Doug Casey's Optimism Among the Coming Ruins
June 6, 2006
8:37 a.m., MT

Music: 'You Ain't Seen Nothin' Yet', BTO

These days, there are a lot of financial/business/investment types asserting that a USSA economic collapse is impending. I've commented on a couple, both here and at the Salon ... mostly Bill Bonner and the Mogambo Guru. But the person I know who's advanced that idea the longest is Doug Casey. His latest article is an excellent example of his brevity, insightfulness, and optimism even though the overall forecast is dismal. Some excerpts from The Greater Depression—An Update, all emphasis mine:

The only serious question in my mind is whether it [the coming depression] will be essentially deflationary in nature, as it was the case in the U.S. in the 1930s, or inflationary like in Germany in the 1920s. My guess is the latter because the government is so much more powerful today. Or it could actually be both at once, in different sectors of the economy. ....

Wrap this economic environment around the so-called War on Terror, which is rapidly morphing into the War on Islam, which could easily turn into World War III, and you’re looking at the perfect storm. The odds of a major conflagration are very high, and it's not being adequately discounted. If Bush starts a war against Iran, or if another incident like that of 9/11 occurs, or even if the trend of the last five years accelerates, the U.S. is going to be locked down like one of its numerous new federal penitentiaries. And that will be accompanied, and compounded, by mass hysteria among Boobus americanus.

At that point, your investment portfolio will be among your lesser concerns. People forget that, in every country and time, there's a standard distribution of sociopaths and misdirected losers. In normal times, they seem like normal people. But when the time is right, they show their colors, and they love to get jobs with the government, where they can lord it over their betters. ....

How bad will it be? In historical terms, the last depression was relatively short and mild. The longest depression on record was the Dark Ages. Residents of the old USSR and Mao's China suffered through a depression that lasted decades. I'm not predicting it will be that bad, if only because the U.S. has basically much sounder traditions and institutions and vastly more accumulated capital. But it's hard to overestimate how serious this could be. I sometimes joke that it will likely be worse than even I think it will be. ....

The good news, of course, is that no matter what the economic conditions, technology—which is the mainspring of human progress—will keep advancing. And many individuals will continue innovating, saving and improving conditions for themselves and their associates. Also, it's entirely possible to go through even the worst of times and not get hurt. Indeed to profit from them. .... There's time now to structure your affairs so that you're on the right side of the trade.

On that note, I'll point out that as of this writing, gold and silver are both still slumping ... it's damned difficult to accurately predict the inflection point, when they'll start rising again, but that rise is inevitable. If you've some spare FRNs lying about, it's looking like a very good time to exchange some of them for something of real value. If you can't scrape enough together for gold, some experts suggest that silver, especially with the newish ETF (exchange traded fund, or something like that) going, may outperform gold as an investment (comparing percentage increases, not pure prices). I don't know enough to comment intelligently on that—just enough to say that there's lots of good reasons to heed Doug's advice right now.

Another piece of the trend puzzle appeared elsewhere today: Hight cost of oil could put many jobs at risk. The crux of the matter:

Chemicals made from oil are used by companies to manufacture many products consumers rely on every day, such as plastic bottles, aspirin, lipstick and deodorant.

"It's used in pretty much everything," Wachovia economist Jason Schenker says. "I cannot look at my desk and see things that are not petroleum-based."

Even though oil-based products are so pervasive, the direct impact of the rise in the cost of making such goods on consumers has been – and likely will continue to be – minimal. That's because manufacturers, faced with strong global competition, are unable to pass along all of the added costs to customers. That means prices for most oil-derived products will likely barely budge as a result of higher energy costs.

But the impact on manufacturers and other companies that use oil-based ingredients could be significant, causing a ripple effect throughout the economy. As firms are faced with rising prices and see their margins cut, they may have to cut back on production, reduce pay increases or maybe even cut jobs or shut down.

"There's a squeeze going on," Wellman CEO Tom Duff says. High oil prices are "an issue that extends beyond just the gas pump. But that's all anybody really pays any attention to."

Aside from the wishful thinking that higher costs can be indefinitely absorbed by manufacturers, there's a lot to think about in just those paragraphs, and more in the full piece.

Will plastic bottles and storage tanks one day become a valuable enough commodity to store and trade, along with metals, guns and ammo, liquor, cigarettes, etc.? Only time will tell ... and she often whispers rather than shouts.

By the way, Doug Casey has agreed to an interview with me for Sunni's Salon; the challenge has been coordinating a time to do it so that one of us isn't attempting to be clever in the wee hours of the morning. Also, I am, somewhat uncharacteristically, a bit daunted by the prospect; I really don't want to ask him incredibly stupid questions. If any of you have thoughts or suggestions for questions and/or topics, feel free to shoot 'em out.

Sunni

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