by Doug Casey of Casey Research
I think there are really only two good reasons for having a
significant amount of money: To maintain a high standard of living and
to ensure your personal freedom. There are other, lesser reasons, of
course, including: to prove you can do it, to compensate for failings in
other things, to impress others, to leave a legacy, to help perpetuate
your genes, or maybe because you just can't think of something better
to do with your time.
But I'll put aside those lesser motives, which I tend to view as
psychological foibles. Basically, money gives you the freedom to do
what you'd like – and when, how and with whom you prefer to do it.
Money allows you to have things and do things and can even assist you
to be something you want to be. Unfortunately, money is a chimera in
today's world and will wind up savaging billions in the years to come.
As you know, I believe we're into at least the fourth year of what I
call The Greater Depression. A lot of people believe we're in a
recovery now; I think, from a long-term point of view, that is total
nonsense. We're just in the eye of the hurricane and will soon be
moving into the other side of the storm. But it will be far more severe
than what we saw in 2008 and 2009 and will last quite a while –
perhaps for many years, depending on how stupidly the government acts.
Real Reasons for Optimism
There are reasons for optimism, of course, and at least two of them make sense.
The first is that every individual wants to improve his economic
status. Many (but by no means all) of them will intuit that the surest
way to do so is to produce more than they consume and save the
difference. That creates capital, which can be invested in or loaned to
productive enterprise. But what if outside forces make that
impossible, or at least much harder than it should be?
The second reason for optimism is the development of technology –
which is the ability to manipulate the material world to suit our
desires. Scientists and engineers develop technology, and that also
adds to the supply of capital. The more complex technology becomes, the
more outside capital is required. But what if sufficient capital isn't
generated by individuals and businesses to fund further technological
advances?
There are no guarantees in life. Throughout the first several
hundred thousand years of human existence, very little capital was
accumulated – perhaps a few skins or arrowheads passed on to the next
generation. And there was very little improvement in technology – it
was many millennia between the taming of fire and, say, the invention
of the bow. Things very gradually accelerated and improved, in a
start-stop-start kind of way – the classical world, followed by the
Dark Ages, followed by the medieval world. Finally, as we entered the
industrial world 200 years ago, it looked like we were on an
accelerating path to the stars. All of a sudden, life was no longer
necessarily so solitary, poor, nasty, brutish or short. I'm reasonably
confident things will continue improving, possibly at an accelerating
rate. But only if individuals create more capital than they consume and
if enough of that capital is directed towards productive technology.
Real Reasons for Pessimism
Those are the two mainsprings of human progress: capital
accumulation and technology. Unfortunately, however, that reality has
become obscured by a morass of false and destructive theories, abetted
by a world that's become so complex that it's too difficult for most
people to sort out cause and effect. Furthermore, most people in the
OECD world have become so accustomed to good times, since the end of
WW2, that they think prosperity is automatic and a permanent feature of
the cosmic firmament. So although I'm very optimistic, progress –
certainly over the near term – isn't guaranteed.
These are the main reasons why the standard of living has been
artificially high in the advanced world, but don't confuse them with
the two reasons for long-term prosperity.
The first is debt. There's nothing wrong with debt
in itself; lending is one way for the owner of capital to deploy it.
But if a society is going to advance, debt should be largely for
productive purposes, so that it's self-liquidating; and most of it
would necessarily be short term.
But most of the scores of trillions of debt in the world today are
for consumption, not production. And the debt is not only not
self-liquidating, it's compounding. And most of it is long term, with no
relation to any specific asset. A lender can reasonably predict the
value of a short-term loan, but debt payable in 30 years is impossible
to value realistically. All government debt, mortgage debt and consumer
debt and almost all student loan debt does nothing but allow borrowers
to live off the capital others have accumulated. It turns the debtors
into indentured servants for the indefinite future. The entire world has
basically overlooked this, along with most other tenets of sound
economics.
The second is inflation. Like debt, inflation
induces people to live above their means, but its consequences are even
worse, because they're indirect and delayed. If the central bank
deposited $10,000 in everyone's bank account next Monday, everyone
would think he were wealthier and start consuming more. This would start
a business cycle. The business cycle is always the result of currency
inflation, no matter how subtle or mild. And it always results in a
depression. The longer an inflation goes on, the more ingrained the
distortions and misallocations of capital become, and the worse the
resulting depression. We've had a number of inflationary cycles since
the end of the last depression in 1948. I believe we're now at the end
of what might be called a super-cycle, resulting in a super-depression.
The third is the export of dollars. This is unique
to the US and is the reason the depression in the US will in some ways
be worse than most other places. Since the early '70s, the dollar has
been used the way gold once was – it's the world's currency. The
problem is that the US has exported about $7 trillion in exchange for
good things from around the world. It was a great trade for a while.
The foreigners get paper created at essentially zero cost, while
Americans live high on the hog with the goodies those dollars buy.
But at some point quite soon, dollars won't be readily accepted, and
smart foreigners will start dumping their dollars, passing the Old
Maid card. Ultimately, most of the dollars will come back to the US, to
be traded for the title to land and businesses. Americans will find
that they traded their birthright for a storage unit full of TVs and
assorted tchotchkes. But many foreigners will also be stuck with
dollars and suffer a huge loss. It's actually a game with no winner.
What's Next
These last three factors have enabled essentially the whole world to
live above its means for decades. The process has been actively
facilitated by governments everywhere. People like living above their
means, and governments prefer to see the masses sated.
The debt and inflation have also financed the growth of the welfare
state, making a large percentage of the masses dependent, even while
they've also resulted in an immense expansion in the size and power of
the state over the last 60-odd years. The masses have come to think
government is a magical entity that can do almost anything, including
kiss the economy and make it better when the going gets tough. The type
of people who are drawn to the government are eager to make the state a
panacea. So they'll redouble their efforts in the fiscal and monetary
areas I've described above, albeit with increasingly disastrous
results.
They'll also become quite aggressive with regulations (on what you
can do and say, and where your money can go) and taxes (much higher
existing taxes and lots of new ones, like a national VAT and a wealth
tax). And since nobody wants to take the blame for problems, they'll
blame things on foreigners. Fortunately (the US will think) they have a
huge military and will employ it promiscuously. So the already
bankrupt nations of NATO will dig the hole deeper with some serious –
but distracting – new wars.
It's most unfortunate, but the US and its allies will turn into
authoritarian police states. Even more than they are today. Much more,
actually. They'll all be perfectly fascist – private ownership of both
consumer goods and the means of production topped by state control of
both. Fascism operates free of underlying principles or philosophy;
it's totally the whim of the people in control, and they'll prove ever
more ruthless.
So where does that leave us, as far as accumulating more wealth than
the average guy is concerned? I'd say it puts us in a rather troubling
position. The general standard of living is going to collapse, as will
your personal freedom. And if you're an upper-middle-class person (I
suspect that includes most who are now reading this), you will be
considered among the rich who are somehow (this is actually a complex
subject worthy of discussion) responsible for the bad times and
therefore liable to be eaten. The bottom line is that if you value your
money and your freedom, you'll take action.
There's much, much more to be said on all this. I've said a lot on
the topic over the past few years, at some length. But I thought it
best to be brief here, for the purpose of emphasis. Essentially, act
now, because the world's combined economic, financial, political,
social and military situation is as good as it will be for many
years... and a lot better than it has any right to be.
No new advice here, at least as far as veteran readers are
concerned. But my suspicion is that very few of you have acted, even if
you understand why you should act. Peer pressure (I'm confident that
you have few, if any, friends, relatives or associates who think along
these lines) and inertia are powerful forces.
That said, you should do the following.
- Maintain significant bank and brokerage accounts outside your home country. Consider setting up an offshore asset protection trust. These things aren't as easy to do as they used to be. But they'll likely be much less easy in the future.
- Make sure you have a significant portion of your wealth in precious metals and a significant part of that offshore.
- Buy some nice foreign real estate, ideally in a place where you wouldn't mind spending some time.
- Work on getting official residency in another country, as well as a second citizenship/passport. There's every advantage to doing so, and no disadvantages. That's true of all these things.
One more thing: Don't worry too much. All countries seem to go
through nasty phases. Within the lifetime of most people today, we've
seen it in big countries such as Russia, Germany and China. And in
scores of smaller ones – the list is too long to recount here. The good
news is that things almost always get better, eventually.
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