Monday, March 25, 2013

When a Euro is not a Euro, or a plug nickel either

Not all euros are created equal anymore. Cyprus has managed to reach a deal with the IMF and the European Central Bank to get a enough cash to keep going, provided that they 'tax' depositors with more than $130,000 in the bank to pay for it. One major bank will close, but the real kicker is that there will be capital transfer controls. If you have a euro and live in France, you can spend it anywhere. If you have a euro and live on Cyprus, you're just stuck with it.

It means a Cyprus euro isn't really a euro anymore. Okay, the island was running a massive money laundering operation for Russia crime lords (which is just about everybody in Russia with money), but the average Cypriot is going to pay a heavy price even if they don't have money taken out of their bank accounts. It's because their the money just isn't worth very much anymore, their real estate values will drop to nothing and good luck with making a buck of any kind. Sort of like living in a particular US state and being told your money will no longer be accepted in the other states. Confederate dollars anyone? Not quite the same thing, but bankers were behind that whole nastiness too.

The larger picture on this is that any country in the eurozone who starts to have problems with their economy is going to have bank runs. Once this happens anywhere, it's going to push the self-reinforcing spiral toward oblivion. The right is trumpeting that the Cyprus event will escalate into the USD collapse any day now (it's always 'the end of the world' any day now).
This is because Obama wants to take your cash, your guns, your bibles, your white women to ravage, and your sons to turn gay. "Pray to Jesus and buy our gold for your own salvation..." It doesn't seem to occur to them that gold would be even easier to confiscate, oh that's right, they sell gold.

The bad news is that the big money on the right continues to water down US banking regulations. The Dodd-Frank Act did in theory fix all these problems, but unfortunately this all depended on the 'interpretation' of the law by the commissions with authority to write regulations, and they have their own dictionaries. The sort of dictionary where Boehner (pronounced 'boner' in all earth languages) is pronounced 'Bayner'.The President has almost no authority over Federal Commissions, the idea being to isolate them from politics. This doesn't isolate them from people of immense wealth however. Congress has the oversight ability, but the Republicans control the House and disrupt the Senate. Elizabeth Warren is making waves on the Senate Banking Committee, but this isn't translating into any real control over these problems. 

There isn't any question about the possibility of another banking collapse, and that it will be far worse than the last one, the question is when it will happen. Almost certainly it will happen by 2016. The outcome of the chaos will depend on who wins the 2014 elections, not that the Dems winning will stop it from happening. Just whether civilization survives or not, and even the Dems are no guarentee of that.


Ronmac said...

A financial collapse by 2016? Cool.

This will give me time to perfect my snow melting/filtration system. This will allow me to distill enough copper, magnesium, iron and other valuable mineral particles which I can then sell to China. I figure I will have enough to buy six cans of dried vegetables. Or if I wait until Walmart has a sale I might be able to bump that number up to eight.

Dave said...

Bear in mind that canned goods are not currency. There will come a time that if you mistakenly reveal that you have any, you and your entire family will be done-for.

The ones who come to steal from you will have no reason to leave you alive. Dead people are never a threat to steal back ill-gotten preserved peas.

prairie2 said...

The only safety is in numbers, the only thing that can't be stolen is knowledge.

Ronmac said...

If anybody ever tries to steal my canned peas, I'll put up a defense worthy of the Russians defending the tractor factory at Stalingrad.

Fake_William_Shatner said...

This whole notion of a "reverse insurance" on bank deposits is disturbing. We have FDIC to backstop accounts up to $100,000 (it may have been raised).

But what SERVICE are banks providing if they get the benefit of your money, and use it to ensure their own mistakes?

So what incentive to banks have to be careful, to not invest in wild speculation -- or even, for instance not to divert the funds into a venture because the people who police them are owned by the banks?

This "wet dream" of putting the burden on the depositor is likely to make the "mattress" the new bank for a lot of people who can't afford to kidnap the banker's children.

prairie2 said...

I need to do a column on 'bank deposits', it's not about giving banks money. The bulk of money in circulation is simply printed. Bank deposits are intended to make the economy work by giving people a way of having liquid assets. When these 'assets' are stolen by the oligarchs it is simply theft, and not something that is 'natural' or needs to be done.

Ronmac said...

It seems there's a plan in the works for a Cyprus-style confiscation of US and UK depositors.

You can read about it here:

This is a document by the US Federal Deposit Insurance Corporation and the Bank of England on December 10, 2012. Apparently they are getting tired of these endless bailouts and austerity measures which everybody hates. Why not just go for the jugular?

Can they do it? Yes they can. When you put money in the bank, the bank owns it. You become a creditor. Until now banks have been obligated to pay IOU back on demand in the form of cash. But under this plan, IOU's will be converted to bank stock. The bank can keep your money and you get stock which you can sell to anybody else (if you're lucky).