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SOVEREIGN MAN

Is the IMF now recommending capital controls…?

imf-capital-controls

October 10, 2012
Madrid, Spain

It takes all of three seconds on the ground in Spain to realize that this country is hurting. Big time.

I was just here three months ago, eight or nine months before that. Each time it seems worse– more strikes, more homeless, more unemployed, more unrest, more storefront vacancies. It’s amazing what the combination of debt, deceit, and a bona fide banking collapse can do to a nation.

In a most intellectually disingenuous statement, European leaders recently announced that Spain is A-OK and would not require a bailout. I suppose it’s true to a degree. Spain doesn’t really need a bailout. More like an exorcism. Or at least last rites.

After all the debt, austerity, government collapse, riots, etc., there’s a new crisis du jour here: the banking system. Individuals, businesses, and institutions are all predicting a breakup of the eurozone, and nobody wants to have cash in this country on the day they introduce a new currency (and then immediately proceed to devalue it.)

Consequently, depositors are moving money out of the country en masse, often to the tiny principality of Andorra next door– a highly capitalized, low tax banking jurisdiction. This leaves the already thinly-capitalized Spanish banks in an even weaker position.

As you probably know, the way the banking system works in most of the world is a complete fraud. Most banks only hold a tiny percentage of their customers’ deposits in cash. The rest is ‘invested’ (gambled) or loaned to a bankrupt government.

This is a high-risk model that only works well when people have tremendous confidence in the system. The moment there are more than a handful of depositors wanting their money back, the bank has a big problem.

This is happening nationwide in Spain, so the entire banking system has a problem. Nearly every bank here is technically insolvent… and yet they have droves of customers trying to withdraw funds that aren’t there.

As such, the IMF is now recommending that Spain (and other nations in the eurozone periphery) take action “at the national level” to stem this flight of funds and prevent people from moving money abroad.

Of course, they won’t come right out and say it, but there’s a name for ‘national level’ action to stem the international flight of funds. It’s called capital controls.

This is when governments restrict the free-flow of funds across borders, often -requiring- that citizens hold a rapidly depreciating currency at sub-inflation rates.

It’s one of the worst forms of theft imaginable– robbing the purchasing power of people’s savings and incomes, all to meet some unachievable objective, or for ‘the greater good’ as defined in the sole discretion of the ruling elite.

Over the summer while in Europe, I saw early signs of capital controls being rolled out.

In Italy, for example, the government imposed bank withdrawal limits… essentially holding people’s savings captive. Then they initiated strict border controls with Switzerland in an attempt to thwart citizens trying to sneak cash out of the country.

It’s going to happen here in Spain as well. And unfortunately, the people who didn’t see the writing on the wall and take action early are going to find the door shut in their faces by the next wave of regulation.

Moving some savings abroad isn’t the sort of thing where you want to run with the crowd. As with anything, the dynamics change quickly when the idea becomes mainstream. Smart, thinking people ought to recognize the signs early and be well ahead of the crowd.

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.

  • Robert

    I would like to suggest that the term ‘elites’ is not a good one. First, it is inaccurate, in that they are not better than everyone else, in fact quite the reverse. Second, it plays into their strategy. We need to have a term to use in referring to them, which is correct linguistically and which puts us outside the particular flock of sheep they are trying to control. I think ‘control’ is a good description of what they are doing, but ‘controlers’ is inadequate because it’s incomplete. ‘Power holders’ is better, because while it does put them into a category to which we ourselves do not belong, it also describes their position, their actions, and the temporary nature of their influence more accurately. Until I hear a better term, I’ll use ‘Power holders’ to describe them.

    • Strider73

      How about “megalomaniacs”, “control freaks” or “powerholics”.

      I’m surprised the author made no mention of the growing sentiment in Catalonia to break away from Spain altogether. Imagine the dominoes that would fall — Padania seceding from Italy, Scotland from Britain, Flanders from Belgium.

      No doubt the Swiss are ecstatic that they never joined the EU. Now they need to crush their central bank, which has been pegging their currency to the euro.

      • don

        How ’bout Jewish Money Lenders?

      • GamerFromJump

        How ’bout you’re an asshole?

    • nocte_volens

      How about Parasites?

    • J

      I like to call them the psychopathic parasites. A v good book about connection between psychopathy and power is ‘Political Ponerology’ by Lobaczewski

  • Patrick Dugan

    Despite somewhat goofy customer service, I’m quite glad to have a bank account in Chile.

  • http://twitter.com/John_Boettcher John Böttcher

    When Iceland’s banks went bust, the country introduced capital controls. Now Iceland’s economy isnow booming…

    • faz

      After their currency crashed and their stock market dropped 77%, everyone’s savings were wiped out, so now everyone has to go back to work. Of course the economy is booming, but those workers would have preferred living off their life savings instead of slaving away….

  • therooster

    I call them “the stick” within a process that creates so much pain for the marketplace that we migrate to PM’s as currency. This must be a grass roots monetization, organically. It cannot be top-down for fear of a sudden crash in the legacy system (USD). Some evils are necessary in “the script”. Follow it. The (floating) USD’s ultimate purpose is not that of a currency, but that of a real-time measure for gold-as-money in real-time, so that debt-free store of value could be integrated and “married” with instant global liquidity. We’re close but it’s the marketplace that has to wake up.

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