Willem Middelkoop is an investor and freelance economics reporter for the Dutch financial report RTL Z. Based on his expertise and his sources - newsletters from insiders and conversations with bankers and financial analysts - Middelkoop believes that the question is not if the current financial system is going to fail, but when.
By Daan de Wit
Daan de Wit: Willem, this is our second conversation. In our previous conversation we talked about the possibility of the dollar crashing, and in this conversation we'll go over what's going to happen if that takes place, as well as what concrete steps you can take to prepare yourself. But first I'd like to get back to what you said last time - is it not the case that you're just a typical doomsayer who goes around screaming about how the dollar is going to crash, and then at some point you eventually end up getting it right?
Willem Middelkoop: 'My girlfriend calls me a tireless optimist. I'm always optimistic and I always work from the assumption that everything is going okay, I'm not a doomsayer at all. Not only that, I hope that this never happens. I also speculate in the stock market myself. I only profit from gains. I never speculate on losses. I've made money on real estate, and I'm making money now on rising raw materials markets. So I'm really quite an optimist and I try to make a profit from all kinds of things.'
That doesn't mean that Middelkoop is reckless. In fact, he advises people to develop a plan in the event that the system comes to a halt. ‘Because if central bankers are saying that it's going to collapse, and if experts are saying that it is highly possible that this is going to happen within 15 to 20 years, then it's awfully shortsighted not to come up with a strategy for how you're going to deal with this. If you don't want to do that, if you don't want to think about that, then that's fine, but don't go complaining about the trouble you're in afterwards: 'Why didn't someone warn me that this could happen?' Take a look at Van der Hoop Bank. All the sudden on a Friday afternoon the teller windows close. Magnificent bank, 150 years old…'.
Daan de Wit: What steps can you take if everything collapses? Let's say that at a given moment the dollar falls, what then?
Willem Middelkoop: 'If the dollar falls forty percent gradually over the course of time, then nothing will happen. In that instance central banks worldwide should be able to recover fairly well. But if the dollar ends up crashing, panic could break out in the currency markets... The VPRO documentary The day that the dollar falls deals with this scenario. A panic could break out that would push the entire system to the brink. A panic over the dollar could cause this, but there are a few other things that could bring this about as well. For instance, the financial markets could be heavily impacted by a war, or by a crisis on the derivatives market…There are many different scenarios to bear in mind which could cause the system to shudder and perhaps collapse. Van der Hoop Bank has once again proven that you have absolutely no security. So you really have to protect yourself, you have to imagine a sort of worst case scenario: 'What will I do in each of these scenarios?' And this is particularly important for people of means, people who have a lot of money. If you are not wealthy, if you have very little money, then it really doesn't matter that much. Because then you don't have any assets to safeguard.
The only thing that you can assume is that if you live in a city, then you are going to be in trouble during times of crisis. We saw this in New Orleans. That's a very good example of how all order can disintegrate inside a city within 48 hours, which leads to the rule of the strongest. You should not be in a city in a situation like this. To the people who ask me about this and expect a serious answer, I always say: 'Think good and hard about whether you really want to make your future in a city. Or at least make sure that you have a spot outside the city that you can get to. Because if the ATM's and the teller windows aren't working anymore…' The Van der Hoop Bank is one example of a bank where this has happened, but there are other events that could transpire in which all the banks would simply no longer be open and the ATM's would no longer work. Then it's going to get really tough in a city within 24 to 48 hours. Because of this I say to people: 'If you're wealthy, then pull a portion of your wealth out of the system.' As long as your money is sitting in the bank, then it's inside the system. Your bank statement doesn't mean a thing, just look at Van der Hoop. So pull a piece of it out of the system. Withdraw cash, and make sure that you have enough of it in the house or that you have access to it so that you'll be able to sit things out for a while. And if you're really wealthy, then just buy gold or silver, something that people have done in the past as well. That will never lose its value. Hang onto it - don't keep it in the safety deposit box at the bank, because that bank is going to close, and then you're not going to be able to get to it if something bad happens.
You can buy a kilo of gold for 15,000 euros. And a kilo of gold is about the same size as a cell phone. By the way, a year ago a kilo of gold cost 10,000 euros. That's a fifty percent hike in one year, and that price is going to climb a lot higher. And so it's also a very good investment. Gold's value is going to continue to rise because so much money has been printed during the last few years and there's nothing in the world that has managed to rival gold. Less and less gold is being mined. Every year we see the production of gold decline. At some point a portion of the money is going to seek refuge in gold. That hasn't happened yet. Right now there are just a few crazy people out there - like us let's say - 'doomsayers', who might be thinking about this. But no one else is purchasing gold or silver. There are however going to be people thinking about this soon enough. So gold and silver is only going to rise higher and higher. If you are able to pull a portion of your money out of the system now - silver in particular is dirt cheap, you can buy 30 kilos of silver for 7000 euros - then you've pretty much prepared yourself. You are no longer running a risk and you even have a shot at a huge return on your investment.' And it's tangible; it doesn't exist in the form of a certificate (like a share) in a bank's safety deposit box. Middelkoop: 'You don't actually own that money. The bank pretends that you own it.'
Middelkoop: 'As an example I always cite 1944. If you went up to a farmer during the Dutch Hunger Winter and stood there next to a couple of neighbors, and if you had a piece of silver, and the one guy had an old encyclopedia with him, and the other one had a couple of old winter coats…..well, chances are good that the farmer said: 'I'll take the silver'. And he gave away his last morsel for that silver because he already had plenty encyclopedias and winter coats. Look, gold and silver have withstood all types of crises and have always maintained their value and purchasing power. People think that you can't do anything with gold and silver. Gold and silver are simply regarded as money throughout the entire world. In times of crisis people lose their faith in everything, but they still trust gold and silver. So it is simply a form of money. And you can always trade it as far as that's concerned…. But look, it's not about gold or silver. Gold and silver are a means to provide for a solution in the event of a specific scenario, a specific worst case scenario.
On our website at RTL Z we opened up a chat room for people who have an account at Van der Hoop Bank. Those people can talk with each other there. If you read those stories… It's been now three, four months that people can't get at their money and they have no idea at all as to when that money is going to be available to them, or even how much is still there. If you read about the stress that these folks are dealing with… They have their entire savings in that bank, and that's just one bank. Now let's say that all the banks close for a while. It won't be just 1500 people undergoing that stress - there were 1500 customers at Van der Hoop - you'll have an entire city or an entire country or the whole world experiencing that stress. Naturally this brings out the worst in people, and the rule of the strongest emerges. When that happens you better not try to buy gold, because if you do you'll be waiting you turn in a line a mile long, if you can still get at your money.
So let's say people begin to lose faith in all that printed paper - in spite of everything more and more of it continues to be printed - and the banks are still open. At a given moment you get a run on the banks. Everyone wants to get his money out of the banks so they can trade it in for something of real value. So what are you going to do if you don't trust that paper anymore? You run to the jeweler or the gold dealer and you say: 'I want to trade this in for gold or silver'. Or you go to the store and buy a few last items with it.' Middelkoop makes it clear that by this point you're too late, because everyone is doing the same thing: 'Look, the masses always react the same. The masses aren't paying any attention to it right now, they're thinking: 'Everything's going to be fine'. But then if something happens, everyone is going to exchange all of their money for gold and silver all at once. So yes, at that point you're too late.
You really should take a number of precautionary measures right now in order to be ahead of the game. You're not going to take out fire insurance at the moment that smoke is pouring out of your kitchen. At that point you're simply too late. These are ordinary precautionary steps that you can take. If you live in a city, make sure that you have a way to get out of the city, that you are able to make your way somewhere. That can be with friends or in a vacation house. All that sounds quite dramatic - and it really is dramatic if it's necessary - but if the system collapses, something that's currently unimaginable will suddenly become quite real. This doesn't mean that you should let this rule your every waking moment, or that you should prepare yourself for the worst, or that you need to stock up on canned food. This type of advice is intended for people of means. Wealthy people who now have their entire fortune in the system, they're the ones who should do this. I mean, if you don't have any money, then all this really doesn't make much difference.'
Daan de Wit: But it does make a difference if you live in a city and the ATM's aren't working.
Willem Middelkoop: 'Yes, but people who don't have a lot of money live off of student loans or unemployment or a regular salary. Those people are not capable of building or maintaining a place of refuge outside the city. What they certainly could do is look to see if they can get a job in North Eastern part of this country, the Netherlands. But then you have to live there for the rest of your life, and I wouldn't advise them to do that.
All of this comes from a kind of personal quest: 'What would I do in such a situation?' I like to be very flexible. I've made some money on real estate. So I wonder about what I would do in a situation like this. And it seems that there are a lot more people out there who are interested in this. And so that's why we're talking about this now. But it's really not the case that the average Dutch person can do anything with this information.'
Daan de Wit: You could certainly keep some cash in the house, for example.
Willem Middelkoop: 'Well that's always good. I notice all the time that most people have maybe ten or twenty euros on them, and the rest they just get out of the ATM. And once that ten or twenty euros is spent, well, there they are… People simply assume that the ATM will always do what it's supposed to do. Just five hundred euros well-hidden somewhere in your house; with that you can keep things going for a few weeks during a power outage or a failure of the ATM's. But most people don't even give that a second thought.'
Daan de Wit: Do you also think about things such as climate, vegetable gardens, etc.? We do live in a cold country...
Willem Middelkoop: 'If you're in the fortunate situation of being able to set yourself up in a little place or even just to consider where you might go - if you have the money to go and do that - then you're obviously going to think about whether you want to go to Iceland, or to the Algarve, or to Madeira… And as far as that goes, I know a number of people who are starting to get it. They are sitting around trying to figure this out for themselves: 'All right, should it be Greece or should it be the Algarve or Madeira or New Zealand?' So, if you are trying to decide which place is the most suitable, then that's most likely going to be a relatively simple, small, preferably agricultural society. Somewhere where you're not going to be dependent on any kind of urban economic model, an urban system. So really just a very simple society in which the fish comes right out of the sea, there's fruit growing on the trees and some farmers raising a few crops. In this way there is very little that you need. And with a nice climate you also won't need any money for energy and so forth. […] If the situation with Iran gets out of hand... Practically all generations that came before us experienced a crisis in their lives. Why should we be the first generation that will never have to experience a crisis?'
Daan de Wit: If I'm understanding you correctly, you shouldn't live in a city, but instead in a not-too-big community with a warm climate.
Willem Middelkoop: 'You can do this via a process of elimination. Madeira for instance is a very beautiful island. Even better is a really small island just off the coast of Madeira. Madeira itself is quite full. Madeira has a fantastic climate, it never gets below 15 degrees Celsius and never gets hotter than 28 degrees, but Madeira has no beaches. But on a small island just off the coast you do have beaches. That's really just a sort of agrarian society with only a few hundred people. That's an example of a nice spot. You can also go to Ameland or Schiermonnikoog [Dutch Frisian Islands]. But you know, if I had to choose, I'd rather be on Madeira.'
Daan de Wit: Thailand is also quite nice, but it's far away, so at the moment a crisis breaks out - let's say the crisis comes on really fast - you need to get there quickly, which might not work out because then everybody wants to get to Thailand or maybe because there isn't any fuel to get you there. Plus if you want to visit your family later on, again that's too far away and so maybe not the best thing to do.
Willem Middelkoop: 'Well yeah, this presents a lot of problems, you know, big problems. I know various people in my neighborhood who - without being prompted by me - are putting some serious thought into this. They're not asking the question: 'Where can I escape to?', but instead: 'Where can I eventually establish a secondary existence?' Harry Schultz, who writes one of the best newsletters, has been publishing his newsletter since 1954. You have to pay more than $300 per year in order to read it once a month. I read the best information in paid newsletters, not in the newspaper. In the most recent installments Schultz advises Americans in the strongest possible terms to make sure that they seek out a base, an identity, a house outside the U.S. Why? Because if America's financing becomes a problem, then it's going to immediately institute currency controls, and that means that it will no longer be permissible to take dollars out of the country. So there will most likely be two different dollar systems that will emerge. One dollar will be for internal use inside the United States, and the existing old dollar would be for external use. Those external dollars probably won't be worth anything anymore, so if you have all your money sitting in the U.S., then you're done for. The real insiders like Schultz, who advise the elite of the elite, they are now saying that you should pull your money out of the U.S. and then also establish a position, a second house, somewhere else. Meanwhile Warren Buffet has pulled half of his twenty billion dollar personal fortune out of the U.S.'
Daan de Wit: The well-known investor Jim Rogers has been saying for years that he is pulling his money out of America. But the U.S. is nevertheless a gigantic country, and you could still set up an idyllic rural existence there, couldn't you?
Willem Middelkoop: 'Yes, but the problem is that you can't get away. If America slams the door shut on capital, you won't be able to remove your capital. If you've got a lot of money, well, in my opinion you should make sure that you are always flexible in life. And being flexible means keeping your options open. A dictatorial system might be on the way in the U.S. If you look at these Patriot Acts that are being passed, and the kinds of state powers that are now being enacted, then yeah, that's rapidly leading to a dictatorship. And if you don't want to be dependent on that… It's comparable to the period 1932-1933, when you could see the dictatorship coming in Germany. At that time you could certainly say: 'Oh, it won't come to that', but it did come to that. In America you're seeing that same thing happening. So it is of critical importance to do this, especially for Americans. But I'm afraid that if something bad happens in America, then we here in Europe are going to feel its aftershock. So my advice is: Think about what you would do in that instance. And if you are planning to buy something at some point, think about whether or not you might want to buy something in Spain or the Algarve, so that you'll have a place to go if things take a turn for the worse.'
Daan de Wit: Can you name some other places that would be suitable?
Willem Middelkoop: 'New Zealand is fantastic of course, as well as any place with a good climate, preferably subtropical, not too hot and with a relatively simple way of life, where there's fish in the water and fertile ground. I recently read some advice from someone who is an expert in the oil and energy fields, something that is going to become a big problem over the course of the next thirty years. His advice is to look for an island with an old extinct volcano, because the ground near a volcano is very fertile. But without going into too much detail - any spot that would otherwise work well for you and where there aren't too many people would be good. If there are too many people, then you are always going to have a problem.'