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WHAT THEY DON’T WANT YOU TO KNOW ABOUT THE EURO CRISIS

We at Q Wealth maintain a healthy scepticism about anything we read in the mainstream media. What you see on CNN, CNBC, Fox and all the rest is what corporate interests – a term which I use in its broadest sense to include governments – want us to believe.

The lead economic story over the past month or so has been about Europe going down the tubes, imminent collapse of the euro, blood in the streets in Europe etc. Now I’m the first to admit that European finances are in terrible shape, and that the European Monetary Union might not have been a good idea from the beginning… but I believe there is an untold story behind the headlines. Things don’t get hyped this much by pure accident.

“You know you said something to me Peter, a year or so ago, that really stuck in my mind because it made a lot of sense to me,” said a close friend to me last week. “You said that if the central banks could arrange for the dollar, the euro, the pound and the yen to fall all at the same time, nobody would really notice that a devaluation was taking place.”

I’ve pointed out many times that however dire the circumstances are, I don’t expect to see overnight devaluations of major currencies in the way that we have seen in places like Argentina and Venezuela. The first world central banksters are more sophisticated than that. They certainly don’t have 100% control of the situation, but neither are they going to let the dollar, the euro or the yen into freefall. To do so would be completely against their interests. Instead, they are going for stealth devaluation.

Stealth devaluation means gradually taking away purchasing power in such a way that most people won’t notice. They will not see huge variations on their retirement account statements. They will have the same number of dollars or euros or pounds. So people won’t complain too much. They’ll sit in front of their TVs ready to be distracted by the next passing fad, blissfully ignorant that they every month the purchasing power of those fiat money units is less.

Meanwhile, the governments will effectively have got away with grand theft. Theft from pension plans, retirement accounts, and ordinary people’s savings. Or put another way, a hidden form of taxation (so still theft).

The dollar is collapsing… it has been harder and harder to place US treasury bonds recently, because despite the US AAA credit rating, foreign investors are getting the distinct feeling that treasuries are not so safe as they are made out to be. Hence the run of sovereign and institutional investors to gold, the only debt-free currency, which continues to rise.

Look at the recent fall in the value of the euro from this perspective. The US is prepared to play hard ball to keep up confidence in the dollar. I can’t do better than to quote our friend Frank Suess, who by the way is a confirmed speaker at our Strategies for Success event this September. On May 12th Frank wrote about a secretive meeting held under the ominous title of “High-Level Conference on the International Monetary System, Zurich” This gathering entailed the who´s who of international finance, including IMF chief Herb Stein, George Soros and Masaaki Shirakawa. The following day Frank wrote:

Whether you like it or not, the global financial system is always but a mirror image, a reflection of what is happening in America. This has to be your starting point. If you are looking at the Greek debt crisis from a Greek or European perspective, you are missing half of the story (and the more important half!). If you are evaluating the topic of “Chinese currency manipulation” only from a perspective of trade balances, you are missing the true and relevant story.

The US dollar is at the epicenter – NOT the Yuan, NOT the Euro, and certainly not Greece.

Then, a few weeks later, as Frank’s predictions played out, he commented further:

What´s going on? In brief, we have America defending the Greenback´s position as the number one world reserve currency. And, America is playing smart and tough. When you are not able to fix your own problems and clean up your finances, then what needs to be done is denigrate and weaken your closest contender, in this case the Euro.

Of particular interest is Treasury Secretary Timothy Geithner’s travel schedule. He has been touring the world from China, to London, to Germany, to Spain. Everywhere he stopped, he pushed for ‘quantitative easing.’ Europe, according to Mr. Geithner, is expected to “chip in and support the global economic recovery” – or in other words, run deficits like the USA.

And that is precisely what Europe is now doing – printing vast sums of money to fund bailouts that are strongly opposed by European voters. And that is, naturally, bringing down the value of the Euro.

But if we look at the bigger picture, it is still the American deficit that is the biggest problem. Other currencies need to be knocked into shape so that the American people, and investors around the world, don’t notice the devaluation of their currency.

Greece, in the global scheme of things, is insignificant. Greece´s GDP is approximately US$ 76 billion per annum. That is less than 3.8% of the size of the economy of the State of California. And have you looked at the shape of California’s finances lately? Food for thought…

One of our familiar themes here at Q Wealth is the decline and devaluation of the dollar – and how you can not just protect yourself against it, but actually turn it to your profit!

Devaluation was brought one step further last week by the latest round of currency controls on the US dollar introduced in the new HIRE Act.

Some people have written that these restrictions do not in fact amount to back door currency controls. We agree to an extent – they are not traditional exchange controls like we still see in some countries like South Africa or Brazil. But they are very much currency controls nonetheless. They amount to just one part of the stealth devaluation we have frequently talked about (see related links below).

Recently, legendary guru Marc Faber wrote that printing money represents a silent way for governments to default on their debt. When a government openly defaults on its debt, says Farber, the workout process is reasonably equitable.  But if a government devalues silently by printing, the burden of the default isn’t shared equally. Those who hold more of the currency being devalued, in this case US dollars, are disproportionately hit. Inevitably those hit hardest are not big sophisticated international investors, who have hedged their risk, but small investors who have simply never thought of hedging against currency risk.  That means, for example, average Americans who have savings in their retirement accounts.

Very few Americans have had the foresight to move their IRA assets out of dollars. Yet it’s something perfectly legal and quite easy to do… at the moment! The restrictions in the HIRE Act will make this much more difficult because they simply make it very difficult to transfer money abroad.

Yes, there are exemptions. The HIRE Act does not in theory impose any tax on an American who transfers his or her own money, to a foreign account in his or her name.

But, there is a big but, banks around the world will be running scared of the regulations. First of all, foreign banks won’t want the US account holders in the first place. Secondly, US banks will be desperately trying to cover their liability by checking the exact purpose of the payment, to make sure it doesn’t come within the scope of the legislation. The burden of proof will naturally pass to the account holder who is trying to transfer money, to demonstrate that the transaction is not subject to the new withholding tax. If the sending bank in the USA has any doubt at all about the purpose of the transaction, they will be forced to deduct 30% tax.

Net result? It is going to be darned difficult for anyone to transfer money out of the USA. If that isn’t a form of currency control, then I don’t know what is!

Faber is predicting that US Treasuries will collapse, sending yields up to a range of 10 percent  to 20 percent during the next five to 10 years, as inflation and supply explode.

Here at Q Wealth our intention is to keep you informed and provide actionable things you can do to protect your savings and your future. Right now, you can still transfer assets legally and openly out of the USA into offshore structures, offshore investments, and offshore banks where your assets are better protected – but for how much longer? I would give it until the end of this year, if that.

Right now, US citizens can legally acquire a second citizenship and passport, and legally avoid taxation on their worldwide income. But it is getting harder.

Where the US leads, the UK, the euro zone and Australia will follow. Subtle, hidden currency controls like this will become the norm in the developed world, particularly the OECD countries. We will continue to expose them while we can. And we will continue to provide real solutions, especially to our paying members. If you are not on our mailing list for the free weekly Q Bytes newsletter, and this matter concerns you, then sign up today for Q Bytes! And if you would like to know what you are missing if you are not a paid-up member of Q Wealth, please see Why Join Q Wealth?

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.

“In the years leading up to mid-2007 keen observers noted dangerous leverage in the US debt markets and some predicted that the bubble would pop. Predictions like this were contrarian while the market was rising, and they were ridiculed. But then when the bubble did pop, those same contrarians became nearly household names as network TV invited them on to explain their predictions.”

So begins a lengthy and informative article by blogger FOFOA, in which he claims that the coming devaluation of the dollar will be sprung on us without warning. If you have time, I recommend you read it (here is the link)

Your editor is in partial agreement with FOFOA. Indeed, I would say the devaluation of the dollar is already well underway. Unfortunately, the vast majority of people are currently living in a world of illusion… just this week, against all odds, the stock market rose again. When people see a rise in the nominal value of their investments, they believe they are making money. But they are wrong. Few take in that the cost of living is rising disproportionately higher… so they are actually losing. This is the fundamental strategy behind what I call the stealth devaluation of the dollar. The purchasing power of the dollar has fallen drastically since the Second World War, with a notable increase in the velocity of the fall in the last couple of years.

Another informed and respected commentator on the collapse of the dollar is John Rubino, who recently interviewed yours truly for an article on offshore banking and asset protection. In recent comments he refers to some news passed on by veteran newsletter writers Harry Schultz and Bob Chapman, that verges on what I would call a conspiracy theory…. or does it? You decide! The story goes like this:

“Some US embassies worldwide are being advised to purchase massive amounts of local currencies; enough to last them a year. Some embassies are being sent enormous amounts of US cash to purchase currencies from those govts, quietly. But not £’s. Inside the State Dept there is a sense of sadness & foreboding that ‘something’ is about to happen, unknown re a date-just that within 180 days, but could be 120-150 days.”

Bob quotes another source that “Panasonic has told their people to be back in Japan by Sept 09.”

Harry Schultz’s remarkable take on the situation:

“My HSL suspicion is that the elite plan another FDR style “bank holiday” of indefinite length, perhaps very soon, to let the insiders sort-out the bank mess which is getting more out of their control every day. Insiders want/need to impose new bank rules. Widespread nationalization could result, already under way. It could also lead to a formal US$ devaluation, as FDR did by revaluing gold (& then confiscating it). But devalue against what? The euro? Doubtful. Gold? Maybe. Or vs. the IMF basket of currencies (which seems more likely)-& much in the news recently.

Any kind of bank holiday will push the US$ lower, which may be a bonus benefit to their ongoing scenario of letting the $ fall. Such a fall would get the devaluation they want without having to declare it. In sum, the insiders want more bank & system control, fewer banks & a lower US$. A bank holiday would suit all their needs.”

So there is the question. Can we expect a sudden dollar devaluation, complete with suspension of markets and a so-called ‘bank holiday’? Or will we see the stealth devaluation of the dollar continue to accelerate?

My bet is on the latter. Why would politicians and those in power risk the wrath of the people by devaluing the dollar so explicitly from one day to the next, when they have successfully got away so long with devaluing the dollar on the quiet with few people noticing. But of course I may be wrong, and the situation may be even more out of control than I think.

Either way, I’m not sitting waiting for it to happen, and you shouldn’t either! If you are properly prepared, such a collapse would be a huge profit opportunity. But you would not be able to rely on usual market mechanisms… we have to consider that the stock markets and financial system might be completely suspended. It happened in the aftermath of 9/11, but it hasn’t yet happened during this global financial crisis. Never say never!

My advice is that markets are a nice convenient way of speculating play money for short term gains, but every serious investor needs to keep wealth outside the financial system too. That may be in your own business (if it is resilient) or it may be in real estate (people will always need places to live) or it may be by stashing gold bullion in an offshore safe deposit box.

The Q Wealth Report is here to advise you on all these options and more. If you haven’t yet read our free five-day e-mail course The Secrets of the Super Rich, I would urge you to sign up for it now. As I said, it is absolutely free and without obligation. I think you will find it an eye-opener!

The bailout of General Motors is another nail in the coffin of the US dollar. But still, most people haven’t even noticed the real ’stealth’ devaluation being imposed by the United States government. And yet all of us, Americans or not, are affected by this in a big way, due to the dollar’s status as a reserve currency (and also due to China’s effective control of the dollar, that I have previously touched on…)

Is the dollar “collapsing” or merely “declining”? I believe it is collapsing, but some people might misunderstand this. The dollar is not just going to crash one day, or even one week. It’s an ongoing thing, that started many years ago but has substantially speeded up in the last five years or so (yes, even during the times when the US economy was supposedly booming, that too was based on scams by the financial services sector)

Geithner, Bernanke, Obama and the whole crew are involved in a constant battle to patch over the dollar collapse.  Yet in spite of their attempts, the cracks have widened. The greenback continues its inexorable march downward. This week’s events at G.M. have accelerated the collapse a little more. And I believe that the collapse of the dollar will continue to accelerate with time. What will happen when it hits the bottom is anybody’s guess, but I certainly want to be well prepared when it happens. You should be too. And the Q Wealth website is about helping you do just that – protecting your assets from this stealth devaluation.

The US is not going to crash like Mexico did in 1995, or like Argentina and Brazil have done since with overnight currency devaluations. Neither will go bankrupt in one day like Iceland. The US government still has way too much influence and political power for that to happen. It’s a stealth devaluation because your portfolio will appear to be going higher. You will have more dollars. The stock market will be up. But in real terms, you are losing money faster than ever before. This is what some people have a hard time getting their head around – but it’s very important. The government will try to persuade you that things are going well, when really they are not. Bottom line? It’s a scam being perpetrated on you by government. If you care about protecting your assets and creating new wealth, you have to understand this.

So where can you actually put your money to protect against the stealth devaluation and collapse of the dollar? What about other currencies? Well, necessity dictates that we need to use currencies like dollars, euros and pounds to carry on business. And common investing sense dictates that you should diversify assets, so at least having a proportion of euros is better than having all dollars. It’s a start.

But unfortunately none of these currencies look good. Every other major central bank is participating in the very same scam, meaning that their currencies are equally doomed. So it would not be safe to assume that buying, say, euros, will give you any serious protection against the loss of your assets.

My number one mantra to clients is diversification, diversification and diversification. If you have a portfolio above six figures, it should be in different currencies, in different banks, on different continents. Opening overseas personal accounts, while having no tax consequences, can certainly help asset protection…the geographic diversification protects against the threat called government, while the mere fact that the assets are offshore significantly reduces the risk of you being sued in the first place, especially if you live in a litigious place like the USA or increasingly the UK.

Generally, private international banks are also a whole lot more flexible and service minded too. They offer Swiss-style wealth management banking facilities. For example, I noticed the other day that one of my European private offshore banks (not in Switzerland in this case) had quietly added gold ounces to the list of currencies I could hold in my multi-currency checking account. I guess that means I can even write cheques denominated in gold ounces, though I haven’t tried that yet. I see some of the larger European clearing banks like RAIFFEISEN ZENTRALBANK OESTERREICH AG in Austria are now maintaining gold correspondent accounts for their institutional clients. Interesting, huh?

Which are the best offshore banks for this kind of wealth management? For the answer to that question you need to be a member of The Q Wealth Report. Download the Practical Offshore Banking Guide (available instantly as soon as your payment is approved) and you will find ten of them for starters, with impartial comments on each… together with the form for a free e-mail consultation if you would like to discuss your individual circumstances with me directly.

Gold, probably is number one on my list of recommendations as a hedge against dollar decline. There are ways you should buy gold, and ways you shouldn’t. One way you should not invest in gold is by following typical mainstream advice and investing in ETFs, the most famous of which is GLD the SPDR Gold ETF. Ther are significant concerns about whether you could really get your gold out, or even your money back in dollars (which is not what you would want anyway at that stage) in the case of an economic meltdown.

For example, what do you think of this quote directly from the GLD prospectus?

The Trust’s gold may be subject to loss, damage, theft or restriction on access.

There is a risk that part or all of the Trust’s gold could be lost, damaged or stolen. Access to the Trust’s gold could also be restricted by natural events (such as an earthquake) or human actions (such as a terrorist attack). Any of these events may adversely affect the operations of the Trust and, consequently, an investment in the Shares.

The Trust may not have adequate sources of recovery if its gold is lost, damaged, stolen or destroyed and recovery may be limited, even in the event of fraud, to the market value of the gold at the time the fraud is discovered.

If you would like to know about better ways to invest in Gold offshore, you need my Gold Report – How to Buy and Hide Gold Bullion Offshore which is likewise available free of charge for immediate download to our paid up members.

Not a member yet? Sign up to Q Wealth Report here.