02/21/2016 - Intensifying Capital Controls Are Coming
Daniel Amerman considers recent developments to discuss the possibility of governments initiating capital controls on the movement of money across international borders .. “For governments, the savings of the citizens are a resource for the nation, and there is a very long history of nations using capital controls on the amount and terms under which people’s money is allowed to leave – or enter – a country. These restrictions have been seen most recently on a temporary basis during crisis in countries such as Greece and Cyprus – but what few people realize these days is that long-term capital controls were the norm for the advanced economies of the West during the 1940s, 1950s and 1960s. And capital controls may be on their way back – if some leading financial authorities get what they want. Which, in a vastly changed world, could impact our daily lives in ways which most people have never considered.” .. given heavily indebted governments getting desperate for promoting economic growth sufficient to service their massive debts, capital controls are becoming a strong possibility .. “capital controls are a key component of financial repression – when the economy is good, debts are low, and markets are healthy, then rules and regulations often liberalize and free markets gain dominance over government controls. When markets get in trouble while the economy goes bad and governments become heavily indebted – then rules and regulations often increase as government controls become dominant over free markets .. financial repression has a much more specific meaning as well. It is the name for a process in which nations effectively take wealth from savers, and use that wealth to reduce the effective size of national debts, or at least slow down the growth of national debts .. There are five traditional components to Financial Repression, with the first two components being 1) very low interest rates, and 2) a somewhat higher real rate of inflation (which can be quite different from the official rate of inflation) .. That situation is painful for savers, so the other three components effectively involve putting up fences so investors can’t escape. These fences include 3) forced participation by financial intermediaries; 4) capital controls; and 5) discouraging or outlawing precious metals investment.” .. Amerman concludes that capital controls could be deployed over a period of years by the G-20 with warning & discussion, or they could be deployed overnight in the event of financial or economic crisis – in either case, he advises planning ahead of time for their increasing probability.
