Coming for Your Accounts: Solutions

planBAfter running last week’s article (They’re Coming for Your Accounts), we received a number of questions about how to actually protect oneself. So, this week I’d like to address that subject.

First Words

I need to make an important point before I proceed, however: I am not involved in the financial industry, and I do not know the many rules that apply to IRAs, 401(k)s, and so on.

So, please understand that I’m speaking in rough terms and that you’ll need to apply all my suggestions to your own situation intelligently. I simply do not have precise advice to give you.

But with that said, here are some suggestions:

Partial, Multiple, and Incremental Solutions

Solutions to financial problems do not have to be all or nothing. If you think that IRAs are ripe for picking (as I do), then you can begin by ceasing to fund them. Take your money as regular income, pay taxes on it if you must, and put it to use as you see fit. That money will no longer be in the “first grab” pile.

If you do something like this, you will be slowly moving your assets out of easy government control. And if you hold your earnings in the form of cash, rather than in a bank account, it becomes very difficult for a government to seize.

Everyone will have their own opinions and risk estimates, but in my opinion, money left in registered accounts is becoming riskier than cash that is thoughtfully stored.

There is also the common issue of spouses disagreeing on what to do: One thinks registered accounts are a risk; the other doesn’t. While these situations are difficult, they don’t have to be as dramatic as we make them. We can simply do several things at once: Leave the 401(k) as it is, but start putting new money into silver and gold. Or create an offshore structure and fund it bit by bit, instead of continually funding the government retirement account.

There’s no reason we have to go 100% in any single direction; We can go several ways at once. Better to do this than to fight and make our lives miserable; money should make our lives better, not worse. It is useful and important, but not that important.

Warning Bells

Whatever your plans may be, it’s a good idea to have a backup plan: “If they do X, we’ll do Z.” What you’d like to do ideally is to not get hurt too badly when the alarm bell is rung.

So, I’d suggest that you keep the least money in the place that’s likely to be hit first. And in my opinion, that will be the place that’s easiest for a desperate government to loot.

I gave several examples last week of what has been happening, so that would be a good place to begin your analysis. And remember that predators always hit the softest target first.

Specific Options

Here are several options for keeping your money under your own, personal control:

Cash: Still easy enough to get, and easy to store. Theft is always a concern, but when governments start stealing directly from bank accounts – as they did last year in Cyrpus – which is the lesser risk?

Gold and silver: Very similar to cash, but with two differences: During normal times, it may need to be exchanged for local currency, which is an added expense. In bad times, however, local currency becomes worthless, and the metals retain their full value. There are many local coin dealers that make purchasing silver and gold easy.

Bitcoin: While new, sometimes volatile (though not recently), and not universally accepted, Bitcoin is easy to get, easy to use, and easy to secure. And it remains solely under your control. In addition, cryptocurrencies can be used internationally without expense or permission.

Invest in local businesses: We covered the specifics of this in FMP #19, but investing locally diversifies your risk, while still giving you the ability to oversee your investment. And it helps your neighbors directly, rather than giving Washington and Wall Street a skim on all your investments.

Offshore structures: Holding your money in another country is a very large speed bump to your local government. Yes, if you’re a real criminal, the other country will give up your money promptly, but such places are dependent upon foreign bank accounts, and they will not want to scare their customers away by giving up their money without a fight.

Furthermore, offshore structures are not terribly expensive to obtain. You’ll want to use a professional to do the work for you (it’s too hard to do yourself), but the expense is not as bad as you may think.

Offshore real estate: Offshore real estate, I am told (please verify for yourself), does not have to be declared to the US government.

Breaking Inertia

The most fundamental need in situations like this is to break the inertia that entangles us. That inertia moves always in the direction of compliance with authority and a mute servility.

What matters most to us is that we leave the camp of the perpetually obedient and start acting in the world according to our own judgment. In the end, that’s the only way to live our own lives (financial and otherwise), rather than “being lived” by outside forces.

Paul Rosenberg
FreemansPerspective.com

Why the Banksters Don’t Care About Your Gold

bankstersI regularly hear how important it is to hold silver and gold and how dangerous the central banks and their banksters (a combination of bankers and gangsters) really are. I’m sympathetic, of course, since I don’t like central banks and I do like silver and gold.

But these folks have a problem: Their plans never seem to bear any fruit. Mostly, they are waiting for the banksters to lose control, for the financial system to fall down, and for their silver and gold to save them from an apocalypse.

But it has been a lot of years now, and the banksters seem to have no concern about precious metals in the hands of average folks. In short, they don’t fear your silver and gold at all, and I think it’s important to examine why.

The Obvious Reasons

There are several obvious reasons why the banksters don’t fear metals in private hands, and then there’s a much bigger reason. Let’s start with the easy ones:

  1. The banksters already hold most the world’s silver and gold and control its pricing. The ‘official’ price of gold is set every day by a group of bankers in London.
  2. They lease it to each other and their friends.
  3. The largest bankers more or less control the gold futures markets. At last count, the big commodities market had 102 times more gold under contract than they had physical gold. Since this “paper gold” passes for real gold, manipulations can abound.
  4. Governments are very good at stealing gold from a populace. The US government did precisely that in 1933, and there’s no reason to think they wouldn’t try again when they want. Taking money is what governments do.

The Big Reason

All the reasons above are significant, of course, but there remains a vast amount of gold and silver in private hands. And this could present a serious problem to the banking monopolies, except for one thing:

The people who hold these metals never use them.

I regularly hear people asking, “How do we destroy the banks?” And the answer is obvious: Stop using their products.

That, of course, is where the inquiry usually ends.

The “gold bug” crowd already has the tool of victory in their hands – but they don’t use it. There is more than enough gold, silver, and copper in free circulation to conduct a great deal of commerce. And if they were serious about ending the reign of central banks, that would be the way to do it. (Bitcoin would more than suffice for international transactions.)

But they almost never use their metals. Rather, they hold them in safes, in drawers, and on shelves, treating them like little idols. Every so often they pull out their stacks, dust them off, appreciate them for a moment, then put them back into storage. Then they wait for the apocalypse to come, when they’ll finally do something with them.

Again, I like silver and gold; I think they are honest money and a good store of wealth. But if you want to great rid of central banking tyranny, you’ll have to USE your silver and gold. That’s the choice: Treat it like an idol or treat it like money.

As long as your coins remain static, they remain powerless. If you use them like money, big things can happen.

The Bitcoin Kids Have It Right

A lot of silver and gold people hate Bitcoin. But regardless of Bitcoin’s features or flaws, the Bitcoin community is doing one thing very well: They are using their currency, rather than merely admiring it.

This is why the banksters and governments are freaked out about Bitcoin and not about silver and gold. By using their currency, the Bitcoin kids are chipping away at the banksters. If left unmolested, these young people would seriously weaken the banksters and eventually render them obsolete.

  • The banksters fear Bitcoin, because people are using it in daily commerce.
  • The banksters don’t fear precious metals, because they are not used in daily commerce.

Silver and gold will start chipping away at the banksters when people pull their metals off their shelves and use them… and not before.

Paul Rosenberg
FreemansPerspective.com

Where the *Bleep* Is Germany’s Gold?

Germany's goldYou may have heard something about this story, but I think it’s important to take a few minutes to restate the facts clearly. In the modern news environment, stories come and go so fast – and in so many parts – that it’s very easy to get lost along the way.

So, here’s what we know so far:

  • In 2012, the Bundesbank (the central bank of Germany) asked to visit the vault of the Federal Reserve in New York, to view the 1,536 tons of gold they have stored there.
  • The Federal Reserve told them no. They were not allowed to see their gold.
  • In response, Germany said that they wanted 300 tons of their gold back.
  • The Federal Reserve said that they’d need seven years to get the gold back to Germany. (Something that should take them seven weeks, tops.)
  • One year later, the Fed has returned only 5 tons of gold to Germany. At this rate, it will take 60 years for the Germans to get less than one fifth of their gold back.

Though I don’t know precisely what, it is very clear that something strange is going on here… something that the prestigious central bankers want to keep away from the light of day.

Shipping 300 tons of metal is hardly a new and difficult technical challenge. Companies involved in metal trading do this all the time. Sure, gold requires extra security, but security is also something that lots of people know how to provide.

Give me half a percent as a premium, and I’ll have it arranged by next week!

The German Responses

The initial German response was the one mentioned above: Give us back our gold. But that happened over a year ago, after they weren’t allowed to see their gold. There have been further responses, following the very lame delivery of five tons.

These responses have come in just the past month or so:

The president of Germany’s top financial regulations group said that manipulation of gold and silver “is worse than the Libor-rigging scandal.” (The Libor scandal was and is a big deal, and lots of lawsuits are underway over it.) That’s a big accusation.

Then, Deutsche Bank, the biggest German bank, dropped out of the London gold fixing pool; the group of bankers that set the official price of gold. This is also related to the investigations by European regulators into the suspected manipulation of precious metals prices by banks. Again, this is a very significant event.

Germany does not seem happy about what the Fed is doing to them. These responses may seem timid, compared to what you or I might do if someone refused to give us back our gold, but they very clearly show that the German banks are objecting. (What’s going on behind the scenes remains unknown to us.)

In addition to this, the Financial Times ran an article advising investors to demand physical delivery of their gold. Bloomberg published an article on gold price manipulation. Whether they were pushed to do this by the Germans remains an open question.

What’s Really Going On?

So, given what we know, the obvious question becomes, “What’s really going on?”

The first answer is that we simply do not know, but even that deserves a short comment:

We don’t know because central banks are above scrutiny. They operate in secret, insulated by governments.

In any honest business, we could learn something about what’s going on, but central banking is different. Its operators not only control the world’s money, but they do it secretly.

So, we can only guess as to what’s happening.

Most likely, however, is that all of Germany’s gold has been lent out and/or used as loan collateral multiple times and that the Fed is having a very hard time unwinding all those loans. If they just give the gold back, the collateral for hundreds (maybe thousands) of international loans goes away.

And when I say “lent out multiple times,” I am not speaking loosely. There is a financial trick called rehypothecation that allows bankers to use the same stack of gold as the collateral for simultaneous loans… over and over and over.

So, in order to pull Germany’s gold out of the lending game (and central banks do loan out gold), lots and lots of loans would have to be rehypothecated to other piles of gold, and that requires a lot of office work. Each bar of Germany’s gold could be involved in a dozen loans, each of which must be re-arranged.

This would account for the slowness of the Fed returning the gold back to where it belongs.

Of course, there are other possibilities. Maybe the Fed is just trying to punish Germany for some reason (they’ve messed with them in the past), or that the gold is simply no longer there – that the Fed or its friends sold it.

The Bottom Line

It would be wonderful to figure out what will happen next, but we’d have to base that on what’s really going on now, and we don’t know even that. As mentioned, central banks never have to tell.

The one thing we can be sure of is that the Federal Reserve and the Bundesbank are at odds. What will come from that is unknown, but this is a very significant problem between giants, and it is already producing consequences.

Maybe this problem will go away. But if it doesn’t, it could become very, very significant.

And how that will affect each of us – well, that’s a very good question.

Paul Rosenberg
FreemansPerspective.com

The Era of Fiat Currency Capitalism

fiat currencyI have worked long and hard to gather a broad perspective on history. I don’t doubt that there is value in specialization. In fact, I would have great difficulty doing what I do without good specialists.

Nonetheless, my particular set of abilities suits me to play specialist for short, intense periods, and then to integrate my gleanings into a larger whole.

One of my general conclusions has been that if we were to give a name to the last 40 years of Western history, we’d have to call it the era of fiat currency capitalism. There is a contradiction built into this term, of course, since fiat currencies and capitalism are oppositional, but such an inherent contradiction is also highly representative of this period.

Having been inside of this contradiction most or all of our lives, it can seem almost permanent and inevitable to us. Nonetheless, it will end, and probably before terribly long. As Robert Louis Stevenson once wrote:

Sooner or later, everyone sits down to a banquet of consequences.

For the last 40 years, things that should have crashed and burned have not crashed and burned, and it was fiat currency that permitted the consequences to be scorned. Western culture and millions of minds have been bent in the process.

Fiat versus Reality

Fiat currency is money based upon nothing at all. The Monopoly money shown above has the same actual value as the Dollars, Euros or Pounds in your pocket. For the moment, the paper in your pocket will buy you food and furniture, but not because it has any real value.

Our daily money is created by politically-favored groups who have been granted monopolies on the creation of currency. (They are referred to in polite company as central bankers.) They create our money, from nothing, and all others are forbidden from doing so. If that sounds crazy, it’s because it is.

The only people with any authority over these currency monopolists are politicians, and that isn’t terribly strong. (In the case of Great Britain, the monarch has some control as well.)

I won’t bother trying to list the ways this astonishing privilege could be abused. Feel free to play with the possibilities on your own. And do remember that more or less every dirty trick that people could get away with, they have eventually used… and bankers have never been exceptions.

This new era began in 1971, when the previous international monetary arrangements, the Bretton Woods system, fell apart. On May 5th 1971, US dollars flooded the European currency markets and threatened the Deutsche Mark. The central banks of Austria, Belgium, Netherlands and Switzerland stopped all dollar trades. Who was behind this flood of trades is unknown to me but it was apparently someone with inside knowledge. At about the same time, the French were, via complex arrangements, redeeming their dollars for gold from the US Treasury, as Bretton Woods allowed. (It was gold that kept the system honest. If you thought games were being played, you could turn in your paper for actual gold.)

If the US had allowed redemptions to continue, they would have lost all their gold reserves. So, on August 15th 1971, the US pulled out of their monetary agreements and refused to redeem any more dollars for gold. (This was called closing the gold window.) Bretton Woods fell apart and, very shortly, no major currencies were redeemable; everything became fiat currency, based on government edicts alone.

This change from redeemable money to fiat currency has affected Western life immensely. For more than 40 years, life in the West has been based on money with no value, which has spawned a lot of other things that have no value.

Quigley’s Chart

The chart below is my modernization of a chart used by Carroll Quigley, one of the best generalist historians of the 20th Century. The chart displays his seven primary factors of Western Civilization, and how they have varied over the last thousand years or so. You’ll notice that I’ve circled our era in red and called attention to the form of economic organization with blue.

fiat currency

As I’ll illustrate below, fiat currency has had significant influence, not only within the ‘Economic Organization’ category I have highlighted, but also over ‘Political’, ‘Economic Control’, ‘Dominant Group’, and even ‘Intellectual’. It has more or less defined our era. So, if I am correct that the reign of fiat currencies is ready to end… big, big changes lie in our future.

Horrific Debt

Fiat currencies allowed politicians to spend money without raising taxes. They did this by creating debt. I won’t spend time on the complex process involved, but every new Dollar, Pound or Euro that is created also creates more than its own value in debt. The currency is spent immediately but the associated debt can be pushed back indefinitely.

Faced with this situation, politicians asked their central bankers to create more and more money, which they quickly spent. Whether on social programs or wars, sensible or not, politicians spent money like there were no consequences attached.

But by spending in this way, the politicians also spent the tax receipts of future generations. Every new dollar requires the central bankers to sell more than a dollar’s worth of bonds, which are debt. This debt has been pushed endlessly toward the future… to the point where American children are now born $70,000 in debt, with five times that much promised.

All bonds are claims against future earnings. The children of the West have had decades of taxes pledged to bondholders they will never know, for money that was spent years before they were born. And, yes, it really is that bad.

The Welfare State

The debt of the Western states was spent on something, obviously, and the most notable destinations for that money were “welfare state” programs. This worked in the favor of politicians in the old, reliable way: by promising voters free stuff. And, more importantly, fiat currency allowed them to make good on those promises without raising taxes.

The most crucial fact about debt-funded welfare, however, is that it made it seem that politics could produce magic. Government was able to give massive streams of money to groups that placed ideals above reality. “Wishing makes it so” seemed to work. This corrupted the reasoning of millions of people and punished those who did hold doggedly to reason. And, this corrupting influence has continued for a long, long time.

Wall Street Contributed to the Damage

The people who work on Wall Street, and in the other financial capitals like London, tend to be aggressive and competitive. On top of that, the big financial firms place them into highly competitive situations like “the top producer gets a double bonus.” It should then be no surprise that such people would want to get in on the central banking game, and to create their own money from scratch.

Central banking need not be the only way to create money; any trusted debt can be used. Here is what Alexander Hamilton (who created central banking in the United States) had to say about this in his Report on Public Credit in 1790:

It is a well known fact, that in countries in which the national debt is properly funded, and an object of established confidence, it answers most of the purposes of money. Transfers of stock or public debt are therefore equivalent to payments in specie. [“Specie” was silver or gold.] In other words, stock, in the principal transactions of business, passes current as specie.

Hamilton’s formulation in plain words is this: Debt can be used as money, and people will accept it as money.

So, if the clever boys of Wall Street and Fleet Street couldn’t get in on the central banking game, they could nonetheless create a new version of it, by using new types of debt as money. (Though this was probably the result of many small decisions rather than one large one.)

What most people don’t know about Alexander Hamilton is that it wasn’t only American central banking that he created; he also created Wall Street. That his securities dealer descendants pursued an alternate way to create money seems almost fitting.

Wall Street’s new debt money is called derivatives. A derivative is a contract whose value is derived from other quantities. Derivatives have existed for a long time, but in the past dozen or so years the financial centers of the world have pumped out stunning amounts of them in a wide array of new configurations. All of these derivatives have their own value. It was one particular type of these financial products that seems to have started the crash of 2008.

I am not expert enough to reach any conclusion as to what specific fallout can be expected from this but $600 trillion dollars of synthetic monetary instruments have to be significant.

Indeed, it goes far beyond just money. The era of fiat currency capitalism has changed who we are in broad and disturbing ways.

[Editor’s Note: This article is an excerpt from our flagship newsletter Freeman’s Perspective – Issue #07: The Era of Fiat Currency Capitalism. If you liked it, consider taking a risk-free test drive. Not only will you gain immediate access to the rest of the issue (which shares 5 ways in which fiat currency has changed us for the worse), but you’ll also be able to enjoy the entire archive – more than 520 pages of research on topics of importance and inspiration to those looking for freedom in an unfree world. Plus valuable bonus reports and all new issues as well. Click here to learn more.]

Paul Rosenberg
FreemansPerspective.com

Bitcoin Should Get Ready For an Attack

bitcoinBitcoin – poorly understood and frequently talked about ignorantly – is a wonderful new financial tool… and a very timely one. But because of its virtues, it is about to be attacked.

But before I explain how, why, and my recommended responses, let me get everyone up to speed on what this stuff really is:

  • Bitcoin is digital cash. You do not get an account, you get a wallet. Holding Bitcoin on a computer is the same as holding government money in your wallet.
  • Bitcoin is distributed. There is no central office and no central computer… anywhere.
  • Bitcoin can’t be printed up, like national currencies. It has to be ‘mined’, and this requires special computers, lots of calculations, electricity and a bit of luck. It’s neither free nor easy.
  • Bitcoin is limited. Only 21 million of these things can ever exist, and they can only be mined on a very specific schedule. (About 11 million exist now.)
  • Bitcoin can’t be changed. Bitcoin is a specific computer program and cannot be changed by any single party. It is a specific set of rules cast into a computer program, and since that program is open source, it can be checked by anyone to assure that there are no secret back doors.
  • Bitcoin is pseudonymous. Every transaction is recorded, but real names are not. While it is not properly anonymous, it can be used anonymously if you do simple things like never using the same address twice. (There are even ‘laundries’.)
  • Bitcoins are oblivious to borders, laws or rules. This is simply computer code – nothing else matters.

Why The Fiat Masters Must Attack Bitcoin

I say that Bitcoin will be attacked for the simple reason that it is the anti-fiat currency… and a lot of very powerful people have their entire kingdoms built upon fiat currency and its central banking game.

It is actually very similar to gold and silver in its overall effect: If Bitcoin, or gold, or silver – or any combination thereof – ever became dominant, no one could play games with the world’s money and skim from millions of people at once… or run welfare states in defiance of economic reality.

The bankers do not want to lose their positions, and if they let this alternative currency take over, they will. So, they will have to attack. In fact, I am sure as I can be that they are doing it already.

I should add that there are socialist types who love this development because it could destroy the greedy bankers, but I don’t expect them to deter the attacks to any significant extent.

The Attacks

It is important to understand that the system is not invulnerable. It’s certainly not easy to attack (like a Cyprus bank account), but attacks both small and large are possible.

I’m not going to describe large attacks, as I don’t want to give anyone ideas. You can either believe me that they are possible, or not. These big attacks, however, would not be easy, and would have side-effects. So, I don’t expect to see them first. First, Bitcoin’s enemies have to win the PR war.

There was a great line in the movie Gladiator that applies right now:

You have a great name. Before they destroy you, they will have to destroy your name.

I’m not sure it’s fair to say that Bitcoin has a great name among the general populace, but it certainly does among the best and brightest of the younger generations. And this great name is spreading rapidly in places like Cyprus, and among people who fear a Cyprus-style mass theft coming to their area.

Gold and silver are the traditional ways of avoiding predation, but trying to cross a national border with precious metals these days is to invite theft and punishment. (This was not much of a problem before the 20th century.) Bitcoin, on the other hand, can be moved world-wide, instantly, from the comfort of your chair.

So, the first attacks will be combined with a PR war. The point will be to scare people away. “You’ll get ripped-off!” will be their emphatic meme.

Do not underestimate fear, by the way: Humans are hard-wired to over-respond to it. Fear works, which is why power-mongers always use it. And these people also own, influence or control the broadcasting systems that consume nearly all of the Western world’s attention.

So, the first attacks will be those that we are already seeing: Malicious hackers breaking into whatever clustered systems they can and stealing. (Or running Distributed Denial of Service [DDoS] attacks.) They are attacking exchangers, wallet hosting services, and so on – anything largish that can be hit. They are already publicizing these attacks, but I expect more and better.

The coming attacks will be publicized rapidly – with stories and releases prepared ahead of time – and will paint the worst possible picture. Afterwards it will be seen that the first loss estimates were wildly high, but that won’t matter to the people who see the headlines on the evening news. Joe and Jane Obedient will believe the worst.

This is all manipulation, obviously, since people are being ripped-off in government money, on gigantic scales: millions of thefts at once. Heck, every productive person in the West has about half their earnings taken from them every year in the form of taxes, not to mention the 5-10% they lose every year in the form of inflation. To compare these things to a few stolen wallets is a sick joke. But, such is the state of the West at this sad moment: The large abusers are sanctified and the innovators are demonized.

What to Do About It

Here’s my list:

  1. Be prepared. Don’t let it shake you. Don’t compromise your beliefs.
  2. Tell others to prepare. Tell people to expect attacks and a PR war. Tell them to upgrade their security and to be personally ready. Bitcoin will be called all sorts of things: A Ponzi, a fraud, a tool for terrorists, a threat to civilization, and so on. It’s not fun to have those accusations hurled in your face, so expect it and get ready for it.
  3. Prepare for the worst. At some point we may need an alternative to the government-owned Internet. Setting up our own systems will not be hard or expensive, but it will require action on our parts. Learn about mesh networks (PDF) and packet radio. Those who can code should think about writing new high-latency protocols, or reviving old ones like FidoNet.
  4. Do not rely on Internet exchangers. We should all be grateful to Bitcoin Exchange Mt. Gox and the others, but they are vulnerable and will soon enough be compromised or shut. The future lies with over the counter (OTC) exchangers.
  5. Keep having fun! Bitcoin has been a gas – don’t let go of that. Adapt, improvise, overcome! Yes, there will be more bad days from here on, but don’t let them steal your joy for any length of time. Hold to the good, reject the fear. Do what resonates within you; do what makes you feel good and creative and productive.

Paul Rosenberg
FreemansPerspective.com