Where the Guard Towers Face
In Pompeii, the Roman guard towers did not face the sea to defend the city from external attack. Instead, they faced into the city to control the residents – most critically, those residents indebted and enslaved to the rulers. The great fear was revolt from within. Many wealthy Romans had homes in Pompeii before the city was engulfed in volcanic ash from Mt. Vesuvius.
In America, even before September 11, 2001, government guard towers were already rotating inward. Many of our newsletters over the past decade were focused on border controls, currency controls, whether offshore was legal, and much more, and provided early warnings about these threats. After 9-11 things got ugly as it provided a catalyst to accelerate even more government controls. Past Articles on our site discuss the threats to your assets and your liberties, but more importantly, how to avoid those threats. Now, in the wake of the 2008 global financial crisis (GFC), the rotation of the guard towers firmly focus on threats from within; and most intently on those that are indebted more than ever before to the system of big government.
This past year I’ve been working on the second edition to Offshore Investing & Living. Trying to keep track of the financial controls and individual restrictions that Americans and other nationals face when going offshore is a daunting task. Threats to financial independence arrive faster than the ink has time to dry. This reveals how essential - now more than ever before - it is to take steps to protect a lifetime of hard work and savings. With a bit of luck the second edition will go to press after the first of the year, and a special offer will be made for those who purchased the first edition.
Disillusionment with government today is stronger than ever before. Never have the masses been more polarized, and never has the helm been stirred by weaker hands. Nothing better demonstrates this disillusionment than the lack of confidence in the financial markets and the growing anger over the current political gamesmanship. Individual confidence is rocked to its lowest point, as more run for cover.
After more dramatic downward growth revisions, sad jobs results, and falling markets, the US economy is now smaller than it was four years ago. Many economists are now warning that the bloodletting of the second US recession could be far worse than the first. Nouriel Roubini – cited for calling the start of the recent GFC – warns we are now on the verge of the perfect storm.
The 'real' US unemployment rate is over 20%, as reported here, and here, and here. For a fair explanation of how the US government manipulates the real unemployment rate, go here.
We need only look across the Atlantic to see what happens when disillusionment with fiscal and monetary systems occur. Arguably the European Union is not only broken, but never assembled correctly in the first place to represent such a culturally and economically diverse region. Nonetheless, Europeans are increasingly angry at government mismanagement and bank bailouts. Strikes, civil unrest, riots, massive demonstrations, sovereign defaults, and worse, make up the European news daily. The Euro zone is exploding. Greece's civil unrest - which goes from bad to worse - is only one of many examples.
And yet the well being of Greece and the EU is important to the US, and the rest of the world. As I’ve written in more detail in earlier newsletters, a Greek default will have an adverse effect on the US markets due to the credit default swaps (insurance against bond defaults) sold by US financial institutions to EU banks. While Euro zone banks own 70% of the Greek debt (bonds), 50% of that exposure is insured against default by US institutions. So, if you are rooting for Greece to fail, be careful of what you wish.
Americans are only now fully digesting what the Europeans have already learned. Becoming indebted to your government to pay the bills through increased taxes resulting from failed governments, improper bank bailouts, and bad economic policies, doesn’t make for happy campers. How do Americans reaching retirement age – many saddled with debt of their own – get by as they are paying for more government bailouts and higher taxes, while receiving less back than what they contributed during a lifetime into a system?
Factory workers, doctors, nurses, teachers, students and retired individuals – even civil servants – have taken to the streets across Europe demonstrating about the injustice with being forced to pay for the incompetence of bankers and government. We’ve repeatedly seen the social and civil unrest spill blood in the streets in many of the European countries due to new austerity programs. Italy is the latest to come to a standstill as 6 million workers took to the street over tax hikes and austerity programs. And the land of green, lush, rolling hills – Ireland - has become a country of great human suffering in the wake of austerity measures.
The flight to financial safety across the globe is occurring at unprecedented levels. Gold is at record prices. And the time honored Swiss Franc – the ultimate flight to safety currency – has been in such demand that the Swiss National Bank (SNB) stepped into the currency markets BIG TIME to intervene. In desperation the SNB removed the franc as a free floating currency and fixed the maximum amount the franc could rise. The SNB has announced that they will defend their local economy, and the Swiss have significant reserves to stand behind their threat.
You think the world’s central banks and main financial institutions across the world are not worried?
Investors worldwide are pulling back from bank debt in Europe. The US Foreign Official and International Accounts (FOIA) at the US Federal Reserve (the Fed) represents the amount of deposits at the Fed from foreign and international accounts - at rates next to nothing – as fearful investors everywhere look for alternative safe havens. Decades long norms were doubled in the midst of the 2008 meltdown before market fear subsided. If you look at the current data, beginning in August 2011 the FOIA deposits have exploded (again, at rates next to nothing), and are well in excess of the 2008 GFC deposit amounts.
What do they know that we don’t know?
US Treasury Secretary Tim Geither traveled to Europe this past week to lend his expertise about ending debt problems. He believes that Europe should follow the ’lessons’ he taught Americans. Any surprise that he received a cool reception?
We’ve already seen the early signs of ugly social unrest in America. Unlike the Middle East that was caught by surprise with the Arab Spring, the American military is preparing with war games in anticipation of increased civil unrest. Once unspoken, it is now accepted that serious social unrest will occur in the US. Even well known conservative voices like Porter Stansberry say that the inevitable hyperinflation and social unrest will be the end of America. Jim Rogers believes that the situation will drastically worsen leading to major social unrest across America. Maybe Jim was correct when he said “It doesn’t matter what happens, America is doomed.”
And is there any doubt many Americans are feeling financially over-stretched and disillusioned with the system?
The US Census Bureau confirms the obvious. American’s are poorer than ever before. More Americans today are living in poverty than in the entire 52 years that the US Census Bureau has been tracking the figure. The census revealed that 56.2 million people in the US – one in six Americans - are living below the poverty line. For middle-income earners ($47,715) income is the same as 1973 (adjusted for inflation) signaling a stagnant level of wage earnings. During these four decades, consumer prices rose by 150 percent. Same income, significantly more expenses, equals trouble in America. Meanwhile, households earning more than $100,000 annually saw a raise in income last year compared to 2009.
Where is the Plan?
There is no plan in Washington, and watching the Republican Presidential debates hasn't offered much hope. In a comic, ironic parody, drunken Ben Bernanke tells everyone at a neighborhood bar how screwed the US economy really is.
Instead of forward thinking policies, the government resorts to the great American tradition of looking for someone to blame after things go wrong. Bring on the lawyers. From the Wall Street Journal we learned that the government sued 17 financial firms for selling Fannie Mae and Freddie Mac billions of dollars worth of mortgage-backed securities that turned toxic when the housing market collapsed. Do you think that maybe someone should have considered looking at the borrowers and assets behind the $196 billion in mortgage securities before investing taxpayers money?
Meanwhile, government rules and regulations, increased taxation, harmful border controls and more restrictions on the free movement of people and money, protectionism, and threats of more of the same, is killing America.
The new FATCA law (Foreign Account Tax Compliance Act) is said to be the equivalent of a neutron bomb being dropped on America. It is recognized as an enormous threat to international business, banking and economic growth in the US.
FATCA was initially introduced to target offshore tax evaders. Congress quickly drafted and passed FATCA, but as is typical in Washington, most members of Congress didn't consider the unintended consequences this terrible legislation will have when implemented January 1, 2013 (watch this space for more). It is a financial disaster for US citizens at home and abroad, and must be repealed.
When we ferret out the causes of America’s lost decade, international trade is often cast as the villain. In fact, it is the victim.
In the last decade America’s commitment to international openness has flagged, and with it, its trade prowess and its appeal as a destination for investment. Isolation from the world was a major cause to worsening the great depression during the 1930s. International trade and investment have historically been major drivers of productivity, employment, and innovation, and declining US engagement with the world today is a major contributor to the malaise that afflicts the economy. And that is the good news from an impressively detailed and troubling new report from the US Council on Foreign Relations.
"America," the report concludes, "risks being left a bystander as the rest of the world integrates further."
The government controls and regulations stifling the American way of life seems never ending. Recently two American senators with access to top-secret intelligence raised the alarm that the invasion of law-abiding Americans’ privacy is being carried out clandestinely, and that people would be shocked if they knew the extent. And asset seizures totaling $2.5 billion annually against innocent people never charged with a crime worsens as state and federal police agencies search for alternative sources of income.....just ask New York businessman James Lieto, an innocent bystander after federal agents seized $392,000 from his business. Or ask the Fiddlesticks cartoonist that was targeted by the Washington police and District Attorney after mocking them in an animated cartoon, and then took action to throw him into jail.
And surprise, surprise, Obama wants to solve what ails the US by implementing $1.6 billion in new taxes.
Obama insists that it’s not class warfare, but what else should it be called? He overlooks the fact that over 50% of Americans don’t pay taxes, and the top wage earners carry the burden of approximately 90% of all taxes already. And that the new tax would be a problem to implement because many middle-income wage earners benefit from the same tax breaks as high-income earners.
As the majority of the over-bloated Western welfare states - America and across Europe - struggle to hold their societies together, the answer always seems to lie with governments demanding and getting more power. Look at the miserably functioning EU and how those bureaucrats argue more power is the answer to fixing a system built to fail. The same is happening in the US where failed Keynesian policies, increased government regulations, and more control swiftly dictates every aspect of your life - and your assets.
Instead of allowing economic and cultural systems to correct themselves through natural cycles, more regulation and bigger government is recruited to correct the imbalances of the nanny state….the very failings government social policies created in the first place. And yet few realize that that the failed policies of government interference were the very seeds that created the excesses and overburdens that is bringing the system down today.
Is there now any doubt that the watch towers – like in Pompeii – are turned inward to control those inside? America would be a Greek comedy, if it weren’t such a tragedy.
Now, more than ever before, the threat to social stability - and your assets - comes from within.
What can you do?
History Has a Familiar Ring
First, remember that history teaches us that most threats to great civilizations have always been within, rather than between other civilizations. Instability often stems from the changing fortunes of the working and middle classes. Those that become indebted and enslaved to the system become the greatest threat.
For proof you need look no further than the catalysts for the Arab Spring and swift downfall of ineffective leaders across the Middle East. Desperate people are willing to take desperate measures. When there is not much to lose, what is the risk?
Frederick Van Hayek’s book, The Road to Serfdom, was based upon his university thesis he first wrote in the early 1930s. He argued that the government social policies would ultimately lead to heavy-handed government, loss of freedoms, and evidentially servitude. Few see the resemblance today to the early 1930s.
The 1929 market collapse followed real estate and stock market bubbles, followed by calls for government intervention and market regulation. Not only did these policies make matters worse in the 1930s, but it lead to heavy-handed social policies and tyrants like Franco, Hitler, Stalin, and Mussolini. Socialism is a failed policy, even Socialism USA Style. Why are policy makers trying to reinvent failed social systems when history teaches us it leads to our demise? Are we destined to repeat the 1930s and 1940s?
Everywhere you look, you see destruction…..job cuts, companies going bust, and governments desperately borrowing, printing money, and begging from other countries. Things look bad. And if we're honest....it is bad.
But where there’s gloom, there's also opportunities if we allow things to take their natural course.
There is Light at the End of the Tunnel
Next, understand that progress arises from destruction. Chaos is natural.
The above may sound strange, but it's true. Throughout history improvements to human life have come as a result of destruction. We're talking about normal people thinking like entrepreneurs and coming up with new ideas, products and services that replace existing ways of doing things. From the seeds of destruction come fruits of great things.
It’s called creative destruction, and it describes the way in which economic development arises out of the destruction of some prior economic order. The term was first coined by Austrian economist Joseph Schumpeter in 1942, and creative destruction occurs when something new replaces something old. A great recent example is personal computers. The industry, led by Microsoft and Intel, destroyed many mainframe computer companies, but in doing so, entrepreneurs created some of the most important inventions of this century.
Another way of looking at creative destruction is through Chaos Theory.
‘Chaos’ is simply another term for our inability to deal with the greater magnitude of the natural order of things. In simple terms, chaos means that our limited minds aren’t always smart enough to understand how everything works naturally. Chaos and creative destruction are not really disorder, but nothing more than our mind’s inability to understand the natural order, which appears to our limited mental capacity to be random and unnatural. Creative destruction and chaos are an important part of the natural order of economics.
No doubt the destruction of national economies in Europe is painful. The destruction of the American system is equally painful. But the upside is that it can purge the system of welfare dependency, excessive regulation, poor government systems and policies, and can ultimately result in smaller, more efficient governments and freer economic markets. That is the theory – and history has proven it to be true – when allowed to take its natural course. The sooner we can get rid of the cancer that hinders the natural progression, the sooner we can get on with business.
Unfortunately, it takes time, and things could get a lot uglier before they get better.
Avoiding Financial Ruin in the Haze
Finally, what does all this have to do with asset protection and international trusts?
Plenty. And if you miss the connection, you’re already behind the 8 Ball.
Asset protection planning is about taking steps in advance to protect your assets and your future – property, savings, investments, stocks, businesses, retirement, family and inheritances, freedom of choice, and more – against unknown threats that could materialize from any direction. If you are already presented with a threat, then it’s probably too late, except for damage control.
Threats come from all directions, particularly where you least expect them.
From frivolous litigation, disgruntled business partners, family, your government, new regulations and unexpected laws, struggling economies, disabilities, death, and almost everywhere you look. Planning in advance against unexpected threats takes on a fresh meaning when we look around us at the events in the world today. History is a great teacher of how things can – and do - quickly change. Don't sit idly by and think it won’t happen to you.
International trusts are great planning tools - when implemented correctly - to fit your personal objectives. They can work at home, and across the globe. Asset types, values, retirement needs, estate planning, offshore financial diversification, international living and investing, and more, are only a few of the objectives of the clients we work with daily.
Maintaining control is always at the top of the agenda.
The planning tips on our site are a good start. The complimentary Past Articles also offer useful ideas. The books How to Legally Protect Your Assets, 2nd edition, and Offshore Living & Investing found on our site are two excellent ways to learn more.
And if you think you would like to discuss your personal situation in strictest confidence and learn how you can better your situation, drop me an email and we can discuss how an initial review might help in reaching your objectives.
But whatever you do, don’t mirror the inaction of your government and sit idly by doing nothing.
Until next time…..
David A Tanzer, Esq.
JD, BSc, Ph.D (Hon)
David A Tanzer & Assoc., PC.
Vail, CO USA:
Tel. (970) 476-6100
Fax (720) 293-2272
Auckland, New Zealand:
Tel. (64) 9 353-1328
Fax (64) 9 353-1328
Tel. (61) 7 3319 6999
Fax (61) 7 3319 6999
(Licensed to Practice Law in U.S. States & Federal Courts;
Assoc. Member Auckland, N.Z. District Law Society - Foreign Lawyer; & Assoc. Member Queensland Law Society, AU - Foreign Lawyer)
The comments herein are not intended to constitute a legal or tax opinion regarding any specific legal or tax issue as additional issues may exist; does not reach a conclusion with respect to any specific legal or tax issue addressed herein or any additional issues not included; and cannot be used for the purpose of avoiding legal or tax obligations or penalties with respect to issues in or outside the scope of matters discussed herein.
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