Capital controls, trade controls, border controls…

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?

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