From Conversations with Casey:

Louis James, Editor, Casey's International Speculator: ... Okay... but these currencies have worked for a very long time. Why are you right about this and the rest of the world wrong? Why is it inevitable that government currencies will fail?

Doug: [Chuckles] Because governments are not living persons who care and can be motivated to do the right thing. They are collections of individuals - politicians and bureaucrats, not exactly the most desirable types - who pursue their own interests. Regardless of the rhetoric, their interests coincide with the public good only on occasion, like a broken clock being right twice a day. Even in the most enlightened times - even in the best of times - governments have huge incentives to spend more than they take in. These are not the best of times; the population has been trained for generations to expect subsidies and freebies as their due, without regard to who pays or how they will be paid.

I'll give you an example. When I was on the Phil Donahue Show, the day before the national elections in 1980, I was making the same philosophical points I am now. I explained how they, the taxpayers, would pay for all the goodies - like Social Security and unemployment compensation - that they wanted. A middle-aged guy in the audience asked: "Well, why can't the government pay for these things?" And the rest of the audience roared approval.

It was then that I first realized that resistance was futile and the situation was basically hopeless. And that someone who can seem perfectly sensible when he's discussing sports, or the weather, or the state of the roads, was likely to be a moron when it came to economics. And that when he became part of a crowd, it was even worse: he might transform into an imbecile or even an idiot.

Anyway, the dollar has existed for many years, even though it's degraded over time - first with the creation of the Federal Reserve in 1913, then with the repudiation of domestic gold redeemability in 1933, then with the repudiation of international redeemability in 1971. Even though the government has created trillions of new ones, the dollar is still thought of as some kind of a cosmic standard. In point of fact, it's no better than the Argentine peso and will have the same fate.

These IOUs have a quite ephemeral reality and are far too easy to create - there's literally no limit at this point. We don't even have to actually print them anymore, they're created by computer strokes - so it's unrealistic to expect fiscal restraint on the part of any government over time. It's just too tempting to spend money to make people feel richer than they really are, buying votes.

L: Looking at the deficits and national debt, it certainly seems so.

Doug: The national debt - when was the last time you heard any average person worry about the national debt? Americans have become so used to carrying huge loads of debt around - right out of college with student loans - that it doesn't even occur to them that there could be any reason for concern over the national debt. It's an abstraction, like the number of light years to the Andromeda Galaxy.

People used to at least pay attention, though most would say, "It's not a problem, we owe it to ourselves." But that was always a delusion. Some people, organized in a club called the government, borrowed it from some other people. But now it's even more dangerous, because the U.S. government owes it mostly to foreigners: the Chinese, the Japanese, the Taiwanese, and so forth. Americans, who at least theoretically have some interest in keeping the U.S. government straight, are tapped out. So it's gone to borrow from other societies. And they won't like it if they are left holding a bunch of worthless IOUs at the end of this experiment.

As the world political situation continues to deteriorate towards something I think will vaguely resemble World War III, the chances are excellent that a U.S. government at the end of its financial rope will default, likely by radically devaluing its dollar. They're way past thinking in millions. They don't even think in billions anymore; they're up to trillions. Soon Obama will have to ask the buffoon he appointed as a science advisor what comes after trillions. Those nice foreigners who gave Americans physical wealth in exchange for pieces of paper are going to find that, indeed, all they got was a bunch of paper. Maybe not even that, but just ledger entries representing pieces of paper.

It's not just the Chinese and Japanese governments that are going to be unhappy. But hundreds of millions of individuals around the world - in places from Russia to the Congo, to Mexico, to Thailand - that have a trillion of the things under their mattresses, because they justifiably don't trust their own government's paper, are going to be even more unhappy with the U.S.

This is big trouble. It's not just another economic downturn when scores of millions find their life savings go "poof." What we're looking at is a cataclysm at some point soon. I hate to sound inflammatory, but I think the situation is much, much more explosive than it appears on the surface, much worse than you see on the TV news.

Crux Note: You can access the rest of this must-read interview - which includes Doug's four recommendations for protecting yourself - by signing up for a free subscription to Conversations with Casey.  Click here to learn more.

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