Blogger Philippines Flag US Flag Hungary Flag

Retrench or Expatriate? (Economics, Lifestyle)

Going ExpatriateThe economy of the western world, meaning mainly the US and Europe, is not getting any better. Unemployment is high and rising, the private and public debt burden is skyrocketing out of control and civil unrest is growing. The mainstream media bubbleheads try very hard to paint a rosy tint over the already manipulated government statistics but if you dig a bit deeper, you can find the truth. It has an ugly brown color. I encourage you to subscribe to alternative media RSS feeds, such as Zero Hedge (excellent agglomeration of relevant news with many sage and some inane comments), Mish's Global Economic Trend Analysis (more analysis not just a mash-up), Calculated Risk (focus on the economy with emphasis on real estate), Clusterstock (not just about economy and finance but lots of fun reading, too), Clusterfuck Nation (exceptionally well written essays by James Howard Kunstler, author of "The Long Emergency" and several other books, published about once a week) and finally Karl Denninger's The Market Ticker (acerbic comments on the economy, finance and politics). Reading these blogs regularly will give you a more balanced view of the economy, finance, politics and the world in general.

The decision whether to batten down the hatches for the coming (raging?) economic storm or to relocate to another country is a major one and it depends on many individual factors, such as family, friends, health, finances and a host of others. One of the biggest factors for me was the question whether the system can be repaired (changed from within), or is it so corrupt, so irreparably damaged that it cannot be fixed. All other things being equal, if you believe that the system can be righted over a reasonable period (e.g. within your lifetime or less), by all means protect yourself and your family. If you believe that the problems are chronic and terminal, then you might want to consider expatriating.

The national debt of the US and many other western countries is so huge that is cannot be paid back over any reasonable time. Should creditors demand higher rates of interest, servicing that debt will become more onerous and eat up a larger share of each nation's productive capacity. Raising taxes to cover fiscal deficits and debt service is an option but will have deleterious effects on economic growth as well as increasing the level of discontent.

The aphorism "debt which cannot be repaid will not be" is axiomatic yet it seems to be ignored. There are three possible paths out of the current morass and none of them are pretty.


Governments may repudiate (renege on) their obligations. This has happened before, even in the US (refusing to redeem gold and then silver certificates, for example). There is quite a bit of chatter in cyberspace about declaring a part of the US' debt "odious debt". From Wikipedia, "In international law, odious debt is a legal theory that holds that the national debt incurred by a regime for purposes that do not serve the best interests of the nation, should not be enforceable."

US $10 Gold Certificate, 1928

Repudiation often has dire consequences, especially in international trade. Should any large-scale repudiation occur, it is conceivable that exporters would refuse to sell their oil and other natural resources, manufactured goods and services which would send the entire world economy into a tailspin. The value of the currency of a repudiating nation would also dramatically decline.


The more typical response by governments with an unmanageable debt burden is to inflate their money supply, essentially to print more money. Inflation benefits borrowers and punishes savers and lenders. Hard money borrowed is repaid in the future with increasingly softer (weaker) currency. If I borrow $300 to buy a suit and then repay that $300 some years later when the same suit costs $800 or even $1,800 then I benefited at the lender's expense.

Zimbabwe MoneyPrevailing interest rates are supposed to factor in inflation expectations. In other words, if a lender expects higher inflation during the term of the loan, it will demand a higher rate of interest from the borrower. This is true during "normal" economic times, however central banks, with the leadership of the US Federal Reserve (a private institution, about as "Federal" as "Federal Express") has manipulated interest rates on government obligations (Treasury bills, notes and bonds) to be so low as to have an effective rate (yield minus the rate of inflation) which is negative. They did this by buying trillions of dollars worth of Treasury (and other) securities using freshly "printed" money. The mis-pricing of risk is further exacerbated by flight to safety, as investors seek safe haven during times of economic turmoil.

The result of all this intervention will inevitably be massive inflation. There is no way to have all this liquidity sloshing around without ensuing inflation. The Fed needs a vibrantly growing economy before it can think about mopping up all the excess liquidity (draining the money supply) by selling off its assets (government and other bonds for cash). Doing so would certainly would slow the economy, hence the need for vibrant growth.


Bread LineAnother, rather ugly government response to chronic economic malaise is to declare war. This option is usually reserved for global superpowers with the capacity to wage a credible, winnable war. Today there is only one of those, the USA and the US is already engaged in at least three wars: Iraq, Afghanistan and Libya. I am not counting the other nonsensical "wars" on terror and drugs. One cannot wage a war against terrorism any more than one could go to war against lying or cheating. Terrorism is a tactic an enemy might use for political or other gain and it is impossible to wage a war against a tactic.

During times of war, many rights and obligations are suspended or erased. War can also be an instrument to acquire more assets (resources) as well as territory (tax base). War is ugly and destroys the wealth of nations and mis-allocates productive resources to non-productive use. Any war must be righteous and just, waged against an identifiable enemy, with clear objectives and a clear vision of victory. War cannot be justified solely by a shaky scaffolding of emotional sound bites.

The decision to retrench or expatriate is a big one. Consider the alternatives and consequences wisely. I have studied all the options for a couple of years before moving to the Philippines. So far, it seems that the decision was the correct one but time will tell. I am certainly not forsaking my US citizenship. I take my pledge of allegiance seriously. I have sworn an oath twice (once in the US Air Force and again when I became a US citizen) which I will honor forever.