L: Doug, we've had a lot of questions from readers about the apparent push governments are making to go to paperless currency - all electronic, no cash. Do you think that's likely, and what would be the implications?
Doug: I think it's probably inevitable. It's not just cash, but the whole world is becoming increasingly digital. Credit cards already work very well all around the world, and everyone in the world, it seems, will soon have a smartphone - or at least everyone who might have any cash.
But it's not just a question of evolving technology. Governments hate cash for lots of reasons, starting with the fact it costs a couple of cents to print a piece of paper currency, and they have to be replaced quite often. As the US has destroyed the value of the dollar, they've had to take the copper out of pennies, and soon they'll take the nickel out of nickels. Furthermore, with modern technology, counterfeiters - including unfriendly foreign governments - can turn out US currency that's almost indistinguishable from the real thing. And the stuff takes up a lot of space if it's enough to be of value. So sure, governments would like to get rid of tangible currency. They'd like to see all money kept in banks, which are today no more than arms of the state. But it's not so simple: increasing numbers of people trust neither banks - most of which are insolvent - or currencies - most of which are on their way to their intrinsic values.
L: Hm. On the technology front, when I was in central Africa a few weeks ago, plastic money was accepted happily everywhere I went - Rwanda, Burundi, the DRC, and Kenya - though not by street vendors yet. And I had access to the Internet everywhere I went, even in the middle of the jungle...
Doug: Yes, the move towards digital currencies is already happening, and not just as a result of government efforts. Remember Bitcoin. And, as you know, I'm a big fan of Goldmoney.com, which is leading the way to a sound digital currency. Although Goldmoney.com has bowed to government pressure and has suspended its service allowing customers to transfer funds among one another, it's another sign of the times...
L: Yes, and Goldmoney.com is not the first attempt, nor will it be the last. We should mention to new readers that you are an investor in Goldmoney.com.
Doug: The world's going to digital currencies is in part a good thing, because it's convenient. But it's definitely a double-edged sword, because of government involvement in the field. If it were a strictly market phenomenon, I'd have no problem with it. It'd be just another choice. But if the state runs it, it would reduce people's choices - and privacy. But that's entirely apart from the fact that government - and I know this assertion will be shocking to most readers - has no business creating currency or minting money. Money, of all things, should be a purely market phenomenon. Government, as an institution, inevitably and necessarily corrupts everything it touches. Money is far too important to be left to the tender mercies of the state.
L: Sure. A completely digital currency would be an unlimited license to print and spend. Need to give people more welfare? Just tap a few keys, and it appears in their bank accounts. Need to buy more missiles? Just a few more taps on the keyboard... But the privacy issue is even scarier: digital money would seem like Big Brother's dream come true. They wouldn't even have to send their minions out to go through people's trash. They could see everything anyone ever spent money on and where they were physically when they did it, search for activity nearby, and much more, just by having computers report the details of people's accounts.
Doug: Exactly. They would justify it with a host of phony excuses ranging from the so-called War on Terrorism to the so-called War on Drugs. Maybe they'll tie it in to their disastrously failed War on Poverty. As the War on Islam heats up, one front will be an attack on the excellent Muslim hawala system, which allows cheap and reliable transfer of money between countries; that system, which is kind of a private SWIFT network, is excellent for evading FX controls. Ironically, Islamic countries are some of the very worst perpetrators of currency controls.
L: Maybe that's why the informal network exists in the first place? But yes, they gotta stop those evil money launderers from washing their money and hanging it out to dry...
Doug: Don't get me started on "money laundering." It's a completely artificial crime. It wasn't even heard of 20 years ago, because the "crime" didn't exist. Now, everyone speaks of it as though it were a real crime, like murder. It's ridiculous, and further proof of the totally degraded state of the average person worldwide, absolutely including US citizens - what we used to call Americans. The government proclaims something as a law, and "sheeple" robotically assume it's part of the cosmic firmament. If an official tells them to do or not to do something, they roll over on their backs like whipped dogs and wet themselves out of fear. The War on Drugs may be where "money laundering" originated as a crime, but today it has a lot more to do with something infinitely more important to the state: the War on Tax Evasion.
Incidentally, not that a US citizen can open an account with a Swiss bank anyway any longer - except with at least seven figures and loads of paperwork - but now the policy in Switzerland is to insist that clients prove that their funds are all tax paid. The situation is out of control. And the world's governments are increasingly working together to make sure no one slips through the net.
L: Gotta keep the cattle in line.
Doug: That's right; the US has sent swarms of agents all around the world to bully and cajole bureaucrats in other countries into giving them access to bank account information and to impose income taxes in places that didn't have them. In Uruguay, where I was last week, for example, there was no income tax two years ago. Now there is. And they're trying to do the same thing in Paraguay. That's about the last personal-income-tax holdout among the larger countries of the world.
L: When I was in Paraguay last, they had passed an income-tax law, but it was being blocked from implementation by the legislature itself, on procedural grounds. I was told that since all of the legislators are deeply corrupted, none of them want to have to account for their income, and that's why the measure will never be implemented. "Never" seems a bit optimistic, but it reminds me of your call to make corruption your friend. At any rate, why would the US government care if other countries have income taxes - so they can have tax treaties with them?
Doug: I'm sure that's part of it. A bigger part may be that countries with high tax burdens want so-called tax harmonization, so it's less tempting to businesses and individuals to leave their borders and go where they can benefit from a lower tax burden - or pay no taxes at all. Governments all around the world, in spite of their differences, share a concern about their income streams - especially since most of them are absolutely bankrupt now - and their bureaucracies work together closely when it suits them. For example, the reason why you get asked if you are carrying more than $10,000 in cash on you when you board an international flight these days, even in a tiny African or South American country, is that it's an OECD standard that's been... enthusiastically encouraged. When it first started, it was only $3,000, but that generated too much work for them, so they raised it to $10,000. But all the bad ideas in the world now seem to be coming out of the US .
You know, up until the Bank Secrecy Act of 1971, Americans didn't have to report foreign bank accounts or brokerage accounts. Reporting income generated by such accounts was required, but the existence of the accounts themselves was not required. The rules and reporting requirements have now become so draconian that most foreign banks don't even want to see a US taxpayer darken their door, let alone open an account for one. It's a cancer, spreading out from the US.
L: So, is this trend inevitable? At some point will Big Brother know everything about all transactions?
Doug: Yes. And if they can't get everything they want from you off your cell phone, which will probably also become your wallet with a digital credit-card app at some point in the near future, they will be able to monitor everything physically via the swarms of tiny spy drones they will flood the skies with. The technology will soon make this cheap as dirt, and computational power is increasing rapidly to the point where it will be possible to process all the images.
L: Only if the people don't divulge everything they are doing and whom they are doing it with on Facebook and Twitter.
Doug: [Laughs] Ah, yes, Facebook, the CIA's most successful covert op. I idiotically opened a Facebook account some years back because someone convinced me it would be a good way to keep in touch with old school friends I'd lost touch with. Now I get scores of people who want to friend me every month, and I know very, very few of them. It will be one-stop shopping for Homeland Security to round up the usual suspects when they feel the time is right. I hate Facebook and never use it for anything. I wonder how many of my Facebook friends are actually government stooges out looking for somebody to railroad...
L: A sobering thought.
Doug: I have to say that the prognosis for privacy is very grim. The only possible saving grace I can see is that the snoops may end up with information overload, most of it worthless or irrelevant. That's what seriously impeded the East German and Romanian secret police. But with computer technology getting better and better, there's not much reason to believe Homeland Security will be buried the way the Stasi was with its primitive technology.
I really see no way to stop this trend, nor hide from it - at least in the US or Europe. There's one thing, however, we can hope for: the coming collapse of the modern nation-state. This will happen, sooner or later, in Europe and North America, at least. This is a possible bright side of the building worldwide financial collapse; it might bring down Big Brother... although it's more likely, I'm afraid, that he'll redouble his efforts to control everything. Unfortunately, the immediate aftermath of that collapse is likely to be very unpleasant, especially for those in the most developed and powerful countries.
The best way to insulate yourself from this, therefore, is to live in a country whose government doesn't have the power, financial resources, or technical ability to do these things. As per our last conversation, Africa might be a good place to get out of harm's way, but it's a bit too far off the beaten path for my taste and has way too many problems. That's why I like Latin America.
L: What about the hope that if people get pushed too far, they may rebel? Everyone has things they don't want made public, even those with absolutely nothing nefarious about them. A total lack of privacy would seem intolerable, after some - probably short - period of time. As Princess Leia told Governor Tarkin in the original Star Wars movie: the tighter they squeeze their fist, the more people will slip through their fingers. Or maybe not. It is, frankly, very dismaying to me that the Big Brother concept has been turned into a "reality" TV show.
Doug: People may think it's funny now, or even an egalitarian ideal to live in a society in which no one has any secrets, but that won't last. If only in relation to currency controls - what we started out talking about - I think there's something to your Star Wars quote. The more total the monitoring and control the state achieves over the legal economy, the more it will push people into the black market. We saw that in Soviet times. Stringent and very intrusive state monitoring, compulsion, and punishment only made the informal market flourish all the more. I'm sure this will happen. Even North Korea has an active black market. But I don't like that term. What's called "the black market" is really the free market; it's heroic. The legal market - with all its taxes and regulations - is actually the one in need of either radical reform or abolition.
L: But the monitoring beyond finance - your drone swarms - might make noncompliance too risky for most people to try.
Doug: True. And maybe the US will get not just 10% of the population hooked on stuff like Prozac, but 20% or 50%. As Aldous Huxley pointed out in Brave New World, it's much easier to control zombies. That's another reason why I think that hope for the future rests in what are today derided as corrupt Third-World countries. If you're going to have a ridiculous number of impossible laws, corruption is a good thing. Increasingly, what matters is not the number or even nature of laws on the books in the place you live, but the amount of actual control the state has over private individuals. Corruption subverts idiotic laws; it's the next best thing to abolishing them.
L: I've often said that on paper, the US is freer than Mexico, but in fact, Mexico has become much freer than the US, in spite of its legally powerful socialist government. The average Mexican considers tax evasion to be a universal given, but US taxpayers fear their government - a letter from the IRS can cause instant weight loss.
Doug: It's certainly true that in Argentina, where I'm building a new home, people don't fear their government. Well, not in the police-state sense, anyway; they see it as more of a nuisance. It's probably more accurate to say they are resigned to their government destroying the economy periodically than to say they actively fear it. If I get pulled over for speeding in Argentina - which itself would be highly unusual - I feel that I have nothing to fear at all, whereas back in the US, I could end up getting tased, have my car taken, and do jail time for saying or doing the wrong thing, even without harming anyone. Any contact with the police in the US brings an increasing risk of a lethal outcome these days. I understand that there are about 40,000 SWAT raids on real and imagined targets every year, and the number is growing fast.
Another contrast: in Argentina, most people despise the police and military, whereas in the US, they are apotheosized. This tells you a lot about the psychological states of these populations - it's a very bad trend in the US.
L: On the subject of Argentina, perhaps we should mention that readers who'd like to meet you could head down there for the upcoming harvest celebration.
Doug: Well, I'm in the middle of one right now, but another is coming up next week, and there's still time to sign up for that one. Sure - we have a lot of readers, and I've enjoyed meeting many, but it would be nice to get to know more of them. And it's a nice time to get away from the dying days of winter in the northern hemisphere and come to a place where the weather is pleasant and the wines are fantastic. And I'm really tickled with our world-class gym, spa, and all the rest of it.
L: Very well. Investment implications?
Doug: Well, this highlights the importance of owning gold, but not for investment purposes or even for the financial prudence we've spoken of before, but for a different kind of prudence: privacy - and even freedom.
One thing that has changed since we started having these conversations - back when gold was trading at about $600 per ounce - is that having approached $2,000 per ounce, and being likely to surpass that level soon, governments are going to start clamping down on gold more and more. Back when gold was under $300 an ounce, it wasn't convenient to carry large nominal sums in gold - it was too bulky, too heavy. A roll of hundred-dollar bills was less trouble. But now you can hide $20,000 in one hand using gold. This has not gone unnoticed by the bad guys, and customs and immigrations forms of several countries have started asking not only if you are carrying more than $10,000 in cash, but specifically gold. Incidentally, to keep up with this type of thing, I urge readers to sign up at International Man, which has a great, free daily letter.
L: I agree; it's an excellent publication. That's an interesting admission for Big Brother to make, asking people to declare cash and gold; in effect, it admits gold's value as money... But okay, if the state achieves total monitoring and control of the legal economy, and the informal economy becomes much larger, would that not greatly increase the demand for gold? The black market is, as you say, a free - if somewhat chaotic - market, so, according to you and Aristotle, would not gold emerge as the money of choice in that market? And would that not add to the speculative reason for owning gold in addition to the reasons of prudence?
Doug: Yes, and yes. Other sub-trends speculators might look for, within the overall trend of digitalization of our world, would lie in various new technologies this will make possible. Many of them would be very positive and profitable for those who deploy them commercially first. This is the sort of thing Alex Daly keeps tabs on in our Casey Extraordinary Technology letter.
L: That reminds me of what you said about our phones becoming our wallets. You already don't really need a physical card to make most revolving credit purchases, just the information on the account. Not only do we buy all sort of thing online these days with this information, but there are chips that transmit gas-card info to gas pumps so we don't even need to get our wallets out to fill up our tanks. Who knows where that will end up, but I can imagine that as phones and computers (and what used to be TVs) all merge into one technology - which already includes payment systems - money will get folded into this technology as well.
Doug: I fully expect that, even though I still don't own a cell phone and really loathe the things. As an individual human being, I'm going to keep on paying for things in cash for as long as I can - and to me, gold is the real cash of the world. But as a speculator, I think there's a lot of money to be made investing in the developers of these technological innovations.
L: Good luck with that fight. As Locutus of Borg said, "Resistance is futile. You will be assimilated." There are computer chips in clothing, in cars - heck, it won't be long before they're in our food and in the drinking water... Only to help doctors monitor our health, of course.
Doug: I know, I know. The prison planet we live on could get pretty ugly before it frees up again. I fear that before things get better, they will have to get much worse, and our world will soon come to resemble a cross between Huxley's Brave New World and Orwell's 1984 - or maybe Soylent Green if it gets really bad.
L: Another cheerful thought, Doug.
Doug: You know I call 'em like I see 'em. I hope many of our current readers will look into The Casey Report as well, if only because this month has part two of a long article that I'm rather fond of, titled Evil, Stupidity, and the Decline of America, which examines the root causes of the pickle the West is now in.
But the greater the invasion of privacy, the greater the need for privacy there will be - and the market will respond. I doubt you'll need stolen eyeballs for retina scans, as in the movie Minority Report, but technologies that identify you to the monitors as a Boy Scout from Iowa (with a perfect grade-point average, totally clean driving record, and no arrests or interrogations) will certainly become available. Clean digital identities should become highly lucrative commodities, all the more so for being illegal. But, with any luck, when the revolution comes - and it will, even though it will be most unpleasant, inconvenient, and dangerous - I hope it turns out more like the revolutions in V for Vendetta or the American Revolution than the one in France under Robespierre. In any event, there's no doubt in my mind that things will get much worse before the world reboots and gets better again.
L: Well, that's marginally better. As has been observed before, as in the times of chattel slavery, for example, when laws become unjust, just people must become outlaws.
Doug: Just so. Maybe we'll all have our chance to play Robin Hood against an evil king.
L: Right then. Thanks for your thoughts... I'll have to take a closer look at our technology picks for my own investment portfolio.
Doug: You should. And you're welcome. Talk to you soon. In the meantime, live, and be well
L: Until next time.