Tag: Nick Giambruno

Preventing Taxpaying Milk Cows from Seeking Greener Pastures

Preventing Taxpaying Milk Cows from Seeking Greener Pastures

By Nick Giambruno

It’s undeniable that the window of opportunity is getting smaller… especially when you connect all the dots and see the big picture.

To help connect those dots, it’s important to understand the things that make being an American citizen uniquely burdensome.

First, Americans are the only people in the entire world who effectively suffer under an inescapable, worldwide system of taxation.

For example, if an American and an Italian both moved to Singapore (or any foreign country) and earned income there, the American would still have to file and pay US income taxes. The Italian would have no tax liability to Italy. That’s how it works for citizens of virtually all countries… except American citizens.

The obligation for US citizens to file a stack of complex and almost incomprehensible forms each year usually requires the assistance of an expensive tax preparer. This is because even an honest mistake can lead to truly draconian penalties that can only be described as a form of cruel and unusual punishment.

Of course, the same is true for US corporations, which pay the highest effective corporate income tax rate in the entire developed world.

Then there are the prohibitively costly rules and regulations—like FATCA—that foreign firms have to comply with if they wish to do business with Americans. Because of the costs of FATCA compliance—and the huge potential penalties for mistakes—many foreign companies have come to the logical conclusion that it’s better to kick their existing American clients to the curb and refuse to take on any new ones.

Similarly, the costs of complying with the SEC’s regulations have effectively closed off many global investment opportunities for Americans.

And then there’s the requirements for the Dodd-Frank Act.

These are but a few examples of the unique burdens American citizens have to deal with, and the list of them never gets smaller.

Taken together, these ever-growing and aggressively enforced regulations with draconian penalties are causing record numbers of Americans to head for the exits and renounce their citizenship—a completely logical outcome that should shock no one.

Blocking the Exits

In 2010, it came as a surprise when the US government introduced a $450 fee for Americans who were seeking to renounce their citizenship. Prior to 2010, there had never been any fee to give up your citizenship in the history of the US.

Then in late 2014 there was another surprise. The US government announced that it was drastically increasing the fee from $450 to $2,350—a more than fivefold jump.

The new fee represents a cost that is over 20 times higher than the average cost to renounce one’s citizenship in other developed countries.

I think the fee increase represents another incremental step in restricting your options as the window of opportunity is without a doubt closing.

The US State Department, in justifying the increase, claimed that the number of renunciations has “increased dramatically, consuming far more consular time and resources.”

I believe the latest 422% renunciation fee hike is just the beginning—it’s going to get a lot more expensive.

Here’s why.

The political dynamics in the US guarantee more welfare and more warfare, so government spending has nowhere to go but up, even though the government is already effectively bankrupt. That means we should only expect the politicians to come up with more and more insidious ways to try to squeeze blood out of the taxpayer turnip—which of course will create more incentive and demand for renunciations. With more demand for renunciations, expect the costs to go up.

That’s why I think the $2,350 fee is as cheap as it’s ever going to be going forward. So you might as well renounce sooner than later if you’re considering it.

Speaking of the renunciation fee, here is another, more accurate way to think of it.

Think of it like the price of buying your freedom from the byzantine US Tax Code and an out-of-control government.

It’s not all that dissimilar to how in the past slaves in certain parts of the world were able to purchase their freedom.

Today, US tax slaves can purchase freedom for themselves—and their posterity—from an insolvent government that views its citizens as cows to be milked by paying the $2,350 renunciation fee and a potential exit tax.

Peter Schiff Was Right

One person who gets the big picture and predicted this fee increase was Peter Schiff.

I interviewed Peter back in in early 2013—about a year and a half before the 2014 fee increase—and here’s what he had to say:

You have to fill out a form if you want to renounce your citizenship—which, by the way, you can only get from a foreign embassy or consulate. Those forms used to be free. Now they’re about $500 apiece. So think about that. If they can charge you $500 for that form, they could charge $5,000, they could charge $5,000,000. They could basically make it impossible for you to leave. And they’re trying to make it more difficult ever since Eduardo Saverin from Facebook went to Singapore. Now the government is trying to come up with all sorts of ways to punish Americans who try to give up their citizenship, and this really is the sign of a nation in decay. 50 years ago, nobody would want to give up American citizenship. They would cherish it. The fact that so many people are paying tremendous amounts of money to get this albatross off their neck shows you how much times have changed, that an American passport is not an asset to be cherished but a liability that people are willing to pay to get rid of.

The Tax Benefits of Renunciation Without Renunciation

But fortunately there’s an incredible solution—one that doesn’t require you to give up your US citizenship or even leave the US. It’s like obtaining the tax benefits of renunciation without actually having to do so.

That solution has been dubbed “America’s Tax-Free Zone.”

I know it sounds too good to be true, but I assure you it’s most certainly not. It’s 100% real and legal.

Peter Schiff has already moved one of his businesses to America’s Tax-Free Zone.

But it’s not just Peter Schiff: many regular people of average means—business owners, individual investors, and entrepreneurs—are legally minimizing most federal and state taxes thanks to America’s Tax-Free Zone. And it’s no surprise that their numbers are constantly growing.

This amazing opportunity is exactly why we’ve teamed up with Peter to create a free video that explains it all.

If you’d like to see what it’s all about and how you can reclaim your freedom, you need to see this video by clicking here.

The article was originally published at internationalman.com.

Property Rights and Property Taxes—and Countries That Don’t Have Them

Property Rights and Property Taxes—and Countries That Don’t Have Them

By Nick Giambruno, Senior Editor, InternationalMan.com

Do you really own something that you are forced to perpetually make payments on and which can be seized from you if you don’t pay?

I would say that you don’t.

You would possess such an item, but you wouldn’t own it—an important distinction

A ridiculous perversion of the concept of ownership and property rights has infected most of the world like a virus: something that most people unquestioningly accept as a normal part of life—like it’s a part of the eternal fabric of the cosmos.

I am talking about property taxes, of course.

You know, the annual tax you pay that is based not on whether any income was generated, but rather on the underlying value of real estate you supposedly “own.” There is no way to pay off this obligation in one fell swoop; it stays with you for as long as you “own” the property.

In actuality, you don’t own anything which you must pay property taxes on—you are merely renting it from the government.

Suppose you bought a sofa set and coffee table for your living room for $5,000 cash, and then had the obligation to pay $100—or a percentage of the furniture’s value—in tax each year for as long as you “owned” it. Then suppose that for whatever reason you’re unable or unwilling to pay your furniture’s property tax. It won’t take long for the government to swoop in and confiscate it to pay off your delinquent taxes. You get to “own” it as long as you pay the never-ending annual fee—stop paying and you’ll find out who really owns it.

While many people would correctly find a furniture property tax absurd, they also illogically find it acceptable for the government to levy an insatiable tax on different assets—namely their homes, offices, and raw land.

But to me at least, the type of asset being taxed is not what makes it absurd, it’s the concept of property taxes that is absurd.

Respect for property rights and property taxes are mutually exclusive concepts. What’s yours is yours, and you shouldn’t need to pay the government for permission to keep it.

It’s not uncommon for people in North America and Europe to pay tens of thousands of dollars per year in property taxes… just to live in their own homes. And this burden will almost certainly continue to rise. Property taxes are constantly being raised in most places, especially in places with poor fiscal health.

It’s very possible that over a lifetime, the total amount of property taxes extracted will exceed what was paid for the underlying property in the first place.

And, just like the furniture example above, if you don’t pay your property tax (AKA government rent) on the home you thought you owned, it will be confiscated. This is not as uncommon as some would believe. It was estimated that 10,000 people in Pennsylvania alone lose their homes annually because they aren’t able to keep up with the property taxes.

Using the word “own” and “ownership” in these contexts is the sloppy use of the word—which always leads to sloppy thinking.

Speaking of sloppy thinking, expect Boobus Americanus to say things like “how would we pay for local services like public schools if it weren’t for property taxes?” Of course, these services could be funded in many different ways—or better, they could be provided for in the free market. But don’t expect that to happen. In fact, given the social, political, and economic dynamics in the US and most of the rest of the West, expect the opposite—property taxes have nowhere to go but north.

It doesn’t have to be this way. You can own real estate in certain countries and can skip the annual property-tax harvest.

I have previously written that I view real estate in foreign countries—along with physical gold held abroad—as superior vehicles for long-term savings.

However, foreign real estate has its drawbacks. It’s illiquid and has carrying costs like maintenance expenses and, of course, property taxes. To diminish these costs that eat away at your real estate investment, it is essential to minimize or eliminate them.

Here’s a list of countries that do not levy any property taxes:

That’s it. If you want to escape the rapacious and ridiculous property tax, these are your options.

Ireland would have been on this list, but it recently adopted a property tax. This does not bode well for other EU countries that conceivably could face fiscal troubles and turn to property taxes as a solution—like Malta and Croatia.

Colombia, Costa Rica, Ecuador, and Nicaragua have property taxes, but the obligations are generally negligible.

The risk, of course, is that since a property tax is already in place in these countries it can easily be increased whenever the government decides it needs more revenue. Case in point: the bankrupt government of Greece. Consider the excerpt below from an article in The Guardian.

“The joke now doing the rounds is: if you want to punish your child, you threaten to pass on property to them… Greeks traditionally have always regarded property as a secure investment. But now it has become a huge millstone, given that the tax burden has increased sevenfold in the past two years alone.”

The country on the list above that most interests me is the Cayman Islands, but to each his own. This is because most Caymanians are vehemently opposed to all forms of direct taxation and have never had it in their history. That attitude and history is a good guarantor that it will be very unlikely for a property tax to be imposed sometime in the future.

In any case, buying foreign real estate is a very individualized and often complex decision—but one that provides huge diversification benefits. Property taxes are but one consideration.

You should look at foreign real estate less as a vehicle for a quick return and more as a diversified long-term store of wealth. Wherever you decide to buy, it should also be in a place that you would actually want to spend some significant time in. That way, the property has value to you, regardless of whether it proves to be a good investment.

One expert on foreign real estate whom I’d highly recommend is none other than Doug Casey, the original International Man and my mentor. Doug’s been to over 175 countries and invested in real estate in a number them. He wrote a thick and detailed chapter on foreign real estate, including his favorite markets, for our Going Global publication, which is a must-read for those interested in this extremely important topic.

Corporations Join Droves Renouncing US Citizenship

Corporations Join Droves Renouncing US Citizenship

By Nick Giambruno, Senior Editor, InternationalMan.com

Don’t be surprised to lose if you don’t make an effort at being competitive.

And if you go out of your way to make yourself less competitive, expect to lose.

If that sounds like simple common sense, that’s because it is.

But it’s also exactly what the US has been doing for years—enacting tax policies that sabotage its global economic competitiveness.

It’s like trying to get in shape for a marathon by going on an all-McDonald’s diet. (Speaking of McDonalds, check out this funny video spoof of what their commercials should really look like.)

Here are two major reasons why the US is lagging in the global economic marathon:

  1. The US has the highest effective corporate income tax rate in the developed world (see chart below).
  1. Unlike most other countries, which only tax domestic profits, the US taxes the earnings of foreign subsidiaries of US companies when the money is transferred back to the US. This has had the effect of US corporations keeping over $1.9 trillion in retained earnings offshore to avoid the crippling US corporate income tax.

These “worst in the developed world” tax policies are clearly hurting the global competitiveness of American companies.

Being deemed a “US Person” for tax purposes is like trying to swim with a lifejacket made of lead.

It should come as no surprise that an increasing number of productive people and companies are seeking to shed this burden so they can keep their heads above water.

At this point, it’s more than just a trickle—it’s an established trend in motion.

And I don’t see anything that would reverse it. On the contrary, given the political dynamics—ramped-up spending on welfare and warfare policies, as well as an “eat the rich” mood—taxes have nowhere to go but north. And that means the exodus will continue.

Three Cheers for Walgreens

Over the past couple of years, dozens of high-profile US companies have moved abroad (or seriously considered it) to lower their corporate income tax rate and to access their offshore retained earnings without triggering US taxes.

Among them are Medtronic, Liberty Global, Sara Lee, and Omnicom Group—the largest US advertising firm—to just name a few.

Earlier this year Pfizer, one of the world’s largest pharmaceutical companies, sought (but was ultimately rebuffed) to move abroad, which would have cut its tax bills by as much as $1 billion a year.

The strategy these companies are using is known as an inversion. It’s where a US company merges with a foreign company in a jurisdiction with lower taxes and then reincorporates there. Current US law allows for this if the foreign shareholders own at least 20% of the combined company (though some are trying to raise the minimum to 50%).

Now, despite the howls and shrieks from upset politicians and the mainstream media about these companies being “unpatriotic” and “un-American,” they’re doing absolutely nothing illegal. Inversions are totally acceptable within the current rules of the US Tax Code.

Chuck Grassley, a Republican senator from Iowa has said, “These expatriations aren’t illegal. But they’re sure immoral.”

I beg to differ.

Why would anyone want to give the destructive bureaucrats in DC a penny more than is legally required? As far as I’m concerned, not only is there nothing wrong with going where you’re treated best, there’s also an ethical and moral imperative to starve the Beast.

And now the latest high-profile company to consider putting the Beast on a diet is Walgreens.

Walgreens is considering reincorporating in Switzerland as part of a merger with Alliance Boots, a European rival. The net effect for would be to reduce Walgreens’ tax rate to 20%, down from around 31% now. The move is estimated to save around $4 billion over the next five years.

What really has the politicians scared is that inversions have started to snowball.

The New York Times quoted an international tax lawyer stating that “it takes one company with enough public recognition to start [a] domino effect.”

Walgreens could be the company that triggers a domino effect. If Walgreens were to move, it would gain a significant competitive advantage against its rivals. CVS, Walgreens’ main competitor, paid a 34% tax rate in recent years. Can CVS really compete with Walgreens if the latter is paying 20%?

Probably not. And that will only lead to more inversions.

Another Way to Starve the Beast

Remember, US companies are not globally competitive because of these two unique burdens:

  1. The US has the highest effective corporate tax rate in the developed world.
  1. Unlike most countries, which only tax domestic profits, the US taxes the earnings of foreign subsidiaries of US companies when the money is transferred back to the US.

We have already seen how inversions can reduce #1, but they also offer huge benefits in terms of #2.

Reincorporating abroad allows companies to permanently avoid paying US taxes on foreign earnings. It also allows companies to access their retained earnings offshore in ways they couldn’t before without triggering punishing US taxes.

Medtronic, for example, has accumulated $20.5 billion of untaxed earnings in foreign subsidiaries. By reincorporating abroad, Medtronic can access that money without getting slapped with US corporate income taxes, which would save it billions.

For companies like Medtronic and Walgreens, reincorporating abroad seems like a no-brainer.

Contrary to the government propaganda, the villains in this story aren’t the companies seeking to diversify abroad to remain globally competitive. The villains are clearly the spendthrift politicians who enact these “worst in the developed world” tax policies, which create very compelling incentives for these companies to leave the US.

It’s Not Just Companies Saying Sayonara

While the US should be enacting policies that make it attractive for productive people and companies to come to the US—rather than driving them away—don’t hold your breath for positive change. It’s more likely that nothing but more taxes and regulations are coming.

But as we have seen with companies like Medtronic and Walgreens, companies have options too.

And it’s not just multibillion-dollar corporate entities that have options. Individuals operating on a modest scale can also reap enormous benefits by diluting the amount of control the bureaucrats in DC (or any country) wield over them. International diversification is the solution.

You do this by moving some of your savings abroad with offshore bank and brokerage accounts, physical gold held abroad, owning foreign real estate, and establishing an offshore company or trust.

Obtaining a second passport is an important part of the mix as well.

You probably can’t take all of these steps, and that’s fine. Even taking just one will go a long way to reducing your political risk and giving you more options. In many cases, you don’t even have to leave your living room.

Think of it as your own personal insurance policy against an out-of-control government.

However, things can change quickly. New options emerge, while others disappear. This is why it’s so important to have the most up-to-date and accurate information possible when formulating your international diversification strategy. That’s where International Man comes in.

To keep up with the best strategies, you might want to check out our Going Global publication, where they are discussed in great actionable detail.

Five Facts the Media Isn’t Telling You About Ukraine

by Nick Giambruno, Senior Editor at Doug Casey’s International Man

Quickly, look at the map below and find Ukraine.

Can you do it without cheating?

If you can find Ukraine, good for you. Many Americans cannot.

In fact, a recent study found that Americans’ attitudes about whether the US should intervene in Ukraine is correlated with the ability to find the country on the map.

Americans more in favor of intervention tended to be less likely to be able to locate Ukraine.

The media could have said the Russians invaded the lost city of Atlantis and the “ignorance is strength” crowd would still pound their chests about the need to intervene.

While this dynamic may seem strange at first, it really isn’t.

If you hear that the Russkies have aggressed in Ukraine and you believe Ukraine to be in… Iowa—as some of the respondents did—then you might be more in favor of nuking the bastards over it.

Given the dismal job the mainstream media has done covering the Ukraine crisis, this breathtaking ignorance is perhaps not surprising. To get to the bottom of what is going on, you have to be motivated enough to dig up the facts—most people just don’t have the time or motivation to do so.

This is just what I have done for you so you can better understand the crisis in Ukraine, and possibly profit from it (more on that below).

Below are the top five facts that the media isn’t telling you about Ukraine.

But first, I’d like to state I really don’t have a dog in this hunt.

Honestly, I don’t give two you-know-whats about Ukraine, except to the extent it might spark WWIII and cause me to get vaporized.

As in all conflicts, both sides are busy spinning their version of events. Check out the difference between how CNN and RT cover this story and you’ll see what I mean. It’s not a matter of this side is right and this side is wrong, but rather of finding the truth. And I try to do that by sticking to the facts and not listening to the government mouthpieces on either side.

That being said, it appears to me the US narrative is the one that is furthest from reality.

Fact #1: Yanukovych Was Legitimately Elected

Ousted Ukrainian president Viktor Yanukovych was elected in 2010 in an election that was deemed “transparent and honest” by hundreds of international election observers. That of course is not my personal endorsement of the man or of democracy (I am a fan of neither). In fact, I’m sympathetic to H.L. Mencken’s view that “Democracy, too, is a religion. It is the worship of jackals by jackasses.” But that’s a story for another day.

Bottom line, regardless of whether one loves him or hates him, one cannot deny that Yanukovych was elected fair and square.

Fact #2: Billions Spent Stirring Up Trouble

The US has spent $5 billion since the 1990s on “democratization” programs in Ukraine. (What would the US reaction be if Russia spent $5 billion promoting communism in Mexico?)

In addition to overt US government programs from the US State Department, USAID, the National Democratic Institute for International Affairs, the International Republican Institute, nominally nongovernmental organizations (NGOs) like Freedom House, George Soros’ Open Society Institute, and the National Endowment for Democracy have all been heavily involved in “promoting democracy” in Ukraine for many years.

Fact #3: Yanukovych’s Ouster Had No Basis in Law

When Yanukovych was overthrown in February, it was done in a fashion that didn’t really comply with Ukrainian law. In effect, what happened was an illegal overthrow of a legitimately elected government. There’s a word for this—coup. And I bet it would have been labeled as such by the US media had it happened to a pro-US leader instead of a pro-Russian leader.

So what was the real objective of all those sneaky NGOs and the billions of dollars in covert and overt aid if its ultimate effect was to overthrow a legitimately elected government? Sounds like the exact opposite of their stated goal of “promoting democracy,” if you ask me.

Fact #4: The Sniper Killings, a Known Unknown

The real push for the immediate overthrow of Yanukovych came after the mysterious deaths of 75 or so people in the streets of Kiev by unknown snipers in late February 2014. The protesters blamed the government. However, later a leaked phone call between the Estonian foreign minister and Catherine Ashton (the EU foreign policy chief) showed that both the police and protestors were shot by the same people, leading these two EU officials (who are very anti-Russian, by the way) to think that this incident was some sort of false flag provocation.

The Estonian foreign minister said, “So there is now stronger and stronger understanding that behind the snipers, it was not Yanukovych, but it was somebody from the new coalition.”

The fact is, to this day we really don’t know who was behind the sniper attacks. But this deep uncertainty didn’t prevent the incident from being used as a casus belli to remove the Yanukovych government.

Fact #5: Neo-Nazi Shock Troops

The two most prominent neo-Nazi groups in Ukraine are the Right Sector and Svoboda, which hold positions in the new government. While they aren’t the main political force, their power shouldn’t be underestimated. Just because the new Ukrainian government has a bunch of outwardly facing, pro-EU, empty-suit bureaucrats, that isn’t necessarily reflective of who has the real power on the streets. Right Sector and Svoboda were the real armed muscle on the ground—like the shock troops of the opposition—during the unrest that overthrew Yanukovych. Absent their help, it’s questionable whether the uprising would have succeeded.

The Bottom Line

While it is of course true that some segments of Ukraine resented being under the Russian yoke (I would too), it is certainly not the whole truth nor does it explain the bigger geopolitical picture.

Absorbing Ukraine into NATO and stationing missile defense systems there would go a long way toward neutering Russia militarily—a longtime fantasy of US strategists like Zbigniew Brzezinski. Doing this would be a big step in helping to guarantee the US as the steward of a unipolar world order. The subterfuge engaged by the US in Ukraine is the means to this desired end.

Democracy promotion is just the pretext, clearly.

If the US government really cared about promoting democracy, you’d think they’d have a word with their buddies who run pro-US autocracies—like Saudi Arabia—about having elections, but strangely you never hear a peep. Nor do you see the State Department flood the political opposition with billions of dollars and NGO assistance in those countries either.

Taking it all together, it’s no wonder that Putin sees US actions of “democracy promotion” in Ukraine as offensive and aggressive, and is responding accordingly.

For astute investors, the situation presents an interesting opportunity from the perspective of crisis investing.

In fact, it’s just the type of blood-in-the-streets opportunity that Doug Casey and I are looking for.

We expect to find lucrative investment opportunities near the point of maximum pessimism in Ukraine, just as we successfully did in Cyprus.

Be sure you sign up here so that you can be one of the first to be alerted on the next crisis investment that Doug Casey and I find.

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The Collapse of the International Monetary System and the Petrodollar, Part II

by Nick Giambruno, Senior Editor via Doug Casey’s International Man

Below I continue my discussion with Jim Rickards, author of the must-read book The Death of Money. To catch part I of this interview, see here.

Nick: Tell us your take on some of the recent geopolitical events with Russia and China, vis-à-vis the international monetary system. What should we look for next?

Jim: We all see what’s going on in Russia. They’ve invaded Crimea. No one in the United States—left, right, or center—thinks the US should respond militarily. That’s not going to happen, but the US doesn’t want to be seen to be doing nothing, and so the US is engaged in financial sanctions, which is a form of financial warfare. The big difference between Russia and Iran—and of course the US has been in a financial war with Iran since 2012—is that Iran wasn’t in a position to fight back, whereas Russia is. If the US escalates its sanctions against Russia, Russia is in a position to do a lot of things. They could dump their US Treasury holdings; they could freeze US assets in Russia; and at the extreme, they could actually unleash Russian hackers and actually shut down the New York Stock Exchange.

So you have this, which is pretty much a replay of the Cold War, when both sides had enough missiles to destroy the other, but you didn’t want to strike first, because the other side could strike back with their extra missiles, their so-called second strike capability, and both countries would be destroyed. This was called “two scorpions in a bottle.” You put two scorpions in a bottle: one stings the other and the victim will die, but it has just enough strength right before it dies to sting back, and they both die. That was the doctrine of mutually assured destruction or MAD during the cold war. So now we have mutually assured financial destruction, and I do see the US a little surprised by this. I thought the US would tread carefully, but they do seem to be escalating the sanctions against Russia—actually having some serious impact, so you can be sure the Russians will strike back. And if there’s more escalation, this could ultimately lead to the point of where there are very serious consequences for the dollar, or catastrophic consequences for the global financial markets.

Then finally over to China. We all know what’s been going on in China. They’ve been buying enormous amounts of gold furiously—as fast as they can. We’re talking about thousands of tonnes. Officially China says it has 1,054 tonnes; they announced that in 2009. But there’s very good evidence—and I talked about all of this in my book, The Death of Money—there’s very good evidence that they have secretly acquired perhaps 3,000 or even 4,000 tonnes of additional gold since then. We see this mostly in the form of Chinese gold mining output, imports through Hong Kong, and the use of intelligence and military assets to bring in gold off the books. So putting it all together, they’ve acquired an enormous amount of gold, but they don’t want to trash the dollar. They have $3 trillion of US dollar-denominated paper, so they’re probably the biggest supporters the dollar has, but they look at the United States and see that the US is actively trying to undermine the value of the dollar because the US is trying to create inflation. Remember, 10% inflation would represent a $300 billion wealth transfer from China to the United States. China is hedging its positions by buying gold.

Putting all this together, we have Saudi Arabia backing away from the petrodollar, US confronting Russia in a financial war, and China acquiring gold to hedge against the dollar collapse. You can look around the world and see a lot of forces. So when the next crisis comes—we can expect it sooner than later—there’s a large group, really most of the world, that wants to walk away from the dollar. That would lead very quickly to a dollar collapse.

Nick: Recently, Senator Carl Levin was talking about using the Foreign Account Tax Compliant Act, or FATCA, as a way to indirectly sanction Russia. What are you looking for next in terms of what the Russians will do?

Jim: Well, that’s another hare-brained scheme. What does FATCA actually do? FATCA is a new law—it was passed in 2010, but it hasn’t come into effect yet—it’s supposed to come into effect July 1, 2014. But the fact is, basically it orders every country in the world to enter into a tax information-sharing agreement with the United States to the satisfaction of the United States. If you do not do so, if you fail to do so, then any interest payments on your securities to parties in your country will be subject to a withholding tax at the source, and the rate is fairly high. I think it’s 30%. And so now Russia was actually in the process of negotiating such a treaty with the United States, but that negotiation was blown up by the confrontation over Crimea. As of now, Russia has no such agreement with the United States, which means that come July 1, Russia will not be in compliance with the dictates of US law, which means that interest payments on Treasury securities to account holders in major Russian banks such as Sberbank and VTB will be subject to this withholding. So what would you do? Well, you would dump the Treasuries, because you don’t want to sit there and hold the Treasuries, if they’re going to be subject to a withholding tax. So basically it’s a way to force the Russians to dump US Treasuries, which increases US interest rates, which hurts our housing recovery and hurts our stock markets. This is like pointing a gun at your own head and saying, “If anyone moves, I’ll shoot.”

Nick: Yeah, it’s ridiculous. Shifting gears, we often talk a lot about the financial effects of the anticipated collapse of the international monetary system, but let’s talk about the sociopolitical effects. In your book you stated, “In the ontology of state power, order comes before liberty or justice.” You want to expand on what that means for those living in the United States?

Jim: In a stable world or a society, you can have liberty and you can have justice; but if society begins to break down, if there are money riots (which I expect), if there’s social unrest—the kind of thing we’ve seen in recent years in Greece and Europe but on a much larger scale: we’ve seen it in Turkey; we’ve seen it actually all over the world, except in some of the developed economies and the US—but if that breaks out, don’t expect the United States government to just sort of roll over and say, “We hear you; we’re going to get rid of inflation and have a stable dollar.”

States don’t go down without a fight, so what you could expect is a kind of neofascist response—executive orders, suspension of civil liberties, you know… just look at your local police force. These are not people who get kittens out of trees. They are in many cases heavily armored, with armored personnel carriers, body armor, night vision goggles, flash bang grenades, high-tech battering rams, surveillance drones, automatic weapons—these are people who are ready to break down your door.

And so what I expect is that as the financial system collapses, the elites will try the SDR, but it will be hyperinflationary. There will be a critical point at which governments will have a decision. If they want to return to something like a gold standard and reestablish confidence in money and rebuild an economy based on real growth as opposed to phony derivatives growth and unsustainable credit driven growth, then you might be able to get society back on the right course. But if, in fact, you want to continue with these money games and social unrest grows, then you should expect something that more closely resembles neofascism. History shows that most people go along with it. They just want to keep their jobs, they want to keep their heads down, they’ll do what they’re told, and so don’t expect a large uprising. We’ve seen this time and again in history.

You know, Nick, I say a lot of things and I write about a lot of things in my book that sound a little bit apocalyptic, in fact, but they’re not. You could look at history, and it’s happened over and over again. There’s no reason not to expect it in the future.

Nick: Yeah, you’re absolutely right; and that’s precisely why we focus on international diversification strategies here at Doug Casey’s International Man. I’d urge our readers to pick up a copy of The Death of Money so that they can better understand the coming reshuffle in the international monetary system and how it affects them.

Jim, thank you again for your time.

Jim: Thank you, Nick.

The Collapse of the International Monetary System and the Petrodollar, Part I

Guest Post by Doug Casey’s International Man

by Nick Giambruno, Senior Editor

Although it is a crucially important topic, it often doesn’t get the coverage it deserves.

I’m talking about the sociopolitical effects of the coming collapse of the international monetary system—which frequently plays second fiddle to the financial discussion.

While the financial implications are no doubt important and will be severe, the sociopolitical consequences will likely be more important and more severe.

And if you have any lingering doubts about the inevitability of a reshuffle in the international monetary system, you won’t after you read The Death of Money by Jim Rickards. I consider it essential reading.

While the book goes into unparalleled detail, it’s easy to read and makes a compelling case based on solid facts and history. Jim has a unique perspective because he’s the only person that I can think of who gets it on gold and economics, but yet still has regular access to some of the highest-level policymakers (otherwise known as central planners).

As Jim shows, the collapse of the international monetary system is not an unprecedented event—it’s happened three times in just the past 100 years (1914, 1939, and 1971)… periods that were all followed by intense turmoil.

Jim says the system is now blinking red again. No matter which snowflake it is that causes the inevitable avalanche, the time is short to take protective measures.

One proven way to protect yourself against this potential turmoil and risk is through international diversification, a strategy that Doug Casey helped pioneer and which this site is dedicated to.

And now, I’m very happy to bring exclusively for International Man readers my conversation with Jim Rickards. It’s below; you won’t want to miss it.

Nick Giambruno: As you detailed in The Death of Money, the international monetary system has collapsed three times in the past 100 years. And now you say the system is blinking red again. Please explain why.

Jim Rickards: Sure. There are two reasons. One’s sort of more anecdotal; the other is much more rigorously scientific. The first reason is that the international monetary system has collapsed three times in the past 100 years, in 1914, 1939, and 1971. It’s been over 40 years since the last collapse. These things do seem to happen every 30 or 40 years. That’s just based on experience. That seems to be the useful life of the international monetary system. Now, that doesn’t mean that it will collapse like clockwork tomorrow morning. I’m not saying that. I’m just saying that the evidence is that we should expect this or at least not be surprised if it happens sooner than later.

On a more scientific basis, capital markets are best understood as a complex, dynamic system; and these systems are prone to collapse periodically based on scale and metrics and some catalyst.

“Scale and metrics” is just a fancy way of saying the size of the system. And if you look at what has happened since 2008, we heard over and over about “too big to fail.” Since 2008, the five largest banks in the United States are now actually bigger. They have a larger percentage of the total banking assets, which means the risk is more concentrated into fewer hands, and the derivatives books are also much larger. If it was too big to fail in 2008, it’s even worse today.

One of the lessons of complexity theory is that the greatest catastrophe that could happen is a function of systemic scale. It’s not a linear function; it’s an exponential function. This means that if you double or triple the system, you are not doubling or tripling the risk. You are increasing it by a factor of 10, or perhaps 50 or 100 or more, depending on the exact dynamics.

So we’ve set ourselves up for an unprecedented and catastrophic collapse—something worse than has ever been seen in history, and that’s just based on the fact that the system is bigger than it has ever been in history.

Now, people look back at 2008 and say, “Maybe this kind of collapse can happen, but the Fed can rise to the rescue as they did the last time.” But that’s where the analysis falls down, because the Fed used up all their dry powder—they printed almost $4 trillion of new money. Having done that to paper over the last crisis, and having most of that still on the books, what are they going to do now? There’s a limit to what they can do. They can’t take the balance sheet to $8 trillion or $12 trillion. Legally they can, but as a practical, political matter, as a matter of confidence, there’s a limit.

So the next crisis, when it comes, will be bigger than anything in history, and it will be bigger than the ability of the Fed and the other central banks to put it out. The Fed is leveraged 80 to 1, and they’re insolvent on a mark-to-market basis. And the other central banks are no better off. The only clean balance sheet left is the IMF, which is only leveraged three to one, so that’s where the liquidity will come from.

Nick: That leads into my next question. You’ve talked about three possible outcomes for the coming restructuring of the international monetary system. One being an orderly transition to the SDR, which is issued by the IMF; two, a return to the gold standard of some sort; and three, a disorderly collapse. Now the last time we spoke, we talked about the petrodollar system. Do you think a breakdown in the petrodollar could be the snowflake that causes an avalanche into #3, a disorderly collapse?

Jim: Well, it could be; that’s a good question, Nick. I make the point that the snowflake doesn’t really matter. What matters is the fact that the snow is built up, and the avalanche is just a matter of time. I think it’s important to clarify that this is not just a kind of colorful metaphor—comparing the international monetary system to a snowpack and a potential avalanche. The dynamics and the mathematics are exactly the same.

The point being, when you see a very large snowpack built up on a mountain that’s windswept and unstable and you know it’s going to collapse, and then here comes the snowflake which disturbs a few other snowflakes, and that starts a slide and it gains momentum and it starts to shoot, and then the whole thing comes loose and then you have an avalanche. What do you blame? Do you blame the snowflake, or do you blame the instability of the mountainside? I would say that the snowflake is irrelevant. If it wasn’t the one that did it, it could have been the one before or the one after, or the one coming a week from now. What matters is the instability of the system.

So back to the capital markets and the financial system—the blunders have already been made. The instability—the snow, if you will—has already piled up. We’re just waiting for the snowflake. Now, it could be a lot of things. It could be a bullion dealer or a bullion bank that fails to deliver physical gold on demand because there’s a physical gold shortage. It could be a financial institution failure. It could be a prominent suicide. It could be a natural disaster as we saw in Fukushima. It could be a lot of things, but in the end, it doesn’t matter. What matters is the fact that the system is unstable and it’s going to collapse. We need prepare for this and expect it sooner or later.

Nick: It seems that the monetary elites understand this to some degree and would prefer an orderly transition to the SDR over time. Is there anything that you see that could derail this so that we would instead get a disorderly collapse as an outcome, instead of the SDR?

Jim: Sure. And getting back specifically to the petrodollar, there are three big vectors in the world today that are all pushing against the dollar, undermining confidence in the dollar and leading to some new kind of international financial system, or what the elites call “the rules of the game.” The first one is the one you mentioned, which is the petrodollar. This goes back to the 1970s with Henry Kissinger and the Saudi rulers. They worked out a deal whereby the US agreed to guarantee the continued rule of the House of Saud and guarantee the security of the kingdom, in exchange for which they agreed to price oil in dollars.

Now there’s no particular reason why oil has to be priced in dollars. It can be priced in Japanese yen, Swiss francs, or pounds sterling. We also have the euro and other currencies. Oil could also be priced in gold. It could be priced in a lot of things. But when you price it in dollars, that means you need dollars whether you want them or not, whether it’s your national currency or not, because everyone needs oil. A country might not want to transact in dollars, but if oil is priced in dollars and you need oil, then you have to get dollars. This is a very powerful prop under the dollar.

What’s happened in recent months is that President Obama stabbed Saudi Arabia in the back by engaging in a kind of détente with Iran, where clearly Iran is being anointed as the regional hegemonic power. Iran’s nuclear ambitions are being green-lighted. They still have their nuclear reactor, which produces plutonium, which is only good for one thing, which is building atomic bombs. Their centrifuges are still spinning, and they’re still enriching uranium. There might be some kind of a deal announced later this summer or early fall, but none of it will deter Iran from its nuclear ambitions, and the United States does not expect it to do that. And so taking all that together, if you’re Saudi Arabia, the US reneged on its half of the deal. We reneged on the part of the deal that says we guarantee the security of the kingdom, so Saudi Arabia may renege on its side of the deal, which is supporting the dollar. They may begin to price oil in other currencies, as I mentioned. So that’s one very important prop under the dollar that’s about to be removed.

Editor’s Note: Stay tuned for the final, part II of this interview where Jim and Nick will discuss what Russia and China are doing and could do to collapse the dollar-based international financial system as well as the sociopolitical effects of a dollar collapse in the US. Be sure to sign up here for free, so you’ll get part II right when it comes out. You’ll also get access to Doug Casey’s very popular special report, Getting Out of Dodge.

Penning the Sheep for a Shearing—Capital Controls, Part 1

by Nick Giambruno from Doug Casey’s International Man

Capital controls are a favorite tool in a bankrupt or domineering government’s toolbox. You should be familiar with them and how to preempt them.

There are numerous countries that currently have capital controls in one form or another—China, Colombia, Iceland, Cyprus, India, Argentina, Venezuela, Ukraine, and Cuba, to name a few.

It’s not exactly a secret that the West generally and the US in particular are moving deeper into bankruptcy and are seeking more and more control over all facets of their citizens’ lives. These trends will sooner or later lead to an overt attempt to control the flow of money in some way—just as they have in other countries throughout history that have headed down similar paths.

It’s crucially important to your financial future that you understand what capital controls are, how and why they are implemented, the harm they can cause, and what you can do to protect yourself.

This is because I believe it is a near certainty that the US dollar will lose its role as the world’s premier reserve currency. And when that happens, capital controls are sure to follow.

The purpose of capital controls is straightforward: to restrict and control the free flow of money into and out of a country. Capital controls come in all sorts of shapes, sizes, and labels. But no matter what they’re labeled or how they’re implemented, the end result is always the same—restricting, controlling, and taxing the flow of money.

The effects are always harmful. Strategies on how you can protect yourself are frequently discussed on the International Man site.

Why Governments Impose Capital Controls

It’s simple: imposing capital controls is similar to penning sheep that are about to be sheared so that they cannot escape.

Capital controls are not usually used unless a government has run out of ways to otherwise steal money from its people, such as when it can no longer borrow, inflate the currency, or tax like it used to.

In most cases, capital controls are used during acute crises, like financial and banking collapses, wars, or in countries with chronic economic problems. In other cases, it’s just the dominating nature of the particular government to control its citizens by denying them the means of taking their wealth abroad.

No matter the immediate reason, an always attractive effect of capital controls for governments is that they trap as much money within their borders and their reach as possible. They of course do this to optimize the amount of money that’s available for them to tax or otherwise confiscate.

Capital controls are also used because they can be politically popular. The government will try to get the average person to incorrectly believe that moving your money offshore or investing in foreign assets is something that is only for the rich or is otherwise unpatriotic (both are obviously false). It’s also a way for the government to show that it is “doing something” during a crisis.

How It’s Usually Done

In order to be effective, capital controls naturally have to come as a surprise… well, to the average person at least. The political and economic elite are usually tipped off well in advance and take action accordingly.

Announcing them to the public beforehand would cause people to get their money out before the controls are put in place, which would defeat the purpose of implementing them in the first place.

In Cyprus they came in a flash, on a seemingly ordinary Saturday morning when people would least suspect it. From the perspective of the government, weekends and holidays are ideal times to implement capital controls.

Here are the four most common ways they’re imposed:

1. “Official” Currency Exchange Rates

The first way capital controls are imposed is when a government sets an “official” currency exchange rate. Since gold’s value is universally recognized across the globe and is the international money par excellence, “official” prices for gold also fall under this category.

The “official” rate is always unfavorable compared to the black market rate (i.e., the free market rate). This is exactly what’s happening in Argentina and Venezuela. Unless you go through some convoluted process, whenever you wire or otherwise bring large amounts of money into and out of the country, you’ll likely get stuck with the unfavorable “official” exchange rate set by the government. Getting the more-favorable black market rate usually involves informal transactions on the street, which is of course technically illegal since you’re supposed to use the government-approved “official” rate. The penalties and enforcement of this vary widely among countries with this type of capital control.

In reality, the difference between the market rate and the “official” rate amounts to a wealth transfer from you to the government. It’s a form of implicit taxation.

2. Explicit Taxation

Another form of capital controls is when a government imposes explicit taxes that specifically target foreign investments, foreign currencies, or gold in order to discourage you from buying them. An example of this is India, which imposed a 10% tax on gold imports in 2012.

Governments prefer you stored your wealth in the local currency, where it’s easier for them to tax, outright confiscate, or siphon via inflation.

Taxation on inbound/outbound money transfers is also another tactic. While you would still be able to send money abroad to an offshore bank (or receive it from abroad), there would be a tax, of say 20%—or whatever the government wants.

No matter the type of taxation-based capital control, you will still able to move your capital… though it will likely be very costly to do so.

3. Restrictions and Regulations

Capital controls can also come in the form of restrictions on the amount of foreign currency or gold that can imported, exported, or otherwise possessed. This may come in the form of a regulation that prohibits you from taking a certain amount of money out of the country (usually only a couple thousand dollars) without special permission from the government.

4. Outright Prohibition

This is the most severe form of the capital controls. This is where a government outright prohibits the ownership of foreign currencies, offshore bank accounts, foreign assets, gold, or moving any form of wealth abroad.

Stay tuned for part 2 of this article. I’ll discuss the high potential for capital controls in the US, what could trigger them, and proven strategies to protect yourself.

If you’re not already a member of Doug Casey’s International Man, you can sign up for free here. You’ll get part 2 as soon as it’s released, as well as all the latest news and information about internationalization, and access to a bunch of other great stuff, like our very popular free special reports.

You’d Have Better Luck Converting Them to Become Jehovah’s Witnesses

by Nick Giambruno

I’d bet that many of you have thought about or discussed the following question: “What are the chances that the political situation might improve in the US?”

I know I have.

Unfortunately, I have long concluded that the chances are slim to none… and slim is out of town.

The reason for this is simple: a growing majority of voters in the US has deeply ingrained collectivist impulses in some fashion or another. In other words, they’re addicted to the heroin of the failed policies of the welfare, warfare, and nanny state.

Speaking of the nanny state, New York City is perhaps one of the most infamous incarnations of it. The bureaucrats in the Big Apple have a particularly strong affinity for regulating every aspect of the personal lives and businesses of its residents. It’s all done “for your own good,” of course—the standard catch-all justification for big government.

The latest example of which is Mayor Bill de Blasio’s absolutely ridiculous “Vision Zero” plan. This plan seeks to reduce traffic deaths to zero by drastically increasing police enforcement.

It’s delusional to think that fatal accidents could ever be fully eliminated, no matter how many police officers or enforcement cameras there are on the streets. It’s not unlike trying to totally eliminate bathtub falls by putting a police officer or a camera in every bathroom.

Jaywalkers in particular have been singled out for extra attention by the police in “Vision Zero.”

Consider the story of Kang Wong, an 84-year-old man who was recently stopped for jaywalking near Broadway and 96th Street at around 5 in the evening. Wong, who apparently didn’t understand what was happening or why he was being stopped, tried to walk away from the police. The situation escalated, and the police ended up arresting and bloodying him (picture below).

Few New Yorkers question why the money extracted from them via taxation—to pay for the police—didn’t instead go towards dealing with real crimes (aggressions against people and property). Nor did many question the disturbing absurdity of the bloodying of an 84-year-old man spurred by the increased enforcement of jaywalking in the name of the “Vision Zero” fantasy.

This whole ordeal underscores why I’m not particularly optimistic that a significant number of Americans will change their views on collectivism and personal freedom anytime soon.

Source: NY Post

Many have been force-fed since a young age the notion that democracy is the most sublime form of government. I believe the reality, however, is quite different—especially once a society loses respect for the rights of individual. In other words, when the majority or the collective trumps all.

Then it only takes 51% of the people to agree to restrict the rights of the rest of the 49%—which amounts to nothing more than mob rule dressed up in a suit and tie.

If 51% of the people vote to elect a guy who wants to turn their city into a police state in pursuit of the delusion of totally eliminating traffic deaths, they can. (Note: NYC mayor Bill de Blasio won in a landslide, with 73% of the vote.)

If 51% of the people vote to elect a guy who wants, in the name of the greater good, to force you to buy health insurance you don’t need or want, they can.

If 51% of the people deem it “fair” that the top income tax bracket to be 75%, then so be it. It’s already happened in France.

Or suppose that gold explodes to the upside (another way of saying the currency crashes) and 51% of the people demand, in the name of fairness, a precious metals windfall profits tax.

These are the kinds of possibilities that can occur in a democratic society with collectivist leanings.

It brings to mind the words of H.L. Mencken: “Democracy, too, is a religion. It is the worship of jackals by jackasses.”

Granted, the US has not arrived at some of these destinations yet… though I believe we are on the path toward it—and there’s no turning back.

The reason is simple: a growing majority of Americans are financially dependent on the government.

It’s estimated that around 47% of Americans are already receiving government benefits in some way.

Here is 3 minute video on what Judge Napolitano says about the situation.

But I believe 47% is not an accurate reflection of the situation.

We also need to consider all government employees as well as those in the nominally private sector who make a living off of the warfare state—like defense and other government contractors who win huge no-bid contracts.

Those involved in the military industrial complex are living off slops at the government trough just as much, if not more than those who collect food stamps and other traditional forms of welfare. Yet they aren’t counted in the statistics. So we need to include them to get a more complete picture of who is financially dependent on the government.

Anyone who exists off of political dollars instead of free-market dollars should be counted.

When these people are included, we’re well north of 50% of the American population (a solid majority and growing) that’s financially dependent on the government in some form.

This means the US has crossed the Rubicon.

It’s not good news for those opposed to collectivism.

This built-in majority of welfare recipients and government employees guarantees that there will be a solid voting block to continue—and accelerate—these policies. It would be foolish to assume that a meaningful number of these people would vote to stop the government from giving them benefits or otherwise vote to break their own rice bowls.

The notion that a significant number of people living off of government largesse will be brought around to an individualist or libertarian way of thinking is a pipe dream.

You’d have better luck converting them to become Jehovah’s Witnesses.

In other words, there is no hope for positive change to come from the political system.

Therefore, I believe your time and energy are best spent preparing for and protecting yourself from the effects of a collectivist system that eventually collapses under its own weight… like all of them eventually do.

Once you’ve realized that it is futile to stop this collectivist tsunami, the next logical question becomes “How do I protect myself and my savings?”

The answer is: the same way you would with a regular tsunami… get out of the way!

The good news is that thanks to internationalization, you don’t have to be a passive victim.

Moving some of your savings abroad in the form of offshore bank and brokerage accounts, foreign real estate, and physical gold held in safe jurisdictions, will go a long way toward protecting yourself. Obtaining a second passport is an important part of the mix as well.

It’s not all doom and gloom; the world is your oyster, and there are very attractive jurisdictions that are cause for optimism. And that’s what International Man is all about—making the most of your personal freedom and financial opportunity around the world.

If you are not already a member, you can click here to join here for free to get all the latest news and information about internationalization. You’ll also get access to other stuff like our very popular free special reports. Be sure to pass this on to your friends and family so they have access to this crucial information too.