Did you notice that Greece’s creditors are not rushing to offer the Greeks a new deal in the wake of the stunning referendum result on Sunday? In fact, it is being reported that the initial reaction to the “no” vote from top European politicians was “a thunderous silence“. Needless to say, the European elite were not pleased by how the Greek people voted, but they still have all of the leverage. In particular, it is the Germans that are holding all of the cards. If the Germans want to cave in and give the Greeks the kind of deal that they desire, everyone else would follow suit. And if the Germans want to maintain a hard line with Greece, they can block any deal from happening all by themselves. So in the final analysis, this is really an economic test of wills between Germany and Greece, and time is on Germany’s side. Germany doesn’t have to offer anything new. The Germans can just sit back and wait for the Greek government to default on their debts, for Greek banks to totally run out of cash and for civil unrest to erupt in Greek cities as the economy grinds to a standstill.
In ancient times, if a conquering army came up against a walled city that was quite formidable, often a decision would be made to conduct a siege. Instead of attacking a heavily defended city directly and taking heavy casualties, it was often much more cost effective to simply surround the city from a safe distance and starve the inhabitants into submission.
In a sense, that is exactly what the Germans appear to want to do to the Greeks. Without more cash, the Greek government cannot pay their bills. Without more cash, Greek banks are going to start collapsing left and right. Without more cash, the Greek economy is going to completely and utterly collapse.
So yes, the Greeks voted for change, but the Germans still hold the purse strings.
And right now the Germans do not sound like they are in any mood to compromise. The following comes from a Reuters report that was published on Monday…
German Chancellor Angela Merkel’s deputy said Athens had wrecked any hope of compromise with its euro zone partners by overwhelmingly rejecting further austerity.
Merkel and French President Francois Hollande conferred by telephone and will meet in Paris on Monday afternoon to seek a joint response. Responding to their call, European Council President Donald Tusk announced that euro zone leaders would meet in Brussels on Tuesday evening (1600 GMT).
German Vice-Chancellor Sigmar Gabriel, leader of Merkel’s centre-left Social Democratic junior coalition partner, said it was hard to conceive of fresh negotiations on lending more billions to Athens after Greeks voted against more austerity.
Leftist Prime Minister Alexis Tsipras had “torn down the last bridges on which Greece and Europe could have moved towards a compromise,” Gabriel told the Tagesspiegel daily.
In addition, Angela Merkel’s office released a statement on Monday that placed the onus on making a new proposal to end this crisis on the Greek government…
“It is up to Greece to make something of this. We are waiting to see which proposals the Greek government makes to its European partners,” the office of German Chancellor Angela Merkel, Europe’s leading austerity advocate, said in a statement.
Just because the Greek people want the Germans to give them a very favorable deal does not mean that the Germans will be inclined to do so. The Germans know that whatever they do with the Greeks will set a precedent for the rest of the financially-troubled nations all across Europe. If Greece gets a free lunch, then Italy, Spain, Portugal, Ireland and France will expect the same kind of treatment…
Angelos Chryssogelos, an expert on Greek politics at the London-based think tank Chatham House, said the strength of Sunday’s mandate handed to Tsipras means it will be almost impossible for the prime minister’s leftist Syriza party to make a deal with European creditors.
“The Europeans made it pretty clear where they stand, and they have been consistent,” Chryssogelos said, adding that the creditors also are unlikely to back down. “Right now, voters across the eurozone largely support the tough stance taken by the eurozone.”
Chryssogelos said Greek voters may have underestimated the resolve of the creditors to reach an accord on their terms. “If someone is seen getting preferential treatment, then someone else will want that treatment,” he said, referring to other eurozone debtors such as Ireland and Portugal.
And remember, there is a very important Spanish election coming up in December.
If Syriza comes out as the big winner in this crisis, it will empower similar movements in Spain and all over the rest of the continent.
In a move sure to increase pressure on Greece’s flailing banks, the European Central Bank on Monday decided not to expand an emergency assistance program, raising fears that Greece could soon go completely bankrupt.
The move put a swift crimp on Greek leaders’ jubilation after winning a landslide endorsement from their citizens to reject Europe’s austerity demands and seek a new bailout bargain. Now they must seek a bargain before the money runs out within days, which would likely force them off the euro.
Basically we are watching a very high stakes game of chicken play out. And as the cash dwindles, economic activity in Greece is slowly grinding to a halt. The following comes from the Washington Post…
The dwindling cash is sucking the life out of everything from coffee shops to taxis, as anxious Greeks economize amid fears for the future. Greek leaders also banned transfers of money abroad, meaning that very little can now be imported into the country.
Printing plants are warning that they may run out of paper to print newspapers by the end of the week. Butchers say that stocks of imported meat are dwindling.
Some are even projecting that we could see civil unrest erupt in Greece in about “48 hours” once the ATM machines run out of cash…
Greek Prime Minister Alexis Tsipras probably has 48 hours to resolve a standoff with creditors before civil unrest breaks out and ATMs run out of cash, hedge fund Balyasny Asset Management said.
Yes, the Greek people exhibited great resolve in voting against the demands of the creditors on Sunday.
But how long can they endure this economic siege?
It is inevitable that a breaking point will come. Either the Greek government will give in, or the Greeks will leave the euro and start to transition back to the drachma.
If we do see a “Grexit”, and many analysts believe that one is coming, it could set off a chain of events that could cause immense financial pain all over the planet. There are tens of trillions of dollars of derivatives that are tied to European bond yields, European interest rates, etc. The following is an excerpt from a piece authored by Phoenix Capital Research that explains what kind of jeopardy we could potentially be facing…
The global derivatives market is roughly $700 trillion in size. That’s over TEN TIMES the world’s GDP. And sovereign bonds… including even bonds from bankrupt countries such as Greece… are one of, if not the primary collateral underlying all of these trades.
Greece is not the real issue for Europe. The entire Greek debt market is about €345 billion in size. So we’re not talking about a massive amount of collateral… though the turmoil this country has caused in the last three years gives a sense of the importance of the issue.
Spain, by comparison has over €1.0 trillion in debt outstanding… and Italy has €2.6 trillion. These bonds are backstopping tens of trillions of Euros’ worth of derivatives trades. A haircut on them would trigger systemic failure in Europe.
If Greece gets a “haircut” on their debt, other European nations would want the same and that would cause massive chaos in the derivatives markets.
But if Greece does not get a deal and ends up leaving the eurozone, that will cause bond yields to go crazy all over Europe and that would also cause tremendous chaos in the derivatives markets.
So much depends on keeping this system of legalized gambling that we call “derivatives trading” stable. We have allowed the global derivatives bubble to become many times larger than the GDP of the entire planet, and in the end we will pay a great price for this foolishness.
Every pyramid scheme eventually collapses, and this one will too.
But the difference with this pyramid scheme is that it is going to take the entire global financial system down with it.
The debt crisis in Puerto Rico could potentially cost financial institutions in the United States tens of billions of dollars in losses. This week, Puerto Rico Governor Alejandro Garcia Padilla publicly announced that Puerto Rico’s 73 billion dollar debt is “not payable,” and a special adviser that was recently appointed to help straighten out the island’s finances said that it is “insolvent” and will totally run out of cash very shortly. At this point, Puerto Rico’s debt is approximately 15 times larger than the per capita median debt of the 50 U.S. states. Yes, the Greek debt crisis is larger, as Greece currently owes about $350 billion to the rest of the planet. But only about $14 billion of that total is owed to U.S. financial institutions. But with Puerto Rico, things are very different. Just about the entire 73 billion dollar debt is owed to U.S. financial institutions, and this could potentially cause massive problems for some extremely leveraged Wall Street firms.
There is a reason why Puerto Rico is called “America’s Greece”. In Puerto Rico today, more than 40 percent of the population is living in poverty, the unemployment rate is over 12 percent, and the economy of the small island nation has continually been in recession since 2006.
Yet all this time Puerto Rico has continued to pile up even more debt. Finally, it has gotten to the point where all of this debt is simply unpayable…
Steven Rhodes, the retired U.S. bankruptcy judge who oversaw Detroit’s historic bankruptcy and has now been retained by Puerto Rico to help solve its problems, gave a blunt assessment on Monday.
Puerto Rico “urgently needs our help,” Rhodes said. “It can no longer pay its debts, it will soon run out of cash to operate, its residents and businesses will suffer,” he added.
This is why I hammer on the danger of U.S. government debt so often. As we see with the examples of Greece and Puerto Rico, eventually a day of reckoning always arrives. And when the day of reckoning arrives, power shifts into the hands of those that you owe the money too.
It would be hard to understate just how severe the debt crisis in Puerto Rico has become. Former IMF economist Anne Krueger has gone so far as to say that it is “really dire”…
“The situation is dire, and I mean really dire,” said former IMF economist Anne Krueger, co-author of the report commissioned by the U.S. territory, which recommended debt restructuring, tax hikes and spending cuts. “The needed measures may face political resistance but failure to address the issues would affect even more the people of Puerto Rico.”
So who is going to get left holding the bag?
As I mentioned at the top of this article, major U.S. financial institutions are very heavily exposed. Income from Puerto Rican bonds is exempt from state and federal taxation, and so that made them very attractive to many U.S. investors. According to USA Today, there are 180 mutual funds that have “at least 5% of their portfolios in Puerto Rican bonds”…
The inability of the U.S. territory to repay its debt, combined with the financial crisis in Greece, would have far-reaching implications for financial markets and unsuspecting American investors. Morningstar, an investment research firm based in Chicago, estimated in 2013 that 180 mutual funds in the United States and elsewhere have at least 5% of their portfolios in Puerto Rican bonds.
It is important to keep in mind that many of these financial institutions are very highly leveraged. So just a “couple of percentage points” could mean the different between life and death for some of these firms.
And unlike what is happening with Greece, the private financial institutions that hold Puerto Rican bonds are not likely to be very eager to “negotiate”. In fact, the largest holder of Puerto Rican debt has already stated that it is very much against any kind of restructuring…
U.S. fund manager OppenheimerFunds, the largest holder of Puerto Rico debt among U.S. municipal bond funds, warned the island it stands ready to defend the terms of bonds it holds, a day after the governor said he wanted to restructure debt and postpone bond payments.
What Oppenheimer is essentially saying is that it does not plan to give Puerto Rico any slack at all. Here is more from the article that I just quoted above…
OppenheimerFunds, with about $4.5 billion exposure to Puerto Rico according to Morningstar, said it believed the island could repay bondholders while providing essential services to citizens and growing the economy. It said it stood ready “to defend the previously agreed to terms in each and every bond indenture.”
“We are disheartened that Governor Padilla, in a public forum, has called for negotiations with other creditors, representing and including the millions of individual Americans that hold Puerto Rico municipal bonds,” a spokesman for Oppenheimer said in a statement.
But Puerto Rico simply does not have the money to meet all of their debt obligations.
So somebody is not going to get paid at some point.
When that happens, those that insure Puerto Rican bonds are also going to take tremendous losses. The following comes from a recent piece by Stephen Flood…
Now, bondholders are at risk as are the funds which hold Puerto Rican bonds and, more importantly, those who insure them in the derivatives market.
Dave Kranzler, from Investment Research Dynamics has warned that there are signs that the Puerto Rico situation may not remain a local crisis for much longer.
He points out that share prices of MBIA, the bond insurers, have been plummeting. MBIA are valued at $3.9 billion whereas their exposure to Puerto Rican debt is around $4.5 billion. Kranzler reckons their exposure could even be multiples of that figure. A default could wipe them out.
He also points out that the firm’s largest shareholders are Warburg Pincus, the firm to which Timothy Geithner went after his stint as Treasury Secretary, when he helped paper over the chasms opening up in the financial system.
Did you notice the word “derivatives” in that quote?
Hmmm – who has been writing endless articles warning about the danger of derivatives for years?
When Puerto Rico defaults, bond insurers are going to be expected to step up and make huge debt service payments to investors.
But this just might bankrupt some of these big bond insurers. In fact, we have already started to see the stock prices of some of these bond insurers begin to plummet. The following comes from the Wall Street Journal…
Bond insurers MBIA Inc. and Ambac Financial Group Inc. are down again Tuesday as concerns over Puerto Rico’s ability to repay its debt multiply.
Investors fear that both firms face the potential for steep losses on their promises to backstop billions of Puerto Rico’s $72 billion of debt.
MBIA’s stock closed down 23% Monday, and fell more than 10% before rebounding Tuesday. By late afternoon, the stock was down 6%. Ambac’s stock fell 12% Monday and was off 14% Tuesday.
Of course Puerto Rico is just the tip of the iceberg of the coming debt crisis in the western hemisphere, just like Greece is just the tip of the iceberg of the coming debt crisis in Europe.
According to the Wall Street Journal, Greece staying in the eurozone is no longer “the base case” for European officials, and one even told the Journal that “literally nothing has been achieved” in negotiations with the new Greek government since the Greek election almost three months ago. In other words, you can take all of that stuff you heard about how the Greek crisis was fixed and throw it out the window. Over the next few months, a big chunk of Greek government bonds held by the IMF and the European Central Bank will mature. Unless negotiations produce a load of new cash for Greece, there will be a default, and right now there is very little optimism that we will see an agreement any time soon. In fact, as I wrote about the other day, behind the scenes banks all over Europe are quietly preparing for a Grexit. European news sources are reporting that the Greek banking system is on the verge of collapse, and over the past couple of weeks Greek bond yields have shot through the roof. Most of the things that we would expect to see in the lead up to a Greek exit from the eurozone are happening, and now we will wait and see if the Greeks actually have the guts to pull the trigger when push comes to shove.
It’s still possible that Greece can remain in the eurozone—though that is no longer the base case for many policy makers. At the very least, most fear the situation is going to get much, worse before it gets any better. No one now expects a deal to unlock Greek bailout funding at this week’s meeting of eurozone finance ministers in Riga—originally set as the final deadline for a deal. The new final, final deadline is now said to be a summit on May 11.
But among European politicians and officials gathered in Washington DC last week for the International Monetary Fund’s Spring Meetings, there was little optimism that a deal will be agreed by then.
The two sides are no closer to an agreement than when the Greek government took office almost three months ago. “Nothing, literally nothing has been achieved,” says an official.
Literally nothing has been achieved?
That is not what the mainstream media has been telling us over the past few months.
They kept telling us that agreements were in place and that everything had been fixed.
I guess not.
The Germans believe that the risks of a “Grexit” have already been priced in by the financial markets and that a Greek exit from the euro can be “managed” without any serious risk of contagion.
Greece’s Finance Minister Yanis Varoufakis said in an interview broadcast on Sunday that if Greece were to leave the euro zone, there would be an inevitable contagion effect.
“Anyone who toys with the idea of cutting off bits of the euro zone hoping the rest will survive is playing with fire,” he told La Sexta, a Spanish TV channel, in an interview recorded 10 days ago.
“Some claim that the rest of Europe has been ring-fenced from Greece and that the ECB has tools at its disposal to amputate Greece, if need be, cauterize the wound and allow the rest of euro zone to carry on.”
In this case, I believe that the Greeks are right about what a Grexit would mean for the rest of Europe and the Germans are wrong.
Once one country leaves the euro, that tells the entire world that membership in the euro is only temporary. Immediately everyone would be looking for the “next Greece”, and there are lots of candidates – Italy, Spain, Portugal, etc.
There is a very good chance that a Grexit would set off a full-blown European financial panic. And once a financial panic starts, it is very hard to stop. The danger that a Grexit poses is so obvious that even the Obama administration can see it…
A Greek exit from the euro zone would carry significant risks for the global economy and no one should be under the impression that financial markets have fully priced in such an event, the chairman of the White House Council of Economic Advisers said.
The comments by Jason Furman in an interview with Reuters in Berlin are among the strongest by a senior U.S. official and are at odds with those of German Finance Minister Wolfgang Schaeuble, who told an audience in New York last week that contagion risks from a so-called “Grexit” were limited.
“A Greek exit would not just be bad for the Greek economy, it would be taking a very large and unnecessary risk with the global economy just when a lot of things are starting to go right,” Furman said.
Meanwhile things continue to get even worse inside Greece. If you have any money in Greek banks, you need to move it immediately. The following comes from Zero Hedge…
Things for insolvent, cashless Greece are – not unexpectedly – getting worse by the day.
Following yesterday’s shocking decree that the government will confiscate local government reserves and “sweep” them into the central bank to provide the country more funds as it approaches another month of heavy IMF repayments, earlier today Bloomberg reported that the ECB would add insult to injury and may increase haircuts for Greek banks accessing Emergency Liquidity Assistance, thus “reining in” the very critical emergency liquidity which has kept Greek banks operating in recent weeks as the bank run sweeping the domestic banking sector has gotten worse by the day.
And many Greeks don’t even have any money to put in the banks because they haven’t been paid in months…
Meanwhile, the reality is that for a majority of the Greek population, none of this really matters because as Greek Ta Nea reports, citing Labor Ministry data, about one million Greek workers see delays of up to 5 months in salaries payment by their employers. The Greek media adds that about 45% of salaried workers in Greece make no more than €751 per month, the country’s old minimum wage; which also includes part-time workers.
No matter what European officials try, things just continue to unravel in Greece and in much of the rest of Europe.
We stand on the verge of the next great global economic crisis. The lessons that we should have learned from the last crisis were never learned, and instead global debt levels have exploded much higher since then. In fact, according to Doug Casey, the total amount of global debt is 57 trillion dollars higher than it was just prior to the last crisis…
In 2008, excess debt pushed the global financial system to the brink. It was a golden opportunity for governments and banks to reform the system. But rather than deal with the problem, they papered over it by issuing more debt. Worldwide debt levels are now $57 trillion higher than in 2008.
The eurozone as it is constituted today is doomed.
That doesn’t mean that the Europeans are going to give up on social, economic and political integration. It just means that we are entering a time of transition that is going to be extremely messy.
And once the European financial system begins to fall apart, the rest of the world will quickly follow.
The move to a cashless society won’t happen overnight. Instead, it is being implemented very slowly and systematically in a series of incremental steps. All over the planet, governments are starting to place restrictions on the use of cash for security reasons. As citizens, we are being told that this is being done to thwart criminals, terrorists, drug runners, money launderers and tax evaders. Other forms of payment are much easier for governments to track, and so they very much prefer them. But we are rapidly getting to the point where the use of cash is considered to be a “suspicious activity” all by itself. These days, if you pay a hotel bill with cash or if you pay for several hundred dollars worth of goods at a store with cash you are probably going to get looked at funny. You see, the truth is that we have already been trained to regard the use of large amounts of cash to be unusual. The next step will be to formally ban large cash transactions like France and other countries in Europe are already doing.
Starting in September, cash transactions of more than 1,000 euros will be banned in France. The following comes from a recent Zero Hedge article which detailed what these new restrictions will do…
Prohibiting French residents from making cash payments of more than 1,000 euros, down from the current limit of 3,000 euros.
Given the parlous state of the stagnating French economy the limit for foreign tourists on currency payments will remain higher, at 10,000 euros down from the current limit of 15,000 euros.
The threshold below which a French resident is free to convert euros into other currencies without having to show an identity card will be slashed from the current level of 8,000 euros to 1,000 euros.
In addition any cash deposit or withdrawal of more than 10,000 euros during a single month will be reported to the French anti-fraud and money laundering agency Tracfin.
French authorities will also have to be notified of any freight transfers within the EU exceeding 10,000 euros, including checks, pre-paid cards, or gold.
Of course Spain has already banned cash transactions of more than 2,500 euros and Italy has already banned cash transactions of more than 1,000 euros.
We don’t have these kinds of outright bans in the United States just yet, but what we do have are some very strict reporting requirements.
For example, if you regularly deposit large amounts of cash, there is a very good chance that you have been the subject of a “suspicious activity report”. In 2013, approximately 1.6 million suspicious activity reports were submitted to the federal government.
Banks, bank holding companies, and their subsidiaries are required by federal regulations53 to file a SAR with respect to:
Criminal violations involving insider abuse in any amount.
Criminal violations aggregating $5,000 or more when a suspect can be identified.
Criminal violations aggregating $25,000 or more regardless of a potential suspect.
Transactions conducted or attempted by, at, or through the bank (or an affiliate) and aggregating $5,000 or more, if the bank or affiliate knows, suspects, or has reason to suspect that the transaction:
May involve potential money laundering or other illegal activity (e.g., terrorism financing).54
Is designed to evade the BSA or its implementing regulations.55
Has no business or apparent lawful purpose or is not the type of transaction that the particular customer would normally be expected to engage in, and the bank knows of no reasonable explanation for the transaction after examining the available facts, including the background and possible purpose of the transaction.
Most people don’t realize this, but there are minimum quotas for suspicious activity reports that banks must meet. If they do not submit enough suspicious activity reports, they can be fined (or worse).
And now the Obama administration is saying that just filling out suspicious activity reports may not be good enough.
According to the Wall Street Journal, banks are actually being encouraged to directly contact law enforcement if they see something that does not look right…
The U.S. Justice Department’s criminal head said banks may need to go beyond filing suspicious activity reports when they encounter a risky customer.
“The vast majority of financial institutions file suspicious activity reports when they suspect that an account is connected to nefarious activity,” said assistant attorney general Leslie Caldwell in a Monday speech, according to prepared remarks. “But, in appropriate cases, we encourage those institutions to consider whether to take more action: specifically, to alert law enforcement authorities about the problem.”
The remarks indicate that banks may be expected to do more than just file SARs, a responsibility that itself can be expensive and time-consuming.
That should send a chill up your spine.
In a recent piece, Simon Black imagined a future scenario in which some unsuspecting American citizen goes to the bank to withdraw a large amount of cash…
Imagine going to the bank to withdraw some cash.
Having some cash on hand is always a prudent strategy, and especially today when more and more bank deposits are creeping into negative territory, meaning that you have to pay the banks for the privilege that they gamble with your money.
You tell the teller that you’d like to withdraw $5,000 from your account. She hesitates nervously and wants to know why.
You try to politely let her know that that’s none of the bank’s business as it’s your money.
The teller disappears for a few minutes, leaving you waiting.
When she returns she tells you that you can collect your money in a few days as they don’t have it on hand at the moment.
Slightly irritated because of the inconvenience, you head home.
But as you pull into your driveway later there’s an unexpected surprise waiting for you: two police officers would like to have a word with you about your intended withdrawal earlier…
Perhaps you don’t think that anything like that could ever happen to you.
A widow’s bank account was seized by the IRS and she now faces criminal charges for depositing her legal inheritance money in lumps instead of all together.
Janet Malone, 68, had $18,775 seized from her — money that was legally earned and was legally bestowed to her by her late husband, Ronald Malone. The problem, according to the government, was the fact that she deposited it in several lumps instead of all at once.
According to the Associated Press, Mrs. Malone deposited the cash in increments between $5,800 and $9,000. The widow’s private financial affairs evidently set off red flags under the watchful gaze of the federal government.
Remember, she was not guilty of committing any crime other than depositing cash in lumps instead of all at once.
If this is how ruthless the feds will be with an elderly widow, how would they treat you under similar circumstances?
So why are they doing this?
The truth is that they want to discourage the public from using cash. Our government, just like governments all over the planet, is not being shy about the fact that it does not like cash. If they can make people afraid to use cash, that suits their purposes very well.
And with each passing year the restrictions on the use of cash globally will just get tighter and tighter and the role that cash plays in our lives will just become smaller and smaller.
In the end, a transition to an almost entirely cashless society will seem almost natural. Cash is being killed off one slow step at a time, and at this point hardly anyone is objecting.
ISIS is marching through city after city in Iraq, and they are doing it with American weapons. Thanks to a series of stunning victories in recent months, ISIS has captured a vast array of U.S. military equipment including trucks, Humvees, rockets, artillery pieces and Stinger missiles. When the U.S. was pulling out of Iraq, we were extremely generous to the new Iraqi army. We basically armed them to the teeth with equipment that U.S. taxpayers paid for. But now that the new Iraqi army is folding like a 20 dollar suit in the face of ISIS jihadists, vast quantities of that military equipment are falling into the hands of some of the most radical jihadists the world has ever seen. And considering the fact that ISIS also recently seized the equivalent of nearly $500 million in cash from a bank in Mosul, the leadership of ISIS won’t be having much problem buying anything else that they might need either. ISIS is getting stronger with each passing day, and they are not going to be satisfied until the Iraqi government has been toppled. It is a geopolitical mess of epic proportions, and there don’t seem to be any easy solutions on the horizon.
To say that the new Iraqi army has been incompetent would be a massive understatement. Not only have they run away like scared kittens from these jihadists, they have also left behind staggering amounts of weaponry for them. According to the Los Angeles Times, ISIS has captured “the weapons stores of the 2nd and 3rd [Iraqi army] divisions in Mosul, the 4th division in Salah al Din, the 12th division in the areas near Kirkuk, and another division in Diyala”. And we aren’t just talking about rifles and ammunition. We are talking about some pretty impressive hardware…
Government forces retreated en masse from the onslaught, leaving behind a military hardware bonanza, including the U.S.-made armored Humvees as well as trucks, rockets, artillery pieces, rifles, ammunition, even a helicopter. Some of the seized materiel was old or otherwise non-functioning; but a lot was promptly put to use on the battlefield.
Pictures of grinning Islamist warriors cruising in U.S. Humvees bedecked with white-on-black militant flags flooded the Internet and became the signature image of the ISIS rampage.
ISIS social-media enthusiasts even mocked the global #BringBackOurGirls Twitter campaign, referring to girls kidnapped by an Al Qaeda offshoot in Nigeria. ISIS sympathizers began tweeting #BringBackOurHumvee.
One of the most popular photos mocking the Obamas and the U.S. military under the #BringBackOurHumvee hashtag is posted below…
We have become a laughingstock to ISIS. They know that we are not going to invade Iraq again. So they are laughing at us as they use our own equipment to take over the country.
As WND has documented, members of ISIS were actually trained by U.S. personnel at a secret base in Jordan back in 2012…
Members of the Islamic State of Iraq and the Levant, or ISIS, were trained in 2012 by U.S. instructors working at a secret base in Jordan, according to informed Jordanian officials.
The officials said dozens of ISIS members were trained at the time as part of covert aid to the insurgents targeting the regime of Syrian President Bashar al-Assad in Syria. The officials said the training was not meant to be used for any future campaign in Iraq.
The Jordanian officials said all ISIS members who received U.S. training to fight in Syria were first vetted for any links to extremist groups like al-Qaida.
So U.S. taxpayers have not just paid for their weapons.
The revelations comes as the State Department acknowledged that ISIS has captured a stockpile of old chemical weapons at the Al Muthanna chemical weapons production complex as its fighters sweep through Iraq’s Sunni- controlled region.
The access to a sarin poison gas production facility, and the man with the expertise to operate it, is the result of a new alliance between the brutal jihadist fighters and Izzat Ibrahim al-Douri, who was a top military commander and vice president to the deposed Saddam Hussein.
And the folks running ISIS are crazy enough to do just about anything. They are stone cold killers that will go to extreme lengths to advance their cause. If you are not very familiar with ISIS yet, the YouTube documentary posted below contains some footage from some of their recent triumphs…
Iraq is literally being torn to pieces by this conflict, and even young boys are getting swept up into the fighting.
It was a surprising sight. The customers standing in Haj Hamdoun’s store in central Mosul watched as a masked child came into the shop, bought what he wanted without saying a word and then left again, carrying a bag containing candies and milk in one hand and a heavy machine gun, which was just about as big as him, in the other.
This was Abdullah, who appears to be the city’s youngest volunteer with the Sunni extremist group, the Islamic State of Iraq and al-Sham, or ISIS, that took control of Mosul over two weeks ago.
Abdullah is not yet 11 years old. But his older brother and his father, who was a senior member of ISIS, were killed in fighting between the group and Iraqi security forces in 2013. That’s why Abdullah joined ISIS, although he is far from the only child in its ranks.
If you still have money in European banks, you need to get it out. This is particularly true if you have money in southern European banks. As I write this, the final details of the Cyprus bailout are being worked out, but one thing has become abundantly clear: at least some depositors are going to lose a substantial amount of money. Personally, I never dreamed that they would go after private bank accounts in Europe, but now that this precedent has been set it should be apparent to everyone that no bank account will ever be considered 100% safe ever again. Without trust, a banking system simply cannot function, and right now there are prominent voices on both sides of the Atlantic that are loudly warning that trust in the European banking system has been shattered and that people need to get their money out of those banks as rapidly as they can. Even if you don’t end up losing a significant chunk of your money, you could still end up dealing with very serious capital controls that greatly restrict what you are able to do with your money. Just look at what is already happening in Cyprus. Cash withdrawals through ATMs have now been limited to 100 euros per day, and when the banks finally do reopen there will be strict limits on financial transactions in order to prevent a full-blown bank run. And of course anyone with half a brain will be trying to get as much of their money as they can out of those banks once they do reopen. So the truth is that the problems for Cyprus banks are just beginning. The size of the “bailout” that will be needed to keep those banks afloat will just keep getting larger and larger the more money that is withdrawn. Cyprus is heading for a complete and total banking meltdown, and because the economy of the island is so dependent on banking that means that the economy of the entire nation is going to collapse. Sadly, similar scenarios will soon start playing out all over Europe.
So if you hear that a “deal” has been reached to “bail out” Cyprus, please keep in mind that the economy of Cyprus is going to collapse no matter what happens. It is just a matter of apportioning the pain at this point.
According to the New York Times, it looks like much of the pain is going to be placed on the backs of those with deposits of over 100,000 euros…
The revised terms under discussion would assess a one-time tax of 20 percent on deposits above 100,000 euros at the Bank of Cyprus, which has the largest number of savings accounts on the island. Because the Bank of Cyprus suffered huge losses on bets that it took on Greek bonds, the government appears to be taking depositors’ money to help plug the hole.
A separate tax of 4 percent would be assessed on uninsured deposits at all other banks, including the 26 foreign banks that operate in Cyprus.
Does that sound bad to you?
Well, if a deal is not reached, there is a possibility that those with uninsured deposits could lose everything. According to Ekathimerini, EU officials are telling Cyprus to choose between a “bad scenario” and a “very bad scenario”…
The main question surrounds the future of the island’s largest lender, Bank of Cyprus. If unsecured deposits (above 100,000 euros) at all Cypriot banks are taxed then large savings at Bank of Cyprus are likely to be taxed between 20 and 25 percent. If the levy is not imposed on deposits at other lenders, the haircut for Bank of Cyprus customers will be much larger.
The option of a full bail in of Bank of Cyprus depositors is still on the table. As with the Popular Bank of Cyprus (Laiki), which is to go through a resolution process, the full bail in option could lead to deposits above 100,000 euros being lost. The only compensation for unsecured depositors will be shares in the “good” bank that will be created by a possible merger between the “healthy” Laiki and Bank of Cyprus entities.
When asked by Kathimerini how the Cypriot economy will survive if all company and personal deposits above 100,000 euros disappear from the country’s two biggest lenders, the EU official said: “Unfortunately, Cyprus’s choices are between a bad scenario and a very bad scenario.”
So what percentage of the deposits in Cyprus are uninsured deposits?
Well, nobody knows for sure, but according to JPMorgan close to half of the total amount of money on deposit in EU banks as a whole is uninsured.
Do you think that some of those people will start moving their money to safer locations after watching how things are going down in Cyprus?
They would be crazy if they didn’t.
And if you think that “deposit insurance” will keep you safe, you are just being delusional.
According to CNBC, very strict capital controls are coming to Cyprus. These rules will apply even to accounts that contain less than 100,000 euros…
Financial controls are coming. Depositors with less than 100,000 euros may not lose their money outright, but they won’t like the restrictions–no matter how much they have in the bank. Limits on withdrawals, limits on check cashing, and perhaps even outright conversion of checking accounts into fixed term deposits are coming (translation: you don’t have a checking account, you have a bond from the bank).
A lot of people are going to lose a lot of money in Cyprus banks, and a significant percentage of them are going to be Russian.
And as I wrote about the other day, you don’t want to have the Russians mad at you.
According to the Guardian, Moscow is already considering various ways that it might “punish” the EU…
“Then, of course, Moscow will be looking for ways to punish the EU. There are a number of large German companies operating in Russia. You could possibly look at freezing assets or taxing assets. The Kremlin is adopting a wait and see policy.”
Could this be the start of a bit of “economic warfare” between east and west?
One thing is for sure – the Russians simply do not allow people to walk all over them.
Meanwhile, things in Cyprus are getting more desperate with each passing day. Because they cannot get money out of the banks, many retail stores find themselves running low on cash. In a few more days many of them may not be able to function at all…
Retailers, facing cash-on-delivery demands from suppliers, warned stocks were running low. “At the moment, supplies will last another two or three days,” said Adamos Hadijadamou, head of Cyprus’s Association of Supermarkets. “We’ll have a problem if this is not resolved by next week.”
But do you know who was able to get their money out in time?
According to the Daily Mail, the President of Cyprus actually warned “close friends” about what was going to happen and told them to get their money out Cyprus…
Cypriot president Nikos Anastasiades ‘warned’ close friends of the financial crisis about to engulf his country so they could move their money abroad, it was claimed on Friday.
Overall, approximately 4.5 billion euros was moved out of Cyprus during the week just before the crisis struck.
Wouldn’t you like to get advance warning like that?
Well, at this point it does not take a genius to figure out what to do about any money that you may have in European banks. The following is from a recent Forbes article by economist Laurence Kotlikoff…
Whatever happens, no one is going to trust or use Cypriot banks. This will shut down the country’s financial highway and flip Cyprus’ economy to a truly awful equilibrium in a replay of our own country’s Great Depression, which was kicked off by the failure of one-in-three U.S. banks.
Cyprus is a small country. Still, the failure of its banks could trigger massive bank runs in Greece. After all, if the European Central Bank is abandoning Cypriot depositors, they may abandon Greek depositors next. A run on Greek banks could then spread to Portugal, Ireland, Spain, and Italy and from there to Belgium and France and, you get the picture, to other countries around the globe, including, drum roll, the U.S. Every bank in each of these countries has made promises they can’t keep were push come to shove, i.e., if all depositors demand their money back immediately.
We’ve seen this movie before. And not just in real life. Every Christmas our tellys show It’s a Wonderful Life in which banker Jimmy Stewart barely saves his small town from economic ruin arising from a banking panic.
Others are being even more blunt with their warnings. For example, Nigel Farage, a member of the European Parliament, is warning everyone to get their money out of southern European banks while they still can…
The appalling events in Cyprus over the course of the past week have surpassed even my direst of predictions.
Even I didn’t think that they would stoop to stealing money from people’s bank accounts. I find that astonishing.
There are 750,000 British people who own properties, or who live, many of them in retirement down in Spain.
Our message to expats now that the EU has crossed this line, must be: Get your money out of there while you’ve still got a chance.
And Martin Sibileau is proclaiming that if you still have an unsecured deposit in a eurozone bank that you should have your head examined…
What are depositors of Euros faced with today? Anything but a clean bet! They don’t know what the expected loss on their capital will be, because it will be decided over a weekend by politicians who don’t even represent them. They don’t really know where their deposits went to and they also ignore what jurisdiction they really belong to. Finally, depositors are paid mere basis points for their trust in the system vs. the 20% p.a. Argentina offered in 2001 (thanks to the zero-interest rate policies of the 21st century). In light of all this, I can only conclude that anyone still having an unsecured deposit in a Euro zone bank should get his/her head examined!
So where should you put your money?
I don’t know that there is anywhere that is 100% safe at this point. But many are pointing to hard assets such as gold and silver. The following is what trends forecaster Gerald Celente had to say during one recent interview…
“People always say to me, ‘Mr. Celente you are always talking about gold. What are you going to do with gold when everything collapses and there is no money?’ Well, let’s say you are a Cypriot and all of the ATM machines are out of money and the banks are closed? Do you think those pieces of silver are going to buy you what you need? Do you think that ounce of gold is going to get you what you want?
That’s the real money. There is no other money. When it all comes down, gold and silver are the only things you have to buy what you need, get what you want, or even get out if you need to.”
I used to tell people that putting their money in U.S. banks was safer than putting it other places because U.S. bank deposits are covered by deposit insurance up to a certain amount.
But now we see that deposit insurance means absolutely nothing. If they decide to “tax” (i.e. steal) your money from your bank accounts they will just go ahead and do it.
So what should we all do?
Personally, I think that not having all of your eggs in one basket is a wise approach. If you have your wealth a bunch of different places and in several different forms, I think that will help.
European officials are openly admitting that the two largest banks in Cyprus are “insolvent“, and it is now being reported that Cyprus Popular Bank only has “enough liquidity to cover the next few hours“. Of course all banks in Cyprus are officially closed until Tuesday at the earliest, but there have been long lines at ATMs all over Cyprus as people scramble to get whatever money they can out of the banks. Unfortunately, some ATMs appear to be “malfunctioning” and others appear to have already run out of cash. You can see some photos of huge lines at one ATM in Cyprus right here. Some businesses are now even refusing to take credit card payments. This is creating an atmosphere of panic on the streets of Cyprus. Meanwhile, the EU is holding a gun to the head of the Cyprus financial system. Either Cyprus meets EU demands by Monday, or liquidity for the banks will be totally cut off and Cyprus will be forced out of the euro. It is being reported that European officials believe that the “economy is going to tank in Cyprus no matter what“, and that it would be okay to let the financial system of Cyprus crash and burn if politicians in Cyprus are not willing to do what they have been ordered to do. Apparently European officials are very confident that the situation in Cyprus can be contained and that it will not spread to other European nations.
Unfortunately, European officials are losing sight of the bigger picture. If the largest banks in Cyprus are allowed to fail, it will be another “Lehman Brothers moment“. The faith that people have in banks all over Europe will be called into question, and everyone will be wondering what major European banks will be allowed to fail next.
Meanwhile, European officials have already completely shattered confidence in deposit insurance at this point. Everyone now knows that when there is a major bank failure that depositors will be expected to share in the pain. Expect to see “bank jogs” all over southern Europe over the coming weeks.
The banks in Cyprus had been scheduled to reopen on Tuesday, but very few people expect that to actually happen at this point. In fact, Bloomberg is reporting that EU officials are actually thinking about shutting down the two biggest banks in Cyprus and freezing their assets…
Finance ministers for the 17 euro countries are considering a plan to shutter the two biggest banks in Cyprus and freeze the assets of uninsured depositors, said the four officials, who asked not to be named because the talks are ongoing. The ministers are holding a teleconference tonight.
Cyprus Popular Bank Pcl (CPB) and the Bank of Cyprus Plc would be split to create a so-called bad bank, one of the officials said. Insured deposits — below the European Union ceiling of 100,000 euros ($129,000) — would go into a so-called good bank and not sustain any losses, while uninsured deposits would go into the bad bank and be frozen until assets could be sold, said the four officials.
Losses to unsecured creditors, including uninsured depositors, could reach 40 percent under the plan, which has support from the International Monetary Fund and the European Central Bank. The proposal, a version of which was rejected last week, is considered a better option than taxing insured deposits or allowing Cypriot banks to collapse in a disorderly fashion if they lose access to ECB aid, the officials said.
Such a scenario would be an utter disaster.
How would you feel if you woke up someday and 40 percent of your life savings was suddenly gone?
According to Greek newspaper Kathimerini, European officials are also openly discussing the possibility of a Cyprus exit from the eurozone if a suitable bailout agreement is not worked out…
The possibility of Cyprus exiting the eurozone was discussed during teleconference involving technocrats from the Euro Working Group on Wednesday, Kathimerini understands.
A reliable source told Kathimerini that the technical implications of a euro exit, as well as the adoption of capital controls were debated by the Euro Working Group officials during the teleconference.
As I mentioned above, European officials seemed resigned to the fact that there will be an economic collapse in Cyprus “no matter what”, and so letting Cyprus leave the euro would not make that much of a difference. Either way, the banks are going to have to be “reorganized” and capital controls will be imposed…
In detailed notes of the call seen by Reuters, the group’s chair Austria’s Thomas Wieser said: “The economy is going to tank in Cyprus no matter what. Restrictions on capital will probably be imposed.”
Never before have we seen European officials impose such a harsh ultimatum with such a short deadline. It is almost as if they want to boot Cyprus out of the euro. The following comes from a recent CNBC report…
In stark twin warnings on Thursday, the European Central Bank said it would cut off liquidity to Cypriot banks and a senior EU official made clear to Reuters that the bloc was ready to see the bankrupt island banished from the euro in the belief it could then contain damage to the wider European economy.
And European officials are even publicly talking about the possibility that Cyprus will soon need to start using “their own currency”…
In Brussels, a senior European Union official told Reuters that an ECB withdrawal would mean Cyprus’s biggest banks being wound up, wiping out the large deposits it has sought to protect, and probably forcing the country to abandon the euro.
“If the financial sector collapses, then they simply have to face a very significant devaluation and faced with that situation, they would have no other way but to start having their own currency,” the EU official said.
This is absolutely shocking. Everyone always thought that Greece would be the first to leave the euro, but now it looks like it might be Cyprus.
However, there is still a chance that Cyprus may find a way to comply with EU demands. Politicians in Cyprus are frantically searching for a way to raise the needed cash without raiding private bank accounts. The following is what CNN is saying about the latest efforts…
Leaders of Cyprus’ political parties agreed Thursday to create an “investment solidarity fund,” which would issue bonds backed by state and church assets.
The plan was due to be discussed by the Cypriot government and parliament on Thursday evening, but few details were available and it was not clear how much the fund would be worth.
According to Reuters, other proposals have been under consideration as well…
The government said a “Plan B” was in the works.
Officials said it could include: an option to nationalize pension funds of semi-government corporations, which hold between 2 billion and 3 billion euros; issuing an emergency bond linked to future natural gas revenues; and possibly reviving the levy on bank deposits, though at a lower level than originally planned and maybe excluding savers with less than 100,000 euros.
At this point it is unclear whether any of those proposals will turn out to be acceptable to European officials.
In fact, the tone of European officials has noticeably changed from previous bailout efforts. They now seem much more willing to play hardball. For example, just check out what German Finance Minister Wolfgang Schaeuble is saying about the situation in Cyprus…
German finance minister Wolfgang Schaeuble told the ZDF public broadcaster on Tuesday night (19 March) he “took note with regret” of the Cypriot parliament’s rejection of the bailout deal, but insisted that the terms will stay the same.
Asked if the eurozone was willing to let Cyprus go bust, he answered: “Well, we are much more stable in the eurozone – we took measures to protect ourselves from the risks of contagion … but I don’t want to have any of this.”
He added: “It is a serious situation, but this cannot lead to a decision that makes absolutely no sense, to rescue a business model that has failed. Cyprus has a banking sector that is totally oversized and this made Cyprus insolvent. And nobody outside Cyprus is to blame for it.”
Schaeuble knows that the EU is holding all of the cards and that Cyprus is doomed without their help…
“The Cypriot state cannot fund itself on the markets. Its two largest banks are insolvent and are being kept afloat with emergency funding from the ECB, but only on the condition that there will be a long-term rescue programme. If this condition is no longer met, Cyprus will no longer be solvent and this is something Cypriot decision makers must know”
But the truth is that the EU can’t really afford to allow major banks to fail or for a single member to leave the eurozone. If either of those things happen, the confidence game that has been holding the European financial system together will begin to rapidly evaporate.
If the EU thinks that they can abandon Cyprus without the crisis spreading to the rest of southern Europe they are just being delusional.
At least there are a few politicians in Europe that understand what is happening. Nigel Farage, a very outspoken member of the European Parliament, is telling people to get their money out of banks in southern Europe as quickly as they can. He is warning that a great collapse of the European financial system is coming and that people need to get prepared for it…
So what do you think?
Do you believe that we are on the verge of a major financial collapse in Europe?
Please feel free to post a comment with your thoughts below…