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Copyright 2012 by John T. Reed
I finished reading Anna Eisenmenger’s diary Blockade last weekend. It had me in tears three times. What an amazing ordeal! I cannot believe it has not been made into a movie or TV miniseries, let alone that I had never heard of it until I started researching hyperinflation.
It is quoted extensively in books like When Money Dies and Grand Pursuit. You should read it, but you can’t buy it. You have to do as I did and get your library to obtain it for you.
It is pretty certain that our “leaders” in Washington have put us on a course toward hyperinflation. Indeed, the leaders who did that to Germany, Austria, and Hungary after World War I would consider themselves pikers if they could see the unfunded liabilities and national debt of the U.S. today.
I researched hyperinflation and depression to write my book How to Protect Your Life Savings from Hyperinflation & Depression, 2nd Edition.
One easy-to-follow piece of advice I have been giving in this web site lately is to convert your U.S. dollars to the currencies of well-managed, honest, economically free countries:
Anna Eisenmenger was an affluent medical doctor’s wife in Vienna, Austria. I do not know his first name, but in 1897 a Doctor Viktor Eisenmenger of Vienna discovered a disease now called Eisenmenger’s Syndrome.
Her diary covers the period 1914-1924. For most of that time, she was a widow and matriarch of an extended family and a couple of servants. Her ordeal stemmed not only from hyperinflation but also from World War I, blockades by enemy countries, and the various laws that always accompany hyperinflation like capital controls, tariffs, and emigration prohibitions. Here I will just recite hyperinflation-related advice her banker gave her—advice she should have followed, advice I have given you in recent articles, advice I am currently following myself. This is an British English translation of the diary which was written in German, the language of Austria. My comments are in [red]. She was a widow and grandmother by this diary entry.
October 26, 1918.
I withdrew from my bank 20,000 kronen today. [Austrian currency worth about $50,000 in 2010 dollars based on conversion of the 833 British pounds it was worth then to the inflation-adjusted value of 833 1918 pounds] The bank clerk who had attended to me and advised me for years, recommended me to convert my money into Swiss francs. When I objected that private dealings in foreign currencies were not allowed [capital controls—we do not have them now but we have had them in the past and they will be slapped on us in a New York minute when we start having hyperinflation. See my article “A financial Berlin Wall is being constructed and your are on the wrong side of it.”], he whispered to me that he would manage it for me if I would authorise him to do so.
I had already resolved that day to infringe one law by the illicit purchase of supplies, but now I nervously rejected my adviser’s offer. “You will regret it, gnädige Frau [madam]. Only Switzerland and Holland will keep their countries stable.”
“No, no. I prefer not; financial transactions are beyond me.” [A lame excuse that almost matches the phrase “Don’t bother your pretty little head about such matters.” The advice was excellent. Anna made a disastrous mistake.]
November 18, 1918 [one week after the Armistice was signed]
Although hopelessness and despair weigh upon my heart like a heavy stone, I must seem confident and cheerful to my poor children; I must make myself believe that I am really far better off than hundreds of thousands of other women. This is indeed a fact; I am at least immune from material cares and can help my children, since I have a small fortune, safely invested in gilt-edged securities. God be thanked for that!
[If ever there was a cautionary tale about widows not bothering to learn about finance because their husband took care of it, this is it.]
December 15, 1918
But the krone is now worth only 25 Swiss centimes, so we must wait until it improves again. [Minor inflation improves, as it did in the U.S. in the early 1980s. But hyperinflation does not improve. It is a terminal disease of the currency that ends when a replacement currency is created. There is a rate at which you can convert the old currency to the new, but it does not give you any more purchasing power than you had on the last day of the old currency.]
In the large banking hall, a great deal of business was being done and I had to wait some time before I was attended to. All around me animated discussions were in progress concerning the stamping of new currency, the issue of new notes, [told you] the purchase of foreign money, and so on. There were always some who knew exactly now what was the best thing to do! After my money had been stamped, I went to see the bank official who always advised me.
“Well, wasn’t I right?” he said. “If you had bought Swiss Francs when I suggested, you would not now have lost three-fourths of your fortune.”
“Lost!” I exclaimed in horror. “Why, don’t you think the krone will ever recover again?”
“Recover!” he said with a laugh. “Recover!” he repeated, leaning across the oak counter, behind which stood his writing table. “Our krone will go to the devil, that's certain.” He had spoken the last sentence very low, so that the people standing near me could not hear.
“Good heavens!” I said, and I must have looked very dismayed.
“Will you follow my advice this time, before…”he did not finish the sentence. “Come into my [office] for a moment.”
“I know,” I said timidly, “that there is no metal money in circulation now. First they gave us iron money instead of nickel and copper, and now they have withdrawn that too. Here I have a whole purse full of notes, all for small amounts. It is impossible to buy anything with them.”
“There, you see. You have grasped the position already. And you will understand me when I tell you that at the present time it is well to possess a house or ground [both hard assets that go up in value in relation to currency during hyperinflation] or shares [bad advice] in an industry or a mine or something else of the sort, but not to posses any money, or at least no Austrian or German money. Do you understand what I mean?”
“Yes, but mine are government securities; surely there can’t be anything safer than that” I answered.
“But my dear lady, where is the State which guaranteed these securities to you? It is dead, and do you imagine that its successor will or can take over all the liabilities of its predecessor? That is absolutely out of the question.” [The federal government bonds she had were from the Austro-Hungarian Empire—a monarchy. After October 31, 1918, there was no longer an Austro-Hungarian Empire. It was replaced in and around Vienna by the Republic of Austria which had a socialist government.]
My head was in a whirl, but as my adviser had been right on the previous occasion, and as, moreover, he was looked upon as an extremely clever businessman, I decided to do what he advised me.
Very depressed, alarmed, and utterly at sea owing to my ignorance of banking business, I went home. On the way I saw a woman fall down in the street from exhaustion and this did not contribute to raise my spirits.
Unfortunately, Anna followed the advice to buy stock, not foreign currency. The Austrian stock market soared, until it crashed in 1924.
Folks, I recommend you convert your U.S. dollars to foreign currencies of selected former British colonies, namely Australia, Canada, and New Zealand. Read my articles I linked to above for detailed reasons why. I also like Scandinavian countries that do not use the euro, namely Denmark, Norway, and Sweden.
And I like Switzerland, although I have heard that the US IRS has jerked Switzerland around so much they now refuse to accept U.S. deposits and have unilaterally closed and returned existing U.S. citizen deposits. To an extent, they brought that on themselves by the secret-numbered bank accounts and being bankers to every scumbag dictator on earth. London banks apparently are also rejecting and closing American bank accounts because of Hiring Incentives to Restore Employment Act signed by President Barrack Obama on 18 March 2010. (The number of American renouncing their citizenship more than quadrupled according to the 6/13/2010 Wall Street Journal online, mainly because of this law. You can only spend 90 days per year in the U.S. after you renounce your citizenship, but you no longer have to pay U.S. tax on income earned outside the U.S.) Some U.S.-based banks have closed expats’ accounts because of difficulty in certifying that the holders still maintain U.S. addresses, as required by a Patriot Act provision
You could get around Switzerland’s current aversion to U.S. depositors by simply buying actual Swiss francs and holding them in a safe deposit box, preferably outside the U.S. because capital controls typically accompany hyperinflation and capital controls typically prohibit ownership of foreign currency. You can investigate whether you can use Swiss francs to hedge the dollar via Swiss bonds or other securities, but a Swiss bank account for a U.S. citizen is reportedly a thing of the past. If any readers know otherwise, please let me know.
Everbank, a U.S. bank, is the only one that will allow U.S. individuals to hold foreign currencies in accounts at their bank. They can be in an IRA and are FDIC-insured, but I think they are worthless because they warn prospective depositors that the U.S. government may order them to convert your foreign currency accounts to U.S. dollars at a conversion rate prescribed by the U.S. government. That defeats the entire inflation-protection purpose. That’s why your foreign currency needs to be in bank accounts in the country in question, or in safe deposit boxes in any non-U.S. country, not in the U.S.
I have put money into Canadian dollars in Canada. I am in the process of doing the same in Australia and New Zealand. After I investigate it further, I will probably put some in a couple of the good, no-euro Scandinavian countries. I may even put some Swiss francs in a safe deposit box somewhere outside the U.S.
You should do the same. Most American have never had an account outside the U.S. unless they lived overseas. Nor have they ever had an account denominated in currency other than U.S. dollars unless they lived overseas. Get over it.
At first, I was a bit nervous about it because I had never done it. But opening an account in Canada was almost identical to opening one here, except you have to physically go to Canada and present two types of photo ID to open the account. I went up on one day. My wife added her signature to the account a couple of months later at a different branch in Canada when she went up there to visit a college classmate.
New Zealand let us open the account without going there by mailing or emailing the required documents certified by a notary—thank God. Flying from San Francisco, where we live, to Auckland, New Zealand costs $1,225 (SFO to LAX on United then Quantas to Auckland—13 hours and 30 min). My flight from SFO to Vancouver Canada to open the account was just $88 and I could have flown up and back in one day (many flights per day and only 2 hours and 14 minutes). I am no expert bargain finder with regard to airlines. Those who are can probably find cheaper fares.
I think it’s the same in Australia because the big banks in NZ and Australia are generally the same companies. I do not know yet if you have to go to Scandinavia to open bank accounts there.
You could theoretically put all your cash into foreign accounts while continuing to live here. Pay your regular bills out of your foreign accounts—like using your credit card or ATM card when you travel to a foreign country. It automatically converts your foreign currency to U.S. dollars when you pay the bill.
We plan to not do that, because the more transactions you do, the lower the interest rate you earn on your foreign account. Plus you have to convert from dollars to the foreign currency when you make the deposit overseas and back again when you pay a U.S. bill with that foreign account. They charge a conversion fee each way. So we will probably put most of our cash overseas, then pay regular U.S. bills from smaller U.S. dollar accounts here and from our current U.S. income.
With regard to Anna Eisenmenger’s “gilt-edged” federal government bonds, f’get about it. If you have any U.S. government bonds, get rid of them, corporate and municipal bonds, too. Doesn’t matter who owes you the money, only that they are denominated in U.S. dollars. You gotta be nuts to own that stuff today. Anna Eisenmenger’s son-in-law lost his life savings and she lost most of hers in federal government bonds of their country.
If you have more than $10,000 in a foreign bank account, you have to fill out an annual IRS form TD 90-22.1; plus a Form 8938 if it’s more than $50,000 to $100,000 (depends on whether you are single, married filing jointly, etc.)
Some people are intimidated from having the foreign account by those two form requirements. Like the people who are intimidated out of deducting a home office because you have to fill out a form. Bullshit! Open the accounts and fill out the damned forms.
At the end of her diary, Anna Eisenmenger was essentially crushed to death emotionally, financially, and in almost every other way, by the ordeals she was subjected to by big government—first the monarchy thinking declaring war would be a neat idea then the socialists thinking that controlling everything from currency to how much bread each person could eat per day, etc. was a neat idea.
I do not know what actually happened to her and her children and grandchildren. Could not find it on the Internet. If anyone can help with that, please tell me what you learned about the Eisenmengers.
January 2nd, 1924
I, too can escape from starvation only if I find new sources of income. [She never had a job in her life. She had been an affluent, cultured lady with servants.] So I must once more struggle and worry. Once more I must thrust all spiritual and cultural interests into the background, and like all the rest who find themselves in my position hunt for schillings [the new currency that replaced the krone] in order to keep body and soul together.
More fighting—daily repeated, exasperating, demoralising, offensive and defensive fighting of man against man.
I feel that my strength is deserting me. I cannot go on. Younger generations are pressing forward ahead of us old people and we are only obstacles in their paths. I would like to go away, far away, where there is peace, rest and contemplation. Peace, rest.
The motto of Erni’s [her son who was blinded by a war wound] Requiem [original musical composition] rings in my ears:
Requiescat in Pace.
May all rest in peace.
Dear God will that ever be true for me again?
If she sounds like a drama queen, let me give you a few additional details. Her son Otto was missing on the Eastern front in the war and never heard of again. Her son Karl became a wild-eyed communist after leaving medical school to go to the war where he suffered a head wound. Her son in-law Rudi lost both legs in an attack by the Italian Army after the Austrian Army had declared the war over and were walking back to Austria. Her daughter Liesbeth, wife of Rudi and mother of toddler Wolfi and infant Liesl, died of tuberculosis and malnutrition because of the hyperinflation and lack of food and coal to heat the home. Liesl did not thrive because of lack of food and warmth. Her live-in aunt died apparently of the same causes as Liesbeth. Edith who was Karl’s fiance broke up with him and became blind Erni’s finance—the happiest part of the book. But Karl busted in one day and shot legless Rudi dead then turned the gun on Edith. He missed because blind Erni threw a heavy object at the sound of the first shot. It knocked Karl off balance as he was shooting again. Instead, Karl’s second bullet hit Anna, the mother of Karl and Erni. Karl was subdued and hauled off to the nut house. Anna spent much time in the hospital recovering from the bullet through her lung.
Does that all sound like too much? It’s a freaking diary, not a novel. It’s all true. Anna was a saint and a trouper and a lot of things, but not a drama queen. The drama was imposed upon her.
Also, this was a diary, not a book written for publication. It contains admission of many crimes. She never dreamed anyone but herself and her family would read it.
A couple of readers told me they wanted to put money in Canadian bank accounts but could not because it was a multi-hour drive to the border. Each lived in U.S. states that border Canada. Could be worse. Anna spends much of her diary walking great distances to smuggle illegal food and coal to her family, ducking police and roving bands of former soldier robbers. They had to walk or ride in horse-drawn wagons because the trains either could not run for lack of coal or were full of returning, starving, pissed-off soldiers.
The issue is what is it worth to you to have a foreign bank account that retains its current purchasing power compared to a U.S. bank account that loses all its purchasing power because the U.S government drove itself off a financial cliff after giving you a couple of decades warning (how long have you been hearing that social security was going to go bankrupt?) that you failed to use to prepare for it.
If Canada’s too far, how about a shorter trip to your local notary to open some Australia-New Zealand bank accounts?
Anna’s banker warned her. I warned you. Through her diary, Anna warned you.
If you are still paralyzed by inertia, it can’t happen here, fear that Australian bankers are some sort of monsters, I can’t help you. May your U.S. dollar-denominated life savings requiescat-in-pace. May you elude the police and roving bands of robbers as you walk 12 miles back home from your uncle’s farm with three contraband eggs for your family.
You must have enough liquidity to pay your bills. If you put all your money in hard assets like homes and cars, you will be protected from hyperinflation, but not from lack of liquidity. Foreign currency protects you from U.S. dollar inflation, plus it is liquid. You can pay your bills with it—until capital controls anyway—then you should probably do some of that world traveling you’ve always wanted to do—staying in foreign countries as long as tourist visas allow then visiting another country and another. If all that traveling turns you off, read Anna Eisenmenger’s diary and reflect on whether she might have been, oh, about a thousand times better off traveling outside of Austria in the 1914-1924 period.
Get rid of most of your dollar-denominated assets, namely, bank accounts, government and corporate bonds, certificates of deposit, annuities, except for an amount to pay your regular bills. You can pay extraordinary bills from your foreign accounts.
Tens of millions of Canadians have Canadian bank accounts. Ditto millions of Australians and millions of New Zealanders (Kiwis), Danes, Norwegians, Swedish, and Swiss in their banks. They would think an American who was afraid of such an account had a loose screw. And they are right.
All I am advocating is a diversified portfolio of five or six of the top-rated currencies at five or ten of the top-rated banks in the world as a hedge against U.S. dollar inflation. You have plenty of U.S. real estate and such. You need a little non-U.S. diversification. It is prudent, not nutty. It is not a cabin in the woods stocked with freeze-dried food and ammo. It’s even somewhat worldly and cosmopolitan, don’t you think? Have you been globalized yet? If not, get with it. American-only bank accounts are so pre-Obama.
True, there are some risks, namely currency risk and bank failure risk. Currency risk is the risk that the foreign currency will fall in value in relation to the U.S. dollar—but the opposite can happen, too—the foreign currency goes up in relation to the U.S. dollar. For example, my U.S. bank was supposed to wire transfer my money, in New Zealand dollars, to my New Zealand bank on a Wednesday. They did not get it out until Thursday. The exchange rate changed over night. But fortunately, it was in my favor. I got NZ$212 more deposited into my New Zealand account than I would have gotten on Wednesday. But the opposite could also have happened, or worse.
And since the currencies I named are only countries with higher-rated integrity and greater economic freedom and sounder fiscal situations than the U.S., their currency going up, way up, in relation to the U.S. dollar seems almost guaranteed—plus, if you have five or six foreign currencies and the U.S. dollar, your diversification is such that you should be in pretty good shape to cancel out normal currency fluctuations.
In the Depression, the U.S. had 9,000 bank failures. Canada had a depression but no bank failures at all (different kind of banking system) and I believe no Australian depositor has lost money since one partial bank failure in 1931.
During World War II, Sweden and Switzerland were neutral, albeit surrounded by Nazi Germany. Denmark and Norway were taken over by Nazi Germany which was not great for any bank account you might have had there. World War III in Europe does not seem to be in the offing, but for what it’s worth, Austria, Anna Eisenmenger’s homeland, is about to become majority Muslim.
Before World War I, Vienna was the cultural and finance center of Western Europe. But generally throughout modern history, Austria has been like a mouse trying to survive in spite of living in the middle of the pachyderm cage at the zoo, and the elephants don’t like each other.
If you insist on a Latin American currency, Chile is the only one, but only in an everything-is-relative sense. Like other Latin American countries, Chile is one coup or election away from mindless socialist policies and hyperinflation.
As with all my advice on hyperinflation and deflation, what’s the downside? If you follow this advice, and I’m wrong, what’s the harm? You will be no worse off than the citizens of Australia, Canada, New Zealand, Denmark, Norway, Sweden, and Switzerland with regard to the cash portion of your balance sheet. How bad could that be? Theoretically, awful, but has there ever been a time in history when an American putting most of his cash in the top five or six banks in the top five or six other world currencies would have been a bad idea and there would have been no time to get out of those currencies before they went bad? Only such period I can think of that might have fit that description would have been World War II, which everyone could see coming for about three or four years.
There is still time to heed Anna’s experience and learn from her mistakes. But once the hyperinflation hits the fan and the capital controls financial Berlin Wall goes up, you will find it extremely difficult to get your cash out of U.S. dollars.
Now I just have to wonder if I have given a word to the wise or a word to the “Well, I don’t know. This is America, not Greece…”
A couple of readers told me when they looked into Australian and New Zealand bank accounts, it appeared you could only open one if you moved there. Another reader said he could not get interest on a Canadian bank account.
Okay. I will tell you how I did it.
1. I called a college friend of my wife. The friend married a Canadian and lives in Canada. I asked her which bank she used and for a referral to her banker. She gave me the name of the bank, banker, and her phone number.
2. I called that banker in a suburban Vancouver branch. She told me the same stuff as in the U.S. plus that I had to open the account in person and show two photo IDs for each person on the account (we used passports and CA drivers licenses).
3. I asked her to refer me to a banker their biggest, supercalifragilistic branch in downtown Vancouver, which she did. I preferred that branch for several reasons:
a. I could fly to Vancouver International Airport, take a train to the downtown branch and go home the same fast, easy way. Getting to the suburban branch would have required renting a car and driving some distance.
b. I am 65 and an investment expert. I tend to do a lot of extra little things based on experience and instinct that I might neglect to tell people about. Over the years I have noticed that the bank branches that deal with the most affluent customers tend to have higher quality personnel assigned to them and have a habit of giving much better service because their customers are more demanding and more valuable to the bank.
c. I have also noticed that the bigger branches or bank headquarters tend to have more specialized bank officers and therefore a better understanding of unusual requests, like an American who has no plans to move to Canada, wanting a bank account.
4. I called that downtown banker on the phone and set up an appointment to go in and open the account.
5. I made reservations for a flight and hotel, flew up there, opened the account, (deposited a check from my U.S. SEP account) and flew home with my folder of documents and ATM card. Same as opening any account in the U.S. except for needing a second photo ID.
6. My wife later visited her college friend in the Vancouver suburbs. They stopped by the local branch of the bank and added her signature to the account with the help of the woman I had talked to in that bank. We actually have three accounts there:
• a U.S. dollar one into which we make deposits
• a Canadian dollar one that the money is transferred to because that gives the best exchange rate
• a third Canadian dollar account which is some sort of interest-earning investment.
The last two are guaranteed by the Canadian Deposit Insurance Corporation.
7. I reported the accounts to the IRS in 2012 for 2011 on IRS Form TD 90.22.1. You have to do that if you have more than $10,000 in foreign accounts. One statement showed my Canadian account was earning 2.05% interest. Two are empty except to run deposits through them.
My Canadian banker said it was okay to put his name and contact info here: James Curran 604-665-7175 email@example.com He is at the main Vancouver branch of Bank of Montreal.
1. I emailed a grad school section mate who was born, and has lived his whole life, in New Zealand. He referred me to a woman who is a manager of the department that handles Migrant/Expatriate Accounts of a large NZ bank that is also a large Australian Bank.
2. I emailed her what I was trying to do and mentioned the referral.
3. She emailed me back some instructions—a list of documents they needed. It had a pdf of their account application. When I began to fill it out, it had me swearing I was going to move to New Zealand. I am not.
4. I had a Skype conversation with my section mate. He was not familiar with the procedure and rules.
5. I called the New Zealand banker (easy as calling anyone in the U.S. except that you have to dial 011 first, sort of to “get an outside line”). New Zealand is three hours earlier than my home in the San Francisco area, only the following day. Last time I talked to her was on Sunday afternoon around five my time. That was 2PM Monday afternoon in New Zealand. She said there is a note at the bottom of the Migrant/Expat application that makes an exception for “investor” accounts. Investors do not have to live in New Zealand to have an account.
6. I gathered the documents the NZ banker said they needed and my wife and I went to the local notary to get them certified as required. I then called the banker and described each document. One other that they needed was my acknowledging the FATCA law and promising to file that form annually with the IRS if applicable. I explained we would not have to file it initially because our accounts were not that big, but that we probably would have to file it later and would when we did.
She said the documents I had gathered sounded correct and I sent them to her by International Priority Mail, the same way we send books to Australians and New Zealanders. She said I could also scan and email them to her. Having gone to the trouble to get the notaries, I wanted to send her the originals. I got tired of waiting and later also scanned them and emailed them, but by then they had received the International Priority Mail package. NZ did not want fax.
7. I awaited wiring instructions to send the first deposit. They will take a check, but said it can take as long as six weeks to clear and be withdrawable.
8. I had the money transferred out of my SEP to my checking account then wired out of my checking account to New Zealand. I have a log in ID and password to access my NZ account just like you have in the U.S. I decided not to get an ATM card yet because it costs $50 (mainly high-security international shipping charges). I can direct NZ to wire money out of my account to me anywhere in the world just as I wired money into it. I could have had either my U.S. bank or the NZ bank convert my deposit to NZ$. Their conversion rates were .8315 and .8316 respectively on the day they were initially supposed to do the transfer. So shopping around was of little benefit in that case. That meant I would pay 83.15¢ for each NZ dollar I bought. The Wall Street Journal exchange rate was .8169 on Wednesday (U.S. time). The Journal rate would be a better deal for me, but it is probably only for much larger transactions between institutions in international business. I thought wiring money meant it got there within seconds of the sender pushing the “send” button. Apparently not when it is international. Wiring money from the U.S. to New Zealand on Thursday, I’m told, means it will probably arrive the following Wednesday U.S. time. What happened to the speed of light? Where was my wire between Thursday and Wednesday?
9. I have to do some NZ tax paperwork to avoid their taking 33% of my interest. If I do the paperwork, I pay a lower rate. 33% is the default rate.
10. The New Zealand savings account pays about 3% interest. That raised my wife’s eyebrows causing her to think it manifested risk. But my research indicates it manifests New Zealand’s inflation rate has averaged about 3% since 2008.That’s uncomfortably high for a country I am choosing because it is less likely to hyperinflate. But I think hyperinflation is not really the same as high single-digit inflation. Hyperinflation has different causes and a different solution from just mildly high inflation. I still believe that New Zealand’s low 32% debt-to-GDP ratio means that New Zealand is extremely unlikely to hyperinflate, unlike the U.S. which now has a 103% debt-to-GDP ratio. The U.S. inflation rate, according to the MIT Billion Price Project, was about 2.2% on 3/6/12. Which begs the question why are savings account interest rates at Wells Fargo Bank only .01% to .10%—the latter called “Wells Fargo High Field Savings?”
My readers had similar difficulty opening the FDIC-insured MMDAs that I recommended in my hyperinflation book.
By the way, the money I am putting into foreign currency accounts is coming out of my FDIC-insured MMD accounts. What was the problem? I used the generic name of a money-market deposit account—which is extremely different from a money market fund and that is very important. The problem is bankers are not taught generic terms. They are only taught about their own bank’s terminology like CitiSaver account and crap like that. So I told my readers,
Look, ask the bank if they have a bank account that
a. pays a little interest
b. can be withdrawn at any time without notice or penalty
c. is FDIC-insured
When they say yes, put your money in it. That is an FDIC-insured MMDA, but do not bother the banker’s pretty little head about that generic phraseology.
With an American opening a foreign account in a non-U.S. bank, the problem is probably not terminology alone. More likely aversion to Americans caused by the U.S. government trying to intimidate foreign banks out of letting Americans have such accounts and also web sites and low level bankers not being familiar with an unusual account like one opened by a foreigner who is not in, or planning to enter, the country in question. You need to discuss it with the right people at the bank in question and it probably helps to get a referral from someone the banker knows like one of his customers because they expend more effort to help a new customer who has been referred to them by another customer or friend.
A friend of mine, following my example, has opened bank accounts in Canada and New Zealand (in person in both cases). She has two bank accounts in Canada, one in my bank and one in another. And she just walked in off the street and got a bank account in New Zealand in a different bank than mine. So there is no question it is doable. You’ll have to figure out the magic formula yourself.
FATCA and the IRS Form TD 90-22.1 are bricks in the financial Berlin Wall that will go up fully when the hyperinflation hits the fan. So if you doubt the U.S. government would do a Berlin Wall, think again. They have in the past and are already in the process of doing so again. There are already executive orders in place to facilitate such a “wall.” Once the wall is up, you will have to at least leave the country to buy foreign currency and they may try to restrict that.
I actually worked briefly in international banking. I was recruited by Crocker National Bank, now part of Wells Fargo, out of business school. I was supposed to go to construction lending because of my real estate background then, at the last minute, they put me in international banking. I quit about nine months later but I got a sense of it. Large banks in all countries have correspondent relationships with major banks in other countries. They do that to help their local customers who do business in the foreign country. Wells, for example, probably has such relationships with one or more Australian and New Zealand banks. They arrange currency exchanges, letters of credit, hedges, introductions, provide information about the local area, and so on.
If you have a relationship with a large U.S. bank, and are not planning on ending it with this transaction, ask your U.S. banker to help you open a foreign currency account with their foreign correspondent bank in the country you seek. I did not try this and do not know if it would work, but in general I would expect your bank would try to help you and their correspondent bank in Australia or New Zealand would want to help your U.S. bank. This is what they do. The people in each bank’s international department know their counterparts in the other. They see each other on business trips and at international conventions. Facilitating international financial transactions is what they do. If it’s against the law, which I doubt, it will not happen. But there is almost certainly a way to do something as simple as an American opening a bank account in a foreign bank. But I am not surprised to hear that it is not in the “push one, push two” limited menus on the Internet or phone answering machines or in the repertoire of a run-of-the-mill bank branch officer.
Email from a reader:
I read your recent article about Anna Eisenmenger's experiences to my 85 year old mother. When I read the hypothetical part about her worrying about government agents coming to her house and taking away her gold, Mom interrupted me and told a little story about her mom during WWII. It seems she has a stash of contraband sugar that she kept well hidden, less anyone find out about it and get her in trouble. Mom said she needed it to can the fruit from her trees. She used to give away a lot of fruit so no one would suspect that she was canning which could only be done with more then the allotted amount of sugar.
How she came to have that sugar, how much she had, or what kind of trouble she was risking, I don't know.
I knew that in this country during the war food and gas was rationed, but I never thought it through enough to realize that it was illegal to have a cache of food. Although it may seem far fetched and perhaps a little kooky to worry about such a thing today, running afoul of the law is another good reason to keep quite about any advance purchasing program.
And my answer:
If you start with a false premise, you can logically end up with all sorts of absurdity. In rent control for example, where the false premise is that government can control market rents, those who pass rent control find that all landlords immediately head for the exits so they must also pass companion laws prohibiting condo or co-op conversion, demolition, converting the apartment building to non-residential or owner-occupied home use, neglecting maintenance, and so on.
The same happens with legal tender laws and printing excess money. It is absurd to think the government can lower the true purchasing power of money by printing excess amounts of it yet pass a law that sellers and creditors must accept the counterfeit money at face value. The result is everyone who has or is to receive dollars rushes for the various exits—gold, foreign currency, hoarding, black market, and so on. So legal tender laws combined with excess printing of money force companion laws, namely capital controls, rationing, anti-hoarding laws, (Also, the evil executive orders: they are covered in my hyperinflation book and at this web page) mandatory hiring laws, etc.
The It Can't Happen Here crowd need to read Sinclair Lewis's book by that title. They also need to reflect on the gas lines of 1973 and 1979, the 46% unemployment rate among young blacks because of the minimum wage law, our current thirst for petroleum and refusal to allow even looking for it. Our government is quite capable of each and every bit of craziness that occurred in Europe in the 20th century and part of the evidence of it can be seen in our own history including WWI and WWII rationing and price controls, crop price supports, prohibiting growing crops and livestock when Americans were starving in the Depression, all the New Deal programs that were declared unconstitutional and those that should have been, federal gold confiscation. As my hyperinflation book relates, recent presidents, including Bush and Obama have issued obscure executive orders that allow them to impose all the craziness of World War II etc. in the event of an emergency or financial crisis (see above).
John T. Reed