L: Hola Doug; what's on your mind this week?
Doug: Well, it occurs to me that for all the times we've criticized the counterproductive, foolish, or just plain wrong ideas of others and have sometimes offered sounder alternatives, I've never fleshed out a picture of what I would do if I could call the shots.
L: "If I were president"? But you're an anarchist!
Doug: Yes, but that doesn't mean that I don't have any ideas on what should be done, if there were anyone with the strength and courage to do it.
L: And a very good bulletproof vest.
Doug: Just so. I'm certainly not interested in taking up residence in the White House ? wouldn't want the job if offered. But say some other occupant of that government housing project got hit on the head and woke up honest, industrious, and willing to do what was right come hell or high water.
L: Okay, I'm game. What would she do?
Doug: Are you referencing that Heinlein story in which the crooked president dies and his honest VP takes over ? and she's a lady?
L: Good catch. Heinlein wrote that since men had held the office for 200 years, a law was passed limiting it to women for the next 200 years. He thought they would be less likely send young men off to die in wars for stupid reasons, and would generally be more sensible than men on many subjects. But anyway, as you were saying?
Doug: First, I would declare to the public that the problems we face today as a society have been generated by our own governments, particularly in the US, where it's pretty much 100% government induced.
L: "Government is a disease masquerading as its own cure." Bob LeFevre.
Doug: Exactly. And it should be admitted, stopped, and apologized for ? just as should have been, but was not done when the writing on the wall regarding the Vietnam War was clear to all.
L: Okay, I'll buy that; calling a spade a spade is very important in this day of spin and misdirection. But how would you go about the "stopping it" part?
Doug: The first thing to do is to cut the budget. Almost all of the harm the government does would be reduced or eliminated if it weren't able to steal so much money to pay for its harmful activities.
L: Taxation is theft ? just try not paying the "voluntary" income tax to the IRS ? okay, but they also borrow and print money.
Doug: That's just indirect theft. Borrowing money forces future tax slaves to hand over money against their wishes, and printing it steals wealth from everyone by making the money in their pockets worth less and less with every new dollar, euro, yen, or whatever printed.
But it's not just the act of stealing that is so harmful, but the things the government spends it on. They are almost always directly against the best interests of those from whom the money was taken.
We need to starve the beast; so all these marginal, so-called budget cuts the politicians are wailing about are just smoke and mirrors ? not a real, meaningful scaling back of the government. It's too late for half measures. I'd cut the budgets of the federal, state, and local governments by 98%. For starters.
L: You're joking ? 98% ? that'll never happen!
Doug: Yes, it will. It's just a question of whether it happens in a somewhat controlled, voluntary way, or whether it comes about as a result of a totally out-of-control collapse. What's going on today is completely unsustainable, so I'm convinced this sort of change is coming ? it'll just be that much more destructive if we let it come as an involuntary crash. It's like when you have an old, unstable building that will collapse sooner or later; it's wiser and safer to bring it down at a time and in a way you control than to let it collapse on its own, with no warning to those around.
L: A controlled demolition of the US and global economies. US voters would probably love that just as much as Greek voters love austerity programs.
Doug: Probably so, but it's still the right thing to do. The whole current structure is rotten through and through, corrupt and counterproductive. It needs to be replaced, not fixed.
L: Replaced with what?
Doug: Economic freedom, of course. Let the future build itself, based on the voluntary actions of all market participants, acting in free exchange.
L: You know I'm on the same page, but many of our readers may be skeptical.
Doug: It's good to question everything. But this is not just a theory ? look at Iceland, which didn't bail all the idiotic bankers out, but let them crash. It has recovered much faster than most people expected. And that's without embracing real, thorough economic freedom; it?s simply as a result of letting stupidity reap its natural reward.
It remains to be seen how well things work out for Iceland ? it still has way too much government in my view ? but there's an earlier, well-documented example in the history of Chile. When Pinochet overthrew Allende, he enacted deep and far-reaching reforms of the Chilean economy. He didn't go as far as I would have, but he did enough, and in such a way that it stuck and has had greatly beneficial economic consequences long after his departure. Chile is now the most prosperous country in Latin America, and may well be the most prosperous country in the western hemisphere.
L: I've been there many times and have noted the modern buildings and clean streets of downtown Santiago. The middle class in that city exercises on mountain bikes on weekends and enjoys excellent restaurants evenings. They dress fashionably and stroll along sipping Starbucks lattes? downtown could be a city in California. But there are hovels in the poor districts and dirt streets in the countryside. Are you saying Chile is more prosperous than the US or Canada?
Doug: Yes. Parts of the place may still look third world, but Chileans are not loaded with debt the way North Americans are. My understanding is that the average Chilean has greater net worth than the average US tax slave.
One important contributing factor to this is that Pinochet privatized the social security program, and Chileans pay into individual retirement accounts that they own and control. There are restrictions, but they can fire their managers and move them to those who deliver results ? this is good use of a vital market mechanism. These are real assets that can be liquidated and reinvested ? not like US Social Security, which is nothing but a vague promise backed by nothing but an impossibly debt-ridden government with financial problems that are about to get much worse.
Taking this single step in the US would enable a huge reduction in budget and unfunded future spending. There is absolutely no need for government involvement; people's retirement should be their own individual responsibility, and their employers' contributions to their retirement accounts should be negotiated between the people and their employers.
L: Just to be clear, you're not condoning Pinochet's death squads and such ? just commenting on the results of his economic reforms.
Doug: The facts are the facts. Pinochet was a rare bird. And yes, it seems certain that he had several thousand people killed ? but how many people did Baby Bush kill in Iraq over so-called weapons of mass destruction that weren't even there? Many of the world's big governments are guilty of far greater atrocities and numbers of deaths that are orders of magnitude larger.
The US has supported ? and continues supporting ? far more barbaric and destructive dictators around the world. It seems to me that Pinochet is demonized because he instituted many free-market reforms ? that was his truly unforgivable sin, particularly among leftist intellectuals.
L: The sort of people he had killed?
Doug: Yes. Two wrongs don't make a right, but the fact is that Chile has many advantages today because of Pinochet. It's not as cheap as Argentina, but it's cheaper than Uruguay. It's the least corrupt of Latin American countries, and one of the least corrupt in the world. You picked a good analogy; it has a fantastic California climate. It has a low population density. It has one of the freer economies in the world ? And it?s growing rapidly. Plus, they grow some world-class wines in Chile. It has many advantages.
What I don't like about Chile is that it's the most conservative country in Latin America ? probably in the western hemisphere. It's the most religious, and that's saying a lot in Latin America. They love their police. They love their army. And it's isolated. It's like an island, with the Andes to the east, the South Pacific and Antarctic oceans to the west and south, and a desert to the north. That makes the culture more provincial than I prefer ? but that is a personal preference. I find Argentina more welcoming to bon vivants, even with all the problems it has ? those problems really don't affect foreigners living there who have income from abroad.
L: So noted. I can't say I wish we had a Pinochet takeover in America ? the US version would almost certainly be hawkish and have the world's biggest military budget to play with. Scary. But suppose a Ron Paul type made it and was following your plan, cutting the budget 98%, privatizing Social Security. What would be next?
Doug: Default on the national debt. That would punish the people foolish enough or unethical enough to lend the US government money. It would reduce the budget and greatly reduce the ability of the government to spend beyond its means. But most important of all, it wouldn't make indentured servants out of future generations of US taxpayers.
Look, I know this seems unthinkable to most people, but it's going to be defaulted on anyway. There is simply no way it can be repaid, and an uncontrolled default would be catastrophic ? probably in the form of total destruction of the US dollar as we know it today.
It has to be emphasized that default on the national debt is default on the government's debt, not the people's. Most of the real wealth in the world will still be there after the dust settles ? it'll just be in different hands. The feds might even be forced to sell off their assets ? a sort of gigantic "going out of business" sale that would put those assets into more capable and productive private hands. NASA, for example, as we've discussed already.
L: I understand, but that would still hurt a lot of people who have their savings in Treasury Bills.
Doug: Those savings will be lost anyway, if they leave them in Treasuries. The people it would hurt the worst are the fat cats in bed with the government ? the kind who got their pals in Washington DC to bail them out. It'd be poetic justice.
L: Okay. What's next?
Doug: Eliminate the Federal Reserve. Get the government out of the money business entirely, so it can't inflate it to pay for things people would not willingly, knowingly pay for.
L: Why stop there ? why not go for complete separation of economy and state? The same logic applies as with the separation of church and state, which once seemed unthinkable and now is the norm in much of the world ? in the West, at least.
Doug: All in good time, Lobo. Next, I would take whatever gold is left in Fort Knox and use it to back the US dollar. After defaulting on the debt and the ensuing collapse, trillions and trillions of dollars would cease to exist. Assuming the gold is still there ? the government doesn't allow any independent audits of Fort Knox ? I would use it to put what dollars were left on a solid, inflation-proof footing, at whatever price of gold that could be accomplished at the time.
L: Right. What next?
Doug: Eliminate unnecessary, counterproductive, and unconstitutional government programs. Cutting spending is only a beginning; you have to abolish the programs if you don?t want the spending to come back. We've already talked about getting the government out of Social Security. This and other social spending is the biggest chunk of government spending and liabilities ? something on the order of $220 trillion, last I heard. So, Social Security, Medicare, and Medicaid have to go.
Unfortunately, people over 50 have come to rely on it too heavily to take it away from them, so their payments and benefits would have to continue. But people under 50 don't get anything, and the payroll taxes that support the programs would be ended immediately.
L: Who pays for the older ones who keep getting the benefits? They were deceived into thinking they were making savings deposits of a sort, but it's not true; the government has already spent every dime they put away for the future.
Doug: I know. A large portion of whatever income the government could honestly generate from core services like running the courts and military would have to be directed to this expense until it went away naturally.
L: That won't win any popularity contests, but I suppose it would be an extension of the default you?ve already recommended. Bankruptcy is never pretty. It's also unavoidable, when the money just isn't there. What next?
Doug: De-fund, eliminate, and abolish every single alphabet agency the government currently lavishes money on. If any provide services people value, the market will step in to provide those services ? at a fraction of the cost and without the ability to ride roughshod over citizens who dissent. For starters, every agency and government action not expressly listed in the Constitution should be uprooted entirely and the ground where it stood sown with salt. Enforce the 10th Amendment. Then we can see if there's anything left that we really don't need anymore.
It's important to understand that the budgetary savings are really the lesser issue here. What's really important is getting the government off the peoples' collective back. The state is sand and glue in the gears of the economy, and it needs to be completely cleaned away to allow it to function freely to create greater prosperity for all.
L: That wouldn't leave much? the military.
Doug: Yes. Unfortunately, most people in the US are under the delusion that the military is the one part of the government that is honest and works ? that it protects them from dangers foreign and domestic. The truth is that even if many soldiers are honorable, the politicians who control them are not, and their missions around the world are creating more enemies and stirring up more hatred almost everywhere they go. This is making the world a more dangerous place, not a safer one.
Further, the "military-industrial complex" Eisenhower warned us of is still in place, more entrenched, and greedier than ever. Remember the $600 toilet seats?
But more important than this financial debacle is that the military now exists to protect the government, not the people. Veterans are being increasingly indoctrinated to view civilians as potentially hostile enemies, rather than the very thing that justifies the military's existence. And when they muster out and go to work for law enforcement agencies (not people protection agencies), their training and attitudes become extremely dangerous to average citizens.
L: That'll be a hard pill for most people to swallow. They still want to think of most cops as being like Andy Griffith, even though the evidence is strong that many, if not most cops see civilians as potential threats and object to control. Your whole list is going to be hard for most people to believe, let alone accept.
Doug: No doubt. But once the avalanche has started, it's too late for the pebbles to vote. This is all going to happen. The only questions are how, and whether the damage and chaos can be limited along the way.
Unfortunately, I have to say that I see absolutely no way that these steps will be taken voluntarily. As we discussed when we talked about Ron Paul, the kind of person who could do these things would never get elected ? and if by some cosmic accident such a person were elected, he or she would almost certainly be assassinated in short order. Remember Kennedy ? and don't say it can't happen in the place that was once America. It's going to be like France after 1789.
Chaos is coming.
L: Our regular readers should know what you recommend doing about it?
Doug: Yes. I am doing exactly what I've been saying for some time now: I'm building cash to deploy buying great assets during the crash, I'm putting my savings in gold and silver, and the businesses I'm building are in productive agriculture. As a speculator, I remain convinced that these junior mining stocks that you follow have explosive upside ? as much now as at any point I've ever seen.
L: Okay then. Enough said. Not a happy vision of the future, but our aim is to offer the best guidance we can, not to sweet-talk people into smiling. And ? speaking of offering guidance ? our own chief economist, Bud Conrad, will be speaking at the upcoming Global Currency Expo, held April 5-7 in San Diego. He'll share his big-picture views of the American economy over the near future, as well as making some specific investment recommendations.
Doug: Yes, I enjoyed your conversation with Bud last week, and encourage those able to attend to do so ? it should be a great event.
L: Very well. Thanks for your thoughts, Doug.
Doug: You're very welcome.
Doug Casey writes every month for The Casey Report, which focuses on leveraging emerging trends to outstanding gains. These are the same tactics that have made Doug and other legendary investors like Rick Rule and Peter Schiff fortunes. Learn more about The Casey Report.
Doug Casey (send him mail) is a best-selling author and chairman of Casey Research, LLC., publishers of Casey?s International Speculator.