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Gold Forecaster -
Global Watch -
Below is a snippet from the latest weekly issue from www.GoldForecaster.com | www.SilverForecaster.com
When Exchange Controls were imposed in Britain in
1971 the country was caught off-guard by the speed of their imposition. That
was when the gold price really took off eventually rising from $42 an ounce
to $850 in the 1980's.
 This week HSBC
a leading U.K. bank warned of a massive outflow of capital over the next six
months on the U.K.
After President Nixon closed the "Gold Window" in 1971 Britain
imposed Exchange Controls known as the "Dollar Premium" on the
country. The author became a dealer in the Dollar Premium at that time and
saw from the inside just how Capital Controls affected markets and
investments to the benefit and detriment of different Investors. He is braced
to see them imposed again. Will they be?
And if so, which countries will see them? As capital
flows far bigger than we have ever seen wash across the global monetary
system in the ebb tide of national wealth flowing eastward, the specter of Capital and Exchange Controls rises again. It
is prudent, therefore, for all types of Investors to guard against the
pernicious effects of these now and take advantage of the benefits
that also come with them! In today's world as we have already seen this year,
tsunami-like capital flows can wreak havoc with exchange rates, confidence
and global money stability. With the continuation of these capital flow
dangers, at some point one or many more will seek to quarantine their
national economies against outside dangers such as these.
We know that unless such Capital flows are
restrained, foreigner Investors and dis-investors
can hamper growth, or institute recessions and worse. In the case of inflows
of capital inflation can be stimulated to the detriment of the surplus
nation. But more dramatically Investors can be caught inside a net reducing
their investment choices.
Because we are so sure that many countries will face
capital flow problems in the future, we will continue to include pieces on
what can be expected under Exchange Controls in our newsletters. Such
controls could affect far more than one country, developed or
under-developed. Many seem amazed that such a possibility could become a
reality. The mere thought that the $ would cease to be the globe's sole
reserve currency appeared ludicrous to these readers years ago, but now the
prospect is real. We can understand that as the $ has been just that for over
a quarter of a century, more than half the working life of the bulk of
professionals in the financial world.
It was Mr. Ben Bernanke
who forecast that foreign investors in the $ and $ assets, would become
'sated' with them. It as Mr. Ben Bernanke who
stated strongly that the U.S. Trade deficit is unsustainable. These were not
simply gentle observations but warnings to us all. One of the best indicators
on just how close Exchange Controls are is to watch the maturities of assets
held by foreign holders. These will shorten down towards 'call' or 'spot'
maturities as is possible. Then the run can start that triggers the
imposition of Controls.
 As a piece of
evidence this pattern was set in South Africa in 1986. Over the
previous 10 years the average maturity of assets held by foreigners there
fell from long to 10 years quickly, thereafter slipped down to maturing
assets or 'call' money. When Mr. Butcher was head of Chase Manhattan, which
had a branch in South
Africa, lending to the Apartheid
government of the day, he was faced with a dilemma. Chase Manhattan branches
in the States were losing business because of the bank's presence in South Africa,
more than the South African business was worth. What was he to do? He took
the step that would have impressed the original Rothschild. He demanded the
immediate repayment of all the loans present in South Africa, which had reached
full term. Of course the South African government could not allow such a
'run' on the capital in the country, despite its being foreign owned, so it
imposed Exchange Controls. The result? Chase Manhattan was then seen as a
victim inside the States so the Stateside depositors who had left them,
returned and increased their presence there. As to the South African loans
from Chase, the South African government ensured they were serviced on time
and repaid within the terms of the "Scheme of Arrangement"
eventually. From a banker's point of view, Chase Manhattan not only increased
its depositor base, but continued to profit and get repayment from the South
African government, the best of both worlds!
So to clarify what we said before, the imposition of
Exchange Controls would have to follow the fact that foreign Investors were
"sated" with U.S.$ investments, i.e. not buying anymore. This would
leave them holders or  sellers of
these investments, either way, that situation would precipitate an exit of
capital from the States.
Of course, if there were still buyers sufficient to
maintain a form of stability on the Balance of Payments, that would not
happen. That is why Mr. Ben Bernanke's statements
are so alarming. That he should expect the situation makes it at least a
probability? The upside to this scene, obtuse though it may seem, such controls will actually hope to promote
investment in the U.S.A.
We at Gold & Silver Forecaster
have considerable experience in profiting hugely from these situations going
back 36 years.
By : Julian D. W. Phillips
Gold/Silver Forecaster – Global Watch
GoldForecaster.com
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