Russia Is Next In Line To Restrict Cash Transactions

The Russians are taking a page from the Europeans book (and not a positive one for libertarians). Given the substantial criminal activity and illegal entrepreneurship in Russia - the grey and black economies account for 50–65 percent of GDP and estimates that about $50 billion was taken out of Russia illegally in 2012 alone - the great and glorious leaders have decided to impose restrictions on cash transactions. As Russia Beyond The Headlines reports, Russia may ban cash payments for purchases of more than 300,000 rubles (around $10,000) starting in 2015 - starting with a higher ($19,500) restriction in 2014. They will also enforce mandatory cash-free salary payments (cash compensation accounts for 15% of GDP currently) in an effort to both bring some of the population's 'grey' income out of the shadow; and increase the volume of cash reserves in the banks. It would appear that wherever we look now, leadership are realizing that the limits of fiscal and monetary policy have been reached and now changing rules, limiting freedom, and outright confiscation are the only way to maintain a status quo. Ironic really, when the enforcement of said rules may just be the catalyst for the end of the status quo as the middle class suffers.

Via Russia, Beyond The Headlines,

Russia may ban cash payments for purchases of more than 300,000 rubles (around $10,000) starting in 2015. The move is expected to boost banks’ cash reserves and put a damper on Russia’s shadow economy. However, the middle class will most likely end up having to pay the price for the scheme.

Moscow is looking to kill two birds with one stone: Firstly, it wants to bring some of the population’s “grey” income out of the shadow; secondly, it wants to increase the volume of cash reserves in the banks. The government’s bill will introduce the new rule to the State Duma. The document was prepared by the Ministry of Finance and approved by the government.

The restrictions on cash transactions will develop in two phases. In 2014, a ban on cash payments for purchases worth more than 600,000 rubles (about $19,500) will be introduced; the limit will then be halved to 300,000 rubles in 2015. Furthermore, the document introduces mandatory, cash-free, salary payments.
...

Even now, cash withdrawals on payday account for around 85 percent of all ATM transactions. Moreover, in 2005–2011, cash flows more than quadrupled. According to Bank of Russia estimates, more than 90 percent of all commodity purchases in Russia are paid for in cash.

The government is now trying to bring the shadow economy into the light and increase money flows into the treasury, according to Investcafe analyst Yekaterina Kondrashova. In her words, as soon as the new rules come into effect, those using unofficial wage payment schemes will encounter certain difficulties, although there could be some ways to circumvent the law.

The Ministry of Internal Affairs and the National Anticorruption Committee estimate the market for money laundering and cash conversions at somewhere between 3.5 and 7 trillion rubles ($113–230 billion) — about 60 percent of the Russian federal budget.

Rosstat reports that the volume of the shadow economy (“grey” money from tax evasion, compensations paid as “cash in envelopes” and violations of currency and foreign trade regulations) is at least 15 percent of the GDP, according to Ricom-Trust senior analyst Vladislav Zhukovsky.

Given the substantial criminal activity and illegal entrepreneurship, the grey and black economies account for 50–65 percent of GDP. Even former Central Bank Chief Sergey Ignatyev had to admit that about $50 billion was taken out of Russia illegally in 2012 alone.

There is another side to the move toward plastic, however. Cash-free payments will result in higher prices for some goods and services. The middle class will suffer the most, because the “risk group” includes property and automobile transactions. The luxury segment will also be affected, including customized tours.

Source

The Global Elite Are Very Clearly Telling Us That They Plan To Raid Our Bank Accounts

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

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

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

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

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

And who pays?

We do.

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

And then the game begins again.

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

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

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

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

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

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

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

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

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

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

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

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

"A tax rate of 15 percent on financial assets would probably be enough to push the Italian government debt to below the critical level of 100 percent of gross domestic product"

Yikes!

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

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

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

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

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

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

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

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

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

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

Would similar things happen in the United States if there was a major banking crisis someday?
That is something to think about.

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

-The stock market in Greece is crashing. It is down by more than 10 percent over the past two days.
-The stock markets in Italy and Spain are experiencing huge declines as well. Banking stocks are being hit particularly hard.

-The Bank of Spain says that the Spanish economy will sink even deeper into recession this year.
-The latest numbers from the Spanish government show that Spain's debt problem is rapidly getting worse...

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

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

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

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

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

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

At the end of the day, the reason Europe hasn’t been fixed is because CAPITAL SIMPLY ISN’T THERE. Europe and its alleged backstops are out of money. This includes Germany, the ECB and the mega-bailout funds such as the ESM.
Germany has already committed to bailouts that equal 5% of its GDP. The single largest transfer payment ever made by one country to another was the Marshall Plan in which the US transferred an amount equal to 5% of its GDP. Germany WILL NOT exceed this. So don’t count on more money from Germany.

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

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

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

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

If you can find a small local bank or credit union to do business with you will probably be better off.
And don't think that this kind of thing can never happen in the United States.

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

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

The global elite are telling us what they plan to do, and the game has dramatically changed.
Move your money while you still can.

Unfortunately, it is already too late for the people of Cyprus.

Source

Free Trade and Unrestricted Capital Flow: How Billionaires Get Rich and Destroy the Rest of Us

Yves here. This post highlights an issue that gets far too little attention: how the “free trade” agenda has been used to promote a capital mobility agenda, and why that works to the detriment of ordinary citizens.

As Ken Rogoff and Carmen Reinhart found in their study of 800 years of financial crises, high international capital flows are strongly correlated with more frequent and severe financial crises. A very important BIS paper that has not gotten the attention it deserves, “Global imbalances and the financial crisis: Link or no link?” Claudio Borio and Piti Disyatat, discusses how the crisis was the direct result of what they call excess financial elasticity. That means having a banking system that was way too accommodating to the pet wishes of bank customers. From Andrew Dittmer’s translation of the paper from economese to English (the numbers are page references):

The idea of “national savings” or “current account surplus” refers to the total amount of exports sold minus the total amount of imports sold (more or less). The “excess savings” theory holds that this excess had to have been financed somehow, and so presumably by countries in surplus, like China.

However, for the US in 2010, the total amount of financial flows into the US was at least 60 times the current account deficit (9), counting only securities transactions. If this number were correct, then inflows would be 61 times the current account deficit, and outflows would be 60 times the current account deficit. The current account deficit is a drop in the bucket. Why would anyone assume it had anything to do with the picture at all?

Moreover, if the “savings glut” theory was correct, we would expect there to be certain historical correlations between the following variables: (a) current account deficits of the US, (b) US and world long-term interest rates, (c) value of the US dollar, (d) the global savings rate, (e) world GDP. There aren’t (4-6, see graphs).

You would also expect credit crises to occur mainly in countries with current account deficits. They don’t (6).

Suppose we look at a more reasonable variables: gross capital flows (13-14). What do we learn about the causes of the crisis?

Financial flows exploded from 1998 to 2007, expanding by a factor of four RELATIVE to world GDP (13), and then fell by 75% in 2008 (15). The most important source of financial flows was Europe, dwarfing the contributions of Asia and the Middle East (15). The bulk of inflows originated in the private sector (15)….

So what caused the crisis? Clearly, the shadow banking system (mainly based around US and European financial institutions) succeeding in generating huge amounts of leverage and financing all by itself (24, 28). Banks can expand credit independently of their reserve requirements (30) – the central bank’s role is limited to setting short-term interest rates (30). European banks deliberately levered themselves up so they could take advantage of opportunities to use ABS in strategies (11), many of which were ultimately aimed at looting these same banks for the benefit of bank employees. These activities pushed long-term interest rates down. Short-term rates remained low because the Fed didn’t raise them as long as inflation didn’t appear to be an issue (25, 27).

The post focuses on the real economy side of the free-flowing capital experiment; we’ll discuss next week how the Trans-Pacific Partnership is an alarming advance in this process of grinding down what is left of the middle class to benefit of the rich.

By Gaius Publius. Cross posted from Americablog

Paul Krugman makes a point in this post about Cyprus that I’d like use to make a broader and more important point. His point is that Cyprus is already off the euro and has created its own currency, the Cyprus Euro, which at the moment is pegged to the other euro at 1:1. Why is a euro in a Cyprus bank different from other euros? Because you can’t move it freely, so it has less real value. (Read here to see why he thinks that; also here.)

My point, though, is a little different. My point is about unrestricted free trade and capital flow in general and why understanding both is crucial to understanding:

▪ The neoliberal free-trade project, and
▪ Wealth inequality in America

 

But don’t let your eyes glaze over; this is not hard to understand. It just has a few odd terms in it.

Please stick with me.

There’s a straight line between “free-trade” — a prime tenet of both right-wing Milton Friedman thinking and left-wing Bill Clinton–Robert Rubin neoliberalism — and wealth inequality in America. In fact, if the billionaires didn’t have the one (a global free-trade regime) they couldn’t have the other (your money in their pocket). And the whole global “all your money are belong to us” process has only three moving parts. Read on to see them. Once you “get it,” you’ll get it for a long time.

What does “free trade” mean?

In its simplest terms, “free trade” means one thing only — the ability of people with capital to move that capital freely, anywhere in the world, seeking the highest profit. It’s been said of Bush II, for example, that “when Bush talks of ‘freedom’, he doesn’t mean human freedom, he means freedom to move money.” (Sorry, can’t find a link.)

At its heart, free trade doesn’t mean the ability to trade freely per se; that’s just a byproduct. It means the ability to invest freely without governmental constraint. Free trade is why factories in China have American investors and partners — because you can’t bring down manufacturing wages in Michigan and Alabama if you can’t set up slave factories somewhere else and get your government to make that capital move cost-free, or even tax-incentivized, out of your supposed home country and into a place ripe for predation.

Can you see why both right-wing kings (Koch Bros, Walmart-heir dukes and earls, Reagan I, Bush I and II) and left-wing honchos (Bill Clinton, Robert Rubin, Barack Obama) make “free trade” the cornerstone of each of their economic policies? It’s the song of the rich, and they all sing it.

I’ve shown this video before, but it bears repeating. When you think about “free trade,” you probably think of the Walmart heirs (or Apple owners) wallowing in wealth from the world’s slave factories. But it’s a joint project by all of our owners (sorry, major left- and right-wing campaign contributors and job creators).

This is Barack Obama making his case for campaign funding to Robert (Hi “Bob”) Rubin and others in 2006:

At 1:20: “The forces of globalization have changed the rules of the game,” and at 5:52: “Most of us are strong free-traders.” (His “yes-but” to Rubin in that second segment is an appeal to actually do the worthless retraining for non-existent jobs that Clinton earlier supported but never did. See? Pushback. Independence.)
Three things to note:

1. The “forces of globalization” he refers to are not acts of god, whether Yahweh, Juno or Joxer. They were created by the Clinton- and Rubin-crafted CAFTA and NAFTA treaties. If a god did it, that god also caused a certain blue dress to need a dry-cleaning it never got.

 

2. If Obama doesn’t say what he just said in that room, he doesn’t get a Rubinite dime for his next political campaign. Period. This is his application speech.

 

3. Never forget that if Oklahoma knuckle-dragger Sam Walton were in that room, or not-America-first Steve Jobs, Obama would say those same words. “Most of us are strong free-traders.” It’s the tie that binds the left and the right. Bind yourself to Obama economically, and you’re tied to the Waltons. Period.

 

Bonus points for noting that the push to roll back social insurance is part of the NeoLiberal agenda, for example at 1:30 and elsewhere. It’s why we have the Obama Grand Betrayal, the Catfood Snack That Won’t Go Away (do click; there’s a kitty inside).

Finally, listen again to his opening praise of “Bob” Rubin and the others in the first 30 seconds or so. When Obama says that the men he’s praising have “put us on a pathway of prosperity,” what he means is that they’ve put themselves on a path to prosperity. This is wealth inequality in action, wealth inequality on the hoof. Those slave-wage jobs in China (or Indonesia or the Philippines) replace the unionized, high-paying wages you don’t have and will never get back; the men in that room, including Obama, are the reason; and “free trade” is both the cover story and the tool (more on that duality below).

Never forget — “Free trade” is a bipartisan, hands-across-the-aisle screwage of American incomes and wealth. It’s the necessary cornerstone of both left-wing and right-wing economic policy. Period.

The three tools of wealth extraction

Free trade is a primary tool of wealth extraction. What are the others?
Recall that corporations aren’t actors per se, they are machines by which wealth is vacuumed from workers and consumers into the hands and pockets of the corps’ true owners, the CEO and capital class. As we’ve said before:

(1) Corporations are not people, and they don’t have ideas or will. They are empty vessels. If you took a neutron bomb to the home office of MegaCorp.com and let it rip, the building, filled to the brim with inventory and IP, would be empty of humans and a dead thing. You could wait for weeks for the offices to act; they wouldn’t.
(2) This is especially true today, since the corporation now serves a different function than it was designed for. At first, a corporation served to make its stockholders moderately wealthy — or at least wealthier.

Modern corporations serve one function only — to make the CEO class obscenely rich.

The looting of global wealth into the hands of the capital and CEO class is a simple two-step process: Corps use free trade to loot the world. CEOs then loot the corps and live higher and better than the kings and presidents they control.

Yes, “kings and presidents they control.” The only thing needed to make the looting worldwide is government protection. If the capital class doesn’t control government, they can’t institute … global free trade regimes. And there you have it. So what are the three tools needed by the capital-controlling class?

■ CEO capture of corporations
■ Wealth capture of government
■ A global free-trade regime

 

And that’s all it takes. With those three tools in your pocket, you can loot and own the world, literally.

Hmm, we have all three now. “Mission accomplished,” as they say in private jet circles.

Free trade keeps the rest of the world in crisis

And now we come back to Krugman. A direct consequence of a world in which capital flow is completely unrestricted is constant economic crisis. The Professor explains that well in the context of the Cyprus problem (my emphasis and some reparagraphing):

Whatever the final outcome in the Cyprus crisis … one thing seems certain: for the time being, and probably for years to come, the island nation will have to maintain fairly draconian controls on the movement of capital in and out of the country. …
That’s quite a remarkable development. It will mark the end of an era for Cyprus, which has in effect spent the past decade advertising itself as a place where wealthy individuals who want to avoid taxes and scrutiny can safely park their money, no questions asked. But it may also mark at least the beginning of the end for something much bigger: the era when unrestricted movement of capital was taken as a desirable norm around the world. …

Then he compares the era of capital control to the era of capital freedom:

It wasn’t always thus. In the first couple of decades after World War II, limits on cross-border money flows were widely considered good policy; they were more or less universal in poorer nations, and present in a majority of richer countries too. Britain, for example, limited overseas investments by its residents until 1979; other advanced countries maintained restrictions into the 1980s. Even the United States briefly limited capital outflows during the 1960s.

But like all good things, that changed:

Over time, however, these restrictions fell out of fashion. To some extent this reflected the fact that capital controls have potential costs: they impose extra burdens of paperwork, they make business operations more difficult, and conventional economic analysis says that they should have a negative impact on growth (although this effect is hard to find in the numbers). But it also reflected the rise of free-market ideology, the assumption that if financial markets want to move money across borders, there must be a good reason, and bureaucrats shouldn’t stand in their way.

What marks the difference between those two eras, the era of capital control and our current free-trade era? Near-constant economic crisis:

[U]unrestricted movement of capital is looking more and more like a failed experiment. It’s hard to imagine now, but for more than three decades after World War II financial crises of the kind we’ve lately become so familiar with hardly ever happened.
Since 1980, however, the roster has been impressive: Mexico, Brazil, Argentina and Chile in 1982. Sweden and Finland in 1991. Mexico again in 1995. Thailand, Malaysia, Indonesia and Korea in 1998. Argentina again in 2002. And, of course, the more recent run of disasters: Iceland, Ireland, Greece, Portugal, Spain, Italy, Cyprus.

Notice the date of change? “Since 1980, however…” Him again. This is not just a coincidence. The Reagan era didn’t just initiate national looting, but international looting as well. Krugman ties these crises, here and elsewhere, to large and unrestricted inflows of capital, followed by large and unrestricted outflows that create economic bubbles, then leave them thoroughly deflated:

[T]he best predictor of crisis is large inflows of foreign money: in all but a couple of the cases I just mentioned, the foundation for crisis was laid by a rush of foreign investors into a country, followed by a sudden rush out.

The rest of the piece shows that this idea doesn’t originate just with The Professor; it’s widely held by many not paid by Money to represent it in the court of public opinion.

There’s an opportunity in Spain, let’s say, to take advantage of cheap labor and prices. Money flows in, builds huge capacity, then flows out as soon as it finds better opportunity elsewhere. What’s left behind? The Spanish in a crashed economy, and in a world in which the holders of their debt (German bankers et al) are using the EU (remember, capture of government) to make sure that creditors are made whole at the expense of whole populations.

Kind of like how Walmart comes into a town, builds a huge store, drives all the other retailers out of business, then leaves as soon as the low-wage-earners in that town can’t keep the store more profitable than other stores in the state.

What’s left? The wreck of an economy. Where’s the money? In the pockets of the Walton family, ‘natch. Win-win for someone (but not for you).

Your “economic crisis” is just their “cost of doing business”

Keep in mind, the purpose of unrestricted “free trade” is to advantage the holders of capital over everyone else on the planet. Great wealth insulates these men and women from crises, so even global economic crisis is just the externalized price (that we pay) for their wealth extraction enterprise — just like a burdened health care system is the externalized price (that we pay) for wealth extraction by billionaire owners of tobacco companies from the constant stream of lung cancer patients.

What’s “a world in constant crisis” to them? Just the cost of doing business. Nothing personal. It’s just business.

Is free trade an ideology or a tool?

One last point. Framing free trade as an ideology may be technically correct in a few cases — there are true believers in almost anything (I believe in kittehs) — but if “free trade” weren’t a money machine for the wealthy, you’d never hear of it. Crickets, as the kids say.

Put simply, the reason you heard Barack Obama tout “strong free trade” with Robert Rubin in the room, is that bankers like Robert Rubin grow obscenely wealthy by financing billionaire store-owner Billy-Bob Walton’s slave factories in Asia.

And non-millionaire Barack Obama wants millionaire Bill Clinton’s post-presidential money — $80 million and counting. (Click the link for a stunning connection between public policy — in this case, the repeal of Glass-Steagal — and a post-presidential payday.)

Obama may not say he wants “Clinton money.” He might even know it, in that self-blind sense of “know.” But I’ve met lots of drunks who’ve explained themselves so long, they really do “know” they’re just “prone to be ill in the morning.” Right. Occam’s Switchblade, Upton Sinclair edition:

“It is difficult to get a man to understand something, when his salary depends on his not understanding it.”

“I’m doing it for the kids,” Obama edition.

Bottom line

The bottom line is simple: A “free trade” system is a regime in which capital always wins, everywhere. It’s the tool by which global wealth is extracted. It’s supported by both parties. The Democratic Party version is called NeoLiberalism. “NeoLiberal” means not-FDR-liberal in the same way that Tony Blair’s “New Labour” means not-Clement Attlee-Labour. Because, framing counts on CNN, and it’s always opposite day there.

And Barack Obama, Bringer and Betrayer of Hope and Change, is the lead NeoLiberal warrior, the point of the spear until 2016, at which point he’ll pass the torch to another testosterone-branded neoliberal, retire into the sunset of global acclaim, create his Foundation for NeoLiberal Love and Global Kittens, and collect his checks. (Or not.)

My suggestion, given the above — don’t help him. You have enough on your conscience, if you’re at all like the rest of us. Unless, of course, you like your economic crises served always on tap. In which case, do sign up.

Source

Money In The Bank? No Thanks

In Niall Ferguson’s Civilization: The West and the Rest, he presents a list of institutional arrangements that turned a bunch of ignorant, “malodorous” Europeans into the world’s dominant culture in the space of a couple of centuries. One of those institutional arrangements was property rights. That is, when something is yours it’s yours, not the king’s or the clergy’s or the local lord’s. A contract, once agreed to, is sacred before the law and is enforced by the powers-that-be.

This institution hasn’t always been perfectly respected, of course, but in the West’s more successful capitalist democracies it has been solid enough to allow citizens to work, save, create and innovate, reasonably secure in the knowledge that they’ll get to keep most of what they earn and all that they save.

The centrality of property rights is why Cyprus is sending shock waves through the global financial system. Smaller than Greece, difficult for most Europeans (and for virtually any American) to locate on a map, this pretty little island (the home, I just discovered, of Mt. Olympus) was the scene of an attempted crime that, had it succeeded, would have produced bank runs in a dozen countries and pretty much vaporized the financial systems of Italy, Greece, and maybe Spain.

As everyone knows by now, the European Union, in return for a rounding-error-tiny bailout of 10 billion euros, coerced Cyprus’ leaders into trying to confiscate 6% – 10% of every local bank account. Universal outrage stopped the theft in its tracks, but not before the world got a glimpse of their leaders’ true natures. To “the Troika” what’s theirs is theirs and what’s yours is theirs, and quaint concepts like private property are always subordinate to the maintenance of power.

This isn’t the first assault on property rights since the financial system seized up in 2009. In the US, contracts governing bond seniority were abrogated when General Motors went bankrupt. A case could also be made that the US bank bailouts were a blatant theft of taxpayer cash — and that inflation itself violates property rights by secretly stealing savers’ wealth.

But taking the bank accounts of people who had no role in their bank’s bad decisions or the economic policies that led to the bailout is the first theft that’s visible and understandable for the average person. As such it risks changing mass psychology in a way that no other financial crime of the past thirty years has done.

We now know that in a pinch the guys in charge will come after our assets. And since black swans are lined up like jets waiting to land at Heathrow, it’s a safe bet that some future crisis will be big enough to lead Congress or the ECB or some other predator to try to plunder broad categories of financial accounts. Trillions of dollars are sitting in US IRAs and 401(K)s, for instance, untaxed and just waiting to be converted to Treasury bonds for the greater good.

But a raid on 401(K)s is a while away. More immediately, like on Monday, what Italian in their right mind will leave money in their local bank after seeing what happened to Cypriots this week? Probably not many. Which means bank runs, followed by capital controls, followed by another euro-crisis eruption.

And even if some adroit policy deception prevents a bank run on Monday, our conception of a savings account – or any other financial account – has changed. What’s ours might not really be ours, if the government wants it.

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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 21^st 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.

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US Begins Regulating BitCoin, Will Apply "Money Laundering" Rules To Virtual Transactions

Last November, in an act of sheer monetary desperation, the ECB issued an exhaustive, and quite ridiculous, pamphlet titled "Virtual Currency Schemes" in which it mocked and warned about the "ponziness" of such electronic currencies as BitCoin. Why a central bank would stoop so "low" to even acknowledge what no "self-respecting" (sic) PhD-clad economist would even discuss, drunk and slurring, at cocktail parties, remains a mystery to this day. However, that it did so over fears the official artificial currency of the insolvent continent, the EUR, may be becoming even more "ponzi" than the BitCoins the ECB was warning about, was clear to everyone involved who saw right through the cheap propaganda attempt. Feel free to ask any Cypriot if they would now rather have their money in locked up Euros, or in "ponzi" yet freely transferable, unregulated BitCoins.

For the answer, we present the chart showing the price of BitCoin in EUR terms since the issuance of the ECB's paper:

Therein, sadly, lies the rub.

As central banks have been able to manipulate the price of precious metals for decades, using a countless plethora of blatant and not so blatant trading techniques, whether involving "banging the close", abusing the London AM fix, rehypothecating and leasing out claims on gold to short and re-short the underlying, creating paper gold exposure out of thin air with which to suppress deliverable prices, or simply engaging in any other heretofore unknown illegal activity, the parabolic surge in gold and silver has, at least for the time being - and especially since the infamous, and demoralizing May 1, 2011 silver smackdown - lost its mojo.

But while precious metals have been subject to price manipulation by the legacy establishment, even if ultimately the actual physical currency equivalent asset, its "value" naively expressed in some paper currency, may be in the possession of the beholder, to date no price suppression or regulation schemes of virtual currencies existed.

It was thus only a matter of time before the same establishment was forced to make sure that money leaving the traditional M0/M1/M2/M3 would not go into alternative electronic currency venues, but would instead be used to accelerate the velocity of the money used by the legacy, and quite terminal, monetary system.

After all, what if not pushing savers to spend, spend, spend and thus boost the money in circulation, was the fundamental purpose of the recent collapse in faith in savings held with European banks?

So, as we had long expected, the time when the global Keynesian status quo refocused its attention from paper gold and silver prices, to such "virtual" currencies as BitCoin has finally arrived.

The WSJ reports that, "the U.S. is applying money-laundering rules to "virtual currencies," amid growing concern that new forms of cash bought on the Internet are being used to fund illicit activities. The move means that firms that issue or exchange the increasingly popular online cash will now be regulated in a similar manner as traditional money-order providers such as Western Union Co. They would have new bookkeeping requirements and mandatory reporting for transactions of more than $10,000. Moreover, firms that receive legal tender in exchange for online currencies or anyone conducting a transaction on someone else's behalf would be subject to new scrutiny, said proponents of Internet currencies.

And just like that, there goes a major part of the allure of all those virtual currencies such as BitCoin that consumers had turned to, and away from such rapidly devaluing units of exchange as the dollar and euro. Because if there was one medium of exchange that was untouched, unregulated, and unmediated by the US government and other authoritarian, despotic regimes around the insolvent "developed world", it was precisely transactions involving BitCoin.

That is no longer the case, as the bloodhound of the Federal Reserve has now turned its attention toward BitCoin, and will not stop until it crashes both its value to end-users, and its utility, in yet another attempt to force the USD, and other fiat, upon global consumers as the only forms of allowed legal tender.

More from the WSJ:

The rising popularity of virtual currencies, while no more than a drop in the bucket of global liquidity, is being fueled by Internet merchants, as well as users' concerns about privacy, jitters about traditional currencies in Europe and the age-old need to move money for illicit purposes.

The arm of the Treasury Department that fights money laundering said Monday that the standard federal banking rules aimed at suspicious dollar transfers also apply to firms that issue or exchange money that isn't linked to any government and exists only online.

Naturally, the actual object of US monetary persecution, is BitCoin:

"We are beyond the stage where this was just funny money and a fun online thing. This is used as a currency," said Nicolas Christin, associate director of Carnegie Mellon University's Information Networking Institute.

Bitcoins can be used in a host of legitimate transactions—for example, website Reddit allows users to upgrade services using bitcoins and blog service Wordpress.com's store accepts them as a form of payment. Pizzaforcoins.com also lets bitcoin savers pay for deliveries through Domino's and other pizzerias.

The problem with virtual currencies is that defining what is permitted in a narrow regulatory sense, is impossible, which is why any definition will be as broad as possible: after all what better way to spook users than to make virtually any transaction borderline illegal:

Creating clear-cut rules for virtual currencies is difficult. A FinCen official said that anti-money-laundering rules would apply depending on the "factors and circumstances" of each business. The rules don't apply to individuals who simply use virtual currencies to purchase real or virtual goods.

The new guidance "clarifies definitions and expectations to ensure that businesses…are aware of their regulatory responsibilities," said Jennifer Shasky Calvery, FinCen director.

The FBI report last year said Bitcoin attracts cybercriminals who want to move or steal funds. "Bitcoin might also logically attract money launderers and other criminals who avoid traditional financial systems by using the Internet to conduct global monetary transfers," the report said. An FBI spokeswoman declined to comment when asked about the agency's concerns regarding virtual currencies.

We were not the only ones to expect imminent intervention from Big Brother:

Some firms say they anticipated the rules. Charlie Sherm, chief executive of bitcoin payment processor BitInstant, said his company is already compliant.

Mr. Christin of Carnegie Mellon said that he believes Bitcoin's dominant use right now is speculation.

"When you have a commodity or currency whose value has grown as rapidly as Bitcoin it makes sense to hold on to it as a speculative instrument," he said. It also is commonly used for online black markets or gambling sites. "Whether used for money laundering…there is no smoking gun."

As to the question of timing - why now - the answer is simple. Europe. After all, it was only yesterday that we wrote that "In Spain, The Bitcoin Run Has Started." It is self-explanatory that if such an exodus away from legacy currencies and into BitCoin was left unchecked, more and more people would follow suit, which is why it had to be intercepted as early as possible.

The jump in the bitcoin exchange rate this week also coincides with concerns euros could be taken from retail bank accounts in Cyprus to fund a bailout. Internet blogs say speculators are looking toward currency alternatives.

Well, if internet blogs say... Of course, internet blogs also say that if and when the fascination with virtual currencies fizzles, all those who are disgusted with the abuse of fiat will not cease from seeking USD, EUR, JPY, GBP and CHF alternatives, but will merely go back to the safety of having hard assets as a currency, namely silver and gold, instead of electronic ones and zeroes, which the US government, in all its Orwellian benevolence may one day, for lack of a better word, hack right out of existence.

On the other hand, the regime's desperation is reaching such a level that a Executive Order 6102-type confiscation of all hard asset currencies may not be far behind.

Because forewarned, is forearmed.

Freddie Mac sues big banks over Libor-rigging scandal

US government-controlled mortgage giant Freddie Mac has sued more than a dozen of the world’s biggest banks over losses from the alleged rigging of the Libor interest rate.

Freddie Mac, in a March 14 court filing made public Tuesday, took legal action against Bank of America, JPMorgan Chase and Citigroup, as well foreign banks including Barclays, HSBC, UBS, Credit Suisse and Deutsche Bank.

The suit also was filed against the British Bankers’ Association, which publishes the Libor interest rate, a benchmark interbank rate for global financial contracts.

 

Freddie Mac, which was seized by the US government to prevent its collapse in the 2008 financial crisis, said it incurred losses as a result of the setting of unfairly low US dollar (USD) Libor rates in the 2007-2010 period.

“Each defendant owed a duty to Freddie Mac to honestly and accurately report USD Libor and not to intentionally mislead Freddie Mac and others by secretly and collectively manipulating USD Libor for their gain and to the detriment of others in the financial markets,” the company said in the filing with a US federal court in Virginia.

“Freddie Mac suffered damages in the form of, among other things, lower interest rate payments from defendants and others from financial products that incorporated Libor.”

Freddie Mac did not state the amount of the losses.

A number of banks have been taken to court since the Libor scandal erupted in June 2012 after British bank Barclays was fined 290 million pounds ($439 million) by British and US regulators for attempted manipulation of Libor, and its eurozone equivalent Euribor, between 2005 and 2009.

Swiss bank UBS and Royal Bank of Scotland have since paid heavy fines for their role in the scandal.

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Will The Banking Meltdown In Cyprus Be A “Lehman Brothers Moment” For All Of Europe?

Cyprus lawmakers may have rejected the bank account tax, but the truth is that the financial crisis in Cyprus is just getting started.  Right now, the two largest banks in Cyprus are dangerously close to a meltdown.  If they fail, depositors could end up losing virtually all of their money.  You see, the banking system of Cyprus absolutely dwarfs the GDP of that small island nation.  Cyprus is known all over the world as a major offshore tax haven, and wealthy Russians and wealthy Europeans have been pouring massive amounts of money into the banking system over the last several decades.  Yes, those bank deposits are supposed to be insured, but the truth is that there is no way that the government of Cyprus could ever come up with enough money to cover the massive losses that we are potentially looking at.  This is a case where the banking system of a nation has gotten so large that the national government is absolutely powerless to stop a collapse from happening.  If those banks fail, depositors may end up getting 50 percent of their money or they may end up getting nothing.  We just don't know how bad the damage is yet.  And considering the fact that many of the largest corporations and many of the wealthiest individuals in Europe have huge mountains of cash stashed in Cyprus, the fallout from a banking collapse could potentially be absolutely catastrophic.

So Cyprus needs to come up with some money from somewhere in order to keep that from happening.

Basically, there are three options at this point...

1) Even though the bank account confiscation tax was voted down today, there is talk that it could come back in another form.  This is really the only place inside of Cyprus where enough money can be raised to bail out the banks.

2) Cyprus could go back and beg the IMF and the EU for money, but the IMF and the EU have already said that they want depositors to share in the pain.

3) Cyprus could get the money that they need from the Russians.  This will be discussed in more detail later.
A lot of people will see the headlines proclaiming that Cyprus has voted against the wealth tax and think that everything is going to be okay now, but that is very far from the truth.

The reality is that this is only the first move in a very complicated chess game.  The problems for Cyprus are only just the beginning...

"This is not the end of the process, but instead kicks off a further round of negotiation with Moscow and Berlin," JPMorgan economist Alex White wrote in a research note. "The Cypriot authorities wanted to conduct the vote so that they could reaffirm the extent of their difficulties to the Europeans."

When the banks of Cyprus reopen in a few days, there is going to be a stampede of people trying to pull their money out of the banks.

In fact, this was starting to happen even before the "bank holiday" was declared.  According to The Sun, bank insiders were tipping people off about what was going to happen in the days leading up to the crisis...

But Russian oligarchs and big investors emptied accounts in the days beforehand, prompting claims they were tipped off by bank insiders. A source told The Sun: “It leaked out. Bankers warned their best clients. Government officials warned their friends and relatives.
“Billions disappeared from accounts in days, most from accounts held by Russians.”

And according to David Zervos, we could see billions more euros withdrawn from banks in Cyprus once they reopen.  There will be mass panic as depositors scramble to reclaim their money before it can be taxed...

The die is cast. There is no going back for the Cypriots or the Eurozone leaders. As soon as the banks open in Cyprus there will be billions in withdrawals. The question of course is - "where will the money come from?". Well, if the parliament votes YES, then the Euros will have to come from the Eurosystem. But there is a glitch. The Cypriots have already borrowed 10b euro via the ELA and Target2. How can Mario just wire over 20 billion more (less the 10 to 15 percent haircut) for the Russians, and another 20 to 30 billion for the wealthy Greeks. What collateral will an economy with 20b in GDP post to get this cash? Unless Mario violates every collateral rule at the ECB, the Cypriot financial system will collapse even with a YES vote. Its a wonderful life - Cyprus style.

It may not even matter what Cyprus eventually decides to do about a "wealth tax".  The bank run that is about to happen may be enough to bring down the banks of Cyprus all by itself.

And of course people all over southern Europe are watching developments in Cyprus very closely.  As former British Chancellor of the Exchequer Alistair Darling recently noted, if depositors in southern Europe start getting nervous that their bank accounts will be targeted too, they will be likely to start pulling money out of the banks very rapidly...

"They have actually now said to people ‘We will come after your deposits, no matter how small your savings are’ and that seems to me to make it more likely that, if you are a saver in Spain or in Italy, for example, and you have just the sniff of the EU or the IMF coming your way, you will take your money out and you will get a run on the bank"

Cyprus could actually get out of this mess by turning to Russia, but the United States and Europe really do not want to see Russia gain so much control over that very strategic island nation.

So why would Russia get involved?  Well, it has been estimated that Russians have approximately $31 billion stashed in banks in Cyprus.  It is the favorite offshore banking destination for the Russian oligarchs.  Dennis Gartman recently detailed why the tiny island nation is so appealing to the Russians...

Cyprus has been their own private Switzerland for many years. Legal and non-legal Russian cash has swamped the banking system in Cyprus since the early 90’s. The beauty of the island; the ease of admission too and exit from the island via boat or plane; the secrecy of the banking laws; the warm Mediterranean climate and the ease of which Cypriot authorities could be bribed and bought all worked to make Cyprus the center of Russian capital flight.

And right now the Russians are not happy at all that their money is being threatened.
In particular, the Russian mafia launders a lot of money in Cyprus.  The Russian mafia is not about to let anyone steal their money, and they have an international reputation for being absolutely brutal.  In the end, pressure from the mafia may have been one of the primary reasons why many Cyprus lawmakers voted against the bank account tax.  As Dennis Gartman astutely noted, by voting against the wealth tax they may have literally been saving their own lives...

"One could only laugh as such a comment; of course Cyprus was complacent about laundering. To think otherwise was and is naïve. Ah, but now you’ve stolen Russia money... or soon shall depending upon the vote in the Cypriot parliament... and that is dangerous... very. One does not steal Russian mafia money and get away with it. There are fewer statements of fact that are more certain, more factual, more unyielding than this statement. Russian Mafia figures do not take well to being stolen from, and they take even less well to be made fools of. We see no reason to mince words at this point: People will be hurt over this decision; some shall be killed."

And the Russians definitely do not want to see the banking system of Cyprus collapse.  In fact, proposals have been made that would provide the money necessary to keep it afloat.  But of course that money would not come cheaply.

Some of the proposals that Russia has put forward were summarized by the Daily Mail...

But in a move that has raised eyebrows, the Russian energy giant Gazprom offered Cyprus a plan in which the company will undertake the restructuring of the country’s banks in exchange for exploration rights for natural gas on the island.

Representatives of the Russian company submitted the proposal to the office of Cypriot President Nicos Anastasiades on Sunday evening.

It is also rumoured that the Kremlin is privately offering to help bail out Cyprus in exchange for the right to use a naval base in the Greek part of the island.

In addition, as I wrote about yesterday, some Russian investors have stepped forward and have offered to buy majority stakes in the two largest banks in Cyprus.

So why hasn't Cyprus accepted help from Russia yet?  Well, it is a geopolitical thing.  Cyprus is a part of the EU, and European officials do not want Russia to become the dominant influence in Cyprus.

But if the IMF and the EU are not going to step up and help Cyprus, the Russian offers will become more tempting with each passing day.

Meanwhile, the attempted attack on bank accounts in Cyprus is making people nervous all over Europe.

For example, the following is what German economist Peter Bofinger had to say about what the situation in Cyprus is doing to confidence in the European financial system...

Making small-scale savers pay is extremely dangerous. It will shake the trust of depositors across the Continent. Europe's citizens now have to fear for their money.

And if you don't think that this could ever happen anywhere else, you are just being delusional.
In fact, it is already happening.  In fact, the Finance Minister of New Zealand is now proposing that depositors in his nation should be required to "take a haircut" if any banks in his nation fail...

The National Government are pushing a Cyprus-style solution to bank failure in New Zealand which will see small depositors lose some of their savings to fund big bank bailouts, the Green Party said today.

Open Bank Resolution (OBR) is Finance Minister Bill English’s favoured option dealing with a major bank failure. If a bank fails under OBR, all depositors will have their savings reduced overnight to fund the bank’s bail out.

“Bill English is proposing a Cyprus-style solution for managing bank failure here in New Zealand – a solution that will see small depositors lose some of their savings to fund big bank bailouts,” said Green Party Co-leader Dr Russel Norman.

“The Reserve Bank is in the final stages of implementing a system of managing bank failure called Open Bank Resolution. The scheme will put all bank depositors on the hook for bailing out their bank.

“Depositors will overnight have their savings shaved by the amount needed to keep the bank afloat."

But surely there will never be any major banking problems in the United States, right?

Well, large numbers of Chase customers that logged into their accounts on Monday discovered that a "computer glitch" had reset all of their account balances to zero...

Chase bank experienced a problem Monday that had customers scrambling to figure out where their money went.

JP Morgan Chase said it hadn’t been hacked but was having a problem “related to an internal issue” as customers found their accounts showing zero balances.

Some customers shared their frustration on Twitter and showed screen shots of zero balances.

How would you feel if you suddenly discovered that you had no money in the bank?

Most Americans just assume that their money will always be there because their bank accounts are "guaranteed" by deposit insurance and by the full faith and credit of the federal government.

But that is exactly what the people of Cyprus thought too, and look how that turned out.

It would be hard to overstate how dangerous the situation in Cyprus is.  Yes, their nation is very small but their banking system is absolutely huge.

If the banking system of Cyprus fails, it could be a "Lehman Brothers moment" for all of Europe.  At this point, the entire European banking system is leveraged 26 to 1, and once European banks start to fail they could start falling like dominoes.

There is also a very strong possibility that Cyprus could be forced to leave the euro, and if that happens everyone will be wondering who will be next to leave the common currency.

So don't think for a second that the crisis in Cyprus is over.  The banking meltdown is just getting started, and the consequences could end up being far more dramatic than any of us could possibly imagine.

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The Debt Crisis Is a Dollar Reserve Crisis

GOP: We've been lying all along ... Boehner's admission that we don't really have a debt crisis reveals his party's ulterior, program-cutting motives ... I never thought I'd write these words, but here goes: thank you, John Boehner. Thank you, Mr. Speaker, for finally admitting on national television that all the fiscal cliffs, sequestrations and budget battles you've created are, indeed, artificially fabricated by ideologues and self-interested politicians and not the result of some imminent crisis that's out of our control. America owes this debt of gratitude to Boehner after he finally came clean on yesterday's edition of ABC's "This Week" and admitted that "we do not have an immediate debt crisis." (His admission was followed up by Budget Committee Chairman Paul Ryan, who quickly echoed much the same sentiment on CBS' Face the Nation). – Salon

Dominant Social Theme: The US debt is no big deal.

Free-Market Analysis: This article, posted at the leftist Salon website, is not so much a dominant social theme as it is simply a denial of reality. The total debt of the US in terms of what has been promised is closer to US$200 trillion than US$16 trillion. We've written about that here: The US$200 Trillion Debt Which Cannot Be Named.

This was not our perspective but that of a mainstream economics professor who wrote an article for the International Monetary Fund laying out the United States's real indebtedness. We quoted from the article as follows:

Boston University economist Laurence Kotlikoff says U.S. government debt is not $13.5-trillion (U.S.), which is 60 percent of current gross domestic product, as global investors and American taxpayers think, but rather 14-fold higher: $200-trillion – 840 per cent of current GDP. "Let's get real," Prof. Kotlikoff says. "The U.S. is bankrupt." Writing in the September issue of Finance and Development, a journal of the International Monetary Fund, Prof. Kotlikoff says the IMF itself has quietly confirmed that the U.S. is in terrible fiscal trouble – far worse than the Washington-based lender of last resort has previously acknowledged.

To argue about how big the US debt is or whether or not it is payable misses the point. The dollar reserve currency, as we've been writing for several years now, is on the way out. Other countries are using currencies other than the dollar, or even gold, for payment purposes. And China and Japan have quietly ceased to purchase the amount of Treasuries they used to. Nobody thinks the dollar is the world monetary standard anymore, or not in the long run anyway.

But still, in the US this debate continues. As Ron Paul writes in his column in this issue of the Daily Bell, the debate is just a distraction from the real issue – and the real issue is that the sociopolitical system of the US, like the rest of the Western world, is unsustainable. Here's more from the article:

In offering up such a stunningly honest admission, the GOP leader has put himself on record as agreeing with President Obama, who has previously acknowledged that demonstrable reality. But the big news here isn't just about the politics of a Republican House Speaker tacitly admitting they agree with a Democratic president. It is also about a bigger admission revealing the fact that the GOP's fiscal alarmism is not merely some natural reaction to reality, but a calculated means to other ideological ends.

Before considering those ends, first remember that Boehner (like Obama) is correct on the facts.
As Nobel-winning economist Paul Krugman has pointed out, "Even if we do run deficits, federal debt as a share of GDP will be substantially less than it was at the end of World War II" and "it will also be substantially less than, say, debt in several European countries in the mid to late 1990s." It is also lower than the 80 percent of GDP level that many economists say starts to put countries in a precarious position. Additionally, citing Congressional Budget Office data, the Center for American Progress notes that the long-term debt outlook is only dire because the projections simply assume without question that "future Congresses will enact huge new deficit-increasing tax cuts and spending hikes."

"The debt outlook is bad (but) we're not looking at something inconceivable, impossible to deal with," writes Krugman. "We're looking at debt levels that a number of advanced countries, the US included, have had in the past, and dealt with."

So yes, we should start dealing with the long-term debt in a pragmatic and sober way, but we shouldn't pretend it is some sort of imminent crisis worthy of draconian austerity measures.

The article cites a number of ways the US can "grow" its way out of debt, including raising taxes and migrating to a single-payer health care system. In fairness to the article's author, other solutions include cutting the US's vast military-industrial complex.

But again, the reality of the US system is that it is already unsustainable. In fact, the author of this article misses a big point, which is that if the Fed stopped buying US debt and pushing rates near zero, the carrying cost of current and future debt would gradually rise until it consumed most or all of government expenditures.
The ultimate solution to the US debt is going to be a new monetary system that may or may not include the dollar. Some will say that this is merely the outcome of any monopoly money system but our suspicion has always been that the current environment is being gradually destabilized so as to offer a global money provided by a single central bank of some sort.

Conclusion: Another alternative obviously being contemplated by the powers-that-be is a return to some sort of managed gold standard. No matter what, times are changing and denying the reality of the instability of the current global economic environment will not improve matters – either globally or for oneself.

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