Recently by Simon Black: Reality Check: The Dow Jones Industrial Average vs. Bananas
Reporting From Sovereign Valley Farm, Chile
To anyone paying attention, reality is now painfully obvious. These bankrupt, insolvent governments have just about run out of fingers to plug the dikes. And history shows that, once this happens, governments fall back on a very limited playbook:
- Direct confiscation
As Cyprus showed us, bankrupt governments are quite happy to plunder peoples bank accounts, especially if its a wealthy minority.
Aside from bank levies, though, this also includes things like seizing retirement accounts (Argentina), increases in civil asset forfeiture (United States), and gold criminalization.
Just another form of confiscation, taxation plunders the hard work and talent of the citizenry. But thanks to decades of brainwashing, its more socially acceptable. Weve come to regard taxes as a necessary evil, not realizing that the country existed for decades, even centuries, without an income tax.
Yet when bankrupt governments get desperate enough, they begin imposing new taxes primarily WEALTH taxes (Argentina) or windfall profits taxes (United States in the 1970s).
This is indirect confiscation the slow, gradual plundering of peoples savings. Again, governments have been quite successful at inculcating a belief that inflation is also a necessary evil. Theyre also adept at fooling people with phony inflation statistics.
- Capital Controls
Governments can, do, and will restrict the free-flow of capital across borders. Theyll prevent you from moving your own money to a safer jurisdiction, forcing you to keep your hard earned savings at home where it can be plundered and devalued.
Were seeing this everywhere in the developed world from withdrawal limits in Europe to cash-sniffing dogs at border checkpoints. And it certainly doesnt help when everyone from the IMF to Nobel laureate Paul Krugman argue in favor of Capital Controls.