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Gold Rises, Dollar Rises, Stocks Fall: The Cyprus Disaster Begins

Written by Gary North on March 18, 2013

Gold rose on the news from Europe. Stock markets plunged around the world. So did the price of oil.

Over the weekend, Eurozone bureaucrats at a closed meeting came up with a plan. The committee demanded that the government of Cyprus impose a tax of 6.7% on all bank accounts under $130,000, and close to 10% on all accounts over $130,000. If the government refuses, the Eurozone will not provide a $13 billion bailout for the banks of Cyprus.

The story is all over the European press, for good reason. The Eurocrats had always said that bank accounts would be sacrosanct. This announcement says, “We lied.” But they also assured depositors that this will never happen again. “Trust us.”

The president of Cyprus on Sunday begged the parliament to impose the tax. He admitted that he had promised depositors that he would never, ever tax their accounts. He had said this at his inauguration speech: “absolutely no reference to a haircut on public debt or deposits will be tolerated.” To make himself perfectly clear, he added: “such an issue isn’t even up for discussion.”

Let me translate this in three words: You dumb clucks.

For a month, rumors of this plan had floated around the corridors of the European Union’s headquarters. Depositors could have sent their euros to Germany. They could have withdrawn currency. But the president said he would never do this. So, the masses sat tight.

Dumb, dumb, dumb.

The Cypriot parliament was supposed to ram through the tax yesterday, but it postponed the decision until Monday afternoon (their time). The president did not get the votes. If the parliament refuses, then he is the dumb cluck.

The government has closed the banks. The press still refers to this as a “holiday.”

It is clear what any rational Cypriot should do if the government delays. He should call his bank and transfer his money (euros) to a German bank as soon as the bank “holiday” ends.

The government can open the banks but not pass the tax. Wham! The run begins. Or it can keep the banks closed. A depression begins: a frozen economy. Or it can pass the tax bill. Then it can open the banks. There will still be a bank run. “Fool me once, shame on you. Fool me twice, shame on me.”

The Eurocrats who came up with this plan over the weekend must have known this would trigger bank runs in Cypress. If they did not foresee this, they are economic idiots. Did they think that the sheep will sit still a second time and be sheared? This seems hard to believe.

They also did not expect the government to postpone the tax for a day.

I think this policy is deliberate. I think they knew this would happen. They are sending a message to the PIIGS politicians: “Bail out your own banks, or else get ready for a bank run like Cyprus got.” Their goal is to cause a bank run in Cyprus. They want to send a message to any large government that thinks it can sit on the sidelines on the assumption that the Eurozone will bail them out or bail out their banks. It won’t. It can’t. It does not have the money. Its voters will not allow it.

They chose Cyprus, which is a tiny island nation. If its banks go under, so what? If its politicians pull out of the Eurozone, so what? Its crisis is just what the bankers in northern Europe need: an announcement of a “no tolerance” rule. It will scare Club Med politicians.

But it’s a risky policy. It may scare depositors even more than it scares politicians. This may trigger banks runs in Spain, Portugal, and Italy. If I had my money in any of these nations’ banks, I would transfer the money to a German bank.

Mohammed El-Erian, CEO of Pimco, the world’s largest bond fund, said this: “In Europe, it could well undermine the recent tranquil behaviour of depositors and creditors in other vulnerable European economies – in particular Greece, Italy, Portugal and Spain. Despite assurances from European officials that Cyprus is ‘exceptional’ and the measures are ‘unique’, this weekend’s actions have increased the risk premium.”

This is a desperation move by Eurozone bureaucrats. They risk fomenting a bank run out of Italian and Spanish banks. Depositors who want to avoid becoming like Cypriot depositors have a way out: transfer money to German banks.

This is a high-risk crap-shoot. Eurozone bureaucrats have to be really desperate to announce a bank account tax policy that cannot be enforced by the Eurozone, only by national governments. If a government looks as if it will comply, the bank runs will begin. If it says it will not comply, bank runs still may begin. The depositors will know that the government may abandon the euro. To make money on this, they must get their euros into German banks.

This indicates just how desperate the Eurozone leaders are. They pretend that there is calm. They pretend the system is not coming apart. Then they make an announcement that is rational only on the assumption that the euro experiment is coming apart.

Continue Reading on www.telegraph.co.uk

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31 thoughts on “Gold Rises, Dollar Rises, Stocks Fall: The Cyprus Disaster Begins

  1. Well I guess the can has been kicked as far down the road as it;s going….the roosters are coming home to roost!!!!! Look out the rest of the world….I for one have pullled all my cash out of the banks long ago.

  2. Why all this concern about Cyprus…..a very tiny tiny tiny tiny island somewhere in the Med, with a GDP not worth hardly anything……………………of course it could be the death of the USA

  3. Jackspraat says:

    Read your tea leaves, We also owe a lot of money, need to borrow a lot of money, need to print a lot of money, Is bank accounts the place for it, Me thinks tax free bonds, not in autos or anything the gov't owns though, maybe some carefully screened annuities.

  4. The FDIC still insures deposits up to $250,000 I think now. Get out of bank stocks. Spread your $ around.Send me some.

  5. This also has something to do with the large Russian deposits in Cyprus

  6. Mark, maybe they are stupid enough to NOT have considered Russia?

  7. The solution of government the world over is always the same: you peasants must make do with less while we have more.

  8. It's a concern because if they can do this in one country, they can try to do it in any country.

  9. Gary, gold has nothing to do with this. I don't know if you've noticed, but gold's price has fallen to 2011 levels. It's plateaued.

    Paper money is backed by the faith we put into it as a currency. Silver is the same way, as is gold. People don't have the same faith in gold as a currency – it can't be traded freely as paper money can. Putting your faith in gold is folly, and because it is a commodity, it has the same ups and downs as anything else. And it can really only go down from here. It already is.

    Understandable, some will disagree, because paper money is easily printed, and gold is a finite resource. But when you have 7 billion people in the world, gold just isn't feasible anymore.

  10. LickteySplit says:

    The FDIC IS part of government….DO NOT believe youre deposits are safe with them!!!

  11. You gotta be kidding me. This is after Greece, Spain, Portugal and others. Wake up George. The world is on fire. Don't miss the hot dog roast.

  12. The feds insure? HA, after all the proping up they have done. Oh yea, they can print more. Come on, you can't be serious.

  13. Shane, did you see the byline. GOLD RISES?

  14. If we ever had an administration who would do something like this, it is the one we have now.

  15. …. If they did not foresee this, they are economic idiots. ….

    And If they did foresee this, they are economic idiots.

    They are, after all, Europeons.

  16. Rattlerjake says:

    Exactly! I only deposit enough to cover bills, and not all at once. If the point comes when assets are frozen by gov't, you'll never see you money. Buying gold is a major risk, at some point it will fall much like the housing bubble.

  17. Rattlerjake says:

    The FDIC is nothing more than another gov't promise. You money is insured by tax dollars. When this country goes into bankruptcy and a depression where do you think the money will come from?

  18. G. Kuhns says:

    Let me see if I have this right: They are going to bailout the bank with their depositor’s money … and they, somehow, think they will keep their depositors?

    As Churchill would say: Isn’t that like standing in a bucket and trying to lift yourself up by the handle?

  19. lilbear68 says:

    comming soon to a bank near you in the USA too. only a matter of time

  20. Phillip_In_TX says:

    Buying lead & brass is a better investment. Along with food, water, & seeds. Watch the "Ziegeist Addendum" and pay particular attention to the "Monetary System" using fractional reserves.

  21. Phillip_In_TX says:

    What we are getting ready to experience will make "The Great Depression" look like a church social.

  22. stonehillady says:

    Americans have 13.3 trillion in savings & checking, the FDIC has a whopping 57 billion insuring 8431 banks, so if the system fails we will get 76 cents for every $100. that was in those banks, just one mid-size bank could very well soak up 57 billion, some insurance ratio, so only a fool would keep any money in a bank, especially a big bank.

  23. If this happens here, get ready for predictions that some of the leadership's days of life are growing short.

  24. stonehillady says:

    Boy, have you drunk the Koolaid about Gold/Silver, the western world has major shorts on these metals because they want to prop the fiat dollar, meanwhile the BRIC's are buying the metals & have already established trading within themselves without the dollar. If your in Comex metals their contracts are way manipulated you've got over 10 contracts on 1 ounce of Gold & 50 contracts on 1 ounce of silver…..do you know what that means ? Anyone calling a delivery of even 500 lbs. of Gold Comex & the gig is up ! That is why Germany can't get their Gold from the FED's………….they don't have it !
    Gold will always be used even as a % of the currency.

  25. Since there never has, nor ever will be an honest, sound government, its best not to expose oneself to their possible theivery no matter where you are

  26. Could they be doing it to put the local banks out of business and send everybody into the arms of the big banks?

  27. Is it really a bailout by the Euro Zone when it seems to me they are getting this 13 billion dollars from the tax they want to impose.

  28. The bigger story here is that there are STILL people with money who actually have it in banks & not gold.

  29. Gold didn't rise (liar) and this author is selling Germany like it's too big too fail?? Do pundits NEVER learn anything?

  30. Resistance by all possible means, people.

  31. Jim hodge says:

    "Jim Hodge – Allied Home Mortgage have been attacked by lawyers and the liberal press. A self made man of humble means is working hard to restore the jobs lost by these baseless attacks"