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Author Topic: Cyprus has killed the myth that EMU is benign  (Read 250 times)
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« on: March 28, 2013, 02:21:19 AM »

In other Global Currency Trends ...   Cheesy

Cyprus has killed the myth that EMU is benign

By Ambrose Evans-Pritchard
The Telegraph, London
Wednesday, March 27, 2013


The punishment regime imposed on Cyprus is a trick against everybody involved in this squalid saga, against the Cypriot people and the German people, against savers and creditors. All are being deceived.

It is not a bailout. There is no debt relief for the state of Cyprus. The diktat will push the island's debt ratio to 120 percent in short order, with a high risk of an economic death spiral, a la Grecque.

Capital controls have shattered the monetary unity of European Monetary Union. A Cypriot euro is no longer a core euro. We wait to hear the first stories of shops across Europe refusing to accept euro notes issued by Cyprus, with a G in the serial number.

The curbs are draconian. There will be a forced rollover of debt. Cheques may not be cashed. Basic cross-border trade is severely curtailed. Credit card use abroad will be limited to E5,000 (L4,200) a month. "We wonder how such capital controls could eventually be lifted with no obvious cure of the underlying problem," said Credit Suisse.

The complicity of EU authorities in the original plan to violate insured bank savings -- halted only by the revolt of the Cypriot parliament -- leaves the suspicion that they will steal anybody's money if leaders of the creditor states think it is in their immediate interest to do so. Monetary union has become a danger to property.

One can only smile at the denunciations of Eurogroup chief Jeroen Dijsselbloem for letting slip that the Cypriot package is a template for future EMU rescues, with further haircuts for "uninsured deposit holders."

That is not the script. Cyprus is supposed to be a special case. Yet the "Dijssel Bomb" merely confirms that the creditor powers -- the people who run EMU at the moment -- will impose just such a policy on the rest of Club Med if push ever comes to shove. At the same time, the German bloc is lying to its own people about the real costs of holding the euro together. The accord pretends to shield the taxpayers of EMU creditor states from future losses.
By seizing E5.8 billion from savings accounts, it has reduced the headline figure on the EU-IMF Troika rescue to E10 billion.

This is legerdemain. They have simply switched the cost of the new credit line for Cyprus to the European Central Bank. The ECB will have to offset the slow-motion bank run in Cyprus with its Emergency Liquidity Assistance (ELA), and this is likely to be a big chunk of the remaining E68 billion in deposits after what has happened over the past two weeks.

Much of this will show up on the balance sheet of the Bundesbank and its peers through the ECB's Target2 payment nexus. The money will leak out of Cyprus unless the Troika tries to encircle the island with razor wire.

"In saving E5.8 billion in bailout money, the other euro-area countries will likely be on the hook for four to five times more in contingent liabilities. But, of course, the former represents real money that gives politicians a headache; the latter is monopoly central bank money," said Marchel Alexandrovich from Jefferies.

Chancellor Angela Merkel will do anything before the elections in September to disguise the true cost of the EMU project. It has been clear since August 2012 that she is willing let the ECB carry out bailouts by stealth, as the lesser of evils. Such action is invisible to the German public. It does not require a vote in the Bundestag. It circumvents democracy.

Mrs. Merkel can get away with this, provided Cyprus does not leave EMU and default on the Bundesbank's Target2 claims, yet that may well happen.


"I wouldn't be surprised to see a 20 percent fall in real GDP," said Nobel economist Paul Krugman. "Cyprus should leave the euro. Staying in means an incredibly severe depression."

"Nobody knows what is going to happen. The economy could go into a free fall," said Dimitris Drakopoulos from Nomura.

The country has just lost its core industry, a banking system with assets equal to eight times GDP, and has little to replace it with. Cyprus cannot hope to claw its way back to viability with a tourist boom because EMU membership has made it shockingly expensive. Turkey, Croatia, or Egypt are all much cheaper. Manufacturing is just 7 percent of GDP. The IMF says the labour cost index has risen even faster than in Greece, Spain, or Italy since the late 1990s.

What saved Iceland from mass unemployment after its banks blew up -- or saved Sweden and Finland in the early 1990s -- was a currency devaluation that brought industries back from the dead. Iceland's krona has fallen low enough to make it worthwhile growing tomatoes for sale in greenhouses near the Arctic Circle.

If Cyprus tries to claw back competitiveness with an "internal devaluation," it will drive unemployment to Greek levels (27 percent) and cause the economy to contract so fast that the debt ratio explodes.

The IMF's Christine Lagarde has given her blessing to the Troika deal, claiming that the package will restore Cyprus to full health, with public debt below 100 percent of GDP by 2020.

Yet the IMF has already been through this charade in Greece, and Lagarde's own staff discredited the doctrine behind EMU crisis measures. It has shown that the "fiscal multiplier" is three times higher than thought for the Club Med bloc. Austerity beyond the therapeutic dose is self-defeating.

Some in Nicosia cling to the hope that Cyprus can carry on as a financial gateway for Russians and Kazakhs as if nothing has happened. RBS says the Russians will pull what remains of their money out of Cyprus "as soon as the capital controls are lifted."

The willingness of the Cypriot authorities last week to seize money from anybody in any bank in Cyprus -- even healthy banks -- was an act of state madness. We will find out over time whether this epic blunder has destroyed confidence in the country as a financial centre or whether parts of the financial and legal services sector can rebound.

Yet surely there is no going back to the old model, even though the final package restricts the losses to the two banks that are actually in trouble. Savers above E100,000 at Laiki will lose 80 percent of their money if they get anything back. Those at the Bank of Cyprus will lose 40 percent.

Thousands of small firms trying to hang on face seizure of their operating funds. One Cypriot told me that the E400,000 trading account of his father at Laiki had just been frozen, leaving him unable to pay an Egyptian firm for a consignment of shoes.

The Cyprus debacle has taught us yet again that EMU has gone off the rails, is a danger to stability, and should be dismantled before it destroys Europe's post-war order.

Whether it marks a watershed moment in the crisis is another matter. Italy, Spain, France, and Portugal have their own crises, moving to their own rhythm.

The denouement will arrive when the democracies of southern Europe conclude that recovery is a false promise and that the only way to end mass unemployment is to break free of EMU's contractionary regime.

It will be decided by Italy, not Cyprus.

http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9957999/Cyprus-has-finally-killed-myth-that-EMU-is-benign.html

------

An 80% loss?  That's CRAZYl!!!   Shocked   Shocked   Shocked
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« Reply #1 on: March 28, 2013, 02:56:17 AM »

In other Global Currency Trends ...  Cheesy

John Laughland, the director of studies at the Institute of democracy and cooperation in Paris, believes that the developments in Cyprus share their roots with a number of historic revolutions.

'Cyprus deal pushes EU closer to French, Bolshevik revolutions'

<a href="http://www.youtube.com/watch?v=DjN86xgzlUg" target="_blank">http://www.youtube.com/watch?v=DjN86xgzlUg</a>
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« Reply #2 on: March 28, 2013, 05:28:15 AM »

Cyprus foreclosed on

<a href="http://www.youtube.com/watch?v=tAQ36hA9xpU" target="_blank">http://www.youtube.com/watch?v=tAQ36hA9xpU</a>
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« Reply #3 on: March 28, 2013, 05:40:21 AM »

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« Reply #4 on: March 29, 2013, 03:53:47 AM »

The global elite are very clearly telling us that they plan to raid our bank accounts
Michael, March 27, 2013




Don't be surprised when the global elite confiscate money from your bank account one day.  They are already very clearly telling you that they are going to do it.  Dutch Finance Minister Jeroen Dijsselbloem is the president of the Eurogroup - an organization of eurozone finance ministers that was instrumental in putting together the Cyprus "deal" - and he has said publicly that what has just happened in Cyprus will serve as a blueprint for future bank bailouts.  What that means is that when the chips are down, they are going to come after YOUR money.  So why should anyone put a large amount of money in the bank at this point?  Perhaps you can make one or two percent on your money if you shop around for a really good deal, but there is also a chance that 40 percent (or more) of your money will be confiscated if the bank fails.  And considering the fact that there are vast numbers of banks all over the United States and Europe that are teetering on the verge of insolvency, why would anyone want to take such a risk?  What the global elite have done is that they have messed around with the fundamental trust that people have in the banking system.  In order for any financial system to work, people must have faith in the safety and security of that financial system.  People put their money in the bank because they think that it will be safe there.  If you take away that feeling of safety, you jeopardize the entire system.

So exactly how did the big banks in Cyprus get into so much trouble?  Well, they have been doing exactly what hundreds of other large banks all over the U.S. and Europe have been doing.  They have been gambling with our money.  In particular, the big banks in Cyprus made huge bets on Greek sovereign debt which ended up failing.

But what happened in Cyprus is just the tip of the iceberg.  All over the planet major financial institutions are being incredibly reckless with client money.  They are leveraged to the hilt and they have transformed the global financial system into a gigantic casino.

If they win on their bets, they become fabulously wealthy.

If they lose on their bets, they know that the politicians won't let the banks fail.  They know that they will get bailed out one way or another.

And who pays?

We do.

Either our tax dollars are used to fund a government-sponsored bailout, or as we have just witnessed in Cyprus, money is directly confiscated from our bank accounts.

And then the game begins again.

People need to understand that the precedent that has just been set in Cyprus is a game changer.

The next time that a major bank fails in Greece or Italy or Spain (or in the United States for that matter), the precedent that has been set in Cyprus will be looked to as a "template" for how to handle the situation.

Eurogroup president Jeroen Dijsselbloem has even publicly admitted that what just happened in Cyprus will serve as a model for future bank bailouts.  Just check out what he said a few days ago...

Quote

"If there is a risk in a bank, our first question should be 'Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?'. If the bank can't do it, then we'll talk to the shareholders and the bondholders, we'll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders"



Dijsselbloem insists that this will cause people "to think about the risks" before they put their money somewhere...

Quote

"It will force all financial institutions, as well as investors, to think about the risks they are taking on because they will now have to realise that it may also hurt them. The risks might come towards them."


Well, as depositors in Cyprus just found out, there is a risk that you could lose 40 percent (and that is the best case scenario) of your money if you put it in the bank.

Why would anyone want to take that risk - especially in a nation that is already experiencing very serious financial troubles such as Greece, Italy or Spain?

As if that was not enough, Dijsselbloem later went in front of the Dutch parliament and publicly defended a wealth tax like the one that was just imposed in Cyprus.

Dijsselbloem is being widely criticized, and rightfully so.  But at least he is being more honest that many other politicians.  His predecessor as the head of the Eurogroup, Jean-Claude Juncker, once said that "you have to lie" to the people in order to keep the financial markets calm...

Mr. Dijsselbloem's style contrasts with that of his predecessor, Jean-Claude Juncker, Luxembourg's prime minister, who spoke in a low mumble at news conferences and was expert at sidestepping questions. Mr. Juncker once even advocated lying as a way to prevent financial markets from panicking—as they did Monday after Mr. Dijsselbloem's comments.

Quote
"When it becomes serious, you have to lie," Mr. Juncker said in April 2011. "If you have pre-indicated possible decisions, you are feeding speculation in the financial markets."

But Dijsselbloem is certainly not the only one among the global elite that is admitting what is coming next.  Just check out what Joerg Kraemer, the chief economist at Commerzbank, recently told Handelsblatt about what he believes should be done in Italy...

Quote
"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"

Yikes!

And as I wrote about the other day, the Finance Minister of New Zealand is proposing that bank account holders in his nation should be required to "take a haircut" if any banks in his nation fail.

They are telling us what they plan to do.

They are telling us that they plan to raid all of our bank accounts when the global financial system fails.

And calling it a "haircut" does not change the fact of what it really is.  The truth is that when they confiscate money from our bank accounts it is outright theft.  Just check out what the Daily Mail had to say about the situation in Cyprus...

Quote

People who rob old ladies in the street, or hold up security vans, are branded as thieves. Yet when Germany presides over a heist of billions of pounds from private savers’ Cyprus bank accounts, to ‘save the euro’ for the hundredth time, this is claimed as high statesmanship.

It is nothing of the sort. The deal to secure a €10 billion German bailout of the bankrupt Mediterranean island is one of the nastiest and most immoral political acts of modern times.

It has struck fear into the hearts of hundreds of millions of European citizens, because it establishes a dire precedent.


And when you cause paralysis in the banking system, a once thriving economy can freeze up almost overnight.  The following is an excerpt from a report from someone that is actually living over in Cyprus...

Quote
As it stands now, nowhere in Cyprus accepts credit or debit cards anymore for fear of not being paid, it is CASH ONLY. Businesses have stopped functioning because they cannot pay employees OR pay for the stock they receive because the banks are closed. If the banks remain closed, the economy will be destroyed and STOP COMPLETELY. Looting, robberies and theft are already on the rise. If the banks open now, there will be a massive run on the bank, and the banks will FAIL loosing all of its deposits, also causing an economic crash. TONIGHT there are demonstrations at most street corners and especially at the parliament building (just 2 miles from me).

Many are thinking that the ECB and EU are allowing Cyprus to fail as a test ground for new financial standards.

Just wanted all you guys to know the real story of whats going on here. Prayers are appreciated (although this is very interesting to watch) many of my local friends have lots of money in the banks.


Would similar things happen in the United States if there was a major banking crisis someday?

That is something to think about.

In any event, the problems in the rest of Europe continue to get even worse...

-The stock market in Greece is crashing.  It is down by more than 10 percent over the past two days.

-The stock markets in Italy and Spain are experiencing huge declines as well.  Banking stocks are being hit particularly hard.

-The Bank of Spain says that the Spanish economy will sink even deeper into recession this year.

-The latest numbers from the Spanish government show that Spain's debt problem is rapidly getting worse...

Quote

"The central government’s interest bill surged 15 percent last year to 26 billion euros, while tax receipts slumped 21 percent. The cost of servicing debt represented 30 percent of the taxes collected at the end of December, up from 20 percent a year earlier."


-The euro took quite a tumble on Thursday and the euro will likely continue to decline steadily in the weeks and months to come.

For a very long time I have been warning that the next major wave of the economic collapse is going to originate in Europe.

Hopefully people are starting to see what I am talking about.

As this point, the major banks in Europe are leveraged about 26 to 1, and that is close to the kind of leverage that Lehman Brothers had when it finally collapsed.  As a whole, European banks are drowning in debt, they are taking risks that are almost incomprehensible and now faith in those banks has been greatly undermined by what has happened in Cyprus.

Anyone that cannot see a crisis coming in Europe simply does not understand the financial world.  A moment of reckoning is rapidly approaching for Europe.  The following is from a recent article by Graham Summers...

Quote
At the end of the day, the reason Europe hasn’t been fixed is because CAPITAL SIMPLY ISN’T THERE. Europe and its alleged backstops are out of money. This includes Germany, the ECB and the mega-bailout funds such as the ESM.

Germany has already committed to bailouts that equal 5% of its GDP. The single largest transfer payment ever made by one country to another was the Marshall Plan in which the US transferred an amount equal to 5% of its GDP. Germany WILL NOT exceed this. So don’t count on more money from Germany.

The ECB is chock full of garbage debts which have been pledged as collateral for loans. If anyone of significance defaults in Europe, the ECB is insolvent. Sure it can print more money, but once the BIG collateral call hits, money printing is useless because the amount of money the ECB would have to print would implode the system.

And then of course there are the mega bailout funds such as the ESM. The only problem here is that
Spain and Italy make up 30% of the ESM's supposed “funding.” That’s right, nearly one third of the mega-bailout fund’s capital will come from countries that are bankrupt themselves.

What could go wrong?


Right now, close to half of all money that is on deposit at banks in Europe is uninsured.  As people move that uninsured money out of the banks, the amount of money that will be required to "fix the banks" will go up even higher.

It would be wise to try to avoid the big banks at this point - especially those with very large exposure to derivatives.  Any financial institution that uses customer money to make reckless bets is not to be trusted.

If you can find a small local bank or credit union to do business with you will probably be better off.

And don't think that this kind of thing can never happen in the United States.

One of the key players that was pushing the idea of a "wealth tax" in Cyprus was the IMF.  And everyone knows that the IMF is heavily dominated by the United States.  In fact, the headquarters of the IMF is located right in the heart of Washington D.C. not too far from the White House.  When I worked in D.C. I would walk by the IMF headquarters quite a bit.

So if the United States thought that confiscating money from bank accounts was a great idea in Cyprus, why wouldn't they implement such a thing here under similar circumstances?

The global elite are telling us what they plan to do, and the game has dramatically changed.

Move your money while you still can.

Unfortunately, it is already too late for the people of Cyprus.
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« Reply #5 on: March 29, 2013, 04:03:00 AM »

In other Global Currency Trends ...  Cheesy

CANADA INCLUDES DEPOSITOR HAIRCUT BAIL-IN PROVISION FOR SYSTEMICALLY IMPORTANT BANKS IN 2013 BUDGET!


Just as DieselBOOM accidentally admitted Monday, it appears that the Cypriot bail-in is anything but a one-off event, and is in fact the new collapse template for the entire Western banking system, and not just the ECB/ Eurozone!


I have been alerted to an alarming provision that has been buried deep inside the official 2013 Canadian Budget that will result in depositor haircut bail-ins jumping to this side of the pond during the next bank crisis!

Titled ECONOMIC ACTION PLAN 2013 and tabled in the House of Commons by Minster of Finance James Flaherty on March 21st, the official 2013 Canadian budget contains an explicit provision that Canada will pursue the bail-in model for systemically important banks for future bank failures! Depositor haircuts have just jumped to this side of the pond, effective the next bank crisis/ failure:


From Page 144:

“The Government also recognizes the need to manage the risks associated with systemically important banks—those banks whose distress or failure could cause a disruption to the financial system and, in turn, negative impacts on the economy. This requires strong prudential oversight and a robust set of options for resolving these institutions without the use of taxpayer funds, in the unlikely event that one becomes non-viable.”


Translated, Without the use of taxpayer funds means via depositor funds.

And the meat of the provision, from Page 145:

The Government proposes to implement a bail-in regime for systemically important banks. This regime will be designed to ensure that, in the unlikely event that a systemically important bank depletes its capital, the bank can be recapitalized and returned to viability through the very rapid conversion of certain bank liabilities into regulatory capital.

This will reduce risks for taxpayers.
The Government will consult stakeholders on how best to implement a bail-in regime in Canada.

Implementation timelines will allow for a smooth transition for affected institutions, investors and other market participants…
 
Confiscating wealth from depositors will reduce risks for taxpayers???  Only those with 100% of their assets in physical gold and silver, or those Canadian depositors who are somehow not also taxpayers perhaps!

The bail-in provision in Canada’s 2013 budget can be found on pages 144,145:

www.budget.gc.ca/2013/doc/plan/budget2013-eng.pdf <-- pdf file
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« Reply #6 on: March 29, 2013, 07:22:11 AM »

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« Reply #7 on: April 04, 2013, 02:35:01 AM »

If you care to know what is going on in Cyprus the main Broadcasting establishment in Cyprus has been streaming a channel in Cyprus which has English from 10:00-4:00 CT and 4:00-10:00 CT at http://www.cybc.com.cy/index.php/radio?id=78 This way you can get it from the horse's mouth
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