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For a currency to be devalued means that the issuing government has mandated that the price of the currency (in foreign dollars) is to be lowered by government fiat or decree. Immediately following such a devaluation the price of commodities produced within that nation, (as well as its real estate), becomes cheaper to buyers who have sound foreign currencies and are capable of using those sound currencies to make their purchases. This buying opportunity which I call a 'window of opportunity,' will only exist for brief cyclical periods, from the moment of a devaluation up until the time when that nation's ‘internal’ prices are adjusted to compensate for the difference between the internal prices and those prices existing ‘externally’ to that nation. There is usually, but not always, a lag time between the moment of devaluation and the moment of adjustment. The lag time can be quite brief, however the differences in a strong currencies buying power within that lag time is often quite pronounced. (i.e. the deals are good.) Upon the inevitable upwards price adjustment created by external buying pressure the purchased property or commodity will then reflect its truer internal value vis a vis its national currency once again. Example: Ten Zopoloté to the Dollar A two hundred acre ranch property in the imaginary Republic of Sabroso is worth US$100,000. The national currency of Sabroso is the Zopoloté. (See image above.) The official rate of exchange is Ten Zopoloté to the Dollar; (Z$10 = US$1). Hence, under normal circumstances it takes Z$1,000,000 [1 million Zopolotés] to purchase our two hundred acre ranch. Without warning, the Republic's Ministry of Economic Development and Finance, Senor Chappurito, announces a fifty percent devaluation of the Zopoloté. (The Minister-General himself, is unavailable for comment; Senor Chappurito, along with his wife and children are vacationing in Zürich) Internally, inside the Republic of
Sabroso, little has changed. A housewife in the Capital
City of Sâo Donato goes shopping for groceries; there is no change
in prices. Two tomatoes cost the same price on the day of the devaluation
as they did the day before; a dozen eggs have not increased in price by
as much as a single Zopoloté, even a pound of meat costs no more
then it did a week ago. On the International Monetary Exchange however,
things have changed. We can suddenly buy twice as many Zopolotés
today for each $US dollar than the number of Zopolotés we could
buy the day before. Wishing to take advantage of this opportunity,
we buy one million Zopolotés for US$50,000, (which would have cost
us $US100,000 just yesterday,) we then fly to the Republic of Sabroso and
for our US$50,000 (one million Zopolotés), we purchase the
two hundred acre ranch.
Government Employees Uber Alles We might well make the assertion
that the use of such a modality for purchasing a property is mercenary.
However, before we make such an assertion we should wonder if such an event
has ever happened to us. The answer is a resounding Yes. Just
like all the other world's currencies, the United States Dollar has undergone
several devaluation's. Those who were then holding stronger currencies
such as the Yen (then,) or hard metal assets such as gold or silver
were able to buy commodities and real estate inside the United States at
bargain basement prices and did so! Welcome to the real world. Like
it or not, this is the way of finance in a world of mixed economies; where
governments exert control over not just the the economy of a nation, but
also over the ultimate value of a nations currency, and do so through an
act of fiat. (The word Fiat can be defined as the arbitrary whim of a government
employee.) People who are in government service can take unscrupulous
advantage of such a devaluation and profit handsomely at their citizens
expense. However, this is not the place to discuss such issues; even
though I would love to rake any number of politicians over the coals I
will restrain myself and maintain a semi level-headed focus on the issues
we are discussing in this article. Never lust after the blood of
bloodsuckers, it may be tainted.
Foreign Real Estate As Sound Investment & Hard Asset It may be worth considering that even though a particular property fills ‘practical’ investment criteria, it still remains very difficult for many of us to look at a home as something we simply buy and sell like a bushel of apples, or as we might buy and sell some stock in IBM. Real estate is an investment that many of us become psychologically attached to. This propensity for engendering emotional attachment changes (separates) purchasing property from just about every other form of investment. However, as we become expatriates, and/or buyers of overseas real estate, we develop a global perspective rather than a narrow parochial view, and because this new view has a wider peripheral, we are able to see what was once obscured by the narrower frame of reference. The fact that more and more people are now buying international real estate, (which is to say, property in a country other than their birth or current residence,) it also changes the time frame in which a 'window of opportunity,' may exist. i.e. The pressure to adjust to 'external' prices will be greater and more rapid as smart people from around the world go around the world looking for smart property. As I've said countless times, there are reasons to buy international real estate; good economic reasons that go beyond the emotional. Owning foreign real estate takes us out of restrictive and potentially volatile currencies whether the Dollar, Peso, Zopoloté, or Yen, and places us in a form of real, or hard, asset. Example: In our imaginary scenario in the Republic of Sabroso, we purchased a swell property for fifty cents on the dollar. Now, what if that dollar should happen to fall? We'd have more Zopolotés to put on the wall? Well, yes, sort of. In our scenario we purchased a property for US$50,000 during a cyclical low in the Zopoloté. If the dollar should now fall by twenty percent, (which is entirely possible,) then that increases the worth of our property in dollar purchasing power. [we can ‘buy’ more dollars in exchange for our property] We now have a ranch worth US$125,000; each dollar has now fallen in value to .80¢ based on its former worth. We have in effect made US$75,000 [*See note¹ below] simply by purchasing a ranch we wanted anyway. Do these things actually happen?
Assuredly. So, another factor for us to consider in purchasing international
real estate is a positive diversification of our assets out of the dollar
(or any other government created currency,) and into a tangible asset with
intrinsic value.
This type of diversification has many positive attributes for the expatriate, and/or buyer of overseas real estate. Besides moving us out of the U.S. Dollar (hence protecting us from a collapsing U.S. economy) it also insulates us from potential foreign exchange control mandates that might be put in place by a panicked U.S. government trying to shore up escaping assets. i.e. they'll want your bread, and they won't want you to leave home with the money that belongs to you. As we've discussed elsewhere, US government employees are eventually going to start looking around for someone to blame their mistakes on. Unlike Senor Chappurito they cannot all slip away to vacation in Zürich quite so easily. However, they are not our concern; our concern is to protect ourselves and our families from their fiscal idiocy. Real estate is difficult, if not impossible to repatriate, (foreign governments cannot easily confiscate real estate in another country,) very much unlike money in a US bank account. [ fully unprotected by the FDIC such as it is] That said, it should also be said that moving ones cash to an offshore bank is always a good idea if viewed only as a form of diversification. Having a variety of banks in a variety of nations is simply smart, especially when some nations respect privacy and the rule of law and some do not. If you live in a rouge nation such as Libya or the USA that does not respect human privacy then it becomes imperative to seek diversification, preferable to Switzerland, Panama or other country that respects privacy. Money in rogue nations like Libya, Iraq and the USA. is subject to confiscation, and if the USA is going to continue to unravel at the same velocity that it has been unraveling then it is smart to diversify in every way shape and form. I should also mention the haphazard
structure of the U.S. bank system which may be on the verge of collapse.
Smarter people then me think the same thing, so this is not something I
pulled out of a hat. The US banking system may collapse. If so, don't
count on the FDIC to pick you up and dust you off. The FDIC (a U.S. government
operated Panzi scheme,) operates through the modality of insuring a pool
of risks for a fraction of the total amount of risk outstanding.
(Which is exactly the defining characteristic of all Panzi schemes.) This
principal might work with automobile insurance where it is mathematically
improbable than everyone in the United States will get in a wreck on the
same day. Insuring banks, (or pyramid investment schemes,) using
this technique is the worst violation of insurance and investment principals.
(It is considered a crime punishable by law if an investment firm does
it, but it is kosher if the U.S. government does it.) When the U.S.
bank of cards finally collapses (not if, but when,) it is probable
that the event will be a chain reaction. Because the FDIC has only
.015% of the insurance payment funds available for the total of the money
that is deposited inside all U.S. banks, the possibility of anyone getting
their money back is nil, or less than nil. One and one-half of a
percent of the total money owed to the American people would probably be
just enough money to pay for the funeral costs of the Directors of the
FDIC along with the nations major Bank Presidents, and/or preferable the
members of the U.S. Congress, at least those among them that don't escape
to Brazil with the money they have stashed offshore.
Real Assets We mentioned gold and silver and
we also mentioned some other factors that should perhaps be addressed.
I am not ashamed to say that I do not consider myself qualified to discuss
such things as hard assets beyond a rudimentary level. So I will
just say that I believe that sound, cogent assets with intrinsic values
are to me usually, if not always, preferable to the fiat ersatz creations
of government employees. However, values are based on individual
preference. In one of China's many dynasties the populace refused
to accept the paper money, preferring the tangible assets of gold.
That dynasties government employees in an act of utter desperation hit
upon the brilliant idea of producing a money made from perfumed colored
silk rather than paper. Of course, it didn't work, a piece of perfumed
silk is never worth more than a piece of perfumed silk. Hitler had
a better idea. Anyone who debased, speculated in, or undersold the
Nazi German Mark was shot. What a concept!
The important thing is to seek methods which are legal and which fully protect our privacy. We cannot over-stress how crucial it is to protect our privacy regardless of any indoctrination to the contrary. The right to privacy is not a crime. There is absolutely nothing for which anyone should feel guilty in seeking to keep their own affairs private. It is also our right to protect the money we've earned from those who have not earned it. No one has a right to know our business. We can think of no reason that anyone needs to know who the parties are that own a property, stock, or an offshore corporation. If the property taxes are paid on that property that should be the end of it. In the same regard, no one needs to know the name of the corporation or the individuals for whom a bank is holding title as long as the bank is maintaining the property and paying the property tax. If a corporation changes hands in a country or in a tax jurisdiction that is different from the jurisdiction in which the property exists that is the business of that jurisdiction. It simply isn't anyone else's business. Unless we are terrorists it should never be anyone's business who we are or what we own. Why should it be? If we do decide to hold ownership
of real property within a country that has exchange controls it is important
to understand that we may have a difficult time repatriating our funds
from the sale of that property. If we should ever decide to move
to another country we will have the choice of keeping the property we've
bought or selling it and reinvesting the funds inside that country. The
latter is not a good option inside a country with a debased currency. However
there may be instances and situations in which we may wish to hold ownership
in such countries. We cannot offer any profound advice in such matters.
The best advice we can give is not to break any laws especially when there
are so many legitimate methods of doing business within the law.
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