Guest Post: The Chess Game Of Capital Controls

Tyler Durden's picture

Submitted by Jeff Clark of 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.

If you're moved to take action, know that you're not alone. It's critical that you take these first steps now, while you still can.

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 next two moves to "win" this game. I suggest making those moves now before your government declares checkmate.

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Croesus's picture

 

 

 

THINK "DEPOSITOR HAIRCUTS" WON'T HAPPEN IN THE US???

 

http://www.fdic.gov/about/srac/2012/gsifi.pdf

READ PAGE 6, SECTION 13:

An efficient path for returning the sound operations of the G-SIFI to the private sector would be provided by exchanging or converting a sufficient amount of the unsecured debt from the original creditors of the failed company into equity. In the U.S., the new equity would become capital in one or more newly formed operating entities. In the U.K., the same approach could be used, or the equity could be used to recapitalize the failing financial company itself — thus , the highest layer of surviving bailed-in creditors would become the owners of the resolved firm. In either country, the new equity holders would take on the corresponding risk of being shareholders in a financial institution.”

 

Who do you suppose a "creditor" is referring to, Mr. and Mrs. Depositor?

Xibalba's picture

0% interest on savings combined with inflation is the same thing as?? 

Croesus's picture

True enough, but we know this because we're smart and we read sites likes this. A direct and in your face "haircut" will make the rest of 'Merika learn real quick, and that won't be pretty.

 

DoChenRollingBearing's picture

The biggest problem with moving assets overseas (if you do not go with them) is who can you trust to keep them for you?

FeralSerf's picture

The biggest problem with keeping any assets is who can you trust to watch over them when you're not there?

markmotive's picture

What's old is new again.

Weekend time-killer: Nial Ferguson's Ascent of Money (TV series)

http://www.planbeconomics.com/2013/03/weekend-viewing-niall-fergusons-as...

TwoShortPlanks's picture

Physical + Hole + Amnesia = The only winner in town

Ignatius's picture

World Chess Challenge going on right now to determine the next challenger to current World Champion Vishy Anand of India. 

Just two rounds to go and former World Champion Vladimir Kramnik has moved into the lead ahead of wunderkind Magnus Carlsen of Norway.  Can Magnus do it?!!  Watch it live Sunday & Monday (10:00AM NY):

http://london2013.fide.com/index.php

/geek

Anusocracy's picture

As long as man is cursed with government you won't have secure ownership of anything, including your life.

Everything is open to confiscation by government.

samcontrol's picture

buy land, apartment, house, in your name or company name here in Patagonia .." if that is hard for you , put it in my girlfriends name...she will manage it for you..
eg TOP of the line apart/hotel 100ft from ski lift ..for $2400 square meter.
Immediate returns in paper dollars , not cheap..but abroad.

Winston Churchill's picture

Trouble is even if your have relatives in multiple, multiple, countries like I do.Do you

trust your family ?

From bitter experience,its a poor choice between family, and the banks in the best of times..

Even I could not blame them,if the choice was their kids starving in the worst.

Getting it out is hardly an issue anyway,if you live on the coast, and have a boat in Florida.

Not that I have any ,you understand.

GeezerGeek's picture

I live in Florida. Unfortunately, I had a boating accident and now cannot afford another boat. First I have to buy some SCUBA gear.

samcontrol's picture

you sound stupid enought to actually dump it in the sea,but i think you are full of shit with nothing t o say.

Kirk2NCC1701's picture

"The biggest problem with moving assets overseas (if you do not go with them) is who can you trust to keep them for you?"

A:  Use same criteria, skepticism, due diligence as you would with even the "very best" of domestic investment houses -- like Goldman Sachs.  With and w/o sarcasm.

Sorry, you "magic bullet" addicts, but there are NO GUARANTEES with anything in life or investment.  Plan, diversify accordingly.

kliguy38's picture

Horseshit........you store your gold "somewhere" else and gl to you.......you store it where you can get to it.....If you don't HOLD it YOU dont own it

Citxmech's picture

Exactly.  I know exactly which local lake all my PMs are sunk in.

dark pools of soros's picture

I mailed my gold and silver to Blythe Masters for safe keeping

Mesquite's picture

"...I mailed all my..."

Ha ha ha...Ya, Right..!!

scam_MERS's picture

I need to start diving in a bunch of lakes (as a new hobby, y'understand), knowing how "boating accidents" seem to be on the rise exponentially!

Solarman's picture

Agreed, he is asking us to do what Germany is trying to undo.

Kirk2NCC1701's picture

Nobody (not even I) is saying that you shouldn't hold some portion of PM yourself, as long as you don't deceive/delude yourself that holding it is a 100% magic bullet.  There is ALWAYS some scenario, where a particular asset form -- even gold PM bullion -- is not the solution you hoped for. 

"Hope is NOT an acceptable solution."  Adjust & mitigate accordingly... for a range of nasty scenarios that could kibosh even your fine PM plans.  Flexibility & resiliency in diversity is key, maybe even crucial.

NewThor's picture

Hey. May I mention that I love you? Each and every one of you. Like Julian Casablancas said, "it is hard to explain."

May all your good dreams be great my brothers and sisters and potential zh ladies I may make out with some day.

:)

!

gwar5's picture

Here's an excellent article on that exact point, in all it's true, but depressing, glory:

 

http://webofdebt.wordpress.com/2013/03/28/it-can-happen-here-the-confisc...

 

Nutshell: As of Dec 2012, FDIC and BOE have agreed the way forward is to take bonholder and depositor money to protect TBTF banks who are sitting on Trillions in derivatives. TBTF banks are first in line and depositors are thrown under the bus and will be completely wiped out. Any FDIC protection is henceforth nonexistent and, in fact, any FDIC money will probably go to the derivatives holders as well. 

The focus on derivatives is what is scaring the shit out of them... finally! Looks like they have finally figured out that there really is going to be daisy chain of failures leading to economic Doomsday if just one of them goes down.

If the SHTF and B of A goes down you can bet Federal government will also do something and try to make everybody else pay their 'fair share" with a new tax on everybody.

 

 

Buck Johnson's picture

They are definitely going to do this, there is no other way of keeping people from leaving the banks and the US.  Also in regard to the confiscation of gold in certain countries not being done when the US makes it hard to move assets anywhere including said person, I have this to say.  It will be katy bar the door in regards to rules and promises made by anybody on the planet when the US and the western financially system implodes.  Do the article writer actually believe that whatever country won't first take foreign gold holdings (if the people running the company hadn't already stole it) first via nationalizing the accounts before taking the citizens accounts.  Remember one think about the US, we are a nation of spenders who have been spending on credit.  Once our money isn't worth anything on the international market, we will be a third world nation overnight. 

 

They will confiscate gold and bank boxes and anything of value.  What will happen is a new currency will be formed but it will be based on a combination of resources (silver, gold, platinum, whatever as long as a combination of them are in the right percentage to be redemed if need be).  The US will agree to this with the rest of the world, but the US will do something different (other countries may or may not).  The US will still use greenbacks (highly inflated) for internal use, and the new currency will be for external use via companies, banks, international trade (and you know rich people).  They will make it illegal or expensive for people in the US to use or have this new currency since it will be based on resources that have been confiscated or still being confiscated and hoarded.  This way the US can pay all their internal liabilities with the greenback which will be almost worthless everywhere else.  We will be a third world nation and peoople will be fighting to get out of the US.

defencev's picture

How do you know all of that?

SilverRhino's picture

Because that is similar to how the Soviet Union operated.   Rubles for peasants, hard currencies for external transactions (like WHEAT). 

 

 

samcontrol's picture

lol, if the US and Europe become third world nations,, that does make most of this planet equal.
Move to Rio, Brazil Have a blast for ten years.

Kirk2NCC1701's picture

I'd be worried -- very worried -- about having all my eggs in one country or even one global region.  I just no longer don't trust the political class/whores that are the servants of indebted banks and central banks, in 'developed' countries with aging demographics and sky high debt.

Financial haircuts and decapitations (401k, IRA) are coming to N.Am. next 6-12 months.  Plan accordingly.

Manipuflation's picture

APMEX shipped my silver dimes via USPS.  Liable to get lost in the mail.

Manipuflation's picture

I hear you.  I don't red arrow.(ok, I did once but I explained why as did you and that is fair)  I have not been so happy with APMEX in the past so I ripped them a bit a above.  We will see what I get.  A bunch of tubes of sliders I would guess but the price was right.  I am not expecting much here but as one astute ZHer pointed via Blazing Saddles, we are going to need us a shitload of dimes.

I ain't handing out any more of my BU dimes much less an AE or Maple.  I was tempted to buy the Mercs this time around but you just know those fuckers are super smooth and cost per ounce goes up.  The other thing you might as well assume is that most Americans would not know what a Mercury dime is anyway.

Big Slick's picture

Mercury Dimes are the dimes Gus Grissom took with him in his Mercury capsule, the Liberty Bell 7...  right?

/sarc/

http://voices.yahoo.com/are-astronaut-gus-grissoms-lost-mercury-dimes-ac...

Manipuflation's picture

Mercury dimes are only a currency on the planet Mercury.  The only exchange is in the deep gaseous atmosphere of Venus.  The dimes do not even really exist and are traded as 1000X bull derivatives.  You can't lose.

akak's picture

Actually, the average American should not know what a "Mercury dime" is, because in fact there never was any such coin issued by the US government.  They are actually, and properly, called Liberty Head dimes, with the personification of Liberty wearing a winged hat symbolizing freedom of thought.  I' never figured out how so many idiots could somehow confuse a winged hat with the winged sandals of Mercury, the messenger of the Roman gods (as seen in the Goodyear tire symbol).

Bohm Squad's picture

Mercury also wore a winged hat to match his sandals...I was there, I know.

 

 

Big Slick's picture

Unlike silver-backed currency like Mercury Dimes, we now get fiat that comes from Ben Bernankes as$.

These are known as "Uranus Dollars"

August's picture

Indeed, if you wear winged sandals, without a winged helmet, you flip over every time. 

dark pools of soros's picture

Not if you are on a winged Segway

Manipuflation's picture

OK, akak, liberty advocate that you have been over the years.(I recognize that fact)  My blue book says that they are Winged Liberty Head OR Mercury dimes.  We are both correct.  Technically, you are more concise so I concede that fact.  Now we just need to come up with some tubes of Draped Bust dimes in MS-63 or better.  I have never even seen one for sale.  You? 

Rob Jones's picture

USPS "insurance" isn't reliable either. If your package arrives empty and you file an insurance claim, they will probably just deny it and refuse to pay. This has happened to people I know. The only way USPS will pay is if the post office flat out loses the package. Actually, the insurance mainly serves to alert postal employees that the package contains a high-value item.

Anyone shipping by USPS should be sure to very firmly attach the item being shipped to the package. Ideally so that it is impossible to get the item without totally destroying the package.

 

Manipuflation's picture

Thanks Rob.  I've been in physical PM's for 14 years so I at least sort of know my way around the physical market.  I really like the rare Russian numismatic coins but when it comes to something like that, you rally need to be there in person with the loupe to inspect the coin to determine it's investment potential. 

Basically, I bought some junk silver dimes this time.  Hey, I have sold physical silver in the past.  I paid for my son's birth by doing so.  Hey, lighten up guys.  I was just having some fun by buying some dimes.  Anyone knows that these dimes will be common date sliders but that is all I am willing to trade with anymore if need be.

Yes, If you want BU you have to pay this amount.(and I have some rolls from back when they were a hell of a lot less expensive)

http://www.coastcoin.com/DirectionsWEB/webcart_itemBuy.php?baseid=103807&serialid=0

I am more than 2X up on that.

Everyone wants a big bullion bar to prove they have some balls but the reality of it is this:  What if you just want to buy a little bit of something?  How is that bar going to be divided?  By dimes is how.  Premiums on dimes have went through the roof over the last few years.  I was "lucky" to get in early on some BU dimes.  Most people do not think about that sort of thing and really luck has nothing to do with it.

I am not too worried about the shipping. 

samcontrol's picture

a silver bullion bar is having some balls? i hope you are talking gold? . i would have ten in sliver it i had access.
balls is putting what i put in miners and pslv.

Nation of Imbeciles's picture

Shipping via USPS Registered mail is the most reliable and INCLUDES priority mail shipping. Registered mail is placed in a security container and a signature trail fr4om shipper to recipient is established.

I agree that the USPS is utterly worthless but there are ways to practically guarantee safe passage.

San Diego Gold Bug's picture

Comparesilverprices.com will tell you who to buy your 90% junk silver from and at the best price.  Sadly, all of my silver was lost in a tragic boating accident this winter off the coast of San Diego.