I must begin with an apology—that I’ve provided readers with such a confusing title to have to digest. It sounds like the sort of title that would be created by some committee. Or worse, by a group of governments that are trying very hard to conceal the purpose of some especially nefarious agreement that they’ve just colluded on.
Well, as luck would have it, that’s just what it is. The “Adequacy of Loss-Absorbing Capacity of Global Systemically Important Banks in Resolution” agreement is the title of a decision that was reached by the G20 countries, to approve an across-the-board Cyprus-style bail-in.
The agreement (Let’s abbreviate it to “ALACGSIBR”. After all, it saves space, and “ALACGSIBR” is no more ridiculous than the official title.) has been presented as “an important decision” that the G20 have collectively reached.
When stated this way, it sounds as though the G20 have been wringing their hands over the problem of possible global bank failure but, luckily, have just had a collective epiphany: a solution that is to everyone’s benefit… well, possibly not to the hundreds of millions of depositors whose savings they will be stealing, but quite a few bankers will be pleased at the “decision.”
But to be accurate, we should point out that this is no recent decision.
Forewarned Is Forearmed
Previously I commented in this column on my belief that the (then new) Cyprus bail-in was just a test-case—that it was not a Cypriot invention, but part of a much larger plan that would ultimately go global. Not long after that, I wrote a follow-up, when Canada buried its own bail-in legislation in the back of the Canadian Annual Budget. My next offering on the subject came when the IMF announced that they had come up with their own bail-in solution for the EU.
Similar legislation was passed in the US—again, buried in other legislation.
The wording of the legislation differs slightly in each country, but the objective is the same. Essentially, what it means is that the banks are pre-authorised by their respective governments to confiscate the savings of depositors, should they (the banks) decide that an “emergency” exists.
I think it’s safe to say, that, even if an emergency does not exist, one can be trumped up. The temptation to legally steal trillions of dollars from depositors will prove too great.
Now, there are some caveats here. In some jurisdictions, the banks must give something back, such as shares in the bank (which may or may not have a saleable value). In addition, whilst the individual bank can take as much as it wants, it is “encouraged” to place a floor on the confiscation, for example, in Europe, €100,000. And this would be “hoped” to be a “one-time-only” confiscation. However, in each country, should the banks later decide that the first confiscation was insufficient, they could make as many further confiscations as they see fit and could lower the floor each time.
If your account is “insured” by your government, it would be well to bear in mind that confiscation is not the same as a bank crash. In confiscation, you have not technically “lost” your deposit; the bank has traded it for a piece of paper that says you now own something other than your money—shares in the bank (which, again, may or may not be saleable).
Perhaps the G20 agreement might have been called “The License-to-Steal Decision.”
What to Do?
So, where does this place you, the potential victim? Once it sinks in that the next QE may be unnecessary, as the banks may simply take your deposits instead, what do you do?
Assume the worst: that anyone who is given the opportunity to take a pile of someone else’s money off the table is unlikely to leave any behind. He will sweep the lot into his bag. Therefore, treat any money that you have in a financial institution (bank, brokerage house, etc.) as money that may be lost due to confiscation. By doing so, you define how much money you are prepared to lose, if and when the odiferous effluvium hits the fan.
Certainly, it’s difficult for anyone today to operate without some level of liquidity for day-to-day personal expenses, and with regard to businesses, the larger the business, the larger the float necessary to operate. Therefore, it would be prudent to maintain three months operating expenses in a chequing account, but no more.
The remainder of your wealth (be it small or large) should be moved to a safer place. The requirements are quite simple:
Select a Jurisdiction That Is Not a Member of the G20
Most non-G20 countries have not signed on to the ALACGSIBR as yet. At present, non-G20 countries are therefore safer. As additional security, it would be best to select a country that has a low-tax or no-tax regimen. A few favoured jurisdictions are Singapore, Hong Kong, Switzerland, Monaco, Luxembourg, and the Cayman Islands.
Convert as Much of Your Wealth as Possible into a Form That Is Not a Fiat Currency
All fiat currencies are, by definition, the liability of some government. They therefore are subject to inflation, deflation, etc., and if not needed by you in the near future, may best be converted into something more stable. Precious metals, for 5,000 years, have been universally accepted as money. (The prices of gold and silver may rise and fall, but they are the only monetary form that has never been worthless.)
You might also wish to diversify some of your wealth into fine art, jewellery, gemstones, real estate, etc., which may also be stored overseas. But bear in mind that these are less liquid than precious metals and may be harder to sell if an emergency arises.
Select a Safe-Storage Vault That Is Not Part of a Financial Institution
The most essential precaution is to minimize your exposure to the banking system. Private vaults aren’t part of the global financial system. It’s difficult, and often impossible, for a government to confiscate goods kept in a private vault.
Each of the countries listed above have secure, Class-3 vaults that are privately run. Each is a jurisdiction known to operate under uniformly high standards.
Remember that once you’ve gotten your wealth safe, it’s an easy task to move some back into your chequing account, as may be necessary from time to time, to top up your three-months operating capital. (It’s always easy to move from a safer situation to a less safe situation. The reverse will not always be true.)
We are entering the “Alamo” stage of the Great Unravelling. We cannot say when the bail-in crisis will take place, only that it now appears within range. It could be six months; it could be a year or more. But it may just as easily occur next week. However, we can be sure that there will be no warning, that we shall wake up one morning and the bail-ins will have taken place… and our deposits will have been confiscated.
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