In a wide-ranging interview with Casey Research editor
Louis James, Doug Casey discusses why it's imperative to start diversifying one's
assets today, and provides some guidance in considering countries to
diversify into.
L: Doug, we're
getting a lot of questions from readers on how to follow your advice to
diversify assets politically. I know it's a prickly subject, but what can you
tell us about getting our money out from behind the new iron curtain that
seems to be descending?
Doug: First
– and I can't stress this enough – you've got to accept the grim
reality of impending currency controls. The modern era of foreign exchange
controls really started with the perversely Orwellian-named Bank Secrecy Act
of 1970. For the first time, that made it obligatory for US citizens to
report any foreign bank or brokerage accounts they had to the government.
But the threat is older than that, of course, going
back to 1933, when Roosevelt confiscated Americans' gold. Interestingly
enough, only gold bullion held by Americans within the United States was
confiscated. If you had gold outside the United States, you were insulated.
L: I didn't
know that – if history repeats itself, that
could be a key tactical factor for our readers to consider.
Doug: Yes. There
are no guarantees, of course. Those in government today think they can do
absolutely anything they deem necessary and expedient. But at least if it's
out of their physical bailiwick, it improves your odds.
L: Why do you
think they allowed that exemption last time? I doubt it was because they had
any shred of respect for private property – maybe they just recognized
that trying to seize gold overseas would be impractical.
Doug: Good
question. Well, the 1930s were a different era. Communication, for one thing,
was vastly slower and more expensive than it is now. And you have to remember
that though we had an income tax in the 1930s, since 1913 actually, very few
people were paying it – even among those allegedly legally obligated to
pay it. It was hard for the government to find out who they were, and how
much they were earning, and so on. Even though there were only 140 million
people in the country then, the absence of computers and much less
centralization made it very hard for Washington to keep tabs on them.
L: The income
tax really was a voluntary tax back then!
Doug: [Laughs]
Much more so than now – it really was a different era. At any rate, based
on this history and that the juggernaut is building momentum towards the
bottom of the ditch, I have to reiterate my advice on the most important
investment decision you can make. And it isn't one among the different
classes of investment; it's political and geographical diversification.
Simply put, that's because no matter where you live, your government is the
greatest threat to your wealth today.
If you're a high-income earner, the state basically
takes 50% of what you earn, and then from what's left, you have to pay your
real estate taxes, sales taxes, and many, many other kinds of taxes.
Government is without question the biggest danger to your financial health.
You've got to diversify your assets so they are not all under any one
government's control.
L: You say that
in almost every speech you give these days, and you said it in one of our
interviews a couple of weeks ago.
Doug: Yes, and it
bears repeating, constantly. It's the elephant in the room that very, very
few people pay any attention to, and it's going to stomp most people to
death, for just that reason.
L: Okay, so
give us a primer. For those who want to avoid getting crushed by the
elephant, where do they begin?
Doug: To start with,
it makes all the sense in the world to have a foreign bank account. Not a
hidden one – I'm not advising anyone to break any laws. You report it
on your annual tax filings. So, the government will know about it, but if
it's a foreign bank account, they can't just step in and lock down your
assets in an instant.
L: Does Canada
count as a foreign country for Americans?
Doug: I'll
probably get hate mail for saying so, but it's important for investors to
recognize that Canada is a sort of "USA Light." When Washington
says, "Jump!," Ottawa says, "How
high?" Nonetheless, if only for the sake of formalities and legal
pleasantries, US citizens would have some degree of insulation with a
Canadian bank account. And, as a general rule, Canadian banks are more solvent
than US banks, so setting up a Canadian bank account is an easy first step
for many US investors.
The second thing to do would be to set up a Canadian
brokerage account. Unfortunately, the SEC has made it so that no Canadian
broker will open an account with an American unless they have a US
subsidiary. That, in effect, makes your Canadian brokerage account like a US
brokerage account. That doesn't help you much from an asset-protection point
of view, but it does let you trade directly in many of the stocks we
recommend in the International Speculator and the Casey Energy
Report (not through a US market-maker via the pink sheets).
Third, I think that having a safe deposit box in Canada
is vastly preferable to having one in the US. You probably do remember that
when Roosevelt confiscated gold in 1933, he also sealed safe deposit boxes in
all US banks. No American could visit a safe deposit box for some time
without a government agent accompanying him. That could certainly happen
again.
And all of this is true in other countries around the
world.
But yes, as an easy place to start, Canada is a sort of
plain-vanilla jurisdiction that's worth giving a try.
L: So, what
would be the French vanilla, or even the Bailey's Irish Cream jurisdiction?
Is there such a thing as a tax haven anywhere in the world anymore? Even the
Swiss have caved… I just heard that they just started handing over new
account info to US authorities.
Doug: Yes,
apparently there were some 50,000 accounts UBS had, owned by US citizens.
UBS, a multinational bank with a very substantial presence in the United
States – and therefore exposure to extortion by US authorities –
was going to hand them all over. The Swiss government stepped in, saying they
would prosecute UBS officials if they violated Swiss law by doing that. But
the Swiss worked out some sort of compromise with the US authorities, so only
about 5,000 accounts are being handed over. On what basis they picked these
5,000 is uncertain.
So, the first tax-haven rule is to never go to a place that's
obviously a tax haven. If I were interested in bank privacy, I'd forget about
places like the Bahamas or the Caymans. It makes no sense at all today. All those little island republics are totally under the
thumb of the US at this point. And they've always been infiltrated with
stooges. They may have bank secrecy laws, but they don't have a tradition of
privacy like Switzerland has – although that's no longer what it was.
You'll recall how the German government bribed a
Liechtenstein banker to steal account names and information. The Germans then
turned over relevant data to the UK, US, and other governments, who were
quite happy to receive stolen goods. And there was about zero protest over
the appalling theft. It's a testimony to how thoughtless and ethically
complacent most people are; when a state commits a crime, they just overlook
it.
L: Are you
saying that all of the little havens are unreliable?
Doug: Well, I
don't know of any that are reliable.
Instead, I would recommend places that are geographically
distant from the US – and culturally distant as well. To me, the best
places to be are in the Orient. That's partially because the Chinese and
other Oriental civilizations are much less prone to roll over and do what
they are told. National pride ensures that, if nothing else.
But if you go this route, with, say, an account in Hong
Kong, you certainly would not want to use a bank like HSBC. It's got branches
all over the world, prominently in the US – so, like UBS, they'll do
what they are told.
Actually, there are still Swiss banks that will open an
account for a "US person," if you can convince them to do it. But
you definitely do not want a Swiss or Liechtenstein bank that has any
presence in the US. The same would be true in the Orient – so forget
about HSBC. You want a real Chinese bank. That way, when the US government
calls, the phone will be answered in Chinese and no one will speak English
with them.
The best places are the least obvious places. Malaysia
is interesting. Thailand. These are completely non-tax-haven types of places
– and that might make them suitable.
L: What about
step two, getting a brokerage account?
Doug: Well, it's
tough these days. If you want to trade in US and Canadian stocks, you pretty
much have to have an American or Canadian broker. But one thing that can be
done that is completely legal (and reportable) is to open up a foreign
company. Then the company can open up a brokerage account. That way, you do
have a level of insulation I think is very valuable, both from a practical
and a legal point of view.
L: I gather
you're not talking about the banana republic IBCs I see peddled on the
Internet?
Doug: Right. Most
of what you see on the Internet offering to open up an IBC – which is
just an offshore company – are just scams, if
not stings. The fees are too high. The people are usually sleazy. They often
come up with all sorts of cockamamie tax-avoidance schemes. You may be
encouraged to do things that are illegal. They are just disasters waiting for
you to walk into. I strongly encourage people not to even consider such
offerings.
If you want an offshore company for the purpose of
convenience or a measure of privacy, completely reportable and within the
law, the best thing to do is to go to the jurisdiction you've picked and see
a lawyer who deals in that sort of business. Cut out the middleman. Ideally,
the jurisdiction would be one that meets the criteria I outlined above, but
is also a place you'd actually enjoy spending time in.
L: So, you hop
on a plane to, say, Panama, and… how do you go about finding a reliable
attorney to set up your corporation?
Doug: That's the
intelligent way to do it. There's nothing illegal, nor particularly tricky
about it; you just find a lawyer who specializes in it, pay the fees, and off
you go.
How do you find a good lawyer? Same way you do at home;
you go and start interviewing lawyers until you find one that impresses you
as being sound.
Panama, by the way, is probably the best place to do
this at this moment. The British Virgin Islands may be another. And, of
course, if you're an Australian or a New Zealander, you should think about
Vanuatu – it's only a two-hour plane ride from Sydney or Auckland.
Back in the Western Hemisphere, the only other
reasonable alternative I see is Uruguay. It's always been promoted as the
"Switzerland of South America" – and there's a lot of truth
to that. Uruguay is a small country, about the same size and with the same
size population as Switzerland, and a very big part of its national income is
foreign banking. It has no tax on foreign-earned income – though,
unfortunately, it recently instituted a tax on domestic-earned income. Too
bad.
Another unfortunate thing about Uruguay is that when
you import gold there – such as by carrying Krugerrands
in your briefcase – their customs form asks you to report it. It's not
against the law, but for some ridiculous reason, they want to know.
L: That's
really all it takes? Find a lawyer and pay the fees?
Doug: Yes, though there
can be nuances worth paying attention to. For example, there are various
jurisdictions with different tax treaties that can be used to your advantage.
The Dutch Antilles being a famous example, as far as dividends treatment
goes. This is a specialist area that, well, you should discuss with a
specialist. But you should definitely give it some thought.
Oddly enough, you can import gold into Argentina with
no problems nor reporting requirements, and you can
buy and sell gold in Argentina just as easily. It's much easier than in
Uruguay, but I wouldn't dream of doing any significant banking in Argentina
– and neither do Argentines. The government is just completely
untrustworthy when it comes to things like bank accounts.
So, it's rather perverse; you can deal easily in gold
in Argentina, but not bank accounts, and you can't deal in gold easily in
Uruguay, but bank accounts are easy.
Frankly, the best place to look for one-stop financial
services shopping is Panama. Banking is easy, and there's no gold reporting.
And yes, you can still take gold in and out of the US
without reporting it. It's like stamps or rare coins. The exception would be,
if you had enough of them, to remember that Double Eagles have a face value
of $20, and the new Eagles have a face value of $50.
L: What about
your cash, once you have your offshore bank account set up? You have to
declare it if you take more than $10,000 on your person, but can you wire
whatever you want?
Doug: Yes, you can
send any amount of money you want, currently. It gets reported, but it's
basically unregulated. And by the way, the $10,000 limit doesn't cover gold,
but it does cover stock certificates and other financial instruments –
but you can still send those by Federal Express.
L: I wonder how
long that will last…
Doug: I'm sure
they'll get 'round to closing all the loopholes. So, the time to act is now.
We'll keep monitoring the situation, but when this happens, the Powers that
Be won't want anyone to see it coming, so it will zing in from left field. Your
only chance to protect your wealth is to start diversifying its exposure to
any one particular predatory state as soon as possible.
I have to stress again the urgency of diversifying the
political risk your assets are exposed to: do it now.
L: Okay, Doug
– thanks!
Doug: You're
welcome.
Your first step toward internationally diversifying
your wealth is to tune in to a Casey Research webinar on the subject. Internationalizing
Your Assets premiers at 2 p.m. Eastern Time on Tuesday, April 30. Doug
Casey – Casey Research chairman and a New York Times
best-selling author – highlights a blue-ribbon cast of financial
experts who will reveal their favorite strategies for protecting your wealth
abroad. Get
more information and register now.
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