Guest Post: Is Germany Preparing For Future Capital Controls?

Tyler Durden's picture

Submitted by Jeff Clark via Casey Research,

The best indicator of a chess player's form is his ability to sense the climax of the game.

–Boris Spassky, World Chess Champion, 1969-1972

You've likely heard that the German central bank announced it will begin withdrawing part of its massive gold holdings from the United States as well as all its holdings from France. By 2020, Bundesbank says it wants half its gold reserves stored in its own vault in Germany.

Why would it want to physically move the metal from New York? It's not as if US vaults are not secure, and since Germany already owns the gold, does it really matter where it sits?

You may recall that Hugo Chávez did the same thing in late 2011, repatriating much of his country's gold reserves from London. However, this isn't a third-world dictatorship; Germany is a major ally of the US. So what's going on?

Pawn to A3

On the surface, it may seem innocuous for Germany to move some pallets of gold closer to home. Some observers note that since Russia isn't likely to be invading Germany anytime soon – one of the original reasons Germany had for storing its gold outside the country – the move is only natural and no big deal. But Germany's gold stash represents roughly 10% of the world's gold reserves, and the cost of moving it is not trivial, so we see greater import in the move.

The Bundesbank said the purpose of the move was to "build trust and confidence domestically, and the ability to exchange gold for foreign currencies at gold-trading centers abroad within a short space of time." It's just satisfying the worries of the commoners, in the mainstream view, as well as giving themselves the ability to complete transactions faster. As evidence that it's nothing more than this, Bundesbank points out that half of Germany's gold will remain in New York and London (the US portion of reserves will only be reduced from 45% to 37%).

Sounds reasonable. But these economists remind me of the analysts who every year claim the price of gold will fall – they can't see the bigger implications and frequently miss the forest for the trees.

Check

What your friendly government economist doesn't reveal and the mainstream journalist doesn't report (or doesn't understand) is that in the event of a US bankruptcy, euro implosion, or similar financial catastrophe, access to gold would almost certainly be limited. If Germany were to actually need its gold, regardless of the reason, any request for transfer or sale would be… difficult. There would be, at the very least, delays. At worst such requests could be denied, depending on the circumstances at the time. That's not just bad – it defeats the purpose of owning gold.

But this still doesn't capture the greater significance of this action. First, it reinforces the growing recognition that gold is money. Physical bullion isn't just a commodity, a day-trading vehicle, or even an investment. It's a store of value, a physical hedge against monetary dislocations. In the ultimate extreme, it's something you can use to pay for goods or services when all other means fail. It is precisely those who don't recognize this historical fact who stand to lose the most in an adverse monetary event. (Hello, government economist.)

Second, here's the quote that reveals the ultimate, backstop reason for the move: Bundesbank stated it is a "pre-emptive" measure "in case of a currency crisis."

Germany's central bank thinks a currency crisis is really possible. That's a very sobering fact.

We agree, of course: history is very clear on this. No fiat currency has lasted forever. Eventually they all fail. Whether the dollar goes to zero or merely becomes a second-class currency in the global arena, the root cause for failure is universal and inevitable: continual and perpetual dilution of the currency.

Some level of currency crisis is inescapable at this point because absolutely nothing has changed with worldwide debt levels, deficit spending, and currency printing, except that they all continue to increase. While many economists and politicians claim these actions are necessary and are leading us to recovery, it's clear we have yet to experience the fallout from spending more than we have and printing the difference. There will be serious and painful consequences, sooner or later of an inflationary nature, and the average person's standard of living will be greatly reduced.

And now there are rumblings that the Netherlands and Azerbaijan may move their gold back home. If this trend gathers steam, we could easily see a "gold run" in the same manner history has seen bank runs. Add in high inflation or a major currency event and a very ugly vicious cycle could ignite.

Checkmate

If other countries follow Germany's path or the mistrust between central bankers grows, the next logical step would be to clamp down on gold exports. It would be the beginning of the kind of stringent capital controls Doug Casey and a few others have warned about for years. Think about it: is it really so far-fetched to think politicians wouldn't somehow restrict the movement of gold if their currencies and/or economies were failing?

Remember, India keeps tinkering with ideas like this already.

What this means for you and me is that moving gold outside your country – especially if you're a US citizen – could be banned. Fuel would be added to the fire by blaming gold for the dollar's ongoing weakness. Don't think you need to store gold outside your country? The metal you attempt to buy, sell, or trade within your borders could be severely regulated, taxed, tracked, or even frozen in such a crisis environment. You'd have easier access to foreign-held bullion, depending on the country and the specific events.

None of this would take place in a vacuum. Transferring dollars internationally would certainly be tightly restricted as well. Moving almost any asset across borders could be declared illegal. Even your movement outside your country could come under increased scrutiny and restriction.

The hint that all this is about to take place would be when politicians publicly declare they would do no such a thing. You could quite literally have 24 hours to make a move. If your resources were not already in place, even the most nimble of us would have a very hard time making arrangements.

Once the door is closed, attempting to move restricted assets across international borders would come with serious penalties, almost certainly including jail time. In such a tense atmosphere, you could easily be labeled an enemy of the state just for trying to remove yourself from harm's way.

The message is clear: storing some gold outside your country of residence is critical at this point, and the window of time for doing so is getting smaller. Don't just hope for the best; do something about it while you still can. The minor effort made now could pay major dividends in the future. Besides, you won't be any worse off for having some precious metals stored elsewhere.

The best chess players in the world aren't that way because they can see the next move. They're champions because they can see the next 14 moves.

You only have to see the government's next two moves to "win" this game. I suggest learning what countermoves you can take now are, before your government declares checkmate.

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ACP's picture

Move faster, Germany...

...if you want to keep your 99 Luft-goldbars.

zorba THE GREEK's picture

I don't put anything past desperate governments when things start going south fast.

Supernova Born's picture

Physical possession may be 9/10th of the law, but it is a full 10/10ths of the value.

Leave banks out of the value preservation equation entirely and don't forget heavy-handed countries can control the movement of capital AND of persons.

Thomas's picture

I gotta confess that having gold outside the country feels about as uncomfortable as any of the choices. I want it within reach.

knukles's picture

Methinks planning for anything more than knowing where the sausages are and what's in them to be Bismarkain about it, gives far too much credit (lol) to even the methodical Germans, especially when viewed in light of taking a hard look at the lunatic fringe they're in bed with in hte EU, the aggregate policies of global central banks, the desire of the EU to milk Germany for every last pfennig, geopolitical risk, tyranny of the banksters and general deterioration of trust in global institutions especially when headed by the Beavis' and Buttheads of the world....

I'd simply want my marbles back in my cigar box, too.

Forsooth, some worries are compounded in the wee hours of the morning when the walls one's mind close in way too tight...
Breathe deeply.
Empires decline, deteriorate and crumble slowly.

Any casual observer of the human condition these days would applaud having your gold at home in your vault, outside the reach and excuses of others.

GetZeeGold's picture

 

 

Crap.....looks like I'm gonna have to sew my stawks into my clothes lining if I'm going to get out.

Beam Me Up Scotty's picture

I agree Thomas. It could disappear outside of country far too easily. If they put capital controls on or tax the shit out of gold and it's useless you aren't any worse than the neighbor who doesn't have any. You can bury it and give it to your kids or grandkids in the event it can come out of hiding sometime in the future.

If I owned any and they tried to outright confiscate it, I would dump it into the deepest lake I could find before I'd give it to them. There wouldn't be a boating accident it would just get dumped overboard. If I can't keep what's mine, neither can they.

jeff montanye's picture

it does seem ironic that the lesson drawn by germany's repatriation of its gold is to put some of one's own gold outside one's country.  but we're talking diversification of risk apparently.

youngman's picture

The countries could also sign a treaty or something that they all WORK TOGETHER to stop the unlawful movement of an old relic....I have some In Canada..who knows.....

Obama4Ever's picture

Peter Schiff was constantly pushing for clients to hold gold at the Perth Mint. Perth is right there within shelling range of the ocean, which is entirely accessable by the US Navy. A single executive order and within a matter of days I could have the entire hoard of the Perth Mint loaded onto US carriers. National interest, don't ya know.

Any concentration of gold can be easily targeted. Countries can nationalize gold held by foreigners. Seems to me only a real jackass would trust the safety of international borders or even the continuation of nation states. See how easily we got Switzerland to roll over?

trav777's picture

dude...if you're seriously suggesting at some point we are going to invade fucking AUSTRALIA to steal their gold by executive order, then...capital controls and whatnot are some of your smaller concerns

Shocker's picture

You would think so

From Germany With Love's picture

It's not called Lufthansa for nothing, I suppose.

ReptilianSlaveMaster's picture

was just watching the daily show with jon stewart and realized that Obama is the good black guy being unfairly treated by southern hick states and their republican slave owners who are bummedout over the civil war.. the most important issues we are facing at the moment is gay marriage and abortions.. all this economic hubbaloo will have to wait until we save the gays

GOSPLAN HERO's picture

jon stewart is a large turd stain

francis_sawyer's picture

Obama is gettin' off easy... I mean ~ it's not everyday that Notre Dame linebackers & their gay 'sexting' lovers walk into your life & spill their beans on the Dr. Phil show to get everyone's mind off what a shitty President you are...

Harbanger's picture

His mother still calls him Jonathan Stuart Leibowitz.

ArgentoFisico's picture

same story in Italy

arms of mass distraction

Race Car Driver's picture

> was just watching the ...

 

I junked ya for watching the TeeVee. How passe.

ebworthen's picture

Yes, and electric vehicles that burn a lot of coal-fired electricity;, and animal rights, because it is so important that the little kitty cats and puppy's eat and have chew toys made in China - to hell with those little humans.

Karlus's picture

Sorry, i think the priority is to secure millions of new Dem voters called DREAMers and various undocumented workers.

trav777's picture

yes, but don't forget racism; it's more important than ANYTHING.

Diversity = strength

ebworthen's picture

"Professor, what's another name for a Pirate's Treasure?"

LOL

Beastie Boys dittos.

"Ch-Check it Out"

http://www.youtube.com/watch?v=LYpzWRk7E9I

bugs_'s picture

ve have vays of controlink capitals

francis_sawyer's picture

 "The best chess players in the world aren't that way because they can see the next move. They're champions because they can see the next 14 moves"

~~~

I'd say quite a few have trouble with the LAST 14 moves...

How about a nice game of Tic Tac Toe or GlobalThermoNuclearWar?

WmMcK's picture

I can sometimes see 1 move ahead, but often not that many.

Walt D.'s picture

When Hitler did this, people were still able to move their valuables to Switzerland, and the Swiiss banks and government maintained secrecy. This is not going to happen this time around. 

knukles's picture

They maintained posession for themselves, as well.
Jesus.....

max2205's picture

Out by the shed...

Harbanger's picture

it's inside the wood chipper..

Pareto's picture

No way could I be pursuaded to move PMs outside the country, or, away from my grubby little hands, because this is how it would likely go:

"Hey man, could you look after this for me, I'm kinda freaked about whats going on with my government and such?" says friend, "ummmmmm sssssssuuurrreeeeeee, what do you want me to do with it?"  I don't know, just keep it in a safe place for me, I'll pay you $1,000 for your troubles."  says friend, "okay."

6 months later

"dude, its all good, i'm going to move to your country,.....say.....I hope you stored my PMs in a nice safe place!"  says friend, "ohhhh ummmm, yeah about your PMs......yeah, you know what I thought I put them in a safe place, and you know I went to check on them the other day, and poof, they've vanished!"

"all of it?"

"yep, every round, I dunno man, they're just gone.  I feel really bad about this."

says friend, "by the way............you owe me $1,000."

Even if it was a recognized institution!  No way.  Nope.  Na uh

FreeMktFisherMN's picture

Exactly. In some cases people might well be prudent to diversify their gold holding locations, but one of the main reasons for having phyzz is that you can carry all that value in a grab n go moment whereas you can't carry land. Thus if you store it somewhere else or abroad for that matter, the time you'd imagine needing it perhaps to swap for food/essentials, is exactly when the infrastructure/communications will be gone. 

Acet's picture

You store some of your PMs abroad, you don't store all of them abroad. You keep with you some as a reliable and widelly recognized store of value for quick and easy access when inferior stores of value stop working and you still need to pay for things like food and you keep some away for long-term safekeeping of part of your wealth and as insurance against sudden economic dictatorship in your own country.

Or in other words: "Don't put all your eggs in one basket"

 

Go Tribe's picture

Other countries have lakes, too.

Winston Churchill's picture

And lots of gardens .allotments,forests etc etc.

Cognitive Dissonance's picture

I understand the thinking behind moving some Gold overseas and away from the heavy hand of Uncle Sam. But what makes it any safer in another country? Seems to me that Gold stored over there (wherever "there" is) and held by (from their perspective) "foreigners" would be much easier to take than the Gold owned by the local citizens of that country.

Damned if you do, damned if you don't.

Anyone have a response?

A Lunatic's picture

What's to stop the same villains who imposed capital controls from ushering in people controls. Or does everyone think "they" haven't already thought about that................?

jtrader82's picture

Gun nuts.  Our only hope.

DosZap's picture

Gun nuts. Our only hope.

Gun smarts.Our only hope

There corrected it for ya.

jimmytorpedo's picture

I volunteer to hide it from you,..err for you I mean.

 

akak's picture

I could perhaps see the logic of holding gold in, say, the privacy-respecting Switzerland of the 1960s if one were living in, say, Austria (threat of Soviet invasion) or Argentina (ongoing threat of currency debasement and gold illegalization) or the USA (effectively illegal to own gold) in the same period, but with today's "harmonization" of increasingly draconian tax and financial laws around the world (refusal to go along automatically makes one a "rogue state"), and particularly with the long and strong arm of the US Internal Revenue Service essentially making the entire world an IRS prison for US citizens, I must admit I fail to see many, if any, advantages in holding gold overseas in this increasingly unfree and ubiquitously surveilled day and age.

disabledvet's picture

i agree. we are ALL living in fear of our "Federal Governments" as it relates to our monies now. I did like the title...but was very disappointed in the article. In other words "if there is a fear in Germany that suddenly the euro will collapse" (as it did when it was first launched...it didn't really take off until the US was attacked on 9/11--how interesting--failed launch of the euro that was created in New York City suddenly is saved by an attack on New York City) then repatriating the gold does sound like a "vote of confidence" to me...and indeed i would think US banks would welcome the move. DB has just reported a MASSIVE loss...the first of many i think...and thyssen/krupp is now selling a massive steel mill in Alabama that they put 25 billion in for a few billion bucks. these are both very big deals. i think the overshoot of the commodity bubble has been EPIC this go around...i don't know what the world was thinking when the USA took out Saddam Hussein but clearly "it wasn't economics." with the US housing market bust for at least another decade (though still not as bad as Europe's) i really fail to see the pricing power outside of a very few commodities (lumber. KILN dried lumber. that's about it.) no...capital controls would not surprise me if the euro tanks and it looks like a wave of bank failures is about to get underway over there. i think the verdict of 2008 is now official...that would be DEFLATION and a "Japanese scenario writ large" save for the United States (MAYBE) due to "whatever the hell the CIA is up to." and i REALLY don't want to know the answer to that. I REALLY don't.

FeralSerf's picture

There is evidence that the CIA keeps its very large stash of gold in Kloten.

EnslavethechildrenforBen's picture

Switzerland... nice hookers there...

jtrader82's picture

I'd suggest staging some Craigslist sales long ahead of time and keeping the email records from the "sales" so that you can back up the "fact" that you don't have any precious metals.

August's picture

"I'd suggest staging some Craigslist sales long ahead of time..."

This is a good idea, I think, but more so for select firearms.  To be convincing, and IRS-compliant, "selling" of PMs really should be accompanied by reporting of the capital gain, and paying tax on the "sale".

Silverhog's picture

If the government decided to go as far as to confiscate privately held Gold, then what is to prevent them from taking your home, bank accounts or any other valuable possessions as well? It's a very slippery slope. How many years has the US Mint been selling Gold & Silver coins plus all the pre 1964 coinage still floating around. There is loads of this stuff scattered all over the country. It would be easier to just round up everybody and put them into camps with just a pair of pajamas. And before any of this happens, they need to go after your guns. Good luck with that.  

Karlus's picture

Last time I checked, property tax indicates you never own your home, but are a perpetual renter from Uncle Sam