The 4 Freedoms Library

It takes a nation to protect the nation

I have failed so many times to explain this to people (although I think Paul and Alan have the same view that I do).  By accident I came across this explanation.  And as disturbing as the content is, it is a very simple explanation of what has gone wrong.  They can't predict the time of collapse (though they say it could be within 1 year).  I think that at the absolute outside it is no more than 10 years away (the UK is in the unusual position in Europe that when the 2008 financial collapse came, the UK had issued bonds with a 14 year term, whereas every other country in Europe had issued bonds on a much shorter timescale i.e. they were coming to maturity within 2 to 3 years of the collapse beginning).

My view, and the view in this article, is that financially the UK is in a worse position than Greece or Spain.  And it is only by accident that this has not been obvious.

What is interesting is MoneyWeek's claims that on so many criteria, they have been right whilst the mass media have been wrong.  But when one thinks that the government make sure they have tentacles of control stretching through the mass media, then it makes sense that the mass media are going to be the ones who cover up this perilous financial state.  We should look to smaller (uncontrolled) specialist media outlets.  The Jewish Chronicle reports on Morsi's anti-semitic statements; the Telegraph and the Daily Mail have been silent on the matter.

You may have heard of MoneyWeek because of the work we’ve done over the last several years – helping investors avoid some of the big disasters associated with the credit collapse.

We warned investors to take their money out of Europe in 2009… to avoid buying the euro… to stay away from the big banks in 2008… and steer clear of property investments in 2007.

We even helped our subscribers find opportunities to profit from the ensuing chaos, by stocking up on gold and a number of other assets unpopular at the time.

To our knowledge, no other publication can match our record of correctly anticipating and predicting the financial crisis.

But that's not why we wrote this letter.

We cite our success and experience with the crises of the past because there is an even bigger crisis looming – something that we believe will distabilise the very foundations of Britain. 

And that is why we've spent a significant amount of time and money in the past few months preparing this letter... perhaps the most important letter you’ll receive this year.

This looming crisis is related to the financial crisis of 2008... but it will be infinitely more dangerous. As we’ll explain, there is an unsolvable problem at the heart of our financial system. One that dates back over a hundred years.

In that time this problem has eaten away more than £10 trillion in public funds. It has been at the root of practically every major political argument in this country, and it affects every aspect of the way we live our lives.

Twenty-five Prime Ministers – from both political parties – have come and gone without ever having come close to solving it.

We believe the outcome of this problem is inevitable… and the recession, joblessness and instability you see right now is only the first stage of it. Many people think the slump we’re in now is as bad as it will get.

But the truth is, it’s only the start.

In fact, you will certainly see the consequences of this deep-rooted problem unfold across the cities, towns and villages of Britain. No one will escape the fallout.

In all recorded history, no country has ever recovered from the financial position we find ourselves in today.  No government has ever been able to reverse this trend. No emergency action has ever come close to a solution.

This inescapable problem has only ever had one outcome: financial collapse.

Believe me, we don't make this prediction lightly and we have no interest in trying to scare you. We're simply following our research to its logical conclusion.

We did the same when we anticipated the global credit crisis, the property slide and the collapse of the banks.

That's why, before we go any further, we need to make something clear...

This is the most serious warning we’ve ever made

This is not just about your money. Yes, at its core, money is a big part of the issue. But it goes deeper than that.

What we are going to say is controversial. It will shock many people.  In fact, we anticipate an inbox full of angry emails for what we are about to reveal.

And the ideas and solutions we are going to suggest might seem somewhat radical to you at first.

Way back in 2005 – when we began warning about Britain’s dangerous debt burden – very few took us seriously... not at first. Back then, most mainstream commentators – from the Financial Times to the Daily Mail – just ignored the views we published.

People couldn't refute our research... but they weren't ready to accept the enormity of its conclusions either.  Our guess is that, reading this, you may say that too. You’ll say: "There's no way this could really happen... not here. Not to me."

But consider this:

No one believed us six years ago when we predicted the oil “super spike” months before it made its 82% climb.

No one believed us five years ago, when we anticipated the slide in the pound, calling our national currency ‘Down and out’.  It has since suffered a long decline and will do so for many years to come.

And no one believed us three years ago when we advised our readers to ‘SELL EUROPE’. The eurozone crisis has since devastated stock markets across the continent.

In each case we were right to issue these controversial warnings early.

Those who received our early insights – our regular readers – would have made and saved thousands from these events. They had quite an advantage.

And that brings us to today...

The same financial problems we've been tracking from bank to bank, from company to company for more than five years have now found their way into the heart of our financial system. we’ll explain how this came to be, because what it means is critically important to you and everyone in the country.

The next phase in this crisis could threaten our very way of life.

We predict that everything about your financial life will change: where you bank, how you store your money… when you plan to retire… the way you protect your family and home.

we'll explain why we believe these events are about to happen. You can decide for yourself if we’re full of hot air. As for us, we are more certain about this looming crisis than we have been about anything else in our publication’s history. It makes us worry about the future for our families.

Here at MoneyWeek, we know that debts don't just disappear. We know that bailouts have big consequences. We know that printing mountains of money can only end in disaster. And, unlike most of the pundits on TV and in the mainstream press, our analysts understand what’s really going on, and they have made a habit of getting the majority of these big calls right.

Of course, the most important part of this situation is not what is happening… but rather what you can do about it. In other words, will you be prepared when this crisis becomes a national emergency, as we predict?

We fear that most people will not know what to do if banks fold and they are unable to withdraw their savings.  They won't know what to do if the stock exchange suspends trading. They will be clueless if their pension income dries up. And if their home loses 50% of its value.

If the NHS is sold off and benefits are scrapped, the confusion will turn into rage. Media coverage will be of course, unhelpful.

You can challenge every single one of our facts and we are confident you'll find that we’re right about each allegation we make. Then you can decide for yourself.

Will you act now and take this chance to protect yourself and your family from the catastrophe that’s brewing right now in our financial system?

We hope so. And that’s why we wrote this letter.

We are going to talk you through exactly what’s happening and what you can do as well. We can’t promise you’ll emerge from this potential crisis completely unharmed – but we sincerely believe you’ll be a lot better off than people who don’t follow the simple steps outlined in this letter.

But we're getting ahead of ourselves a bit.

Let's start at the beginning.  Here’s why we are so concerned, and what we believe will happen in the very near future...

The downward slide has begun

Britain is about to be flattened by a tidal wave of debt. It doesn’t matter if you vote Conservative, Liberal, Labour, UKIP – or for no party at all. The facts are the facts.

Let’s take a look at some numbers…

Two and a half years ago, when the Coalition government formed, we were already in a huge amount of debt. In fact, the previous government had left the country sinking under £700 billion’s worth. Take a look at the following chart:



The Coalition has spent the last two years desperately and very publically trying to get our finances in order. We’ve had an “austerity” budget. We’ve had tax hikes. We’ve had “the cuts”.

But for all that, our national debt is still growing at an incredible rate.

Despite David Cameron’s talk of “austerity”, he’s going to add an estimated £700 billion to the national debt in just five years. That’s more than Tony Blair and Gordon Brown added to the national debt in eleven years. It’s more than every British government of the past 100 years put together.

The fact is, when you look at our finances as a whole, the Coalitionisn’t cutting anything. State spending is going up… our national debt is going up… and our interest payments are going up.

By the next general election in 2015, our national debt is estimated to stand at almost £1.4 trillion, as this chart shows:



It’s clear: our public finances are in an enormous mess. Anyone can see that. And to some extent, some politicians will admit it. But add in our financial, personal and private debts… and an even darker picture emerges…

Compared to the size of our economy, Britain is now one of the most heavily indebted countries in the Western world. That’s official. Our total debts stand at more than FIVE TIMES what our entire economy is worth.

Proportionally, that’s more debt than Italy… Portugal… Spain… and almost twice as much debt as Greece. Those are four countries already in the throes of financial crisis. We’re the odd one out because we haven’t collapsed – yet. But things can’t stay that way for long.

You see, the only countries that have more debt than us are Japan, where the economy has stagnated for 20 years and the stock market has crashed by 75%... and Ireland, where the housing market has crashed 50%, and the government has been forced to accept a bailout.

In fact, our debts tower above almost every other nation’s – here are the figures that prove it:


Source: Haver Analytics; Bank for International Settlements; national central banks; McKinsey Global Institute

That's absolutely incredible, isn't it? Yet you’ve probably never seen this fact reported in The Telegraph or on Sky News.

And the worst part is, even THAT isn’t the full story…

Because when you add in all of Britain’s “unfunded obligations” – promises the Government has made on things like public sector pensions – our debts swell to 900% of our economy.

That’s right – when you add everything up, we owe TEN TIMES what our entire economy is worth.

Our political leaders still like to see Britain as a world power. But let’s not delude ourselves.  It’s clear to see: we’re totally broke.

It doesn’t matter which set of figures you use, or which way you look at Britain’s debts. We’re merely talking about different shades of disaster here.

A country can either pay back its debts or it can’t.

And it is very clear to us that Britain can’t.

But how did we get here?

After all, we were once the richest and most powerful nation on earth.

What happened to all of our money?

A dangerous experiment gone wrong

On the 1st of January, 1909, something happened for the first time in British history.

The government agreed to redistribute taxes to support people in their old age. On that day, more than any other, the modern welfare state began in earnest.

The rules were simple. Men aged 70 and above could claim between 2 and 5 shillings per week from the government.

But for all the positive press and good feeling, the government wasn’t really making that big a financial commitment – because back then the average working man could only expect to live to 48 years of age.

That’s the equivalent of offering someone a pension today… but only when they reach the ripe old age of 115. So the idea of rewarding anyone who made it to 70 with a hand-out from the public purse seemed perfectly fair. And more importantly for the government, cheap.

That first year only 500,000 men qualified for a government pension. So at the time there were 10 workers for every pensioner.
Lloyd George initiated a social experiment that would soon spiral out of control.

It was a perfectly workable policy, but few politicians realised that they were setting in motion a sequence of events that would inevitably lead to the crisis Britain faces now.

And let’s not forget, at the beginning of the 20th century, Britain still had a booming overseas Empire. It had yet to fight in the cripplingly expensive First World War. The economy was on a seemingly permanent upward trajectory.

And the idea that Britain could face any kind of decline – financial or otherwise – had not yet entered mainstream thinking. We could afford to pay for a welfare state, so why shouldn’t we implement it?

But there was one problem: now the welfare state had started… no one had any idea where it would stop… or whether it could actually be stopped if it became unaffordable.

We’d created a trap for ourselves… then stepped right into it.

“Please sir, can I have some more?”

It wasn’t until the Second World War was finally over that the welfare state really began to grow…

Welfare was seen as a major part of “Winning the Peace”; keeping the forces of Socialism and Fascism at bay. Of course, politicians soon realised welfare wasn’t just a tool to win the peace. It was also incredibly effective at winning votes too.

This same scenario came to be repeated across the world – in the USA, Japan and across Europe. Seemingly limitless economic growth and prosperity allowed politicians to make an essentially unlimited promise:

The government promised to look after you “from Cradle to Grave”. This single, powerful idea gave government the licence to swell to a size unimaginable just half a century earlier.

The promises got bigger, and so did the cost.

In just a few short years, the size of the welfare state grew, almost uncontrollably, in a flurry of new laws. There was The Butler Act, which reformed schooling. The Family Allowance Act. The National Insurance Act. The National Health Act. The list went on. The problem was, this all came with a nasty side effect. It was immensely expensive.

Everyone assumed we’d be able to pay for it forever.

But they were wrong.

Politicians found themselves totally and utterly caught in this trap. Any attempt to reduce the size of the welfare state was met with often violent resistance in the form of strikes and protests. Or the party trying to cut back – to do the sensible thing - was simply voted out of power.

After all, an ever growing proportion of the population now benefitted from the welfare state, in one way or another. The safety net couldn’t just be pulled away. The government would forever be saddled with an expense that could ONLY grow.

And grow it did:

  • Since public pensions were first introduced, average life expectancy has grown from 48 to 80 – a 67% increase. But the age at which we retire has remained essentially the same. This has resulted in an estimated £5 trillion worth of pension promises the state has made to its citizens – roughly five times what our entire economy is worth. No one has any idea how we’ll pay these. The recent attempts by the government to change the retirement age don’t go anywhere near solving the problem.
  • As people have lived longer, the strain on the NHS – the demand for medication, more doctors, nurses and other staff, as well as a skyrocketing cost of caring for the elderly – has pushed our finances to breaking point.
  • In fact, as state spending has grown, so has the cost of running the welfare system itself. For instance, the state employs half a million civil servants. To put that into perspective, during the height of the British Empire, when Britain ran a quarter of the planet, the state employed just 4,000 civil servants.

If you’re in any doubt just how out of control state spending has become, simply take a look at this:



As you can see, spending has exploded in a way no one could have imagined 100 years ago.

With the idea of welfare being such a vote-winner, no government could take the bull by the horns and cut it back. Not in any meaningful way. They could fiddle round the edges and save a few pennies here and there, but as the population grew larger and lived longer, all they could really do was sit back and let a future generation sort it out.

And now it’s come down to us.

In 2012, for example, the government will spend roughly £120 billion more than it collects in taxes.

Government over-spending = BORROWING

And in a situation like this – when you spend more than you earn – there’s only one way of paying for it. By borrowing money.

That alone is bad enough. But remember, we also have to service our debts – to pay interest on a pile of debt that’s mounting ever higher… debt that we’ll never pay back.

So a vicious cycle was set in motion. Politicians realised that to remain in office they needed to make bigger promises, call for bigger reforms, and ultimately borrow more and more money.

This addiction to debt has spread into every corner of British society. Banks… businesses… the ordinary man on the street – these days they all carry a great weight of debt. Debt has become normal. Want a holiday? Pay for it on credit. Want a new crowd-pleasing cut in taxes? Fund it with debt. To put it bluntly our politicians – so-called educated people who are meant to be looking after our interests – acted like teenagers with their first credit card – all to win votes.

If the UK had been a business or an individual, we’d have been declared bankrupt by now. We’d have been forced to sell our business premises or our home and would have been housed in a run-down flat long ago.

We are broke.  We have been for a long time.

But very soon, it will really hit home.

The most powerful world trend of the next 20 years

So what’s different about today? Why can’t the government just keep giving us MORE – and take on more debt to pay for it. That’s worked for 100 years – why won’t it work now?

The answer to that is simple. The explosion of government spending and government debt has mostly come in the past 30 years. And during that time, it’s been easy and cheap for the government to borrow money.

You see, interest rates on the government’s debt have been steadily falling for thirty years. Here, let us show you…



In 1982 Margaret Thatcher’s government had to pay 15% to borrow money for three years. This came in the form of a bond (a gilt). Anyone with money – be it a rich country or a pension fund – could invest in the bonds, and receive 15% interest in return.

But over time the government’s borrowing costs have fallen – dramatically. Now, the government only has to pay 2% to borrow money over the same period. That’s seven times cheaper than in 1982.

And low interest rates make it easier to borrow money.

Debt has been getting steadily cheaper for three decades. That has allowed the government to borrow more and more money, without having to face the consequences.

But these ‘good times’ are about to come to an abrupt end.

The simple truth is, if interest rates were at their normal rate of 5% - instead of the extremely low 2% they’re at right now – there’s absolutely no way Britain could ever repay its debts. In fact, at normal rates of interest we’re already bust. Not just ‘in over our heads’ but six feet under.

It’s simple maths. If interest rates moved back towards the normal 5% level, our cost of borrowing would triple.

Just to put that into context, if our current debt repayments tripled, the government would have to take drastic action – like abolishing the state pension. Or privatising the NHS. Or pushing tax rates back up to 90%, as they were in the 1960s.

In short, Britain would change radically.

And that’s just if interest rates move back to “normal” levels.

The fact is, when you’re in a lot of debt, interest rates are either your lifeline… or your death sentence. So long as rates stay low, you can just about keep things on track. You can service your debts… keep borrowing… and keep the wolves from your door.

When rates move higher… you get squeezed… and eventually, you’re finished. All of a sudden, you have to find more and more money to cover the interest on your debt.

They say a picture tells a thousand words. So we’ll save a few words and show you this:


Source: Bloomberg

This is an extreme example of what happens when interest rates take off. As you can see, in 2009, the Greek government could borrow money at just 1%. Then in the wake of the financial crisis, the Greek economy hit the rocks, fell into recession and the markets realised what a complete mess the country was in.

Interest rates shot up vertically.  And Greece imploded. Not just financially, but socially and politically too...

As you’ve seen on the news, there have been riots, suicide, overnight poverty, snap elections and crushing general strikes. People couldn’t get their money out of banks fast enough, businesses collapsed. In that environment, just keeping your family safe is a big challenge. That’s the danger of rocketing interest rates to a country with huge debts.

As Douglas Carswell, MP, said recently: “Greece might be the first Western country to discover that you cannot keep running up debts to pay for a lifestyle you did not earn. She will not be the last. The laws of mathematics are universal.”

In Britain, interest rates on government borrowing now stand at record lows. If we’re not at rock bottom, then we’re incredibly close.

That means the most important trend of the next twenty years is almost certainly rising interest rates.

Debt has been getting cheaper for thirty years. Now it’s about to start getting much more expensive.

We’re now facing an unprecedented crisis.  As interest rates rise, our record debts will become impossible to bear.

No one can say how quickly things will escalate. Interest rates could rise overnight. Or they could slowly and inevitably push higher, taking years to slowly strangle the economy, the housing market, the stock market… stripping us all of our wealth one day at a time.

What we can say with certainty is that sooner or later interest rates WILL rise. We’re approaching the day when foreign investors realise the scale of our problems, and demand higher interest rates… or stop lending to us altogether.

When that day arrives, we are certain things will get nasty.

How Britain collapses from within

So what happens to Britain when interest rates rise? What shape will the crisis take? And what does all this mean for you, and your family?Northern-Rock.jpg

  • The first “flashpoint” will be the banking system. We’ve already seen this across Europe. This is because banks hold huge amounts of government debt. When interest rates rise, the value of government debt (bonds) falls.  Even a small jump in interest rates would wipe billions of capital off banks’ balance sheets. It’s impossible to say exactly which high street banks – if any – could withstand that kind of hit.

Imagine standing outside your bank, not knowing whether you’ll be able to withdraw your savings.(Image © Bloomberg)

As news of the banks’ problems hits the press, and rumours of a new round of bhouse-boarded-up.jpgailouts spread, the public will catch on to what’s happening.  We are likely to see a run on the banks. Picture the scenes we saw at Northern Rock, as people rushed to get their savings back, but ten times worse. That’s because this time round, the government simply won’t have the money to bail the banks out again.

But the crisis will not be confined to the financial sector.

The disturbing reality is that a tiny increase in the interest rates could force tens of thousands of people to miss payments and default on their mortgages.(Image © Bloomberg)

The next domino to fall will be the housing market. Most mortgages are linked to interest rates. As interest rates shoot upwards, millions of people will be pushed “underwater” by a combination of falling housing values and rising mortgage payments.

But that isn’t all…

When a financial system ceases to function, the social fabric begins to fray. We are not simply talking about shares falling or house prices dropping, which is devastating enough. We are talking about the breakdown of social order.

The important thing to realise is that Britain is going to change – very significantly. Things might never be the same again.

A warning from history

Is this all too alarming? Some of our critics would say so.

Most people think Britain’s debt collapse can’t happen. Of course, it’s hard to picture. Banks look safe until they announce they’re broke. Governments say everything’s under control, until they beg for bailouts.

These events often come as a shock to the public. Many people assume they’ll never happen. But assumptions can be misleading. Especially ones that are widely held.

The Victorians thought the British Empire would last forever.  Americans in the 20s thought the stock market boom would never end.  And here in the UK, during the 90s and early 2000s, we thought we could keep borrowing and spending forever.

But if you need any convincing of how quickly things can change… of how rapidly order can turn into chaos… history offers us a number of painful reminders.

Let’s take just one of them...
In the early 20th century Argentina was one of the world’s largest economies. Rich in natural resources, a massive industrial sector, so cultured they called Buenos Aires the Paris of South America. In fact, a popular saying 100 years ago was as ‘rich as an Argentine.’

But fast forward to the end of the 20th century, and things looked very different. Argentina’s borrowing spiralled out of control…

A debt implosion isn’t pretty. Order very quickly turns into chaos. That’s what happens during a debt collapse.(Image © Bloomberg)

As Argentina’s debt accumulated in the late 90s, its financial system buckled. Austerity measures were put in place (sound familiar?), businesses closed, trade fell off a cliff and investment fled the country by the billion…

Come early-2001 the country was in a state of siege, with banks blocking cash withdrawals, rioting in the streets and the total collapse of government.  So desperate were villagers for food, they hijacked livestock trucks and slaughtered the animals in the streets.

To give you some idea of how bad things got – and how quickly they escalated… you need to listen to our man in Argentina, Federico Tessore. Federico is one of our private network of analysts. He worked as a Financial Advisor for Citibank in Buenos Aries at the time, experiencing the chaos first hand.

He’s got quite a story to tell…

“It was 2001… the US had just suffered the 9/11 attacks, many Argentines were frightened about what could happen in America. It was chaos. So they decided to bring back their money to Argentina...

But that was a terrible mistake, because in December of 2001 the Argentinian government created the "corralito". In English you would say "playpen", I think... we called it a “money prison”.

This meant that you could only get out 500 US dollars per week in cash from your bank account. It didn’t matter if you had $1 million in the bank, in cash… you could only get $500 per week.

For two months this madness continued, until the government decided to convert the US dollar deposits into Argentinian pesos...

The official exchange rate was 1.4 to 1, but the illegal market exchange rate was 3 to 1. Even worse, this conversion was not in cash. The government created a 10-year bond for the depositors.

So, people that had a $100,000 deposit in the bank were given an Argentina pesos 140,000 10-year bond...

This of course enraged people, who stormed into the banks very angry. I was working at the Citibank bank at the time.  I saw what was happening from the inside.  More than once my life was threatened by desperate customers who just wanted to get their money back. I had to talk with thousands of people per day, many old people, and try to explain what was happening... it was almost impossible.

One of the hardest parts, was to explain why the international banks like Citibank, decided not to recognize the dollar deposits to their customers. They had the money abroad to do that. But they didn´t do it. They basically defrauded their own customers...

The depositors attacked the banks, rioting outside, smashing the windows… all the walls where painted with insults and complaints. We had to enter the bank escorted by the police... it was like living in hell."

It’s a chilling story… within three or four years the country fell into financial and social anarchy. And what happened next? Well, Argentina wasn’t crossed off the map. It still exists. But twelve years on, it’s barely recovered. Conditions for many honest, hard-working people are simply terrible. They are still trying to understand what happened to their tattered country.

The government has raided public pensions, the stock market is depressed and the global market steers well clear of Argentine bonds. It’s not complicated. Once your country has imploded and trust in systems and institutions has evaporated, investment stays away for decades.

Regular Argentines now hoard gold. Endless government scams and corruption have made them suspicious and distrustful.  And a culture of short-termism pervades.

But that’s Argentina, right? A crazy South American country full of impulsive hot-heads and corrupt politicians. That could never happen here in Britain. That could never happen to us.


Anyone around fifty years old will know that, we’ve had our own taste of financial and social collapse, in the relatively near past.

Around forty years ago, Britain entered its own ‘lost decade’ of economic chaos…


“Them Was Rotten Days.”

The Smiths
Back in the 1970s inflation ate into cash savings at a rate of 28%. Yes, 28%. It seemed like every time you turned your back, bank savings lost more of their value. Every single day, you became a little poorer.
The FT30 entered the worst bear market in history, falling 73% between 1973 and 1974. Even gilts – our so-called “safe-haven” – collapsed as interest rates went sky high.

Rising interest rates buckled the financial system. But it went deeper than that. The speed of the social breakdown was frightening…

It seems insane now, but social order quickly breaks down when the money stops flowing. Britain’s coming debt implosion could plunge us back to the darkest days of the 1970s. (Image © Getty)

The general strike meant dead bodies went unburied as gravediggers joined the picket line… Stinking piles of rubbish rotted on the streets, towering inside Leicester Square… Those lucky enough to have jobs had to swallow huge wage-cuts during the infamous ‘three-day-week’. Shoppers scoured supermarket shelves by torchlight during blackouts.

“We used to think you could spend your way out of recession and increase employment by boosting government spending… I tell you that option no longer exists. And so far as it ever did exist, it only worked on each occasion… by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step.”

These words are amongst the most important ever uttered in the history of modern British politics. Unfortunately, almost everyone has forgotten them.

For a left wing Prime Minister to admit that too much state spending is dangerous SHOULD have marked a big turning point in our history.

But of course, it didn’t – as this chart so aptly illustrates:That’s not to mention the violent civil unrest, where thousands of the unemployed and strikers clashed with the police. For millions of people trying to keep their hard-earned money secure, it was a nightmare.

As the top rate of income tax peaked at 83% in 1974, foreign investment steered away from Britain as if it were an island colony of lepers. We were the ‘sick man of Europe’.

Property and banking crises meant that, people’s lives changed dramatically for the worse: jobs were lost, family businesses closed, people had to dig deep into their savings just to make ends meet. The country was brought to its knees.

So when we’re talking about financial emergencies, don’t be under any illusions. It can happen here in Britain just as it can happen anywhere – given the right conditions.

In 1976, humiliated, the UK government had to be rescued by the International Monetary Fund, with Jim Callaghan going cap-in-hand to beg for a huge bailout. Humbled, he delivered what was meant to be a wake-up call for the British financial and political system:



In the 1970s the spend-borrow-spend experiment should have ended. It should have been our wake-up call. But we just kept on spending. So long as interest rates kept going down, there was always a way to put off the pain… a reason to borrow more… a justification for not balancing the books.

But the day of reckoning is approaching.


Well, we can’t say exactly. It might be a long, slow drawn-out process that drains your wealth over the next decade. Or this time next year, the financial system could be breaking apart. It’s impossible to say.

But we think that savers and investors who are not aware of the full risks – and who fail to protect themselves – will suffer the most.

The vast majority of people here in Britain will have no idea what action to take as they watch their wealth and financial security drain away, out of reach, perhaps forever.

The important question for you is:

When this happens, will you know what to do?

The problem facing everyone in Britain

When these events unfold, very few people will have any idea how to respond.  Most will see the assets they have worked all their life to secure begin to lose value, rapidly.

It won’t matter if you have £5,000 in the bank or £500,000. It won’t matter if you own a five bedroom house in Esher or a one bedroom flat in Croydon. This crisis will lay waste to the wealth of anyone who isn’t prepared for it.

The most horrible feeling will be the loss of control and the confusion.

Desperate to take some sort of action, many people will feel pressured into making investments that could blow up in their faces.

The cost of making the wrong move with your money, over the next few years, could be lasting. What if your money is trapped in one of the banks that collapse? What if your invested wealth is stuck in one of the companies most likely to crash? This is about knowing what you CAN do with your money if the worst of the crisis unfolds.

Our intention is not to be melodramatic. But if events unravel as we expect, thousands of people will lose a lot of what they have. And they won’t be able to do a thing about it.

By the time most people have pieced it all together, or the true significance of this information makes the headline news in the financial press, it will be too late. And that’s why so many people could get caught out and lose so much money.

It’s essential you prepare for these events. You can’t rely on mainstream commentators to help you.

So who do you listen to?

Warning: Prepare for this disaster or you could lose a serious amount of money.

For most people, disasters of this magnitude come out of the blue.

But for our readers, financial crises are rarely a surprise. Often, we spot these dangers approaching - as we have this one - and give our readers time to prepare.

For more than a decade MoneyWeek has been sharing its insights with private investors. We have helped steer them away from dangerous areas of the market, into profitable ones.

In short, we have a track record of getting many of these things right.

We gave our warning to steer clear of British banks as early as 2005.

But when they crashed in 2007, a lot of Britons still had their money tied up in banking shares – and they lost a lot of it.

Let’s take another example – property.

In October 2006, both the FT and Telegraph were singing property’s praises.

“Property prices take off as buyers return to the market” 
– The Telegraph, 12 October 2006.

“Property boom extends across UK”
– The FT, 13 October 2006.

But we saw things differently. Our research told us the market had dangerously topped-out. Our message was loud and clear:

“Get out of property NOW!”
– MoneyWeek, October 2006 – February 2007
Within just a year the property market began its steep fall – just as we’d warned.

We don’t know if you personally lost money in the property collapse, but many people did. Thanks to the the UK’s obsessive property mania, egged on by the mainstream media , many unfortunate people timed one of the most important investments of their lives completely wrong.

On the other hand, those that listened to our timely warning had the opportunity to secure their wealth.

“Without the catalyst of MoneyWeek I surely would be part of the herd and suffered greater losses through these challenging times – that is a fact.”
T Le Grange, Southampton

Another example…

When we predicted the oil “super spike” in May 2006 those that listened made a swift 82% gain.

We have a track record of getting many big calls right. We're proud of it. It’s what makes us confident and serious about the job we do here at MoneyWeek – providing crucial and lucrative insight on the markets.

“This is simply a note of thanks to you and your staff in providing a publication that has personally guided me into safer financial waters during this time of uncertainty.
Simon Bradley, Bournville, Birmingham

Throughout 2007 we repeatedly warned our readers to ditch the FTSE while the mainstream commentators – with great confidence – wrongly reassured investors there was nothing to worry about:

“The FTSE giants have nothing to fear” 
– Telegraph, 29 July 2007

Once again, our team saw which way the wind was blowing.

“Here comes the crunch” 
– MoneyWeek, 27 July 2007
And right before the colossal crash of 2008 we issued a stark warning: “The credit carnage is far from over.”

Our readers had the time to get out and avoid the pain felt by thousands of investors.

“I have to hand it to you... you have forecast everything during the downturn and none of this is vaguely a surprise to you.” Bob Lindo, Camel Valley Vineyards, Cornwall.

More recently we gave our readers advance warning about both the Eurozone crisis and China’s economic downturn. And showed them the best ways to profit from both.

Our message right now is that we believe Britain is entering a long, downward cycle. One that is likely to be punctuated by a devastating financial, and even social collapse.

Our research group draws upon the knowledge and experience of some of the brightest and most forward-thinking financial minds in the country.

The MoneyWeek team includes:

An award-winning defensive asset manager who’s responsible for more than £1bn in client money.

A financial publishing magnate and self-made millionaire.

One of the most respected financial commentators in Britain.

A well-known peer and one of the most celebrated financial thinkers in Britain.

And one man, so innovative in his reading of the markets, he now advises the European Commission...

These are men and women who spend every day of their lives either working in, or analysing, the financial markets… but who, most importantly, do NOT get swallowed up by mainstream viewpoints.   They are smart, independent people who aren’t afraid to seriously question conventional wisdom, to stand apart from their peers and cosy group-think, and to see what’s really going on beneath the surface.

The fact is that many ideas about investing, which emerged over the past few decades, have to be radically re-evaluated.  The idea that you can just ‘buy and forget it’ – whether we’re talking shares or property – is plain wrong. That’s how things used to work. But not any more. That kind of wrong-thinking over the coming months and years, could be disastrous for you.

Over the last decade we have shown our readers where the markets were heading months, sometimes years in advance. The value of that insight is incalculable. We have helped keep safe the ambitions and financial futures of countless people.

Again, we cite our success and experience with the crises of the past because there is an even bigger crisis looming.

Britain’s huge accumulation of debt means its fate has already been sealed. We are about to pay for what we have borrowed, and in the worst possible way.

If you have any remaining doubts that a day of financial reckoning approaches… read the next page of this letter – and we’ll prove it to you, conclusively.

Escape is impossible

If you take one thing away from this presentation, it should be this:

In recorded economic history, every single country with debts as big as ours – every single one – has suffered a devastating economic collapse. There are NO exceptions.

For example…

During the Great Depression – when thousands of ordinary people lost everything – America’s total debt hit 252% of GDP. In any circumstances, that’s bad.

But things can get worse. During the Japanese economic collapse – which triggered more than two decades of deflation and a 75% drop in the stock market – Japanese total debt hit 498% of GDP. That’s twice as bad as the level of debt seen in America during the Great Depression.

If Britain’s current debts were at those kinds of levels, it would be worrying. But in truth, our debts are now much worse than either of those two examples.

Shockingly, our debt load is now on a scale comparable with one of the most frightening economic disasters of the 20th century…

We're talking about the Weimar Republic.

Back then, suffering under the weight of brutal war reparations, civil unrest and shattered public finances, the Weimar Republic’s total debt equalled 913% of its economy.

I’m sure you know what happened next: the government printed money and hyperinflation took off. In the end, it was cheaper to decorate your home with bank notes than wallpaper.  Ultimately, the country descended into a period of economic and social crisis… a catastrophe that ended with the rise of the Nazi party.

And that was with debts worth 913% of the economy.

Today, Britain’s total debt equals 900% of the economy.

When you add in our financial sector debt, government debt, personal debt and corporate debts… our debt load rivals the Weimar Republic in scale.

To put it mildly, this worries us a great deal. It should worry you, too. Because this simple fact alone proves just how inevitable Britain’s coming crisis is.

Remember, as you saw earlier the only thing delaying the crisis right now is the fact that interest rates are at historical lows. That’s what allows life to carry on “as normal”.

But things won’t be this way for long.

Because the simple fact is:

When interest rates rise – and they WILL rise – Britain will face the greatest crisis in generations.

And there’s one more thing you need to consider.

The first danger you face won’t be the falling price of your shares… nor will it be the insolvency of the banks. Those things, we believe, will happen. But first, you face an even more immediate threat:

The desperate actions of our own government.

How the government could seize your wealth

There is nothing the government can do to solve the debt crisis. Better people than David Cameron and George Osborne have tried to get out of similar crises in the past - and failed. As you have seen, the hole we have dug for ourselves is simply too big to ever fill back in.

But that won’t stop politicians making a series of bad decisions to fight the inevitable, while they are still in power. They must be seen to be doing something. And that’s bad news for you.

As the crisis deepens, panic will take hold. In a desperate attempt to pay off the debts and try to regain control, politicians will cast around for any sources of money available, and use almost any means to seize it.

Invariably, that means they’ll turn to their primary source of income: you.

Throughout history, when countries are in financial crisis, governments automatically raid the wealth of their citizens. It’s all they can do.

It goes as far back as Ancient Rome. As the Empire crumbled and inflation raged, the Emperors raised taxes over and over, squeezing as much coin as they could from their subjects.

Back to the 20th century…  In 1933, President Roosevelt signed executive order 6102, forbidding the man on the street to hold any significant amount of gold. In the midst of the Great Depression, the government basically made it illegal for anyone but them to hoard the precious yellow metal. Refusal to comply with these demands was met with a five year prison sentence. That’s essentially how the US filled Fort Knox – by seizing other people’s gold.

Just last year in Hungary, facing a debt crisis similar to our own, the government nationalised all pensions. In effect, they confiscated people’s savings. Can you imagine waking up one day and being told that the income for the last 30 years of your life hangs on a government promise?

In Greece right now, benefits have been cut to the bone, salaries and pensions have been slashed up to 40% and the retirement age has been hiked to generate more income from the population – the very victims of the crisis.

But you don’t have to look too far from home to find one of the cruellest examples of seizing private wealth. In 1974, the top rate of income tax under Edward Heath was 83%. Imagine how it would feel to be so blatantly fleeced by your own government.

In other words, in times of financial panic, the government will come after the people with money and savings.  If you are someone who has worked hard, been responsible, considered the future, thought about your family, planned for your old age, and built up savings and some wealth – you are the prime target.

The government and financial authorities will never admit this, of course.  They will never announce or admit to these ‘confiscation’ policies. In fact, their official statements are designed to conceal it.

And yet, in the end, their actions and the new controls they implement will undermine some of the core principles of the British way of life:

The protection of private property.  Individual freedom.  The rule of law.  Clear limitations on the role of the State.  Or to put it colloquially: “an Englishman’s home is his castle”.

It’s not just your home that will come under threat, it’s your money. And the outcome could be very uncomfortable indeed.

Just imagine the following situations:

  • Your spending money limited: You set off to take a brief holiday on the Mediterranean. As you go through security at the airport, you are asked to reveal how much money you have on you.  You take out your wallet.  Anything over £500 is confiscated.  And you can’t use your credit cards overseas.
  • Your investments restricted: You come across an interesting investment idea, that involves buying a foreign share.  You open up your online stockbroking account and search for it.  Instead of the usual ticker code and information, all that appears is an error message: “Sorry, but overseas shares are no longer available”.
  • A dividend super-tax: You decide to review your investments, and look through your latest pension and broker statements. To your dismay, you find that the dividend income you expected is much, much lower than usual. You notice a small note at the bottom of the statement. It says, “Dividend income is now subject to additional Dividend Control Tax, at 25%”.
  • Your pension, downgraded: You are watching the ten o’clock news, when the newsreader calmly announces the Chancellor of the Exchequer’s latest policy.  It’s a bombshell.  In three months’ time, all private pensions will be nationalised “in the national interest”, and the government will take control of all pension provision.

In Europe, right now, in Italy, Spain and Greece, wealth restrictions are already being implemented..

These measures have already been discussed amongst Eurozone finance chiefs. Limiting the size of withdrawals from cash machines, border checks, the suspensions of free travel between countries… there are draft plans to initiate these extreme measures under desperate circumstances.

Considering the UK has one of the largest debt to GDP ratios on the planet, how long will it be before your money is seized by our cash-strapped government? Will it be when interest rates creep up 1%... 2%? It’s impossible to predict exactly.

“A nation trying to tax itself into prosperity is like a man standing in a bucket and trying to lift himself up by the handle”. Winston Churchill (Image © Bloomberg)

Unfortunately, you cannot stop the government taking this course of action. Even worse, these measures will primarily be aimed at people exactly like you. People who have worked hard, saved their money and paid their taxes. There may be resistance, even mass protests, but if things get bad enough, we think capital controls WILL be put in place once again.

Remember how Britain got into this dangerous situation in the first place:

The enormous cost of welfare started spiralling. We had to borrow hundreds of billions to service it. We had to pay interest on that borrowing. The debt has grown and grown. Soon the rates of interest could rocket. At that point the government cannot function. And very soon we believe they will target YOU and your wealth to pay for everything.

But that doesn’t mean you have to just sit there and accept it. In a moment, we’ll show you a special Wealth Preservation Reportthat outlines investments you can make right now to help keep your money out of the government’s grasp.

How soon do you need to make them? That’s up to you, of course. But ask yourself: do you want to risk making them too late? Before the real crisis even hits… before the banks buckle and the stock market hits record lows… the government could have a strangle-hold on your wealth.

Our advice is simple: don’t let that happen. Let our research group show precisely how to respond.

Views: 4972

Replies to This Discussion

The problem is bigger than Britian. And unless you have power with your money and investments how are you going to protect your wealth.

For most people it will be food and water. If you can't service your natrual needs all the gold in some bank in china won't help you. You can't eat gold and its no good for thirst.  With your investments you'll need powerful allies.

The rest of us i suggest you hoard some food and water. Of course govenments don't like people who hoard stuff. Unless it benefits them.

The report i believe is sound enough. and people should heed its warnings. Unless you believe it can never happen here.

Its a long docu so have a skim over. its accuracy can be judged as we travel through the next couple of years.

(I got the text below in an email from a friend).

‘Bubble’ is one of those terms that gets bandied about rather liberally, with no one quite agreeing on what it means. 

Some say it’s merely a rapid price rise, with a contraction to follow. Others say it’s a rapid price increase, which bears no relation to underlying economic fundamentals. This creates an artificial market, meaning that rapid drops are inevitable.

I like to define a bubble as ‘a bull market in which you don't have a position’.

All three of these definitions could easily be applied to the US long bond (the 30-year Treasury) and UK gilts. So are these governments bonds in a bubble? And if so, when will it pop? And what will the consequences be?
Government bonds are just like the sub-prime bubble
One thing about bubbles is that they tend to catch people unawares. There are a few canny souls who see them for what they are, but plenty get caught with their trousers down. So many people have already labelled UK and US sovereign debt as being in a bubble, that you wonder if any bad news is already ‘priced in’.

Yet, on the other hand, there are millions caught up in this sovereign debt ‘bubble’, many of them unwittingly. Almost all large institutions, from pension funds, to high street banks, to global investment banks, own large quantities of government bonds. They have to. No investment better ticks the regulatory boxes.

And statistic after statistic makes you shake your head and say “this isn’t for real”. The Bank of England has bought about 50% of UK government debt issued since 2009. It now owns something like 30-35% of all existing UK government debt.

There are all sorts of justifications put about for the BoE doing this. Most boil down to the perception that if it doesn’t, everything will fall apart. But there can be no doubt that this is an ‘artificial market’.

Bonds have rarely been issued by governments with weaker finances. Yet yields are at more-or-less all-time lows. Yields ‘should’ be much higher. Our governments really cannot ever hope to pay these debts back (at least, not without massively weakening their currencies). In other words, at current levels, bonds are a classic example of assets with prices that bear no relation to ‘underlying economic fundamentals’.  

But when does it all end? How long can the BoE keep expanding its balance sheet (it is now four times larger than it was in 2008?)

Paul Tustain, chief executive of online bullion dealer Bullion Vault, put out an interesting new piece of research just before Christmas – Printing Money For Beginners (And Experts).

I always enjoy Tustain’s work. As a statistician with a background in risk management and probability analysis, his outlook is sober, solidly grounded in real numbers, and therefore has a good chance of actually happening.

But bearish as I am on the UK, his latest piece made my eyes pop. He suggests that Britain might be in for some kind of monetary unravelling in the lead up to 2015. Here’s why.

Tustain most definitely thinks that government bonds are in a bubble. The key problem lies in their perceived safety.

As he puts it, “sovereign bonds are tick-the-regulatory-box collateral… This is what underpins balance sheet expansion at the central banks and everywhere else. Bond prices are behaving in exactly the way we have already seen with sub-prime properties: they are experiencing an egregious overvaluation because they alone offer a smooth passage through the form-filling of the modern regulatory environment”.

If all our financial institutions and clearing systems are holding trillions of dollars of bonds as collateral and the market suddenly does, as Tustain puts it, “grab the pricing of money back from the BoE (and it has a 100% success rate at doing this over the long term)”, then what happens?

Tustain goes on. “Interest rates would go through the roof, as they did during the bond market slump in the ’70s, and in Greece just recently. Unlike the Greeks however, we are unprotected by robust German opposition to printing new money to get out of the hole. Our solution will be the other way around...

“With our government unable to distribute new bonds except at punitive rates, I think it will choose the printing press over default, and it would start printing some of the £700m it needs each working day (that's about £220m of bond repayments, and £480m of new deficit spending).

“That augurs a dramatic loss of confidence in sterling. There are simply so many bonds out there, expecting to be redeemed for cash, that it might take us close, or even in, to hyperinflation. It is that serious”.

Could we face a sterling crisis in 2015?

But what could act as the trigger for the market to wrest back control? Tustain points to a somewhat obscure aspect of monetary economics: the Special Drawing Right (SDR). The SDR is managed by the International Monetary Fund (IMF).

It’s a kind of reserve currency made up of US dollars (66%), euros (42%), yen (12%) and pounds (11%). SDRs have in many ways replaced gold as the currency of last resort (at least as far as central banks are concerned).

Countries use SDRs to balance their foreign exchange holdings. Thailand, for example, which conducts a lot of trade with India, might hold a lot of Indian rupees, but it might not like the rupee. It can take its rupees to the Bank for International Settlements (BIS), which, as Tustain notes, ‘acts like a central bank for central banks’, and exchange them for SDRs.

While pounds remain part of the current SDR package, our currency is propped up artificially. But why an 11% weighting? The UK’s total GDP of $2.5trn is just 3.5% of gross world product (GWP) of $70trn. So surely, one might argue, we should only have a 3.5% weighting?

Should that happen, the UK’s currency would no longer be propped up to the same extent. Not only that, but there would suddenly be rather a large surplus of pounds on the foreign exchange markets.

Here’s the thing: the next SDR re-setting is due in January 2015. What are the chances of things staying as they are?

Many believe that China would like the renminbi to become a reserve currency. Having an SDR weighting would be a step towards that. And given that, since the last reset in 2010, China has become the world’s largest exporter, it has a pretty irresistible case for inclusion.

And what about the European nations? Will they support our inclusion at the current weighting? Perhaps they would be keen for the UK to eat a bit of humble pie.

If the pound was suddenly given a weighting in the SDR that reflected our contribution to GWP it would no longer be propped up. Sterling’s status as a reserve currency would be shaken. There’d be an excess of pounds suddenly off-loaded. A weaker pound would cause higher inflation. In turn, that could well rattle holders of UK government bonds. And that, potentially, is a trigger for the crisis outlined by Tustain above.

All in all, this is rather grim reading for a Monday morning. I met with Tustain last week, and he gives the scenario an overall 20-25% probability. The thing to own in such circumstances is, of course, gold. But also those who fix debt at low rates stand to benefit.

For my part, I hope it doesn’t get that bad. But, put it this way, I’m not selling any of my gold.

Thanks Alan.  I to believe the collapse will come within 10 years.  I don't have the confidence your friend has in gold.  During the Great Depression (or as it will become known, "the Lesser Great Depression"), the American government simply sequestered people's gold, with no recompense.

Germany has withdrawn its gold from the US and France.  Clearly they do not believe they will be able to get hold of it in the coming crisis, so better get it now.

Germany withdrew most of its gold from the UK about 10 years ago.

Well, if SDRs are redrawn to give Sterling the proportion of its GDP, our first shock will come in Jan 2015!

I've read the starter article for a 2nd time, as its good, and some of the implications take a while to sink in, they are so crazy.

One area where it may be wrong is in the totalling up of all the debt.  I think they are including self-cancelling debt.  For example, if UK Widgets borrows money from a British pension company that is looking for a safe business to invest its money in, then that is an loan internal to the UK using UK assets, so should not really be counted in the total.

Imagine what will happen the when the first bank's ATM machines stop giving out cash.

UK snow: panic buying hits supermarkets as shelves stripped bare

Panic buyers stripped supermarkets shelves bare of essential items after weather warnings predicted a deluge of snow.

 Britian will come under attact if we decide to think about a referendum to leave the EU. Any country that has attempted to upset the  great European plan has come under pressure. Referendums retaken, govenments removed, bailout funds withheld.

Dithering like Cameron will not help, his speech will do nothing  for Britian. It is a nowhere plan, and thats where it will leave us. He doesn't want to have a referendum  he can lose. Its time he said he will not allow a referendum and then peole can make their minds up at the next election who they will vote for. Promising an in out referendum at some unknown point in the future is a turd in the swimming pool. no one is going to be happy with that.

I've never believed we'd get the chance to vote on Europe, and my opinion hasn't changed. If Britian were to leave the EU and make a success of it, who knows where that would lead. Everything will be done to stop our departure, and the game has already started. Anyone who wants to leave are being labled, nutters, insane, anti british, and even racist. The attacts on UKIP will become more intense over the coming months, and years.

Its funny how how the Consevatives can use dirty tactics against UKIP, but cannot do the same against the left.

Paul - I agree ! - the un-patriotic faction of big-biz & the city boys such as wannabe dope dealer Pritchard Bratsog are planting economic scare stories in the media, overlooking the fact that EU enforced immigration etc has cost our taxpayer dear, quite apart from ignoring the elephant in the room that most Britons consider themselves British and not European, and want sovereignty over their own affairs.

We will see the gloves come off and all manner of dirty tricks used against anti-EU organisations, and those campaigning for the ordinary British people will have to look sharp and come out with some good hard hitting counter arguments.

I'm not sure if we'll get much argument in favour of leaving the EU. Anyone who aliegns themself with UKIP will get pasted as loons by the media. All news media outlets have been painting the Mail, the Express, Ukip ect as out dated far right aging fruit cakes. The CINO's don't want to leave, and all cameron has to do is hold off less than a hundred of his own.

As you've said the economic scare stories have started.  


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