Louis: Doug, we’re getting a lot of questions from readers on how to follow your advice to diversify assets politically. I know it’s a prickly subject, but what can you tell us about getting our money out from behind the new iron curtain that seems to be descending?
Doug: First — and I can’t stress this enough — you’ve got to accept the grim reality of impending currency controls. The modern era of foreign exchange controls really started with the perversely Orwellian-named Bank Secrecy Act of 1970. For the first time, that made it obligatory for U.S. citizens to report to the government any foreign bank or brokerage accounts they had.
But the threat is older than that, of course, going back to 1933, when Roosevelt confiscated Americans’ gold. Interestingly enough, only gold bullion held by Americans within the United States was confiscated. If you had gold outside the United States, you were insulated.
Louis: I didn’t know that — if history repeats itself, that could be a key tactical factor for our readers to consider.
Doug: Yes. There are no guarantees, of course. Those in government today think they can do absolutely anything they deem necessary and expedient. But at least if it’s out of their physical bailiwick, it improves your odds.
Louis: Why do you think they allowed that exemption last time? I doubt it was because they had any shred of respect for private property — maybe they just recognized that trying to seize gold overseas would be impractical.
Doug: Good question. Well, the 1930s were a different era. Communication, for one thing, was vastly slower and more expensive than it is now. And you have to remember that though we had an income tax in the 1930s — since 1913, actually — very few people were paying it, even among those allegedly legally obligated to pay it. It was hard for the government to find out who they were, and how much they were earning and so on. Even though there were only 140 million people in the country then, the absence of computers and much less centralization made it very hard for Washington to keep tabs on them.
Louis: The income tax really was a voluntary tax back then!
Doug: [Laughs] Much more so than now — it really was a different era. At any rate, based on this history and that the juggernaut is building momentum toward the bottom of the ditch, I have to reiterate my advice on the most important investment decision you can make. And it isn’t one among the different classes of investment; it’s political and geographical diversification. Simply put, that’s because no matter where you live, your government is the greatest threat to your wealth today.
If you’re a high-income earner, the state basically takes 50% of what you earn, and then, from what’s left, you have to pay your real estate taxes, sales taxes and many, many other kinds of taxes. Government is without question the biggest danger to your financial health. You’ve got to diversify your assets so they are not all under any one government’s control.
Louis: You say that in almost every speech you give these days, and you said it in one of our interviews a couple of weeks ago.
Doug: Yes, and it bears repeating constantly. It’s the elephant in the room that very, very few people pay any attention to, and it’s going to stomp most people to death for just that reason.
Louis: OK, so give us a primer. For those who want to avoid getting crushed by the elephant, where do they begin?
Doug: To start with, it makes all the sense in the world to have a foreign bank account. Not a hidden one — I’m not advising anyone to break any laws. You report it on your annual tax filings. So the government will know about it, but if it’s a foreign bank account, they can’t just step in and lock down your assets in an instant.
Louis: Does Canada count as a foreign country for Americans?
Doug: I’ll probably get hate mail for saying so, but it’s important for investors to recognize that Canada is a sort of “USA light.” When Washington says, “Jump!” Ottawa says, “How high?” Nonetheless, if only for the sake of formalities and legal pleasantries, U.S. citizens would have some degree of insulation with a Canadian bank account. And as a general rule, Canadian banks are more solvent than U.S. banks, so setting up a Canadian bank account is an easy first step for many U.S. investors.
Also, I think that having a safe-deposit box in Canada is vastly preferable to having one in the U.S. You probably do remember that when Roosevelt confiscated gold in 1933, he also sealed safe-deposit boxes in all U.S. banks. No American could visit a safe-deposit box for some time without a government agent accompanying him. That could certainly happen again.
And all of this is true in other countries around the world.
But yes, as an easy place to start, Canada is a sort of plain-vanilla jurisdiction that’s worth giving a try.
Louis: So what would be the French vanilla, or even the Baileys Irish Cream jurisdiction? Is there such a thing as a tax haven anywhere in the world anymore? Even the Swiss have caved… I just heard that they just started handing over new account info to U.S. authorities.
Doug: Yes, apparently, there were some 50,000 accounts UBS had, owned by U.S. citizens. UBS, a multinational bank with a very substantial presence in the United States — and, therefore, exposure to extortion by U.S. authorities — was going to hand them all over. The Swiss government stepped in, saying they would prosecute UBS officials if they violated Swiss law by doing that. But the Swiss worked out some sort of compromise with the U.S. authorities, so only about 5,000 accounts are being handed over. On what basis they picked these 5,000 is uncertain.
So the first tax-haven rule is to never go to a place that’s obviously a tax haven. If I were interested in bank privacy, I’d forget about places like the Bahamas or the Caymans. It makes no sense at all today. All those little island republics are totally under the thumb of the U.S. at this point. And they’ve always been infiltrated with stooges. They may have bank secrecy laws, but they don’t have a tradition of privacy like Switzerland has — although that’s no longer what it was.
You’ll recall how the German government bribed a Liechtenstein banker to steal account names and information. The Germans then turned over relevant data to the U.K., U.S. and other governments, who were quite happy to receive stolen goods. And there was about zero protest over the appalling theft. It’s a testimony to how thoughtless and ethically complacent most people are; when a state commits a crime, they just overlook it.
Doug Casey and Louis James
for The Daily Reckoning
It’s imperative to recognize the urgency of diversifying the political risk your assets are exposed to. Do it now.
Doug Casey of Casey Research is the author of the best sellers Strategic Investing, Crisis Investing, Crisis Investing for the Rest of the 90's, and most recently, Totally Incorrect. He has lived in seven countries and visited over 100 more. He has appeared on scores of major radio and TV shows and remains an active speculator in the stock, bond, commodity, and real estate markets around the world. In his spare time, Doug engages in competitive shooting and plays polo.
Gold had a fixed value of about $20/oz back in 1933. Governments are now free to acquire any needed liquidity from the FED’s printing press. There’s no need for bullion confiscation. They can rob people blind by printing. The USD’s ultimate role, in the end game, is NOT that of a currency so much as it is a measuring tool (USD/oz) for gold-as-money in a floating real-time environment where bullion weight is the settlement and the dollar (USD/oz) bridges the paradigms, moving from debt currency to asset based currency. The age of information is like a “new wineskin” for real-time capability.
Has anyone considered that in the event of a financial collapse and the inevitable currency controls that ensue, the only real guarantee is in hard assets? I am thinking about the really mundane stuff like food, clothes and water. I have not read about or witnessed a currency collapse that did not result in the shelves being stripped bare in minutes with shortages of everything else! You can have as much paper currency as you like but you are no better off that someone on welfare if you can’t access it! It is smart to have a good supply of durable food stockpiled to ease the shortages that develop. A supply of paper currency on hand isn’t a bad idea either! Such safeguards will nicely complement offshore accounts (which are likely to be frozen, too).
I’m not a huge fan of the idea of stockpiling goods, because it presumes that (a) shortages will develop and (b) then shortages will ease before your supply runs out. That’s a double presumption. I would prefer to presume that barter would occur in such unusual event, and that price would solve everything, and that the ultimate barter would be gold and silver. The goal is not to stockpile enough of everything you MIGHT need, from bandages to paper towels, but to just have the coin of the realm in hand to exchange for what you need when you need it. That is, I do not expect societal breakdown to the extent others do (“Hey man, I’ll trade you a can of soup for a roll of toilet paper.”)
The government, when it finally realizes it cannot possibly pay off the National debt, will change out the money supply. They will use some type of excuse (emergency) to justify it all. Such as, they will blame the illegal drug trade and say there is too much currency in the hands of drug dealers and the government needs to account for this money and get it into “legitimate hands”. So they will create all new currency bills and exchange them for old currency. The “new for old” exchange will not be 1-1 however. Whatever the “ratio” the government chooses, the final result will be that prices will double. If you don’t believe this can happen, research the German Mark to Euro conversion and the resulting prices. Research the 1933 gold confiscation/revaluation. Hard assets will “revalue” based on the true value of the new currency. Pixal money (money in accounts, with banks, in 401K’s) will all lose big.
Well he talked in generalities and never really named any safe countries nor detailed any assets that could shield more effectively. Obviously 401Ks and IRAs are big fat targets because laws under the guise of money laundering pretext allows the government to watch most movement of money through the system. Clearly these corrupt toads cant resist surreptitiously extending their reach to law abiding citizens. Unfortunately these so-called conspiracy advocates never really point to the smoking guns because they are afraid, this includes conservative talk show hosts. Several of them I believe are playing both sides against the middle . Very few, if any, are willing to lead the charge…
You should look at Argentina as a case study in what happens after a currency collapse. Yes, you have to find a safe haven for cash. Many Argentinians did just that by transferring their assets to offshore accounts. They also stockpiled supplies of durable consumables and cask. Gold might not be readily traded. The supports would take awhile to put in place.
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