Recently by David Galland: Is the US Monetary System on the Verge of Collapse?
While I haven’t made a scientific study of the topic, I suspect the leading genre for popular entertainment – and for popular delusions of crowds, for that matter – revolves around magical worlds. As illustration, the Harry Potter series will serve.
The problem is that there is no such thing as magic, at least not in the mystical sense (versus sleight-of-hand variety). Rather, the physical world, and even the metaphysical world constructed by humans in their ancient and long-running quest for protection from the physical world, operates within the boundaries of certain irrefutable truths.
In the first instance, the laws of physics are only rarely found wanting; in the second, basic principles of economies are inviolate, or should be if you actually want an economy to succeed for any length of time.
This unblinking faith in an all-caring, omnipotent “Godvernment” is terrifyingly misplaced: it not only runs contrary to many of those truths but runs contrary to nearly every important lesson history has to teach. Look no further than the debts and deficits of Godvernments around the world to see the consequences of trying to keep this myth alive.
That this faith is on the increase, versus the opposite, should be very concerning… both to those who believe in the rights of individuals and to those trying to build and maintain a reasonable standard of living in this age of deep uncertainty.
Especially in that most, if not all, of that uncertainty, as well as active threats to the general well-being, emanates from the very Godvernments people look to for salvation and sustenance. The graphic shown here demonstrates this point vis vis US security policies soberingly well.
Now, I am sure that some of you view these remarks as just another libertarian tirade, and I guess to some degree, they are.
Yet, I think there is an important underlying point that requires serious reflection. Namely, with people the world over trapped in a delusional and self-destructive cycle of believing that the Godvernments can solve all that ails – even though almost all that ails is caused or made worse by those very same institutions – then things can only get worse from here.
It’s like all but the tiniest minority of the world’s population have been brainwashed into joining a dangerous cult. A cult whose leaders are unscrupulous about stripping their followers of their wealth, their dignity (see cartoon above) and their sense of individuality, while rewarding their most ardent supporters with pensions, tax breaks, a leg up over competitors and, if push comes to shove, hard cash in the form of bailouts.
Viewed through this lens, the thinking individual – you, for instance – should see the need to take certain self-protective measures. And since few things are as useful as a high net worth when it comes to protecting your independence, there are opportunities to chase down as well.
Some suggestions, a number of which you may have heard before.
- Expect the latest eurozone patch-up job to come unglued. When you have the heads of the eurozone’s largest countries talking about levering up bailout funds or ringing up the Chinese to ask for money, you know the latest “solution” to the eurozone’s intractable problems is little more than a hastily concocted plan to kick the wine bottle just a bit further down the road. The problem is that nothing suggested begins to resolve the structural problems of the eurozone – because nothing can be done to resolve those problems. Thus, a heads-up speculator will look for ways of betting on failure and place those bets during brief flare-ups of euro-optimism.
- Likewise, expect the US government’s new Super Committee to fail. Sure, they may come up with some optics in an attempt to mask the dire nature of the situation (for instance, by pushing the impact of any proposed measures out for five or more years – time enough to ignore them), but the fundamental truth in this case is that the Godvernment is hopelessly broke, at the same time the population expects it to do ever more. On the prospects for the Super Committee, and how the bond markets are likely to react if it fails, Casey Research Chief Economist Bud Conrad sent me an email:
What do you think will happen when the Super Committee fails with deficit reduction and S&P follows through with its promise for another debt downgrade? Probably not that much, as the last time it didn’t wreck the markets, but if rates rise, it would not be a good call to be long stocks.
We have had good auctions from the Treasury until a very bad acceptance today that drove the 10-year Treasury to 2.4%. When I wrote my recommendation at the end of September confirming that rates were too low (for the October edition of The Casey Report), the rate was only 1.8%. This kind of move up would normally take months, not days. Here is the pretty dramatic chart:
Rising US interest rates will be a stake through the heart of the US economy. Even just a return to more normal historical averages will skyrocket the costs of servicing the US Godvernment’s mountain of debt, wreak havoc in the bond markets, and simultaneously smash any prospect of recovery in the hugely important housing sector. The key point is that this is big, important stuff you have to be preparing for.
- Reassess the risks to you or your business. Given the sense of extreme empowerment felt by the high priests of the Godvernment, you need to keep a very close eye on your personal vulnerabilities.
A cautionary example are the Alabama farmers who failed to anticipate the tough new anti-immigrant legislation their meddling state government passed, and who now face sure ruin due to the lack of trained workers willing to do the back-breaking work of bringing in the crops or planting new crops for next spring. Is there personal or business risk that you can take steps to mitigate now, while you still can? Especially if you are on the wrong side of the populist mantras now being heard in the temples of Washington, you can’t afford to be complacent. For example, if you or your business are involved in or reliant upon the financial services, you might want to consider developing some new lines of business. On that front, we haven’t even begun to understand the implications and effects of the Dodd-Frank Act, other than that it was written by career politicians with zero business experience in a period of hysteria following the 2008 crash, and that it is very ambitious. Think Patriot Act for financial services – there will be consequences, and I doubt many of them will be good. Investors should consider doing some short-selling or using options strategies in betting on another big leg down for the banks and the financial-services sector. (In The Casey Report, we’re using a simple options strategy to bet on the failure of a massively overindebted regional bank.)
- Don’t expect anyone to help you. Actually, with the growing meme to soak the “rich,” namely anyone who pays more than a modest amount of taxes, you need to wake up to the reality that you are on your own. Put another way, if you have assets, you have a target on your back. Laugh at the OWS folks if you want (and it’s hard not to), but it is their world we’ll be living in going forward, not the ones our parents or we made (and, truth be told, screwed up pretty badly). If you think you’re going to be able to afford to retire on your Social Security, think again. If you’re lucky, it will buy you a hot cup of coffee to enjoy while you and your buddies stand around the burning oil drum on a cold winter’s night. If you don’t have a respectable net worth at this point, then learn useful skills – such as how to speculate in investment markets. Or how to program computers. Apparently, the youth of today like to use the stuff but aren’t so hot on actually learning how to program – they prefer liberal arts educations. Given that many of the iconic successes in the computing industries (Gates, Jobs, Ellison) never graduated college, it would be a mistake to consider that a prerequisite. There are many more directions you might go in, including internationally, the important point being that it’s time to get going.
- Internationalize. With the biggest threat to your wealth and maybe even well-being coming from your own government, it’s essential that you spread your wealth into other political jurisdictions. Don’t do it hastily, but do it nonetheless. InternationalMan.com, a new site that picks up where Doug Casey’s best-selling book International Man left off, may be of some help. Remember, once exchange controls are implemented (almost a certainty), your wealth is trapped and the government will be able to have its way with your assets.
- Front-run the mob. For example, with the mob against all currently viable forms of baseload energy production – and they are – careful bets on rising energy prices are, over a period of time, a sure thing. Let me say that again because it seems self-destructive madness to me, but a large chunk of the mob as well as the priesthood of Godvernment are actually dead set against all currently viable forms of baseload energy. You know, the stuff that keeps the lights on at night. Coal, oil, nuclear and now, thanks to the trumped-up fracking controversy, even natural gas! While the mob hasn’t yet overrun the barriers of sanity and pulled the energy plug – though many would do so in a heartbeat – they have been very effective at slowing exploration and development of energy resources to a crawl. Actions have consequences, in this case, higher energy prices. That’s what I call an opportunity… don’t miss it. Likewise, the mob is not going to stop demanding that the Godvernment provide succor and sustenance, and so deficit spending and debt has to continue to rise, leading to currency debasement. Buy tangibles, but especially gold and silver, on any setbacks. Those are just a couple of ideas for front-running the mob, but if you put on your thinking cap, I’m sure you’ll come up with many more.
Wrapping up, I’ll repeat my basic position on all of this… in the form of an excerpt from a lightly edited response to a reader who took offense at a recent article of mine.
The left and the right both have it wrong, as far as I am concerned. Both share equal responsibility for the big dislocations that have proven so damaging to the economy and society.
Thus, I can only conclude that who is in charge is far less important than what those who are charge are actually allowed to do. The size and scope of government, in my view, has to be very specifically spelled out and very limited so that the next gang to take control can’t just willy-nilly play to the prevailing mob sentiments.
That’s how we got here in the first place. Put another way, are many of Obama’s policies counterproductive and damaging to the economy? Of course. But so were those of Baby Bush. And, before him, Clinton (who allowed the government to grab Social Security funds so that he could claim a balanced budget). And before him, Bush senior… and before him… and so forth and so on.
Unless and until we stop the madness – stop the meddling – the path the world takes will remain perilous and, fortunately for us speculators, somewhat predictable.
Will you be well positioned to survive when your Godvernment’s time runs out? The Casey Report tells you what to expect and how to protect yourself. In the current issue, read investment legend Doug Casey’s outlook for 2012 – on the stock market, the US economy, the euro, gold and silver, the Middle East, China, and much more. Also in this edition: An in-depth analysis of the Fed’s battle for low interest rates, and how to add gold to your IRA and save taxes. For just a few days, you can get The Casey Report for only $98 per year… a staggering 72% off the regular price. Start your subscription today.
David Galland is the managing editor of Casey Research.