Why?
Because, as I wrote here on Sunday, Cyprus is dancing at the end of fiscal strings pulled by the EU. Today, according to Reuters:
(Reuters) – Banks in Cyprus will be shut on Tuesday and Wednesday pending a decision by parliament to approve a levy on bank depositors, a government source told Reuters.
Cyprus taxpayers began making ATM runs when they learned their savings accounts were to be raided by the government to the tune of roughly 10%.
As a result today, Monday, the Euro has tumbled and our DOW was shaky. Not unforseeable.
The FinancialTimes.com indicates:
Europe is risking a bank run
Creditor nations will now insist bank rescues must be co-funded by depositors
Oh goodie. It’s insufficient that the taxpayers of the affected countries are bent over once; it’s now thought to be a good idea that their individual and personal bank accounts are raided due to mismanagement of their governments.
LONDON (Reuters) – The surprise decision by euro zone leaders to part-fund a bailout of Cyprus by taxing bank deposits sent shockwaves through financial markets on Monday, with shares and the bonds of struggling euro zone governments tumbling.
The bloc struck a deal on Saturday to hand Cyprus rescue loans worth 10 billion euros ($13 billion), but defied warnings – including from the European Central Bank – and imposed a levy that would see those with cash in the island’s banks lose between 6.75 and 9.9 percent of their money.
People are theorizing: is Italy next — to the tune of 15%?
Let me get back to a fundamental building block of finance: a given country’s monetary unit is worth precisely what people think it is. Money is no longer backed by gold but by emotion.
These are very emotional times, and the wholesale raiding of the accounts of taxpayers is emotive in the extreme.
It is not impossible for bank runs to go viral across Europe, and for those emotions to cross the Atlantic.
Again, incompetent governments turning their taxpaying citizens upside down, pulling their pockets inside-out, and then smacking them in the backs of their heads.
“Silly,” you say. “It can’t happen here.”
BZ
P.S.
And don’t think that Mr Obama isn’t salivating at the thought of doing this in the United States, just on general principles.
What could start a bank run here? How about a complete and transparent audit of the Federal Reserve? Or an open accounting of the “gold” at Fort Knox? A massive sell off of Treasury bonds?
Funny you should mention Ft Knox. I wrote about the confidence of the American public — and the rest of the world, for that matter — in the dollar should Ft Knox be opened and/or audited here, on November 14th of 2011.
From that earlier post:
“A point little realized: the United States stepped completely away from the Gold Standard. All links were finally severed when President Richard Milhous Nixon ended any possible association between gold and the US dollar on August 15th of 1971.
In retrospect, that one move placed this nation — by extension, later, the entire world — into the situation it finds itself now. The die was cast. [A great UK article is here.]
From then on, until today, the dollar has not been “backed” by anything resembling a physical asset, but by trust and confidence.
Let me repeat that again, for those of you who may just have tuned in:
From then on, until today, the dollar has not been “backed” by anything resembling a physical asset, but by trust and confidence.
And that, ladies and gentlemen, is quite how precariously our current dollar stands.”
BZ
I remember when I was a boy I could go to a bank with a dollar bill and they had to give me a silver dollar if I asked for one. Not now as our dollars are “Federal Reserve Notes”, probably really only worth the paper on which they are printed. If I recall, they used to be “Silver Certificates” and I may stand to be corrected on that title.
Regardless, you are right about governments mismanaging money and that, my friend, is happening here now in the good old USA. One of the most obvious places to look for that as we all know is in Obama’s “green” investments.
How much RUSSIAN money is in Cyprus banks? And how many people will get KILLED over this?
Putin is already AGAINST this. He’s bouncing off the walls. I wonder WHY?
BZ
Yes, they were called Silver Certificates.
“Green Investments” are that color for no one eventually, as the large businesses he’s given our largesse to have, damned near to the very last, failed.
BZ
If you have money in ANY European bank, are you working like hell to get it OUT?
The SMART money is ALREADY gone.
And isn’t the Fed inflating money in the US, essentially, the SAME as digging in the accounts of Cypriots?
BZ
Your comment on the Fed inflating money here is too true, unfortunately. Devaluing our dollar really is the same as taking a % out of our bank accounts.
In a roundabout way, yes.
“Their” way is infinitely more direct and careless.
BZ
Interesting how the ‘immediately’ shut down the banks to prevent people from getting their money… And yeah BO is salivating at the opportunity…
Sure. It’s “your” money until you actually want it during a crisis.
The same thing will happen here, should runs occur. DC will shut down the banks nationally.
BZ