International Man: For centuries, wealthy people have used international diversification to protect their savings and themselves from out-of-control governments.
Now, thanks to modern technology, anyone can implement similar strategies.
Doug, I’d like to discuss some of the basic ways regular people can internationally diversify their savings.
For an American, what’s the difference between having a bank account at Bank of America and having an offshore bank account?
Doug Casey: I’d say there is possibly all the difference in the world.
The entire world’s banking system today is shaky. But if you go international, it’s possible to find banks that are both more liquid and solvent than those in the US.
That’s important. But beyond that, you should diversify your political risk. If you only have a US bank account, it’s eligible to seizure by any number of government agencies for a real or imagined crime, or a frivolous lawsuit.
Banking abroad offers legal, political and geographical diversification, it can substantially improve your financial safety, it increases your financial privacy, it can make things more convenient when you travel, and it may offer investment alternatives unavailable with US banks.
International Man: Moving some of your savings abroad also allows you to preempt capital controls (restrictions on moving money out of the country) and the destructive and often confiscatory measures that always follow.
Doug Casey: This is a very serious consideration.
When the going gets tough, governments never control themselves, but they do try to control their subjects.
The US is likely to have official capital controls in the future. This means that if you don’t have money outside of the US, it’s going to become very inconvenient and/or very expensive to get money out.
International Man: Why do you think the US government would institute capital controls?
Doug Casey: Well, there are about $10 trillion – nobody knows for sure – outside of the US, and those dollars are like a ticking time bomb. Foreigners don’t have to hold those dollars, and increasingly they don’t want to. They see them as the unsecured liability of a bankrupt, unpredictable, and often hostile foreign government. Only Americans have to hold dollars; if you’re in the US, you must use US dollars, both legally and practically.
Foreigners, however, don’t have to use dollars; they’re simply convenient and liquid at the moment. At some point soon they may perceive those dollars as hot potatoes. The Chinese, the Russians, the Iranians, the Indians, and a number of other countries are actively working on alternatives. They don’t like having to use their adversary’s currency for trade.
The US government might say Americans can no longer invest outside the US, or perhaps even spend significant amounts on travel, to help maintain the dollar’s FX (foreign exchange) value. There are all kinds of reasons that they could come up with that may be good for the government, but very detrimental to you. At that point, if you don’t already have money abroad you may be stuck.
In fact, we already have de facto capital controls, even though there’s no law at the moment saying that an American can’t invest abroad or take money out of the country. Just having to declare if you’re entering or leaving with $10,000 or more of a monetary instrument is one control. As late as the ‘70s you didn’t have to declare either foreign accounts or money you were moving. I promise there will be more laws and restrictions, not less. Especially as the economy turns down…
The biggest problem right now is US laws like FATCA, which imposes reporting requirements on foreign banks and brokers if they have US customers. Finding a foreign bank or a foreign broker who will accept your account is very hard today. Very few will take American accounts anymore because the laws make it unprofitable, inconvenient, and dangerous. So they don’t bother.
So it’s not currently against the law to have a foreign account, but it’s already very hard to open one. And it will get harder. Do it now, and at least you may be grandfathered.
International Man: The police state is metastasizing in the US. Is that a good reason to diversify as well?
Doug Casey: I’m afraid it’s a harbinger of what’s to come. Look, every day the legislature is in session, what do they do? They pass more laws. Those laws tell you what you must do, must not do, and what the punishments are for non-compliance. That’s why there’s less freedom of all types every year.
The fact is that police forces throughout the US have been militarized. Every little town has a SWAT team, sometimes with armored personnel carriers. All of the Praetorian style agencies on the federal level – the FBI, CIA, ATF, DEA, NSA, and over a dozen others like them – have become very aggressive.
Every single day in the US, there are scores of confiscations of people’s bank accounts, and dozens of doors broken down in the wee hours of the night.
The ethos in the US, the country’s essential character, really seems to be changing right before our very eyes.
You can be accused of almost anything by the government and have your assets seized without due process. Every year there are billions of dollars that are seized by various government entities, including local police departments, who get to keep a percentage of the proceeds.
It’s a very corrupting influence on law enforcement, encouraging them to seize citizen assets. The proceeds can be used for all manner of cop toys, conferences, travel, overtime, and what-have-you for the police. In fact, more money is now confiscated by government than is stolen by thieves. Which means the police have become more of a danger than the criminals they’re supposed to protect you from.
People forget that when the US was founded there were only three federal crimes, and they are listed in the Constitution: treason, counterfeiting, and piracy. Now it’s estimated there are over 5,000 federal crimes, and that number is constantly increasing.
This is very disturbing. There is a book called Three Felonies a Day, by the attorney Harvey Silverglate, which estimates that many or most Americans inadvertently commit three felonies a day. The situation is becoming Kafkaesque.
It’s important to insulate yourself to the greatest degree possible. A foreign bank account is an important step to take.
Reprinted with permission from International Man.