Tuesday, January 26, 2016

Three critical ways an offshore bank can protect you by Simon Black, 26 JAN

Three critical ways an offshore bank can protect you

Temuco, Chile 

Let’s take a moment to compare the world today to before the Global Financial Crisis struck roughly eight years ago. 

In this short period of time, US federal government debt has DOUBLED. 

The Federal Reserve now holds $2.4 trillion of that debt, up from $479 billion. 

Interest rates, which were between 2-4%, are today just a hair above zero. 

The Federal Deposit Insurance Corporation, which is expected to guarantee bank accounts, now has liabilities 530% greater than the cash and cash equivalents they are holding, compared to just 14% before the crisis. 

Meanwhile, the banks that were deemed “too big to fail” 8 years ago are now even bigger, yet engaging in similarly foolish practices and accounting tricks. 

In “saving” the system, all governments did was prevent anything from being actually fixed. 

And in the process, they exhausted all the tools at their disposal. 

The system is more precarious than ever, and eventually these bankers’, politicians’, and bureaucrats’ bad decisions will catch up with them. 

To prevent your life’s savings from being the victim of others’ stupidity and misjudgement, one important (and obvious) step is to consider moving a portion of your savings into a safer, more stable jurisdiction abroad. 

How can an overseas bank account see you safely through crisis? Let me explain—

Protection from Financial Shocks 
Threat 1: Your bank is highly illiquid and potentially insolvent. 

Think your bank actually has your money? Guess again. 

Most people don’t give a second thought to where they deposit their money, assuming that if it’s been approved by the government as a financial institution that it must be safe. 

Unfortunately that didn’t work back in 2008, and it won’t work now. 

Most Western banks in the West, encouraged by government guarantees, keep very little in reserves and loan as much as they possibly can. 

This can give them very high returns when the market is going strong, but is a dangerous bet in case things go south. 

If confidence in a bank wanes and a large number of customers decide they want their cash, a bank could become completely illiquid. 

And if the market falters and a significant number of the banks’ loans and investments go bad, they could quickly become insolvent. 

Both of these things can literally happen overnight, and suddenly depositors can find themselves cut off from their savings. Or worse. 

Unfortunately the FDIC, which insures these deposits, is in no position to bear this burden as the FDIC itself admits that it is undercapitalized. 

Securing your assets in this case comes not just from putting your savings into any institution overseas, but into a foreign bank with ample reserves in a stable, well-capitalized jurisdiction. 

Shifting yourself from a high-risk to a low-risk environment simply means that you’re less likely to face this threat to your savings in the first place. It’s the logical thing to do. 

Protection from Asset Seizure 
Threat 2: Your assets can be frozen in an instant. 

You may not know it, but US banks filed 1.6 million suspicious activity reports (SARs) last year. Chances are that your bank submitted one about you. 

Even withdrawing or transferring a low 5-figure amount can trigger the bank to submit a suspicious activity report, as they are forced to spy on and rat out their customers. 

If some government agency decides that your financial transactions are potentially linked to illicit activity they can seize your account with just one click. They don’t need to have any proof of actual illicit activity to do so, it is solely up to their discretion. 

Of course you can sue them to try to prove your innocence, but with your accounts frozen what funds would you use to do that? 

Here, having an account overseas in a foreign jurisdiction means that for whatever reason, your home government can’t freeze with just a phone call. 

It's a great way to keep some funds out of their immediate control. 

Protection from Capital Controls 
Threat 3: Bankrupt governments almost invariably resort to capital controls. Are you willing to bet it all that this time is different? 

It’s widely known how deeply in debt the US government is. And despite what politicians might think, governments cannot keep borrowing and printing forever. Some day their credit will run out. 

Historically when people start to sense that things are going south economically in their country, they start moving their money towards the exits. 

It's precisely what's happening in places like Greece, and even China, where depositors are pulling billions out of the banking system. 

Governments take steps to prevent this from happening by imposing capital controls. 

They restrict foreign exchange transactions, wire transfers, and even withdrawals, all to prevent you from taking money out of their precious banking system. 

Moving a portion of your savings to a safer jurisdiction with minimal debt can substantially reduce this risk. 

Regardless of the threat, whether it comes from the financial system or your government, you can take steps to protect yourself by diversifying your assets and securing them in a safer, more stable jurisdiction abroad. 

This is an incredibly important step in a solid plan B. 

It’s also by far the easiest step one can take, as there are many overseas accounts that you can start without even leaving your living room.

Until tomorrow, 
Simon Black

No comments:

Post a Comment

Note: Only a member of this blog may post a comment.