Greece or Iceland? Cyprus Must Choose

Last year I examined here and here how Iceland who took a very different approach than Greece. The result has been that Iceland, after a short period of pain and economic disruption has resumed economic growth, reduced unemployment and once again has an investment grade bond rating. What was the primary difference?

Unlike the US and several countries in the Eurozone, Iceland allowed its banking system to fail in the global economic downturn and put the burden on the industry’s creditors rather than taxpayers.

 Today, Cyprus must decide, do they want to follow Greece or follow Iceland?

"When it becomes serious, you've got to lie"

“When it becomes serious, you have to lie." -Jean Claude Juncker

President and Finance Minister of the European Union

Government Theft

Ever since the run on banks that started the Great Depression Western countries have always protected the depositors of banks knowing full well that if depositors do not have faith in the banking system, the banking system can't function. And without a banking system, commerce comes to a halt.

What is so remarkable about the theft of depositors money in Cyprus is that is breaks that trust. The results will range from bad to possibly catastrophic. The latest agreement between the EU and Cyprus is that they will forgo confiscation of deposits 100k Euros or less. Even if this becomes the case (And with the disappearance of all those Cyprus deposits that exited through Cypriot bank branches in London which stayed open last week it is unlikely the money is still there to confiscate.) retirees and small businesses will be effected.

Stephen Leeb at KWN:

“Cyprus is truly a disaster for the West.  It basically says to every citizen of the West, if your country runs into trouble the governments can come along and just take your money.  That’s basically what is says.”

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“What worries me is if you have an individual who is retired with let’s say 300,000 or 400,000 euros in the bank, and they suddenly find they have had some of their money or a great deal of their money stolen by governments.  Let’s say they are not retired and just run a small business and need to make a payroll.  What happens in that situation?

The funds are frozen and then part of it is stolen.  This is outrageous....

“This could happen now in Spain, Italy, or any of these other countries which are in financial trouble.  It seems like the only country in Europe which is not suffering right now is Germany.

Germany is in a power position in terms of exports because their currency is lower than what it should be because of the Eurozone construct.  So they can export like crazy.  People have to remember that what brings about chaos and extremism in countries is depressions.

People think this can’t happen here in the United States, well, I beg to differ.  What would happen if we all woke up tomorrow morning and some disaster has happened and the Suadi oil fields were out of commission?  What’s to say that the US government and the Federal Reserve can’t do the same thing that the ECB, EU, and the IMF just did to Cyprus?  They could end up freezing and seizing our deposits.

What if instead of JP Morgan making a $6 billion bad derivative bet, they make $600 billion in bad derivative bets?  Has anybody asked that question?  All of the sudden there would be no JP Morgan.  Again, what’s to say that they won’t steal our money here in the United States?

This is absolutely the worst precedent that the West could have set.  The fundamental freedom that people in the West enjoy, and that includes Cyprus, Spain, Italy, Ireland, etc, is that the government cannot without any warning confiscate their money.  Call it what it is, this is clear theft and outright confiscation.

That’s the thing to worry about.  I’m incredibly concerned when I see money being confiscated.  This tells me that we are already seeing the makings of totalitarianism in some form.  It’s getting very, very frightening at this stage.”

Leeb had this to say regarding gold:  “Gold continues to see a war going on at the $1,600 level.  It is not in the best interest of the West to see gold do any type of move that would increase its exposure as being an alternative currency.

Once gold begins its next magnificent rise and breaks to new all-time highs there will be even more demand for gold and the people in charge of the West know this.  That’s why they are battling so hard to keep the price suppressed.

This latest series of events in Cyprus just shows how desperate Western central planners have become.  They are not letting the markets trade freely because they would reveal the horror of what has just taken place.  But gold will have its day and so will silver.  Just make sure you have physical gold and silver and not paper.”

What I find really disturbing is the unelected Euro-crats are forcing this on Cypriots. Here in the US we started a revolution against the British citing taxation without representation. What we have today is confiscation without representation. The Cypriot government voted down the original "tax" the EU demanded. So now, instead, the EU is describing the theft as a "restructuring" that does not require the consent of the governed in Cyprus. Cypriots who have their deposits stolen will have no day in court, no appeal, no due process of any kind. Is this not a return to serfdom? The Cypriot people should demand to leave the Euro-zone default on their debt and return to their own currency. With this they could devalue their currency to make themselves more competitive and follow the successful example of Iceland.

Oh, and for those who have money deposited in US banks, here is a reminder that as of December 31st, 2012:

As scheduled, the unlimited insurance coverage for noninterest-bearing transaction accounts provided under the Dodd-Frank Wall Street Reform and Consumer Protection Act expired on December 31, 2012

Some Gold Headlines to Think About

Dutch ABN to stop physical gold delivery to clients who "own" gold.

Swiss to vote on gold repatriation held in US.

Texas wants its gold back from US Fed.

Of course this comes on the heels of:

German Bundesbank to repatriate gold

Dutch CDA to vote on gold repatriation from US

Venezuela completes gold repatriation

Ecuador demand repatriation of one third of its gold holdings

Cyprus Could Cause Global Bank Run

Just when I thought I was running out of things to write about due to a rising Dow that defies all logic, a Federal Reserve that prints endless dollars and elitist Euro-crats that are in absolute denial that the EU is insolvent, along comes Cyprus.

Cyprus represents only point two percent (.2%) of the EU economy but due to insolvent banks and a stunningly stupid decision by the EU, we are now facing capital controls in Cyprus which may very well lead to bank runs in other troubled countries of the EU known as the PIIGS: Portugal, Italy, Ireland, Greece and Spain.

In addition, those bank runs, if they happen,  could lead to a global destabilization of all banks with consequences that could effect us here in US.

Former Treasury Official: America is Going to Crash Big Time

Editor's note: If you read my last post "The US Petrol Dollar Will End" you'll be certain to connect the dots mentally. I would suggest reading them both.

Usually it feels good to be right. But not when what you see coming is so unpleasant. I have thought for the last few years that:

1. The gold price is manipulated down.
2. The US stock market is manipulated up.
3. This has continued longer already than I thought possible.

It would seem someone agrees. And not just any someone.

Dr. Paul Craig Roberts is a former Assistant Secretary of Treasury under the former Reagan administration. But Dr. Roberts isn't a partisan political economist like Paul Krugman. He has been a staunch critic of both W. Bush and Obama for destruction of American civil liberties in the war on terror.

The US Petrol Dollar Will End

For over sixty years the US dollar has reigned supreme. Since the end of WWII and the creation of Bretton Woods it has been the US dollar that powers commerce. Whatever resources a country might buy in the world market they almost always are priced in dollars. This has been especially true with oil, arguably the most important commodity of the 20th & 21st century. The result is that there is an outsized demand internationally for our currency and this demand gives us extraordinary privileges. The demand for dollars increases the demand for US Treasuries, and the high demand for Treasuries has meant a lower than "natural" levels of interest rates during the last sixty years.

The (Real) Dow is Still Down from All Time Highs

As mentioned in the previous post, the press is celebrating the Dow's all time highs. There is no question that the nominal value of the Dow has indeed hit all time highs in absolute value. But what about when we look at it in real vs nominal value?

(For new readers or those who need a review of real vs nominal click the link)

The Wall Street Journal provides the following graphic below to illustrate the difference. And keep in mind they are of course, using official inflation rates that we know understate the actual rate of inflation for those of us who buy gas and food that the Fed excludes.

How China Becomes the World Reserve Currency (And the Gold War Ends With Gold Surpassing $5,000)

As more talk of currency wars continues it would be easy to believe all currencies will devalue together as Western nations continue to print and other countries such as China essentially tie the value of their currency to the dollar. But as Stephen Leeb points out at KWN its certainly possible that China's accumulation of physical gold is in preparation for a type of Bretton Woods gold standard. I've pointed out previously here, here, here, here and here that China seems to be moving as part of a long term plan to eliminate dollar transactions in favor of their own currency and accumulating gold for the eventual internationalizing of the Yuan/Remnimbi and take the US dollar's place as the new world's reserve currency.

Dow Jones Highs Then and Now

The media is all excited about the Dow reaching new highs. The message is: The good times are back.

If only it were that simple.

Welcome to the New Recession

Yup, the theme of my recent posts continues. Charle's Biderman finds the quantitative evidence to prove what I have been saying for the last several months: that we're back in recession. Worse, this recession is starting before we have come anywhere near recovering from the last which started in 2007.

Once again, this is eerily similar to the depression of the 1930's where there were short periods of growth followed by new recessions. And keep in mind, it is my opinion that the "growth" we've had in the last several years was not growth at all if one looks at REAL inflation and not the tortured statistics our government now puts out. When that is taken into account we have been in an economic depression for many years. But soon even using or government's own statistics they will not be able to deny the lack of growth. The recent revision of Q4 2012 GDP from -.1 to +.1 makes no difference.

At some point the US stock market will have to accept and come to terms with this new reality. I suspect when it does it will happen very quickly and these new highs will become a distant memory.