. It's why I'm quite optimistic about the long run. That said, timing is always a problem. You know what they say: when making predictions, you should never predict both the time and the event. One or the other, but not both. People love predictions, however, so let me go out on a limb here and make a prediction.

Since everything that all the governments of the world – it's not just the Americans and Europeans, but the Chinese and other governments as well – are doing are not just the wrong things, but the exact opposite of the right things, things will get worse.

Now, that's not a tough prediction to make, so let me be more specific: In real, inflation-adjusted terms, the bear market in stocks that started in 2000 is going to get much worse.

Interest rates will go to much higher levels, whether the governments like it or not. They are being kept artificially low in hopes that they will stimulate economies, but that means money is flowing to where the market doesn't see profit, and hence, by definition, the money is being misspent.

The property markets are going to keep heading lower, much lower. They have not bottomed at all in Europe and the U.S., and, in fact, are still on a boil in places like China and Australia.

And, of course, the specific prediction I've been making all along, most of the world's currencies are going to reach their intrinsic value.

L: For new readers, we see the intrinsic value of paper money being that of pieces of paper. But this paper you can't even write on, because it's already covered with meaningless doodles and spells cast by the witch-doctors at the Fed, ECB, etc. In other words: zero.

So, back to the present global economy: do you think Greece will default?

Doug: First, you shouldn't talk about "Greece" like that. We're talking about the Greek government's debt. And my view is that not only will they default, but that they should default. Generations of future Greek taxpayers should not be turned into serfs in order to pay for the excess of today's Greek politicians. And the people who lent the Greek government all that money to do stupid things with should be punished for both their lack of foresight and their collusion with corruption. And it would be doubly good if this happened, because it would greatly hamper the ability of the Greek government to borrow money in the future, which would limit how much it could spend on all the disastrously stupid things governments spend money on.

I'll go further and say that all of these struggling governments, including the U.S. government, should default on their debts and punish the people foolish enough to lend them money. The world would be a better place if governments around the globe were unable to borrow money.

L: Okay, that may be what should happen, but will it?

Doug: I think so, sooner or later, but only when those in government see no other options. Entirely apart from the fact the nation-state is on its way out. Remember, defaults won't destroy what capital there is in the world. Technologies, factories, farms, mines, and such will still exist. They will just change hands. Hopefully, that will transfer a lot of capital out of public hands and into private hands, where it belongs.

L: But the EU has just made it very clear that, like the U.S., they will do "whatever it takes" to hold their doomed house of cards together. It doesn't look like they will let Greece – sorry, the Greek government – or any other government default.

Doug: Well, these idiots can say whatever they want, but they really have only two choices; they either default and their currency units might maintain some integrity. Or they can print up more currency units, which will destroy their currency. I think that's what's most likely to happen. That's why I keep saying that the euro is a total dead duck – it doesn't have a prayer of surviving.

L: I can't imagine the clowns in Washington facing up to the fact that the U.S. can't pay its bills, and I don't see the dollar being in much better shape… but at least the War Between the States made it unlikely that the more productive states will dump dead-weight states like California, whereas the EU could much more easily come apart under stress.

Doug: Exactly. But maybe California will go its own way eventually, simply because young Hispanic males will decide they don't want to pay 25% of their incomes in Social Security and Medicare alone – that's going to happen – to support aged Anglo women in Massachusetts. At the very, very best, the current situation can be seen as the eye of a gargantuan, globe-spanning storm. The situation is very serious.