I’m in New York City this week meeting with the Prime Minister of a Caribbean nation about his country’s citizenship-by-investment program.
Citizenship-by-investment is exactly what it sounds like: foreigners invest a certain sum of money in a country in exchange for citizenship and a passport.
Depending on the country, the investment amount can vary from just over $100,000 (Dominica) to over $2.5 million (Cyprus).
Now, it might seem crazy to drop that kind of money on a passport.
And in most cases it would be crazy.
A second passport is an insurance policy designed to protect you against various sovereign risks.
But just as you wouldn’t spend $10,000 on a car insurance policy that covers a $40,000 SUV, it doesn’t make sense to spend $250,000 on a passport designed to safeguard total assets that are worth, say, $1 million or less.
For most people, there are far more cost effective ways to obtain this all-important insurance policy without having to write a big check… and we’ll talk about those ways soon.
For individuals with substantial assets, however, citizenship-by-investment programs offer an easy shortcut to obtain a second passport.
Demand for these programs has soared over the years, and a number of financially distressed governments have created their own legislation to join the party.
It turns out that in small countries, citizenship-by-investment programs can be incredibly lucrative and substantially move the needle.
Saint Kitts, for example, is home to one of the most popular citizenship-by-investment programs in the world (also known as economic citizenship), which starts at around $250,000.
The program is so lucrative that the government managed to slash its debt level, down from over 160% of GDP a few years ago to less than 70% today.
Much of the revenue that the government of St. Kitts used to pay down its debt came from proceeds of the economic citizenship program.
Saint Kitts is tiny– a population of 50,000 and GDP of less than $1 billion.
So if just 1,000 people make a $250,000 investment, the total proceeds amount to more than 25% of GDP. This is huge.
But for large economies like the US, Italy, Japan, etc., a few hundred million dollars is nothing.
The US government spends over $1 billion per DAY just to pay interest on the debt, so $250 million literally constitutes just a few hours worth of interest.
I told you a few days ago how the US government is racking up debt at the fastest pace since the financial crisis.
In fact the US government is set to close out the fiscal year next week with a massive $1.36 trillion increase to the national debt.
This is incredible; it’s not like they’re fighting a war, recession, or financial crisis anymore. How are they possibly spending so much money?
We also discussed how, in addition to this record expansion of the debt, the US government is also starting to run out of major lenders.
China and Japan are already starting to cut their holdings of US debt.
And Social Security, the US government’s single biggest
sucker lender, is running out of money so quickly that they won’t be able to buy any more government bonds by the end of the decade.
In fact the Treasury Secretary of the United States wrote just a few months ago that Social Security will be cashflow negative by 2020, hence unable to loan any more money to the federal government.
This is a major fiscal emergency in the making.
It’s obvious that the government shouldn’t be expanding its debt, let alone this rapidly.
But on top of that, how is a government that expands its debt so rapidly during a time of relative stability going to be able to handle a crisis or recession, especially when they’re running out of lenders?
The reality is that they have very few options.
Sure, small countries can come up with creative solutions like trading citizenship for a much-needed pile of cash.
But big, heavily indebted nations don’t have the same luxury.
Their playbooks are much more limited.
A favorite tactic of financially distressed governments is imposing capital controls– a means of trapping people’s savings inside a failing financial system.
We’re already seeing this today, especially in Europe where interest rates are negative and banks are starting to pass those negative rates on to their customers.
Unsurprisingly there’s been a growing movement across Europe (and North America as well) to BAN physical cash.
This effectively forces people to keep their money in the negative interest rate banking system.
We can see other obvious warning signs as well.
In December 2015, the US government passed a law giving itself the authority to confiscate people’s passports if the Treasury Department feels in its sole discretion that a citizen owes them tax.
(The US government has basically created the exact opposite of an economic citizenship program… taking someone’s passport AWAY until they pay a bunch of money.)
Just a few weeks later, Congress passed another law seizing more than $20 billion in capital from the Federal Reserve, effectively rendering the central bank insolvent.
These are not the actions of a healthy, solvent government; they’re just small indicators that we’re already well down the path of desperation and insolvency.
It’s already started, and the real consequences are still to come– higher taxes, deeper capital controls, heavier enforcement.
This isn’t intended to be gloomy, but rather to paint a realistic picture of the risks.
The sky isn’t falling, and the world isn’t coming to an end tomorrow morning.
But the government itself is giving us the dots to connect showing that there’s a major crisis brewing in a few years’ time.