3/22/2013 8:04 PM ET|
Cyprus' problems must be country-specific
Recent events in Cyprus show just how far banks and governments may be willing to go to justify their policies -- and at whose expense.
While the Cypriot parliament voted down the measure, the psychological damage has been done and, more importantly, cannot be undone.
What this does, in no uncertain terms, is shatter whatever confidence (i.e., trust) depositors may have had in banks in Cyprus. (It is also a great example of known problems not mattering until they matter.) By extension, I would think that depositors everywhere in Europe, and potentially other parts of the world, would be inclined to think twice about the safety of their deposits and what might happen to them.
Thus, the fabric of trust has been torn; or, said differently, confidence has been lost. It is not easy to generate confidence, and it is even harder to regenerate it once it has been destroyed. The genie quite simply will not go back in the bottle.
Wishes? They'll be lucky to get three guesses
The geniuses running the European Central Bank and International Monetary Fund have let it be known that they are liable to do anything to depositors at any time, which is a very poor policy decision, given the cards they have to play.
On the other hand, at least they are being brutally honest, though I am sure they don't see it that way. As Joan McCullough of East Shore Partners noted this week, the two different tax rates proposed to be levied on depositors in Cyprus are at least a direct hit that one can accept and move on from.
Contrast that with what the other G-7 central banks are doing -- robbing savers every day by not paying a fair interest rate, debasing currencies and creating more inflation. (Since Cyprus is part of the eurozone, it is actually getting a double whammy of higher taxes and wealth erosion.)
In any case, this marks a watershed in the bailout era, in that justifications for the bailouts to date have been to prevent people from losing confidence in the authorities and the banking system.
Obviously, this has done the exact opposite. However, this action is one of the reasons people own physical gold, since you are relying neither on deposit insurance nor sanity on the part of central bankers, although you do have to put up with a lot of price volatility (there is no free lunch in the world of investing).
'Cyprus is unique' = 'Subprime is contained'
Finally, stock bulls and media cheerleaders have already concluded that Cyprus is contained, even as the exact details of the bank deposit confiscation are still being worked out. (See Andrew Ross Sorkin's March 18 column in The New York Times headlined, "A bank levy in Cyprus, and why not to worry," in which he argues that there is no risk because "Cyprus is unique.")
This is yet another example of a serious problem not having a devastating impact instantly and non-thinkers thus concluding that all is well. A similar scenario played out when the stock bubble burst, and all through the unwinding of the housing/credit bubble.
In fact, there is no better example of data becoming cumulatively worse and people still being unable to connect the dots than what we saw as that latter bubble began to burst. The beginning of the end was in the spring of 2007, when first-payment defaults were being taken by the subprime lenders and caused them to blow up. The stock market, of course, ignored that and peaked in August 2007.
Never show up late to the end of the party
Subprime was never going to be "contained." The losses spread to Alt-A mortgages and then to everything else, eventually infecting the idiots on Wall Street and the commercial bankers who had levered themselves up on ludicrous mortgage paper.
As the financial system nearly collapsed and the economy went south, the damage was a consequence of the fact that the economy had been powered by the housing bubble, combined with too many folks using stupid amounts of leverage.
However, to this day mainstream pundits refer to the collapse of Lehman Brothers as the start of the crisis, when in fact it was in essence the end of it, as Hank Paulson and the gang came up with TARP, TALF and other alphabet-soup programs to try and turn back the tide. My point is that many people did not understand what was occurring right in front of their eyes. Now, four years later, they still don't have the right timeline.
I bring that up because oftentimes events come along that change the psychology, the fabric of trust, or affect the business cycle and go unrecognized simply because such things take time to play out, or one event impacts another, and then another. Stated more succinctly, just because there was no "implosion" this week as markets got a chance to react to the Cyprus bank plan does not mean that it will not have many more consequences down the road.
Psychology is an extremely important component of the whole investment landscape. The willingness to suspend disbelief regarding inflation and the monetization of debt here, in Europe and everywhere else, for that matter, is a big reason stocks and bonds are where they are. When one considers what people have been willing to look past (or disregard), it is clear that it wouldn't take much sobering up to cause a whole litany of problems.
Definitely behind the eight ball
It is impossible to know what will happen next, as the billiard balls move around the table in random and unpredictable fashion. I would just caution people to be careful not to draw conclusions on any given day about how the dominoes will tumble in the wake of what has occurred in Cyprus.
Some of the knock-on effects won't be known for days or weeks, and though the talking heads and journalists will make proclamations, we really don't know where all this will lead to, other than to say that confidence will erode at the margin and people who have money in Cyprus and other shaky banking systems will take action over time. I cannot see how this is anything but bullish for precious metals, even though this week they didn't do anything all that special.
At the time of publication, Bill Fleckenstein owned gold.
"Success is the sole earthly judge of right and wrong." -- Adolf Hitler.
Germany will accept confiscation of the accounts of old age pensioners and the savings accounts of all depositors in either large or small bills.
With friends like Germany why would Cyprus need enemies? The best thing Cyprus can do for itself is default. Declare bankruptcy. Start over. Arrest, prosecute and jail those responsible. Tell the Germans "Thanks" and politely show them, the Eurozone, the Troika, and the ECB the door.
Cyprus should have Cyprus banks for Cypriots only. Every country should. This keeps the banks local and under local ownership by law. These banks are limited to two entities, commercial or private. Never both. Now that we know bankers are crooks, you separate the two entities from each other. You keep them small. And if either one messes its pants then that's it. Close 'em up and start over again.
The Eurpopean Central Banks, the Troika, and Germany have proven four things. They are insolvent. They are desperate for cash. They will steal it from anywhere they can lay their hands on it. And, neither the law, social custom, nor contract law will stand in their way.
The Eurozone is a band of crooks who have organzed countries to be debt slaves, where the citizens of these member countries live in debt servitude.
This is why the Eurozone should be disolved. Every country, not just Cyprus, should leave the Eurozone anyway they can. Default. Bankruptcy. Drop out.
Iceland did it. Anybody can. Iceland is (so far) the only country in the world to stand up to the criminal shyster politicians and banksters and say "No." Iceland defaulted and they are now in better shape than anybody. Iceland also arrested, tried, and jailed those responsible and that straightend the whole system up.
As long as those responsible for preventing, causing, creating and reporting the worst case of greed and avarice since the Great Depression . . . as long as these criminals continue being incharge, nothing will change. The game will remain the same.
Question: How many isolated incidents does it take to make an international catastrophe?
Answer: Just one at the tipping point. And the quicker the powers that be come on strong with their damage control propaganda, the closer we probably are to it.
Taking all of my $$$ out of us banks monday
If this crisis in Cyprus is "country specific," then I am quite frankly amazed that Germany has the balls to complain about any behavior that likens confiscation to anything other than what it truly is -- the fascist, pig-faced, goonism of a tyrant and dictator.
No one has been the least bit surprised by the part Germany has played in all this. Like we haven't seen plenty of that sort of behavior in both the political financial reich that has replaced Capitalism and a Free Market Economy (more like killed), these last 5-years in both America and throughout Europe.
If the goose-stepping boot fits, wear it. And if you don't want to be compared with tyrants and despots, then don't keep repeating yourself, over and over and over again.
The new world currency should be a roll of toilet paper. The price of a high quality TP is approaching the value of one US dollars as the dollar looses value. Its used world wide, and in every third world and some modern countries and certain cruise ships it is more valuable than a euro or dollar.
And it has a nice feel, certainly better than a Washington--no offense George. The only downsize is it bulk and possibly counterfeiting, But, I am sure President O could figure a way to get his face hologrammed on each sheet. What justice it would be sitting on your throne with his mug on the sheet, in your hand ready for the big wipe!
Bill.....you are shameless.....you are fanning the flames again... going on and on about why gold is going to shoot up...how much of the stuff do you own anyway? From what I can tell you probably bought 1oz at $2,500 :) and hopes it goes back to that so you can get back your $2,500. back.
Have you ever been to Cyprus? Do you know that they are really Greeks.So you know what that means
The problem with Cyprus is the fact that Russia uses Cyprus's banking system as many in the west use the Cayman Islands to hide their money. The "game" is a lot bigger that we think it is...so it's not Cyprus that's behind all of this it is Russia. My guess is that Putin and the Russian mafia have had a falling out over something
Cyprus will be "told" what to do soon.
Traders will win while long-term holders of most stocks and bonds will lose.
There were lots of developments on the Cyprus situation over the weekend. To give it a little context, imagine if Congress had voted down TARP. Then, the Federal Reserve and Wall Street responded to Congress saying, “Fine, here’s our Plan B, which is even worse for most of your constituents, and we’re doing it regardless of what you say now.” It’s kind of like that.
And by the way, I bet the Fed and Wall Street, which have been watching the situation in Cyprus very closely, will be all O.K. with what the just happened.
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ABOUT BILL FLECKENSTEIN
This column is a synopsis of Bill Fleckenstein's daily column on his website, FleckensteinCapital.com, which he's been writing on the Internet since 1996. Click here to find Fleckenstein's most recent articles.
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