Doug Casey: The Vicious Cycle Behind Currency Devaluation

Our friend Natalie Vein recently had the opportunity to conduct an extensive interview with Doug Casey, for our parent company, BFI. Based on his decades-long experience in investing and his many travels, he shares his views on the state of the world economy, his outlook on critical political developments in the US and in Europe, as well as his investment insights and his approach to gold, as part of a viable strategy for value preservation in these uncertain times.

Doug Casey is an international investor and best-selling author; his “Crisis Investing” was on the NYT bestseller list for 29 weeks. He is the founder and chairman of Casey Research, and has served as Director and Advisor to numerous financial corporations. For decades, he has been recognized as one of the preeminent authorities on rational speculation and has been a featured guest on hundreds of major radio and television shows. His first fiction book was just released, “Speculator”, part of a series of six novels to follow.

Nat Vein, BFI: In the last few years, we’ve seen a sharp escalation in aggressive monetary policies all over the world. Central banks everywhere are doubling down on policies that have so far failed to deliver the growth they promised. How would you explain their persistence on a losing strategy?

Doug Casey: The central banks of the world, and in fact, all the world’s governments share a common philosophy, which drives these policies. They believe that you create economic activity by stimulating demand, and you stimulate demand by printing money. Unfortunately, they forget about the fact that the way a person or a society becomes wealthy is by producing more than they consume and saving the difference. That difference is capital, which you need in order to invest in buildings, technologies, and so forth. These people think that by inflating the currency, they can create prosperity. But what they’re really doing, is destroying capital: When you destroy the value of the currency, it becomes a diminishing asset and that discourages people from saving it. And when people don’t save, they can’t build capital, and the vicious cycle goes on.

This is destructive for civilization itself, in the long-term and in the short-term alike. The central banks are creating investment bubbles, where all the funny money they create piles into fashionable areas of the marketplace and drives market prices way above where they otherwise would be. Inevitably, they crash, and savers lose more money. Almost everything that central banks and governments do in the economic arena is a total and complete disaster.

BFI: In the same vein, we’ve seen QE, we’ve seen low and negative interest rates, financial repression measures, and now helicopter money is being discussed as an option. Do you think there are any more cards that governments and central planners may have up their sleeves?

Doug Casey: Frankly, I am surprised that they have gone as far as they have. I previously thought it was metaphysically impossible to have negative interest rates but, in the Bizarro World they’ve created, it’s happened: There are USD12 trillion worth of bonds out there that have negative interest rates.

I believe the next step in their idiotic plan is to abolish cash. Decades ago they got rid of gold, which used to circulate day to day in peoples’ pockets. Then they got rid of silver coinage. Now, they’re planning to get rid of cash altogether. So you won’t have Euros or Dollars or Pounds in your wallet anymore, or if you do, it will only be very small denominations. Everything else is going to have to be done through electronic payment processing. This is a huge disaster for the average person: absolutely everything that you buy or sell, other than perhaps a candy bar or a hamburger, is going to have to go through the banking system. Thus, the government will be able monitor every transaction and payment. Financial privacy, even what’s left of it today, will literally cease to exist.

This cashless society they are working towards would also make the foolish idea of helicopter money much easier to implement. At that point, every citizen’s financial activities will be electronic, making it simpler for the government to just debit or credit anybody’s account as much as they want. They would have absolute power to manipulate the economy, and to intervene, down to an individual level.

BFI: In a recent speech at the Property and Freedom Society Conference, you predicted that the “Euro will reach its intrinsic value” soon. Do you see any signs or indicators that show we’re already on this path?

Doug Casey: Europe’s terminal condition is becoming increasingly hard to hide and the symptoms are impossible to miss; they are even making headlines now. The Italian banking system, for example, is under water by hundreds of billions of Euros. At this point, what are the authorities going to do? Are they going to let the Italian banks go under, so that every Italian who has a Euro in the bank loses it, or are they going to print up hundreds of billions of Euros, so that the banks can meet their obligations to their depositors? They’re between Scylla and Charybdis, they’re between a rock and a hard place.

And of course, it doesn’t stop there. Deutsche Bank, one of the biggest banks in the world, is also in the press as being under water by scores of billions of Euros. In fact, most of the banks in the world are essentially bankrupt, or getting there, so what are the central banks going to do? Bail them out? Or let them go under? If they let them go under, it’s going to lead to an economic catastrophe without precedent. People will lose their savings, day-to-day commercial activities will be disrupted, businesses will collapse and the entire economy will come to a screeching halt. On the other hand, if they bail them all out through freshly printed money, the currency is going to lose all value. It’s a disaster either way. But at the end of the day, actions have consequences. They’ve been experimenting and tinkering with the economy and the monetary system for decades now and finally the price will have to be paid. The Euro is already on track to reach its intrinsic value, so if you’re saving, better do it in gold.

BFI: Focusing on the US for a moment, what is your take on the campaigns and the outcome of the election? Do you think that either candidate has a better chance of bringing any real solutions to the table to get the economy back on track?

Doug Casey: Both candidates, Trump and Clinton, are disastrous. To me, it’s a sign of how degraded the U.S. has become. About a year ago, the choice was between Hillary, the wife of a previous president pretty much playing the role of Evita Peron, after Juan Peron died. Or you could choose Jeb Bush, the brother of one previous president and the son of another. The US has gone so far downhill that we can only choose which family dynasty we prefer to rule. If only a Kennedy could be thrown into the mix as well…

Elections are, quite frankly, meaningless. These two corrupt parties, the Republicrats and the Demopublicans, run by political hacks and funded by interest groups, simply appoint the people that they want and then present the American people with the illusion of a choice.

Now, if I was forced to choose between the two candidates, I would go for Trump, simply because he is something of an outsider. The media, Hollywood, academia, and the Establishment hate him. And I believe he hates them. If elected, he will likely overturn a lot of apple carts in Washington and break a lot of rice bowls of people who live off the Deep State. Unfortunately, Trump is no libertarian—but neither is the dim bulb candidate of the Libertarian Party.

Can The Donald save the sinking US economy? On one hand, because he’s a businessman, he’s going to want to cut costs, which is very good. It’s possible he might even pull a few agencies out by the roots… But on the other hand, he wants to strengthen the military, just like Hillary. If he’s elected and tries to do something truly radical, he’s first going to have a sit-down with a bunch of generals and heads of Praetorian agencies, like the FBI, the NSA and the CIA, who will inform him—politely, but firmly– how things really work. And if he doesn’t listen to them, he will be impeached by Congress before he has the chance to actually change anything. Don’t forget, almost 50% of Americans are net recipients of government benefits. And not only did they elect Obama, but they re-elected him. After they did the same with the horrible Baby Bush. So no; no matter which way this election goes, I don’t think there’s any hope.

BFI: What about the campaign itself? Many have pointed out that both sides have taken it too far, following divisive strategies, with toxic messages and ad hominem attacks. Do you see that too? Is this election different than other times?

Doug Casey:  This election is, indeed, very different from anything that I’ve seen in my life before. The closest lookalike was 1964, when Lyndon Johnson—who I consider to be the fourth worst president, after Lincoln, Wilson, and Roosevelt—won in a landslide over Barry Goldwater—who was a proto-libertarian.  But you are quite correct, both sides have been extremely antagonistic. People either hate Trump or they hate Hillary. It doesn’t matter who wins; the other side is going to be very very unhappy. And with tensions already running high in the country, and racial, cultural and social clashes in the background, it almost feels like a civil war is in the cards for the U.S. Of course, it seemed like we could have had a civil war back in the late 60’s and early 70’s, when there were not just a few, but thousands of bombings. Not just little riots, like in Ferguson and Baltimore, but conflagrations like Watts, DC, and Detroit, where the National Guard was raking the ghetto with .50 cals.

But the country’s prosperity was still increasing in those days. Now we’re on the cusp of The Greater Depression. Things could get ugly.

BFI: You have traveled far and wide and amassed great experience in the process; you’ve talked to governments and entrepreneurs from all corners of the world. What is the most important lesson your travels have taught you?

Doug Casey: You’ve got to diversify politically. Usually, people with money understand the importance of diversifying their assets financially; they have real estate, a little gold, stocks, some private business investments, etc. But very few people are diversified geographically and politically, making sure that not all of their assets are under the control of one government. And that’s a big mistake, because governments see you as a milk cow and if times get tough, they might see you as a beef cow. Financial risks are huge today, but your political risks are even greater. To avoid that, you must diversify your assets internationally, spread your eggs into a number of different baskets.

BFI: You have been a major driving force behind La Estancia de Cafayate, an impressive real estate project in Salta, Argentina. What motivated you to choose this region?

Doug Casey: I’ve been to about 160 countries, and I’ve lived in ten at this point. Argentina really stood out for a number of reasons. Even though it has had one criminally insane government after another for almost 70 years, it is culturally superior to any other country in Latin America, from my point of view. It is the most sophisticated, most outward looking, and it has the best classical liberal tradition, by far, in the continent. I also like the fact that it’s the eight largest country in the world, but only has 40 million people. And those people are almost all European: Italians, Spaniards, Germans, Irish, English. The culture is therefore familiar and the quality of life is excellent, while the cost is low. That’s why often I suggest that Europeans look at Argentina as an option. If they have capital and are able to relocate, it would be wise leave Europe at this point.

I put together Estancia, on the edge of a very Aspen-like wine growing town, because I thought there was a demand for an upmarket place where people with classical liberal values could hang out together. We have a fantastic golf course, polo fields, a world class gym and spa—and lots of pleasant neighbors. I enjoy being there. And the political climate in Argentina has taken a huge turn for the better.

BFI: In these times of uncertainty, what would be your advice for a sustainable investment strategy? What should investors look out for and what are the remaining viable options for value preservation?

Doug Casey: Unfortunately, the whole world is in a financial bubble right now. Let’s look at the options: Bonds are possibly the worst investment decision you can make right now. They pose a triple threat to your capital: You have the default risk, which is very high with all the debt in the world today. You have the currency risk, which is huge, because all these currencies are going to be inflated out of existence. And you have the interest rate risk, which is the highest in history, since interest rates are actually at negative levels. So, unless you’re a wild gambler, forget about bonds. Stocks? Because central banks have been creating many trillions of currency units, and interest rates are at zero, huge amounts of money have flowed into the stock market. It’s at a historic high, even while the economy is on the edge of an abyss. I hope to be buying stocks in a few years, when they’ll likely be cheap, but not today. Real estate is another option. I own a lot of real estate still, in various places in the world, but this has its own problems. Real estate assets are highly visible, traceable and therefore easily taxable.

What do we have left? At this point, I would buy gold, and to a lesser degree, silver. It’s true, gold is not USD35/ ounce anymore, as it was before 1971. It’s not even USD250/ounce, as it was in its last bottom in 2001. It’s USD1300/ounce right now. But I think it’s going to go much higher. We’re in for another gold bull market. In the chaotic environment we’re going to be facing in the years to come, or what I call the “Greater Depression”, you ought to own a lot of gold. And you ought to put it in the safest place you can think of, in physical form, far removed from the reach of governments and outside the banking system.

BFI: You’ve been working on a new series of books, the first of which, “Speculator” is just out. It’s a story of adventure in the African bush, that challenges conventional morality, and puts forward a different world view, or as many would call it “controversial”. Could you share with us a teaser?

Doug Casey: I’ve already written six non-fiction books, but a different group of people read fiction than non-fiction. I want to reach out to those people. Also, there are certain things that you can say in fiction that you don’t dare to say in non-fiction. So I worked on a series of six books that reform the reputations of six highly politically incorrect occupations. The first of these is “Speculator”. Charles Knight, the hero of all six novels, shows that you can be a good guy, a moral guy, even though you engage in these occupations that nobody likes. He starts at age 23, learning to be a speculator, and he turns very little into USD200 million. It’s a page-turning adventure story, about a young guy who discovers a mining fraud in Africa, climaxing in a revolutionary bush war. But it’s also a morality tale; that’s why, for instance, “Casablanca” is many people’s favorite movie. In the next book, “Drug Lord”, which will be out by this time next year, we go into how the legal and illegal drug businesses work. How these drugs are made, how you make money from them, the morality of marketing them; perhaps it’s not as obvious as one might think.

BFI: “Speculator” and, I gather, the other books as well, turn the tables on the mainstream perception of hero and villain. What is your motivation for defending ideas that the collective consciousness has deemed undefendable?

Doug Casey: I despise the wave of “politically correct” thought that’s washed over the world like a tidal wave of raw sewage. The average person, only knows what he hears on television and reads in the newspapers, and most of what they know is wrong. As Mark Twain said, “if you don’t read the newspaper, you’re uninformed. If you do read the newspaper, you’re misinformed.” What I’m hoping to do with this series of novels, is to offer people a vastly different way of looking at reality itself, and a vastly different way of deciding what’s right and what’s wrong. Like everybody else, I suppose, I’d like to change the world and I’d like to change it for the better. As we speak, the world is going in the wrong direction in many ways. Technologically, it’s advancing at an incredible rate, which is very good, but from an ethical point of view, it’s going downhill. I would like to help reverse that ethical decline. I promise that our readers who pick it up on Amazon, will be glad they did…

Go to Amazon to learn more about Doug Casey’s book “Speculator.”

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