My friend Doug Casey has long predicted what he says will become known as The Greater Depression. In 2008 when I worked for him, we thought it had arrived. We didn’t think such a fatally wounded economy could be revived, and yet that’s what happened. Then, since the powers that be (TPTB) did so without addressing any of the underlying causes of the crash, we didn’t think it would work for long… and yet that’s exactly what happened. Instead of a new bust, we got a record boom.
Today, TPTB are doing everything they can to convince people that the exogenous shock of a global pandemic will be quickly dealt with and the good times will resume shortly.
But this time is different.
The shut-down is more sudden and complete. The sight of empty streets and people in surgical masks everywhere is deeply unnerving. People are truly scared. Whether they should be or not, they are.
This is pivotal in an economy held up by nothing more than confidence.
This time, it’s not just perma-bears like Doug and I who are saying that the economic halt could break fragile systems, plunging the world into a new global depression. Even some of the talking heads on financial media are asking if this could happen. And some of their guests are warning that you can’t just shut the economic engine of the world down and expect it to start back up again at the flip of a switch.
Mind you, having underestimated TPTB in 2008, I’m not predicting Doug’s Greater Depression now. But I am saying that it’s possible. And I don’t think this is some tiny, remote possibility.
Even if we say, for the sake of argument, that the US economy was hunky-dory before COVID-19, the global economy very clearly was not. The world as a whole was teetering on the edge of recession—if it had not indeed already slipped over that edge—when the outbreak occurred. The US economy can’t thrive in a vacuum. And while there were some rosy numbers in the US, those were in a context of negative real interest rates and more than a decade of easy money.
The world as a whole was absolutely not ready for this economic shock, and Western countries are ill-prepared to deal with it.
This is worth thinking about, if only in a “prepare for the worst and hope for the best” sort of way.
The Bad News
There’s so much to say here, I could write a science fiction novel about how bad this could get. But apart from the importance of understanding that a truly horrendous time could soon be upon us, I’m not sure how useful that would be. And there’s no time.
In my humble opinion, the single most critical reality to keep in mind is that a depression today could get much worse than the one in the 1930s.
Back then, most people in the world still made their living in agriculture. Among those who didn’t, almost all had family or knew someone who did live on a farm. That’s where many went when they could no longer pay their rent. In today’s service economies that rely on globalized “just in time” distribution systems, a major economic disruption has the potential to leave a large chunk of the population hungry and with nowhere to go… except to the government, which won’t be able to feed and house everyone.
Plus, the psychology of rugged individualism is all but gone. The entitlement mentality has taken over. People unused to hardship are not likely to adapt well. I think we’re likely to see shocking levels of civil unrest, food riots, and increasing levels of the most despicable crimes as people turn against one another.
Another key point is that the worst among us are drawn to the halls of power.
Politicians must be expected to make maximum use of such a crisis to expand their own power.
Robert Higgs documented and explained this phenomenon in his famous book, Crisis and Leviathan.
In my view, this doesn’t just mean higher taxes and regulation, it means greatly curtailed civil liberties and infringement of basic (real) human rights.
The relative immunity of those in power will just attract even more of the psychopaths among us to seek public office. This will increase the harm they do to our systems of governance as well as the corruption and more plainly predatory behavior they engage in.
In short, if the world does sink into a depression, it won’t be just an economic disaster. It will be a social, political, and civilizational disaster of the greatest magnitude.
The Good News
There’s nothing good about an economic depression. Yes, it would likely motivate innovation and could have other positive long-term benefits. This is especially so if you believe, as I do, that the current system is deeply distorted by government interference. If so, a true reset could clear the stage for much better things to come. But it could also clear the way for something much worse. And either way, we’d still have to go through the wringer first.
There is, however, a conventional view that a depression would be deflationary—which is often seen as bearish for gold—and I think that’s wrong.
This idea is, in fact, historically not true: even though the price of gold was state-controlled during the Great Depression, gold increased about 75% when FDR devalued the dollar.
I think that what conventional economists miss is that a depression tends to be deflationary when governments are restrained from creating all the money they want. What we’re seeing today is clearly the opposite. The money-printing presses are fired up to meltdown speed all around the world. The G7 nations just announced unlimited easy money to stimulate the global economy.
We could see an inflationary depression—stagflation on a scale never seen before.
As destructive as that would be elsewhere, it would obviously be very, very good for monetary metals.
That’s not to say that there might not be a brief bout of deflation initially, as people with little or no income stop buying things. But in the end, the printing press always wins. The only way to stop prices from rising in response to the flood of new money already underway would be to implement price controls. That would cause shortages and even more economic chaos and destruction.
Either way, it’s bullish for gold and silver.
What if governments confiscate gold as the US did in the 1930s?
I doubt this will happen—or if it does, it will be an end-game move. Remember that during the Great Depression, gold wasn’t just fixed in price: the US dollar was defined as a certain amount of gold. That definition kept FDR from printing all the dollars he wanted to spend. And even he couldn’t imagine abandoning actual value entirely. He only devalued the dollar, defining it as a smaller amount of gold. It took “Tricky Dick” Nixon to take the US off the gold standard entirely in 1971—after which inflation exploded.
The US dollar’s bedrock definition no longer exists. The physical limitation on how much a government can spend—and the money it can create to do so—was removed long ago. There’s no need for the state to show its hand by confiscating gold today.
But might not soaring gold prices make inflation more obvious to the general population, causing problems for government?
I hope so.
Still, I think it’s more likely that governments would try price controls rather than confiscation. Prices at stores and banks and online businesses are much easier to regulate. Compliance with gold confiscation would be… problematic. (Especially given the overlap in the US between owners of bullion and those other precious metals: guns.)
At any rate, before any of this is likely to happen, we’d be in a much, much higher gold price environment. That should enable disciplined speculators to take profits and convert them to real assets of other sorts along the way, well before price controls or confiscation can become problems.
What to Do
Obviously, accumulating as much gold and silver as practical remains the most prudent financial move we can all make today.
It’s important to have at least a few months’ worth of living expenses—ideally, a couple years’ worth—in bullion under our direct physical control.
For wealth creation, the best gold and silver stocks should deliver in spades over the next few years. The Independent Speculator can help with that if you like, as can My Take on stocks you may already own or be considering.
Fortunately, we don’t have to make hard choices about doing this instead of seeking other opportunities. To me, this path looks both prudent and potentially profitable—with or without the Greater Depression.
In terms of our physical well-being…
It’s not crazy to make sure we have some access to people and places where the impact of potential social upheaval may be blunted or avoided.
Ideally, this would be a quiet place where food is grown.
I realize that not everyone can afford to buy a nice ranch or farm as a backup home. But if anyone in the family lives in such a setting, it wouldn’t hurt to make sure we’re welcome in case the worst does come to pass.
If that’s not an option, well, backyard—and even balcony or window-box—gardening can be a pleasant hobby.
I want to stress that I’m not calling for the end of the world as we know it.
But I am, personally, giving thought to plans for the worst, even as I do hope for the best.
That’s my take,
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