Raw footage of Doug Casey interview from The Housing Bubble and The Bigger Bubble docs

well interest rates are critical and a lot of times people like to know where interest rates are going and I always tell them my favorite joke about Einstein Einstein dies and goes to heaven st. Peter and welcomes very happy to see him and unfortunately st. Peter says since we're a centrally planned economy for obvious reasons we have a perpetual how did housing shortage but maybe you wouldn't mind bunking with three guys while we get your eggs ready so the three guys are very pleased to have Einstein for a roommate and first guy goes up to him and says mr. Einstein I'm so pleased to meet you I've got an IQ of 130 and I'd like to get to know you better so it's great after a lunch let's bounce around a couple concepts of astrophysics I've been thinking about second guy comes up to him says mr. Einstein I'm not as smart as that first guy I've only got an IQ of a hundred but I'd still like to get to know you so Einstein says I put my grip away I was playing game of chess third guy comes up to him and says mr. Einstein I'm not as smart as two guys I've only got Nike Oh seventy but I'd still like to get to know you so Einstein says so where do you think interest rates are going and I've got to say that I've been surprised that the bull market and bonds for the bear market interest rates if you want has lasted as long as it has because in the early 70s depending on which interest rate you were looking at rates fell from the sixteen to twenty two percent area now to the zero to two percent area it's lasted thirty years they've been going down more or less consistently over that time it surprised B for the last few years but at this point I think interest rates are actually to being artificially suppressed by the Federal Reserve and I can do this by buying bonds or notes and so forth in the short run that suppresses interest rates but no long run because it expands the amount of currency in existence interest rates are going to explode and it's absolutely perverse but these idiots are doing because I don't know what the correct level of interest rates would be either generally or in this particular environment you can argue that 3% might be kind of a standard level of interest rates because perhaps that's the level at which people can increase the amount of real wealth in the world over time I don't know but the point is this one of the cures for the economic disaster that we're looking at is much higher interest rates now why do I say that this is the opposite of the conventional wisdom the reason for that is that the way a society becomes wealthy is by producing more than it consumes and saving the difference when you have a high interest rate environment it induces people to save what they earn because they're being paid for the capital they set aside we do have a low interest rate environment they're not induced to save in fact they're reduced to borrow and the problem with borrowing is it's living out of future capital or living out of capital that's already been accumulated and living out of future productions what I really mean to say so that's what the government has been doing with these artificially low interest rates which they intend to stimulate the economy which is to simulate consumption which is completely idiotic what you want is more production not more consumption the consumption will follow as a result of the production so what they're doing keeping interest rates low is not only not curing the problem it's making the problem much much worse for the future one thing that's not being done today is looking at basic fills philosophical principles and in a response to your question I don't believe in taxation I'm not I don't think the taxation is necessary quite frankly but to answer the question if you're going to have taxation of course it would be much wiser and more productive and more prudent to tax people based upon what they consume as opposed to that they create well this crisis is 100% the product of the government in general and inflation in particular just like the last depression of the one of the 1929 to 1946 it was 100% of product of the creation of the Federal Reserve and the gradual moving off subtly fraudulently from the gold standard starting in 1913 created the boom of the 1920s and the bust of the 1930s and of course that led to warfare and so forth same thing is happening now except to a much greater degree so that's the cause of what's going on is inflation well the FDIC was started by Roosevelt to give people confidence in the banks in the rather idiotic notion that confidence was the most important thing of course this is this is idiotic because confidence is something that can blow away like a pile of feathers in a hurricane it's kind of a stay based a system on confidence is counterproductive but that is really the purpose of the FDIC it's to assure everybody that their deposit will be there the government will stand and back of it and it started out at a low level ten thousand forty thousand now it's up to two hundred and fifty thousand dollars actually for practical purposes the government will back up any amount of money that you have in any bank at this point which of course means that there's no reason to choose one bank over another Bank in the past you choose a bank based upon whether you thought it was prudently and well managed and you'd actually get your money back now this is academic so there's no reason to run a bank prudently but the whole banking system has been corrupted and there's no relationship now between the way banks are run and what they are as institutions and what they've historically been bank runs are actually a good thing because they put the fear of God into bankers that have been acting imprudently but as I said the whole principle of banking has been corrupted it used to be there were two types of bank deposits demand deposits or checking accounts and time deposits or savings accounts with the checking accounts you pay the bank to store your money securely and you pay the bank for the right to transfer it by writing checks against it it's totally different from savings accounts savings accounts is you give the money to the bank for a fixed period of time at a fixed interest rate so they can lend it to a businessman for a fixed period of time and a fixed interest rate capturing the spread they're two totally different businesses but now there's no distinction either in the mind of the public or in the practice of the bankers between checking accounts and savings accounts and this is part of the problem and in order for the system to be reformed the entire banking system has to be totally overturned and refurbished and go back to a sound classical system it could exist occasionally is a fraud which is what it is but no it couldn't because a fractional reserve system amounts to lending money which is not yours to lend and after a while in a free market system people would notice you know they're an awful lot of banknotes floating around here from X Y Z Bank maybe what they're doing is cutting their bank notes and people would withdraw their money you'd have a run on the bank and the people that were foolish enough to a deposit of their money with imprudent Bank and Trust wouldn't get their money a bank so bank runs are the free markets way of keeping the bankers honest in other words and yes some people would lose from time to time I'm afraid because of human nature being what it is we we just can't get away from the fact that some people do commit frauds and malfeasance but historically when we've had bank runs it's always been a a local and therefore relatively small thing what the Federal Reserve is done is elevate a local problem and made it into a national institution well the United States and the world at large are full of government-sponsored enterprises you can start with the post office you can go to NASA you can go to almost everything that the government does where it puts money into the economy it hires people to do things my feeling is that there's absolutely nothing that needs to be done that would not be done by entrepreneurs working for a profit and if it is not done it means that the market really doesn't want it and by that I'm including things like roads and schools in fact everything the government doesn't create anything the government only in effect steals money from the society in order to allocate in a way that the people that are running the government want there's no magic it's not a cornucopia well it can never be at well there's lots of problems with GDP for one thing in order to have it you have to report numbers to a central agency and who knows what that central agency the government is going to do with those numbers how it will distort them in fact they can force you to report them as an ethical problem to start with but is a measure in today's world GDP counts things like government employees and there's no indication they may be but they may not be doing anything that is needed and wanted and actually productive so things are distorted by that alone so increasingly the reporting of numbers on GDP in the US and all over the world are becoming less and less accurate more and more corrupt it's a lot like Argentina where I spend a lot of time yeah you can't trust any of the numbers from the government and everybody knows it because they're put out not as matters of economic interest but as matters of political policy now it doesn't there's a group called shadow statistics and what they've done is calculate these things CPI GDP unemployment so forth and so on using methods that the government used to use 30 or 40 years ago and it turns out that because of what the government calls our hedonic adjustments that the CPI as it's reported today has very little relationship to what it used to be as it was reported before so no it's it's almost a fantasy today well it's induced people to buy houses and it's nice for everybody to have their own house but it's not necessarily economic what are the problems with the government inducing people to own houses even people that can't really afford them is it's actually putting them in the position of a medieval serf where it cements them into that house where they can't afford to leave the house they can't sell it they don't want to lose the equity that they have in it so they're like stuck there and I can understand what was going on in the minds of the bureaucrats thinking that it would make for a more stable society if everybody had a stake in it by owning their own little house okay but then there are unintended consequences and as I said the unintended consequence of this is that you might wind up making somebody stay with that house for a strictly economic reasons and I think that's what's actually happening we're oddly enough developing a whole new class of serfs in this country there are homeowners that are underwater they can't afford to move there students who foolishly borrowed a lot of money to take courses and things like political science or English literature or gender studies complete waste of their time and money but now they're buried under this debt turned into serfs yeah absolutely look there's only three ways that a government can get money it doesn't create wealth it doesn't produce okay so there's three ways a government can get money it can tax it which is in so far as theft dishonest is the only honest way for the government to get it it wants it it takes it you know what it's taking it can borrow it go into the markets have people lend it the money but then the taxpayers or somebody is going to have to pay that loan back with interest in the future and the third way is by getting control of the monetary system and literally printing the money up and passing it out to people it works much better in a big country like in the United States than it does in a little country like Zimbabwe I mean the scheme can go on much longer look I enjoy Bullis everybody enjoys booms good times are a lot more fun than bad times even if you're living out of capital and you don't even realize it and that's what these artificial booms are all about it's living out of capital but a bust is unpleasant but it's necessary to wash away the distortions and the misallocations of capital that people got into during the artificial boom the problem is that governments don't like busts so they try to keep the boom rolling on at any cost and it just makes things worse and that's exactly where we are at this particular moment that's why I am so pessimistic for the economic and for that matter the political and for that matter the social and military future of the u.s. because of these policies of the government are not only they're not only doing the wrong thing they're doing exactly the opposite of the right thing by trying to keep the boom ongoing by trying to inflate the bubble even bigger yes of course we are look these people in the government apparently don't learn anything at all and the reason for that is that their psychological their intellectual approach to things hasn't changed at all so of course they're making the same mistakes that they made during the last depression and that's why this depression is going to be much more serious much bigger much longer lasting than the depression of the 30s and the 40s and it's also going to be different the last depression was characterized mainly by the monetary phenomenon of deflation where bonds defaulted stock market crashed wiped out that much money this time the government well they don't want that to happen so they're going to keep printing up money and we're going to be in the worst of all possible worlds we're gonna have a depression which is a period of time when most people's standard of living drops significantly combined with inflation which is a when the currency loses value radically oh there's not gonna be any comparison yeah it's gonna be much worse the the the society itself is much more unstable I'm gonna watch during the 1970s there's less savings it's more government intervention in the economy no the 1970s are gonna look like the good old days although I've got to say that I lived through the 1970s and personally I had a wonderful time and it was it was like a mini depression back then but I hardly even knew it because I was taking care of business myself and growing in a wisdom grace and wealth so the fact we were living through a depression at the time it barely even occurred to me personally well actually I've never been a fan of the gold standard because I don't think the government should be in the money business so the idea of having a national currency backed by gold we'll have to trust them to only issue so much for how much gold they have to me this is wrongheaded but as a speculator I guess I was a fan of the gold standard because it because you could tell in 1970-1971 that the government was artificially controlling the price of gold at $35 an ounce and it was a one-way street it had to explode upwards so although it was very bad although this government intervention in the economy was very bad for the economy as a whole for me as a speculator it was very good it created a distortion that I could capitalize on no question I mean there are a lot of problems with Volker and his beliefs and policies that said what he did during the early eighties was much more intelligent much more intelligent than what Bernanke is trying to do right now Bernanke is gonna wind up destroying the US dollar and as a result destroying the US economy it was risky what Bert what what Volker did in those days but within the context of the system as it's currently put together he did the right thing well the dollar has been the world's reserve currency basically since the end of World War two and this has been a huge boon for Americans because with everybody around the world taking dollars it's like six seven trillion of them outside the United States 'men wonderful foreigners send us Mercedes Sony's and coffee and cocaine and all kinds of wonderful things and we just send them paper money just print up pieces of paper and send it to them and they accept it and they use it but that's coming to an end at this point most of the central banks in the world hold dollars as their reserves as their assets but they understand that those dollars are hot potatoes and they're gonna start treating them as such trying to get rid of them in about 50 countries around the world the average guy in the street uses dollars interchangeably with the local currency units but they're gonna get worried about it too so I suspect there's gonna be a panic out of the dollar it answers the question in terms of time what does the dollar no longer gonna be the world's reserve currency I'll give it from what we're speaking and I hate to put a time on these things it's always dangerous but I'll give it two years oh yeah absolutely look right now the official government that is let's say fifteen trillion dollars and most of its finance very short-term but let's say the average interest rate that they're paying is two percent so that means they're paying 300 billion dollars a year on the national debt now if interest rates went back up to even twelve percent I'm not talking to what they went up to in the early eighties that would be an extra ten percent in interest on fifteen trillion dollars or 1.5 billion so the deficit is right now 1.5 trillion a year if interest rates went back up just to what I think is a reasonable level it would double right there and you'd be a three there's no way out at this point they've literally painted themselves into a corner and there's absolutely no way out at this point there's nothing they can do to make things better except totally free-market eyes the economy or take radical steps in that direction which they're not gonna do so you better hold on to your hat because we're in for we're in for a gigantic financial and economic hurricane in fact that's the way I've been describing this when we went into this in 2007 and 2008 it was just the leading edge of the hurricane and for the last couple years 2010 and 2011 we've been in the eye of the hurricane but now we're coming out the other side of the hurricane but the Hurricanes are gonna be much bigger and there's no way of telling how long it's gonna last and lasts as long as you'd like it could last I mean China had a depression that lasted decades Soviet Union had a depression that lasted 70 years no limit they're trying to stimulate the economy that's one thing they think that will help by putting more money in the hands of some people they'll be more spending and then buy things and people have to produce it got this backwards of course and the other thing with quantitative easing of course is to bail out these banks that have made all these bad bad loans so they give the bank's money to make up for the money that they've lost but this is very stupid because it's not a problem if a bank fails look all the real wealth in the world the building's the technologies the knowledge and the heads of people that doesn't vanish just because a bank collapses all that happens is the people that were imprudent enough to trusted that back but the real well stays here it's just changes hands that's all at this point the fellow reserve has about one point six trillion dollars I believe of deposits from banks but it's paying interest on now this is very problematical from their point of view because they want the banks to go out and lend it into the economy I guess make more real estate loans to re-inflate that bubble perhaps so that's what they want to have done but it's not happening at the moment but the real problem is this at some point that money sitting there is going to go out into the economy maybe inflation defined as retail price rises starts running five ten fifteen percent and they're still artificially suppressing interest rates so the banks will withdraw that money and what will they do with it it'll go into the economy and it's a what it is is it's a time bomb and and the fuse is lit and it's burning I mean this is you've got the huge pools of dollars everywhere seven trillion offshore several trillion onshore they're just waiting in cash and at some point people are gonna panic and say get me out of these dollars is going to be a panic out of the dollar and that's gonna result in a price explosion but I tend to look at the bright side of everything and from my point of view as a speculator the bright side is that it is inevitable that they're going to create new bubbles they created a stock bubble they created a real-estate bubble okay in a bubble and gold there's gonna be a panic into gold a panic into silver well that's wonderful from my point of view likely to be a panic into small gold mining stocks which have always been the most valid volatile class of securities on the planet but now they're likely to be ultra volatile as the public gets into trying to hide from the consequences of inflation so while at the same time that most people are getting wiped out financially very likely there are some people they're going to make a lot of money I trust that I'll be among them of course it should tender laws you should be able to accept whatever you want or whatever the market dictates for our currency legal tender laws basically say that you must accept US dollars when you're in the United States it's simply a form of coercion hmmm I think there's gonna be millions of very unhappy kids that are gonna feel like they were defrauded and deluded by the educational system which they weren't point in fact so how is that gonna work out if the government really enforces those bankruptcy envisions they're going to be converted into a class of serfs and but maybe maybe when the government inflates the dollar out of existence destroys it that way they'll get they'll find that they only wasted the four years of time that they spent in college and the hundred thousand dollars of debt will be wiped out they're still losers I think one of the smartest things you can do today is take out a long-term fixed interest rate mortgage on your property chances are good that the mortgage is going to be inflated out of existence or when interest rates go way up you're going to be able to the bank will have to buy it back from you but it have a great discount from where it is so I think that's an excellent thing to do fundamentally there's plenty of reason to be bearish on the stock market it's not cheap and there's lots of reason to believe that earnings could collapse in addition and a lot of these corporations could go bankrupt but I'm not as bearish as I should be under the circumstances because of these trillions of currency units the government's created a lot of them are gonna pour into stocks you've got corporations out there they're sitting on scores of trillions of dollars of currency of bank deposits they own their earning a lot of money Apple for instance question is when inflation really starts speeding up what are they going to do with those billions and billions of dollars buy gold they don't understand that they'll probably buy back their own stock or they'll try to take over other companies so under these circumstances the stock market is strictly a speculative vehicle where you're trying to second-guess what other people are going to do as inflation runs away so I don't know nobody else knows but it's going to be volatile it's going to be a wild ride you

Channel: Jimmy Morrison

Views: 24,134

Rating: 4.8888888 out of 5

Keywords: Doug, Casey

Id: YqHwTc5Jy7g

Length: 33min 54sec (2034 seconds)

Published: Tue Nov 08 2011