Best of the Week
Most Popular
1.Scottish Independence YES Vote Panic - Scotland Committing Suicide and Terminating the UK? - Nadeem_Walayat
2.Independent Scotland Will Disintegrate as Unionist Regions Demand Referendum's to Rejoin UK - Nadeem_Walayat
3.Bank of England Panic! Scottish Independence Bank Run Already Underway! - Nadeem_Walayat
4.Gold and Silver Price Ready To Go BOOM - Austin_Galt
5.Gold and Silver Potential Price Meltdown Scenario - Rambus_Chartology
6.Scottish Independence UK Catastrophe - The Balkanisation of Britain - Video - Nadeem_Walayat
7.The Price Of Gold And The Art Of War Part I - Darryl_R_Schoon
8.Main Reason Why Scotland Will Vote NO to Independence, 70% Probability - Nadeem_Walayat
9.Heavy Gold and Silver Shorting is Bullish - Zeal_LLC
10.10 Year U.S. Treasury Short Best Place to be Remainder of 2014 - EconMatters
Last 5 days
Scottish Independence Referendum Result NO 55%, YES 45% - Vote Forecast - 18th Sept 14
A Public Bank Option for and Independent Scotland - 17th Sept 14
The Charade of Independence for Scotland and UKIP - 17th Sept 14
Gold Report - U.S. National Debt Surges $1 Trillion In Just 12 Months - 17th Sept 14
How to Find Trading Opportunities in ANY Market Using Fibonacci Analysis - 17th Sept 14
Why Money Is Worse Than Debt - 17th Sept 14
Can Gold Price Finally Recover? - 17th Sept 14
Scotland Independence - Europe Holds Its Breath - 17th Sept 14
The Energy Prices at Risk with Scottish Independence - 17th Sept 14
Scottish Independence SNP Lies on NHS, Economy, Debt, Oil and Currency - 17th Sept 14
The Truth Behind the Dangerous "Helicopter Money" Delusion - 16th Sept 14
Central Bank Balance Bullying: Investor Implications - 16th Sept 14
U.S. Dollar and Gold Elliott Wave Projection - 16th Sept 14
The Origins and Implications of the Scottish Referendum - 16th Sept 14
The Collapse Of U.S. Silver Stocks As Public Debt Skyrockets - 16th Sept 14
Emerging Markets Are Set Up for a Crisis, What’s on Your Radar Screen? - 16th Sept 14
Scottish Independence Bank Run Already Underway - Video - 16th Sept 14
The Emergence of the US Petro-Dollar - 16th Sept 14
Economic GDP Drives Stock Prices Inestment Myth - 16th Sept 14
Don't Miss This Gold Buying Opportunity - 16th Sept 14
Why ECB QE Is Bearish For Gold Prices - 15th Sept 14
Property Rights and Property Taxes—and Countries That Don’t Have Them - 15th Sept 14
Junior Miners Breaking Out Higher Forecasting Gold and Silver Price Bottom? - 15th Sept 14
Stock Market Patiently Waiting for Mean Reversion - 15th Sept 14
A Closer Look at the US Dollar - 15th Sept 14
The Silver Price Sentiment Cycle - 15th Sept 14
Stock Market Correction Underway - 15th Sept 14
Marc Faber - “I Want To Be Diversified, I Want To Own Some Gold” - 15th Sept 14
The Myth of Nuclear Weapons - 15th Sept 14
US Dollar Forecast to Go Much Higher - 15th Sept 14
Analysis And Price Projection Of The Uranium Market - 15th Sept 14
Bank of England Panic! Scottish Independence Bank Run Already Underway! - 15th Sept 14
The Ethics of Entrepreneurship and Profit - 14th Sept 14
The Big Investor Opportunity in the Orbital Space Junkyard - 14th Sept 14
Kohl's and The Rest of The Retailers are in Deep Doo Doo - 14th Sept 14
Independent Scotland Will Disintegrate as Unionist Regions Demand Referendum's to Rejoin UK - 14th Sept 14
Stock Market Pullback Continues - 13th Sept 14
SNP Fanatics Warn of Day of Reckoning for Scottish Independence No Campaigners - 13th Sept 14
Scottish Independence Would Shake Up the Global System - 13th Sept 14
The World Order Becomes Disorder - 13th Sept 14
Is Geothermal Power About to Become The Next Great Battleground Over Fracking? - 12th Sept 14
Heavy Gold and Silver Shorting is Bullish - 12th Sept 14
Strong U.S. Dollar Undermines Gold and Silver - 12th Sept 14
Debt And The Decline Of Money - 12th Sept 14
Panic On The Streets Of London ... Can Scotland Ever Be The Same Again? - 12th Sept 14
Will The Real Silver Commercials Stand Up? - 12th Sept 14
If You Own Only One Investment, Make Sure This Is It - 12th Sept 14
Main Reason Why Scotland Will Vote NO to Independence, 70% Probability - 12th Sept 14
Better Days Ahead For U.S. Stock And Housing Market - 12th Sept 14
U.S. Meddling Dims Prospects for Ukraine Peace - 12th Sept 14
Is the Fed Preparing to Asset-Strip Local Governments? - 12th Sept 14
China Holds “Gold Congress” - Positioning Itself As Global Gold Hub - 11th Sept 14
Fire Ice Could be Energy's Magic Bullet or a Planet-killing Catastrophe - 11th Sept 14
The Mass Psychosis Of 9 /11 Will Never Be Healed - 11th Sept 14
Radical Islam's Crisis of Competing Caliphates - 11th Sept 14
Ukraine Crisis And Self-Determination - 11th Sept 14
Cameron and Miliband Desperately Attempt to Prevent Scotland Committing Suicide - 11th Sept 14
A Supply Crunch Points to Higher Uranium Prices - 11th Sept 14
The Myanmar Shadow - 11th Sept 14
Europe Takes the QE Baton - 11th Sept 14
Full Frontal Inflation - 11th Sept 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Huge Stocks Bear Market

Credit Crisis Turning Into a Currency Crisis as Governments Devalue Currencies to Devalue Debt

Currencies / Global Debt Crisis May 12, 2010 - 03:48 PM GMT

By: The_Gold_Report

Currencies

Best Financial Markets Analysis Article"We're heading toward government devaluing its currency to devaluate its debt in order to survive. That means you need to protect yourself. You can't just have savings accounts paying no interest. You need to go and buy gold," says Bud Conrad, chief economist with Casey Research, in this exclusive Gold Report interview. Despite the grim outlook for the U.S. dollar and other paper currencies worldwide, Conrad believes he and other speakers at the recent Casey Research 2010 Crisis and Opportunity Summit have information you need to both prosper and protect yourself during the coming economic storm.


TGR: Today we are talking with Casey Research Chief Economist Bud Conrad who recently presented a riveting talk during Casey Research's 2010 Crisis and Opportunity Summit. Here are four major points from his talk:
  1. The world economy is in a calm between a credit crisis turning into a currency crisis as the collapse of the private debt bubble is replaced by a government debt bubble that will also collapse.
  2. The world is at a point of no return for government debt as debt-to-GDP approaches 100%. When debt becomes too big, governments cannot control the interest rates and currency. The lead warning is Greece, much the same as Lehman Brothers was in the credit bubble crisis.
  3. Peak oil. The wealth of humanity has been built on energy. Half the world's conventional oil supply is already used. That means that the quantity of oil produced each year will not increase much from the current level even as demand from developing countries like India and China increases. Wars over oil have already started. Energy prices will rise. We will see a substantial rise in the cost of food, as food production requires energy.
  4. The U.S. can prosper and stay ahead of the rest of the world by developing and investing in three forms of technology—the Internet and cell phones, new medicines through biological breakthroughs and new sources of energy. All are good investment opportunities and are necessary for human expansion.

TGR: What lens were you using as you developed these themes?

BC: I was trained as an electrical engineer and I spent much of my career in the computer business, so I look at things from a total system point of view. Whenever somebody has an issue I say, 'let's look at the data.'

We have sort of a blue sky overhead right now, as people think things are improving, but I think we're in the eye of the storm. We had heavy winds blowing from the credit crisis and we all know what happened. The governments came along to bailout the problems and purchase all the toxic waste of sub-prime mortgages and bad debt from too much private lending. Governments now have a huge credit bubble, just like we had with the housing mortgage bubble. I think that the government debt bubble will burst and that will be the other side of the hurricane, as the winds swirl around and hit us from the other direction in terms of a currency crisis and government debt collapse.

TGR: Are you at odds with the strategy the U.S. government is using to stave off the recession?

BC: If we decide we're going to build a few roads, maybe build a bridge, hand out some money for basketball programs or some other idea that seems to be part of large government programs, then we won't have achieved much. Last year, the government spent about $1.5 trillion more than it collected in taxes. The Federal Reserve also spent $1.5 trillion buying mortgage debt to keep that market from further collapse. So the government spent $3 trillion dollars to give us the current blue sky of a small recovery. The current blue sky could be measured as 3% of GDP. GDP is about $14 trillion, so that's about $400 billion of economic growth. Well, $3 trillion spent for $400 billion of economic growth is a pretty bad return on your investment. Add to that several trillions of guarantees and future government obligations for Fannie, Freddie, FDIC, PBGC etc., and I have the basis for believing that these obligations are big enough to cause the collapse of the sovereign debt of the United States Furthermore, I don't think it's just the U.S.; I think it's worldwide. In other words, we're going to have debt crisis in the U.S. and Europe and other countries that have expanded their government debt too.

TGR: Is Greece the bellwether for this potential doomsday scenario?

BC: Greece is being bailed out, but it's one set of governments bailing out another set of government debt. Pretty soon the question is who's going to bailout whom? The U.S. debt is getting out of control at a spending rate approximately equal to Greece's (in terms of percentage of GDP per year.) I think we're in a far more precarious position than most people realize.

TGR: Did people examine similar themes at the recent 2010 Casey Research Crisis and Opportunity Summit?

BC: I think there was a general attitude in the conference that our government debt is so serious that we can't recover to as stable level. I call it "beyond the point of no return" because interest on the debt continues to grow even if the government tries to cut spending. Other speakers like Sprott Asset Management's John Embry and Bill Bonner, who heads the AGORA set of newsletters, worry about our government and the debt. Bonner talks about the "collapse of empire." Embry talks about the corruption in our banking system. And we had a whole section on energy.

TGR: Let's go back to your "point of no return."

BC: The point of no return is when government debt gets so big that it can never be paid off. That's the problem that happened in Greece. Government debt is so big that the other countries of the European Union have had to come in with a $110 billion bailout, which I believe is probably not enough, over a three-year period, to try to put the Greece situation back on track. What happens when Spain, Portugal and Ireland are added to Greece?

TGR: And in the U.S.?

BC: In the U.S. I think we are past the point of no return in the sense that the government debt and obligations for retirees from baby boomer times of $75 trillion dollars cannot be paid off with dollars that are now denominated at the value that most people think they should be. In other words, we're heading toward government devaluing its currency to devaluate its debt in order to survive. That means you need to protect yourself. You can't just have savings accounts paying no interest and the purchasing power of these dollars declining. You need to buy gold.

TGR: Is peak oil another reason to buy gold?

BC: One of the best discussions in our conference was about how the explosion of the offshore oil rig in Louisiana is much like what Three Mile Island was for nuclear energy. This kind of deep water oil drilling is potentially far more dangerous than we thought it was; not only dangerous in the short term for the investors who build rigs and spend hundreds of millions of dollars putting these things together, but now for the environment. It's going to affect our ability to do offshore drilling, which we had hoped could be one of the new sources of oil to keep the wealth of the planet and humanity growing.

TGR: Explain the role energy plays in the growth of humanity.

BC: We have grown to 6.5 billion people from 1.5 billion people over the last century because we could take the work off the backs of men and animals and put it onto machines. We created electronics, computers, medicine and so forth to improve our lifestyle. We have lived truly in the most abundant time for humanity, but we have used up half of the oil. You cannot grow energy production at the level that Asia and India would like in order to have the kind of lifestyle we have here in the West. The result is a worrisome situation politically because it can lead to wars over resources. It could also lead to starvation because the production of food is dependent on energy. Energy is used to provide everything from fertilizer to diesel fuel to food storage to transportation. Energy has allowed us to move from my father's time of 50% of the U.S. population scratching food out of the surface of the earth to only 3% of the population producing food, much of which we export.

TGR: Why aren't more people talking about the dearth of oil and the collapse of the paper money?

BC: The combination of energy as a problem and the financial collapse of paper money systems are a reason for much more concern than is generally disseminated in the normal business news. This is really important. We really need to find new sources of energy.

TGR: Yet in the midst of all these looming crises, you see opportunities for investment. Tell us about some of those.

BC: The basic question of most investors who come to our conference is: What should I be doing in terms of investment opportunities? Casey Research focuses heavily on extracting resources. We have two newsletters talking about gold, one on junior mining stocks and one more about big stable mines. We offer similar services in the energy sector. The point of these is to give people the ability to protect themselves from what governments are doing to us.

TGR: But in terms of a sector, what is one that you focus on?

BC: One of the most important things to think about is the future of technology. In some sense, technology is the savior for mankind. It's brought us this great abundance and I think can continue to do so.

TGR: With that in mind, what are some specific ways one can invest?

BC: I don't usually pick companies myself because I tend to look at the macro-picture. I think it's necessary to have a good understanding about how all these things tie together. My new book Profiting from the World's Economic Crisis: Finding Investment Opportunities by Tracking Global Market Trends gets to how this whole system works and how can find ways to protect yourself. For example, I believe the dollar is doomed; and, along the way to its collapse, there will be much higher interest rates to compensate lenders for the potential inflation. You should expect interest rates to rise, and there are ways to invest in that either through futures or ETFs.

TGR: What about opportunities in high-tech?

BC: We've just gone through a credit crisis. We've watched General Motors collapse. We've watched the airlines struggle for decades. One of the things that is nice about technology, for example, is that Apple (NASDAQ:AAPL), Microsoft Corporation (NASDAQ:MSFT), Google Inc. (NASDAQ:GOOG) and Intel (NASDAQ:INTC) all have cash in the bank. They have no debt. Apple just blasted through to being the third-largest company in the U.S. in market cap. I'm not making Apple a recommendation for investment as it is already so high, but it shows how important technology can be with new iPads and so forth. For anybody who wants to see how these forces all hang together, I have five chapters of recommendations in my book. My message is to fear for the dollar and prepare for a future wherein stagflation is the watch word for guiding your investment principles.

TGR: Won't the collapse in the value of the dollar drive the technology companies that you just listed to move to other countries? Aren't we at risk there?

BC: They've already gone. There is no production of anything done in Silicon Valley; all the plants for semiconductors and so forth are in Asia. But there will be competition for intellectual resources in the future. I think we have an edge on the front end of the invention of technology. There are plenty of foreigners here in Silicon Valley. Indians and Chinese are starting their own companies. I think we still have the leading edge in our education and development of new things; and I think we should emphasize and support it. I'm even going to take a libertarian's antithesis here by suggesting government support of our invention and creativity would be a very good investment. If we don't, Asians are no dummies. They'll figure out how to do things on their own and, in fact, they are.

TGR: How so?

BC: One of the reasons for China's great leap forward was active participation in new technologies. China moved from being the low-cost producer to doing their own offshoring to Indonesia where they get cheaper labor. They're trying to move up the food chain to the more complex things like electronics rather than cheap consumer goods. Watch the sweep of anointed society moving from the West toward the East.

TGR: What about other sectors where technology is key?

BC: We need a new way to do medicine. If we actually push forward on biotechnology, I think there are opportunities for humanity. Cracking the genome means that we have figured out how to use biological methods so that people can repair parts of their bodies with living tissue rather than pills. Pills are based on chemistry that, hopefully, has some kind of molecule that makes us feel better. There is a whole new trajectory for the biological sciences that can be used to improve the human condition.

You can see an overwhelming need for new energy sources. We need new ways to absorb the sun's energy to extend humanity's position on this planet. The U.S. is in the best shape technologically to prevail and keep its empire from collapsing in the way so many large and successful collections of society and empires have in the past. I'm not sure we will, but I think that's the best opportunity for us both as a nation and as individuals. If we invest in finding the right technologies, we will all do better.

TGR: Where is a low-risk place to put your money?

BC: I think you'll do well by investing in gold. In some sense, gold is just plain a stable island. It doesn't change when you invest in it; you are really just making a solid savings position.

TGR: Are there any other metals that you see as being a safe harbor?

BC: All of them. Silver is a cheap man's gold but more volatile. As gold goes up, silver goes up more. As gold goes down, silver goes down more.

Think about energy. Oil is often called "black gold." I think of it as an opportunity for investment that isn't just about savings, particularly if you're investing in not just the material but also the new ways of generating energy. Perhaps then you are adding to humankind's knowledge about how to improve its situation, as well as getting good returns.

TGR: What were some major investment themes in talks during the summit?

BC: Gold, energy, interest rates rising, agriculture, water, methods of investing, personal considerations of living in the U.S. or other countries and how to do it, how to handle passports, how to handle your money in a different country than where you live, etc. Most people said it was one of the best conferences they had ever been to.

TGR: Great, this has been very informative. Thanks so much for your time, Bud.

Bud Conrad holds a Bachelor of Engineering degree from Yale and an MBA from Harvard. He has held positions with IBM, CDC, Amdahl and Tandem. Bud, a futures investor for 25 years and a full-time investor for a decade, is also sought after as key note speaker in Dubai, New Zealand, Vancouver, New York and many other cities. He has appeared on TV on CNBC, FOX, and on many radio shows. As Chief Economist at Casey Research, he produces original analysis.

Want to read more exclusive Gold Report interviews like this? Sign up for our free e-newsletter, and you'll learn when new articles have been published. To see a list of recent interviews with industry analysts and commentators, visit our Expert Insights page.
DISCLOSURE:
1) Brian Sylvester and Karen Roche of The Gold Report conducted this interview. They personally and/or their families own shares in the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview is a sponsor of The Gold Report: None.
3) Bud Conrad: Doug Casey, Casey Research, LLC, Casey Early Opportunity Resource Fund, LLC and other entities in which he has an interest, employees, officers, family, and associates may from time to time have positions in the securities or commodities covered in this interview, Casey's publications or web site. Corporate policies are in effect that attempt to avoid potential conflicts of interest and resolve conflicts of interest that do arise in a timely fashion.

The GOLD Report is Copyright © 2010 by Streetwise Inc. All rights are reserved. Streetwise Inc. hereby grants an unrestricted license to use or disseminate this copyrighted material only in whole (and always including this disclaimer), but never in part. The GOLD Report does not render investment advice and does not endorse or recommend the business, products, services or securities of any company mentioned in this report. From time to time, Streetwise Inc. directors, officers, employees or members of their families, as well as persons interviewed for articles on the site, may have a long or short position in securities mentioned and may make purchases and/or sales of those securities in the open market or otherwise.


© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014