In the Shadow of the Castle

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by David Galland: Entropy
— Why the World as We Know It IsDying



These days
it takes very little to set me off on yet another rant against the
American political class — a proxy for governments the world over.

On occasion,
I'm tempted to apologize for these rants. Not so much for the message,
but for the frequency.

when surveying the landscape on which our hovels rest, the king's
castle looms large in the foreground.

I am not an
envious person by nature and so wouldn't begrudge the king his fine
trappings, provided they were honestly earned.

But therein
lies Ye Olde Rub.

Ever more frequently
these days, the drawbridge comes down and a troop of the king's
finest sallies forth to extort from me more than half of my crops,
and to read new royal proclamations whose net result is to add to
the daily burden of trying to provide sustenance for family and
jobs for workers.

Should I protest,
say, by grabbing a pitchfork and telling the soldiers to clear off
my land, or refuse to fill their wagons with the best of my crops
— each leaf of which represents time and investment on my part —
they would grab me by the shoulders, drag me to the king's dungeon,
and confiscate my property.

In fact, all
that has changed since the days of yore is that the king's knights
tend to no longer rape, as well as pillage.

To be fair,
the annals of history contain rare instances of kind and intelligent
monarchs, the sort who understand that overburdening the peasants
ultimately reduces crop production, leading to unnecessary and unproductive
hardship and, in time, even revolt. Though, by temperament, I resist
authority of any description, I suppose I could live comfortably
under the rule of a fair and benign monarch.

The problem
with that notion, of course, is that the corruptive nature of power
leads to the near certainty that Baldash the Not So Bad will
be followed by Norbit the Nasty.

And all of
a sudden, instead of politely requesting I kick in some reasonable
percentage of my crops to help maintain a constabulary, courts,
and maybe the highways, Norbit's men are kicking in my doors and
we're back to ox carts full of my produce being confiscated to provide
a new set of gold plates and to pay the cost of invading neighboring

While some
among you will protest, there is, I would contend, little difference
between a degraded monarch and a degraded democracy. In the monarchy,
a single leader directs his minions in their ruinous acts; in a
democracy, the directions come from professional politicians, as
well versed in gaining and keeping power as any royalty of a bygone
era. (Sir Robert Byrd held high office in this nation for 57 years.)

Far from being
benign, the nation's leadership, masters at appealing to the self-interest
of an unprincipled voter class, have led us to a perilous situation
where the fields are being left unplanted.

And an increasing
percentage of the citizenry is now muttering angry curses as the
king's men ride by in their shiny black limo-horses.

For a clear
understanding of just how poorly ruled this country has been, look
no further than the latest budget projections. In his recent article,
Impending Master Class Dictatorship
," Stewart Dougherty
does just that, analyzing the government's wanton spending and penning
some notable, and quotable, words on the topic.

One stark and
sobering way to frame the crisis is this: if the United States government
were to nationalize (in other words, steal) every penny of private
wealth accumulated by America's citizens since the nation's founding
235 years ago, the government would remain totally bankrupt.

Recently our
stalwart CEO Olivier Garret sent over an insider doc from the Republicans'
Study Committee that provides talking points for candidates to use
in the unending struggle for control of the castle. While I think
the color of flag flapping over the battlements is at this point
almost irrelevant, the document contains some interesting data points.

For instance…

  • $13.5
    Trillion of New Debt:
    The president's budget proposes to increase
    the national debt from today's level of $12.3 trillion to $25.8
    trillion in FY 2020 — an increase of $13.5 trillion or 109.8%. 
    The amount of new debt proposed by this budget is larger
    than the total amount of debt accumulated by the federal government
    from 1789 to today (even including the $3.6 trillion of new debt
    over the last three years).
  • $2.8
    Trillion Tax Increase:
    The president's budget submission increases
    taxes by $2.8 trillion over ten years. This includes allowing
    many of the 2001 and 2003 tax cuts to expire at the end of this
    year, such as allowing the top rate (which is often paid by small
    businesses) to increase from 35% to 39.6%, and allowing the top
    capital gains tax rate to return to 20%. These tax increases would
    take effect in an economy that, according to many economists,
    will still have an unemployment rate around 10%.
  • Mandatory
    Increases from last year's level of $2.1 trillion
    to $3.4 trillion in 2020, an increase of $1.3 trillion or 59.4%.
    Within that amount: Medicare spending increases from $425 billion
    in 2009 to $953 billion in 2020 — an increase of $528 billion
    or 124.2%; Social Security spending increases from $678 billion
    in 2009 to $1.20 trillion in 2020 — an increase of $523 billion
    or 77.1%; and Medicaid spending increases from $251 billion in
    2009 to $487 billion in 2020 — an increase of $236 billion or
  • Interest
    Payments on the Debt:
    Increases from $187 billion in FY 2009
    to $840 billion in FY 2020 — an increase of $653 billion
    or 349.2%.

As mentioned
yesterday, the projection on interest costs is far too conservative.
While the government's always-flawed projections don't anticipate
it, both Bud Conrad and Doug Casey see strongly rising interest
rates as a certainty in the foreseeable future. At that point, the
debt death spiral begins in earnest, and the whole charade begins
to come apart.

But it won't
take soaring interest rates to bring the economy down. That's just
going to accelerate things. And, of course, the worse things get,
the worse the monarchy will act — demanding ever-higher taxes and
further debasing the currency, as they now certainly must.

How can you
protect yourself? It really depends on where you are from. 

One obvious
solution would be to move to a different kingdom, one that treats
you and your money better. Or that pretty much ignores you altogether.
If you are from the U.S., the king's tax collectors will follow
you wherever you go — but even so, there are modest tax advantages
you can gain by expatriation. Ask your tax counsel for details.

If, on the
other hand, you live in a kingdom that doesn't tax foreign-derived
income (yet), becoming a citizen of the world can offer serious
advantages and is well worth considering. The situation in most
of the developed kingdoms, where easy money and quick mortgages
greatly exacerbated the levels of debt, is only going to get more
dire as the rulers cast a wider and stronger net in the quest for
more revenue.

Even if you
aren't in a position to move, however, you'll benefit from clearly
understanding one key point about the king. While he may dress well
and speak in dulcet and pleasing tones, he doesn't actually produce
anything. What money he has to spend must first be taken off the
productive elements of the peasantry.

But there are
limits to how much he and his men can squeeze out of the citizenry.
We are nearing those limits.

That means
that all that is left to the monarchy is for it to issue IOUs. And
given the levels of their debts and ongoing spending, lots and lots
of IOUs. Those IOUs are called dollars, or pounds, or pesos, or
yen, or….

While there
will be no straight line up or down for any asset class in the unsettled
times we will live through, using periods of weakness to build your
exposure to tangible assets — most notably gold, whose primary and
best use is as sound money — is the only way to protect yourself
from the Great Debasement that's coming.

David Galland
is the managing editor of Casey

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