How to prepare for the end of America (maximum gloom and doom)

e-mail | Sept 20, 2009 | Porter Stansberry

[dennisw]

How to prepare for the end of America

Daily Crux: Porter – judging by the number of clicks our stories on inflation and asset protection receive, it's safe to say many of our readers are worried about the U.S. dollar, inflation, taxes, and just general disaster.

Could you tell us about what you think the biggest dangers are out there for investors?

Porter Stansberry: The two main dangers investors face right now is number one, inflation; and then number two, taxes.

I've written a lot about these two problems, but briefly, the size of the government's annual deficits have grown so large that they're difficult to finance.

So if you look at how much money the Treasury is spending in excess of what it's taking in taxes, there's a wide gap. And that gap is being monetized by the Federal Reserve.

Now, this isn't news. There's a new name for it. It used to be called "money printing." Now they call it "quantitative easing." So people are right to be afraid of the money they hold and they're reacting, then, in a normal way by buying gold, which is why it's over $1,000 an ounce.

I would like to point out that it's even worse than most people think. I think most people assume this quantitative easing is necessary because of the banking crisis and because of the economic crisis. It does help those things a little – but the real point of the quantitative easing from the standpoint of the government and the Treasury is there is no way America can repay the total size of its outstanding debts.

These debts have to be estimated because a lot of the obligations of Medicare, Medicaid, and Social Security – are not funded into the future, and we don't know how the rules are going to be changed on these things.

But we do know that it's almost impossible for democracies to withdraw benefits once they have been offered to the public. History shows us that democracies, rather than raising taxes on a large part of the population, what they do instead is print money. And you see all those things happening in this case.

The Federal Reserve has increased the size of its balance sheet by 126% in the last 12 months, and they need this resulting inflation in order to make the debt disappear, because the more inflation rises, the more the value of the dollar falls, the easier it is to repay these debts.

Daily Crux: A lot of people see guys like Tim Geithner, Barack Obama, and Ben Bernanke as fools who don't understand what they're doing. But there's another school of thought that says they know exactly what they're doing. Which side do you fall on?

Porter Stansberry: Well, even when Bernanke first came to office, I wrote Bernanke is the perfect government stooge because he knows exactly what needs to be done and he's going to do it. And what needs to be done is increasing the money supply.

I don't know exactly how much inflation they're going to create. But you have to realize the total outstanding obligations of the U.S. government are something on the order of $70 trillion to $90 trillion, and we already can't finance the annual deficits. There is no way we'll ever be able repay that amount of money... with money that has the same purchasing power then as it has now.

So the only chance we have is to print a lot of money, which reduces the purchasing power of those debts that we owe. That's the only way out. And you can know for sure this is happening by looking at what's happening to the tax base. If the government had any intention of actually repaying its debts, the tax base would have to be broadened significantly. More people would have to be paying a higher percentage of income to the government. Lots more people.

What's happening instead is, now, the number of people who don't pay any taxes at all is growing. So today, roughly 50% of adult Americans don't pay any taxes whatsoever, thanks to things like child credits and the middle class tax cuts, and Obama's new "refundable" tax rebates, which is where you get paid, even if you haven't paid any taxes at all. You get a tax refund even if you don't pay taxes in Obama's world.

These things are all decreasing the size of the tax base, so fewer and fewer people are having to pay higher and higher taxes. When you structure the tax base that way, what you do is you end up magnifying the disincentives that are inherent in income taxes.

So as the burden falls on fewer and fewer people, those people have a more and more intense desire not to pay taxes. And so you'll see things like people leaving the country. You'll see things like tax evasion becoming much more of a serious problem. And you'll see people simply refusing to work, or refusing to get paid in a legal manner, so you'll see a black market develop, because 1% of the population is now paying for something on the order of 30% to 40% of all income taxes. That's simply not sustainable.

If you look historically, when countries do this, when they increase expenditures and narrow the size of the tax base, you always end up having an enormous fiscal crisis. Most recently, I've seen this in Argentina, where it's happened about once every 10 years for the last 50 years. I was in Argentina in 2001 and 2002, when they had their last crisis. What happens is, sooner or later, those few people who are paying taxes basically quit. And then the government falls apart because there is no income at all.

So if you're a wealthy person, the thing that you have to really be afraid of right now is the loss of your savings due to inflation. You also have to really be on the lookout about new changes to tax policy that'll be designed to make it impossible for you to escape the inflation.

And so, I believe we're headed to a currency control system. It's very common in democracies. It's probably happened most notably in the 1950s and '60s in Great Britain. So when you have a government that can't finance its expenditures, and you have a very narrow tax base, and that tax base attempts to leave, then the government all of a sudden won't let you go anywhere with your money.

Now, whether or not they can enforce this law, it becomes very problematic because the government has to know where your assets are in order to enforce it, and it has to be able to get ahold of them or get ahold of you.

So I don't know this for a fact, but my assumption is a lot of people are moving their assets offshore now, and then, later, telling the government, "Hey, I'm leaving," or maybe not even telling the government anything, just leaving. And so this is going to accelerate the number of people who are moving assets offshore so they can't be seized and can't be taxed.

It's going to continue to grow until finally Congress notices, and that's the moment when the TSA will stop looking for guns and knives and will start looking for people who are moving out bags of gold and bags of securities.

And so I think that if you are rightly afraid of what you see happening in terms of the growth of inflation, the growth of government expenditures, the growth of Federal controls at the borders, and the narrowing of the tax base, all these things are big red flags for what's about to happen in America. And if you rightly fear your assets being inflated away, or being stolen from you, I think it's only sensible for you to move some percentage of your net worth overseas, where it's much more difficult to seize and to tax.

Daily Crux: OK... those are the dangers. What does an investor do to safeguard his wealth?

Porter Stansberry: Well, of course I recommend owning gold.

I've made it my policy to buy gold every year, regardless of price, because although I can't know when, I'm certain the U.S. dollar global paper standard will fail, and when it fails, it will be catastrophic. There is no paper money currency system that's ever lasted, and there has never been a global paper currency before. So you have to expect that when the biggest one ever fails, it's going to be the biggest problem ever.

So I think it's sensible, no matter what the price of gold is, to buy gold every year. And so how do I buy gold every year? Well, I literally look at my checkbook come the middle of December and I see how much money I have laying around – how much cash do I have in my brokerage account, how much cash do I have in my checkbook, how much cash do I have stuffed in my sock drawer? And I literally take however much money I have left over at the end of the year and put it into gold coins, and I buy the bullion coins. I don't buy the numismatic coins.

And so over the years, I've picked up a lot of gold a little bit at a time. I've bought at prices below $400, and I bought at prices above $900.

As for storage – this is probably controversial for most people but works for me – I recommend you store it in self-storage places. You can find self-storage places all over the world. They're never very expensive. You can pay in cash, for a year in advance, and the contents of your self-storage place are not registered, and self-storage places are so common that it would be impossible, you know, for a government agency to track down every self-storage place in the world and have all the units searched for gold. It's just not realistic.

So that's the way I prefer to do it, and you don't have to tell anybody about it. Perhaps you should, in case something were to happen to you, but I don't. My feeling is my gold is my own personal lifeboat, and I have plenty of life insurance and plenty of other assets for my family, so I don't tell anyone where I keep my gold. But that's just me.

Daily Crux: In an inflationary environment, can people also own stocks to increase their wealth as inflation rises? And, if so, what sorts of stocks do you recommend?

Porter Stansberry: Absolutely. If you look at the great inflationary collapses in history – so Germany, for example, in 1923, or in Argentina in 2001- 2002. If you look at any of these great inflationary collapses where people lose complete faith in the currency and abandon it, wholesale, there are a couple of things that always do well.

Commodities do well; real estate does well; and stocks do well, every time. And the reason why is not a surprise. Even in real terms, more value ends up fleeing into those things than remains in the currency or remains in the bond market.

The things that you don't want to own is long-term government bonds. And you really don't want to own long-term corporate bonds, either. You don't want to own anything that's a bond, that has a fixed coupon, with a duration of more than a year or two, because the value of that coupon's going to be inflated away.

The thing that you do want to own are trophy assets, and you want to own trophy assets either directly, in the form of, say, real estate, or an operating business that you own and control – or you want to own them through the stock market. The key thing to remember is that in inflation, the value of a trophy asset relative to a common asset will increase significantly.

Just for an example, as a hobby, I play in the Miami real estate market. Obviously, there's been a big blow up in real estate asset prices lately. But if you look at what happened between these common condos that are in downtown Miami, relative to the beachfront condos that are on Miami Beach, the prices of both have gone down significantly. The beachfront condos have gone down 30% or 40%, and the downtown condos have gone down 70% or 80%.

In inflation, you're going to see the same thing happen, where the common condos may double or triple in price. But the beachfront condos are going to go up six or seven times in price.

You also want to own the irreplaceable infrastructure of the country the government can't function without. You want to own the oil refineries. You want to own the railroad networks

The thing you have to be cautious of, though – this is the downside of owning equities in an inflation – is that interest rates on fixed income assets will go way up... and sooner or later, they will catch the inflation. Eventually, bond yields rise so far that they begin to compete with stocks.

And so sooner or later, people say, "Hmmm. I could buy a stock trading at twenty-times earnings, or I could buy a 15% coupon corporate bond that's going to mature in a year. I'm going with the bond." So the thing you have to realize is even though owning these corporate assets will protect you from inflation, even though the stock prices are going to rise, you have to be very careful the price you pay when you get into the asset because the rising interest rates will cause the multiples of stock prices to contract.

Eventually, the bond market will be competitive with stocks. But before inflation begins, you definitely don't want to own any bonds, and you definitely do want to own trophy assets, whether directly or through the stock market.

Daily Crux: How about owning foreign real estate?

Porter Stansberry: The government frowns on you if you wire a bunch of money overseas to Singapore. It's a great way to get audited by the IRS. If you decide you're going to buy $10 million worth of gold, you've got lots of headaches. Where do you store it safely? Who do you trust with it? And again, you have the problem of inviting prying eyes.

On the other hand, the government takes a very benign view of real estate. Everybody wants a second home. There's nothing un-American about having some real estate, whereas having a foreign brokerage account, or owning a bunch of gold might put you in the "kooky" category. Having a house on the beach in Nicaragua or in Thailand or in Singapore, well, that's just, that's just a good American!

So one of the best ways, I think, to protect your assets from the federal government is by buying real estate overseas. It doesn't have to necessarily be real estate, by the way. It could also be an operating business. You can buy a bed-and-breakfast somewhere. You can buy a shoe store. You can buy assets overseas without raising a lot of eyebrows.

The point is that once you've bought an asset overseas, you go from having to worry about the regulatory risks in the United States, to having to worry about the regulatory risks in the country where you've purchased the asset. So there are a couple different ways to deal with that. In all the history of Argentina's troubles, they've never, ever seized any private land. Now, why is that? I mean, Argentina obviously has a socialist government. Why don't they do the whole land expropriation kind of thing you've seen in Africa or you've seen in Central America?

Well, the answer is Argentina is as large as the United States, east of the Mississippi. It's a huge land mass. But there are only about 40 million people that live in the entire country. And half of them live in Buenos Aires. So Argentina is empty. There is tons of land. There's no reason for the government to confiscate it.

So if you want a place where you can own lots of land cheaply, safely, without worrying about it being stolen, I would consider Argentina. Uruguay has exactly the same principles behind it. I prefer Argentina because it's a very European place. I feel very safe and comfortable there.

Likewise, there are lots of places that encourage foreign real estate investment, like Singapore, where if you buy real estate there, you get all kinds of certain benefits, residence cards, tax benefits from the government, things like that.

And then there's places like Nicaragua, which are very much still developing. You have a situation there where the government desperately needs foreign investors, and so they're treating us very well. Of course, in time, that certainly may change. Some people think I'm out of my mind because I bought a large beachfront property in Nicaragua and I'm investing heavily in the country. But I like the Nicaraguan politicians because unlike the American ones, they stay bought. I'm just more comfortable there.

But sincerely, if you travel the world, if you have any wealth at all, and you travel very much, you will realize very quickly that there are lots of places around the world where you and your wealth will be welcome and will be treated with appreciation instead of with scorn. And I think once you've experienced that for yourself, it changes the way you feel about the United States forever. And I think that alone is a valuable insight that's worth experiencing.

So I would look at Hong Kong, which is very cheap. I would look at Singapore, which is very cheap. I would look at Argentina and Uruguay. I happen to like Central America. I know it's not everybody's cup of tea. But I definitely have a fondness for Nicaragua. I would avoid places that have been popular over the last 40 years, like the Cayman Islands, or Switzerland. I think those places that have a legacy reputation as being asset havens, I think they're very expensive, and I think that they will bring you a lot of unwanted attention.

Daily Crux: What about real "oh crap" planning... if things got truly ugly here?

Porter Stansberry: A lot of times, when I start talking about the risks of inflation, or the risk of the narrowing tax base, or the possibility of a true collapse of the American dollar standard, people look at me like I have three heads.

And I find that really interesting because in my mind, if you know anything about economic history, you know that this is the only possible outcome. There is no way to save the ship. It's already halfway underwater. And you've got all these people standing on the deck, looking at the ship tilting over, listening to the band play, and they're the ones calling you crazy because you're saying, "Hey, look! The water's coming! We gotta get off the boat!" 

So I find it entertaining because any thinking person would have to realize there are big problems here, and they can't and won't be solved.

So from that standpoint, then I think, "Well, it's not my job to save the country. I couldn't even if I wanted to. It is my job to save my family." So all of my asset protection planning and my inflation planning is based around this idea, which is if I woke up tomorrow morning, and the Chinese would no longer accept the dollar, and neither would OPEC, what would happen? Because that's exactly what's going to happen. That will happen in my lifetime. I 100% guarantee it. I think it's very likely it's gonna happen in the next 10 years, certainly in the next 20 years.

Someday, I will wake up and our trading partners will no longer accept our currency. The moment that happens, there is going to be enormous problems. You know, people think that $4 gasoline is a big problem. Well, try $40 or $80 gasoline. And you want to talk about the class warfare that we have? Well, you're going to see some real class warfare when suddenly there's not a state government in the United States that can afford to run buses anymore.

The one thing I have to feel good at night is knowing I actually have a way to get safely out of the country. Now, I know this sounds completely crazy to most Americans. But if you look at what happened in other places where these kinds of currency collapses have occurred, the first thing they do is they lock the door and they don't let anybody out. 

Considering this, I bought a house on the water in Miami. It's on a canal, and I'm buying a 40-foot speedboat to have in my backyard. I guarantee you, if I wake up and the dollar is gone, I can hop on that boat and I can be in the Bahamas in about an hour and a half, tops. And there's no one who's going to be able to stop me because there's going to be too many people doing the same thing.

I hope I never need this. And if these changes happen slowly, which they probably will, it probably won't matter and I'll probably never need an escape hatch. But I have it if I need it, which helps me sleep at night.

The other thing I think is going to be a real problem is food, because this narrowing of the tax base is a big problem, and a lot of the people that have wealth in this country also own a lot of land, and maybe they stop farming. I think it's very unlikely that there's a significant disruption to the food supply, but I don't think it's impossible.

And so today, for less than a quarter-million dollars, you can still buy a 100-acre working farm in lots of places, including Pennsylvania, which is nearby me. So I've been shopping for farms and I'm looking to partner with several people. I don't need to own a whole farm. I'd like about 40 acres... 40 acres and a mule, right? But in the meantime, it's cheap. It doesn't cost a lot of money. And that way I can get lots of good, fresh, organic produce for my family in the interim.

So even if I'm wrong, even if there is no disruption to the food supply, even if I never need to have a farm, it's still good to have one. And I think it'll be a good investment, buying a farm this year when credit is impossible to get and land prices are down.

I think if you spend a little bit of time looking at what your family situation is, and you imagine a scenario of where there's a big disruption to the value of the dollar, there's a big disruption in social services, and there's possibly a crackdown of the government trying to keep people from leaving with their wealth, how are you going to protect yourself and your family? What's your plan? 

How are you going to make sure that your family has the pharmaceutical products it needs. The food it needs? The safety it needs? All the risks and strategies I've described are not pleasant to thing about... but it's critical that our readers carry out some of these things.

Daily Crux: Thanks for your time and insight.

Porter Stansberry: Any time.

[tiredofreeloaders]

What good is it going to do going to the Bahama’s. Everything they have come’s from here. Going there only makes sense as a jumping off point to go somewhere else.

[B-Chan]

You know, people think that $4 gasoline is a big problem. Well, try $40 or $80 gasoline.

Try gasoline unavailable to ordinary people at any price. "WARNING: This station is closed to the public. Fuel stocks for OFFICIAL USE ONLY. Unauthorized attempts to enter these premises will be met by deadly force. Gen. X.W. Femason, Commanding, Dallas-Fort Worth Emergency Management Region, NORTHCOM."

[MattinNJ]

Thanks-bflr

[The Comedian]

What we should prepare for is the revolution and the thought of MANY traitors swinging from lamp posts

Invest in bulk rope.

[B-Chan]

Even if gold remains legal, it’s likely to be useless for barter. “Got any batteries for trade?”

“Yeah, I got batteries. Got any sterile gauze? Our little girl got hurt during the riots.”

“No gauze, friend, but I’ll swap you this gold Krugerrand for all the batteries you have.”

“Gold? What do I need with gold? I need gauze for my little girl’s bandages. No, thanks.”

[Freddd]

We have both. Too much spending and too much taxes. Ask the companies fleeing overseas why they leave and they will tell you TAXES and too many regulations set by our corrupt congress to make it feasible to stay in the U.S.

Congress is purposefully running America’s business away. You can blame which ever president is in office, but it’s Congress who is doing it. And why? Mostly special interest group lobbyists like the E.P.A., & T. Boone Pickens and his partner Nancy Pelosi and her wall streeter husband...

[Bloody Sam Roberts]

Freezing spending at current levels for 2-3 years while actively cutting out old spending that is no longer useful linked with a serious overhaul of US Tax and regulatory policies to focus on consumption taxes in place of income taxes would accomplish the same thing without raising taxes.

Factually correct. If you had a president in the WH who wasn't interested in destroying this nation called America and transforming it into his own Socialist/Fascist Utopia.

0bama and his ilk must be expurgated and a conservative administration installed before the steps you outline will even be considered.

[2111USMC]

for less than a quarter-million dollars, you can still buy a 100-acre working farm in lots of places,

Interesting read until he blows his credibility here. The above statement is absolute B.S. Farmland in Iowa is currently around $5000 per acre.

[Bloody Sam Roberts]

The government will make it illegal to buy or sell gold.

Furthermore, they will force you to sell yours at a fixed price to the government, as did FDR. Much lower than what you bought it for. Then at an appropriate time, when the price is of gold is higher, they will sell the gold again at a higher price in order to pay for all the crap coming down the pipe today.
It worked once before.

[2banana]

Owning gold to build wealth is a very small window to make worth.

You want society to break down a little so that gold shoots up in value so you can cash it in to buy stuff.

If society breaks down more than a little, gold may still be worth alot but you will not be able to buy anything (nothing in the stores) and more than likely you will have other major issues to deal with (like surviving).

It is a very small window.

[clamper1797]

Though I would not condone the mass execution of “enemies of the revolution” I do believe there are a select group who need to be tried as traitors to America

[Kirkwood]

I lived through Katrina. For about 3 months there was virtually no frozen food and very limited fresh food and meat. Limited types of canned and dry food. You went to stores every day to see what food had come in for that day. Then you stood in line for 1 to 2 hours to pay for it. We didn’t go hungry, but sometimes we ate some weird food.

[STONEWALLS]

“I’d like about 40 acres... 40 acres and a mule, right? But in the meantime, it’s cheap. It doesn’t cost a lot of money. And that way I can get lots of good, fresh, organic produce for my family in the interim.”

.....this is a solution of many who think they’ll prepare for the “end of America”....but if things get that bad there will be little law and order...armed bands of criminal militia(think:bikers)will forage the countryside doing as they please...for protection, people will be forced to band together.....fortified villages will arise just like they did in the dark ages.

......at present I own 27 acres in the country with a spring, a stocked pond and wood fired furnace...I’m isolated at the end of the road...there’s no way I could defend it from an outlaw gang.

[onedoug]

Pray and ammo-up.

[Kirkwood]

“A benevolent government would find a way to make sure that food and fuel — if nothing else — were still available to the general population at something like reasonable prices. “

That’s just wishful thinking.

[volunbeer]

I am sure that was not a fun experience. I asked people to remember what happened after Katrina for a reason. I also ask people to remember that the majority of the population had evacuated.

There will be not be evacuations from our cities so you will have a concentrated population that relies on the government for subsistence.

If any food shortages occur and government services are disrupted there will be riots and looting. Once that happens, most store owners and retail outlets will simply close up shop.

God forbid any of our large cities go “feral” but it certainly could happen based on past history. It will be a good time to live far from metro areas.

[dog breath]

No matter how bad people fear things might get, they have the ability to get worse then expected. In a severe economic crisis governments often require or strongly request private citizens to turn in their privately owned gold. It has happened at least once in this country and recently Thailand comes to mind. The total restriction of movement is another possibility even if they have to blame it on some sort of contagion, civil unrest, terrorism or any excuse for martial law.

[Mr. Jazzy]

1. Buying and OWNING gold could be made illegal, AGAIN.

2. Overseas governments, though attractive now, can change with the blink of an eye.

3. Owning land here in the US (such as a farm) is a great idea, but keep in mind that the TAXES could be changed to astronomical rates as what happened to the south during reconstruction and property was stolen and given to those who were in political favor.

The only REALISTIC goal we as Americans should have is to take the government back and restore the free enterprise system, PERIOD.

[katlynne11]

save

[southernnorthcarolina]

The most important sentence in the article, in my opinion:

But we do know that it's almost impossible for democracies to withdraw benefits once they have been offered to the public.

That's a fact. And that's what's going to cause a rapacious desire (which will be characterized as a "need") for ever-increasing tax revenues, even in the face of a shrinking tax base. Taxes on earnings won't be enough. Taxes on spending won't be enough. Taxes on wealth transfers (such as death taxes) won't be enough. We'll soon see more taxes on having: more and bigger property taxes, not only at the state and local levels, but at the federal level -- on your home, on your possessions, on your investment portfolio.

Articles like this seem a little less nutty each year. I'm not at the point of having a pre-arranged quick exit plan from the country in place, but I'm right there with the author in some areas. I firmly believe some gold or other precious metals belong in every portfolio. For me, so far, that's been limited to gold mining shares and gold ETFs, but I'm considering physical gold, too.

And, I'm getting the hell out of town. I'm building 20+ miles from the nearest city -- Charlotte, in my case (click on my name for a construction pic). I'm moving out into the sticks mostly because I prefer hawks, herons and deer to the asphalt jungle, but I can't say it hasn't crossed my mind that I'll be better off there if the §‡∞£ hits the fan.

I think there's at least a 10% chance of a major social upheaval within the next decade -- maybe an economic collapse; urban riots; a major earthquake or other natural disaster; a major, even nuclear, war in the Mideast; a major crop failure; or some combination thereof, possibly rising to the level of interruption of basic services and utilities. I want to be prepared to the extent possible; if that puts me in the kook category, so be it.

I'll have a well and septic field instead of municipal water and sewer; propane delivered by truck rather than by a gas utility; a propane-fired emergency generator in case of an interruption in electric services, so I'll be able to keep my well pumping, my house heated, and my beer cold. Ultimately, I'll be dependent only on my propane supplier, and I plan to keep him on my good side with generous Christmas tips. I'll have a reasonable supply of non-perishable foods, plenty of wine and liquor, a big dog, and maybe a gun or two (I ain't tellin').

I'm hoping for the best, but I'm preparing for the worst.