by Peter Macfarlane

In my Gold Report ( a.k.a. “How to Purchase and Hide Gold Bullion Offshore”) earlier this year, I wrote that the USA, UK and other major countries are bankrupt. This may not be news to some readers, but the vast majority of the population carry on believing the mainstream media, in spite of all that has happened.

Recently, I received a call from a personal consulting client asking why I said the USA was bankrupt. I guess he had seen in the last few days gold surging ahead, breaking new records in terms of US dollar pricing, while the dollar was falling. Now of course that doesn’t necessarily mean gold is really gaining ground… it could just be taken as evidence of the dollar losing ground – since gold is real money. The Fed can’t print gold.

What was the evidence behind my claim of the USA being bankrupt? And how does one define a bankrupt country? And where do other countries, particularly the UK and Switzerland, fit into the equation?

I decided to answer these questions briefly here, for everybody’s benefit.

First of all, defining a bankrupt country is not easy. Iceland clearly went bankrupt in a more traditional sense. But Iceland was a relatively insignificant country of only a few hundred thousand people. My contention is that the USA is also bankrupt, but it is not so obvious because there are many other factors there supporting the currency – the greatest of which is China. While the USA is bankrupt, China is the richest country in the world.

Who says? And where is my evidence for that? No less authority than the Central Intelligence Agency, obviously a US government agency. Now don’t get me wrong, I know the CIA make mistakes, at least one of which led to a major war. But I think in this case the CIA’s figures are quite accurate…  Click here to visit CIA site and see the Current Account Balance ranking

Take a look at that page, which shows the Current Account Balance. In plain language, that just shows what countries have ‘money in the bank’ and which are operating in a permanent overdraft mode!

China is at the top of the list, with a huge positive balance – not far off that of Germany, which occupies the number 2 position.

The United States is at the bottom, with a negative balance more than five times greater than the next largest debtor, Spain.

You’ll also see the UK, France, Spain and Italy down there with the USA.

Here’s another interesting page to look at: Gold and Foreign Currency Reserves

You’ll see China up at the top again, with huge foreign exchange and gold reserves. Most of China’s foreign exchange reserves are held in US dollars.

On this chart, the USA is at number 19, with foreign exchange and gold reserves just above Switzerland’s (but note the USA has smaller reserves than Malaysia, Libya, Mexico and Iran)

So compare the figures – the USA’s negative current account balance with the USA’s reserves – what is actually there backing the dollar – and you’ll see a huge discrepancy. The current account deficit is almost nine times the amount of the reserves.

Here’s how I interpret those figures: The fundamentals of the US dollar are a disaster. It is being supported only because the Chinese and US governments want to keep its value up, and to a lesser extent because other governments see the dollar as a reserve currency. This arrangement has suited many parties for years, but it doesn’t really suit China any more.

Many other governments see the writing on the wall (especially the BRIC countries – Brazil, Russia, India and China) and are diversifying out of dollars for their foreign exchange reserves as well as for other important activities like trading oil. Take a look at where those four countries appear on the list. Very interesting!

So my conclusion is that the dollar is doomed. It has to weaken a lot further. I’ve explained in other articles why I foresee the continuing stealth devaluation of the US dollar rather than an outright dollar collapse. (See related article links below) I just cannot see how anyone, not even the might of the US and Chinese governments working together, can support the US dollar long term. Of course they might succeed in the short and even medium term.

Another interesting factor affecting the US dollar is the commercial real estate timebomb in the USA. We just emailed Q Wealth members with some important information on that this morning. If you are not yet a member, that’s something else you missed out on!

The Euro is a more complicated matter because there are such widely divergent economies in the Euro zone (Germany and Spain for example). Many people believe the Euro will break up. It might, but somehow I think that is unlikely. I think the Euro could benefit, at least in the short term, from the run out of the dollar. If you are going to keep reserves in fiat currency, and you want to avoid the dollar, the Euro is the logical choice. That said, its fundamentals are terrible too.

What about Switzerland? Switzerland is actually looking good. If I wrote that it was in bad shape in the Gold Report, that was because of its huge exposure to Eastern European currencies – another timebomb that I won’t get in to here. The other thing is that Switzerland is inevitably very dependent on whatever happens to the Euro. But I would probably revise my opinion from earlier this year on Switzerland. I keep some of my own assets in Swiss Francs.

And the UK? A lost cause in my view. They are stuck somewhere between the dollar and the euro. Sterling might recover in the short term.

Finally, I should say that I am no currency expert. I hold fairly strong views but don’t seek to impose them on other people. My work is offshore structuring and managing offshore banking relationships. Managing money is a big responsibility that I prefer to leave to others. But my own portfolio is heavily invested in gold, and I believe the next decade will belong to emerging economies. Buying currency is something akin to buying shares in a country. And my currency bets are on emerging markets.

Note: Peter Macfarlane is joint editor of The Q Wealth Report, a unique privately-circulated newsletter dedicated to achieving personal freedom, wealth and privacy – and to securing wealth and nurturing it offshore. If you are new here and would like to see more views like this, be sure to check out our free five part course on the fundamentals of offshore investing and international asset protection. Sign up now without obligation for this free course and our weekly Q Bytes free newsletter.

Thoughts for the weekend… by Mountain Vision

As governments are starting to find it more and more difficult to place their debt paper in the market, they have resorted to “monetizing their debt”. Debt monetization in the US has become almost an accepted normalcy. Now, China has proclaimed that it is considering similar measures, while the ECB so far appears to be largely dedicated to resisting the temptation.

Let us be very clear here: Monetizing debt is nothing to take lightly. To most people, the concept of monetizing debt is a sterile term that doesn’t mean much at all. Yet to others, it is possibly perceived as one of the standard tools central banks employ in the process of their job to manage money supply. If you too have that perception, I am unfortunately obliged to destroy your illusions.

Monetizing debt is far from being a normal procedure and it should be. It´s basically equal to a man asking you for a loan. But, since that man is jobless, highly indebted and close to bankruptcy, you decide you’d rather not give him any credit. The man will now have to look elsewhere. And, if there is no credit available to him, he will have to give up on his hope of buying the Porsche that he wanted (but didn’t really need). But if this man was your government, he would simply go into his garage, throw on the printing press and issue himself the credit he needs to buy the Porsche. He already has 10 of them. But heck, if you can print money like that, what is one more Porsche?!?!

Yes, governments are having difficulties to find creditors. It occurs when sovereign debt, i.e. government issued IOUs, are no longer seen as safe and worth the price tag they are being sold at. However, instead of reducing their spending or cutting down on costs, central banks have started to resort to printing yet more money (i.e. MORE DEBT) and then buying their own debt paper FOR THEMSELVES.

How does this affect you? WEALTH PRESERVATION AND ASSET PROTECTION SHOULD BE A THE TOP OF YOUR WISH LIST

“Apart from my love for gambling in Las Vegas and on the Dow, I am an extremely conservative investor and always interested in asset protection and wealth preservation solutions.” This statement by one of our clients portrays very well the two hearts beating inside most investors. Although most do not want to forego the opportunities of investing for growth, it is without a doubt necessary to protect at least part of one’s assets adequately.

A common asset protection solution for many investors in the past has been to set up so-called Asset Protection Trusts (APTs). Several offshore jurisdictions are actively promoting such trusts, which are supposed to protect the APT assets from the settlor´s creditors. The name says it all – this must be the ideal device to protect one’s assets.

However, while offshore trusts used to be attractive devices to achieve better protection from creditors while retaining access to the global investments arena, APT‘s are losing their shine rapidly. Increasingly, jurisdictions around the world are passing laws that create problems with regard to the privacy (a key element of asset protection), safety and flexibility of trust structures.

The laws in countries like Switzerland, Liechtenstein or Luxembourg offer a different method of protecting assets, namely through adequately designed life insurance and annuity contracts. The renowned SWISS ANNUITY, in all of its different formats affords affluent international investors a unique and time-tested wealth planning tool. Properly employed, it offers a wide variety of benefits that range from PRIVACY, TAX DEFERMENT, AND INVESTMENT FREEDOM TO VERY SOLID ASSET PROTECTION.

Further reading: This article appears with kind permission of Mountain Vision, the newsletter of BFI Capital Group in Switzerland. If you would like a free subscription simply go here and say you were sent by the Q Wealth Report. BFI Capital is a leading Swiss investment firm specializing in compliant annuity products for residents of high tax countries and for asset protection services. BFI Capital are also regular contributors to The Q Wealth Report.