Dear Reader,

With Bank of America abandoning its $5 debit-card use fee, I'm reminded of a deep problem within the US banking system: there's almost no real competition among the banks. Sure, there are many banks, so it appears that there's a lot of competition, but if most of us were to think about the services our bank offers compared to other banks, we'd probably find that many others are very similar to it. Take a few minutes to consider the reasons for being with your current bank.

Personally, I don't have a good reason. My bank is just as good as any other bank. Sure, it has some minor reward plans, but other banks have their own too. However, I'm not with my current bank for those plans, and the competition's offers aren't exactly pulling me in either. This is a completely absurd situation. There's no reason for me to stay with my current bank and at the same time, no reason for me to leave.

Every other aspect of my life is different. I live in a certain neighborhood because I prefer some features over others. I shop at one grocery store because of its proximity and larger organic food selection. I read the Financial Times because I prefer its international coverage over the Wall Street Journal. Even if the differences can sometimes be minute, they still exist, and I can clearly define those preferences… but that's not the currently case with banking.

Of course, this lack of competition arose from the formation of the FDIC. By ensuring everyone's accounts, the government essentially leveled the playing field and pushed competition elsewhere. Rather than attracting retail customers, banks became focused on capital markets encouraging riskier games with depositors' money.

Before the FDIC, banks vigorously competed on their safety and soundness. For example, I recently bought an old advertising book, dated 1895, from the Commercial Loan & Trust Company. On the first page, the bank states that its capital is $500,000, and its profits last year were $100,000. This sort of advertisement wasn't uncommon back in the day. The most responsible and reputable banks would attract the most customers. There was a direct incentive to limit risk. This doesn't even enter our decision process as consumers today (although arguably it should, as the stream of bank failures continues). In fact, there's little reason to choose one bank over another. With the institution of debit-card fees on each transaction, customers were forced to reconsider their banks for the first time in ages, but even this says something pitiful about the current state of retail banking. We're more concerned about $5 debit-card fees than the fact that our banks could go under.

While the FDIC gets a lot of praise, we shouldn't forget that along with its benefits the entity completely perverts the banking system. In some small way, the fees are a good sign. Maybe the banks can start finding creative ways to compete for retail customers, rather than meddling with their funds in speculative games. The banks have an endless number of financial engineers concocting new derivatives, but they can't even figure out how to create a product for their retail customers. It's a radical idea these days among the big, national and international banks, but perhaps banks should get back to actually banking.

Up next, Jeff Clark will discuss the danger of storing all of your precious metals in a single country. The threats go beyond an FDR-style confiscation.

Your #1 Gold Risk

By Jeff Clark, BIG GOLD

While we're convinced that our gold and silver investments will pay off, they don't come without risk. What do you suppose is the biggest risk we face? Another 2008-style selloff? Gold stocks never breaking out of their funk? Maybe a depression that slams our standard of living?

Though those things are possible, we at Casey Research don't see that as your greatest threat:

"Your biggest risk is not that gold or silver may fall in price. Nor is it that gold stocks could take longer to catch fire than we think. Not even the prospect of the Greater Depression. No, your biggest risk is political. As bankrupt governments get increasingly desperate for revenue, any monetary asset held domestically could be a target. It is absolutely essential that every investor diversify themselves politically. In fact, at this point, it is the one action that should be taken before anything else." – Doug Casey, September 2011

I know many reading this are prudent investors. You own gold and silver as solid protection against currency debasement, inflation, and faltering economies. You set aside cash for emergencies. You have strong exposure to gold stocks, both producers and juniors, positioned ahead of what is likely the next-favored asset class. You feel protected and poised to profit.

Yet, despite all this preparation, you remain exposed to one of the biggest risks.

Similar to holding a diversified portfolio at a bank without checking the institution's solvency, many investors keep their entire stash of precious metals inside one political system without considering the potential trap they've set for themselves. While storing some of your gold outside your home country is not a panacea, it does offer one important thing: another layer of protection.

Consider the exposure of the typical US investor: 1) systemic risk, because both the bank and broker are US domiciled; 2) currency risk, as virtually every transaction is made in US dollars; 3) political risk, because they are left totally exposed to the whims of a single government; and, 4) economic risk, by being vulnerable to the breakdown of a single economy.

Viewed in this context, the average US investor has minimal diversification.

The remedy is to internationalize the storage of some of your precious metals. This act reduces four primary risks:

Confiscation: We don't know the likelihood of another gold confiscation. But we do know that things are working against us – particularly for US citizens. With $14.7 trillion of debt and $115 trillion of unfunded liabilities, the US government will likely pursue heavy-handed solutions. Under the 1933 FDR "gold confiscation" in the US (the executive order was actually a forced delivery of citizens' gold in exchange for cash), foreign-held gold was exempted.

Capital Controls: Many Casey editors think some form of capital controls lie ahead, limiting or eliminating a citizen's ability to carry or send money abroad. If enacted, all your capital would be trapped inside the US and at the mercy of whatever taxing and regulating schemes the government might concoct. Although you might be able to leave the country, your assets could not travel with you.

Administrative Action: There are plenty of horror stories of asset seizure by a government agency without any notice or due process, possibly leaving the victim without the means to mount a legal defense. Having some gold or silver stored elsewhere provides what could be your only available source of funds in such a scenario.

Lack of Personal Control: Having gold and silver stored elsewhere adds to your options. You will have a source of funds available for business, entrepreneurial pursuits, investment, or pleasure.

Notice above we said these risks can be reduced, not eliminated. There is no perfect solution; US persons could, for example, be compelled to pay a "wealth tax" on assets held worldwide, or even repatriate them in a worst-case scenario. Absent a crystal ball, the political diversity of asset location is an essential strategy against an uncertain future.

Foreign-held assets also require greater awareness and planning:

1. Access to your metal or sale proceeds may not be quick. Therefore, this option is for those with some gold and silver stored at or near home. We do not recommend storing all your precious metals overseas; that defeats one of its purposes, to have it handy for an emergency.
2. While we think the US poses the greatest threat, a foreign government could move to control certain assets as well. The risk varies by country and is generally greater within the banking system than with private vaulting facilities.
3. Understanding and complying with reporting requirements is essential.

The bottom line, though, is that foreign-held precious metals can mitigate risk and give you more options. And as your metal holdings grows, diversification becomes more crucial.

Given our current rapacious climate, it's likely that simply buying gold won't be enough. We strongly suggest every investor diversify one's bullion storage outside their current political regime. The option may not be available someday, leaving you vulnerable without a secondary source of bullion.

We advise taking advantage of the opportunity before it is gone.

[One way to internationalize your bullion is to use a safe deposit box in a second country; however, this requires traveling to the institution to handle the paperwork and organizing the transport of your bullion… and the contents of a safe deposit box aren't insured. Other programs will store gold; but the metal is often held in the form of fractional ownership in a 400-oz. bar and not specific coins and bars held in your name. A better solution is to store your bullion in a non-bank depository, outside your home country, without shared ownership, and do it for a reasonable fee. We found a program that provides all those things; and it offers BIG GOLD readers six months' free gold and silver storage in a Canadian vault. A risk-free, three-month trial subscription to BIG GOLD will qualify you for that deal… plus all the expert analysis and actionable investment advice packed into each issue.]

Additional Links and Reads

Say What? In 30-Year Race, Bonds Beat Stocks (Bloomberg)

This article makes some interesting points, but it inaccurately represents the "wisdom" of holding Treasuries. The piece rails against Meredith Whitney, Bill Gross, and Nassim Taleb for being bearish on Treasuries, but where did they go wrong? QE2 was unwinding at the same time as the market entered into a turbulent period. Yes, in massive flights to safety, Treasuries will gain. That's not hard to figure out. However, this doesn't necessarily disprove their thesis. If things in Greece calm down and then rates remain low, they will be just flat-out wrong. Currently, we have two counteracting effects happening at the same. It's hard to figure out the counterfactual performance of Treasuries in the past few months if the market had remained relatively calm.

US Food Stamp Usage Hits New Record (Zero Hedge)

Zero Hedge has posted a good chart showing participation trends in the Supplemental Nutrition Assistance Program (SNAP, formerly known as "food stamps") from 2007 to present. While the general economy seems stuck in second gear, and intelligent people have varied opinions on its direction, this chart would suggest one path – down. However, I have to disagree with Zero Hedge on a point here. The post notes:

So for those who are looking for those up and coming states where the population has decided that slowly but surely work of any kind is an anachronism we suggest you move to Alabama, Delaware, Utah, or Washington: all states that have seen at least a 3% sequential increase in food stamp usage.

Oh yeah, all those people in those states just decided that work doesn't matter. As I've mentioned recently in relation to some of Herman Cain's comments, many old conceptions of the poor are being challenged in the current economic climate. There's an old-school mentality that blames the poor for their problems, but this viewpoint runs headfirst into the obvious realization that the extremely severe recession is not the fault of the unemployed.

In fact, this chart could show the reluctance of many Americans to get on SNAP. This is a gradual growth rather than an immediate spike that reflects the sharp spike in the unemployment rate. People didn't run to food stamps immediately.

I don't see this rise in food stamps as some sort of enormous cultural shift toward demanding more welfare benefits. This is largely the result of macroeconomics and probably has little to with cultural perceptions. Should we similarly call those who were unemployed and perhaps received benefits from the New Deal during the Great Depression lazy bums also?

(Click on image to enlarge)

Europe According To... (Zero Hedge)

This link shows a few maps of Europe according to the worldview of various countries. Some of them are absolutely hilarious. Here's the Greek worldview map below. (Warning: some maps are a little crude and possibly offensive.)

(Click on image to enlarge)

That's it for today. Thursday and Friday, Chris Wood will be taking the reins of the Daily Dispatch, but don't worry, I'll be back on Monday after some much needed R&R. Thank you for reading and subscribing to Casey Daily Dispatch.

Vedran Vuk
Casey Daily Dispatch Editor