In the Shadow of the Castle

By: David Galland | Fri, Mar 19, 2010
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These days it takes very little to set me off on yet another rant against the American political class - a proxy for governments the world over.

On occasion, I'm tempted to apologize for these rants. Not so much for the message, but for the frequency.

Unfortunately, when surveying the landscape on which our hovels rest, the king's castle looms large in the foreground.

I am not an envious person by nature and so wouldn't begrudge the king his fine trappings, provided they were honestly earned.

But therein lies Ye Olde Rub.

Ever more frequently these days, the drawbridge comes down and a troop of the king's finest sallies forth to extort from me more than half of my crops, and to read new royal proclamations whose net result is to add to the daily burden of trying to provide sustenance for family and jobs for workers.

Should I protest, say, by grabbing a pitchfork and telling the soldiers to clear off my land, or refuse to fill their wagons with the best of my crops - each leaf of which represents time and investment on my part - they would grab me by the shoulders, drag me to the king's dungeon, and confiscate my property.

In fact, all that has changed since the days of yore is that the king's knights tend to no longer rape, as well as pillage.

To be fair, the annals of history contain rare instances of kind and intelligent monarchs, the sort who understand that overburdening the peasants ultimately reduces crop production, leading to unnecessary and unproductive hardship and, in time, even revolt. Though, by temperament, I resist authority of any description, I suppose I could live comfortably under the rule of a fair and benign monarch.

The problem with that notion, of course, is that the corruptive nature of power leads to the near certainty that Baldash the Not So Bad will be followed by Norbit the Nasty.

And all of a sudden, instead of politely requesting I kick in some reasonable percentage of my crops to help maintain a constabulary, courts, and maybe the highways, Norbit's men are kicking in my doors and we're back to ox carts full of my produce being confiscated to provide a new set of gold plates and to pay the cost of invading neighboring lands.

While some among you will protest, there is, I would contend, little difference between a degraded monarch and a degraded democracy. In the monarchy, a single leader directs his minions in their ruinous acts; in a democracy, the directions come from professional politicians, as well versed in gaining and keeping power as any royalty of a bygone era. (Sir Robert Byrd held high office in this nation for 57 years.)

Far from being benign, the nation's leadership, masters at appealing to the self-interest of an unprincipled voter class, have led us to a perilous situation where the fields are being left unplanted.

And an increasing percentage of the citizenry is now muttering angry curses as the king's men ride by in their shiny black limo-horses.

For a clear understanding of just how poorly ruled this country has been, look no further than the latest budget projections. In his recent article, "America's Impending Master Class Dictatorship," Stewart Dougherty does just that, analyzing the government's wanton spending and penning some notable, and quotable, words on the topic.

One stark and sobering way to frame the crisis is this: if the United States government were to nationalize (in other words, steal) every penny of private wealth accumulated by America's citizens since the nation's founding 235 years ago, the government would remain totally bankrupt.

Recently our stalwart CEO Olivier Garret sent over an insider doc from the Republicans' Study Committee that provides talking points for candidates to use in the unending struggle for control of the castle. While I think the color of flag flapping over the battlements is at this point almost irrelevant, the document contains some interesting data points.

For instance...

As mentioned yesterday, the projection on interest costs is far too conservative. While the government's always flawed projections don't anticipate it, both Bud Conrad and Doug Casey see strongly rising interest rates as a certainty in the foreseeable future. At that point, the debt death spiral begins in earnest, and the whole charade begins to come apart.

But it won't take soaring interest rates to bring the economy down. That's just going to accelerate things. And, of course, the worse things get, the worse the monarchy will act - demanding ever higher taxes and further debasing the currency, as they now certainly must.

How can you protect yourself? It really depends on where you are from.

One obvious solution would be to move to a different kingdom, one that treats you and your money better. Or that pretty much ignores you altogether. If you are from the U.S., the king's tax collectors will follow you wherever you go - but even so, there are modest tax advantages you can gain by expatriation. Ask your tax counsel for details.

If, on the other hand, you live in a kingdom that doesn't tax foreign-derived income (yet), becoming a citizen of the world can offer serious advantages and is well worth considering. The situation in most of the developed kingdoms, where easy money and quick mortgages greatly exacerbated the levels of debt, is only going to get more dire as the rulers cast a wider and stronger net in the quest for more revenue.

Even if you aren't in a position to move, however, you'll benefit from clearly understanding one key point about the king. While he may dress well and speak in dulcet and pleasing tones, he doesn't actually produce anything. What money he has to spend must first be taken off the productive elements of the peasantry.

But there are limits to how much he and his men can squeeze out of the citizenry. We are nearing those limits.

That means that all that is left to the monarchy is for it to issue IOUs. And given the levels of their debts and ongoing spending, lots and lots of IOUs. Those IOUs are called dollars, or pounds, or pesos, or yen, or....

While there will be no straight line up or down for any asset class in the unsettled times we will live through, using periods of weakness to build your exposure to tangible assets - most notably gold, whose primary and best use is as sound money - is the only way to protect yourself from the Great Debasement that's coming.

If you are still in the learning stage when it comes to precious metals, seriously consider a subscription to our Casey's Gold & Resource Report - at just $39 a year, and with our three-month risk-free trial, it's your single best way to get up to speed on what's going on with this important asset class. More info here.

 


 

David Galland

Author: David Galland

David Galland
Managing Director
Casey Research, LLC.

David Galland

Over the course of his varied career, which includes a stint at the fabled Climax mine following college, David Galland has worked as a conference director for the world's largest investment conference (National Committee for Monetary Reform, 1979 to 1987), as a financial newsletter publisher or editor (Gold Newsletter, the Aden Analysis, Wealth Magazine, Outstanding Investments, among others), as a founding partner and director of a successful mutual fund group (Blanchard Group of Mutual Funds), and as a founding partner and executive vice-president for EverBank, one of the biggest recent successes in online financial services.

David is currently a partner with Doug Casey and Olivier Garret in Casey Research, LLC., an international firm providing research and investment recommendations to individuals in over 150 countries. Casey Research currently publishes several publications on a variety of investment sectors, including metals & mining, energy, technology and commodities. In addition to his management responsibilities, David serves as the managing editor for The Casey Report, a monthly publication dedicated to identifying big trend moves and how to profit from them; he also writes a daily communique, Casey's Daily Dispatch.

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