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18 March 2013

Crisis In Cyprus

As stock market speculation reaches new highs, it is important to realize that the rumblings of global financial collapse are growing in the Eurozone.

The European Central Bank has outlined a €10 billion “bailout” plan for Cyprus.[1]
In what is being called “The Great Bank Robbery”, the plan calls for a one-time theft (tax) of 6.75% on all bank deposits under €100k, as well as a 9.9% “tax” on deposits over that amount.
The 6.75% and 9.9% amounts have been immediately frozen and will not be available for withdrawal when banks reopen on Tuesday. Thursday. Citizens and other depositors of funds in Cyprus banks woke up Saturday morning potentially poorer with no warning.

In a normally functioning economy (or what passes for normal today), when an institution is insolvent, the order of liquidation is;

Preferred shareholders
Debt (Bond) holders
Central Bank creditors
and lastly, Depositors that order.

Deposits of €100k or less are, or were, guaranteed. This guarantee has been abandoned. This abandonment sets a damaging precedent and calls into question all Central Bank guarantees and assurances.
The ECB says €10 billion is needed, but €17.7 billion could be raised from shareholders, bondholders, and Central Bank creditors[2]. This begs the question why does the Central Bank need to steal money from depositors? As investors, shareholders and bondholders are, and should be, exposed to risk. Depositors should not be.

I believe the European Central Bank is doing this as a high-risk test case to judge the peoples reaction and to see how far they can go, how blatantly they can steal from the general populace to protect their rich accomplices.

The risk of course, is a run on banks in other troubled Eurozone countries, specifically Spain, Italy and Portugal. We will be seeing measures in the next few days by the ECB to attempt to stave off these bank runs.

Can it spread to the U.S.? Probably not in the near term. Americans are still lulled into believing that all will be well. In the medium term, the probability that the collapse will ensnare the U.S. as well is 100%.
You have been warned.