Capital Preservation

September 9, 2010
Dallas, Texas, USA

How would you feel if a gang of criminals broke into your home, stole your most valuable possessions, and then went on national TV to claim it was for your own good?

My guess is that you would be pretty angry. Yet this is essentially what our central bankers and political leadership are doing right now.

Recently, at a picturesque resort in beautiful Wyoming, Fed chairman Ben Bernanke met with his global counterparts, including Bank of England’s Mervyn King, the ECB’s Jean-Claude Trichet, and Masaaki Shirakawa of the Bank of Japan.

The financial world was attentively looking for indications of what these men are planning after having exhausted every monetary policy tool at their disposal.

These bankers have collectively printed trillions of currency units, purchased unprecedented amounts of government debt, given handouts to commercial banks, slashed interest rates to record lows, and taken risky assets onto their ever-expanding balance sheets.

And how have these historic efforts fared? Poorly. Aside from a few outliers, economic data in the developed world is anemic at best. There has been little recovery in the jobs and housing markets, and the debt crises have grown worse.

Look, I’ll be the first to tell you that there are great opportunities and good news stories around the world; unfortunately, millions of people are having their lives and livelihoods turned upside down whilst Bernanke and his friends toasted themselves to expensive champagne at a luxury resort.

Politicians, meanwhile, are flying around the world on their government jets, praising themselves in front of voters and trying to convince the taxpayers that stimulus programs are working.

They’ve spent trillions of dollars over the last few years with little result. The ultimate consequence is more debt with little benefit to show for it.

Despite printing and spending trillions of dollars, the world is still faced with the same financial conditions as when this crisis started: huge government debt, and lack of credit availability in the private sector.

And so… what is their solution now? Continue cutting interest rates, spending trillions of dollars, and printing trillions more.

Full stop. Something is wrong with this picture.

The first thing that comes to mind is the definition of insanity: “doing the same thing over and over again, but expecting a different result.” This is exactly what’s happening now.

Then again, how do you cut interest rates that are already at zero? How much more money do you print when you have already printed trillions of it? How much more do you spend when the deficit is already beyond $2 trillion?

At some point, even the most insane individual has to question this logic.

The crazed decisions of our financial and political leadership have a significant impact on our hard-earned savings… and entrusting our capital to a corrupt system of incompetent bureaucrats is a sure-fire way to lose it.

As we enter the Age of Turmoil, the risks to our capital are only going to increase. The way out, the way to survive and thrive, is to become self-reliant and reject the limiting options that have been force-fed by the old system.

Yesterday we talked about defining your reality as the first pillar of self-reliance. I believe that the second pillar of self-reliance is capital preservation: maintaining the value and purchasing power of the savings that we depend on to feed our families.

In the past, loose central banking and generous government entitlement programs were part of the old system that made a lot of people very rich. It generated huge returns in the market, easy credit for businesses and investors, and a giant safety net courtesy of the taxpayers.

That system has collapsed. There are a lot of people who still cling to it, who put their trust in their governments and central bankers… they’ll keep buying bonds, CD’s, etc., and they’re going to have their lives turned upside down.

Over the next 10-years as the Age of Turmoil rages on, you can absolutely bet on things like rising taxes, capital controls, further erosion of financial privacy, increased regulation, and negative real returns.

Perhaps most importantly, there’s a major debate in finance right now among various camps who are arguing whether we will see significant inflation, deflation, both, or neither.

Wherever you stand on the issue, I would suggest asking yourself one simple question: Will the paper currencies of the largest debtor nations in history continue to be reasonable stores of value in the long-term?

Absolutely not. A complete loss of confidence is coming, and this will have catastrophic effects on your savings if it is trapped in a debtor nation’s fiat currency.

Fundamentally, finding suitable alternatives to preserve capital is one of the ways that the self-reliant individual can survive and thrive in the Age of Turmoil.

This includes things like foreign bank accounts, alternative and productive assets, offshore gold storage, high yield financial assets, foreign currencies, etc.

In the upcoming premium service that I plan on launching next week, I will be providing a lot of actionable information about these sorts of ideas; to give you an example, here’s a quote from the first edition that I’m presently working on for you:

“The reason I like this option so much is because it kills two birds with one stone– you’re well on your way to acquiring second citizenship, and you’re also moving some money overseas. These are two of the most important flags you could ever plant. To get started, get in touch with my contact:”

I really appreciate all the amazing comments from the last few days, so I’d like to keep the contest going. Let me know what you think– what are some of the ways that you plan on preserving your capital?

Just like yesterday, one commenter from today will win a free 12-month subscription to our premium service… I’ll announce all the winners next week.