However, post the Cyprus decision, the curtain has been pulled back and wizard revealed with all his faults and warts. The age of innocence is dead and with it died institutional and retail trust, confidence in the system writ large and the rule of law.
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.
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?
With the Cyprus decision, investors now know what the price is: your money is not really your money. Your bank account is not really your bank account. Your bonds, stocks, home and anything else you thinkyou own isn’t really yours. The governments of the world will take it from you whenever things get bad enough.
Pimco CEO Mohamed El-Erian told CNBC today that the decision to loot the bank accounts of Cypriot savers could blow up Europe and lead to civil unrest across the continent.
El-Erian said that the European Union had lit two sticks of dynamite in backing a proposal that could see bank accounts raided for up to 15% of their value in what has ludicrously been described as a “wealth tax” yet amounts to nothing less than an act of wanton financial plunder.
“By including small depositors, they are risking social unrest, political disorder, and potentially an exit from the eurozone,” said El-Erian, referring to people with under 100,000 euros who will still be hit by a levy of 6.75% under current proposals. Savers with 500,000 euros in the bank face losing as much as 75,000 euros.
“The worst outcome is that you get complete political breakdown, social unrest, and then Cyprus is forced to exit,” said El-Erian, adding that the move had accelerated the journey to disorder which could lead to more countries exiting the eurozone.
“The other stick of dynamite that’s been lit is much more complicated and more uncertain,” El-Erian stated. “That is a question mark about the sanctity of bank deposits in Europe,” alluding to the threat of bank runs in other Mediterranean countries.
Large protests are set to take place in the Mediterranean country tonight as well as during tomorrow’s parliamentary vote. Demonstrators have already begun congregating with signs that read “hands off Cyprus”.
Many commentators note that the deposit grab may cause panic among bank depositors in Spain and other vulnerable countries as well. Indeed, many are asking whether this could be a modern Creditanstalt situation. Another common analogy is that this could be “worse than Lehman” failing.
On the other hand – given that the entire economy of Cyprus is smaller than that of Shreveport, Louisiana, and that Cyprus is mainly a parking spot for hot money from Russian oligarchs and mafia – some say that the whole crisis will quickly blow over.
What’s the bigger picture? Bank deposit grabs may spread to other vulnerable European countries. The New York Times reports:
Jeroen Dijsselbloem, the president of the group of euro area ministers, declined early Saturday to rule out taxes on depositors in countries beyond Cyprus.
And the 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.
Indeed, Zero Hedge has been warning about this kind of scenario for years.
Why are they doing it?
As Tyler Durden notes, the Cypriot deposit grab is just one of a wide variety of forms of financial repression that central banks, big private banks and governments are using to grab money from the people. For example, negative interest rates are an ongoing theft.
Sajiyat Das writes:
A debt crisis, especially on the current scale, cannot be dealt without other than by financial repression. To date, it has taken the form of higher taxes, interest rates below the rate of inflation, directed investment and increased government intervention in the economy. Cyprus marks a new phase of financial repression, shifting the burden increasingly onto savers directly by confiscating savings.
While not the Molotov-cocktail-throwing, smoke-bomb-hurling debacle that Greece (and Spain) became, the Cypriot demonstrations are gathering pace with a large protest planned for this evening and tomorrow during the parliament’s vote. The following images give a sense of the feeling among the people…
One has to consider the fact that now - as a result of the EU's actions - the financial decisions that are being made for previously sovereign countries are done so by unelected officials not even from these countries. Consider that for a moment. A brave new world indeed.
The dominos could most definitely begin to fall in the EU, especially if we see any other dramatic financial moves in countries such as Italy, Portugal, Greece, etc.
Things are most definitely moving faster right now. It seems that the entire world is teetering just on the brink. We should expect the pace to pick up even more in the coming weeks, as we know birth pains don't reverse course or slow down. Buckle up, we may be in for a ride prophetically speaking.
Things are most definitely moving faster right now. It seems that the entire world is teetering just on the brink. We should expect the pace to pick up even more in the coming weeks, as we know birth pains don't reverse course or slow down. Buckle up, we may be in for a ride prophetically speaking.
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