For years investors figured the United States would be the safest place to park their money
and the U.S. government would always be trust whether to pay them back.
But a new report says that's changing and that U.S. treasuries are not as safe as they used to be.
This is not from the Crackpot News Service or some fringe source.
This is from Reuters. The headline is U.S. treasuries not the safe bet they once were
research says. We're going to go through the article and I'm going to tell you why I think this is so
important for you and the change that you need to make if you want to protect your wealth
as the world changes. So the article begins no safer than a bund or a guilt or an oat.
Long-titled is hands down the world safe haven securities. The behavior of U.S.
treasuries during and after the COVID-19 pandemic calls that label into questions
suggesting they are a little different from the debt issued by the likes of Germany,
Britain, France or even big corporations. Now the first thing I see here is when most people in a
country like the United States would hear oh okay treasuries aren't safe anymore.
Well sure I'll just go to Germany or Britain or France and that's the wrong way to think.
I have bank accounts for example all around the world. I do what we talk about here
and I was opening one of the bank accounts through today. I'm looking at government
debt they can offer me in Bahrain in Oman in Kuwait. I got some pretty high yielding debt
in comparison to these countries available and I think you want to expand your horizons.
Who do I trust to pay me back more? Legacy brand, high-tax France with all their financial
problems or a country where they believe in hard work. Get to it. You want to come here?
Yeah get to work. We're moving. We're going in the right direction. Who do I trust to pay
me back more? Sure the credit rating is important. I also look at the culture rating. A culture like
the US, Germany, Britain and France. The alternatives that people look at for each other
because they're in the western mindset. I trust them less and increasingly others are too.
That's the key finding of new research presented at the Kansas City Feds
annual research conference in Jackson Hole Wyoming. This is the kind of stuff that
Danielle D. Martino Booth talked about this year at Nomad Calculus Live. It's our big four-day
annual event with lots of global citizenship R&D. Amazing people from all around the
world and great entertainment. Get on the waiting list at nomadcalculus.com
slash live. You will hear insights like what she talked about on this. It was pretty rousing.
But it examines a shift in investor behavior in that period that raises questions about the
exorbitant privilege the US has long enjoyed to borrow broadly on the global market even as the
federal budget gaps grow even wider. Even right-wing politicians have been quoted saying,
yeah deficits don't matter. Just deficit spend, deficit spend. Who cares? Just run up the debt,
run it up trillions, 30 trillion, 35 trillion. Unfunded liabilities over 100 trillion when
you add that in. What a great way to say it, exorbitant privilege that one country was able to
take advantage of that system. And what a great way to say it, exorbitant privilege.
One country took advantage. No, you can go back and you can find, you can say the historical
reasons that's fine. I don't think this historical reasons apply anymore. And so it's like any
great marketing campaign. I always show you Coca-Cola. Where is the Coca-Cola? We always
have the Coca-Cola. You know the Coca-Cola red? You know the Coca-Cola ribbon logo?
That's the brand. There's a reason we're not stocking the salt cola they have here.
There's a reason we're not stocking the RC Cola. People like the brand. Maybe there's a better
cola out there that people aren't discovering because Coca-Cola pushed them off the shelf.
They use their enormous heft to make sure the superior cola, never saw the, I don't know,
but it's quite possible. And would you buy the superior cola from a brand you've never
heard of? No. And that's the exorbitant privilege that the US government used.
But what do we keep seeing? Every year we see more articles of people are waking up.
We're just talking about the UK and all the crazy new taxes this new government in the UK wants to have
and how people are leaving. They say, oh, no one's really going to leave. People are leaving
from everyday millionaires to billionaires are leaving the UK. Why? Stated reason,
mainstream media news. They know they have more options than the last time the left wing
was coming into power wanting to soak their wealth. And now people realize the exorbitant privilege
isn't really backed up by a lot in the US anymore because they can go to a lot of places who manage
their financial affairs much better than the US government. Wait a second. Why? Because something
good happened in 1952. We'll be giving these guys a better deal than these guys who are doing
it right today. I mean, what do they tell you in relationships? Relationships are about
what's the person doing for you now. If a person is abusive to you now in your
relationship, that's what's happening now and that's what it has to be dealt with. Oh,
but it never happened before. You can't, you can only rely on the past so much
in the US's use of this exordinate privilege. And so it's catching up exactly the kind of
thing we've been talking to you about for a dozen years now. A timely question the
article continues, given growing deficits are seen as a near certainty regardless of who becomes
the next US president. Another thing you've heard from me and many other people. Doesn't
matter who wins. We just have to stand as good gun-toting patriots and make sure we vote for
Donald Trump. We have to vote for, and then don't worry everything will be solved. It'll be solved
because you feel better that the person you voted for won. Listen, I don't know Trump. I don't know,
I don't know Kamala. Crazy Kamala. I don't know these people. What I do know is a former US
citizen, not my circus, not my monkeys anymore. I don't really care. That doesn't really
bother me. They're not coming and asking me for more taxes that I can tell you. I don't understand
being in my predicament looking at the US or looking at any of these high-tax countries from afar.
The idea that if only the right wing gets in charge, by the way, I didn't live in the United
States. The right wing is more likely in my opinion to tax people who don't live in the
United States than the left wing. I genuinely believe, you can say whatever you want about
the rest of our policies, Hillary Clinton would have been better for American expats with wealth
than Donald Trump. Hillary Clinton is like, our country is not so great. Live somewhere else if
you want. Who cares? We're not going to treat you any differently. The right wing does,
not just in the US, but probably everywhere. It doesn't matter who gets elected. It certainly
doesn't matter about reducing the deficit. Everybody gets in and they think they're
going to change Washington or they're going to change the country. They're not. It's a
naivete. The machine is built. This is why I've told you for years. The US has to turn,
it cannot turn the dime. It turns extremely slowly. So once things start going in the wrong
direction, it's extremely hard to turn that ship around. If something ever went poorly in Liechtenstein,
you just, you turn the thing right around. That's why we've talked a lot about small
countries. I think small countries, they're often forced, not all of them by any means,
but there's plenty of good ones where they're forced to have fiscal discipline. Why? They
don't have the exorbitant privilege. So they just run their affairs properly. They also are forced to
give their citizens a greater freedom. They're also certain, you know, this is why you want to have
residents and citizenship in some of these smaller countries that no one's ever heard of because
they're not used to having power and privilege. And so therefore the entire ethos of how they
operate is different, whether it's financial, whether it's for your personal freedoms,
especially if you're an American, you will feel a difference. We host nomadic
countless live in Malaysia. It's not the smallest country. It's about 35 million people.
People come to Kuala Lumpur like, oh my God, I just feel more free. Oh, this feels different.
You will feel the difference when you go to a country that does not have the power and the
privilege. It's not giving you the boost you think it is. New York University's Roberto Gomez
Cram, London Business School's Howard Kung, and Stanford's Hanu Lustig also threw in a
question the assertion that the Treasury market was dysfunctional in that period as asserted by
the Fed when it launched its massive bond buying or just rationally pricing the risk of a massive
unfended spending shock then being prepared in response to the health emergency. The researchers
looked at the behavior of the Treasury securities during the pandemic shutdown when yields shot
higher, not just for U.S. debt, but for bonds issued by nations around the globe. They found
investors did not as they had during previous episodes of global financial stress pile into
Treasuries and drive up their value. Instead, investors marked down Treasuries much as they
did for bonds from other countries. Meanwhile, the Fed responded to the spike in U.S. Treasury
yields as if it were a result of market dislocation. It couldn't be anything we did.
They said buying up bonds to bring back order to the world's usually most liquid
debt market as they had during the global financial crisis. And so the article goes on and on and
of course some folks at the U.S. Treasury disagree, et cetera, et cetera. You can find that on Reuters
or on Yahoo Finance. Here's the one thing that I look at from the nomadic capitalist
perspective. If you buy Treasuries, you don't get anything in return. Now, just give me a
second to explain. You can go to other countries around the world. You can go to St. Lucia and
you can buy government debt. They'll give you citizenship. There's a country most people don't
think about a lot. I'm a St. Lucian citizen. I go places. You know what the remark is when I go
to some places? I don't travel to a lot of countries with that passport when I do. Oh, wow.
St. Lucia, I don't sit there very much. How are things on the island? Why did you come here?
Don't you like your island? Like, ha, ha, ha, come on. It's great. Not so much when you're
coming to a passport where it's like, oh yeah, you guys are a pin in the butt. Yeah,
we deal with your people. We deal with your embassy. You guys are a bunch of jerks. Now,
who cares to a certain extent? But I'll tell you what, when it comes to doing business
in an increasingly multipolar world, I'll take being St. Lucia and over being American
because the US is going to pissing people off and you're going to have fewer opportunities.
You already do when it comes to banking and brokerage and investments around the
world. You've got a lot fewer opportunities. Crypto too. What happens when your business
has fewer opportunities? So you can go to St. Lucia. You can go to Jordan. Okay, that's
not a very good passport, but you can go to plenty of countries. You can get citizenship.
And if not citizenship, you can get a residence permit where you can go and live in that country.
Some of those countries are tax-friendly. I bought Armenian government debt at one point.
You can get a residence permit by doing that. I'll tell you what, in some ways,
it has been a more open country. It's not the most tax-friendly country,
but there could be a situation in the world when moving to Armenia would be the thing to do.
Now, I'm not saying that's the place that you have to go, but by the way,
it got paid pretty well for owning that government debt. And I did get paid. Just
checked the bank statement not that long ago. Just dropped right back in there.
Bonds matured. Here's your money with interest. By the way, the currency also
dramatically appreciated against the US dollars that I'd converted to buy those
DRAM-denominated bonds. There are countries in Asia that will give you residence permits
that are tax-friendly if you buy their debt. Also, if you buy their equities.
And so you buy US treasuries. You're buying the exorbitant privilege. You're buying this story from
yesteryear where they're more secure. Even, again, the people criticizing them are like,
oh, well, the alternative is France. No, no, no. The alternative is everything else in the world.
If you're buying hundreds of millions of dollars of treasure, if you're institutional,
obviously, you're not going to go and buy your little $20,000 in Armenian
debt to get a residence permit. But it wouldn't be the worst thing if you have
a lot of money in treasuries or money markets. And this is not financial advice by any means.
But if you figure out, hey, how much of my money would I carve off and put it in some other countries,
I could get residence and citizenship privileges. And hey, if stuff got bad enough here because
this exorbitant privilege became unraveled and the government had less power and it was less
well off and that trickled down to the people and something bad happened. Let's talk one report
in Canada, civil unrest, all this stuff cascades. What would it be nice to have a place to go?
What if you just peeled off some of your treasury positions, some of your bank accounts, some of
your money market accounts and just put it in some debt somewhere else where you got something
in exchange for it? And what I think is the other issue we've talked about for a couple years
now is the US government sanctions more than half of low and middle income countries.
It is becoming a growing trend in Western countries to go after people that the
government doesn't agree with, go after people who aren't part of the agenda, threaten to cancel
the passport, threaten to take their stuff that has happened in some legacy brand Western countries.
Expropriation in a country like the United States, it's a lot higher risk than you think.
Now, I get the average person thinks it's a zero risk. So I'm not saying it's
the highest risk ever, but you know what's not as high a risk as you think?
Expropriation in other countries. Yeah, the UAE has enough money. They don't need to take
your little bonds, even like Nicaragua, for all their problems. You know the difference between
Nicaragua and all the crazy stuff that happened back in the last century and what's happening now?
I finally let these foreigners come buy our stuff. Now, if you're a citizen there, if you're from
there, if you're in politics, always dicey. Let the foreigners come and buy our stuff.
People don't want to do Turkey as a citizenship by investment program. You get a passport of a
country that wants to be in bricks, of a country that is different, that has different relationships,
that have different opportunities. You get a passport. All you got to do is buy an apartment.
Oh, what if they come and take my apartment? Yeah, okay, Erdogan, I think he's got better
things to do than come and take your little $400,000 two bedroom apartment, okay? Like with
all due respect. And so I think that there's this whole thought that feeds into the privilege
the US will never take your stuff and the other countries always will. That's not really
the case. Maybe it's a couple of percentage point risk here and a couple of percentage point risk
there. And so when Warren Buffett says, don't diversify, diversification means ignorance.
You know what? Who among us knows which country is going to go out and do something stupid next,
raise taxes or make redoubt? Who knows what they could do? Geographical diversification to
different countries means your money benefits from different laws. And I think that what
this article was saying is people are realizing they're not getting the returns for the privilege
the US treasuries had because they're not performing as well as they should have and as they used to
and the whole narrative is kind of coming apart. I'm not happy or unhappy about that,
but the research says that's the case. And so therefore I should react because my own wealth,
my own success, my own family is more important than my loyalty to a government that somehow
tries to tell me they did something for me. I did things for me. You did things for yourself.
Maybe you went to their schools. Maybe you drive on their roads. So does everybody else.
Somehow you came out on top and now they're not giving you the deal they used to. Your
investment is not as well protected. It is not as just read the research. And what I'm saying is
maybe you pick a couple of different countries where you do that and while you're doing
that, maybe you get a residence permit or citizenship so that one day it becomes
untenuous where you live, whether it's the US or someone else, you're no longer subject
to the privilege they've lost and what the aftershocks are of that.