Take Your Wealth Offshore Before It’s Too Late!
Note: This is the 2nd part of a 2 part series. To read the first part of this series, click here.
In my last newsletter, I talked about going offshore in order to reduce the impact the coming economic super-storm will have on your wealth. This article will focus on three likely consequences of that storm: hyperinflation, exchange controls, and possibly the nationalization of retirement accounts. Let’s start with hyperinflation.
Historical examples of hyperinflation abound. Take post-WWI Germany, for example. The German government had massive reparation debts to pay as a result of the war. Initially inflation was not an insurmountable problem, with the German mark holding somewhat steady at around 60 marks per U.S. dollar through the first half of 1921 (note however that the ratio of marks to dollars in 1914 was only 4.2 to 1). However, the “London Ultimatum” of May 1921 made things much worse, due to the fact that it demanded, beginning August 1921, annual payments of $2 billion gold marks plus 26% of the value of Germany’s exports. Germany had nowhere near enough money to make payments under such a plan, which was supposed to last until 1984, so it printed massive amounts of fiat currency.
This started a severe inflationary trend, which caused a mass panic. This led to a hoarding of living necessities. This in turn caused a shortage of said necessities, which led to higher prices, which led to more panic and hoarding, and so on. The end result was a vicious, self-reinforcing cycle of runaway hyperinflation. Consequently, by December 1923 the mark had devaluated so much that the mark to U.S. dollar ratio was 4.2 trillion to 1.
Our current federal debt, when one includes unfunded liabilities, is well over $53 trillion and rising by trillions of dollars each year (for a better grasp of the magnitude of our debt, visit http://www.usdebtclock.org.) Will $53 trillion+ in debt lead our government to print inconceivable amounts of paper fiat money in an attempt to pay off that debt? What will be the consequences of this debt (which includes our “official” national debt of over $13 trillion), the cost of the Iraq War, and the $12.7 trillion in allocated bailout and stimulus spending? Would the foregoing lead China and other countries to dump their multi-trillion U.S. dollar holdings? China and the IMF have already talked about replacing the dollar as the world’s reserve currency, either with an all-new international currency, or with a basket of currencies which would include the Japanese Yen, the Chinese Yuan, the Euro, and gold. This alone would likely cause a massive dumping of dollars worldwide and hyperinflation in the U.S. Time will tell for sure, but if history is any indicator, the answer to at least some of these questions is almost certainly yes, and a “yes” to any of the above means disaster and hardship on a biblical scale.
Hyperinflation would mean the general populace’s savings are wiped out. This means IRAs, 401k accounts and other retirement funds become almost worthless, because the dollar they are based on becomes almost worthless. Furthermore, hyperinflation typically leads to a system-wide financial panic and a depression or extremely deep recession. It also involves a massive sell-off of non-essential liquid assets in an attempt to purchase necessities, which are then used for bartering since the currency has become a hot potato no one wants. There goes your investment portfolio, along with the stock market in general.
So how does one minimize the effects of hyperinflation, a severe U.S. depression, or other problems that may arise when the super-storm hits? The short answer is: get your wealth out of the U.S. dollar, into investments that retain their value during economic upheaval, and as far away from the U.S. economy as possible. There are several ways to do this:
- Invest in direct ownership of select commodities (preferably in foreign markets), especially agriculture and fuel-based commodities;
- Invest in gold, silver, and certain other precious metals (Australia’s Perth Mint is especially attractive, see www.perthmint.com.au);
- Invest in stable foreign currencies;
- Invest in stable foreign markets. We must note that, however, an economic crisis in the U.S. will have major repercussions for most of the rest of the world; the aftermath of the 2008 credit crisis makes this evident. Still, there were some countries, such as India, that seem untouched by the financial crisis of 2008 and its aftermath. We expect these countries to fare similarly when the economic super-storm hits.
Up to this point you may be wondering: why should I go offshore to do the foregoing? Can’t I just buy gold and silver, or commodities, or foreign currencies, and own them in the U.S.? This could be dangerous, because at some point I believe we will be subject to exchange controls, and we may also be subject to gold and silver confiscation, much like the gold confiscation program imposed by the federal government in 1933. See Figure 1, below.
FIGURE 1: CONFISCATION OF PRIVATE PROPERTY WITHOUT DUE PROCESS OF LAW? SO MUCH FOR THE 5TH AMENDMENT IN TIMES OF CRISIS!
WHAT ARE EXCHANGE CONTROLS?
“They [the U.S. government] are going to have currency controls and exchange controls and limit the amount of money you can take overseas… the description of a free country is one where you can leave with your money when you please. That is going to get harder and harder.” – Congressman Ron Paul (R-TX)
Exchange controls are a government’s attempt, during a currency crisis, to have its cake and eat it, too. During such a time, a government wants its citizenry to keep using its currency in order to keep it in demand. This facilitates the stabilization of prices. At the same time, the government wants to pay off overwhelming debt without curtailing its massive deficit spending. This requires the printing of huge amounts of fiat currency, which inexorably leads to currency devaluation. As you might guess, although overprinting currency always leads to devaluation, the governments of the world are often stupid enough to think they can defy the laws of mathematics by using exchange controls.
Often when a government implements exchange controls, it requires the exchange of foreign currencies at government-mandated rates. Usually, exchanges may be done legally only via a government agency or government-regulated bank. The rates are always extremely unfavorable. A currency that may have a 2 to 1 rate on the open market (for example, 2 units of a foreign currency buy 1 U.S. dollar) may have a government-mandated 5:1 rate. A recent example of exchange controls is Iceland which, after its currency took a nosedive, imposed strict controls that, among other things, require citizens and businesses to submit all foreign currency to a domestic financial institution for exchange into Iceland Kronas. The exchange rates were, of course, substantially below market rates. This is obviously a disaster for anyone subject to such controls.
If your money remains in the United States, it is all but guaranteed to lose value when the super-storm hits and, if exchange controls are imposed, your wealth may very well be stuck in a trap with no way out. But if you prepare now, there is a way out, which we reveal later in this article.
COULD THE U.S. GOVERNMENT CONFISCATE YOUR RETIREMENT?
In 2009, Argentina confiscated the retirement funds of its citizens as an emergency measure to save its government from crushing debt. Could the same happen in the U.S.? It’s certainly possible. Consider this:
- We already have a government-sponsored retirement plan called Social Security. Unfortunately, all money that flows into the Social Security Trust Fund is routinely stolen by our federal government and replaced with “IOUs”. How in the world will our government repay these IOUs when the baby-boomers retire and start to collect social security income? If you guessed “by printing an endless supply of fiat money”, I would say you’re on the right track.
- Congress has, on at least one occasion, discussed the nationalization of 401k and other qualified retirement plans by converting them to government-controlled “Universal Government Accounts” (UGAs) which are administered directly by the federal government. How much would you like to bet that these funds will be (mis)handled just like Social Security is?
- In January 2010, President Obama proposed a bill that would require all businesses to offer automatic IRA accounts to its employees. But the real kicker is 10% of the funds in these accounts must be invested in U.S. treasuries. In a sense, 10% of these accounts would be nationalized. Is this the beginning of a slippery slope towards nationalization of your retirement?
Those not well-versed in history may scoff at the likelihood of exchange controls or retirement account nationalization. After all, aren’t we the Land of the Free, the Home of the Brave? While we still have some of our freedoms, let’s remember what our federal government is capable of:
- An income tax bracket of 91% or more (imposed on wealthy individuals from 1944-45 and 1951-1963).
- Confiscation of all investment-grade gold in 1933 (and it was illegal to own such until 1975).
- Routine confiscation of real estate, boats, cash, and other property under federal drug confiscation laws, with no due process whatsoever. Only 20% of those whose property is confiscated are ever charged with a crime.
- The forced imprisonment of 120,000 Japanese-American citizens, without trial and without any evidence of any crime having been committed, during World War II.
We don’t know for sure whether retirement funds will be nationalized, but wouldn’t you rather be safe than sorry? Do you prefer an ounce of prevention or a pound of cure?
HOW TO PREPARE
Before doing anything else, I strongly recommend you buy a year’s supply of food and cooking fuel. Storing a couple weeks’ worth of water is a good idea as well. I also recommend getting a few thousand dollars worth of silver (which is much more spendable in small amounts than gold) and store it in a safe place (do not store it in a bank’s safe deposit box!) And of course, you should have a reliable semi-automatic pistol and rifle with several hundred rounds of ammunition, in case you ever need to defend yourself. When the super-crash hits, crime will certainly increase exponentially.
But what about protecting your life’s savings? The best way to protect your liquid assets is to place at least a portion of it offshore, where it will be outside of the U.S. government’s jurisdiction and not subject to exchange controls, confiscation, or other unconstitutional schemes. Simply opening a foreign bank account is not enough. People have done such in the past and, when push comes to shove (in the event of a lawsuit or other matter that leads to a courtroom) a judge typically orders one to repatriate foreign assets. Failure to comply leads to civil contempt, which means you find yourself in jail until you comply with the order. In one case, In re: Lawrence, Mr. Lawrence found himself in prison for nearly seven years for failing to repatriate offshore assets.
The only way to insulate yourself from a repatriation order is to put your wealth in an asset protection structure that can survive an attack by the federal government. And, case law has shown us that you must do this before you find yourself in hot water. One court case, U.S. vs. Raymond and Arline Grant (S.D.Fla. 06/17/2005) shows us that doing this is possible. The IRS went after Arline for $36 million in back taxes owed by her deceased husband (unfortunately for Arline, she and her husband filed joint tax returns, which made her liable for his unpaid taxes). Despite their best efforts, including an attempt by the IRS to throw Arline in jail for failing to repatriate foreign assets, Arline not only stayed out of jail but her wealth also stayed safely offshore. To be fair, there have been a handful of offshore trusts that did not fare as well when challenged, but there were three key differences between the trusts that failed and Arline’s trust, which passed the ultimate test with flying colors:
- The trust beneficiary did not retain control over trust assets,
- The trust was carefully drafted (although, in my book Asset Protection in Financially Unsafe Times, I discuss how Arline’s Trust could have been drafted better), and
- The trust was set up long before creditor problems arose (the courts have ruled that setting up an offshore trust after creditor threats arise, so that you are unable to repatriate those assets, constitutes a “self-created impossibility” to comply with a repatriation order. Judges can and have thrown debtors in prison for such shenanigans.)
The fact of the matter is, offshore trusts and other offshore structures have worked countless times, if they are set up before creditors come knocking. I have seen cases where a creditor had a $1 million legal fund available to try and pierce an offshore structure. That creditor failed. I saw another $10 million claim slip away quietly after the creditor found out the the defendant had an “old and cold” asset protection plan in place. At this point in time, it is 100% legal to go offshore (however you must generally disclose that you are doing so to the government.) At some point I believe it will no longer be legal to do this. If you wait until then, it will then be too late to protect yourself.
Although we can’t predict for certain how things are going to pan out in the U.S., if history is any indicator, much or all of what we’ve discussed is likely to occur. One thing is certain: we have painted ourselves into a corner and there will be a day of reckoning. It will be a horrifying day for those who are unprepared. Considering the magnitude of what we face, along with the history of how governments deal with such crisis, doesn’t it make sense to prepare by placing at least a portion of your wealth out of harm’s reach while it is still safe and legal to do so? In addition, you will be protected from lawsuits, and you may also be protected from (depending on your circumstances when you initiate the planning) divorce, a business gone bad, bankruptcy, unforeseen tax problems, and other threats as well.
To your asset protection and financial success,
W. Ryan Fowler
Chief Consultant, Founder
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