Category: simonblack

Recently the Congressional Budget Office published a scathing report that the US government debt-to-GDP ratio will double over the next 30-years.

Few government agencies are as blunt as the Congressional Budget Office.

In fact the agency’s report plainly states that “the prospect of such large and growing debt poses substantial risks for the nation. . .”

Echoing this sentiment, a former director of the Congressional Budget Office called the US debt:

“a serial horror story in which the greatest economic power ever to grace the globe sails directly into self-inflicted crisis, suffering and decline.”

Debt matters.

Nearly every major superpower over the last thousand years, from the French Bourbon monarchy to the Ottoman Empire, was eventually crushed under the weight of its debt.

The CBO has been sounding the alarm bells for years warning successive administrations that there will be serious, serious consequences in the future.

The irony is that the CBO is probably being overly optimistic.

I pulled some of their older projections from several years ago, and while they nailed the trend, they totally underestimated how severe the debt crisis would be.

In January 2007, for example, the CBO issued its annual budget and economic outlook in which they made 10-year projections about the national debt.

So, 10 years ago, the CBO estimated that by 2017, the “debt held by the public” would be $4.2 trillion, which they estimated would be 24.6% of GDP.

(Note that the CBO tends to focus on “debt held by the public”, but this number is only a portion of the total national debt.)

Now it really is 2017.

So how much is the actual debt held by the public today?

$14.35 trillion, or 76.5% of GDP… more than three times what the CBO projected back in 2007.

(Bear in mind that TOTAL government debt in the US is $20 trillion, around 106% of GDP.)

In other words, the CBO’s projection was wrong by $10 TRILLION.

That’s not to take anything away from the CBO; as the old saying goes, predictions are hard, especially about the future.

The agency is clearly doing its best to objectively highlight the obvious (and dangerous) trend of rising debt levels in the Land of the Free.

Their math just happens to be off by an order of magnitude.

It’s not just the CBO either.

As I frequently write to you, each year the Board of Trustees of the various Social Security trust funds releases a report detailing the dismal finances of that program.

In the Trustees’ 2005 report, for example, they projected that the trust funds would be “fully depleted,” i.e. completely run out of money, in the year 2043, nearly four decades later.

Eh, who really cared… 40 years was such a long time away.

The next year in the 2006 report, however, their estimated year of depletion changed to 2040… 34 years in the future.

By 2010, it had changed again to 2037… 27 years into the future.

And from last year’s 2016 report, the estimate changed yet again to 2034, just 18 years into the future.

Notice the trend? In a little more than a decade, the Trustees’ estimated date when the trust funds would be fully depleted has accelerated by 9 years.

In other words, the closer we get to the date, the more accurate their calculations become, and the faster they believe the trust funds will go bust.

Again, it’s hard to fault the trustees.

They have the right message: Social Security is going broke. They just happen to have been too optimistic in their timing.

It mystifies me how this is not front-page news on a daily basis.

I mean, the implications are enormous; the people who run the Social Security program are saying, flat out, that they’re running out of money and the program will have to curtail benefits.

And the guys within the government who watch over the budget are shouting from the rooftops that the national debt poses substantial risks.”

I imagine most people would probably agree that this stuff matters.

It just doesn’t matter to them today. Or tomorrow. Or next year.

It’s easy to put off obvious and dangerous consequences that won’t strike until several years into the future.

Such short-term thinking is in our nature as human beings.

It’s why we eat garbage foods that poison our bodies… because the life-threatening diabetes and heart disease won’t hit us for another couple of decades.

This is a dangerous gamble, especially considering that there are countless solutions to distance yourself from the impact of your government’s serial irresponsibility.

For example, there are plenty of options to establish a far more flexible, robust retirement structure like a self-directed SEP IRA or solo 401(k).

These plans allow you to save more money for retirement, cut your administrative costs, and realize far better returns in alternative asset classes.

As an example, instead of stuffing all of your retirement savings in an overpriced stock market, your IRA or 401(k) could own a profitable private business or royalty stream that consistently pays strong, healthy cash flow month after month.

This way, when Social Security does go broke, you won’t be affected one bit.

No one else can make this a priority in your life but you.

I’ll say it again: all it takes is the right education, and the will to act.

Source

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On the plane ride back to Chile last night, I was sitting next to a particularly chatty woman who wanted to know my whole life story and what I was doing in Mexico.

I played along and explained to her that I had been on a cruise for the past week speaking at an investment conference.

“Oooooooh,” she said, and then inquired what I had been speaking about.

That’s when the conversation became just a little bit uncomfortable.

I walked her through the big picture, explaining how the US government is totally bankrupt, that Social Security is running out of money, and that the Federal Reserve is rapidly engineering its own insolvency.

That didn’t seem to be the idle chit-chat she was looking for.

Then I told her how we educate people about ways to distance themselves from the consequences, and how to make better investments that generate strong returns while taking minimal risk.

Things became really unglued when I arrived to the topic of taxation.

“The highest return on investment you’ll ever make,” I told her, “is taking legal steps to reduce your taxes.”

She looked dumbfounded.

“Think about it; cutting your tax is like boosting your investment return by 10%, 20%, or more, without taking on any risk. You’ll never generate that kind of return so easily anywhere else.”

Then, as expected, she exploded with the usual brainwashed, vitriolic disgust, accusing me of being ‘unpatriotic’ because I take legal steps to slash my tax bill.

I’ll never understand this close-minded mentality.

It’s not exactly a controversial statement to suggest that governments waste an unbelievable amount of money.

In the Land of the Free, for example, the federal government’s National Institutes of Health wasted millions of dollars taxpayer funds a few years ago to study monkeys and mountain lions running on treadmills.

Then there was the $1 billion that the US military spent to destroy $16 billion worth of perfectly good ammunition.

And of course the $2 billion Obamacare website fiasco.

There are countless other examples, it just never stops.

They’ve spent billions of dollars to wage wars, invade other nations, and pay for drone strikes that ‘accidentally’ destroyed schools and children’s hospitals.

The reality is that there’s very little you can do about this.

We’re taught in our government-controlled education system that when we disagree with the decisions that our politicians make, we’re supposed to go down to the polling station and vote for change.

This seldom produces any significant results.

In truth your vote has precisely zero influence over the national agenda. But what you do have total control over are your own actions and finances.

If you have misgivings about how the government squanders your money, you’ll be a lot better off reducing the amount that you pay them.

I fail to see how ‘patriotism’ has anything to do with this.

Does anyone seriously believe that ‘patriotism’ is defined by the amount of money you throw into a failing system?

Or that it’s somehow ‘unpatriotic’ to follow the law and take legal steps to reduce what you owe?

Are people being unpatriotic when they maximize their IRA contributions or shop in a duty-free store?

Cutting your tax bill is a sensible thing to do.

Rather than continue to finance wars, debt, body scanners, and drone strikes, you can put that money to work in a way that actually benefits yourself, your family, and anyone else you choose.

Each year I put my tax savings to work in a variety of productive ways.

I’ve financed the recovery of a village in Nepal that was devastated by an earthquake.

I paid more than $70,000 to fund an experimental surgery for a disabled veteran who lost his leg in Afghanistan.

(As a result of the procedure he was able to dance at his wedding and has participated in a 5k race.)

I’m currently putting a promising young orphan through school.

And I co-founded and regularly fund a charity that provides entrepreneurship education for young people each year.

All of these things are possible because I’ve applied perfectly legitimate provisions in the tax code to reduce the amount that I owe.

So instead of my money going to pay for more war and waste, the funds are put to much better use where I can see real, tangible, positive results in people’s lives.

Every situation is different.

If you’re an investor who lives off capital gains and dividend income, there are certain ways to reduce what you owe (consider Act 22 in Puerto Rico…)

If you have an online business, you could set up a properly-structured foreign company to indefinitely defer your corporate profits tax.

If you have a brick-and-mortar business, you could establish a captive insurance company which could save you literally millions in tax.

And just about -everyone- can maximize contributions to an IRA or 401(k), especially if you establish a more flexible structure.

Bottom line, whatever your situation, there are always plenty of legal options to reduce what you owe… and hence put that savings to work in far more beneficial ways.

Source

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To paraphrase that great scene from Airplane, it looks like I picked the wrong week to unplug from the Internet.

Aside from a few hours when we docked in Honduras last week, I was on a self-imposed Internet exile and went several days devoid of any communication with the outside world.

I missed a major scandal at the Fed, another terror attack in Europe, the start of a US military campaign in Syria, political chaos in South Africa, and more.

But it was totally worth it.

I was on a cruise ship for most of the week speaking at a high-end investment conference, and it was as fantastic experience.

Most conferences are pathetic money grabs and giant wastes of time, so I turn down just about every request that my office receives to speak at other people’s events.

But this one was organized by my friends Robert Helms and Russell Gray, two very classy and knowledgeable investors who always put on great events.

What I enjoyed the most is that, in addition to speaking and having the opportunity to teach hundreds of people, I also had the opportunity to learn.

Learning is our great gift as a species… one of the things that separates us from animals.

Humanity rose from nothing because of our ability to learn, and our ability to pass on what we learned to the next generation.

As the infinitely quotable historian Will Durant wrote,

“Civilization is not inherited; it has to be learned and earned by each generation anew; if the transmission should be interrupted for one century, civilization would die, and we should be savages again. So our finest contemporary achievement is our unprecedented expenditure of wealth and toil in the provision of higher education for all.”

‘Education’ doesn’t mean ‘university’. It means learning from other intelligent, talented people.

This is especially true in our modern Digital Age where wealth is derived from knowledge and information, not land and capital.

Hundreds of years ago aristocratic landowners dominated the economy.

Decades ago it was the business elite who controlled the capital and manufacturing capacity.

Today it’s knowledge and ideas that win.

Google (okay, ‘Alphabet’) started as nothing more than an algorithm to improve Internet search.

19-years later it’s one of the largest, most powerful companies in the world.

Ditto for Facebook, whose simple idea of connecting users propelled it to become worth more than $400 billion in just 13-years.

In fact Facebook is 20% more valuable than Johnson & Johnson, the largest manufacturing conglomerate in the world.

(Bear in mind that JNJ has been in business for more than a century longer than Facebook; it was founded in 1886 when Grover Cleveland was President of the United States.)

Or consider Blockchain, the financial technology that virtually eliminates the need for consumers to hold their savings in the banking system.

The simplest Blockchain is a mere 200 lines of code. That’s it.

So in other words, the centuries-old, multi-trillion dollar banking industry is at risk of being disrupted by just 200 lines of code.

It’s extraordinary.

Knowledge and ideas are real wealth today, and that’s why I always welcome the opportunity to share my own and learn from others.

One of the most impressive things I saw last week was Robert Kiyosaki, author of the life-changing book Rich Dad, Poor Dad, sitting in each session as a student.

Robert’s books have sold 50+ million copies. He owns hundreds of millions of dollars worth of high quality, cash-producing real estate.

He’s incredibly wealthy, and he just turned 70-years old.

Yet Robert remains a student and freely acknowledges that he still has so much to learn.

He strolled into the classroom each morning with stacks of books that he’s been reading and piles of notes that he’s been taking.

It was amazing.

The general theme of the event was that Winter is Coming; there are clear signs of trouble ahead.

Hearing from the Chief Economist of Fannie Mae (the quasi-government agency that dominates the housing market) was sobering.

His presentation was packed with data indicating that US housing is “overpriced” and “very late in the cycle”.

Other presenters discussed the looming stock market correction, coming bank failures in Europe, etc.

My own remarks focused on the current or projected insolvency of the US government, Federal Reserve, and major trust funds like Social Security.

But as I told the audience, it’s time for optimism.

Yes, the real estate market is overpriced and the stock market is due for a gigantic correction.

Yes, nearly every major western government and pension fund is hopelessly insolvent, and central banks are nearly insolvent–

— and these circumstances will likely give rise to tactics like dramatically higher taxes, capital controls, and the chaotic pain that comes from default.

In short, there are serious, serious problems in the system.

But that doesn’t mean the world is coming to an end. Our species has seen much worse.

There’s bound to be a major reset in the financial system, just as there have been so many others in the past, from the adoption of the gold florin in 1252 to the establishment of the Bretton Woods system in 1944.

And as with previous resets, there will be winners and losers.

Even during the episode of hyperinflation in the Weimar Republic in the 1920s (and the consequent reset) there were winners and losers.

While most people got wiped out financially, a few people became fantastically wealthy because they saw what was coming, protected themselves, and positioned their investments to gain.

Losers become victims.

They put their entire livelihoods at risk due to a misguided faith that the system is rock solid and will never fail.

Winners protect their downside risk and go after the abundance of opportunity that comes from rapid change.

The difference between the two comes down to education… and the will to take action.

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For the last several days I’ve been speaking at an investment conference organized by my friends Robert Helms and Russell Gray.

It’s been great so far, and my fellow speakers here include the legendary Robert Kiyosaki, G. Edward Griffin, Peter Schiff, and many more.

One of the key themes so far in the event is that there are likely problems ahead for the US real estate market.

On the first day I had a great conversation with the Chief Economist of Fannie Mae, who was also speaking at the conference.

If you’re not aware, Fannie Mae is a quasi-government agency that is heavily involved in the US housing sector.

I asked him point blank– what do you think of US housing right now? He answered succinctly: “It’s overpriced.”

His presentation went DEEP into the data, showing that US housing is “late in the cycle,” meaning that prices may soon reach their peaks and then suffer a substantial correction.

Property prices nationwide across the United States have been rising at a much more rapid rate than wages and salaries. This is totally unsustainable.

A number of prominent real estate investors and developers have also spoken anecdotally that they’re no longer buying.

One gentleman who owns and operates more than 10,000 apartment units told us that he can no longer find any properties that meet his investment criteria.

Everything is overpriced, and investment returns are falling.

Even more amazing, he told us that banks financed his most recent deals at unbelievable terms– they loaned him hundreds of millions of dollars to fund his real estate projects at just 3%, on an interest-only basis.

This is crazy.

Considering that the official rate of inflation in the United States is nearing 3%, the banks practically loaned him the money for free.

Think about it– he pays 3% interest, but the money loses nearly 3% of its value each year due to inflation… so essentially the money is zero cost.

What an unbelievably stupid loan for the banks to make: as I remarked to the audience, the banks are once again putting their customers’ funds at risk and receiving zero return in exchange.

This is another sign of a major bubble, similar to what happened ten years ago in the last crash.

Property prices rose far too much, far too quickly… and banks were making completely irresponsible loans with their customers’ money.

We’re now seeing signs that the same things are happening once again.

No one here expects that any crash or major correction in US property prices is imminent.

But in general, the consensus here is that you’re better off being a seller in the US right now rather than being a buyer.

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In the late in the 5^th century BC, the government of ancient Rome came up with a new idea that has lasted for thousands of years.

I’m not talking about their roads, republican form of government, or water sanitation.

Their bold idea was to start paying retirement benefits to Roman soldiers.

This was a pretty big deal. In ancient times, you worked until you died. There was no such thing as retirement.

But under the praemia militiae, retired legionnaires could be secure in their futures when they completed their service to the republic.

Roman pensions were generous. During the reign of Augustus, a retired legionnaire received a pension of 12,000 sesterces, worth nearly $40,000 in today’s money.

Eventually Roman soldiers came to depend on their pensions; they no longer viewed the money as a privileged benefit. Pensions became an entitlement.

The problem was, though, that the government made too many promises; there were too many retirees, and Rome hadn’t set aside enough money to pay them.

In time, the government’s inability to pay military retirees became a major source of social unrest, fueling the demise of the republic and rise of the Empire.

So just as the ancient Romans invented the first pensions, they also invented the first pension crisis. It wouldn’t be the last.

Most major governments find themselves in a similar position today.

According to a 2016 report from Citibank entitled “The Coming Pension Crisis,” the 35 developed nations which comprise the OECD (including the US, Canada, Japan, most of Europe, etc.) have pension shortfalls totaling $78 TRILLION.

To put this in context, $78 trillion is more than the size of the entire world economy.

And the shortfalls get worse each year.

It’s not just big national governments either.

State / provincial governments, local governments, and even countless private companies have underfunded pensions that are rapidly running out of cash.

In the United States, Social Security releases an annual report every summer describing the program’s pitiful finances in excruciating detail.

They don’t mince words: “projected [costs] will exceed total income . . .  starting in 2020,” and, “trust fund reserves decline until reserves become depleted in 2034.”

You can literally circle a date on your calendar when Social Security’s trust funds are depleted.

Frankly I think their projections are optimistic.

Remember that the program is funded by taxpayers who are currently in the work force.

12.4% of your paycheck gets funneled to Social Security, and that money goes in the pockets of current beneficiaries.

There is a rather interesting long-term trend, however, that robots and artificial intelligence will replace a lot of human workers.

From self-driving cars to algorithmic financial advisers, millions of people may find themselves out of work in the future.

The problem for Social Security is that robots don’t pay tax. So the program will lose a LOT of tax revenue as a result.

This is clearly a long-term issue; nothing is going to happen to Social Security tomorrow. And that’s why few people really think about it.

Except that… this is RETIREMENT. We’re SUPPOSED to think long-term about retirement.

And if you think long-term about your retirement, it becomes pretty obvious that Social Security probably isn’t going to be there for you, especially if you’re in your mid-40s or younger.

Fortunately we have time to prepare.

It starts with a shift in mindset: the government won’t be able to take care of you. You have to be self-reliant.

One way is to start saving, and to do so with a better retirement structure.

A conventional IRA, for example, allows you to contribute up to $5,500 if you’re under the age of 50.

If you switch to a 401(k), however, you can contribute up to $18,000 per year.

Or if you own a small business, you can establish a SEP IRA and contribute potentially up to $54,000 per year to your retirement.

Obviously most people might not have an extra $50k each year to save for retirement.

But just putting away an extra $1,000 per year can result in a difference of more than $100,000 when compounded over 30 years.

Even more importantly, think about establishing a much more ROBUST retirement structure that allows you greater flexibility in how/where you invest.

Most retirement plans are confined to your back yard. If you have a US retirement plan, you’re allowed to invest in government bonds and the US stock market.

But what if US stocks are overvalued? What if you don’t want to loan money to the government?

With a more robust structure like a self-directed IRA or solo 401(k), you’ll be able to open up an entire universe of new investment opportunities.

Private investments. Cashflowing royalties. Cryptocurrencies. High interest foreign bank accounts. Safe, secured lending opportunities.

All of these options are available with a more robust retirement plan, allowing you the chance to generate higher returns without the cost of paying some Wall Street firm to manage your account.

Consider this– if you’re able to save an extra $2,000 per year and generate, on average, 2% more per year (i.e. 10% versus 8%), you will end up making an additional $610,000 for your retirement over 30-years.

This matters. A lot.

Some small changes today could easily make the difference between financial stability and financial chaos down the road.

This isn’t some wild conspiracy theory.

The government itself is telling us that Social Security is running out of money. They’re even telling us when.

And all it takes to fix this problem is a little bit of education… and the will to take a few basic steps.

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[Editor’s note: This letter was written with Tim Price, London-based wealth manager and co-founder of Price Value Partners.]

It was just over two years ago that “The Grilled Cheese Truck, Inc.” began trading in the US stock market under ticker symbol GRLD.

GRLD was exactly what it sounds like– a truck that sells grilled cheese sandwiches.

Yet despite a history of heavy losses, the stock market valued the company at an extraordinary $107 million.

Skeptical investors would have been sharp to call that the peak of the market.

Yet the irrational exuberance continued.

Earlier this year, Snap Inc., a profitless mobile app which offers its shareholders ZERO voting rights, went public with a $28 billion valuation.

That too seemed like the peak of the market’s insanity. But that turned out to be a premature feeling as well.

Now we see none other than Iron Mike Tyson shilling for a Vanuatu/Latvian brokerage firm, enticing small investors with offers of 400x leverage.

It seems all we are lacking at this point is a Fortune magazine cover with a “DOW 100,000” headline.

Maybe it is the peak. Or perhaps the gains will continue.

Fortunately our job isn’t to make precise predictions; it is to assess risk and avoid taking any which (a) is unnecessary, and (b) fails to offer returns that vastly compensate for the probability of loss.

We have pointed out before that the US stock market’s average Price / Earnings ratio is at highs typically not seen except prior to spectacular declines.

See the chart below, which shows the “Cyclically Adjusted” Price-to-Earnings ratio, or CAPE, at 29. The long-term average is 17.

Cyclically Adjusted P/E ratio for the S&P 500 Index, 1880-2017

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Since 1880, the CAPE has only been at this level twice before– the first time prior to the Great Depression, and the second time prior to the dot-com crash.

To us, the prospect of gaining an additional 10%… or even 30% in US stocks pales in comparison to the prospect of losses from a major correction.

As Alhambra Investment Partners point out, investment analysts were forecasting back in October that US companies in the S&P 500 would generate $29 in earnings for the 4th quarter of 2016.

As the Q4 earnings reports started rolling in last month, the estimate dropped to $26.37.

Since that time, with now almost all companies now having reported, the current figure is $24.15 – a decline of 8.4% in just four weeks.

That’s bad news for passive “index” investors who are, by default, exposed to every single one of the companies in the S&P 500– most particularly the expensive ones.

Most people don’t realize this, but the S&P 500 does not equally weigh its 500 constituent companies.

In fact, the price of the #1 weighted stock (Apple) influences the S&P 500 index over 240x more than the least weighted stock (Autonation).

In general, more expensive stocks count more than inexpensive stocks.

So if you buy a traditional index fund, you are allocating the majority of your capital to popular companies, and very little capital to overlooked gems that are inexpensive and undervalued.

This is the opposite of what value-oriented investors should be doing.

As Ian Lance of RWC Partners points out,

“Passive [index] investors in 2000 were allocating large chunks of their money to bubble stocks like Cisco, Sun and Yahoo, and also to accounting frauds like Enron and Worldcom which were on their way to zero.”

We have little experience gambling, but we’re pretty sure that you can’t prosper by betting on every number at the roulette table.

That’s essentially what index investing is. And, like casino games, the market is rigged against individual investors.

You’re already fighting an uphill battle against high-frequency traders and dishonest bankers. Overpaying for expensive, popular assets doesn’t help.

Never forget that the world is a big place.

And if your stock market is irrationally overvalued, you have the freedom to allocate your time, effort, and capital to more attractive, undervalued investments elsewhere.

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A few weeks ago I caught wind of a guy who has citizenships from eight different countries.

This “octa-citizen” has passports from Canada, UK, Ireland, Belize, Grenada, Dominica, St. Kitts, and Cape Verde.

Let’s be honest– that’s probably way too many. But the concept of acquiring multiple nationalities is completely sound.

If you have one nationality, it means that a single government has total control over your life, your finances, your business, and your personal affairs.

It means that you’re chained to the consequences of that single government’s decisions, no matter how destructive, no matter whether or not your agree.

If they decide to provoke another shooting war and impose a draft… or levy debilitating taxes… or print so much money that the consequent inflation causes social unrest… then you have little recourse.

A second passport is like an insurance policy.

Sure, hopefully you never need it. And hopefully you never need the fire insurance policy that protects your home either.

But if that day ever comes when you smell smoke, you’ll thank your lucky stars that you’re covered.

Having another citizenship means that if the worst ever happens in your home country, you’ll always have a place to go where you and your family are welcome to live, work, study, invest, and do business in peace and safety.

Again, maybe that never happens. HOPEFULLY that never happens.

But it seems risky to bet everything on hope, especially when there are so many substantial risks looming.

We often discuss the pending insolvency of some of the world’s most important central banks, as well as the outright bankruptcy of nearly every major western government.

History shows that countries in this position almost invariably experience severe problems as a result of their excessive debts and irresponsibility.

And it would be terribly foolish to simply ‘hope’ that repeating these same mistakes will somehow result in zero consequences.

Having a second passport doesn’t mean that you’re crazy, pessimistic, or even unpatriotic.

It’s just a sensible thing to do.

Worst case, even if you never actually need the ‘insurance policy’ of having another nationality, a second passport will provide additional options for visa-free travel and international business.

For example, US citizens who want to travel to Brazil need to obtain a visa in advance.

But citizens from dozens of other countries, from Argentina to Belgium, do not.

Being a citizen of certain countries (like Mexico, for example) entitles you to own certain property or start special businesses.

Again, maybe you wouldn’t ever use these benefits. But it’s hard to imagine you’ll be worse off for having additional options.

More importantly, remember that a second passport can often extend to your family as well.

So even if you don’t see yourself traveling or doing business or buying property abroad, your children and grandchildren might want to do so.

Obtaining a second passport will provide those same options and benefits to them. It’s a perpetual gift that you can give to future generations of your family.

So how does one actually obtain a second passport?

Well, you can pay for one.

St. Kitts, Dominica, Antigua, Cyprus, Malta, Grenada, etc. all have formal programs which grant citizenship to foreigners in exchange for a large investment or donation.

These can cost anywhere from $100,000+ to more than $2 million… which is a LOT to spend on an insurance policy for most people.

Fortunately there are easier (and cheaper) ways.

The simplest and most cost effective way to obtain another passport, by far, is to go back to your family tree.

If you have parents or even grandparents from places like Ireland, Poland, Italy, Lithuania, and literally dozens of other places around the world, you may be able to apply for citizenship.

If you think you might qualify, the best place to start is with the local consulate nearest you.

Call and ask them– they’ll be able to walk you through the process and documentation requirements.

If you’re not part of the lucky bloodline club, no worries, there are still other options.

Plenty of countries around the world allow foreigners to become naturalized citizens after a certain period of time as a legal resident in the country.

Panama is a great example; after five years of legal residency, foreigners qualify to apply for naturalization and citizenship.

This doesn’t mean you actually need to move overseas (but trust me, it can be an amazing experience if you do.)

Many countries, including Panama, have favorable legislation where you can still be considered a legal resident and eventually qualify to apply for naturalized citizenship without actually living there.

This is an incredibly easy option– all it takes is time and patience.

As a final option, if you’re planning on having children, you might consider heading overseas for the birth.

Most countries in the Western Hemisphere award instant citizenship to any child born in their territory.

This includes the United States, Canada, Mexico, and just about every country in Latin America.

I flew some of my relatives to Chile a few years ago for this reason– their child was born in Santiago and will be able to enjoy the additional options and benefits of Chilean nationality for life.

This is literally a life-long gift you can give to your child; and it will likely pass on to their children, and their children’s children, all because of actions that you take.

There are very few things within our power that have such a lasting, multi-generational impact.

Citizenship is one of the most important.

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I’ll start today with a confession: I’m an unabashed optimist.

I believe that this is one of the most exciting times in all of human history to be alive. And with good reason.

Think about it– compared to thousands of years of violent warfare that ravaged most of the world’s major cities, we live in an era of relative peace.

Pockets of conflict will always exist. But right now there’s no major world war… no persistent threat of nuclear annihilation.

We also live in a time when more than 1 billion people in developing countries are rapidly rising into the Middle Class.

Their standards of living are improving like never before seen, and this creates an abundance of compelling opportunity.

Also, we humans now have the capacity to live longer, healthier lives… and to stay productive for longer than ever before.

Just a few weeks ago, a Texas physicist named John Goodenough invented revolutionary new battery technology.

He’s 94, and he insists that he has plenty of great ideas left to invent.

Most of all we live in a time of astonishing technological transformation.

Entrepreneurs can start businesses in minutes and reach customers on the other side of the planet.

Consumers can find products from around the world and seek funding online through Peer-to-Peer websites instead of traditional banks.

It’s amazing what we’re able to do and achieve now thanks to modern technology, jus compared to even 10 or 20 years ago.

I count myself among the countless individuals who have been able to benefit from these exciting trends.

I’ve been able to travel to more than 120 countries, start (or acquire) successful businesses around the world in industries as diverse as agriculture (Chile), manufacturing (Australia), banking (Caribbean), and media (Asia).

Very little of this would have even been possible at the time of my birth 38-years ago.

And I marvel that so many of my employees are from former republics of the Soviet Union… something else what would have been impossible just 26-years ago.

Yet despite so much progress and extraordinary opportunity, it’s also important to stay realistic: the world has gotten itself into a twist.

Nearly every major western government is bankrupt with woefully unsustainable finances.

The United States leads the way with $20 trillion in debt and a total negative net worth of MINUS $76.7 trillion, according to its own annual financial report.

The US government loses money each year with no end in sight, posting a staggering loss of $1.05 trillion in 2016.

And relative to the sizes of their own economies, Japan, Greece, Italy, Spain, France, and the United Kingdom are not far off.

Moreover, pension funds across the world are in dire condition.

In the United States, Social Security and Medicare report each year that their programs are rapidly running out of money and have even calculated the date of their own insolvencies.

This isn’t some wild conspiracy theory, these are public reports signed by the Treasury Secretary of the United States.

We also see major risks with global central banks.

As I wrote to you just three days ago, the Federal Reserve is nearly insolvent.

And as they continue to increase interest rates throughout this year, they will effectively engineer their own bankruptcy.

In addition, major financial markets are extraordinarily overvalued.

Stocks in the United States trade at valuations only seen just prior to major crashes.

And as the Wall Street Journal reported just -this morning-, “insiders”, i.e. key shareholders and managers who have inside knowledge of their businesses, are actively selling their stocks.

Economic growth in most of the developed world has also fallen flat– just 1.6% in the United States in 2016, 1.4% in Canada, and 1.9% in Germany.

These are hardly inspiring numbers, especially given that inflation is rising around the world.

According to the US Labor Department, inflation reached 2.7% last month, which was higher than 2.5% in January, which was higher than 2.1% in December, which was higher than 1.7% in November.

Do you notice a trend?

On top of everything else, we also happen to be living through a period of rapidly deteriorating personal freedom.

Spy agencies are engaging in brazen surveillance on… everyone. Citizens. Allies. Everyone.

Civil Asset Forfeiture also continues to reach new heights; according to Justice Department data, total “financing sources”, i.e. money that the government stole from its citizens, more than doubled from 2015 to 2016.

And countless laws, rules, and regulations have turned the Land of the Free into a place where children can be arrested for eating French Fries on the metro.

These risks are already looming, and the potential consequences are severe.

We likely all remember what happened the last time a stock market bubble burst.

When central banks go bust, the impact can be even more substantial.

It happened in Iceland in 2008, and the country had to suffer through 8 years of capital controls as a result.

And we can see the impact of governments going bankrupt each day in the news headlines, primarily with Greece.

These risks are real. But they’re no cause for panic.

A rational, successful person merely needs to acknowledge the risks, and take some sensible steps to ensure that you’re not a victim.

If your stock market is massively overvalued, for example, consider rebalancing your investments into safer assets in markets that are deeply undervalued.

(As an example, many of our premium subscribers are earning a safe 12% annual return through an ultra-conservative, asset-backed secured loan.)

If your government is totally bankrupt, don’t keep 100% of your assets within its reach.

These are simple but effective concepts.

Join me in today’s podcast in which we outline even more of these common sense steps.

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September 10, 2008 was one of the last “normal” days in the world of banking and finance.

That afternoon, the US Federal Reserve published its routine, weekly balance sheet report, indicating that the central bank had total assets worth around $925 billion.

Just a few days later, Lehman Brothers filed for bankruptcy, kicking off the most severe economic crisis since the Great Depression.

And almost immediately the Fed launched a series of unprecedented measures in a desperate attempt to contain the damage.

They called it “Quantitative Easing”, which was a fancy way of saying the Federal Reserve was printing money and giving it to the banks and US government.

When the commercial banks needed to sell their non-performing toxic assets, the Fed printed money to buy that garbage.

When the US government needed to borrow trillions of dollars to bail out failing companies, the Fed printed money and loaned it to Uncle Sam.

By January 2015, the size of the Fed’s balance sheet had more than quadrupled to $4.5 trillion.

It was an astonishing increase; the Fed had essentially conjured more than 3.5 trillion dollars out of thin air.

In exchange for all at printed money, the Fed had purchased a bunch of assets, including about $2.4 trillion worth of US government bonds.

This ranks the Fed as one of the top owners of US government debt, just behind the Social Security trust funds.

In fact the US government owes more money to the Federal Reserve than to China, Japan, and Saudi Arabia combined.

Now, remember that interest rates were at historic lows during the time that the Fed was buying up all that US government debt.

From the start of the financial crisis in September 2008 until the day the Fed’s balance sheet peaked in January 2015, the average yield on the 10-year US Treasury was about 2.6%.

That’s close to where the 10-year yield is today; just last week it was 2.62%.

This is where things quickly get out of control.

If you don’t know anything about bonds, there’s just one important principle to understand: as interest rates go up, bond prices go down.

Just like shares of Apple or Exxon, bonds are financial securities.

Investors pay a certain price for bonds just like they pay a certain price for Apple stock. And just like stock prices, bond prices go up and down.

Think about it like this: let’s say you own a government bond that pays $25 per year in interest.

That $25 per year is set in stone. It’s a contract.

And today, the market price for that bond is $1,000.

So, in very simple terms, an investor is paying $1,000 for the bond’s $25 annual income stream.

That works out to be a 2.5% annual return (not including maturity).

At the moment, investors are happy to receive 2.5% because that’s the current rate across most of the market.

But let’s say tomorrow the Federal Reserve jacks up interest rates to 10%.

Everything changes. Investors can now make 10% just holding money in a bank account.

The bond you own, however, still pays $25 per year. That hasn’t changed.

So if you want to sell it, you’ll have to slash the price; no investor will pay $1,000 to earn just 2.5% from the $25/year income stream.

Investors can now get 10% elsewhere in the market.

So in order for your bond’s $25/year income stream to match the 10% return that a potential buyer can receive elsewhere, you’ll have to drop your price to just $250.

In other words, the price of your bond has dropped 75%, from $1,000 to $250.

This is an extreme and simplistic example, but it paints the picture: when interest rates rise, bond prices fall.

So let’s go back to the Federal Reserve and its $2.4 trillion government bond portfolio.

The Fed recently raised interest rates. And they claim they’ll continue to raise rates for the next 1-2 years.

But as we discovered earlier, as the Fed raises rates, the value of their bonds will fall… and the Fed will suffer “unrealized losses”.

This is a gigantic problem because the Fed can’t afford to suffer any losses.

Since the start of the financial crisis, the Fed has whittled down its capital buffer to almost nothing– right around $40 billion.

This means that the Fed can only afford to lose $40 billion before going bust.

$40 billion might sound like a lot.

But considering the Fed has $2.4 trillion in government bonds, and $4.5 trillion in total assets, $40 billion is nothing– just 0.9% of the Fed’s total asset portfolio.

So if bond prices fall by just 0.9%, i.e. interest rates go up just slightly, the Fed will be insolvent.

This is already happening: as interest rates have risen, bond prices are starting to fall.

And based on the Fed’s own data, they’re already sitting on $14.2 billion in net unrealized losses.

So a big chunk of their tiny $40 billion capital buffer has already been wiped out.

As interest rates continue to rise, the rest of that $40 billion will vanish, at which point the Fed will be completely bankrupt.

And the US government, which itself is totally insolvent, won’t be in a position to bail them out.

Look, I’m an optimist. I think these are exciting times and that there’s a ton of incredible opportunity around the world.

But it would be seriously foolish to ignore the looming insolvency of the world’s most systematically important central bank.

Two words: Own gold.

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Sometimes you have to marvel at the absurdity of the financial universe in which we live.

On one side of the Atlantic, we have the United States of America, which triggered yet another debt ceiling disaster last Thursday when the US government’s maximum allowable debt reset to just over $20 trillion.

Of course, the US national debt is pretty much already at $20 trillion.

(That’s roughly $166,000 per taxpayer in the Land of the Free.)

This means that Uncle Sam is legally prohibited from ‘officially’ borrowing any more money.

But far be it from the US government to start living within its means. Sacrilege!

These guys have zero chance of making ends meet without going into debt.

Just last year, according to the government’s own financial report, their annual net loss totaled $1 TRILLION, and the national debt increased by $1.4 trillion.

And that was in a relatively stable year. There was no major war or financial crisis to fight. It was just business as usual.

This year isn’t going to be any different.

So, cut off from their normal debt supply (the bond market), the Treasury Department is resorting to what they call “extraordinary measures.”

They’re basically pillaging government employee retirement funds, and will continue to do so until Congress raises the debt ceiling.

It’s a repeat of what happened in 2015. And 2013. And 2011.

Pretty amazing to consider that the “richest” country in the world has to plunder retirement funds in order to keep the lights on.

Former US Treasury Secretary Larry Summers said it perfectly when he quipped “How long can the world’s biggest borrower remain the world’s biggest power?”

Then, of course, on the other side of the Atlantic, we have Greece, which is now in its NINTH YEAR of a major debt crisis.

Incredible.

Greece has had nine different governments since 2009. At least thirteen austerity measures. Multiple bailouts. Severe capital controls. And a full-out debt restructuring in which creditors accepted a 50% loss.

Yet despite all these measures GREECE IS STILL IN A DEBT CRISIS.

Right now, in fact, Greece is careening towards another major chapter in its never-ending debt drama.

Just like the United States, the Greek government is set to run out of money (yet again) in a few months and is in need of a fresh bailout from the IMF and EU.

(The EU is code for “Germany”…)

Without another bailout, Greece will go bust in July– this is basic arithmetic, not some wild theory.

And this matters.

If Greece defaults, everyone dumb enough to have loaned them money will take a BIG hit.

This includes a multitude of banks across Germany, Austria, France, and the rest of Europe.

Many of those banks already have extremely low levels of capital and simply cannot afford a major loss.

(Last year, for example, the IMF specifically singled out Germany’s Deutsche Bank as being the top contributor to systemic risk in the global financial system.)

So a Greek default poses as major risk to a number of those banks.

More importantly, due to the interconnectedness of the financial system, a Greek default poses a major risk to anyone with exposure to those banks.

Think about it like this: if Greece defaults and Bank A goes down, then Bank A will no longer be able to meet its obligations to Bank B. Bank B will suffer a loss as well.

A single event can set off a chain reaction, what’s called ‘contagion’ in finance.

And it’s possible that Greece could be that event.

This is what European officials have been so desperate to prevent for the last nine years, and why they’ve always come to the rescue with a bailout.

It has nothing to do with community or generosity. They’re hopelessly trying to prevent another 2008-style meltdown of the financial system.

But their measures have limits.

How much longer do Greek citizens accept being vassals of Germany, suffering through debilitating capital controls and austerity measures?

How much longer do German taxpayers continue forking over their hard-earned wages to bail out Greek retirees?

After all, they’ve spent nine years trying to ‘fix’ Greece, and the situation has only become worse.

For a continent that has been at war with itself for 10 centuries and only managed to play nice for the last 30 or so years, it’s foolish to expect these bailouts to last forever.

And whether it’s this July or some date in the future, Greece could end up being the catalyst which sets off a chain reaction on both sides of the Atlantic.

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