Doug Casey on The Greater Depression: Worse Than Even I Think

Doug Casey on The Greater Depression: Worse Than Even I Think

Doug Casey, Agora Financial Investment SymposiumDoug Casey

Just as I was starting to get lulled into a false sense of blogging security, Doug Casey strolled to the stage to stir things up.  I had not written much about the previous two presenters – my leisurely pace was about to change.

His talk was not only engaging and educational, but also hilarious.  I made an effort to record as many actual quotes as possible.  Those that I missed I blame on the fact that I was laughing my ass off.

The Greater Depression…Finally

Doug began his talk by telling the audience to pull up his 2007 presentation on YouTube, where he predicted that his long awaited Greater Depression was about to explode onto the scene.

“Well I was right…finally,” he deadpanned.

“We are now in the eye of the hurricane,” he warned, adding that when we come to the other side of the storm, it will be much uglier than 2008-09.

The Problem is “100% the Fault of Government”

“The government never talks about reducing the deficit yearly, they talk about it over a 10-year period,” Doug said.  Of course all the savings are realized at the end of that period, and they don’t take into account the contingencies and emergencies destined to happen in the meantime.

“The good news is there actually are solutions to this problem.  The bad news there is a zero percent chance of them actually being put into effect.”

He believes the problem is “100% the fault of government.”

His definition of government may provide some clues on the origin of his belief:

“Government is an organization that has a monopoly of coercion, a monopoly of force, over a given geographical area.”

Government has only three legitimate functions in his view:

  1. Raising an army to protect you from outside forces
  2. Raising a police force to protect you from internal forces
  3. Managing a judicial system to settle internal disputes

According to Doug, it’s important to distinguish government from society.  The essence of the former is forced coercion, while the essence of the latter is voluntary cooperation

“The problem is that everything people think the government provides is actually taken from society.”

Descent of the US Government

“The real descent of the US government started with the Spanish-American war of 1898,” Doug looked back.

He continued that it got much worse in 1913 with the Income Tax and Federal Reserve, worse yet with the New Deal and World War II, as the military became huge and permanent.  Then came the Great Society, and more recently the War on Drugs and Terror, when “things started going hyperbolic” (in a bad way).

“Trends in motion tend to stay in motion until a crisis turns them around,” he observed, adding that he believes the coming US fiscal crisis will be the biggest thing since the industrial revolution

Doug is most concerned about the middle class, who he thinks is “going to be destroyed in the years to come.”

“Don’t worry about the rich,” he said, as they can buy their own favors.

And forget about the poor.  “They’ll do just fine.  It’s easy to survive diving in dumpsters,” he stated bluntly, adding that the government is already in the habit of providing for them.

The problem he sees coming for middle class savers is that they are saving in dollars, and the dollar is going to be destroyed.  Which he believes will lead the middle class to look for radical solutions.

Around the Federal Deficit Horn

Here’s where Casey really begins to get going, lamenting that the government used to divide the budget by agency – but now they have too many agencies.  So they now divide by functions (10 in this chart).

Can we make any significant cuts to US federal spending?  Doug goes around the horn…

Source: Casey Research (click to enlarge)

National Defense (24% of Spending)

“Until 1946 we didn’t have a Defense Department – we had a War Department, and a Department of the Navy.  The War Department was for declared war…which we haven’t had since 1946,” Doug criticized.

“The Defense Department doesn’t defend the US – it mostly defends its own budget.”

He cited the fact that the US spends more on defense than the rest of the world combined, which is “like buying a giant gold-plated hammer, at which point everything looks like a nail.”

Of course there are bad people in the world, he admits, but “bankrupting yourself while chasing chimerical devils is not an optimal response.”

World War II spending, in its entirety, was $4.2 trillion priced in today’s dollars – the “same amount they are spending to fight Iraq and Afghanistan, people with primitive weapons who hide in caves.”

One of the problems with the military, Doug said, is that Americans love and trust it.

He believes the military budget should be cut 90%, but does not believe it will actually be cut.

Social Security (20%)

“Let’s be frank – social security is nothing but a ponzi scheme.”

“It takes 6.2% off the top of income of poor people, plus 6.2% off the top for its employers,” Doug continued.

Also people don’t save for retirement because they (incorrectly) think social security will be there.

He hates the fact that social security funds are parked in Treasuries, pointing to Chile as a preferable alternative, where social safety net assets at least go into private companies.

No cuts here, this trend is up.

Income Security (17%)

This area encompasses welfare spending, such as food stamps.  Doug is not a fan of the fact that for every 16 workers, there is one worker on social security disability.

He predicted that this number will be closer to 10% before it’s all over.  This category is also trending up, with food stamp recipients at all-time highs.

Medicare (13%)

This is the fastest growing area of them all.  Which inspired Doug to up the volume a bit more.

“When you reach a certain age, your body starts to desert you and you become an active liability to your fellows,” he explained.

“In pre-industrial times you’d walk off into a forest, or step out onto an iceberg…” or he listed another few ways that an elderly person of yore would call it a life.

“But if you were particularly valuable or they liked you, people would be more than happy to take care of you.”

Today, he continued, people spend hundreds of thousands of dollars hanging onto a substandard form of living

“People ought to get a grip – you get old and die.  Unless you are rich – which is a good reason to get rich.  You can do whatever you want with your money.”

He himself does not have medical insurance – if something happens to him, he plans use a hospital in South America or Southeast Asia, where the cost is a fraction of the US.

In a free market the cost of healthcare would be declining, he points out, as it is in other high tech businesses.

“It’s really the fault of the FDA,” he explained.  “Which should stand for the Federal Death Administration.  It kills more people in a year than the Defense Department does in a decade.”

Health (10%)

“These are typically the morbidly obese types you see at WalMart on Black Friday jossling to buy the latest plastic from China.”

I missed a few twists and turns here, as I was keeled over my keyboard laughing.  The gentleman sitting next to me had apparently heard enough – he gathered his things and walked out of the auditorium.

“It’s going to get worse – because now we have Obamacare for everyone”

Education (3%)

The crescendo continued:

“If you have kids in public schools, you should be ashamed of yourself.”

“Worse than that is higher eduction.”

He admitted it’s wonderful if you need to learn a trade – doctor, lawyer, engineer – or access to a lab.


“It will bankrupt you psychologically going to college today, with those leftist idiots”

“If you have kids today, don’t send them to college, it’s idiotic.”

Transportation (3%)

“It takes care of highways that are falling apart, subsidizes Amtrak and Conrail.  This should all be privatized.”

A natural segway for everyone’s favorite agency…

“The TSA is the new Gestapo, by the way.”

He wondered what these people were doing before – namely what their previous careers were, before this great career opportunity presented itself.

“Standing around in costumes, groping people.  It’s absurd.”

Administration of Justice (2%)

But surely Doug will come out in favor of justice…

“The Constitution is a ‘dead letter.’  There are only three crimes listed in the document: piracy, counterfeiting, and treason.”

But there are now over 500 types of crimes, so Doug reassured the audience that: “Chances are excellent you’ve committed a felony today, and you don’t know it.”


This slice is a “catch all” bucket for most of the government’s three and four letter agencies.  “Where most of government meets the road,” Doug explained.

“This is mostly for amusement,” he said as he began to list the agencies, stopping to note that the real problem is not the spending on these agencies themselves (though their employees earn 40% more than their private sector counterparts).  The real aggravation is the red tape they cause – the need for additional lawyers, bureaucrats, and so on.

Now onto Doug’s final “lightning round”:

  • Flood Insurance – “To encourage people to build on flood planes”
  • Bureau of Indian Affairs – “The wars with the Indians ended 125 years ago. We spend $2.7 billion per year on it and the Indians hate it.”
  • FCC – “Should be abolished.”
  • FDIC – “The sticker principle agency – the only useful purpose they server is to put a sticker on the window of the bank.”
  • The Post Office – “A dead man walking.  The employees, after it’s auctioned off, some of these people – the ones that aren’t likely to go postal – will work for FedEx or UPS”
  • NASA –  “Should be auctioned off to entrepreneurs who can use that money properly.”

Net Interest (5%) and Skyrocketing Deficits

“Pretty soon, Obama is going to have to ask his science advisor what comes after a trillion,” he joked in reference to the $200 trillion in unfunded liabilities on the balance sheet – eliciting another good laugh from the audience.

He continued that most government debt outstanding at the moment is short term, being financed at pretty close to zero interest.  He ultimately believes interest rates are going to eclipse their 1980 highs, which will skyrocket net interest.

He referenced the super committee, which tried to cut spending, and couldn’t come up with anything serious.

Balance Sheet Problems

The balance sheet is even worse, with a present value of unfunded liabilities around $200 trillion in his estimate.

“Financial calamity is the biggest thing that brings down not only governments but also societies,” he stated, citing the Athenians, Romans, French Revolution of 1789, Russian Revolution of 1917, and Germany in the 1920s.

Also reminding the audience that all of these governments were replaced with something worse (dispelling any Libertarian delusions of limited government via system collapse).

“Completely Unworkable” Solutions

Doug shared his five “completely unworkable” solutions for solving this mess:

  1. Eliminate 100% of the agencies.  (“And the US economy would boom,” he added).
  2. Abolish the Fed and use gold as money.
  3. Cut the military back 90%.
  4. Abolish the IRS (possible because the government won’t need money anymore, he half-joked) and sell all the assets of the government (to pay off part of entitlements).
  5. Default on the national debt

The default, he continued, would have three big benefits:

  1. Free the next generation from indentured debt servitude.
  2. Punish the people who lent to the government.
  3. Prevent the government from borrowing for a long time.

Three Things You Should Do

Given the unworkable solutions mentioned, Doug shared three things everyone in the room should do as soon as possible:

  1. “You should have a lot of gold – it’s the only financial asset that is not simultaneously someone else’s liability.”
  2. “You must diversify politically and internationally.”
  3. “Learn to speculate effectively.”

(He anticipates some wonderful speculations thanks to capital misallocations and market distortions caused by increasing government interference in the markets).

Doug’s parting shot was a kind bit of levity for the group.

“I just want you to remember the situation is hopeless, but it’s not serious.”