![[Most Recent Quotes from www.kitco.com]](http://www.kitconet.com/images/quotes_7a.gif)
The Federal Reserve has printed over $1 trillion for foreign banks
Since the dollar continues to be the world reserve currency, and since the mega banks float like clouds over the entire planet paying little attention to borders, we shouldn’t be surprised. But that the Fed has essentially given away $1 trillion to non-American banks is pretty amazing . (Not that American banks are any better than the foreign ones of course.)
What happens when the global banks don’t get their sugar? QE, despite what some may argue (though rarely in public) can’t go on forever. It will have to end at some point.
A few days ago I heard something about Bernanke and company trying to engineer a “soft landing” post QE. When I hear talk of “soft landings” my blood pressure usually lifts a bit as soft landings rarely occur, and are even more rarely “engineered.”
If the entire world is addicted to what the Fed is pushing (and we have long known that it is) the whole world is going to feel a coordinated withdrawal too as QE “ends.”
View full post on AgainstCronyCapitalism.org
Gold and Silver • U.S. Banks Buy Gold Futures in Dramatic Position Change
U.S. Banks Buy Gold Futures in Dramatic Position Change
http://www.gotgoldreport.com/2013/05/us … hange.html
HOUSTON – We thought we would share with our readership an important change in the positioning of large U.S. banks in the monthly futures-only Bank Participation Report (BPR) issued by the Commodity Futures Trading Commission (CFTC). The most recent report was published Friday, May 10 for positions as of the close on Tuesday, May 7.
The main reason we are going to the trouble of doing this short report is that there is a surprising dearth of accurate information about the new data available on the Web.
One of our members forwarded to us some coverage by others which we found utterly useless and inaccurate (showing a preconceived bias on the part of the author), so perhaps this report will provide some clarity for those who closely follow the CFTC commitments of traders reports as well as the positioning of banks in futures.
U.S. Banks Net Shorts Fall to Lowest Since Summer, 2008
Let’s start this review with our comments shared with GGR Subscribers on Sunday, May 12. After mentioning that the combined commercial traders – the Big Hedgers, which includes the U.S. banks in the Legacy COT reports – had reduced their collective net short positioning for gold to the lowest since the 2008 panic and at a “very fast pace,” we said:
“An aggressive pace of LCNS reduction with none more aggressive than U.S. banks. The Bank Participation Report (not to be confused with the weekly Legacy COT report, which is separate) shows that over the past month U.S. banks covered or offset a whopping 24,855 (60%) of their net shorts (from 41,666 to just 16,781 contracts net short). The number of U.S. banks reporting falls below 4, a tell. We have not seen the U.S. banks show so low a net short position since they briefly went slightly net long in the summer of 2008 during the panic.”
So in just one month, as gold fell a net $123.45 or 7.8% (from $1,575.67 on April 2 to $1,452.22 May 7), U.S. banks covered or offset 60% of their net short bets on gold, down to an extremely small 16,781 contracts net short. We have to go all the way back to the June 3, 2008 BPR to find a time when the U.S. banks, including bullion banks, showed a lower number of net short bets held.
In fact, in that June 2008 report the U.S. banks were actually net long gold then by 5,381 lots. (But as the graph below clearly shows they would not stay net long. By the next monthly report in July they had put on an amazing 82,228 contracts net short in just one month.)
Below is a graph showing the nominal net short positioning reported by U.S. banks to show it visually.
Interestingly, the U.S. banks net short positioning did not decline because they were reducing their short bets. Instead, 21,653 contracts of the change is attributable to the banks adding long contracts to their positioning for just this past month. They were not dumping their short contracts so much as adding longs in other words.
In just the five reporting months since December 4, 2012 as gold declined a net $245.10 or 14.4%, U.S. banks’ net shorts fell from 106,393 to 16,781, a plunge of 89,612 lots or a whopping 84.2%.
The net effect is clear to see in the graph above on a nominal basis. As gold fell down to test the $1,300s U.S. banks very strongly reduced their collective net short positioning and came within a whisker of becoming actually net long for the first time since the 2008 panic.
To standardize the results and show that there are no material anomalies in the data above, we compare the U.S. banks’ nominal net position with the total COMEX open interest in the graph below. From December 4 to last Tuesday, May 7, as gold fell from near $1,700 to as low as $1,321 before settling at $1,452, the U.S. banks’ net short positioning fell from a significant 24.5% to a miniscule 3.8% of all COMEX contracts open .
Clearly the U.S. banks, presumably including U.S. bullion banks, are not, that’s not, positioning as though they believe there is a great deal more downside left in gold futures.
If they did or do believe that gold could probe even lower than the $1,320s, they are not positioning for it in COMEX futures. That does not necessarily mean they are "right," but it is a window into how the largest, best funded and presumably the best informed traders of gold futures on the planet – the U.S. banks – are positioning, both for their own book and for their clients.*
It is rare to see the U.S. banks put on 21,000 or more long contracts in a month.** We have to believe that the U.S. banks would not have done that unless they meant to reduce their collective net short positioning in a relative hurry.
(A long contract benefits if prices rise. A short contract benefits if prices fall.)
* The U.S. bullion banks trade for their own account and for clients, which include a broad cross section of businesses in the gold trade (large bullion dealers, large holders of physical metal, jewelry merchants and manufacturers, producers, some refiners, bullion management firms and other middlemen, etc.).
** This is the largest increase in our records going back to 2006. Before this report the largest one month increase in U.S. bank longs was with the September 2, 2008 report, when the U.S. banks reported adding 17,567 lots with gold then about $805. By the following report, on October 7, gold had moved 9% higher to the $880s.
(Source for data CFTC for bank positioning, Cash Market for gold, GGR.)
Posted by Gene Arensberg at 01:13:58 PM in Got Gold Blog
Statistics: Posted by DIGGER DAN — Fri May 17, 2013 5:42 am
View full post on opinions.caduceusx.com
Elizabeth Warren: Give students the same deal as big banks
Some believe that had Mitt Romney embraced this idea and made it a big deal it would have put him in the White House. That’s probably right.
Why should the banks get access to free money and students not be able to? There are all sorts of issues surrounding whether loan programs should even exist at all – and I think the world would be better off with out a Federal Reserve – but that aside, why do the big banks get .5% loans and students 7%?
Goldman, JP Morgan, and their brethren are swimming in cash thanks to the government throwing digital greenbacks at them. I don’t think we should be throwing cash at anyone, in fact if the Fed must exist, and a bank needs an infusion of liquidity it should have to pay a penalty rate of interest. I am actually for letting banks go completely kaput no matter how large they are. But given that we must deal with the Fed for the foreseeable future, students might as well get the same deal as the bankers. Why should government make a free 7% from students but nothing from banks which overleverage themselves every 8 years or so?
View full post on AgainstCronyCapitalism.org
Gold and Silver • The biggest losers in gold price plunge? Central banks
The biggest losers in gold price plunge? Central banks
Debarati Roy, Maria Kolesnikova and Phoebe Sedgman, Bloomberg News | 13/04/25 .Central banks bought the most gold since 1964 last year just before the collapse in prices into a bear market underscored investors’ weakening faith in the world’s traditional store of value.
Commodity gurus are just waiting to jump back into gold
Jim Rogers, who predicted a commodity rally in 1999, said he may buy gold if a bear market deepens and prices fall to $1,300 an ounce or below.
.Nations from Colombia to Greece to South Africa bought gold as prices rose for an 11th year in 2011, highlighting the reversal of a three-decade-long bout of selling that diminished the world’s biggest bullion hoard by 19%. The World Gold Council says they added 534.6 metric tons to reserves in 2012, the most in almost a half century, and expects purchases of 450 to 550 tons this year, valued now at as much as US$25.3-billion.
They sell at the wrong time and buy at the wrong time
.Central banks are the biggest losers, with about US$560-billion of value erased since gold reached a record US$1,921.15 an ounce in September 2011. The metal was already in the eighth year of its longest bull market since the end of World War I when reserves started expanding again in 2008. They were also buying in 1980 when bullion peaked at the equivalent of US$2,400 in today’s money, and selling in 1999 as prices slumped to a 20- year low.
“They sell at the wrong time and buy at the wrong time,” said Walter “Bucky” Hellwig, who helps manage US$17-billion of assets at BB&T Wealth Management in Birmingham, Alabama. “They aren’t traders. They are looking at it as a long-term holding, as an ultimate reserve currency. With the benefit of hindsight, they tend to get it wrong more often than not.”
Annual Decline
Gold tumbled 13% to US$1,451.45 this year and entered a bear market on April 12. By the end of the next trading day, prices had slumped 14%, the biggest two-day rout in three decades. Should the metal fail to rally by the end of the year, it would mark the first annual decline since 2000. Goldman Sachs Group Inc. is forecasting US$1,390 in 12 months.
The timing of the rout is surprising because the events that sustained the bull market in the last several years are still unresolved. Central banks are printing money on an unprecedented scale as they seek to boost growth, Europe’s debt crisis is spreading and the International Monetary Fund is among those getting more pessimistic on the global economic outlook. Yet investors are now shunning an asset traditionally seen as a hedge against currency devaluation and fiscal turmoil.
Central banks owned 31,671 tons at the end of 2012, about 19% of all the metal ever mined, the London-based World Gold Council estimates. They accumulated the hoard over decades, with about 16% added in the 10 years through 1965, when prices were fixed at US$35, or about US$258 today once adjusted for U.S. inflation. President Richard Nixon formally ended the convertibility of dollars to gold in 1971.
Related
Bullish bets on gold defy worst slump in 33 years
Has gold hit bottom? As big investors rush out, consumers rush in
Meltdown? 15% of world’s gold miners face collapse after plunge in price strips $169-billion off market value
.Sales Limits
Holdings peaked at 38,347 tons in 1965 and began their most recent contraction about a decade later. Nations from Canada to the U.K. to Belgium sold more than 2,000 tons in the 1990s, contributing to the 28 percent slump in prices and spurring an agreement between 15 central banks in 1999 to set annual sales limits. Disposals under the accord dwindled to less than 6 tons last year, compared with 400 tons when it started, and were eclipsed by the purchases of other central banks.
The U.K. had the world’s second-biggest reserves in 1958 and now ranks 18th. Gordon Brown, the finance minister at the time, sold about 400 tons in auctions from 1999 to 2002, getting no more than US$296.50 and as little as US$255.75. The nation raised almost US$3.5-billion, which was invested in dollars, euros and yen. The gold is now valued at about US$18.4-billion, data compiled by Bloomberg show.
Hold Assets
Morgan Stanley expects central banks to buy another 655 tons through 2018, while the WGC anticipates purchases of at least 450 tons this year alone. The price slump may not deter them because of how much longer they typically hold assets relative to most investors. Russia and Kazakhstan expanded gold reserves for a sixth month in March, International Monetary Fund data showed today. Russian holdings rose 4.7 tons to 981.6 tons and Kazakhstan’s hoard grew 1.2 tons to 122.9 tons.
.“Central banks are strategic investors, and look at it as the currency of the last resort that lenders will gladly take,” said Rachel Benepe, who helps manage US$2.2-billion of assets at the First Eagle Gold Fund in New York. “When there are any big moves, investors get panicked. Nothing has changed from our viewpoint. Gold is a hedge against policy actions, and governments globally are announcing policies that are unproven.”
The bear market is a blow to investors who anticipated that stimulus by central banks and the almost doubling of sovereign debt to US$22.9-trillion since 2008 would debase financial assets and boost demand for the traditional store of value. The Bank of Japan and the Federal Reserve have said they need to keep buying bonds and the International Monetary Fund cut its 2013 estimate for world growth four times since July.
Previous Record
The plunge has encouraged some investors to buy more. The U.S. Mint said this week it ran out of its smallest American Eagle gold coin and purchases from the Perth Mint in Australia doubled. Standard Chartered Plc’s sales to India last week exceeded the previous record by 20% and UBS AG says physical flows there are near the highest since 2008.
Peter Macdiarmid/Getty Imageshe U.S. Mint said this week it ran out of its smallest American Eagle gold coin and purchases from the Perth Mint in Australia doubled…Price swings are an “unavoidable risk” and aren’t a “big concern” because gold is a long-term strategy for diversifying currency reserves, the Bank of Korea said in a statement April 16. The central bank almost doubled its holdings to 104.4 tons by the end of March from a year earlier, still only equal to 1.6% of all its foreign reserves, WGC data show.
While the drop in prices is “extremely concerning,” the South Africa Reserve Bank won’t adjust its reserve policy, Governor Gill Marcus told reporters April 16. The bank holds 125.1 tons, little changed over the past decade. Gold traded in rand dropped about 17 percent since reaching a record Oct. 8.
Hedge Funds
The slump means Sri Lanka will “favourably” consider buying more, central bank Governor Ajith Nivard Cabraal said in a Bloomberg Television interview April 16. The nation has 3.6 tons of reserves, from 11.6 tons when prices peaked in 2011, according to WGC data.
Central banks and other bullion buyers aren’t the only losers. The Bloomberg Research Global Gold Mining & Exploration index of 190 companies tumbled 35% this year as the MSCI All-Country World Index of stocks gained 7.5%. The Standard & Poor’s GSCI gauge of 24 commodities retreated 4.5% and a Bank of America Corp. index shows Treasuries returned 0.7%.
Paulson & Co., the hedge fund company founded by billionaire John Paulson, is the biggest investor in the world’s largest exchange-traded product backed by bullion, with a holding at the end of 2012 equal to 65.7 tons. Paulson told clients in a letter that demand from central banks, India and China will support prices.
Distressed Economies
The money manager’s views aren’t shared by all his peers. Hedge funds trimmed bullish bets on gold by 40% this year, U.S. Commodity Futures Trading Commission data show. Holdings in ETPs contracted 13% to 2,299 tons, which combined with the price slump erased almost $36 billion from their combined value.
Central banks don’t think like traders, so don’t expect them to try and time the market
.The slump into a bear market happened three days after a European Commission debt assessment said Cyprus had committed to sell about 400-million euros (US$523-million) of gold. While the Cypriot central bank, ranking 61st globally for reserves, said it hadn’t discussed such plans, it spurred speculation that other distressed European economies would do the same. Portugal, Spain, Italy and Greece own 3,228 tons.
The U.S. and Germany are the biggest owners, with gold accounting for more than 70 percent of their total reserves. Both kept holdings little changed in the past decade. The U.S. officially values its bullion at $42.2222 an ounce.
“Central banks don’t think like traders, so don’t expect them to try and time the market,” said Quincy Krosby, a market strategist for Newark, New Jersey-based Prudential Financial Inc., which oversees more than $1 trillion of assets. “It’s not that they aren’t astute enough, but their focus is to diversify, and so they really don’t focus on prices.”
http://business.financialpost.com/2013/ … ral-banks/
Statistics: Posted by yoda — Sat Apr 27, 2013 1:06 am
View full post on opinions.caduceusx.com
Other • Central Banks Grossly Incompetent: Bloomberg
Central Banks Grossly Incompetent: Bloomberg
Written by Jeff Nielson
Friday, 26 April 2013 11:21
In attempting to peddle the absurd fantasy that the world was “fleeing gold”; the Corporate Media faced two enormous hurdles. First of all, throughout (and even before) this supposed “panic”; people have in fact been buying gold (real gold) – at an unprecedented rate.
If the same Corporate Media attempted to delude people into thinking the world was “fleeing i-Pads” – as consumers emptied store shelves – even the Sheep would laugh. The propaganda machine has no answer for this.
All we get is the idiotic, rhetorical drivel; asking “if physical demand can save the gold market?” Physical demand (for gold) is the gold market. The fact that the Corporate Media at least pretends not to comprehend this fundamental reality perhaps discredits it most of all.
However, this propaganda machine can be remarkably stubborn at times; and clearly it has been instructed to maintain the “fleeing gold” fantasy – at all costs. This has (inevitably) forced it to confront the second, gigantic obstacle to this media fantasy: unprecedented gold-buying by the world’s central banks, and at record prices.
Obviously it was Bloomberg which was tapped on the shoulder for this assignment; and it immediately tips its hand as to its strategy in the first half of its title:
Gold Rout For Central Banks Buying Most Since 1964
There you have it folks! The explanation as to how/why central banks would be buying the most gold in history, at the highest (nominal) prices in history: they were simply “routed” like the Chumps which Bloomberg asserts them to be. However, before dealing with the first half of this premise; let me deal with the second half – another fantasy?
Back in 1964; the world had a gold standard, with the U.S. dollar as “reserve currency”. This meant other governments could convert their U.S. dollars to gold; as part of the routine currency transfers needed to keep a free-market currency system in balance.
For Bloomberg (and the entire propaganda machine) to suggest that central banks were “buying gold” in 1964 – rather than engaging in routine currency transfers – is to directly imply that the world was dumping U.S. dollars for gold. If anyone in the Corporate Media is able to document in our history books that the world was “fleeing U.S. dollars” in 1964; they should provide their historical references.
In fact, current gold-buying by central banks (at the highest prices in history) is at the greatest rate in history. Which once again begs the question: why? Bloomberg is emphatic:
“They sell at the wrong time and buy at the wrong time,” said Walter “Bucky” Hellwig, who helps manage $17 billion of assets at BB&T Wealth Management in Birmingham Alabama. “They aren’t traders. They are looking at it as a long-term holding, as an ultimate reserve currency. With the benefit of hindsight, they tend to get it wrong more often than not.” [emphasis mine]
It doesn’t get more unequivocal than that. They sell at the wrong time, and buy at the wrong time; and generally tend to get it wrong more often than not. But note what “it” refers to here: trading currencies. Here I will be forced to challenge one of “Bucky’s” assertions.
When Bucky suggests that central banks “aren’t traders”; he’s flat-out wrong. Central banks not only manufacture all of our currencies (except gold and silver); they are up to their eyeballs in trading this paper, by the $trillions, every day. Bloomberg quantifies their recent losses in currency-trading – in just this one currency:
Central banks are the biggest losers, with about $560 billion of value erased since gold reached a record $1,921.15 an ounce in September 2011…
Wow! Over $500 billion in “losses” in just 18 months. So when Bloomberg and Bucky assert that central banks are grossly incompetent currency-traders, to the point where even Bucky asserts that they aren’t “traders” at all; this is a very serious accusation. It’s like walking up to a bull-rider and saying, “He ain’t no cowboy.”
Unfortunately these Cowboys are in charge of the entire, global monetary system; and by proxy, the entire, global financial system. If they are all grossly incompetent when it comes to performing one of their primary functions; then they need to all be removed – now.
Or, if these institutions suffer from serial, manifest incompetence; perhaps they should be abolished together? Do we have any other “hard evidence” suggesting institutionalized incompetence among these banks? Obviously we do: the gold-buying itself.
As just noted; the central banks are not only (huge) currency-traders, they are the manufacturers of all of our paper currencies. And these “manufacturers” are now dumping their own product at the fastest rate in history (again, one must ask “why?”).
Could we come up with any more examples of institutionalized incompetence amongst the world’s central banks? Gee, I don’t know. How about “competitive devaluation”: the competition amongst these central banks to see which one can drive the value of their currency (our money) to zero…the fastest?
These currency-traders insist that competitive devaluation – destroying our currencies – is a wonderful idea; while they dump those same paper currencies (for gold) at the fastest rate in history. When all of the burger-jockeys working for McDonalds start going for lunch at Wendy’s; you don’t want to be the one contemplating eating a “Big Mac.”
Where does this leave us with the central banks? We have currency-traders whom Bloomberg and Bucky insist are literally “The Gang Who Couldn’t Shoot Straight.” Then we have their other function: manufacturing our currencies – products so defective that these same central banks are dumping them at the fastest rate in history.
We now have overwhelming evidence that central banks are manifestly incompetent institutions (if not patently suicidal). This justifies, at the least, removing this Cast of Clowns before they can inflict any more harm upon the global economy – if not abolishing these institutions altogether.
So where is the clamor among our political “leaders” to send out the Pink Slips en masse to these monetary-suicide jockeys? As was asked rhetorically in another recent commentary, “Who serves whom?”
The facts are clear. Our central banks are absolutely incompetent. They intend to destroy their currencies (our money). They will undoubtedly succeed, as has happened with every paper currency in history. As a result, these central banks are dumping these same currencies at the fastest rate in history – in favor of gold.
Simultaneously; we have just seen the greatest/fastest liquidation of paper gold in history, as the Big Money dumped unprecedented quantities of this paper, and exchanged it for real bullion. Now that the Cyprus Steal is a “precedent”; the bankers/politicians aren’t simply destroying our paper – they’re openly stealing it too.
Did I forget to mention that? The decision to steal the money out of the bank accounts of ordinary Cyprus citizens was undertaken by (you guessed it) Western central banks. So when Bloomberg accuses central banks of being grossly incompetent, this is in fact an incomplete accusation. They are grossly incompetent Thieves.
Once upon a time Bloomberg used to defend central banks – tooth and nail. It’s very difficult to see how Bloomberg could defend them ever again in the future…unless it (conveniently) “forgets” it ever wrote its own piece.
http://bullionbullscanada.com/gold-comm … ncompetent
Statistics: Posted by yoda — Fri Apr 26, 2013 12:01 pm
View full post on opinions.caduceusx.com
The Big Banks Are Recklessly Gambling With Our Money, And It Will Cause The Global Financial System To Collapse
Have you ever wondered how the big banks make such enormous mountains of money? Well, the truth is that much of it is made by gambling recklessly. If they win on their bets, they become fabulously wealthy. If they lose on their bets, they know that the government will come in and arrange for the banks to be bailed out because they are “too big to fail”. Either they will be bailed out by the government using our tax dollars, or as we just witnessed in Cyprus, they will be allowed to “recapitalize” themselves by stealing money directly from our bank accounts. So if they win, they win big. If they lose, someone else will come in and clean up the mess. This creates a tremendous incentive for the bankers to “go for it”, because there is simply not enough pain in this equation for those that are taking the risks. If the big Wall Street banks had been allowed to collapse back in 2008, that would have caused a massive change of behavior on Wall Street. But instead, the big banks are still recklessly gambling with our money as if the last financial crisis never even happened. In the end, the reckless behavior of these big banks is going to cause the entire global financial system to collapse.
Have you noticed how most news reports about Cyprus don’t even get into the reasons why the big banks in Cyprus collapsed?
Well, the truth is that they collapsed because they were making incredibly reckless bets with the money that had been entrusted to them. In a recent article, Ron Paul explained how the situation played out once the bets started to go bad…
The dramatic recent events in Cyprus have highlighted the fundamental weakness in the European banking system and the extreme fragility of fractional reserve banking. Cypriot banks invested heavily in Greek sovereign debt, and last summer’s Greek debt restructuring resulted in losses equivalent to more than 25 percent of Cyprus’ GDP. These banks then took their bad investments to the government, demanding a bailout from an already beleaguered Cypriot treasury. The government of Cyprus then turned to the European Union (EU) for a bailout.
If those bets had turned out to be profitable, the bankers would have kept all of the profits. But those bets turned out to be big losers, and private bank accounts in Cyprus are now being raided to pay the bill. Unfortunately, as Ron Paul noted, what just happened in Cyprus is already being touted as a “template” for future bank bailouts all over the globe…
The elites in the EU and IMF failed to learn their lesson from the popular backlash to these tax proposals, and have openly talked about using Cyprus as a template for future bank bailouts. This raises the prospect of raids on bank accounts, pension funds, and any investments the government can get its hands on. In other words, no one’s money is safe in any financial institution in Europe. Bank runs are now a certainty in future crises, as the people realize that they do not really own the money in their accounts. How long before bureaucrat and banker try that here?
Unfortunately, all of this is the predictable result of a fiat paper money system combined with fractional reserve banking. When governments and banks collude to monopolize the monetary system so that they can create money out of thin air, the result is a business cycle that wreaks havoc on the economy. Pyramiding more and more loans on top of a tiny base of money will create an economic house of cards just waiting to collapse. The situation in Cyprus should be both a lesson and a warning to the United States.
This is an example of what can happen when the dominoes start to fall. The banks of Cyprus failed because Greek debt went bad. And the Greeks were using derivatives to try to hide the true scope of their debt problems. The following is what Jim Sinclair recently told King World News…
When people say that the Cypriot banks lost because of being in Greek debt, what was one of the Greeks’ greatest sins? They used over-the-counter derivatives in order to hide the real condition of their balance sheet.
Depositor money, brokerage money, and clearing house money have been tangled up in the mountain of derivatives as the banks have used this cash to speculate in an attempt to make huge bonuses for bank executives.
As I have written about so many times, the global quadrillion dollar derivatives bubble is one of the greatest threats that the global financial system is facing. As Sinclair explained to King World News, when this derivatives bubble bursts and the losses start soaring, the big banks are going to want to raid private bank accounts just like the banks in Cyprus were able to…
What do you think happens when Buffett reports that he made $10 billion in derivatives? Somebody else lost $10 billion and it was most likely one financial institution. There is no question that what we are seeing right now is not isolated to Cyprus. It has happened everywhere, but is has been camouflaged by making the depositors and the banks whole. What Cyprus will reveal is that losses do not stop with the bank’s capital. Losses roar right through bank capital and take depositors’ money.
This could have all been avoided if we had allowed the big Wall Street banks to collapse back in 2008. Reckless behavior would have been greatly punished and banks would have chosen to do business differently in the future.
David Stockman, the former director of the Office of Management and Budget under President Ronald Reagan, says that because we bailed out the big banks it was a signal to them that they could go back and freely engage in the same kind of reckless behavior that they were involved in previously…
Essentially there was a cleansing run on the wholesale funding market in the canyons of Wall Street going on. It would have worked its will, just like JP Morgan allowed it to happen in 1907 when we did not have the Fed getting in the way. Because they stopped it in its tracks after the AIG bailout and then all the alphabet soup of different lines that the Fed threw out, and then the enactment of TARP, the last two investment banks standing were rescued, Goldman and Morgan [Stanley], and they should not have been. As a result of being rescued and having the cleansing liquidation of rotten balance sheets stopped, within a few weeks and certainly months they were back to the same old games, such that Goldman Sachs got $10 billion dollars for the fiscal year that started three months later after that check went out, which was October 2008. For the fiscal 2009 year, Goldman Sachs generated what I call a $29 billion surplus – $13 billion of net income after tax, and on top of that $16 billion of salaries and bonuses, 95% of it which was bonuses.
Therefore, the idea that they were on death’s door does not stack up. Even if they had been, it would not make any difference to the health of the financial system. These firms are supposed to come and go, and if people make really bad bets, if they have a trillion dollar balance sheet with six, seven, eight hundred billion dollars worth of hot-money short-term funding, then they ought to take their just reward, because it would create lessons, it would create discipline. So all the new firms that would have been formed out of the remnants of Goldman Sachs where everybody lost their stock values – which for most of these partners is tens of millions, hundreds of millions – when they formed a new firm, I doubt whether they would have gone back to the old game. What happened was the Fed stopped everything in its tracks, kept Goldman Sachs intact, the reckless Goldman Sachs and the reckless Morgan Stanley, everyone quickly recovered their stock value and the game continues. This is one of the evils that comes from this kind of deep intervention in the capital and money markets.
The lessons that we were supposed to learn from the crisis of 2008 have not been learned.
Instead, the lure of huge returns and big bonuses has caused a return to the exact same behavior that caused the crisis of 2008 in the first place. The following is one example of this phenomenon from a recent article by Wolf Richter…
The craziness on Wall Street, the reckless for-the-moment-only behavior that led to the Financial Crisis, is back.
This time it’s Citigroup that is once again concocting “synthetic” securities, like those that had wreaked havoc five years ago. And once again, it’s using them to shuffle off risks through the filters of Wall Street to people who might never know.
What bubbled to the surface is that Citigroup is selling synthetic securities that yield 13% to 15% annually—synthetic because they’re based on credit derivatives. Apparently, Citi has a bunch of shipping loans on its books, and it’s trying to protect itself against default. In return for succulent interest payments, investors will take on some of the risks of these loans.
Yes, the Dow hit another new all-time high today. But the derivatives bubble that hangs over the global economy like a sword of Damocles could burst at literally any moment. When it does, the damage is going to be incalculable.
In a previous article entitled “Why Is The World Economy Doomed? The Global Financial Pyramid Scheme By The Numbers“, I noted a couple of statistics that show why derivatives are such an enormous problem…
-$212,525,587,000,000 – According to the U.S. government, this is the notional value of the derivatives that are being held by the top 25 banks in the United States. But those banks only have total assets of about 8.9 trillion dollars combined. In other words, the exposure of our largest banks to derivatives outweighs their total assets by a ratio of about 24 to 1.
-$600,000,000,000,000 to $1,500,000,000,000,000 – The estimates of the total notional value of all global derivatives generally fall within this range. At the high end of the range, the ratio of derivatives to global GDP is more than 21 to 1.
When the derivatives bubble finally bursts, where are we going to get the trillions upon trillions of dollars that will be needed to “fix” things this time?
And sadly, the reality is that we are quickly running out of time.
It is important to keep watching Europe. As I noted the other day, the European banking system as a whole is leveraged about 26 to 1 at this point. When Lehman Brothers finally collapsed, it was leveraged about 30 to 1.
And the economic crisis over in Europe just continues to get worse. It was announced on Tuesday that the unemployment rate in the eurozone is at an all-time record high of 12 percent, and the latest manufacturing numbers show that manufacturing activity over in Europe is in the process of collapsing.
So don’t be fooled by the fact that the Dow keeps setting new all-time record highs. This bubble of false hope will be very short-lived.
The unfortunate truth is that the global financial system is a complete and total mess, and at this point a collapse appears to be inevitable.
View full post on The Economic Collapse
Words Of Warning: Get Your Money Out Of European Banks
If you still have money in European banks, you need to get it out. This is particularly true if you have money in southern European banks. As I write this, the final details of the Cyprus bailout are being worked out, but one thing has become abundantly clear: at least some depositors are going to lose a substantial amount of money. Personally, I never dreamed that they would go after private bank accounts in Europe, but now that this precedent has been set it should be apparent to everyone that no bank account will ever be considered 100% safe ever again. Without trust, a banking system simply cannot function, and right now there are prominent voices on both sides of the Atlantic that are loudly warning that trust in the European banking system has been shattered and that people need to get their money out of those banks as rapidly as they can. Even if you don’t end up losing a significant chunk of your money, you could still end up dealing with very serious capital controls that greatly restrict what you are able to do with your money. Just look at what is already happening in Cyprus. Cash withdrawals through ATMs have now been limited to 100 euros per day, and when the banks finally do reopen there will be strict limits on financial transactions in order to prevent a full-blown bank run. And of course anyone with half a brain will be trying to get as much of their money as they can out of those banks once they do reopen. So the truth is that the problems for Cyprus banks are just beginning. The size of the “bailout” that will be needed to keep those banks afloat will just keep getting larger and larger the more money that is withdrawn. Cyprus is heading for a complete and total banking meltdown, and because the economy of the island is so dependent on banking that means that the economy of the entire nation is going to collapse. Sadly, similar scenarios will soon start playing out all over Europe.
So if you hear that a “deal” has been reached to “bail out” Cyprus, please keep in mind that the economy of Cyprus is going to collapse no matter what happens. It is just a matter of apportioning the pain at this point.
According to the New York Times, it looks like much of the pain is going to be placed on the backs of those with deposits of over 100,000 euros…
The revised terms under discussion would assess a one-time tax of 20 percent on deposits above 100,000 euros at the Bank of Cyprus, which has the largest number of savings accounts on the island. Because the Bank of Cyprus suffered huge losses on bets that it took on Greek bonds, the government appears to be taking depositors’ money to help plug the hole.
A separate tax of 4 percent would be assessed on uninsured deposits at all other banks, including the 26 foreign banks that operate in Cyprus.
Does that sound bad to you?
Well, if a deal is not reached, there is a possibility that those with uninsured deposits could lose everything. According to Ekathimerini, EU officials are telling Cyprus to choose between a “bad scenario” and a “very bad scenario”…
The main question surrounds the future of the island’s largest lender, Bank of Cyprus. If unsecured deposits (above 100,000 euros) at all Cypriot banks are taxed then large savings at Bank of Cyprus are likely to be taxed between 20 and 25 percent. If the levy is not imposed on deposits at other lenders, the haircut for Bank of Cyprus customers will be much larger.
The option of a full bail in of Bank of Cyprus depositors is still on the table. As with the Popular Bank of Cyprus (Laiki), which is to go through a resolution process, the full bail in option could lead to deposits above 100,000 euros being lost. The only compensation for unsecured depositors will be shares in the “good” bank that will be created by a possible merger between the “healthy” Laiki and Bank of Cyprus entities.
When asked by Kathimerini how the Cypriot economy will survive if all company and personal deposits above 100,000 euros disappear from the country’s two biggest lenders, the EU official said: “Unfortunately, Cyprus’s choices are between a bad scenario and a very bad scenario.”
So what percentage of the deposits in Cyprus are uninsured deposits?
Well, nobody knows for sure, but according to JPMorgan close to half of the total amount of money on deposit in EU banks as a whole is uninsured.
Do you think that some of those people will start moving their money to safer locations after watching how things are going down in Cyprus?
They would be crazy if they didn’t.
And if you think that “deposit insurance” will keep you safe, you are just being delusional.
According to CNBC, very strict capital controls are coming to Cyprus. These rules will apply even to accounts that contain less than 100,000 euros…
Financial controls are coming. Depositors with less than 100,000 euros may not lose their money outright, but they won’t like the restrictions–no matter how much they have in the bank. Limits on withdrawals, limits on check cashing, and perhaps even outright conversion of checking accounts into fixed term deposits are coming (translation: you don’t have a checking account, you have a bond from the bank).
A lot of people are going to lose a lot of money in Cyprus banks, and a significant percentage of them are going to be Russian.
And as I wrote about the other day, you don’t want to have the Russians mad at you.
According to the Guardian, Moscow is already considering various ways that it might “punish” the EU…
However, with Russian investors having an estimated €30bn (£26bn) deposited in banks on the island, the growing optimism about a deal was accompanied by fears of retaliation from Moscow. Alexander Nekrassov, a former Kremlin adviser, said: “If it is the case that there will be a 25% levy on deposits greater than €100,000 then some Russians will suffer very badly.
“Then, of course, Moscow will be looking for ways to punish the EU. There are a number of large German companies operating in Russia. You could possibly look at freezing assets or taxing assets. The Kremlin is adopting a wait and see policy.”
Could this be the start of a bit of “economic warfare” between east and west?
One thing is for sure – the Russians simply do not allow people to walk all over them.
Meanwhile, things in Cyprus are getting more desperate with each passing day. Because they cannot get money out of the banks, many retail stores find themselves running low on cash. In a few more days many of them may not be able to function at all…
Retailers, facing cash-on-delivery demands from suppliers, warned stocks were running low. “At the moment, supplies will last another two or three days,” said Adamos Hadijadamou, head of Cyprus’s Association of Supermarkets. “We’ll have a problem if this is not resolved by next week.”
But do you know who was able to get their money out in time?
The insiders.
According to the Daily Mail, the President of Cyprus actually warned “close friends” about what was going to happen and told them to get their money out Cyprus…
Cypriot president Nikos Anastasiades ‘warned’ close friends of the financial crisis about to engulf his country so they could move their money abroad, it was claimed on Friday.
Overall, approximately 4.5 billion euros was moved out of Cyprus during the week just before the crisis struck.
Wouldn’t you like to get advance warning like that?
Well, at this point it does not take a genius to figure out what to do about any money that you may have in European banks. The following is from a recent Forbes article by economist Laurence Kotlikoff…
Whatever happens, no one is going to trust or use Cypriot banks. This will shut down the country’s financial highway and flip Cyprus’ economy to a truly awful equilibrium in a replay of our own country’s Great Depression, which was kicked off by the failure of one-in-three U.S. banks.
Cyprus is a small country. Still, the failure of its banks could trigger massive bank runs in Greece. After all, if the European Central Bank is abandoning Cypriot depositors, they may abandon Greek depositors next. A run on Greek banks could then spread to Portugal, Ireland, Spain, and Italy and from there to Belgium and France and, you get the picture, to other countries around the globe, including, drum roll, the U.S. Every bank in each of these countries has made promises they can’t keep were push come to shove, i.e., if all depositors demand their money back immediately.
We’ve seen this movie before. And not just in real life. Every Christmas our tellys show It’s a Wonderful Life in which banker Jimmy Stewart barely saves his small town from economic ruin arising from a banking panic.
Others are being even more blunt with their warnings. For example, Nigel Farage, a member of the European Parliament, is warning everyone to get their money out of southern European banks while they still can…
The appalling events in Cyprus over the course of the past week have surpassed even my direst of predictions.
Even I didn’t think that they would stoop to stealing money from people’s bank accounts. I find that astonishing.
There are 750,000 British people who own properties, or who live, many of them in retirement down in Spain.
Our message to expats now that the EU has crossed this line, must be: Get your money out of there while you’ve still got a chance.
And Martin Sibileau is proclaiming that if you still have an unsecured deposit in a eurozone bank that you should have your head examined…
What are depositors of Euros faced with today? Anything but a clean bet! They don’t know what the expected loss on their capital will be, because it will be decided over a weekend by politicians who don’t even represent them. They don’t really know where their deposits went to and they also ignore what jurisdiction they really belong to. Finally, depositors are paid mere basis points for their trust in the system vs. the 20% p.a. Argentina offered in 2001 (thanks to the zero-interest rate policies of the 21st century). In light of all this, I can only conclude that anyone still having an unsecured deposit in a Euro zone bank should get his/her head examined!
So where should you put your money?
I don’t know that there is anywhere that is 100% safe at this point. But many are pointing to hard assets such as gold and silver. The following is what trends forecaster Gerald Celente had to say during one recent interview…
“People always say to me, ‘Mr. Celente you are always talking about gold. What are you going to do with gold when everything collapses and there is no money?’ Well, let’s say you are a Cypriot and all of the ATM machines are out of money and the banks are closed? Do you think those pieces of silver are going to buy you what you need? Do you think that ounce of gold is going to get you what you want?
That’s the real money. There is no other money. When it all comes down, gold and silver are the only things you have to buy what you need, get what you want, or even get out if you need to.”
I used to tell people that putting their money in U.S. banks was safer than putting it other places because U.S. bank deposits are covered by deposit insurance up to a certain amount.
But now we see that deposit insurance means absolutely nothing. If they decide to “tax” (i.e. steal) your money from your bank accounts they will just go ahead and do it.
So what should we all do?
Personally, I think that not having all of your eggs in one basket is a wise approach. If you have your wealth a bunch of different places and in several different forms, I think that will help.
But as the global financial system falls apart, there will be no such thing as 100% safety. So if you are looking for that you can stop trying.
Our world is becoming a very unstable place, and things are going to get a lot worse. We are all going to have to adjust to this new paradigm and do the best that we can.
View full post on The Economic Collapse
International News • Mass Panic In Cyprus: The Banks Are Collapsing And ATMs Are
Mass Panic In Cyprus: The Banks Are Collapsing And ATMs Are Running Out Of Money
By Michael, on March 21st, 2013
European officials are openly admitting that the two largest banks in Cyprus are "insolvent", and it is now being reported that Cyprus Popular Bank only has "enough liquidity to cover the next few hours". Of course all banks in Cyprus are officially closed until Tuesday at the earliest, but there have been long lines at ATMs all over Cyprus as people scramble to get whatever money they can out of the banks. Unfortunately, some ATMs appear to be "malfunctioning" and others appear to have already run out of cash. You can see some photos of huge lines at one ATM in Cyprus right here. Some businesses are now even refusing to take credit card payments. This is creating an atmosphere of panic on the streets of Cyprus. Meanwhile, the EU is holding a gun to the head of the Cyprus financial system. Either Cyprus meets EU demands by Monday, or liquidity for the banks will be totally cut off and Cyprus will be forced out of the euro. It is being reported that European officials believe that the "economy is going to tank in Cyprus no matter what", and that it would be okay to let the financial system of Cyprus crash and burn if politicians in Cyprus are not willing to do what they have been ordered to do. Apparently European officials are very confident that the situation in Cyprus can be contained and that it will not spread to other European nations.
Unfortunately, European officials are losing sight of the bigger picture. If the largest banks in Cyprus are allowed to fail, it will be another "Lehman Brothers moment". The faith that people have in banks all over Europe will be called into question, and everyone will be wondering what major European banks will be allowed to fail next.
Meanwhile, European officials have already completely shattered confidence in deposit insurance at this point. Everyone now knows that when there is a major bank failure that depositors will be expected to share in the pain. Expect to see "bank jogs" all over southern Europe over the coming weeks.
The banks in Cyprus had been scheduled to reopen on Tuesday, but very few people expect that to actually happen at this point. In fact, Bloomberg is reporting that EU officials are actually thinking about shutting down the two biggest banks in Cyprus and freezing their assets…
Finance ministers for the 17 euro countries are considering a plan to shutter the two biggest banks in Cyprus and freeze the assets of uninsured depositors, said the four officials, who asked not to be named because the talks are ongoing. The ministers are holding a teleconference tonight.
Cyprus Popular Bank Pcl (CPB) and the Bank of Cyprus Plc would be split to create a so-called bad bank, one of the officials said. Insured deposits — below the European Union ceiling of 100,000 euros ($129,000) — would go into a so-called good bank and not sustain any losses, while uninsured deposits would go into the bad bank and be frozen until assets could be sold, said the four officials.
Losses to unsecured creditors, including uninsured depositors, could reach 40 percent under the plan, which has support from the International Monetary Fund and the European Central Bank. The proposal, a version of which was rejected last week, is considered a better option than taxing insured deposits or allowing Cypriot banks to collapse in a disorderly fashion if they lose access to ECB aid, the officials said.
Such a scenario would be an utter disaster.
How would you feel if you woke up someday and 40 percent of your life savings was suddenly gone?
According to Greek newspaper Kathimerini, European officials are also openly discussing the possibility of a Cyprus exit from the eurozone if a suitable bailout agreement is not worked out…
The possibility of Cyprus exiting the eurozone was discussed during teleconference involving technocrats from the Euro Working Group on Wednesday, Kathimerini understands.
A reliable source told Kathimerini that the technical implications of a euro exit, as well as the adoption of capital controls were debated by the Euro Working Group officials during the teleconference.
As I mentioned above, European officials seemed resigned to the fact that there will be an economic collapse in Cyprus "no matter what", and so letting Cyprus leave the euro would not make that much of a difference. Either way, the banks are going to have to be "reorganized" and capital controls will be imposed…
In detailed notes of the call seen by Reuters, the group’s chair Austria’s Thomas Wieser said: “The economy is going to tank in Cyprus no matter what. Restrictions on capital will probably be imposed.”
Never before have we seen European officials impose such a harsh ultimatum with such a short deadline. It is almost as if they want to boot Cyprus out of the euro. The following comes from a recent CNBC report…
In stark twin warnings on Thursday, the European Central Bank said it would cut off liquidity to Cypriot banks and a senior EU official made clear to Reuters that the bloc was ready to see the bankrupt island banished from the euro in the belief it could then contain damage to the wider European economy.
And European officials are even publicly talking about the possibility that Cyprus will soon need to start using "their own currency"…
In Brussels, a senior European Union official told Reuters that an ECB withdrawal would mean Cyprus’s biggest banks being wound up, wiping out the large deposits it has sought to protect, and probably forcing the country to abandon the euro.
"If the financial sector collapses, then they simply have to face a very significant devaluation and faced with that situation, they would have no other way but to start having their own currency," the EU official said.
This is absolutely shocking. Everyone always thought that Greece would be the first to leave the euro, but now it looks like it might be Cyprus.
However, there is still a chance that Cyprus may find a way to comply with EU demands. Politicians in Cyprus are frantically searching for a way to raise the needed cash without raiding private bank accounts. The following is what CNN is saying about the latest efforts…
Leaders of Cyprus’ political parties agreed Thursday to create an "investment solidarity fund," which would issue bonds backed by state and church assets.
The plan was due to be discussed by the Cypriot government and parliament on Thursday evening, but few details were available and it was not clear how much the fund would be worth.
According to Reuters, other proposals have been under consideration as well…
The government said a "Plan B" was in the works.
Officials said it could include: an option to nationalize pension funds of semi-government corporations, which hold between 2 billion and 3 billion euros; issuing an emergency bond linked to future natural gas revenues; and possibly reviving the levy on bank deposits, though at a lower level than originally planned and maybe excluding savers with less than 100,000 euros.
At this point it is unclear whether any of those proposals will turn out to be acceptable to European officials.
In fact, the tone of European officials has noticeably changed from previous bailout efforts. They now seem much more willing to play hardball. For example, just check out what German Finance Minister Wolfgang Schaeuble is saying about the situation in Cyprus…
German finance minister Wolfgang Schaeuble told the ZDF public broadcaster on Tuesday night (19 March) he "took note with regret" of the Cypriot parliament’s rejection of the bailout deal, but insisted that the terms will stay the same.
Asked if the eurozone was willing to let Cyprus go bust, he answered: "Well, we are much more stable in the eurozone – we took measures to protect ourselves from the risks of contagion … but I don’t want to have any of this."
He added: "It is a serious situation, but this cannot lead to a decision that makes absolutely no sense, to rescue a business model that has failed. Cyprus has a banking sector that is totally oversized and this made Cyprus insolvent. And nobody outside Cyprus is to blame for it."
Schaeuble knows that the EU is holding all of the cards and that Cyprus is doomed without their help…
"The Cypriot state cannot fund itself on the markets. Its two largest banks are insolvent and are being kept afloat with emergency funding from the ECB, but only on the condition that there will be a long-term rescue programme. If this condition is no longer met, Cyprus will no longer be solvent and this is something Cypriot decision makers must know"
But the truth is that the EU can’t really afford to allow major banks to fail or for a single member to leave the eurozone. If either of those things happen, the confidence game that has been holding the European financial system together will begin to rapidly evaporate.
If the EU thinks that they can abandon Cyprus without the crisis spreading to the rest of southern Europe they are just being delusional.
At least there are a few politicians in Europe that understand what is happening. Nigel Farage, a very outspoken member of the European Parliament, is telling people to get their money out of banks in southern Europe as quickly as they can. He is warning that a great collapse of the European financial system is coming and that people need to get prepared for it…
http://theeconomiccollapseblog.com/arch … t-of-money
Statistics: Posted by yoda — Thu Mar 21, 2013 8:47 pm
View full post on opinions.caduceusx.com
Mass Panic In Cyprus: The Banks Are Collapsing And ATMs Are Running Out Of Money
European officials are openly admitting that the two largest banks in Cyprus are “insolvent“, and it is now being reported that Cyprus Popular Bank only has “enough liquidity to cover the next few hours“. Of course all banks in Cyprus are officially closed until Tuesday at the earliest, but there have been long lines at ATMs all over Cyprus as people scramble to get whatever money they can out of the banks. Unfortunately, some ATMs appear to be “malfunctioning” and others appear to have already run out of cash. You can see some photos of huge lines at one ATM in Cyprus right here. Some businesses are now even refusing to take credit card payments. This is creating an atmosphere of panic on the streets of Cyprus. Meanwhile, the EU is holding a gun to the head of the Cyprus financial system. Either Cyprus meets EU demands by Monday, or liquidity for the banks will be totally cut off and Cyprus will be forced out of the euro. It is being reported that European officials believe that the “economy is going to tank in Cyprus no matter what“, and that it would be okay to let the financial system of Cyprus crash and burn if politicians in Cyprus are not willing to do what they have been ordered to do. Apparently European officials are very confident that the situation in Cyprus can be contained and that it will not spread to other European nations.
Unfortunately, European officials are losing sight of the bigger picture. If the largest banks in Cyprus are allowed to fail, it will be another “Lehman Brothers moment“. The faith that people have in banks all over Europe will be called into question, and everyone will be wondering what major European banks will be allowed to fail next.
Meanwhile, European officials have already completely shattered confidence in deposit insurance at this point. Everyone now knows that when there is a major bank failure that depositors will be expected to share in the pain. Expect to see “bank jogs” all over southern Europe over the coming weeks.
The banks in Cyprus had been scheduled to reopen on Tuesday, but very few people expect that to actually happen at this point. In fact, Bloomberg is reporting that EU officials are actually thinking about shutting down the two biggest banks in Cyprus and freezing their assets…
Finance ministers for the 17 euro countries are considering a plan to shutter the two biggest banks in Cyprus and freeze the assets of uninsured depositors, said the four officials, who asked not to be named because the talks are ongoing. The ministers are holding a teleconference tonight.
Cyprus Popular Bank Pcl (CPB) and the Bank of Cyprus Plc would be split to create a so-called bad bank, one of the officials said. Insured deposits — below the European Union ceiling of 100,000 euros ($129,000) — would go into a so-called good bank and not sustain any losses, while uninsured deposits would go into the bad bank and be frozen until assets could be sold, said the four officials.
Losses to unsecured creditors, including uninsured depositors, could reach 40 percent under the plan, which has support from the International Monetary Fund and the European Central Bank. The proposal, a version of which was rejected last week, is considered a better option than taxing insured deposits or allowing Cypriot banks to collapse in a disorderly fashion if they lose access to ECB aid, the officials said.
Such a scenario would be an utter disaster.
How would you feel if you woke up someday and 40 percent of your life savings was suddenly gone?
According to Greek newspaper Kathimerini, European officials are also openly discussing the possibility of a Cyprus exit from the eurozone if a suitable bailout agreement is not worked out…
The possibility of Cyprus exiting the eurozone was discussed during teleconference involving technocrats from the Euro Working Group on Wednesday, Kathimerini understands.
A reliable source told Kathimerini that the technical implications of a euro exit, as well as the adoption of capital controls were debated by the Euro Working Group officials during the teleconference.
As I mentioned above, European officials seemed resigned to the fact that there will be an economic collapse in Cyprus “no matter what”, and so letting Cyprus leave the euro would not make that much of a difference. Either way, the banks are going to have to be “reorganized” and capital controls will be imposed…
In detailed notes of the call seen by Reuters, the group’s chair Austria’s Thomas Wieser said: “The economy is going to tank in Cyprus no matter what. Restrictions on capital will probably be imposed.”
Never before have we seen European officials impose such a harsh ultimatum with such a short deadline. It is almost as if they want to boot Cyprus out of the euro. The following comes from a recent CNBC report…
In stark twin warnings on Thursday, the European Central Bank said it would cut off liquidity to Cypriot banks and a senior EU official made clear to Reuters that the bloc was ready to see the bankrupt island banished from the euro in the belief it could then contain damage to the wider European economy.
And European officials are even publicly talking about the possibility that Cyprus will soon need to start using “their own currency”…
In Brussels, a senior European Union official told Reuters that an ECB withdrawal would mean Cyprus’s biggest banks being wound up, wiping out the large deposits it has sought to protect, and probably forcing the country to abandon the euro.
“If the financial sector collapses, then they simply have to face a very significant devaluation and faced with that situation, they would have no other way but to start having their own currency,” the EU official said.
This is absolutely shocking. Everyone always thought that Greece would be the first to leave the euro, but now it looks like it might be Cyprus.
However, there is still a chance that Cyprus may find a way to comply with EU demands. Politicians in Cyprus are frantically searching for a way to raise the needed cash without raiding private bank accounts. The following is what CNN is saying about the latest efforts…
Leaders of Cyprus’ political parties agreed Thursday to create an “investment solidarity fund,” which would issue bonds backed by state and church assets.
The plan was due to be discussed by the Cypriot government and parliament on Thursday evening, but few details were available and it was not clear how much the fund would be worth.
According to Reuters, other proposals have been under consideration as well…
The government said a “Plan B” was in the works.
Officials said it could include: an option to nationalize pension funds of semi-government corporations, which hold between 2 billion and 3 billion euros; issuing an emergency bond linked to future natural gas revenues; and possibly reviving the levy on bank deposits, though at a lower level than originally planned and maybe excluding savers with less than 100,000 euros.
At this point it is unclear whether any of those proposals will turn out to be acceptable to European officials.
In fact, the tone of European officials has noticeably changed from previous bailout efforts. They now seem much more willing to play hardball. For example, just check out what German Finance Minister Wolfgang Schaeuble is saying about the situation in Cyprus…
German finance minister Wolfgang Schaeuble told the ZDF public broadcaster on Tuesday night (19 March) he “took note with regret” of the Cypriot parliament’s rejection of the bailout deal, but insisted that the terms will stay the same.
Asked if the eurozone was willing to let Cyprus go bust, he answered: “Well, we are much more stable in the eurozone – we took measures to protect ourselves from the risks of contagion … but I don’t want to have any of this.”
He added: “It is a serious situation, but this cannot lead to a decision that makes absolutely no sense, to rescue a business model that has failed. Cyprus has a banking sector that is totally oversized and this made Cyprus insolvent. And nobody outside Cyprus is to blame for it.”
Schaeuble knows that the EU is holding all of the cards and that Cyprus is doomed without their help…
“The Cypriot state cannot fund itself on the markets. Its two largest banks are insolvent and are being kept afloat with emergency funding from the ECB, but only on the condition that there will be a long-term rescue programme. If this condition is no longer met, Cyprus will no longer be solvent and this is something Cypriot decision makers must know”
But the truth is that the EU can’t really afford to allow major banks to fail or for a single member to leave the eurozone. If either of those things happen, the confidence game that has been holding the European financial system together will begin to rapidly evaporate.
If the EU thinks that they can abandon Cyprus without the crisis spreading to the rest of southern Europe they are just being delusional.
At least there are a few politicians in Europe that understand what is happening. Nigel Farage, a very outspoken member of the European Parliament, is telling people to get their money out of banks in southern Europe as quickly as they can. He is warning that a great collapse of the European financial system is coming and that people need to get prepared for it…
So what do you think?
Do you believe that we are on the verge of a major financial collapse in Europe?
Please feel free to post a comment with your thoughts below…
View full post on The Economic Collapse