Even for those living on a distant continent, the confiscation of
state-guaranteed bank deposits in Cyprus is a reminder. (At this stage, it is
not clear the Eurocrats will succeed.) Governments and central-banks blew their
capital to save a financial Ouija board - not system - in 2008. Former Federal
Reserve Chairman Paul Volcker reminded an audience last week there is no
financial system: "And what I'm talking about is the international
monetary system. Of course you know it's hard to call it a system. A
system concerns itself with some interrelated parts and a mechanism that are
working together to produce some stability and progress. That's hardly a
description of the international monetary system. And as many people have
said, 'international non-system.'"
The arbitrary decisions made by Americrats and Eurocrats in 2008, of what to
save and what to sink, must veer towards sinking more and saving less in 2013.
It has been noted the decision to confiscate bank deposits in Cyprus was a
stupid move instituted by the acronyms (ECB, EU, IMF, G-somethings). This
should remind residents in other countries that, first, what is theirs isn't,
and second, relying on logic (e.g., "the government wouldn't do that, it
would be shooting itself in the foot") is not a wise path to
self-preservation.
First, and foremost, the capital on which the bureaucrats can draw is low. That
is financial, political, and psychological capital. In 2008, the central banks
and governments stood behind the public's bank deposits and panic subsided. The
veneer is much thinner now. Again, logic is not the path to estimating when the
public recognizes its exposure, since that should have happened so long ago.
These are states whose authority only exists as long as their paper-currency
bills are trusted. (Yes, buy gold and silver).
All that is left is central-bank,
money-printing and assurances of future money-printing - sometimes in the form
of guarantees. The guarantees have been recklessly awarded. Revenues are harder
to come by. Apparently - at least this is the current story - there was no
other source of funds to back the failing Cypriot banks. The Eurocrats had
drawn a line in the sand. They would only award X euros to save the banks.
Cyprus had to supply the rest. The Euros would not accept debt issued by the
Cypriot government as good collateral. (This is farce, given what is
permitted.) Where to turn? The bond holdings in the banks were insufficient to
make up the difference. Tax receipts are also insufficient, but the
arbitrariness of what can be taxed and what constitutes a tax is constantly
redefined in the western so-called democracies. So, the Cypriot government
announced that bank deposits are hereby taxed - confiscated - to fund the
deficiency. What value should bank customers place on deposit insurance in
other countries?
Resourceful is spreading - reading a new
interpretation by the minister of finance and administration in Spain. From El
Pais, on March 19, 2013: bank deposits can be taxed since this would
standardize taxes across regions. I have no idea what that means, not speaking
Spanish only being one problem. Its importance though, should it be imposed, to
the average Spaniard, is not the clumsy legal route to confiscation, but:
"the government is taking my money."
Looking to the day of reckoning in the
U.S., there are two other potential sources: private or public investment.
Cyprus and Russia are negotiating now; Russia potentially supplying the missing
capital. Foreign investors made the mistake of supplying U.S. financial
institutions with capital in 2008. For the most part, that did not work out
well for the investors. Cyprus is much smaller, though. Could Cyprus and Greece
join a new ruble block?
Those with assets in the U.S. are well
aware of resourceful money grabs by the government in recent years. Theft from
General Motors bondholders is an example. When the Federal Reserve is buying
100% of the U.S. Treasury issues and bond yields are rising, the U.S.
government will probably apply new confiscatory taxes on savings, investments,
and assets. (U.S. Treasury gold holdings will become a point of contention, to
express this vaguely, at some point.)
To look optimistically, the discrediting
of the power brokers can not come too soon. These awful people are now so
bereft of tolerable choices they write the script for their original sin when
they speak. On March 19, 2013, German Finance Minister Wolfgang Schaeuble told
"lawmakers" the current problem is the result of "a failed
business model over decades." Schaeuble is acknowledging the euro was
always a façade, a means to a different end than a functioning currency. If those
who launched the euro wanted to establish a currency, a currency that required
trust across borders in an experiment never before attempted, they would not
have plagued it with bubonic pathologies.
Posts
