Best of the Week
Most Popular
1.US Paving the Way for Massive First Strike on North Korea Nuclear and Missile Infrastructure - Nadeem_Walayat
2.Trump Reset: US War With China, North Korea Nuclear Flashpoint - Video - Nadeem_Walayat
3.Silver Junior Mining Stocks 2017 Q2 Fundamentals - Zeal_LLC
4.Soaring Inflation Plunges UK Economy Into Stagflation, Triggers Government Pay Cap Panic! - Nadeem_Walayat
5.The Bitcoin Blueprint To Your Financial Freedom - Sean Keyes
6.North Korea 'Begging for War', 'Enough is Enough', is a US Nuclear Strike Imminent? - Nadeem_Walayat
7.Bitcoin Hits All-Time High and Smashes Through $5,000 As Gold Shows Continued Strength - Jeff_Berwick
8.2017 is NOT "Just Another Year" for the Stock Market: Here's Why - EWI
9.Gold : The Anatomy of the Bottoming Process - Rambus_Chartology
10.Bitcoin Falls 20% as Mobius and Chinese Regulators Warn - GoldCore
Last 7 days
History Says Global Debt Levels Will Lead to Another Crisis - 18th Oct 17
Deflation Basics Series: The Quantity Theory of Money - 18th Oct 17
Attractive European Countries for Foreign Investors - 18th Oct 17
Financial Transcription Services – What investors should know about them - 18th Oct 17
Brexit UK Vulnerable As Gold Bar Exports Distort UK Trade Figures - 18th Oct 17
Surge in UK Race Hate Crimes, Micro-Racism, Sheffield, Millhouses Park, Black on Asian - 18th Oct 17
Comfortably Numb: Surviving the Assault on Silver - 17th Oct 17
Are Amey Street Tree Felling's Devaluing Sheffield House Prices? - 17th Oct 17
12 Real-Life Techniques That Will Make You a Better Trader Now - 17th Oct 17
Warren Buffett Predicting Dow One Million - Being Bold Or Overly Cautious? - 17th Oct 17
Globalization is Poverty - 17th Oct 17
Boomers Are Not Saving Enough for Retirement, Neither Is the Government - 16th Oct 17
Stock Market Trading Dow Theory - 16th Oct 17
Stocks Slightly Higher as They Set New Record Highs - 16th Oct 17
Why is Big Data is so Important for Casino Player Acquisition and Retention - 16th Oct 17
How Investors Can Play The Bitcoin Boom - 16th Oct 17
Who Will Be the Next Fed Chief - And Why It Matters  - 16th Oct 17
Stock Market Only Minor Top Ahead - 16th Oct 17
Precious Metals Sector is on Major Buy Signal - 16th Oct 17
Really Bad Ideas - The Fed Should Have And Defend An Inflation Target - 16th Oct 17
The Bullish Chartology for Gold - 15th Oct 17
Wikileaks Mocking US Government Over Bitcoin Shows Why There Is No Stopping Bitcoin - 15th Oct 17
How to Wipe Out Puerto Rico's Debt Without Hurting Bondholders - 15th Oct 17
Gold And Silver – Think Prices Are Manipulated? Look In The Mirror! - 15th Oct 17
Q4 Pivot View for Stocks and Gold - 14th Oct 17
Gold Mining Stocks Q3’17 Preview - 14th Oct 17
U.S. Mint Gold Coin Sales and VIX Point To Increased Market Volatility and Higher Gold - 14th Oct 17
Yuan and Gold - 14th Oct 17
Tips for Avoiding a Debt Meltdown - 14th Oct 17
Bitcoin Hits New All-Time High Above $5,000 As Lagarde Concedes Defeat and Jamie Demon Shuts Up - 13th Oct 17
Golden Age for GOLD, Dark Age for the Stock Market - 13th Oct 17
The Struggle for Bolivia Is About to Begin - 13th Oct 17
3 Reasons to Take Your Invoicing Process Mobile - 13th Oct 17
What Happens When Amey Fells All of a Streets Trees (Sheffield Tree Fellings) - Video - 13th Oct 17
Stock Market Charts Show Smart Money And Dumb Money Are Moving In Opposite Directions—Here’s Why - 12th Oct 17
Your Pension Is a Lie: There’s $210 Trillion of Liabilities Our Government Can’t Fulfill - 12th Oct 17
Two Highly Recommended Books from Bob Prechter - 12th Oct 17

Market Oracle FREE Newsletter

3 Videos + 8 Charts = Opportunities You Need to See - Free

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

© 2005-2017 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