A recent article in The Guardian noted: “Global debt has grown by $57 trillion to reach $199 trillion in the seven years following the financial crisis – a 40.1% rise, according to a new report.”

What this translates into is that global debt is now 286% of the world’s Gross Domestic Product, or GDP. GDP is the monetary value of a country’s (or in this case the world’s) finished goods and services that have been produced in a given time.

While these figures reflect the economic situation of governments, individuals too can be expected to feel the crushing impact of what is, obviously, an unsustainable debt load.

Under these circumstances, becoming an expat and owning property abroad is more than just a sound investment hedge against this economic shadow; it is a way of rediscovering what truly matters and having the opportunity to pursue those ideals.

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Why Global Debt Should Matter to You

Global debt has many far-reaching implications that transcend the international geo-political scene. Though usually referred to by the media (both mainstream and alternative) in terms of governmental policies, this massive borrowing bubble could profoundly impact individuals’ savings, retirement, and investment portfolios in ways that seem almost unimaginable. Below are several of the major reasons that global debt should matter to you.

Haircuts Are Coming into Style

Much reporting has been done on the recent debt crisis in Cyprus and the resulting “haircuts” that savers and investors endured. However, not many people truly understand what a “haircut” means.

In simple financial terms, a “haircut” means taking a loss on an investment i.e. to receive or accept less than the face value of what is owed.  An example of this concept would be if a government borrowed money from institutions and was not able to pay it back. Instead, the government offers to pay only $0.25 on every dollar owed.  A bond, with a face value of $1000.00 (the purchase price), would now only be worth $250.00. Investors who “loaned” money (in the form of purchasing government bonds), would have to take a “haircut” of $750.00.

The recent situation in Cyprus is a prime example of how “haircuts” can dramatically impact individuals. There, the government ordered that bank accounts, in excess of 100,000 Euros, would have to take a haircut of 37.5%.

Put another way, if someone had a banking account with 100,000 Euros, the cash value of that account (the amount that could be withdrawn) was reduced to 52,500 with the remainder being made up of shares in the bank that could only be sold at whatever the market value would be.  In practical terms, 37.5% of those accounts is now gone and the remainder will be subject to the whims of the marketplace.

As global debt continues to grow, other governments, including the U.S. and other European nations, may consider similar approaches to make up their monetary shortfall.

Freezing Assets and Other Chilly Prospects

Imagine walking into your bank to make a withdrawal and being told that you couldn’t because the government was freezing all accounts. That is exactly what happened in Cyprus.  In order to “stabilize” the financial situation, the Cypriot government essentially prevented depositors from taking any money out of the banks.

When money is deposited in a savings account, the bank agrees to pay interest on those funds in exchange for having those sums available to the bank; in a real sense, savings accounts are a kind of “investment.” What happened in Cyprus was that the banking system ended up “owing” more to the depositors than it had. As a result, the only way to avoid total collapse was to keep all the money.

Similarly, other investment options, such as stocks, are also vulnerable to rising debt. Purchasing stock is giving money to a company with the promise that, at a later date, those stocks could be sold for a higher price than they were paid for. If a company’s debt becomes too high, dividend payments (like interest in a bank account) may be withheld or cancelled and, in a worst case scenario, the stock becomes worthless and the whole investment is lost.

Money, Currency and Wealth – Three Different Things

Though the terms “money,” “currency,” and “wealth” are often used interchangeably, their actual meanings are vastly different. When talking about global debt, these differences matter a great deal.

Money can be basically defined as a medium of exchange between buyers, sellers, producers, and consumers of material goods. Currency refers to a particular monetary system used within a country or other political unit.

Wealth is, by far, the most nebulous of these three items. It is defined as the measure of valuable items. Wealth can also be extrinsic (money in the bank, personal property, etc.) or intrinsic – the actual value of something, not just its price tag. Global debt has created only extrinsic wealth that consists of numbers on a ledger. Those numbers often cannot be supported by actual value when investors want their return paid out.

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The Expat Advantage – Owning Property in Paradise

Aside from the opportunities to live abroad, immerse yourself in a new culture, live healthier, and rediscover yourself, there are real economic advantages to buying property in Latin America. Here are a just of few of those benefits:

Real Estate Is Both Real and Finite

There is an old saying that the reason property is so valuable is that they’re not making any more of it. As a result, land ownership carries a permanent value. Since it is a real, tangible asset, investing in it can be a real hedge against the growing debt crisis. Also, real estate has an intrinsic value; it exists, and it can be your paradise and security. Those are measures of wealth that far surpass anything on a balance sheet.

Central America Welcomes Expat Investment

Central American countries have actively created environments that promote expat investment.  The rights of foreign property owners are, in many cases, identical to those held by a country’s own citizens. Favorable residency laws, discounts, and lower tax rates also make buying and living here a desirable alternative to staying in the U.S. or Europe.

There Are Bargains and Opportunities to Be Had

As the trend towards development sweeps through Central America, the affordability of property (especially parcels that are undeveloped or underdeveloped) is still quite good. For investors, this is an ideal situation where a lower initial outlay of funds can be expected to result in a good return on investment.  Importantly, buying real estate in these tropical destinations carries much less risk than other options, such as stocks and bonds.

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Taking the First Step

Like any investment, buying and owning property in one of these tropical destinations does have challenges and some risks. Being an expat is not necessarily for everyone. Daring to reinvent oneself and rediscover the joys of learning a new culture and lifestyle may seem overwhelming.

How to discover if becoming a property owner in one of these tropical locations is right for you? Check out the kinds of residences, lots, and properties that are on the market. Above all, do some research and, if a country interests you, go there and visit – maybe more than once. You may discover that you don’t have to find paradise – paradise may find you.