(Interviewed by Louis James, Editor, International
Speculator)
L: So Doug, a lot of readers are concerned about what's going on in
Europe. Is this the beginning of the proverbial "it?"
Or can the Eurozone be saved?
Doug: In brief, the answers are "yes," then "no"
– and a "good riddance" to both the Eurozone and the euro.
But most people think the old order should be maintained at almost any cost.
That would include George Soros, who recently penned an article called Does the
Euro Have a Future?
Now, I don't normally look to Soros for
economic commentary, despite the fact that he's one of the shrewdest and most
successful speculators in the world. He does, however, represent the way the
Davos people, Eurocrats, and the ruling classes in general think. But just
because he's made a lot of money doesn't make him an expert in economics, any
more than financial success is proof that Ted Turner, Bill Gates or Warren
Buffett know anything about economics. They're all idiot
savants, a bit like Dustin
Hoffman's character in Rain Man. But that's another subject.
Soros writes: "The political will to
create a common European treasury was absent in the first place, and since
the time the euro was created the political cohesion of the European Union
has greatly deteriorated." He's absolutely right about that and goes on
to say that to create a common European treasury, the EU would have to have
the power to tax. So, he's saying that the euro should be preserved, and that
to do that, it should be backed by wealth extracted by force from the average
person in Europe.
But that's the problem with every currency in
the world today; they're not backed by a commodity, but only by the ability
of government to steal from the people. And the euro doesn't even have that
going for it.
L: And the power to tax is an essential, defining characteristic of the
nation-state. It's the thing that empowers it to exist and separates it from
voluntary organizations. To create that power in Europe would really be to
turn the place into one single country. It wouldn't be long before they had a
European army.
Doug: Exactly. Right now the Eurocrats in Brussels really only have the power to regulate, which is bad enough. But if
the European Union had the power to tax, it would become an actual empire.
Especially if they then created a European army – there's no telling
what kind of mischief they'd get into.
On the bright side, they can't really afford
an army. That's the bright side of all these governments being bankrupt: They
spend way too much on welfare and debt service to afford much warfare…
I guess that makes welfare and debt good things, in a perverse way.
L: [Laughs]
Doug: Anyway, Soros went on to observe: "The euro crisis could
endanger the political cohesion of the European Union." That's true too,
of course. The EU is a completely artificial union. The Swedes are very
different from the Sicilians, and the Portuguese very different from the
Austrians. These people have little in common besides a history of fighting
with each other. Force them together into a phony union, and they'll become
mutually resentful, the way the Germans and the Greeks now are. The EU was
put together partly to avoid future wars, but it may turn out to be a war
incubator. It makes no sense for there to be a European Union at all.
Incidentally, people think of these countries
– Italy, France, Germany, and so on – as though they are fixtures
in the cosmos, but they aren't. In their current forms, they're all newcomers
on the stage of history.
L: You mean the gods didn't affix them to the celestial spheres, up
there with the stars? I could have sworn Jupiter told me he did…
Doug: [Laughs] No. The average person doesn't realize that the country we
know as Italy today was only created in 1861, a consolidation of many
completely independent and very different entities that had been separate
states since the collapse of the Roman empire. Germany was only unified in
1871, out of scores of principalities, dukedoms, and whatnot. Both
unifications were very bad ideas. Even today, there are separatist movements
in big Western European countries, like the Basques in Spain, or those in the
United Kingdom who wish it weren't quite so united.
L: So what's the alternative?
Doug: Of course, the ideal would be for there to be seven billion little
countries on the planet – each one a sovereign individual. But I'll
take what I can get in the meantime, and would rather see smaller states
competing for citizens as customers – although I don't really like that
analogy, because states are not voluntary organizations, nor do they provide
much in the way of useful services. Anyway, a more cohesive European Union is
a step in the direction of Orwell's Oceania, which was in constant warfare
with Eurasia and Eastasia. It's odd how the world is becoming much more like 1984
in some ways at the same time that the nation-state itself is collapsing.
What would have made sense is for Europe to
have become a free-trade and -travel zone. No customs duties and no need for
work permits or passports. A free-enterprise union – created simply by
dropping barriers – would have facilitated all sorts of business and
job creation. Instead, idiotically, the Europeans just created yet another layer
of government in Brussels. Which is rather ironic in that
Belgium is itself a non-country, created out of two very different societies
– Flanders and Wallonia. Now there's a wannabe megagovernment
bent on finding new ways to regulate enterprise out of existence. And if
people like Soros are heeded, it will have the right to tax in addition, in
order to give value to its essentially worthless currency.
All this would be a non-problem if they simply
used gold – which is what, as I've long predicted, is happening, starting
with the gold-for-oil
trade between India and Iran.
People talk about the EU as being a way to
avoid new wars in Europe. But they forget that in the 19th century,
Europe had fewer wars than ever before or since. At that time, "mark, " "lira, " "franc, " and
"pound" were all just names for specific amounts of gold. It worked
very well; and to paraphrase Ludwig Von Mises: When goods cross borders
freely, soldiers don't – or at least are less likely to.
All the gyrations and machinations these
Eurocrats are desperately rushing into place to try to save the unnecessary
and counterproductive euro are…
L: …not just the wrong thing, but the exact opposite of the right
thing.
Doug: [Laughs] Just so. Back to Soros. He has a prescription for
preventing a meltdown, of course. He advises: "First, bank deposits have
to be protected." In other words, to discourage people from bailing out
of unsound banks and destabilizing a corrupt banking system, all bank
deposits should be guaranteed. That's a catastrophic idea. It would further
encourage all sorts of bad lending by incompetent bankers while sucking
hundreds of billions of capital from productive parts of the economy. He also
asserts that some banks in defaulting countries have to be kept functioning,
in order to keep the economy from crashing entirely. That's another
ridiculous idea, plundering the prudent and productive to pay for the
profligate.
If banks were run according to sound banking
principles, with a clear division between demand deposits and time deposits
and no fractional reserve banking, we wouldn't have to worry about any of
these issues.
But instead, Soros goes on to write that the
European banking system should be recapitalized and put under EU supervision.
I want to know how this recapitalization would be done – all those
governments are bankrupt. All that Soros is suggesting is to make a bunch of
national problems into one big continental problem. For all anyone knows, the
Fed is creating trillions of dollars to give to the EU. The only thing that's
really clear is that we're moving out of the eye of the hurricane and back
into the storm. But it will be much, much fiercer than what we saw in 2008.
Soros also states that government bonds have
to be protected from "contagion." Whatever that means, the
implication is more central control and throwing more taxpayer money at the
insoluble government problems. The bankrupt banks will have to lend the
bankrupt governments money, so they can pay their bonds off, while at the
same time the same bankrupt governments lend the bankrupt banks money, so
they don't go under. It's all just a ridiculous shell game.
L: It all sounds like a call for creating more unbacked currency units.
If their only answer is just to run the printing presses, it'll be Weimar
hyperinflation all over again.
Doug: Yes. Soros' bottom line is: "There's no alternative but to give
birth to the missing ingredient: A European treasury with the power to tax
and borrow." This, he claims, is "the only way to forestall a
possible financial meltdown and another great depression." Forestalling
the depression is impossible. All that can be done is to make it less severe
– by doing exactly the opposite of what Soros recommends.
L: And that would be…?
Doug: My view, as you well know, is that they shouldn't forestall the
meltdown, but should let the market correct past mistakes and get on with
building real economic growth for the future. Nietzsche was right when he
said, "That which is about to fall deserves to be pushed." But it
really doesn't matter what these fools do; we're in the early stages of the
Greater Depression. It's going to have a life of its own.
Soros' solutions are counterproductive
band-aids. But since he got to offer solutions, I'm going to offer some too.
For starters, the national debts of all these countries should be defaulted
on, including the United States. Those debts constitute an unethical mortgage
without consent on the next two or three generations of people as yet unborn
as a result of the excess consumption of their parents and grandparents. The
government debt should also be defaulted on to punish the people stupid
enough, or unethical enough, to lend these states the money they've used to
do all the destructive things they do.
Second, central banks should be abolished and
thereby fractional reserve banking as well. That would force banks to run on
sound, classical terms, and depositors would be induced to seek out the most
sound and secure banks.
Third, there shouldn't be national currencies.
Commodities – with gold most likely the popular choice – would
again be used as money.
Fourth, most financial regulations and taxes
– especially income taxes – should be radically reduced or
eliminated. At the same time, government spending should be cut even more
radically. These governments, if their existence is to be tolerated at all,
should be strictly limited to doing nothing more than protecting people from
overt force and fraud.
L: Sounds good to me, but you know that's not
gonna happen. So, tune in your guru-vision for a moment and tell us what you
think is most likely to happen. Does Soros get his wish and we see a new
European superstate emerge? Or does the EU disintegrate?
Doug: There's not a snowball's chance in hell that the EU will turn into a
superstate. The chances are much, much better that it will
fragment. If these countries have breakaway movements within them, how could
they possibly succeed in peacefully joining together?
If you think about it, the Soviet Union was a
sort of Eastern European Union, and it disintegrated. Yugoslavia also showed
what happens to artificial European unions, as did Czechoslovakia. These are
all straws that show which way the wind is blowing in Europe.
That's quite apart from the fact that trying
to compact all of these different ethnicities, languages, religions,
cultures, and so forth together into one giant nation-state is illogical,
counterproductive, dangerous, and pointless.
L: So, how long do you give the EU before it breaks up? And the
euro?
Doug: Well, as you know, one should never predict both an event and the
time it will take place. But I've long said that, "While the US dollar
is an 'IOU nothing, ' the euro is a 'who owes you nothing.'" So I think
the euro will reach its intrinsic value long before the dollar does. The euro
– in anything like its present form – will cease to exist within
two to three years at the outside. If I had a lot of my wealth in euros, I
would get it out ASAP. My favorite alternative for protecting wealth, of
course, is the precious metals: gold and silver. If you want to speculate for
gains on this trend, I think there will be a bubble in the mining stocks,
many of which are cheap right now.
[Right now there are seven tiny mining
companies that are ripe for impressive gains that could well be imminent. Learn what
they are and how you can get in on them.]
L: For new readers, Doug's notion of the intrinsic value of the euro,
the dollar, or any unbacked "fiat" currency is zero. They are
literally worthless and only useful as long as people imagine otherwise. So
much for the euro, but what about the EU itself?
Doug: Centripetal force will eventually tear it apart, with the EU as a
whole disintegrating long before its individual parts – France, Italy,
Germany, the UK, etc. – fall apart.
L: How long is "eventually?" Can the EU itself last long after
such a crushing setback as the collapse of the euro?
Doug: Probably not – they'll likely go in close succession. Europe
is just in a world of trouble; the continent reminds me of that cruise ship
that sank off the
coast of Italy recently. They are dying
financially, with all the debt bankrupting governments, businesses, and
individuals. They are economically in a lot of trouble, with stifling
regulations and taxes. They are demographically in a lot of trouble, with
birth rates far below replacement in general, except among African and Muslim
immigrants who are not integrating. Europe has long been a hotbed of
religious, ethnic, and race wars – quite frankly I see the next one
building up right now.
L: What about Eastern Europe? They have different problems – like
endemic corruption and other Soviet legacies – but they tend to be very
pragmatic and willing to work hard.
Doug: Yes, there's a dichotomy. The bad news is the Soviet legacy hanging
over them, but the good news is that they've experienced naked socialism, and
they know what it's really like. A lot of thinking people there are
experiencing shock therapy and leaning much more towards free markets than
people in the West. I'm definitely more optimistic about Eastern Europe than
Western Europe. However, the general decline of Europe – which started with
World War I – is going to continue. I only hope Europe just declines in
relative terms, not absolute terms.
The fact of the matter is that I'm most
optimistic about the Orient. That's where the action has been and is going to
be. I'm also favorably inclined toward Latin America, which has huge problems
but is, at least, mostly out of harm's way from the evolving Forever War.
L: Doug, you're on record as saying that China is in a bubble and that
it's going to pop. How does that square with your being optimistic about the
Orient? You can't be thinking Japan will take the lead again…
Doug: No, certainly not. I do think China is ripe for a fall, but it's a
matter of the short vs. the long run. I'm very bearish on China in the short
term, but after the current system washes out, I think it's going to be the
place to be – or at least, that area. I think China is another country
that has excellent chances of breaking up into five or more separate
countries.
L: Wow… okay… More investment implications, besides getting
out of the euro?
Doug: Buy gold and silver. Don't be fooled into thinking the dollar is
strong just because the euro is weaker.
L: Very well; thank you for your thoughts.
Doug: My pleasure. I've got some other things on my mind, so we'll talk
soon.
L: Looking forward to it. Have a great evening, Tatich.
Doug: You too, Lobo.
[Editor's Note: For new readers,
"tatich" is Mayan for "big chief."]
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