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Copyright 2013 by John T. Reed
I expect the U.S. will get hyperinflation plus the laws that normally accompany hyperinflation, namely:
• wage, price, and rent controls (which cause shortages, diminishing quality, and outright non-availabilty)
• capital controls (ban possession or use of gold or foreign currency within the U.S.)
• financial repression (force you to directly or indirectly put your savings into U.S. government bonds that pay too low of an interest rate and which have too high risk for them to be sold to a free-market, voluntary bond buyer)
• anti-hoarding laws (prohibit owning more of any rationed item than the quantity you would have the day you purchased the full amount allowed by the ration coupon)
This combination causes horrific economic problems, requires everyone to become a criminal to get the necessities of life like food, medicine, fuel, makes it impossible to get some necessities, and prevents you from avoiding these problems as long as you stay within the country.
So you generally have to leave the country to avoid malnutrition, law breaking, and other intolerable things. I wrote an article about specifically when fleeing the country is the right thing to do, and where to go. This article supplements that because of cost-of-living issues in many countries.
The four foreign currencies I recommend—Australia, Canada, New Zealand, and Switzerland—other than New Zealand, turn out to be in above-New York City cost-of living countries. And Auckland, New Zealand is not much cheaper than New York City.
So I went to Expatistan.com and got their cost-of-living ranking of 113 big cities around the world. I would not change the currencies I recommend, or the number of currencies I recommend.
Most countries give 90-day tourist visas to Americans and other developed countries either automatically or with minimal paperwork (like Australia’s E.T.A.). And there are 365 days per year. So you would need at least four countries to go to if they each allow 90 days per year. In fact, many seem to allow two or more 90-day stays per year as long as you leave the country on or before the 90th day. So if your only permission to be in a foreign country is your passport, you need at least two and maybe four countries in order to remain out of the U.S. for a full year.
Some countries seem to allow you leave the country—I’m guessing for at least one night—then come back for another 90 days. Others, require a 90-day absence from the Area before you can again enter and stay for another 90 days. Some countries, like New Zealand, specify two 90-day stays per year are okay. Others only seem concerned about your leaving at the end of 90 days and not about how soon you return for another 90. You have to check them out one by one.
The Schengen Area, however, says no more than 90 days per six-month period. In other words, if you stay for 90 days, you must then be out of the whole Area, not just one country, for at least 90 days.
What is the Schengen Area? Read the Wikipedia write-up on it at http://en.wikipedia.org/wiki/Schengen_Area. Roughly speaking, it is the countries of Western Europe including Iceland but not U.K. or Ireland and not Albania, Serbia, Croatia, Bosnia & Herzegovina, Macedonia, Montenegro.
What is it about? Roughly speaking, once you are within the Schengen Area, you can cross borders without going through customs/immigration at each border. You just do that once when you enter the Schengen Area. Within the Area, the tourist visa policies are uniform, roughly speaking. And as I said above, that policy on tourist visas is when you enter you can stay for up to 90 days then you need to leave for at least 90 days. If I understand correctly, you can stay in whatever combination of days or weeks you want as long as you understand that when your cumulative stays hit 90 days, you cannot come any more until after the six-month anniversary of your first visit’s first day.
There are several multi-flag strategies that are entirely tax-avoidance oriented. I don’t like that. Nothing wrong with avoiding taxes but man does not live by tax avoidance alone. I wrote a book titled Aggressive Tax Avoidance for Real Estate Investors, now in its 19th edition. But I do like the multi-flag approach when it is more broadly defined. Try to find the best countries for each of the things you need to do. Here are some categories and recommendations:
savings—Put them in Australian, Canadian, and New Zealand dollars in bank accounts in those countries. Also Swiss francs in a Canadian safe deposit box make sense at present because Switzerland generally does not allow Americans to have bank accounts, they charge negative interest, and they have deflation.
your business—Run it out of the country where the after-tax income is maximized and the after-tax expenses and hassles are minimized. Where that is depends on the nature of your business and is dynamic requiring constant monitoring and re-analysis. Wherever it is probably changes annually if not more often, especially during financial crises.
medical care—Go where you have to go for the particular injury or illness or routine preventive care given your health care provider. For many Americans in recent years, that means doing medical tourism in India or Thailand. And I expect that Obamacare will reduce the availability and quality of U.S. medical care so much that medical tourism by Americans will greatly increase. I already read stories of Americans suffering or dying unnecessarily because of medicine shortages. What causes those? The medicines in question are no longer under patent and the government insists on paying prices that are so low that the pharmaceutical companies in question refuse to make the medicine, forcing Americans to buy it from overseas, which is illegal which has to be waived and the costs of the overseas medicines are much high than the amount the U.S. government refused to pay American companies. These are the geniuses who are about to take over all of U.S. health care.
where you live—If you are an American, you should generally live in America unless and until one or more of the twelve triggers in my flee-the-country article occur. That would mean conditions here were intolerable so you must go to a country where conditions are tolerable. For this article, I assume you are only a citizen of the U.S. and you currently have a valid, unexpired U.S. passport. Get one right now if you do not. Having no “papers” other than a U.S. passport means you will be living on your savings and have tourist status when abroad. Where is the best place to be such a long-term tourist? It depends on your taste and amount of savings. The cost of living varies greatly around the world. See the Expatistan.com list at http://www.expatistan.com/cost-of-living/index.
education—I strongly recommend getting citizenship in a country other than just the U.S. If you look into that, you will find it is much harder for older Americans to do that. But it is easier for the young and especially students. So all things being equal, I recommend that young people go to college or grad school in selected foreign countries in order to meet the requirements of getting citizenship there. Once you get the citizenship, you can leave that country and never go back again, but you will always be allowed to go there if necessary.
In the Star Trek TV and movie series, “Spock” often played Vulcan (Martian) chess. It was three-dimensional as opposed to the intellectually-wimpy two-dimensional chess game.
Europe is sort of a three- or more-dimensional game when it comes to currencies, passports, visas, cost of living, and all that.
Here are the names of various zones:
• European Union—27 Western European countries who have an economic union and use a number of different currencies
• Eurozone—17 Western European countries that are members of the European Union (EU) and who use the euro as their currency—All EZ countries are also EU countries, but not all EU countries are EZ countries
• Schengen Area—26 Western European countries including most EU countries but not all, all EZ countries, and some non-EU countries—This is a passport control area that roughly says all the Schengen countries must use normal international customs/immigration procedures for allowing a person into their country from a non-Schengen country, but that none of them should be putting persons crossing into other Schengen countries once the person is inside the Schengen area through customs/immigration screening at the border. Both citizens of the Schengen countries and visitors to those countries get approximately the same treatment, that is, they can cross Schengen-country-to-Schengen-country borders the way Americans cross state borders or Canadians cross provincial borders.
• Non-Schengen countries adjacent to Schengen countries—Ireland, U.K., Russia (Kaliningrad zone), Croatia, Serbia, Albania, Macedonia, Bosnia & Herzegovina, Montenegro, Turkey, Belarus, Ukraine, Moldova, Romania, Bulgaria
• Future Schengen countries—Romania and Bulgaria
For fleeing U.S. hyperinflation, does the EU matter? No.
For avoiding loss of purchasing power due to hyperinflation does the EZ matter? There are two dimensions to this question. The euro currency and living in an EZ country. I do NOT recommend the euro currency (currency code EUR) as a hedge against U.S. dollar (USD) hyperinflation. Indeed, I expect the euro may hyperinflate before the USD.
If you follow my advice to put your rainy-day savings into currencies that are unlikely to hyperinflate—Australian (AUD), Canadian (CAD), and New Zealand (NZD) dollars and Swiss francs (CHF—it stands for Confoederatio Helvetica franc, the Latin name of Switzerland, a nation with four official languages)—you and those currencies should be welcome in the EZ during hyperinflation of the euro. Not only would you be welcome, you would be treated like a king. They might even extend the 90-day limit to encourage you to stay. During German hyperinflation in the 1920s, British citizens on welfare stayed in 5-star German hotels because they had British pounds to spend—not many, but when a country is starved for any real currency, not many is enough. You may find it unpleasant or even dangerous to be a rich man in a nation where people are malnourished and desperate for foreign currency. Selling you stuff or services is one way to get your foreign currency. But so is robbing you.
Why not just stay in the U.S. and spend your AUD, CAD, NZD, and CHF here? Wouldn’t the American people be just as desperate and desirous of foreign currency as the citizens of a hyperinflated EZ? Yes, they would, but both the U.S. and the EZ countries would have to adopt capital controls in order for hyperinflation to work as a way to screw their own citizens in order to seem to “pay” all the crazy bills the politicians have run up.
In other words, U.S. capital controls would prohibit you from spending your foreign currency in the U.S. and the EZ’s capital controls would prohibit their citizens from spending their non-EUR currencies in the EZ, but the EZ citizens would be welcomed with open arms to come spend their non-EUR and non-USD in the US and we Americans who were smart enough to put our savings abroad would be welcomed with open arms to spend our non-EUR and non-USD in the EZ. Foreign tourists are exempt from capital controls so you almost certainly will have to be a foreign tourist to spend your AUD, CAD, NZD, or CHF in hyperinflated countries.
Maybe we Americans can exchange houses with EZ residents. Mr. Parisienne, you come stay in my house in the San Francisco area and I will come stay in your house in Paris. We will each spend our non-hyperinflated foreign savings and be exempt from the capital controls of our new temporary residence countries and we will enjoy the “royal” status accorded us by our foreign currencies and avoid the criminal status we would get trying to use those exact same currencies in our own desperate-to-have-them countries.
I know what you’re thinking. That it’s unbelievably stupid for the U.S. to drive its own citizens to the EZ to spend their non-USD and non-EUR currencies and for the EZ to drive its citizens to the U.S. to spend their non-USD and non-EUR currencies.
You don’t want to get me started on all the stupidity involved in hyperinflation, capital controls, price controls, financial repression, rationing, and anti-hoarding laws. Patient zero on all this stupid is the American voter who elected Obama and re-elected Obama and supported all these Democrat, free-lunch, government give-away programs going back to the New Deal in 1933. America’s and Europe’s free-lunch chickens are coming home to roost!
The problem with socialism is sooner or later you run out of other people’s money to spend.
Ladies and gentlemen, that day has arrived in Europe and America. But I have no time for whining about bad policy. Let’s get back to using foreign countries to deal with it.
If there are two or more of you in your family unit—husband and wife; husband wife and 2.5 children, four Golden Girls; three old Army buddies, whatever, you could comply with the 90-day-visa limit and maintain a continuous presence in one apartment or house.
Let’s say you are Fred and Ethel. Fred lives in the Schengen Area apartment for 90 days while Ethel lives in an adjacent non-Schengen country. At the 90-day point, they trade apartments. At the 180-day point, they do it again putting Fred back in he Schengen area apartment. The more people you have the easier this would be.
This would have the virtue of letting you sign longer, and therefore presumably cheaper, leases. And it would reduce the searching for an apartment to one time, but you would have to pay rent on two apartments at once—and be separated.
Plus, the non-Schengen adjacent countries are not attractive. On the west, you have U.K. and Ireland, honest but not cheap. On the south, you have Africa and the Middle East. On the east you have Russia, Serbia, etc. Cheap, but corrupt according to Transparency International. For most people, I think you should go to the Schengen Area twice a year for 90-day stays, perhaps choosing a different country each time then settling on your favorite if the hyperinflation in the U.S. is still going on.
I do not care for the idea of living in a different country than my wife all the time. So perhaps you should do this as a two-couple tag team of Fred and Ethel and Desi and Lucy. The four of you rent an apartment in the Schengen area and take turns using it every 90 days. The other couple could be anywhere on earth outside the Schengen Area.
One of the interesting things about hyperinflation history is the people who live near the border in a non-hyperinflated country going across the border frequently to avail themselves of really cheap goods and services in the hyperinflated country. This was really a big deal on the French-German border during the early 1920s.
In the land of the blind, the one-eyed man is king.
And in the land of the hyperinflation, the foreigner with stable currency is king.
Basically, the foreigner with foreign currency can buy goods and services in the hyperinflated country for far less than those same goods and services cost the foreigner in the hyperinflated country before the hyperinflation.
Ultimately, the French government restricted it with tariffs and rules about how much you could bring back because of complaints from merchants near the border in the non-hyperinflated country losing business to the cheap, hyperinflated country. But the hyperinflated country would never do anything to restrict foreign tourists because the whole country, including the government, is desperate to have stable foreign currency.
Here is a list of Schengen-Area countries that do not use the euro:
|Czech Republic||koruna (CZK)|
I have been talking about where is the best country to go to. It may be the better question is where is the best border area to go to. And the answer may be the border between a country with hyperinflation and one without hyperinflation. I have written about Canada in that regard (http://www.johntreed.com/U.S.-real-estate-near-international-borders.html). Australia and New Zealand have no land borders with other countries. But except for Iceland, all of the above non-euro Schengen countries do have land borders.
If you were in Denmark, for example, and near the German border, and Germany had euro hyperinflation, you would have all the benefits of living in a non-hyperinflated country—Denmark—plus the benefits of being able to buy stuff cheap in Germany. Indeed, one of the things that would probably be cheap in Germany would be rent. They would likely control the rents as they did on the early 1920s, but I would also expect units rented to foreign tenants would be exempt from the rent controls. Still, they would likely be cheap compared to Denmark at present or to Germany before the hyperinflation hit.
So I am saying living near the border between a hyperinflated country and a non-hyperinflated country seems to have been a great thing in past episodes of hyperinflation—best of both worlds—but I am not saying you must live in the non-hyperinflated country. If you are near the border on either side, you can walk across to get what is cheaper on the other side. You should probably live on the side with the cheapest rents because that is your biggest expense. But if they are robbing foreigners on the street or that sort of thing, not only do you not want to live there, you probably don’t want to even go there.
I appreciate informed, well-thought-out constructive criticism and suggestions.
John T. Reed