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A Quadrillion Yen And Counting – The Japanese Debt Bomb Could Set Off Global Panic At Any Moment

Shibuya Crossing in Tokyo, JapanHow much is 1,000,000,000,000,000 yen worth?  Well, a quadrillion yen is worth approximately 10.5 trillion dollars.  It is an amount of money that is larger than the “the economies of Germany, France and the U.K. combined“.  It is such an astounding amount of debt that it is hard to even get your mind around it.  The government debt to GDP ratio in Japan will reach 247 percent this year, and the Japanese currently spend about 50 percent of all central government tax revenue on debt service.  Realistically, there are only two ways out of this overwhelming debt trap for the Japanese.  Either they default or they try to inflate the debt away.  At this point, the Japanese have chosen to try to inflate the debt away.  They have initiated the greatest quantitative easing experiment that a major industrialized nation has attempted since the days of the Weimar Republic.  Over the next two years, the Bank of Japan plans to zap 60 trillion yen into existence out of thin air and use it to buy government bonds.  By the time this program is over, the monetary base in Japan will have approximately doubled.  But authorities in Japan are desperate.  They know that the Japanese debt bomb could set off global panic at any time, and they are trying to find a way out that will not cause too much pain.

Unfortunately, the only way that this bizarre quantitative easing program will work is if investors in Japanese bonds act very, very irrationally.  You see, the only way that Japan has been able to pile up this much debt in the first place is because they have been able to borrow gigantic piles of money at super low interest rates.

Right now, the yield on 10 year Japanese bonds is sitting at an absurdly low 0.76%.  But even with such ridiculously low interest rates, the central government of Japan is still spending about half of all tax revenue on debt service.

If interest rates go up, the game is over.

But now that the Japanese government has announced that it plans to double the monetary base, it would be extremely irrational for investors not to demand higher rates on Japanese government debt.  After all, why would you want to loan money to the Japanese government for less than one percent a year when the purchasing power of your money could potentially be halved over the next two years?

Amazingly, this is exactly what the Japanese government is counting on.  They are counting on being able to wildly print up money and monetize debt, but also keep yields on Japanese bonds at insanely low levels at the same time.

For the moment, it is actually working.  Investors in Japanese bonds are behaving very, very irrationally.

But if that changes at some point, we could potentially be looking at the greatest Asian economic crisis of all time.

And there are some very sharp minds out there that believe that is exactly what is going to happen.

For example, the founder of Hayman Capital Management, Kyle Bass, has been sounding the alarm about Japan for a long time.  He correctly predicted the subprime mortgage meltdown, and in the process he made hundreds of millions of dollars for his clients.  Now he believes that the next major crash is going to be in Japan.

According to Bass, the bond bubble in Japan is so large that once it begins to implode fear is going to start spreading like wildfire…

Remember, Japanese banks in general have 900% of their tangible assets invested in JGBs that are the most negatively convex instrument you can put into a portfolio. Assume for instance that a bank holds a 10 year bond yielding 80 basis points. A 100 basis point move will cost the JGB investor about 10 years of expected interest payments.

Think about the psychology of all the players and financial implications if rates do move 100 basis points. Think about the solvency of a nation which currently spends 50% of its central government tax revenues on debt service, half of which earns the lowest yields of any country in the world.

You can’t look at this as a simple question. You need to think about this as a multivariate equation. You have to think about the incentives and the fears of all the participants. And you need to think about the fiscal sustainability of the government.

If rates even rise by a full percentage point, it could start a stampede toward the exits that nobody in the entire world would be able to control…

I ran a survey of 1,009 Japanese investors where we asked: “If rates were to move up 100 basis points, would that engender more confidence and make you want to buy more JGBs?” or, “Would you take your money elsewhere, even if it were hamstringing your government’s ability to operate?” 8 – 9% of respondents that said that they would buy more bonds and almost 80% said they would run, not walk the other way.

For much more on this, you can watch a video of Kyle Bass discussing why Japan is doomed right here.

And of course Japan is not the only “debt bomb” that could potentially go off over in Asia.  As I mentioned in another article, the major problem over in China is the level of private debt…

In China, the big problem is the absolutely stunning growth of private domestic debt.  According to a recent World Bank report, the total amount of credit in China has risen from 9 trillion dollars in 2008 to 23 trillion dollars today.

That increase is roughly equivalent to the entire U.S. commercial banking system.

There is simply way, way too much debt in our world today.  Never before has there been so much red ink all over the planet at the same time.

Many in the mainstream media insist that this party can go on indefinitely.

But that is what they said about the housing bubble too.

Sadly, the truth is that every financial bubble eventually bursts, and this global debt bubble will be no exception.

I hope that you are getting prepared while you still can.

During The Best Period Of Economic Growth In U.S. History There Was No Income Tax And No Federal Reserve

The American Free Market System At WorkHow would America ever survive without the central planners in the Obama administration and at the Federal Reserve?  What in the world would we do if there was no income tax and no IRS?  Could the U.S. economy possibly keep from collapsing under such circumstances?  The mainstream media would have us believe that unless we have someone “to pull the levers” our economy would descend into utter chaos, but the truth is that the best period of economic growth in U.S. history occurred during a time when there was no income tax and no Federal Reserve.  Between the Civil War and 1913, the U.S. economy experienced absolutely explosive growth.  The free market system thrived and the rest of the world looked at us with envy.  The federal government was very limited in size, there was no income tax for most of that time and there was no central bank.  To many Americans, it would be absolutely unthinkable to have such a society today, but it actually worked very, very well.  Without the inventions and innovations that came out of that period, the world would be a far different place today.

It is amazing what can happen when the government just gets out of the way.  Check out all of the wonderful things that Wikipedia says happened for the U.S. economy during those years…

The rapid economic development following the Civil War laid the groundwork for the modern U.S. industrial economy. By 1890, the USA leaped ahead of Britain for first place in manufacturing output.

An explosion of new discoveries and inventions took place, a process called the “Second Industrial Revolution.” Railroads greatly expanded the mileage and built stronger tracks and bridges that handled heavier cars and locomotives, carrying far more goods and people at lower rates. Refrigeration railroad cars came into use. The telephone, phonograph, typewriter and electric light were invented. By the dawn of the 20th century, cars had begun to replace horse-drawn carriages.

Parallel to these achievements was the development of the nation’s industrial infrastructure. Coal was found in abundance in the Appalachian Mountains from Pennsylvania south to Kentucky. Oil was discovered in western Pennsylvania; it was mainly used for lubricants and for kerosene for lamps. Large iron ore mines opened in the Lake Superior region of the upper Midwest. Steel mills thrived in places where these coal and iron ore could be brought together to produce steel. Large copper and silver mines opened, followed by lead mines and cement factories.

In 1913 Henry Ford introduced the assembly line, a step in the process that became known as mass-production.

When hard working, industrious people are given freedom to pursue their dreams, great things tend to happen.  The truth is that we were all designed to create, to invent, to build, and to trade with one another.  We all have something that we can contribute to society, and when families are strong and the invisible hand of the free market is allowed to work, societies tend to prosper.

It is not a coincidence that the greatest period of economic growth in U.S. history was between the Civil War and 1913.  The following information comes from Wikipedia

The Gilded Age saw the greatest period of economic growth in American history. After the short-lived panic of 1873, the economy recovered with the advent of hard money policies and industrialization. From 1869 to 1879, the US economy grew at a rate of 6.8% for real GDP and 4.5% for real GDP per capita, despite the panic of 1873.  The economy repeated this period of growth in the 1880s, in which the wealth of the nation grew at an annual rate of 3.8%, while the GDP was also doubled.

Wouldn’t you like U.S. GDP to double over the course of a decade now?

So why don’t we go back to a system like that?

In 1913, the Federal Reserve and a permanent national income tax were introduced.  Today, the unelected central planners at the Federal Reserve totally run our financial system and the U.S. tax code is about 13 miles long.  The value of our currency has declined by more than 96 percent since 1913, and the size of our national debt has gotten more than 5000 times larger.

Meanwhile, control freak bureaucrats seemingly run everything.  Almost every business decision is heavily influenced either by taxes or by the millions of laws, rules and regulations that are sucking the life out of our economic system.

My favorite example of how suffocating red tape in America has become is the magician out in Missouri that was forced by the Obama administration to submit a 32 page “disaster plan” for the rabbit that he uses during his magic shows for kids.

It is no wonder why we don’t have any economic growth.  The central planners in the federal government are killing our economy.

And the central planners over at the Federal Reserve are killing our financial system.  In school we are taught that the Fed was created to bring stability to our financial system, but the truth is that they have been responsible for financial bubble after financial bubble, and now Federal Reserve Chairman Ben Bernanke has created the largest bond bubble in the history of the world.  When that thing bursts, and it will, we are going to see financial carnage on an unprecedented scale.

Unfortunately, the truth is that the Federal Reserve never has been looking out for the interests of the American people.  It was created by the big banks and it has always worked very hard to benefit the big banks.  During the Fed era, the big banks have become the most powerful economic entities on the entire planet.  Our entire economy is now based on debt, and the big banks are at the very center of this debt spiral.  The following is an excerpt from a recent article by Paul B. Farrell

Today’s world includes four Wall Street banks each with assets over $1 trillion, each more than Goldman. Plus eight other big global banks each have over $2 trillion total assets, including, among the 100 largest, Barclays, HSBC, Deutsche, ICB-China and Japan’s Mitsubishi.

Yes, this new world is changing fast. Back in 2008 the world’s financial banks were in ruins. Wall Street sunk into virtually bankruptcy. Goldman and its Wall Street too-big-to-fail co-conspirators had trashed the global economy, triggered a virtual depression, and Wall Street’s casinos lost over $10 trillion of Main Street retirement funds.

And as we saw back in 2008, the Federal Reserve is going to do whatever is necessary to prop up Wall Street.  Most Americans never even heard about this, but during the last financial crisis the Fed secretly loaned 16 trillion dollars to the big banks.  Those loans were nearly interest-free and those banks knew that they could get basically as much nearly interest-free money as they wanted from the Fed.

So how much nearly interest-free money did the Fed loan to normal Americans?

Not a single penny.

That would be bad enough, but it is also important to remember that since 2008 the Fed has actually been paying banks NOT to lend money to the rest of us.

What is it going to take for the American people to start demanding that the Fed be abolished?  They are absolutely destroying our financial system.

Meanwhile, the central planners in the Obama administration have been doing their part as well.  During the second quarter of this year, the number of Americans working between 30 and 34 hours per week fell by 146,500.  During that same time period, the number of Americans working between 25 and 29 hours rose by 119,000.

Why is this happening?

Well, the Obamacare employer mandate will apply to workers that work at least 30 hours each week, so employers are starting to cut back on the hours their employees are getting in order to comply with the law.

But this is just one example out of thousands, and most Americans already know that the U.S. economy has been crumbling for many years.

In fact, things have gotten so bad that even 53 percent of all Democrats believe that the American Dream is dead even though Barack Obama is residing in the White House.

But this is just the beginning.  Things are going to get much, much worse.  We are going down the same path that Greece has gone, and the unemployment rate in Greece has just hit a new all-time record high of 27.6 percent.

That is where the U.S. is headed eventually.  Decades of very foolish decisions are catching up with us.

The primary reason why all of this is happening is debt.  As a society, we simply have way, way, way too much debt.

The biggest offender, of course, is the federal government.  Since 1970, federal spending has grown nearly 12 times as rapidly as median household income has, and since the year 2000 the size of the U.S. national debt has grown by more than 11 trillion dollars.

When government debt gets too large, it has a profoundly negative effect on an economy.  The following is an excerpt from an outstanding article by Lacy H. Hunt, a Ph.D. economist

*****

Here are the studies, starting with the one with the broadest implications:

  1. “Government Size and Growth: A Survey and Interpretation of the Evidence,” from Journal of Economic Surveys. Published in April 2011, Swedish economists Andreas Bergh and Magnus Henrekson (both of the Research Institute of Industrial Economics at Lund University) found a “significant negative correlation” between size of government and economic growth. Specifically, “an increase in government size by 10 percentage points is associated with a 0.5% to 1% lower annual growth rate.”
  2. “The Impact of High and Growing Government Debt on Economic Growth: An Empirical Investigation for the Euro Area,” in European Central Bank working paper, Number 1237, August 2010. Cristina Checherita and Philipp Rother found that a government-debt-to-GDP ratio above the threshold of 90-100% has a “deleterious” impact on long-term growth. Additionally, the impact of debt on growth is nonlinear – as the government debt rises to higher and higher levels, the adverse growth consequences accelerate.
  3. The Real Effects of Debt, published by the Bank for International Settlements (BIS) in Basel, Switzerland in August 2011. Stephen G. Cecchetti, M. S.Mohanty, and Fabrizio Zampolli determined that “beyond a certain level, debt is bad for growth. For government debt, the number is about 85% of GDP.”
  4. “Public Debt Overhangs: Advanced-Economy Episodes Since 1800,”by Carmen M. Reinhart, Vincent R. Reinhart, Kenneth S. Rogoff, Journal of Economic Perspectives, Volume 26, Number 3, Summer 2012, pages 69-86. The authors identified 26 cases of “debt overhangs,” which they define as public-debt-to-GDP levels exceeding 90% for at least five years. In spite of the many idiosyncratic differences in these situations, economic growth fell in all but three of the 26 cases. All of the instances, which lasted an average of 23 years, are included in the paper. They found that average annual growth is 1.2% lower for countries with a debt overhang than for countries without. The long duration of such episodes means that cumulative shortfall from the debt excess—i.e., several years in a row of subpar economic growth—is potentially massive.

*****

But it isn’t just federal government debt that is the problem.  The rest of us have way too much debt as well.

If you can believe it, the ratio of private debt to GDP was 273.3% for the twelve months ending in the first quarter of 2013.

That is an astounding figure.

And as Hunt explained, having too much private debt is also very bad for an economy…

In Too Much Finance, published by the United Nations Conference on Trade and Development (UNCTAD) in March 2011, Jean Louis Arcand, Enrico Berkes, and Ugo Panizza found a negative effect on output growth when credit to the private sector reaches 104-110% of GDP. The strongest adverse effects are for credit over 160% of GDP.

The second is the 2011 BIS study authored by Cecchetti, Mohanty, and Zampolli. They found that private debt levels become “cancerous” (in BIS economic advisor Cecchetti’s own words) at 175% (90% for corporations and 85% for households)—just slightly more than the UNCTAD study.

When you add our private debt to GDP ratio of 273 percent to our federal debt to GDP ratio of 101 percent, you get a grand total of 384 percent.

This is how we have funded the false prosperity of the past couple of decades.  Essentially, we have been putting our good times on a credit card.

And as anyone that has ever tried to live on credit knows, the good times eventually run out.

But this is what the Federal Reserve was designed to do.  It was designed to get the U.S. government trapped in a debt spiral from which there would never be any escape.

It is not an accident that our national debt has gotten more than 5000 times larger than it was when the Fed was originally created.  This is what the bankers wanted the system to do.

They wanted a system that would extract wealth from all of us through taxes, transfer it to the government, and then transfer it to them through interest payments.

We never needed a central bank, we never needed the IRS and we never needed an income tax.  America would be doing just fine without any of them.

But instead, America chose to go down the path of collectivization and central planning, and now we are heading toward the biggest economic disaster in the history of mankind.

The Important Things We DON’T Have Money For, And The Crazy Things We DO Have Money For…

Government WasteIn an age of “belt tightening” and “budget cuts”, you would think that government officials would be trying to spend our money wisely.  Unfortunately, when it comes time to cut spending our politicians tend to do everything that they can to protect their own interests and their own pet projects, but they don’t seem to mind implementing cuts that deeply hurt military families, the poor and the elderly.  The facts that you are about to read will likely upset you very much.  The federal government and our state governments are wasting money in some of the most ridiculous ways imaginable.  Meanwhile, we are being told that we don’t have any money for a lot of really important things.  Our hard-earned tax dollars are being horribly mismanaged, and the American people deserve to hear the truth about this gross negligence.

Now before I go any further, I want to make it very clear that I believe that the federal government and our state governments are already taking in more than enough money.  They should be able to do everything that they need to do on the money that they are already extracting from all of us.  And if we had been living within our means all this time, we would not be drowning in debt as a nation today.

Unfortunately, our politicians did choose to go into tremendous amounts of debt, and the American people did not stop them.  So now we are rapidly heading toward a debt crisis unlike anything the world has ever seen before.

And our politicians should be reducing spending.  There is no question about that.  But what this article is about is priorities, and right now our politicians really seem to have their priorities messed up.  What follows are some examples of this…

The city of Detroit says that it is totally broke and has no money for pensions

…but somehow the city has 444 million dollars to spend on a new hockey arena for the Detroit Red Wings.

Large numbers of federal employees have been hit with mandatory furloughs in 2013 due to the sequester…

…but somehow the federal government is able to spend tens of millions of dollars to fill our skies with surveillance drones.

The U.S. government is so broke that it has had to borrow more than a trillion dollars from China…

…but somehow we have plenty of money to help  “modernize China’s energy grid“.

The U.S. Congress has cut $60,000,000 for schools on Indian reservations across the country…

…but somehow the IRS is able to pay out $70,000,000 in bonuses to their workers.

It is being projected that federal budget cuts will cost the U.S. economy 1.6 million jobs through the end of 2014…

…but somehow the federal government has plenty of money to provide many former members of Congress with six-figure annual incomes for life

Members of Congress receive retirement benefits that are far more generous than those earned by the average worker, according to a recent Bankrate analysis.

Not only do congressional representatives and senators earn the guarantee of a monthly pension check — a benefit that has become increasingly rare for most U.S. workers — they also receive Social Security payments and can opt to pay into the federal Thrift Savings Plan, a 401(k) style-plan with fees that are far lower than most retirement plans.

As a result, longtime members of Congress can easily retire with six-figure annual incomes for life.

The Obama administration is forcing the U.S. Army to reduce the number of active combat brigades from 45 to 33

…but the Obama administration has no problem finding millions of dollars to send to radical jihadist Syrian rebels that are beheading innocent Christians over in Syria.

Barack Obama says that there simply is not any money available for White House tours

…but the Obamas are able to spend hundreds of millions of dollars on exotic vacations.  In August, Obama and his family will be spending 8 days in a beautiful home on the Massachusetts island of Martha’s Vineyard.

The federal government says that there was not enough money for the traditional 4th of July fireworks at many military bases around the country this year…

…but somehow the National Institutes of Health has $509,840 to spend on “a study that will send text messages in ‘gay lingo’ to methamphetamine addicts to try to persuade them to use fewer drugs and more condoms.”

Due to “budget cuts”, swimming pools for military families are being shut down all over the country…

…but Barack Obama felt that it was so important to send $500,000,000 to the Palestinian Authority that he signed a national security executive order last Friday that enabled him to get around an act of Congress that was intended to prevent him from sending that money to them.

The state of California is so strapped for cash that it may have to release thousands of violent criminals back on to the streets…

…but somehow the state of California has plenty of money to provide a multitude of welfare benefits for illegal immigrants.

A total of about 38 million dollars is being cut from “meals on wheels” programs around the nation due to the sequester…

…but somehow the federal government has plenty of money to hassle ordinary citizens with ridiculous amounts of red tape.  For example, a small-time magician out in Missouri that does magic shows for kids was recently forced to submit a 32 page “disaster plan” for the rabbit that he uses in his shows.

With priorities like this, is it any wonder that our national debt is completely and totally out of control?

If the U.S. national debt was reduced to a stack of one dollar bills, it would stretch from the earth to the moon five times.  It would circle the earth at the equator 45 times.

If our politicians would have been spending our money wisely all of these years, we would have enough money to do the essential things that the government should be doing.

But instead, our money has been wasted in some of the most bizarre ways imaginable, and yet the American people just continue to sit back and allow our politicians to flush our money down the toilet.

So what do you think about all of this?  Are there any additional examples that you would add to the list above?  Please feel free to share what you think by posting a comment below…

The Japanese Financial System Is Beginning To Spin Wildly Out Of Control

Wildly Out Of ControlThe financial system of the third largest economy on the planet is starting to come apart at the seams, and the ripple effects are going to be felt all over the globe.  Nobody knew exactly when the Japanese financial system was going to begin to implode, but pretty much everyone knew that a day of reckoning for Japan was coming eventually.  After all, the Japanese economy has been in a slump for over a decade, Japan has a debt to GDP ratio of well over 200 percent and they are spending about 50 percent of all tax revenue on debt service.  In a desperate attempt to revitalize the economy and reduce the debt burden, the Bank of Japan decided a few months ago to start pumping massive amounts of money into the economy.  At first, it seemed to be working.  Economic activity perked up and the Japanese stock market went on a tremendous run.  Unfortunately, there is also a very significant downside to pumping your economy full of money.  Investors start demanding higher returns on their money and interest rates go up.  But the Japanese government cannot afford higher interest rates.  Without super low interest rates, Japanese government finances would totally collapse.  In addition, higher interest rates in the private sector would make it much more difficult for the Japanese economy to expand.  In essence, pretty much the last thing that Japan needs right now is significantly higher interest rates, but that is exactly what the policies of the Bank of Japan are going to produce.

There is a lot of fear in Japan right now.  On Thursday, the Nikkei plunged 7.3 percent.  That was the largest single day decline in more than two years.  Then on Monday the index fell by another 3.2 percent.

And according to Business Insider, things are not looking good for Tuesday at this point…

In post-close futures trading, the Nikkei has dropped by another couple hundred points, and has dropped below 14,000.

Are we witnessing the beginning of a colossal financial meltdown by the third largest economy on the planet?  The Bank of Japan is starting to lose control, and if Japan goes down hard the crisis could spread to Europe and North America very rapidly.  The following is from a recent article by Graham Summers

As Japan has indicated, when bonds start to plunge, it’s not good for stocks. Today the Japanese Bond market fell and the Nikkei plunged 7%. The entire market down 7%… despite the Bank of Japan funneling $19 billion into it to hold things together.

This is what it looks like when a Central Bank begins to lose control. And what’s happening in Japan today will be coming to the US in the not so distant future.

If you think the Fed is not terrified of this, think again. The Fed has pumped over $1 trillion into foreign banks, hoping to stop the mess from getting to the US. As Japan is showing us, the Fed will fail.

Investors, take note… the financial system is sending us major warnings…

If you are not already preparing for a potential market collapse, now is the time to be doing so.

And all of this money printing is absolutely crushing the Japanese yen.  Since the start of 2013, the yen has declined 16 percent against the U.S. dollar, even though the U.S. dollar is also being rapidly debased.   Just check out this chart of the yen vs. the U.S. dollar.  It is absolutely stunning…

Japanese Yen

The term “currency war” is something that you are going to hear a lot more over the next few years, and what you can see in the chart above is only the beginning.

What the Bank of Japan is doing right now is absolutely unprecedented.  It has announced that it plans to inject the equivalent of approximately $1.4 trillion into the Japanese economy in less than two years.

As Kyle Bass recently discussed, that dwarfs the quantitative easing that the Federal Reserve has been doing…

“What they’re doing represents 70% of what the Fed is doing here with an economy 1/3 the size of ours”

The big problem for Japan will come when government bond yields really start to rise.  The yield on 10 year government bonds has been creeping up over the past few months, and if they hit the 1.0% mark that will set off some major red flags.

Because Japan has a debt to GDP ratio of more than 200 percent, the only way that it can avoid a total meltdown of government finances is to have super low interest rates.  The video posted below does a great job of elaborating on this point…

It really is very simple.  If interest rates rise substantially, Japan will be done.

Investor Kyle Bass is one of those that have been warning about this for a long time…

There’s a fatalism, he says, in everyone he talks to in Japan. Their thinking is changing, and the way they talk to him about debt is changing. They already spend 50% of tax revenue on debt service.

“If rates go up, it’s game over.”

The financial problems in Cyprus and Greece are just tiny blips compared to what a major financial crisis in Japan would potentially be like.  The Japanese economy is larger than the economies of Germany and Italy combined.  If the house of cards in Japan comes tumbling down, trillions of dollars of investments all over the globe are going to be affected.

And what is happening right now in Japan should serve as a sober warning to the United States.  Like Japan, the money printing that the Federal Reserve has been doing has caused economic activity to perk up a bit and it has sent the stock market on an unprecedented run.

Unfortunately, no bubble that the Federal Reserve has ever created has been able to last forever.  At some point, we will pay a very great price for all of the debt that the U.S. government has been accumulating and all of the reckless money printing that the Fed has been engaged in.

So enjoy the calm before the storm while you still can.

It won’t last for long.

100 Years Old And Still Killing Us: America Was Much Better Off Before The Income Tax

100 Years Old And Still Killing UsDid you know that the greatest period of economic growth in American history was during a time when there was absolutely no federal income tax?  Between the end of the Civil War and 1913, there was an explosion of economic activity in the United States unlike anything ever seen before or since.  Unfortunately, a federal income tax was instituted in 1913, and this year it turned 100 years old.  But there was no fanfare, was there?  There was no celebration because the federal income tax is universally hated.  Sadly, most Americans just assume that there is no other option to an income tax.  Most Americans just assume that it has always been with us and that it will always be with us.  This year, the American people will shell out approximately $4.22 trillion in state and federal income taxes.  That amount is equivalent to approximately 29.4 percent of all income that Americans will bring in this year, and that does not even take into account the dozens of other taxes that Americans pay each year.  At this point, the U.S. tax code is about 13 miles long, and those that are honest and pay their taxes every year are being absolutely shredded by this system.  But wouldn’t the federal government go broke if we didn’t have a federal income tax?  No, actually the truth is that the federal government did just fine before there was an income tax.  In fact, the U.S. national debt has gotten more than 5000 times larger since the federal income tax and the Federal Reserve were created by Congress back in 1913.  As I have written about previously, the Federal Reserve system was actually designed to trap the United States in a debt spiral from which it could never possibly escape, and the federal income tax was needed to greatly expand the size of the federal government and to soak the American people of the funds necessary to service that debt.  But it doesn’t have to be this way.  America was once much better off before the income tax and the Federal Reserve were created, and we could easily go to such a system again.

What we desperately need to do is to teach the American people a little history lesson.  The truth is that the greatest period of economic growth in U.S. history was between the Civil War and 1913 when there was no federal income tax at all.  The following is from Wikipedia

The Gilded Age saw the greatest period of economic growth in American history. After the short-lived panic of 1873, the economy recovered with the advent of hard money policies and industrialization. From 1869 to 1879, the US economy grew at a rate of 6.8% for real GDP and 4.5% for real GDP per capita, despite the panic of 1873.  The economy repeated this period of growth in the 1880s, in which the wealth of the nation grew at an annual rate of 3.8%, while the GDP was also doubled.

Sadly, most Americans cannot even conceive of an economy like that.  Most Americans cannot even imagine having a nation without a massively bloated federal government and without an unelected central bank centrally planning our financial system.

But you know what?

It worked.  In fact, it worked fantastically well.

The period between the Civil War and 1913 propelled the United States to greatness.  Just check out all of the good things that Wikipedia says happened for the U.S. economy during those years…

The rapid economic development following the Civil War laid the groundwork for the modern U.S. industrial economy. By 1890, the USA leaped ahead of Britain for first place in manufacturing output.

An explosion of new discoveries and inventions took place, a process called the “Second Industrial Revolution.” Railroads greatly expanded the mileage and built stronger tracks and bridges that handled heavier cars and locomotives, carrying far more goods and people at lower rates. Refrigeration railroad cars came into use. The telephone, phonograph, typewriter and electric light were invented. By the dawn of the 20th century, cars had begun to replace horse-drawn carriages.

Parallel to these achievements was the development of the nation’s industrial infrastructure. Coal was found in abundance in the Appalachian Mountains from Pennsylvania south to Kentucky. Oil was discovered in western Pennsylvania; it was mainly used for lubricants and for kerosene for lamps. Large iron ore mines opened in the Lake Superior region of the upper Midwest. Steel mills thrived in places where these coal and iron ore could be brought together to produce steel. Large copper and silver mines opened, followed by lead mines and cement factories.

In 1913 Henry Ford introduced the assembly line, a step in the process that became known as mass-production.

But if we didn’t have an income tax, how did we fund the government?  Well, we mostly did it with tariffs and excise taxes.  The following is from a recent article by Thomas R. Eddlem

Prior to ratification of the 16th (income tax) Amendment in February 1913, the federal government managed its few constitutional responsibilities without an income tax, except during the Civil War period. During peacetime, it did so largely — or even entirely — on import taxes called “tariffs.” Congress could afford to run the federal government on tariffs alone because federal responsibilities did not include welfare programs, agricultural subsidies, or social insurance programs like Social Security or Medicare. After the Civil War, tariff revenues sometimes suffered under a protectionist policy ushered in by the Republican Party that supplemented federal income via excises on alcohol, tobacco, and inheritances. But before the war, the need for tariff revenue to finance the federal government generally kept the tariff at reasonable levels. During wartime throughout early American history, the Founding Fathers were able to raise additional revenue employing a different method of direct taxation authorized by the U.S. Constitution prior to the 16th Amendment. These alternative taxing methods gave the young American nation embarrassing peacetime budget surpluses that several times came close to paying off the national debt.

So why didn’t we stick with that system?

Well, early in the 20th century the “progressives” and the social planners started to take control in Washington.

And one of the things that “progressives” and social planners love is an income tax.  In fact, the second plank of the Communist Manifesto is a “heavy progressive or graduated income tax”.

Of course they promised us that income tax rates would always remain low.  And at first they were quite low.  The following is from an article by Adam Young

The presidential election of 1912 was contested between three advocates of an income tax. The winner, Woodrow Wilson, after the ratification of the Sixteenth Amendment, called a special session of Congress in April 1913, which proceeded to pass an income tax of 1% on incomes above $3,000 and applied surcharges between 2% and 7% on income from $20,000 to $500,000.

But once the “progressives” and the social planners get their feet in the door, they always want more.

And we have seen how things have worked out.  Today, the American people are being taxed into oblivion.

In a previous article entitled “Show This To Anyone That Believes That Taxes Are Too Low“, I listed dozens of other taxes that the American people pay each year in addition to federal and state income taxes…

#1 Building Permit Taxes

#2 Capital Gains Taxes

#3 Cigarette Taxes

#4 Court Fines (indirect taxes)

#5 Dog License Taxes

#6 Drivers License Fees (another form of taxation)

#7 Federal Unemployment Taxes

#8 Fishing License Taxes

#9 Food License Taxes

#10 Gasoline Taxes

#11 Gift Taxes

#12 Hunting License Taxes

#13 Inheritance Taxes

#14 Inventory Taxes

#15 IRS Interest Charges (tax on top of tax)

#16 IRS Penalties (tax on top of tax)

#17 Liquor Taxes

#18 Luxury Taxes

#19 Marriage License Taxes

#20 Medicare Taxes

#21 Medicare Tax Surcharge On High Earning Americans Under Obamacare

#22 Obamacare Individual Mandate Excise Tax (if you don’t buy “qualifying” health insurance under Obamacare you will have to pay an additional tax)

#23 Obamacare Surtax On Investment Income (a new 3.8% surtax on investment income that goes into effect next year)

#24 Property Taxes

#25 Recreational Vehicle Taxes

#26 Toll Booth Taxes

#27 Sales Taxes

#28 Self-Employment Taxes

#29 School Taxes

#30 Septic Permit Taxes

#31 Service Charge Taxes

#32 Social Security Taxes

#33 State Unemployment Taxes (SUTA)

#34 Tanning Tax (a new Obamacare tax on tanning services)

#35 Telephone Federal Excise Taxes

#36 Telephone Federal Universal Service Fee Taxes

#37 Telephone Minimum Usage Surcharge Taxes

#38 Telephone State And Local Taxes

#39 Tire Taxes

#40 Tolls (another form of taxation)

#41 Traffic Fines (indirect taxation)

#42 Utility Taxes

#43 Vehicle Registration Taxes

#44 Workers Compensation Taxes

Yet even with all of these taxes, our local governments, our state governments and our federal government are all absolutely drowning in debt.

In another previous article entitled “24 Outrageous Facts About Taxes In The United States That Will Blow Your Mind“, I listed a number of reasons why our federal income tax system has become a complete and utter abomination that can never be fixed…

1 – The U.S. tax code is now 3.8 million words long.  If you took all of William Shakespeare’s works and collected them together, the entire collection would only be about 900,000 words long.

2 – According to the National Taxpayers Union, U.S. taxpayers spend more than 7.6 billion hours complying with federal tax requirements.  Imagine what our society would look like if all that time was spent on more economically profitable activities.

3 – 75 years ago, the instructions for Form 1040 were two pages long.  Today, they are 189 pages long.

4 – There have been 4,428 changes to the tax code over the last decade.  It is incredibly costly to change tax software, tax manuals and tax instruction booklets for all of those changes.

5 – According to the National Taxpayers Union, the IRS currently has 1,999 different publications, forms, and instruction sheets that you can download from the IRS website.

6 – Our tax system has become so complicated that it is almost impossible to file your taxes correctly.  For example, back in 1998 Money Magazine had 46 different tax professionals complete a tax return for a hypothetical household.  All 46 of them came up with a different result.

7 – In 2009, PC World had five of the most popular tax preparation software websites prepare a tax return for a hypothetical household.  All five of them came up with a different result.

8 – The IRS spends $2.45 for every $100 that it collects in taxes.

9 – According to The Tax Foundation, the average American has to work until April 17th just to pay federal, state, and local taxes.  Back in 1900, “Tax Freedom Day” came on January 22nd.

10 – When the U.S. government first implemented a personal income tax back in 1913, the vast majority of the population paid a rate of just 1 percent, and the highest marginal tax rate was just 7 percent.

11 – Residents of New Jersey pay $1.64 in taxes for every $1.00 of federal spending that they get back.

12 – The United States is the only nation on the planet that tries to tax citizens on what they earn in foreign countries.

13 – According to Forbes, the 400 highest earning Americans pay an average federal income tax rate of just 18 percent.

14 – Warren Buffett had an effective tax rate of just 17.4 percent for 2010.

15 – The top 20 percent of all income earners in the United States pay approximately 86 percent of all federal income taxes.

16 – Sadly, as Bill Whittle has shown, you could take every single penny that every American earns above $250,000 and it would only fund about 38 percent of the federal budget.

17 – The United States has the highest corporate tax rate in the world (35 percent).  In Ireland, the corporate tax rate is only 12.5 percent.  This is causing thousands of corporations to move operations out of the United States and into other countries.

18 – Some tax havens are doing a booming business in setting up sham headquarters for U.S. corporations.  For example, the city of Zug, Switzerland only has a population of 26,000 people but it is the headquarters for 30,000 companies.

19 – In 1950, corporate taxes accounted for about 30 percent of all federal revenue.  In 2012, corporate taxes will account for less than 7 percent of all federal revenue.

The wealthy have become absolute masters at avoiding taxes, and the poor are not able to pay much.

So who always gets squeezed?

The middle class does.

No matter what our politicians promise us, the hammer is always brought down on the middle class.

And now, according to The Huffington Post, the IRS says that it can even read our old emails without a warrant to make sure that we are paying all of the taxes that we should be…

The IRS apparently interprets that authority very broadly, the documents show: as long as you’ve stored your email in a cloud service like Google Mail, and as long as those emails haven’t been deleted after a few months, the agency thinks it doesn’t need a warrant to read them.

The idea of IRS agents poking through your email account might sound at the very least creepy, and maybe unconstitutional. But the IRS does have a legal leg to stand on: the Electronic Communications Privacy Act of 1986 allows government agencies to in many cases obtain emails older than 180 days without a warrant.

That’s why an internal 2009 IRS document claimed that “the government may obtain the contents of electronic communication that has been in storage for more than 180 days” without a warrant.

It should be noted that the IRS is claiming that it does not use emails “to target” specific taxpayers, but notice that they are not promising not to use old emails against taxpayers once they are officially being audited or investigated…

“Contrary to some suggestions, the IRS does not use emails to target taxpayers. Any suggestion to the contrary is wrong.”

In any event, the truth is that we have one of the most complicated and one of the most intrusive tax systems in the history of the world.

Don’t the American people deserve better?

What do you think?

Should America go back to a system where there is no income tax and no Federal Reserve?

Please feel free to share what you think by leaving a comment below…

America Is Broke

The Big Banks Are Recklessly Gambling With Our Money, And It Will Cause The Global Financial System To Collapse

The Big Banks Are Recklessly Gambling With Our Money, And It Will Cause The Global Financial System To Collapse - Photo by Jamie AdamsHave you ever wondered how the big banks make such enormous mountains of money?  Well, the truth is that much of it is made by gambling recklessly.  If they win on their bets, they become fabulously wealthy.  If they lose on their bets, they know that the government will come in and arrange for the banks to be bailed out because they are “too big to fail”.  Either they will be bailed out by the government using our tax dollars, or as we just witnessed in Cyprus, they will be allowed to “recapitalize” themselves by stealing money directly from our bank accounts.  So if they win, they win big.  If they lose, someone else will come in and clean up the mess.  This creates a tremendous incentive for the bankers to “go for it”, because there is simply not enough pain in this equation for those that are taking the risks.  If the big Wall Street banks had been allowed to collapse back in 2008, that would have caused a massive change of behavior on Wall Street.  But instead, the big banks are still recklessly gambling with our money as if the last financial crisis never even happened.  In the end, the reckless behavior of these big banks is going to cause the entire global financial system to collapse.

Have you noticed how most news reports about Cyprus don’t even get into the reasons why the big banks in Cyprus collapsed?

Well, the truth is that they collapsed because they were making incredibly reckless bets with the money that had been entrusted to them.  In a recent article, Ron Paul explained how the situation played out once the bets started to go bad…

The dramatic recent events in Cyprus have highlighted the fundamental weakness in the European banking system and the extreme fragility of fractional reserve banking. Cypriot banks invested heavily in Greek sovereign debt, and last summer’s Greek debt restructuring resulted in losses equivalent to more than 25 percent of Cyprus’ GDP. These banks then took their bad investments to the government, demanding a bailout from an already beleaguered Cypriot treasury. The government of Cyprus then turned to the European Union (EU) for a bailout.

If those bets had turned out to be profitable, the bankers would have kept all of the profits.  But those bets turned out to be big losers, and private bank accounts in Cyprus are now being raided to pay the bill.  Unfortunately, as Ron Paul noted, what just happened in Cyprus is already being touted as a “template” for future bank bailouts all over the globe…

The elites in the EU and IMF failed to learn their lesson from the popular backlash to these tax proposals, and have openly talked about using Cyprus as a template for future bank bailouts. This raises the prospect of raids on bank accounts, pension funds, and any investments the government can get its hands on. In other words, no one’s money is safe in any financial institution in Europe. Bank runs are now a certainty in future crises, as the people realize that they do not really own the money in their accounts. How long before bureaucrat and banker try that here?

Unfortunately, all of this is the predictable result of a fiat paper money system combined with fractional reserve banking. When governments and banks collude to monopolize the monetary system so that they can create money out of thin air, the result is a business cycle that wreaks havoc on the economy. Pyramiding more and more loans on top of a tiny base of money will create an economic house of cards just waiting to collapse. The situation in Cyprus should be both a lesson and a warning to the United States.

This is an example of what can happen when the dominoes start to fall.  The banks of Cyprus failed because Greek debt went bad.  And the Greeks were using derivatives to try to hide the true scope of their debt problems.  The following is what Jim Sinclair recently told King World News

When people say that the Cypriot banks lost because of being in Greek debt, what was one of the Greeks’ greatest sins? They used over-the-counter derivatives in order to hide the real condition of their balance sheet.

Depositor money, brokerage money, and clearing house money have been tangled up in the mountain of derivatives as the banks have used this cash to speculate in an attempt to make huge bonuses for bank executives.

As I have written about so many times, the global quadrillion dollar derivatives bubble is one of the greatest threats that the global financial system is facing.  As Sinclair explained to King World News, when this derivatives bubble bursts and the losses start soaring, the big banks are going to want to raid private bank accounts just like the banks in Cyprus were able to…

What do you think happens when Buffett reports that he made $10 billion in derivatives? Somebody else lost $10 billion and it was most likely one financial institution. There is no question that what we are seeing right now is not isolated to Cyprus. It has happened everywhere, but is has been camouflaged by making the depositors and the banks whole. What Cyprus will reveal is that losses do not stop with the bank’s capital. Losses roar right through bank capital and take depositors’ money.

This could have all been avoided if we had allowed the big Wall Street banks to collapse back in 2008.  Reckless behavior would have been greatly punished and banks would have chosen to do business differently in the future.

David Stockman, the former director of the Office of Management and Budget under President Ronald Reagan, says that because we bailed out the big banks it was a signal to them that they could go back and freely engage in the same kind of reckless behavior that they were involved in previously

Essentially there was a cleansing run on the wholesale funding market in the canyons of Wall Street going on. It would have worked its will, just like JP Morgan allowed it to happen in 1907 when we did not have the Fed getting in the way. Because they stopped it in its tracks after the AIG bailout and then all the alphabet soup of different lines that the Fed threw out, and then the enactment of TARP, the last two investment banks standing were rescued, Goldman and Morgan [Stanley], and they should not have been. As a result of being rescued and having the cleansing liquidation of rotten balance sheets stopped, within a few weeks and certainly months they were back to the same old games, such that Goldman Sachs got $10 billion dollars for the fiscal year that started three months later after that check went out, which was October 2008. For the fiscal 2009 year, Goldman Sachs generated what I call a $29 billion surplus – $13 billion of net income after tax, and on top of that $16 billion of salaries and bonuses, 95% of it which was bonuses.

Therefore, the idea that they were on death’s door does not stack up. Even if they had been, it would not make any difference to the health of the financial system. These firms are supposed to come and go, and if people make really bad bets, if they have a trillion dollar balance sheet with six, seven, eight hundred billion dollars worth of hot-money short-term funding, then they ought to take their just reward, because it would create lessons, it would create discipline. So all the new firms that would have been formed out of the remnants of Goldman Sachs where everybody lost their stock values – which for most of these partners is tens of millions, hundreds of millions – when they formed a new firm, I doubt whether they would have gone back to the old game. What happened was the Fed stopped everything in its tracks, kept Goldman Sachs intact, the reckless Goldman Sachs and the reckless Morgan Stanley, everyone quickly recovered their stock value and the game continues. This is one of the evils that comes from this kind of deep intervention in the capital and money markets.

The lessons that we were supposed to learn from the crisis of 2008 have not been learned.

Instead, the lure of huge returns and big bonuses has caused a return to the exact same behavior that caused the crisis of 2008 in the first place.  The following is one example of this phenomenon from a recent article by Wolf Richter

The craziness on Wall Street, the reckless for-the-moment-only behavior that led to the Financial Crisis, is back.

This time it’s Citigroup that is once again concocting “synthetic” securities, like those that had wreaked havoc five years ago. And once again, it’s using them to shuffle off risks through the filters of Wall Street to people who might never know.

What bubbled to the surface is that Citigroup is selling synthetic securities that yield 13% to 15% annually—synthetic because they’re based on credit derivatives. Apparently, Citi has a bunch of shipping loans on its books, and it’s trying to protect itself against default. In return for succulent interest payments, investors will take on some of the risks of these loans.

Yes, the Dow hit another new all-time high today.  But the derivatives bubble that hangs over the global economy like a sword of Damocles could burst at literally any moment.  When it does, the damage is going to be incalculable.

In a previous article entitled “Why Is The World Economy Doomed? The Global Financial Pyramid Scheme By The Numbers“, I noted a couple of statistics that show why derivatives are such an enormous problem…

-$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.

When the derivatives bubble finally bursts, where are we going to get the trillions upon trillions of dollars that will be needed to “fix” things this time?

And sadly, the reality is that we are quickly running out of time.

It is important to keep watching Europe.  As I noted the other day, the European banking system as a whole is leveraged about 26 to 1 at this point.  When Lehman Brothers finally collapsed, it was leveraged about 30 to 1.

And the economic crisis over in Europe just continues to get worse.  It was announced on Tuesday that the unemployment rate in the eurozone is at an all-time record high of 12 percent, and the latest manufacturing numbers show that manufacturing activity over in Europe is in the process of collapsing.

So don’t be fooled by the fact that the Dow keeps setting new all-time record highs.  This bubble of false hope will be very short-lived.

The unfortunate truth is that the global financial system is a complete and total mess, and at this point a collapse appears to be inevitable.

Gambling With Our Money - Photo by Antoine Taveneaux

After The Banksters Steal Money From Bank Accounts In Cyprus They Will Start Doing It EVERYWHERE

If The Banksters Will Steal Money From Bank Accounts In Cyprus Then They Will Do It ANYWHERECyprus 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…

Bank Robbery In Progress - Photo by PAVA

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