“By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”
John Maynard Keynes (5th of June 1883 – 21st of April 1946), British economist
In a nutshell my advice is: “Get out of the current financial system, avoid paper money and the banking system in general and move into physical precious metals” or in the words of David Stockman “ABCD – Anything Bernanke Cannot Destroy”!
Confiscation is already here! I am not talking about outright confiscation of assets, but the confiscation of the buying power by inflating the money supply. If you keep your money in a bank account or “invest” in bonds you are actually losing money in real terms (after inflation). The decrease in your wealth basically increases the wealth of governments and banks, hence fulfilling the definition of confiscation.
If you believe that the only confiscation we will see is through inflation and that the current system will still exist for the next 10 or even 20 years then you can easily invest in real assets using paper solutions with claim status such as funds, ETFs, certificates, claim accounts etc. You can find such instruments trading on most markets. However you should consider that these solutions all depend on a functioning financial system. Furthermore most have a “cash settlement clause” in it, which gives the issuer the right to suspend all redemptions and services in the case of “unusual market conditions” and the like. Physical delivery can be replace by cash payments at their discretion.
However I am personally convinced that our current paper money system will collapse in the coming years. This is not a loose hunch I have, but history has shown that paper money system only last a few yeas or maybe a few decades at most. Eventually however they all collapse. The world went through more than 50 hyperinflations in the 20tiest century alone. When this happens paper solutions will collapse! A lot of paper solutions hedge their risk using the CME, should this central clearing house default, then most of paper solutions will not be worth the paper they are printed on.
“Desperate times call for drastic measures” this will be the argumentation of governments world wide when hyperinflation hits. Private property rights will be suspended and the phase of outright confiscation will start! Governments in desperate need of financing will start to nationalize corporations, homes, farm land and confiscate precious metals!
How can you protect your assets in phase of such random confiscation?
The following are some the key issues one needs to consider to protect oneself from confiscation.
1. Storage outside of the banking system:
Most importantly take your assets out of the banking system! The ordeal over MF Global has shown that even segregated storage may not offer the needed security one would expect. We have also seen instances in the US where client advisors at banks had to open the safe deposit boxes with their clients so they could confiscate the gold on behalf of the government. Due to the tight link between banks and governments, confiscation of assets usually starts in the banking system, by freezing all assets. Furthermore safe deposit boxes are not insured against theft, fire and if the bank goes bust or a bank holiday is declared, it might be very difficult to regain access for a longer period of time.
2. Diversification across safe jurisdictions:
Keep assets outside of the country you live in and in a safe jurisdiction, which will still respects property rights and where the power of politicians is limited. In my view the most secure place today is still Switzerland. Our politicians are only marginally better than others, but Switzerland has some key advantages. Switzerland has a strong federal structure limiting the power of central government and is the last remaining direct democracy left on this planet, the power of politicians is therefore limited. Nothwithstanding the above, we at Global Gold also believe it doesn’t make sense to put all eggs in one basket and therefore it also makes sense to offer storage in Hong Kong and Singapore as reasonable alternatives. The main argument for these two locations is the fact that China and the city state of Singapore have imposed the fewest impediments in the past decade and that China openly talks about their goal that the Remimbi should become the world’s new reserve currency by 2015.
3. Avoid countries which have confiscated gold in the past:
Avoid storage locations in countries which have already experienced government confiscation in the past such as the USA, Germany, Italy and Russia. Althought the british government so far never confiscated precious metals, I would be extremely causios in storing there because the UK lost its independency since they gave up the Empire after WWII and became the junior partner of the USA.
4. Find out under which law your broker or storage partner is operating:
Keep in mind that if you are storing gold or silver with a company which is operating under the jurisdiction of one of the above mentioned countries this is a disadvantage when the government decides to freeze assets on a global basis of a company e.g. operating under US law.
5. How can you communicate with your partner during a harsh-crisis scenario:
Look at the possibilities on how to execute transactions. Is it only possible online and what is the alternative if the internet is down or blocked? Is it possible to communicate via fax, by postal mail or can you organize everything in a small period of time personally on the spot? Try to find out how the account is set up. If it is through a bank (which is most likely the case) then it could take a tremendous amount of time to unwind the assets especially if you believe that the next crisis will involve the financial / banking system again.
Checklist of 10 reasons you have to consider when deciding how to invest in precious metals!
- It must be a non-banking solution
- Metals must be stored under your direct and unencumbered ownership
- The program must be free of small-print cash settlement clauses
- Metals should be stored at privately owned high security storage
- Make sure your metals are insured and audited by an independent 3rd party
- Make sure the metals are physically stored in the format of your choice (bullion coins & bars)
- Choose a partner that is buying metals from LBMA-Refineries and the most famous Mints (to assure the highest finess and quality)
- Make sure you can get your metals delivered or picked-up at any time without delay (if you have to wait for several weeks you can be sure that the metals are not stored in the format you have choosen and purchase)
- Check the risk profile in terms of jurisdiction the company is operating under