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.
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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.
Nick Giambruno is the Senior Editor for InternationalMan.com
won’t happen in the U.S. the FED can print for the government needs and it currently does. they can print faster then inflation goes. but I agree with the idea of moving some of your money outside of U.S. jurisdiction. less to steal
Yep, the FED can print for government needs all day but you’re making a mistake thinking the government or the bankers give a damn about your needs. Considering they’ve been counterfeiting the dollar going on eighty years now I’m surprised this government approved toilet paper called Federal Reserve Notes is still a topic of conversation in 2016.
its not about our needs. the idea of confiscation assumes they want to preserve the value of money. wont happen this time, the dollar will die and be replaced by something new/no cash, think bitcoin of bankers, but not secret, your id will be attach to it, and the need of confiscation will go away, as this will be 100% controlled currency, Rockefeller talked about it coming
Too much dollar printing is turning it into monopoly money as it is so that is no solution . You just devalue the dollar by keep on printing it without any backing.
Americkens deserve it… US GOVT is their Beast… who else is to blame???????????
Banks too big to fail ?
Americans have been abused by there government for so long and in so many ways – we are lied to 24/7, the media is a weapon for wAr , we are being driven into poverty deliberately on top of that our food is almost all poisoned, they dump neurotoxins into all the public water, we are given tainted vaccines, our medical system is in the business of raping (you for $$), our schools are communist indoctrination centers intent on dumbing down the students, our borders are wide open , illegals have more rights than citizens and most public funds are stolen one or another, and that is just off the top of my head – our country has been destroyed from the inside – they gave our parks to the UN, our president is a total CIA creation
Tell us how we deserve this – hoe does any human being deserve this government ?
someone had to say this – congratulations, you are awarded increased surveillance and the deployment of extra-judicial assets to worm their way into your life and cost you thousands of dollars. And that’s if you’re lucky enough to avoid being arrested for something.
Your post proved the point of my post – they want you to be afraid of them, they want you to think if you speak out you will get the jackboot on your throat and be punished by them . I refuse to live in fear of them and if they imagine every senior citizen with a computer is a threat to them that’ s their problem. I remember this country when there was still some decency left in the government and USA was something to be proud of ….now I just feel sorry that the great hope of the world has been reduced to 3rd world status and that there is even talk of them blatantly stealing $$$ from American’s bank account….
Central banks exists in many countries. The US doesn’t have a monopoly on corruption. If you look at history the idea of money changers/central banks was started in Europe.
A bill has already been passed, BY CONGRESS, that declares our money that we put into banks belongs to the banks and can and will be confiscated to cover their losses.
This means we are crazy to use the banks to store our money . That is if you have ANY left over for saving by the time you have paid for your bills etc. The top 10% will probably have to give this some thought but the rest of us will just get by. We should separate the two branches of banking once again as in Glass Steagall act which was scrapped by Bill Clinton in the 90`s at the behest of Wall Street .
Yes. We can use banks to cash our checks, up to their low limit, taking the small balance out but leaving just enough to cover our bills, and in some cases we might want to pay the most important bills first, regardless of due dates, so we don’t lose our home or apartment, Then come back to withdraw the rest of it after the checks have cleared and not use debit cards (credit cards are okay if they are unsecured), and store our leftover cash in a safe place. This is just a suggestion. BTW, just so you know, canned goods can last up to 10 years if stored properly and not damaged, regardless of the expiration date on them. However, if a can “pops” when opened, don’t eat it. With regard to Wall Street, both parties are beholden to them these days.
With the low oil prices that are predicted to drop as low as 20 dollars a barrel or less we may be looking at a bailout of the oil companies. Many of them still exist because of loans. Before long they will be called on those loans. That’s when the real fireworks will start.
Setting up an account outside the US won’t work because once it crashes it crashes everywhere. Then comes the mark of the beast. So it won’t matter where your money is, you will not be able to spend one dime without that mark, or chip, or whatever it will be that is instituted world wide.
THE only hope one can have is in christ. Your money will betray you.
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Over the pond in sudden Africa, the 11 million ‘general voting fodder’ types, libtards included, willingly take the mark of the beast, it be known as The Zuma, and on a good day looks like this…