The pattern should be seared in your memory by now. If you fail to recognize it, you could be struck with a huge financial blow.
It’s a pattern that has played out over and over throughout history: a government gets into financial trouble, then denies there’s a problem, which is followed by a surprise wealth grab.
That’s exactly what happened when bank deposits in Spain and Cyprus were raided. We’ve also seen retirement savings confiscated in some form in Poland, Portugal, and Hungary. Capital controls have been imposed in Cyprus and Iceland.
Of course these aren’t the only examples of blatant government thievery. These examples are just within Europe and just within recent years. They can and will happen anywhere.
These events highlight the need to use international diversification to mitigate your political risk—the risk that comes from governments.
I think they also give us some clues as to what country is next on the chopping block.
A Roadmap to Confiscation
It starts out with government officials telling you everything is all right—when clearly everything is not all right.
Like when the president of Cyprus promised that bank deposits would be safe. A promise that we all know turned out to be worthless. Another example of why you’re almost always better off believing the opposite of whatever the government says, especially in a crisis.
Deceptions like this don’t happen by accident. The politicians and media deliberately lull the people into complacency so that they can optimize their forthcoming theft.
The next thing that happens needs to come as a surprise, otherwise it loses its effectiveness. It starts with a bank holiday or capital controls. It’s usually optimal—from the government’s view—to impose these measures on weekends or during a holiday to catch people off guard. They need the element of surprise or else people would take protective measures, like moving their money abroad and safely out of reach.
