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— Your Guide to Rogue Freedom & Bold Prosperity —
The Bauman Letter
www.sovereignsociety.com June 2016
Inside This Issue
The Kill Switch:
The Hidden Threat to Your Money
A BDI-ILI knew Naditabirus anxiously awaited his arrival.
His cousin was no doubt very worried by now.
Abdi-Ili was seriously overdue in Eshrunna, chief city
of the populous Diyala Valley, where his cousin lived.
Naditabirus had placed an urgent order for camels,
figs and wine from Abdi-Ili’s rural hometown of
Lagash. But bad weather and bandits in the hinterland
had delayed his departure.
To make matters worse, Naditabirus needed the
goods to settle an account with another trader in
Eshrunna, Gamil-Ninip. Widely feared by reputation,
Gamil-Ninip could have served as the model for
Shylock, the flesh-demanding merchant of Venice.
The problem was that Naditabirus had already
settled with Abdi-Ili for the goods. There was no use
sending coins back from Lagash to Eshrunna, since it
would take just as long as a trip with the camels and
wine, and would be just as dangerous.
Abdi-Ili knew very well that a big trader like
Gamil-Ninip had no use for coins anyway. All
wholesale traders regarded them as a burden and a
needless risk. Other traders to whom Gamil-Ninip
was in debt wouldn’t take them from him.
That’s why Gamil-Ninip wanted the physical goods that Naditabirus had promised him, and until he got them, he wasn’t going to allow the ledger-keepers at Lagash’s central market to make the entry that would let Naditabirus off the hook. Until Abdi-Ili made it to Eshrunna, Naditabirus had to watch his back.
These cash-shy men lived and traded in Sumer, the
first-known civilization, straddling the life-giving Tigris and Euphrates rivers. The year was 3252 B.C.
Their financial lives are closer to our own than we realize … but we face a much greater threat than bandits or scalpel-wielding creditors.
Recently, it’s become popular to talk about “the cashless society.” We’re warned that it threatens to hand control of our money to others, expose us to confiscation and generally destroy our liberty.
But, I’ve got news for you: The cashless society is already here … and it has been here for tens of thousands of years. What’s changing — rapidly and quietly — isn’t the use or nonuse of cash. It’s something far more dangerous.
10 | It All Starts With Saving
By Glen Mather11 | Avoiding Freedom
By Bob Bauman
June 2016 2 www.sovereignsociety.com
As I’m going to show you, the things you’re being
told about the danger of a cashless society are, at
best, half-truths.
The thing you should really fear is that there’s never
been a central “kill switch” for money … until now.
A Brief History of Money In his book Debt: The First 5,000 Years,
anthropologist David Graeber argues that the
dominant account of the origins of money is wrong.
The conventional story is that gold and similar rare
items were the original money, which came into use
because it allowed people to move beyond barter
systems. In ancient times, gold was used as a store of
value, and in dust, nugget or coin form as a means of
payment and a unit of account.
After the fall of Rome, however, insecurity
prompted people to store their gold with goldsmiths,
who maintained a 24/7 armed guard. People
stopped paying each other in gold, instead trading
promissory notes that represented gold on deposit
at the goldsmith. The value of the paper was slightly
discounted against gold itself to pay for the guards.
Physical gold never had to move; people just traded it
in paper form.
Thus, gold-backed paper cash was born.
Graeber shows that this never happened in real
life, anywhere. Instead, “money” as we know it
actually originated as a way to compute and trade in
debt, the way Abdi-Ili, Naditabirus and Gamil-Ninip
did. Here’s how:
Let’s say that in 3252 B.C., 10 camels were worth
20 barrels of wine. If someone came to a trader to sell
10 camels, but there was no wine available, the trader
would notate that the camel-seller had 20 barrels’
worth of credit with him, to be redeemed when wine
arrived. If the camel seller decided in the meantime to
use some of that credit to buy grain, the trader would
simply calculate the appropriate amount of wine to
deduct from his credit, based on how grain and wine
traded against each other.
That’s the critical point: From there it was a simple
step to start using a made-up unit — in Sumer, a
shekel — to keep track of such dealings. “Virtual”
shekels could be tracked with tokens like marks in
clay, sticks, cowry shells or knots on a string. There
was no need to use vulnerable metal coins.
The important thing was that everyone understood
and trusted the shekel system.
In this way, according to Graeber, money
originated out of debt systems, not barter — and it
was based on mutual trust, not intrinsic value. Gold
(and physical cash) only came to play a role later,
when long-distance trading emerged with foreign
peoples who used different credit systems. Money was
a good interface between such systems, but it wasn’t
their basis.
It turns out that we’ve been living in cashless
societies for a lot longer than we’ve lived in them …
for precisely the same reasons as the Sumerians. And
for all that time, we’ve been able to trust “virtual”
money because it was a decentralized, private system
that no government could control completely.
Until now.
Money = PeopleThe paradox of physical cash is that we see it as a
way to preserve our financial independence … but it’s
issued by the very government from which we wish to
preserve that independence.
Money is a “social construct” — something people
agree amongst themselves to use to facilitate trade.
Just as Abdi-Ili, Naditabirus and Gamil-Ninip all took
Ted Bauman is the editor of the Plan B Club, a blueprint
to help protect your wealth and escape excessive
taxation, regulations and wealth confiscation in
America. He is also the editor of The Bauman Letter,
a newsletter that’s brimming with up-to-the-minute
asset protection strategies, tips on buying and
investing in real estate abroad, and retirement and
residency secrets in American-friendly countries
around the globe. Ted has been published in a variety
of international journals, including the Journal of Microfinance, Small Enterprise Development and
Environment and Urbanization. Email Ted your thoughts
and questions at [email protected]
About Ted Bauman
www.sovereignsociety.com 3 June 2016
for granted that the market ledger-keepers were the
final arbiter of their accounts, reckoned in shekels
(for a fee, just like modern bankers), so too do we
take as a given that the dollar is legal tender and that
banks do the record keeping.
But our reliance on the dollar is no less arbitrary
and no less “social” than the shekel was. If the king
of Sumer decreed that shekels were worthless, they
would be, and that was that.
The threat of today’s “cashless society” isn’t that
we will be using less cash than we do now — after
all, we hardly use any as it is — it’s that the social
agreement behind money is changing without our
consent and for reasons that have little to do with our
wants and needs.
It’s changing to satisfy someone else’s.
Our Cashless WorldIf you took all the currency in existence today and
added it all up, how much would it be?
Let’s start with the U.S. money supply. The total
stock of cash is known as M0. This includes the bills
and coins in people’s pockets and mattresses, money
stored in reported bank vaults and all of the deposits
those banks have in the Federal Reserve System.
According to the Federal Reserve, there’s $1.45 trillion
in the M0 right now, with $1.4 trillion in actual notes
and coins, while the rest lies in bank deposits at the
Fed. At any given time, between one-half and two-
thirds of the M0 money stock of U.S. dollars is held
overseas.
The rest of the U.S. money supply is in bank
accounts of various types. The Federal Reserve tracks
these funds in values known as M1 and M2:
• M1 represents all of the currency in the M0
money supply, plus all of the “virtual” money
held in checking accounts and other transaction
accounts, as well as all of the money in
traveler’s checks. The Federal Reserve reports
that the current M1 money supply for U.S.
dollars is about $3.2 trillion.
• M2 is the M1 supply plus all of the “virtual”
money held in money-market funds, savings
accounts and certificates of deposit (CDs).
Right now, the M2 money supply is about $12.6
trillion, according to the Fed.
So, there’s $12.6 trillion in U.S. dollars out there,
but only a little more than 11% of it is actual currency.
The rest is virtual currency, just like the Sumerian
shekels in the ledger-keepers’ books. That makes us
at least an 89% cashless society.
There’s more: Of the $1.4 trillion in physical U.S.
currency out there, more than three-quarters of it is
in $100 bills. I don’t know about you, but I don’t see a
lot of Benjamins at the grocery-store checkout. That
suggests that the bulk of $100 bills are being used as
a store of value, not to transact. A recent article I read
suggested that about 25% of those missing $100 bills
are overseas; the rest are either in private storage
in the U.S. (“mattress money”) — or in use in the
unreported, tax-avoiding “black economy.”
That means the amount of actual U.S. cash in daily
use is a lot smaller — probably closer to 4% of the
total U.S. money supply. The rest is cash in unknown
locations or virtual money that exists only as ledger
entries on bank computer systems. Now we’re down
to 96% cashless.
For the world as a whole, M0 is about $5 trillion,
M1 is $25 trillion, and M2 is $75 trillion. The
proportion of the world’s total circulating cash is
slightly higher than the U.S. dollar alone — about 6%.
That makes sense: Huge-but-poor economies like
India are almost entirely cash-based.
No matter how you slice and dice it, ours is already
a largely cashless society.
The Real Threat to Your Money The reason cash is such a small part of our modern
money system is the same as the Sumerians and
medieval goldsmiths: It’s physical, and therefore
vulnerable.
We’re hardwired to understand that purchasing
power in physical form is highly ephemeral. It can
disappear in a flash. That’s why large amounts of
physical money, precious metals, jewels, etc. were
closely associated with the capacity for extreme
violence. That was — and remains — the only way to
keep other people away from it.
June 2016 4 www.sovereignsociety.com
That’s also why, until the 1970s, most people
in advanced economies used a combination of
checkbooks and regular trips to the bank to pay for
things. People didn’t keep big hoards of cash at home.
Banks thrived because they were seen as safe places
to store money, and provided convenient ways to
transact without cash.
Starting in the mid-‘70s, the digital revolution
enabled widespread use of credit cards, which
became near-universal by the 1990s. It was possible
to transact without ever using cash. Card protection
policies meant that lost credit or debit cards could be
canceled quickly and fraudulent charges refunded.
Online shopping took this one step further, allowing
us to acquire big-ticket items almost instantly, with
the click of a mouse button. People could enjoy the
benefits of cash without having to carry any.
But the emergence of “virtual” money created
another risk that we’ve only just begun to recognize.
It’s far more serious than the potential loss of part of
your stash of physical wealth to theft or destruction.
Recall from the Sumerian example that trade relied
on independent, third-party ledger-keepers to keep
track of transactions. These ledger-keepers provided
a valuable and essential service that allowed trade
to flourish, so people paid them for it. The same was
true of medieval goldsmiths. Before the Civil War,
U.S. private banks issued private banknotes that could
be exchanged for U.S. specie (or coins) on demand.
Most commerce was conducted with these private
banknotes, not government-issued dollars.
All of these innovations relied on what the 17th-
century English economist Nicholas Barbon called
“an imaginary value made for the convenience of
exchange.” Until the emergence of national fiat
currencies, these “imaginary values” relied entirely
on widespread customary acceptance — not on
government approval.
It’s Always the Government’s Money
In the past, the day-to-day controllers of the
“imaginary value” of “virtual money” were private
people, not governments. They met a social need
by providing a more secure form of transacting than carrying around precious metals or specie. If they stopped meeting that need for any reason, people moved on to another solution. Market forces determined whether or not one form of “imaginary value” (e.g., a particular bank’s notes) was better or worse than another.
The problem we face today isn’t that we are being asked to move away from the use of cash. It’s that control of the alternative forms of “imaginary value,” now mostly digital, are shifting away from private hands and market forces to a more centralized, nonmarket system of control. The digitization of money has given a single, unaccountable third party the potential power to turn your money on and off at will. And that third party’s interests are very different from those of bankers, ledger-keepers or goldsmiths.
That third party, of course, is government.
Government is always involved in money. Even though private Sumerian ledger-keepers invented the shekel system, for example, very quickly its continued use was authorized by the Sumerian king, who could also deauthorize it. The banknotes issued by antebellum U.S. banks were denominated in the U.S. dollar.
The main reason government money always beats out private money is taxes. You might claim that gold bullion is money, but if you take a bar of gold to the IRS on April 15, they will ask that you exchange it into U.S. dollars before they can extinguish your tax liability. In other words, while gold might be money to you and me, it isn’t money when it comes to meeting your liabilities to the Federal government.
But even though governments ultimately authorize money in this way, they don’t control it. Money is “created” by banks when they issue loans that exceed their actual reserves. Even with fiat money, like the dollar or the euro, private institutions can create and destroy money by using the same techniques as the Sumerians.
For the most part, that’s OK, and well-understood. But what happens when the government finds a way to do more than merely authorize money — when it can also turn it “on” and “off” at will? Human nature suggests that, in such a situation, those in control of
www.sovereignsociety.com 5 June 2016
the government will quickly stop being accountable to
us, and start using this power to their own ends.
Government already does this, in a way. Through
the Federal Reserve System and the U.S. Treasury, the
U.S. government can manipulate the money supply
to devalue the dollar, and thereby transfer wealth
from lenders to borrowers and from citizens to
government. It can raise interest rates to drive up the
value of the dollar and do the exact opposite. It can
also set interest rates so low that savers get nothing
for their savings — as many of us know very well,
post-2008.
Be Very Afraid: The Kill SwitchActually, some of the scenarios I just sketched
out have already happened. But they involved the
withdrawal of account facilities by banks or other
financial institutions, whose cooperation was
therefore essential.
It’s this potential ability to control each individual
dollar that you should be worried about in the
cashless society. It’s the main thing against which
you need to defend.
The usual concerns we hear about the cashless
society are:
We’ll be forced to transact through systems and
institutions that can track when, how much and to
whom we transmit money. That’s why we’ve heard
a lot about getting rid of $100 bills. Because some
people use large-denomination bills to evade taxes or
commit crimes.
1. Making all money electronic will allow the
government to confiscate it at will — something
it can already do, as anyone who has had a tax
garnishment or asset confiscation order against
them will tell you. All it takes is a court order to
your bank.
2. If all money is electronic, the government will
be able to impose negative interest rates easily,
forcing us to spend our way out of their failures.
3. Those are definitely things to worry about.
But what if the government could also switch
individual dollars on and off? Or change their
relative value — say, turn all your dollars into
quarters? That’s something no government
could ever do … until now.
And we have bitcoin to thank for it.
Bitcoin: Double-Edged Sword Think of every dollar in your bank account as a
point on a football scoreboard.
When a team scores a touchdown, the official
scorer adds points, and electronic pulses are sent to
the scoreboard to show the number six. As the game
progresses, point totals are adjusted for each team.
Sometimes points are taken away after a penalty. The
points taken away don’t really go anywhere — they
just disappear as the scorekeeper deducts them. The
points have no real physical presence; they’re simply
a record of the performance of each team.
In the banking system, money is just a system of
“points” credited to or deducted from our “scores”
kept by financial institutions. And just like the
electronic points in a football match, each dollar is
the same as any other. You don’t care which dollar
you have. Indeed, every year the U.S. Mint destroys
billions of dollars and replaces them with new ones,
and nobody notices. There are serial numbers on U.S.
paper currency to combat counterfeiting, but the
government can’t “delete” a specific numbered bill
remotely.
But the technology now exists to do exactly that:
the blockchain.
The blockchain is an essential part of bitcoin, the
independent digital currency. The technical details
are complicated, but the blockchain is the part of
the system that makes sure that every single bitcoin
remains unique and can’t be spent twice.
While cash in a bank account moves electronically
all the time today, our money isn’t truly digital.
Electronic payments are really just messages that
cash needs to move from one bank account to another
— “settlement” — which can take days as banks wait
for confirmations.
Bitcoins, however, are preloaded into the
blockchain system. From there, they can be swapped
immediately for an asset. Payment and the settlement
become the same thing — an instant balancing of
June 2016 6 www.sovereignsociety.com
virtual books, exactly like when the Sumerian ledger-keepers made an entry. The blockchain essentially does the same job as the accounting departments of financial institutions — debiting and crediting various ledgers — but automatically and anonymously, under no one’s central control.
But the blockchain is also what makes bitcoin anonymous. Bitcoin’s blockchain system is “distributed,” meaning it is managed by many individual users’ computers in the background. Nobody has a “master key.” That’s why financial firms have been reluctant to embrace bitcoin: The anonymity it gives to users exposes them to the risk of violating anti-money-laundering and know-your-customer regulations.
What banks really want is digital U.S. dollars, which don’t pose those risks … because they can be traced to individual users … and turned off centrally.
The Threat Is HERE NOWOn a Monday last month, more than 100 executives
from some of the world’s largest financial institutions gathered for a secret meeting at the Times Square office of Nasdaq Inc. By the end of the day, they had seen something revolutionary: U.S. dollars transformed into pure digital assets, able to be used to execute and settle a trade instantly, with no banks in between. The meeting was code-named Chain.
Under the Chain system, the debiting and crediting of ledgers would happen automatically in cyberspace. There’d be no need for banks, at least as intermediaries. When I pay Amazon for a purchase, for example, my stock of dollars would be debited and Amazon’s would be credited instantly. No debit cards, no credit cards, no checks — nothing. Just changing points on our respective financial scoreboards. That would save millions of dollars, since money wouldn’t have to spend useless time in the settlement process between different intermediaries.
Under the Chain system, however, the government would be the referee. With its master key over digital dollars, it could award, remove, adjust and otherwise meddle in the financial “scores” of everyone who uses them … instantly, with no warning or recourse. Just like in the scenarios I sketched out above.
And if you think the government won’t use that
power, think again. The RAND Corporation, global
policy think tank with defense and homeland security
ties, has released a report titled National Security
Implications of Virtual Currency. It suggests that
governments should develop the technical capacity to
disrupt any virtual currency, including peaceful use
of digital currencies by all nonstate actors, to prevent
you and me from enjoying “unprecedented global
access to information and communication services
that, at its core, are agnostic to the national security
interests of the United States.”
How You’re Going to Beat ItI’ve gone into more detail than usual on the
threat aspect of this report — the “digital dollar” —
How the Government Could Strike
What if government could simply flip a
switch, and say that a particular person’s money
— specific dollars — is invalid? It could even
conceivably do that for all money. Here are some
plausible scenarios:
• A business in a tax dispute with the IRS
finds that a proportion of its virtual dollars
— say, 40% — have been disabled until it
settles.
• A judge orders that funds belonging to a
person charged with a crime be disabled
pending the outcome of his trial.
• The FBI issues a National Security Letter
instructing that the money of a suspected
terrorist/money launderer be disabled.
Under the NSL, nobody is allowed to tell him
why this has happened.
• An unscrupulous president secretly
instructs that the funds of political
opponents be disrupted or shut off to
undermine their campaigns.
• A run on the dollar leads the government
to suspend the validity of all U.S. dollars for
48 hours. n
www.sovereignsociety.com 7 June 2016
because I’m convinced that only those with a clear
understanding of it will be prepared to take the steps
necessary to beat it.
When I talk to people who read the mainstream
commentary on the cashless society, the most
common response is: “Who cares? It’s not likely to
affect me.”
But when it’s considered in the “national security
interest of the United States” for the government to
have complete control over your money at all times,
you need to worry. And because the Chain system
promises to reap billions in profits for major financial
institutions, they’re going to do all the legwork to
make it happen.
When government and financial elites have a
common purpose, things tend to happen faster than
anyone imagines possible.
Fortunately, the key strategies available to you
to combat this threat to your financial freedom are
already well-understood … and we’ve written about
them many times. I’m going to review them below,
and, as an added bonus, I’m going to point you to
relevant reports my father Bob Bauman and I have
written over the years.
Before I do, however, I want to make clear my
assumptions about what a “cashless society” is
liable to be like. These assumptions shape my
recommendations.
1. The U.S. government’s and banks’ attempt to
digitize and control dollars — supported by its
allies in Canada, Europe and Australasia — will
sharply increase the demand for alternatives
such as the yuan, ruble, Singapore dollar, Hong
Kong dollar and other currencies issued by
jurisdictions that are not closely allied to the
U.S. Such currencies will continue to exist and
will aggressively market themselves as a way to
avoid the risks of a digital dollar. The dollar will
decline in value against such currencies.
2. Certain countries that currently use the dollar
as a de facto national currency, such as Panama,
will choose to abandon it to preserve their
financial and political independence — if they
have the means to do so.
3. Countries such as Russia and China will speed up their efforts to launch an alternative global clearing system to SWIFT, the dollar-based system in current use. This will provide an alternative to transact in nondollar currencies.
4. The U.S. will seek to coerce other countries into using digital currencies, but this will fail. Other countries will recognize the risk of a fully digital dollar and opt to maintain at least part of their finances in nondollar currencies and financial systems as a hedge against unpredictable U.S. behavior. Banks in such jurisdictions will broaden their offerings of nondollar accounts.
5. Eventually, the U.S. and its allies will seek to confiscate domestic precious metals holdings using the same argument they employ against large-denomination bills: combatting crime, money laundering and tax evasion.
So here’s how you’re going to beat this…
Currency and Financial Strategies
Your No. 1 strategy is to have bank balances and cash in currencies other than the U.S. dollar and the euro. Based on my assumptions, bank balances should be held only in countries that have a strong currency of their own and are not subservient to the U.S.
When I say “relatively strong,” I don’t mean that it always trades well against the dollar. I mean that it is firmly in place, is issued by a large economy and is unlikely to be abandoned any time soon. This leads to some counterintuitive recommendations.
• Holding Russian rubles may be a good bet for two reasons. It’s currently weak, which means it will recover as the dollar gradually weakens in the mid-term. Second, it’s not going to go away when the dollar goes digital.
• Singapore and Hong Kong will work hard to preserve the independence of their own currencies. In the short term, both will appreciate significantly as the danger of holding digital dollars becomes clear, but efforts by Russia and China to create an alternative
June 2016 8 www.sovereignsociety.com
financier system are not yet in place. The same may be true of the Indian rupee, Indonesian rupiah and the Malaysian ringgit.
• The Chinese are determined to escape the dollar system eventually, making the yuan another obvious choice. However, China is better placed than any other country to emulate the U.S. in imposing tight control over finances, and will probably introduce a digital yuan as well.
It’s important to remember that holding these non-Western currencies doesn’t necessarily mean opening bank accounts in those countries. I predict that you will increasingly be able to open yuan, ruble and other alternative currency accounts in places like Panama, Singapore, Uruguay and other friendly jurisdictions.
Of course, opening an offshore bank account can be daunting. Guides to doing so can be found in the July 2011 and August 2015 issues of Offshore Confidential (the old moniker for The Bauman Letter). A report on the increasingly popular i-Account, which already offers multicurrency functionality, can be found in the August 2014 issue.
Opening a foreign bank account is only the first step to avoid the dangers of a digital dollar. The next step up is to create an offshore structure such as a trust or limited liability company (LLC) in a jurisdiction that is privacy-friendly. Such a structure will then be able to open bank and other financial accounts in safer currencies. For example, the trusts and LLCs discussed in our reports in September 2012, January 2014, March 2015, July 2014 and in this special report would all be potential candidates for such a two-level strategy.
An alternate strategy — especially if the bulk of your assets are tied up in retirement vehicles — is to move your retirement savings offshore. The single best way to do that is to create a self-directed IRA and use it to invest in non-U.S. currencies and other assets. I wrote about this excellent strategy in May 2015. Note that although the custodian of your IRA will continue to be in the U.S., the assets themselves will not be. I predict that the U.S. will ultimately fail to force repatriation of such assets, even if they are technically part of a U.S. IRA.
Another strategy along these lines, albeit pricier, is
private placement insurance, about which I wrote in
April 2015.
Quiet Wealth StrategiesWhen it comes to asset protection, my core
recommendation is always to remove a portion of
your wealth from banks altogether, and to convert it
securely into a diversified portfolio of “quiet wealth.”
Such assets typically include precious metals and
other tangible assets with a high value-to-size/
weight ratio, so they can be stored and transported
easily and securely. My favorite is stamps, about
which I wrote in March 2014. Other quiet wealth
assets include gems, coins, precious metals, artwork
and other high-worth portable assets.
Such items (as well as select currencies) can
be stored in a personal safe or account with an
accredited nonbank secure storage company. I do
NOT recommend bank storage or safe-deposit boxes
since they have already proved to be vulnerable to
government interference. A personal safe is a good
beginning step, but the ultimate security is to use an
offshore vault service — again, not with a financial
institution. I wrote about this in October 2014.
Choosing jurisdiction for offshore storage of
quiet wealth and precious metals should be guided
by the same logic as your choice of currencies.
Choose a place that is likely to strive to maintain
its independence and to resist U.S. attempts to
undermine it. At this point, Singapore is the best bet
— I wrote about one easy way to acquire and store
gold there in February 2014.
A longer-term strategy is to develop your own
“dirt bank” — real estate holdings in jurisdictions
that are both secure and liquid. I wrote a general
overview of dirt banks in June 2014, and, of course,
my favorite place of all remains Uruguay, which we
covered in May 2011, March 2012 and January 2015.
Geographical StrategiesIt may even come to the point where you will want
to consider moving yourself offshore, too. That’s the
subject of my comprehensive Plan B Club. As I always
tell people who worry that this is too difficult to
imagine … your imagination is the first thing you’ve
www.sovereignsociety.com 9 June 2016
got to change. Good overviews of residence and
second-passport options can be found in reports from
October 2011 and January 2013.
Of course, with the threat of a digital dollar in
mind, your choice of an offshore haven has to be
selective. There’s no point in moving to a country in
the EU, where U.S. pressure will probably bring the
same “digital dollar” problems to your doorstep.
Some alternatives to consider beside Uruguay (see
above) are Panama (May 2014), Dominica (December
2014) and the Seychelles (August 2013).
In the Meantime…I wouldn’t blame you if you’re saying “OK, Ted,
you’ve scared me, but I can’t very well expect to
implement these strategies overnight, now, can I?”
Quite right. Protecting your assets from the threat
of the digital dollar — just as for everything else
that afflicts the Land of the Free — is a process. The
starting point of that process is a determination
to do something about it instead of waiting for the
inevitable, or thinking you’ll somehow be exempt.
In my opinion, the threat of a blockchain-based
digital dollar is the greatest threat to our financial
freedom that I know. I’m actually quite surprised that
so many commentators fail to appreciate it.
But the digital dollar isn’t going to happen
overnight. And that gives you time to prepare.
I predict that we’ll begin to see the deployment
of limited blockchain systems like Chain between
major U.S. banks within the next three to five years.
These will be used to reduce opportunity and other
costs inherent in the current clearing system. The
next step will be for the Fed to adopt the Chain
system as an option for banks who wish to use it in
their dealings with the U.S. Federal Reserve System.
The next development will be the extension of the
Chain system to foreign banks dealing in U.S. dollar
transactions with U.S. banks.
Then we’ll see some nonbank businesses get in on
the act — big e-commerce players like Amazon.
Once this proof-of-concept process is well
underway, someone in government — maybe a
second-term president Clinton or Trump, maybe
someone in Congress — will propose adoption of
the Chain system more broadly. They’ll propose
legislation to mandate its gradual adoption
throughout the entire economy, citing terrorism, the
war on drugs, tax evasion, etc.
The key variable determining how quickly this
mandate is adopted (besides the possibility of
determined opposition in Congress) is the impact
Chain will have on the economics of smaller-scale
in regional banking. Chain has the potential to wipe
out small banks entirely, since a significant part of
their earnings come from old-fashioned clearing
technologies like checks and credit cards.
That gives us maybe eight to 10 years before the
kill switch is in place.
In the meantime, besides beginning to implement
a selection of offshore banking, quiet wealth and
property strategies, I would do some calculations.
• How much do you need to live, adjusted on a
rolling five-year basis, for the rest of your life?
Where is that money going to come from?
• Given how much you’ll need and its source,
how much can you afford to move into
currencies and assets that are safe from the
threat of the digital dollar? When can you do
it — how much per year? Or will it be a one-off
move of your retirement funds offshore?
Whatever is left after you’re done is what you’ll
need to keep in the U.S. system, for better or worse
(unless you leave, of course). You can keep it in paper
dollars (as long as they’re available), but for the most
part you will continue to use debit and credit cards,
and increasingly, payment apps like Apple Pay.
An important option during this period is the
i-Account or something similar, which is basically
an offshore account combined with a prepaid debit
card that you can use in the U.S. The great thing about
the i-Account is that you can move any or all of your
funds out of the dollar as needed.
But the single most important thing to do is to stay
on top of developments like these as events unfold
… via The Bauman Letter and other publications
determined to tell you the truth and provide
strategies to cope with it. n
June 2016 10 www.sovereignsociety.com
Glen Mather, President and CEO, NuView IRA
WE generally become the summation of our
habits, the outgrowth of our discipline and the
energy of our ambitions.
Ever hear anyone say, when
challenged about their attitudes
and habits, “I’m sorry, but that’s
just the way I am”? They don’t mean
to convey that they are unwilling
to change, but those statements
reinforce the sense that they
feel content with their current
situation.
When is it too late? Only when you can no longer
effect change. As long as a conscious effort can be
exerted, you still have time.
Last month, I read a wonderful book called Cash Flow Diary by J. Massey. I had a very unusual response
to his book on real-estate investing — I started flossing
regularly.
I was struck by Massey’s assertion that he had come
to the realization that there were a few tasks that he
routinely did every day, and if he had to perform them,
why not do each well? His thought was, “I’m already at
the sink, just brushed my teeth — flossing will only take
about two more minutes.” He then focused on making it
a habit. After 30 days, flossing became routine, so much
so that he referenced it in his book.
If Massey could do it, so could I, and it’s true … I
just received high marks from my dental hygienist.
Who knew that it would be so easy to establish such a
sensible habit?
Most of our negative habits are formed, not by
thinking, but by the absence of thought. I have little
doubt that most people’s attitude about money is
formed the same way. Do you see the extra dollar
in your pocket as a measurement of what you can
consume or how much more you can invest?
My friend Greg tells me that he drives an older
model truck, because for the price of a $40,000 truck
he can buy a run-down property that he can rehab and
rent for $600 per month. Greg, instead of purchasing an
asset that quickly depreciates, is purchasing a type of
an annuity with an income stream of about $5,000 per
year after expenses, and Greg gets a bigger kick out of
his balance sheet than what is parked in his garage.
Unfortunately, most Americans do not share
Greg’s values. According to a recent survey by the
Federal Reserve, about one-third of non-retired U.S.
households have no retirement savings or pension.
Among those aged 55 to 64, more than half said they
expect to work “as long as possible” rather than work
full time to a set date and stop working.
Why is such a large portion of our citizenry unable
to prepare for retirement? For a small number of
households, it may be due to dire economic hardship.
However, for most, the habit of saving was probably
never established in the first place.
I can see it with our clients — there are those who
have been faithful savers as well as those who waited
way too long.
Just think of savings like flossing. It is far more
valuable if you start young. Yet any day you start will
produce results immediately and will accrue long-term
benefits once it is established as a habit.
So rather than setting a large savings objective, just
start with a percentage of your earnings, and as your
earnings improve just increase the percentage. Teach
your children and grandchildren to do the same.
Better yet, when those savings are in a self-directed
retirement plan you avoid the tax bite — and that’s an
idea to sink your teeth into. n
Glen Mather is President and CEO of NuView IRA. Before founding NuView, Glen completed his business undergraduate degree at Southern Adventist University and his Master’s in Information Systems at the University of Southern California.
n Forbidden Knowledge
It All Starts With Saving
www.sovereignsociety.com 11 June 2016
n Chairman’s Corner
By Bob Bauman JD
ECONOMIST, John Maynard Keynes playfully
observed: “The avoidance of taxes is the only
intellectual pursuit that carries any reward.” But then
Keynes never had to confront the
1.4 million Panama Papers.
Keynes’ clever jest ignored
many intellectual rewards, but
in advocating tax avoidance, he
certainly was not endorsing illegal
activity, however pleasurable.
The legal definition of “avoidance”
is the “act of annulling or making
void” or more commonly, acting to prevent something
from happening, such as not being obligated to pay a tax.
The U.S. IRS Manual states: “Taxpayers have the
right to reduce, avoid or minimize their taxes by
legitimate means.” That same IRS document properly
says: “Evasion involves some affirmative act to evade or
defeat a tax, or payment of tax.”
Why then has the IRS and the U.S. Department
of Justice, for more than 25 years, conducted an
unrelenting campaign of intimidation to mislead and
convince Americans that tax avoidance is the same as
tax evasion, with “offshore” as their special target?
The IRS is not alone in this massive duplicity.
In the 1990s, the tax collectors of Europe joined the
U.S. in a coordinated effort to falsely portray all offshore
tax havens as a collective global sinkhole of tax evasion.
At every turn, their distortions blamed tax havens;
for the failure of the U.S. war on drugs, for money
laundering, and, after 9/11, for financing terrorism. Tax
havens, not greedy big banks and government stupidity,
even were accused of causing the 2008 global financial
crisis. The most recent bogus chapter in this continuing
propaganda war is the stolen “Panama Papers.”
Indeed, the IRS became so aggressive in denouncing
“abusive tax shelters” that the respected Washington,
D.C. tax law firm, Caplin & Drysdale, suggested that
the IRS “objective is not to win in court, but rather to
create an in terrorem effect.” (In Latin that means “so
as to produce terror”). The IRS objective: intimidating
U.S. attorneys and tax accountants into failing to give
taxpayers even legitimate tax avoidance advice.
Ignoring their own policy manual, the IRS presumes
legal and legitimate attempts to avoid taxes to be tax
evasion. What truly is abused are the enormous IRS
investigative powers, backed by U.S. Justice Department
prosecutors. And with the Internal Revenue Code a
complex morass, who can tell the difference?
Underlying this largely unappreciated international
operation is the belief that you have no right to
personal or financial privacy; that the government has
the right to know everything, thanks to laws such as the
2001 PATRIOT Act and FATCA.
The Economist confirms the important role offshore
financial centers play in world finance. They have
catalogued the many true reforms in the U.K. offshore
financial centers and in Panama, Uruguay, Singapore,
Hong Kong, the Cook Islands and elsewhere; reforms
that offer strong, legal protection for offshore assets
and investments with real privacy.
Offshore financial centers worldwide have
adopted tax information exchange, signed multiple
Tax Information Exchange Agreements (TIEAs) with
the U.S. and many other countries, strengthened anti-
money laundering laws, updated financial privacy
and banking secrecy laws to permit transparency and
legitimate judicial requests.
But nothing will satisfy these vigilante extremists.
Milton Freeman, gave us the reason: “Underlying most
arguments against the free market is a lack of belief in
freedom itself.” n
Bob Bauman is a former U.S. Congressman from Maryland. He is an author and lecturer on wealth protection, offshore residence and second citizenship. Email Bob at [email protected]
Avoiding Freedom
June 2016 12 www.sovereignsociety.com
n Your Voice
oYou write of the importance of obtaining a second passport. Yet, I recall reading that U.S. Customs won’t honor the non-U.S. passport of an American citizen, so you will not be allowed to exit using it. Do you have any thoughts that you could offer about this situation?
Reply: That is correct, and it isn’t unusual. There is no
country I’m aware of that will allow its citizens to use
the passport of another country to enter or exit. When
you are inside a country of which you are a citizen, you
are considered to be exclusively subject to its laws.
That’s why, for example, a dual citizen who is arrested
can’t expect any assistance from the other country
where they are a citizen. Don’t try it — it’s a felony
under U.S. law, and you will be caught, since your
second passport won’t have any U.S. visas or entry
stamps!
oHow does one open a foreign bank account to pay for foreign property, and pay regular maintenance and local taxes without being a resident of that country?
Reply: There are a number of ways to do this. If you
are really going to make a purchase, the attorney
handling the transaction can always use their own
escrow account for the purchase. Once you are a
property owner in a foreign country, most banks
will open an account for you since you have a clear
presence in and relationship with the country.
oHow do you transfer $100,000 or more to an overseas bank? According to other writers, there appear to have been some issues lately with such bank transfers.
Reply: It depends on many factors, including the
country in question, the U.S. and foreign banks
involved and the method of transfer.
In the best case — if it’s a jurisdiction that’s not on
any “blacklists” (i.e. not North Korea, Iran, Cuba and
a handful of other places) — there is no legal obstacle
to sending money abroad. So, for the vast majority of
countries, there should be no problem on the U.S. side.
Then there are the issues with banks. Your U.S.
bank may not have much experience with large
international transfers, but every bank on the
planet has some mechanism to make them happen.
All U.S. banks, of course, will have you fill out some
paperwork, including government financial reporting
forms. That’s entirely unavoidable. But, assuming
you don’t have any legal issues in the U.S. that would
prevent it, it’s not going to stop you from doing it.
Foreign banks are another matter. Even if the
country in question is OK with the U.S. authorities,
the specific bank abroad may not be. For example,
Balboa Bank in Panama was recently cut off from
money transfers from U.S. banks because it was
allegedly involved in money laundering. Similar
things have happened to banks in Belize. Sometimes
The Art of Moving Money
The good news is that property prices in such countries are much more reasonable than in the U.S., precisely because mortgage finance isn’t so easy to get.
www.sovereignsociety.com 13 June 2016
these bans are put in place by the IRS or the Treasury
Department, but in other cases, U.S. banks decide on
their own not to deal with certain foreign banks for
fear of getting in trouble with the government for
some reason.
In terms of methods, the only real option for
a transfer of that size is a wire transfer using the
SWIFT (Society for Worldwide Interbank Financial
Telecommunication) system. Money-transfer services
like Western Union, Xoom.com or XE.com have
relatively low monthly limits, usually about $3,000.
Finally, writing checks drawn on a U.S. bank to a
foreign bank is sometimes possible, but for an amount
like that, it is unlikely that either the U.S. or foreign
bank would be willing. Wire transfers leave a paper
trail and allow the bank to suspend the transaction if
something comes up. Checks don’t.
oHow do you get a home mortgage overseas without being a resident with local income/credit references? Basically, it seems such purchases can be made only in cash. Such transactions are only possible for a limited amount of people and are a pipe dream for most Americans.
Reply: I wish there were better news, but the truth
is that most foreign countries don’t have U.S.-style
mortgage systems for the simple reason that they
are prone to crises and inevitably inflate the prices
of property artificially. In the best case, depending
on a variety of factors, including your U.S. financial
standing, you can get a 70% 10-year mortgage. Long-
term or higher LTV ratios are unheard of.
The good news is that property prices in such
countries are much more reasonable than in the U.S.,
precisely because mortgage finance isn’t so easy to
get. For example, a nice condominium in Panama
City, Medellin or Montevideo can be had for around
$100,000. That means you need about $30,000 to
$50,000 in cash to finance it.
I understand that this may not be feasible for
everyone, but the reality is that this is the price for
the sort of market stability that those countries enjoy
relative to the U.S. n
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I’m interested in hearing more from you. What is your No.1 concern when it comes to your assets and your freedom? Send your comments to me at [email protected]
June 2016 14 www.sovereignsociety.com
n Final Thoughts
LATELY, people have asked me if I really believe my own predictions. Are things really that bad?
Aren’t I just using scare tactics to drum up page hits?
I wish that were true. I fear for the future of the world as we know it. More so, perhaps, than other financial writers.
One thing that sets me apart is that I’m not focused primarily on short-term yield. A stock market analyst may accept that the U.S. financial system will eventually collapse, but that doesn’t mean there aren’t plenty of opportunities in the meantime.
So, part of it is time frame. I always think of the ominous words of John Maynard Keynes: “In the long run, we are all dead.” Now, you might argue that Keynes’s admonition strengthens the short-term perspective. After all, if we’re all destined for a dirt nap, why not make the best of things right now? Why not leave the future to those who will inhabit it?
Because that would be selfish and rude toward those people, that’s why. The future includes my own children and their descendants. And because I care about living an ethical life. What I leave behind is the single most important measure of a life well-lived — not whether I got the markets right.
Concern about posterity is behind my longer-term perspective. But it doesn’t explain why that perspective is negative. The reason for that is my lifelong fascination with human history. To put it bluntly, I don’t believe in the idea of “progress.” I just don’t buy the notion that the future can take care of itself because things always get better on their own.
The myth of progress is central to our modern worldview. The near-universal focus on economic “growth” over human well-being is based on it. U.S. nonprofits base their marketing on the word “hope,” as if having it will fill an empty stomach. Our philosophers embrace it — the popular ones, anyway. Martin Luther King Jr. said: “The arc of the moral universe is long, but it bends toward justice.”
Sorry, Reverend, but as far as I can see, human liberty and material flourishing actually wax and ebb over time. Past societies that we admire, like the Greek city-states or the Chinese were unequal and unjust. Only a tiny elite enjoyed their fruits. The vast majority lived lives of slavery and died bad deaths.
Moreover, those great flowerings of human achievement always collapsed. The Greeks burned out in a morass of warfare. Rome fell to the “barbarians.” The Mediterranean Arabic caliphate disintegrated into the corrupt Ottoman Empire.
The key to understanding this uneven dynamic is the push and pull between elites and everyone else. The pattern is so common that you could almost call it a law of history: Those with power in society eventually overplay their hand and the whole thing falls apart. Of course, some societies and their elites are chastened by external forces, like Britain’s aristocracy after the two World Wars. But societies without external threats eventually destroy themselves.
What I see in the U.S. today is a collection of interlocking elites racing toward doom. Whether in the economy (Wall Street and big corporations), politics (Washington and the state houses) or the bureaucracy (especially the security services), people who think they are bulletproof are pursuing paths that are clearly unsustainable. They are so isolated from the real concerns of ordinary people that they won’t realize how angry we are until it’s too late. The topic of this Bauman Letter is an excellent case in point.
The one thing that does give me hope is that ordinary people always push back against the elites, and they always rebuild society … even if it’s only to start the cycle all over again.
Kind regards,
Ted Bauman, Editor
Things Will Fall Apart
