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Capital Controls, The Real US Border Fence

Politics / US Politics Aug 12, 2010 - 02:46 AM GMT

By: Jennifer_Barry

Politics

You probably haven’t heard of capital controls, but they are common around the world. These mechanisms can control the inflows of money into a country or money leaving the nation or both.

Why do countries impose capital controls? Governments may try to limit inflows if they believe their currencies or stock markets are appreciating too fast, or they may slow outflows because they fear crashes like the Asian Financial Crisis of 1997-8.


It may come as a surprise to many Americans, but the US already has some soft capital controls. Two years ago, an exit tax was quietly slipped into the Heroes Earnings Assistance and Relief Act of 2008 (also known as the HEART Act). As I discussed in the November 2008 newsletter, the US is the only nation that levies income tax on money earned abroad. Since Americans could escape this burden ten years after renouncing US citizenship, and foreign residents could always return home, Congress decided to close this “loophole.” Now long-term residents or citizens expatriating permanently will have pay to tax on all their assets as if they were sold that day.

However, the IRS (US tax authority) is notoriously capricious about the enforcement of the tax code. Decisions may depend on what country you move to, or what the opinion of the IRS agent is that day. When a subscriber moved back to Canada this year after living and working for decades in the US, he received 3 or 4 contradictory opinions on what to do with his retirement account.

On March 18 of this year, a more overt form of control was sneaked into the Hiring Incentives to Restore Employment Act, which cleverly shortens to HIRE. As of 2013, foreign banks will be required to withhold 30% of any withdrawals from an American’s account, effectively turning bank employees into US tax agents. Privacy is totally gone, as financial institutions will be compelled to report detailed information about all American account holders. If foreign institutions don’t wish to comply, or can’t because of national law, they will be required to close the account. The exemptions to this rule are holding a combined overseas balance of less than US$50,000, or being an individual that the Secretary of the Treasury deems a low risk for tax evasion - a clause that is ripe for abuse. The law also makes foreign life insurance policies or annuities reportable for the 2010 tax year.

The reality is that Americans found it very difficult to open non-US accounts before the HIRE Act. Multiple sources have informed me that it took months of regular prodding last year to open an account in Panama. The pressure on “tax havens” that I detailed in the May 2009 article, “The Truth About Tax Havens,” has led many banks to refuse to deal with US citizens even if they are residents of that country. At this point, only banks servicing a large percentage of American clients will be willing to tolerate the paperwork, and probably only if they have US subsidiaries.

The sudden imposition of capital controls is no accident. In October 2008’s “The Dollar Is Doomed,” I saw that hyperinflation in America was inevitable. Rapid money printing debases the currency and robs small investors of their life savings. However, the trick doesn’t work if everyone moves to a strong currency. It makes sense that US government officials would quietly make it harder for the average citizen to diversify out of the dollar before it becomes worthless. At the same time, loopholes remain for the friends of government officials so they may protect their assets.

While the US may be one of the most egregious offenders in printing money, they are hardly alone. When nations like Greece attempt to cut their debt, anti-austerity riots rock Athens, and no sitting government wants that. It’s more politically popular to inflate the currency and scapegoat “tax cheats.”

Once the politicians run out of easy targets, I expect they will slander as unpatriotic anyone removing capital from their nation. Next, they will probably smear the “gold bugs” for daring to preserve their wealth. I predict capital controls will sweep the world in the next few years, as governments attempt to keep both their citizens and “greedy” foreigners from fleeing with their assets.

by Jennifer Barry
Global Asset Strategist
http://www.globalassetstrategist.com

Copyright 2010 Jennifer Barry

In 2003, Jennifer started an online bullion dealership, becoming part of a select group in the new generation of bullion dealers. She ran the business successfully until 2007, closing it to focus on writing Global Asset Strategist, which grew out of her customer newsletter for the coin dealership. She takes pride in having guided her customers into silver near the bottom of the market. Those early customers have almost tripled their investment.

Jennifer was originally trained as a therapist, receiving a Bachelor of Arts in Psychology from Connecticut College, and a Master of Social Work from Simmons College in Boston. She worked as a licensed professional in human services for several years, until reading Ayn Rand's Atlas Shrugged, which motivated her to reject working to support the State. She left the field and taught herself Austrian Economics while working a series of positions in industry.

Disclaimer: Precious metals, commodity stocks, futures, and associated investments can be very volatile. Prices may rise and fall quickly and unpredictably. It may take months or years to see a significant profit. The owners and employees of Global Asset Strategist own some or all of the investments profiled in the newsletter, and will benefit from a price increase. We will disclose our ownership position when we recommend an asset and if we sell any investments previously recommended. We don't receive any compensation from companies for profiling any stock. Information published on this website and/or in the newsletter comes from sources thought to be reliable. This information may not be complete or correct. Global Asset Strategist does not employ licensed financial advisors, and does not give investment advice. Suggestions to buy or sell any asset listed are based on the opinions of Jennifer Barry only. Please conduct your own research before making any purchases, and don't spend more than you can afford. We recommend that you consult a trusted financial advisor who understands your individual situation before committing any capital.

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