International Man: Inflation, as measured by the government’s own crooked CPI statistics, recently hit a 40-year high. What is going on here?
Doug Casey: The Consumer Price Index (CPI) itself has been totally corrupted over the years, mainly by changing definitions of what it entails. That’s why it’s interesting to follow the work of a website called Shadow Statistics, where John Williams calculates the CPI and other government statistics using the parameters of 40 years ago.
He’s found that if the CPI was calculated the way it was in the Reagan era, that the actual reported CPI wouldn’t be 7%, but 15%. That makes intuitive sense to me. For over a year, I’ve asked people whether they believe their lying eyes or the government statistics regarding the CPI. The general price level is easily up 15%. That’s conservative. In my view, the US CPI is only marginally more reliable than its equivalent in Argentina—a country whose index is completely political and laughably inaccurate.
I think consumer prices are going much higher. Even Powell has dropped his dishonest and idiotic use of the word “transitory” in regard to it. That’s because the Fed, the US central bank, continues to monetize $120 billion a month of government deficits. The money supply is skyrocketing upwards. At the same time, the Biden regime is enforcing loads of new regulations which act to decrease production.
Meanwhile, free handouts continue to discourage millions of Americans from working. The massive drops of helicopter money during the Covid hysteria has actually crystallized a change in the culture—it now seems socially acceptable to live on the dole. In some parts of society, the ability to consume without producing has become proof not of how worthless, but of how clever you are.
The money supply is up while actual production is down. Of course, inflation is higher. And that’s just part of the cancer growing in the economy. We’re looking at a wholesale disaster over the next three years. And likely over the rest of the decade. Even if the Democrats are replaced in 2024, it will only be because a Republican will promise even “bolder”—“more stupid and destructive”— new solutions.
The solution isn’t more, or different, government programs. It’s to eliminate them and promote a genuine free-market society. But removing the moral rot underlying current trends—forget about replacing them with real capitalism—will take decades. If ever.
International Man: What will the Fed do when it can no longer maintain the charade that inflation is under control?
Doug Casey: First of all—and this has to be said over and over again— the Fed itself should be abolished. It serves no useful purpose in today’s world. It’s nothing but an engine of inflation that’s creating gigantic distortions in the economy. Asking what the Fed “should” do only legitimizes its existence. The question amounts to asking how best to rearrange the deck chairs on the Titanic.
The second point is that gold should be reinstated as money. Money should have tangible value and shouldn’t be created out of thin air.
Third, the banking system should return to classical parameters, with strictly segregated time deposits and demand deposits. Fractional reserve banking is a criminal breach of trust.
I understand that saying these things sounds outlandish and even incomprehensible—especially to younger people. They’ve never been taught anything beyond Keynesian theories. In fact, the situation is worse. Many have been taught and believe in Marxist doctrines.
Rather than go into the details here, let me refer people back to the early chapters of my investment books, Crisis Investing, and Strategic Investing. And especially Crisis Investing for the 90’s—which is still quite timely, despite its anachronistic title.
International Man: The Federal Reserve has two choices: 1) keep printing trillions and let inflation skyrocket or 2) tighten monetary policy and watch the markets crash.
In other words, it can sacrifice the stock market or the dollar.
What do you think they will do?
Doug Casey: The first alternative. Rather than let the bubble collapse, which will happen if they stop printing, the Fed will print more money. If they stopped, it would be a redux of what happened in 1929, a deflationary depression. So they’ll keep printing in the hope that either magic will happen or that when it all comes apart, it’ll be on somebody else’s watch.
They’re caught between Scylla and Charybdis. In the 80s and 90s, people talked about “bond vigilantes.” There was a notion that when money printing and inflation got too high because of foolish Fed policies, fund managers would dump bonds, which would send long-term interest rates higher. That would supposedly force the Fed to restrain itself.
It was a false hope. Big managers like BlackRock, Goldman, Fidelity and the rest of them are now cheerleaders for more money printing. They don’t want the stock, bond, and real estate markets to crash. Nobody does, of course. Artificial good times are a lot more fun than the very real bad times. It’s understandable why “The Authorities” would want to put off the inevitable, even if doing so makes the eventual outcome much worse.
In any event, the Fed, not the market, now dominates the price of bonds and long-term interest rates. At some point soon, I expect there will be a tidal wave of bond sellers who see that inflation’s running 15%, soon to be 20%, while bonds are only yielding 2%, 3%, or 4%. Pension funds, insurance companies, and money managers will start dumping them. The Fed can’t buy them all.
Long-term interest rates are now headed way up regardless of what the Fed does. I’ve been short 30-year bonds in the futures market, mainly by selling naked calls, and I expect to remain short.
Actually, interest rates have to go up if the economy’s going to survive. That’s because low-interest rates discourage saving, and saving is what creates capital. Without capital formation, you can’t have serious scientific advancement, new industries, or even small businesses. Lack of capital is one reason poor countries stay poor. At this point, I’m betting on much higher interest rates.
International Man: Ludwig von Mises, the godfather of free-market Austrian economics, summed up the Fed’s dilemma:
“There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of a voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved.”
What are your thoughts?
Doug Casey: He’s absolutely right on that, as well as about everything else he’s written. It’s one reason why I’ve said for years that we’re heading towards something I’ve called The Greater Depression. It’s going to be The Greater Depression because it’s going to be much worse, much longer-lasting, and much different than the unpleasantness of 1929 to 1946.
That’s worth repeating over and over again until people finally start to grok the concept.
Doug Casey: Well, this is not just going to be a simple financial upset where the stock market goes down, and a few speculators lose some money. It’s not even going to be just an economic upset, where lots of people become unemployed, and businesses go bankrupt. Financial and economic consequences are bad enough, of course. But we’re likely looking at a social upset, a political upset, and a cultural upset as well. Those are much more serious.
In an interview on Doug Casey’s Take, I discussed what’s going on with the Canadian truckers strike. I hope it spreads all over the Western world because it’s a reaction against government overreach. It’s the modern-day equivalent of a medieval Peasants’ Revolt.
Peasants’ Revolts have a very interesting and noble history. But, historically, Peasants’ Revolts—even serious ones with thousands or even hundreds of thousands of casualties—have never really changed anything. The ruling elites have always managed to put them down for numerous reasons. It’s regrettable that this Peasants’ Revolt, with the Canadian truckers, is unlikely to change much either. With luck, they’ll at least get rid of a few especially objectionable wannabe totalitarians like Fidel Castro’s son, who’s currently ruling Canada.
It’s always a long shot to reverse the tide of history, which is currently rolling against the basic underpinnings of Western Civilization. I’ll try to write an article for next week’s edition on Peasant’s Revolts. And then one detailing the essential and unique elements of Western Civilization and what’s replacing it.
Like it or not, that’s what’s going on right now. And these things are becoming part and parcel of the Greater Depression.