A Eurocrash is baked in the Cake

"All these hordes of Eurocrats should be summarily fired, and their agencies totally abolished"

In a pungent interview with Louis James, Doug Casey talks about the coming economic crash and how to survive it.

Louis James: So Doug, you're off to FreedomFest 2012 shortly, where people will be able to hear your latest thoughts on many subjects. Maybe you can give us a sneak preview on whatever is uppermost on your mind today. 

Doug: Lately I've been thinking about the EU's rising tide of troubles. We talked about this last January, when I said it was coming, but it seems to me that at this point it's rapidly coming to a head. A major financial and economic catastrophe in Europe is unavoidable. From there, it's likely to spread out to the whole world.

L: The latest headlines have it that the EU bigwigs are taking measures to make it easier for Greece's new pro-bailout government to honor its austerity obligations. Doesn't that mean the EU has dodged the bullet for now?

Doug: First of all, it's not "Greece" we're talking about, but the Greek government. It's the Greek government that's made the laws that got people used to pensions for retirement at age 55. It's the Greek government that's built up a giant and highly paid bureaucracy that just sits around when it's not actively gumming up the economy. It's the Greek government that's saddled the country with onerous taxes and regulations that make most business more trouble than it's worth. It's the Greek government that borrowed billions that the citizens are arguably responsible for. It's the Greek government that's set the legal and moral tone for the pickle the place is in.

Second, the term "austerity" is used very loosely by the talking heads on TV. It sounds bad, even though it just means living within one's means… or, for Europeans, not too insanely above them. But who knows what's actually included or excluded from what the EU leaders think of as austerity? Take the Greek pension funds, for example: exactly how are they funded? I'd expect that private companies make payments to a state fund, as Americans do via the Social Security program. I suspect there's no money in the coffers; it's all been frittered on high living and socialist boondoggles. Tough luck for pensioners. Maybe they can convince the Chinese to give them money to keep living high off the hog…

But the point at the moment is that just because the Greeks voted – basically to stay in the EU in hopes of economic benefits outweighing the pain of whatever the austerity requirements are – that doesn't mean they'll actually be able to deliver. Once the new half-measures begin to bite, I expect to see more angry mobs back out on the streets. These people have become so corrupt that they think the government is some kind of a magic cornucopia, when first and foremost it's really just a vehicle for institutionalized theft.

And it's not just austerity, and it's not just Greece, nor even Spain, which has formally asked for a bailout. All of these European economies are rigidly regulated: first, by their national governments; and then, even worse, by this extra layer of unbelievably oppressive regulation from Brussels. I understand there are some 30,000 people working for the EU, making new rules and regulations like an army of spiders, spinning their webs, sucking the life out of their victims. None of these rules are constructive. They're a waste of time at best, and most are actively destructive – like for instance, the EU rules telling the French how to make cheese.

I was reading in David Galland's report from Portugal last Friday that the EU forced the Portuguese to destroy half of their fishing fleet. Not because there was anything bad, dangerous, or wrong with the boats, but because they were too good and the Portuguese were too successful as competitors; it's life imitating Atlas Shrugged. He also said that most of the oranges grown in Portugal are either thrown in the trash or trucked to Spain, where they can't be eaten but must be made into marmalade, which is then sent back to be sold to the Portuguese. Apparently about half of the chickens in Portugal are about to be executed – just killed, not eaten – because they were raised in conditions the EU doesn't consider appropriate. The list goes on and on, and the madness is happening all over Europe.

The proposed austerity measures will change absolutely nothing important; at best they'll just lengthen the economic agony. Instead of austerity programs, cutting back marginally on the salaries of public employees and national pensions, all these hordes of Eurocrats should be summarily fired, and their agencies totally abolished. The markets should be liberated.

And individuals should plan for their own retirements. They should behave like adults, not children who spend today with no thought for tomorrow, as state-sponsored retirement benefits encourage them to do.

L: Excessive regulation and disincentives to production created by government intervention in the economy. Can you give us some examples of this happening and what the consequences are?

Doug: The classic example is the Roman Empire after it passed through its time of troubles in the third century. After 50 years of utter chaos, constant crisis, and recurring civil wars, Diocletian gripped it in a stranglehold, regulating everything from top to bottom. I suppose, given a choice between chaotic violence and a police state, people will opt for the latter – as if there are no other alternatives. He instituted all manner of price controls and "people controls," including forcing sons to take up their father's occupations. The ultimate collapse of Rome and the success of the barbarian invasions wasn't due to superior barbarian military technology or tactics, but Roman economic collapse. Romans were actually deserting the empire to live among the so-called "barbarians," where they could both be free and prosperous. History is repeating itself.

L: That's pretty dramatic, Doug. You think Europe is in a similar death spiral now?

Doug: Yes. Those governments are all bankrupt. But much more serious than financial bankruptcy is their total moral and intellectual bankruptcy. At this point the Europeans are so craven and degraded they deserve to be indentured servants of the Chinese, which they will be. The debt they are using to finance their bulging bureaucracies, bloated welfare rolls, giant pensions, and so forth is largely coming from the banks. But the banks are all bankrupt too, partly because they've lent so much capital to bankrupt governments. So you've got two sets of bankrupt institutions trading debt back and forth between themselves. It doesn't help to say that it's the PIIGS that are in the worst shape, because it's the banks in the supposedly wealthier countries that own the PIIGS's debt. They are all tied together.

It's much worse, on a global scale, because Europe is China's largest trading partner. When the EU really goes into reverse and suffers a major economic collapse, the Chinese are going to lose their main customers – and end up owning a lot of chateaux. That also means the Chinese will stop buying the raw materials – commodities – they use to make what they sell to the Europeans. That will hammer the Australian, Brazilian, Canadian, and other resource-driven economies.

And the problems with Japan are even worse, though somewhat different, than the ones in Europe. Chronically corrupt and now depopulating Russia is headed for a fall; its economy produces nothing but raw materials and weapons. The problem is truly global. The headlines keep pointing at Europe right now, but the EU is just the tip of the iceberg the global economy is aimed at.

L: In this context, it's not encouraging that the French have not only elected a socialist president, but a socialist parliament. I'd be fighting severe nausea right now if I were a French taxpayer.

Doug: And France is not one of the PIIGS on the periphery, but one of the two big countries at the core of the EU. I don't understand how anyone can conduct a profitable business in France today. It seems heroic to me, if anyone can do it, but it's getting just about impossible. And now France is going to slide a couple standard deviations further to the left. If I were a Frenchman with any money, I would get my money and myself out of France – tomorrow morning.

L: I read somewhere that Cameron in the UK announced that French people with money were welcome in the UK.

Doug: I heard that too. But if I were a Brit, I'd also liquidate my assets and get out; there's no reason to believe the situation is any better in Britain. It's just not currently in the news. These governments are completely out of control, forces unto themselves, and they view their populations as milk cows. Governments all over the world are following Diocletian's example.

L: So where's the least-bad place to have your corporate office these days?

Doug: I think you've got to look at Singapore. Hong Kong is still very good. Dubai offers some advantages in that part of the world. Other than that, you've got to go to a place where the government is small and incompetent.

L: What makes you think that the pot's about to boil over? How can we know that this is not just more grumbling from a permabear?

Doug: Well, it's true: "inevitable" is not the same thing as "imminent." When people see that something is inevitable – and I'm guilty of this mistake myself – they tend to believe those things are also imminent, even when that's not so. But the inevitable isinevitable, and that means it must happen. We usually can't predict exactly when – and such things often take far longer to arrive than we imagine they possibly can – but once things to start unravel, they tend to accelerate quickly. The crisis seems far off for a long period of time, and then suddenly it's upon us.

It's much like the ground rush effect when you're sky diving. When you first exit the plane, typically at around 7,500 feet for a 30-second free-fall, it seems like you could fall forever. That's partly because it takes 5 or 10 seconds to reach terminal velocity and partly because of the way geometry plays with your visual perception. At around 2,500 feet, though, you can see the ride is coming to an end. By 2,000 feet, you don't need to look at your altimeter to figure when to pull, because you're feeling urgent ground rush. Europe is under 1,000 feet, and even if they do pull the ripcord, they'll find there's no chute… just a bunch of dirty laundry their economists packed as a joke. It's pointless to talk about anything but a very, very hard landing. Unfortunately, when we're talking about the economy, the analogy breaks down a bit. That's because you actually don't need a parachute to go sky diving. You only need one to go sky divingtwice.

L: [Laughs]

Doug: Let me change the metaphor. Europe is in hot water. One of the things that has me thinking the water in the pot might hit its boiling point this summer is that people generally prefer to riot in the summer… for all kinds of reasons. Feeling ripped off by "the system" is a really big one. Take the bank runs in Greece – to the tune of a billion dollars a day. If I were a resident of any European country, I'd definitely run to the bank and get cash. Sure, it's just paper, but that's better than nothing if the bank fails and governments don't bail it out quickly enough.

Even the US has seen many bank failures since 2008, but the FDIC and the Fed always paper it over. And yet, more and more people are recognizing that the system rests on nothing more than confidence. More and more people are going to physical cash in their physical possession all over the world. Most people don't have a lot of financial sophistication, but they read enough and see enough, and have enough sense to be scared. When that's the case, they'd rather have more cash in their pockets or mattresses than they would normally. That's because money left in banks can become suddenly inaccessible if there's a problem with the banking system, or if the government declares a bank holiday, or if the government just takes it, alleging tax evasion or money "laundering"…

During the last Argentine crisis, some people thought they were being smart, keeping their savings in dollars in banks. Well, the government declared a bank holiday, and when the banks opened, their dollars were converted to pesos – and devalued by about 75% to boot. Essentially the same thing happened in the US when Roosevelt devalued the dollar.

L: So… the short version would be that what's inevitable may or may not be that imminent, but on such matters, it's better to be a year early than a day late?

Doug: That's exactly right. And I really do think we're getting close to the edge of the precipice.

You know, people can read this and just view it as entertainment, or dismiss it as just another opinion. But it's like the old oak that was there for a hundred years and looked like it would last another hundred years, but fell suddenly in a storm. Only then did we see that it was hollow and had long been close to collapse. That's where the world's financial situation is: it's rotten to the core because of fractional reserve banking and fiat currencies, and totally corrupt because of state intervention in the marketplace.

L: I remember how we – people who understood market economics – all knew the Soviet Union had to collapse from its internal contradictions and economically self-destructive policies. But we didn't know how long it could last, and sometimes it seemed like it would be forever. But then when it came unglued, it fell apart with breathtaking speed.

Doug: Just so. But when the Soviet bloc collapsed, at least the West was there to help them out. Who's going to bail out the West? A giant reset button will get pushed, with unpredictable results. Personally, I am buying more gold every month. I anticipate a genuine world-class and world-spanning crisis. And it wouldn't just be financial and economic; everything will be in turmoil – society, the military, culture, education, art, science – everything. Really interesting times are coming up here. But on the bright side, I have a low threshold of boredom. I admit I'm something of both an adrenalin and an entertainment junkie.