From the Publisher's Desk
"The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens."
- John Maynard Keynes
Are there ruff times ahead?
We've received a good number of emails recently from readers concerned about the current financial crisis, asking us what they should do and our analysis of this financial crisis.
We're not economists and therefore can't write from a professional's point of view as to what's caused this problem. However no one, not even the mighty USA, can go on with deficit spending year after year, remain trillions of dollars deeply in debt and not expect any negative consequences. The proverbial doo doo has now hit the fan! That said we'll leave how this happened to the professionals. We do have our opinion on what to do and how to protect oneself as we have been through a good number of down turns in the past; how governments reacted and might react to them and how those actions and reactions will affect all of us. From that perspective we devote this missive.
There is no question that the united States (correct spelling) Great Britain and other Western nations are and have been in a recession for a while. I personally believe it's likely to get worse, perhaps a lot worse, before we experience a recovery. Remember the world isn't going to come to an end in spite of all the scare tactics coming from all sorts.
The most important matter to bear in mind is that when governments say they are going to do something to protect you, i.e. guarantee banks, your financial deposits, your home, insurance companies, large businesses of all sorts, etc., in doing so they are also going to TAKE something from us in order to secure those guarantees.
At the very least everyone will pay more taxes, a lot more taxes. You can also expect a great deal more financial regulations and compliance requirements from your government and a hell of a lot less financial freedoms, hard as that is to imagine considering all the 9/11 laws pasted!
As previously stated in past missives, the 700 billion dollar bailout is a drop in the bucket. The cost is rapidity approaching 5 trillion dollars as I write these words. I believe it could reach 30 to 40 trillion dollars before this disaster is sorted. I don't believe it would be politically correct for any politician or the new (US) president to past tax increases at a level necessary to pay for all this. Therefore it would be a logical assumption that governments will print more money to pay for everything. Hence we should expect a much higher level of inflation than we have experienced in a good while, with the continued long term decline of the dollar. Could inflation in the western world approach Zimbabwe's inflation rate of 231 million percent as of July 2008? http://www.nytimes.com/2008/10/10/world/africa/10briefs-INFLATIONRAT_BRF.html?ref=world
It's not likely; then again anything is possible. Suggested reading is "Hyperinflation in Germany, 1914-1923" and can be located at http://mises.org/story/2347 . If you read anything similar in that article that appears to be happening today, then we'd better hold onto our hats, because we are in for one heck of an inflation ride.
Stock markets are so volatile worldwide currently that we'd stay in cash keeping a fair portion of your assets in gold coins. If you do have stocks, it doesn't make sense to dump them at this depressed time, despite the possibility they might go down further. You should be in stocks for the long haul and in the long haul they'll recover, albeit maybe years from now.
I don't believe that being 100% in gold is good for anyone, because governments have proven that over the years they have manipulated gold to hold it down, when gold should have gone up dramatically. I don't see that government intervention/manipulation changing in this crisis. If matters get worse, and they very well may, governments could confiscate all ownership of any kind of gold holdings, including gold coins and collectible gold coins, just like they did in April 1933.
"Under current federal law, gold bullion can be confiscated by the federal government in times of national crisis. As collectibles, rare coins do not fall within the provisions permitting confiscation.
No federal law or Treasury department regulation supports those contentions.
The myth that specific types of gold coins are "not confiscateable" stems from the Executive Order that President Roosevelt issued in 1933 calling in gold. The Executive Order exempted "gold coins having a recognized special value to collectors of rare and unusual coins," but it did not define special value or collector, and certainly not collectibles. Nevertheless, telemarketers promoting old U.S. gold coins perpetuate this myth because it makes easier the selling of high-priced coins.
Just because Roosevelt exempted "gold coins having a recognized special value" does not mean that any future call-in would exempt collectibles. Roosevelt's Executive Order would have no legal binding on another gold call-in. Besides, on December 31, 1974, with Executive Order 11825, President Gerald Ford repealed the Executive Order that Roosevelt used to call in gold in 1933. This was necessary because on the same day Congress restored Americans' right to own gold. Furthermore, in 1977 Congress removed the president's authority to regulate gold transactions during a period of national emergency other than war.
Even if a law did exempt certain coins from future confiscation, the government could change that law. Sadly, the government often simply ignores laws. Dealers who say they sell "non-confiscateable" gold have no basis for making such claims."
So if you're in the USA, it would behoove you to have a safe deposit box OUTSIDE of the USA. There you could stash a reasonable amount of gold coins. In fact, you could buy the gold coins for instance in Switzerland, then open a safe deposit box at a solid Swiss bank and place them in the box. All would NOT be a reportable event, at least under current laws. Also to the best of our acknowledge, there are no current US laws that make having a safe deposit box outside of the USA a reportable event. Just make sure you do NOT have a bank account at the same bank or branch where you deposit the gold coins.
Having a personal bank account in a safe country and in a currency or currencies other than your home countries, would be an astute move on your part. Many people call this a "nest egg" or "safety net" account. For example, if you lived in the United Kingdom having a simple savings account in Switzerland in Euros or Swiss Francs would meet the "safety net" criteria. If you lived in the united States, having an account in Hong Kong in Hong Kong dollars, Euros, Japanese Yen or Swiss francs, would be kosher and also meet the "safety net" account criteria. Having an ATM debit card attached to such a "safety net" account could be beneficial in the event your government had a bank holiday, froze, closed your bank or confiscated your money, gold, etc. Even if you have to report the account, you are not breaking any laws having a 'safety net" account. If you'd like to learn more about obtaining your own "safety net" account, just send us an email and place "Safety Net" in the subject heading. It's an easy process and very affordable if I say so myself.
In the United Kingdom during 1962 imposed currency controls on the amount of pounds sterling a British national or resident could take out of the UK. It was a miserly GBP 50! It is quite possible such "controls" could easily be applied to prevent you and your capital from fleeing your home country. A simple "executive order" by the president could enact exchange controls limiting the amount of money you can take or send out of the USA, thereby causing you and your money to stay INSIDE Amerika or your own country simply by a stroke of the pen!
In the event of a US dollar devaluation, Americans locked into
US dollars at home or abroad would wake up one morning and half
or more of their money and US dollar assets would have vanished
The 1994 economic crisis in Mexico, widely known as the Mexican peso
crisis, was triggered by the sudden devaluation of the Mexican peso.
The peso crashed under a floating regime from four pesos to the dollar
to 7.2 to the dollar in the space of a week.
Overnight anyone in Mexico holding US dollar accounts had them
arbitrarily and without any say in the matter, switched to Pesos
and lost half their money overnight! This included a million or
so Americans living in Mexico plus millions of Mexicans
themselves. The crisis is known in Spanish as el error de diciembre —
The December Mistake.
From the outset of export controls of all sorts in the UK (circa 1940's and beyond,) it was considered that unmounted diamonds would constitute a ready means of transferring capital abroad, being easily transportable and of high and stable value, and it was clear that, in view of their very specialized nature, normal customs examination would be virtually useless as a check on values.
During the war they were subject to the special control on strategic goods, but when this was dropped in 1945 the Diamond Committee was set up and arrangements made to channel imports and exports through the Customs Postal Depot at King Edward Building (or exceptionally through Vintry House). This enabled packets to be selected for examination by the committee, which consisted of members of the Customs and experienced diamond traders who were able to advise on the proper value of the stones.
The export channeling was achieved by a licensing restriction and resulted in most goods being dispatched by registered letter post. Air freight was permitted in certain circumstances, but in view of the risks of diversion or substitution there was a total prohibition on exports on the person until January 1977 when a special concessionary procedure (the PED scheme) was introduced.
There are files which give details of various aspects of the diamond control and its development (e.g. CUST 115/82-84).
If you don't believe the above or worse could happen again, you'd better think again.
There are already in place untold presidential laws where all that is required is for the US President to declare a national emergency. He can do this simply by signing an "executive order" and martial law, exchange controls and all sorts of other horrific "laws" would be implemented in an instant. Habeas Corpus would be suspended and you could be "held" for an indefinite period of time on any number of trumped up "charges."
PT - Prepare Thoroughly
In the event you have not taken the necessary precautions to protect you and your loved ones during this crisis, it's not too late. Now is the time to take action and protect your loved ones. It would behoove you to start by seeing where you are financially right now. Remember to hope for the best but prepare for the worse.
I know it might sound silly, but when was the last time you wrote down your income and outgo expenses? You can't cure the problem unless you can see it and understand it. So the first step would be for you to simply draw up a list of your monthly ongoing expenses on one side of a piece of the paper. Then on the other side write down your monthly income. Don't try and fool yourself. Put everything down including the amount you spend each month going to the movies and all the small expenses that eat away at your disposal income. Everything counts. Remember elephants don't bite, mosquitoes do!
Your next step might be to do your best to maintain your current level of income during these ruff times. If you have a business, remember it is far easier to keep a good customer and have them as a repeat buyer, rather than try and find a new customer. So treat your customers as they desire to be treated, like gold!
Cut back on your expenses as best as you can. Don't be penny wise and pound foolish. You could put off that expensive holiday you were thinking about taking next summer until matters settle down couldn't you?
Eliminate or reduce your credit card debt. Many credit card companies charge 10% and higher for ongoing credit card interest rates. I've seen interest rates as high as 20% in the UK and elsewhere. It's hard in today's world to get a 10 to 20% return on your money, so paying off all credit cards and other debt should be a priority, as well your being prudent.
Do your best to sock away a minimum of six months (36 months would be ideal,) cash in the event you need to pay your monthly expenses as outlined above in the event ruff times strike you.
Stocking up on a month's supply of food would be an excellent idea. I'd especially stock up on toilet paper, soap, tooth paste and other similar utility items as your budget permits. Canned goods are a good bet. One can purchase large qualities of canned goods at discount outlets that will last for months. Sugar and rice have a very long shelf life and are essential food item as well as salt. Coffee and tea have long shelf life's as well. I know people that purchased a good deal of dehydrated foods prior to the millennium scare. Though many laughed at them, they ended up eating the dehydrated foods in any event, and said it didn't taste that bad anyway! So that is another way to stock up on a minimum of one month's supply of food. just in case!
A good supply of bottled water is a must, no question about that. Water lasts for a good while, and you can use it and replace as needed. In the United States bottled water's shelf life is date stamped for two years. This acts as a SKU number and is mainly for stock rotation purposes. It does not imply that the product is compromised after that date. As long as bottled water is packaged properly with good manufacturing practices, the product's shelf life should remain intact for an indefinite period of time.
Medical supplies are a must. A good size medicine kit,
prescription medicines, flashlights and lots of batteries are
essential items for you in the event of disaster striking you.
A backup generator might also be a good investment and as
well as a decent amount of petrol, subject to local storage
If you live in Amerika, buy and learn how to use a gun. In the
event of civil unrest you might need it in order to protect your
Bartering and or joining a barter club might also be considered. Albeit I'd be careful to be on any list, as the government are certain to regulation such clubs in the event of a national emergency. A search on the internet for barter clubs can easily locate one near you.
Knowing how to repair an automobile, fix a toilet or sink, paint and similar semi-self help skills, could also be a good investment on your part. There are no shortage of do it yourself / how to books and tools for all sorts of odds and end jobs. In case of ruff times, you could fix your neighbors kitchen sink whilst they fixed you automobile.
Growing vegetables in your garden is also advisable, subject to your having a respectable size garden.
The list could go on and on, but I am confident you will find and meet your families' requirements as necessary.
Are we being an alarmist? Perhaps. We were asked for our input and
viola, here it is in this missive. However before you brush off
this missive as pure hyperbole, I urge you in the strongest
possible way to read at your earliest the Hal Turner article at http://www.fourwinds10.com/siterun_data/business/economy/news.php?q=1224641115
If what Turner claims turns out to be true or only partly true, and anything
is possible, the united States (correct spelling) as we knew it will
cease to exist. It certainly makes me wonder if Turner is onto
something after what VP candidate Senator Joe Biden said this past
weekend. Biden said and both Colin Powell and Madeline Albright agreed;
Biden guaranteed that Barak Obama "will be tested by an international
crisis within his first six months in power and he will need supporters to
stand by him as he makes tough, and possibly unpopular, decisions."
Do the above know something we don't? If so, what unpopular
decisions and why aren't they telling the American public?
In closing all of this brings to mind one of my favorite
telly series from the 1950's /1960's, The Twilight Zone. One of my
favorite episodes was "The Shelter," circa 1961.
"In this delightful episode a small gathering of neighborhood friends in a typical American suburb is having a small dinner party to honor the local Dr. Stockton at his house. Dr. Stockton is well-known and liked by this gathering because he has either administered to the health and well-being of his guests or has delivered their children. Everybody is especially friendly and jovial yet mocking mention is made of his late night work on a fallout shelter that he has built in the basement.
Suddenly, a Civil Defense announcement, overheard by Dr. Stockton's son, is made that unidentified objects have been detected heading for the United States. In these times, (1961) everybody knew what that means: nuclear attack.
As panic ensues, the doctor locks himself and his family into his basement bomb shelter. The same gathering of friends becomes hysterical and now wants to occupy the shelter. All of the previous friendliness has vanished and is now replaced with bitter hate and soaring desperation as pent-up hostility and suppressed emotions boil to the surface. The end is moments away and everyone's mind is now vehemently poisoned by the clawing desire to survive, at any cost - the feelings of a neighbor, the sanctity of a friend's home, friendship itself, or the raw submission to violence. The last scene shows the once-friendly neighbors breaking down the door to the shelter with an improvised battering ram.
Just then, a final Civil Defense broadcast announces that the objects have been identified as harmless, falling satellites, and that no danger is at all present. The neighbors apologize for their behavior, but Dr. Stockton wonders if they had not destroyed themselves, even without a bomb."
The moral of this story is do you have your fallout shelter ready? What are you going to do about it?
See you next issue
"The people never give up their liberties but under some delusion."
- Edmund Burke, 1784
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