Symptoms of Distress

June 13, 2016

By: Bobby Casey, Managing Director GWP

symptoms of distressThere are so many distress signals going off, I hardly know where to begin! These signals, however, all come down to one thing though: government failure.

It’s like if you had a sore throat, body ache, and a fever… chances are they are all symptomatic of the same problem: a cold.

The Financial Times suggests that we will need another crisis to usher in a new monetary and fiscal policy since the political class doesn’t have the guts to do it now. Perhaps under the cover of crisis they might find that courage, and blame the discomforts of reform on the crisis. I think they are giving the political class far too much credit. However, he does give some sound advice:

“[I]nflation is a monetary phenomenon and in a fiat currency system policymakers will eventually succeed in creating it. In such an environment the best thing you can do is try to identify assets that will perform reasonably well regardless of the future course of policy and its impact on growth and inflation rather than try to maximize return in the shorter term.

Ideally such an asset should possess two key characteristics: good cash flow visibility and stability; and an embedded inflation hedge. That tends to lead you to hard assets rather than financial assets.”

When you think about it, money can only go so far, and the distance it can go is abbreviated by the reckless monetary policies of central banks and planners. At some point, people will need to deviate into something more tangible and lasting. Don’t believe me? Ok, just ask the people of Venezuela what means more: a bolivar or food.

When the masses aren’t busy rioting in the streets, they are waiting in line. And when they wait in line, they get marked with a number to hold their place, lest it become disorderly. The private markets don’t do this, but they can and do ration the amount of supplies that can be bought.

The United States knows what it’s like when the government imposes price controls and rations. Or maybe she’s already forgotten about the 70’s and gasoline rationing?

The claim is that there was a shortage of gasoline. No there wasn’t. OPEC cut production and hiked the prices. Had we just gone along with it, other sources of gasoline would’ve increased production brought in some competition into the price war.

Instead, we instituted price controls which lead to panic and long lines. When we finally lifted the price controls, we suffered double digit inflation. Then we lifted the regulations on oil production and instituted a totally ridiculous windfall tax that yielded a tiny fraction of what was predicted.

Socialist countries oddly get accolades for their policies that demonize profits or mitigate them, but time and again those polices have proven to fail in delivering the goods and services people demand in a cost-efficient way. Instead, they create shortages. We can also look to the Soviet shoe factories.

They had the highest production of shoes in the world. Bar none. The problem was, in order to achieve that level of production, they had to produce a disproportionate amount of children’s shoes… and subsequently suffered a shortage of adult shoes.

“Indeed, the factory’s real consumer was the state, not the consumer,” writes Scott Shane in his book, “Dismantling Utopia”.

Think about the profundity of that observation. When the customer is supplanted by the state, the people are usually left wanting. Our regulatory state… or as I like to call it the Regulation Nation… expands, the customer will get less of what they want and at a higher price.

And where the state can’t regulate itself into getting a cut, it simply imposes itself.

Recently, in New Orleans, LA, a new “fee” has been imposed in the French Quarter: Air Rights Fees on Balconies. In an old district that has been struggling to maintain its historic appeal and preserve its historic architecture, a fee amounting to as much as $4,000 per overhang can and HAS put a lot of renovations on hold.

The city has done nothing to restore dilapidated areas of the French Quarter. Private property owners, however, have done a remarkable job of restoring and revitalizing that neighborhood.

Air rights. I mean, that district has gone this long without the city imposing such a ridiculous fee… but feels entitled to do so. For what? It serves no purpose. The property owners are not indemnified against any possible harm that could come to passersby. I’m still put out by the idea of a city claiming to “own” the air. It smacks of cities that claim to own rain water or countries who claim to own sunshine. As silly as it sounds, both such governments exist!

Once again, people don’t get what they want because they must pander to a political body.

If they can’t regulate, tax, or fine you into submission, well damn it I guess they just need to resort to good old fashioned highway robbery!

We’ve covered asset forfeiture extensively here, and I won’t shut up about it until everyone knows about is and is as pissed off as I am.

The latest in asset seizure technology: ERAD, or Electronic Recovery and Access to Data. If you haven’t already heard about it, let me give you a brief introduction. It’s a card scanner. Not just any card scanner, but one that can swipe and take money off any gift cards, or pre-loaded debit cards.

“The Oklahoma Department of Public Safety has purchased several devices capable of seizing funds loaded on to prepaid debit cards to aid troopers in roadside seizures of suspected drug-trafficking proceeds.

“The portable card scanners are designed to be carried in law enforcement vehicles, allow troopers to freeze and seize money loaded onto a prepaid debit card, and to return money to an account whose funds were seized or frozen.

“The vehicle-mounted scanners are also capable of retrieving and storing limited account information from other cards as well, such as banking debit cards, credit cards and ‘payment account information from virtually any magnetic stripe card,’ according to the website and patent documents of the device manufacturer, Texas-based ERAD Group Inc.”

This is some next level plunder. Taking money off gift cards? And pre-loaded debit cards? People complain of systemic problems. They don’t start off that way. They start off as sporadic problems, and are often dismissed as “isolated incidents”. Without a system, you can’t have systemic problems, though. Regardless, these little observations amount to a red flag. Careful how you proceed. Right now it’s certain corners of the earth that are operating at dysfunctional levels. Avoid them. Invest where you won’t get fined to death. Invest in something that will retain value. Get your assets out of your name as much as you can.

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