Panicked people are emptying supermarket shelves and stockpiling toilet paper. Hand sanitizer is impossible to find anywhere.
Is the impact of the fear and hysteria greater than the risk of the virus itself?
Doug Casey: Yes, very much so.
- The virus itself is what we can call a first-order effect. I don’t want to spend much time talking about the flu itself because, even though worst-case numbers like a million deaths in the US are tossed around, it’s not the biggest problem.
- The second-order effects – like the economy shutting down from hysteria – are actually much more serious.
- The third-order effects – new laws and state action – will have the longest-lasting consequences. We can talk about them in a minute.
As far as the virus itself is concerned, I’m sure everybody has read lots of articles and listened to podcasts from experts. So knowledge—such as it is—about the virus is fairly widespread. Except very little is certain, even now. FWIW, I say that as a lifetime science aficionado, reading in many areas of science for years.
Just in the last generation, we’ve had hantavirus, the bird flu, swine flu, Zika, West Nile, MERS, SARS, and H1N1. We’ve also had anthrax—which everybody’s forgotten about. Of course, it’s a bacterial infection as opposed to a viral one. They’ve all had their day in the dark sun of mass hysteria.
The point I’m making is that there are thousands of viruses floating around. They mutate constantly. Most of them pass through the population and go viral, so to speak—and we never even notice that they exist.
Now this one is said to be ten times worse in terms of death rate than a normal flu. Is that true? It seems that if you get it, your odds of dying are much worse but still minimal. Normal seasonal cases of the flu kill maybe 50,000 people a year in the US. But we don’t even notice that.
So what’s the worst-case scenario regarding this virus?
Nobody really knows because it is a new virus. They’re still figuring it out, but maybe between 1% and 2% of the people who get it will die, mostly the old, the sick, and the obese. If you’re in one of those categories, you should take it very seriously.
The interesting thing about this virus is that very few have died so far, anywhere; the numbers would have been unnoticeable outside of the media hysteria. Not even a rounding error on a rounding error. The important thing is that it’s said to be spreading exponentially, doubling every three days or so. So maybe things will change radically in a week. Or not. It’s said at least 50% of the US population will get it, although 80% of them will be completely asymptomatic.
If you read all the conflicting reports from China, Italy, and other places, it’s pretty clear we don’t know much. There’s just one thing for absolutely certain: The world has been gripped by a genuinely titanic and insane hysteria.
Anyway, even the worst case from first-order effects – people dying – is being dwarfed by the second- and third-order effects. The important thing about this virus is not the first order of effects—people that it kills directly. It’s the consequences of the hysteria that it’s causing.
That’s what’s really serious.
International Man: What are the secondary or tertiary effects of the coronavirus?
Doug Casey: We just talked about the first-order effects of the virus. Death for a relatively small number of people. An unfortunate part of life on this planet.
Let’s talk about second-order effects. What the virus – or rather the hysteria surrounding it – is doing to people’s livelihoods.
Airlines are shut down. An airliner, all in, costs them $10,000 a day, whether they use it or not. Same, to some degree, for hotels. A restaurant closes down, but the owner still has to pay his mortgage. And the staff mostly lives on tips. How are they going to pay the rent—and if they don’t, then how’s the landlord going to pay his mortgage? The consequences of businesses shutting down, and going bust, are just huge.
For many years, the US has been what’s called a “service economy.” Most people don’t produce actual hard goods like houses, cars, food, and raw materials. We mostly do services. It’s a so-called “consumer economy.” A rather stupid concept actually—the term takes the emphasis off production and puts it on consumption.
When you have a depression, what happens?
Consumers cut back consumption to the very barest basics.
Services are the first to go. Hospitality and travel alone is supposedly ten percent of the world’s economy. People will now keep their cars for years, and maybe, sell the spare car. Forget about new wardrobes. The clothing and fashion businesses get slammed. Everyone will try to sell their big showy houses and get something practical.
Distortions cranked into the economy by decades of money printing are going to be liquidated. Everybody is going to cut back to the basics. A lot of people are going to have to find new ways to support themselves.
It’s especially serious since, it’s said, most of America is one paycheck away from not being able to buy the next meal. Plus, they have lots of debt—which is somebody else’s asset. Counterparty risk is a big deal.
The collapse of the stock market isn’t just tagging speculators. Most older people don’t have enough savings for retirement, and most of what they have is in the market. Will they lose their homes, and wind up eating cat food? Poverty, not flu, is what really kills masses of people. This is why these second-order effects are so important.
The hysteria is unnecessary and foolish. But sometimes hysterias seem to come out of nowhere, like the witch crazes of the 17th century. Did the economy shut down for any of the past viruses that I mentioned?
The answer is no—not even for the Spanish flu, which was largely forgotten until just now. Now, that was serious. It was a chaotic wartime environment, and medicine was primitive—we didn’t even know viruses existed.
Now, as was probably the case in 1918, almost everybody is going to wind up getting the flu because the flu is a virus. By definition, it goes viral.
The main reason given for shutting down everything is to “flatten the curve”, so the numbers don’t spike and overwhelm hospitals. If you’re a serious casualty, you can go to a hospital. But, frankly, they can do nothing for you, except put you on a ventilator, and hope that gives you time to recover. It’s said there are about 150,000 in the US, and you may need it for five or six days.
But life goes on, and the economy will recover.
More serious than the first-order or second-order effects are third-order effects.
In other words, what the government is going to do. For one thing, they’ll probably set up a new national health regulatory agency, and/or give the FDA new powers. Bad move. The FDA is to medicine what Amtrak is to railroads. It should be renamed the Federal Death Authority since it probably kills more people every year than the Defense Department does in the typical decade.
Governments all around the world are putting in onerous new laws and regulations about travel, movement, and business. These things have to be paid for, which means higher taxes. But that’s almost impossible in a collapsing economy. So, not just the Americans—everybody is going to print up boatloads of new money.
Because so many people have no savings and are living from paycheck to paycheck, it’s probably the perfect excuse to set up a guaranteed annual income. People have been already been prepped for the ridiculous concept.
International Man: The stock market had its biggest drop since 1987. Has the everything bubble found its pin?
Doug Casey: Yes. A major second-order effect of this virus is that it just happened to be the pin that broke the biggest financial bubble in world history. And it’s very hard to reinflate a burst bubble.
I don’t care how much money the government prints. That’s just going to cause catastrophic retail inflation.
Will it solve the debt problem? Only the way a heart attack will take your attention off cancer. If you lose your job and your business isn’t making money, your debt is still there, and it’s still compounding with interest. That’s why it’s likely The Greater Depression will start out like the US in 1929.
The thing that worries the authorities is that we might have a catastrophic 1929 style credit collapse; they’re printing tons of money to counter that. We could have in sequence, first, the 1929-style credit collapse and then the 1923 German-style runaway inflation.
This is the worst of all possible worlds, and not unlikely.
It’s entirely the fault of state intervention in the economy and the Federal Reserve creating a bubble economy with all this phony money. That’s where the blame should go. But of course, the blame won’t go there.
The blame will go to capitalism.
It’s also a perfect excuse for Modern Monetary Theory (MMT), which essentially holds that the government can print up all the money that it wants, and there really won’t be any bad effects.
Not only is the government herding people like cattle, but the people are screaming for the government to “do something.” People expect the government to fix the problem. As if it was magic. But there’s no problem the government can’t make much worse.
The government is, quite naturally, further removing responsibility from the individual.
There are going to be vast consequences from this stock market meltdown. Most people already had inadequate retirement funds, and what they had was in the market. There will be recriminations about who was to blame, lawsuits, and lots of new laws as the public screams for Congress to “do something.”
Every government and, indeed, every large company and organization feel that they have to do something or they’re going to be accused of sleeping at the switch. That’s why they’re going wild on the side of caution and control.
In today’s ultra-litigious environment, they’re afraid they’ll get sued if anybody catches something, and it’s traced back to their restaurant, their gym, their conference—anything.
In times like this, Trump—who has zero understanding of economics and is an authoritarian by nature—is ultra-dangerous. He’s capable of doing almost anything to show how decisive he is.
International Man: What other types of responses will we see from governments?
Doug Casey: They’re likely to promote a vaccine. I’m not against vaccines, per se. Edward Jenner and his creation of the smallpox vaccine showed their efficacy 200 years ago. Vaccines against seasonal flu are proven to be only 30–60% effective, at best, but that’s not the problem. Because the hysteria around this thing has been so catastrophic, they’re likely to force everybody to take the vaccine.
Now, this is where it gets really serious because if you don’t take the vaccine or if you escape taking it, you probably won’t get a vaccination card. If you don’t get a card proving you’ve had it, maybe you can’t get on a plane or a train or even go to a public gathering without showing your card.
No doubt, they’ll create a new agency like the TSA. Once it’s created, the thing will be self-perpetuating and won’t go away.
International Man: What else do you see happening?
Doug Casey: Another third-order effect is that they’ll say that cash is a vector of transmission. It’s an excellent impetus to speed up the elimination of cash, which would be a disaster for personal freedom, for reasons we’ve discussed before.
As I said, I don’t fear the virus as much as the second- and third-order effects.
The consequences, the knock-on effects, of the Wuhan Virus could be the biggest thing since the founding of the country, not just since the Great Depression of 1929 to 1946.
The pin that broke the financial hyper bubble may well have started a cascade of consequences.
International Man: What should the average person be doing for prudence and profit?
Doug Casey: Again, it’s likely that we’ll have a deflationary collapse before we go into inevitable hyperinflation. I’ve said this for years. Things you expect to happen always seem to take longer than they should—but once they get underway, they happen much more quickly.
What to do? At this late stage, there’s not much the average person can do. How do you prepare for a heart attack after a lifetime of eating junk food?
It’s too late to pay off debt if you have a lot, but they’ll probably have a moratorium on it, so it?’s going to be somebody else’s problem. You know what they say: “If you owe the bank a thousand dollars, it’s your problem. If you owe the bank a billion dollars, it’s the bank’s problem.” There are going to be lots of variations on that theme, considering there are a couple hundred trillion of debt out there.
What can you do if you have some savings?
Well, first of all, as far as assets are concerned, you’ve got to have gold and silver coins, although they’re now selling for big premiums and have become hard to get. Previously, they were selling for almost no premium.
So, it’s getting a little bit late for that too.
On the bright side, however, in the next few months, if you have cash, there are going to be fantastic bargains in the stock market in general. But by far the best place will be gold stocks, which are very, very cheap.
Unlike most companies today, they’re coining money because the average all-in sustaining costs of gold mines around the world are under $1,000 per ounce and dropping because about 20%–30% of the typical goldmine’s costs are fuel. The price of oil has also collapsed to $20, and gasoline is at $0.70 in the futures market.
This is the ideal time to buy gold miners. You don’t want to try to catch a falling safe; you want to wait until it conveniently smashes open on the sidewalk. Now is the time.
That’s what the average person should do. Other than that, prepare to enter the trailing edge of the gigantic hurricane we entered in 2008.
On the lighter side, this might be a perversely appropriate time to dust off your copy of Bocaccio’s Decameron. It is, after all, a plague year…