Evaluating Brazil

By Doug Casey

Editor’s Note: Casey Research originally published this article in January 2013. We’ve updated it with new, timely commentary. Doug’s analysis of Brazil is still vital today. They are timeless lessons on what happens to a country when a currency collapses.

Let’s explore Brazil, the “B” in the BRIC countries. It’s been getting a lot of applause as the new breadbasket of the world, and Brazilians are viewed as taking their place among the world’s new rich guys. I recently spent a week in São Paulo. I’d been to Brazil a half dozen times over the years, but never to São Paulo, a gigantic city that could easily be mistaken for L.A., except that it lacks the charm, is said to have vastly more crime, and speaks Portuguese, not Spanish. I was there to play in the Brazil Series of Poker, but also because I just wanted to see the place, since it vies with Mexico City to be the biggest agglomeration of people in the Western Hemisphere and is one of the biggest cities in the world. And it’s only a two hour flight from Buenos Aires.

It’s fairly easy to generalize about the other countries in South America. They’re all quite different from one another, but, relative to Brazil, each is small and homogeneous. For an American, getting to know Brazil is much harder than for a Brazilian to get to know the U.S. For one thing, it’s vastly more difficult to get around; you’ll basically have to fly everywhere. And the country hasn’t yet been homogenized with the franchise clones making cities and towns indistinguishable from one another. Brazil is a veritable subcontinent. Let me recall a few facts that almost everybody knows (and therefore are hardly worth mentioning), and also some that relatively few know (and that may, therefore, offer you some edge).

Brazil is somewhat larger than the continental U.S., has 5,000 miles of beachfront, and 190 million people. Nearly half of them are concentrated in the southeast, in just 10% of the country’s area. The countryside there roughly resembles Georgia in the U.S. One-third of Brazil’s GDP comes from in and around São Paulo, which is the functional center of the region. That city is where the action is, but it truly has no soul. It’s almost entirely of recent construction; what’s left of the quaint old downtown is now just a hangout for beggars, bums, and pickpockets. I consider the burg devoid of attraction, unlivable, and have no urgent desire to go back.

Only businesspeople go to São Paulo; tourists go to Rio, a much more appealing place. Surprisingly, Brazil only gets about 5 million tourists a year, and most of them are from neighboring Argentina. This is a very low number. France gets 80 million, the U.S. 60 million, Thailand 20 million, and Singapore 10 million. Cuba and Uruguay get about 2.5 million apiece. Even Syria reported 5 million in 2011 - a number I find hard to credit and which may include numbers of tourists who are heavily armed. Further proof you have to take all government statistics with a grain of salt; all the bureaucrats know is what someone casually puts on a form.

The good news is that a tourist number as low as Brazil’s can only go up, which is favorable, unlike most of what I’ll have to say about the place. And it will go up, because they’re hosting the FIFA World Cup soccer contest in 2014 and then the Summer Olympics in 2016. It’s completely unclear to me, however, where they’re going to put all the sports fans or how the visitors are going to get around and get on generally, even though the government plans on spending $20 billion on stadiums, airport upgrades, and road building to accommodate the crowds. Most of the money will inevitably be frittered away on monument construction, as opposed to things that make life easier or more pleasant.

Doug Casey: You might want to read my editorial about the ongoing FIFA so-called scandal.

I haven’t found Brazil to be convenient for anything. It’s extremely difficult to find a place to exchange even dollars - forget about other currencies. Except at major hotels, where you’ll pay a 15% fee. But there aren’t a whole lot of hotels, reflecting the low number of arrivers. And the average Brazilian speaks only Portuguese, although kids are learning either Spanish or English in schools. But how well did you speak a foreign language when you got out of high school? If I didn’t have some Spanish (which is much more comprehensible to a Portuguese speaker than vice versa), I would have been reduced to hand gestures.

That’s apart from the fact that illiteracy is officially figured at 10%, although my guess is that it’s much higher.

Demography, Cities & Race

São Paulo is different from Rio in every aspect. It’s flat, as opposed to mountainous. It’s non-centered, with numerous subcities, rather than being focused on the beach. It’s purely about business and getting ahead, as opposed to having a good time. Both cities are famous for their high rates of violent crime, emanating from the favelas, which are the shantytowns that ring all the major cities. They originated in the ’50s, when poor people started moving into the cities looking for opportunity. The cities were much more pleasant and more livable before the favelas arose - but they’re actually good things. They’re the first step to urbanization. And in the Third World, that’s essential for increasing literacy, improving incomes, and slowing the production of waifs and street kids.

When you think of the favelas, you might imagine the population is swelling. Just the opposite, actually. As people move into the cities, they redirect their attention from family to work, and women take advantage of modern birth control. Women find jobs, and there are few grandparents around to help raise the kids - who are now seen as an expense, as opposed to cheap labor for the farm.

So here’s a shocking statistic. As late as 1980, the average Brazilian woman had four children; the country was in the midst of a population explosion. As of 2011, however, the average was down to 1.8. The government estimates that in 15 years, it will drop to 1.5, which is far below the replacement rate of 2.2. This is happening almost everywhere in the world now, not just in Europe, North America, China, Japan, and other developed countries. The implications of this trend - which I believe will accelerate worldwide - are profound. But that’s for another article. Brazil is now essentially an urban country, with almost 85% of its 190 million inhabitants living in towns and cities.

The degree of urbanization relates not just to the birth rate, but to other phenomena, like racism and even slavery. Brazil has long had a reputation as a non-racist society. I think that’s true, even though it was the last major country in the world where the slavery of blacks as a group was abolished, in 1888. An event which is, in my view, irrefutable proof that the U.S. War Between the States was neither necessary nor essentially about slavery.

One reason there’s little antagonism between the races in Brazil is that the country never had a Lincoln, or a war, to polarize them. I think there’s going to be ever more racial harmony as more people live in cities and almost necessarily start seeing each other as individuals, as economic units, rather than as members of a racial group. There was no racial hostility that I could see. Slavery is still said to exist in the Muslim world, but only on an individual, as opposed to a legalized and institutional, basis. That’s because it’s completely uneconomic today; it’s hard to incentivize slaves to work productively in a high-tech economy.

Doug Casey: Actually, it does exist. I spent 10 days in Mauritania in June, where it was only officially abolished in 1987. But it still exists. Mostly because the slaves are well treated, and don’t have a better alternative.

And common laborers, doing grunt work, are less and less either necessary or desirable. Within a generation from now, intelligent robots will be doing most menial labor, making human muscular input almost redundant. But that’s just the culmination of a trend that’s been in motion since the start of the Industrial Revolution, when people started moving into cities on a grand scale. In those days, London had its own versions of the favela, as New York City later also did.

The fact is that the southeast of the country - the area from Rio on down - is socially very European, while the rural and undeveloped northeast is quite African. It’s mild de facto segregation. At the poker tournament I played in, there couldn’t have been more than 10 blacks among the 1,800 players. That’s partly a reflection of São Paulo’s demographics (even though, as a national event, people were from all over the country) and partly because the 1,800 real (US$900) entrance fee was prohibitive for those who aren’t solidly in the middle class. And in Brazil, that still leaves out almost all the blacks.

Doug Casey: You’ll notice the real has lost over half of its value in only three years. This is one reason why the average person here - who saves in reals - can’t get ahead.

But a rising tide raises all boats. The question is: What’s going to happen to the economy in Brazil? And how can you profit from it?

The Economy

Brazil has, from its very beginning, been plagued with dirigiste government. When it comes to papers to fill out, stamps and approvals to garner, layers of taxes to pay, and bureaucrats to soothe, it may be the worst place in Latin America. I think anyone who runs a business in the country is both a saint and a hero, although that’s becoming the case almost anywhere. The country has done as well as it has mainly because it’s so big, and Brazilians are used to dealing with Brazilians, mostly within Brazil.

The place has a lot of native wealth. You’d think it almost couldn’t help but be prosperous. But that would be untrue, as demonstrated by the Congo, which is a basket case despite being at least as rich in resources as Brazil; and with the counterexample of Japan, which is extremely wealthy despite having no resources at all except its people. Brazil is midway between them. For what it’s worth, the largest Japanese community in the world outside Japan lives in Brazil.

Except for the very recent past, the country’s history is all about dictators, military governments, and currency destruction - but its promoters overlook these things. You might think history would have taught Brazilians a lesson and shown them what not to do, so that they don’t repeat the same mistakes. But that’s not the way it seems to work. Instead, every disaster becomes ingrained as part of the culture. I admire the makers of the surreal movie Brazil for capturing much of the essence of the place.

There’s an old saying about Brazil: It’s the country of the future - and always will be. That may be true partly because it’s a closed economy and always has been. Brazil is essentially an island, cut off from the rest of the continent by a jungle. And the southeast, the developed part of the country, is cut off from the interior by the highlands. And it’s rather unlikely that a bridge is ever going to cross the Amazon anywhere near the coast; the river’s 200 miles wide at its mouth. The place could plausibly be at least two or three different countries. Brazil’s mainland links to the rest of the continent are Uruguay and Paraguay - both small, quiet, backward countries that offer little in the way of trade possibilities but do present a language difference.

China is now Brazil’s big export destination for iron ore, soybeans, beef, and chicken. But the China bubble is overdue to burst, and the country’s imports of iron ore are going to collapse. Brazil will feel it especially, partly because of shipping costs, since it’s literally on the other side of the planet from China, and partly because producing anything in Brazil has become expensive.

Iron ore neared $200 a tonne at the peak of the recent boom, up from about $20 at the 2001 bottom. It probably costs Vale, by far Brazil’s largest producer and largest company, about $40 to produce the stuff and perhaps $20 more to ship it. The ore currently trades at around $120 in China, but I don’t see why the price couldn’t collapse to less than production cost. Further, Australia not only produces the stuff for less than $30 a tonne, but is much closer to the Orient, so the shipping cost is half of Brazil’s. Vale is a heavily touted stock today. I wouldn’t touch it, for that and other reasons covered below.

Doug Casey: This, I’ve got to say, was an accurate call.

Brazil’s second-largest trade partner is the U.S. But what’s going to happen as the U.S. economy winds down? Third is Argentina, where exports are already collapsing because of the Kirchner regime. But it’s really incorrect to think of Brazil as a major force in trading. According to World Bank data, Brazil’s exports in 2011 amounted to only 12% of its GDP. The figures for Russia, India, and China were, respectively, 31%, 25%, and 31%. A few ag sectors qualify as exceptions, but overall the country is an isolated, self-contained island.

Brazil has made real progress over the last 13 years, since the bottom of the commodity cycle in 2001. Average prices of its commodities have gone up 2.5 times, and volumes have grown 50%. National income has boomed, more than trebled, in real terms. So, of course, the country has done well. But mostly for reasons extraneous to itself.

Agriculture

Over the last two decades, Latin America has become an increasingly important supplier of agricultural commodities to the rest of the world. In 1980, Latin America accounted for 30% of global soybean exports (oilseed, meal, and oil); in 2012, it accounted for over 60%. That’s mostly Brazil, in that while Argentine production has risen, punitive taxes under the Kirchners have kept it from rising by much. U.S. producers, meanwhile, have lost half their market share. Brazilian corn exports have gone from 11% of the world total in 1980 to 29% in 2012, while U.S. export numbers have collapsed due to the insane policy of turning corn into ethanol fuel.

Brazilian export numbers have boomed for coffee, sugar, beef, chicken, and orange juice as well. So a major argument by Brazil promoters is that it’s become the world’s food storehouse, and it’s going to grow from here. Unlike many of their arguments, this makes some sense, I think. But it’s not a good enough reason to invest there anytime soon.

Over the short term, global demand for agricultural commodities is likely to increase because, despite the downturn in world economic growth, world population is still going up. But even in Africa and the Muslim world, the population growth rate is slowing radically and will soon head down. The main driver for agriculture, in the long run, won’t be rising populations but rising standards of living.

Since the 1960s, world per-capita consumption of grains has increased at 0.5% per year compounded, on top of the growth in population. Planted area per capita has been declining, however, because of the expansion of the world’s cities, most of which were founded in prime agricultural areas. To compensate, new land has had to be cleared, and most of that has been in Brazil. Fortunately, advances in plant genetics, ag techniques, fertilizers, pesticides, and the like have increased production by something like slightly over 2% per year from 1970 to 1991, but at only half that rate since then. The result has been the commodity boom, mainly reflected in grains. But grains are poor people’s food. And they’re also highly political commodities, almost on a par with oil. I’m disinclined to invest in farmland for the grains.

I’m much more interested in specialty products, like grapes, olives, and other fruits. And cattle. Interestingly, cattle producers really haven’t participated in the recent ag boom, partly because they’ve been pushed onto less productive land, reflecting the weak profits for many, many years. Because of that, herds have been liquidated, and headcounts all around the world are at their lowest levels in three generations. That’s why I’m especially bullish on cattle. But that’s another story.

In the last five years, land prices in Argentina, Uruguay, Paraguay, and southern Brazil have risen 15% to 20% per annum. That’s mostly because, of course, grain prices have exploded. In the U.S., by comparison, farmland prices have only risen 10% per annum. Land in Latin America has done better partly because infrastructure had room to improve, and partly because the market is becoming ever more global because of generally lower tariffs and bigger, more efficient ships.

Will there be a worldwide shortage of arable land? I doubt it. The demand for grain is likely to flatten out. There’s an immense amount of underused farmland everywhere (especially in Africa). And I have no doubt technology will again increase productivity. So Brazil will grow in importance for food, but that’s not the bonanza a lot of promoters seem to think.

Stocks

Around 400 companies are listed on Brazil’s main exchange, the Bovespa, for about US$1.2 trillion of market cap. By far the biggest are iron miner Vale and Petrobras, the national, state-controlled oil company.
Those two and 27 other Brazilian stocks are traded in the U.S. They’ve historically always traded at a discount to their foreign peers because of the country’s well-known problems - high taxes, intense bureaucracy, onerous import restrictions and duties, high crime rate, uneducated population, and subpar infrastructure.

As well as Brazil has done, it’s been a laggard by comparison to its peers in Latin America. In the last 10 years, corporate earnings in Latin America have grown on average by 18% annually. The countries that have recorded the highest earnings growth rates are Peru (28%), Colombia (23%), Chile (13%), and Mexico (12%). Brazil trails the list with 11% growth. During that time, Latin American stocks averaged a 10-to-1 P/E ratio. Most expensive (but deservedly so, as by far the most liberal economy in the region) was Chile, at 15, followed by Mexico, Colombia, and Peru with P/Es of 12. Brazil has historically traded cheaper, with an average P/E of 8. I attribute that to the country’s tax and regulatory structure.

According to the World Bank’s Doing Business 2011 report, Brazil is ranked 127th out of 183 countries for business friendliness. Mexico ranks 35th and Chile 43rd. Brazil scores particularly badly in categories related to starting a business, registering property, paying taxes, and closing a business. It’s Kafkaesque here, as in many other Third World countries, in that they make it nearly impossible to open a business (because they’re trying to protect those already in existence), and equally hard to close one (because they’re trying to protect the workers).

Say what one will about how screwed up Argentina is - and its economy is a real mess and getting worse - at least the country has a strong tradition of classical liberalism. There are a lot of Argentines who know who Mises, Hayek, and Rothbard are and who study their work; that offers some hope for a renaissance. That just doesn’t seem to be the case in Brazil.

Based on all of this, I can’t see buying Brazilian stocks. Actually, the place to look is Argentina, which currently has some of the world’s most tempting market statistics - a P/E ratio of 3 (whereas its average over the last 10 years has been 12); a price-to-book-value ratio of 0.9 (versus an average of 2.0 over the last 10 years); and a dividend yield of 13% (versus an average of 4.2% over the last 10 years). Argentina is a bargain. But, like most bargains, nobody wants to touch it.

Nick Giambruno: Casey Research originally published this article in January 2013, and the Argentine market went up by more than 200% over the next 33 months.

Taxes

I’ve mentioned how brutal Brazilian taxes are. They’re a major reason everything in the country is so expensive - especially imported items. I decided to find out just how Byzantine the regime might be. Suppose you decide to import something to take advantage of the country’s vaunted growth. It had better be a highly desirable, extremely high margin item, because there are six levels of tax on imports, and they compound, each tax being levied upon the previous taxes. Nothing leaves the harbor before your check clears.

I’ll list them in the order they’re applied. On top of one another. They’re generally referred to by their Portuguese acronyms, in parentheses, to avoid confusion.

• Merchant Marine Renewal Tax (AFRMM) - 25% of the shipping and port handling costs. Used to subsidize the merchant marine and shipbuilding industries.
• Import Tax (II) - From zero to 35%, depending on the product. The level depends largely on which domestic industry they’re trying to protect.
• Industrialized Products Tax (IPI) - From zero to 20%. Another protectionist tax.
• Merchandise and Services Circulation Tax (ICMS) - This is essentially a VAT, levied by the states. It averages 18%, but ranges from zero for some “essential” items, to 25% for “luxury” goods.
• Contribution to the Social Integration Program and Civil Service Asset Formation Program (PIS/PASEP) - 1.65%.
• Contribution to Social Security Financing (COFINS) - 7.6%.

More Taxes

But I’ve only mentioned the import duties. The Corporate Income Tax (CIT) runs from 25% to 34%. Plus there are lots of rules regarding deals with related companies, companies in low-tax jurisdictions, and outbound interest payments. This is because, living in both a Latin culture and a high-tax jurisdiction, the Brazilians have grown expert at denying revenue to their voracious government. The government, in turn, adds more layers of rules.

Of course there’s also a personal income tax ranging to 35%. Then, on top of it, is Social Security (INSS) tax of 20%, accident insurance (SAT) of 1% to 3%, Employee Indemnity Guarantee Fund (FGTS) and Education Fund (SE) of 2.5%, plus assorted other taxes adding up to another 3.3% of income. There’s even a 10% tax on the acquisition of foreign technologies. This isn’t a treatise on Brazilian tax law, so I haven’t researched the limits, exclusions, exemptions, and deductions. But if you’re going to do anything here, you’d better have a good accountant.

Total import taxes can easily add up to 100% or more. It’s actually quite insane. Countries like Cuba and Iran complain about being placed under trade embargo and suffering from the dearth of imports. But Brazil - and, for that matter, almost every country in Latin America and Africa - effectively puts itself under embargo with its own tariffs. Brazil, Uruguay, and Argentina are by far the worst self-tormentors.

Restricting purchases to things made within the arbitrary borders of one country (almost always to subsidize some inefficient local industry) makes about as much sense as limiting purchases to things made within a state, a county, or a city - or within a city block, for that matter. What’s happened in Brazil, as with all these places, is that it’s full of uneconomic industries, which turn out relatively high-cost/low-quality products. And often with a surfeit of workers - since keeping lots of workers on the payroll is considered smart public policy. That makes it very hard to make a sensible investment in these places.

It’s all happened before. Eventually reality wins out, and out of either intelligence or simple necessity, the duties come down, the protected industries collapse, and lots of workers become unemployed. The bigger and richer a country is, however, the more mistakes it can make before its eventual comeuppance. And Brazil is a rich country. In other words, Brazil has created some artificial and temporary prosperity in exchange for a very real depression sometime in the future. Neither an individual nor a country can get rich by producing inefficiently and wasting resources.

So Brazil should be doing vastly better than it is now and be on a much sounder foundation. But first it’s going to have to liquidate a lot of malinvestment and allow the severe distortions that have built up over the decades to unwind themselves. It won’t be fun, and it’s going to happen regardless of what’s going on in the rest of the world. This is a major factor that Brazil’s lately arrived cheerleaders either don’t see or don’t understand. It’s why Brazil - as with all controlled, politicized markets - has to be treated as a speculation, not as an investment.

History Equals Culture

Let’s take a look at where Brazil has been to get a better grip on where it’s likely to go.
Brazil split from Portugal in 1822 (about the time the rest of Latin America was breaking political ties with Spain), but remained a monarchy. After independence, the head of state was styled “Emperor” until 1889. (Would the U.S. be the country it is today - yes, the description is loaded with irony - if it had been a monarchy that late in its life?) The next 40 years saw political instability, with alternating military and oligarchical governments, essentially all financed with coffee exports. In 1930, a military coup installed the Vargas dictatorship, typical of governments the world over in the ’30s in its promotion of industrialization by state-owned companies. It survived coups by both pro-Communist and pro-Nazi elements while resembling both.

Another general was elected president in 1946, followed by one headstrong statist after another promising the era’s version of hope and change, by making “50 years’ progress in 5 years.” Part of that promise included moving the capital from Rio to Brasilia, a city built from whole cloth in the middle of the jungle, in the middle of nowhere, starting in 1956. Three million people now live there, so it has been construed a success by some. I think it’s better described as an ongoing disaster and a monument to the gigantic size, complexity, and cost of the Brazilian government.

Brazil was again a military dictatorship from 1964 to 1985, with all the things that have come to be expected from a banana republic ruled by generals - repression, torture, corruption, and runaway inflation. This brings us to the current era, with the ascension of Fernando Collor de Mello in 1985, then the first elected leader in 29 years. He started a trend toward liberalization - beginning the privatization of companies like Vale, Embraer, and Telebras - and toward political moderation that’s been in motion since.

Predictably, Collor de Mello was tried on corruption charges. I say it’s predictable both because enemies of liberalization wanted to punish him and because it was inevitable that, with lots of new capital being liberated, some of it would stick to the president and his cronies. That’s what politics is all about everywhere.

A big change came in 1994 with the invention of the real, the present currency, which was initially priced at US$1.25. Brazilians were overwhelmed at the thought of their currency being worth more than a dollar, even if only for a while. Surprisingly, the currency has been managed fairly prudently, losing just 60% against the dollar over 20 years. Part of the real’s comparative durability was that Brazilians were reacting against the immense inconvenience of one currency destruction after another; part was the simultaneous partial liberalization of the economy on a number of fronts, especially imports.

But when Lula da Silva (who’d run for president twice before) was elected in 2002, the real collapsed to US$0.25, because he and his leftist party had long promised to roll back what reforms had been made and return to a more closed economy. Surprisingly, da Silva proved quite moderate. And he had the singular good luck to be elected at the beginning of the great commodity boom, which brought lots of capital into Brazil, facilitated nearly full employment, and increased the value of the real to its current two to the U.S. dollar.

It was a given that his protégé, Dilma Rousseff, would easily be elected in 2011. Rousseff used to be a communist radical, but like da Silva, she’s acted in a fairly responsible and reasonable way so far. She’s even talked about freeing the economy further and reducing some taxes. These things are possible. But so far she’s been presiding over good times. When things get tough, it’s likely she’ll return to her intellectual and psychological roots, and the government will act the way it usually has.

So I wouldn’t plan my life around meaningful liberalization in Brazil. Or good times in any of its markets. One reason is that the commodity boom has already run a long way, and further gains are likely to be marginal in real terms. But a bigger reason is simply the country’s history and culture - dictators, generals, chronic inflation, and consistently destructive economic policies. When the world economy turns down in the near future, it’s not going to help Brazil. They’ll likely revert to form. Or simply act like almost every other government in the world today and “do something.” Brazil is a prime example of the wisdom of the old saw “Never invest in a country that has the color green in its flag.”

Culture and Currency

Four recently published books promote Brazil as the place to be, mainly because it’s a BRIC that has established a great “track record” since 2001. This is typical of what happens at the top of a bubble. When stocks are at a peak, people want a book about how the Dow is going to 40,000; this is true across all times, places, and markets. People are now writing books on Brazil.

But it’s almost always a mistake to buy popular investments and speculations. In order to make serious money, you have to buy while something is cheap and unwanted, even unknown - better yet, despised. Not after it’s expensive and everyone’s hungry for it. People tend to confuse investments with people. When it comes to people, track records are critical. With people, past performance isn’t just the best, it’s essentially the only predictor of future performance.

Someone who has exemplified the Boy Scout virtues in the past is likely to continue on that course; someone with a panoply of vices and bad habits is likely to carry them to a bad end. The same is true of companies, at least until management changes. But even when it does, corporate culture lingers for a considerable period. This is even more the case with countries. Change in a country’s culture takes generations, if it happens at all.

Everyone talks (quite correctly) about how totally irresponsible Argentina has been with its currency, but Brazil’s follies have been forgotten in the celebrating of its success over the last 15 years. You may find a comparison of interest.

Argentina has had only five currencies in its modern history - the peso moneda nacional (PMN), the peso ley, the peso argentino, the austral, and the current peso convertible. The PMN was used from before WWI until 1970. In its early days, it was tied to gold, and the PMN traded at about 2.25 pesos to the dollar. It started slipping after the Great Depression began in 1929 and then went from 4.2 (to the dollar) in 1947 to 15 in 1950. At that point Peronism, a peculiar blend of corporatism, populism, socialism, fascism, Keynesianism, militarism, nationalism, and other variants of statism that seemed like good ideas at various times, took over. And the ideas have never let go of the popular Argentine psyche.

In 1970, the PMN was replaced by the peso ley, for a 100-1 rollback.
In 1983, the peso ley was replaced by the peso argentino, for a 10,000-1 rollback.
In 1985, the peso argentino was replaced by the austral, for a 1,000-1 rollback.
In 1992, the austral was replaced by the peso convertible, for a 10,000-1 rollback.

This happened with the election of Carlos Menem, who greatly liberalized the economy (while facilitating grand larceny among his cronies). Menem maintained this peso’s relative value with a currency board, wherein the central bank was supposed to take in and hold one U.S. dollar for every peso it issued. They kept to that for a while, then started fraudulently issuing extra pesos, which led to the famous crisis of 2001, with a 75% devaluation.

If you’d held Argentine currency through its various replacements over the last 100 years, you’d have retained only 1/70 trillionth of its original value. At the moment, the peso has an “official” value of 4.7 to the dollar, but trades on the semi-illegal free market for 7 to 1. It’s on its way to zero again. The history of currency in Brazil is even worse, despite the Banco do Brasil mission statement’s talk of “ensur[ing] the stability of the currency’s purchasing power and a solid and efficient financial system.” But all central banks say that.

Brazil long maintained its original real from the 18th century and then replaced it with the cruzeiro in 1942, for a 100-1 rollback.
In 1965, the cruzeiro novo replaced the cruzeiro, for a 1,000-1 rollback.
In 1986, the cruzeiro novo was replaced with the cruzado, for a 1,000-1 rollback.
In 1993, the cruzado was replaced with the cruzeiro real, for a 1,000-1 rollback.
In 1994, the cruzeiro real was replaced with the real, for a 2,750-1 rollback.

Since then, the real has lost about two thirds of its value relative to the dollar. I see no reason why it shouldn’t meet the fate of its predecessors. I calculate destruction against the dollar so far at about a quadrillion to one. But numbers of this order of magnitude are academic. I fully expect that, when the pressure for revenue and economic stimulus next arises, the Brazilians will once again destroy their currency.

The Bottom Line

My view is that in today’s world, it’s extremely hard and risky to invest. You must remember the correct definition of investing: to allocate capital to produce new wealth. Essentially that amounts to buying equipment, hiring people, renting real estate, and seeing that a business is run sensibly over the long term.

Investing is all about funding successful businesses. In order for that to be possible, you need some predictability and a certain amount of stability. Unfortunately, those are ingredients that go into short supply whenever government gets involved in the economy. And today, from what are already the highest levels in modern history, governments all over the world are becoming much more virulent. And since most of them are now manifestly bankrupt but are burdened by huge promises for welfare and transfer payments to the masses who voted them in, you can expect things to get even worse.

When there are no opportunities for investing, you can only speculate, which means, look for politically caused bubbles, collapses, and distortions. Brazil should only be viewed as a speculation. As chronically and pathetically mismanaged as Brazil has always been and continues to be, it’s astonishing how well it’s done. And there’s no reason that it shouldn’t continue progressing, despite the weight of government and its seeming inability to learn from its mistakes. People will keep producing, and technology evolving.

Am I negative on Brazil? No. I highly recommend you visit, especially before FIFA in 2014. I really like the country (notwithstanding São Paulo). But it’s not a sure ticket to wealth. In fact, over the next decade, I’d recommend you stay away from Brazilian markets. But armed with this information, hopefully we’ll recognize the Bovespa’s next bottom.

Doug Casey: Hmm...maybe the bottom is close now. Or certainly closer.

Editor’s Note: Doug Casey has been warning of a currency collapse. He believes a collapse of major currencies could wipe out trillions of dollars in wealth, including pensions. Here’s Doug:

It’s going to be much more severe, different, and longer lasting than what we saw in 2008 and 2009…The U.S. created trillions of dollars to fight the financial crisis of 2008 and 2009. Most of those dollars are still sitting in the banking system and aren’t in the economy. Some have found their way into the stock markets and the bond markets, creating a stock bubble and a bond super-bubble. The higher stocks and bonds go, the harder they’re going to fall.

Unlike most people, Doug Casey has actually lived through a currency crisis. He was in Argentina when its currency collapsed in 2001 during the largest sovereign debt default ever. By making smart investments, he even managed to make a large gain on his money in the aftermath of the crisis.

We recently recorded a video presentation with Doug on this topic. In the video, Doug shares his advice on how to position your money and investments for the collapse of a major currency like the U.S. dollar. Click here to watch the video.

The article was originally published at internationalman.com.

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The World's First Cashless Society Is Here - A Totalitarian's Dream Come True

By Nick Giambruno

Central planners around the world are waging a War on Cash. In just the last few years:

• Italy made cash transactions over €1,000 illegal;
• Switzerland proposed banning cash payments in excess of 100,000 francs;
• Russia banned cash transactions over $10,000;
• Spain banned cash transactions over €2,500;
• Mexico made cash payments of more than 200,000 pesos illegal;
• Uruguay banned cash transactions over $5,000; and
• France made cash transactions over €1,000 illegal, down from the previous limit of €3,000.

The War on Cash is a favorite pet project of the economic central planners. They want to eliminate hand-to-hand currency so that governments can document, control, and tax everything. This is why they’re lowering the threshold for mandatory reporting of cash transactions and, in some instances, simply making it illegal to pay cash.

In the U.S., central planners ratchet up the War on Cash every time the government declares a made-up war on something else…a war on crime, a war on drugs, a war on poverty, a war on terror…..

They all end with more government intrusion into your financial affairs. Thanks to these made-up wars, the U.S. government is imposing an increasing number of regulations on cash transactions. Try withdrawing more than $10,000 in cash from your bank. They’ll treat you like a criminal or terrorist. The Federal Reserve is at the center of the War on Cash. Its weapons are inflation and control over the currency denominations.

Take the $100 note, for example. It’s the largest bill in circulation today. This was not always the case. At one point, the U.S. had $500, $1,000, $5,000, and even $10,000 notes. But the government eliminated these large notes in 1969 under the pretext of fighting the War on Some Drugs. Since then, the $100 note has been the largest. But it has far less purchasing power than it did in 1969. Decades of rampant money printing have inflated the dollar. Today, a $100 note buys less than a $20 note did in 1969.

Even though the Federal Reserve has devalued the dollar over 80% since 1969, it still refuses to issue notes larger than $100. This makes it inconvenient to use cash for large transactions, which forces people to use electronic payment methods. This, of course, is what the U.S. government wants. It’s exactly like Ron Paul said: “The cashless society is the IRS’s dream: total knowledge of, and control over, the finances of every single American.”

Policymakers or Central Planners?

On stories related to the War on Cash, you may have noticed that the mainstream media often uses the word “policymakers,” as in “policymakers have decided to keep interest rates at record low levels.” When the media uses “policymakers,” they are often referring to central bank officials. It’s a curious word choice. As far as I can tell, there is no difference between a policymaker and central planner. Most people who want to live in a free society agree that central planning is not a good idea. So the media uses a different word to put a more neutral spin on things.

To help you think more clearly, I suggest substituting “central planners” every time you see “policymakers.”

The World’s First Cashless Society

In 1661, Sweden became the first country in Europe to issue paper money. Now it’s probably going to be the first in the world to eliminate it. Sweden has already phased out most cash transactions. According to Credit Suisse, 80% of all purchases in Sweden are electronic and don’t involve cash. And that figure is rising. If the trend continues - and there is nothing to suggest it won’t - Sweden could soon be the world’s first cashless society.

Sweden’s supply of physical currency has dropped over 50% in the last six years. A couple of major Swedish banks no longer carry cash. Virtually all Swedes pay for candy bars and coffee electronically. Even homeless street vendors use mobile card readers. Plus, an increasing number of government restrictions are encouraging Swedes to dump cash. The pretexts are familiar…fighting terrorism, money laundering, etc. In effect, these restrictions make it inconvenient to use cash, so people don’t.

So far, Swedes have passively accepted the government and banks’ drive to eliminate cash. The push to destroy their financial privacy doesn’t seem to bother them. This is likely because the average Swede places an unreasonable amount of trust in government and financial institutions. Their trust is certainly misplaced. On top of the obvious privacy concerns, eliminating cash enables the central planners’ latest gimmick to goose the economy: Negative interest rates.

Making The Negative Interest Rate Scam Possible

Sweden, Denmark, and Switzerland all have negative interest rates. Negative interest rates mean the lender literally pays the borrower for the privilege of lending him money. It’s a bizarre, upside down concept. But negative rates are not some European anomaly. The Federal Reserve discussed the possibility of using negative interest rates in the U.S. at its last meeting. Negative rates could not exist in a free market. They destroy the impetus to save and build capital, which is the basis of prosperity.

When you deposit money in a bank, you are lending money to the bank. However, with negative rates you don’t earn interest. Instead, you pay the bank. If you don’t like that plan, you can certainly stash your cash under the mattress. As a practical matter, this limits how far governments and central banks can go with negative interest rates. The more it costs to store money at the bank, the less inclined people are to do it.

Of course, central planners don’t want you to withdraw money from the bank. This is a big reason why they want to eliminate cash…so you can’t. As long as your money stays in the bank, it’s vulnerable to the sting of negative interest rates and also helps to prop up the unsound fractional reserve banking system. If you can’t withdraw your money as cash, you have two choices: You can deal with negative interest rates...or you can spend your money.

Ultimately, that’s what our Keynesian central planners want. They are using negative interest rates and the War on Cash to force you to spend and “stimulate” the economy. If you ask me, these radical and insane measures are a sign of desperation. The War on Cash and negative interest rates are huge threats to your financial security. Central planners are playing with fire and inviting a currency catastrophe.

Most people have no idea what really happens when a currency collapses, let alone how to prepare. How will you protect your savings in the event of a currency crisis? This just-released video will show you exactly how. Click here to watch it now.

The article was originally published at internationalman.com.

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The Fed’s Alice In Wonderland Economy - What Happens Next?

By Nick Giambruno

After the president of the United States, the most powerful person on the planet is the chairman of the Federal Reserve. Ask almost anyone on the street for the name of the U.S. president, and you’ll get a quick answer. But if you ask the same person what the Federal Reserve is, you’ll likely get a blank stare. They don’t know - partly due to the institution’s deliberately obscure name - that the Fed is really the third iteration of the country’s central bank. Or that the Fed manipulates the nation’s economic destiny by controlling the money supply.

And that’s just how the Fed likes it. They’d prefer Boobus americanus not understand the king like power they wield. By simply choosing to utter the right words, the chairman of the Fed can create or extinguish trillions of dollars of wealth both in and outside of the U.S. He holds the economic fate of billions of people in his hands. So it’s no shocker that investors carefully parse everything he says. They have to, if they want to be successful. Some even go as far as to analyze the almighty chairman’s body language. Of course, the mainstream financial media revere the Fed.

You may recall the unhealthy spectacle that occurred in 1996. That’s when Alan Greenspan, the Fed chairman at the time, spoke the now famous phrase “irrational exuberance” in what should have otherwise been a dull and forgettable speech. Investors heard Greenspan’s phrase to mean that the Fed would soon raise interest rates to slow the global economy. It’s worth mentioning that Greenspan didn’t actually say the Fed would raise rates. Nor did he intend to signal that.

Nonetheless, the reaction was swift and panicky. U.S. markets were closed at the time, but stocks in Japan and Hong Kong dropped 3%. The German stock market fell 4%. When trading started in the U.S. market the next day, the market opened down 2%. Billions of dollars of wealth vanished in a period of 16 hours. That’s the absurd power over the global economy that the Federal Reserve gives to one human being. The words of the chairman can make or break the fortunes of anyone with a brokerage account.

The Fed’s Alice in Wonderland Economy

I almost fell out of my chair when I heard it….. A journalist recently asked Janet Yellen, the current chair of the Federal Reserve, if the central bank would keep interest rates at 0% forever. Her response: “I can’t completely rule it out.” I was stunned. The deferential financial media hurried to ignore the significance of that statement. Instead, it acted the way big city police might act after making a messy arrest on a busy sidewalk. “Move along folks, nothing to see here!”

Clearly, there was something to see. Something very important. Yellen’s words came amidst one of the most anticipated economic pronouncements in a generation… whether the Fed would finally raise interest rates for the first time in nine years. Short term rates have been at zero since the 2008 financial crisis. Interest rates are simply the price of borrowing money. Setting them at an artificial level is nothing other than price fixing. Not surprisingly, it has led to enormous amounts of malinvestment and other distortions in the economy.

Malinvestment is the result of faulty decision-making. Any investor or business can make a mistake, but central bank manipulation of interest rates subsidizes bad, wasteful decisions. Cheap borrowing costs trick companies. It causes them to plow money into plants, equipment, and other assets that appear profitable because borrowing costs are low. Only later, when the profits don’t show up, do they discover that the capital was wasted.

Seven years of quantitative easing (QE) and Fed engineered zero interest rates have drawn the U.S. and much of the world into an unsustainable "Alice in Wonderland" bubble economy riddled with malinvestment. The pundits had expected that, at this recent meeting, the Fed would move to raise rates just a little and give the global economy a tiny taste of sobriety. Not even that nudge materialized.

Instead, the Fed sat on its hands. It kept interest rates at zero. And Janet Yellen couldn’t even rule out that rates would stay at zero forever. If she can’t even do that, how is she going to start a sustained series of rate hikes, as many of those same pundits now expect her to do a few months down the road?

The truth is, seven years of 0% yields and successive rounds of money printing has so distorted the U.S. economy that it can’t handle even the tiniest increase in interest rates. It would be the pin that pricks the biggest stock and bond market bubble in all of human history. The Fed cannot let that happen.

What Happens Next

It’s clear that the Fed can’t raise interest rates in any meaningful way. It would trigger a financial meltdown that would quickly force them to reverse course. The Fed might be able to get away with a token increase, but that’s all. In other words, the Fed has trapped itself. Former Fed chairman Ben Bernanke admitted as much recently when he said he didn’t expect rates to normalize in his lifetime.

And then, we have the current chair Janet Yellen saying that rates might stay at zero forever!

Yellen’s belief that she has the power to suppress interest rates until the end of time is a frightening sign. As powerful as the Fed is, it isn’t stronger than the markets. A crisis in the markets could force rates higher even if the Fed doesn’t want them to go there. And the longer the Fed tries to sustain abnormalities like QE and 0% interest rates, the more likely it is that the whole business will end with the markets crushing the Fed.

And that’s not even considering a collapse of the petrodollar system or China pushing the establishment of a New Silk Road in Eurasia…two catalysts that would likely force interest rates higher. So I’ll go ahead and disagree with Yellen and rule out the possibility that rates might stay at zero forever. They won’t, because they can’t.

At the next sign of a market swoon or of a weakening economy, or with the next episode of deflationary jitters, the Fed will again ramp up the easy money. It could be another round of QE. Or the Fed could push interest rates into negative territory. If that fails, the Fed could go for the nuclear option and drop freshly printed money out of helicopters as Bernanke once infamously suggested – or, more likely, into everyone’s bank account. They’ll do whatever it takes, no matter what the eventual damage to the dollar’s value.
Whatever the details, one thing should be clear. This politburo of unaccountable central planners is the greatest risk to your financial wellbeing today.

What You Can Do About It

It’s a terrifying thought that the actions of a few people at the Fed so endanger your financial security.
But the facts are worse than that. There’s more to worry about than just the financial effects. The social and political implications of the Fed’s actions are even more dangerous. An economic depression and currency inflation (perhaps hyperinflation) are very much in the cards. These things rarely lead to anything but bigger government, less freedom, and shrinking prosperity. Sometimes they lead to much worse.

Fortunately, your destiny doesn’t need to be hostage to what’s coming. We’ve published a groundbreaking step by step manual that sets out the three essential measures all Americans should take right now to protect themselves and their families. These measures are easy and straightforward to implement. You just need to understand what they are and how they keep you safe. New York Times best selling author Doug Casey and his team describe how you can do it all from home. And there’s still time to get it done without any extraordinary cost or effort.

Normally, this "get it done" manual retails for $99. But I believe it’s so important for you to act now to protect yourself and your family that I’ve arranged for anyone who is a resident of the U.S. to get a free copy.

Click here to secure your free copy.

The article was originally published at internationalman.com.

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Jim Rogers on Timeless Investing Strategies You Can Use to Profit Today

By Nick Giambruno

Recently I spoke with Jim Rogers about the most important investment lessons he has learned over the years.
Jim is a legendary investor and true international man. He’s always ahead of the game. Jim made a bundle by investing in commodities in the 1990s when they were out of favor with Wall Street. He’s also made large profits investing in crisis markets.

Jim and I spoke about timeless strategies that are truly essential to being a successful investor.
You won’t want to miss this fascinating discussion, which you’ll find below.

---

Nick Giambruno: You’ve said that many times throughout history, conventional wisdom gets shattered. What are some widely held beliefs that will be shattered in the next 10 years?

Jim Rogers: That’s a very good question. Well, for one thing, I know bond markets are at all-time highs almost in every country in the world. Interest rates have never been so low. Everybody is convinced that bonds are a good thing to invest in. Otherwise, they wouldn’t be at all time highs.

I’m sure that 10 years from now, we are all going to look back and say, how could people have even been investing in bonds with negative yields? How could that possibly have been happening? But at the moment, everybody assumes it’s okay, and it’s the normal and natural thing to do. Ten years from now, we’re going to look back and say, gosh, how could we ever have done something so foolish?

So one of the things I do is I look to see - when everybody’s convinced that X is correct - I look to see, well maybe X isn’t correct. So when I find unanimity of a view, I look to see, maybe it’s not right. And it usually isn’t right, by the way. I have learned that from experiences and from lots of reading.

Nick: How does an investor deal with being accurate but early?

Jim: Oh, that’s the story of my life. I’ve always been accurate but early. If I’m convinced something is going to happen or if I should make an investment, I have learned that I should wait for awhile, because maybe it is too early. And it usually is too early.

I try to discipline myself to wait longer or to put in orders below the market and let the market come to me. But even then, sometimes I’m still too early.

Nick: How did studying history help you in investing?

Jim: Well, the main thing it taught me was that everything is always changing. If you go back and look at before the First World War, nobody could ever have conceived in 1910 that Germany and Britain would be slaughtering millions of people four years later. Yet it happened.

No matter what we think today, no matter what it is, it is not going to be true in 15 years. I assure you. You pick any year in history, and look at what everybody was convinced was correct and then look 15 years later, and you’d be shocked and astonished. Look at 1920, 15 years later. Look at 1930, 15 years later.

Any year you want to pick - 1900, 1990, 2000. Pick any year and I assure you, 15 years later everything is going to be different. I guess that’s the first thing I learned from the study of history.

Nick: What mistakes do empires always make?

Jim: They get overextended. They think they’re smarter than everybody else. They think they cannot make mistakes, and even if they are making mistakes they are so powerful they think that they can correct the mistakes. And then they become overextended. Usually they become overextended financially, militarily, geopolitically, in every way.

Nick: Is the US repeating those same mistakes?

Jim: Well, the US is the largest debtor nation in the history of the world now, and the debts are going higher and higher. The people in the US think it doesn’t matter that we’ve got all these debts and there’s no problem. People in the US don’t think that it’s a problem that we’ve got troops in over 100 countries around the world. I mean, when Rome got overextended militarily, it paid the price. Spain and many other countries have had this problem. Maybe it’s not a problem. Maybe America can have troops in 200 countries around the world and it won’t matter, but America has certainly gotten itself overextended in many ways.

Nick: Do you think wealth and power will continue to move East?

Jim: Wealth and power are moving East now, and that is going to continue. That’s because of historic reasons. There’s little doubt in my mind that China is going to be the next great country in the world. Most people are still skeptical of that. Most people know something is happening in China. They don’t really quite understand the full historic significance of what is happening in China including many Chinese.

Jim Rogers and Nick Giambruno

Nick: You mentioned in your most recent book, Street Smarts, about the lesson you learned when Nixon closed the gold window in 1971. At the time you were long Japan and short the US, and you just got killed. Can you tell us the lessons you learned from that experience?

Jim: That was a perfect example of what I’m talking about. Even if you have it right, or you think you have it right, something can always come along and change that, especially with politicians.

Politicians play by different rules from the rest of us. They just change the rules. Mr. Nixon just changed the rules because he was having a serious problem, and he thought America was having a serious problem. And when they changed the rules against all logic or against history, something is going to give. If you are on the wrong side, you are the one who is going to give, and I’ve learned that.

Nick: Any other investing lessons you’d like to mention?

Jim: Well, when you see on the front page of the newspaper that there’s a disaster - natural disaster, economic, any kind of a disaster - just pick up the newspaper and think, now wait a minute, everybody’s panicked right now. The blasting headlines are that the world is coming to an end. Stop and think, is the world really coming to an end? Is this industry going to survive? Is this country going to survive? Is this market going to survive? Because normally it is going to survive.

If you can just first stop and have that thought process, then you can think it through. Let’s say that these headlines are wrong. “What should I do?” You are probably going to be a successful investor. Be prepared for the fact that you are probably going to be early. If you can figure out how to spot the exact bottom and the exact turn, please call me.

Nick: This is exactly what Doug Casey and I do in our Crisis Speculator publication (click here for more details). Shifting gears now, you’ve also said that Harvard and other universities could go bankrupt. Why do you think that?

Jim: Well, first of all, some of the American universities have a very, very high cost structure. It’s astonishing.
Let’s pick on Ivy League. I went to an Ivy League school, so I can pick on them a little bit. They have a high cost structure. They think that what they know is correct and that people will always pay higher and higher prices.

To go to Princeton for four years now is probably going to cost you $300,000 in the end when you figure out the tuition, room and board, books, beer, travel, and everything else. It’s extraordinarily expensive to go to these places. Now what Princeton would tell you - and I didn’t go to Princeton but that’s why I’m picking on them - what Princeton would say is, yeah, but it’s better education. But I’m not sure it’s better education.

I know that many of the things that they teach in Ivy League schools these days are absurd and totally wrong. It’s conventional wisdom run amuck, so it’s not necessarily better what you learn at those places. If you go to the right universities, and you learn the wrong things, it’s going to cost you in the end.

Then they say, yes, but it’s a brand, it’s a label that’s good. Sure, it’s a label, it’s a very expensive label, but it’s going to take a lot more than that to make you successful. Just because your grandmother gives you a Cadillac, which is a good brand, it’s not going to make you successful at finding dates, or having a good job or anything else. You have to produce on your own.

Throughout history you've had many institutions that have been world famous and top of the line. They’ve disappeared. It doesn’t mean Harvard can’t too. I didn’t go to Harvard, so I shouldn’t pick on any of these places that I didn’t go to. So we’ll see. I’m skeptical of all of them.

Nick: Why do universities and governments embrace Keynesian economics? Why do they hate Austrian economics?

Jim: That’s a good question. Keynes himself, at the end, didn’t embrace what is now known as Keynesian economics. Keynes would probably be an Austrian now, because at the end of his life, he came to understand that some of the stuff was being misused.

The main reason people like Keynesian economics is because they think they can be powerful. They can change things. “I’m a smart guy. I went to an Ivy League school, therefore I know what’s best.

And if I say it’s best, let’s do it, and it will make things better.” That’s essentially what Keynesianism is now. The market is a lot smarter than all of us, and I wish we would all learn that. It always has been and it always will be.

Nick: Thanks for your time, Jim.

Jim: My pleasure.

Editor’s Note: Jim Rogers told us about the importance of looking past the news that frightens others away. It’s the key to finding deep value investment opportunities that can make you enormous profits. It’s one of the world’s greatest wealth creation secrets.

It’s been used by Warren Buffett, Doug Casey, John Templeton, Baron Rothschild, and many other successful investors. It’s a strategy that you can use too.

It’s exactly these kinds of opportunities we cover in Crisis Speculator. Click here for more details.

The article was originally published at internationalman.com.

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The Most Important Geopolitical Trend of the Next Decade…Here’s How to Profit

By Nick Giambruno

The bloodbath was merciless. In 1842, 16,500 British soldiers and civilians withdrew from Kabul, Afghanistan. Only one would survive. It was the most humiliating military disaster in British history. The death toll sealed Afghanistan’s reputation as “the graveyard of empires.”

It was the desire for control of Central Asia that sucked the British Army into its Afghan disaster. For most of the 1800s, the UK and Russia pushed for power and influence in Central Asia in a competition known as “the Great Game.”

It wasn’t just to score points. The thought of losing India terrified the Brits more than anything else. India had huge economic resources, a plentiful supply of military-aged males, and strategic geography. London treasured India as “the jewel in the crown of the British Empire.”

To the Brits, the expansion of the Russian Empire into Central Asia was a threat to their control of India. Neighboring Afghanistan was their red line. If the Russians could draw Afghanistan into their sphere of influence, they would become an intolerable threat to British India.

So, in 1839, the British Army invaded. They installed a puppet regime in Kabul that would stand as a buffer to Russian influence. Every previous attempt to bring Afghanistan under foreign rule had ended badly. The Afghans are some of the toughest and most stubborn fighters in the world. The British knew that executing their plan wouldn’t be a cakewalk.

After a few years of trying and then failing to impose their will, the Brits threw in the towel. Early in 1842, 16,500 British soldiers and civilians packed up and left Kabul. As they fled through the mountainous trails, Afghan tribal fighters attacked repeatedly.

It added up to an epic massacre…..If the Afghan fighters didn’t kill you, disease and winter weather would.

After just seven days, only one man was still alive. William Brydon was bloody, torn, and exhausted. He was the only one to make it to the nearest British military outpost. That outpost was in Jalalabad, 90 miles away from Kabul. The Afghans let him live so there would be someone to tell the grisly story.

The garrison in Jalalabad lit signal fires to guide other British survivors to safety. After several days, they realized no one was left to see the light. Painter Elizabeth Butler captured the pain and desperation of the moment in her Remnants of an Army, below.

The debacle was a brutal lesson in geopolitics: geography constrains the destiny of nations and empires. Ignore that constraint at your peril. Despite their folly in Afghanistan, the British were generally shrewd players in geopolitics. It was a skill developed from a centuries-long career as an imperial power.

The godfather of geopolitical theory was British strategist Sir Halford Mackinder. Mackinder developed a general theory that connected geography with global power. To this day, planners in the US, Russia, and China study his teachings.

Mackinder argued that dominating the Eurasian landmass - Asia and Europe together - was the key to being the leading global power.

Zbigniew Brzezinski, the renowned American geopolitical strategist, echoes Mackinder on the importance of Eurasia in his book The Grand Chessboard: American Primacy and Its Geostrategic Imperatives: Ever since the continents started interacting politically, some five hundred years ago, Eurasia has been the center of world power.

A power that dominates “Eurasia” would control two of the world’s three most advanced and economically productive regions…rendering the Western Hemisphere and Oceania geopolitically peripheral to the world’s central continent. About 75% of the world’s people live in “Eurasia,” and most of the world’s physical wealth is there as well, both in its enterprises and underneath its soil. “Eurasia” accounts for about three-fourths of the world’s known energy resources.

A single power that controls the resources of Eurasia would be an unstoppable global superpower. If one couldn’t control all of Eurasia, the next best thing would be to dominate the world’s oceans. Control of the sea lanes means control of international trade and the flow of strategic commodities.

In 1900, the British Empire was near the peak of its strength. It was the world’s undisputed naval power. Its naval bases ringed Eurasia from the North Atlantic to the Mediterranean, from the Persian Gulf to the Indian Ocean, all the way to Hong Kong. This enabled the Brits to project event shaping military power into Eurasia.

Today, the US is far and away the world’s leading naval power. Like the British before them, the Americans have followed the geopolitical strategy of ringing Eurasia with military bases and exploiting its divisions. The aircraft carrier, with its 5,000-person crew, is the central instrument of US naval power. Putting just one of these enormous vessels into operation costs more than $25 billion.

The US Navy has 11 carriers, more than the rest of the world combined. And it’s not just ahead in quantity. The power and technological sophistication of US aircraft carriers are far beyond the capabilities of any competitor. There is simply no military force now or in the foreseeable future that could dispute US control of the high seas.....Soon, though, it may not matter.

That’s because China, Russia, and others are working on an ambitious plan. They seek to make US dominance of the seas unimportant. They’re tying Eurasia together with a web of land-based transport facilities. A constellation of supporting organizations for financial, political, and security cooperation is also in the works. If they’re successful, they’ll wipe away hundreds of years of geopolitical strategic thinking. They’ll make the current US planning paradigm obsolete. They’ll undermine the strategy that the US - and the UK before it - has relied on to dominate geopolitics. It would be the biggest shift in the global power balance since WWII.

It’s a game for the highest stakes…a real-life battle of Risk. The effort and countereffort to integrate Eurasia is the new Great Game. It’s the most important process to watch for the next 10 years. The central project to integrate Eurasia is the New Silk Road.

The World’s Most Ambitious Infrastructure Project

For over a thousand years, the Silk Road, named for the lucrative trade it carried, was the world’s most important land route. At 4,000 miles long, it passed through a chain of empires and civilizations and connected China to Europe. It was the path along which merchant Marco Polo traveled to the Orient. When he returned, he gave Europeans their first contemporary glimpse of China.

Today, China is planning to revive the Silk Road with modern transit corridors. This includes high speed rail lines, modern highways, fiber-optic cables, energy pipelines, seaports, and airports. They will link the Atlantic shores of Europe with the Pacific shores of Asia. It’s an almost unbelievable goal.

If all goes according to plan, it will be a reality by 2025. A train from Beijing would reach London in only two days.

New Silk Road Routes

The New Silk Road is history’s biggest infrastructure project. It aims to completely redraw the world economic map. And, if completed, it has the potential to be the biggest geopolitical game-changer in hundreds of years.

Tying Eurasia together with land routes frees it from dependence on maritime transport. That ends the importance of controlling the high seas. That reshapes the fundamentals of global power…and it’s exactly what the Chinese and Russians want.

In late 2013, Chinese president Xi Jinping announced the New Silk Road. The Chinese government rules by consensus. They’re careful long-term planners. When they make a strategic decision of this magnitude, you know they are totally committed. They have the political will to pull it off. They also have the financial, technological, and physical resources to do it.

The plan is still in the early stages, but important pieces are already falling into place. On November 18 of last year, a train carrying containerized goods left Yiwu, China. It arrived in Madrid, Spain, 21 days later. It was the first shipment across Eurasia on the Yiwu-Madrid route, which is now the longest train route in the world. It’s one of the first components of the New Silk Road.

As ambitious as the New Silk Road is, it’s just one aspect of the integration of Eurasia. In just the past year, a set of interlocking international organizations has emerged. These new linkages are the institutional support for a new political-economic-financial order in Eurasia.

Here are the most prominent organizations…

Asian Infrastructure Investment Bank (AIIB)
China launched the AIIB in 2014 with financing for New Silk Road projects in mind. Its initial capital base is more than $100 billion.

The AIIB would be a Eurasian alternative to the US-dominated International Monetary Fund (IMF) and World Bank. Those institutions have been standing atop the international financial system. China, Russia, and India are the main shareholders and decision makers at the AIIB.

Nearly 60 countries, mostly in Eurasia, have signed up to join the bank. Japan and the US declined to join. Then, the US government embarrassed itself by trying (and failing) to pressure allies the UK, France, and Germany into snubbing the organization.

BRICS and the New Development Bank (NDB)
The BRICS countries - Brazil, Russia, India, China, and South Africa - are all onboard for Eurasian integration. The NDB, like the AIIB, is an international financial institution headquartered in China (but headed by an Indian banker), with $100 billion in capital. Also like the AIIB, the NDB is an alternative to the IMF and World Bank. The BRICS countries established the NDB in July 2015.

The NDB and AIIB will complement, not compete with, each other in financing the integration of Eurasia. The NDB will also finance infrastructure projects in Africa and South America. The NDB will use members’ national currencies, bypassing the US dollar. It won’t depend on US controlled institutions for anything. That reduces the NDB’s exposure to US pressure. The BRICS countries are also exploring building an alternative to SWIFT, an international payments network.

SWIFT is truly integral to the current international financial system. Without it, it’s nearly impossible to transfer money from a bank in country A to a bank in country B. In 2012, the US was able to kick Iran out of SWIFT. That crippled Iran’s ability to trade internationally. It also demonstrated that SWIFT had become a US political weapon. Neutralizing that kind of power is precisely why the BRICS countries want their own international payments system.

Eurasian Economic Union (EEU)
The EEU is a Russian-led trading bloc. It opened for business in January 2015. The EEU provides free movement of goods, services, money, and people through Russia, Belarus, Kazakhstan, Kyrgyzstan, and Armenia. Other countries may join. Trade discussions have started with India, Vietnam, and Iran. The EEU is gradually expanding as countries along the New Silk Road remove barriers to trade. Egypt, Argentina, Brazil, Paraguay, Uruguay, and Venezuela are also in trade talks with the EEU.

Shanghai Cooperation Organization (SCO)
In the military and security realm, there’s the SCO. Current members include China, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, and Uzbekistan. India and Pakistan will join by 2016. Iran is also likely to join in the future.

Putting the Pieces Together

Eurasian integration, and the US attempt to block it, will be the most important story for the next 10 years. This is the new Great Game. Oddly, the US media has barely made a peep about it. Maybe the story of Eurasian integration is just too big and complex to fit into sound bites.

The New Silk Road…the Asian Infrastructure Investment Bank…the BRICS New Development Bank…an alternative SWIFT system…the Eurasian Economic Union…the Shanghai Cooperation Organization…these are the building blocks for a new world. There could be huge profits for investors who position themselves correctly ahead of this monumental trend.

There is an easy way for US investors to tap into this trend. Click here to get the latest issue of Crisis Speculator for all the details.

The article was originally published at internationalman.com.

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Citizenship as a Weapon: Travel Controls and What You Can Do About It

By Nick Giambruno

It’s an extremely potent weapon, yet most are not even aware of its existence. That is, unless they have been unfortunate enough to be on the receiving end of it.

The weapon I’m referring to is travel controls, also known as people controls. It’s the power any government has to limit the ability of its citizens to travel. They do this by restricting the issuance of travel documents like passports. Any government can use this weapon can at a moment’s notice. It just needs to find a convenient pretext. Many countries in the past have notoriously turned to people controls. For example, the Soviet Union would routinely revoke the citizenship of its perceived internal enemies.

Recently, look at how the Dominican Republic stripped tens of thousands of people of their citizenship with no due process. Or how the Syrian government previously refused to renew the passports of Syrians abroad whom it suspected of being associated with the opposition. Or how the US government revoked Edward Snowden’s passport with the stroke of a pen. These are but a few of countless examples. The point here is not to pick good guys and bad guys. The point is that there are many instances throughout history and modern times that prove that you don’t own your own passport or citizenship… the government does. And they use them as a weapon.

If you hold political views that your government doesn’t like, don’t be surprised if they restrict your travel options. Unfortunately, the situation is getting worse. Over the last couple of years, there have been several attempts to pass a bill that would make it easier for the US government to cancel the passport of anyone accused of owing $50,000 or more in taxes. I suspect that sooner or later Congress will pass this bill. Fortunately, there is a way to protect yourself from these repressive measures. More on that in a bit, but first let’s look at the most common forms of travel controls.

Different Shapes and Colors

Desperate governments always seek to control money with capital controls and people with travel controls.
Here are the three most common forms of the latter:

1. Soft Travel Controls
These include arbitrary fees and burdensome bureaucratic procedures. These measures amount to unofficial travel controls. It’s similar to how FATCA works with money. FATCA doesn’t make it illegal to move capital outside of the US. But it achieves the same effect by imposing onerous regulations that can make it impractical. In the same sense, the government could achieve de facto people controls through deliberately excessive rules and regulations.

2. Migration Controls
Migration controls are official restrictions on the movement of a country’s citizens. Sometimes governments will put restrictions on certain citizens from leaving the country. This is especially true during times of crisis and for those who have accumulated some savings. Many people feel that they can simply wait till things get bad and then exit. But it’s likely the politicians will have slammed the door shut by then. For example, after Castro came to power in Cuba, the government used to make its citizens apply for an exit visa to leave the island. They did not grant it easily.

3. Revoking Citizenship and Passport
This is the most severe form of people and travel controls. Preventing people from leaving has always been the hallmark of an authoritarian regime. Unfortunately the practice is growing in so-called liberal democracies for ever more trivial offenses. In the US, for example, the government can cancel your passport if they accuse you of a felony. Many people think felonies only consist of major crimes like robbery and murder. But that isn’t true.

The ever expanding mountain of laws and regulations has criminalized even the most mundane activities. A felony is not as hard to commit as you might think. Many victimless “crimes” are felonies. A study has found that the average American inadvertently commits three felonies a day. So, if the US government really wants to cancel your US passport, it can find some technicality to do so…. for anyone.

Second Passports - An Antidote to Travel Controls

Here’s what my colleague and the always insightful Jeff Thomas has to say about travel controls:

As a country approaches an economic collapse, a crystal ball is not necessary to predict that, amongst the actions of the government, will be increased currency controls, travel controls, tariffs, and a host of other last-ditch efforts to keep the sheep penned in - to assure their presence for a final shearing.

What remains for the reader to determine, if he is a resident of one of the nations that is presently in decline, is whether he: a) believes that, in the future, his ability to travel internationally may be either restricted or prohibited; and b) whether he should take steps to assure his liberty for the future. If so, it might be wise to do so before he actually has lost his ability to travel.

If you have only one passport, you’re vulnerable to travel controls. I think it’s absolutely essential to obtain the political diversification benefits of having a second passport. You’ll protect yourself against travel controls. You’ll give yourself peace of mind knowing that you will always have options.

Among other things, having a second passport allows you to invest, bank, travel, reside, and do business in places that you could not before. More options mean more freedom and opportunity. I believe obtaining a second passport makes sense no matter what happens.

Unfortunately, getting one isn’t easy. There are no solutions that are at the same time cheap, easy, fast, and legitimate. Worse, there’s a lot of misinformation and bad advice out there that could cause you big problems. It’s essential to have a trusted resource to guide you through the process. That’s where International Man comes in.

You need to know the best countries to obtain a second passport in and exactly how to do it. We cover that in great actionable detail in our Going Global publication. Normally, this book retails for $99. But we believe this book is so important, especially right now, that we’ve arranged a way for US residents to get a free copy. Click here to secure your copy.

The article was originally published at internationalman.com.

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Why You Should Go to Africa Instead of College

By Doug Casey

Recently Doug Casey was a guest on the always excellent podcast, The Tom Woods Show. Tom and Doug talked about the enormous economic potential in Africa, Doug’s efforts to build a truly free market country, and better uses of your time and money than going to college.

It’s an exciting and informative conversation.

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Tom Woods: What a pleasure and a delight it is to welcome back to the show Doug Casey. Doug is a libertarian economist, best selling financial author, international investor, entrepreneur, and the founder and chairman of Casey Research. Doug, welcome back to the show.

Doug Casey: Thanks, Tom. It is my pleasure.

Tom: You’ve been up to some interesting activity in Africa that I’d like to ask you about. Let’s start off by telling us what you’ve been busy doing there.

Doug: Well, the last two weeks, I’ve been visiting the Islamic Republic of Mauritania with a short side trip to Senegal. I’ve been pursuing my hobby, which is to propose to a backward country a plan for complete and total free marketization… including taking the country itself public on a major stock exchange and distributing most of the shares directly to the people who theoretically own the government assets. I felt like I had Maria Muldaur’s “Midnight at the Oasis” playing in the back of my mind the whole time I was there.

Tom: Suppose you got everything you wanted, what would the outcome look like?

Doug: Well, 100% of all government assets, land, state owned companies - everything - initially go into a corporation and we distribute the shares.

Let’s say, 70% pro-rata to every man, woman, and child in the country, so they don’t just theoretically own the government, now they actually do. 15% would be put it in trust for the next unborn generation to defuse that time bomb. 10% would be distributed to people who, let’s say, are of significant help to making this happen, and people who are important, whose rice bowls would be broken, and 5% to take public in major stock markets to raise some capital. Then we get rid of all duties, taxes, and regulations.

Dubai was absolutely nothing in 1980. You know what Dubai is now. If we go back further, in 1960, Hong Kong and Singapore both were very poor and look what has happened to them. So I think in today’s world if somebody is daring enough to want to do this, I think it could be of world historic importance. So I’m looking for the right guy.

Tom: I’d like to get a glimpse inside of a meeting like this. If you’re sitting down with the president, you’re sitting down with top officials, how do you make that case, especially when the response is going to be, “What’s in it for me”?

Doug: Well, that’s always the first question, of course. I start my presentation with three things I can do for you, Mr. President. It’s always a question of the benefit to the buyer. Number one, this plan will make you legitimately a multibillionaire. That always goes down very smoothly, because they know that doing what Mobutu and Mugabe did doesn’t work quite as well now as it did in the past. So it gets their attention.

Number two, the people will love you and treat you as the new George Washington. That sounds pretty good too. Half the time in these places most of the population wants to kill them. And number three, we will put you on the front cover of all the world’s magazines in a favorable light for the next decade. Now that sounds good, because these people, if they are even known to exist, are considered pariahs.

So they always listen to the rest of presentation. Of course then things start to go wrong… usually from people under the president. It’s the people under the president who are usually making the big money, not so much the president himself. So they are often the problem.

It always makes for a fun adventure and interesting cocktail party stories that I can tell and retell to people for hours. But it’s my hobby. It’s not an occupation. I haven’t made any money on it yet, although I always have a plan B when I go to these countries: look for mining concessions and so forth.

Tom: Suppose you had to do it all over again. Let’s say you turned 18 in 2015. Have conditions changed to the point where you would take a different path, and incidentally would you go to college?

Doug: I would definitely not go to college. Even then, I only did it because everybody from my socioeconomic class was going to college, so there was no thought involved on my part. It was just like going from eighth grade into high school. I counsel students against it today. College serves no useful purpose unless you want to learn a trade like doctoring or lawyering or you need a piece of paper to practice a particular occupation, or there is a formal discipline, like a hard science or engineering.

You will pick up lots of bad ideas. You will spend a huge amount of money, get yourself under a huge financial rock that will take you years to dig yourself out from under. What I suggest people do instead is lay out what the most intelligent thing to do with that four years of time and probably $200,000 of capital. I like the idea of traveling. The place that I would put first and foremost on my travel list today for economic reasons is Africa. Go someplace where you can be a big fish in a small pond quickly.

Tom: Back in the ’50s and ’60s in the wake of decolonization in Africa, you had a bunch of Western educated semi-Marxist political leaders who were nationalizing property and confiscating assets from rich people and so on, you wouldn’t touch Africa with a ten foot pole. What has changed since then?

Doug: Well, politics always draws the worst kinds of people of course. Most of the presidents of Africa even today are ex-generals or ex-colonels or something like that. It has economically improved a lot. The population has exploded and it’s going to explode more in the years to come. It’s chaotic. But if you can bring order to chaos, that’s opportunity.

If you go to the Orient, there are a lot of rich, smart people there. You are not going to have much of a competitive advantage. That’s true to a lesser extent in South America too. Africa is actually the place, I think, you want to go.

Tom: Do you have any particular parts of Africa? I’ve heard good things about Botswana. Do you have any place in particular that attracts you?

Doug: Other than South Africa, I’d say Botswana is the most developed country in Southern Africa for sure. But where would I go now? Well, of course, the nice thing about Africa is that it’s divided basically into three parts, Anglophone Africa, Francophone Africa, and Lusophone Africa, and my French is still adequately conversational. I lived in France and Switzerland for a year during college. My Spanish is functional. The language thing is a consideration of course. But on the other hand, most of the educated people in most countries of the world speak English, which is the world’s lingua franca today.

Where would I go? There are around 50 countries in Africa. I like small, obscure ones. Maybe Ghana is too developed. Look at Benin or Togo or maybe the Ivory Coast. Mauritania, where I just was, is actually quite interesting. Guinea-Bissau, Guinea-Conakry, you’ve got lots of choices. Somebody should get on a plane and just take a look. Then when they get into a country, a capital city, which is always where the action happens, get on the telephone to local lawyers and real estate agents and businessmen to set up appointments and see who you can get along with. One thing will lead to another.

I wouldn’t go to Africa as a lifestyle choice. I would go there for economic reasons and for the adventure that it would yield. I’d say as a lifestyle choice, it comes down to South America or the Orient. I lived in the Orient for years and I loved it.

Tom: What about the language barrier?

Doug: Well, I lived in Hong Kong and when I was there it was much more English. Of course everybody in China is learning English today, everybody, everywhere that you basically would want to talk to. I’m not trying to be elitist but the educated people - put it that way - all speak English today as a second language. This is one of the things that will slow down your progress on learning the local language, is that they all want to speak English to you. So that’s a double edged sword… but it’s really an advantage. No, don’t worry about the language problem.

Tom: Well, I sure appreciate your time, Doug Casey. You are the International Man himself, and we are always grateful for your time.

Doug: Well, thank you Tom. It is a pleasure to talk to you under any circumstances.

Editor’s Note: International Man is all about helping you make the most of your personal freedom and financial opportunities around the world. A great way to get started is to check out Going Global 2015. Normally, this book retails for $99. But we believe this book is so important, especially right now, that we’ve arranged a way for US residents to get a free copy. Click here to secure your copy.

The article was originally published at internationalman.com.

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