As lucrative as a currency recall would be for the US government, it is not likely to bring an end to all of its financial woes. Even if the entire US $150 billion currently unaccounted for were to eventually become the property of Uncle Sam, he would still be left with well over US $4.5 trillion of debt to contend with, meaning that politicians and bureaucrats have dreamt up even more sinister plans. One particular approach that has been mentioned around the halls of government basically rids the government of this unwanted debt by means of the printing press. It works hand in hand with the issuance of a new currency, but takes things one step further. Instead of introducing just one new currency, the government would issue two different types of notes. One would be legal tender inside the country, the other would be legal tender outside of it.
In the beginning, the two currencies would be exchangeable on a one to one basis. Of course, only certain banks would be granted the privilege of being able to carry out this exchange. Similarly, the amount of domestic dollars that one could exchange for international dollars within a given time period would be limited. Then, once the government bad c o ated a currency that can only leave the country under very limited circumstances it could use these restrictions to eliminate much of its debt through inflation. Slowly, the domestic currency would become less valuable than its international counterpart. As the value of the domestic dollar came down, the number of banks granted the privilege of exchanging it and the amount that one is allowed to exchange would also decrease. Eventually Big Brother would enjoy the benefits of having the bulk of his debt denominated in a blocked and virtually worthless currency.
Meanwhile, the international dollar would continue to float on international currency markets. The US could then continue its overspending frenzy by borrowing foreign funds, denominated in the international dollar, which would perhaps be backed by gold. This would greatly increase foreign purchases of government debt, which have declined sharply over the past few years, from US $75 billion in 1988 to only US $5 billion in 1991. It is obvious that foreign investors, unlike many of their American counterparts, have lost faith in the dollar. Still, the US may well be able to win them back by introducing this new international dollar.
Even though such government practices would obviously violate the basic rights of every citizen, politicians would face little opposition in selling the basic elements of this plan to the public. Proposals made by the government to issue new currency notes have largely gone unmentioned in the popular press. When such stories are carried, the possible implications of such government tinkering is never mentioned. Instead, the idea is treated with a light-hearted, even whimsical touch, as if the government were doing no more than moving a few paintings around some dusty and forgotten museum. In short, even this plan for a two-tiered currency could be successfully sold to the public if it is brought into action with all of the appropriate bells and whistles. Again, such new notes would undoubtedly be introduced as part of the largest government decePMion to date, the war on drugs. I will have much more to say about this political nightmare in the following chaPMer. For now, rest assured that there really are no limitations on what your government can do while the public just sits back and watches.
If you think such flagrant government abuse is unlikely, you have not paid a great deal of attention to the actions of governments throughout history. The plan for a two-tiered currency has been repeatedly proposed by politicians in the US since 1989, when it was first introduced by the Drug Enforcement Administration. Both this two-tiered currency and outright debasement of the national currency are completely legal, meaning that the government need not go to the bother of changing the law before beginning its campaign (Although even breaking the law outright rarely presents a moral dilemma to governments.). The fact of the matter is that your government will do whatever is necessary to keep itself in business. If it cannot cut back on spending, it will be left with little alternative but to pursue such drastic substitutes.
One tactic that has been much discussed makes use of a currency recall. Such government schemes have been kicking around in one form or another since 1978, although the most detailed plan to date surfaced during the Reagan years. During this short eight year period, more limitations on your financial privacy were enacted than at all other times in US history. The currency recall proposed by then Treasury Secretary Donald Regan would have worked as follows. First, all US $50 and US $100 notes in circulation would have been reissued. Then, without notice everyone would have been required to exchange their previously valid notes for this new currency within a limited ten day period. At the end of the ten day period, any old notes still in circulation would no longer be legal currency.
Anyone who exchanged as little as US $1000 would have been subjected to further questioning. They would have been required to prove that the money they wished to exchange was not generated through illegal activity and that all taxes had been paid on it. If not, Uncle Sam would have relieved the unsuspecting victim of his cash and subjected him to further IRS scrutiny. Thankfully, this plan with its accompanying infringement on our right to privacy never came to be. Apparently, after analyzing the possible consequences of such maneuvers, the government realized that such drastic actions may have produced a serious decline in the value of the dollar. In other words, it feared that if it tinkered too much with the US currency, people would begin to lose all faith in both the dollar and the government behind it.
So instead of seriously altering and reissuing the currency all at once, the politicians decided to use a more subtle approach. Since the beginning of this decade, the government ha* slowly been instituting what basically amounts to a currency recall. In 1991, it issued a *hghtfy altered US $100 bill which contains what it refers to as “security” features. This amounts to a microscopic line of print which circles the portrait and a polyester thread which runs along the left side of the bill. This polyester thread can only be seen when the bill is held up to a light. In 1992, new US $10, US $20 and US $50 bills were introduced. During this year, the government also began its currency recall, instructing all banks to stop circulating any bills dated before 1990. Undoubtedly, possessing a large number of bills which predate this cut-off point will soon lead to a government inspired investigation.
Still, the biggest changes are yet to come. As we go to press, an even newer US $ 100 note has just been released. In this bill, the portrait has shifted to the left. New colors and inks are also used and a watermark has been incorporated. This newer note will undoubtedly be followed by similar instructions to bankers. They will be told to stop circulating all previous incarnations of the US $100 bill, again basically representing a currency recall. Similar methods have been used by countries everywhere. Over the past few years, England has reintroduced each of its notes, as has Australia. All this is done quietly. The new bills are introduced and allowed to mingle with their predecessors for a while. Then, when everyone is secure with the new bills, old bills are one day declared to be no longer legal tender. Those that have not already been turned in to the government become useless.
Naturally, such methods are never said to be for the purposes which they actually serve. Instead, governments sing different tunes depending on what happens to be the flavor of the month. At times, the new currency has been created to help thwart counterfeiters, in spite of the fact that statistics repeatedly show this to be a relatively minor problem. Not daunted, your government will say that its new currency has been designed to rid the world of evil money launderers and drug barons. If it is feeling adventurous, your government may even claim that the recently issued bills are necessary to help instill confidence in the overall currency. It seems that there is no end to the variety of government invented excuses. They will provide all but the real reason, which always remains the same. Governments introduce new currencies so that they can keep an ever more watchful eye on your financial affairs.
It is inevitable that such excessive spending accompanied by high levels of national debt will have a negative effect on the countries concerned. The US in particular, is undoubtedly headed for rocky waters. As I have already explained, only twenty years ago the US possessed the largest net foreign assets in the world. Today, it is the world’s largest debtor. At one time the dollar was seen as the international currency of exchange. Increasingly this confidence is a thing of the past as the currency continues what seems to be an endless downward spiral. Just look at the statistics. The foreign exchange reserve of the dollar has fallen from 82 per cent to 52 per cent. The number of countries that currently peg their own currency to the US dollar has been cut in half. Furthermore, the currency has lost 95 per cent of its value against gold in the last fifty years, and the value of the Swiss franc as compared to the dollar has tripled in the last twenty years.
Surely, the writing is on the wall. At the very least we can expect further debasement in the US currency, if for no other reason than to devalue the massive debt carried by the US government. Even a government inspired devaluation seems increasingly likely. Such major devaluations of the US dollar have already occurred twice in the past. The first came in 1934 under President Roosevelt. He simply declared that the dollar was worth 70 per cent less than it had been previously, effective immediately. At the same time, Congress passed a law that prohibited Americans from exchanging dollars for gold. The politicians did not stop there, however, and to save their precious jobs went on to ban Americans from owning gold entirely. This ban on gold stayed in effect for the next forty years.
Then again in the 1970s the dollar plummeted. Much like today, foreign banks of the time began to lose faith in the dollar. They asked the US to honor its promise that US $35 was indeed worth one ounce of gold. In short, they asked the US government to put its gold where its mouth was. Soon the US had a problem as its gold reserve began to run out at an alarming rate. President Nixon stepped in, prohibited banks from exchanging dollars for gold and then upped the price of one ounce of gold to US $42.22. In other words, he devalued the dollar an additional 20 per cent. The result is that the dollar became a completely unbacked fiat currency, created out of nothing more than thin air.
Since such actions of the early 1970s, the value of the dollar has continued to decline steadily and is now worth less than 70 per cent of what it was worth then. Although a fiat currency may be convenient for politicians, it offers little security to investors. Politicians realize that if they get into a jam they can always run the printing presses a little longer the next year. This printing of unbacked currency may well help out in the short term, but over the long term the consequences are inevitably nothing short of disastrous. History has shown that in the end every fiat currency one day becomes less valuable than the very paper it is printed on.
Is such a situation likely with the US dollar? Alarming as it may sound, the only realistic answer is an undeniable yes if the US continues to borrow at the rate that it has been. As the US national debt continues to grow, an increasingly large part of the annual budget must go towards just maintaining interest on that debt. During the US government shutdown, it was only a series of juggling moves that allowed the US to pay US $30 billion worth of interest that was due. As Robert Rubin, US Treasury Secretary said, “This is no way for a great nation to manage its financial affairs.” What happens if the next time dear old Uncle Sam finds himself in such a predicament, such juggling moves are no longer possible? Worse still, what happens if in the not too distant future the US government finds itself unable to generate the actual amount needed to cover such debts? The result in either case is obvious, faith in the ability of the US to pay off its debt will be lost. This lack of faith will set off a series of events with disastrous consequences.
First, foreign investors who currently hold more than US $500 billion in US debt will demand a refund, causing the dollar to plummet. Then as the dollar loses value, investors who hold an estimated US $5 trillion in accounts outside of the US will realize that the dollar really is not the best currency in which to hold their funds. They will begin to cash in their chips, trading in dollars for other more stable currencies and gold. The inevitable result, a run on the dollar that will bring it crashing to the ground. Of course, legislation will be enacted to prevent the dollars trapped in the US from escaping. Perhaps another banking holiday will be declared, such as the one of the 1930s that prevented all Americans from gaining access to their funds stored in American banks.
In spite of such obvious warning signs of disaster, politicians from all developed countries continue to routinely choose only one oPMion, increase spending. Like the past, the future will see ever increasing budget deficits and ever greater levels of national debt. The fact of the matter is that even when politicians realize that they must somehow reduce spending, the people who put them in office will not let them. In France, when the government started to tinker with its bloated welfare system, the entire country went on strike for nearly a month. The government was left with only one oPMion; the continued handing out of ever larger installments of cash to the public. Apparently the French either do not realize or simply do not care that their government cannot afford its now cumbersome and out of date social welfare system.
In the US, such misinformed thinking also persists. Yes, the Republican controlled Congress has recently made a great deal of noise about balancing the budget. The individuals involved may even be sincere, but like all politicians their primary objective is to hold on to their jobs. They may talk a great deal about cutting spending, but they understand that their constituencies will oust them from office the minute they cut back funding for even one local government-goody program. So instead they focus on goody programs in some far off land, a program that is equally defended by its local representative.
On a national level, politicians such as Bill Clinton score points by defending programs such as medicare and medicaid, regardless of whether or not the country can afford such luxuries. Absolutely no one talks about cutting back defense spending. Even though the cold war has ended and such massive spending can hardly be justified, the politicians concerned realize that any adjustment made to this major part of the budget would affect an even more important element of their constituencies, big business. Without big business to fund his immensely expensive campaigns, any eager politician would quickly find himself out of a job. In the world today, our elected representatives dare not tinker with such programs, no matter how outdated or cumbersome they have become.
If you require any proof of the likely amount of change that will come about under this “new” Congress just look at their efforts to date. The showdown at the end of last year between Clinton and Gengrich again was much more about political clout and job stability than any of the issues actually involved. If they really did want a balanced budget, then why not slash spending today? All that has come out of the whole fiasco is a promise to balance the budget, tomorrow. We all know what that means. As usual, in the end all that really happens is that the government continues to spend money at a rate that would even put an errant lord to shame. Republican or Democrat really makes no difference. Remember that it was Ronald Reagan, a Republican, that got the country into this mess in the first place.
Ironically, the one thing that the politicians did manage to demonstrate as a result of the US government shutdown is how unnecessary they really are. Did the world come to a grinding halt the minute the government closed its doors around the world and sent 800,000 employees home because it could not afford to pay them? Of course not, even the media, at least outside of the US, seemed to barely take notice of the fact that the world’s only remaining superpower was forced to shut down shop because of financial woes. The few stories that did appear concerned the poor little schoolchildren who travelled all the way to Washington. We saw their sad faces in front of the Washington monument, which they could not ascend because Uncle Sam had run out of cash.
No one seemed to question the fact that if the government can survive for a couple of weeks minus 800,000 staff members then perhaps it could survive a lot longer minus somewhere in the area of 500,000 staff members or more. If the US government really wanted to slash spending, it could start by firing each and every one among its own ranks who has never done an honest day’s work. In my opinion, more than 80 per cent of the public sector payroll could be eliminated in one day. I believe this holds true for all developed countries. Taxes could come down to something resembling humane levels. Even then your government would run a current account comfortably above five per cent of GDP. Nonetheless, I fear that such a miracle is far from a realistic possibility. Instead, I fear that governments will resort to far more sinister methods to save their sinking ships.
All signs seem to indicate that long before things get any better, they will get a lot worse. Government expenditures will reach truly astronomical amounts long before they begin to resemble anything even remotely reasonable. It is simple lunacy to operate at a level that involves borrowing close to a quarter of a trillion dollars a year. Simply maintaining interest on the national debt accounts for nearly 15 per cent of the US annual budget. If public expenditure continues to grow as it has been, expect this figure to reach one hundred per cent within your lifetime. Have you had a hard time finding financing as of late? Well, perhaps it is because Uncle Sam is now taking up 80 per cent of all available credit within the US. The only real mystery is why such a deadbeat is still considered to be a good credit risk, although apparently international investors are beginning to wonder.
Nonetheless, all western governments have little choice but to continue on this path to destruction. As public programs continue to grow, they will continue to require ever greater amounts of financing to stay in operation. Just consider the effects of social security in the US. This program was first started in 1935. Like the income tax, the public bought into it on the assumPMion that it would not eat away too much of their income. Yes, the tax then was an incredibly low 1 per cent on the first US $3000 of income or a maximum of US $30 per year. Did this rate stay incredibly low? Of course not, employees now pay 7.65 per cent of their first US $57,600 of income or a maximum of approximately US $4400 per year. This modem rate is 147 times higher than the amount that originally sold the plan to the public.
Still, all signs say the worst has yet to come. The laws of mathematics show that there is little other alternative. As the number of people retiring in the US increases, the number of people entering the workforce is decreasing. It is estimated that by the year 2020 there will be one retired person collecting from the fund for every two individuals working and contributing to it. This means only one thing, higher taxes. Even the government admits that this rate could go as high as 37.5 per cent by the year 2020. That’s just social security, meaning that to calculate your true future tax you will also have to add on whatever federal, state and local taxes future politicians can dream up!
Other statistics show that the current value of social security’s obligations exceeds the current value of projected tax recei PM by more than US $1.25 trillion. Similarly, calculations by the OECD suggest that even on favorable assumPMions the present value of promised public pensions net of future contributions amounts to 216 per cent of France’s GDP and 160 per cent of Germany’s. These figures are three times larger than the existing public debts of these countries. What do all of these numbers mean? It’s simple, just because you have spent your entire life slaving away to support a welfare state and help others retire with ease does not mean that there will be anything left in the pot when it comes your turn to collect.
As tomorrow becomes today, the problems of financing a huge and outdated extortion racket will not go away. On the contrary, all numbers show that these problems will, without excePMion, only continue to grow. The problems inherent in recent free lunch programs, namely future liabilities from unfunded pension schemes, will swell as populations age. When you couple these liabilities with the fact that public debt runs at about two-thirds of GDP in most countries, it becomes clear that something will have to change, yet politicians around the world realize that it is in their best interest to make sure that nothing does change.
Today financial privacy has become far more than a right, sadly it has developed into a necessity. Those who fail to take notice invariably spend the major part of their lives battling lawsuits and negativity. I don’t. I travel, enjoy good food, agreeable company, pleasant beaches and all the other great things that this little planet has to offer.
As I explain in PM, I have long since broken free from the restraints put on us by government and become a Perpetual Traveler and Prior Taxpayer, a PM as I call it. Banking Silence forms another link in my developing series of reports which show you how to accomplish the very same. It deals exclusively with the area of banking and financial privacy, but is somewhat different from the other reports in the PM series. Banking in Silence is what I like to think of as a guide to becoming a partway PM The full-fledged PM need not be as
concerned with banking in silence as those who are still under the thumb of big government. The full-fledged PM operates under a layer of invisibility, constructing his paperwork in such a way that no government considers him to be its personal property, meaning that completely silent banking is no longer as necessary.
I have constructed this Report for those of you who either cannot or for some reason choose not to become full-fledged PMs. Perhaps you are tied to one place because of children, property, a good career or something of the sort. Perhaps you are not ready to break completely free. This report forms a link to PM status, a stepping stone if you like. It deals with all areas of financial privacy, even those that may not be of specific value to the PM, such as the use of offshore corporations and trusts. Even the very idea of opening an offshore bank account is impossible for the PM. Nowhere and everywhere is offshore for the PM, meaning that any bank account he may happen to hold is automatically offshore.
Anyway, enough on PM. If you would like to learn more about the subject consult my other reports. PM presents the theory while PM2 presents the practice, including a lot of helpful advice on practical matters concerning personal privacy. If you would like to learn how to live a completely private life whether it be how to place phone calls discreetly, how to send and receive mail discreetly or even how to disappear without a trace, this is the report for you. For the moment, I will return to the topic of banking privacy. This area is in my opinion one of the most important aspects of privacy. When governments attack you they invariably go for your cash. Once you deny them that power, they quickly deflate to a powerless nonentity.
This report is your guide through shark-infested waters. It will show you in detail how to accomplish a level of financial privacy only dreamed of by most. As you read the following pages, keep in mind that there is no time like the present to start banking in silence. You never know when you will have to call such protective measures into action, meaning that the sooner you get the ball rolling, the better. To begin with though, it is important to understand exactly what you are up against. We will start by examining your number one threat, government.
In my opinion, the perfect world is a society that ensures the maximum possible liberty for all. Such a society is libertarian, as author and visionary Robert A Heinlein describes it in his best selling ‘‘future history” series of books. In this world of his creation, no possible act or
mode of conduct is forbidden as long as one does not damage another. Even an act specifically prohibited by law cannot be held against someone unless the state is able to prove that this particular act harmed a particular individual.
Furthermore, if one should willfully and knowingly damage another, the state does not attempt to sit in moral judgment, nor to punish. As one judge says, “We have not the wisdom to do that, and the chain of injustices that have always followed such moralistic coercion endangers the liberty of all.” Instead, the convicted individual can choose between treatment or expulsion. He can separate himself from the state by going into voluntary exile.
This system of justice, based on a pact that each citizen signs of his own free will, is a thousand times more free than the freedom of our modern democracies. In our world, you are bom into a system but never asked whether you wish to join it or not. The premises and conditions have already been established and for some reason are simply taken for granted by the vast majority of the populace. Would it not be better to have a system in which the government does not impose itself on its citizens?
Will such a perfect world ever exist? Probably not. Which is why I have gone to the trouble of creating my own path to a stress-free, government-free way of living. I am not a dreamer or an idealist, I have no desire to change the world for everybody else. Nonetheless I recognize that today, at the close of the millennium, few governments take an enlightened stance. Instead, politicians and bureaucrats busy themselves with thinking up new ways to mess with your life and get their hands on your money. You can strike back by refusing to serve them as a sacrificial lamb.
No one is more sovereign than yourself. Even if some fool shows up at your door calling himself “the state” while frantically waving papers at you, you should have the right to slam the door in his face. Unfortunately, the world ain’t so. If it were there would be no reason to write this Report.
In an ideal world, what you choose to do with your own money is your business and your business alone. Whatever banks you want to store your money in, whatever loops you want to put it through, should be your decision. If you want to channel your cash offshore or invest it in a business opportunity overseas, who should object? Where your money goes and what it does is your business. After all, it is your money. You made it. Anyone who tries to tell you otherwise usually has an ulterior motive. Watch them closely. He, she, it or they are trying to get you to fork over part of that cash.
There is a war going on, a war against everything that we believe is desirable. Bureaucrats and politicians and other con men and schemers are attacking our personal privacy. Their excuses nearly always sound convincing. The assault on your privacy is, without exception, proposed and executed in the name of the common good. New and ever more complex fiscal regulations are constantly brought into play to enforce their tax codes so that some pet project can continue to receive its exorbitant budget at public expense.
Day after day we see examples where this blatant abuse and misuse of power is not enough to satisfy the politicians and their armies of self-serving pen pushers. These bureaucrats then turn to using threats, violence and similar heavy handed techniques to achieve some higher goal they themselves have set. A closer inspection reveals that the common good happens to benefit Big Brother and the particular political or ideological ideas of the politicians in power.
When sociologists discuss democracy they invariably talk of the social contract. Listening to them, it sounds as if this social contract is some sort of magic instrument, a cure-all potion or a secret super-weapon that we must all fear and respect. Truth is, no such contract actually exists.
Nevertheless, just as the priests of old used stories of fire and brimstone to send the masses running in fear of the coming inferno, today social manipulators cite the social contract. This social contract states forcefully that we owe some strange sort of dues to society, whatever that is. To make matters worse, we can never pay off this debt, it is the modem day version of the proverbial millstone around your neck.
The social contract is a one-sided scam. In theory, it goes something like this. You were bom into our midst. You share our language and our culture. We taught you what you know (in return for your daddy’s tax dollars, but that’s another story). So, due to this shared past, we hold an IOU on your future. You have an obligation to pay, whether you like it or not, not according to how much you took out, but according to how much you are able to put in. In the social contract, your debt to society has no limit. Furthermore, the social contract does not end there. It also gives the rest of us the right to tell you what you can and cannot do. To cap it all, you were never asked to sign this contract. By virtue of having been bom, you are automatically signatory to this one-sided deal.
Of course, a social contract in the official sense of the word, meaning one actually written down that we could choose to sign or not, is not such a bad idea. In fact, it is probably essential to every truly free society, laying out your rights and obligations and those of your counterpart government, eternal friend and foe. In such a society, victimless crimes would not exist and arbitrary justice would become a thing of the past. Will the politicians and intellectuals ever bother to put in writing exactly what our obligations are? Don’t hold your breath. The people in power understand beyond a shadow of a doubt that if they ever put pen to paper to formulate this social contract, few people, if any, would ever sign it.