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The Daily Reckoning Presents Protecting Your Assets from an Out-of-Control Government, Part I The Daily Reckoning U.S. Edition

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The Daily Reckoning | Thursday, May 10, 2012 Say no to government: Internationalize your portfolio today, Want something done properly (and profitably)? Leave it to an anarchist! Plus, Bill Bonner on the plight of the poor ol’ 1% and plenty more... ------------------------------------------------------ Dozens of Congressmen have used “inside information” to make a fortune on stocks... But did you know that there’s another way Congressmen pile up personal wealth while they’re in office? Senator John Kerry did this recently and took home at least $92,723. But what’s really surprising is that you and I can use this “trick” as well. Learn about the full story here. Lessons from an Individualist Anarchist Lysander Spooner vs. the USPS Joel Bowman Reporting from Buenos Aires, Argentina... I gave a letter to the postman, He put it in his sack. Bright and early next morning, He brought my letter back. — “Return to Sender”, lyrics by Otis Blackwell and Winfield Scott This just in: The state still sucks at delivering the mail. Shocker! According to news across the wire... (Reuters) The US Postal Service said its loss widened to $3.2 billion in the first three months of 2012 and repeated on Thursday its warning that it will likely default on payments to the federal government unless Congress passes legislation offering some relief. “Of course sales are down,” we hear a few reckoners contest, “nobody uses snail mail anymore. It’s all email today. And Tweets and Facebook ‘likes’ and LinkedIn networking. Sheesh... Get with the times!” Ah, but we are with the times. You’re receiving this in electronic format, aren’t you? Besides, FedEx isn’t in the email business. It still delivers packages. And its sales for the quarter ending February 29 were, at $521 million ($1.65 per share), more than double sales for the same quarter of last year — $231 million ($0.73 per share). And that, despite the fact that volume in its US express business slumped 4%. Profits were up for UPS too, though not by as much. Net income for the world’s largest package company rose to $970 million, or $1 per share, from $915 million, or 91 cents per share from the same period last year. Revenue rose 4.4% to $13.14 billion. And yet, the United States Postal Service can’t manage to balance a budget. USPS enjoys a “statutory monopoly” on non-urgent First Class Mail and the exclusive right to put mail in private mailboxes. (No joke!) Yet it bleeds money like no privately-owned business ever would...or even could. Why is that? American individualist anarchist and proud owner of one of history’s coolest beards, Lysander Spooner, thought he knew the answer to this question 150 years ago. Put simply: It’s the government, stupid! Postal rates were notoriously high during the 1840s, a direct result, thought Spooner, of the USPS’s aforementioned monopoly status. Why charge less when there is no competition? Nobody’s going to undercut you...at any price. Similarly, why bother to offer better service? Nobody’s going to siphon off your customers. You’re the only game in town! In response to the outrageous rates and abysmal service, Spooner set about opening his American Letter Mail Company. He argued that the constitution (with which he didn’t necessarily agree on many issues), granted the government powers to establish mail...but not to exclude others from entering the marketplace too. “The power given to Congress, is simply ‘to establish post-offices and post roads’ of their own, not to forbid similar establishments by the States or people,” wrote Spooner in his 1844 pamphlet, The Unconstitutionality of the Laws of Congress, prohibiting Private Mails. Pressing on the issue of unnatural, coercive monopolies, he later continued... “The idea, that the business of carrying letters is, in its nature, a unit, or monopoly, is derived from the practice of arbitrary governments, who have either made the business a monopoly in the hands of the government, or granted it as a monopoly to individuals. There is nothing in the nature of the business itself, any more than in the business of transporting passengers and merchandise, that should make it a monopoly, either in the hands of the government or of individuals.” Spooner’s pamphlet was published the same year his American Letter Mail Company went into business. The company had offices in Baltimore, Philadelphia and New York among other cities. Of course, Spooner’s analysis of the market for mail wasn’t restricted solely to ethical grounds. He saw what all good businessmen see when they decide to go into business...an opportunity to profit, in this case born by the dismal service and high prices of USPS mentioned above. The market — defined as the individuals acting within it — was crying out for a competitive alternative to USPS. And Spooner gave it to them. His mail company significantly reduced the price of stamps, undercutting the government’s 12-cent standard, and even offered free local delivery on some routes. Hooray for faster, cheaper mail! Of course, the government doesn’t like competition. It’s bad for “business.” That’s why it maintains and enforces a self-granted monopoly on things like counterfeiting and putting people in cages. (Don’t believe us? Try inking your own dollars or kidnapping your neighbor because he didn’t give you a portion of his annual income.) And so, after years of fines and state-sponsored assaults on his enterprise, Spooner was finally forced out of business in 1851. But the story of Spooner and his American Letter Mail Company is not entirely a sad one. True, the government forced him out of business by leveling against him unpayable fines for breaking (fundamentally unconstitutional) “laws.” And yes, it forced him to shutter operations before he had the opportunity to fully litigate his own constitutional claims. But the joke is surely on the practically bankrupt USPS, which continues to run at a loss even now, a century and a half on. Moreover, Spooner’s company proved what many at the time already knew: that the government is no match for private enterprise, neither in offering competitive prices and services or for being able to read and respond to the real world demands of the market. (Interestingly, USPS actually ended up offering a 3-cent stamp in direct response to the challenge from the American Letter Mail Company. Though with Spooner out of the way, it was short-lived.) Perhaps most importantly, Spooner taught us to always question unnatural authority, rather than simply accepting the limits it forever seeks to impose on us. And, thanks to his example, the next time someone trots out that tired old line, “Yes, but who would provide X service (roads, schools, whatever) if not the government?” you can simply answer them, “Anarchists would, my good sir...anarchists just like Lysander Spooner.” P.S. Fellow Reckoners looking to learn more about the works of Lysander Spooner, one of the great individualists of his — or any — era, can grab a copy from Laissez-Faire Books right here. The Lysander Spooner Reader contains vital pieces such as No Treason, Vices are Not Crimes and Natural Law. It’s a must for the liberty- minded individual...whether they have an epic beard or not. Patrick Cox’s Technology Profits Confidential Presents... Only 62 People Know Exactly Why These Four Companies Could Change the World Now you’re #63 “on the inside” — and you’re on the verge of raking in lasting wealth. This could go down in history as the story of our era. Click here for all the details. The Daily Reckoning Presents Protecting Your Assets from an Out-of-Control Government, Part I Terry Coxon By keeping all your assets in the country where you live, you commit, ahead of time, to ratify whatever policy your home government might adopt, no matter how objectionable, unreasonable or pernicious that policy happens to be. If the next new mandate is “Register today to get a nail pounded into your head,” you’re already signed up. Americans, by and large, run all their affairs within the confines of the US. The US economy is so large and so varied that it’s easy to assume that everything you want to do with your wealth can be done without crossing any borders. And people in the US, like people anywhere, live with the habits and attitudes developed over generations. They’re only human. In the case of Americans, those habits grew out of long experience with a government that was small and that generally practiced the rare virtue of following its own laws. In a happy exception to mankind’s experience with rulers, there was little to fear from it. Stay at home is still the norm for Americans, but it’s a norm that is slowly fading. Every billion-dollar tick of the government debt clock, every expansion of the government’s regulatory apparatus, every overreaching judicial decision made in the name of a compelling public need, every inversion of protection for citizens into license for the state and every intellectually tortured discovery of a new meaning in the Constitution’s 4,400 old words leaves a few thousand more people wondering how prudent it is to consign all their eggs to a single national basket. Encounters with high-handed IRS agents and eager TSA gropers do nothing to ease that concern. And for those who listen thoughtfully, the messages from our designated leaders and their would-be replacements only hurry the dawning sense of unease. Specific worries include exposure to predatory lawsuits; fear of where income tax rates might climb; the prospect of losing a family business in a regulatory battle or simply through estate tax; the fragility of financial institutions that have operated for forty years with the assurance that the Federal Reserve would rescue them from any folly; the possibility that a government desperate to protect the dollar from collapse might impose foreign exchange controls or capital controls; the memory and precedent of the forced gold sales of 1933; and the thought that a government floundering in deficits might start pilfering from IRAs and other pension plans. But beyond those particular worries, and perhaps more important than any of them, is the sense that from here on, anything goes. The politicians will do whatever they find expedient, because there is no longer anything to stop them — not an electorate that is jealous of its freedoms and certainly not the Constitution, which is now just a playhouse for judicial imagineering. No one can know what’s coming next from the government and the financial system it has fostered, but for many of us there is an awful suspicion that we are not going to like it. Most Americans still have yet to stick a single financial toe across the border, but more and more are considering it. Many, perhaps millions of toes are now twitching at the thought. Their owners want to end their absolute dependence on what happens in the US. They want to prepare for whatever is coming down the road, even though they don’t know what it will be. They want to be as ready as possible, even though their worries can only guess at what’s ahead. Because internationalizing your financial life means dealing with the unfamiliar, the project can seem more complex than it really is, so it’s best to start with the simplest measures, even if by themselves they don’t give you all the safety you’re looking for. Even from a simple beginning, what you learn with each step will make the next step easier to plan. Start with the first rung on the ladder of internationalization. Then climb, at your own speed, to reach the right level of protection. Rung 1: Coins in Your Pocket Gold coins that you’ve stored personally give you something whose value doesn’t depend on the health of the US economy, doesn’t depend on any financial institution in the US and doesn’t depend on any US government policy. Gold coins are portable and hold their value no matter where in the world you might take them. They’re internationalization in a wafer. Safety cookies. It’s best to buy the coins for cash, for maximum privacy. And there is a good reason to favor one-tenth-ounce gold Eagles. Gold coins mean readiness for troubled times; if you ever need to dispose of the gold in an informal market, it will be easier to do so with small-denomination coins that are widely recognizable and whose value matches the scale on which large numbers of people normally trade. The premium on one-tenth-ounce coins (the price compared with the value of the gold content) is higher than on the larger coins — usually about 15% for the small coins vs. 5% for one-ounce Eagles. But the premium isn’t a dead cost, like a commission or bid-ask spread. The premium is a second investment; it’s what you pay for the packaging, and you can expect to recover it when you sell or trade. And in the circumstances when you would have the strongest reasons for thanking yourself for having bought some gold, the premium you paid will look like a bargain. Rung 2: A Foreign Bank Account On its own initiative, the IRS can freeze any bank account in the US without warning. The action might arise from mistaken identity, from an erroneous filing by some other taxpayer, from your failure to respond to an IRS notice in time or even from a postal error. And that’s what can happen without malice. Other government agencies have similar powers to act on their own, without giving you an opportunity to object in court. And any one of them might act against you for any of their specialized reasons — perhaps because someone resents your inattention to the needs of the migratory birds that visit your property or perhaps because someone thinks it would be fun to point to you as a terrorist, drug smuggler, arms dealer or child-porn merchant. In principle, there are legal avenues for undoing a freeze or a seizure. But you’d need a lawyer, and being suddenly penniless could get in the way of hiring one. A foreign bank account protects you from being trapped in such a nightmare. The US government can get to your foreign bank account eventually, because it can get to you. But a lightning seizure is very unlikely, because it would require a foreign government to override its own legal processes, which it generally wouldn’t be willing to do except in a grave emergency. So if your liquid assets at home were frozen, you would have cash outside the US to fund the legal cost of untangling the problem. A foreign bank account is also a way to step back from the uncertainties of the US dollar, since the account could be denominated in another currency. The US government has seen to it that Americans are no longer welcome customers at foreign banks. So forget about opening a Swiss bank account in your own name. However, if you apply in person (not by mail), you still can open a bank account in Canada. Be prepared to show your passport and to give the bank an original utility bill that confirms your place of residence. Rung 3: Gold Abroad The forced gold sales of 1933 were the work of an executive order signed by President Roosevelt. The purported legal basis for the order was the Trading With The Enemy Act, a legislative artifact of World War I. I have yet to find an explanation of how the authority for an order requiring Americans to sell their gold to the government at the government’s official price of $20 per ounce could be found in the Trading With The Enemy Act, but the fact that the enemy in question had gone out of business 15 years earlier didn’t seem to interfere with the legal logic. The forced sale was a prelude to an increase in the official gold price to $35. The government’s reason for wanting that price rise was to gain leeway for a substantial, though limited, inflation of the dollar while keeping the dollar on the international gold standard. The forced sale was a way for the government, which operated in a political environment that still disfavored deficit spending, to capture the profit from the price rise. That profit would be a kitty for more spending without more borrowing. Today there is no gold standard for the government to stay on. And deficit spending isn’t something politicians especially want to avoid; they’ve promoted it as a civic duty, to stimulate the economy. So the depression-era motives for a gold grab don’t seem to apply. Yet you can’t listen to a conversation between two gold investors without hearing the seizure topic coming up. Are they just scaring each other? I don’t believe so. There are two potential motives for the government to again treat gold differently from everything else. If the dollar’s slide in foreign exchange markets threatens to turn into a panic, the government might want to use gold sales to foreigners to mop up foreign-held dollars — in which case it might see a need to mop up the gold owned by its own citizens. That’s bad enough, but a second motive is a good bit nastier. At a visceral level, people who have centered their lives on government just don’t like gold. It’s an affront to the government’s authority to command and control and an insult to government’s supposed aptitude for solving economic problems. So disrespectful. From their point of view, every ounce purchased by an American is another tomato hurled at the political class. And the purchasers still constitute a tiny minority of the voting population. What could be more satisfying and convenient for the politicians than to kick sand in the face of gold investors for being such lousy citizens? A new attack on gold ownership probably wouldn’t be a point-for- point reenactment of 1933. There are many weapons for mugging gold investors. It could be a prohibition on gold ownership coupled with a prohibition on sales of gold to foreigners. The only one left to buy would be the government, and being the only bidder, it would be a very low bidder. It could be a commandeering of privately owned gold, with token compensation like the $15 per day paid for jury duty. It could be a super tax, say 90%, on gold profits, which would get the job done slowly... or quickly if it were accompanied by a mark-to-market rule. Or it could be something none of us has thought of yet. Not only can’t we know the shape of a future gold grab, we can’t know whether or how the rules would touch foreign-held gold. Owners of gold stored outside the US would be a minority of a minority. Their gold wouldn’t be the low-hanging fruit — it would be higher up in the tree and more trouble to get to. That’s why, in a casino sense, gold overseas is a different bet and a better bet than gold at home. Maybe it will turn out that storing gold overseas won’t matter at all, in which case a little effort will have been wasted. And maybe it will turn out to matter a great deal. To be continued tomorrow... Regards, Terry Coxon for The Daily Reckoning Editor’s Note: Terry Coxon is a contributing editor to The Casey Report, Casey Research’s flagship advisory for big-picture investing, and the author of Keep What You Earn and Using Warrants and the co-author (with Harry Browne) of Inflation-Proofing Your Investments. He edited Harry Browne’s Special Reports for its 23 years of publication and all of Harry Browne’s investment books since 1974. Terry was the founder and for 22 years the president of the Permanent Portfolio Fund, a mutual fund that invests in precious metals as well as stocks and bonds. He is currently the president of Passport Financial, Inc., a specialty financial publishing company. How to store gold safely outside the US Will the US government try to steal your gold again... the way they tried to do in 1933? Nobody could say for sure. And by the time we know, it could be too late. Here’s the good news, though. One gold expert just found a way that any American can own as much gold and silver as they want... stored safely outside the US border. This secret solution is like having your own personal “Fort Knox”... only in Canada instead of Kentucky. This new presentation shows you how. And now over to Bill Bonner who has the rest of today’s reckoning from Baltimore, Maryland... Taxing the Rich to Fix the Economy Bill Bonner Gold down below $1,600! Is the bull market in gold finally over? Nah...let’s change the subject. Today, our hearts go out to the poor 1%... Yes, dear reader, they’re blamed for the crisis... They’re reviled, calumnied, and criticized... They’re hunted by the taxmen... And now they are being shunned by the very institutions they most wanted to get to know. Bloomberg: US Millionaires Told Go Away as Tax Evasion Rule Looms That’s what some of the world’s largest wealth-management firms are saying ahead of Washington’s implementation of the Foreign Account Tax Compliance Act, known as Fatca, which seeks to prevent tax evasion by Americans with offshore accounts. HSBC Holdings Plc (HSBA), Deutsche Bank AG, Bank of Singapore Ltd. and DBS Group Holdings Ltd. (DBS) all say they have turned away business. Renato de Guzman, chief executive officer of Bank of Singapore Ltd., said in industry meetings of private bankers he attends in Singapore, not accepting US clients is “quite a prevailing sentiment”. “I don’t open US accounts, period,” said Su Shan Tan, head of private banking at Singapore-based DBS, Southeast Asia’s largest lender, who described regulatory attitudes toward US clients as “Draconian.” The 2010 law, to be phased in starting Jan. 1, 2013, requires financial institutions based outside the US to obtain and report information about income and interest payments accrued to the accounts of American clients. It means additional compliance costs for banks and fewer investment options and advisers for all US citizens living abroad, which could affect their ability to generate returns. Most offshore hedge funds will no longer take US clients. Overseas banks don’t want their money either. Why? Because there are over 400 pages of new regulations in the FATCA legislation. Way too much for a sane person. Everybody wants to tax the rich, investigate them, crucify them... But what did they do wrong? In 1970, the top 10% of California’s taxpayers paid 28.2% of all the personal income tax in the state. Who complained? They were pulling their weight. Paying their fair share. Now, 78% of all California’s personal income tax comes from these “rich” people. But what, exactly, happened between 1970 and 2010 that shifted so much wealth and so much tax burden to the top earners? As you can see, it wasn’t just cutting their taxes — they’re paying more now than ever. So what happened? The whole system changed. Richard Nixon cut the dollar loose from gold. He may not have upset the world, but he changed the US economy. Instead of being an economy based on real money where real savings and real production increased real wages and profits, it became a smoke and mirrors economy...with money that you couldn’t trust...GDP growth that was largely phony...and zero real growth in wages. From the ’70s to 2012, US stocks — measured by the Dow — rose more than 13 times. From under 1,000 to over 13,000. Here’s a question: how could America’s companies be so much more valuable...when their customers hadn’t gotten a penny richer? Follow the money. From 1970 to 2008, the US money supply (M-2) grew from $624 billion to $8.2 trillion. Guess how much that is. It’s 1,314% — almost the same as the Dow. And more thoughts... “The only real force that ultimately makes the stock market or any market rise (and to a large extent, fall) over the longer term,” writes analyst Kel Kelly, “is simply changes in the quantity of money and the volume of spending in the economy. Stocks rise when there is inflation of the money supply (i.e., more money in the economy and in the markets).” You’ll recall, Dear Reader, that we are getting suspicious of GDP. As we said yesterday, it measures how fast the wheels are spinning; it doesn’t tell you if you are getting anywhere. What happened over the last 30 years in the US? Money...funny money from the feds...was causing the wheels to spin faster and faster. But the economy got nowhere... ..except deeper in debt. Yes, the phony money caused people (many of them in Japan and China) to produce more stuff. And, oh yes, it shifted money from the middle classes to the rich, by increasing the relative value of their investments 13 times...while simultaneously holding real wages flat. Ken Gerbino explains it in another way: It is the paper money created out of thin air that creates the unfair distribution of wealth that is making the middle class fall more behind and the poor more poor. Newly created money and credit in a paper money system benefits those that can access the money first and buy capital goods and real property...before the new money circulates and makes all prices go up. Wages also do not keep up with the inflation and that creates another squeeze on the middle class...the bottom 90% of our citizens went from owning a big piece of the income gains (65%) in the 1960s to being squashed in the 2002-2007 period to 11%. Now, the feds have the voters where they want them. Forty-six million on food stamps. And millions more dependent on federal handouts... Most people can’t afford to oppose the government. They need it to eat. The Week reports: “Over the last three decades, annual spending on the top federal programs for the poor and near-poor — such as Medicaid, food stamps and Pell grants — soared from $126 billion (in inflation adjusted 2011 dollars) to $625 billion. Today, the average poor person receives $13,000 in federal aid, up from $4,300 in 1980. Programs that transfer wealth to the middle classes are even more massive, with Social Security consuming $725 billion last year and Medicare $560 billion. All told, the US spends nearly $2.1 trillion on social programs, 60% of all federal spending.” The feds have the rich where they want them too. They’re now pariahs...all over the world. Nobody wants them. Nobody likes them. Banks won’t touch their money. Now, the feds can squeeze them for campaign contributions and tax money as hard as they want. Regards, Bill Bonner for The Daily Reckoning ------------------------------------------------------ Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor at joel@dailyreckoning.com