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The -critical- importance of international diversification

October 27, 2011
Shanghai, China

I’ve spent the last few days at a Chinese offshore strategies symposium here in Shanghai as a guest of the conference organizer. It’s been a fabulous event, full of camaraderie and relationship building, all set in one of the Pudong district’s finest hotels.

But beneath the overall good vibe lies a very somber goal. There are no illusions here about what’s going on in the world. No one is trying to spin a good news story about bankrupt, insolvent western nations. And, surprisingly, prominent Chinese economists were even critical of China’s own long-term economic prospects.

The opening speaker yesterday morning railed against China’s quantitative easing measures. As a percentage of GDP, Chinese money printers make their American and European counterparts look like pithy amateurs– trillions have been conjured out of thin air, most of it ending up in the housing sector.

Apparently the Chinese didn’t learn much from the US property bust; they’ve made precisely the same mistakes, and it’s starting to have serious effects on the broader economy.

Meanwhile, speaker after speaker acknowledged the massive insolvency issues that await the United States… and further argued that Greece is just the beginning of Europe’s problems.

Here’s the thing about governments going bust– it’s been happening for centuries. Default is nearly as old as the concept of the sovereign bond itself, and history is generous with examples.

Spain has defaulted 15 times since the 16th century. Greece has defaulted 5 times since the 19th century. Portugal has defaulted 7 times since the 16th century.

What’s happening right now is nothing new. Neither is government response.

You see, when governments get deeper and deeper into debt, their options start to run out. They become desperate, and history shows a common pattern:

First, they impose capital controls. They compel individuals and businesses to repatriate funds from abroad, or prevent them from moving new funds overseas. This is happening in several countries right now.

For example, Argentina’s fascist president Cristina Fernandez just ordered oil, gas, and mining exporters to repatriate all export revenue back to Argentina. This was her very first presidential decree after winning re-election just days ago.

The second thing they’ll do is direct capital into government bonds. Pension funds, central banks, commercial banks, private corporations, and even individual investors will be forced into the ‘safety and security’ of government debt. That means YOU.

This is also happening all over the world right now– Hungary, Ireland, Argentina, etc.

Third, they’ll inflate away the debt by conjuring more money out of thin air. Everyone holding government bonds will lose money against inflation. Again, this is also happening.

Last, they’ll selectively default against politically weak bondholders. Example– paint the Chinese out to be economic terrorists, then stiff them. It’s a slippery slope delay tactic that usually results in full-blown default.

This is why international diversification is so critical. When the gates starts closing around your capital and livelihood, it’s important to have taken the appropriate defensive measures IN ADVANCE.

There are hundreds of Chinese people at this conference in Shanghai trying to figure out how to take action NOW. Frankly, it’s much harder for them than it is for you. Their government already imposed capital controls. Yours hasn’t. Yet.

A few months ago, we held our own international diversification workshop in Panama. It was a one-stop shop in which experts from all over the world– New Zealand, Switzerland, the Baltics, Singapore, etc. came to talk about ways to take action NOW. Open a bank account. Get another passport. Establish a trust. And more.

We had a professional Hollywood crew film every minute of the workshop and combined it with a comprehensive workbook, complete with contact information and application forms. We still have a few copies of the DVD kit, and I encourage you to read more about it here.

Now, a lot of people wonder, ‘do I have to be rich to diversify overseas?‘ No. I’m not just talking about asset protection here, but also looking abroad for better opportunities.

Within the last two weeks, we’ve covered some really exciting financial prospects in places like Cambodia and Mongolia. Or lifestyle and healthcare options in Thailand. Or high-paying jobs in Singapore.

International diversification literally opens up an entire world of possibilities– lifestyle, business, financial, etc. We’re not living in the Dark Ages anymore; modern technology and transportation makes it easier and easier.

Moreover, international diversification is not just for the super-rich… or the tinfoil hat crowd. Rational, thinking people need to take a serious look at what’s going on around the world… and then a quick glance back through history.

What’s happening now is not new. This time is not different. We have no unique advantage that will allow us to escape the clutches of inevitability. History shows what happens to countries who pass the point of no economic return… as well as what happens to those who don’t prepare.

Don’t be one of them.

Our goal is simple: To help you achieve personal liberty and financial prosperity no matter what happens.

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About the author: Simon Black is an international investor, entrepreneur, permanent traveler, free man, and founder of Sovereign Man. His free daily e-letter and crash course is about using the experiences from his life and travels to help you achieve more freedom.

Comments on this entry are closed.

  • Abacktoourrootsamerican

    Simon, I am not sure when the last time you were in Singapore was, but you keep saying that there are good high-paying jobs to be had here by expats. I wouldn’t agree with you in light of what has been  going on here lately.  I live in Singapore, and I am seeing articles in the paper every day about how difficult it is getting for companies to hire expats. I think Singapore, like most prudent countries, are tightening their belt and taking care of their own citizens right now.

    • John Lloyd

      I would imagine that a Chinese slowdown would have a rather serious impact on Singapore. Perhaps, they’re already preparing for this. One thing that Simon has consistently overlooked is how easily expendable an expat worker is. Yea, we might be in demand in Hong Kong and Abu Dhabi right now, but when the double dip sets in and it will, we will become the political whipping boys for the “employment issue”. Just look whats happened in the U.S. The economy goes into recession and suddenly every one is blithing mad about immigration and wants to build an electric fence on the border. Ultra-nationalism always comes about when the times are hard. I just wouldn’t be in middle east or China for that matter when it starts to happen.  

  • Opperdienaar

    What they also sometimes do (Hungarian hyperinflation), is first confiscate 20% of people’s bank holdings. Then people react by storing cash at home, not trusting the banks anymore and when every hold their cash at home, THEN they will hyper inflate and stuff everyone with worthless cash (steal the rest).

    • amerikanka

      I just opened a bank account in the US for the first time in two years. 

  • Bug

    Wouldn’t the victims of such paper games in countries you mention in this article be perfectly protected if they shifted their obviously weak currencies (Hungary lol) into gold. I suspect that the bright people in Hungary and Argentina are already not holding any more national currency than would a sane person in Zimbabwe.

  • Aaron A Day

    Such an interesting perspective that you share from the Shanghai conference, it’s remarkable that there would even be an offshore conference in China. Thanks for the boots on the ground reporting.

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