Gold Forecaster
- Global Watch
Will the G-7 Nations Impose
Capital Controls?
Julian D.W.
Phillips
Gold Forecaster snippet
Feb 25, 2008
Finance leaders from the
Group of Seven, industrialized nations discussed collective action
"to calm markets, if price moves become irrational." Finance ministers and central bankers
from the G7 - the United States, Canada, Japan, Britain, France,
Germany, and Italy-said that financial market turmoil was serious
and persisting. They also said more work was needed to restore
markets to good working order and safeguard global growth. The
European Central Bank believes that turbulence on financial markets
could continue for months.
Consequently
the €-group have agreed that if there are "irrational"
price movements in the markets, "we will collectively take
suitable measures to calm the financial markets". The markets
will not be forewarned of such action, "otherwise it will
lose its effect if it is explained."
No action has been seen yet
so no-one is too perturbed it seems. But we are, very perturbed!
Could there be a more dramatic warning from the richest nations
of the world for us? It may seem easy to assume that all they
are going to do is to manipulate the froth out of the market.
But they did not say that. How can one "calm" markets?
And why will such action "lose its effect if it is explained?"
Such statements are so strong they need to weighed carefully.
The succinct admission that
turbulent markets will continue being turbulent for some time
to come, while stating the obvious, is a warning from the entire
body of major financial nations Finance Ministers [not warning
from mere newsletter writers]. They are clearly concerned about
the veritable Tsunami of Capital that is ready to rush from weak
markets to strong, or the disappearence of such that is happening
in the credit markets [like the pullback of the sea before the
wave hits] and is being replaced by freshly issued money from
the Central Banks. They are fully aware that volatility is here,
as a market feature, to stay. They realize that such swings destroy
the stability of world markets and make the markets malfunction,
badly. The situation certainly has to be dire for them to issue
such a warning?
What tools are in their hands
to "collectively take suitable measures to calm the financial
markets"? They are several and of different dimensions.
We look at those that would be the first assumed points of action:
- Exchange Rate or Interest
Rate Management: It
is unlikely they are referring to exchange rate or interest
rate management as these tools are already in use by separate
national Central Banks; however, if these nations want to manage
exchange rates 'in concert' the game changes somewhat. We presently
believe that the G-7 have agreed trading bands within which currencies
will move. Outside those bands we expect the G-7 to act to 'smooth'
them out. They would only contemplate such action if they exepected
the volumes of capital are so large that they will make currencies
move "irrationally". History has shown that Central
Banks -no matter how important in the global money system-can
be defeated by speculators. The potential flows of capital that
could flow at the moment are far larger than any speculator has
imagined before.
If they succeed in holding
exchange rates within specified trading bands, then it will be
like making a four-laned highway for the capital to travel down.
The markets from which they come from and those they go to will
bear the full brunt of the tsunami and will show "irrational
moves". Bear in mind it will be the movement of capital
that will show any irrationality, not normal international trade.
Consequnetly such moves must be prevented from destabilizing
international trade and the exchange rates that affect them.
The separation of capital flows from trade flows has usually
been the first point of action by Central Banks often making
a separate currency for capital movements. This can
be through Capital Controls or Exchange Controls, subject
to the severity of the "irrationality" of the markets
affected.
- Credit Markets: We have seen action from several
Central Banks now-in particular, the Federal Reserve and the
European Central Bank-to the tune of hundreds of billions of
$ and €s (a figure expected to rise to over $450
billion). By the end of March we should know what this figure
is headed towards in the next year as well as the last one. We
have no doubt they will continue to act to save the banking systems
of the G-7 group of nations through the replacement of lost values
[capital] by the issue of much more as we have seen to date.
We are led to believe that the subsidence of confidence in the
banking system and amongst bankers themselves is spreading up
from the poor end of the housing market to the more expensive
end of the market. Thereafter, it is hitting the bond insurance
market, likely to hit the credit card market and could push over
into the car finance market. Thereafter, who knows where? There
is no reason why this disease should stop at one point and not
the next. The entire system is like an inverted pyramid with
the world banks being the tiny point at the bottom. They will
have to focus their attention the most on the capital side of
the global banking system! The role of the Central Bankers as
lenders of last resort has been amply demonstrated over the last
few months and will continue to be so. Unfortunately, the money
issued has not been taken by those who really need it, but has
often been taken by banks funding other aspects of their operations
leaving the crisis relatively intact. The sheer volume of newly
issued capital adds to the mighty volumes of capital that can
move and cause "irrational movements" in markets.
The G-7 nations are giving
us warnings of their coordinated action. Therefore, it has to
be action to 'calm' international movements of capital. As has
been the case in the past and will be in the future, such action
will attempt to leave international trade untouched and unhindered
to go its merry way of keeping the system going amongst a regime
of stable [relatively] exchange rates. Hence, the chief tool
has to be Capital Controls or exchange Controls. These measures
will be far more than punitive simple "Witholding Taxes"
that penalized the export of capital seen in the States in the
past. They will have to be immediate and effectively halt
"irrational movements". Only Capital and Exchange
Controls fit the bill.
In the Gold Forecaster
we have highlighted the probabilty of Capital Controls
and Exchange Controls for some time now, but this warning tells
us that they are imminent and will arrive without warning as
the G-7 have said themselves.
What does this mean for you
and for me and for all those financial institutions out there
across the globe? It means if we want to protect ourselves from
the pernicious effects of these we must act NOW! The time for
adjusting one's affairs, not only to protect one's wealth, but
to re-structure it beyond the reach of these authorities is running
out. It would be extremely unwise to wait until the authorities
have acted because you might find yourself listening to the sound
of the trap of Controls snapping shut over you?
Storing bullion in Switzerland
[as the Bullion Vault does for its clients] is a way to go and
we would happily recommend working with them as we will do, as
it is out of the reach of the G-7. The only drawback to that
is that it remains in the name of the owners, who will be resident
most likely inside the nations of the G-7. As such they are faced
with a dilemma when they declare to their authorities that they
own gold in foreign lands. It is no small step for those authorities
to tell them to bring the gold home? That is where we can help
too.
This article is not the forum
to discuss ways and means of protecting oneself from such controls,
but after 25 years of practical experience in successfully structuring
people from such controls in a manner satisfactory to the monetary
authorities of three lands, we know of successful ways to protect
one's wealth and would be happy to assist any searching for such
protection.
As a final thought, when such
controls are imposed they produce remarkable opportunities to
increase and create wealth, so not only benefitting one, but
adding to one's wealth.
For subscribers who wish to
know more on these subjects and who would like to understand
more about Capital and Exchange Controls, please contact us for
more information and articles on this subject.
Contact us at: www.GoldForecaster.com
or direct at gold-authenticmoney@iafrica.com
Feb 22, 2008
-Julian
D.W. Phillips
email: gold-authenticmoney@iafrica.com
321gold Ltd
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