Recaps Note: These posts were by a special request – While they may be controversial and opinionated they are not necessarily the shared opinion of Dinar Recaps or supported by same.
Post by Memphis » April 24th, 2014, 3:06 pm • [Post 1]
Capital Controls - What are they and why should we care? Part 1
Over the past 3mo I have brought much material for study. It has been a monumental task as I had to 1st picture things in my mind to then allow that things be laid out in an order such that we could build upon each previous layer rather than simply leave the reader frustrated and overwhelmed!
Although we have taken many directions in our discussions, all that has been learned ultimately leads us back to the discussion of today's post. Capital controls is of great importance to us, 1st to understand and 2nd to then prepare.
If you have followed me closely then today's material will be of value to you as you are mentally prepared to absorb this. In my mind I view the words "capital controls" as a fence of sorts. A barrier, an impediment for us to freely do as we wish with our assets, our monies, our stuff.
This fence has been erected many times throughout history by every developed nation on earth as it begins a cycle of decline. In like manner, this same fence has been slowly torn down in these lands as the cycle finally completes, men regain their fiscal sanity for a time, and the people begin to rebuild their society, often L@@King nothing like it did before.
The important point here is that we are not unique in history tho our leaders may see greatness in themselves. These are simply cycles that have been present since the dawn of creation.
Any debate (argument) along the lines of what America is facing in the next 4-5yrs can only be regarding the depth of the valley into which we are headed. A discussion of "degrees" is certainly valid and needed as it is the great unknown at present.
What however is not on the table for discussion is the likelihood that the cycle of decline for America has begun. Any such suggestion is borne purely out of ignorance as the evidence to refute is beyond question.
For us personally I can think of many things to discuss regarding the changes that we will face. My best estimate for when this will become common discourse among ALL Americans would be 2015.75… and beyond.
Once the "fence" is in place the point of interest to us turns towards the MANIFESTATIONS of capital controls.
Today we will address just ONE of MANY such topics. Our gov't will be coming after our money in the form of taxation. If you believe this has already happened? That the tax man has already become consumed by greed? You are only seeing the early manifestations, the wake-up call visible to only the observant.
There are regulations, executive orders, court rulings, taking place in our nation daily that are preparing the way for this decline. The events playing out in Nevada are of great importance here as well and if you think the gov't (the BLM) is justified then you do not know the history of this state. Martin Armstrong has settled THAT debate for us.
Tho Martin has commented many times on the events in Nevada, for those with interest here are links to the three blogs that IMO have greatest value to us in our discussion with the 3rd being an actual proof of sorts as to the truth of the matter:
1) American Civil Unrest is Starting on Schedule
2) Reid calls his Opponents Domestic Terrorists
3) Do the Fed’s Really Own the Land in Nevada? Nope!
Tho this discussion is not for today, let me just state that the greatest value that I am taking from this news is that people are showing up at the Bundy ranch. Concerned American's (long ago known as patriots) are coming in large number to….resist. You'll L@@K back on this event in coming years as having been significant.
I have had so many things sent me this week along the lines of capital controls that this post seemed essential. It is not however a complete treatment of this! Not even close.
The material that you are about to read is ONLY going to do two (2) things for you. It will briefly define what capital controls are and then it will explore recent evidence towards the coming MANIFESTATION of increased taxation without even touching on the many other MANIFESTATIONS such as seizure of funds (haircuts), sudden devaluations in currencey's, destruction of small business, gov't intrusion as has never been seen in America, etc, etc, etc.
It is important today that we recognize the level of forethought and planning that any overgrown and oppressive gov't BEFORE such measures, such MANIFESTATIONS are rolled out. The groundwork must 1st be laid and this groundwork, this preparation of the mechanisms is what I am today defining as our "fence".
If you do not yet see this fence being erected all around you? Then my hope is that your eyes will opened today and your thinking about our world elevated in some measure as this discussion is not NOT one limited to America. Such limited thinking will do nothing but handicap you in the coming years.
Today's discussion is broken into three (3) separate posts to help break it up. For the regular reader, you may appreciate that the last posting opens up (illuminates) the reality that everything is connected.
As I have been repeating for months now, the actions of gov't are severely deflationary and are driving capital into hiding. As governments complete the erection of their "fences" there are great and unintended consequences as a result.
The fact that I have been right about EVERYTHING that is now playing out is not a testament to me in any way. These things are easily predictable if we only respect….history. We think ourselves so supremely intelligent and above the follies of the past but the truth is man's nature never changes and despite the best efforts of man to prevent such cycles from unfolding and economies from unraveling it is history that tells us otherwise.
I have an amazing article sourced from Spiegel Online this week that would speak to the unfolding cycles in our world with amazing clarity but this article would require me to insert much commentary within and so it did not make the cut for today.
For the sake of clarity, what follows in this post and also the entirety of parts 2 and 3 beneath it are totally void of any comments by me. Blessings, Memphis
Penning the Sheep for a Shearing—Capital Controls, Part 1
by Nick Giambruno, Senior Editor
Capital controls are a favorite tool in a bankrupt or domineering government’s toolbox. You should be familiar with them and how to preempt them.
There are numerous countries that currently have capital controls in one form or another—China, Colombia, Iceland, Cyprus, India, Argentina, Venezuela, Ukraine, and Cuba, to name a few.
It’s not exactly a secret that the West generally and the US in particular are moving deeper into bankruptcy and are seeking more and more control over all facets of their citizens’ lives.
These trends will sooner or later lead to an overt attempt to control the flow of money in some way—just as they have in other countries throughout history that have headed down similar paths.
It’s crucially important to your financial future that you understand what capital controls are, how and why they are implemented, the harm they can cause, and what you can do to protect yourself.
This is because I believe it is a near certainty that the US dollar will lose its role as the world’s premier reserve currency. And when that happens, capital controls are sure to follow.
The purpose of capital controls is straightforward: to restrict and control the free flow of money into and out of a country. Capital controls come in all sorts of shapes, sizes, and labels. But no matter what they’re labeled or how they’re implemented, the end result is always the same—restricting, controlling, and taxing the flow of money.
The effects are always harmful. Strategies on how you can protect yourself are frequently discussed on the International Man site.
Why Governments Impose Capital Controls
It’s simple: imposing capital controls is similar to penning sheep that are about to be sheared so that they cannot escape.
Capital controls are not usually used unless a government has run out of ways to otherwise steal money from its people, such as when it can no longer borrow, inflate the currency, or tax like it used to.
In most cases, capital controls are used during acute crises, like financial and banking collapses, wars, or in countries with chronic economic problems. In other cases, it’s just the dominating nature of the particular government to control its citizens by denying them the means of taking their wealth abroad.
No matter the immediate reason, an always attractive effect of capital controls for governments is that they trap as much money within their borders and their reach as possible. They of course do this to optimize the amount of money that’s available for them to tax or otherwise confiscate.
Capital controls are also used because they can be politically popular. The government will try to get the average person to incorrectly believe that moving your money offshore or investing in foreign assets is something that is only for the rich or is otherwise unpatriotic (both are obviously false). It’s also a way for the government to show that it is “doing something” during a crisis.
How It’s Usually Done
In order to be effective, capital controls naturally have to come as a surprise… well, to the average person at least. The political and economic elite are usually tipped off well in advance and take action accordingly.
Announcing them to the public beforehand would cause people to get their money out before the controls are put in place, which would defeat the purpose of implementing them in the first place.
In Cyprus they came in a flash, on a seemingly ordinary Saturday morning when people would least suspect it. From the perspective of the government, weekends and holidays are ideal times to implement capital controls.
Here are the four most common ways they’re imposed:
1. “Official” Currency Exchange Rates
The first way capital controls are imposed is when a government sets an “official” currency exchange rate. Since gold’s value is universally recognized across the globe and is the international money par excellence, “official” prices for gold also fall under this category.
The “official” rate is always unfavorable compared to the black market rate (i.e., the free market rate). This is exactly what’s happening in Argentina and Venezuela.
Unless you go through some convoluted process, whenever you wire or otherwise bring large amounts of money into and out of the country, you’ll likely get stuck with the unfavorable “official” exchange rate set by the government.
Getting the more-favorable black market rate usually involves informal transactions on the street, which is of course technically illegal since you’re supposed to use the government-approved “official” rate. The penalties and enforcement of this vary widely among countries with this type of capital control.
In reality, the difference between the market rate and the “official” rate amounts to a wealth transfer from you to the government. It’s a form of implicit taxation.
2. Explicit Taxation
Another form of capital controls is when a government imposes explicit taxes that specifically target foreign investments, foreign currencies, or gold in order to discourage you from buying them. An example of this is India, which imposed a 10% tax on gold imports in 2012.
Governments prefer you stored your wealth in the local currency, where it’s easier for them to tax, outright confiscate, or siphon via inflation.
Taxation on inbound/outbound money transfers is also another tactic. While you would still be able to send money abroad to an offshore bank (or receive it from abroad), there would be a tax, of say 20%—or whatever the government wants.
No matter the type of taxation-based capital control, you will still able to move your capital… though it will likely be very costly to do so.
3. Restrictions and Regulations
Capital controls can also come in the form of restrictions on the amount of foreign currency or gold that can imported, exported, or otherwise possessed. This may come in the form of a regulation that prohibits you from taking a certain amount of money out of the country (usually only a couple thousand dollars) without special permission from the government.
4. Outright Prohibition
This is the most severe form of the capital controls. This is where a government outright prohibits the ownership of foreign currencies, offshore bank accounts, foreign assets, gold, or moving any form of wealth abroad.
Stay tuned for part 2 of this article. I’ll discuss the high potential for capital controls in the US, what could trigger them, and proven strategies to protect yourself.
"Note from Memphis:
There are important realities facing America that can only be recognized as we each set aside any person political leanings. For some this is a difficult shift in their thinking.
In this spirit it is important to recognize that I have no personal "favorite", no leanings toward ANY political party. Money feels no such emotions and any proper study of global finance must thus be an un-emotional one.
Finally, if any comments below made by Martin Armstrong still leave you upset then please consider directing those emotions towards him at ArmstrongEconomics.com" Blessings, Memphis