Debt Monetization – and How it Affects You

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.


“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.

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