The truth is, believers in liberty do account for environmental preservation. The difference is that while statists insist on government bureaucracy and subjective, whimsical regulation and lever-pulling, libertarians, as we do, stick to our objective principles to find that environmental protection is baked right in! How convenient.

Vedran Vuk of Casey Research explains,

Since Casey Research invests in energy and mining companies, I want to discuss a theoretical idea regarding the economics of pollution, called “externalities.” Despite what some readers might think, I do care about the environment. I just don’t see current government regulations as a way to solve our problems. In fact, those regulations often make the lives of average people worse.

Let’s start with positive externalities. They’re a little harder to come up with but I’ll try to make a good example. Suppose that I buy a rundown house on a nice block. I put a lot of money into fixing it up and doing some amazing landscaping work. Suddenly, this former dump on the block becomes one of the best-looking houses. My property value increases, but so do the property values of my neighbors. They didn’t put a single nickel into my project, yet their property values may rise by thousands without the eyesore next door. This unpaid gain is a positive externality.

In a way, externalities are inefficiencies. We want people to produce positive externalities, but we often have no way of compensating them for doing so. One is not going to make friends by giving a neighbor $200 and telling him, “It would be great for the whole neighborhood if you would fix your yard.”

The bigger concern is negative externalities. Suppose a coal-powered plant is near someone’s house. The person buys electricity from the plant at market prices. However, along with the price of electricity, the customer pays an additional price from the increased pollution. The fish nearby have more mercury in their bodies, and the air is horrible. Not every customer pays this price. For those living much farther away from the plant, the externalities are lower. The coal plant does not pay the price of this damage; instead the plant’s neighbors pay the price in a reduced quality of life. Yet pollution is a cost of production.

Just like the positive externalities problem, it’s difficult for an individual to be compensated by the coal plant – especially if the damages are hard to quantify. Furthermore, what’s the price of clean air? I don’t know. For some people who enjoy living in the countryside, it could run in the thousands of dollars per year.

To produce good economic incentives, these externalities must be accounted for. After all, society benefits from production only if value is created. For example, let’s consider a company that manufactures cleaning chemicals for $4 and sells them for $5. Society gains by at least $1. Resources worth $4 have been transformed into products worth $5 to someone. The economic incentive is to keep repeating this process until the profit disappears. However, imagine this case: The chemicals cost $4 and can be sold for $5, but the process also causes $2 of environmental damage. The producer doesn’t pay the cost of the environmental damage, but he still has a personal incentive to produce the chemicals. However, society is worse off overall, because the process costs $6 for only an output of $5.

This is where the government economists step in with suggestions for taxes. If we place a $2 tax on the chemical company, then the incentive will be aligned. Yes, that’s partially true. However, this doesn’t necessarily solve the problem of pollution. Think again about the example of living next to a coal plant. Suppose the government places an extra tax on the plant, and it continues to operate. Who will pay for that tax? Unfortunately, the customers will likely bear some of the cost through higher prices. In fact, the resident will be worse off after the tax. He still bears the damages from pollution, and he must pay higher prices. That tax money doesn’t go toward compensating the victim of the pollution – it goes to paying additional bureaucrats at the EPA.

Environmentalists almost always support laws that punish companies but don’t actually protect people. In fact, they actually make things worse for the regular Joe. If a company meets the regulations and pays its taxes, it can basically do whatever it wants from there. And that’s a big reason why I’m not a fan of current regulations. The environmental laws are more often than not just barriers or taxes. They don’t do a good job of protecting the little guy.

So what would be my solution? Make companies respect the private property and lives of other people. Don’t hold them responsible to the government; rather, hold them directly responsible to individuals in the community. If a company is hurting people and their property, the firm better be writing them checks instead of sending money to the EPA. It’s really not a radical idea. We do this in courts all the time. If a business hurts someone, it’s accountable. For some reason, the same thing doesn’t apply to pollution. Rather than devising environmental regulations and taxes, just hold the companies accountable for damages. That should create all sorts of positive incentives regarding pollution and the location of industrial sites.

Perhaps I’ll get back to this subject when we have some extra time. It’s a complicated topic and certainly requires more space than this introduction allows.

The following conversation took place between a friend’s son and I; he’s a bright but relatively young investor. He had purchased some gold based on some things I’d told his father. Shortly afterward, the price dropped hard. As you’ll see, he was not very happy with my advice and said so in an email to me. So I called him…

I: Sounds like you’re upset.

Friend: Yeah, that’s putting it mildly. What the hell am I supposed to do now?

I: Because the gold price has dropped?

Friend: Yes! It’s down 15% in a month! I thought you said this was going to be a good investment.

I: It is. And it will be. You might even consider buying more here if you have the funds.

Friend: I have some other money, but why would I put it in gold? It’s losing money.

I: Because it’s on sale. Because it’s cheaper now than when you bought it. And especially because none of the reasons for buying it have gone away.

Friend: That doesn’t mean it’s going to go back up.

I: As I told your dad, there are no guarantees, but I think it will have to go higher. Either way, it will hold its purchasing power over time. We’re holding it as an alternate currency, a more sound form of money that can’t be debased.

Friend: Yeah, well, my money just got debased, big time. It needs to go up 20% for me just to get back to even.

I: Five years from now your dollars will have lost at least 10% of their value, based just on current trends. There’s a good chance it will lose more than that. And gold will probably rise more than 10% a year. At some point it’’s likely to go into a bubble.

Friend: [silence.]

I: Look, I know you’re upset, but I’d hate to see you bail. This is one of the best investments we can make this decade.

Friend [relenting a little bit]: You really believe that.

I: I can’t promise you anything, but yes, I do.

Friend: And that’s because you think inflation is coming.

I: It’s for a lot of reasons, and that’s one of them. Inflation is virtually baked in the cake; the dollar’s long-term problems will be impractical to resolve; and the global economy is on high alert. This is exactly the kind of circumstances gold is for.

Friend: Then why is it falling?

I: Institutions need cash and liquidity, and gold offers a bid. Besides, nothing goes up in a straight line, and gold had just run up 35%. It was time for a break.

Friend: So this big drop really doesn’t worry you.

I: It doesn’t. I’m buying. In fact, I’ll prove it to you – send me your gold and I’ll buy it from you.

Friend: [Silence.]

I: I know it doesn’t feel good right now, and it may take some time for it to make another new high, but gold is too important not to own here. It’s a long-term trade, so plan on holding it for a while. In fact, if it helps, just forget about the fact that you own it – go do something fun and have a beer at the pub.

Friend: [a little chuckle].

I: I don’t think you made a mistake buying at the price you did, in spite of it being lower now. Odds are high you’ll be happy in a few years.

Friend: [pause] All right…

I’m glad my son’s friend decided to hold on, because that conversation took place in June, 2006. He’d bought gold at around $700 and watched a month later as the price fell to as low as $567.

Gold ended up declining a total of 21% in just five weeks before bottoming, after a run-up of 35% (sound familiar?). And yes, it took over a year before it hit a new high.

Yet my son’s friend – now older and wiser – wishes he could go back in time and make the same mistake again and buy gold at $700. His investment is sitting on more than a double, in spite of buying at a temporary peak.

I think that a few years from now we’ll all wish we could go “back in time” and buy gold at $1,700. And I believe you’ll still feel that way if gold falls to $1,500, as some writers are projecting.

I think this because circumstances now are worse – and hence more bullish for gold – than they were in 2006. Look at how much money we’ve printed (the monetary base now exceeds $2.6 trillion, a mind-boggling 200% increase since 2006). Look at the state of the global economy – highly vulnerable and propped up by governments. Consider the lingering and inescapable predicament of many European nations – scare tactics aside, how, exactly, will this be resolved in a healthy way? Ask yourself if the outlook for the US dollar is out of the woods (roughly 10% of federal revenue goes solely to debt payments, a figure that is projected to triple). Explain how the reckless path of deficit spending will shift without causing some kind of major impact on the economy (history shows abject deficit spending leads to economic downfall, virtually without exception). Tell me how we avoid massive inflation, an outcome that seems so certain at this point that about the only way to avoid it would be a massive global meltdown – and even then, the Fed would surely print to oblivion.

Like I told my son’s friend, nothing is guaranteed. But until real interest rates are positive again, government leaders instigate honest solutions to our debts and deficits, the global economy becomes an engine of growth, the sovereign debt issues in Europe are genuinely resolved, and global currencies – especially the US dollar – are strong again, I’m buying gold.

Yes, there will be volatility. And yes, a short-term “solution” to what seems like certain default in Greece, for example, would cause some investors to sell gold. But like in the spring of 2006, these are temporary, short-term fixes only. For the tumult that is most likely ahead, there simply isn’t any better currency protection than gold and silver.

Join me in calling your favorite bullion dealer and making the mistake of buying gold at $1,700.

This really underscores something that has been hammered home again and again by James Turk: continue to accumulate precious metals. Set a day of the month and a dollar amount that you’ll spend and make sure to buy consistently every month despite the price. That way you remove emotion from the equation and you continue to accumulate in the midst of this bull market.

But here is something that I found very insightful, from Scott Pluschau.

The Gold Futures today formed a single candle called a "Hammer" on the Daily chart.  This is a well known and popular reversal pattern in Japanese Candlestick analysis.  The hammer shows strong demand at lower prices in the auction. The lower wick of the candle has to be multiple times the size of the body of the candle which can be seen in the chart where I drew a blue oval.  It would be even more bullish if the closing price was higher than the open. 

The hammer in theory represents a turning point, since the Bears tried to push lower but got rejected, weakening them…and now there’s potential for the Bulls to start a short squeeze.  This single candlestick pattern needs confirmation.

When we think of bank runs, we have a mental image of a long line of people in front of a bank in the early 1930s. Or we have a mental image of the scene in "It’s a Wonderful Life," where depositors want their money, and Jimmy Stewart hands out – we never quite got this – $33,000 in honeymoon money to calm them. Yes, $33,000, which was what $2,000 was worth in 1932. Check the inflation calculator of the Bureau of Labor Statistics. (There was something endearing about Frank Capra’s movies, but it wasn’t his economics.)

In 1934, the government created the Federal Deposit Insurance Corporation (FDIC) and an equivalent agency for the savings & loan industry, which lent mortgage money. The depositors received government-subsidized insurance for their accounts, up to a limit that covered most depositors. After that, there were no further long lines of depositors trying to get their money out. So, we live in a mental world created by textbooks. The economic theme of the textbooks is universal: the New Deal saved American capitalism from itself. Most modern capitalists believe this.

In fact, the FDIC and FSLIC merely shifted bank runs from the front door to the back door. The large deposits are far above the insurance limit set by the U.S. government. The official limit was raised by the government from $100,000 to $250,000 during the crisis week of October 3, 2008. This temporary measure was made permanent in July 2010.

The big money for large banks is not gained from depositors who walk in the door. It is gained from pools of investment money that are not covered by any form of insurance. This is short-term money, usually tied up for no more than a few days. This is the heart of bank profits. The banks are borrowed short – days, not months – and lent long: years, not months. These are profitable arrangements because, except at the start of traditional recessions, long-term rates are above short-term rates: a positive yield curve. "Borrow low-lend high" is the law and the prophets for fractional reserve banking.

Investment banks – RIP – in August 2008 did not have to deal with the general public. They did not offer accounts to little people. They made lots of money in the far less regulated capital markets for very rich people.

But in March 2008, Bear Stearns tottered at the edge of bankruptcy. A rumor spread that it could not roll over its debts. The rumor became reality within three days. This was a self-fulfilling prophecy. Wikipedia summarizes:

In March 2008, the Federal Reserve Bank of New York provided an emergency loan to try to avert a sudden collapse of the company. The company could not be saved, however, and was sold to JP Morgan Chase for $10 per share, a price far below the 52-week high of $133.20 per share, traded before the crisis, although not as low as the two dollars per share originally agreed upon by Bear Stearns and JP Morgan Chase.
The bank had existed since 1923. It was highly respected, Wikipedia says:

In 2005-2007, Bear Stearns was recognized as the "Most Admired" securities firm in Fortune’s "America’s Most Admired Companies" survey, and second overall in the security firm section. The annual survey is a prestigious ranking of employee talent, quality of risk management and business innovation. This was the second time in three years that Bear Stearns had achieved this "top" distinction.
In other words, the financial community didn’t have a clue as to how vulnerable the company was. The experts were idiots. They were convinced that to be borrowed short and lent long is smart business. That is to say, they rejected Austrian School economics in general and Ludwig von Mises’ Theory of Money and Credit (1912) in particular.

"During the week of July 16, 2007, Bear Stearns disclosed that the two subprime hedge funds had lost nearly all of their value amid a rapid decline in the market for subprime mortgages." Lawsuits by investors began. Still, the financial world shrugged its shoulders. "No problem."

But what of the Securities and Exchange Commission, which regulated the investment banks. It was blind right to the end?

On March 20, Securities and Exchange Commission Chairman Christopher Cox said the collapse of Bear Stearns was due to a lack of confidence, not a lack of capital. Cox noted that Bear Stearns’s problems escalated when rumors spread about its liquidity crisis which in turn eroded investor confidence in the firm. "Notwithstanding that Bear Stearns continued to have high quality collateral to provide as security for borrowings, market counterparties became less willing to enter into collateralized funding arrangements with Bear Stearns," said Cox. Bear Stearns’ liquidity pool started at $18.1 billion on March 10 and then plummeted to $2 billion on March 13. Ultimately market rumors about Bear Stearns’ difficulties became self-fulfilling, Cox said.
This was indeed the heart of the matter: a lack of confidence. When you are running a confidence game – which is what "borrowed short and lent long" is inherently – you always face the threat of a crisis of confidence by your lenders.

No lack of capital? Ha! The essence of capital for all fractional reserve banking is lenders’ confidence. Lose it, and the end is nigh.

Why? Because short-term debt matures in days and must be re-financed when it matures. If there is no one ready to buy the next round of debt, the bank is busted. This does not take weeks. It takes days.

The bank runs that we have in our mind rest on an image of depositors asking for currency. That image is wrong, and has been wrong since 1934. The correct image is that of a man in a suit looking at a computer screen. He sees that the deadline for repayment of a loan with many zeroes is due today. He contacts the bank to which his firm has made the loan. "Please transfer our money to our bank."

That’s it. Nothing else. No lining up. No presenting of a savings passbook. No exchange of pieces of paper. Just a notification by email that the loan will not be rolled over, so please send a bank wire of the funds. It’s all very clean. It’s all very fast. It takes one working day to complete the transaction. The words, "your check is in the mail," is not applicable.

In mid-September, Lehman Brothers, another investment banking firm, went through the same experience. In this case, however, the U.S. government and the New York Federal Reserve Bank refused to assist the firm. Henry "Goldman Sachs" Paulson, the Secretary of the Treasury, was seized by a fit of debt ceiling fever. He was the man who had unilaterally nationalized Fannie Mae and Freddie Mac on September 7. Over the weekend of September 13, no one came to the rescue of Lehman Brothers. On September 15, it filed for bankruptcy. It was the largest bankruptcy in U.S. history.

That sent a message to the other investment bankers. We read in the Wiki entry for Morgan Stanley,

Morgan Stanley and Goldman Sachs, the last two major investment banks in the US, both announced on September 22, 2008 that they would become traditional bank holding companies regulated by the Federal Reserve. The Federal Reserve’s approval of their bid to become banks ended the ascendancy of securities firms, 75 years after Congress separated them from deposit-taking lenders, and capped weeks of chaos that sent Lehman Brothers Holdings Inc. into bankruptcy and led to the rushed sale of Merrill Lynch & Co. to Bank of America Corp.
Can you imagine the lawyers? They had to complete the restructuring of these banks in one week. They did it. And then, lo and behold, the FED tossed the lifelines: $107 billion for Morgan Stanley, $69 billion for Goldman Sachs. All of this was done in complete secrecy. Nothing about it appeared on the FED’s balance sheets.

NOW IT’S GOVERNMENTS’ TURN

Greece is now paying 43% per annum on 2-year bonds. This is very close to the end of the road. This is a loan shark interest rate, but it is not the Mafia that is acting as the lender of last resort. It is Europe’s most sophisticated investors. It is also the European Central Bank. The London Telegraph reports:

The International Monetary Fund’s partner in the recent international bail-out missions is itself in danger of becoming a liability, Open Europe has argued.

In a report published on Monday entitled "A House Built on Sand?", Open Europe has calculated that the ECB has a total exposure of about €444bn (£397bn) to "struggling eurozone economies".
The bank is now "23 to 24 times levered" as a result of bailing out Greece, Ireland, Portugal and Spain.

The London-based think tank argued: "Should the ECB see its assets fall by just 4.23pc in value . . . its entire capital base would be wiped out."

The experts are desperately trying to conceal the thinness of the ice they are skating on. Legally, they are skating on behalf of the voters. Operationally, they are skating on behalf of the largest commercial banks. Their sovereign status makes them immune to lawsuits. But the market is imposing sanctions: 43% interest.

Bill Clinton avoided this, because he took Robert Rubin’s advice. The bond traders did not get him.

They are going to get Greece. They are going to get Portugal, Spain, and Italy.

Who will bail out the banks? How much money will it take?

CONCLUSION

You might imagine that very smart experts would have seen this coming. They did not, any more than they saw the Bear Stearns/Lehman Brothers crisis coming. The best and the brightest respect each other. They see their peers borrowing short and lending long, and they conclude that their peers are the smartest guys in the room.

These are people who thought Bernie Madoff was an investment genius. They thought the same of Bernie Cornfeld a generation earlier.

Avoid thin ice.

This was it, as Michael Jackson would say.

This was the moment of truth, the time when my thesis would really be put to the test. And now I have finally been thoroughly convinced of what the future of the United States will look like.

The question to be answered in the last few weeks boiled down to this: Would the U.S. finally swallow its bitter medicine, or will it continue to kick-the-can and eventually meet a much more grievous fate? In my mind, this has been answered. The final nail is in the coffin.

If the U.S. government had refused to go further into debt and instead the public treasury was forced to live within its means, then painful as it would initially be, the ship would ultimately be righted. I would have been proven dead wrong on my expectation for a hyperinflation of the U.S. dollar. But that is not what happened.

Don’t get me wrong, this outcome is not what I hoped for. It is not bittersweet, it’s even beyond bitter. It’s just plain horrible.

In a few years I would have loved to have been humbled by missing the mark on my hyperinflation forecast. But that won’t be the case now.

There are two astonishing facets of this debt drama that have revealed themselves over the course of the last few weeks. These provide the foundation for my nail-in-the-coffin declaration.

The first is concerning the D.C. politicians. These clowns have proven once and for all that they simply do not have the stomach to make the cuts necessary for the U.S. to get its fiscal house in order. Maybe this one is not so astonishing.

The second facet of this circus which should be considered has to do with the voters. Just like their representatives, the voters themselves proved that they too do not have the stomach to make the cuts necessary in order for their own treasury to remain solvent. What’s more, the frenzy they were whipped into by the demagogues and boogeymen was almost comical.

Get this: American voters were told that their treasury, which takes in over $2 trillion a year was going to default on interest payments that amount to a little over $300 billion a year. This caused outright hysteria. I even noticed it among New Zealanders.

It’s almost as if nobody has ever been in debt before. Not even that, it’s almost as if nobody can do some simple math.

Look, you don’t have to default on a payment of 30 cents if you have $2.20. You don’t need to extend your line of credit to pay the 30 cents, either. Even a product of the American public school system should be able to figure that one out.

The ridiculous thing about all of this is that total U.S. government debt is well north of the often cited $14 trillion and change. The treasury uses accounting techniques that would land any private corporation in court–the most blatant of which is that they just simply don’t count their pension liabilities.

In any case, I’m glad that’s all over.

I’ll be watching for a significant correction in all things that have moved conspicuously of late (like gold and the NZD) as the world breathes a sigh of relief and “normal” market trends kick back into gear.

If we’re lucky, the can still has another 2 or 3 years of road left, but it’s now a certainty that the road leads off a cliff.

Speaking of farce and fiction, the latest struggle in Congress over raising the debt ceiling could serve as a poster child.

Do you seriously think for even a second – yes, you, dear reader –that the U.S. is about to default on its many debts?

Of course, in time the U.S. government (along with many others) will default. However, they are highly unlikely to do so by decree or even through the sort of inaction now on display, but rather by continuing with the time-honored tradition of screwing debtors via the slow-roasting method of monetary inflation.

Yet everybody today seems to want to talk about the drama now being presented by the Congressional Players – a troupe of actors whose skills at pretense and artifice might very well qualify them for gilded trophies at awards banquets. But rather than glittering statuettes, these masters of the thespian arts settle for undeserved honorifics and the pole position at the public trough. Followed by lifelong pensions.

But to the heart of the current matter, do I think that the current impasse will lead to the dreaded government shutdown (oh, no, not THAT… anything but THAT)?

As a matter of fact, yes. It’s not like it hasn’t happened before – it has, as the direct result of a similar gridlock during the Clinton administration.

Do I think that such a shutdown will have any more lasting effect on the trajectory of the economy than what I had for breakfast this morning (raw oats with a dab of maple syrup, milk, a sprinkling of strawberries, and half of a banana, sliced)?

Absolutely not. Sorry to say, but the trajectory of the economy at this point is well established, and closely resembles that of a comet streaking through the night sky. What’s left of the solid matter of the nation’s accumulated private wealth is fast being burned off by an unstoppable inferno of government spending, inevitably leading to an earth-shaking crash.

I make this dire prediction not out of an aberrant psychology (I hope), or in an outburst of self-promotion for Casey Research because the big-picture scenario we have so long warned of is unfolding according to script, but rather due to certain fundamental truths about our current situation.

And that brings me to the five things you need to know about the U.S. economy (much of which also applies to the other large developed nations)…

1. The U.S. remains in the grip of a debt-induced depression. While personal levels of debt have eased somewhat since the crash, most of the improvements have come at the expense of debt repudiation, and are offset by the steep decline in housing prices that have left something like 50% of mortgages underwater. Meanwhile the debt on the balance sheets of the U.S. government and the country’s largest financial institutions remain at record highs: and much of that debt is toxic.
   So, what’s the one thing that the heavily indebted – individual or institution – most fears? Answer: Rising interest rates.
2. Interest rates can’t stay low. Despite the debt, interest rates remain near historic lows – which is to say, well below the norm. At some point they have to at least revert to the mean, which would push the 10-year treasury rate north of 5% from today’s rate below 3%. But in reality, the levels of monetary inflation, the nature of the debt, and mind-numbing scale of the government’s other financial obligations – in total upwards of $70 trillion – all but guarantee that interest rates must go much higher than 5%. That in turn torpedoes the half-sunk real estate market and risks kicking off a debt death spiral as higher interest payments suck the financial juice out of the economy and causes debtors to demand even higher rates. Say hello to Doug Casey’s Great Depression.
   The last time the U.S. economy found itself in such dire straits was back in the 1970s, when the problem was raging price inflation. Back then, though, the debt levels were considerably lower than they are now. And Fed Chairman Paul Volcker had the latitude to raise rates, and by so doing helped to choke out inflation. By contrast, today the Fed is virtually helpless. Rates certainly can’t be pushed lower by any appreciable amount, and the Fed sure as hell doesn’t want them to go up. While the Fed has been a primary factor in controlling interest rates up to this point in the crisis, in the near future the direction of interest rates – particularly long-term rates – will increasingly be determined by skittish market participants. Specifically, the sovereign and institutional buyers whom the U.S. Treasury so desperately needs to keep showing up at their auctions.
   To use a metaphor, the situation today is akin to a bunch of gunfighters facing off in a dusty street, hands poised over their six-shooters, eyes nervously shifting this way and that – to the eurozone, to the housing markets, to the situation in Japan, to the U.S. government spending, to the crumbling balance sheets of the banks, to the Fed. Everyone is anxiously watching, waiting for someone else to start making the first move. The standoff can’t last – and when the lead starts flying, there will be few places to hide.
3. There is no non-disruptive way to resolve the debt. I can’t stress this point enough. Simply, there is no magic wand that can be waved in order to make the debt go away. In order for this crisis to end, someone’s ox has to be gored, and gored badly.
   Yet, because we live in a democracy, where any politician wanting to be re-elected has to cater to their constituency – and politicians make their careers by being re-elected – it is considered business as usual for the denizens of Washington to hand out bread and put on circuses. It is this situation that has brought us to this place in the first place.
   But it is the flip side of that equation that provides a clear signal as to where things are headed. Namely that politicians will jump through every possible hoop in order to avoid making politically unpopular decisions – even if they know that failing to act will have serious and lasting negative consequences for the nation. The key is to make sure that those consequences only become acute during the next guy’s watch.
   The key point is that there is no easy fix, and there is no politically convenient time to take the draconian measures needed to rebalance the budget and get the nation’s finances in order. To actually take the measures needed to curb the deficits, let alone reduce the debt, would be political suicide.
   So there will be a lot of talk blowing out of Washington, but if you have to make a bet, bet on the crisis continuing and getting worse. Greece provides a reasonable look at how things are likely to unwind. And the problems in Greece – problems which will increasingly include social unrest – are far from over.
4. The monetary system is irretrievably broken and will be replaced. For a recent edition of The Casey Report I interviewed monetary scholar Edwin Vieira, who pointed out that every 30 to 40 years the reigning monetary system fails and has to be retooled. The last time around for the U.S. was in 1971, when Nixon cancelled the convertibility of dollars into gold. Remarkably, the world bought into the unbacked dollar as its reserve currency, but only because that was the path of least resistance. But here we are 40 years later, and it is clear to anyone paying attention that the monetary system is irretrievably broken and will fail.
   What will replace it is still unclear, but I suspect that when the stuff really hits the fan and inflation rages the government will try the approach taken by the Germans to end their hyperinflation back in the 1920s, coming up with the equivalent of the Rentenmark – a dollar that is loosely linked to some basket of commodities and financial instruments. It won’t be convertible, because it would be impossible for bank tellers to exchange your dollar for a cup of oil, and a coupon off of a bond, and a chip of gold, or whatever makes up the basket – but it might restore some semblance of confidence in the currency. That’s one option. Another is that some government decides to make its currency convertible into precious metals; but that will only happen when all other less fiscally restraining systems have been floated and failed. Simply, at this point we can’t know what will replace the current monetary system, or when. All we can know is that the status quo cannot and so will not survive this crisis.
   Regardless, between now and the point in time where the Fed throws in the towel on today’s fiat monetary system, you would have to be naïve in the extreme not to expect volatility, uncertainty, and wholesale financial dislocations.
5. The government is not your friend. Another simple truth is that the politicians, being just average humans, will always look after themselves first. They are well aware how difficult it is becoming to kick the can down the road and are only growing more desperate. And as the economy worsens and cries from the masses grow for the government to do “something,” the politicians will grow more desperate still.

   As should now be clear to anyone, today’s political apparatuses are not operating based on any core principles – other than getting members of the government re-elected, that is. Thus the government of the U.S. and all the highly indebted Western nations are free to do almost anything in the name of the “public good.” Exchange controls? Higher taxes on the productive elements of society? Deliberate debasing of the currency? Outright confiscations for regulatory infractions? All of that – and literally anything else that helps mollify the masses and continue the charade – is likely.
   Ironically, the worse the situation gets – and today’s GDP data again confirm the weakness in the economy – the greater the demands will be from the public for the government to do more, even though the government was mostly responsible for bringing us to this place. And so the government’s reach into your private affairs, and especially your finances, will only grow.
   As this coincides with the rapid deployment of new monitoring technologies and procedures that allow the U.S. government in particular to cast its Sauron-like eye into every nook of the globe, the free flow of capital and legal avoidance of whatever new taxation schemes are passed will become increasingly challenging.

Summing up…

• Unless and until the deficits and the debt are tangibly dealt with, expect things only to worsen and prepare accordingly. As there will never be a good time to deal with the debt, the situation will continue to deteriorate until there is a systematic breakdown.
• Inflation remains the only politically viable way to continue the charade. Pretty much anything tangible will help offset the coming inflation, though the monetary metals of gold and silver will likely do better than most.
• There is a lot of cash floating around. As equities are representative of a tangible (i.e., a share in an operating company), selective equities – especially those that provide essential services – will probably do okay, even if only keeping up with the inflation. Those of precious metals companies should do much better than that, but again, being selective is key because a lot of these companies actively pursue policies that are not advantageous to shareholders, most importantly steadily diluting existing shareholders by regularly issuing large swaths of new shares.
• Diversification across two or more political jurisdictions makes a lot of sense to me. There is no place you can invest which doesn’t entail taking some risk at this point, but that fact only adds weight to the argument for spreading your assets around.

Finally, it’s important to remember that, as far as we know, you only live once. In some ways the transition we are going to live through is going to be pretty exciting. Perilous, certainly, but exciting as well. If you take the right steps, you should come out much better than most.

But if you overly obsess about this stuff – or the latest disingenuous move by the politicians – it will drive you crazy. Thus, it’s better to take the steps necessary to get in sync with the way things are and then get on with your life.

We’re all familiar with the saying “Give a man a fish and feed him for a day. Teach a man to fish and feed him for life.” But in my opinion, this statement is misleading. It implies that only the skill of fishing separates a man from a life of sustenance. In real life, the story is much different.

Hence, I would like to add an extra sentence to the old saying. Here’s how it should really go: “Give a man a fish and feed him for a day. Teach a man to fish and feed him for life. But teach a man to fish in a country without lakes or oceans, and you’ve wasted everyone’s time.”

This is important to remember, especially in regard to education. From an early age, we’ve been taught that education is the key to all doors. Unfortunately, reality tells us a much different story. For example, think of the stereotypical Russian physicist driving a taxi for a living. It’s a stereotype, but there’s some truth behind it. An education is only as good as its environment. And fishing is only useful at a lake with fish.

Think about some of these questions… Where is a doctorate degree more useful – in Sierra Leone or the United States? The answer is pretty clear. Could education save Uganda? If everyone in Uganda received a Ph.D., would the country improve? Probably not. It would have the same messed-up government limiting people’s opportunities. If anything, Uganda would see a massive exodus rather than economic revitalization.

Education by itself cannot make a country prosperous. It only pays off in societies where opportunity and entrepreneurship are allowed to flourish.

Fishing can help us better understand this as well. What’s better: being an extremely talented fisherman in a lake with almost no fish, or being an average fisherman in a place where the fish are practically jumping out of the water? Sure, the U.S. doesn’t do well on the international exams. However, that’s not what made it great. Maybe we don’t have the best education in the world, but in the past, we had a society of free markets and great opportunities. We had more fish in our lake than anyone else.

Other places such as Russia and Eastern Europe had some really smart people – great fisherman – but that doesn’t matter when the government is polluting the stream and killing the catch.

Yes, education is important, but it can’t drag us out of a recession. We can’t study ourselves into prosperity. Instead, America needs to foster opportunity; it needs to increase the number of fish in the lake again. If companies can start with ease and businesses can operate without the heavy hand of government upon them, it won’t take a nation of geniuses to reach prosperity. Our kids can all study physics, chemistry, computer science, engineering, etc., but someone must employ those degree-holders. Without a free society to create jobs and innovations, those degrees are no more valuable than the paper that they are printed on.

the critics of using gold as money often cite the inflexibility of gold supply as a major negative. When they make such a claim they are either being disingenuous or displaying ignorance of the fact that flexibility of supply is most definitely NOT a desirable characteristic of money. Flexibility of money supply benefits the government and the banking industry, but because it distorts price signals it hurts the generators of real wealth.

So my grandmother is trying to change the amount of taxes she has withheld from her state pension she receives.

First of all no one answers the phone. It rang for 35 minutes she said.  I help her look up an email for the office.

We email the office and they respond with a form email that says.

"Your email is important to us. We will respond in 15 to 20 business days unless we need to retrieve your file and then it may be 20 to 30 business days."

Can you imagine if I said that to a client? Typically if I don’t respond to a client within 24 hours you need to check to see if I’m dead.

You should have heard the grocery store owner I was talking to today.  The government sets aside $355 million in subsidies for large grocery stores in urban areas

He had to meet with a committee at the White House who determines whether he is permitted to meet with the committee who decides which states to allocate the funds.

Once the state is given the funds the state has a committee that he has to meet with to determine what they can get allocated.