How Inflation Destroys Civilization… and What You Can Do About It
November 17, 2022
International Man: According to a recent Newsweek poll, 63% of Americans “strongly support” new government stimulus checks to combat inflation.
In other words, let’s fight the effects of money printing by doing even more money printing.
What’s your take on this?
Doug Casey: The nature of the US has been transformed. Americans have come to see the government as a cornucopia that can kiss everything and make it better—especially since the bailouts of the Biden Administration.
That attitude has become a cultural value and very hard to change. “Panem et circenses,” as the Romans said, has become necessary for both the government and its subjects. Remember that the prime directive of any entity—whether it’s an amoeba, an individual, a corporation, or a government—is to survive. The present government can’t survive without supporting more than half the population, which has become parasites. But the government itself is the biggest parasite of all. Can parasites live on each other forever? No. To use an overly fashionable word, it’s “unsustainable.”
Where will the US government get the money it needs to survive? It can no longer even remotely survive on its tax receipts; deficits of one to two trillion per year lie ahead for the indefinite future. It can no longer borrow adequate amounts from either American citizens or foreign governments—just rolling over the $32 trillion of existing debt, forget about trillions of new debt, at anything near current interest rates is hard enough. So there’s no alternative left for them but to print more money. And print they will (electronically, of course). The thousands of “economists” at the Federal Reserve and the Treasury Department have no more of a grip on sound economics than government economists in Argentina or Zimbabwe.
Disaster is absolutely written into the government’s DNA at this point. There’s no realistic way out.
International Man: As many Americans are now realizing, inflation has a way of perpetuating itself. However, many countries have been down this path before.
For example, Argentina has infamously been trapped in a perpetual cycle of hyperinflation and socialism from which it cannot escape.
Is the US now entering that same inescapable cycle?
Doug Casey: Money printing makes you think that you’re getting something for nothing. It’s dishonest, criminal actually, and leads to a moral collapse. It causes a war of all against all, as everyone in the country attempts to get his share of government money—which is to say, stolen money—before the next guy. It’s hard to see how you break the cycle short of defaulting on the national debt, cutting government spending very radically, disengaging from foreign wars, eliminating regulations wholesale, and replacing paper with gold as the national currency, among other things.
If those things happened, the economy would boom after a short albeit extremely deep adjustment. But the chances of all that happening are about zero. What we’ll likely get is a long-lasting and dismal depression overlaid with a police state and general chaos.
The US became the world’s freest and most prosperous country because it was a middle-class society. Middle-class people tend to be conservative, self-sufficient, and family-oriented. They’re future-oriented workers and savers. The problem is that the US middle class is being squeezed, as Lenin predicted, between the millstones of taxation and inflation. They’re being wiped out.
What’s left are the upper and lower classes. Very wealthy politically-connected types live in enclaves far above the plebs, viewing themselves as masters of the universe. These wannabe globalists essentially despise American values and traditions. Meanwhile, the lower classes basically live hand to mouth, assisted by numerous types of welfare. They think they can vote for a living. For that reason, I expect a Guaranteed Annual Income to be a major theme in the ’24 elections. “Something for nothing” will become official policy.
International Man: Historically, the government has fought the effects of excessive money printing by raising interest rates.
Today, however, the government’s debt load is much higher than in the past.
If interest rates were to rise to the level needed to combat today’s rising prices, it could bankrupt the US government—and everyone else.
What is going on here?
Doug Casey: The government’s declared debt is around $32 trillion, and it’s growing at the rate of $1 to 2 trillion per year. That doesn’t count gigantic unfunded liabilities like Social Security, Medicare, and Medicaid, which are growing even faster. As are huge contingent liabilities, like student loan, FDIC, SBA, Fannie Mae, and numerous other insurance schemes waiting in the wings when times get bad.
The government still pays about 2% interest on most of its debt. But I suspect that interest rates are headed way up, regardless of what the Fed does to manipulate them. We’ll soon see those interest rates at 5% or 6%. Before this misadventure is over, we could see rates at 15%+, as was the case during the crisis of the early 80s.
Even at 5%, government interest payments would be $1.6 trillion per year. In other words, roughly one-third of the government budget will soon be spent on interest alone. The Fed knows that if they raise rates, there will be less consumer borrowing and, therefore, less credit creation and less inflation. On the one hand, they want higher rates, while on the other hand, they’re afraid higher rates will bankrupt an overindebted society. They’ve painted themselves into a corner. The end of the road has been predicted for decades. But now it’s arrived. The inevitable has become the imminent.
Interest rates will inevitably go up just in response to currency debasement. But higher rates will also cause a lot of banks will go bust. Partly because they’ve made long-term loans with artificially low-interest rates. Like 30-year 3% mortgages that were recently available. Does it make sense to lend money for 30 years in an environment of 10-15% currency debasement and 5-10 rates?
They’re caught having lent long at low-interest rates while borrowing short at high-interest rates. On top of that, when they refinance adjustable rate loans they’ve made, a lot of people won’t be able to hack it and will go into default. Of course, a lot of the loans are syndicated and become somebody else’s problem. But it’s an ugly situation, especially when you add in auto, credit card, and commercial debt.
International Man: As bad as the currency debasement is in the US, the situation is worse in every other country.
What does that mean for the value of the US dollar?
Doug Casey: The US dollar is the world’s currency. It’s the major asset of most of the world’s central banks, along with minor amounts of Euros, pounds, yen, and gold. If the US dollar starts losing value rapidly, so will other currencies, which are basically backed by the dollar.
It’s like what that horrible US Treasury Secretary, John Connolly, quipped in the ’70s when this was drawn to his attention: “It may be our currency, but it’s your problem.” But it’s going to turn out to be our problem, too. We’ve enjoyed an artificially high standard of living financed by exporting US dollars. They’re our major export, by far. We’ve gotten trillions, in effect, of free goods from foreigners in exchange for our fiat dollars. At some point soon, those dollars will come back to the US; everything will go into reverse. Foreigners will get title to US land and businesses in exchange for those dollars; Americans’ standard of living will go into free fall. Those extra dollars in the US will spike retail prices.
International Man: Given everything we’ve discussed, do you think the average person should still hold a substantial amount of US dollars? What are the alternatives?
Doug Casey: I’ve always been a hard-money person, a gold bug. Gold is money in its most basic form. Only a fool trusts a government with money, especially when the writing on the wall is so clear.
I’ve always used gold as a savings vehicle, and it worked out well. Gold was about $40 when I started. It’s now in the $1700-1800 area. Gold is reasonably priced by historical standards right now relative to other forms of real wealth. But since we’re on the edge of one of the greatest financial, economic, and social upsets in history, it makes sense that gold is headed up in real terms. Don’t treat it as a speculative vehicle; own it for safety, prudence, and insurance. More than ever, you should have significant savings in gold.
The fact that gold has popped up over $100 an ounce in the last week or so makes me think it could be the start of a real panic. Let’s hope not. I prefer good times, even if they’re artificial like these, to bad times.
If you haven’t already, start buying gold and putting it aside. The same is true of silver. At $20, it’s excellent value. Tomorrow morning is a good time to start.
In addition, it’s important to learn to speculate. The markets will be going up and down like an elevator with a lunatic at the controls. That will make it very hard to invest— meaning allocate money to grow real wealth. But it should be a good time to speculate—meaning allocate money to take advantage of distortions caused by government actions.
Unfortunately, since most people don’t understand either economics or the markets, they will confuse speculating with gambling. It won’t end well for them. On the bright side, most of the real wealth in the world will still be here. It will just change ownership.
Reprinted with permission from International Man.
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