Doug Casey is one of my favorite people. Long before it became a common discussion, he was on national TV explaining the value of free markets and the danger of large government and government debt.
The Doug I know is more than just a bestselling author and an early pioneer in free market economics. He’s also a man who has led a life of action, and even adventure. He’s done business all over the globe with industry leaders, traveling salesmen, bounty hunters, and diamond traders. He’s met with heads of state, negotiated international deals, and publicly debated powerful, deep-state-embedded politicians.
All that, and he has the charm to win favor with youngsters.
Years ago, I was sitting in a lounge in an airport in Denver (I think) with my family and Doug came in. I invited him to sit with us, hoping he wouldn’t say anything that would freak out K or the kids. He talked freely for half an hour. And when he left, my Number Three Son, who was about 12 years old at the time, said, “Dad. That guy is one of your coolest friends.”
In the following excerpt from an interview by International Man, Doug talks about the Federal Reserve’s recent rate cut and his view of the current administration and the future of the US economy. (I’ve done some editing on this to emphasize what I feel were Doug’s most important points.)
International Man: The Federal Reserve recently cut interest rates. What does it signal about the current state of the US economy?
Doug Casey: Let me introduce the subject with a joke.
Einstein dies and goes to heaven. St. Peter greets him effusively and says, “Unfortunately, Mr. Einstein, because we’re a centrally planned economy – for obvious reasons – we have a temporary housing shortage, and have to put you up with three roommates for a while.”
Einstein goes to his new apartment, and the first guy comes up to him and says, “Mr. Einstein, I have an IQ of 130, and I’d love to get to know you better.” Einstein says, “Great. After lunch, let’s bounce around a few concepts of astrophysics that have been on my mind.”
The second guy comes up and says, “Mr. Einstein, I’m not as smart as that first guy. I’ve only got an IQ of 100, but I still want to get to know you better.” Einstein says, “Great. Let me put away my grip, and let’s play a game of chess.”
The third guy comes up and says, “Mr. Einstein, I’m not as smart as those other guys. I’ve only got an IQ of 70, but I still want to get to know you.” Einstein says, “So, where do you think interest rates are headed?”
International Man: That’s funny!
Doug Casey: It also says a lot about guessing the direction of interest rates, which matters. Because they’re actually the most important single indicator in an economy.
International Man: How so?
Doug Casey: Interest rates are the price of capital, the lifeblood of an economy. In terms of their importance to the economy, you can think of them as blood pressure and pulse readings for measuring the health of humans. When a central bank lowers rates, it’s like giving a patient amphetamines. When interest rates are lowered, it’s like giving the patient barbiturates.
Central bankers are like doctors who are given the challenge of healing a sick patient and then keeping him healthy. But the only medical treatments they can use are amphetamines and barbituates.
I understand why Trump wants lower interest rates. They encourage people to buy things, consume, and borrow money. That increases consumption, business earnings, and employment. But this, like the artificial high you get from amphetamines, is only temporary because ultimately it discourages saving, and without saving, there’s no capital. The immediate and direct consequences of lowering rates might be an artificial boom. But the indirect and delayed consequences are a very real bust.
Interest rates should not be dictated by politicians and bureaucrats. Only free and dynamic conversations between borrowers and lenders can determine the “correct” level of rates.
International Man: Traditionally, the Fed has two mandates: price stability and maximum employment. Lately, Stephen Miran – a Trump-appointed Fed governor – has argued for a “third mandate”: moderating long-term interest rates. What do you make of that?
Doug Casey: Not only shouldn’t the Federal Reserve have mandates – it should be abolished. Unfortunately, it’s become so intertwined with the economy that people have come to believe it’s an essential component of the cosmic firmament. The Fed determines the amount of money and credit, its cost, and the way the banks operate. It finances the government’s debt, which is especially important since the government is bankrupt. But I hate talking about what “should” happen; “should” only happens in a dream world.
Initially, the Fed only had one mandate: price stability. That alone was a ridiculous goal. Then, maximum employment became the Fed’s second mandate – also impossible and absurd. And now they’ve taken on a job that may be even more ridiculous: controlling long-term interest rates.
Since the Fed was created, the dollar has lost over 95% of its value. Forget about price stability; the general price level has gone up by a factor of over 20, which is a total and abject failure. The Fed is, by necessity, an institution committed to the printing of money, which means that it is also an engine of inflation….
These people don’t have a clue about economics or the way the world works. And if Trump knows any better, he’s not acting on it. He wants to pack the Fed with puppets who will print money, vainly trying to keep interest rates below the rate of currency debasement. The result will be a catastrophe….
International Man: For the average American – someone with a mortgage, some savings, maybe a 401(k) – how do these potential shifts in Fed policy translate into real-life consequences?
Doug Casey: A lower standard of living, class warfare, and eventually chaos….
If you can get a 30-year 6% mortgage now, I’d do it. Long-term rates are headed up, and the dollars you owe will depreciate.
But in the kind of chaos that’s being created in the world today, on many fronts, your best investment is in yourself.
It’s critical that you and your family have as many skills and abilities as possible. No matter how things sort out, you want to be in a position to survive and prosper. I urge you to get my new book, The Preparation. It covers a host of things that most people haven’t even considered. Sorry for the commercial, but I think it’s important.
