Best of the Week
Most Popular
1.Are UK Savings Interest Rates Finally Starting to Rise? Best Cash ISA 2017 - Nadeem_Walayat
2.Inflation Tsunami - Supermarkets, Retail Sector Crisis 2017, EU Suicide and Burning Stocks - Nadeem_Walayat
3.Big Moves in the World Stock Markets - Big Bases - Rambus_Chartology
4.The Next Financial Implosion Is Not Going To Be About The Banks! - Gordon_T_Long
5.Why EU BrExit Single Market Access Hard line is European Union Committing Suicide - Nadeem_Walayat
6.Trump Ramps Up US Military Debt Spending In Preparations for China War - Nadeem_Walayat
7.Watch What Happens When Silver Price Hits $26...  - MoneyMetals
8.Stock Market Fake Risk, Fake Return? Market Crash? - 2nd Mar 17 - Axel_Merk
9.Global Inflation Surges, Central Banks Losing Control and Triggered the Wage Price Spiral? - Nadeem_Walayat
10.Why Gold Will Boom In 2017 - James Burgess
Last 7 days
Political Week Presurres US Stock Market - 25th Mar 17
London Terror Attack Red Herring, Real Issue is Age of Reason vs Religion - 25th Mar 17
Will Washington Risk WW3 to Block an Emerging EU-Russia Superstate - 25th Mar 17
Unaccountable Military Industrial Complex Is Destroying America and the Rest Of The World Too - 25th Mar 17
Silver Mining Stock Fundamentals - 24th Mar 17
A Walk Down the Dark Road of Bad Government - 24th Mar 17
Is Stock Market Flash Crash Postponed Until Monday? - 24th Mar 17
Stock Market Bubble and Gold - 24th Mar 17
Maps Of Past Empires That Can Tell Us About The Future - 24th Mar 17
SNP Independent Scotland's Destiny With Economic Catastrophe, the English Subsidy - IndyRef2 - 24th Mar 17
Stock Market VIX Cycles Set To Explode March/April 2017 – Part II - 23rd Mar 17
Is Now a Good Time to Invest in the US Housing Market? - 23rd Mar 17
The Stock Market Is a Present-Day Version of Pavlov’s Dog - 23rd Mar 17
US Budget - There’s Almost Nothing Left To Cut - 23rd Mar 17
Stock Market Upward Reversal Or Just Quick Rebound Before Another Leg Down? - 23rd Mar 17
Trends to Look Out For as a Modern-day Landlord - 23rd Mar 17
Here’s Why Interstate Health Insurance Won’t Fix Obamacare / Trumpcare - 23rd Mar 17
China’s Biggest Limitations Determine the Future of East Asia - 23rd Mar 17
This is About So Much More Than Trump and Brexit - 23rd Mar 17
Trump Stock Market Rally Over? 20% Bear Drop By Mid Summer? - 22nd Mar 17
Trump Added $3 Trillion in Wealth to Stock Market Participants - 22nd Mar 17
What's Next for the US Dollar, Gold and Stocks? - 22nd Mar 17
MSM Bond Market Full Nonsense Mode as ‘Trump Trades’ Unwind on Schedule - 22nd Mar 17
Peak Gold – Biggest Gold Story Not Being Reported - 22nd Mar 17
Return of Sovereign France, Europe’s Changing Landscape - 22nd Mar 17
Trump Stocks Bull Market Rolling Over? You Were Warned! - 22nd Mar 17
Stock Market Charts That Scream “This Is It” - Here’s What to Do - 22nd Mar 17
Raising the Minimum Wage Is a Jobs Killing Move - 22nd Mar 17
Potential Bottoming Patterns in Gold and Silver Precious Metals Stocks Complex... - 22nd Mar 17
UK Stagflation, Soaring Inflation CPI 2.3%, RPI 3.2%, Real 4.4% - 21st Mar 17
The Demise of the Gold and Silver Bull Run is Greatly Exaggerated - 21st Mar 17
USD Decline Continues, Pull SPX Down as well? - 21st Mar 17
Trump Watershed Budget - 21st Mar 17
How do Client Acquisition Offers Affect Businesses? - 21st Mar 17
Physical Metals Demand Plus Manipulation Suits Will Break Paper Market - 20th Mar 17
Stock Market Uncertainty Following Interest Rate Increase - Will Uptrend Continue? - 20th Mar 17
Precious Metals : Who’s in Charge ? - 20th Mar 17
Stock Market Correction Continues - 20th Mar 17
Why The Status Quo Is Under Increasing Attack By 'Populist People Power' - 20th Mar 17
Why the SNP WILL Destroy Scotland, Exit UK Single Market for EU - IndyRef2 - 19th Mar 17
Crypto Craziness: Bitcoin Plunges on Fork Concerns, Steem Skyrockets and Dash Surges Above $100 - 19th Mar 17
What ‘Ice-Nine’ Means for Your Money - 19th Mar 17
Stock Market 4 Year Cycle - 18th Mar 17

Market Oracle FREE Newsletter

Elliott Wave Trading

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

© 2005-2016 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