Bank Run Alert

Reading time: 1,337 words, 4 pages, 3 to 5 minutes.

Cyprus is a small Mediterranean island with two of their major banks bankrupt. As part of their bailout, the Eurozone insisted that Cyprus (which is also bankrupt, as are all governments nowadays, but they’re desperately pretending otherwise) put some skin in the game. Being broke, they tried to hit bank depositors with a deposit levy. When bank robber Willie Sutton was asked why he robbed banks, he said “Because that’s where the money is.” Governments understand that, too.

They announced a “one-time fee” of 6.75% for deposits up to 100,000 Euros and 9.9% on deposits greater than that. This sent shock waves through the markets on Monday, March 18 and created a run on Cypriot banks as depositors tried to get their money out. The Cypriot government declared a ‘bank holiday’ and shut the banks until Thursday.

This so-called fee (confiscation, theft or whatever you want to call it) will be swapped with bank shares of an equal value. Isn’t that wonderful? Cypriot savers would have exchanged their money for shares in bankrupt banks. Keep that in mind when the time comes when our own desperate banks invent creative excuses for robbing us.

I’ve long been warning readers to keep some cash on hand outside the banks (including credit unions). Try to have at least enough to cover one month’s expenses. If you can’t afford that much, then keep as much as you can.

If there’s a run on our banks and they declare a ‘bank holiday’ there’s no telling how long before you’ll be able to access your money. Bank machiness and debit cards won’t work. Governments know they will need to get the banking system up and running as soon as possible otherwise our incredible shrinking economies will collapse even faster, but with world-wide panic and global ‘runs’ there’s no telling how long this will take.

Over-indebted governments are becoming so desperate that they’re now resorting to daylight robbery, but they’re starting with a small country like Cyprus. If they could get away with it there you can bet it’ll be the start of a very slippery slope. What’s amazing about Cyprus is their government debt is only 70% of GDP. In comparison, Canada’s is 88%, a shade under the 90% danger zone, the U.S. is over 100% and Japan is over 250%.

However, this Cypriot daylight robbery poses several problems. First, as much as 40% of Cypriot deposits are Russian loot. Russian oligarchs like to park some of their ill-gotten gains offshore in Cyprus where regulations are lax and the weather is warm and sunny. It takes incredible stupidity or desperation or both to piss off the Russian mafia. Dennis Gartman says, “Russian Mafia figures do not take well to being stolen from, and they take even less well to be made fools of.”

The second problem is worse. Up to now, only bank stock and bond holders risked losses. Investments are never guaranteed but bank deposits are, or rather, they were. Not anymore it seems. The government of Cyprus insured depositors up to €100,000 and other western governments insure up to $250,000 and Ireland, much to its chagrin had unlimited insurance which ultimately led to their downfall (that’s another story).

Another problem is that the weakness of central banks such as the Federal Reserve have now been exposed. As Max Keiser says, “All pretense is now gone that central or global bankers can ‘securitize’ growth by packaging and repackaging debt; by hypothicating and rehypothicating debt; by regulating and re-regulating debt.” The whole world now knows “the Emperor has no clothes”. Central banks have for a century slowly confiscated our money through inflation but, now they’ve run out of ammunition and are resorting to outright theft.

A further problem is this has shaken credit markets so credit spreads are widening. Central banks have allowed our bankrupt economies to limp along with near zero interest rates. Once they lose control and interest rates rise, many bad things happen. The cost of borrowing increases, economic growth collapses and government debt grows exponentially. As well, bonds lose value as interest rates rise so gazillions of dollars will be stampeding out of the bond market. Where will the money go? It’ll go everywhere; stocks which are already in bubble territory, commodities which will contribute to inflation, higher food prices and world-wide food riots; and into gold and precious metals thus driving up their price and further destroying confidence in fiat currencies.

The entire global financial system is based on confidence. I’m surprised there are still people who believe our currencies are based on gold (they’re not, ever since the 1970’s). Another in our endless list of problems is that confidence is now shaken to the core and we are another step closer to the drain.

Later this this afternoon, MarketWatch, MarketWatch reported, “The parliament in Cyprus rejected Tuesday a controversial plan to impose a tax on bank deposits, according to media reports. The deposit levy was required by international lenders in exchange for a sovereign bailout for Cyprus.”

The Financial Times and the New York Times and others in the ass media also reported at a dizzying speed I’ve never seen before in what can only be an attempt to extinguish the conflagration. Nothing to see here folks. Move along.

However, the damage is done. The cat’s out of the bag. Depositor confidence world-wide is shaken just as (now bankrupt) Bear Sterns’ two collapsing hedge funds in 2007 withdrew their offers to sell when they received bids between 5¢ and 30¢ on the dollar. However, the damage had been done and the whole world realized that derivatives and other bank assets were toxic and practically worthless.

Watch what happens in Cyprus on Thursday when the banks re-open. Keep your eye on other small, bankrupt countries like Portugal, Spain, Italy and Greece. If a Cypriot bank run spreads, it could go viral. You can bet planes filled with Euros are being flown to Cyprus because modern fractional reserve banks only keep a fraction of their deposits on hand.

I won’t advise you to get your money out of the banking system because I don’t want to be accused of contributing to a bank run (hint, hint). However, when something is going to fall, give it a push and get it over with so we can start re-building instead of dragging out the pain.

The trend is clear. Nothing in this universe moves with constant speed except light and certainly nothing in our man-made financial universe moves with constant speed either up or down. Not only is the trend clear but, it will accelerate. Even if they manage to cobble this together and prevent the contagion from spreading for now, our financial systems are shaking themselves apart as confiscation is now being brazenly attempted in broad daylight.

The futile backpedalling has now started. No sooner did the Cypriot Parliament reject depositors’ theft this afternoon than the idiots at the European Central Bank (ECB) saw the light and announced a liquidity bailout as MarketWatch reported. “The announcement comes after Cypriot lawmakers rejected a measure that would levy bank deposits in the country to help pay for a bailout.” It’s telling that the report didn’t help the flagging Euro. “Following the report, the euro briefly spiked above $1.29 but soon fell below that level, where it’s been most of the day.”

It’s odd that the incompetent ECB couldn’t have done that before they let the shit hit the fan. To mix my metaphors, once the toothpaste is out of the tube, you can’t get it back in again.

Of course the thoroughly manipulated Dow market index ended higher after a miraculous late-day rebound thanks to Ben Bernanke and his shyster banksters. Move along folks. Nothing to see here.

You know what to do with your cash. And, if you have some wealth that you want to protect, put part of it into gold and if not gold then silver and if not silver then essential, long lasting ‘stuff’ that you will use in the future and, if worse comes to worst, you can always use it for barter. But get it the hell out of banks (oops, did I say that?)

March 19, 2013

Update – March 20, 2013

Cyprus will keep their banks closed for five more days, until Tuesday, “as politicians and technocrats probe ways of urgently raising funds to close a gap created when parliament rejected a levy on bank deposits… The government hopes that by that time it will be able to work out a way of raising 5.8 billion euros (7.5 billion U.S. dollars) demanded by international lenders.”

Jim Sinclair on King World News says, “Cyprus Disaster Is Much Bigger Than Being Reported” “If people believe that $13 billion is the total of this bailout, they are out of their minds. $130 billion is not the true total of even the Russian deposits in Cyprus banks. One important Russian businessman, in his various business enterprises, would have $100 billion on deposit himself. 10% of all deposits in Cypress could be $500 billion or more because Cyprus is the banking entity for Russia, not Switzerland or Grand Cayman.”

Remember what I said about a slippery slope? Well, it’s slipping. Once the bankster shysters smell blood, they go into a feeding frenzy that make sharks look tame. Jim Sinclair also reported, Spanish Banks: A new tax on deposits? “The Finance Minister said yesterday in the Senate that the Government will impose a tax on bank deposits. According to press sources citing the Finance Minister, the levy would reach a maximum of 0.3% of time deposits.” The Bedouin have a saying, “When the camel’s nose enters the tent, can the rest of the camel be far behind?”

The Amerikans never pass up the opportunity to kick an opponent when he’s down.
S&P cuts Cyprus rating further into junk “Standard & Poor’s late Thursday cut its rating on Cyprus one notch further into junk territory because of acute problems with the Mediterreanean island nation’s banking sector. S&P lowered Cyprus’s long-term sovereign credit rating to CCC from CCC+ with a negative outlook.”

Stay tuned. Cyprus could be the next black swan.

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About gerold

I have a bit of financial experience having invested in stocks in the 1960s & 70s, commodities in the 80s & commercial real estate in the 90s (I sold in 2005.) I'm back in stocks. I am appalled at our rapidly deteriorating global condition so I've written articles for family, friends & colleagues since 2007; warning them and doing my best to explain what's happening, what we can expect in the future and what you can do to prepare and mitigate the worst of the economic, social, political and nuclear fallout. As a public service in 2010 I decided to create a blog accessible to a larger number of people because I believe that knowledge not shared is wasted.
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2 Responses to Bank Run Alert

  1. lunarfly says:

    did Cyprus vote not to impose the tax?

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