A Different Way To Think About The Evergrande Collapse
.A Different Way To Think About The Evergrande Collapse
Notes From the Field By Simon Black September 21, 2021 Bahia Beach, Puerto Rico
On the evening of June 9, 1772, Alexander Fordyce was drunk out of his mind when he came stumbling home to his wife. As Fordyce was a widely respected London banker and senior partner at the firm Neale, James, Fordyce, and Down, this behavior was uncharacteristic… and his family was rightfully worried. The next morning Fordyce was gone. He had fled across the English Channel to France. And then the news struck-- his bank had gone bust and was closing its doors.
By itself this shouldn’t have been a big deal; it was only one guy, and one bank. But Fordyce hadn’t simply made some bad investments with his own money. Nor had he simply made bad investments with his depositor’s money. Fordyce had borrowed HEAVILY, from just about everyone, and made a number of spectacularly terrible investments.
A Different Way To Think About The Evergrande Collapse
Notes From the Field By Simon Black September 21, 2021 Bahia Beach, Puerto Rico
On the evening of June 9, 1772, Alexander Fordyce was drunk out of his mind when he came stumbling home to his wife. As Fordyce was a widely respected London banker and senior partner at the firm Neale, James, Fordyce, and Down, this behavior was uncharacteristic… and his family was rightfully worried. The next morning Fordyce was gone. He had fled across the English Channel to France. And then the news struck-- his bank had gone bust and was closing its doors.
By itself this shouldn’t have been a big deal; it was only one guy, and one bank. But Fordyce hadn’t simply made some bad investments with his own money. Nor had he simply made bad investments with his depositor’s money. Fordyce had borrowed HEAVILY, from just about everyone, and made a number of spectacularly terrible investments.
Fordyce’s borrowings had become so vast, in fact, that when he defaulted it nearly brought down the entire financial system.
Stock prices crashed. Banks shuttered. Financial markets in foreign countries, including the Netherlands, took a big hit.
And the British Government passed the Tea Act in order to raise tax revenue, stabilize the economy, and help the East India Company’s recovery.
The Tea Act proved to be wildly unpopular in the colonies, leading to the infamous Boston Tea Party… which was a major precursor to the American Revolution.
Now, I’m not saying that Fordyce caused the American Revolution. The Revolution would have probably taken place eventually, even without Fordyce’s catastrophic stupidity.
But it is incredible how a single event can trigger a widespread chain reaction with such far-reaching consequences.
Yesterday we saw a tiny glimpse of this; stock markets around the world collectively had a minor hissy fit in response to news that a Chinese property developer-- Evergrande-- would default on its colossal debt.
Investors were afraid that an Evergrande default would ripple through the financial system and cause a chain reaction of failures, just like what happened with Fordyce’s default in 1772, and Lehman Brothers in 2008.
Now, I do have to say that, based on the the information we have about Evergrande, fears about this specific issue are overblown.
Evergrande has roughly $300 billion in liabilities. Even if that entire amount goes to zero, it’s a small fraction of the Chinese banking system’s $5+ trillion in capital.
I’d be much more concerned about Evergrande’s impact on China’s notoriously overleveraged ‘shadow banking system’, and their high-risk ‘wealth management products’. But we’ll save that for another time.
What I take away from the Evergrande collapse is the reminder about how seemingly innocuous events can have a major impact on global financial markets. Especially now.
Stocks, bonds, real estate, and many commodities are at/near all-time highs, some with valuations that are completely absurd.
Today, the Price/Earnings ratio for a typical S&P 500 company is nearly 50% higher than before the pandemic.
Companies’ revenues and profits are essentially the same as they were in January 2020. Yet stock prices are substantially higher.
The situation is so ridiculous that even an analyst who works at S&P wrote earlier this month: “This Market Is Nuts”.
In an environment like this, when asset prices already boggle the imagination, it doesn’t take very much for some seemingly irrelevant event, like an Evergrande default, to spark a global sell-off.
This is why I’ve been giving so much thought lately to the idea of ‘uncorrelated assets.’
Because if the proverbial bubble ever bursts, it’s going to have a substantial impact on most major asset classes. But uncorrelated asset classes wouldn’t be as affected.
Typically, ‘uncorrelated assets’ are thought of as being uncorrelated to the stock market; in other words, a boom or bust in stocks would have zero impact on an uncorrelated asset.
But I’ve been giving serious thought to assets that are essentially uncorrelated to central bank policy.
This turns out to be a really difficult thing to find.
Central bank policy is what influences the vast majority of asset prices; when banks print money (as they have printed vast trillions of dollars over the past 18 months), asset prices rise.
This is precisely what we’re seeing today.
Stocks, bonds, real estate, commodities, etc.-- the prices of these asset classes are all heavily influenced by whether or not central banks are printing money.
And while nothing can be completely insulated by central bank policy, there are some assets that are less influenced by it, i.e. ‘undercorrelated’.
I believe carbon credits are one example, especially in the voluntary market. The price of carbon credits is driven more by social trends, corporate responsibility policies, and government regulation, than by central banks.
Central banks’ interest rate policies will impact whether some carbon capture projects are able to obtain funding.
But project finance is only one factor in supply; regulatory bureaucracy is a far greater hurdle to overcome than whether interest rates are 2% or 6%.
Another example is water rights. Again, while cheap interest rates may encourage more water projects, the availability of water rights is ultimately determined by government policy and social trends, not by central bankers.
Agriculture can also be an undercorrelated asset.
Major products like corn, wheat, soy, coffee, etc. which have exchange-traded futures contracts are extremely susceptible to central bank policy.
But other products, like fruits and nuts, which don’t have exchange-traded futures contracts are much more influenced by traditional supply and demand fundamentals, rather than by monetary policy.
High quality technology IP (which can cut costs or increase productivity) can also be undercorrelated to central bank policy.
There are others to consider, and we’ll explore this concept further in a future letter… including whether gold and cryptocurrency may be undercorrelated.
To your freedom, Simon Black, Founder, SovereignMan.com
https://www.sovereignman.com/investing/a-different-way-to-think-about-the-evergrande-collapse-33516/
How Long Will The US Dollar’s Dominance Last?
.How Long Will The US Dollar’s Dominance Last?
Notes From The field By Simon Black August 25, 2021 Bahia Beach, Puerto Rico
301 AD was a big year for the Roman Empire.
That was the year that, amid spiraling inflation, Emperor Diocletian issued his Edict on Maximum Prices, essentially fixing prices of just about everything across the Roman Empire.
The price of wheat, a day labor’s wages, a quart of olive oil, transportation rates-- everything was established by the Emperor’s edict, and enforced under penalty of death. Diocletian’s edict infamously didn’t work, and the empire plunged into even more severe inflation.
How Long Will The US Dollar’s Dominance Last?
Notes From The field By Simon Black August 25, 2021 Bahia Beach, Puerto Rico
301 AD was a big year for the Roman Empire.
That was the year that, amid spiraling inflation, Emperor Diocletian issued his Edict on Maximum Prices, essentially fixing prices of just about everything across the Roman Empire.
The price of wheat, a day labor’s wages, a quart of olive oil, transportation rates-- everything was established by the Emperor’s edict, and enforced under penalty of death. Diocletian’s edict infamously didn’t work, and the empire plunged into even more severe inflation.
The other big event of 301 AD was the introduction of the solidus gold coin, roughly 4.5 grams of nearly pure gold.
And while the Romans had a history of debasing their other coins, like the silver denarius and sesterce, the government actually did a pretty good job maintaining the value and purity of the gold solidus.
Even hundreds of years later, after the western empire in Rome had fallen to the barbarians, and imperial power was concentrated in Byzantium, the gold solidus was still approximately as pure as it was in the early 300s.
That’s an extraordinary track record for currency stability. Confidence in the gold solidus was so high, in fact, that various tribes and kingdoms around the world used the coin for trade and savings.
This became a source of pride for the Byzantine Empire; Justinian I, who ruled in the mid 500s, stated that the solidus was “accepted everywhere from end to end of the Earth,” and that it was “admired by all men in all kingdoms, because no kingdom has a currency that can be compared to it.”
It wasn’t until the mid 11th century, more than seven centuries after the introduction of the solidus, that an Emperor began to debase the currency.
Just like Hemingway described going bankrupt, the debasement of the solidus was gradual… then sudden.
Emperor Constantine IX, who ruled from 1042 to 1055, reduced the gold purity down to 87.5%. His successor brought it down to 75%. By the end of the century it had been reduced to just 33%.
The rest of the world took notice. The Byzantine Empire’s political, economic, and military power were waning. And with the rapid debasement of the solidus, international traders looked for other options.
Soon the rising Italian city states, particularly Venice and Florence, began minting their own gold coins; Italy was rapidly becoming the dominant economic power in Europe, so their ducats and florins became widely accepted, essentially replacing Byzantine coins for international trade.
Throughout history, in fact, reserve currencies have routinely changed, just as frequently as power and wealth shift.
For example, the Spanish real de ocho was the dominant reserve currency for hundreds of years, just as the Spanish Empire was the dominant power in the world.
But eventually Spain’s wealth and power waned, and the real de ocho was replaced. The Dutch guilder dominated European trade in the 1600s and 1700s, just as the Netherlands’ wealth and power soared. Yet they were displaced by the British Empire and pound sterling in the 1800s and early 1900s.
Both the United States and the US dollar have held this status for the last 80 years. And at the moment this is still the case.
History, however, is very clear on this point: wealth and power shift. Reserve currencies change. And it would be foolish to assume that this time is different.
Reserve currencies hold their status because the rest of the world has confidence-- confidence in the soundness of the currency, confidence in the power and prestige of the country that issues it.
But let’s be honest: the rest of the world is probably not brimming with confidence in the United States right now.
They’re looking at this shameful, disgraceful catastrophe in Afghanistan and wondering, “Is this seriously the world’s dominant superpower?”
But it’s more than Afghanistan. It’s endless deficits. It’s ridiculous spending initiatives that pay people to stay home and NOT work. It’s rising inflation thanks to the continued erosion of the US dollar.
None of these inspires confidence.
It was nearly 1,000 years ago when foreign traders began looking for new options after they lost confidence in the solidus, and in the Byzantine government.
Today there are already international banks, multinational businesses, and foreign governments that are starting to diversify out of the US dollar.
This is a major change. It’s not something that will happen overnight; like the solidus debasement, it will happen gradually… then suddenly.
There will be small milestones and minor events that take place over a period of many years. A lot of it has already happened.
But the end result will be a sharp decline in the US dollar’s market share of global reserves. And for anyone holding US dollars, that’s going to mean a LOT more inflation.
If you want to learn more about this, I’d encourage you to listen to our Freedom Podcast today; we discuss reserve currencies, the rise of a Chinese alternative, and even potential future conflict with China.
You can download and listen here.
To your freedom and Prosperity,
Simon Black, Founder, SovereignMan.com
Why Warren Buffett May Be Wrong About America’s Future
.Why Warren Buffett May Be Wrong About America’s Future
Notes From The Field By Simon Black
July 21, 2021 Cancun, Mexico
Nearly every year in his annual Berkshire Hathaway shareholder letters, Warren Buffett spends a few pages talking about the dynamism of the American economy. His message is clear: the United States has faced adversity before. It will again. But America always prevails and you should never bet against it. That theme has certainly held true during Buffett’s life. He was born in 1930 and came of age at a time when the US had become the world’s undisputed dominant superpower.
Buffett’s entire business career, in fact, took place at a time when America was on the rise. But even Buffett would have to acknowledge that times have changed.
Why Warren Buffett May Be Wrong About America’s Future
Notes From The Field By Simon Black
July 21, 2021 Cancun, Mexico
Nearly every year in his annual Berkshire Hathaway shareholder letters, Warren Buffett spends a few pages talking about the dynamism of the American economy. His message is clear: the United States has faced adversity before. It will again. But America always prevails and you should never bet against it. That theme has certainly held true during Buffett’s life. He was born in 1930 and came of age at a time when the US had become the world’s undisputed dominant superpower.
Buffett’s entire business career, in fact, took place at a time when America was on the rise. But even Buffett would have to acknowledge that times have changed.
Today the government is obsessed with passing regulations that create obstacles to growth and new business formation. They’d rather pay people to stay home and NOT work rather than encourage production and innovation.
They rack up enormous quantities of debt without a single thought to the long-term consequences. They engineer inflation. They stifle competition.
And they constantly ridicule anyone who took a chance, worked hard, and became successful. Not only do they want to raise your taxes, they want to shame you because of your hard work and success.
Buffett knows this now from personal experience. Last month, in an effort to make wealthy people look bad, Buffett’s private personal tax returns were illegally leaked on the Internet for everyone to see.
He never had to deal with that sort of rage before in his life.
Moreover, when Buffett was a young man, he never had to contend with fanatical mob of woke Marxists. And he never knew a time when the biggest companies in America bent the knee in subservience to them.
And while there have always been small groups of Communist sympathizers and socialists in America, Buffett made his fortune at a time when the vast majority of people understood the awesome, prosperity-generating powers of a capitalist system.
But today, socialism is totally mainstream, with New York Magazine last month proclaiming that “Socialism isn’t a dirty word anymore.” And according to a recent Axios poll, most Gen Z (ages 18-24) have a negative view of capitalism.
Bottom line, the America of today is not the same America where Buffett made his fortune.
This isn’t to say that there aren’t extraordinary opportunities to create wealth and become successful. Of course there are-- opportunities abound everywhere, both within the US, and around the world.
But it would be foolish to ignore these trends, or the fact that the country may be past its economic and political peak.
To paraphrase former Treasury Secretary Larry Summers, how much longer can the worlds biggest debtor continue being the world’s biggest superpower?
How much longer can a country which debases its currency, embraces socialism, silences intellectual dissent, brainwashes its youth, and encourages unproductive behavior, continue being the world’s most dynamic economy?
These are not controversial statements. They’re relevant, important questions that any independent-minded person might consider.
This is the topic of today’s podcast, which you can watch here (on YouTube) or here (on SovereignMan.tv), or listen to here.
To your freedom, and Prosperity
https://www.sovereignman.com/podcast/why-warren-buffett-may-be-wrong-about-americas-future-33110/
Signature Simon Black,Founder, SovereignMan.com
Social Security’s Insolvency Is Bigger Than Climate Change And COVID-19 Combined
.Social Security’s Insolvency Is Bigger Than Climate Change And COVID-19 Combined
Notes From The Field By Simon Black August 2, 2021 Cancun, Mexico
In the year 1348, after more than a decade of war with France, Kind Edward III of England noticed that many knights who returned home from the front lines had become completely impoverished.
The war had taken a massive financial toll on Edward’s men. Some of them had been captured in battle and forced to sell all of their property in order to ransom themselves. Others had become grievously wounded, and their permanent disabilities prevented them from earning a living.
So the King created a special foundation to care for some of these men, who became known as the ‘Poor Knights’.
Social Security’s Insolvency Is Bigger Than Climate Change And COVID-19 Combined
Notes From The Field By Simon Black August 2, 2021 Cancun, Mexico
In the year 1348, after more than a decade of war with France, Kind Edward III of England noticed that many knights who returned home from the front lines had become completely impoverished.
The war had taken a massive financial toll on Edward’s men. Some of them had been captured in battle and forced to sell all of their property in order to ransom themselves. Others had become grievously wounded, and their permanent disabilities prevented them from earning a living.
So the King created a special foundation to care for some of these men, who became known as the ‘Poor Knights’.
Those who were admitted into the foundation received an annual pension of 40 shillings, worth roughly $3,000 in today’s money, plus free room and board at the College of St. George.
It was a nice idea. But naturally it didn’t take long for Edward’s pension fund to become mismanaged.
The pension fund was in such dire financial straits, in fact, that it was typically only able to provide for three ‘poor knights’ at a time.
Eventually-- and I’m talking hundreds of years later-- the pension was ultimately restructured (i.e. bailed out) by King Henry VIII, and later by his daughter Queen Elizabeth I.
Financial mismanagement and bailouts have been the common fate of pension funds throughout history.
Emperor Augustus of the Roman Empire, for example, established a retirement fund for his legionnaires called the Aerarium militare. But subsequent emperors couldn’t resist dipping into the fund to pay for their lavish lifestyles and pet projects. So the aerarium ultimately went bust.
Today pension funds around the world are in a similar position-- and this is not a controversial statement. Even the OECD acknowledges that the worldwide ‘funding gap’ of public and private pensions runs into the tens of trillions of dollars.
To put this figure in context, the United Nations projects that adaption costs from climate change will run approximately $10 trillion over the next thirty years.
Furthermore, the Institute of International Finance estimates that COVID-19 has cost the world a whopping $24 trillion.
And yet, according to the US government’s own financial report, the long-term unfunded pension liability JUST for Social Security is $55.9 trillion-- more than the cost of climate change and Covid-19 COMBINED.
I bring up the examples of Covid and climate change because they’re two of the most vocalized issues in the world right now. Everyone is screaming about masks, vaccines, and the environment.
Yet hardly a word is uttered anymore about the pension crisis, even though, at least from an economic perspective, it completely dwarfs the other issues.
It also keeps getting worse.
Inflation, for example, is an enormous problem for Social Security.
Even before the pandemic, Social Security’s key trust fund was projected to run out of money by the early 2030s. But last year’s Covid lockdowns meant that millions fewer people were employed and paying in to the Social Security system; that means a LOT less revenue for the program.
And now with inflation surging, Social Security has to make Cost of Living adjustments and increase the monthly benefits to its tens of millions of recipients.
These are pretty much the worst possible conditions for the long-term health of Social Security. And it means that the trust fund will likely run out of money even sooner than projected.
It’s ironic that, last year, the Social Security administrators actually reduced their long-term inflation forecast.
In other words, the trust funds’ projections are based on certain macroeconomic assumptions. And the administrators assumed that the inflation rate would be 2.4%.
Actual inflation is now 5.4% (according to the US Labor Department). And the long-term rate of inflation over the last 50 years has averaged 3.9%.
Here’s another one: Social Security assumes that the real interest rate on its investments (i.e. the amount of money it earns AFTER inflation) will be 2.3%.
Wrong again! The actual real rate of return they’re earning is now MINUS 3.9%. And the rate has been negative for YEARS.
So, some of the most critical assumptions that drive Social Security’s long-term projections are completely wrong… meaning that the reality is probably worse than even they believe it to be.
And remember, they were already projecting that Social Security’s primary trust fund will run out of money in the early 2030s, just over a decade away.
There’s an even longer term problem with Social Security, though.
The birth rate of the United States has been in steady decline since the late 1980s. And for the last several years it has continued to hit fresh record lows.
This isn’t so much a problem now. But it creates an enormous problem 20-30 years from now.
A low birth rate means that there aren’t enough people being born who, decades from now, will be in the work force paying into the system.
Social Security needs a steady, growing work force, with an average of 3 workers paying into the system to support 1 retiree receiving benefits.
This is known as the worker-to-retiree ratio, and Social Security tracks this very closely.
3:1 is the break even level. It’s been well below that level for years, and is continuing to trend lower due to America’s declining birth rate.
And that doesn’t even take into consideration all the millions of jobs that will be lost in the coming decades due to automation, AI, and robotics.
The conclusions here are pretty obvious:
1) This problem is objectively enormous.
Public pensions around the world, from the US to Europe to Japan, are in deep financial trouble. And even private pensions are underfunded. The financial size of the problem completely dwarfs the other major issues of the day.
2) Tax hikes are inevitable, especially in the US.
The US right now is trying to model itself on the European welfare state. Well, payroll tax rates (i.e. taxes which fund public pensions) in places like France, Austria, Germany, etc. are DOUBLE what they are in the US.
So absolutely expect payroll tax rates in the Land of the Free to increase dramatically.
3) You have to take matters into your own hands.
The government isn’t going to fix this; they’ll continue to ignore the problem and make false promises because that’s the politically expedient thing to do.
There are plenty of solutions, but the bottom line is that you’ll have to set aside more money for retirement.
Use the tools at your disposal. Consider setting up, for example, a more robust, tax efficient retirement structure for qualifying income, like a solo 401(k).
This allows you to set aside more than $60,000 per year if you’re over the age of 50. Plus you’ll have more choices in the types of investments and speculations you can make, like real estate, cryptocurrency, royalties, and more.
No matter the structure, there’s hardly any downside in making sure that you have more money set aside for your retirement.
To your freedom and Prosperity, Signature Simon Black, Founder, SovereignMan.com
How Can Investing In Spain Earn You Residency and Eventual Citizenship
.Notes From The field By Simon Black
Sovereign Man: Ultimate Plan B Series:
Helping you secure a robust Plan B, one actionable email at a time...
Looking for a Plan B in one of the world’s most desirable locations? For those with the means to invest in a Spanish Golden Visa, the benefits of EU residency can be obtained here with ease.
Find out how you can benefit below...
How Can Investing In Spain Earn You Residency and Eventual Citizenship
Offering world-class infrastructure, sumptuous cuisine and a leisurely pace of living, Spain is one of the world’s most sought after second home and retirement destinations – and with good reason. The Iberian country truly offers it all. Established in September 2013, the Spanish Golden Visa has long been one of the most popular programs of its kind in Europe. While it has historically been very popular among Russians and Chinese nationals, the US has cropped up in the Top 5 source countries for the program since 2019.
How Can Investing In Spain Earn You Residency and Eventual Citizenship
Sovereign Man: Ultimate Plan B Series:
Helping you secure a robust Plan B, one actionable email at a time...
Looking for a Plan B in one of the world’s most desirable locations? For those with the means to invest in a Spanish Golden Visa, the benefits of EU residency can be obtained here with ease.
Find out how you can benefit below...
How Can Investing In Spain Earn You Residency and Eventual Citizenship
Offering world-class infrastructure, sumptuous cuisine and a leisurely pace of living, Spain is one of the world’s most sought after second home and retirement destinations – and with good reason. The Iberian country truly offers it all. Established in September 2013, the Spanish Golden Visa has long been one of the most popular programs of its kind in Europe. While it has historically been very popular among Russians and Chinese nationals, the US has cropped up in the Top 5 source countries for the program since 2019.
Is a Golden Visa right for you?
The one key thing you get with a Golden Visa -- apart from an investment property -- is peace of mind: the knowledge that you’ll always have another place to live in, should something go very wrong in your home country. (And you can include your spouse and dependent minor kids in your application.)
The other is flexibility. Unlike with a host of other residency visas, you don’t have to spend significant amounts of time in Spain in order to maintain your residency status. In fact, Spain doesn’t enforce any minimum annual stays, whereas in Portugal, you’re in for a minimum average of one week per year.
It is important to note that most people investing in Golden Visas are looking for a “paper residency” as a back-up plan; they’re NOT looking to emigrate; at least not initially.
But not everyone needs a Golden Visa. If you’re ready to up sticks and go settle in Spain, you can get a Non-Lucrative Visawithout investing in property.
Similarly, you can get a D7 Visa in Portugal,, again without parting with several hundred thousand euro.
Yet, if you’ve got the means to invest, and your business or lifestyle requires flexibility, then a Golden Visa can make a lot of sense.
As an SMC Member, you’ll learn exactly how to:
Obtain a second residency or passport -- potentially for next to nothing
Legally and significantly reduce your taxes
Pass 100% of your estate to your family -- tax-free
Create a firewall around your assets -- and especially your home...
And much, much more!
Spain vs Portugal: Which Golden Visa should you choose?
There are alternatives to the Spanish Golden Visa, and they are worth considering.
For the vast majority of applicants, a property investment makes the most sense, although a growing number of applicants are opting for fund-based investments too.
COST: Price-wise, Spain’s Golden Visa is the most expensive in continental Europe in terms of its property based option. The minimum eligible investment amount is €500,000, whereas you can get away for as little as €280,000 in Portugal, and €250,000 in Greece. (You can find out more about the different investment options for the program here.)
PATH TO CITIZENSHIP: If you’re looking at a Golden Visa with a view to get a second passport, then Portugal wins hands-down. It offers a path to citizenship after only 5 years, whereas in Greece, it takes 7 years, and at least 10 years in Spain
Moreover, Greece is known to give citizenship applicants a very hard time, especially if you are not of Greek origin. And in Spain, unlike in Portugal, you can’t just occasionally pop in for a few months at a time if you want to apply for Spanish citizenship. You’ll need to be present in Spain for an average of ten months per year throughout your residency period in order to qualify.
Unless you’re originally from a former Spanish colony, that is. Citizens of all of Spanish-speaking Latin America, as well as Brazil, the Philippines and Puerto Rico, can naturalize in Spain after holding residency for only two years.
And if you’re originally from one of the above-mentioned countries, you also won’t have to give up your native nationality and passport in order to become a Spanish citizen. (Everyone else is required to give up their native citizenship in order to become Spanish, as the country does not recognize dual citizenship.)
TAXATION: Spain is not very tax-friendly. Once you start spending more than six months per year there, the Spanish revenue service will likely view you as a tax resident.
As an example: On an annual salary of €60,000 (~$70,000) per year, which is fairly moderate by North American standards, you will pay the top tax rate of 45%.
But even there you can take advantage of the Beckham law, whereby for five years, a new resident will not be considered a tax resident in Spain even if they live there full time. But for this to work, you need to be employed by a Spanish company that you do not control.
And if you come to Spain under the Non-lucrative residency (the “pensioners visa”, with no right to work in Spain) and keep paying your taxes elsewhere, Spanish tax authorities generally won’t bother you.
On the other hand, Portugal has sweetened the deal in terms of taxation. While it is far from being a tax haven, its Non-Habitual Residency (NHR) Program is open to any new residents, offering extremely attractive tax benefits. With the NHR regime, most of your worldwide income can be tax free for 10 years.
But given the appeal of the Spanish national brand, taxation tends to be a secondary consideration for most people acquiring citizenship there...
Key Program Differences Between Portugal And Spain
What are the key Golden Visa requirements for Spain?
While the below list is not exhaustive, the following core criteria apply as of February 2021. You have to:
Be a non-EU national over the age of 18 at the time you apply.
Have a clean criminal record in your country of residency.
Make an eligible investment of no less than €500,000, and this investment cannot be financed, either in part or in full.
Maintain your Golden Visa investment for the entire period of your legal residency in Spain.
Ready to apply for your Golden Visa? Then don’t delay, because...
Brussels does not like Golden Visa and Citizenship By Investment programs one bit, and are actively seeking to shut them down. In fact, two of these programs, one in Cyprus and the other in Moldova, were recently shuttered due to pressure from the EU government.
Portugal has also just confirmed some significant changes to their Golden Visa Program, so it is clear that these programs may not be around forever.
So, if you’re ready to activate this key part of your own Plan B, now is the time to take action to avoid missing out.
Yours in Freedom, Team Simon Black, Founder, SovereignMan.com
LBJ Called, He Wants His Inflation Back
.LBJ Called, He Wants His Inflation Back
Notes From the Field by Simon Black June 21, 2021 Cancun, Mexico
1960 was supposed to have been a fantastic year. The world was largely at peace for the first time in decades and had fully recovered from the influenza pandemic that had broken out in the late 1950s. Exciting new technology was rapidly developing, from color TV to the invention of the microchip.
In the United States, the country was getting ready to decide a Presidential race between two young candidates, both in their 40s. That had never happened before (or since) in the history of US presidential elections.
Overall there was a lot of optimism and energy as a new decade emerged.
And then, without warning, a recession struck the US economy.
LBJ Called, He Wants His Inflation Back
Notes From the Field by Simon Black June 21, 2021 Cancun, Mexico
1960 was supposed to have been a fantastic year. The world was largely at peace for the first time in decades and had fully recovered from the influenza pandemic that had broken out in the late 1950s. Exciting new technology was rapidly developing, from color TV to the invention of the microchip.
In the United States, the country was getting ready to decide a Presidential race between two young candidates, both in their 40s. That had never happened before (or since) in the history of US presidential elections.
Overall there was a lot of optimism and energy as a new decade emerged.
And then, without warning, a recession struck the US economy.
As usual, almost nobody saw it coming. The Federal Reserve was just as surprised as the US government when everyone noticed that industrial production began to drop in February 1960.
Manufacturing declined, GDP fell, and unemployment rose steadily, reaching 7% by May 1961-- a level rarely seen since the Great Depression.
The government responded with its usual playbook; after Kennedy narrowly won the election of 1960 (despite significant evidence of voter fraud), he immediately endeavored to make good on his election promise: “Get the country moving again.”
He started with billions in stimulus spending-- highway spending, extended unemployment benefits, etc.
Kennedy was known to have had little regard for the national debt (which he expanded by 10% in two years). Even before becoming President, JFK had given speeches arguing-- quite bizarrely-- that the national debt is actually a sign of prosperity.
And while Kennedy dumped money into the economy, the Federal Reserve rapidly slashed interest rates, from 4% all the way down to 1.25%.
The measures worked. By 1962, the Fed declared victory over the 1960 recession. They even published a report defending their money printing and aggressive interest rate cuts, citing “an absence of inflationary pressures”.
And that was true. From 1962 through 1964, inflation was less than 2%. The economy was in good shape and everyone was happy.
Lyndon Johnson won the presidency in 1964 after promising to forge a “Great Society,” a term that encompassed widespread social spending on everything from free healthcare to national endowments for art.
Johnson spent billions expanding welfare, food stamps, public transportation, environmental protection, public housing, university funding, etc.
Yet simultaneously, LBJ also rapidly escalated US military involvement in Vietnam.
Prosecuting an unwinnable war while simultaneously building the Great Society proved to be incredibly expensive, and the US national debt grew dramatically under Johnson.
Inflation rose too. In fact 1965 began a long period of what economic historians call “The Great Inflation”. Inflation passed 4% in 1966, and was more than 6% by the end of the decade.
Inflation really started spiraling out of control in the 1970s after then-President Richard Nixon ended the dollar’s convertibility into gold; by 1974 inflation was more than 12%, and peaked at nearly 15% in 1980.
Even throughout the 1980s, annual inflation still held well above 4%… and even in the 1990s and early 2000s inflation hovered near 3% per year on average.
In fact the low inflation we experienced in the past 12-13 years, averaging 1.7% since the 2008 financial crisis, is a major anomaly.
We’re told by the all-knowing, all-powerful central bankers at the Federal Reserve that they will maintain a long-term inflation rate of 2%.
But the Fed’s inflation track record speaks for itself.
Starting with the Great Inflation in the 1960s, and going all the way through 2008, the average annual inflation rate in the Land of the Free has been 4.6%, more than twice as much as the Fed has promised.
So this phenomenon of higher inflation we’re seeing now is nothing new.
Fiscal and monetary conditions today are also quite similar to the early 1960s.
Remember-- in 1960 the US was emerging from a major pandemic, the government was going heavily into debt, and the Federal Reserve was happy to accommodate it all with low interest rates.
Today the US is emerging from a major pandemic. The national debt has soared, and the federal government has an insatiable appetite to spend trillions of dollars on every social program it can dream up.
And then there’s the Federal Reserve— which last week announced they will keep interest rates at near zero until 2023.
Talk about bizarre. It’s obvious to everyone that the economy is roaring back, and businesses are having huge problems finding workers. It’s also obvious that inflation is rising.
Yet the Fed doesn’t seem to notice or care. They’ll continue printing money and maintaining 0% rates, no matter the cost.
All of these factors are huge inflationary pressures.
The numbers will fluctuate month to month, year to year. Some months the inflation numbers will fall. Other months they’ll rise.
But the long-term trend is pretty obvious: massive government spending and low interest rates is like the 1960s Great Inflation all over again.
Remember, even though the Fed insists that they’ll maintain 2% inflation, their actual track record between 1965 and 2008 is an average 4.6% annual inflation rate.
So if your own long-term financial planning is based on the Fed keeping its promised 2% inflation rate, you may be in for a rude awakening.
To your freedom and prosperity, Simon Black, Founder, SovereignMan.com
https://www.sovereignman.com/trends/lbj-called-he-wants-his-inflation-back-32731/
Even The Federal Reserve Doesn’t Believe The Federal Reserve Anymore
.Even The Federal Reserve Doesn’t Believe The Federal Reserve Anymore
Notes From The Field By Simon Black
June 15, 2021 Cancun, Mexico
More than twenty years ago when I was a young Army intelligence officer fresh out of the academy, my commander summoned me to his office one afternoon because he had a ‘special mission’ for me.
I was beyond excited.
My assumption was that it would be a clandestine assignment to lead one of our unit’s counterintelligence teams in the Middle East. Or perhaps it would be temporary duty as an aide to the commanding general who would be visiting soon.
It was none of the above.
Even The Federal Reserve Doesn’t Believe The Federal Reserve Anymore
Notes From The Field By Simon Black
June 15, 2021 Cancun, Mexico
More than twenty years ago when I was a young Army intelligence officer fresh out of the academy, my commander summoned me to his office one afternoon because he had a ‘special mission’ for me.
I was beyond excited.
My assumption was that it would be a clandestine assignment to lead one of our unit’s counterintelligence teams in the Middle East. Or perhaps it would be temporary duty as an aide to the commanding general who would be visiting soon.
It was none of the above.
Instead, my commander looked at me and said, “Lieutenant, I need you to plan our unit’s long-term budget for the next ten years, and I want it on my desk this afternoon.”
Huh?
Aside from the obvious disappointment of being handed such a lame assignment, I was dumbfounded that they would entrust something like budget planning to a 22-year old with zero experience in the matter.
But the task took me all of 15 minutes to complete. I looked at what our unit’s current budget was for that fiscal year… and then I spent a few minutes researching the inflation rate.
According to Yahoo (yes, this was so long ago that people still primarily used Yahoo instead of Google), the projected inflation rate was 2%.
So basically I just added 2% to our spending every year for the next 10 years, and poof, long-term budget complete.
That’s the day I learned how government financing works; quite often the people who come up with these numbers don’t have a clue what they’re doing and base everything on some very simple assumptions about the future.
A few weeks ago, the White House unveiled its own 10 year budget, which forecasts US federal spending into the early 2030s.
Similarly, they make their own assumptions about the future. In fact, they list key assumptions about inflation, interest rates, etc. on page 60 of their budget report.
This is really interesting… because the Federal Reserve-- i.e. the US central bank that is responsible for controlling inflation-- insists that they’ll keep inflation at 2% over the long term.
But apparently the White House doesn’t believe its own central bank… because the 10-year Biden Budget assumes an inflation rate that’s, proportionally, 15% higher than what the Federal Reserve promises.
This lack of confidence is pretty remarkable; think about it-- the US Treasury Secretary, who would have been instrumental in drafting the budget, used to be the Chair of the Federal Reserve.
So even the Fed’s own alumni don’t believe the Fed when they say that they’ll keep inflation at 2%.
And why should anyone believe the Fed? Inflation has been soaring, yet the Fed has been completely dismissive of it, claiming that inflation is ‘transitory’, i.e. it’s a temporary phenomenon that will eventually stop.
We’ve discussed this before-- there is some truth in that statement. But the real issue is far more complicated.
Let’s have a look at what inflation really is--
In simplistic terms, inflation is too much money relative to the amount of stuff in an economy. And ‘stuff’ literally means ANYTHING-- a loaf of bread, a brand new Tesla, services performed by your accountant, and even assets like Bitcoin, stocks in the S&P 500, real estate, etc.
There’s a finite amount of goods and services in any economy. There’s only so much property available, only so many loaves of bread that are baked. And there are only 500 companies in the S&P.
Similarly, there’s also a certain amount of money-- all the combined income and savings of everyone in the economy.
In a market-based economy, consumers and investors make choices about where all that money ends up; they choose to purchase loaves of bread, Teslas, or shares in S&P 500 companies.
And based on the laws of supply and demand, the prices for those goods, services, and assets will rise or fall according to consumer preference.
But then the Federal Reserve steps in… and arbitrarily expands the money supply. And by “expand”, I mean “flooded the economy with a supernova orgy of money.”
This is pretty much what the Fed has done ever since the LAST financial crisis in 2008; back then its balance sheet was about $800 billion. Today it’s $8 trillion-- 10x bigger.
This means that the Fed has stuffed enormous quantities of money into the economy over the past 12+ years… and especially over the last year.
Since COVID started, the Fed has doubled the size of its balance sheet and expanded the money supply more than any year in US history except for 1943. That’s really saying something.
So- let’s go back to our inflation definition: now there are trillions of dollars of new money in the system.
But at the same time, there’s a lot less stuff.
Countless businesses closed, others were forced to shut down, and workers have been paid to stay home.
All of those policies mean less stuff is being produced in the economy.
So-- more money, less stuff means that prices have generally been rising. That’s inflation.
Some of this really is temporary. Eventually most of those surviving businesses will open, and others will replace the ones which failed. So production will start to catch up.
But longer term, there are a lot of other factors to consider--
1) Tax policy. Remember, these guys want to raise taxes in the US, especially on investors and large companies. In fact their proposed corporate tax rate is 28%.
Yet they’ve just announced a proposal with other nations to set a “global minimum tax” of 15%. So they’re essentially creating a huge incentive for US companies to stop producing in America and head overseas for a lower tax rate. It’s genius.
2) Idiotic COVID policies. We’ve talked about this before-- COVID compliance is expensive.
Here’s a great example-- a lot of hotels are keeping a used room vacant for 24 hours after a guest checks out to ensure ‘proper ventilation’ before any new guest can stay in that room.
This means that hotels will never be able to operate at full capacity, which will cost them a ton of money. And ultimately those costs will be paid by consumers in the form of higher room rates. That’s inflation.
3) Incentives to NOT work.
This one is nuts; they give people money to NOT work. And then the government complains that the unemployment rate is too high… so they need to continue giving money to unemployed people!
It’s a never-ending cycle that creates major disincentives to produce, i.e. less stuff in the economy.
It’s even dumber than when the federal government gave money to farmers during the Great Depression to DESTROY their crops.
There are so many more examples and trends, each of which makes it more difficult to produce (i.e. less stuff) at a time when there’s more money flooding the economy. That causes inflation.
So it’s no wonder the White House is skeptical when the Fed claims that inflation will be 2%. There are simply too many forces that will keep inflation higher in the future.
To your freedom, Simon Black, Founder, SovereignMan.com
Three Reasons Why Inflation Is Rising. Two Of Them Aren’t Going Away
.Three Reasons Why Inflation Is Rising. Two Of Them Aren’t Going Away
Notes From the Field By Simon Black May 5, 2021 Cancun, Mexico
A remarkable thing happened yesterday that tells you everything you need to know about inflation. In the morning, US Treasury Secretary Janet Yellen stated bluntly that “interest rates will have to rise somewhat to make sure that our economy doesn’t overheat. . .”
For economists, an ‘overheating economy’ means inflation. So she was essentially saying that rates would have to rise to prevent inflation. Yet hours later, she completely reversed herself, saying that interest rates would NOT have to rise because “I don’t think there’s going to be an inflationary problem.”
Three Reasons Why Inflation Is Rising. Two Of Them Aren’t Going Away
Notes From the Field By Simon Black May 5, 2021 Cancun, Mexico
A remarkable thing happened yesterday that tells you everything you need to know about inflation. In the morning, US Treasury Secretary Janet Yellen stated bluntly that “interest rates will have to rise somewhat to make sure that our economy doesn’t overheat. . .”
For economists, an ‘overheating economy’ means inflation. So she was essentially saying that rates would have to rise to prevent inflation. Yet hours later, she completely reversed herself, saying that interest rates would NOT have to rise because “I don’t think there’s going to be an inflationary problem.”
You don’t need a PhD in economics to smell the BS.
Inflation is not some potential issue down the road. Inflation is already here.
As Warren Buffett told investors only days ago, “We’re seeing very substantial inflation.”
Plenty of companies have already announced price increases to their consumers--
Proctor & Gamble, for instance, announced price hikes across the board on just about everything from diapers to beauty creams.
Hershey’s announced in February that it would be raising prices.
Food giant General Mills complained in February about a “higher inflationary environment” and “input cost pressures” due to rising commodity prices.
Clorox, Shake Shack, Kimberly-Clark, Whirlpool, Hormel, and Woka Kola Coca Cola are among the many companies that have also announced price increases.
And according to Bank of America Global Research, the number of mentions of “inflation” on corporate earnings calls has increased 800% compared to last year.
Inflation is clearly a concern of the largest companies in the world. Investors are worried. Consumers can see it.
And in a rare moment of truth yesterday morning, a politician almost admitted that she was concerned about inflation too.
This is not some wild conspiracy. Inflation is real. It’s happening. Let’s look at three key drivers:
1) Capacity Constraints
Last year the entire world shut down. Businesses and factories everywhere closed, and plenty of companies went out of business.
Many companies who survived took radical steps to conserve cash-- laying off workers, liquidating inventory, and selling equipment.
One critical consequence was that the amount of capacity in the system was greatly reduced.
Here’s an example: I’ve been in Cancun for several weeks, and as you know, this place is a major tourist destination.
Last year when tourism dried up, plenty of companies went out of business. Rental car companies, for example, had practically zero customers. Many went bankrupt. Others survived by selling off most of their vehicles, believing that it would be years before the tourists returned.
But a year later, the tourists are back.
Problem is, there are now very few cars to rent in Cancun, because rental agencies either went bankrupt or liquidated their inventories.
As a result, car rental prices in Cancun have surged; supply is scarce, yet demand is back to normal.
We’re seeing similar effects across the economy. Capacity is limited because of the extreme measures that businesses took last year. And they can’t simply flip a switch and bring capacity back to normal. It takes time.
They’ll have to invest in inventory, hire more staff, etc. Eventually, these supply/demand imbalances will stabilize. But for the foreseeable future, it’s driving prices higher.
This is the type of inflation that politicians and central bankers have been calling “transitory”. In other words, it’s temporary pressure that should subside in the future.
2) COVID lunacy
Hardly anyone talks about this... but just think about all the idiotic rules that people have to follow now.
If you own a retail store in a shopping mall, for example, you have to pay employees to stand at the door ready to hose down every customer who walks inside with hand sanitizer.
And imagine how much money businesses are spending now on PPE… masks, gloves, hand sanitizer, etc. Or companies (airlines, hotels, etc) that now employ legions of workers to chemically scrub every nook and cranny of the premises.
All of this costs money, and the extra costs eventually get passed on to consumers. Most likely, these measures are not going away… which means that COVID is extremely inflationary.
3) Trillions in money printing
This is the big one. The US federal government is hoping to spend a whopping $11 TRILLION this year, between the regular budget, COVID stimulus already passed, and all the new legislation they’re proposing.
And it’s only May.
Obviously Uncle Sam doesn’t have the money. So they have to borrow it.
Their chief remaining lender these days is the Federal Reserve, which first has to ‘print’ money before loaning it to the government.
(The actual process is more modern and complex, but that’s basically what happens in a nutshell.)
The more money the government spends, the more the Fed prints (roughly $4 trillion last year). And as this freshly created money makes its way through the economy, it typically ends up in financial markets, driving asset prices higher.
It’s not a coincidence that the Fed has created record sums of money, and the stock market is simultaneously at a record high. Ditto for real estate, cryptocurrencies, collectibles, etc.
Many commodities are also at record highs. Lumber prices have never been higher. Corn is near its all-time high. Oil prices surged from MINUS $40/barrel last year to $70 today-- a difference of $110.
Higher commodity prices eventually lead to higher consumer prices.
High lumber prices, for example, mean that housing costs increase. Higher corn prices mean higher food prices. Higher fuel prices mean higher transport costs, which increases the price of almost everything.
So as long as the Federal Reserve is printing money and holding rates down to historic lows, these prices will likely keep rising.
Given the US government’s insatiable appetite to borrow money from the Fed, this inflation pressure is NOT going away.
And after what we saw yesterday, it’s clear that the government’s approach will be to ignore or dismiss inflation risks.
To your freedom and prosperity, Simon Black, Founder, SovereignMan.com
This Is Not The Time To Procrastinate
.This Is Not The Time To Procrastinate
Notes From the Field By Simon Black April 27, 2021 Cancun, Mexico
In early 387 AD in the eastern Roman city of Antioch, a local bureaucrat stood outside of the city council chambers to read a new decree that had just arrived from Emperor Theodosius I. As the anxious crowd gathered, the bureaucrat began reading aloud-- Just as the crowd had feared, the new decree was a series of debilitating new taxes, ranging from heavy taxation on commercial activities, to mandatory donations to the Emperor himself.
The crowd became furious.
Antioch had already suffered immeasurably. The imperial government had depleted the city’s grain, killed off a large number of the youth from endless war, and already exacted heavy tolls and taxation. These new taxes were too much to bear. And a riot ensued almost immediately. People all over Antioch (in modern day Turkey) poured into the streets ripping down monuments of the imperial family, burned their portraits, and destroyed public buildings.
This Is Not The Time To Procrastinate
Notes From the Field By Simon Black April 27, 2021 Cancun, Mexico
In early 387 AD in the eastern Roman city of Antioch, a local bureaucrat stood outside of the city council chambers to read a new decree that had just arrived from Emperor Theodosius I. As the anxious crowd gathered, the bureaucrat began reading aloud-- Just as the crowd had feared, the new decree was a series of debilitating new taxes, ranging from heavy taxation on commercial activities, to mandatory donations to the Emperor himself.
The crowd became furious.
Antioch had already suffered immeasurably. The imperial government had depleted the city’s grain, killed off a large number of the youth from endless war, and already exacted heavy tolls and taxation. These new taxes were too much to bear. And a riot ensued almost immediately. People all over Antioch (in modern day Turkey) poured into the streets ripping down monuments of the imperial family, burned their portraits, and destroyed public buildings.
Naturally in our modern times we would call such activities “mostly peaceful”. But back then it constituted treason, and the rioters were ultimately put to death.
But the tax protests didn’t stop.
Throughout most of the next century, in fact, the Western Roman Empire was in a near-constant state of civil war and insurrection, quite often over the imperial government’s exorbitantly high tax rates.
Farmers, who were among the most heavily taxed citizens, abandoned their lands and sought refuge with northern barbarian tribes. Even soldiers and Roman noblemen fled the empire to escape the totalitarian regime, extreme corruption, and usurious tax rates.
Salvianus, a contemporary writer and historian at the time, wrote
“the name of Roman citizen, once not only much valued but dearly bought, is now voluntarily repudiated and shunned, and is thought not merely valueless, but even almost abhorrent.”
But taxes kept rising, and compliance became more of a hassle. For example, Valentinian III decreed that all transactions be conducted in the presence of a tax collector. This further hampered commerce, since economic activity had to be planned around the bureaucrats’ schedules.
In his book Decadent Societies, historian Robert Adams wrote, “by the fifth century, men were ready to abandon civilization itself in order to escape the fearful load of taxes.”
Today we are entering a similar era of extreme taxation that marked the morally and financially bankrupt late-stage Roman Empire.
At the state level, places like California have proposed all sorts of idiotic ideas, from hiking the already-high individual and corporate rates, to a statewide wealth tax, to even an ‘expatriation tax’ for anyone who leaves California.
The State of New Jersey is chasing away its highest income earners by raising taxes from 8.97% to 10.75%, and dropping the income threshold from $5 million down to $1 million.
What a surprise-- wealthy people and businesses are leaving California and New Jersey!
Then there are all the new ideas for federal tax policy, many of which are colossally stupid.
This week the Biden administration plans to unveil a proposal to tax up to 43.4% of capital gains, even though the history of taxation in the United States shows that capital gains tax increases actually result in LOWER tax revenue.
Plus many politicians still want to tax ‘unrealized’ capital gains, i.e. you have to pay tax on an asset that has appreciated in value BEFORE you sell it. Genius.
In addition, they’re working to not only raise corporate taxes, but to push other countries around the world to raise their corporate tax rates as well.
And last month I outlined their new proposal to raise estate taxes, AKA the death tax.
The legislation wouldn’t just raise the percentage of an estate the government takes. It would also lower the exemption to just $1 million, which is sure to affect small family business.
With even just a few of these changes taking place, many people will be paying upwards of 50% to 60% between state, local, and federal taxes.
And let’s be honest-- the decisions about how they spend it are appalling.
These are the same politicians who spend billions of dollars to build a website that doesn’t work… or who pay people to stay home and NOT work to save everyone from a virus with a 99% survival rate.
As I’ve been saying for some time, they are coming for your money, one way or another. Desperate, bankrupt governments always do.
But the good news is that this is not the 5th century. No one needs to “abandon civilization itself in order to escape the fearful load of taxes.”
There are still plenty of legal ways to pay a very low tax burden. With proper planning, you don’t have to be the Bolsheviks’ piggy bank.
Puerto Rico still offers extraordinary tax incentives-- and not just for US citizens. Business owners from around the world can set up a company that’s subject to a mere 4% corporate tax rate, with no further dividend or withholding tax.
And US citizens are able to enjoy tax-free capital gains on assets like stocks, bonds, and cryptocurrency.
If Puerto Rico isn’t your cup of tea, there are still plenty of ways to legally reduce what you owe; you can set up a more robust retirement plan and maximize contributions, for example, potentially taking tens of thousands of dollars per year off the table.
The Foreign Earned Income Exclusion allows US taxpayers living abroad to earn $108,700 this year, tax free, and married couples $217,400, plus receive extensive tax benefits on their housing.
People may also think about maximizing their lifetime gift tax allowances, or any number of more structured options like captive insurance or foreign pension plans.
Yes, it can be scary to constantly watch crazed politicians screaming about how they want to take your money.
But there are plenty of solutions if you have the right information and the willingness to take action.
The important thing to recognize is that this is not the time to procrastinate. If the last year has taught us anything, it’s that everything can change VERY quickly.
To your freedom and prosperity, Simon Black, Founder, SovereignMan.com
When The “Lord Protector” Turned Out To Be The Worst Tyrant Of All
.When The “Lord Protector” Turned Out To Be The Worst Tyrant Of All
Notes From The Field By Simon Black April 26, 2021 Cancun, Mexico
In early 1657, a young farmer from southeastern England named John Washington boarded a small merchant vessel bound for the English colonies in North America. Officially he was supposed to be part of a minor trade voyage to transport tobacco to the colonies. But secretly John had no intention of ever returning home. He wanted to sail as far away from England as he could.
Britain in the 1657 was a pretty miserable place. A series of civil wars throughout the 1640s had left the country impoverished and chaotic, leading to the dictatorship of Oliver Cromwell. Cromwell, in theory, was supposed to be on the side of the commoners who wanted to limit the power of the monarchy. But after installing himself as “Lord Protector” in 1653, Cromwell turned out to be more dangerous and autocratic than even the most tyrannical of kings.
When The “Lord Protector” Turned Out To Be The Worst Tyrant Of All
Notes From The Field By Simon Black April 26, 2021 Cancun, Mexico
In early 1657, a young farmer from southeastern England named John Washington boarded a small merchant vessel bound for the English colonies in North America. Officially he was supposed to be part of a minor trade voyage to transport tobacco to the colonies. But secretly John had no intention of ever returning home. He wanted to sail as far away from England as he could.
Britain in the 1657 was a pretty miserable place. A series of civil wars throughout the 1640s had left the country impoverished and chaotic, leading to the dictatorship of Oliver Cromwell. Cromwell, in theory, was supposed to be on the side of the commoners who wanted to limit the power of the monarchy. But after installing himself as “Lord Protector” in 1653, Cromwell turned out to be more dangerous and autocratic than even the most tyrannical of kings.
He fought costly, unnecessary wars of ego, and paid for it all by raising taxes far beyond his predecessors. Yet despite the high taxes, he ran a massive budget deficit and further indebted the country. Cromwell waged genocide against Irish Catholics, while hypocritically preaching unity and tolerance.
His administration jumped into bed with big business (like the East India Company, which “loaned” him the princely sum of 60,000 pounds), yet over-regulated artisans, merchants, and small shopkeepers.
He even confiscated property of those who couldn’t PROVE that they had been loyal to him.
Winston Churchill summed it up centuries later when he wrote, “the rule of Cromwell became hated as no government has ever been hated in England before or since.”
It was this hatred for Cromwell that prompted countless people to flee England forever.
John Washington was one of them; he settled in Virginia colony and had a family there. And more than a century later, his great-grandson George helped found a new nation.
It’s fitting that the American origin story of the first US President started with his great-grandfather who had the courage and independence to leave a brutal dictatorship behind.
This story is as old as history; from the Israelites leaving Egypt, to the Mayflower voyage, people have always sought freedom and opportunity abroad whenever their liberties at home are threatened.
Back then it was difficult. Voyages were dangerous and fraught with risk, disease, and starvation.
By comparison, today we have it easy; we can avail ourselves to much of what the world has to offer without leaving our living rooms.
But I’ll come back to that in a moment.
Have you stepped back lately to look at the big picture… to really take in what’s happening in the world? Honestly it’s difficult to believe.
It’s difficult to believe, for example, that we live in a world where several Dr. Seuss titles have been banned. But you’ll have no problems buying a copy of Adolf Hitler’s mostly peaceful Mein Kampf.
It’s difficult to believe that we live in a world where mostly peaceful protesters can pack together to torch cars and destroy property with impunity, yet everyone else is banned from having family over for Christmas dinner.
Power-hungry politicians are playing God with the economy and have established dehumanizing ‘people controls’ to save us against a virus that has a 99% survival rate.
And Lord Protector Fauci has become a tyrant in his own right.
Big Tech and Big Media refuse to allow any discussion about science and public health policy. Any attempt at rational discourse, including from prized scientific minds, results in censorship or banishment.
Children are taught that they are either victims or oppressors. Mathematics is full of white supremacy. History is racist. Biology is subjective. Capitalism is evil.
Big business has jumped on board the bandwagon, with dozens of major corporations blasting “Jim Crow” voting laws because certain state governments want voters to present valid identification before casting a ballot.
And the Twitter mob is there to keep everyone in check, with legions of people dedicated to being offended about something and destroying the lives of every heretic who dares disagree.
The government is fanning the flames of chaos by pushing Neo-Marxist policies, which they want to pay for with punitive, retroactive tax increases.
The US national debt has soared to more than $28 trillion, vastly exceeding the size of the entire economy, with no end in sight.
Meanwhile the central bank roughly doubled the size of its balance sheet in the past year, stoking inflation and creating a dangerous asset bubble that dwarfs the size of the 2008 financial crisis.
It’s extraordinary that five years ago, even two years ago, most of this would have been unthinkable.
But now it’s happened. And with every book they ban, every person they cancel, every demeaning public health order they issue, and every stimulus check they send, these people are emboldened.
And that takes me back to liberty and opportunity.
This isn’t the first time that freedom-minded people have found their world turned upside down.
But we have it far easier than our ancestors ever did.
We don’t have to risk the perils of a long ocean voyage. We have the whole world at our fingertips.
If you’re concerned about rising inflation, for example, you can buy gold online and have it delivered to a secure vault in a safe country of your choosing.
If you’re concerned about declining economic prospects in your home country, you can invest in rapidly growing frontier markets or more competitive foreign nations.
And if you want to have the ultimate Plan B for your family, you can even establish residency in a foreign country, or obtain a second passport.
All of this, in many cases, you can do without ever leaving town.
The world is not coming to an end. But it’s changing. Fast.
There’s no reason to despair or panic. Instead, have the confidence in yourself that you can use the many tools available to take back control of life, freedom, and prosperity.
All it takes is the right information, and the will to act.
To your freedom and prosperity, Simon Black, Founder, SovereignMan.com
It’s Time To Start Thinking About Inflation
.It’s Time To Start Thinking About Inflation
Notes From The Field BY Simon Black April 20, 2021 Cancun, Mexico
In the year 215 AD, the young Roman Emperor Caracalla, then just 27 years of age, decided to ‘fix’ Rome’s perennial inflation problem by minting a brand new coin. Caracalla’s predecessors over the previous several decades had ordered an astonishing debasement of Roman currency; the silver content in Rome’s ‘denarius’ coin, for example, was reduced from roughly 85% in the early 150s AD, to less than 50% by the early 200s.
And with the silver content in their currency greatly reduced, government mints cranked out unprecedented quantities of coins. They spent the money as quickly as they minted it, using the flood of debased coins, for example, to finance endless wars and buy up food supplies for their soldiers.
Needless to say this caused rampant inflation across the empire.
It’s Time To Start Thinking About Inflation
Notes From The Field BY Simon Black April 20, 2021 Cancun, Mexico
In the year 215 AD, the young Roman Emperor Caracalla, then just 27 years of age, decided to ‘fix’ Rome’s perennial inflation problem by minting a brand new coin. Caracalla’s predecessors over the previous several decades had ordered an astonishing debasement of Roman currency; the silver content in Rome’s ‘denarius’ coin, for example, was reduced from roughly 85% in the early 150s AD, to less than 50% by the early 200s.
And with the silver content in their currency greatly reduced, government mints cranked out unprecedented quantities of coins. They spent the money as quickly as they minted it, using the flood of debased coins, for example, to finance endless wars and buy up food supplies for their soldiers.
Needless to say this caused rampant inflation across the empire.
Egypt was a province of Rome at the time, and the one of the Empire’s major agricultural producers. Its local provincial coin, the drachma, had also been heavily debased.
A measure of Egyptian wheat in the early 1st century AD, for example, cost only 8 drachmas. In the third century that same amount of Egyptian wheat cost more than 100,000 drachmas.
Caracalla tried to fix this by simply creating a new coin– the antoniniamis.
It was originally minted with 50% silver content. But the antoniniamis was debased down to just 5% silver within a few decades.
Caracalla’s undisciplined attempt at controlling inflation was about as effective as Venezuela trying to ‘fix’ its hyperinflation by chopping five zeros off its currency.
In fact this same story has been told over and over again throughout history:
Governments who spend too much money almost invariably resort to debasing the currency.
In ancient times, ‘debasement’ meant reducing the gold and silver content in their coins.
In early modern times, it meant printing vast quantities of paper money.
Today, it means creating ‘electronic’ money in the banking system.
But the effect is the same: every new currency unit they create reduces the value of the existing ones. This is not the path to prosperity.
Economies flourish when talented, hardworking people are free to produce valuable goods and services.
It’s ridiculous to expect that an economy becomes wealthier when people are paid to NOT work, when debt levels soar, and when central bankers conjure trillions of dollars out of thin air.
Debasing the money supply does not create REAL wealth. It does, however, create inflation.
Central banks around the world, especially in Europe and the United States, debased their currencies last year in record proportions.
The Federal Reserve in the US roughly DOUBLED the size of its balance sheet last year, with ‘M2 money supply’ growing faster than any year in history except 1943.
More importantly, there’s no end in sight. The Federal Reserve, the US Treasury Department, and influential members of the United States Congress, all want even MORE expansion of the money supply.
Of course, they call it ‘stimulus’. But giving it a positive-sounding name doesn’t change the truth: they’re engineering inflation. And we’re already seeing signs of it.
Commodities prices, for example, have surged over the last year. Lumber has tripled. Corn has doubled.
Bear in mind that commodities represent the input costs to other products; so if lumber is more expensive, for example, it means that home construction prices will also rise.
Just this morning, consumer product giant Procter & Gamble announced it would raise prices across the board for its products, from diapers to beauty products, due to rising commodity prices.
Even official statistics from the US federal government show that inflation last month reached a multi-year high. We can also see inflation when we look at asset prices.
Stocks are trading at peak valuations; the average Price/Earnings ratio in the S&P 500, for example, is now 42, roughly 3x the historic average. It has only been higher two other times– just before the 2000 crash, and just before the 2008 crash.
Bonds are so expensive that more than $13 trillion worth trade at negative yields.
Real estate prices are so expensive that cap rates in many sectors have hit record lows.
These are all obvious signs of inflation.
It’s important to think about inflation, and to prepare for it… because the government’s options to deal with it are extremely limited.
In theory they could clean up their fiscal imbalance and stop spending so much money, which means the central bank would no longer have to debase the currency.
But such political responsibility is highly improbable.
Alternatively, if inflation continues to rise, the central bank could raise interest rates to reign it in.
But higher interest rates could easily cause a meltdown in financial markets; stocks, bonds, and even real estate, whose current record high prices depend on 0% interest rates, could experience a sudden crash.
More importantly, higher interest rates would push the federal government beyond its breaking point; if rates were to rise to just 5%, the government’s annual interest expense would eventually reach $1.5 trillion.
So that leaves the final option: the Federal Reserve could simply ignore the inflation data and continue financing government deficits.
They’ll tell us that the inflation is ‘temporary’ and ‘transitory’, and not to worry because they’re still in control of the situation. But anyone who visits a grocery store, fills up a gas tank, or pays tuition, will know the truth.
I’m not suggesting the sky will fall and we’ll see some Zimbabwe-style hyperinflation. But a return to the painful inflation levels in the 1970s? That’s absolutely a possibility.
In a future letter I’ll discuss different ways to prepare for it. But for now I’ll leave you with a simple thought–
I am not fanatical about any asset, and I would never describe myself as a ‘gold bug’. I do, however, recognize that gold has a 5,000 year track record of performing well during times of inflation, with very few exceptions.
And at the moment, both gold and silver are among the only major assets that are NOT selling for record high prices.
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https://www.sovereignman.com/trends/its-time-to-start-thinking-about-inflation-31989/