Will The IRS Reschedule The Death Of The Dollar? “Foreign Account Tax Compliance Act” (FATCA) | Russia Holds “De-Dollarization Meeting”: China, Iran Willing To Drop US Dollar From Bilateral Trade

Ever since President Obama signed the ill-conceived “Foreign Account Tax Compliance Act” (FATCA) into law in 2010, I’ve been warning about the death of the dollar.

And I haven’t been alone. Other experts have cautioned about FATCA’s potential to literally shut down the global economy when it goes into full effect July 1, 2014. But the IRS has now postponed that day of reckoning ­ for at least some ­ until January 1, 2016.

The idea behind FATCA is simple: Demand that other countries enforce America’s imperialistic tax laws. And to do so by the confiscation of foreign assets, if necessary.

Under the provisions of FATCA, interest, dividends, rents, and similar payments leaving the US will be subject to a 30% withholding tax. The only way that most foreign banks and other foreign companies will be able to avoid this tax is to act as unpaid IRS informants. Non-US individuals investing in the US will be affected, too. If their foreign bank isn’t FATCA-compliant, their US income will get whacked by 30%. It will be possible to recover the tax in some cases, but even so, I can’t think of a better way to scare foreign investors away from the US.

Something I call “FATCA contagion” would be even worse. In this scenario, since they couldn’t be completely certain that foreign recipients are FATCA compliant, US banks might start routinely deducting 30% from international funds transfers ­ and letting the IRS sort it all out.

You can probably imagine what this might do to the value of the US dollar. It could sink like a stone. If there’s panic selling out of the dollar, the US Treasury could impose foreign exchange controls overnight. If it went on for more than a day or two, it would shut down much of the global economy.

The IRS seems to have become dimly aware of this possibility. On May 2, it released regulations that give many of the companies and financial institutions affected by FATCA another 18 months ­ until January 1, 2016 ­ to become fully compliant. But this extension will apply only if the IRS thinks the particular institution is making a “good-faith effort” to do so. If it’s not, withholding begins July 1.

How is any US bank supposed to know if the foreigner it’s sending money to has made a good-faith effort to become an IRS spy? Sure, the IRS has exempted entire categories of foreign recipients from the withholding tax, and others will be “deemed compliant” if they just try to comply.

Entire countries are labeled “compliant” if they sign what the IRS calls a “Model 1” FATCA agreement. This requires that banks in those countries send the information demanded by the IRS to their own tax authorities to subsequently be sent to the IRS.

But because it’s expensive to set up a FATCA compliance program, thousands of what the IRS calls “foreign financial institutions” or “non-financial foreign entities” have made no effort to become FATCA compliant. Unless the IRS delays the withholding mandate entirely, there’s a real potential for disaster.

I don’t have a reputation as a fear-monger. But FATCA has me very worried. The only way the IRS can stave off the possible collapse of the US dollar after July 1 is to delay withholding for everyone until January 1, 2016.

Don’t get me wrong… I’m pleased that the IRS made a halting step away from the dollar precipice. But it’s already too late to avoid stepping over it eventually.

Here’s why:

To many foreigners, FATCA was simply the last straw. They’re fed up with what many are calling “dollar imperialism.” America is already the world’s largest debtor. Our government owes more money to more people than anyone else in the world. And in just the last seven years, our nation’s central bank has created $4 trillion out of thin air through quantitative easing. If you or I tried that trick, we’d go to jail for counterfeiting.

And now FATCA.

In response, the rest of the world is finally setting up the financial and contractual infrastructure to avoid the dollar entirely. That’s a big reason China has signed agreements calling for the use of its currency, the yuan, in financial exchanges with numerous major countries including Germany, Russia, and India. Japan and India have signed a currency deal linking their currencies closer together. Saudi Arabia and other oil-producing states in the Middle East plan to end dollar-for-oil exchanges and instead settle deals with a basket of non-US currencies and gold.

All these arrangements, and many more, lessen the world’s dependency on US dollars. FATCA only accelerates this process, and delaying FATCA will merely delay disaster. There’s no way to stop it. Even if the dollar doesn’t collapse shortly after July 1, the handwriting is on the wall. The dollar is doomed.

It’s time to start thinking about Plan B for your assets. Today couldn’t be too soon.

By Mark Nestmann, nestmann.com 5-14-14 >>  http://www.rense.com/general96/willirs.html

 

By Tyler Durden

Global Research, May 14, 2014

zerohedge.com

That Russia has been pushing for trade arrangements that minimize the participation (and influence) of the US dollar ever since the onset of the Ukraine crisis (and before) is no secret: this has been covered extensively on these pages before (see Gazprom Prepares “Symbolic” Bond Issue In Chinese Yuan; Petrodollar Alert: Putin Prepares To Announce “Holy Grail” Gas Deal With China; Russia And China About To Sign “Holy Grail” Gas Deal; 40 Central Banks Are Betting This Will Be The Next Reserve Currency; From the Petrodollar to the Gas-o-yuan and so on).  But until now much of this was in the realm of hearsay and general wishful thinking. After all, surely it is “ridiculous” that a country can seriously contemplate to exist outside the ideological and religious confines of the Petrodollar… because if one can do it, all can do it, and next thing you know the US has hyperinflation, social collapse, civil war and all those other features prominently featured in other socialist banana republics like Venezuela which alas do not have a global reserve currency to kick around.Or so the Keynesian economists, aka tenured priests of said Petrodollar religion, would demand that the world believe.
http://www.globalresearch.ca/russia-holds-de-dollarization-meeting-china-iran-willing-to-drop-us-dollar-from-bilateral-trade/5382215