International Man: It seems like a growing number of young people have concluded that saving, working hard, and investing prudently won’t get them anywhere. So they’re turning to sports betting, meme stocks, crypto speculation, and lottery-style trades. Is this simply bad judgment, or is it a rational response to a broken financial system?
Doug Casey: First, we should define our terms. Namely, what’s the difference between saving, investing, speculating, and gambling? There’s no doubt that speculating and gambling are way up. But these are four very different things, although people conflate them.
Saving is about producing more than you consume and setting aside the difference. That builds capital, which allows you to invest. Saving is the foundation of building wealth and prosperity; it’s indispensable for both individuals and nations. But savers look like fools when banks typically pay no more than 3%, before tax, while the general price level is over twice that.
Investing is about taking that saved dollar and allocating it productively so that it creates more real wealth and grows. But investing only pays off after years of patience—assuming that the investment is a winner. In an unstable high-inflation environment, good investments are hard to find. Entirely apart from the fact that the average person lacks patience, and knows essentially nothing about economics, business, or finance.
Speculating is about capitalizing on distortions in the marketplace. Distortions generally arise from government intervention or mass hysteria. They’re the friends of the skilled speculator, but poison for the average citizen. In a stable society with low taxes, few regulations, and no inflation, speculators would be chronically unemployed—like policemen in a monastery, or firemen in 10,000-foot-high Quito, Ecuador. But in today’s economy, prices go up and down like an elevator with a lunatic at the controls. Speculation, therefore, offers great opportunities. The problem is that the public confuses it with gambling—hoping to get lucky on stocks they’ve heard about in the news or from a friend. Of course, the public only hears about something when it’s being hyped or after the party’s over.
Gambling seems like the easiest and quickest way to make big money. And it can be fun. But the public is generally unaware of how much the odds are loaded against them. State lotteries, for instance, typically take about a 50% rake. The “numbers” game, run by the Mob in big cities, is actually a much better deal with only a 33% rake—and there aren’t any taxes withheld if you win.
Gamblers are players in someone else’s game, one that’s tilted against them. After the rake, random chance dominates the outcome, not knowledge or technique.
The bottom line is that in a high-inflation economy, everyone is forced to get rid of their fiat currency as fast as they can. They either wind up promiscuously consuming because there’s no way to get ahead. So why not eat, drink, and be merry, for tomorrow we die anyway. Or gambling, even if they think they’re speculating. Or, if they’re especially ill-informed, they think they’re investing.
International Man: When people believe the game is rigged, does gambling start to look less like vice and more like one of the few remaining shots at escape?
Doug Casey: Gambling promises the largest return in the shortest time with the least effort or knowledge. The unsophisticated and desperate will buy a lottery ticket for $1, hoping to win a million, but never consider that their odds of winning are vastly less than a million to one. It’s not even a “zero-sum” game, because, as I just said, the house rake on a state lottery is typically close to 50%. That’s before ordinary income tax captures another 50%. Worse yet, the gambler typically can’t even tax-deduct his losses. Worse yet, the gambler winds up directing funds to the government, which amounts to financing the rope they’ll use to hang him.
We can expect to see more lotteries and casinos, because they are great sources of income for the State. In principle, I have no problem with gambling. I enjoy playing poker, a game where luck of the draw is tempered by a knowledge of practical psychology and basic math. But I treat poker as entertainment. Almost nobody beats the odds in the long run.
One problem with government endorsing gambling is that it legitimizes the concept of gambling. The public starts to see it as wholesome because the money partially funds “public goods”. But gambling is innately unproductive and potentially addictive. It’s like drugs. I have no problem with people taking whatever they want. Your primary possession is your own body. But when the government starts promoting to generate revenue, it’s a slippery slope. It’s one thing to tolerate vice, seeing it as everyone’s private affair. It’s something else entirely for the State to promote it.
International Man: The old path was: get a job, save money, buy a house, build a family, and retire with dignity.
For many, that path now looks impossible. What happens to a civilization when its young people stop believing in gradual progress and start chasing jackpots instead?
Doug Casey: Once upon a time, America was a high-trust society. It now seems the ethos is to grab the money and run. Americans were once encouraged to delay gratification, to put off consumption today in order to be more prosperous tomorrow. But with increasing currency debasement, who wants to wait? Time preferences have gotten shorter as the world, and the dollar in particular, have become more unstable.
Polymarket, the “prediction” app, has recently started advertising on Zero Hedge, one of the largest financial sites. This shows the melding of gambling and speculation. Polymarket lets the public bet on everything and anything, including the direction of stocks and commodities. The difference between a stockbroker and a bookie is becoming blurred.
International Man: Governments and central banks have spent decades encouraging the wrong kinds of behaviors by punishing savers and rewarding debtors, insiders, and asset owners. To what extent did the establishment create this gambling mentality?
Doug Casey: In essence, it’s all about the debasement of the currency. In every country, most people can only save in the national currency. If the currency is debased, it makes saving foolish. If there’s no saving, that means that there is no capital with which to build for either an individual or a country.
That’s a major reason why government should not be involved in money or economics. Coercion and force are innately bad things and should be limited in a society. That is the sole moral purpose of government. Which implies a police force to limit force within the country, an army to protect citizens from force from other countries, and a court system to adjudicate disputes without resorting to force. Government should do absolutely nothing else.
Especially with the rise of the Internet, the average citizen has become more aware than ever of how the government—with supposedly the best of intentions—breeds fraud and corruption. It dispenses contracts and hires employees based on political connections, not quality. Insiders in DC and New York get to drink their fill of fiat currency flowing from the government fire hose, just leaving what “trickles down” for the average guy.
That creates resentment. Increasingly, the average guy tries to imitate the big shots. The economy has become grossly overfinancialized, revolving around paper assets, not real production. It all seems like a scam, where billionaires are seemingly minted just because they were in the right place at the right time. It seems like a moving paper fantasy. “Hello, New York? Buy! Hello, Chicago? Buy! Hello, L.A? Sell! New York and Chicago are buying”.
International Man: Is the rise of gambling a moral failure among individuals, or is it a symptom of deeper cultural and economic decay—where people no longer see a future worth patiently building?
Doug Casey: There’s nothing wrong with gambling or betting from a moral point of view. The problem is when it goes past being a diversion.
The transformation of the markets from a convenient way to raise capital for production into a type of casino is a warning sign. As is the participation of the masses through outfits like Robin Hood, a broker that democratized gambling, disguising it as speculation or investing. It’s a tip-off we’re probably at a top in the broad market.
In order to stay ahead of currency debasement, we’re almost forced to be in the market. But what part of the market? I remain convinced that mining and energy are not only the most underpriced, but also the highest potential areas. Specific recommendations are in Contrarian Insider, the letter I do with David Stockman (link), and Crisis Investing with Matt Smith (link).
Editor’s Note: We’re headed into one of the most dangerous times for savers, retirees, and anyone who has assets.
The political and financial risks to your capital are the largest they’ve ever been in our lifetimes—what you do next could mean the difference between suffering crippling losses and coming out ahead with your wealth intact.
That’s precisely why legendary investor Doug Casey and his team just released this report about what you can to prepare. Click here to see it now.
Read the full article here