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Doug Casey is a highly respected author, publisher and professional investor who graduated from Georgetown University in 1968. Doug literally wrote the book on profiting from periods of economic turmoil: his book Crisis Investing spent multiple weeks as #1 on the New York Times bestseller list... More
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  • Doug Casey On The Real FIFA Scandal

    Recently, high-ranking officials at FIFA, the world's governing soccer (aka "football") body, were charged with corruption and fraud. The US's Federal Bureau of Investigation (FBI) is deeply involved in the case. Doug Casey weighs in on the real scandal… the one you're not reading in mass media.

    The truth be known, I really don't give a damn about soccer. Nor do most Americans.

    Indeed, until recently, all that most Americans knew about "football" was that Brandi Chastain ripped off her jersey, to display a great physique, after she scored the winning goal for the US in the 1999 FIFA Women's World Cup playoff against China.

    However, "football", as it's known to the 6.7 billion non-Americans on the planet, is revered by the rest of the world as a secular religion.

    But now football, and FIFA, the sport's governing body, is in the news because of an alleged corruption scandal. Let's not discuss the details of who was bribing whom, and where all the money went, for two reasons.

    First, that's all over the Internet, and you don't need me to repeat it here.

    Second, and much more important, it's really none of our business. Despite the fact that the FBI has taken it upon itself to prosecute at least 14 FIFA officials for corruption.

    Why is it none of our business? Because FIFA is a Swiss association that's been around over 100 years. All of its officers and directors are non-US persons. And about 99% of its players, officials, and spectators are non-American.

    But that doesn't matter. The FBI has decided to prosecute FIFA's officials for corruption, and is successfully moving to have them all extradited to the US for trial.

    Were FIFA officials treating themselves to huge salaries and expense accounts, and paying and receiving millions to decide where the World Cup should be played? Of course. Is that corrupt? We have to first define "corruption." I devote a lot of thought to the subject here, and suspect you'll find it of interest. But, essentially, corruption is about a betrayal of a fiduciary trust. In simple terms, it's sticking your hand in a till that you're supposed to guard for the interest of someone else.

    Based on that, are FIFA officials corrupt? Their behavior is certainly unsavory and unseemly. Nobody likes people who take advantage of their positions to line their pockets. But they are actually less morally culpable than the directors and officers of many US public corporations who pay themselves scores of millions of shareholder dollars, often while running the companies into the ground.

    And less morally culpable than politicians who dispense favors and contracts with public funds. Corporate directors and politicians have fiduciary responsibilities. FIFA, however, doesn't have shareholders. FIFA is really only responsible to the 200-something countries that vote to elect its officials; it's essentially a political body.

    Its "stakeholders" (a morally loaded and highly problematical term that's gained currency in recent years) are the fans who watch football. They're happy as long as someone, anyone really, makes sure the games are played.

    In other words, FIFA and the people who run it are at liberty to do as they wish with funds and favors. It may seem sleazy, that they allocate venues for the World Cup according to who pays the most (even under the table). But since the association doesn't have a fiduciary responsibility, it's not corrupt.

    If corruption charges are warranted, it's against the presidents of the countries that are members of FIFA. Any self-respecting president today leaves office as at least a billionaire. If anything, FIFA is a more of a co-conspirator, or even a victim, rather than a perpetrator. If even Mother Teresa was in charge of FIFA, I would expect her to do the same as the indicted officials, actually. She'd just spend the proceeds on bandages instead of parties.

    The real problem is that the whole system is politicized, much like the Olympic Games. FIFA, and the Olympic Committee too, have turned sports into showcases for nationalism. Corruption is a necessary and inseparable part of politics.

    The solution to the problem is to start a new sanctioning group, organized with new teams, players, and officials. Let them organize their own World Cup games wherever they wish, on whatever terms they wish. The fans can support whomever. It's actually a non-problem. Maybe the new organization will change the rules so that they more closely resemble those of Rollerball. Maybe they'll cultivate attendance by semi-pro football hooligans among the fan base. Who cares?

    But wait. That's where the US government, the world's arbiter of morality, comes in.

    What's really scandalous about the FIFA affair isn't the alleged corruption, but the US government's reaction to it. Nobody, anywhere, seems to be asking how the US can not only unilaterally bring charges, but then extradite foreign citizens to stand trial in the US. And for things that aren't even real crimes. Without a peep from anyone.

    It's part of an accelerating pattern that Pastor Martin Niemöller might have recognized in a different context. You're likely familiar with his poem about the passive reaction to the Nazis and their aggressions:

    First they came for the socialists, and I did not speak out --because I was not a socialist. Then, they came for the trade unionists, and I did not speak out -- because I was not a trade unionist. Then, they came for the Jews, and I did not speak out -- because I was not a Jew. Then, they came for me -- and there was no one left to speak for me.

    How might that poem read today?

    First they sent a SWAT team to New Zealand to capture Kim Dotcom, a German national, for something that's legal in both New Zealand and Germany, and I did not speak out -- because I was not in the computer business. Then, they conducted drone strikes and assassinations and renditions around the world, and I did not speak out -- because I was not a swarthy foreigner. Then, they invaded countries, from Granada and Panama, to Afghanistan and Iraq, and I did not speak out -- because I believed we were always on the side of truth and justice. Then, they prosecuted the FIFA guys, and I did not speak out -- because I couldn't care less about rich guys making money from soccer. Etc. Etc.

    Specific charges (brought under the RICO Act, an abusive monstrosity) are wire fraud, racketeering, and money laundering. Passive and thoughtless Americans accept these charges as if they were part of the cosmic landscape. But none of them are common law crimes.

    "Wire fraud" is simply the use of electronic media to assist in the commission of an alleged crime. But why does that constitute an extra crime?

    "Racketeering" is generally just a pattern of extortion. But you can't have extortion without a threat of violence. How was FIFA threatening violence?

    "Money laundering" is a very recently manufactured crime, generally the disguising of the source of funds. Why is that even a crime?

    All of these charges exist only to make the prosecutor's life easier. The fact that these things are being alleged is the real crime.

    You might ask why is the US government involved at all in international soccer. FBI Director James Comey gave an Orwellian answer shortly after the indictments. Get a load of this:

    If you touch our shores with your corrupt enterprise, whether that is through meetings or through using our world-class financial system, you will be held accountable for that corruption.

    In other words, the Department of Justice's indictment alleges that since a part of the alleged corruption may have been planned in the US -- even if it was then carried out elsewhere -- they are in charge. And the use of US banks to transfer US dollars gives them additional jurisdiction.

    It's a sign of how degraded the world's moral climate has become that nobody even comments on the absurdity of all this, much less is outraged.

    That the US government can get away with all this is analogous to the Haitian government arresting an American baseball player for violating one of their laws because the game is played with balls manufactured in Haiti. It's likely the charges were brought because Russia was awarded the venue for 2018, and Washington wants to punish its designated enemy.

    Well, fear not. This is all just, in relative terms, a tempest in a toilet bowl. Much more serious things are brewing. Not just ISIS in what used to be Iraq and Syria. Or China in the Spratly Islands. Or the separatist provinces in the eastern Ukraine.

    The next sideshow is the developing financial disaster in Europe, which you'll hear more about in future issues of The Casey Report.

    P.S. Because the bloated US government has helped make our financial system a house of cards, we've published a groundbreaking step-by-step manual on how to survive - and even prosper - during the next financial crisis. In this book, New York Times best-selling author Doug Casey and his team describe the three ESSENTIAL steps every American should take right now to protect themselves and their family.

    These steps are easy and straightforward to implement. You can do all of these from home, with very little effort. Normally, this book retails for $99. But I believe this book is so important, especially right now, that I've arranged a way for US residents to get a free copy. Click here to secure your copy.

    Tags: fifa, scandal
    Aug 06 11:37 AM | Link | Comment!
  • Unsound Banking: Why Most Of The World's Banks Are Headed For Collapse

    You're likely thinking that a discussion of "sound banking" will be a bit boring. Well, banking should be boring. And we're sure officials at central banks all over the world today-many of whom have trouble sleeping-wish it were.

    This brief article will explain why the world's banking system is unsound, and what differentiates a sound from an unsound bank. I suspect not one person in 1,000 actually understands the difference. As a result, the world's economy is now based upon unsound banks dealing in unsound currencies. Both have degenerated considerably from their origins.

    Modern banking emerged from the goldsmithing trade of the Middle Ages. Being a goldsmith required a working inventory of precious metal, and managing that inventory profitably required expertise in buying and selling metal and storing it securely. Those capacities segued easily into the business of lending and borrowing gold, which is to say the business of lending and borrowing money.

    Most people today are only dimly aware that until the early 1930s, gold coins were used in everyday commerce by the general public. In addition, gold backed most national currencies at a fixed rate of convertibility. Banks were just another business-nothing special. They were distinguished from other enterprises only by the fact they stored, lent, and borrowed gold coins, not as a sideline but as a primary business. Bankers had become goldsmiths without the hammers.

    Bank deposits, until quite recently, fell strictly into two classes, depending on the preference of the depositor and the terms offered by banks: time deposits, and demand deposits. Although the distinction between them has been lost in recent years, respecting the difference is a critical element of sound banking practice.

    Time Deposits. With a time deposit-a savings account, in essence-a customer contracts to leave his money with the banker for a specified period. In return, he receives a specified fee (interest) for his risk, for his inconvenience, and as consideration for allowing the banker the use of the depositor's money. The banker, secure in knowing he has a specific amount of gold for a specific amount of time, is able to lend it; he'll do so at an interest rate high enough to cover expenses (including the interest promised to the depositor), fund a loan-loss reserve, and if all goes according to plan, make a profit.

    A time deposit entails a commitment by both parties. The depositor is locked in until the due date. How could a sound banker promise to give a time depositor his money back on demand and without penalty when he's planning to lend it out?

    In the business of accepting time deposits, a banker is a dealer in credit, acting as an intermediary between lenders and borrowers. To avoid loss, bankers customarily preferred to lend on productive assets, whose earnings offered assurance that the borrower could cover the interest as it came due. And they were willing to lend only a fraction of the value of a pledged asset, to ensure a margin of safety for the principal. And only for a limited time-such as against the harvest of a crop or the sale of an inventory. And finally, only to people of known good character-the first line of defense against fraud. Long-term loans were the province of bond syndicators.

    That's time deposits. Demand deposits were a completely different matter.

    Demand Deposits. Demand deposits were so called because, unlike time deposits, they were payable to the customer on demand. These are the basis of checking accounts. The banker doesn't pay interest on the money, because he supposedly never has the use of it; to the contrary, he necessarily charged the depositor a fee for:

    1. Assuming the responsibility of keeping the money safe, available for immediate withdrawal, and
    1. Administering the transfer of the money if the depositor so chooses by either writing a check or passing along a warehouse receipt that represents the gold on deposit.

    An honest banker should no more lend out demand deposit money than Allied Van and Storage should lend out the furniture you've paid it to store. The warehouse receipts for gold were called banknotes. When a government issued them, they were called currency. Gold bullion, gold coinage, banknotes, and currency together constituted the society's supply of transaction media. But its amount was strictly limited by the amount of gold actually available to people.

    Sound principles of banking are identical to sound principles of warehousing any kind of merchandise, whether it's autos, potatoes, or books. Or money. There's nothing mysterious about sound banking. But banking all over the world has been fundamentally unsound since government-sponsored central banks came to dominate the financial system.

    Central banks are a linchpin of today's world financial system. By purchasing government debt, banks can allow the state-for a while-to finance its activities without taxation. On the surface, this appears to be a "free lunch." But it's actually quite pernicious and is the engine of currency debasement.

    Central banks may seem like a permanent part of the cosmic landscape, but in fact they are a recent invention. The US Federal Reserve, for instance, didn't exist before 1913.

    Unsound Banking

    Fraud can creep into any business. A banker, seeing other people's gold sitting idle in his vault, might think, "What is the point of taking gold out of the ground from a mine, only to put it back into the ground in a vault?" People are writing checks against it and using his banknotes. But the gold itself seldom moves. A restless banker might conclude that, even though it might be a fraud on depositors (depending on exactly what the bank has promised them), he could easily create lots more banknotes and lend them out, and keep 100% of the interest for himself.

    Left solely to their own devices, some bankers would try that. But most would be careful not to go too far, since the game would end abruptly if any doubt emerged about the bank's ability to hand over gold on demand. The arrival of central banks eased that fear by introducing a lender of last resort. Because the central bank is always standing by with credit, bankers are free to make promises they know they might not be able to keep on their own.

    How Banking Works Today

    In the past, when a bank created too much currency out of nothing, people eventually would notice, and a "bank run" would materialize. But when a central bank authorizes all banks to do the same thing, that's less likely-unless it becomes known that an individual bank has made some really foolish loans.

    Central banks were originally justified-especially the creation of the Federal Reserve in the US-as a device for economic stability. The occasional chastisement of imprudent bankers and their foolish customers was an excuse to get government into the banking business. As has happened in so many cases, an occasional and local problem was "solved" by making it systemic and housing it in a national institution. It's loosely analogous to the way the government handles the problem of forest fires: extinguishing them quickly provides an immediate and visible benefit. But the delayed and forgotten consequence of doing so is that it allows decades of deadwood to accumulate. Now when a fire starts, it can be a once-in-a-century conflagration.

    Banking all over the world now operates on a "fractional reserve" system. In our earlier example, our sound banker kept a 100% reserve against demand deposits: he held one ounce of gold in his vault for every one-ounce banknote he issued. And he could only lend the proceeds of time deposits, not demand deposits. A "fractional reserve" system can't work in a free market; it has to be legislated. And it can't work where banknotes are redeemable in a commodity, such as gold; the banknotes have to be "legal tender" or strictly paper money that can be created by fiat.

    The fractional reserve system is why banking is more profitable than normal businesses. In any industry, rich average returns attract competition, which reduces returns. A banker can lend out a dollar, which a businessman might use to buy a widget. When that seller of the widget re-deposits the dollar, a banker can lend it out at interest again. The good news for the banker is that his earnings are compounded several times over. The bad news is that, because of the pyramided leverage, a default can cascade. In each country, the central bank periodically changes the percentage reserve (theoretically, from 100% down to 0% of deposits) that banks must keep with it, according to how the bureaucrats in charge perceive the state of the economy.

    In any event, in the US (and actually most everywhere in the world), protection against runs on banks isn't provided by sound practices, but by laws. In 1934, to restore confidence in commercial banks, the US government instituted the Federal Deposit Insurance Corporation (FDIC) deposit insurance in the amount of $2,500 per depositor per bank, eventually raising coverage to today's $250,000. In Europe, €100,000 is the amount guaranteed by the state.

    FDIC insurance covers about $9.3 trillion of deposits, but the institution has assets of only $25 billion. That's less than one cent on the dollar. I'll be surprised if the FDIC doesn't go bust and need to be recapitalized by the government. That money-many billions-will likely be created out of thin air by selling Treasury debt to the Fed.

    The fractional reserve banking system, with all of its unfortunate attributes, is critical to the world's financial system as it is currently structured. You can plan your life around the fact the world's governments and central banks will do everything they can to maintain confidence in the financial system. To do so, they must prevent a deflation at all costs. And to do that, they will continue printing up more dollars, pounds, euros, yen, and what-have-you.

    Editor's Note: While currency crises, bank runs and episodes of economic collapse are devastating to paper assets, they often hand us opportunities to pick up hard assets on the very cheap.

    Each month we scour the world looking for the best crisis-born opportunities from fundamentally sound businesses whose stock prices have been hammered down by fear, crisis, and politically caused distortions.

    Founded on the principles that made a Doug Casey a bold fortune, Crisis Speculator delivers boots-on-the-ground reporting and opportunities from Albania to Zambia.

    Tags: banking
    Apr 21 12:20 PM | Link | Comment!
  • Doug Casey: Signs Of A Resource Sector Bottom

    L: Well, Doug, we've seen another quarter of high volatility and significant world events. What strikes you as most important at present?

    Doug: Everything is still held together with chewing gum and baling wire, for which I'm grateful, considering what's coming. It's very clear to me that the global economy is in very much the same space as it was in 2007-in other words, on the edge of a precipice.

    […]

    L: On the global economy, my question is this: If Obama and Yellen have saved the US and Merkel and Draghi are saving the EU, why are commodities selling off so dramatically? Iron, copper, oil-just about everything is selling off. How can an economy be recovering if it's not using raw materials?

    Doug: That's another reason why I believe that the Greater Depression started in late 2007. During a depression, people are forced to consume less, and you see that reflected in the price of commodities-at least in real terms. This can be obscured in current price terms, depending on the debasement of the currency in question.

    But it's important to remember that commodities are only a good bet when they're cycling upward, and that only lasts for a time. The longest trend of all is the downward trend of real commodities prices, as the march of technology makes them and the cost of life itself cheaper over time. Real commodity prices have been going down for at least 2,000 years, but probably 4,000 or 5,000 years-at least since the invention of agriculture. And I think they will continue falling, despite the fact that most large, high-grade, close-to-surface mineral deposits have been discovered.

    L: Hubbert was right about "peak oil" in terms of West Texas Intermediate, but oil is still getting cheaper because of the fracking revolution.

    Doug: Exactly. Because we've made so much money on commodities and because we believe in gold and silver as money, people think of us as commodity bulls. But actually, in the big picture, I'm a commodity bear, and always have been. Nanotech will transform city dumps into high-grade ore bodies. The asteroids will be mined at low cost. Ocean water will be processed economically. It's simply a matter of technology and energy. The future could be-should be-better than we can even imagine.

    L: I understand that-but I have to step in here and remind readers that gold is not a commodity-or at least not a regular commodity, since it's also the most successful and enduring form of money ever devised.

    Doug: Yes. No matter how many times we tell readers that no one can time the market, they still want to know what I think of the timing of the gold market.

    So let me tell you that even I have been feeling a bit abused and unloved by the market over the last couple years. If I'm feeling that way, I'm sure the average person in the sector is feeling it in spades-and that's actually a strong sign of a bottom.

    It's not as if we're buying at $35 in 1971 or $250 in 2001-both times when gold was clearly a one-way street. But at $1,200, it's very reasonable considering how explosive the world situation is.

    L: That's why we call it contrarian investing.

    Doug: It's pretty stark. Most of these crappy little mining stocks have no money, no management, no assets. In bull markets, they're still crappy companies, but they can raise money, drill some holes in the ground, and hope to get lucky. But now they're turning into shells, and that's another sign of a resource sector bottom.

    On the other hand, Wall Street has been rising for about seven years now, which is record territory. Several major indices have hit new records. These are signs of a market top. If the market collapses, it can take everything down with it. Mining stocks are also stocks.

    L: What about earnings? Don't higher Es justify higher Ps?

    Doug: They do, but earnings can be pumped up by things like sacrificing sustaining capital to maximize near-term profit or buying back shares instead of investing in new growth. As per your question about commodities, I don't believe the real economy is truly in recovery, and I don't believe the earnings we've seen are sustainable; I expect them to collapse.

    That in turn could produce a general stock market crash as happened in 1929 and on into the 1930s. The odds are overwhelming that that's going to happen to the bond market, and if the bond market crashes, that's going to devastate the stock market, which will in turn bring down the real estate market.

    L: There you go again, Mr. Sunshine.

    Doug: You know I'm not trying to be perverse-that's just the way the world is.

    L: So what does that leave?

    Doug: Most people would say cash, but as we've seen in the last few years, every government in the world-including the US and EU-is more than willing to print unbelievable amounts of money to try to paper their problems over. That's going to go into hyper-drive in the next round, trashing the value of currencies around the world as it does.

    L: But gold is the real cash of the world-always has been.

    Doug: Yes. We can't stress enough that the primary reason for owning gold today isn't to speculate on its price rising, but for prudence, for wealth preservation. For speculation, that's what gold stocks are for, especially the kind you follow in the International Speculator.

    The good thing about all the money printing is that we can predict that it will create more bubbles. Hopefully these stocks will be among the bubbles.

    Currencies come and go, but over the centuries, gold has always held value. About 100 years ago, you could buy a good suit with an ounce of gold, and that's still true today-and I expect it will still be true for the foreseeable future.

    In fact, as unlikely as it may seem to mainstream economic thinkers today, one of the more likely outcomes of the financial turmoil ahead is that some country or another is going to reinstitute the gold standard.

    We don't need a gold standard, of course, or any currencies at all, for that matter. People just need to be free to own and trade in gold. Period. Today, it can be represented by computer bits on your iPhone, of course.

    I think it will probably start with China or Russia, or possibly an Islamic country serious about its interpretation of the Koran. You know that the Prophet, peace be upon him, said in the Koran-which everyone knows is the direct and incontrovertible word of Allah himself-that one should only use the dirham and dinar as money. These are units of silver and gold.

    L: There have been attempts, but none has gotten very far.

    Doug: The new ISIS caliphate says it will operate according to the Koran on all matters, including money. They may make it stick, at least in the lands over which they have sway. Whatever else one might say about them, you have to admit they really are sincere fanatics. If someone says they believe something and they actually try to do what they say they believe, that's worthy of some respect, even if you don't share those beliefs. They appear to be not just talking the talk, but walking the walk, in every respect.

    L: Just the same, Doug, I wouldn't go pay my respects in person, if I were you.

    Doug: No question. They are clearly… unpleasant people. I'm certain I'd end up in one of those orange jumpsuits if I did go back to Syria or Iraq, and I doubt they'd consider my opinion over whether to behead me or burn me alive in a cage. But that's got nothing to do with the fact that they appear to be trying to act consistently with their principles, and it's intellectually dishonest to dismiss that.

    L: Well, I'd hate to see gold branded as "the preferred money of theocratic fanatics," but I do understand your intellectual point. Your remarks about evidence of a bottom are encouraging. I've heard it said by veteran investors with more experience than I have that the kind of bumping along the bottom we've been suffering through is actually a classic sign of a bottom in a long cycle. Do you agree?

    Doug: Yes, I do. I still think that intraday low of around $1,140 last November was likely the actual bottom.

    L: Personally, I was very encouraged then, because gold had broken below its December 2013 low, and it seemed that every pundit and blogger in the world was saying that there was nothing to stop the fall short of $1,000, or even $700. It was widely believed that breaching the prior low was the trigger that would take it much lower-but that's not what happened. Instead, the new low was a buying signal to Russians, Chinese, Indians, and others, and gold shot right back up again.

    Doug: Agreed. In absolute terms, gold isn't as good a value as it was in 2001, when I was telling readers that if I could call their brokers and buy gold for them, I would. On the other hand, the world is far, far less stable, so the prudence of owning precious metals is more paramount than ever.

    You've got to own gold, because as we've often pointed out, it's the only financial asset that is not simultaneously someone else's liability. That's particularly so when you remember that in reality, all of the major banks of the world are bankrupt. Between the fractional reserve system and the preponderance of bad loans and other factors, there isn't a one of them I'd trust.

    Worse, if you have a lot of money in a bank, you may think it's an asset, but the bank thinks it's a liability, and it's subject to seizure, come the bail-ins such as we saw in Cyprus. The EU is already laying the groundwork for that.

    ***

    For more contrarian investing tips, watch this video in which Doug, Louis, and six other industry experts discuss where we are in the gold cycle… why the best gold stocks will go vertical when the gold bull resumes… and how to prepare your portfolio for a shot at the jackpot. Or click here to get Louis' timely special report, The Top 7 Gold Stocks with Vertical Potential.

    Tags: gold, market
    Apr 02 12:40 PM | Link | Comment!
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