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.
No comments:
Post a Comment