EU - Policy Shift Threatens the View of Bank Deposits

Bail-In Blues: Luxembourg Warns of Investor Flight from Europe 03-29-13 der Spiegel

The debate over this week's "bail in" of bank account holders in Cyprus as part of the country's debt crisis bailout is continuing to simmer in Europe. In Luxembourg, Finance Minister Luc Frieden has warned that the example set in Cyprus by taxing people holding €100,000 ($129,000) or more in their accounts could drive investors out of Europe.

dsl/SPIEGEL

THE CYPRUS IMPACT - Crumbling EU Foundation Principles

The Seven Broken Taboos Of The Cyprus Deal 03-31-13 Barclays via ZH

The euro’s core founding principles, based on the Maastricht Treaty’s:

1- “irrevocable” fixing of currency rates, and of

2- the free movement of capital, have been violated.

According to Barclays: From a European perspective, the list of broken taboos and assumptions continues to grow. It includes:

1. EU sovereign debt cannot be restructured: broken by the Greek PSI.

2. Senior bank debt-holders cannot be bailed in: broken several times with respect to banks in Denmark, Ireland and now two Cypriot banks.

3. Depositors are sacrosanct: broken by Cyprus – deposits greater than the formal guarantee (EUR100k) in the two biggest banks, with EUR4.2bn of uninsured deposits in Laiki Bank set for a large haircut of unknown size, and Bank of Cyprus deposits set for a haircut of around 35% according to several news reports (eg, Economist, Reuters).

4. Depositors should not be punitively taxed: broken by the Cypriot government and implicitly endorsed by the EU, but vetoed by the Cypriot parliament.

5. If capital controls are applied in the euro area, it is ‘game over’: broken by Cyprus – banks were shut for nearly two weeks; draconian controls of uncertain duration have been imposed.

6. Discussion of a euro exit is ‘off limits’: already it is apparent that euro exit was discussed with respect to Greece during H1 12; this topic again re-emerged last weekend with respect to Cyprus.

7. The EU can rely on the IMF to be sympathetic in providing financing without haircuts, even for countries with high public debt: from the Greek and now the Cypriot experience, the Fund is evidently evaluating new programmes more critically, particularly when debt/GDP ratios rise above 100%.

The euro will never be the same again; its preservation now depends urgently upon economic recovery. Without the delivery of economic growth, unemployment will rise to yet higher post-war record levels, and the widespread and growing disillusionment felt by EU citizens towards their economic regime will threaten to spill over into more explicit questioning of the euro’s suitability.

FALLING BEHIND - Here is Why

The Puppet Master: Government 03-31-13 Bill Buckler, author of The Privateer via ZH

The Puppet Master - Government

It has been well and often said that only two types of “paper” money have ever existed in history - those that are already worthless and those that are going to be. Eventually, the physical pieces of paper or plastic which have been given a function as a medium of exchange by government order may remain - but their purchasing power on the market does not. The transition point always comes when the “promises to pay” on which the fiat money depends are exposed beyond the possibility of denial to be the LIES which they always were. History is replete with examples, yet very few ask the obvious question: “Pay? - WITH WHAT??” One of the great wonders of the twentieth century was the lengths to which the economics “profession” proved willing to go to avoid even facing that question let alone trying to answer it.

For hundreds if not thousands of years of human history, the vast majority were all too well aware that the government “lives” on the backs of the people. Today, that long-held knowledge has been astonishingly successfully reversed. Today, the perceived “wisdom” is that the people live on the back of the government. In the realm of the history of ideas, it took many centuries to bring forward the idea that a life might be lived without constant kowtowing to government. It has only taken one century - the time since WW I - to all but totally submerge that legacy in a new wave of government dependency.

The old and tired phrase - “I’m from the government and I’m here to help you” - is met by as much derision as it has ever been when people bemoan the impositions of their rulers. But those same people rely on the government to insulate them from the consequences of any action they may choose to undertake.

There are people who love government, people who hate it, and people who fear it. But when the chips are down, the majority of those same people profess to have “confidence” in the government’s power to protect their “welfare”. Governments count on that confidence” above all other things.

Short On Credit And Long On Faith

The ignorance over the mechanisms and procedures which power the modern global financial and monetary system is fiercely held. When it comes to the general public, we have seen demonstrations of that on numerous occasions over the past few years, the latest being in Cyprus. As was the case in all previous like instances in other nations in Europe and elsewhere, very few of those demonstrating in the street have ever thought about the TRUE nature of the banks, central banks and governments in which they place their “trust”. Many reports on the anger of the Cypriots have talked about the end of the “age of innocence”.

Unfortunately, the term innocence is not defined as the fierce refusal to see what is right in front of one’s face. At the end of his great work, Human Action, Ludwig von Mises dealt with the real problem like this:

“There is no means by which anyone can evade his personal responsibility. Whoever neglects to examine to the best of his abilities all the problems involved voluntarily surrenders his birthright to a selfappointed elite of supermen. In such vital matters blind reliance upon ‘experts’ and uncritical acceptance of popular catchwords and prejudices is tantamount to the abandonment of self-determination and to yielding to other people’s domination. As conditions are today, nothing can be more important to every intelligent man than economics. His own fate and that of his progeny are at stake.”

“Whether we like it or not, it is a fact that economics cannot remain an esoteric branch of knowledge accessible only to small groups of scholars and specialists. Economics deals with society’s fundamental problems; it concerns everyone and belongs to all. It is the main and proper study of every citizen.”

Human Action was published in 1949. The problems which von Mises so brilliantly dissected then are incomparably worse now. But the main failing remains the same. Those who refuse to gain the knowledge necessary to stand for something will fall for anything. The result in Cyprus is the latest in a long line of similar cases. To give one example, how many of the “Occupy Wall Street” crowd could give a cogent explanation of what they were protesting against? The specific instances may differ, but the reaction remains the same: “But ... BUT ... YOU TOLD US IT WAS ‘SAFE’!!”

What makes it worse is that most knew that it was NOT ‘safe’ - but they refused to admit it to themselves.