 The
Casey Files
The Most Important Number
in the World
Doug Casey
The
International Speculator
Dec 12, 2006
Only rarely can you look
into the economic future and see what's coming at least in time
to take advantage. This is one of those times. After a century
of abuse by pandering politicians , encouraged at every step
by the clamoring masses, the U.S. economy is headed for an iceberg,
Moby Dick and a U-Boat.
As David Galland points
out below, clarity is possible because of a combination of factors
that, taken together, leave nothing but hard choices assuring
the government will try to paper over its many obligations with
cheap money. Only this time, for reasons explained, inflation
will trigger a monetary crisis the likes of which few living
today have experienced.
That's the bad news. The good news is that if you prepare for
it, you'll turn this once-in-a-lifetime crisis into once-in-a-lifetime
profits.
-Doug Casey
International
Speculator
78 million
That figure is the key to steering
your portfolio successfully past the reefs of today's brewing
monetary crisis. And, if you play things right, it's the key
to making a lot of money for yourself over the next decade.
78 million is the number of
baby boomers who are in or approaching retirement. That's the
biggest demographic bulge in U.S. history, fully 26% of the population.
And many of those 78 million
are in a jam. As they approach retirement, they are still carrying
historic levels of debt and, on average, have woefully inadequate
net worth -- and much of that based on shaky housing prices.
In fact, 25% of the retiring
boomers - nearly 20,000,000 in all -- are facing retirement with
a net worth of less than $50,000. You don't need to be an accountant
to see that, with today's degraded currency and longer life expectancies,
they won't get very far on so little.
This is a real tragedy in the
making. After all, what could be sadder than millions of people
striving for a lifetime to reach the American dream and then
discovering that the "golden years" are just a fantasy,
their wealth having been sucked away by decades of inflation
and taxes so that politicians and bureaucrats could squander
it to grease the skids for their own political success.
In 1930, the total share of
the U.S. economy directly controlled by or dependent on government
was about 11%, leaving the balance of 89% firmly in the hands
of private enterprise.
Today, by the late Milton Friedman's
calculations, the government's share of the U.S. economy - including
the time and resources required to comply with all the regulations
- has ballooned to over 50%, reducing the wealth-creating machinery
of free enterprise to an auxiliary engine for government.
No wonder so many people live
paycheck to paycheck.
What It Means and How to Profit
U.S. government debt now tops
$9 trillion, before taking into account its unfunded obligations
for Social Security and Medicare -- debts that the retiring boomers
will soon have their hands out to collect.
After adding in Social Security,
Medicare and all the government's other pay-later obligations,
the current debt actually comes in at over $60 trillion-an amount
so large, not one person in a million has a real sense of it.
So let's try to put that number into perspective.
A trillion is 1000 X 1000 X
1000 X 1000, or a million millions. In his first address to Congress,
President Reagan, himself a big spender, accurately pointed out
that a stack of $1,000 bills four inches high makes you a millionaire,
and that a trillion dollars would be a stack 67 miles high!
The U.S. government owes 60
of those sky-piercing stacks of $1,000 bills.
It's a lot of money. And it's
not just any kind of money. Amazingly, this unbacked currency
of a bankrupt government is still the reserve currency of virtually
every nation in the world today. But not, we think, for much
longer.
To service its debt and keep
the game going, the U.S. government must sell on the order of
$2.5 billion per day in new Treasury bills, much of it
to foreigners already sitting on something like $6 trillion of
U.S. paper.
Absent the foreign buyers of
U.S. Treasury securities, the whole scam begins to unravel. And
once it begins to unravel in earnest, with wealthy foreigners
and then governments rushing to switch out of dollars, the speed
and steepness of the monetary collapse will be breathtaking.
Back to the Boomers
While millions of boomers will
be lucky to scrape by for a year or two of hard living in a trailer
park, their meager assets won't carry them through the 20 or
30 years of retirement that medical science now promises. For
that, they'll have to rely on scraps from Washington. And if
they have nothing else, every one of them has a mailbox that's
just right for receiving government checks.
In fact, according to the Fed,
a majority of retired Americans already rely on Social Security
for 80% or more of their income.
And that makes Social Security
and Medicare politically untouchable, no matter how badly the
programs trap the U.S. economy.
Recognizing that the U.S. has
little capacity to rein in its profligate spending and has neither
the intent nor the ability to actually pay off its $60 trillion
debt in money worth anywhere near what it's worth today, foreigners
are increasingly leery about accumulating more greenbacks.
On November 9, for instance,
Reuters reported that, "The bond and foreign-exchange markets
were struggling to come to grips with comments from China's central
bank governor Zhou Xiaochuan, who said his country had a clear
plan to diversify its $1 trillion in foreign-exchange reserves
and is considering various options to do so."
Normally, the more skeptical
foreign investors become, the higher interest rates must go to
entice them to continue raising their hands at Treasury auctions
and to keep them from dumping their existing holdings.
But even that route, at least
for now, is closed. That's due to the critical role of housing
in today's economy and in the financial statements of so many
millions of American homeowners. Simply, higher interest rates
would devastate the already weak housing market and bring ruin
to a heavily indebted populace, especially cash-strapped boomers,
and further ratchet up the cost of government borrowing. In other
words, raising rates is not an option.
So what are nervous bureaucrats
to do?
The answer is to depreciate
the currency - and as quietly as possible. That allows the government
to meet its obligations, but with ever more worthless dollars.
It's their only way to buy time.
In fact, Fed Chairman Ben Bernanke
virtually gave the game book away in a speech in Frankfurt on
November 10.
"It would be fair to say
that monetary and credit aggregates have not played a central
role in the formulation of U.S. monetary policy."
In other words, the total amount
of money in the system - what we "print" -- is whatever
the government finds convenient from one day to the next. That's
a politic way of admitting that the U.S. government is planning
to paper over all its many obligations and accelerate a trend
that has been in motion since the creation of the Federal Reserve
in 1913.
Make no mistake, it's a desperate
strategy, but at this point it's the only option for a government
whose decades of reckless spending have led the economy into
a box canyon, the floor of which is covered in quicksand. There
is no way out. The best they can hope for is to stall the inevitable
for as long as they can. "Not on my watch" is the phrase
of the day.
The Death of the Dollar
In this age of instant communication,
the government can't hide the truth - at least not for long.
So, no matter that they have stopped publishing M-3 money supply
numbers, recognition that we are between a rock and a hard place
is spreading.
Reckoning day is not far off.
And when it comes, it will rush in faster and more brutally than
almost anyone expects. The world's financial picture will be
redrawn from scratch, and a painful unwinding of the economic
dislocations built up by decades of political pandering will
begin.
While no one can say with certainty
how the disaster will play out, there is one truth you can take
to the bank. Throughout all of human history, gold has always
held its value as a monetary instrument. That sort of shock-proof
durability cannot be claimed by any paper currency, certainly
not by the dollar, which has lost 70% [corrected]
of its value since abandoning the gold standard in 1971. With
the dollar untethered from gold, the worth of the $20 bill in
your pocket is headed for its intrinsic value... as a recyclable.
In the weeks, months and years
just ahead, gold, silver and other tangible assets are again
going to become much more than financial obscurities tucked away
on the commodities page. They're about to become front-page news.
When that happens, the prices
of the metals - and of the high-quality gold and silver shares
we follow on behalf of subscribers to our International
Speculator -- are heading for the moon.
Hopefully, enough of the 78
million baby boomers will catch on to the underlying realities
of their situation early enough to take advantage. For many,
it may be their last chance at enjoying dignified golden years
- instead of laboring through their eighth decade under the Golden
Arches.
-David Galland
David Galland
is Managing Director of Casey Research, LLC., publishers of Doug
Casey's International Speculator, a monthly newsletter focused on identifying
high quality natural resource stocks with the potential for a
double or better over the next 12 months. A 3-month
risk-free trial
to the letter is available for interested investors.
-Doug Casey
The International Speculator
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