LILA RAJIVA: The Mind-Body Politic

Doug Casey on the Bull’s Case for Gold

March 26, 2008

Posted in: Economy, Finance

An interview with the editors of BIG GOLD, Casey Research

As part of our survey of expectations for gold in 2008, one of our BIG GOLD editors interviewed famous contrarian investor and Casey Research Chairman Doug Casey. Here’s his take on what’s to come.

BIG GOLD: Gold has passed its 1980 nominal high. Why do you think it’s breaking out now?

Doug Casey: The fact that gold has moved above its 1980 high is meaningful only in an academic way; today’s dollar is worth only a fraction of a 1980 dollar. From here on, it’s best to avoid thinking about anything just in terms of dollars. What’s developing now is likely to be the biggest monetary crisis of the past 100 years, potentially the biggest since the U.S. Civil War. This isn’t a prediction, just an appraisal of the tumultuous possibilities that are opening up. Americans are going to have to learn to think more like Argentines: if an Argentine tried to keep track of value in the local peso, he’d be bankrupt in 5 years.

BG: There are those who agree with you about a possible crisis but believe we’ll see deflation instead of inflation, or at least deflation before inflation.

DC: What we’re facing is a monumental monetary crisis that can take one of two forms. It can be deflationary, where billions and billions of dollars are wiped out through bankruptcies and defaults, and the remaining dollars become worth more as a result. Or it can be inflationary, where the world’s central banks keep dollar assets from being wiped out by supporting the issuance of debt — which is what they’re currently doing, by propping up failing banks and homeowners who can’t pay their mortgages. Those are your two alternatives. You can have either one – it’s really a flip of the coin as to which you get.

It’s also possible you can have both at the same time. You could have deflation in some areas of the economy, such as real estate, which is happening now, and inflation in other areas of the economy, where prices are going up, as with food and oil.

I’m of the opinion that government is so big and so powerful now, and the average person – idiotically – relies on it so heavily, that much higher inflation is inevitable. They’re certainly going to do their very best to keep a deflationary collapse from happening, because they all remember what it was like in the U.S. in the 1930s. Yet not too many people think about Germany’s inflationary collapse in the 1920s. It was much more unpleasant.

Inflation is the enemy of the person who works, saves and invests. But it’s the friend of the speculator.