(Interviewed by Louis James, Casey
Research)
L: Doug, we talked previously about getting assets
out of your home country, especially the US, where to take them, and what to
do with them. In so doing, you touched on the inevitability of currency
controls just ahead, especially for Americans. Can you tell us more about
that?
Doug: Yes. I'm quite serious about what I said about
"the grim reality of impending currency controls." As the global
economy continues to deteriorate, governments will have to appear to be
"doing something." It's going to become very fashionable to
institute some sort of foreign exchange control.
Why might that be? Because obviously, people who are taking their money
out of the country are unpatriotic…
L: Those bastards.
Doug: That's right. Jingoistic Americans naturally,
but stupidly, see taking money out of the country as being unpatriotic. They
don't understand that it's mainly those prudent people who will be able to
supply the capital to rebuild a devastated economy later. Besides, getting
money abroad is obviously something that only rich people would do… and of
course, it's time to eat the rich, as well. For those two reasons, there
won't be much resistance to controls. And the state gets to appear to be
"doing something."
And when they do, more people – at least those with any sense – will get
scared and really try to get their money out, which will
exacerbate the run to the exits. The bottom line is that if you want to get
your money out, the time to do it is now. Beat the last-minute rush.
I don't know what form the exchange controls are going to take, but there
are two general possibilities: regulation and taxation.
The regulations might take the form of a rule prohibiting you from taking
more than X thousands of dollars abroad per year without special permission.
No expensive vacations, no foreign asset purchases without state approval.
As for the taxation, if you want to, say, buy foreign stocks or real
estate, you might have to pay an "Interest Equalization Tax" or
some such. So you could do it, but it'd cost you a lot of money to do it.
Something like either of these, or both, is definitely in the cards.
L: But aren't FX controls something from the past? I
mean, where do they exist today?
Doug: Well, FX controls have been used since the
days of the Roman Empire. A country debases its currency, raises taxes beyond
a certain level, and makes regulations too onerous – and productive people
naturally react by getting their capital, and then themselves, out of Dodge.
But the government can't have that, so it puts on FX controls. They're almost
inevitable at this point.
Almost every country – except for the US, Canada, Switzerland, and a few
others –had them until at least the '70s. I remember leaving Britain once in
the '60s, and a border guy searched me to see if I had more than 50 pounds on
me. In those days, currency violations in the Soviet bloc countries could get
you the death penalty. Things liberalized around the world with Reagan and
Thatcher, and then the collapse of the USSR. But you have to remember that
that was in the context of the Long Boom. Now, during the Greater Depression,
things will become much stricter again.
Right now, the US just has reporting requirements. But some places, like
South Africa, make it very expensive and inconvenient to get money out. South
Africa, perversely, may serve as a model for the US.
L: Okay, so we talked previously about Americans at
least setting up a Canadian bank account and safe deposit box, and better yet
going in person to Panama, Uruguay, Malaysia, or a similar place to do the
same. And once there, you advised getting with a lawyer, either referred by
someone you trust or found through an interview process, to set up a
corporation that can handle your assets and investments for you. This all
needs to be reported, but it's wise to do it in advance of the higher costs
or other limitations to come.
Doug: Yes. While US persons must report foreign bank
and brokerage accounts, safe deposit boxes are not – at least not yet –
reportable. This leads me to the biggest and best "loophole" when
it comes to potential foreign exchange controls, and that's foreign real
estate.
I'm of the opinion that, broadly speaking, real estate as an asset class
is going to be a poor performer for a long time to come – but that won't be
equally true across all countries. Real estate in countries that rely on
mortgage debt to buy and sell will continue to be the worst hit.
People don't understand that buying property with a mortgage is just the
same as buying stocks on margin. It's caused speculative bubbles and malinvestment.
Until the malinvestment in those countries is entirely liquidated, you don't
want to invest in real estate in them. But a lot of countries, especially in
the Third World, have no mortgage debt whatsoever. Zero mortgage debt. You
want a piece of property, you pay for it in cash. That keeps prices down and
the market much more stable. And it makes for more interesting speculations,
because if a mortgage market develops in the future, it could light a fire
under prices.
But, from the viewpoint of FX controls, the nice thing about real estate
is that there is no way they can make you repatriate it.
Other than owning a business abroad, real estate is the only sure way to
legally keep your capital offshore.
L: I suppose it would be difficult for even Uncle
Sam to seize your estancia in Argentina… not without starting a war.
Doug: Yes. Although I don't doubt he'll be starting
more wars as well… [Laughs]
L: So, part of your thinking here isn't just
speculative. You're talking about strategies for wealth preservation, not
just in the face of foreign exchange controls, but more aggressive, predatory
taxation and confiscation by the state – they can seize your assets, even
real estate, in the US, but not abroad.
Doug: Exactly. Argentina is excellent from that
point of view; rights to real property are, if anything, better than those in
the US. In many ways, Argentina is culturally and demographically more like
Europe than Europe. Uruguay is also excellent, although culturally it's like
a backward province of Argentina. Paraguay is quite secure – but a bit weird
as a place to live.
I'm not currently up to date on the Chilean real estate market, but Chile
is definitely now the richest and most advanced South American country, and
an excellent choice. Brazil is fine. Colombia is improving greatly. Ecuador
has a goofy president, but parts of it are very nice, and it's about as cheap
as Argentina. Eastern Bolivia is interesting, actually, despite Morales. Only
Venezuela is out of the question in South America. It's just a pity they have
all that oil, which is always a corrupting influence.
L: Well, then, what about Central America? I know
you prefer South America for speculative purposes, but what if someone wants
to park a lot of wealth by buying a couple miles of beautiful beachfront
property in Costa Rica, or some place like that?
Doug: I was a big fan of Costa Rica for many years…
The first time I went down there was 35 years ago – but it's a different
place now. Then it was very cheap, and now it's very expensive. And it's
totally overrun with gringos. So, Costa Rica is not of that much interest to
me at this point; it's pleasant, but there's limited upside.
I think an excellent place to be in Central America is Belize. Although
culturally and ethnically, it's not really part of Central America; it's part
of the Caribbean.
L: And they speak English there.
Doug: They do indeed, though things are changing.
The Guatemalan government has always regarded British Honduras, which is what
Belize used to be called, as part of Guatemala. There have actually been
confrontations between Britain and Guatemala over this. But that's in the
past; now there's a different problem. Guatemalans are rolling over the
border in much the same way that Mexicans are in Texas, New Mexico, Arizona,
and California.
So, the character of Belize is changing, but for the foreseeable future,
it's still going to be Belize, and I rather like it. Aside from Panama,
Belize would be my first choice in Central America.
The problem with Central America, however, is that it's a bunch of small
countries that have historically been very unstable. And culturally backward.
Most are under the thumb of the United States… there's a long history of US
invasions, most recently in Panama with Noriega. There are "Frito
banditos" running around these places…
The most culturally advanced country in Central America – not counting
México, of course, since it's in North America – is Guatemala. But Guatemala
has had huge troubles with violence, which has only recently come to an end…
I hate going through checkpoints at night, manned by jumpy, uneducated,
heavily armed teenagers.
Nicaragua is the low-cost alternative, but it's relatively backward.
Panama is probably the best choice. It's very international, very urban (in
Panama City), and it's very sophisticated, infrastructure-wise.
If I didn't like Argentina and Uruguay so much, I would put Panama at the
top of my shopping list.
L: Got it. Back to the exchange controls themselves.
Do you think people will have any warning at all? It seems to me that this is
the sort of thing the Powers that Be would want to spring on people.
Doug: I think it's going to come out of left field.
It always does, with at most an official denial just before it happens. In
August 1971, Nixon devalued the dollar, which immediately dropped against
gold and all foreign currencies. I think there's a reasonable probability
that the government will do that again. Gold may not be part of the equation,
but they may decide to put in some sort of fixed exchange rate between the
dollar and various foreign currencies.
The reason for thinking this is simple: with all the dollars outside the
United States devalued by that much, that much of a liability just vanishes
into thin air. And in the short term – it's never a long-term fix – US
exports would go up. This would "stimulate" the domestic economy.
Imports to the US would go down, which would make for fewer dollars leaving
the US.
L: I know you hate making predictions, but can you
tell us if your guru sense is tingling on this so strongly that you think it
could happen soon?
Doug: The timing on this is really unpredictable.
These people don't have a plan. They're acting ad hoc to whatever
seems most urgent. All the so-called economists around government today are
really just political hacks. Their world views are totally unsound.
L: With all the problems the US has, do you think
this could happen now? Could we be reading about new exchange
controls on CNN.com this afternoon?
Doug: Sure. Although they typically pull these
stunts over a weekend. I expect something of this nature to happen any time
between tomorrow morning and two years from now. If some form of currency
controls are not instituted within two years, I'm going to be genuinely
surprised.
So if you're going to take action, you should start heading for the
exits now. Not next month, and certainly not next year.
L: For those who don't take action until it's too
late, under the scenarios you mentioned, they'll still be able to get money
out. It's just that it might be more difficult, time consuming, humiliating,
and certainly more expensive to do. For every $100,000 they move, only
$90,000, or $70,000, or whatever will get to where it's supposed to go. Can
you foresee a more Stalinesque alternative, where they simply can't get
anything out at all?
Doug: Hopefully not. Anything is possible, and
things can change so rapidly… but I'd hate to think of what conditions would
be like if they ever became that draconian. It'd be so bad on other fronts
that there would be all sorts of even more urgent things on your mind –
Americans would get a very quick and unpleasant education in the real meaning
of Maslow's hierarchy.
L: Like the Mad Max-style neobarbarians at
the door with a battering ram.
Doug: Exactly – that's when you'll definitely want
to be in more pleasant climes. I'd want to be watching it on my widescreen,
in comfort, not out my front window.
L: We're talking about extremes here…
Doug: You know, back in the 1970s there was a spate
of books published on financial privacy. In those days, financial privacy was
still possible. Now, it's not only no longer truly possible, short of
embracing a completely outlaw lifestyle, it's very dangerous to write about
it or even talk about it. I kid you not. These days, people who ask too many
questions about privacy techniques may well be government stooges…
There's lots of handwriting on the wall. All those books on financial
privacy were published in the '70s – if you look on Amazon, you can still
find them. But there's nothing really worth reading that's been written on
the subject in 20 years. It's actively discouraged by the government. I could
name – but I won't – at least two authors who got themselves into a real
jackpot this way. Forget about the First Amendment.
In fact, I even feel uncomfortable talking about it in this interview.
So let me once again emphasize that I advise everyone to stay fully within
the bounds of the law.
That's not for moral reasons, of course; there is no morality to the law.
It's strictly for reasons of practicality. Risk-reward ratio.
L: Understood. Loud and clear. Any more investment
implications, besides foreign real estate, that you want to draw attention to
here?
Doug: Yes – and it's another reason for those so
very clever boys in Washington to embrace currency controls. They will be
disastrous for the US economy, but there's a very good chance that, in the
short run, they'll be very good for the stock market. That's partly for the
reasons I already mentioned about it temporarily boosting US exports, and
hence earnings of US exporters, but also because all that money that can't
leave the US will have to go into something.
Investors will probably want to put it into equity rather than debt while
the dollar is depreciating. Again, it's disastrous over the long term, but as
a short-term play, buying the blue chips the day the exchange controls are
instituted could be a good move.
L: You'd buy the Dow?
Doug: I might, if I couldn't think of anything more
intelligent or original to do. We'll just have to see what the situation is
like.
L: Thanks again, Doug – you've given us a lot to
think about.
Doug: My pleasure.
You can learn more about expatriating your wealth from Doug Casey, as well
as four other economic experts, at 2 p.m. EDT on Tuesday, April 30. Casey
Research will premier a special web video, Internationalize Your
Assets. This webinar is a must-see event for anyone interested in
protecting at least some of their assets abroad. For details and
to sign up, click here.
