Best of the Week
Most Popular
1.U.S. Housing Bull Market Over? House Prices Trend Forecast Current State - Nadeem_Walayat
2.The Coming U.S. Economic Collapse Will Trigger a Revolution - Harry_Dent
3. Stock Market Crash a Historical Pattern? - Wim_Grommen
4.Global Panic - U.S. Federal Government Stockpiling Ammo – Here’s What We’re Going to Do - Shah Gilani
5.AI, Robotics, and the Future of Jobs - Aaron Smith
6.This is Your Economic Recovery With and Without Drugs - James_Quinn
7.Gold and Silver Price Getting Set To Explode Higher - Austin_Galt
8.The Something for Nothing Society - Lifecycle of Bureaucracy - Ty_Andros
9.Another Interesting Stock Market Juncture - Tony_Caldaro
10.Inflation vs the Deflationary Straw Man - Gary_Tanashian
Last 5 days
Scottish Banks Salivating at the Prospects for an Independent Scotland of 6 Million Debt Slaves - 1st Sep 14
Small Man Europe Is Now In “Effective State Of War” With Russia - 31st Aug 14
The Unintended Blowback Of False Flags - 31st Aug 14
Tesco Supermarket Death Spiral Latest Profits Warning and Dividend Slashed - 31st Aug 14
Dow, Gold and Silver - A Last Stand, A Fake Out And A Surge - 31st Aug 14
If U.S. Consumers are so Confident Why aren't They Spending? - 31st Aug 14
Scotland Independence House Prices Crash, Deflationary Debt Death Spiral - 31st Aug 14
Obama’s “Catastrophic Defeat” in Ukraine - 30th Aug 14
Stock Market Inflection Point Approaching - 30th Aug 14
Gold And Silver - Elite's NWO Losing Traction. Expect More War - 30th Aug 14
Corporations Join Droves of Americans Renouncing US Citizenship - 30th Aug 14
Peter Schiff U.S. Housing Market, House Prices Bubble Warning - 30th Aug 14
Russia, Ukraine War - It’s Time to Play the “Gazprom Card” - 29th Aug 14
The One Tech Stock Investment You Should Never Sell - 29th Aug 14
Bitcoin Price $500 as Current Downside Barrier - 29th Aug 14
Don't Get Ruined by These 10 Popular Stock Market Investment Myths - 29th Aug 14
Low Cost Transcontinental Gold - 29th Aug 14
Gold Bullish Central Banks Should Give Money Directly To The People - Helicopter Janet? - 29th Aug 14
US House Prices Bull Market Over? Trend Forecast Video - 29th Aug 14
The Fed Meeting at Jackson Hole Exposed Yellen’s Greatest Weakness - 29th Aug 14
AAPL Apple Stock About To Get sMACked - 29th Aug 14
A History of Unlimited Money: Learn From It or Repeat Its Mistakes - 29th Aug 14
How You Can Play to Win When Market Makers Are Calling the Shots - 28th Aug 14
EU Gas Supply Is In Real And Imminent Danger - 28th Aug 14
Central Banks at the Root of Evil - 28th Aug 14
European Bond Market: Bubble of all Bubbles! - 28th Aug 14
Employers Aren’t Just Whining: The “Skills Gap” Is Real - 28th Aug 14
The ISIS Menace - Just What We Need, Another War - 27th Aug 14
The Risky Business of Methane-Rich “Fire Ice” - 27th Aug 14
CFR Recommends Policy Shift that is Very Bullish for Gold - 27th Aug 14
Ukraine Standoff Signals Global Power Shift - 27th Aug 14
Stock Market Panic Decline Begins - 27th Aug 14
The Monopoly of the Government Education Cartel - 27th Aug 14
How to Invest in Silver Today for Double-Digit Gains - 27th Aug 14
The Big Solar Energy Breakthrough We've Been Waiting For - 27th Aug 14
U.S. Empire’s Bumpy Ride - 27th Aug 14
Gold Market and the Interest Rate Trap - 27th Aug 14
Stock Market Staring Into the Great Abyss - 27th Aug 14
A Look at the Coming 30-year Inflation Cycle - 27th Aug 14
Forex Trading - Will USD/CHF Rally Above 0.9200? - 27th Aug 14
Europe’s Depressing Economy Dog Days of Summer - 27th Aug 14
How The Coming Silver Price Bubble Will Develop - 26th Aug 14
A Nation of Shopkeepers - Supply-Side (Voodoo) Economics? - 26th Aug 14
Stock Market Bear Tracks Abound In Wall Street - 26th Aug 14
65,000 U.S. Marines Hold up a Mirror to the Economy - 26th Aug 14
Bitcoin Market Provides Clues for Investors - 26th Aug 14
The Key to Trading Success - 26th Aug 14
Will The US Succeed in Breaking Russia to Maintain Dollar Hegemony?... - 26th Aug 14
Even Mainstream Academia Worried about Massive Bubbles in Markets - 26th Aug 14
Iraq and Syria Follow Lebanon's Precedent - 26th Aug 14
Colonization by Bankruptcy: The High-stakes Chess Match for Argentina - 26th Aug 14
Dow Stock Index On The Cusp - 26th Aug 14
Prohibition Laws and Agency Regulations - 26th Aug 14
Will Canadian Regulators be Able to Avoid Final Fatal TSX Venture Exchange (TSX-V) Crash? - 25th Aug 14
HUI Gold Mining Stocks Elliott Wave Projection - 25th Aug 14
Stock Market Uncertainty Resolved With New High - 25th Aug 14
Go Forth Multiply And Replenish The Earth - 25th Aug 14
Dollar Dumping: When Actions Speak Loudest - 25th Aug 14
A Plethora of Currency, Stocks and Precious Metals Chartology - 25th Aug 14
Why Isn’t Fed Monetary Pumping Helping the U.S. Economy? - 25th Aug 14
Myths About Money and Inflation - 25th Aug 14
The Fed Will Raise U.S. Interest Rates in March 2015 - 25th Aug 14
Gold Price Manipulation Still Alive - 25th Aug 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

The Biggest lie in Stock Market History Revealed

IMF Capital Controls Danger for Emerging Market Investors

Politics / Emerging Markets Dec 07, 2012 - 08:18 AM GMT

By: Money_Morning

Politics

Martin Hutchinson writes: The IMF is up to no good again.

On Monday they released a new report on international capital flows which relaxed its opposition to exchange controls.


By doing so, the IMF has now made emerging market investments more risky, especially for retail investors.

What's more, they likely imposed a major new cost on the global economy.

The irony is that the IMF is trying to solve a problem that was caused by foolish global monetary policies. Relaxing its opposition to capital controls is just more of the same.

Removing Federal Reserve Chairman Ben Bernanke and his world-wide sympathizers, and restoring a true free global capital market would work much better.

The IMF does correctly note that capital flows have vastly increased in recent years. That's where the initial problem comes from. It's the solution that's dangerous.

Official foreign exchange reserves have increased to $10.5 trillion in the second quarter of 2012 from $2.2 trillion a decade earlier, a compound growth rate of 17% per annum - when nominal world GDP has grown at less than 6%.

And it's not all official reserves, either - the money in hedge funds, fast-trading schemes, private equity funds, sovereign wealth funds and other pools of fast money have increased much faster than output has.

Naturally, with all this money sloshing around, it can spill into and out of small countries' currencies in overwhelming amounts, making even a relatively large economy like Brazil unable to control its capital accounts and subjecting it to huge swings in capital availability.

Meanwhile, small, relatively poor countries like Vietnam and Mongolia have proved entirely unable to cope with massive foreign money swings, which have played havoc with their "real" economies and caused double-digit inflation.

So now to solve this problem, the IMF proposes to allow countries to engage in "capital flow management" both of "inflow surges" and "disruptive outflows."

But that poses a great danger to investors in emerging markets, not only small ones like Vietnam and Mongolia, but also huge markets like Brazil that are popular destinations for emerging market investment.

Emerging Markets and Capital Controls
If controls are instituted, investors may not be able to buy these markets now without paying an artificial premium. More dangerous, their money may become trapped in the market, with a provision like that imposed by Chile in the 1990s, forcing the money to remain there for a year before being able to exit.

Capital controls are even more damaging if you live in the country that is imposing them.

I have bad memories in that regard. My own native country of Britain had severe capital controls from World War II until 1979.

As a result the British middle class had no alternative but to invest in their own moribund economy. Currently, since I don't like U.S. economic policies, I have most of my money invested in precious metals and Asian ETFs-- with capital controls I would be unable to invest in either.

With the money trapped, the British government was able to run an inflationary monetary policy from 1947-79 that ruined many families.

My great-aunt Nan, for example, invested her retirement savings in British government War Loan in 1947. By the time she died in 1974, War Loan was trading at 30% of its 1947 price - and its value had been eaten away even further by the fivefold rise in British prices over the period.

Being able to get your money out of a country is a key civil liberty, and an important check on looter governments, of which there are all too many.

It's not surprising that the IMF fails to recognize the civil liberties aspect of its recommendations, or to see that anti-democratic governments like China violate their citizens' rights by imposing capital controls, trapping money in the shaky Chinese banking system.

It is, however, no way to operate in a supposedly global economy of free peoples.

The problems of excess capital flows cited by the IMF are real. However, the solution is not more regulations and restrictions on the activities of ordinary investors (which the rich can almost always evade).

Instead, the printing press policies pursued by Fed chairmen Greenspan and Bernanke must be ended, and their counterparts in the European Central Bank, the Bank of England and the Bank of Japan must be equally thrown out of their jobs. Interest rates must be restored to a level safely above inflation.

When this is done, you can expect a huge caterwaul from Wall Street and the big international banks, and a lot of hedge funds and funny money operations will go out of business.

There may be short-term pain for the global economy, but in the long run these giant pools of speculation will not be missed.

Capital controls are simply not the answer.

Source :http://moneymorning.com/2012/12/07/the-im....

Money Morning/The Money Map Report

©2012 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014