As many of you are probably already aware, the small European island nation of Cyprus is in the midst of a major financial crisis. The Cypriot banking system found itself in need of a bailout due to its heavy exposure to the failed Greek economy through loans made to Greek residents and large holdings of Greek government debt. Cyprus and Greece have had long standing economic ties so the on-going economic turmoil in Greece has created substantial problems for the Cypriot banks prompting a need for them to be bailed out. Amazingly the EU and the IMF originally decided that they wouldn’t bailout the Cypriot banks unless Cyprus agreed to implement a so-called deposit tax. In reality the proposal was nothing more than an outright confiscation. Specifically the original plan called for a theft of 6.75% on accounts with less than 100,000 euros and a theft of 9.9% on accounts with more than 100,000 euros. Shortly after news of this broke there was an immediate run on Cypriot banks and ATM machines causing Cyprus to order a bank shutdown which has remained in effect for over a week as policy makers try to agree on a revised bailout solution.
The talking head propagandists on CNBC and the other mainstream financial news networks aren’t really giving this story the attention that it deserves. In fact they are trying to make people believe that the story isn’t really that big of a deal when that couldn’t be further from the truth. What the EU and the IMF did was openly declare that they will steal money from depositors as a means to prop up a failing financial system. This is an incredibly dangerous precedent that has numerous economic ramifications for the entire European banking system. Even though central banks are already robbing people by devaluing currencies through limitless money creation programs, it is utterly astounding that the central planners were dumb enough to propose something like this. With inflation the theft is less recognizable since the nominal value of everyone’s bank account is retained but is left with diminished purchasing power. With this proposal, the theft taking place is blatantly obvious and this is the main reason why the Cypriot people ran to banks and ATM machines to withdraw their money.
Cyprus comparatively speaking is a small country within the EU which has caused some to speculate that this plan was a beta test to see if they could get away with the same scam in other countries. They grossly miscalculated because this plan has only served to further erode confidence in the entire financial system. If they are willing to confiscate a portion of people’s deposits in Cyprus, than why wouldn’t they consider similar measures in other European countries? Surely people elsewhere in Europe are witnessing the unfolding drama happening in Cyprus and are wondering if they would also try to confiscate deposits in their country. This is especially true in countries like Spain, Portugal, Italy, Greece and others that are currently in the midst of great financial stress. This means that in the aftermath of what happens in Cyprus you could very well see contagion spreading into other banking systems around Europe.
No matter what happens in Cyprus the outcome is not going to be good. When the Cypriot banks are finally allowed to reopen there will undoubtedly be more bank runs causing an implosion in the entire banking system. Even if capital controls are imposed limiting the amount of money people can withdraw this will represent another indirect form of confiscation and further destroy people’s confidence in banks.
The events in Cyprus are highlighting the fact that money is not safe in banks. Today banks around the world use the fraudulent principle of fractional reserve banking which means they loan out multiple times the amount of money that they have on deposit. It is nothing more than a Ponzi scheme. The scam is fully revealed when a significant number of depositors attempt to remove their money from the bank all at once. Since the money is already loaned out to other people they have nothing to give back to depositors. This is exactly what we are seeing unfold in Cyprus and it is not something that we are immune to here in the United States.
Some would argue that since we have the Federal Deposit Insurance Corporation or the FDIC which provides insurance on deposits of $250,000 or less that your money is safe. In reality the FDIC only has a small fraction of the necessary funds to insure the deposits held in American banks. It is not safe and like everything with the banking system it is all a confidence game. In the case of Cyprus, the government actually insured most bank deposits but that became irrelevant with the on-going bank holiday and the proposed confiscation plan. The insurance was never a safety net for Cypriot depositors but just a mechanism to fool people into thinking it was.
The Cyprus fiasco is something that should be looked at very carefully as it unfolds. This could be an enormously significant historical event that triggers a greater economic calamity across Europe. Many prominent analysts have said that this could end up being an even more important economic event than the Lehman Brothers collapse was back in 2008. Only time will tell, but if this event doesn’t underscore the importance of having a good portion of your personal wealth outside of the banking system it is hard to say what will. The entire financial system is run off of debt based currencies and fractional reserve banking pyramid scams and it represents nothing more than a house of cards which will one day collapse. The only question remaining is when the final day of reckoning will come to pass.
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