Guest post by Nick Hubble
Yes, this is getting old, but this week a new Mediterranean country became the centre of the financial world’s attention.
It’s not even big enough to be one of the PIIGS, which used to make all the headlines.
But Cyprus is important for a whole new reason.
This time around, bank depositors will take a hit in the effort to bail out the banks.
And that’s causing panic across Europe…
What you need to know about this isn’t in the details. They’re a complete mess and keep changing from one hour to the next. One moment all depositors will lose a few percent of their deposits, the next only some will.
What’s really important is the signal this sends. We’re entering into the next stage of the financial crisis. The stage where governments turn on their citizens.
This is exactly in keeping with Kris Sayce’s theme at Money Morning Australia. He’s written about this for over four years, including most recently Australian government’s attempts to take your wealth, like they’re going to do in Cyprus.
And it’s not just Cyprus, by the way.
In Japan, the government hopes to stimulate the economy by creating inflation. That will have a similar effect on the country’s savers as confiscating a proportion of their deposits would. In Italy, the German bank Commerzbank is expecting a wealth tax to be brought in. France’s ill fated 75% tax may not last, but it shows what’s making popular politics these days.
In Australia, the miners, polluters and ‘super profiteers’ are the target…for now. And on May 31st, the government will raid small superannuation accounts and unused bank accounts.
All around the world, governments are beginning to see their citizens as ATMs to pay for political promises. Whether its entitlements, bank bailouts, wars or insulation schemes. Sure, simply taking people’s deposits is particularly audacious. But you don’t even know if we’re referring to Australia or Cyprus in that sentence. Both are up to the same sort of confiscation.
By the way, if you’re thinking this is just a question of finding the right kind of politicians to solve the problem, you’re going to be disappointed. Remember Julia Gillard’s ‘there will be no Carbon Tax’ election promise? Well, the President of Cyprus was only elected three weeks ago, and promised deposit taxes wouldn’t be part of any plan to bail out the banks. You never know what you’ll get from a politician.
Reuters reports that Cyprus’ President initially stormed out of negotiations with the IMF, EU and ECB when they demanded a tax on depositors’ funds. But he quickly changed his tune when faced with the bankruptcy of Cyprus’ two largest banks by Tuesday, after Monday’s bank holiday.
Now the bank holiday has been extended to Thursday, which really means indefinitely, because the bailout plan wasn’t passed by Cyprus’ parliament.
If we wrote to you about deposit confiscation, bank holidays, bank runs, and all the rest of it a few years ago, would you have laughed it off? Would it have seemed absurd?
Well, suddenly stuffing cash under your mattress seems a whole lot less eccentric. Suddenly,owning physical gold outside the banking system looks smart.
Nick Hubble is feature Editor of The Daily Reckoning Australia Weekend edition, and editor of The Money for Life Letter.