I shoulda seen this coming with TARP. Bush should of trusted his instincts. Instead, the banksters got to him. It’s amazing how the Federal Reserve (or actually, those who own it) always gets what it wants. Their control of the Mainstream Media is total for all practical purposes.
Anyway, Poland is now talking about seizing private pension funds in order to pay off its debt. Word on the street is that other countries are seriously looking at this stratagem to bail themselves out.
Why would anybody think that the US, the Big Kahuna of world economies, won’t do the same thing? We’ve got $17 trillion in debt and about $19 trillion in 401Ks, Keoghs, and assorted other private pension funds. With the inauguration of Obamacare the bank is going to be broken. Even if the Republicans win the current standoff with Heartless Harry and The Barrycades, the best-case scenario is that they delay its implementation for a year.
We can’t keep on dodging bullets forever. Eventually the bill collector will show up.
Oh well, fool me once, shame on you, fool me twice, shame on me.
What Would America Look Like After ‘Getting Cyprused’?
Source: ETF Daily News | Andy Sutton
There is little doubt that the past two weeks have brought about dramatic changes in most circles regarding the way people look at banks, bank deposits, and the monetary situation in general. This year’s ‘Ides of March’ will no doubt go down in history as a pivotal period where once again our world changed forever. One would be right in stating that there have been many such watershed events in the past decade and a half and that alone should be even more persuasive to those who believe we still live in the bull market of the 1980s. This is not your father’s market, nor his country, nor his world.
So what exactly happened in Cyprus that changed everything? The goal here is to provide something of a post mortem on the situation – with the recognition that it is still ongoing. However, some of the major decisions have been made and, fallout notwithstanding, are somewhat set in stone.
Make no mistake about it; ‘The Great Cypriot Train Robbery’ adhered closely to the now accepted methodology of conquest by fear used successfully in America in 2008 when the banksters wanted their $750 billion bailout from Congress.
While the purpose of this piece is not to relive that experience, it is critical that people see the progression in place just over the past 5 years. I must point out that all of these situations are able to happen because banks have outlived their usefulness in our society – at least in their present form. The whole purpose of having banks (of the Savings & Loan variety) in the first place was to solve one of the primary challenges facing a direct exchange economy – that of coincidence of wants. Or, to use more commonly accepted vernacular, to bring together those with savings and those with a demand for that savings. It allowed the saver to indirectly ‘invest’ in the commercial activities of the borrower. The bank acted as a conduit, charging interest to the borrower and paying interest to the saver – all at rates that made it economically feasible for all parties to engage in the transaction.
Today we have a system that is half-baked at best, born half improvised and half compromised. The improvisation created the moral hazards and the compromise allowed these institutions not only to leverage themselves into insolvency, but to attach the economies of entire nations to their activities as well. The main firewall preventing this, the Glass-Steagall Act, was torn down over a decade ago. The morphing that has taken place since then set the stage for the rampage of financial crises we’ve witnessed over the past half dozen years. The factor that should be most concerning regarding this aspect is the consolidated nature of the global banking system and the fact that nearly every nation of consequence allows the same types of risky activities that are permitted (and even encouraged) both in America and the Eurozone. There is no longer such a thing as an isolated incident. Everyone has exposure to everyone else’s bad bets.
What About Depositor Guarantees?
Obviously the Cypriots learned the hard way a lesson that should have been learned from Argentina circa 2000: when the chips are down, hold onto your wallet. If the rest of the world has learned nothing else from this ordeal, it should be that nothing in the economic/financial world is sacrosanct, especially when it comes to assets.
We’ve now watched an entire first-world continent succumb in large part to the demands of the banker-elites, in that they’ve pledged the economic efforts of the people ad infinitum to support ‘bailouts’ that have zero chance of working. Yes, zero chance. As long as governments continue to overspend and incur new debt while the piranhas in the trading pits make all manner of insane bets on said debt, this will continue to devolve into a persistent crisis state. Double that for the consumer whether it is through mortgages (which various institutions love to bet on), credit cards or other kinds of debt. Think about it. When in the last half decade hasn’t there been a crisis going on somewhere?
The bottom line is there is no such thing as a depositor guarantee. Not anymore. You’re on your own. I don’t care if you’re in Albuquerque, NM or Auckland, New Zealand. There is no guarantee. What about FDIC? What about it? First of all it doesn’t apply in a Cyprus-like situation. FDIC is specifically for bank failures. And if the government taxes you to make your bank non-failing, then it is a tax and taxes just aren’t covered by FDIC. If you want to see who is going to guarantee your funds, look in the nearest mirror. Secondly, even if the FDIC wanted to, there is no way it could cover the kinds of losses depositors would suffer even under a modest ‘haircut’ type situation. Take a look at the FDIC’s pitiful reserves as of 9/30/12 for dealing with any type of bank failure:
The ‘Fund’ has a mere $25 billion available and there are many questions about how much of that money is even ‘free and clear’ that it could be used to bail out anything. To put it in perspective, $25 billion is about 4.75 days of government borrowing at the current rate, about 0.1% of US GDP, or (and most importantly), about 3% of all US demand deposits as of the end of 2012. This alone should demonstrate that even if the FDIC were so inclined or obligated, it would prove to be completely impotent at backstopping any type of Cyprus-style bank confiscation.
The Rest of the EU Has Been Warned
Earlier this week, the UK Telegraph ran an article in which senior EU official Jeroen Dijsselbloem said that the folks in Italy and Spain in particular ought to be ready to fund a bailout should any of their banks require it. Gee, I wonder how long it’ll be until one of those banks hits the mat? Don’t forget who is running these countries and WHERE they came from. Just think of Hank “I never saw a bailout I didn’t like” Paulson.
From The Telegraph:
The euro fell on global markets after Jeroen Dijsselbloem, the Dutch chairman of the Eurozone, announced that the heavy losses inflicted on depositors in Cyprus would be the template for future banking crises across Europe.
“If there is a risk in a bank, our first question should be ‘Okay, what are you in the bank going to do about that? What can you do to recapitalize yourself?’,” he said.
“If the bank can’t do it, then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalizing the bank, and if necessary the uninsured deposit holders.”
Seriously, if Dijsselbloem gets anymore radical someone might suggest that he run for the mayor of Chicago – or maybe even New York City. I wonder what his stance on 16oz sodas happens to be? Come on Jeroen, enquiring minds want to know!
All levity aside, however, the warning has been given. The think tank position papers on these topics are so old that the edges are starting to yellow. Theory and policy desire have become practice and the practice is spreading.
America’s Next Crisis?
Obviously the bulk of readers of this periodical reside in the United States and as such are seeking input on the likelihood of such a scenario taking place here. I will quickly grant that the EU has been in turmoil for the better part of three years now and it has finally come to forfeiture of deposits. Why did they wait for little Cyprus instead of pulling a similar stunt in Greece, Italy, Spain, or even Portugal or Ireland? Simple. First of all it was a nice way to extend the state ornithological symbol to the Russians.
Russia has been dreadfully ornery lately and, even worse, has been acting awfully protectionist. That kind of independent thinking just isn’t welcome in a post NAFTA/GATT/WTO world. Make no mistake that there is at least an element of muscle-flexing between the world’s power brokers going on in this whole thing. Cyprus became their battleground. The tax haven status didn’t’ help their cause either. If you happen to run a small island nation with a simple economy, it might be wise to think twice before trying to create a Club Med style resort for the global moneychangers. Seriously, it is bad for national health not to mention bank deposits.
Back to America and where we fit into all this. I have been asked at least a hundred times since this Cypriot situation boiled over what people could do about this. The answer stays the same. We remain one headline from being in the same boat as the Europeans. Our economic transgressions are even more grave than theirs and are several orders of magnitude deeper as well. Our currency is the foundation that the other houses of cards that are currently collapsing have been built on.
While the Dollar may be the last to go in terms of the monetary cycle, a quick look at history says that it will in fact fail. Paper currencies, by their very nature, are doomed to failure. The biggest mistake we could make in America is to assume that for whatever reason we get a free pass on this. We don’t, so forget about it. What is also true is that this could easily take a bit longer than many of the folks who are commonly referred to as ‘gloom and doomers’ would have us believe.
Many feel hyperinflation and bank runs are imminent. I will say right here that a hyperinflationary event at this point is impossible. Why? What about all the debt? What about all the unfunded liabilities, etc.? Yes, all that is true, but the biggest piece of the ‘immediate hyperinflation’ scenario is missing and that is a wage-price spiral. Prices are certainly rising, but wages are stagnant. If there is to be a Weimar-style monetary event in America, then wages are going to have to start increasing, slowly at first, then assuming a parabolic-type growth pattern. We’re just not there at this point.
Right now, wages are the limiting factor. I’ve heard the argument that credit could step in place of wages and to a certain extent that is true, but there is a specific point where the credit function as it relates to the ability to spend becomes exhausted. There is no mistaking the government’s efforts to induce people to borrow money. All these shenanigans aimed at restoring the housing bubble to 2005 status are clear evidence of that. Not only is it part of generating the wealth effect, the continual accumulation of debt is necessary to drive a fiat monetary system such as ours.
All this said, our banks are very susceptible. The safety nets to protect depositors just aren’t there and the sad reality is that such a small percentage of our money supply exists as cash that it would be patently impossible for everyone in the nation to pull even 10% of their funds from the banks without causing a serious dislocation. Think about it. Even in a paper system, the banks can’t produce deposits on demand. This demonstrates the functional insolvency of the savings/loan bank model. Their assets are spread out in time while their liabilities (your deposits) can be called at any time. This is why so many banks are putting limits on cash withdrawals and imposing waiting periods to receive such withdrawals and so forth. They just don’t have the ability to meet their obligations en masse.
In Conclusion – And a Forward Look
One part of the Cypriot situation that still boils on is that the banks remain closed and capital controls are now in place. Evidently the Cypriot government wants to make certain that their little island becomes a monetary ‘Hotel California’. You can pull your money out of the bank any time you like, but it can never leave the country. History has also demonstrated that capital controls tend to end very poorly. Wherever you happen to be, beware of such measures or even the talk thereof.
Finally, the biggest problem now in Cyprus is a social one. People have been cut off from their money for nearly 2 weeks. How many Americans could deal with that kind of reality? Will Cyprus be the next Greece where the middle class is picking through dumpsters looking for food and drug companies refuse to send medicine for fear they won’t be paid? Obviously these folks now know full well what it means to ‘Get Cyprused’. And as a logical extension, what would America look like after ‘Getting Cyprused’? As unappealing as the answer may be to some, the good news is that we have a bit more time to consider our options. Certainly more time than those million or so folks on that little previously obscure Mediterranean island got.
This article is brought to you courtesy of Andy Sutton from Sutton & Associates.
Related Tickers: Dow Jones Industrial Average 2 Minute (INDEXDJX:.DJI), Direxion Daily Small Cap Bear 3X Shares (NYSEARCA:TZA), Direxion Daily Financial Bear 3X Shares (NYSEARCA:FAZ).
ttp://etfdailynews.com/2013/03/28/what-would-america-look-like-after-getting-cyprused/
Both you and the writer of the article which you have republished have a fundamental misunderstanding of monetary theory and fiat currency. The US will never have a situation similar to Poland, or to Cyprus, or to Greece, or any country currently on the Euro because – and this is crucial – the US retains its sovereign right to its monopoly on the creation of currency, whereas all of the Euro countries gave up that sovereign right when they adopted the Euro. The US, with a few keystrokes, can create all of the money it needs – and, in fact, has been doing just that through quantitative easing. It does not need to borrow. It can call upon an infinite supply of electrons to create money from which it can then pay its bills. So why does the government borrow if it can create all the money it needs out of thin air? Borrowing is a means of managing money supply in the economy, a way to get the money it created to pay for its purchases back if too much money is circulating, driving up prices. It could do the same through taxation, but taxation is politically more difficult. US borrowing has a secondary benefit of creating a safe haven for investors – or at least it did until this recent threat to default on its obligations.
The governments of Poland, Cyprus, Greece, et al, on the other hand, cannot create Euros. They are limited to the quantity of Euros they can obtain directly through taxation and borrowing. They have traded a small risk of having too much currency circulating in their economies for the reality of having too little (and too little is as devastating as too much) without having an sovereign mechanism for correcting the imbalance.
The US budget is not like a household budget. A household cannot create money. The US government can, and it can create as much as it needs whenever it needs with a few keystrokes and mouse clicks. All of the brewhaha we are currently witnessing is political theater, gamesmanship for the purpose of driving public opinion. Unfortunately, this gamesmanship has real impact on the American people who are at the mercy of the idiots, ideologues, and narcissists elected to hold the reins of power
Portia, you are completely correct in all the particulars as stated in your response. In addition, the dollar is the world’s reserve currency (which I don’t believe you mentioned). The problem is that although it is presently the reserve currency and has been since Bretton Woods in 1946(?) there is no reason that it has to be the world’s reserve currency at some point in the future.
In the presence of an economic downturn, wide-spread rioting in the streets, and an exacerbation of the gap between the rich and the poor (with an eroding middle class)–all of which could happen with untrammeled illegal immigration–it’s possible that some countries will want to look to gold. The massive increase in our public debt (to say nothing of the unfunded debts) will cause a hyperinflation at some point. In any of these scenarios, would the US still be a safe haven for foreign capital?
I don’t know the answer to that but it’s worth considering.
George, Europe might seeing rioting in the streets because of deflation, not inflation. Europe is well on its way to a repeat of the Long Depression of 1873-1896, during which prices declined dramatically as the value of gold rose, resulting in wars and mass emigration from the continent to the US. The US saw the worst rioting as a result of the panic of 1893 and the tight money policies that were put in place. Those tight money policies could not cope with the demand for money following the San Francisco earthquake in 1906, and the stress was made worse by the Bank of England raising its interest rates, partly in response to UK insurance companies paying out so much to US policyholders post-quake. There were other factors as well, but the net result was a tremendous loss of liquidity that resulted in the Panic of 1907. All of this from deflation, not inflation.
At the moment there is no chance of any currency replacing the US Dollar as the world’s reserve currency. Europeans had hoped that the Euro would rise to become a competing reserve currency, but it hasn’t happened, and it won’t ever happen so long as the individual members of the EU remain sovereign in every way but monetarily. Now, if they were to form a federal union like the US, then the dollar might have some real competition. Otherwise the only thing that could significantly harm the dollar’s standing as the world’s reserve currency would be a default on our debt. Therefore, it is imperative that the debt ceiling be raised. Period. No messing around. No games. No brinksmanship.
I must stress once again, because we have a fiat currency that has no intrinsic value, government debt does not and cannot cause hyperinflation. On the contrary, issuance of government debt instruments, assuming there is demand for them and they are purchased, removes money from the economy, just as taxes remove money from the economy. The only thing that causes hyperinflation is excess demand coupled with a lack of faith in the currency. Demand causes prices to rise, and declining faith in the currency also causes prices to rise. Combined they are lethal to an economy. Once again, that argues in the strongest terms for our government to immediately raise the debt ceiling without playing chicken.
Remember, our government can create money out of thin air any time it wants. It can pay for the goods and services it purchases with the money it has created. It doesn’t need to borrow. Borrowing and taxing are simply ways to get the money it created back out of the economy. This is the hardest thing for laymen to understand because it is so unlike their own budgeting and finances. But then, individuals do not have the ability to create money out of thin air, so it’s natural that they have difficulty with the concepts.
So, what then, is all of this political drama about? It is about ideology. There is an ideological battle being waged over what goods and services the government should be purchasing and in what amounts. By obfuscating the truth about monetary principals and the functions of fiat currency, sovereign debt, and taxation, ideologues are manipulating the public debate over what we, as a united people, through the common (i.e., communal) action of our government, should be engaged in providing for ourselves, our fellows, and our posterity.
Portia, I understand what you are saying about the danger of deflation, I just don’t see it on the horizon what with Quantitative Easing 1, 2, and now 3. I could be wrong of course. I especially liked your history lesson regarding the deflation of 1873-1896 which was the engine that drove massive European immigration to the States. We had our own run-in with deflation during our own Great Depression. That being said, we forget that Western societies were far more stable then. One reason of course was because they were more homogeneous, another because they were more religious, and third (and perhaps most importantly) the majority of the people lived on farms and could grow their own food.
This last thing cannot be overlooked. Most social dislocations caused by inflation or deflation are proportional to the percentage of the population that is urbanized. An exception would be the Great Potato Famine which ravaged all of Ireland, a land that was only 5% percent (f that) and of course which drove half the country to emigrate. Another example would be the Bolshevik takeover of the Russian Empire, which was achieved because of the disastrous losses sustained by Russia due to the Great War. Again, things were bleaker than bleak for the urban proletariat of St Petersburg and Moscow but for the vast majority of the people who lived in the countryside, there was nowhere near the discontent. Indeed, before the Great War, Russia was a net exporter of grain and had doubled its railroad capacity every ten years. That’s why Lenin had to stage a bloody, 5-year long civil war in order to inflict the soviet system on the rest of the country.
Portia,
An interesting analysis. I have a question. You say that…
But is this “money” actually removed from the economy? Is it not then placed back into the economy via government spending? After all, much like individuals, the government doesn’t borrow (or tax for that matter) simply to hold the funds. It spends those funds on goods and services, does it not? And if it creates this “money” by fiat, does it not slowly drain the value of the currency relative to real goods at the expense of the citizenry? Is it not an essentially an invisible form of taxation without having to endure the political fallout of actually “raising taxes”?
It would seem to me, therefore, that actual taxation maintains real currency value and does not remove money from the economy since the money is spent (however wisely or foolishly) on goods and services while borrowing erodes the real value of the currency. Am I wrong? And if so, why?
“The US budget is not like a household budget. A household cannot create money. The US government can, and it can create as much as it needs whenever it needs with a few keystrokes and mouse clicks”
Money is not the same thing as wealth, the creation of money by the government is the theft of wealth from the people.
Gold and Economic Freedom (1966), by Alan Greenspan:
Under a gold standard, the amount of credit that an economy can support is determined by the economy’s tangible assets, since every credit instrument is ultimately a claim on some tangible asset. But government bonds are not backed by tangible wealth, only by the government’s promise to pay out of future tax revenues, and cannot easily be absorbed by the financial markets. A large volume of new government bonds can be sold to the public only at progressively higher interest rates. Thus, government deficit spending under a gold standard is severely limited. The abandonment of the gold standard made it possible for the welfare statists to use the banking system as a means to an unlimited expansion of credit. They have created paper reserves in the form of government bonds which — through a complex series of steps — the banks accept in place of tangible assets and treat as if they were an actual deposit, i.e., as the equivalent of what was formerly a deposit of gold. The holder of a government bond or of a bank deposit created by paper reserves believes that he has a valid claim on a real asset. But the fact is that there are now more claims outstanding than real assets. The law of supply and demand is not to be conned. As the supply of money (of claims) increases relative to the supply of tangible assets in the economy, prices must eventually rise. Thus the earnings saved by the productive members of the society lose value in terms of goods. When the economy’s books are finally balanced, one finds that this loss in value represents the goods purchased by the government for welfare or other purposes with the money proceeds of the government bonds financed by bank credit expansion.
In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
A world culture that serves itself and loves itself enters into this great world culture( great whore), who is riding upon a beast,( the present economic system), as these all live for bread alone. And is going into perdition. The Word of God says the system will fall. None sane will dare argue, that buying and selling has nothing whatsoever to do with the economy. But the troll bishop will try, I bet.
Testing, testing,
You can’t handle the Truth,
Positing the Poland situation as a what-if for the US gets confusing when you throw in an old article about Cyprus that really has nothing to do with your doom and gloom scenario. It’s really almost exactly opposite to what you are describing: the government couldn’t borrow enough money to give people back all the money that those people had lost by depositing their money in Cyprus banks. And, as has been pointed out in a previous post, handwaving about FDIC deposit levels intended for normal times are irrelevant to extraordinary circumstances because in said extraordinary circumstances the US government is just going to do what it has to to make deposits good and prevent a run on the banking system in the US. And it has the means to do so. Cyprus did not. Thus EU bailout, and thus the capital controls because the EU didn’t want to sink more money in than they absolutely had to. Remember, during the height of the financial crisis, the normal FDIC insurance levels weren’t reduced, they were effectively made unlimited. Even though there was a run on the global shadow banking system (which wasn’t going to be preventable by anybody due to the circumstances), the US banking system didn’t suffer a run because we learned that lesson good and hard around seventy-eighty years ago.
At the end of the day Cyprus was not a case of the Cyprus government confiscating private wealth to reduce its debt from wanton government spending, it was a case of the Cyprus banks having lost that private wealth far beyond the ability of the Cyprus government to replace via government borrowing. The end result was the EU had to write a giant check to recapitalize the Cyprus financial sector and help fund the Cyprus government because the bank liabilities had crushed its ability to borrow to fund its normal operations. And part of the strings for that bailout was a haircut for depositors. The harsh part was it included amounts under insurance thresholds. To put it mildly, that plus the severe capital controls made the natives rather unhappy.
Tax advantaged plans such as 401(k), 403(b), 457(b), IRA etc. were ostensibly created to help people save for retirement. The real reason was to create massive resources for Wall Street to take to the casino (the markets) and harvest fat stacks of cash. The principal beneficiaries have been fund managers, CEOs and others of their ilk. A small fraction of the gains have been allowed to trickle back to the duped investors. Now, considering that the U.S. Congress is a wholly owned subsidiary of corporate America, that millions of boomers in their 50’s are lurching toward Social Security retirement age, and that our esteemed representatives in Washington are brimming with demonic urges and intentions, I would not be surprised if we see a devastating confiscation of retirement assets and pension plans. Personal property rights, after all, seem to be falling out of fashion.
So where we are on this blog is that somebody can say that the government will confiscate retirements savings and that’s that? Ridiculous.
The people who rail against 401k’s and the like are the people who don’t use them, or who use them and take the money out early for various follies.
All they are is income tax-deferred retirement savings plans. You’re never going to hear from people who have paid their funds into these plans for decades and have solid retirements as a result. You’ll hear only from the multitude of complainers, as always.
It usually boils down to the same thing, alas: people’s anger at their country and the world is in inverse proportion to the health of their bank accounts.
Call me Dr. Pangloss! We need one or two of them in this cacophony of woe…..
Putting Orthodox Theology and Ecology into Practice
A Conference at Saint Sophia Greek Orthodox Cathedral, Washington DC
November 11th, 2013 9:00 AM – 5:30 PM
You are invited to attend!
Hosted by The Orthodox Fellowship of the Transfiguration (OFT)
Keynote speakers: HE Archbishop Demetrios and Dr. James Hansen, NASA
Registration is a sliding scale of $20 to $200 which includes lunch
Participating organizations include
International Orthodox Christian Charities (IOCC)
Hellenic College/Holy Cross Greek Orthodox School of Theology
Saint Vladimir’s Orthodox Theological Seminary
The Orthodox Peace Fellowship
The Archdiocesan Advisory Committee on Science and Technology (GOA)
The OFT is endorsed by the Assembly of Canonical Orthodox Bishops of North and Central America
Well, off of politics, I read an interesting find there was a 7th century gold plate of the menorah and a ram horn near the second temple. The real Menorah of the Temple was taken by the Romans in Titus’s Conquest around 79 A.d. and so. Anyways, centuries later the Vandal King Genseric took the Menorah from Rome around 455 A.D. and around 534 A.D. Belisarius capture the menorah. and it went to Constantinople and then the Jews told Justinian that any city that has it is destroy so he places in a church in Jerusalem. The Jews who alliance themselves with the Persians probably got the menorah back in the early 7th century. So, the gold plate of the Menorah in the picture is probably a copy of the real one from the second temple period which means we are close to finding it.
http://www.npr.org/blogs/thetwo-way/2013/10/07/230133003/justice-scalia-talks-satan-seinfeld-and-gays?ft=1&f=1001