Best of the Week
Most Popular
1.UK House Prices BrExit Crash NOT Likely Despite London Property Market Weakness - Nadeem_Walayat
2.BrExit Morning - New Dawn for Britain, Independence Day! - Nadeem_Walayat
3.LEAVE Wins EU Referendum - Sterling and FTSE Hit Hard, Pollsters, Bookies and Markets All WRONG! - Nadeem_Walayat
4.BrExit Implications for UK Stock Market, Sterling GBP, House Prices and UK Politics... - Nadeem_Walayat
5.Trading BrExit - Stocks, Bonds, Sterling, Opinion Polls, Bookmaker Odds and My Forecast - Nadeem_Walayat
6.FTSE and Sterling Brexit Trading, Deconstruction of the EU Referendum Result - Nadeem_Walayat
7.UK Interest Rate Cut to 0.25% Imminent and More QE Money Printing - Nadeem_Walayat
8.Trading BrExit - British Pound Plunges, FTSE Stock Futures Slump on LEAVE Shock Referendum Win - Nadeem_Walayat
9.The Stock Market is Reading it Wrong! - Chris_Vermeulen
10.Breakouts Galore in Gold and Silver - Jordan_Roy_Byrne
Free Silver
Last 7 days
Soybean Commodity Price to Soar Again - 23rd July 16
SPX Stock Market Uptrend Continues - 23rd July 16
Gold And Silver – Debt Addiction Will Carry Precious Metals Higher, Guaranteed - 23rd July 16
Pokemon Go - How to Play, First Use, Balls, Stops, Catching Pokemon's... Great Excercise! - 23rd July 16
7 Signs That the Gold Market Remains Resilient - 23rd July 16
Basic Income in The Time of Crisis - 23rd July 16
Silver Bull Faces Correction - 22nd July 16
The Serious Warning No One’s Talking About - 22nd July 16
Stock Market Insight from Greed, Volatility, and Put/Call Ratio - 22nd July 16
What Will Happen To the Stock Market When Interest Rates Rise? - 22nd July 16
How to Escape the World’s Biggest Ponzi Scheme - 22nd July 16
Addicted to Debt - We Can’t Borrow from the Future Anymore - 21st July 16
Not Everything Is Bullish for Gold - 21st July 16
Don’t Get Sucked Back Into the Stock Market - The Big Picture Hasn’t Changed - 21st July 16
Silver – Caught Inside - 21st July 16
Forex: "The Markets Are Getting Exciting!" - 20th July 16
China Economic Troubles - Is Kyle Bass Finally Getting His Revenge? - 20th July 16
Why Lithium Will See Another Price Spike This Fall - 20th July 16
The Peak Oil Paradox Revisited - 19th July 16
SPX Challenges the Upper Trendline - 19th July 16
Missing ’28 Pages’ of the 9/11 Report Released into Blitzkrieg of World Events - 19th July 16
Likelihood of Organized Disruption at GOP Convention - 19th July 16
More on the ‘Breadth Thrust’ and Stock Market Internals - 19th July 16
FX Traders: Get a Free Week of Forecasts (Details inside) - 19th July 16
Ups and Downs in Gold and Crude Oil Price - 19th July 16
Keep an Eye on ‘Bitcoin’ as the Next ‘Financial Crisis’ Starts! - 18th July 16
Erdogan Might Have Known about the Coup but Didn’t Prevent It on Purpose - 18th July 16
More Deflation Ahead: Silver, Gold And Their Mining Stocks A Must-Have - 18th July 16
Stock Market Minor Top? - 18th July 16
5 Best Gold and Silver Junior Mining Stocks in 2016 - 17th July 16
Gold And Silver – NWO-Created Tragedies Will Never End, Seek Truth - 16th July 16
How Long Can Buybacks Continue To Support A Market Which Is Standing On A Fundamentally Flawed Premise? - 16th July 16
Will They Come For Your IRA? - 15th July 16
Gold’s Record Selling Overhang - 15th July 16
Capitalism Has Entered a New Era—and Historic Stock Market Investing Returns Are Gone Forever - 15th July 16
Gold Price Could Hit $5,000 or Even $10,000 in a Few Years - 15th July 16
Junior Gold and Silver Mining Funds or Individual Gold and Silver Mining Stocks - 15th July 16
The Soaring Risk of Flying in Bernanke's Helicopter - 15th July 16
The Broad Stock Market, Helicopters and Gold - 15th July 16
The Curious Case of Vanishing Lady Liberty; Only Gold and Silver Remember Her - 15th July 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Forex Forecasts

Capital Controls Are Coming

Stock-Markets / Credit Crisis 2016 Jan 26, 2016 - 05:22 PM GMT

By: Casey_Research

Stock-Markets

By Nick Giambruno

The carnage always comes by surprise, often on an otherwise ordinary Saturday morning…

The government declares a surprise bank holiday. It shuts all the banks. It imposes capital controls to stop citizens from taking their money out of the country. Cash-sniffing dogs, which make drug-sniffing dogs look friendly, show up at airports.


At that point, the government is free to help itself to as much of the country’s wealth as it wants. It’s an all-you-can-steal buffet.

This story has recently played out in Greece, Cyprus, Argentina, and Iceland. And those are only a few recent examples. It’s happened in scores of other countries throughout history. And I think it’s inevitable in the U.S.

I believe the U.S. dollar will lose its role as the world’s premier reserve currency. When that happens, capital controls are sure to follow.

This is why it’s crucial to your financial future to understand what capital controls are, how they are used, and what you can do to protect yourself.

Why Governments Impose Capital Controls

Think of the government as a thief trying to steal your wallet as you (understandably) try to run away. With capital controls, the thief is trying to block all the exits so you can’t reach safe ground.

A government only uses capital controls when it’s desperate…when it can no longer borrow, inflate the currency, tax, or steal money in one of the “normal” ways.

In most cases, governments use capital controls in severe crises. Think financial and banking collapses, wars, or chronic economic problems. In other cases, they’re just a way to control people. It’s much more difficult to leave a country when you can’t take your money with you.

Regardless of the initial catalyst, capital controls help a government trap money within its borders. This way, it has more money to confiscate.

As strange as it sounds, capital controls are often politically popular. For one, they are a way for a government to convince people it’s “doing something.” The average person loves that.

Two, a government can usually convince people that moving money offshore or investing in foreign assets is only for rich tax evaders or the unpatriotic. If freedom and private property matter to you at all, you know that’s obviously false.

How It Happens

For the unprepared, it’s like a mugging…

To be effective, capital controls have to be a surprise. Alerting people in advance would defeat the purpose. Weekends and holidays are the perfect time to catch people off guard.

Here are the four most common forms of capital controls:

1. “Official” Currency Exchange Rates

The government’s official rate for converting foreign currency to local currency is always less favorable than the black market rate (more accurately called the free market rate).

This applies to official prices for gold, too.

Getting the more favorable black market rate usually involves informal transactions on the street. Of course, this is technically illegal.

However, should you follow the law and exchange money at the official rate, it amounts to a wealth transfer from you to the government. The wealth transfer equals the difference between the free market rate and the official rate. It’s a form of implicit taxation.

2. Explicit Taxation

A government might impose explicit taxes to discourage you from buying foreign investments, foreign currencies, or gold. India tried this a few years ago by imposing a 10% tax on gold imports.

Another tactic is taxing money transfers out of the country…say 20% on any amount transferred to a foreign account. In this case, you could still move your money, but it would cost you.

Governments want you to hold your wealth inside the country and in the local currency. Ultimately, this makes it easier for them to tax, confiscate, or devalue with inflation.

3. Restrictions and Regulations

A government might restrict how much foreign currency or gold you can own, import, or export. It might require you to get permission to take a certain amount of money out of the country. The cap is often only a couple thousand dollars.

4. Outright Prohibition

This is the most severe form of capital control. Sometimes a government explicitly prohibits the ownership of foreign currencies, foreign bank accounts, foreign assets, or gold, or the moving of any form of wealth outside the country.

Capital Controls in the U.S.

The U.S. government has used capital controls before. In 1933, through Executive Order 6102, President Roosevelt forced Americans to exchange their gold for U.S. dollars. It’s no surprise that the official government exchange rate was unfavorable. The U.S. government continued to prohibit private ownership of gold bullion until 1974.

Today, with no conceivable end to the U.S. government’s runaway spending, sky-high debt, and careless money printing, I think it’s only a matter of time until the government decides capital controls are the “solution.” There’s no doubt statist economists like Paul Krugman would cheer it. All it would take is the stroke of the president’s pen on a new executive order.

Whatever the catalyst, it’s critical to prepare while there’s still time.

What Could Happen if You’re Too Late

Capital controls are almost always a prelude to something worse. It might be a currency devaluation, a so-called “stability levy,” or a bail-in.

Whatever the government and mainstream media call it, capital controls are a way to trap your money so it is easier to steal. Anything they don’t steal immediately, they box in for future thefts.

What You Can Do About It

The solution is simple.

Place some of your savings outside your home country by setting up a foreign bank account.

That way, no one can easily confiscate, freeze, or devalue your savings at the drop of a hat. A foreign bank account will help ensure that you have access to your money when you need it the most.

Doug Casey and I visited Cyprus a few years ago, right after the government imposed capital controls. We met numerous Cypriots who had seen the writing on the wall and had chosen to take action before the crisis.

By doing so, they kept their money safely out of the hands of a thieving government. While everyone else was forced to keep their money in the country, those who had moved their money ahead of time were free to do as they wished and were spared from the bank deposit confiscation.

There’s an important lesson here.

Despite what you may hear, obtaining a foreign bank account is completely legal. It’s not about tax evasion or other illegal activities. It’s simply about legally diversifying your political risk by putting your liquid savings in sound, well-capitalized institutions.

It’s becoming harder and harder to open a foreign bank account. Soon, it could be impossible. It’s important to act sooner rather than later - even if you don’t plan to use the account immediately.

Even without capital controls, it still makes sense to move some of your savings to a foreign bank where it can be kept safe.

Be sure to check out our comprehensive video on foreign bank accounts, where we share our favorite banks and jurisdictions. The video includes crucial information on the few jurisdictions that still accept American clients and allow them to open accounts remotely with small minimums.

The New York Times best-selling author Doug Casey and his team describe how you can do it all from home. And there’s still time to get it done without extraordinary cost or effort, but you need to act quickly.

This is an A-Z video with information you won’t find anywhere else. Click here to watch it now.

The article Capital Controls Are Coming was originally published at caseyresearch.com.
Casey Research Archive

© 2005-2016 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

Catching a Falling Financial Knife