Exchange Controls Are Proposed For the U.S.A.

By: Julian D. W. Phillips | Tue, Jun 24, 2008
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In a long week in which attempts to lower the oil price and talks about the $ were disappointed [G-8 meeting and the oil producer's meeting in Saudi Arabia], the threat of much higher oil prices, a weaker $ and perhaps a vicious fall in equity market in the next few months, the Joseph Lieberman the head of the Senate Banking Committeee is proposing what in effect are Exchange Control measures on commodity markets and foreign exchanges that host commodity dealing. This week we saw a glimpse of what is to be proposed and is proposing as we send this out.

Sen. Joe Lieberman, tasked with finding controls over speculation in the commodities markets, revealed the drafts of three bills that would sharply curtail the activities of financial investors in the commodities markets.

  1. The most extreme proposal would prohibit private and public pension funds with more than $500 million in assets from investing in agricultural and energy commodities traded on a U.S. futures exchange, foreign exchange or over-the-counter.

  2. A second proposed bill would direct the Commodities Futures Trading Commission to establish total limits on the share of the commodity market held by financial investors.

  3. A third proposal would direct the futures regulator to impose speculative position limits on any stakes not related to real hedging activities, an action that could limit the commodities swaps activities of big investment banks such as Goldman Sachs.

What are the implications of these moves? Frequently, we have pointed to the coming imposition of action to control the Capital flows that these long-term changes will inspire. These measures lay the foundation of what appears to be a long-term plan to create an environment where the full spectrum of controls both inside and outside the U.S. can be imposed in a flash.

After all, once accepted it is a small and relatively easy step to tighten them. When the reason for their imposition poses a greater threat to the national financial system, it is just as easy a step, to make them stringent.

Having said that we ask you to re-read these proposals carefully and attempt to define the terms of these proposals.

Essentially, these measures would require close monitoring of all investors, whether they be Private and Public Pension Funds, other Investors or speculators. The Exchanges themselves would have to have constant monitoring of the positions of such investors so that controls will be effective. That in itself is onerous.

But it is a fact of life that if you give bureaucrats their head in such markets they will cease to be free and cease to reflect the true market picture.

No doubt, initially, they will be successful, but then ways to by-pass these measures will be found. No doubt, such funds will move funds away from the States and into other countries to invest in these commodities from place where the regulations do not apply. No doubt the regulators will have to extend the controls to cover foreign activities?

And if it is found that it is the 'real hedging activities' that are causing prices to rise, what then? There is little that bureaucrats will do other than to increase regulations to define and have their permission sought to continue hedging through licenses or other means.

Actions to Take.

If you believe that this is the full extent of the coming controls, then you have no cause to fear Exchange Controls. If you do not see these controls as achieving their objectives, then you have to accept the likelihood of their extension. Once one does that you have to ask yourself, will they get to a point where they affect me? Then you have to ask yourself, "Am I prepared to be a victim or should I take steps now to avoid all future such controls just in case they overwhelm my investments?"

We have advocated such preparations for some time now and continue to do so.

What does one do in that environment? Clearly one must place oneself in a position to stand away from the storm and the coming controls, if possible. But far more than that, one needs to be able to position oneself to enjoy the multitude of opportunities that such controls throw up. Sitting in hard assets, such as gold and silver [as the prices fall in the global de-leveraging process] is an excellent start, even with them overseas in solid bullion vaults. But this is not enough, because you the owner are still reporting to the national money authorities, who still dominte your actions.

One has to be, not only outside the storm, but also in an ideal position to jump into the many great opportunities that will appear, as these are imposed. Then one can reap the benefits and even, subsequently, retreat to gold and silver again. But is this sufficient? We feel that much more is required to protect yourself and fully benefit from the situation, because the monetary authorities are more than capable of putting the reins on its citizens, no matter where they hold their assets. Having been in three financial environments where such controls strangled financial markets, the author is reflecting the hard experience that many have had under such controls.

What is called for is a new approach, for proper positioning, proper structuring so as to avoid the negative impact of controls and reap any benefits that come up. Such preparations turn one from a victim to a reaper.

One does not have to know the exact details of government actions, just the principles involved. Then one places oneself in the correct environment [subscribers contact us for direction on this]. This means being completely outside the web of the controls that can be imposed.

With the changes in the global economy, we do not believe that Europe can remain isolated from their effects. We repeat our call to all who read this wherever they live to prepare themselves for the an era of government financial and exchange controls!

"Prepare yourself for an era of Government financial and exchange controls!"

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Julian  D. W. Phillips

Author: Julian D. W. Phillips

Julian D. W. Phillips
Gold Forecaster

Julian D. W. Phillips

"Global Watch: The Gold Forecaster" covers the global gold market. It specializes in Central Bank Sales and details, the Indian Bullion market [supported by a leading Indian Bullion professional], the South African markets [+ Gold shares shares] plus the currencies of gold producers [ Euro, U.S. $, Yen, C$, A$, and the South African Rand]. Its aim is to synthesise all the influential gold price factors across the globe, so as to truly understand the global reasons behind the gold price.

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