Zerohedge looks back to history to predict what is coming down the road.
To anyone paying attention, reality is now painfully obvious. These bankrupt, insolvent governments have just about run out of fingers to plug the dikes. And history shows that, once this happens, governments fall back on a very limited playbook:
Direct confiscation: As Cyprus showed us, bankrupt governments are quite happy to plunder people’s bank accounts, especially if it’s a wealthy minority. Aside from bank levies, though, this also includes things like seizing retirement accounts (Argentina), increases in civil asset forfeiture (United States), and gold criminalization.
Taxes: Just another form of confiscation, taxation plunders the hard work and talent of the citizenry. But thanks to decades of brainwashing, it’s more socially acceptable. We’ve come to regard taxes as a ‘necessary evil,’ not realizing that the country existed for decades, even centuries, without an income tax. Yet when bankrupt governments get desperate enough, they begin imposing new taxes… primarily WEALTH taxes (Argentina) or windfall profits taxes (United States in the 1970s).
Inflation: This is indirect confiscation– the slow, gradual plundering of people’s savings. Again, governments have been quite successful at inculcating a belief that inflation is also a necessary evil. They’re also adept at fooling people with phony inflation statistics.
Capital Controls: Governments can, do, and will restrict the free-flow of capital across borders. They’ll prevent you from moving your own money to a safer jurisdiction, forcing you to keep your hard earned savings at home where it can be plundered and devalued. We’re seeing this everywhere in the developed world… from withdrawal limits in Europe to cash-sniffing dogs at border checkpoints. And it certainly doesn’t help when everyone from the IMF to Nobel laureate Paul Krugman argue in favor of Capital Controls.
The thought strikes me that we truly live in a perverse world where “free trade” demands the free movement of labor and bars the free movement of capital. I don’t recall David Ricardo ever working through the implications of that arrangement. As for the inflation prediction, we’ll see about that. I have no doubt, of course, that the various governments will be doing their best to inflate, the question is whether they can actually manage to cut the link to credit or not.