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
BREAKING NEWS - United States Galloping Towards Nuclear War with China Proxy North Korea - 26th Sep 17
Here’s Why Turkey Can’t Stay Out Of Syria - 25th Sep 17
Hidden Gems Shows A Foreboding Stock Market Future - 25th Sep 17
10 Reason You Should Use Ridesharing To Save Money - 25th Sep 17
Commodities King Gartman Says Gold Soon Reach $1,400 As Drums of War Grow Louder - 25th Sep 17
Stock Market Mixed Expectations, Will Stocks Continue Higher? - 25th Sep 17
22 charts and 52 questions that will make you Buy Gold - 25th Sep 17
Speculation Favors Overall Higher Silver Prices - 25th Sep 17
The Advertising Breakthrough Revolutionizing Gaming - 25th Sep 17
Stock Market Forming a Reluctant Top - 25th Sep 17
Grid Forex Strategy - All You Need to Know - 25th Sep 17
Catalonia, Kurdistan, Patriotism, Flags and Referendums - 24th Sep 17
Two Key Indicators Show the S&P 500 Becoming the New ‘Cash’ - 24th Sep 17
The Felling of Sheffield's Big Street Trees 2017 - Dobcroft Road - 24th Sep 17
Advantages of Forex Trading - 24th Sep 17
Stocks, Gold, Dollar, Bitcoin Markets Analysis - 23rd Sep 17
How Will We Be Affected by a Series of Rate Hikes? - 23rd Sep 17
Fed Quantitative Tightening Impact on Stocks and Gold - 22nd Sep 17
Bitcoin & Blockchain: All Hype or Part of a Financial Revolution? - 22nd Sep 17
Pensions and Debt Time Bomb In UK: £1 Trillion Crisis Looms - 22nd Sep 17
Will North Korea Boost Gold Prices? Part I - 22nd Sep 17
USDJPY Leads the way for a Resurgent Greenback - 22nd Sep 17
Day Trading Guide for Dummies - 22nd Sep 17
Short-Term Uncertainty, As Stocks Fluctuate Along Record Highs - 21st Sep 17
4 Reasons Gold is Starting to Look Attractive as Cryptocurrencies Falter - 21st Sep 17
Should Liners Invest in Shipping Software Solutions and Benefits of Using Packaged Shipping Software - 21st Sep 17
The 5 Biggest Bubbles In Markets Today - 20th Sep 17
Infographic: The Everything Bubble Is Ready to Pop - 20th Sep 17
Americans Don’t Grasp The Magnitude Of The Looming Pension Tsunami That May Hit Us Within 10 Years - 20th Sep 17
Stock Market Waiting Game... - 20th Sep 17
Precious Metals Sector is on Major Buy Signal - 20th Sep 17
US Equities Destined For Negative Returns In The Next 7 Years - 3 Assets To Invest In Instead - 20th Sep 17
Looking For the Next Big Stock? Look at Design - 20th Sep 17
Self Employed? Understanding Business Insurance - 19th Sep 17
Stock Market Bubble Fortunes - 19th Sep 17
USD/CHF – Verification of Breakout or Further Declines? - 19th Sep 17
Blockchain Tech: Don't Say You Didn't Know - 19th Sep 17
The Fed’s 2% Inflation Target Is Pointless - 19th Sep 17
How To Resolve the Korean Conundrum  - 19th Sep 17
A World Doomed to a Never Ending War - 19th Sep 17
What is Backtesting? And Why You Need Backtesting System? - 19th Sep 17

Market Oracle FREE Newsletter

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

Capital Controls May Be Coming to the US

Currencies / Fiat Currency Mar 08, 2017 - 12:02 PM GMT

By: John_Mauldin

Currencies

Those who hoped President Trump would tone down his protectionist rhetoric will be unnerved six weeks into his tenure. From his meeting with business CEOs, Trump has put trade “front and center.”

So far, all is going well for the president. Markets are inching higher, and inflationary forces have picked up. However, bringing back jobs and reducing the trade deficit will be a tougher task.


A Victim of His Own Success 

Trump’s election unleashed the “animal spirits” that have been absent post-financial crisis. On the surface, this is good for the economy. The US is currently the only major country raising interest rates and enjoying an uptick in inflation.

Trump’s proposed fiscal stimulus and structural reforms have added to the optimism. Given all of this, the US is now an attractive place for investors (relative to global markets). The huge inflows into US equity markets since the election are evidence of this.

But the influx of capital has created problems for Trump. The dollar’s rise has cheapened import prices while US exports are now costlier for foreign buyers. A strong currency has weighed on GDP growth in the past and will do so again.

These conditions could result in companies leaving the US rather than returning, as Trump has promised. If the dollar continues its ascent, layoffs in export-heavy industries could follow. That would be a major headache for Trump and will force him into action. To start, he said last week there will be a “massive border tax” on imports.

But a border tax may be just the beginning. If it fails to stem offshoring, it’s possible that capital controls could be enacted. As Trump was elected on an “America first” platform, the idea would likely gain public support.

If controls are introduced, how could they affect US citizens?

Capital Punishment

Although restrictions seem unlikely, Trump has already talked about curbing cross-border money flows from certain sources.

In 2016, Trump said he would look into tightening rules on wire transfer firms, requiring them to verify whether their clients were US residents. These comments were made in regard to blocking overseas remittances sent by illegals. These curbs may seem limited at first, but they could easily be expanded once launched.

The Fed and IMF have backed the use of capital controls in certain situations. Officially, the US has opposed them since Bretton Woods. But judging by President Trump’s actions, America is on a new path.

Trump could enact such measures under the guise of protecting jobs. The controls would limit the ability of citizens to move funds in and out of the country and could be subject to caps. The that US residents send overseas every year would also be watched closely.

Businesses could see restrictions imposed on their foreign transactions. This would severely disrupt supply chains, forcing many firms to pivot to US suppliers. As foreign suppliers are often cheaper, it could hurt anemic US corporate profits. (A side note: 85% of the US manufacturing jobs that were lost over the past decades was the result of technology, not offshoring.)

Controls would differ from those that restrict outflows, which are now in place in Greece and China. US controls would also have to cover inflows and might be similar to those seen in Chile in the 1990s.

If such controls become reality, it would set a dangerous precedent. The government would be empowered to make arbitrary rulings on whether certain transfers are “endangering US jobs.” It would politicize the economy… rewarding “patriotic” firms and punishing others.

With capital controls as a potential next step along Trump’s protectionist path, how can we protect ourselves?

One Step Ahead

In six weeks, Trump has signed twelve executive orders. If the trade deficit continues to widen, capital controls could be closer than we think. That means having all of your wealth in the US might not be a wise choice.

There are many ways you can legally place your money outside the US. The most liquid option is to open a foreign bank account. For Americans, though, opening a foreign account has become increasingly difficult in recent years. This is in response to laws like FATCA, which place onerous requirements on overseas banks that have US citizens as clients.

Owning a foreign bank account does create a layer of protection between your wealth and the authorities. However, as your money is still inside the financial system, they can eventually get to it. To truly protect your wealth from the long arm of the law, Americans should consider buying gold and storing it internationally.

The Ultimate Hedge

Over centuries, gold has proven itself to be a wealth preservation tool and a store of value. Given its reputation, if capital controls are enacted, gold will likely skyrocket. But after controls are instituted, you may be unable to get your hands on any physical bullion.

Gold ETFs can give you exposure to the yellow metal, but at the end of the day they are just another financial product stuck inside the system. By purchasing gold bullion and storing it offshore, you can legally circumvent capital controls. Storing your gold offshore will also exempt you from certain reporting requirements.

(I'd suggest you download the free ebook, Investing in Precious Metals 101, before making your first gold purchase. It covers the fundamentals and advanced tips for investing in physical gold as well as other precious metals. Grab it here.)

Typically, investors must carry out their own due diligence on where to store their gold—an extremely time-consuming process. Luckily, buying gold and storing it internationally has never been easier. Investors can take advantage of companies like the Hard Assets Alliance, which has established four ultra-secure private vaults at international locations.

Unless the dollar nosedives—which looks unlikely—Trump will have to do something. So far, he has kept his promises and will likely do what he can to “protect” American jobs and industries.

As the old adage goes, “It’s better to be a year early than a day late.” Given Trump’s laser focus on trade, now could be an excellent time to get one step ahead of this potential risk.

Free Ebook: Investing in Precious Metals 101: How to Buy and Store Physical Gold and Silver

Download Investing in Precious Metals 101 for everything you need to know before buying gold and silver. Learn how to make asset correlation work for you, how to buy metal (plus how much you need), and which type of gold makes for the safest investment. You’ll also get tips for finding a dealer you can trust and discover what professional storage offers that the banking system can’t. It’s the definitive guide for investors new to the precious metals market. Get it now.

John Mauldin 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