No capital controls in the USA... yet

[dbarberic]

Re: No capital controls in the USA... yet

Here in Thailand when the baht was crashing, it got harder and harder to get money out. It was not that new laws or regulations were passed. It was the paper work the banks required and the lines and the waiting. People gave up on going to the bank...and watched their savings be cut in half.

+1. In the US when you want something outlawed, but it is politically unpopular to outlaw it, simply make the business, transaction, or the ownership so burdensome with paperwork, laws, and regulations that for all practical purposes, it becomes outlawed for lack of will to go through the process.

Case in point, look at the ownership of hand guns. You'll never see the day where gun ownership is outlawed, but you will increasingly see more and more paperwork, laws, and regulations that make ownership very difficult.

[metalman]

Re: No capital controls in the USA... yet

It seems to me that any law enacted to discourage the movement of money overseas or to discourage foreign banks from taking on US customers, is a capital control mechanism.
Of course they get to call it anything they want and control the debate.

a new penalty for not reporting an existing taxable foreign payment is not a capital control. expanding the reach of an existing tax on foreign payments to include a broader range of firms is not a capital control. but money ain't flooding out of the country... it's flooding in.

[skidder]

Re: No capital controls in the USA... yet

Fred, I guess I'll have to disagree with you on this one. First, here is the beginning sentence of the Hamilton research paper you posted.

"The Hiring Incentives to Restore Employment Act (HIRE), HR 2847, creates a vast new reporting and taxing regime for foreign financial institutions with U.S. account holders. "

New taxes right there in plain view. I don't pretend to be an attorney or really understand legalese but read again some of the excerpts from this new law.

8 ‘‘CHAPTER 4—TAXES TO ENFORCE REPORTING ON CERTAIN FOREIGN ACCOUNTS
‘‘Sec. 1471. Withholdable payments to foreign financial institutions.
‘‘Sec. 1472. Withholdable payments to other foreign entities.
‘‘Sec. 1473. Definitions.
‘‘Sec. 1474. Special rules.
11 ‘‘SEC. 1471. WITHHOLDABLE PAYMENTS TO FOREIGN FI12
NANCIAL INSTITUTIONS.
13 ‘‘(a) IN GENERAL.—In the case of any withholdable
14 payment to a foreign financial institution which does not
15 meet the requirements of subsection (b), the withholding
16 agent with respect to such payment shall deduct and with
17 hold from such payment a tax equal to 30 percent of the
18 amount of such payment.

OK, "withholding payments to a foreign institution"

Don't payments that are "tax evasion" type payments normally orginate offshore with the foreign institution and come to the people here in the US? I mean how am I going to send money offshore through my bank that isn't already tracked by the current banking system and the IRS? So, with that in mind, these payments made from the U.S. are AFTERTAX payments made from U.S. citizens to an offshore financial institution. If they are not AFTERTAX then the gov't already has the means to see to it that they find this out here onshore.

Secondly, here is the operative phrase from the above quote "Payment to a foreign financial institution which does not meet the requirements of subsection (b)"

What are the requirements of this subsection?

"

‘‘(b) R

EPORTING REQUIREMENTS, ETC.—

20

‘‘(1) IN GENERAL.—The requirements of this

21

subsection are met with respect to any foreign finan22

cial institution if an agreement is in effect between
4
MCG09515 S.L.C.
1

such institution and the Secretary under which such

2

institution agrees—

3

‘‘(A) to obtain such information from each

4

holder of each account maintained by such in5

stitution as is necessary to determine which (if
6

any) of such accounts are United States ac7

counts,
8

‘‘(B) to comply with such verification and

9

due diligence procedures as the Secretary may

10

require with respect to the identification of

11

United States accounts,

12

‘‘(C) in the case of any United States ac13

count maintained by such institution, to report
14

on an annual basis (at such time and in such

15

manner as the Secretary may provide) the in16

formation described in subsection (c) with re

17

spect to such account,
18

‘‘(D) to comply with requests by the Sec19

retary for additional information with respect to
20

any United States account maintained by such

21

institution, and

22

‘‘(E) in any case in which any foreign law

23

would (but for a waiver described in clause (i))

24

prevent the reporting of any information re25

ferred to in this subsection or subsection (c)
5
MCG09515 S.L.C.
1

with respect to any United States account

2

maintained by such institution—

3

‘‘(i) to attempt to obtain a valid and

4

effective waiver of such law from each

5

holder of such account, and

6

‘‘(ii) if a waiver described in clause (i)

7

is not obtained from each such holder, to

8

close such account."

So in essence, this bill requires all americans to do business with institutions who agree to comply with U.S. banking regulations or the U.S. citizen will have a NEW TAX levied on any payment sent to that non-reporting institution. I send money offshore on occasion and I can tell you, that money is not taxed when I send it.
How it is taxed when I bring it back depends on whether it is principal, interest, capital gains, etc., just like any other income. The only difference is that I don't have a 1099 to attach with my 1040.

Does this not strike you as an end around Swiss banking privacy laws as well as a new tax?

Here is another excerpt on this law from one of the above links you provided.

"
The legislation’s principal goal is to collect tax from
U.S. taxpayers who have evaded their responsibilities
by investing through foreign financial institutions and
foreign entities not subject to IRS reporting obligations.
To achieve this goal, the legislation imposes the risk
of a withholding tax on a broad class of U.S.-related
payments (including gross proceeds) to a broad class of
foreign investors, unless the foreign financial institutions
and foreign entities agree to provide information
to the IRS regarding their U.S. account holders and
owners. Essentially, the withholding tax will function as
a “hammer” to induce reporting."

Did you get that first sentence? People who do business with institutions who do not report to the IRS have "evaded their responsibilities". Unfrickin real.

So, the "hammer to induce reporting" is in effect a 30% tax on aftertax income originating from a U.S. citizen who does business with a non-reporting institution.

Sorry, but I have to disagree that this isn't a new tax and therefore a Capital Control. And, I might add, an attempt to make the whole world fall in line with the U.S. demands of banking/IRS compliance.

[Rajiv]

Re: No capital controls in the USA... yet

At the guardian, and article and a video on capital controls
Capital controls back in IMF toolkit

1 Mar 2010: Kevin Gallagher: The IMF has changed its mind and realised Keynes's capital controls are a good thing.

Why the IMF changed its mind about capital controls

Video, 25 Mar 2010: Kevin Gallagher: Video: The IMF has endorsed the use of capital controls to mitigate the effects of the financial crisis in developing countries. The US must also come on board

[dummass]

Re: No capital controls in the USA... yet

a new penalty for not reporting an existing taxable foreign payment is not a capital control. expanding the reach of an existing tax on foreign payments to include a broader range of firms is not a capital control. but money ain't flooding out of the country... it's flooding in.

I can tell you, from personal experience, that it is extremely difficult to find a foreign bank that will accept US clients. The reporting requirements are not worth their effort. Rather than make a mistake and get black listed, they will prefer to avoid the added scrutiny by avoiding US clients. This mind set already exists; this new law won't help matters.

If you can't open a foreign bank account, then you can't send money abroad. Sure sounds like a capital control to me.

[xPat]

EJ, Please ALSO DEBUNK THE RECENT GOLD HYPE!

Excellent article - I've been shocked by how many people who should know better followed Tyler Durden's lead and mis-reported this interesting legislation as being somehow related to "capital controls".

EJ, while you're at it, please do another piece to debunk the utter nonsense circulating in the blogosphere since the Eric King interviews with Andrew Maguire and the incompetent bufoons from GATA.

I considered writing an article about this myself but have house guests for the next two weeks and really don't have time. With apologies for not having time to substantiate my arguments, here are the main points I would make if I were writing the piece:

1. "Illegal naked short selling" is a phenomenon of the STOCK market, not the FUTURES market. Most contracts sold in the futures market are "naked" (seller doesn't own the underlying) and this is perfectly normal. It is the intended functioning of the market. There is nothing illegal going on, no conspiracy, and no fraud.
2. Contrary to GATA's ludicrous allegations, Jeff Christian's testimony to CFTC was not an admission of anything. He merely stated several obvious, well known facts about the futures market. There is no fraud, no cover up, and no conspiracy revealed by his 100:1 comment.
3. GATA's assertions about selling contracts without owning the underlying amounting to fraud or default are ludicrous and exhibit an extraordinary ignorance of how the market operates on the part of GATA principals. Contracts held past first notice date and THEN not delivered are a form of default, but that's not what's in question here. GATA is working for an entirely legitimate cause (ending the very real downward manipulation of silver and gold markets by JPM), but their leadership has demonstrated categorical incompetence beyond any doubt. GATA leadership should step down now and make room for competent people who actually understand commodities markets to take over and fight this very important cause.
4. Andrew Maguire's motives should be scrutinized closely! The GATA people may just be ignorant, but someone with Maguire's experience in futures trading couldn't possibly be so incompetent as to have supported the statements made in the KWN interview. He says Rich asians are bugging him, waiting for the green light to squeeze the shorts in silver. I have to wonder whether he's actually trying to meet those rich asians for the first time to suck them into a massive pump & dump scheme. His boy scout whistleblower story is extremely compelling at first glance, but to anyone who actually trades futures for a living, a closer scrutiny quickly reveals that he's full of crap. The assasination thing is also highly suspect. JPM would only be adding credibility to his story by trying something so stupid. I have to wonder if he himself staged it as a way to generate media attention. His arguments sound great at first but just don't hold up to close scrutiny.
5. Ron Kirby is a submoronic buffoon and wise investors will ignore 100% of everything he says or writes about any subject for the rest of eternity. His recent piece on ZH was an embarassment to ZH, and is full of factual inaccuracies. This guy just plain doesn't understand how futures markets function and prefers to flaunt his ignorance publicly rather than educate himself. It's shameful that he's getting so much coverage.
6. The problem is not the "100:1" nonsense being trumped by the ignorant people at GATA. The real issue is the concentrated short and associated downside manipulation in silver. GATA has damning evidence in their posession but is trumping up the wrong issue because they are ignorant about how the futures market works. Their leadership should step down immediately! The organizations' cause is certainly legit but the individuals involved are retards. I predict their numerous idiotic statements in the KWN interview will be used to discredit them in a future public hearing.

Again, apologies for not substantiating these points - if I had time for that I'd write the article myself. Experienced futures traders should come to the same conclusions if you read the drivel Kirby just posted on ZH the other day. For those who don't understand the market well enough for this to be obvious, I hope EJ will write a piece debunking all this GATA/Maguire nonsense for the bunk it really is.

xPat
(a futures trader active in GC and SI in case that's not obvious)

[orion]

Re: No capital controls in the USA... yet

If you can't open a foreign bank account, then you can't send money abroad. Sure sounds like a capital control to me.

I agree and think EJ / Fred are blind. This is just the beginning of turning the heat up on the proverbial frog in water, HELL i THINK i SEE THE BUBBLES FORMING ALREADY, let the boiling begin!

They don't have to put in capital controls if NOBODY WILL ACCEPT YOUR STINKIN MONEY!!!!!!!!!

My personal experience is exactly the same as Dummass, foreign banks don't want anything to do with Americans, they see you as a red tape magnet loaded with explosive tax land mines.

[BuckarooBanzai]

Re: No capital controls in the USA... yet

but money ain't flooding out of the country... it's flooding in.

You are making a heroic assumption. What if the problem isn't that money is flooding out of the country...rather, that not enough money, on net, is flooding in?

[doom&gloom]

Re: No capital controls in the USA... yet

I agree and think EJ / Fred are blind. This is just the beginning of turning the heat up on the proverbial frog in water, HELL i THINK i SEE THE BUBBLES FORMING ALREADY, let the boiling begin!

They don't have to put in capital controls if NOBODY WILL ACCEPT YOUR STINKIN MONEY!!!!!!!!!

My personal experience is exactly the same as Dummass, foreign banks don't want anything to do with Americans, they see you as a red tape magnet loaded with explosive tax land mines.

all the more reason to get a 2nd passport -- so you can open foreign accounts as someone of another nationality.

[xPat]

Re: No capital controls in the USA... yet

all the more reason to get a 2nd passport -- so you can open foreign accounts as someone of another nationality.

Sadly, that may not be enough.

The international banking prejudice against Americans on the basis that they don't want the headache of dealing with your government is really heating up. If you look or sound like an American and show up to open a bank account, they are likely to demand a CLN in addition to your non-US passport. Happened to me already, and that was BEFORE the latest HIRE bill crap went down. If you are an American-looking "white guy" and are fortunate enough to have dual nationality with New Zealand, Australia, England or someplace else where you could plausibly originally be from based on your appearance, you'll have no trouble. But if you're trying to open an account with a Dominican or Nevis/St. Kitts passort (the two most popular "economic citizenship" countries), expect them to require a U.S. CLN (Certificate of Loss of Nationality) before they will open an account.

BTW, Mark Nestmann will be on an upcoming FSN episode. He's very knowledgable about all this stuff and also writes a blog at http://nestmannblog.sovereignsociety.com/.

xPat

[skidder]

Re: No capital controls in the USA... yet

Well, the fact of the matter is that this IS a new tax and this appears to be mis-represented here at Itulip.

Here is the gist of the law as I understand it.

1. Any payment TO an offshore financial institution that is not registered with the US gov't as being in compliance with IRS reporting procedures will be TAXED to the tune of 30%. This is what the term "withholdable payment" means, it is a payment TO an unauthorized foreign financial institution ("unauthorized" means one that is not registered with the US as being in compliance with our reporting laws). It's all there in black & white, couldn't be any clearer.

THAT is a new tax. That tax is intended to make it very painful for U.S. citizens to invest with other than U.S. tax reporting compliant institutions.
It also serves as an end-around Swiss banking privacy laws and to discourage foreign investment firms from taking on U.S. citizens through a new myriad of compliance laws now applicable to these foreign institutions.

Before this HIRE law, I could transfer funds out of the US and not be taxed at all. That's because monies I transfer out of the country are AFTERTAX funds, I've already paid the taxes on it. This new law applies a new tax to AFTERTAX money destined for "unauthorized" foreign financial institutions. It is not taxing PRETAX money originating FROM foreign financial institutions that presumably could be untaxed gains on investments, as is implied from some of these posts.

How this can be described as anything other than a capital control is baffling to me?

[ThePythonicCow]

Re: No capital controls in the USA... yet

Well, the fact of the matter is that this IS a new tax and this appears to be mis-represented here at Itulip.

What you say makes sense to me, skidder. Thanks.

[doom&gloom]

Re: No capital controls in the USA... yet

I read Nestmann every week to keep track of how I am bing shafted.

[dummass]

Re: No capital controls in the USA... yet

I read Nestmann every week to keep track of how I am bing shafted.

Wow! I visited Nestmann's website. It would appear that a full time staff would be necessary to keep up with all the legal changes. These days, I have to question if it is even possible to maintain your privacy. If one were intent to follow his advice, there wouldn't be much time for anything else.

[dummass]

Re: No capital controls in the USA... yet

Sadly, that may not be enough.

The international banking prejudice against Americans on the basis that they don't want the headache of dealing with your government is really heating up. If you look or sound like an American and show up to open a bank account, they are likely to demand a CLN in addition to your non-US passport. Happened to me already, and that was BEFORE the latest HIRE bill crap went down. If you are an American-looking "white guy" and are fortunate enough to have dual nationality with New Zealand, Australia, England or someplace else where you could plausibly originally be from based on your appearance, you'll have no trouble. But if you're trying to open an account with a Dominican or Nevis/St. Kitts passort (the two most popular "economic citizenship" countries), expect them to require a U.S. CLN (Certificate of Loss of Nationality) before they will open an account.

This article explains the situation fairly well:

http://www.nytimes.com/2010/04/26/us...er=rss&emc=rss

A few quotes from the article:

"Some U.S.-based banks have closed expats’ accounts because of difficulty in certifying that the holders still maintain U.S. addresses, as required by a Patriot Act provision."

“It seems the new anti-terrorist rules are having unintended effects,” Daniel Flynn, who lives in Belgium, wrote in a letter quoted by the Americans Abroad Caucus in the U.S. Congress in correspondence with the Treasury Department.

Andy Sundberg, another director of American Citizens Abroad, said, “These banks are closing our accounts as acts of prudent self-defense.” But the result, he said, is that expats have become “toxic citizens.”

“That Americans living overseas are being denied banking services in U.S. banks, and increasingly in foreign banks, is unacceptable,” Ms. Maloney said in a letter Friday to leaders of the House Financial Services Committee, requesting a hearing on the question.