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SOVEREIGN MAN

Capital controls, trade controls, border controls…

Border_Control_by_Paolo_Cuttitta

January 4, 2013
Buenos Aires, Argentina

Humbly I will ask you to please excuse the 48+ hour hiatus since we last spoke. I ate some tainted beef Tuesday evening that caused some of the worst food poisoning I’ve ever had in my life. It wasn’t pretty.

Being sick is a funny thing… it really makes one appreciate being healthy. When we’re feeling great, we take our health for granted. Few people wake up in the morning and think, “Weeeee, I’m not ill today!”

Yet it can all come crashing down so quickly. And the moment it’s taken away by some tiny microscopic organism, we’d suddenly give anything to go back to that blissful state of good health.

Moreover, as human beings grow older, our health starts gradually slipping away. Eventually we start to forget what it’s like to wake up without aches and pains. It just becomes a normal part of life.

And then, after decades of aging and little pains creeping in, people often get hit with a deluge of health problems all at once. It’s part of life.

Freedom works in the same way. Most folks take freedom for granted. And thusly, they don’t think much about trading it away like some street market commodity.

Like health, freedom erodes gradually over time… then all at once. We lose a freedom here, there, through a slow, measured deterioration of civil and economic liberty. Body scanners at the airport. Sexually assaulting passengers. Declarations of foreign accounts. Mandatory health insurance.

Then suddenly there’s a bifurcation point when the deterioration goes nonlinear. It’s like the old saying about going broke– it happens gradually, then all at once. We lose our freedoms in the same way.

This is the familiar story of almost every once-great world power throughout history, from the Romans to the Venetians to the post-Bourbon French. And the impetus is often the same– dire economic problems, underpinned by unsustainable debt or inflation of the currency.

History shows us that when governments start to get into financial trouble, their only solution is to try to control and regulate everything. They impose capital controls, wage and price controls, exchange controls, border and travel controls, population controls. They destroy freedom in the name of preserving the status quo.

Nowhere today is there a more clear example than here in Argentina.

This nation, once one of the richest in the world, has gotten into financial trouble so many times it’s hard to keep track. And in light of so much economic decline and capital flight, President Cristina Fernandez de Kirchner has imposed just about every control in the book.

She’s already cut people off from being able to hold foreign currency. She’s forcing companies with profits abroad to repatriate the funds back to Argentina. She’s nationalized pensions. She’s requiring steep taxes on overseas retail transactions. She wants every single purchase recorded and reported to the tax authorities.

She’s practically taken over the media. She controls most of the utility companies. She’s slapped export quotas on Argentine farmers and ranchers, forcing them to sell in domestic markets at an unprofitable price. She’s also controlling the prices of another 300+ products.

She fired a former central banker for not bending to her policy wishes. She has already demanded that Argentine banks allocate a percentage of their deposits for loans to be made at negative real interest rates.

Basically, she’s screwing everyone. Big time. Banks, businesses, workers, retirees, professionals, entrepreneurs, even government employees.

Again, we know how this movie ends. The more governments control, the more disastrous the results.

It’s an important topic because we’re seeing the same signs in Western Europe and the US. This summer I saw harsh banking and border controls in Italy, financial transaction controls in Portugal and Spain, and all-out asset confiscation in Greece.

The US is starting to go down this road as well. Indebted past the point of no return where they must borrow money simply to pay interest on the money they’ve already borrowed, they’re out of options.

Think about it: with the FATCA legislation that kicks off this year, they’ve already implemented de facto capital controls. They’ve authorized military detention of civilians on US soil. And still, hopelessly drowning in debt, their best idea right now is to mint a trillion dollar coin.

It’s utterly absurd… and truly time to diversify overseas.

How long will it be before the world’s largest economy becomes the world’s largest financial prison? And… even if it doesn’t pan out this way, how will you be worse off for holding some savings in a strong, stable bank overseas? Will anyone really miss receiving (and paying tax on) 0.1% interest at an insolvent US bank?

About the author: Simon Black is an international investor, entrepreneur, permanent traveler, free man, and founder of Sovereign Man. His free daily e-letter and crash course is about using the experiences from his life and travels to help you achieve more freedom.

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Comments on this entry are closed.

  • http://twitter.com/jonasvets Jonas Vets

    I’m traveling to Argentina this month. Any useful advice? How much cash can I take with me for example?

    • http://www.facebook.com/rok.jarc1 Rok Jarc

      Bring US in cash. Dont use ATMs here as you will get pesos at the official bank rate which is 40% less then the black market

  • StuckInUK4Now

    I’m guessing a fairly high percentage of Sovereign Man readers will also have read, or at least be aware of, the 1996 book ‘The Sovereign Individual’ by James Dale Davidson and William Rees-Mogg (the latter of whom sadly died just a few days ago: http://en.wikipedia.org/wiki/William_Rees-Mogg ), the basic theme of which was that globalisation and the expansion of the internet would undermine the industrial-era nation-state, which depends for its survival on being able to identify and tax transactions which take place within its territory – a task which becomes ever more difficult for the nation-state as wealth-creation will increasingly migrate to cyberspace rather than physical space, and which confers an advantage on small or currently under-developed countries, as they ultimately have more to gain from helping this process along than by assisting the expensive-to-run and bankrupt nation-states of North America and Western Europe to stop their wealth-creators from escaping their control and taxes.

    ‘The Sovereign Individual’ at the time identified Argentina as one country with a lot to offer the would-be escapee – clean environment, beautiful landscapes, economic reforms – but this was of course before things once again went into reverse there. But Davidson and Rees-Mogg also offered the cautionary tale – and memorable image – of the Argentine tendency to hyperinflation by observing that “if in 1960 the entire wealth of the world had been converted into Argentine currency and buried, it would not have been worth anyone’s while to dig it up again by 1991.”

    Still, never mind the economy – Kirchner knows she can always play the Malvinas card to keep the dummies on side rather than rioting against having their pockets picked by their government. Goodness knows what the Argentine government would do if it ever actually got sovereignty over the islands and therefore lost an easy way to whip up patriotic fervour whenever the masses needed distracting.

    Perhaps the Falklanders’ best long-term bet is to engineer a ‘reverse takeover’ by using their anticipated future oil revenues to first buy up the Argentine economy, and afterwards vote to join Argentina on their own terms (i.e. total internal autonomy, Isle of Man style) knowing that without the Malvinas card to play, Argentina’s leaders will have little option but to run a sound economy if they want to keep their citizens happy.

    On the other hand, perhaps getting hold of the Falkland Islands is secretly an Argentine politician’s worst nightmare – for precisely that reason.

  • Steve

    The FDA protects us here in the good ol’ USA. I am in my 50′s and have never been ill from bad food. As much as you bad mouth the USA, it still beats most of the world in quality of life.

    • brotherjohnf

      You cannot be serious. The FDA? Really? Wow, you just gave me the laugh of the day. Thanks.

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