Posted on 09/20/2009 8:11:07 AM PDT by 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.
Buy gold in Canada and put it in safe deposit box
Gold was not taken or seized except in some very rare instances
Citizens were told to turn in their gold for $20 worth of paper and since gold was worth $20/oz it seemed like an OK deal
Many did not turn in their gold and it was just passed down to heirs...
Maybe a lot was smuggled to Canada were gold was never made illegal for private citizens
So go invest in silver bars. 10oz and one oz are very good
Go buy 90% silver coins. There is a big market in them
The strategy is to spend your silver during the chaos.
It is less conspicuous.
You don't spend gold because of risk of home invasion when word gets out about Mr MoneyBags in the house on the hill
You only take out your gold when the dust settles....This kind of thinking is independent of any gold confiscation
This might actually happen if a bunch of preachers would stand up and call for it. The problem is their guns are alot bigger than our guns. And before long we won’t have any guns.
I would plan on getting on the gravy train but I’m too old. I’ll be put to sleep.
Gold is for suckers.
Alpo and Kraft macaroni and chees make a great casserole.
So I'm told by an old miner.
You bring gold, I give you food.
My question about gold is how you would actually spend it when the SHTF AND in that scenario, “stuff” would be more valuable than gold. How would I go about exchanging a gold coin for a few bags of groceries, practically speaking. Wouldn’t things like food, water, ammo, and other hard goods be more valuable in some ways than gold?
So I guess you believe that the military will side with FUBO ?
One concern I have about owning rural land, is that rural areas will likely be a hotbed of revolution in a worst case scenario. What’s to stop the government from declaring large sections of land as wetlands or sanctuary for some obscure insect and just seize it?
I woke up really, really paranoid today. :o)
I certainly agree about silver vs gold. Who, in a crisis, is going to swap anything for a gold maple leaf? But a sizable cache of silver coins of various denominations, “bag silver” coins, would have intrinsic value AND flexible barter capabilities. Many also believe silver to have a strong likelihood of greater increase in value over time compared to gold.
But ultimately, food, water, fuel, medical supplies, batteries, etc - and bullets to defend them - will be the only currency in an extreme and prolonged breakdown of civil order: which I believe the powers-that-be are purposefully arranging for us.
And another point: when the US goes, where could we flee that would offer anything different than the totalitarian system they would set up here? This is a plan for GLOBAL domination, and they would tolerate no safe havens for Yanks, or anyone else, anywhere on the planet.
I see yr new house....nice!
You should reconsider keeping the corner half wall on the roof deck above your garage, SNC. Not sure why, maybe it balances the whole thing out, gives it some raised structure to counterbalance the mass of the house. Some place to park a gas grill or other things that might look unsightly from the ground, coming in on the drive, might be practical as well. I suspect that’s what your architect was thinking when it was placed there.
argentin bump
“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.”
I’m in a similar situation, but unless they get past the sensors, dogs, etc, and catch me sleeping, I don’t intend to defend it. I intend to keep them from leaving.
We had a friend who lived through a very serious hurricane in Florida. He told us the hot commodity to stock up on in a disaster is toilet paper. In a disaster, the stores are looted or closed and people quickly run out of toilet paper. He said people can live without a lot of items for a long time, but toilet paper was something people really don’t want to be without. It was like gold; everyone bartered for it.
I think it would be sensible to stock up on TP, gauze, duct tape, batteries, plastic sheeting, nails, plywood and plastic jugs. You would be able to easily trade these items for what you need.
Some people will still want gold in a crisis, but not as many who will want TP!
Thin people.
I think you are correct but I don’t see the government moving in any direction to improve the situation. I don’t believe the majority of our citizens are capable of out of the box thinking. For so many their political views are held with religious fervor. Thus, implementing rational policies to correct the situation, absent a revolution, is IMHO not possible. Hope I am wrong but I don’t think I am. Going forward responsible government will have to be forced upon this country. Our people no longer appear capable of rational self government.
I fear the same thing. Politics has become sport, the average American, when he bother to think about politics, simply cheers for his team.
Ping
People came back in after Katrina, looked around and realized that it was still too uncivilized, and then left for another month or two or three.
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