Capital Controls Coming Even Before CBDC

Rolling out the control grid

One of the best parts of our premium service, “Phyle”, is that we get together to discuss the most challenging issues and share what each of us are doing about it. This week we raise the risk flag a bit higher as Capital Controls appear to be coming soon. What follows are my notes shared with VIP members prior to the lively discussion

Preludes to Capital Controls

Problem: Deposit Flight

• The flight of deposits isn’t a traditional bank run panic. Instead, it’s millions of accountholders realizing they’re being duped by their current bank which has been paying them 0% for many years. And now they’re taking that cash and moving it to money market funds or new bank accounts which offer 4%+ yields. Apple’s Card’s new high-yield savings offers 4.15%

• Panic may not be the driver of the bank run. But, what the banks are experiencing is nonetheless an existential threat that deposit guarantees cannot stop because motive behind the flight of deposits is rational not fearful.

Deposit Flight “Solution”:

• Gating deposit flows to manage bank runs. Unless something changes, deposits will continue to be pulled out of regional banks chasing yield leading to cascading bank failures. One “solution” is for the regulators to “gate” the movement of deposits.
  

  Hugh Hendry explains how bank deposits could be “gated”
  

• Banning Short Sellers. They did this during the GFC and now they’re at it again. By banning short sellers you interrupt the market feedback loop about the health of the banks. It won’t really stop anything except eliminating the information investors need as well as the possibility a few “bad” “speculators” might profit.

CNBC Discusses the problem of short sellers making billions while banks go under: https://twitter.com/SquawkCNBC/status/1655546724356616194?s=20

Problem: De-dollarization

Solution:

• The full spectrum attack on Crypto. Recent moves by the USG are making it clear that they’re going for the crypto jugular right now. Not only are they trying to destroy all non fully fiat compliant on and off ramps, but they’re even suggesting the mere use of smart contracts requires KYC/AML regulation.
  
  The claims made in this recent report from the treasure department are totally unhinged: Illicit Finance Risk Assessment of Decentralized Finance (treasury.gov) but they make it clear that the US Government is out to kneecap crypto.
  
  Here’s a good summary of the treasury department report if you just can’t bring yourself to read it.

• Gold Confiscation? It’s possible. I refer you to a recent article by Doomberg where he/they explained that it is possible and that, compared with other moves the feds are making, this wouldn’t be that hard to pull off.

Gold in Handcuffs?