Being a sovereign man is not just about diversifying and internationalizing your assets across national borders.

It’s as much about your mindset and the way you view the world and the events that are happening around you.

Your worldview is heavily dependent on the knowledge and ideas that you are exposed to, but as demonstrated some people don’t want to learn, neither from books nor from history.

Take Ben Bernanke for example.

Is it surprising that the economy is on the brink of collapse when he and so called leading economists have based their whole worldview on faulty Keynesian economic theories?

The consequences might be surprising to them, but not to us, because we know better. We’ve learned from history.

Albert Einstein said, that “any man who reads too much and uses his own brain too little falls into lazy habits of thinking,” but to make the best use of your brain it helps first having an accurate understanding of reality, and of where the world is heading.

So to that end, here are some books to get you started:

The Road to Serfdom
by Friedrich A. Hayek

The Godfather of the Austrian School of economics, Hayek explains the vitality and necessity of economic freedom better than anything else I’ve read.

Read/Download for free at the Mises Institute

Atlas Shrugged
by Ayn Rand

This book teaches you the basic principles of reward being in proportion to the value you add to other people’s lives. It also helps you to step out of the victim frame and start to realize that nobody else owes you a goddamn thing and you have to build/contribute something that other people want before you have a claim to anything.

Anatomy of the State
by Murray N. Rothbard

You might have heard me mention the concept of reducing your sovereign risk before, i.e. not trusting any one government with your money or your safety. When you diversify to protect yourself against the state, it helps first knowing the true nature of the state. This book will help you with that.

The state is not the same as society, and the state is certainly not “we.” As the book description says, Murray shows “how the state wrecks freedom, destroys civilization, and threatens all lives and property and social well being.”

Read/Download for free at the Mises Institute

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Reporting From Sovereign Valley Farm, Chile

To anyone paying attention, reality is now painfully obvious. These bankrupt, insolvent governments have just about run out of fingers to plug the dikes. And history shows that, once this happens, governments fall back on a very limited playbook:

1. Direct confiscationAs Cyprus showed us, bankrupt governments are quite happy to plunder people’s bank accounts, especially if it’s a wealthy minority.Aside from bank levies, though, this also includes things like seizing retirement accounts (Argentina), increases in civil asset forfeiture (United States), and gold criminalization.
2. TaxesJust another form of confiscation, taxation plunders the hard work and talent of the citizenry. But thanks to decades of brainwashing, it’s more socially acceptable. We’ve come to regard taxes as a ‘necessary evil,’ not realizing that the country existed for decades, even centuries, without an income tax.Yet when bankrupt governments get desperate enough, they begin imposing new taxes… primarily WEALTH taxes (Argentina) or windfall profits taxes (United States in the 1970s).
3. Inflation

This is indirect confiscation – the slow, gradual plundering of people’s savings. Again, governments have been quite successful at inculcating a belief that inflation is also a necessary evil. They’re also adept at fooling people with phony inflation statistics.

4. Capital ControlsGovernments can, do, and will restrict the free-flow of capital across borders. They’ll prevent you from moving your own money to a safer jurisdiction, forcing you to keep your hard earned savings at home where it can be plundered and devalued.We’re seeing this everywhere in the developed world… from withdrawal limits in Europe to cash-sniffing dogs at border checkpoints. And it certainly doesn’t help when everyone from the IMF to Nobel laureate Paul Krugman argue in favor of Capital Controls.

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Reporting From Santiago, Chile

The Dow Jones Industrial Average, one of the key benchmarks of the US stock market, has soundly surpassed its all-time high. And most of the investing world is toasting their collective success and celebrating the recovery.

It’s a funny thing, really. Most investors only think in terms of ‘nominal’ numbers, i.e. Dow 14,000+ is 40% higher than Dow 10,000 (back in November 2009). But few think in terms of ‘real’ numbers… inflation-adjusted averages.

Everyone knows that inflation exists. We can all look back on prices from the past and realize instantly how much more expensive things have become. Conversely, though, most people don’t think about the stock market like this.

The reality is, though, that when you adjust for inflation, the Dow is well below its highs from over a decade ago.

I thought I’d put this into a bit of perspective.

Take beef, for example. Based on USDA retail price data, today the Dow will buy you 3,332 pounds of beef in the supermarket. This sounds like a lot. But it’s actually about 20% less than the 4,046 pounds of beef the Dow would buy back in December 1999.

And if beef’s not your thing, let’s look at fruit. Based on the wholesale price of bananas, the Dow currently buys you a whopping 15.35 tons of the tropical fruit.

But this is exactly the same amount of bananas the Dow would buy back in February 2008, when the Dow was just 12,266. And it’s a massive 60% drop from June 1999 when the Dow bought 38.51 tons of bananas.

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Recently by Simon Black: In Case You Trip Over YourShoelaces…

Singapore

I never thought I’d see the day. Two years since the HIRE Act, FATCA, and Dodd-Frank became law and threw global finance into a tailspin, two foreign banks have finally stood up to Uncle Sam. Let’s review briefly.

The HIRE Act was originally drafted in the early days of the post-Lehman crisis. Official unemployment (before they just stopped counting people) was the highest in decades, and politicians had to ‘do something’ to get the economy moving.

Of course, what better way to boost the economy than to pass more laws? It’s genius!

HIRE ended up being a bunch of bizarre tax rules and pet infrastructure projects… the usual stuff. Of course, they have to pretend to pay for all of this. So they invented FATCA, which stands for ‘Foreign Account Tax Compliance Act’.

In short, FATCA requires-

(1) All US taxpayers must annually disclose foreign financial accounts to the IRS if the values exceed a particular threshold (starting at $50,000). This requirement began last year.

(2) All foreign banks must enter into a blanket information sharing agreement with the IRS. If they don’t, the banks are subject to a 30% withholding penalty on US-sourced funds.

Then there’s the Dodd-Frank legislation… over 2,000 pages of unmitigated economic destruction which makes it tremendously difficult for foreigners to do business in the United States, or with US citizens.

The rules which were proposed in Dodd-Frank are so obtusely complicated, nobody can begin to understand them. Even the agencies which are responsible for implementing Dodd-Frank have continually missed their own deadlines because they don’t understand the law.

Bottom line, it’s more reporting, more registration, more paperwork, more hassle.

Understandably, foreign banks have been in turmoil over the last two years as a result of all this legislation. Nobody wants to crawl in bed with the US government, and some banks have taken action by shuttering US citizens’ accounts. Americans are even being dumped from foreign corporate boards.

Yet just yesterday, DBS Bank in Singapore stood up to the US government, indicating that they would not be registering with US authorities for at least for one Dodd Frank provision pertaining to swaps. Nordea Bank in Sweden made a similar statement.

This is an interesting turn of events which could evidence a bigger trend.

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Recently by Simon Black: Let's Talk About Facts, Not Fear

Pattaya, Thailand

I’m one of those idiots who pays into a health insurance plan month after month, year after year, and never goes to the doctor.

In fact, I’ve had my current plan for years without ever filing a claim. The only reason to have it is the unlikely event that I trip over my shoelace while visiting the US and end up with a $200,000 emergency room bill.

Everywhere else, insurance isn’t necessary; the price of healthcare in most places is reasonable enough to pay cash.

Perhaps nowhere is this more true than in Thailand… home to one of the most advanced, highest quality, and cheapest private healthcare systems on the planet.

Every time I’m here, I visit a hospital just to try things out; my experiences have always been stellar. And speedy.

Just yesterday I dropped in (without an appointment) to Bangkok Hospital’s Pattaya branch to check my cholesterol. There was zero paperwork upon check-in… no stupid forms, no clipboards. And I went straight to the back. No waiting around.

Afterwards, one of the staff physicians came over to chat. His English was perfect, and it seemed as if I was his only patient of the day.

That’s perhaps one of the most important points about healthcare here – the staff/patient ratio is astoundingly high, so you get a tremendous amount of personal attention.

The whole experience is also very private. I use an assumed name at the hospital. I’ve never given them any ID. And obviously there’s no insurance company or government agency demanding my records.

The biggest benefit, though, is cost. Or lack thereof. The amount I paid for my visit yesterday wouldn’t buy a beer in some countries. And the sticker shock applies universally to all tests and procedures, from imaging to chemotherapy to fertility treatments to elective surgery.

The physicians here are excellent. But for those who can’t get over the idea of a foreign doctor, one approach is hiring a specialist in your home country to consult and be the ‘quarterback’ of your care. You get all the expensive tests, imaging, and labs done in Thailand, then send the results back home.

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Recently by Simon Black: Is the IMF Now Recommending CapitalControls…?

Let’s step away from the noise for a moment and look at the big picture. This isn’t about doom and gloom, or fear, but objective facts.

Undoubtedly, the Western hierarchy dominated by the United States is in a completely unsustainable situation. Across the West, national governments have obligations they simply cannot meet – both to their citizens and their creditors.

In the UK, national government borrowing is already 22% higher than at this same point last year, a record year for borrowing. Meanwhile, the UK’s budget deficit for August hit a record high.

In France, the new government of Francois Hollande passed a ‘historic’ and ‘austere’ budget that is still posting a deficit of 3% of GDP. That’s including a 75% tax on incomes exceeding one million euros.

In Japan, the government is mulling legislation that will fund 40% of the budget with ‘deficit-financing’ bonds.

In the United States, the government recently hit $16 trillion in debt about six weeks ago, after reaching the $15 trillion mark last November. It took 200 years to accumulate the first trillion in debt and 286 days to accumulate the most recent trillion.

Each of these countries has a debt level that exceeds 90% of GDP– the historic point of no return. More importantly, each of these countries also has to borrow money simply to pay interest on money they’ve already borrowed.

This is important because it makes the problems multiple. At the beginning of the 1780s, the French monarchy was spending around 30% of tax revenue to service its debt. Eight years later when the revolution began, they were spending 62%.

The next 26-years in France were filled with internal civil war, external war with Austria and Prussia, hyperinflation, crime, social unrest, and Robespierre’s genocidal dictatorship.

In the 19th century, the Ottoman Empire faced an even steeper financial decline. In just 11-years, the Ottoman central government went from spending 17% of its tax revenue on interest payments to spending over 52% of its tax revenue on interest payments. Then came default, in just eleven years.

In the US, debt service is also rising. According to the Government Accountability Office’s figures, the US government was spending 9% of revenue to service the debt in 2002. Throughout most of the last decade, in fact, the US government spent roughly 9% of its tax revenue on debt service.

But in 2009, the figure hit 9.75%, then 10.5% in 2010, then 11.5% in 2011. For the fiscal year that just closed on September 30, the Bureau of Public Debt reported cumulative interest expense of $375.8 billion on income of $2.45 trillion. This is a rate of 15.3%. See the trend?

But it’s not just debt burdens that are problematic. ‘Rich’ countries in the West are also rapidly debasing their currencies, spawning tomes of regulatory impediments, restricting the freedoms of their citizens, aggressively expanding the powers of the state, and engaging in absurd military folly from Libya to the South China Sea.

Once again, this is not the first time history has seen such conditions. In our own lifetimes, we’ve seen the collapse of the Soviet Empire, the tragi-comical hyperinflation in Zimbabwe, and the unraveling of Argentina’s millennial crisis. Plus we can study what happened when empires from the past collapsed.

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Recently by Simon Black: Why Is the US Government Planning for ‘MassFatalities’?

It takes all of three seconds on the ground in Spain to realize that this country is hurting. Big time.

I was just here three months ago, eight or nine months before that. Each time it seems worse – more strikes, more homeless, more unemployed, more unrest, more storefront vacancies. It’s amazing what the combination of debt, deceit, and a bona fide banking collapse can do to a nation.

In a most intellectually disingenuous statement, European leaders recently announced that Spain is A-OK and would not require a bailout. I suppose it’s true to a degree. Spain doesn’t really need a bailout. More like an exorcism. Or at least last rites.

After all the debt, austerity, government collapse, riots, etc., there’s a new crisis du jour here: the banking system. Individuals, businesses, and institutions are all predicting a breakup of the eurozone, and nobody wants to have cash in this country on the day they introduce a new currency (and then immediately proceed to devalue it.)

Consequently, depositors are moving money out of the country en masse, often to the tiny principality of Andorra next door – a highly capitalized, low tax banking jurisdiction. This leaves the already thinly-capitalized Spanish banks in an even weaker position.

As you probably know, the way the banking system works in most of the world is a complete fraud. Most banks only hold a tiny percentage of their customers’ deposits in cash. The rest is ‘invested’ (gambled) or loaned to a bankrupt government.

This is a high-risk model that only works well when people have tremendous confidence in the system. The moment there are more than a handful of depositors wanting their money back, the bank has a big problem.

This is happening nationwide in Spain, so the entire banking system has a problem. Nearly every bank here is technically insolvent… and yet they have droves of customers trying to withdraw funds that aren’t there.

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You just can’t make this stuff up.

Late last week, a bill HR 6566 was introduced on the floor of the US House of Representatives. I couldn’t believe my eyes when I read it.

The bill is entitled the “Mass Fatality Planning and Religious Considerations Act,” and its stated purpose is “[to] amend the Homeland Security Act of 2002 to require the Administrator of the Federal Emergency Management Agency to provide guidance and coordination for mass fatality planning…”

Hmmmm. Homeland Security. FEMA. Sounds like a fun party.

The bill was introduced a week ago, but it took the US Government Printing Office until this morning to actually make the text available to the public.

It turns out that my weeklong wait was for nothing. The bill itself is just a handful of paragraphs that merely reiterates the title… that the cracker jack team over at FEMA should be prepared to respond to mass fatalities in the United States, and to account for religious burial differences.

This is just one of those things that makes the stomach turn: the people who brought us the National Defense Authorization Act (authorizing the detention of US citizens on US soil) now deem it prudent to prepare for mass fatalities on US soil… Moreover, they’re outsourcing it to one of the most failed government agencies in history.

FEMA, as you may recall, is the same organization that couldn’t get bottles of water delivered to New Orleans after Hurricane Katrina… and held up hundreds of seasoned volunteer emergency service workers from entering the city for several days of mandatory sexual harassment training.

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“Corruptissima republica plurimae leges. [The more numerous the laws, the more corrupt the state.]” ~ Tacitus, the Annals ca. AD 69

The nature of what is “legal” has become a truly bizarre concept these days. Developed nations of the west have hundreds of thousands of pages of rules, codes, regulations, laws, decrees, executive orders, etc., many of which are contradictory, archaic, and incomprehensible.

Across these “free” nations, the law is selectively enforced, selectively applied, and completely set aside whenever it pleases the state. As such, even the most harmless of activities (operating a lemonade stand, collecting rainwater, etc.) can be cast as illegal… while the direct theft of people’s wealth through taxes and manipulation of the currency is considered legal.

There is no morality anymore in the law. And even still, whatever few activities may still be considered “legal” are subject to consequences if the enforcers simply decide they don’t like it.

I have a good friend you might like to hear from on the subject; his name is Jake Lawless (an assumed pen name for reasons which will become obvious), and he is a bit of a master when it comes to skirting the line between what’s legal, and what they just don’t like.

In Jake’s words:

I’m a beneficiary of mortgage brokers who believed that housing prices would rise forever. The US real estate crash, plus high gas prices, forced a lot of people to sell their luxury vehicles… and the sudden glut caused prices to fall dramatically.

I didn’t think much about the market for pre-owned luxury cars until one day an engine fire from a cracked turbo manifold in my truck left me stranded. After a day’s search, I found a beautiful car for sale in Nevada, and the asking price was a fraction of the pre-crash peak.

I then contacted the dealer, wired a $500 deposit, and bought a ticket to Las Vegas… all after explaining that I wanted to purchase the vehicle with pre-1965 US quarters.

You may know that, before 1965, many US coins had a very high silver content. As such, they had intrinsic value… real worth, completely independent of “faith” or “because we decree it thus.”

I put roughly 4,000 of these quarters (~$1000 of face value) in a carry-on bag and headed to the airport. The quick math is this – 4,000 pre-1965 quarters contains 715 ounces of silver. At the time, silver was about $35/ounce, so 715 ounces was worth $25,000. In other words, every single quarter had a silver content worth about $6.25.

At the airport, I played my part in security theatre, dutifully removing my shoes after heaving my luggage onto the conveyor. There was a flurry of activity on other side of the x-ray machine. A crack TSA operative stormed up, indignant. “WHOA sir…I have to inspect your luggage.”

Mind you, there is no law against transporting 54 pounds (24.5 kg) of quarters onto an airplane, but that didn’t seem to matter. He just didn’t like it. The TSA guy opened my luggage to find a ziptied cloth bag labelled “$1000?”

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Recently by Simon Black: Another Example of Why Central Planning Is a BadIdea…

They call it “The Most Serene Republic of San Marino”. That’s actually the official name. And with good reason… because it’s easily one of the most ideal places on the planet to be.

Perched atop limestone cliffs overlooking the Adriatic coastline, San Marino is the oldest surviving sovereign state in the world. It was founded in 301 by a Christian stoneworker from Dalmatia (modern-day Croatia) who was fleeing persecution under Diocletian.

The country remains to this day, in many ways, the same bastion of political and economic refuge that it was nearly 2,000 years ago.

Tax rates are comparatively low. Regulation is limited. The government is tiny. San Marino has a long history of budget surpluses and zero debt.

It is no coincidence that this diminutive nation boasts among the highest per-capita GDP, greatest wealth, lowest unemployment, and highest life expectancy in the world.

To boot, San Marino is also gorgeous, safe, clean, friendly, and shockingly inexpensive. The weather is near-perfect with plentiful Mediterranean sunshine, yet you’re an easy drive to the Italian Alps.

It’s also a place where you feel very free. You don’t see legions of jackbooted thugs wandering around town toting automatic weapons at the ready. There are no agents of the government shutting down lemonade stands, fondling travelers, wiretapping phone calls, conducting UAV reconnaissance of citizens, etc.

In San Marino, people peacefully coexist in a beautiful, quintessentially Italian setting. Everyone is expected to act like a grownup and be responsible for themselves without the state intervening.

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Recently by Simon Black: Why Dost Thou Whet Thy Knife SoEarnestly?

Oxford, England – I’ve noticed something strange over the past few weeks, maybe you have too. It seems that every ‘contrarian’ website out there has joined together to collectively bash the Olympics and anyone who tunes in to watch.

This seems nuts. Nobody should feel guilty for wanting to see athletes in peak condition push the boundaries of human performance. I certainly don’t feel guilty about it. In fact I came to the UK several days ago specifically to catch some of the Olympics live.

Unfortunately it turned out to be much more difficult than I had expected.

As it turns out, the British government has centrally planned Olympic ticket issuance in a way that’s so remarkably inefficient it would make Karl Marx look like Steve Jobs.

There’s only one way to buy London Olympic tickets – through the ’official’ office that’s controlled by the government. They’ve even solidified their monopoly by making it a CRIMINAL OFFENSE for individuals to resell Olympic tickets.

The concierge at my hotel, an affable Italian named Paulo, explained to me that the police even came around to warn (i.e. threaten) him against helping hotel guests find tickets.

Paulo directed me to the government’s official website so I could buy tickets the legal way. I quickly found out how Byzantine it is – there are all sorts of ridiculous hoops to jump through; if you’re a resident of the UK, you follow one procedure. If you’re a resident of the EU, you follow another. If you’re a resident of other countries, you follow yet another.

Then after creating an online profile and giving them all sorts of personal information, they’ll actually MAIL (i.e. snail mail) the physical tickets to the address you give them in your profile… and only to the address of your legal residency. It doesn’t matter if you’re traveling.

The alternative is that you could spend a couple of hours going to one of the ticket offices, all of which seem to have been strategically chosen for being in the most inconvenient locations possible.

Even if you can get through that maze, they’ve really screwed up their inventory management. Nobody seems to have any idea what tickets are available at any given time. An event may be ‘sold out’ at 10am, then have hundreds of seats available by noon.

The government’s central planning of Olympic ticketing has been a complete failure, perhaps best evidenced by the THOUSANDS of empty seats at many of the events.

Another example of why central planning is a bad idea…

Annoyed beyond belief, I asked the concierge at my hotel if there were any alternatives. He said, ‘maybe’, told me to write down my phone number, and wait.

Within a few minutes, my phone started ringing off the hook with calls from ticket brokers; since the government made it illegal for these guys to sell tickets, they’ve been pushed into dodgy underground boiler rooms for the past two weeks as if they’re Prohibition-era bootleggers trying to move a shipment of hooch.

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Oxford, England – Oxford is about an hour west of London by train, and if you’ve never been, I highly recommend it. On a per-capita basis, it’s one of the most cultured cities in the world, right up there with Vienna, London, New York, Paris, San Francisco, Chicago, Budapest, and Austin.

Walking down Cornmarket Street on a beautiful summer day, it’s common to pass opera singers and concert pianists plying their trade for crowds of tourists (which have become increasingly Chinese over the past few summers…)

Yesterday evening I attended an outstanding performance of Shakespeare’s Merchant of Venice; if you’re unfamiliar with the play, the story is about a young Venetian nobleman named Bassanio who needs 3,000 gold ducats to woo a beautiful heiress. Having squandered his wealth, Bassanio approaches his friend Antonio for a loan.

Antonio is cash poor but asset rich, so he arranges to borrow the sum that his friend requires from a local Shylock. The Shylock agrees on the condition that he collects a pound of Antonio’s flesh in the event of default.

Needless to say, Antonio’s fortunes turn for the worst and he defaults on the debt owed – 3,000 ducats. The play climaxes with a court scene in which the Shylock seeks to enforce his bond and collect the pound of flesh from Antonio. (“Why dost thou whet thy knife so earnestly?”)

Why dost thou whet thy knife so earnestly?

In the middle of the performance, I got curious about the sum. How much is 3,000 ducats in today’s money? A quick check on my phone gave me the answer.

A ducat’s weight is roughly 3.5 grams, or .11 troy ounces of gold weight… so 3,000 ducats is roughly $530,000 at today’s gold price.

In the context of the play, this amount makes sense; in other words, if one were to write an updated version of the play to today’s standards, substituting half a million dollars for 3,000 ducats would definitely fit the plot.

It’s an interesting example of how well gold has held its value; the play is over 400 years old, written decades before the first colonists arrived to the New World, and centuries before the introduction of the US dollar.

During this time, the gold ducat coin was an internationally accepted medium of exchange, widely used in trade across Europe, the colonies, and the Ottoman Empire until the early 20th century.

The ducat began circulating in earnest in the late 1200s, so the coin’s status as a global reserve standard lasted nearly three-quarters of a millennium… a remarkable track record! Before the ducat, the Byzantine solidus gold coin held that status for the previous 800-years.

The reason for such unparalleled longevity is simple – throughout the centuries, these coins maintained their gold weight, and hence the purchasing power for those who held them. When governments began playing games and debasing the coins, they were quickly dropped as an international standard.

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Last Friday, US Congressman Dennis Kucinich introduced HR 6357, a bill which aims to ‘prohibit the extrajudicial killing of United States citizens’ by the federal government. In other words, in the Land of the Free, they need to pass a law to prevent the government from indiscriminately murdering its own citizens.

Now if this doesn’t give one reason to pause and consider the distortions of liberty that have taken place in western civilization, I don’t know what will. Think about it:

Does a free society send government hit men to eliminate anyone they perceive to be an enemy of the state?

Does a free society have hundreds of police agencies, each with the authority to deprive a man of his life, liberty and property in their sole discretion?

Does a free society have hundreds of thousands of laws, codes, rules, regulations, and policies which effectively criminalize nearly every aspect of one’s existence?

Does a free society lead the world in prison population?

Does a free society hunt down criminals and terrorists by treating its citizens like criminals and terrorists?

Does a free society tell its citizens what foods they are / are not allowed to consume?

Does a free society steal your money at gunpoint to buy bombs that they drop by remote control on brown people in faraway lands?

Does a free society debase its currency and plunder the purchasing power of its citizens?

Does a free society saddle unborn generations with obligations they never signed up to bear?

Does a free society award near total control of the economy, the money supply, and everything tied to it, to a tiny elite few?

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High up above Scandinavia about 75 degrees north latitude is an obscure archipelago that few people in the world know about, and even fewer have been to.

It’s called Svalbard, population ~3,000. And while the islands are technically part of Norway, they come with some incredibly unique benefits that I’ll explain in a moment.

For centuries, Svalbard was completely lawless, devoid of any government authority. It attracted whalers, hunters, merchants, and fishermen from all over the world– the UK, Russia, France, Netherlands, North America, and Scandinavia.

Amazingly enough, they were all able to co-exist for hundreds of years without a sovereign authority or central government telling them what to do or how they could live.

Of course, it all got screwed up eventually. In time as word got out about Svalbard, a number of countries tried to claim the islands. Peace turned to conflict very quickly.

Various nations began sending their navies to fight other navies. It was absurd. When they discovered substantial coal deposits, even more conflict ensued.

Svalbard’s fate was ultimately decided because of World War I. The utter devastation that was wracked across Europe led many war-weary politicians to consider a compromise.

Obviously the option of simply pulling out of Svalbard and letting the islands go back to being governmentless was off the table. So in 1920, a group of 14 nations got together and signed the Spitsbergen Treaty, effectively awarding Svalbard to Norway.

Over time, over forty nations (including the US, Canada, Japan, Australia, New Zealand, India, and most of Europe) became party to the treaty, recognizing Norway’s authority over the territory.

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Exactly
three years ago, we launched this daily e-letter… and needless
to say, it’s been eventful.

It should be
clear by now that the topics we routinely discuss in our daily conversations
are actually happening:

• The grand
  fiat experiment is unraveling.
• Governments
  are, in fact, going bankrupt.
• And they’re
  turning the heat up against their own citizens in a desperate
  attempt to maintain the status quo.

Here in Europe,
bank runs are becoming commonplace, and depositors are being frozen
out of their accounts without warning. Politicians in many countries
have seized private pensions and are once again touting capital
controls as the panacea.

Meanwhile,
privacy continues to be stomped out in the worst possible way. Western
governments have made coordinated assaults on everything ranging
from banking privacy to Internet usage. It never stops.

To boot, Google
just reported an alarming increase in government requests to block,
censor, or obtain user data; this year’s requests are on course
to quadruple last year’s 3.3 million requests.

And then there’s
the printing… the endless expansion of sovereign debt and silly
pieces of paper that are being passed off as money by handful of
morally bankrupt individuals who control the whole game.

These politicians
and bureaucrats still haven’t figured out that nations don’t
become wealthy by printing paper currency… or by raising taxes,
or through big entitlement programs, or by going into debt.

Going into
debt and consuming does not create wealth. It temporarily creates
the illusion of wealth… until the house of cards collapses.

Just like individuals,
nations become wealthy by being productive and saving.

None of
this is rocket science. And yet, the guys controlling the system
don’t seem to get it. They’re doing all the wrong things,
worrying much more about their own electability rather than getting
the hell out of the way.

In Europe,
a lot of people have finally started waking up to this reality;
they at least understand that they’re dealing with serious
problems that aren’t going away.

In the United
States, I’m not so sure.

I just spent
about a month on the ground in the US, and I came away with a feeling
of tremendous discomfort. Never before have I seen such a massive
disconnect between sentiment and reality.

Everywhere
I went – Dallas, Los Angeles, Reno/Lake Tahoe, Denver, New York,
and San Francisco, everything appeared to be fine. Shops and restaurants
were full, the mood was light, and people seemed fairly optimistic
that things were OK.

There was definitely
no air of doom and gloom like there is here in Europe.

And yet, the
real story in the US is disastrous:

• There has
  been no meaningful growth in years.
• The true
  rate of unemployment is a postwar record high.
• Foreclosures
  and bankruptcies are on the rise once again.
• The average
  American’s income and net worth are both much lower than
  4-years ago.
• The federal
  government is totally insolvent, as are most state and
  local governments.

The numbers
don’t lie. They have no sentiment, they don’t feel optimistic
or pessimistic. They just are what they are. And they’re terrible.

Read
the rest of the article

June
21, 2012

The
Best of Simon Black

There are consequences
to being flat broke.

There are consequences
to investing any level of confidence in a financial system underpinned
by debt and the creation of paper currency.

There are consequences
for ignoring reality and pretending that everything is normal.

This is one
of them: European officials yesterday flat out admitted that they
were discussing rolling out a series of harsh capital controls across
the continent, including bank withdrawal limits and closing down
Europe’s borderless Schengen area.

Some of these
measures have already been implemented sporadically; customers of
Italian bank BNI, for example, were all frozen out of their accounts
starting May 31st upon the recommendation and approval of Italy’s
bank regulator. No ATM withdrawls, no bill payments, nothing. Just
locked out overnight.

In Greece,
the government has taken to simply pulling funds directly out of
its citizens’ bank accounts; anyone suspected of being a tax
cheat (with a very loose interpretation in the sole discretion of
the government) is being releived of their funds without so much
as administrative notification.

It’s no
wonder why, according to the Greek daily paper Kathimerini,
over $125 million per day is fleeing the Greek banking system.

European political
leaders aim to put a tourniquet on this wound in the worst possible
way.

So what are
capital controls?

Simply, capital
controls are policies which restrict the free flow of capital into,
out of, through, and within a nation’s borders. They can take
a variety of forms, including:

• Setting
  a fixed amount for bank withdrawals, or suspending them altogether
• Forcing
  citizens or banks to hold government debt
• Curtailing
  or suspending international bank transfers
• Curtailing
  or suspending foreign exchange transactions
• Criminalizing
  the purchase and ownership of precious metals
• Fixing an
  official exchange rate and criminalizing market-based transactions

Establishing
capital controls is one of the worst forms of theft that a government
can impose. It traps people’s hard earned savings and their
future income within a nation’s borders.

Read
the rest of the article

June
14, 2012

The
Best of Simon Black

The big news
out of New York City these days is Mayor Mike Bloomberg’s proposed
ban on the sale of soda drinks over 16-ounces (about 1/2 liter)
at restaurants, movie theaters, sports stadia, street carts, fast
food chains, etc.

Bloomberg stressed
that we have a responsibility to combat obesity, diabetes, and heart
disease, and that the government must consequently regulate what
people can/cannot put in their bodies. Michelle Obama even came
down to applaud the idea.

Last night
I was out with a group of friends at a chic Soho restaurant called
the Dutch, and we started talking about the soda ban.

One of them
defended it, saying that ‘we’ have a responsibility to
do something about the obesity problem in this country.

“Excuse
me,” I asked, “but who exactly is ‘we’…?
I certainly didn’t come into this world born with a burden
prevent obesity. And I’m pretty sure nobody else signed up
for it either.”

‘We’
is one of the most dangerous words in the English language, particularly
when bandied about in Western representative democracy.

It’s a
term often used when a politician wants to thrust a burden or obligation
onto everyone else’s shoulders, but without being too direct
about it.

‘We’
masks responsibility by pushing the burden to some nebulous collective
like ‘society’ or ‘the country’ rather than
directly to individuals. This makes things much more palatable.

For example,
it’s easier to say “We have a responsibility” rather
than ”You three guys – Don, John, and Bill, have a responsibility.”

‘We’
is disarming. It makes the stakes seems smaller, so it’s easier
to achieve buy-in. And this is what makes it so dangerous…
because in actuality, ‘we’ is code for ‘you’.

I live my life
by the principle that human beings come into this world born free,
born without obligation to serve another human being, a government,
some political construct bounded by invisible lines… and certainly
not to ‘do something’ about the obesity problem.

Read
the rest of the article

June
7, 2012

The
Best of Simon Black

One of breakout
standup routines from the late, great George Carlin was his 1972
monologue “Seven Words You Can Never Say on Television.”
In the presence of polite company, I shall not repeat them…
but rest assured, the routine is still hilarious to this day.

I wish I could
say the same about the Department of Homeland Security… I wish
I could say this is all a big joke… that the government’s
“377 words you can never use online” is just some stupid
comedy routine.

But it’s
not. And you just can’t make this stuff.

After vigorous
resistance, the Department of Homeland Security was finally forced
into releasing it’s 2011 Analyst’s Desktop Binder. It’s
a manual of sorts, teaching all the storm troopers who monitor our
Internet activity all day which key words to look for.

Facebook, a.k.a.
the US government’s domestic intelligence center, is the primary
target for this monitoring… though it’s become clear so
many times before that various departments, including the NSA and
FBI, are monitoring online activity ranging from search terms to
emails.

Domestic spying
is typically denied in public and swept under the rug. After all,
it’s legality has always been questionable… if not entirely
Unconstitutional.

Yet month after
month it seems, there is new legislation introduced to deprive Internet
users of their privacy and make the open collection of data a natural
part of the online landscape.

Homeland Security’s
key word ‘hotlist’ is really no surprise… they’re
just the ones to get caught.

So now we know,
at least, what these goons are looking for. Sort of.

According to
the manual, DHS breaks down its monitoring into a whopping 14 categories
ranging from Health to Fire to Terrorism. It’s a testament
to how bloated the department’s scope has become.

Afterwards
there is a list of 377 of key terms to monitor, most of which are
completely innocuous. Exercise. Cloud. Leak. Sick. Organization.
Pork. Bridge. Smart. Tucson. Target. China. Social media.

Curiously,
in its ‘Critical Information Requirements’, the manual
decrees that analysts should also catalog items which may “reflect
adversely on DHS and response activities.”

Absolutely
unreal. Big Brother is not just watching. He’s digging, searching,
reading, monitoring, archiving, and judging too.

Have you hit
your breaking point yet?

= Complete
list of DHS monitoring keywords =

Department
of Homeland Security (DHS)
Federal Emergency Management Agency (FEMA)
Coast Guard (USCG)
Customs and Border Protection (CBP)
Border Patrol
Secret Service (USSS)
National Operations Center (NOC)
Homeland Defense
Immigration Customs Enforcement (ICE)
Agent
Task Force
Central Intelligence Agency (CIA)
Fusion Center
Drug Enforcement Agency (DEA)
Secure Border Initiative (SBI)
Federal Bureau of Investigation (FBI)
Alcohol Tobacco and Firearms (ATF)
U.S. Citizenship and Immigration Services (CIS)
Federal Air Marshal Service (FAMS)
Transportation Security Administration (TSA)
Air Marshal
Federal Aviation Administration (FAA)
National Guard
Red Cross
United Nations (UN)
Assassination
Attack
Domestic security
Drill
Exercise
Cops
Law enforcement
Authorities
Disaster assistance
Disaster management
DNDO (Domestic Nuclear Detection Office)
National preparedness
Mitigation
Prevention
Response
Recovery
Dirty bomb
Domestic nuclear detection
Emergency management
Emergency response
First responder
Homeland security
Maritime domain awareness (MDA)
National preparedness initiative
Militia Shooting
Shots fired
Evacuation
Deaths
Hostage
Explosion (explosive)
Police
Disaster medical assistance team (DMAT)
Organized crime
Gangs
National security
State of emergency
Security
Breach
Threat
Standoff
SWAT
Screening
Lockdown
Bomb (squad or threat)
Crash
Looting
Riot
Emergency
Landing
Pipe bomb
Incident
Facility
Hazmat
Nuclear
Chemical spill
Suspicious package/device
Toxic
National laboratory
Nuclear facility
Nuclear threat
Cloud
Plume
Radiation
Radioactive
Leak
Biological infection (or event)
Chemical
Chemical burn
Biological
Epidemic
Hazardous
Hazardous material incident
Industrial spill
Infection
Powder (white)
Gas
Spillover
Anthrax
Blister agent
Chemical agent
Exposure
Burn
Nerve agent
Ricin
Sarin
North Korea
Outbreak
Contamination
Exposure
Virus
Evacuation
Bacteria
Recall
Ebola
Food Poisoning
Foot and Mouth (FMD)
H5N1
Avian
Flu
Salmonella
Small Pox
Plague
Human to human
Human to Animal
Influenza
Center for Disease Control (CDC)
Drug Administration (FDA)
Public Health
Toxic Agro
Terror Tuberculosis (TB)
Agriculture
Listeria
Symptoms
Mutation
Resistant
Antiviral
Wave
Pandemic
Infection
Water/air borne
Sick
Swine
Pork
Strain
Quarantine
H1N1
Vaccine
Tamiflu
Norvo Virus
Epidemic
World Health Organization (WHO) (and components)
Viral Hemorrhagic Fever
E. Coli
Infrastructure security
Airport
CIKR (Critical Infrastructure & Key Resources)
AMTRAK
Collapse
Computer infrastructure
Communications infrastructure
Telecommunications
Critical infrastructure
National infrastructure
Metro
WMATA
Airplane (and derivatives)
Chemical fire
Subway
BART
MARTA
Port Authority
NBIC (National Biosurveillance Integration Center)
Transportation security
Grid
Power
Smart
Body scanner
Electric
Failure or outage
Black out
Brown out
Port
Dock
Bridge
Cancelled
Delays
Service disruption
Power lines
Drug cartel
Violence
Gang
Drug
Narcotics
Cocaine
Marijuana
Heroin
Border
Mexico
Cartel
Southwest
Juarez
Sinaloa
Tijuana
Torreon
Yuma
Tucson
Decapitated
U.S. Consulate
Consular
El Paso
Fort Hancock
San Diego
Ciudad Juarez
Nogales
Sonora
Colombia
Mara salvatrucha
MS13 or MS-13
Drug war
Mexican army
Methamphetamine
Cartel de Golfo
Gulf Cartel
La Familia
Reynosa
Nuevo Leon
Narcos
Narco banners (Spanish equivalents)
Los Zetas
Shootout
Execution
Gunfight
Trafficking
Kidnap
Calderon
Reyosa
Bust
Tamaulipas
Meth Lab
Drug trade
Illegal immigrants
Smuggling (smugglers)
Matamoros
Michoacana
Guzman
Arellano-Felix
Beltran-Leyva
Barrio Azteca
Artistic Assassins
Mexicles
New Federation
Terrorism
Al Qaeda (all spellings)
Terror
Attack
Iraq
Afghanistan
Iran
Pakistan
Agro
Environmental terrorist
Eco terrorism
Conventional weapon
Target
Weapons grade
Dirty bomb
Enriched
Nuclear
Chemical weapon
Biological weapon
Ammonium nitrate
Improvised explosive device
IED (Improvised Explosive Device)
Abu Sayyaf
Hamas
FARC (Armed Revolutionary Forces Colombia)
IRA (Irish Republican Army)
ETA (Euskadi ta Askatasuna)
Basque Separatists
Hezbollah
Tamil Tigers
PLF (Palestine Liberation Front)
PLO (Palestine Liberation Organization
Car bomb
Jihad
Taliban
Weapons cache
Suicide bomber
Suicide attack
Suspicious substance
AQAP (AL Qaeda Arabian Peninsula)
AQIM (Al Qaeda in the Islamic Maghreb)
TTP (Tehrik-i-Taliban Pakistan)
Yemen
Pirates
Extremism
Somalia
Nigeria
Radicals
Al-Shabaab
Home grown
Plot
Nationalist
Recruitment
Fundamentalism
Islamist
Emergency
Hurricane
Tornado
Twister
Tsunami
Earthquake
Tremor
Flood
Storm
Crest
Temblor
Extreme weather
Forest fire
Brush fire
Ice
Stranded/Stuck
Help
Hail
Wildfire
Tsunami Warning Center
Magnitude
Avalanche
Typhoon
Shelter-in-place
Disaster
Snow
Blizzard
Sleet
Mud slide or Mudslide
Erosion
Power outage
Brown out
Warning
Watch
Lightening
Aid
Relief
Closure
Interstate
Burst
Emergency Broadcast System
Cyber security
Botnet
DDOS (dedicated denial of service)
Denial of service
Malware
Virus
Trojan
Keylogger
Cyber Command
2600
Spammer
Phishing
Rootkit
Phreaking
Cain and abel
Brute forcing
Mysql injection
Cyber attack
Cyber terror
Hacker
China
Conficker
Worm
Scammers
Social media

The
Best of Simon Black

I had the privilege
of seeing Roger Waters perform “The Wall” to a live crowd
of over 40,000 fans at the LA Coliseum on Saturday night – the
second time I’ve seen the show on this tour.

It was an amazing
production – I wholeheartedly recommend the experience as it’s
something that no DVD or album recording could possibly reproduce.

At one point,
Waters paused his set and began telling the audience about Jean
Charles de Menezes, a 27-year-old Brazilian national who was shot
8 times by British police several years ago at a south London
tube station after being mistakenly identified as a terrorist.

The police,
adhering to the “shoot first, ask questions later” model
of peace enforcement, have never been held accountable for taking
the life of an innocent man at point blank range.

“If we
stand at the top of the slope and give our governments, and particularly
our police, too much power, it’s a very long and dangerous
slippery slope to the bottom,” Waters said.

The crowd went
berserk, roaring with approval.

It certainly
gives one hope that the message is sinking in; most folks, it seems,
have a conceptual understanding that governments are corrupt and
abusive… but at the end of the day, they’ll still fall
in line behind the political system.

An entire lifetime
of programming, starting practically at birth, reinforces that government
and police are the “good guys”. It’s a difficult
inclination to break.

The stories
that we all hear on an almost daily basis about corruption and abuse
of power are appalling indeed. But most people think that they’re
just aberrations in an otherwise good system… and that it’s
just not going to happen to them.

Until it does.

George Reby
is a great example. The New Jersey resident was driving on I-40
in Tennessee when he was stopped for speeding. The officer then
asked him if he was carrying large amounts of cash.

Reby said that
he had about $20,000, upon which the officer asked if he could search
the vehicle.

Reby consented,
saying later, “I certainly didn’t feel like I was doing
anything wrong…”

You can probably
tell where this is going… the officer promptly confiscated
the cash, claiming that it might be used for drug trafficking. Reby
explained that he was on his way to buy a car he’d found on
eBay (and even showed him the eBay ad), and showed that the source
of funds were legitimate.

It
didn’t matter. He had his money stolen in the most insidious
way…by a thuggish, criminal agent of the government (who was
sporting a rather menacing neck tattoo).

At least a
real criminal knows what he’s doing is wrong; he knows that
he’s committing an immoral act by shooting or robbing someone.
The police, on the other hand, think their actions are legitimate,
that they’re just “doing their job.”

This is intellectually
dishonest and morally reprehensible. Everyone involved, including
the officer himself, agreed that Reby committed no crime… that
it’s perfectly legal to carry cash.

Read
the rest of the article

The
Best of Simon Black

When most people
think of Brazil, it’s the incredible beaches that come to mind.
Or the crazy parties of Carnival. Or the spectacular vistas and
great weather. Or how indescribably gorgeous (and welcoming) the
locals are.

But here’s
a little known fact, and it’s something that sets Brazil apart
from most other places: Brazil’s constitution prohibits the
extradition of Brazilian citizens to other countries. This is a
rare gem in the world… I’ll explain.

Believe it
or not, most countries are happy to sell their citizens down the
river to another government. If you have been charged with a crime
in another country, or are even simply ‘wanted for questioning’,
your home government in all likelihood will comply with the request
to round you up and ship you off.

For example,
only 7% of all extradition requests that the US government made
to the British government between 1 January 2004 and 31 July 2009
were denied. The US government denied ZERO extradition requests
from the British government over the same period.

You may also
be familiar the ongoing case of Wikileaks’ founder Julian Assange,
who is wanted in Sweden for “questioning” related to bizarre
sex case.

The British
government approved Sweden’s extradition request, though Assange
has appealed the decision numerous times. He’s lost every appeal
so far, and in all likelihood he’ll be on a plane bound for
Sweden in the near future.

Assange is
an Australian citizen, and his government has completely abandoned
him.

You may also
remember the more recent case of Kim Dotcom, the German founder
of MegaUpload.com who was arrested in New Zealand as part of a US
operation to shut down his file-sharing site. Like Assange, the
German government has been silent.

Read
the rest of the article

The
Best of Simon Black

Jim Rogers
has famously commented that, if you were smart in the 18th century,
you moved to France. If you were smart in the 19th century, you
moved to England. If you were smart in the 20th century, you moved
to the US. And if you’re smart in the 21st century, you move
to Asia.

It’s an
absolutely true statement. Each time I’m in Asia, I’m
overwhelmed at not only the massive opportunity that abounds for
productive, creative, intelligent people, but also what a huge difference
there is in cultural sentiment.

From Singapore
(where I just departed last night) to Vietnam to Mongolia to the
Philippines, Asia is full of optimism and confidence, not doom and
gloom.

Money is no
object. I just cant find the right person.

The reason
is simple. Asian economies are based on production and savings.
Western economies are based on consumption and debt. The market
is simply reshuffling wealth, capital, and opportunity appropriately.

What’s
nice is that, like our ancestors before us who moved abroad in search
of a better life, anyone can choose to take advantage of this trend.

For someone
seeking employment, for example, Asia is full of prospects for both
workers and professionals. English teachers are in incredibly high
demand across the continent. Experienced professionals are routinely
awarded with handsome executive compensation, raking in huge salaries
from Abu Dhabi to Beijing.

Money is no
object. I just cant find the right person.

I had dinner
last night with a friend in Singapore who was telling me that he
would gladly pay a $1 million salary to the right person to manage
his successful business. As he told me, “Money is no object,
I just can’t find the right person.”

Aside from
employment prospects, unique investment opportunities abound. I
had a meeting with some private bankers in Singapore yesterday who
were telling me about a number of really fantastic options they
had available for clients.

Read
the rest of the article

The
Best of Simon Black

In the terminal
collapse of the Roman Empire, there was perhaps no greater burden
to the average citizen than the extreme taxes they were forced to
pay.

The tax ‘reforms’
of Emperor Diocletian in the 3rd century were so rigid and unwavering
that many people were driven to starvation and bankruptcy. The state
went so far as to chase around widows and children to collect taxes
owed.

By the 4th
century, the Roman economy and tax structure were so dismal that
many farmers abandoned their lands in order to receive public entitlements.

At this point,
the imperial government was spending the majority of the funds it
collected on either the military or public entitlements. For a time,
according to historian Joseph Tainter, “those who lived off
the treasury were more numerous than those paying into it.”

Sound familiar?

In the 5th
century, tax riots and all-out rebellion were commonplace in the
countryside among the few farmers who remained. The Roman government
routinely had to dispatch its legions to stamp out peasant tax revolts.

But this did
not stop their taxes from rising.

Valentinian
III, who remarked in 444 AD that new taxes on landowners and merchants
would be catastrophic, still imposed an additional 4% sales tax…
and further decreed that all transactions be conducted in the presence
of a tax collector.

Under such
a debilitating regime, both rich and poor wished dearly that the
barbarian hordes would deliver them from the burden of Roman taxation.

Zosimus, a
late 5th century writer, quipped that “as a result of this
exaction of taxes, city and countryside were full of laments and
complaints, and all… sought the help of the barbarians.”

Many Roman
peasants even fought alongside their invaders, as was the case when
Balkan miners defected to the Visigoths en masse in 378. Others
simply vacated the Empire altogether.

In his book
Decadent Societies, historian Robert Adams wrote, “[B]y the
fifth century, men were ready to abandon civilization itself in
order to escape the fearful load of taxes.”

Perhaps 1,000
years hence, future historians will be writing the same thing about
us. It’s not so far-fetched.

In the economic
decline of any civilization, political elites routinely call on
a very limited playbook: more debt, more regulation, more restriction
on freedoms, more debasement of the currency, more taxation, and
more insidious enforcement.

Read
the rest of the article

The
Best of Simon Black

After a long
trip up from Santiago and making stops in both Miami and Dallas,
I arrived to Vancouver last night a bit tired… but excited
for the the trip ahead. I’m leaving in just a few hours for
a 2 1/2 week, 11-country tour that includes Hong Kong, Singapore,
Laos, Malaysia, Thailand, and much more.

[By the way,
I highly recommend the new Fairmont Pacific Rim if you find yourself
in Vancouver.]

Aside from
getting a lot of business done and inking a few deals that my partners
and I have been working on, I’m excited to just be spending
time in the region again. I enjoy strong, vibrant economies where
optimism and opportunity dominate the scene – not chaos and
negativity.

There are a
lot of places around the world that fit this mold – their economies
are healthy and people are legitimately confident about the future.
From Estonia to Hong Kong to Andorra to Singapore, there are common
elements in these countries that have greatly contributed to their
success:

1) They’re
small.
2) They have governments that generally stay out of the way.

An obscure
20th century economist named Leopold Kohr wrote extensively about
these factors; my colleague Tim Price introduced me Kohr’s
writing last year, and his 1957 book The Breakdown of Nations has
proven quite prophetic.

In the book,
Kohr extols the virtues of ‘smallness’ and indicates that
most of the political challenges in the world – military over-extension,
debt, poverty, bureaucratic stodginess, etc. – are caused by
the unsustainable expansion of nations.

For Kohr, it
is simply a matter of scale. Once a country becomes too large, any
system of government will become oppressive.

Small countries,
conversely, don’t have the resources to wage wars or build
huge bureaucracies. They’re forced by circumstance to allow
the market to work and the private sector to flourish.

Read
the rest of the article

The
Best of Simon Black

If you’re
a US taxpayer, you’ll want to heed the following before
dropping off your 1040 this year.

You see, in
2010, Congress and President Obama passed a series of new rules
known as the Foreign Account Tax Compliance Act, or FATCA. FATCA
affects every US taxpayer who does anything overseas, as well as
every single financial institution on the planet. It may be the
most arrogant piece of legislation ever written.

Congress had
the audacity to pass a law regulating foreign banks on foreign soil.
It requires every ‘foreign financial institution’ on the
planet (though that term is very loosely defined…) to
enter into an information sharing agreement with the IRS, or else
face steep consequences.

Banks that
don’t jump into bed with the IRS risk getting locked out of
the US financial system. This is a big deal.

If you’ve
ever sent a foreign wire before, you probably know that almost every
bank on the planet has a ‘corresponding’ account with
one of the major banks in New York.

Banco General
in Panama, for example, has corresponding accounts with both Chase
and CitiBank. When someone wires US dollars to Banco General, the
money first hits one of those corresponding accounts in New York.
If Banco General gets shut out of those accounts, it risks being
cut off from the global banking system.

Needless to
say, this legislation is going to rapidly reduce the significance
of the US banking sector in the long run as other countries seek
new financial pathways that re-route funds around New York. Congratulations,
Congress!

In addition,
FATCA also requires new disclosures for US taxpayers with ‘foreign
financial accounts’, and it starts this year. Before you
file your taxes, here are five things you need to know:

[Editor's
note: The following does not constitute tax advice, rather a
friendly reminder of what the requirements are. Always consult with
your tax advisor.]

1) If you
had a ‘Foreign ‘Financial Asset’ in 2011, you may
need to file form
8938 this year.

The term ‘Foreign
Financial Asset’ covers a lot of ground and is ambiguously
defined. They use terms like financial asset, financial account,
and foreign financial institution to define each other.

It’s like
saying, “What is dark? The opposite of light. So what is light?
The opposite of dark.”

Ultimately,
the onus is on the taxpayer to figure it out.

In general,
foreign bank accounts and foreign brokerage accounts must be reported
in Part I of the form.

In Part II
of the form, taxpayers must also report interests in foreign entities
that they own. For example, if you own 100% of a Cook Islands LLC,
this would count as a foreign financial asset and must be reported
in Part II.

*The exception
here is if you are already reporting this company on form 5471 or
8865. This depends on if/how you elected to classify the entity
on form 8832. For example, if you elect to classify a foreign entity
as a corporation, you should report it on form 5471, not the FATCA
form 8938.

2) GOLD
is a bit tricky.

If you have
an account with an organization like GoldMoney.com
that takes in deposits from the banking system, this is akin to
a financial institution and financial account. It must be reported
on Part I of the form.

Read
the rest of the article

The
Best of Simon Black

Here’s
the scene. It was an overcast day in southern England last March.
That is to say, a normal day in southern England.

Attempting
to retrieve something that had blown into the water, 41-year old
Simon Burgess slipped and fell into a 3 1/2 foot-deep pond. He then
suffered a seizure. His body, lying motionless and face down in
the water, was spotted at 12:15pm by a witness who immediately called
999 emergency services (like 911).

Within five
minutes, emergency crews began arriving. Then more. Then more. 36-minutes
after the initial phone call, no fewer than 25 emergency workers
were at the scene. They brought out a state of the art emergency
medical tent, resuscitation equipment, several fire engines, ambulances,
and specialty dive gear.

For more than
thirty minutes, emergency crews set up a complex operations center.
Fire fighters positioned their trucks. Police officers cordoned
off the area for crowd control. Water Support Unit officers donned
protective gear and checked the pond for underwater hazards.

Yet with all
of this commotion, nobody bothered to fetch Mr. Burgess. For 36-minutes,
he floated in the center of the pond, face down, while dozens of
first responders scurried about with their ‘make work’
projects.

Why? Because
they hadn’t been ‘trained and certified’ by their
various government agencies to enter water that was more than ankle
deep. According to the UK’s Daily
Mail,

“When
a policeman decided to go in anyway, he was ordered not to. A
paramedic was also told not to enter the water because he didn’t
have the right‚ ”protective” clothing and might
be in breach of the Personal Protective Equipment at Work Regulations
1992.”

And so, the
emergency crews stood by waiting until a specialty team arrived,
donned protective gear, and waded into the waist-deep water (at
maximum depth) to retrieve Mr. Burgess. Needless to say, doctors
formally pronounced him dead by the time his body arrived to the
hospital, roughly 90-minutes after he fell in the lake.

Following public
outcry over how Britain’s impotent bureaucracy could manage
to cost a man his life, the government held a formal investigation
into the matter a few weeks ago. As expected, public service workers
and politicians closed ranks, defending their decisions on the ground
and claiming that they were only ‘doing their jobs’ and
following the rules.

Read
the rest of the article

The
Best of Simon Black

I’ve been
having breakfast at Cafe Manolo’s ever since I started coming
to Panama, going on ten years now. They make the best ‘batido’
ever… it’s sort of like a milk shake crossed with a fruit
smoothie. And it used to be ridiculously cheap. Not anymore.

Economists
use a term ‘menu costs’ to explain why retail prices are
‘sticky’ and resistant to change. The analogy is that,
even in the face of rising input costs, a restaurant owner will
resist raising his prices because it costs a lot of money to print
new menus.

Apparently
someone forgot to explain this concept to Mr. Manolo. Rather than
printing new menus, the staff at this once cheap establishment simply
scratches out the old prices and scrawls in the new prices.

Without doubt,
Panama is becoming very expensive. And if they handed out Academy
Awards for inflation, I’m sure the first person that Panama
would thank in its tearful acceptance speech would be none other
than one Ben Shalom Bernanke, Ph.D.

As you’re
probably aware, Panama is a dollarized economy. In fact, since Panama’s
independence was engineered by JP Morgan in 1903, the country has
never circulated its own currency. Officially, Panama’s currency
is the ‘Balboa’, though it has been pegged to the US dollar
at parity since inception, and US dollar notes are the only currency
in circulation.

In the old
days, this was practically viewed as being on the gold standard.
Panama has never had authority to print US dollars and expand the
money supply, just like currencies backed by gold in the 19th century
couldn’t simply conjure more gold out of thin air.

Decades ago
when the dollar was actually a respected store of value, Panama’s
dollarization really meant something. Today is a different story.
Yet while Panama is still unable to print its own currency, Ben
Bernanke obviously has no such restrictions.

The trillions
of dollars that Bernanke has created over the last few years have
made their way into the financial system and reduced the purchasing
power of US dollars. Right now this is being felt acutely with respect
to fuel prices denominated in USD.

The consequent
rising prices hit dollarized countries like Panama very hard because
there is no central bank here to monetize the debt and finance populist
deficit spending.

Case in point
– Ricardo Quijano, Panama’s Minister of Industry and Trade,
confirmed this morning that the government’s fuel compensation
fund has completely run out of money. In the face of rising fuel
prices, the government is now no longer able to subsidize gasoline.

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Earlier this
week, the British government announced that Barclays PLC, one of
Britain’s oldest and largest banks, was facing an $800 million
penalty for engaging in a tax avoidance scheme. Barclays had been
exploiting loopholes in legislation in order to avoid paying a higher
tax rate, and the government is now drafting legislation to close
these loopholes.

Hang on a sec.
Full stop.

If the government
has to pass legislation in order to ‘close the loopholes’,
then the loopholes right now are obviously legitimate. Hence Barclays
tax avoidance practices that were perfectly legal.

After all,
that’s what tax avoidance is – legally avoiding
taxes by exploiting loopholes and legitimate deductions in the tax
code. Tax evasion, on the other hand, is willful misdirection or
underreporting of income that violates tax code. Barclays engaged
in the former.

How is it that
the Treasury can penalize Barclays for having done something that
is perfectly legal? Technically, it can’t. That’s why
the legislation being proposed to close these tax loopholes is going
to be RETROACTIVE.

In other words,
since the British government can’t legitimately penalize
Barclays, they’re going back in time to change the law to make
what Barclays did illegal… all to collect some extra dough.

In related
news, the Treasury also announced that recent tax receipts have
failed to meet expectations. Despite Britain’s constantly increasing
tax rates (now as much as 50%), income tax revenues dropped by $810
million from a year ago, a 4.68% decrease.

British government,
meet the Laffer Curve. Even the guy flinging spitballs in the back
of a high school economics class can tell you that raising tax rates
often decreases overall tax revenue.

Consider that,
with a 0% tax rate, government revenue would be zero. Similarly,
at a 100% tax rate in which people didn’t keep a single penny
of what they earned, government revenue would also be zero because
nobody would have an incentive to work!

Working up
from 0, and backward from 100, would yield similar results. At 1%
tax rate, the government would collect a bit of revenue. At a 99%
tax rate, a small handful of people might work, also generating
some revenue for the government.

Economist Art
Laffer is credited with describing this relationship between tax
rates and government revenue, however philosophers going back to
the 14th century also examined the idea.

Laffer’s
point was to show that there’s an equalization between the
government taking a small piece of a big pie (low tax rates, huge
incentive for economic productivity), and a big piece of a small
pie (high tax rates, very little incentive for economic productivity).

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Banking privacy
is dead. Completely, totally dead. Murdered, really. The US government
is the assailant, and FATCA is the murder weapon.

We’ve
talked about this a few times before– FATCA is the heinously
insidiously piece of legislation that the Honorable Barrack Hussein
Obama passed into law in 2010 as part of the “Hiring Incentives
to Restore Employment Act”.

There were
no hiring incentives, and there was no restoration of employment.
But any vestiges of banking privacy were destroyed.

In brief, FATCA
has two key concepts. First, it requires an additional (and completely
unnecessary) layer of reporting from all US taxpayers who have ‘foreign
financial accounts’ at ‘foreign financial institutions.’
Though as we have discussed before, both of these critical terms
are ridiculously and flagrantly ambiguous, putting the onus entirely
on the taxpayer.

Without clarifying
what constitutes foreign financial accounts and institutions, Congress
has effectively created decades of debate in tax court… a move
that will undoubtedly ruin the lives of the unfortunate folks who
get dragged into the fight.

The second
key issue is that FATCA puts a burden on ALL foreign financial institutions
worldwide to enter into an information-sharing agreement with the
IRS; this essentially obliges every bank on the planet to submit
reports and customers’ private data to the IRS.

Banks who don’t
enter into this information sharing agreement will have a 30% tax
withheld on funds that originate from, or go through, the US banking
system. Further, banks who enter into the information sharing agreement
are obliged to withhold the 30% tax on transfers to other banks
who do NOT enter into the agreement.

Such provisions
are absolutely, 100% impossible. And it’s becoming clear that
FATCA was passed with no intention of being enforceable. It’s
inconceivable that every institution on the planet could enter into
an agreement. And it’s inconceivable that every institution
on the planet could possibly know whether every other institution
has entered into the agreement.

The only thing
FATCA has accomplished is scaring the living daylights out of non-US
banks. So much so that foreign banks have approached their governments
to ask for help.

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The idea of
international diversification is a simple one – if you live,
work, hold investments, own property, structure your business, store
gold, etc. in the same country as your citizenship, then you truly
have all of your eggs in one very fragile basket.

If just one
little thing goes wrong, whether it’s a court case, divorce
settlement, political instability, government agency ‘administrative
error’, or some noxious bureaucrat who’s out to get you,
all of those aspects of your life can be put at extreme risk.

The idea of
‘planting flags’, or diversifying internationally, involves
spreading these aspects of your life across multiple jurisdictions
and territories overseas. Banking in one place. Setting up a brokerage
in another. Investing in another. Storing gold in another. Owning
property in another.

You can do
this with dozens, potentially hundreds of aspects of your life and/or
business – using an offshore email account, obtaining medical
treatment overseas, seeking personal companionship abroad, setting
up an overseas credit card processor for a web business, initiating
an IPO for your company on an overseas exchange, foreign health
insurance, etc.

Taking these
kinds of steps can make your life much, much easier. Suddenly all
of those aspects of your life no longer fall under the jurisdiction
of your home government; legions of blood-sucking bureaucrats no
longer have access to confiscate your assets and frustrate your
life with a few mouse clicks.

Potentially
the most important and most powerful aspect of your life to diversify,
however, is citizenship. I view this as the ultimate insurance policy
– something that you hope you’ll never have to use, but
you’ll really be glad you have it in case you do.

Having a second
citizenship is like having a ‘get out of jail free’ card.
It creates options. No matter what happens in the world, you’ll
always have a place to go. You’ll always have a ticket out.
And as I’m fond of saying, nobody ever hijacks an airplane
and threatens to kill all the Lithuanians. Second citizenship does
bring a greater sense of security.

Obtaining citizenship,
however, is elusive for many people. Some people are lucky enough
to come from a line of Irish, Polish, or Italian ancestors. For
most, though, it takes a combination of three things:

• Money
• Time
• Flexibility

If you’re
willing to simply pay for it, there are certain countries like St.
Kitts and Dominica which offer citizenship to people who are simply
willing to pay. Most folks unfortunately can’t afford the $250,000+
price tag that’s required, so that leaves the other two.

Just about
every country is willing to eventually naturalize permanent residents
who reside in the country for a particular amount of time. It varies
greatly from place to place. This past weekend, I learned from a
subscriber who came down to Chile that, in Japan, it takes two decades
of continuous residence.

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One of the
greatest thinkers of all time was Austrian economic Friedrich Hayek,
and his work The
Road to Serfdom is an absolute must-read.

Hayek’s
writings are incredibly powerful in these times. In light of the
countless recent examples of governments changing the rules whenever/wherever
it suits them (from the Troika nonsense in Europe to the Fraudclosure
settlement in the US), I’d like to share a few key passages
with you today.

On the sanctity
of the Rule of Law in a free society, Hayek says:

“Nothing
distinguishes more clearly conditions in a free country from those
in a country under arbitrary government than the observance in the
former of the great principles known as the Rule of Law.”

“[U]nder
the Rule of Law the government is prevented from stultifying individual
efforts by ad hoc action. Within the known rules of the game the
individual is free to pursue his personal ends and desires, certain
that the powers of government will not be used to deliberately frustrate
his efforts.”

“The important
question is whether the individual can foresee the action of the
state [based on the government following its own rules] and make
use of this knowledge as a datum in forming his own plans…”

On the nature
of legislative or judicial favoritism, Hayek says:

“It is
the Rule of Law… the absence of legal privileges [or favoritism]
of particular people designated by authority, which safeguards that
equality before the law which is the opposite of arbitrary government.”

“[A]ny
policy aiming directly at a substantive ideal of distributive justice
must lead to the destruction of the Rule of Law.”

There is a
“belief that, so long as all actions of the state are duly
authorized by legislation, the Rule of Law will be preserved…
[But just because] someone has full legal authority to act in the
way he does gives no answer to the question whether the law gives
him power to act arbitrarily.”

“It may
well be that Hitler has obtained unlimited powers in a strictly
constitutional manner and that whatever he does is therefore legal
in the juridical sense. But who would suggest for that reason that
the Rule of Law still prevails in Germany?”

“The Rule
of Law thus implies limits to the scope of legislation: it restricts
it to the kind of general rules known as formal law and excludes
legislation either directly aimed at particular people or at enabling
anybody to use the coercive power of the state for the purpose of
such discrimination.”

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