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that will be needed to keep those banks afloat will just keep getting larger and larger the more money that is withdrawn.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…
However, with Russian investors having an estimated €30bn (£26bn) deposited in banks on the island, the growing optimism about a deal was accompanied by fears of retaliation from Moscow. Alexander Nekrassov, a former Kremlin adviser, said: “If it is the case that there will be a 25% levy on deposits greater than €100,000 then some Russians will suffer very badly.
“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?
The insiders.
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.
Our world is becoming a very unstable place, and things are going to get a lot worse. We are all going to have to adjust to this new paradigm and do the best that we can.
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…
Why is the global economy in so much trouble? How can so many people be so absolutely certain that the world financial system is going to crash? Well, the truth is that when you take a look at the cold, hard numbers it is not difficult to see why the global financial pyramid scheme is destined to fail. In the United States today, there is approximately 56 trillion dollars of total debt in our financial system, but there is only about 9 trillion dollars in our bank accounts. So you could take every single penny out of the banks, multiply it by six, and you still would not have enough money to pay off all of our debts. Overall, there is about 190 trillion dollars of total debt on the planet. But global GDP is only about 70 trillion dollars. And the total notional value of all derivatives around the globe is somewhere between 600 trillion and 1500 trillion dollars. So we have a gigantic problem on our hands. The global financial system is a very shaky house of cards that has been constructed on a foundation of debt, leverage and incredibly risky derivatives. We are living in the greatest financial bubble in world history, and it isn’t going to take much to topple the entire thing. And when it falls, it is going to be the largest financial disaster in the history of the planet.
The global financial system is more interconnected today than ever before, and a crisis at one major bank or in one area of the world can spread at lightning speed. As I wrote about yesterday, the entire European banking system is leveraged 26 to 1 at this point. A decline in asset values of just 4 percent would totally wipe out the equity of many of those banks, and once a financial panic begins we could potentially see major financial institutions start to go down like dominoes.
We got a small taste of what that is like back in 2008, and it is inevitable that it will happen again.
Anyone that would tell you that the current global financial system is sustainable does not know what they are talking about. Just look at the numbers that I have posted below.
The following is the global financial pyramid scheme by the numbers…
–$9,283,000,000,000 – The total amount of all bank deposits in the United States. The FDIC has just 25 billion dollars in the deposit insurance fund that is supposed to “guarantee” those deposits. In other words, the ratio of total bank deposits to insurance fund money is more than 371 to 1.
–$10,012,800,000,000 – The total amount of mortgage debt in the United States. As you can see, you could take every penny out of every bank account in America and it still would not cover it.
–$10,409,500,000,000 – The M2 money supply in the United States. This is probably the most commonly used measure of the total amount of money in the U.S. economy.
–$15,094,000,000,000 – U.S. GDP. It is a measure of all economic activity in the United States for a single year.
–$16,749,269,587,407.53 – The size of the U.S. national debt. It has grown by more than 10 trillion dollars over the past ten years.
–$32,000,000,000,000 – The total amount of money that the global elite have stashed in offshore banks (that we know about).
–$190,000,000,000,000 – The approximate size of the total amount of debt in the entire world. It has nearly doubled in size over the past decade.
–$212,525,587,000,000 – According to the U.S. government, this is the notional value of the derivatives that are being held by the top 25 banks in the United States. But those banks only have total assets of about 8.9 trillion dollars combined. In other words, the exposure of our largest banks to derivatives outweighs their total assets by a ratio of about 24 to 1.
–$600,000,000,000,000 to $1,500,000,000,000,000 – The estimates of the total notional value of all global derivatives generally fall within this range. At the high end of the range, the ratio of derivatives to global GDP is more than 21 to 1.
Are you starting to get the picture?
Every single day, the total amount of debt will continue to grow faster than the total amount of money until the day that this bubble bursts.
What we witnessed back in 2008 was just a little “hiccup” in the system. It caused the worst economic downturn since the Great Depression, but global financial authorities were able to get things stabilized.
Next time it won’t be so easy.
The next wave of the economic collapse is quickly approaching. A full-blown economic depression has already started in southern Europe. Unemployment is at record highs and economic activity is contracting rapidly.
The major offshore banking centers in Cyprus are on the verge of collapsing. It was just announced that they will now be closed until Tuesday, but nobody really knows for sure when they will be allowed to reopen. And there is already talk that when they do reopen that there will be strict limits on how much money people can take out.
And now the IMF is warning that the three biggest banks in Slovenia are failing and that a billion euros will be needed to bail them out.
The dominoes are starting to tumble, and the United States won’t be immune. In fact, the greatest financial problems that the United States has ever seen are on the horizon.
But you can just have faith that Ben Bernanke, Barack Obama and the U.S. Congress know exactly what they are doing and will be able to save us from the coming financial collapse if you want.
The mainstream media will provide you with all of the positive economic news that you could possibly want. They are giddy about the fact that the Dow keeps hitting all-time highs and they would have us all believe that we are in the midst of a robust economic recovery. You can listen to them if you want to.
But when you are tempted to believe that everything is going to be “okay” somehow, just go back and look at the numbers there were posted above one more time.
There is no way that the global financial pyramid scheme is going to be able to hold up for too much longer. At some point it is going to totally collapse. When that happens, will you be ready?
The global elite have now proven that when the chips are down they are going to go after any big pile of money that they think they can get their hands on. That means that no bank account, no retirement fund and no stock portfolio on earth is safe. Up until now, most people assumed that private bank accounts were untouchable and that deposit insurance actually meant something. Now we see that there is no pile of money that is considered “off limits” by the global elite and deposit insurance means absolutely nothing. The number one thing that any financial system depends on is faith. If people do not have faith in the safety and stability of a financial system, it will not work. Well, the people that rule the world have just taken a sledgehammer to the trust that we all had in the global financial system. They have broken the unwritten social contract that global banking depends on. So now we will see a run on the banks, and this will not just be limited to a few countries in southern Europe. Rather, this will be worldwide in scope. Yoda may have put it this way: “Begun, the global bank run has.” All over the world, frightened people are going to start pulling money out of the banks. A lot of that money will go into gold, silver and other hard assets. And as money starts coming out of the banks, this could cause many of the large banks that have been teetering on the edge of disaster to finally collapse.
Many of you may not believe that they would ever come after bank accounts, retirement funds or stock portfolios in the United States.
Many of you may be entirely convinced that the Great Cyprus Bank Robbery could never happen in America.
Well, where do you think this whole plan was dreamed up?
It was the IMF that reportedly pushed the hardest for the wealth tax in Cyprus, and the IMF is headquartered right in the heart of Washington D.C.
Almost every nation on the planet has to deal with the IMF. It is an organization that is dominated by the United States and that is always involved when there is an international debt crisis.
If the IMF thinks that it is a great idea to steal from bank accounts to solve a financial crisis in Cyprus, why wouldn’t they impose a similar solution in other countries in the future?
And if bank accounts are no longer safe, are there any truly safe places to put your money?
You can trust the politicians when they tell you that an unannounced “wealth tax” will never happen where you live if you want, but that is the exact same lie that the politicians in Cyprus were telling their people until the day that it happened. The following is from an article in the Cyprus Mail…
And after all, President Anastasiades had emphatically declared in his inauguration speech that “absolutely no reference to a haircut on public debt or deposits will be tolerated,” adding that “such an issue isn’t even up for discussion.” Finance Minister Michalis Sarris made similarly reassuring statements, arguing that it would be lunacy for the EU to impose such a measure because it would threaten the euro system.
At this point, politicians in Cyprus have been given two very unappealing options. Either they vote yes on the wealth tax and destroy all faith in the banking system of Cyprus, or they vote no and they are forced out of the eurozone. In either case, we will probably see the financial system of Cyprus collapse and their economy plunge deep into depression.
At this point, the vote has been delayed until Tuesday. Apparently some additional “arm twisting” was required to get the needed votes.
And there have been proposals to change the terms of the wealth tax. Reportedly, some politicians want to impose a maximum rate of up to 15 percent on bank accounts of over 500,000 euros so that the rate on smaller accounts can be decreased.
It has also been announced that the earliest that banks in Cyprus will reopen will be Thursday.
But what is happening in Cyprus is small potatoes compared to how this will affect the rest of the world. The entire planet is watching this unfold, and as a recent article by Lucas Jackson described, faith in the global financial system is being greatly shaken…
It would be hard to over-emphasize how significant the Cyprus situation is. The EU demonstrated under no uncertain circumstances that they will destroy the rule of law to maintain their own power. It was a recognition of tyranny that many of us have always assumed was the case but yesterday became reality.
The damage done here is not related to the size of the haircut – currently discussed between 3 and 13% – but rather that the legal language which each and every investor on the planet must rely on in order to maintain confidence in the system has been subordinated to the needs of the powerful elite. To the power elite making the major decisions in DC, London, Berlin, France, Brussels, et. al., laws are like ice cream, easily melted.
Which begs the question, who is next? Will it be Portugal? Greece? Spain? Italy? France???
Will they impose a “one-time” tax on your bank account? Your house? Your stocks and bonds? Retirement accounts?
The global elite have declared open season on all large piles of money, and now many people all over the world will consider taking money out of the bank to be the rational thing to do. This will especially be true in countries in southern Europe since they would probably be the next to have wealth confiscated.
It’s as if the Europeans are holding up a neon sign, written in Greek and Italian, saying “time to stage a run on your banks!”
Tomorrow and the days immediately following should be very interesting.
The global elite have truly “crossed the Rubicon” by going after private bank accounts. It is almost as if they purposely chose the most damaging solution possible to the financial crisis in Cyprus.
Many in the financial world are absolutely stunned by all of this. For example, David Zervos is describing this move as a “nuclear war on savings and wealth“…
All of us should really take a moment to consider what the governments of Europe have done. To be clear, they initiated a surprise assault on the precautionary savings of their own people. Such a move should send shock waves across the entire population of the developed world. This was not a Bernanke style slow moving financial repression against risk free savings that is meant to stir up animal spirits and force risk taking. This is a nuclear war on savings and wealth – something that will likely crush animal spirits. This is a policy move you expect from a dictatorial regime in sub-Saharan Africa, not in an EMU member state. If the European governments can clandestinely expropriate 7 to 10 percent of their hard working citizen’s precautionary savings after the close of business on a Friday night, what else are they capable of doing? Why even hold money in a bank account? Are they trying to start a bank run?
So what motivated the global elite to do this?
According to CNBC, one of the motivations was to go after the Russians that had been using the banking system of Cyprus to launder money…
Indeed, the IMF is reported to have been keen on the levy as a way to stem the flood of Russian money into the island over the last few years which has prompted concerns over money laundering.
Russian money accounts for about 25 percent of all money in the banking system of Cyprus, and obviously the Russians are quite upset by what the IMF and the EU have decided to do. Even Vladimir Putin is loudly denouncing this move…
Russian President Vladimir Putin called the tax “unfair, unprofessional and dangerous,” according to a statement posted on the Kremlin website. Russian companies and individuals have $31 billion of deposits in Cyprus, according to Moody’s.
And you haven’t heard a lot about this in the western media, but the Russians have actually stepped forward and have offered to help Cyprus out of this jam. For example, there are reports that Russian investors are interested in buying the two banks that were the primary cause of this bailout…
Officials have also said Russian investors are interested in buying a majority stake in Cyprus Popular Bank and increasing their holdings in Bank of Cyprus – the two biggest banks on the Mediterranean island.
And according to Sky News, Gazprom has offered Cyprus a very large sum of money for the right to explore their offshore gas reserves that have not been developed yet…
The uncertainty comes as Russia’s finance minister said his country would consider restructuring its loans to Cyprus.
Russian energy giant Gazprom has also reportedly offered financial assistance to Cyprus in exchange for access to the island’s gas reserves.
So far the government of Cyprus has rejected the help of the Russians, but could they change their mind at some point? Apparently the Russians are offering enough money to completely fund the bank bailout…
According Greek Reporter, Gazprom made an offer over the weekend to the Cypriot government to fund the bank restructuring planned under the Cypriot bailout (which is set to cost up to €10bn) in exchange for exclusive exploration rights for Cypriot territorial waters. How reliable this story is remains to be seen, but it does hint at the geopolitical tension which we have been warning about.
Gazprom is known to be very close to the Russian government and despite Russian President Vladimir Putin overtly slamming the deposit tax – calling it “unfair, unprofessional and dangerous” – it is unlikely that they would let this opportunity pass untouched. Fortunately, the Cypriot government is said to have rejected the deal off the bat, but if displeasure towards the eurozone and the EU grows, the Russian option may become increasingly appealing.
It will be very interesting to see what happens.
Meanwhile, some European officials are already suggesting that other nations in southern Europe should have a “wealth tax” imposed upon them. The following comes from an article by Paul Joseph Watson…
Joerg Kraemer, chief economist of the German Commerzbank, has called for private savings accounts in Italy to be similarly plundered. “A tax rate of 15 percent on financial assets would probably be enough to push the Italian government debt to below the critical level of 100 percent of gross domestic product,” he told Handelsblatt.
A “tax” of 15 percent on all financial assets?
Could you imagine if you woke up one morning and the government had decided to suddenly steal 15 percent of all the money that you had in bank accounts, retirement funds and stock portfolios?
If I had a bank account in Italy I would be very nervous right about now.
Under normal circumstances these kinds of things don’t happen, but governments will use an “emergency” to justify all kinds of things. I recently came across an article that included a great quote by Herbert Hoover that put this beautifully…
“Every collectivist revolution rides in on a Trojan horse of ‘emergency’. It was the tactic of Lenin, Hitler, and Mussolini. In the collectivist sweep over a dozen minor countries of Europe, it was the cry of men striving to get on horseback. And ‘emergency’ became the justification of the subsequent steps. This technique of creating emergency is the greatest achievement that demagoguery attains.”
This is what the elite love to do.
They love to create order out of chaos.
And this is just the beginning. The Great Cyprus Bank Robbery was just a beta test for what is coming next.
As the global financial system crumbles, the global elite are going to target our bank accounts, our retirement funds and our stock portfolios. You might want to start thinking about how you will protect yourself.
So what are your thoughts on all of this? Please feel free to post a comment with your thoughts below…
Cyprus is a beta test. The banksters are trying to commit bank robbery in broad daylight, and they are eager to see if the rest of the world will let them get away with it. Cyprus was probably chosen because it is very small (therefore nobody will care too much about it) and because there is a lot of foreign (i.e. Russian) money parked there. The IMF and the EU could have easily bailed out Cyprus without any trouble whatsoever, but they purposely decided not to do that. Instead, they decided that this would be a great time to test the idea of a “wealth tax”. The government of Cyprus was given two options by the IMF and the EU – either they could confiscate money from private bank accounts or they could leave the eurozone. Apparently this was presented as a “take it or leave it” proposition, and many are using the world “blackmail” to describe what has happened. Sadly, this decision is going to set a very ominous precedent for the future and it is going to have ripple effects far beyond Cyprus. After the banksters steal money from bank accounts in Cyprus they will start doing it everywhere. If this “bank robbery” goes well, it will only be a matter of time before depositors in nations such as Greece, Italy, Spain and Portugal are asked to take “haircuts” as well. And what will happen one day when the U.S. financial system collapses? Will U.S. bank accounts also be hit with a “one time” wealth tax? That is very frightening to think about.
Cyprus is a very small nation, so it is not the amount of money involved that is such a big deal. Rather, the reason why this is all so troubling is that this “wealth tax” is shattering confidence in the European banking system. Never before have the banksters come directly after bank accounts.
If everything goes according to plan, every bank account in Cyprus will be hit with a “one time fee” this week. Accounts with less than 100,000 euros will be hit with a 6.75% tax, and accounts with more than 100,000 euros will be hit with a 9.9% tax.
How would you feel if something like this happened where you live?
How would you feel if the banksters suddenly demanded that you hand over 10 percent of all the money that you had in the bank?
And why would anyone want to still put money into the bank in nations such as Greece, Italy, Spain or Portugal after all of this?
One writer for Forbes has called this “probably the single most inexplicably irresponsible decision in banking supervision in the advanced world since the 1930s.” And I would agree with that statement. I certainly did not expect to see anything like this in Europe. This is going to cause people to pull money out of banks all over the continent. If I was living in Europe (and especially if I was living in one of the more financially-troubled countries) that is exactly what I would be doing.
The bank runs that we witnessed in Cyprus over the weekend may just be a preview of what is coming. When this “wealth tax” was announced, it triggered a run on the ATMs and many of them ran out of cash very rapidly. A bank holiday was declared for Monday, and all electronic transfers of money were banned.
Needless to say, the people of Cyprus were not too pleased about all of this. In fact, one very angry man actually parked his bulldozer outside of one bank branch and threatened to physically bulldoze his way inside.
But this robbery by the banksters has not been completed yet. First, the Cypriot Parliament must approve the new law authorizing this wealth confiscation on Monday. If it is approved, then the actually wealth confiscation will take place on Tuesday morning.
According to Reuters, the new president of Cyprus is warning that if the bank account tax is not approved the two largest banks in Cyprus will collapse and there will be complete and total financial chaos in his country…
President Nicos Anastasiades, elected three weeks ago with a pledge to negotiate a swift bailout, said refusal to agree to terms would have led to the collapse of the two largest banks.
“On Tuesday … We would either choose the catastrophic scenario of disorderly bankruptcy or the scenario of a painful but controlled management of the crisis,” Anastasiades said in written statement.
In several statements since his election, he had previously categorically ruled out a deposit haircut.
The fact that the new president had previously ruled out any kind of a wealth tax has a lot of people very, very upset. They feel like they were flat out lied to…
“I’m furious,” said Chris Drake, a former Middle East correspondent for the BBC who lives in Cyprus. “There were plenty of opportunities to take our money out; we didn’t because we were promised it was a red line which would not be crossed.”
But apparently the wealth confiscation could actually have been far worse. According to one report, the IMF and the EU were originally demanding a 40% wealth tax on bank account holders in Cyprus…
As the President of Cyprus proclaims to his people that “we’ should all take responsibility as his historic decision will “lead to the permanent rescue of the economy,” it appears that the settled-upon 9.9% haircut is a ‘good deal’ compared to the stunning 40% of total deposits that Germany’s FinMin Schaeuble and the IMF demanded.
Could you imagine?
How would you feel if you woke up someday and 40% of all your money had been taken out of your bank accounts?
At this point, there is still some doubt about whether this plan will actually be adopted or not.
Right now the new president of Cyprus does not have the votes that he needs, but you can be sure that there is some high level arm twisting going on.
Originally the vote was supposed to happen on Sunday, but it was delayed until Monday to allow for some extra “persuading” to be done.
And of course the people of Cyprus are overwhelmingly against this wealth tax. In fact, one poll found that 71 percent of the entire population of Cyprus wants this plan to be voted down.
The funny thing is that Cyprus is not even in that bad of shape.
The unemployment rate is around 12 percent, but in other European nations such as Greece and Spain the unemployment rate is more than double that.
Cyprus has a debt to GDP ratio of about 87 percent, but the United States has a debt to GDP ratio of well over 100 percent.
So if they will go directly after bank accounts in Cyprus, what will stop them from going after bank accounts in larger nations when the time comes?
In the final analysis, this is a game changer. No longer will any bank account in the western world be considered to be 100 percent safe.
Trust is a funny thing. It takes a long time to build, but it can be destroyed in a single moment.
Trust in European banks has now been severely damaged, and that damage is not going to be undone any time soon.
A recent blog post by the CEO of Saxo Bank, Lars Christensen, did a great job of explaining how incredibly damaging this move by the IMF and the EU truly is…
This is a breach of fundamental property rights, dictated to a small country by foreign powers and it must make every bank depositor in Europe shiver. Although the representatives at the bailout press conference tried to present this as a one-off, they were not willing to rule out similar measures elsewhere – not that it would have mattered much as the trust is gone anyway. It is now difficult to expect any kind of limitation to what measures the Troika and EU might take when the crisis really starts to bite.
if you can do this once, you can do it again. if you can confiscate 10 percent of a bank customer’s money, you can confiscate 25, 50 or even 100 percent. I now believe we will see worse as the panic increases, with politicians desperately trying to keep the EUR alive.
Depositors in other prospective bailout countries must be running scared – is it safe to keep money in an Italian, Spanish or Greek bank any more? I dont know, must be the answer. Is it prudent to take the risk? You decide. I fear this will lead to massive capital outflows from weak Eurozone countries, just about the last thing they need right now.
This is the biggest moment that we have witnessed since the beginning of the European financial crisis.
Financial authorities in Europe could try to calm nerves by at least pretending that this will never happen again in any other country, but so far they are refusing to do that…
Jeroen Dijsselbloem, president of the group of euro-area ministers, on Saturday declined to rule out taxes on depositors in countries beyond Cyprus, although he said such a measure was not currently being considered.
Such a measure is “not currently being considered” for other members of the eurozone?
Yeah, that sure is going to make people feel a lot more confident in what is coming next.
I have insisted over and over that the next wave of the economic collapse would originate in Europe, and we may have just witnessed the decision that will cause the dominoes to start to fall.
The banksters have sent a very clear message. When the chips are down, they are going to come after YOUR money.
So what do you think about the bank robbery that is taking place in Cyprus? Please feel free to post a comment with your thoughts below…
They didn’t see it coming last time either. Back in 2007, President Bush, Federal Reserve Chairman Ben Bernanke and just about every prominent voice in the financial world were all predicting that we would experience tremendous economic prosperity well into the future. In fact, as late as January 2008 Bernanke boldly declared that “the Federal Reserve is not currently forecasting a recession.” At the time, only the “doom and gloomers” were warning that everything was about to fall apart. And of course we all know what happened. But just a few short years later, history seems to be repeating itself. Barack Obama, Federal Reserve Chairman Ben Bernanke and almost every prominent voice in the financial world are all promising that the U.S. “economic recovery” is going to continue even though Europe is coming apart like a 20 dollar suit. But the economic fundamentals tell a different story. Our national debt is more than $6,000,000,000,000 larger than it was back in 2008, the number of Americans on food stamps just hit another brand new all-time record, and the bankers up on Wall Street are selling gigantic mountains of the exact same kind of toxic derivatives that caused so much trouble the last time around. But all of our “leaders” swear that everything is going to be okay. You can believe them if you want, but denial is not just a river in Egypt, and another crash is inevitably coming.
Sadly, many Americans are not even going to see the crash coming because they still have faith in the “experts”. They haven’t figured out that the “experts” really do not know what they are doing.
The blind are leading the blind, and in the end the results are going to be absolutely tragic.
The following are 10 hilarious examples of how clueless our leaders are about the economy…
#1 When I first came across the following chart the other day, it made me chuckle. It is a chart that supposedly tells us the “probability” of a recession, and it was taken from the website of the Federal Reserve Bank of St. Louis. According to the chart, right now there is a 0.16% chance of a recession…
#2 Federal Reserve Chairman Ben Bernanke has also been proclaiming his belief that the U.S. economy will continue to grow. The following is an excerpt from his recent remarks to Congress…
The pause in real GDP growth last quarter does not appear to reflect a stalling-out of the recovery. Rather, economic activity was temporarily restrained by weather-related disruptions and by transitory declines in a few volatile categories of spending, even as demand by U.S. households and businesses continued to expand. Available information suggests that economic growth has picked up again this year.
And Bernanke also insists that the labor market is “improving”…
Consistent with the moderate pace of economic growth, conditions in the labor market have been improving gradually.
Of course the labor market is not actually improving. I showed this using the Fed’s own numbers the other day.
#3 Although Bernanke has such a nightmarish track record of failure, Warren Buffett still has faith in him. In fact, Buffett loves all of the money printing that Bernanke has been doing…
The U.S. economy might be “dead in the water” without the stimulus provided by the Federal Reserve under Chairman Ben Bernanke, according to Warren Buffett, CEO of Berkshire Hathaway.
“I think very cheap money makes things happen, it makes asset values higher. When asset values are higher, people do have a greater propensity to spend,” Buffett told CNBC.
“I think Bernanke has sort of carried the load himself during this period.”
If Buffett thinks the wild money printing that the Fed has been doing is so wonderful, then he probably would have absolutely loved living in the Weimar Republic.
#4 Barack Obama continues to insist that we do not have a debt crisis, but that we will not be able to balance the budget any time in the foreseeable future either.
Even though the national debt has grown by more than 6 trillion dollars under his leadership and our debt to GDP ratio is now well over 100%, Obama does not believe that it is a significant problem…
“We don’t have an immediate crisis in terms of debt”
Sadly, the truth is that the U.S. will never have a balanced budget ever again under our current system, but most of our politicians are not willing to go that far and admit that sad fact to the American people just yet.
#5 But of course it would certainly help if the U.S. government would stop wasting so much money. For example, did you know that the federal government is helping dead people get free cell phones? The following is from a recent article in the New York Post…
Dead people don’t need cell phones.
That’s the message Rep. Tim Griffin of Arkansas wants to send Congress, after he says a controversial government-backed program that helps provide phones to low-income Americans ended up sending mobiles to the dead relatives of his constituents. Griffin has introduced a bill that targets the phone hand-out program, which has ballooned into a fiscal headache for the government.
And of course a lot of living people are abusing the free cell phone program as well. Rep. Griffin says that he has heard of some people getting as many as 10 free cell phones from the government…
“I’ve also gotten calls from people who say their employees were bragging about having 10 phones.”
#6 Meanwhile, the most prominent economic journalist in the United States, Paul Krugman of the New York Times, continues to insist that it is a good thing for the government to be running up so much debt…
First of all… that trillion-dollar deficit is overwhelmingly the result of a depressed economy. And when the economy’s depressed it’s good to run a deficit. You don’t want the government to try and balance its budget right now.
Krugman is also operating under the delusion that the federal government “can’t run out of cash”, that it can just print money whenever it wants and that printing giant piles of money would not hurt anything.
The United States is a country that has its own currency–can’t run out of cash because we print the money. If you even try to think what would happen–suppose that investors get down on the United States. Even so, that would weaken the dollar, not send interest rates soaring, and that would be good. That would help our exports
It is frightening that the top economic journalist in America has such little understanding of how our system actually works. I would encourage Krugman to read a couple of my previous articles so that he won’t be so ignorant in the future…
#7 Many Americans have wondered why the federal government never seems to go after the big Wall Street banks. Well, now we know why. The other day, the Attorney General of the United States admitted that the federal government is very hesitant to prosecute anyone from the big banks because of what it might do to the global economy…
“I am concerned that the size of some of these institutions becomes so large that it does become difficult for us to prosecute them when we are hit with indications that if you do prosecute, if you do bring a criminal charge, it will have a negative impact on the national economy, perhaps even the world economy”
So I guess we now live in a world where there is a different set of rules for the big banks, eh?
Most of us already knew that this was the case, but it is quite chilling to hear the Attorney General of the United States publicly admit this.
#8 Many of the big Wall Street banks are absolutely giddy that the Dow keeps setting new all-time highs, and many of them are projecting wonderful things ahead for the U.S. economy. For example, here is one forecast from Morgan Stanley’s Vincent Reinhart …
“In the Morgan Stanley forecast for the US, the trajectory of economic activity marks an inflection point midway through 2013. The severe financial crisis of 2008-09 necessitated significant downward adjustments by the private sector to the levels of aggregate demand and efficient supply. As the event recedes further into history, however, the drag on growth from these ongoing level adjustments plays out.
In our forecast, the expansion of real GDP steps up to around 2-3/4 percent in the second half of this year and beyond.”
#9Vice-President Joe Biden is pushing economic optimism to ridiculous levels. Apparently he believes that most Americans are “no longer worried” that a major economic crisis is coming…
But all kidding aside, I think the American people have moved — Democrats, Republicans, independents. They know that the possibilities for this country are immense. They’re no longer traumatized by what was a traumatizing event, the great collapse in 2008. They’re no longer worried, I think, about our economy being overwhelmed either by Europe writ large, the EU, or China somehow swallowing up every bit of innovation that exists in the world. They’re no longer, I think, worried about our economy being overwhelmed beyond our shores.
And I don’t think they’re any more — there’s no — there’s very little doubt in any circles out there about America’s ability to be in position to lead the world in the 21st century, not only in terms of our foreign policy, our incredible defense establishment, but economically.
#10 Right now, many in the financial world are projecting that this will be a year to remember for the stock market. During a recent interview with Fox Business, Wharton School of Business Finance Professor Jeremy Siegel declared that the Dow will cross the 16,000 mark by the end of this year…
“I think by the end of this year, we’ll be in the 16,000 to 17,000 range.”
Of course it is true that other analysts have a much different view of things. Many of them are absolutely amazed that the U.S. economy has become so disconnected from economic reality. For example, just check out what Steve Russell and Hamish Baillie, fund managers at the Ruffer Investment Company, recently had to say…
“If this was explained to a recently arrived Martian he would no doubt be puzzled – US unemployment has almost doubled since 2007, GDP [gross domestic product] growth is a third lower and debt as a percentage of GDP is within a whisker of doubling. The market is forward looking but this is extreme”
So who is right and who is wrong?
Time will tell.
Fortunately, it appears that the American people are getting fed up with the constant stream of lies that they have been told.
According to a new Pew Research survey, just 26 percent of all Americans trust the government to do the right thing.
So what about you?
Do you trust what the government and the “experts” are telling you?
Do you trust them to do the right thing?
Feel free to post a comment with your thoughts below…
Are we running out of time? For the last several years, we have been living in a false bubble of hope that has been fueled by massive amounts of debt and bailout money. This illusion of economic stability has convinced most people that the great economic crisis of 2008 was just an “aberration” and that now things are back to normal. Unfortunately, that is not the case at all. The truth is that the financial crash of 2008 was just the first wave of our economic troubles. We have not even come close to recovering from that wave, and the next wave of the economic collapse is rapidly approaching. Our economy is like a giant sand castle that has been built on a foundation of debt and toilet paper currency. As each wave of the crisis hits us, the solutions that our leaders will present to us will involve even more debt and even more money printing. And each time, those “solutions” will only make our problems even worse. Right now, events are unfolding in Europe and in the United States that are pushing us toward the next major crisis moment. I sincerely hope that we have some more time before the next crisis overwhelms us, but as you will see, time is rapidly running out.
The following are 12 things that just happened that show the next wave of the economic collapse is almost here…
#1 According to TrimTab’s CEO Charles Biderman, corporate insider purchases of stock have hit an all-time low, and the ratio of corporate insider selling to corporate insider buying has now reached an astounding 50 to 1….
While retail is being told to buy-buy-buy, Biderman exclaims that “insiders at U.S. companies have bought the least amount of shares in any one month,” and that the ratio of insider selling to buying is now 50-to-1 – a monthly record.
#2 On Friday we learned that personal income in the United States experienced its largest one month decline in 20 years…
Personal income decreased by $505.5 billion in January, or 3.6%, compared to December (on a seasonally adjusted and annualized basis). That’s the most dramatic decline since January 1993, according to the Commerce Department.
#3 In a stunning move, Michigan Governor Rick Snyder says that he will appoint an emergency financial manager to take care of Detroit’s financial affairs…
Snyder, 54, took a step he avoided a year ago, empowering an emergency financial manager who can sweep aside union contracts, sell municipal assets, restructure services and reorder finances. He announced the move yesterday at a public meeting in Detroit.
If this does not work, Detroit will almost certainly have to declare bankruptcy. If that happens, it will be the largest municipal bankruptcy in U.S. history.
#4 On Friday it was announced that the unemployment rate in Italy had risen to 11.7 percent. That was a huge jump from 11.3 percent the previous month, and Italy now has the highest unemployment rate that it has experienced in 21 years.
#5 The youth unemployment rate in Italy has risen to a new all-time record high of 38.7 percent.
#6 On Friday it was announced that the unemployment rate in the eurozone as a whole had just hit a brand new record high of 11.9 percent.
#7 On Friday it was announced that the unemployment rate in Greece has now reached 27 percent, and it is being projected that it will reach 30 percent by the end of the year.
#8 The youth unemployment rate in Greece is now an almost unbelievable 59.4 percent.
#9 On Saturday, hundreds of thousands of protesters filled the streets of Lisbon and other Portuguese cities to protest the austerity measures that are being imposed upon them. It was reportedly the largest protest in the history of Portugal.
#10 According to Goldman Sachs, bank deposits declined all over Europe during the month of January.
#11 Over the weekend, the deputy governor of China’s central bank declared that China is prepared for a “currency war“…
A top Chinese banker said Beijing is “fully prepared” for a currency war as he urged the world to abide by a consensus reached by the G20 to avert confrontation, state media reported on Saturday.
Yi Gang, deputy governor of China’s central bank, issued the call after G20 finance ministers last month moved to calm fears of a looming war on the currency markets at a meeting in Moscow.
Those fears have largely been fuelled by the recent steep decline in the Japanese yen, which critics have accused Tokyo of manipulating to give its manufacturers a competitive edge in key export markets over Asian rivals.
#12 Italy is an economic basket case at this point, and the political gridlock in Italy is certainly not helping matters. Former comedian Beppe Grillo’s party could potentially tip the balance of power one way or the other in Italy, and over the weekend he made some comments that are really shaking things up over in Europe. For one thing, he is suggesting that Italy should hold a referendum on the euro…
“I am a strong advocate of Europe. I am in favor of an online referendum on the euro,” Beppe Grillo told Bild am Sonntag.
Such a vote would not be legally binding in Italy, where referendums can only be used to repeal laws or parts of laws, but would carry political weight. Grillo has said in the past that membership of the euro should be up to the Italian people.
In addition, Grillo is also suggesting that Italy’s debt has gotten so large that renegotiation is the only option…
In an interview with a German magazine published on Saturday, Mr Grillo said that “if conditions do not change” Italy “will want” to leave the euro and return to its former national currency.
The 64-year-old comic-turned-political activist also said Italy needs to renegotiate its €2 trillion debt.
At 127 per cent of gross domestic product (GDP), it is the highest in the euro zone after Greece.
“Right now we are being crushed, not by the euro, but by our debt. When the interest payments reach €100 billion a year, we’re dead. There’s no alternative,” he told Focus, a weekly news magazine.
He said Italy was in such dire economic straits that “in six months, we will no longer be able to pay pensions and the wages of public employees.”
And of course government debt has taken center stage in the United States as well.
The sequester cuts have now gone into effect, and they will definitely have an effect on the U.S. economy. Of course that effect will not be nearly as dramatic as many Democrats are suggesting, but without a doubt those cuts will cause the U.S. economy to slow down a bit.
Well, everyone should keep watching Europe very closely, and it will also be important to keep an eye on Wall Street. There are a whole bunch of indications that the stock market is at or near a peak. For example, just check out what one prominent stock market analyst recently had to say…
“Every reliable technical tool is warning of major peaking action,” said Walter Zimmerman, the senior technical analyst at United-ICAP. “This includes sentiment, momentum, classical chart patterns, and Elliott wave analysis.
“Most of the rally in the stock market since 2009 can be chalked up to the Federal Reserve’s attempt to create a ‘wealth effect’ through higher stock market prices. This only exacerbates the downside risk. Why? The stock market no is longer a lead indicator for the economy. It is instead reflecting Fed manipulation. Pushing the stock market higher while the real economy languishes has resulted in another bubble.
“The next leg down will not be a partial correction of the advance since the 2009 lows. It will be another major financial crisis. The worst is yet to come.”
Sadly, most people will continue to deny that anything is wrong until it is far too late.
Many areas of Europe are already experiencing economic depression, and it is only a matter of time before the U.S. follows suit.
Time is running out, and I hope that you are getting ready.
So what do you think?
How much time do you believe that we have left before the next wave of the economic collapse strikes?
Please feel free to post a comment with your thoughts below…
If we can’t even cut federal spending by 2.4 percent without much of the country throwing an absolute hissy fit, then what hope does America have? All of this whining and crying about the sequester is absolutely disgraceful. The truth is that even if the sequester goes into effect, the U.S. government will still take in more money than ever before in 2013 and it will still spend more money than ever before in 2013. So it is a bit disingenuous to call what is about to happen “a spending cut”, but for the sake of argument let’s concede that point. Even if the budget really was being “cut” by 85 billion dollars, that only would only amount to a “cut” of 2.4 percent to federal spending. It would barely make a dent in the federal budget deficit for 2013. The U.S. government would still accumulate about as much new debt in fiscal year 2013 as it did in all the years from the inauguration of George Washington to the inauguration of Ronald Reagan combined. Our debt to GDP ratio would continue to soar. The sequester cuts would essentially only be a minor bump on the road to financial oblivion. But if you listen to Barack Obama and his allies, they would have you believe that we are facing a great national crisis because of these impending cuts. They would have you believe that hundreds of thousands of people will lose their jobs and that many government agencies will no longer be able to operate effectively. They would have you believe that “granny won’t get her lunch” and “roofs blown off by Hurricane Sandy won’t get repaired”. Well, if all of that is true, then what in the world would our country look like if we actually cut a trillion dollars from the federal budget this year and started living within our means?
Have you ever known people that are already hundreds of thousands of dollars in debt and yet go out and regularly blow thousands more dollars on wild shopping sprees?
Such debt addicts may be very proud of their new homes, their new cars, their new clothes and all of their fancy electronic gadgets, but it was all purchased with debt. When a “day of reckoning” finally arrives, many debt addicts lose absolutely everything and end up in the street.
That is what America is like today.
Our politicians like to show off all of the stuff that our government is spending money on, but the truth is that we are spending gigantic mountains of money that we simply do not have. We are literally stealing from our kids and our grandkids so that we can continue to enjoy a massively inflated standard of living that we have not earned.
But we can’t stop ourselves. Americans are absolutely addicted to big government. They want a gigantic government that sends out free money to more than 100 million Americans every month, but they absolutely do not want to pay for it. They would rather steal money from their children and their grandchildren to pay for it.
This has got to stop, because we are literally destroying the future of this country.
If Americans really want a massively bloated government that takes care of everyone from the cradle to the grave then they should pay for it.
If Americans don’t want to pay for it, then they should reduce the size of the government to a level where they are willing to pay for it.
But stealing money from future generations of Americans to pay our bills is absolutely disgraceful.
As I talked about in a previous article, we are stealing more than 100 million dollars from our children and our grandchildren every single hour of every single day.
Is there anyone out there that is willing to stand up and defend that kind of theft?
But the vast majority of Americans don’t want to do anything to stop it, because they don’t want to harm “the economy” (i.e. our ridiculously bloated standard of living).
Will the sequester cuts hurt the economy a bit?
Of course.
Government spending cuts always hurt the economy.
If we raised taxes to help pay the bills that the federal government has been racking up, would that hurt the economy?
Of course.
Tax increases always hurt the economy.
But if we continue on the path that we are today, America is doomed.
The U.S. national debt is the biggest single debt in the history of the world. It is now more than 16.6 trillion dollars, and it has gotten more than 23 times larger since Jimmy Carter first entered the White House.
If our politicians suddenly decided to go to a balanced budget today, our debt-fueled “bubble economy” would disappear and we would immediately plunge into a deep economic depression.
Do the American people have the character to be able to handle that kind of an “adjustment” to our standard of living?
Of course not.
That is why so many of our politicians are scared to death of doing anything about the debt.
And even these small sequester “cuts” are freaking everyone out. Many of our politicians and many in the mainstream media are openly declaring that “the sky is falling”. Just check out the following short excerpt from a recent New York Times article…
The owner of a Missouri smokehouse that makes beef jerky is worried about a slowdown in food safety inspections. A Montana school district is drawing up a list of teachers who could face layoffs. Officials at an Arizona border station fear that lines to cross the border could lengthen. And if Olympic National Park in Washington cannot hire enough workers to plow backcountry trails, they may stay closed until the snow melts in July.
But that is nothing compared to what others are saying. CNN is declaring that if the sequester cuts happen, “granny won’t get her lunch” and “roofs blown off by Hurricane Sandy won’t get repaired”.
And check out these ominous warnings from Barack Obama about what will happen if the sequester cuts go into effect…
“Emergency responders like the ones who are here today — their ability to help communities respond to and recover from disasters will be degraded. Border Patrol agents will see their hours reduced. FBI agents will be furloughed. Federal prosecutors will have to close cases and let criminals go. Air traffic controllers and airport security will see cutbacks, which means more delays at airports across the country. Thousands of teachers and educators will be laid off. Tens of thousands of parents will have to scramble to find childcare for their kids. Hundreds of thousands of Americans will lose access to primary care and preventive care like flu vaccinations and cancer screenings.”
Immigration and Customs Enforcement officials have released “several hundred” immigrants from deportation centers across the country, saying the move is an effort to cut costs ahead of budget cuts due to hit later this week.
Announcing the news Tuesday, ICE officials said that the immigrants were released under supervision and continue to face deportation. After reviewing hundreds of cases, those released were considered low-risk and “noncriminal,” officials said.
The claims about the sequester cuts just seem to get more ridiculous with each passing day. Homeland Security Secretary Janet Napolitano is warning that the cuts will make the U.S. more vulnerable to terrorist attacks, and Obama recently decided not to send an aircraft carrier to the Persian Gulf because of “budget concerns“.
Apparently he sees no problem with using the U.S. military to score political points.
And Federal Reserve Chairman Ben Bernanke says that the budget cuts will result in “less actual deficit reduction in the short run”.
Really?
How stupid do they think we all are?
Yes, the sequester cuts will have an impact on the economy, but they won’t cause the sky to fall.
The following is what the CBO says the economic impact of the cuts is likely to be…
The Congressional Budget Office estimates the cuts will cost 750,000 jobs and hit growth by 0.6 percentage points, assuming the cuts remain in effect for the remainder of the fiscal year. Some economists expect a slightly bigger impact.
Remember, these are actually very small cuts.
In fact, according to U.S. Representative Lynn Jenkins, the U.S. government will actually be spending more money in 2013 than it did in 2012 even if the sequester cuts go into effect…
“There’s a fact that says we are going to take in more money this fiscal year than we have ever taken in before,” Jenkins said. “The budget this year, we will spend more money this year than we spent last year even if the sequester goes into effect. We will spend more money even if the sequester goes into effect.”
So why is everyone whining and crying over such a very small amount of money?
If you want to get upset about something, why not get upset about things that are increasing our debt by trillions of dollars?
For example, according to a Government Accountability Office report that was just released, Obamacare is going to cause the federal debt to rise by $6.2 trillion.
Why aren’t more people getting upset over that?
Sadly, it is because America is a debt addict. Most Americans don’t really care much when federal spending skyrockets out of control, but if anyone tries to slow down the spending a little bit they throw hissy fits.
And please don’t tell me that “the big government Republicans” are much better than “the big government Democrats” on budget issues. The Republicans have caved in and have gone along with all of this wild spending every single time.
On March 27th, they will have another opportunity to do something. That is when the current continuing resolution expires.
At that time, the Republicans could refuse to pass anything but a balanced budget.
Or they could at least refuse to pass anything except a budget that would cut the federal budget deficit in half.
But they won’t do anything once again. They will cave in and go along with the status quo because they are cowards.
So we will continue to rip off future generations to fuel our current bloated standard of living.
Thomas Jefferson understood that government borrowing is theft from future generations. He once made the following statement….
And I sincerely believe, with you, that banking establishments are more dangerous than standing armies; and that the principle of spending money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale.
Shame on you Democrats.
Shame on you Republicans.
Shame on you America.
You are destroying the future of America for your own selfish reasons.
If future generations get the chance, they will look back on what you did to them and they will curse you for it.
Like I said, it would mean a deep economic depression, and it would also likely mean a tremendous amount of societal chaos.
Even now, while we are still living in the boom times, things are really starting to get crazy out there. Just check out what is going on in Oakland…
Oakland’s crime problems have gotten so bad that some people aren’t even bothering to call the cops anymore; instead, they’re trying to solve and prevent crimes themselves.
KPIX 5 cameras caught up with a half dozen neighbors in East Oakland’s Arcadia Park neighborhood Monday as they walked the streets on the lookout for crime. The vigilance has never seemed more necessary than now; 25 homes in the neighborhood have been burglarized over the last two months alone.
In a neighborhood that has started to feel like the wild west, people have even started posting “wanted” signs.
“You have to walk around in your house with a gun to feel safe here,” said Alaska Tarvins of the Arcadia Park Board of Directors.
If this is how bad things are now, how bad will they be when a day of reckoning for our economy arrives?
And a day of reckoning is coming.
Our politicians can try to keep kicking the can down the road for as long as they can, but eventually time will run out. Just take a look at what is happening in Greece and Spain. Meanwhile, all of this can kicking is just making the eventual crisis even worse.
We can borrow our way to prosperity for a while, but in the end there is always a very bitter price to pay for doing so.
I would love to tell you that there is a chance that all of this will be turned around, but the truth is that all of this whining and crying about the sequester shows that America is doomed.
Is the financial collapse of Italy going to be the final blow that breaks the back of Europe financially? Most people don’t realize this, but Italy is actually the third largest debtor in the entire world after the United States and Japan. Italy currently has a debt to GDP ratio of more than 120 percent, and Italy has a bigger national debt than anyone else in Europe does. That is why it is such a big deal that Italian voters have just overwhelmingly rejected austerity. The political parties led by anti-austerity candidates Silvio Berlusconi and Beppe Grillo did far better than anticipated. When you combine their totals, they got more than 50 percent of the vote. Italian voters have seen what austerity has done to Greece and Spain and they want no part of it. Unfortunately for Italian voters, it has been the promise of austerity that has kept the Italian financial system stable in recent months. Now that Italian voters have clearly rejected austerity, investors are fearing that austerity programs all over Europe may start falling apart. This is creating quite a bit of panic in European financial markets right now. On Tuesday, Italian stocks had their worst day in 10 months, Italian bond yields rose by the most that we have seen in 19 months, and the stocks of the two largest banks in Italy both fell by more than 8 percent. Italy is already experiencing its fourth recession since 2001, and unemployment has been steadily rising. If Italy is now “ungovernable”, as many are saying, then what does that mean for the future of Italy? Will Italy be the spark that sets off financial armageddon in Europe?
All of Europe was totally shocked by the election results in Italy. As you can see from the following excerpt from a Bloomberg article, the vote was very divided and the anti-austerity parties did much better than had been projected…
The results showed pre-election favorite Pier Luigi Bersani won the lower house with 29.5 percent, less than a half a percentage point ahead of Silvio Berlusconi, the ex-premier fighting a tax-fraud conviction. Beppe Grillo, a former comedian, got 25.6 percent, while Monti scored 10.6 percent. Bersani and his allies got 31.6 percent of votes in the Senate, compared with 30.7 percent for Berlusconi and 23.79 percent for Grillo, according to final figures from the Interior Ministry.
So what do those election results mean for Italy and for the rest of Europe?
Right now, there is a lot of panic about those results. There is fear that what just happened in Italy could result in a rejection of austerity all over Europe…
“I think the election results (or lack thereof) are a negative for the euro, which will likely keep the currency pressured for some time,” Omer Esiner, chief market analyst for Commonwealth Foreign Exchange, told me. But it’s not just the political uncertainty in Italy, he adds. “The shocking gains made by anti-establishment parties in Italy signal a broad-based frustration with austerity among voters and a decisive rejection of the policies pushed by Germany in nations across the euro zone’s periphery. That theme revives unresolved debt crisis issues and could threaten the continuity of reforms across other countries in the euro zone.”
And the financial markets have clearly interpreted the election results in Europe as a very bad sign. Zero Hedge summarized some of the bad news out of Europe that we saw on Tuesday…
Swiss 2Y rates turned negative once again for the first time in a month; EURUSD relatively flatlined around 1.3050 (250 pips lower than pre-Italy); Europe’s VIX exploded to almost 26% (from under 19% yesterday); and 3-month EUR-USD basis swaps plunged to their most liquidity-demanding level since 12/28. Spain and Italy (and Portugal) were the most hurt in bonds today as 2Y Italian spreads broke back above 200bps (surging over 50bps casting doubt on OMT support) and 3Y Spain yields broke above 3% once again. The Italian equity market suffered its equal biggest drop in 6 months falling back to 10 week lows (and down 14% from its end-Jan highs). Italian bond yields (and spreads) smashed higher – the biggest jump in 19 months as BTP futures volume exploded in the last two days.
Not that things in Europe were going well before all this.
And check out some of the other things that have been going on in the rest of Europe…
In Spain, a major real estate company, Reyal Urbis, collapsed last week, leaving already battered banks on the hook for millions of euros in losses. Meanwhile, the government faces a corruption scandal and a steady stream of anti-austerity demonstrations. Thousands of people took to the streets again on Saturday, protesting deep cuts to health and other services, as well as hefty bank bailouts.
Life is no better in a large swath of the broader EU. In Britain, Moody’s cited the continuing economic weakness and the resulting risks to the government’s tight fiscal policy for its rating cut. In Bulgaria, where the government fell last week and the economy is in a shambles, rightists who joined mass demonstrations across the country burned a European Union flag and waved anti-EU banners. Other austerity-minded governments in the EU face similar murky political futures.
At this point, Europe is a complete and total economic mess and things are rapidly getting worse.
And that is really bad news because Europe is already in the midst of a recession. In fact, according to the BBC, the recession in the eurozone got even deeper during the fourth quarter of 2012…
The eurozone recession deepened in the final three months of 2012, official figures show.
The economy of the 17 nations in the euro shrank by 0.6% in the fourth quarter, which was worse than forecast.
It is the sharpest contraction since the beginning of 2009 and marks the first time the region failed to grow in any quarter during a calendar year.
But this is just the beginning.
The truth is that government debt is not even the greatest danger that Europe is facing. In reality, a collapse of the European banking system is of much greater concern.
Why is that?
Well, how would you feel if you woke up someday and every penny that you had in the bank was gone?
In the U.S. we don’t have to worry about that so much because all deposits are insured by the FDIC, but in many European countries things work much differently.
For example, just check out what Graham Summers recently had to say about the banking system in Spain…
It’s a little known fact about the Spanish crisis is that when the Spanish Government merges troubled banks, it typically swaps out depositors’ savings for shares in the new bank.
So… when the newly formed bank goes bust, “poof” your savings are GONE. Not gone as in some Spanish version of the FDIC will eventually get you your money, but gone as in gone forever (see the above article for proof).
This is why Bankia’s collapse is so significant: in one move, former depositors at seven banks just lost virtually everything.
And this in a nutshell is Europe’s financial system today: a totally insolvent sewer of garbage debt, run by corrupt career politicians who have no clue how to fix it or their economies… and which results in a big fat ZERO for those who are nuts enough to invest in it.
Be warned. There are many many more Bankias coming to light in the coming months. So if you have not already taken steps to prepare for systemic failure, you NEED to do so NOW. We’re literally at most a few months, and very likely just a few weeks from Europe’s banks imploding, potentially taking down the financial system with them. Think I’m joking? The Fed is pumping hundreds of BILLIONS of dollars into EU banks right now trying to stop this from happening.
Like Graham Summers, I am extremely concerned about the European banking system. Europe actually has a much larger banking system than the U.S. does, and if the European banking system implodes that is going to send huge shockwaves to the farthest corners of the globe.
But if you want to believe that the “experts” in Europe and in the United States have “everything under control”, then you might as well stop reading now.
After all, they are very highly educated and they know what they are doing, right?
But if you want to listen to some common sense, you might want to check out this very ominous warning from Karl Denninger…
I hope you’re ready.
Congress has wasted the time it was given by the Europeans getting things “temporarily” under control. But they didn’t actually get anything under control, as the Italian elections just showed.
Now, with the budget over there at risk of being abandoned, and fiscal restraint being abandoned (note: exactly what the US has been doing) the markets are recognizing exactly the risk that never in fact went away over the last couple of years.
It was hidden by lies, just as it has been hidden by lies here.
Bernanke’s machinations and other games “gave” the Congress four years to do the right thing. They didn’t, because that same “gift” also destroyed all market signals of urgency.
As such you have people like Krugman and others claiming that it’s all ok and that we can spend with wild abandon, taking our fiscal medicine never.
They were wrong. Congress was wrong. The Republicans were wrong, the Democrats were wrong, and the Administration was wrong.
Congress is out of time; as I noted the deficit spending must stop now, irrespective of the fact that it will cause significant economic damage.
For the past couple of years, authorities in the U.S. and in Europe have been trying to delay the coming crisis by kicking the can down the road.
By doing so, they have been making the eventual collapse even worse.
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.
Words Of Warning: Get Your Money Out Of European Banks
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…
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”…
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…
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…
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…
But do you know who was able to get their money out in time?
The insiders.
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…
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…
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…
And Martin Sibileau is proclaiming that if you still have an unsecured deposit in a eurozone bank that you should have your 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…
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.
But as the global financial system falls apart, there will be no such thing as 100% safety. So if you are looking for that you can stop trying.
Our world is becoming a very unstable place, and things are going to get a lot worse. We are all going to have to adjust to this new paradigm and do the best that we can.