Sovereign
Man
Notes
from the Field
Date: October
10, 2012
Reporting
From:
Madrid, Spain
(This
couldn't apply to US in America... could it?)
It
takes all of three seconds on the ground in Spain to realize that
this country is hurting. Big time.
I
was just here three months ago, eight or nine months before that.
Each time it seems worse-- more strikes, more homeless, more
unemployed, more unrest, more storefront vacancies. It's amazing what
the combination of debt, deceit, and a bona fide banking collapse can
do to a nation.
In
a most intellectually disingenuous statement, European leaders
recently announced that Spain is A-OK and would not require a
bailout. I suppose it's true to a degree. Spain doesn't really need a
bailout. More like an exorcism. Or at least last rites.
After
all the debt, austerity, government collapse, riots, etc., there's a
new crisis du jour here: the banking system. Individuals, businesses,
and institutions are all predicting a breakup of the eurozone, and
nobody wants to have cash in this country on the day they introduce a
new currency (and then immediately proceed to devalue it.)
Consequently,
depositors are moving money out of the country en masse, often to the
tiny principality of Andorra next door-- a highly capitalized, low
tax banking jurisdiction. This leaves the already thinly-capitalized
Spanish banks in an even weaker position.
As
you probably know, the way the banking system works in most of the
world is a complete fraud. Most banks only hold a tiny percentage of
their customers' deposits in cash. The rest is 'invested' (gambled)
or loaned to a bankrupt government.
This
is a high-risk model that only works well when people have tremendous
confidence in the system. The moment there are more than a handful of
depositors wanting their money back, the bank has a big problem.
This
is happening nationwide in Spain, so the entire banking system has a
problem. Nearly every bank here is technically insolvent... and yet
they have droves of customers trying to withdraw funds that aren't
there.
As
such, the IMF is now recommending that Spain (and other nations in
the eurozone periphery) take action "at the national level"
to stem this flight of funds and prevent people from moving money
abroad.
Of
course, they won't come right out and say it, but there's a name for
'national level' action to stem the international flight of funds.
It's called capital controls.
This
is when governments restrict the free-flow of funds across borders,
often -requiring- that citizens hold a rapidly depreciating currency
at sub-inflation rates.
It's
one of the worst forms of theft imaginable-- robbing the purchasing
power of people's savings and incomes, all to meet some unachievable
objective, or for 'the greater good' as defined in the sole
discretion of the ruling elite.
Over
the summer while in Europe, I saw early signs of capital controls
being rolled out.
In
Italy, for example, the government imposed bank withdrawal limits...
essentially holding people's savings captive. Then they initiated
strict border controls with Switzerland in an attempt to thwart
citizens trying to sneak cash out of the country.
It's
going to happen here in Spain as well. And unfortunately, the people
who didn't see the writing on the wall and take action early are
going to find the door shut in their faces by the next wave of
regulation.
Moving
some savings abroad isn't the sort of thing where you want to run
with the crowd. As with anything, the dynamics change quickly when
the idea becomes mainstream. Smart, thinking people ought to
recognize the signs early and be well ahead of the crowd.
Until
tomorrow,
Simon
Black
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