Monday, October 8, 2012

Advice on Military/Banking /Finance‏

Good morning Fernando -
I have read your book and many of your blogs.  I still have a couple of questions.  Most of the "prepper" investment advice is directed towards people with tens of thousands of dollars, so I would appreciate more everyday Joe advice.  I also have a couple of questions as to how investments/precious metals can actually be used or how they an be used to obtain money after a collapse.
I am in the US and my husband is in the US military.  We only have about $5,000.00 in savings and about $15,000 tied up in an IRA as we are always moving for orders and, face it, the military doesn't make much money.
1) Since we are government paid through direct deposit, do you have any ideas on what we should expect when SHTF as to disruption/stop of pay?  I can play it both ways in my head - government is bankrupt so no pay or government needs military to maintain itself, so it does pay the military.  What happened in Argentina as to the military pay?
2)  If money withdrawal becomes restricted, then how is it beneficial to invest in precious metals (aside from physically buying them)?
3) Along that line, if you have an offshore account how does that allow you to physically get your hands on that money? What I mean is if you can't get any money what does it matter if you "have" money in an investment account.  Also, if a stronger currency (i.e. the USD in Argentina vs. the peso) is what I have in that offshore account, but it is made illegal - then how does that help me?
4) If you buy precious metals to have in your possession then how do you use them (i.e. say I have an ounce of gold and need groceries)?
5) With such little savings (yes, we are putting as much away as we can), is it more important to start keeping it out of the banks and on hand or work towards investments such as metals or offshore accounts?
I apologize in advance if these questions are ridiculously basic, but it I tend to over-think things and cannot find these answers.  I have asked others who have bought precious metals and their answers on how they will "use" them are, at best, illogical and, at worst, stupid.
Thank you, again, for your book and ongoing blog.


Hi Susan, thanks for your email.

      1)     If SHTF as in serious economic problems (default, stock market crash, bankruptcy of larger corporations)  and bank holydays are declared you are pretty much left with what you have at home, so everything we talk about here all the time applies: Food, water, emergency gear, weapon, lights, alternative forms of heating and cooking, etc, including emergency cash and some precious metals.
In general countries will keep paying their police and military because they need them to sustain order during troubled times. That doesn’t mean you’re completely safe. What will happen most likely is that wages for police and military will not go along with inflation. As life gets more expensive, the salaries of most LE and military personnel will hardly keep up, decreasing you purchasing power and standard of living.  That’s what happened in Argentina and what has happened in other countries that have gone through similar crisis.
      2)  I always recommend physical precious metals at hand, kept home in a safe or very well hidden. Read the chapter of my book called“The Importance of Precious Metals”, page 185.  If ATMs run dry and it becomes hard to find cash, your PM (precious metal) will become a valuable commodity. 

      3) With a foreign account and a card attached to it you can in some cases use that money even if the local banking system is severely restricted. Today as I write this, there are many countries that have rules for their local banks that don’t apply to foreign ones. In these countries locals have many restrictions while foreigners are spared form these rules, mostly so as to not scare away tourists and investors. Even if you are local, your account is foreign, so it may be unaffected in terms of how much you can spend or how much money you’re allowed to get out of the ATMS. For example, in Argentina you can get more money out of ATM than the local legal limit if using ATMs at the branch of your foreign bank account. In a worst case scenario, if you have to leave the country entirely your money is already abroad and you don’t have to leave without it or leave with the cash which may be seized by the police when going through customs. During normal times none of this would be a problem, you can just transfer money from one country to another. Try transferring money into or out of Argentina and then tell me how that worked out for you. In troubled countries and during troubled times all these problems come up, problems that don’t exist in normal places.

       4)  Since you already have my book, read the chapter called “Using Gold, Silver and Foreign Currency after the Crisis” page 215. There you’ll find a much more complete answer than anything I could write here at this moment. Basically you don’t use a 1oz gold coin to guy groceries, you sell it to a broker first. Besides that, you may want to keep a small amount of “junk” gold and sivler as PM of smaller denomination. Already in USA there’s an understanding of junk silver and pre 65 coins.

      5) With the kind of savings you have, I’d keep about two thousand at home and,  once your other priorities are covered, start working in building up a precious metal stash little by little. Silver Eagles are nice because you can get one every month or two and before you know it you have a bunch of them, but remember that silver gets heavy fast (too much volume and not as compact as gold) and this could be problematic if you ever had to evacuate, maybe even hide your PM on your clothes. Its much easier to hide a gold coin in your jacket than 40 silver coins.

I would open an offshore account too, and leave a small amount of money there. The important thing is to have the account in the first pace. That way if you ever see things getting worse, or rumors of a bank run spreading, you’ll already be ahead of the game and can transfer you money away while most people don’t even have a foreign account to begin with. Its not hard or expensive to open one( but it does require time), its just than most people don’t care or bother with it. Timing is of course crucial, a day too late and your savings may get stuck in the country’s collapsing economy.



Greek Caste System said...

If you are thinking keeping money or gold in your house (because you fear a run on the banks or withdarwal restrictions) consider the case of a burglar equipped with a metal detection device. You must have a real big house with many hiding points to do that.
Before the crucial May 2012 elections in Greece huge amounts of money were withdrawn from banks. Finally nothing happened and depositors who risked to keep their money in banks won because of the high interest rates.
And US is in a far better economic condition than Greece (just read my blog). So, at least for now, I'd advice Americans to keep their money in a safety bank account.

Anonymous said...

Ferfal -

GREAT advice. So...as an example, if I am in the USA, (or any country, really), what 'foreign' country would you recommend creating the account in? Maybe the Cayman Islands?

Where would you recommend?

Thanks Again!

Don Williams said...

Some comments:

1) The essence of the military is unlimited loyalty to the government and obedience to lawful orders. If SHTF, your husband will have little room for maneuver -- he certainly will not be able to leave the country unless it is part of his unit's deployment. I am sure he knows the penalty for desertion better than I do.
2) Most military MOSs require security clearances -- some require extremely high clearances. While foreign bank accounts are not illegal, they MUST be reported on the income tax 1040 return.
3) Breaking a federal law and being detected at it could result in your husband's clearance being yanked --in which case he is out of the military or possibly reassigned as cook. If he is an officer, his career will probably be badly hurt.
Plus military discipline makes it hard to mount a defense against criminal charges.

4) If the government declares ownership of gold illegal --as it did during Franklin Roosevelt's administration in the 1930s -- then your husband could be put in a bind. You as a civilian would have more leeway, although it used to be the case that an officer's wife reflected on the officer.
Plus CID would be skeptical that you could have gold and your husband would not know of it.

5) None of this negates what Ferfal suggested -- but it seems to me that military families face very complex problems in SHTF situations. The US Government explicitly set up the NORTHCOM combatant command to conduct military operations within the continental US.

6) If the military is forced to fire on looters and rioters, for example, you may find the entire civilian transaction network/ adhoc black markets closed to you. Same if the FBI gets involved in another CONINTELPRO operation to suppress insurgencies in the bud.

7) I respect the military very much -- but do not be blind to the severe discipline the civilian politicans in the US government impose on them, especially in difficult time.

8) Even if your husband is allowed to resign, the specialized nature of military work makes transition to civilian employment difficult to achieve --without significant loss of income-- even in good economic times

Anonymous said...

If the USD collapses all other fiat in the world will collapse because they are all the same backed by promises of the government as "Faith and Credit" of the people. so who will accept them?

Also you don't go to the grocery store with your 1oz gold coin. In a collapse society, trade it for a couple of pigs from a pig farmer or something.

I don't understand why people only think of only fiat as money. There was a time even the US when precious metal was money. Watch an old western movies and you'll see a cowboy tossing a Morgan Silver Dollar to pay for a bottle of whiskey.

Anonymous said...

The metal detection device probably won't work with all the electrical wires and copper pipes. The instructions to my metal detector said very clearly do not test inside you home because of that fact.

Don Williams said...

1) Re effects on the military if SHTF, military retirees and those on disability due to war wounds (Iraq IEDs,etc) will probably have it hard.

2) Plus much of the US military is deployed to protect the foreign investments of our Superrich --not to protect the USA itself, which is separated from Eurasia by two large oceans.

If there are no investments to protect, then deep cuts in personnel will be one way to deal with budget problems--look at what George H Bush and Clinton did:


3) The government tends to use police (including paramilitary SWAT teams) to maintain internal order because of the nominal constraints on using the military imposed by the Posse Commitatus Act --although the President can override the Act.

4) It is important to remember that the US military budget is more than the budgets of the next 14 major spenders COMBINED. We spend $711 Billion/year--Russia and China only spend $143 Billion/year and $81 Billion/year. The remaining 12 are our allies.

See http://en.wikipedia.org/wiki/List_of_countries_by_military_expenditures

The government could cut the military budget in half and still not hurt defense of the continental USA.

5) It would merely reduce our ability to invade and occupy places on the far side of the world-- a capability which is not helping our finances all that much anyway. Although Exxon's balance sheet is looking better after getting those oil leases in northern Iraq.

6) Like I said, I deeply respect the military. But I saw a lot of military guys I worked with blindsided by deep budget cuts in the 1990s. And the current outlook is for deep cuts in the military budget over the next decade.

7) In my opinion, People lose the most money by missing out on opportunity, not by adverse events.
People who invested in the stock market in 1990 were a lot better off by 2000 than those who invested in gold -- although the reverse has been true since 2000.

8) One strategy I've seen is to divide your savings into two piles: Pile 1 must be protected against all possible loss and pile 2 will be aggressively managed to make maximum returns.

Pile 1 is protected by dividing it into 4 parts that are invested in cash/short term Treasury notes, gold, long term Treasury bonds and the S&P 500 Index fund respectively. The idea being that losses in one investment will be offset by gains in other investments. One doesn't make much profit with Pile1 in the end but hopefully won't suffer any losses. If high inflation hits, the stocks and gold will rise while cash and long term bonds lose. If recession hits, long term bonds and short term notes give a return that offsets stock losses. If interest rates rise, the long term bonds and gold will lose their trading value but the bonds will still return interest and principle if held while the cash and short term notes will be yielding more interest.
If unexpected prosperity hits, the stocks(S&P 500 index) will rise while gold will drop (as investors cash out and move to the higher returns of stocks.) Some people buy foreign stocks as well as the US index.

A special value of cash and gold is that they can be secret --i.e., you can have wealth that no one else knows you have. Some countries issue "bearer bonds" that have the same attribute.

9) Mr Chow has a point -- the US dollar is the world's reserve currency so it is hard to see a case in which the USA goes down without dragging the rest of the G20 with it.

Anonymous said...

Understand that opening a bank account in a foreign country can be a time-consuming process if you are from the United States. Because Uncle Sam is strong-arming foreign banks, some don't even want U.S. citizens as customers because of reporting and "know your customer" requirements.

When I opened my account, it took two separate trips to the country, two years of tax returns, U.S. bank references that were verified by phone by the foreign bank, and personal references from people living in that country.

That being said, it was well worth the effort. Do it. Just understand that there can be more involved than simply walking into a foreign bank and planning to open an account the same day.

Anonymous said...

It is probable that even if the U.S. dollar collapses that the Canadian dollar will survive. What they have going for them is a small population and an enormous wealth of natural resources. Combine that with the worlds largest country of consumers along side them on a 3000 mile border and a common language and background and you have a serendipitous situation that will probably insure the survival of the Canadian dollar and their economy.

k said...

If your husband's position is very superflous then he could suddenly get fired if the economy suddenly turns for the worse. Even if it is not, he may be able to do a job outside of the military that pays even more. Such a job may be in America or a different country that. It could be worth while for you both to look for a job for him while he still works for the military. Some corporate jobs that are often performed by ex-military types are likely to pay well and are unlikely to go away easily. Being a bodyguard for a top executive at Goldman Sucks comes to mind.

Many years ago, I had a coworker who misplaced his driver's license in his messy desk. He went to the DMV and got a replacement. Then a few months later he moved across the state line and so he change his license. A couple of months later he found his original license while throwing out some old files from his desk. He pocketed it and I asked why he didn't toss it. "It could come in handy if I lose my new license". This was back in the day when computer glitches and bugs were much more common (Garbage in, garbage out). In a SHTF situation, computer networks have a very good chance of being down or overloaded, so if the paperwork looks O.K., that may be good enough to get what you want.

As for banking, one possibility is creating a company in a foreign country and then open a corporate account in the company's name. I don't know how hard or expensive it is, but there are a lot of countries out there. You can research the specifics on the internet.