The

Bauman Letter
Your Guide to Rogue Freedom & Bold Prosperity

The Kill Switch:

The Hidden Threat to Your Money

BDI-ILI knew Naditabirus anxiously awaited

Thats why Gamil-Ninip wanted the physical goods

his arrival.

that Naditabirus had promised him, and until he got

His cousin was no doubt very worried by now.

them, he wasnt going to allow the ledger-keepers at

Lagashs central market to make the entry that would

Abdi-Ili was seriously overdue in Eshrunna, chief city

let Naditabirus off the hook. Until Abdi-Ili made it to

of the populous Diyala Valley, where his cousin lived.

Eshrunna, Naditabirus had to watch his back.

Naditabirus had placed an urgent order for camels,

figs and wine from Abdi-Ilis rural hometown of

Lagash. But bad weather and bandits in the hinterland

had delayed his departure.
To make matters worse, Naditabirus needed the

These cash-shy men lived and traded in Sumer, the

goods to settle an account with another trader in

first-known civilization, straddling the life-giving

Eshrunna, Gamil-Ninip. Widely feared by reputation,

Tigris and Euphrates rivers. The year was 3252 B.C.

Gamil-Ninip could have served as the model for

Their financial lives are closer to our own than

Shylock, the flesh-demanding merchant of Venice.

we realize but we face a much greater threat than

bandits or scalpel-wielding creditors.

The problem was that Naditabirus had already

settled with Abdi-Ili for the goods. There was no use

Recently, its become popular to talk about the

sending coins back from Lagash to Eshrunna, since it

cashless society. Were warned that it threatens to

would take just as long as a trip with the camels and

hand control of our money to others, expose us to

wine, and would be just as dangerous.

confiscation and generally destroy our liberty.

Abdi-Ili knew very well that a big trader like

But, Ive got news for you: The cashless society

Gamil-Ninip had no use for coins anyway. All

is already here and it has been here for tens of

wholesale traders regarded them as a burden and a

thousands of years. Whats changing rapidly

needless risk. Other traders to whom Gamil-Ninip

and quietly isnt the use or nonuse of cash. Its

was in debt wouldnt take them from him.

something far more dangerous.

Inside This Issue

10 | It All Starts With Saving

11 | The New Era of Mega-Leaks

By Glen Mather

www.sovereignsociety.com

By Zafar Khan

13 | Avoiding Freedom

By Bob Bauman

June 2016

debt, the way Abdi-Ili, Naditabirus and Gamil-Ninip

As Im going to show you, the things youre being

did. Heres how:

told about the danger of a cashless society are, at

best, half-truths.

Lets say that in 3252 B.C., 10 camels were worth

20 barrels of wine. If someone came to a trader to sell

The thing you should really fear is that theres never

10 camels, but there was no wine available, the trader

been a central kill switch for money until now.

would notate that the camel-seller had 20 barrels

A Brief History of Money

worth of credit with him, to be redeemed when wine

arrived. If the camel seller decided in the meantime to

In his book Debt: The First 5,000 Years,

use some of that credit to buy grain, the trader would

anthropologist David Graeber argues that the

simply calculate the appropriate amount of wine to

dominant account of the origins of money is wrong.

deduct from his credit, based on how grain and wine

The conventional story is that gold and similar rare

traded against each other.

items were the original money, which came into use

Thats the critical point: From there it was a simple

because it allowed people to move beyond barter

step to start using a made-up unit in Sumer, a

systems. In ancient times, gold was used as a store of

shekel to keep track of such dealings. Virtual

value, and in dust, nugget or coin form as a means of

shekels could be tracked with tokens like marks in

payment and a unit of account.

clay, sticks, cowry shells or knots on a string. There

After the fall of Rome, however, insecurity

was no need to use vulnerable metal coins.

prompted people to store their gold with goldsmiths,

The important thing was that everyone understood

who maintained a 24/7 armed guard. People

and trusted the shekel system.

stopped paying each other in gold, instead trading

In this way, according to Graeber, money

promissory notes that represented gold on deposit

originated out of debt systems, not barter and it

at the goldsmith. The value of the paper was slightly

was based on mutual trust, not intrinsic value. Gold

discounted against gold itself to pay for the guards.

(and physical cash) only came to play a role later,

Physical gold never had to move; people just traded it

when long-distance trading emerged with foreign

in paper form.

peoples who used different credit systems. Money was

Thus, gold-backed paper cash was born.

a good interface between such systems, but it wasnt

Graeber shows that this never happened in real

their basis.

life, anywhere. Instead, money as we know it

It turns out that weve been living in cashless

actually originated as a way to compute and trade in

societies for a lot longer than weve lived in them

for precisely the same reasons as the Sumerians. And

About Ted Bauman

for all that time, weve been able to trust virtual

money because it was a decentralized, private system

Ted Bauman is the editor of the Plan B Club, a blueprint

to help protect your wealth and escape excessive
taxation, regulations and wealth confiscation in
America. He is also the editor of The Bauman Letter,
a newsletter thats brimming with up-to-the-minute
asset protection strategies, tips on buying and
investing in real estate abroad, and retirement and
residency secrets in American-friendly countries
around the globe. Ted has been published in a variety
of international journals, including the Journal of
Microfinance, Small Enterprise Development and
Environment and Urbanization. Email Ted your thoughts
and questions at baumanletter@sovereignsociety.com

that no government could control completely.

Until now.

Money = People
The paradox of physical cash is that we see it as a
way to preserve our financial independence but its
issued by the very government from which we wish to
preserve that independence.
Money is a social construct something people
agree amongst themselves to use to facilitate trade.
Just as Abdi-Ili, Naditabirus and Gamil-Ninip all took

June 2016

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for granted that the market ledger-keepers were the

Right now, the M2 money supply is about $12.6

final arbiter of their accounts, reckoned in shekels

trillion, according to the Fed.

(for a fee, just like modern bankers), so too do we

So, theres $12.6 trillion in U.S. dollars out there,

take as a given that the dollar is legal tender and that

but only a little more than 11% of it is actual currency.

banks do the record keeping.

The rest is virtual currency, just like the Sumerian

But our reliance on the dollar is no less arbitrary

shekels in the ledger-keepers books. That makes us

and no less social than the shekel was. If the king

at least an 89% cashless society.

of Sumer decreed that shekels were worthless, they

Theres more: Of the $1.4 trillion in physical U.S.

would be, and that was that.

currency out there, more than three-quarters of it is

The threat of todays cashless society isnt that

in $100 bills. I dont know about you, but I dont see a

we will be using less cash than we do now after

lot of Benjamins at the grocery-store checkout. That

all, we hardly use any as it is its that the social

suggests that the bulk of $100 bills are being used as

agreement behind money is changing without our

a store of value, not to transact. A recent article I read

consent and for reasons that have little to do with our

suggested that about 25% of those missing $100 bills

wants and needs.

are overseas; the rest are either in private storage

in the U.S. (mattress money) or in use in the

Its changing to satisfy someone elses.

unreported, tax-avoiding black economy.

Our Cashless World

That means the amount of actual U.S. cash in daily

use is a lot smaller probably closer to 4% of the

If you took all thecurrency in existence today and

total U.S. money supply. The rest is cash in unknown

added it all up, how much would it be?

locations or virtual money that exists only as ledger

Lets start with the U.S. money supply. The total

entries on bank computer systems. Now were down

stock of cash is known as M0.This includes the bills

to 96% cashless.

and coins in peoples pockets and mattresses, money

For the world as a whole, M0 is about $5 trillion,

stored in reported bank vaults and all of the deposits

M1 is $25 trillion, and M2 is $75 trillion. The

those banks have in the Federal Reserve System.

proportion of the worlds total circulating cash is

According to theFederal Reserve, theres $1.45 trillion

slightly higher than the U.S. dollar alone about 6%.

in the M0 right now, with $1.4 trillion in actual notes

That makes sense: Huge-but-poor economies like

and coins, while the rest lies in bank deposits at the

India are almost entirely cash-based.

Fed. At any given time, between one-half and two-

No matter how you slice and dice it, ours is already

thirds of the M0 money stock of U.S. dollars is held

a largely cashless society.

overseas.
The rest of the U.S. money supply is inbank

The Real Threat to Your Money

accountsof various types. The Federal Reserve tracks

these funds in values known as M1 andM2:

The reason cash is such a small part of our modern

M1represents all of the currency in the M0

money system is the same as the Sumerians and

money supply, plus all of the virtual money

medieval goldsmiths: Its physical, and therefore

held in checking accounts and other transaction

vulnerable.

accounts, as well as all of the money in

Were hardwired to understand that purchasing

travelers checks. The Federal Reserve reports

power in physical form is highly ephemeral. It can

that the current M1 money supply for U.S.

disappear in a flash. Thats why large amounts of

dollars is about $3.2 trillion.

physical money, precious metals, jewels, etc. were

M2is the M1 supply plus all of the virtual

closely associated with the capacity for extreme

money held inmoney-market funds,savings

violence. That was and remains the only way to

accountsand certificates of deposit (CDs).

keep other people away from it.

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June 2016

by providing a more secure form of transacting

Thats also why, until the 1970s, most people

in advanced economies used a combination of

than carrying around precious metals or specie.

checkbooks and regular trips to the bank to pay for

If they stopped meeting that need for any reason,

things. People didnt keep big hoards of cash at home.

people moved on to another solution. Market forces

Banks thrived because they were seen as safe places

determined whether or not one form of imaginary

to store money, and provided convenient ways to

value (e.g., a particular banks notes) was better or

transact without cash.

worse than another.

The problem we face today isnt that we are being

Starting in the mid-70s, the digital revolution

enabled widespread use of credit cards, which

asked to move away from the use of cash. Its that

became near-universal by the 1990s. It was possible

control of the alternative forms of imaginary value,

to transact without ever using cash. Card protection

now mostly digital, are shifting away from private

policies meant that lost credit or debit cards could be

hands and market forces to a more centralized,

canceled quickly and fraudulent charges refunded.

nonmarket system of control. The digitization of

Online shopping took this one step further, allowing

money has given a single, unaccountable third party

us to acquire big-ticket items almost instantly, with

the potential power to turn your money on and off at

the click of a mouse button. People could enjoy the

will. And that third partys interests are very different

from those of bankers, ledger-keepers or goldsmiths.

benefits of cash without having to carry any.

That third party, of course, is government.

But the emergence of virtual money created

Government is always involved in money. Even

another risk that weve only just begun to recognize.

Its far more serious than the potential loss of part of

though private Sumerian ledger-keepers invented

your stash of physical wealth to theft or destruction.

the shekel system, for example, very quickly its

continued use was authorized by the Sumerian king,

Recall from the Sumerian example that trade relied

who could also deauthorize it. The banknotes issued

on independent, third-party ledger-keepers to keep

by antebellum U.S. banks were denominated in the

track of transactions. These ledger-keepers provided

U.S. dollar.

a valuable and essential service that allowed trade

The main reason government money always beats

to flourish, so people paid them for it. The same was

true of medieval goldsmiths. Before the Civil War,

out private money is taxes. You might claim that gold

U.S. private banks issued private banknotes that could

bullion is money, but if you take a bar of gold to the

be exchanged for U.S. specie (or coins) on demand.

IRS on April 15, they will ask that you exchange it

Most commerce was conducted with these private

into U.S. dollars before they can extinguish your tax

banknotes, not government-issued dollars.

liability.In other words, while gold might be money

to you and me, it isnt money when it comes to

All of these innovations relied on what the 17th-

meeting your liabilities to the Federal government.

century English economist Nicholas Barbon called

But even though governments ultimately authorize

an imaginary value made for the convenience of

money in this way, they dont control it. Money is

exchange. Until the emergence of national fiat

created by banks when they issue loans that exceed

currencies, these imaginary values relied entirely

their actual reserves. Even with fiat money, like the

on widespread customary acceptance not on

dollar or the euro, private institutions can create and

government approval.

destroy money by using the same techniques as the

Sumerians.

Its Always the

Governments Money

For the most part, thats OK, and well-understood.

But what happens when the government finds a way

In the past, the day-to-day controllers of the

to do more than merely authorize money when it

imaginary value of virtual money were private

can also turn it on and off at will? Human nature

people, not governments. They met a social need

suggests that, in such a situation, those in control of

June 2016

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the government will quickly stop being accountable to

quarters? Thats something no government

us, and start using this power to their own ends.

could ever do until now.

Government already does this, in a way. Through

And we have bitcoin to thank for it.

the Federal Reserve System and the U.S. Treasury, the

Bitcoin: Double-Edged Sword

U.S. government can manipulate the money supply

to devalue the dollar, and thereby transfer wealth

Think of every dollar in your bank account as a

from lenders to borrowers and from citizens to

point on a football scoreboard.

government. It can raise interest rates to drive up the

When a team scores a touchdown, the official

value of the dollar and do the exact opposite. It can

scorer adds points, and electronic pulses are sent to

also set interest rates so low that savers get nothing

the scoreboard to show the number six. As the game

for their savings as many of us know very well,

progresses, point totals are adjusted for each team.

post-2008.

Sometimes points are taken away after a penalty. The

points taken away dont really go anywhere they

Be Very Afraid: The Kill Switch

just disappear as the scorekeeper deducts them. The

Actually, some of the scenarios I just sketched

points have no real physical presence; theyre simply

out have already happened. But they involved the

a record of the performance of each team.

withdrawal of account facilities by banks or other

In the banking system, money is just a system of

financial institutions, whose cooperation was

points credited to or deducted from our scores

therefore essential.

kept by financial institutions. And just like the

Its this potential ability to control each individual

electronic points in a football match, each dollar is

dollar that you should be worried about in the

the same as any other. You dont care which dollar

cashless society. Its the main thing against which

you have. Indeed, every year the U.S. Mint destroys

you need to defend.

billions of dollars and replaces them with new ones,

and nobody notices. There are serial numbers on U.S.

The usual concerns we hear about the cashless

paper currency to combat counterfeiting, but the

society are:

government cant delete a specific numbered bill

Well be forced to transact through systems and

remotely.

institutions that can track when, how much and to

But the technology now exists to do exactly that:

whom we transmit money. Thats why weve heard

the blockchain.

a lot about getting rid of $100 bills. Because some

people use large-denomination bills to evade taxes or

The blockchain is an essential part of bitcoin, the

commit crimes.

independent digital currency. The technical details

1. Making all money electronic will allow the

are complicated, but the blockchain is the part of

government to confiscate it at will something

the system that makes sure that every single bitcoin

it can already do, as anyone who has had a tax

remains unique and cant be spent twice.

garnishment or asset confiscation order against

While cash in a bank account moves electronically

them will tell you. All it takes is a court order to

all the time today, our money isnt truly digital.

your bank.

Electronic payments are really just messages that

2. If all money is electronic, the government will

cash needs to move from one bank account to another

be able to impose negative interest rates easily,

settlement which can take days as banks wait

forcing us to spend our way out of their failures.

for confirmations.
Bitcoins, however, are preloaded into the

3. Those are definitely things to worry about.

But what if the government could also switch

blockchain system. From there, they can be swapped

individual dollars on and off? Or change their

immediately for an asset. Payment and the settlement

relative value say, turn all your dollars into

become the same thing an instant balancing of

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June 2016

virtual books, exactly like when the Sumerian ledger-

How the Government

Could Strike

keepers made an entry. The blockchain essentially

does the same job as the accounting departments of
financial institutions debiting and crediting various

What if government could simply flip a

switch, and say that a particular persons money
specific dollars is invalid? It could even
conceivably do that for all money. Here are some
plausible scenarios:
A business in a tax dispute with the IRS
finds that a proportion of its virtual dollars
say, 40% have been disabled until it
settles.
A judge orders that funds belonging to a
person charged with a crime be disabled
pending the outcome of his trial.
The FBI issues a National Security Letter
instructing that the money of a suspected
terrorist/money launderer be disabled.
Under the NSL, nobody is allowed to tell him
why this has happened.
An unscrupulous president secretly
instructs that the funds of political
opponents be disrupted or shut off to
undermine their campaigns.
A run on the dollar leads the government
to suspend the validity of all U.S. dollars for
48 hours. n

ledgers but automatically and anonymously, under

no ones central control.
But the blockchain is also what makes bitcoin

anonymous. Bitcoins blockchain system is

distributed, meaning it is managed by many
individual users computers in the background.
Nobody has a master key. Thats why financial
firms have been reluctant to embrace bitcoin: The
anonymity it gives to users exposes them to the risk
of violating anti-money-laundering and know-yourcustomer regulations.
What banks really want is digital U.S. dollars,
which dont pose those risks because they can be
traced to individual users and turned off centrally.

The Threat Is HERE NOW

On a Monday last month, more than 100 executives
from some of the worlds largest financial institutions
gathered for a secret meeting at the Times Square
office of Nasdaq Inc. By the end of the day, they
had seen something revolutionary: U.S. dollars
transformed into pure digital assets, able to be used
to execute and settle a trade instantly, with no banks
in between. The meeting was code-named Chain.

And if you think the government wont use that

Under the Chain system, the debiting and

crediting of ledgers would happen automatically in

power, think again. The RAND Corporation, global

cyberspace. Thered be no need for banks, at least as

policy think tank with defense and homeland security

intermediaries. When I pay Amazon for a purchase,

ties, has released a report titled National Security

for example, my stock of dollars would be debited and

Implications of Virtual Currency. It suggests that

Amazons would be credited instantly. No debit cards,

governments should develop the technical capacity to

no credit cards, no checks nothing. Just changing

disrupt any virtual currency, including peaceful use

points on our respective financial scoreboards. That

of digital currencies by all nonstate actors, to prevent

would save millions of dollars, since money wouldnt

you and me from enjoying unprecedented global

have to spend useless time in the settlement process

access to information and communication services

between different intermediaries.

that, at its core, are agnostic to the national security

Under the Chain system, however, the government

interests of the United States.

would be the referee. With its master key over digital

dollars, it could award, remove, adjust and otherwise

How Youre Going to Beat It

meddle in the financial scores of everyone who

Ive gone into more detail than usual on the

uses them instantly, with no warning or recourse.

Just like in the scenarios I sketched out above.
June 2016

threat aspect of this report the digital dollar

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because Im convinced that only those with a clear

3. Countries such as Russia and China will speed

understanding of it will be prepared to take the steps

up their efforts to launch an alternative global

necessary to beat it.

clearing system to SWIFT, the dollar-based

system in current use. This will provide an

When I talk to people who read the mainstream

commentary on the cashless society, the most

alternative to transact in nondollar currencies.

common response is: Who cares? Its not likely to

4. The U.S. will seek to coerce other countries

affect me.

into using digital currencies, but this will fail.

Other countries will recognize the risk of a

But when its considered in the national security

fully digital dollar and opt to maintain at least

interest of the United States for the government to

part of their finances in nondollar currencies

have complete control over your money at all times,

and financial systems as a hedge against

you need to worry. And because the Chain system

unpredictable U.S. behavior. Banks in such

promises to reap billions in profits for major financial

jurisdictions will broaden their offerings of

institutions, theyre going to do all the legwork to

nondollar accounts.

make it happen.

5. Eventually, the U.S. and its allies will seek to

When government and financial elites have a

confiscate domestic precious metals holdings

common purpose, things tend to happen faster than

using the same argument they employ against

anyone imagines possible.

large-denomination bills: combatting crime,

Fortunately, the key strategies available to you

money laundering and tax evasion.

to combat this threat to your financial freedom are

So heres how youre going to beat this

already well-understood and weve written about

them many times. Im going to review them below,

Currency and
Financial Strategies

and, as an added bonus, Im going to point you to

relevant reports my father Bob Bauman and I have
written over the years.

Your No. 1 strategy is to have bank balances and

Before I do, however, I want to make clear my

cash in currencies other than the U.S. dollar and the

assumptions about what a cashless society is

euro. Based on my assumptions, bank balances should

liable to be like. These assumptions shape my

be held only in countries that have a strong currency

recommendations.

of their own and are not subservient to the U.S.

1. The U.S. governments and banks attempt to

When I say relatively strong, I dont mean that

digitize and control dollars supported by its

it always trades well against the dollar. I mean that it

allies in Canada, Europe and Australasia will

is firmly in place, is issued by a large economy and is

sharply increase the demand for alternatives

unlikely to be abandoned any time soon. This leads to

such as the yuan, ruble, Singapore dollar, Hong

some counterintuitive recommendations.

Kong dollar and other currencies issued by

Holding Russian rubles may be a good bet for

jurisdictions that are not closely allied to the

two reasons. Its currently weak, which means

U.S. Such currencies will continue to exist and

it will recover as the dollar gradually weakens in

will aggressively market themselves as a way to

the mid-term. Second, its not going to go away

avoid the risks of a digital dollar. The dollar will

when the dollar goes digital.

decline in value against such currencies.

Singapore and Hong Kong will work hard

2. Certain countries that currently use the dollar

to preserve the independence of their own

as a de facto national currency, such as Panama,

currencies. In the short term, both will

will choose to abandon it to preserve their

appreciate significantly as the danger of holding

financial and political independence if they

digital dollars becomes clear, but efforts by

have the means to do so.

Russia and China to create an alternative

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June 2016

financier system are not yet in place. The same

private placement insurance, about which I wrote in

may be true of the Indian rupee, Indonesian

April 2015.

rupiah and the Malaysian ringgit.

Quiet Wealth Strategies

The Chinese are determined to escape the

dollar system eventually, making the yuan

When it comes to asset protection, my core

another obvious choice. However, China is better

recommendation is always to remove a portion of

placed than any other country to emulate the

your wealth from banks altogether, and to convert it

U.S. in imposing tight control over finances, and

securely into a diversified portfolio of quiet wealth.

will probably introduce a digital yuan as well.

Such assets typically include precious metals and

Its important to remember that holding these non-

other tangible assets with a high value-to-size/

Western currencies doesnt necessarily mean opening

weight ratio, so they can be stored and transported

bank accounts in those countries. I predict that you

easily and securely. My favorite is stamps, about

will increasingly be able to open yuan, ruble and other

which I wrote in March 2014. Other quiet wealth

alternative currency accounts in places like Panama,

assets include gems, coins, precious metals, artwork

Singapore, Uruguay and other friendly jurisdictions.

and other high-worth portable assets.

Of course, opening an offshore bank account can be

Such items (as well as select currencies) can

daunting. Guides to doing so can be found in the July

be stored in a personal safe or account with an

2011 and August 2015 issues of Offshore Confidential

accredited nonbank secure storage company. I do

(the old moniker for The Bauman Letter). A report

NOT recommend bank storage or safe-deposit boxes

on the increasingly popular i-Account, which already

since they have already proved to be vulnerable to

offers multicurrency functionality, can be found in

government interference. A personal safe is a good

the August 2014 issue.

beginning step, but the ultimate security is to use an

offshore vault service again, not with a financial

Opening a foreign bank account is only the first

institution. I wrote about this in October 2014.

step to avoid the dangers of a digital dollar. The

Choosing jurisdiction for offshore storage of

next step up is to create an offshore structure such

as a trust or limited liability company (LLC) in a

quiet wealth and precious metals should be guided

jurisdiction that is privacy-friendly. Such a structure

by the same logic as your choice of currencies.

will then be able to open bank and other financial

Choose a place that is likely to strive to maintain

accounts in safer currencies. For example, the trusts

its independence and to resist U.S. attempts to

and LLCs discussed in our reports in September

undermine it. At this point, Singapore is the best bet

2012, January 2014, March 2015, July 2014 and in this

I wrote about one easy way to acquire and store

special report would all be potential candidates for

gold there in February 2014.

A longer-term strategy is to develop your own

such a two-level strategy.

dirt bank real estate holdings in jurisdictions

An alternate strategy especially if the bulk of

that are both secure and liquid. I wrote a general

your assets are tied up in retirement vehicles is to

move your retirement savings offshore. The single

overview of dirt banks in June 2014, and, of course,

best way to do that is to create a self-directed IRA

my favorite place of all remains Uruguay, which we

and use it to invest in non-U.S. currencies and other

covered in May 2011, March 2012 and January 2015.

assets. I wrote about this excellent strategy in May

Geographical Strategies

2015. Note that although the custodian of your IRA

will continue to be in the U.S., the assets themselves

It may even come to the point where you will want

will not be. I predict that the U.S. will ultimately fail

to consider moving yourself offshore, too. Thats the

to force repatriation of such assets, even if they are

subject of my comprehensive Plan B Club. As I always

technically part of a U.S. IRA.

tell people who worry that this is too difficult to

Another strategy along these lines, albeit pricier, is

June 2016

imagine your imagination is the first thing youve

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got to change. Good overviews of residence and

someone in Congress will propose adoption of

second-passport options can be found in reports from

the Chain system more broadly. Theyll propose

October 2011 and January 2013.

legislation to mandate its gradual adoption

throughout the entire economy, citing terrorism, the

Of course, with the threat of a digital dollar in

war on drugs, tax evasion, etc.

mind, your choice of an offshore haven has to be

selective. Theres no point in moving to a country in

The key variable determining how quickly this

the EU, where U.S. pressure will probably bring the

mandate is adopted (besides the possibility of

same digital dollar problems to your doorstep.

determined opposition in Congress) is the impact

Some alternatives to consider beside Uruguay (see

Chain will have on the economics of smaller-scale

above) are Panama (May 2014), Dominica (December

in regional banking. Chain has the potential to wipe

2014) and the Seychelles (August 2013).

out small banks entirely, since a significant part of

their earnings come from old-fashioned clearing

In the Meantime

technologies like checks and credit cards.

That gives us maybe eight to 10 years before the

I wouldnt blame you if youre saying OK, Ted,

kill switch is in place.

youve scared me, but I cant very well expect to

In the meantime, besides beginning to implement

implement these strategies overnight, now, can I?

a selection of offshore banking, quiet wealth and

Quite right. Protecting your assets from the threat

property strategies, I would do some calculations.

of the digital dollar just as for everything else

that afflicts the Land of the Free is a process. The

How much do you need to live, adjusted on a

starting point of that process is a determination

rolling five-year basis, for the rest of your life?

to do something about it instead of waiting for the

Where is that money going to come from?

inevitable, or thinking youll somehow be exempt.

Given how much youll need and its source,

In my opinion, the threat of a blockchain-based

how much can you afford to move into

digital dollar is the greatest threat to our financial

currencies and assets that are safe from the

freedom that I know. Im actually quite surprised that

threat of the digital dollar? When can you do

so many commentators fail to appreciate it.

it how much per year? Or will it be a one-off

move of your retirement funds offshore?

But the digital dollar isnt going to happen

overnight. And that gives you time to prepare.

Whatever is left after youre done is what youll

need to keep in the U.S. system, for better or worse

I predict that well begin to see the deployment

of limited blockchain systems like Chain between

(unless you leave, of course). You can keep it in paper

major U.S. banks within the next three to five years.

dollars (as long as theyre available), but for the most

These will be used to reduce opportunity and other

part you will continue to use debit and credit cards,

costs inherent in the current clearing system. The

and increasingly, payment apps like Apple Pay.

next step will be for the Fed to adopt the Chain

An important option during this period is the

system as an option for banks who wish to use it in

i-Account or something similar, which is basically

their dealings with the U.S. Federal Reserve System.

an offshore account combined with a prepaid debit

The next development will be the extension of the

card that you can use in the U.S. The great thing about

Chain system to foreign banks dealing in U.S. dollar

the i-Account is that you can move any or all of your

transactions with U.S. banks.

funds out of the dollar as needed.

Then well see some nonbank businesses get in on

But the single most important thing to do is to stay

the act big e-commerce players like Amazon.

on top of developments like these as events unfold

via The Bauman Letter and other publications

Once this proof-of-concept process is well

underway, someone in government maybe a

determined to tell you the truth and provide

second-term president Clinton or Trump, maybe

strategies to cope with it. n

www.sovereignsociety.com

June 2016

n Forbidden Knowledge

It All Starts With Saving

Glen Mather, President and CEO, NuView IRA

E generally become the summation of our

habits, the outgrowth of our discipline and the
energy of our ambitions.
Ever hear anyone say, when
challenged about their attitudes
and habits, Im sorry, but thats
just the way I am? They dont mean
to convey that they are unwilling
to change, but those statements
reinforce the sense that they
feel content with their current
situation.
When is it too late? Only when you can no longer
effect change. As long as a conscious effort can be
exerted, you still have time.
Last month, I read a wonderful book called Cash
Flow Diary by J. Massey. I had a very unusual response
to his book on real-estate investing I started flossing
regularly.
I was struck by Masseys assertion that he had come
to the realization that there were a few tasks that he
routinely did every day, and if he had to perform them,
why not do each well? His thought was, Im already at
the sink, just brushed my teeth flossing will only take
about two more minutes. He then focused on making it
a habit. After 30 days, flossing became routine, so much
so that he referenced it in his book.
If Massey could do it, so could I, and its true I
just received high marks from my dental hygienist.
Who knew that it would be so easy to establish such a
sensible habit?
Most of our negative habits are formed, not by
thinking, but by the absence of thought. I have little
doubt that most peoples attitude about money is
formed the same way. Do you see the extra dollar
in your pocket as a measurement of what you can
consume or how much more you can invest?

June 2016

My friend Greg tells me that he drives an older

model truck, because for the price of a $40,000 truck
he can buy a run-down property that he can rehab and
rent for $600 per month. Greg, instead of purchasing an
asset that quickly depreciates, is purchasing a type of
an annuity with an income stream of about $5,000 per
year after expenses, and Greg gets a bigger kick out of
his balance sheet than what is parked in his garage.
Unfortunately, most Americans do not share
Gregs values. According to a recent survey by the
Federal Reserve, about one-third of non-retired U.S.
households have no retirement savings or pension.
Among those aged 55 to 64, more than half said they
expect to work as long as possible rather than work
full time to a set date and stop working.
Why is such a large portion of our citizenry unable
to prepare for retirement? For a small number of
households, it may be due to dire economic hardship.
However, for most, the habit of saving was probably
never established in the first place.
I can see it with our clients there are those who
have been faithful savers as well as those who waited
way too long.
Just think of savings like flossing. It is far more
valuable if you start young. Yet any day you start will
produce results immediately and will accrue long-term
benefits once it is established as a habit.
So rather than setting a large savings objective, just
start with a percentage of your earnings, and as your
earnings improve just increase the percentage. Teach
your children and grandchildren to do the same.
Better yet, when those savings are in a self-directed
retirement plan you avoid the tax bite and thats an
idea to sink your teeth into. n
Glen Mather is President and CEO of NuView IRA.
Before founding NuView, Glen completed his business
undergraduate degree at Southern Adventist University and
his Masters in Information Systems at the University of
Southern California.
10 www.sovereignsociety.com

n Unfiltered Insider

The New Era of Mega-Leaks

By Zafar Khan, CEO, RPost

N April, more than a hundred media outlets around the

world, coordinated by the International Consortium of
Investigative Journalists (ICIJ), released stories on the
Panama Papers, which is an expos
of private client and internal work
product emails and other files.
More than 5 million emails and
files were stolen from within the
IT systems of the Panamanian
law firm Mossack Fonseca. World
leaders and U.S. business people
have become targets as a result of
the exposed data.
From reading the whirlwind of press on the Panama
Papers, there is no doubt that the majority of this
correspondence would not have been admissible in
civil court actions due to being protected as attorneyclient privilege or attorney work product privilege. It
is also likely that the person who provided the trove of
data to the press violated a corporate non-disclosure
agreement or committed an Internet crime.
But for legal practitioners, in todays environment of
massive and immediate dissemination and worldwide
(Internet) publication of exposed confidential
information, does that really matter? If one can point to
public release of the information, does that circumvent
attorney-client and work product privilege?
One might argue that in the new era of published
leaks, attorney-client privilege is becoming obsolete
at least if all the correspondents do is add an old
fashioned signature line to ones email, or a subject
line phrase that makes the statement that the plain
text email correspondence (think written and mailed
electronic postcard) has information so sensitive that
the parties intended the information to remain private
and protected.
With the Panama Papers, an anonymous
whistleblower was able to secretly send journalists
www.sovereignsociety.com 11

the massive set of emails and files, which were then

circulated to more than 400 reporters in secret over
more than a year, before a coordinated effort to go
public, according to ICIJ. The whistleblower and the
ICIJ that coordinated the effort took great care to use
encryption to mask their correspondence, according
to Wired Magazine. It is unfortunate for the Mossack
Fonseca law firm clients that neither the firm nor the
clients appear to have been so careful.
Who might the whistleblower have been? Perhaps a
hacker who gained access to the firms IT systems. Or,
perhaps this was a disgruntled IT staffer, consultant
or outsourcer who copied the database of files before
leaving the firm, and then sold it to a third party.
How much did they sell it for? $10,000? $1 million?
Whatever the price, the reputational damage to
Mossack Fonseca and its clients is far greater.
In these scenarios, it is important to remember that
plain text email correspondence can be exposed in
route in many ways, and certainly on a companys mail
servers, anyone with access can read these messages at
will.
Lets assume IT staffs are loyal and committed to
using best efforts to protect their employees and
employers, and as such, they often go the extra step
of setting up encryption at the mail gateway so
everything leaving the firm is encrypted when it hits
the Internet. We know, however, that they often cannot
control what happens to your message upon receipt
at the recipient destination, and often it is out of their
control if email archives store messages and attached
files unencrypted and are somehow accessed by an
unauthorized person.
The whistleblower treasure trove, may have been
the email archive (in house or outsourced) database
containing the unencrypted messages before being
sent to the mail server (before reaching the Internet).
Whatever the source, the important lesson is
to consider what might one do when one needs to
June 2016

n Unfiltered Insider

communicate with ones client or among staff with

sensitive client matters? We suggest trust no one, and
use Outbox-to-Inbox email encryption rather than
network-level or policy-based gateway encryption,
if your information is sensitive to the highest degree.
RMail encryption calls this Outbox-to-Inbox
email encryption Executive Mode encryption
and recommends use for those dealing in merger,
acquisition, corporate litigation strategy, private client
wealth management and personal health matters;
matters that one would like to shield from their IT staff
or the IT staff at the recipient.
RMail Executive Mode encrypts the message locally
in the senders Microsoft Outlook program at the
senders desktop or device, and ensures encrypted
delivery straight through to the recipients desktop;
securing from the potential of data breaches both
within the senders in-house or outsourced email
system, and external while in transport across the
Internet and within the recipients email system. This
also provides for letting the recipient encrypt replies
without having RMail at their end.
With RMail Executive Mode, the message and all
attachments remain encrypted within the recipients
email inbox, and are printed and encapsulated inside
a PDF file, readable after decrypting in ones PDF

reader (outside of the inbox) and if saved, remain saved

in encrypted file format unless the recipient extracts
the attachments and chooses to use them as normal
files. This end-to-end encryption uses a 256-bit AES
encrypted PDF wrapper to keep ones message and any
attachments private from start (while sitting in outbox)
to finish (even while sitting within their inbox), so only
ones recipient can read them.
There are other ways to do something similar, using
PKI or PGP encryption, but in each of these methods,
depending on how deployed, the message is decrypted
in the recipients inbox and remains so, are usually too
complicated for normal senders and normal recipients
to use, or requires special software at the recipient end
which introduces more complexity.
Would RMail Executive Mode encryption have
protected Mossack Fonseca clients from this leak?
It may have. It certainly should have at least been
an option in the client or lawyer toolkit to protect
information in this new era of mega leaks. n
Zafar Khan is the CEO of RPost. He has been in the
technology field for more than 15 years, and has strategy
and finance experience with Deloitte Consulting. He has
also worked to transfer U.S. Department of Energy National
Lab technology to the private industry.

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June 2016

12 www.sovereignsociety.com

n Chairmans Corner

Avoiding Freedom
By Bob Bauman JD

CONOMIST, John Maynard Keynes playfully

observed: The avoidance of taxes is the only
intellectual pursuit that carries any reward. But then
Keynes never had to confront the
1.4 million Panama Papers.
Keynes clever jest ignored
many intellectual rewards, but
in advocating tax avoidance, he
certainly was not endorsing illegal
activity, however pleasurable.
The legal definition of avoidance
is the act of annulling or making
void or more commonly, acting to prevent something
from happening, such as not being obligated to pay a tax.
The U.S. IRS Manual states: Taxpayers have the
right to reduce, avoid or minimize their taxes by
legitimate means. That same IRS document properly
says: Evasion involves some affirmative act to evade or
defeat a tax, or payment of tax.
Why then has the IRS and the U.S. Department
of Justice, for more than 25 years, conducted an
unrelenting campaign of intimidation to mislead and
convince Americans that tax avoidance is the same as
tax evasion, with offshore as their special target?
The IRS is not alone in this massive duplicity.
In the 1990s, the tax collectors of Europe joined the
U.S. in a coordinated effort to falsely portray all offshore
tax havens as a collective global sinkhole of tax evasion.
At every turn, their distortions blamed tax havens;
for the failure of the U.S. war on drugs, for money
laundering, and, after 9/11, for financing terrorism. Tax
havens, not greedy big banks and government stupidity,
even were accused of causing the 2008 global financial
crisis. The most recent bogus chapter in this continuing
propaganda war is the stolen Panama Papers.
Indeed, the IRS became so aggressive in denouncing
abusive tax shelters that the respected Washington,

www.sovereignsociety.com 13

D.C. tax law firm, Caplin & Drysdale, suggested that

the IRS objective is not to win in court, but rather to
create an in terrorem effect. (In Latin that means so
as to produce terror). The IRS objective: intimidating
U.S. attorneys and tax accountants into failing to give
taxpayers even legitimate tax avoidance advice.
Ignoring their own policy manual, the IRS presumes
legal and legitimate attempts to avoid taxes to be tax
evasion. What truly is abused are the enormous IRS
investigative powers, backed by U.S. Justice Department
prosecutors. And with the Internal Revenue Code a
complex morass, who can tell the difference?
Underlying this largely unappreciated international
operation is the belief that you have no right to
personal or financial privacy; that the government has
the right to know everything, thanks to laws such as the
2001 PATRIOT Act and FATCA.
The Economist confirms the important role offshore
financial centers play in world finance. They have
catalogued the many true reforms in the U.K. offshore
financial centers and in Panama, Uruguay, Singapore,
Hong Kong, the Cook Islands and elsewhere; reforms
that offer strong, legal protection for offshore assets
and investments with real privacy.
Offshore financial centers worldwide have
adopted tax information exchange, signed multiple
Tax Information Exchange Agreements (TIEAs) with
the U.S. and many other countries, strengthened antimoney laundering laws, updated financial privacy
and banking secrecy laws to permit transparency and
legitimate judicial requests.
But nothing will satisfy these vigilante extremists.
Milton Freeman, gave us the reason: Underlying most
arguments against the free market is a lack of belief in
freedom itself. n
Bob Bauman is a former U.S. Congressman from Maryland.
He is an author and lecturer on wealth protection,
offshore residence and second citizenship. Email Bob at
baumanletter@sovereignsociety.com
June 2016

n Your Voice

The Art of
Moving Money
o
You write of the importance of obtaining a second
passport. Yet, I recall reading that U.S. Customs wont
honor the non-U.S. passport of an American citizen, so
you will not be allowed to exit using it. Do you have any
thoughts that you could offer about this situation?

Reply: That is correct, and it isnt unusual. There is no

country Im aware of that will allow its citizens to use
the passport of another country to enter or exit. When
you are inside a country of which you are a citizen, you
are considered to be exclusively subject to its laws.
Thats why, for example, a dual citizen who is arrested
cant expect any assistance from the other country
where they are a citizen. Dont try it its a felony
under U.S. law, and you will be caught, since your
second passport wont have any U.S. visas or entry
stamps!

o
How does one open a foreign bank account to pay
for foreign property, and pay regular maintenance and
local taxes without being a resident of that country?

Reply: There are a number of ways to do this. If you

are really going to make a purchase, the attorney
handling the transaction can always use their own
escrow account for the purchase. Once you are a
property owner in a foreign country, most banks
will open an account for you since you have a clear
presence in and relationship with the country.

o
How do you transfer $100,000 or more to an

overseas bank? According to other writers, there

appear to have been some issueslately with such bank
transfers.
June 2016

Reply: It depends on many factors, including the

country in question, the U.S. and foreign banks
involved and the method of transfer.
In the best case if its a jurisdiction thats not on
any blacklists (i.e. not North Korea, Iran, Cuba and
a handful of other places) there is no legal obstacle
to sending money abroad. So, for the vast majority of
countries, there should be no problem on the U.S. side.

The good news is that property

prices in such countries are much
more reasonable than in the
U.S., precisely because mortgage
finance isnt so easy to get.

Then there are the issues with banks. Your U.S.

bank may not have much experience with large
international transfers, but every bank on the
planet has some mechanism to make them happen.
All U.S. banks, of course, will have you fill out some
paperwork, including government financial reporting
forms. Thats entirely unavoidable. But, assuming
you dont have any legal issues in the U.S. that would
prevent it, its not going to stop you from doing it.
Foreign banks are another matter. Even if the
country in question is OK with the U.S. authorities,
the specific bank abroad may not be. For example,
Balboa Bank in Panama was recently cut off from
money transfers from U.S. banks because it was
allegedly involved in money laundering. Similar
things have happened to banks in Belize. Sometimes
14 www.sovereignsociety.com

these bans are put in place by the IRS or the Treasury

Department, but in other cases, U.S. banks decide on
their own not to deal with certain foreign banks for
fear of getting in trouble with the government for
some reason.
In terms of methods, the only real option for
a transfer of that size is a wire transfer using the
SWIFT (Society for Worldwide Interbank Financial
Telecommunication) system. Money-transfer services
like Western Union, Xoom.com or XE.com have
relatively low monthly limits, usually about $3,000.
Finally, writing checks drawn on a U.S. bank to a
foreign bank is sometimes possible, but for an amount
like that, it is unlikely that either the U.S. or foreign
bank would be willing. Wire transfers leave a paper
trail and allow the bank to suspend the transaction if
something comes up. Checks dont.

o
How do you get a home mortgage overseas without
being a resident with local income/credit references?
Basically, it seems such purchases can be made only in
cash. Such transactions are onlypossible for a limited
amount of people and are a pipe dream for most
Americans.

Reply: I wish there were better news, but the truth

is that most foreign countries dont have U.S.-style
mortgage systems for the simple reason that they
are prone to crises and inevitably inflate the prices
of property artificially. In the best case, depending
on a variety of factors, including your U.S. financial
standing, you can get a 70% 10-year mortgage. Longterm or higher LTV ratios are unheard of.
The good news is that property prices in such
countries are much more reasonable than in the U.S.,
precisely because mortgage finance isnt so easy to
get. For example, a nice condominium in Panama
City, Medellin or Montevideo can be had for around
$100,000. That means you need about $30,000 to
$50,000 in cash to finance it.
I understand that this may not be feasible for
everyone, but the reality is that this is the price for
the sort of market stability that those countries enjoy
relative to the U.S. n

Im interested in hearing more from you. What is

your No.1 concern when it comes to your assets
and your freedom? Send your comments to me at
baumanletter@sovereignsociety.com

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www.sovereignsociety.com 15

June 2016

n Final Thoughts

Things Will Fall Apart

ATELY, people have asked me if I really believe

my own predictions. Are things really that bad?

Arent I just using scare tactics to drum up page hits?

I wish that were true. I fear for the future of the
world as we know it. More so, perhaps, than other
financial writers.
One thing that sets me apart is that Im not
focused primarily on short-term yield. A stock market
analyst may accept that the U.S. financial system
will eventually collapse, but that doesnt mean there
arent plenty of opportunities in the meantime.
So, part of it is time frame. I always think of the
ominous words of John Maynard Keynes: In the long
run, we are all dead. Now, you might argue that
Keyness admonition strengthens the short-term
perspective. After all, if were all destined for a dirt
nap, why not make the best of things right now? Why
not leave the future to those who will inhabit it?
Because that would be selfish and rude toward
those people, thats why. The future includes my own
children and their descendants. And because I care
about living an ethical life. What I leave behind is the
single most important measure of a life well-lived
not whether I got the markets right.
Concern about posterity is behind my longerterm perspective. But it doesnt explain why that
perspective is negative. The reason for that is my
lifelong fascination with human history. To put it
bluntly, I dont believe in the idea of progress. I just
dont buy the notion that the future can take care of
itself because things always get better on their own.
The myth of progress is central to our modern
worldview. The near-universal focus on economic
growth over human well-being is based on it.
U.S. nonprofits base their marketing on the word
hope, as if having it will fill an empty stomach. Our

Sorry, Reverend, but as far as I can see, human

liberty and material flourishing actually wax and
ebb over time. Past societies that we admire, like the
Greek city-states or the Chinese were unequal and
unjust. Only a tiny elite enjoyed their fruits. The vast
majority lived lives of slavery and died bad deaths.
Moreover, those great flowerings of human
achievement always collapsed. The Greeks burned out
in a morass of warfare. Rome fell to the barbarians.
The Mediterranean Arabic caliphate disintegrated into
the corrupt Ottoman Empire.
The key to understanding this uneven dynamic
is the push and pull between elites and everyone
else. The pattern is so common that you could
almost call it a law of history: Those with power
in society eventually overplay their hand and the
whole thing falls apart. Of course, some societies
and their elites are chastened by external forces, like
Britains aristocracy after the two World Wars. But
societies without external threats eventually destroy
themselves.
What I see in the U.S. today is a collection of
interlocking elites racing toward doom. Whether in the
economy (Wall Street and big corporations), politics
(Washington and the state houses) or the bureaucracy
(especially the security services), people who think
they are bulletproof are pursuing paths that are clearly
unsustainable. They are so isolated from the real
concerns of ordinary people that they wont realize
how angry we are until its too late. The topic of this
Bauman Letter is an excellent case in point.
The one thing that does give me hope is that
ordinary people always push back against the elites,
and they always rebuild society even if its only to
start the cycle all over again.
Kind regards,

philosophers embrace it the popular ones, anyway.

Martin Luther King Jr. said: The arc of the moral
universe is long, but it bends toward justice.
June 2016

Ted Bauman, Editor

16 www.sovereignsociety.com