"All The Conditions For A Total Disaster Are In Place"

Authored by Charles Wyplosz, originally posted at VOXeu,
Cyprus: The Next Blunder
The Cyprus bailout package contains a tax on bank deposits. This column argues that the tax is a deeply dangerous policy that creates a new situation, more perilous than ever. It is a radical change that potentially undermines a perfectly reasonable deposit guarantee and the euro itself. Historians will one day explore the dark political motives behind this move. Meanwhile, we can only hope that the bad equilibrium that has just been created will not be chosen by anguished depositors in Spain and Italy.
The decision to tax all Cypriot bank deposits has attracted massive attention (Spiegel 2013) – and rightly so. It is a huge blunder:

• In the unlikely event that all goes well, the government will receive a bit of cash – but not enough to cover the loan generously offered by its European partners – and the Cypriot banking system will be history.
• The alternative is a massive bank crisis in many Eurozone countries – a huge blow to the euro, maybe even a fatal one.

Not an emergency measure

Policymakers have been debating the Cyprus bailout for nearly a year; this cannot be classified an 'emergency action'. They engaged in a lively debate whether Cyprus is 'systemic' or not, the answer to which can only be 'it depends'. It depends not on the size of Cypriot banks but on the way the Eurozone acts. They also debated the Russian deposits that apparently represent a sizeable proportion of bank liabilities. The debate turned around the issues of how dirty this money is and how to do the laundry. They also debated on the size of a possible loan to the Cypriot government. The government itself requested something to the tune of 100% of its GDP, why not? After all this amounts to 0.2% of Eurozone GDP.

Eurozone’s help: Suffocating solidarity

From what is known:

• Cyprus will receive a loan of about half the requested size under the usual austerity conditions.
• The gross public debt of Cyprus will rise from its current level of some 90% of GDP to about 140%, a level that is unsustainable and will eventually require some deep restructuring.

This debt trajectory is a forecast, of course, but well in line with experience.
The effects of this Eurozone austerity programme are now well known. Cyprus joins a distinguished list of countries that benefit from suffocating Eurozone solidarity (Wyplosz, 2011).

• The programme will impose tough austerity;
• Its public-debt-to-GDP ratio will grow because deficits will not go away and because GDP will decline.
• There will the need for more loans as economic predictions will be found to be 'disappointing' over and over again.
• Unemployment will skyrocket, spreading intense economic and social suffering.

Who knows, populist parties could well be on the rise, adding political drama to economic pain. This technology is now well oiled.

The bank deposit ‘confiscation’

What is new is that bank deposits will be 'taxed'. The proper term is 'confiscated'. Like everywhere in the EU, bank deposits in Cyprus are guaranteed up to €100,000. Depositors have arranged their wealth accordingly, only to be told that the guarantee has been changed ex post.
Taxing stocks is optimally time-inconsistent (Kydland and Prescott, 1977). It is a great way of raising money but it has deep incentive effects as it destroys property rights. What is at stake is the credibility of the bank deposit guarantee system throughout Europe.
The system was shaken in 2008 but in the opposite direction. Followed by all other countries, Ireland offered a full guarantee in a successful effort to stem an impending bank run. The cost to the government was such that it triggered a run on the public debt that led to the second bailout after the Greek 'unique and exceptional' one.
That move has now been recognised as a mistake, which may explain how Cyprus is now being treated.

The Eurozone’s ‘corralito’

Because it is time-inconsistent, the decision to tax deposits has been preceded by a freezing of bank deposits. This is remindful of the Argentinean corralito of 2001, which led to economic dislocation, immense suffering and such anger that two governments fell (Cavallo 2011). Hopefully, the Cypriot corralito will not last too long.
The question is: how bank depositors will react in Cyprus and elsewhere? The short answer is that we don’t know but we can build scenarios:

• The benign scenario is that depositors in Cypriot banks will accept the tax and keep their remaining money where it is. Depositors in other troubled countries will accept that Cyprus is special and remain unmoved.

• A less benign scenario is that depositors in Cypriot banks come to fear another round of optimal, time-inconsistent levies. This is what theory predicts. After all, if policymakers found it optimal once, why not twice, or more?

Under the less benign scenario:

• We will have a full-fledged bank run as soon as the corralito is lifted. Since bank assets amount to some 900% of GDP, there is no hope of any bailout by the Cypriot government.
• Any new European loan would immediately translate into a run on the public debt.

Enter ECB, stage right

At this point in the scenario script, the ECB enters the play. Being the only lender of last resort, the ECB will have to decide what to do.

• In principle, it could stabilise the situation at little cost as total Cypriot bank assets represent less than 0.2% of Eurozone GDP or 0.5% of the central bank’s own balance sheet.
• But this would involve the risk that it could suffer losses – especially if the banks are badly resolved, i.e. the bankruptcies are badly handled.

This is not unlikely since the ECB does not control Cypriot bank resolution.
Remember that the current version of the banking union explicitly leaves resolution authority in national hands. In Cyprus, as almost everywhere else, national authorities are deeply conflicted when it comes to their banking systems. Powerful special-interest groups become engaged when banks go bust and governments decide who pays the price. Thus, it is a good bet that Cyprus’s bank resolution will be deeply flawed. The risk to the ECB is real.
Proper resolution under European control could have been part of the conditions for the loan just agreed. But this does not seem be the case. The omission most likely reflects a belief by policymakers that the Cyprus crisis has been solved successfully. The problem is that this belief is false: Cyprus’s predicament remains even under the benign scenario.

All the conditions for a total disaster are in place

The really worrisome scenario is that the Cypriot bailout becomes euro-systemic – in which case the collapse of the Cypriot economy will be a sideshow. This will happen when and if depositors in troubled countries, say Italy or Spain, take notice of how fellow depositors were treated in Cyprus.
All the ingredients of a self-fulfilling crisis are now in place:

• It will be individually rational to withdraw deposits from local banks to avoid the remote probability of a confiscatory tax.
• As depositors learn what others do and proceed to withdraw funds, a bank run will occur.
• The banking system will collapse, requiring a Cyprus-style programme that will tax whatever is left in deposits, thus justifying the withdrawals.

This would probably be the end of the euro.

Conclusions

The likelihoods of these three scenarios – benign, less benign, and total disaster – are difficult to assess.

• What is clear is that the Cyprus bailout has created a new situation, more perilous than ever before.
• Once more a deeply dangerous policy action is decided apparently without any awareness of its unintended consequences.

It is also another violation of sound existing arrangements. We have a no-bailout clause in the Maastricht Treaty – a clause that was essential to the Eurozone’s stability. Putting it aside in the case of Greece was the heart of the today’s problem – the reason the crisis spread (Wyplosz 2010). This no-bailout clause has once again been put aside summarily.
We are now witnessing another radical change as a perfectly reasonable deposit guarantee is being undermined. Historians will one day explore the dark political motives behind this move. Meanwhile, we can only hope that the bad equilibrium that has just been created will not be chosen by anguished depositors.

U.S. Stocks Fall; Cyprus Tax Raises Euro-Crisis Fears

--Stocks declineas Cyprus bank-deposit levy spooks investors world-wide
--European, Asia markets slide, led by weakness in bank shares
--Financial shares lead declines
Bank shares led U.S. stocks lower as investors weighed the odds Cyprus' bailout plan will lead to broader weakness in the euro-zone's financial system.
The Dow Jones Industrial Average fell 62.05 points, or 0.4%, to 14452.06. The blue-chip benchmark fell more than 100 points at the start of the session, then briefly climbed into positive territory before turning lower in the final hour of trading.
The Standard & Poor's 500-stock index dropped 8.60 points, or 0.6%, to 1552.10, and the Nasdaq Composite Index shed 11.48 points, or 0.4%, to 3237.59.
The euro tumbled versus the dollar, to $1.29 in late New York trading. The price of the 10-year U.S. Treasury note surged as investors sought haven assets, pushing the yield down to 1.958%.
Financial shares led declines across nine of the S&P 500's sectors, while the telecommunications group advanced. The SPDR Financial Select Sector exchange traded fund, which tracks shares in the industry, dropped 0.9%. Morgan Stanley retreated 2.5%, while J.P. Morgan Chase fell 1%.
Investors were rattled by plans in Cyprus to tax bank depositors--a first in the euro-zone debt saga--to help fund a bailout from the European Commission, the European Central Bank and the International Monetary Fund.
"The concern is, what if this isn't a one-off?" said Larry Peruzzi, director of international-stock trading at Cabrera Capital, a brokerage firm. "What if European policy makers start doing this to Spain, in Greece, to all the other members that are having debt issues?"
The small size of the Cypriot economy tempered U.S. investors' concerns, keeping a lid on losses, said Sean Lynch, global investment strategist at Wells Fargo Private Bank, which oversees $169 billion in assets.
"We haven't seen the long lines outside of ATMs in Spain and Italy," Mr. Lynch added. "That's a good sign the problem has been contained."
The selling comes on the heels of four straight weekly gains for the Dow. Bulls point to stimulus efforts by the Federal Reserve, record-high earnings at U.S. corporations and signs of improvement in the domestic economy. Still, the march higher has left some market participants wondering if a pullback is imminent.
"People were looking for a reason to take some money off the table and this has given it to them," Cabrera Capital's Mr. Peruzzi said.
On the U.S. economic front, a measure of home builders' confidence fell for the second straight month. The National Association of Home Builders' housing-market index fell more than economists expected, as a lack of available land for construction discouraged builders.
European stocks declined, with the Stoxx Europe 600 falling 0.2%. Spain's IBEX 35 slid 1.3% while Italy's FTSE MIB dropped 0.9%.
Asian markets were also hammered on the Cyprus news. Japan's Nikkei Stock Average tumbled 2.7% and China's Shanghai Composite slid 1.7%.
March Gold futures rose 0.8% to settle at $1,604.60, while April crude-oil futures added 0.3% to settle at $93.74 a barrel.
Hewlett-Packard added 2.9% after Morgan Stanley raised its rating on the shares to "overweight," saying cuts to capital spending should boost the tech company's free cash flow.
Palomar Medical Technologies, a maker of lasers for cosmetic uses, jumped 4.4% after agreeing to a $294 million buyout by larger peer Cynosure.
J.C. Penney climbed 6.2%, posting the biggest gain among S&P 500 components and trimming the shares' slide this year. An ISI analyst said the department-store operator could boost its market value by subletting space in its top locations to other retailers.
Contract driller Helmerich & Payne fell 5.5% after saying competitors are "aggressively pricing rigs" to try to re- take market share.
The Chicago Board Options Exchange's Volatility Index, which measures traders' expectations for big price swings using options on the S&P 500, jumped 18%.
Write to Matt Jarzemsky at matthew.jarzemsky@dowjones.com
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Referenced Stocks: AMP, BA, BAC, CM, GE,

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Sinclair - All Hell Is Breaking Loose After Cyprus Catastrophe

Today legendary trader Jim Sinclair told King World News that all hell is breaking loose after the Cyprus catastrophe. Sinclair, who’s father was business partners with another legendary trader, Jesse Livermore, had this to say in this extraordinary and exclusive KWN interview:
Eric King: “Jim, your comments over the weekend on King World News regarding the Cyprus disaster have electrified the world. But it also seems to have frightened a great many people.”
Sinclair: “Well, it should have frightened many of the players involved, and served as a wake-up call. There was a great miscalculation made with regards to Cyprus, and the situation has quickly turned into a catastrophe. There was no real understanding of the entities that were behind the Russian corporations which have money in Cyprus, and the effect of what is in reality the confiscation of Russian ex-KGB money.
The people at the IMF, which have spearheaded this disaster, never expected the ‘Cyprus Solution’ to blow up in their face the way it has....
“This has quickly turned into a PR nightmare because it is not a ‘tax,’ but instead a ‘confiscation.’ They have stolen KGB money in order to meet the liabilities of the banks. Up to this point, bank depositors have been held whole in this most serious Western, and by consequence international financial meltdown.
Up to now the psychology has been that if you have money in the bank you really don’t have to worry too much. This represents a complete change in the strategy that has existed up to the present time, which has been crucial in holding together the financial world after the meltdown of the over-the-counter derivative has done so much damage.”
Eric King: “The aftermath of this debacle and some of the chess moves that are going on here, your thoughts?”
Sinclair: “Taking Russian money is very foolish. You have to understand the culture of the people you are dealing with. The government leaders in Cyprus have no ability to protect themselves from the retribution of the former Russian KGB agents, including Putin himself.
The government leaders in Cyprus are trying to back-pedal right now in order to save their lives. Let me say it again, they are trying to save their own lives. Remember, ‘revenge is best served cold.’ This means the revenge never comes at the moment of the miscreant act. But it will come in time.
To take money from the leading economic entities in Russia, is to take money from the former KGB officers, and taking money from them is extremely dangerous. I think the reality has quickly set in for the leaders of Cyprus that they have aided in the confiscation of the most serious and dangerous money you could possibly touch. It has these leaders more afraid for their lives than their bank accounts.
I would also add that this was the biggest mistake made by the IMF and the ECB in their history. Every time you do business with a Russian company, you do business with a bank in Cyprus. Money goes in, it goes out, but it all funnels through Cyprus.
Coming down on Cyprus as a test case for the new ‘Bail-In’ rather than ‘Bailout,’ the utilization of the depositors money to pay for the losses, could very well derail the entire efforts so far to maintain the appearance of solvency in the West.
Trillions upon trillions of dollars have been put into the system in order to maintain this appearance of solvency, and so this Cyprus miscalculation is extremely serious. This was a ‘test case’ and the IMF firmly believed the ‘Cyprus Solution’ wouldn’t mean anything.
The real catastrophe here was the misidentification of the capital present in the banks, which, in fact, turns out to be KGB money they are confiscating. And as I said earlier, taking money from them is extremely dangerous.”
Eric King: “As you predicted over the weekend, gold has pierced the $1,600 level on the upside, and it looks as though the physical buyers, the central banks and others, have begun to raise their bids and pressure the shorts.”
Sinclair: “The thesis upon which the hedge funds have gone short of gold has now been destroyed. This is the birth of a transition of the gold market to a cash market. The paper markets will now be moving towards becoming cash markets. It is the birth of an entire new era of trading in what, up until now, has been a paper dominated market for gold when it comes to setting price.
Ultimately, this will mean the end of the manipulation of the gold market because it will become 100% cash. Paper, in gold, is about to exit as a business as the physical market retakes its rightful position once again, and the physical market makes the market price in gold.
This will be the beginning of a minimum $1,900 advance in gold. This will represent more than a doubling of the current price of gold as all hell breaks loose, and this Cyprus catastrophe has a ripple effect around the world.”

The Failure of Laissez Faire Capitalism and Economic Dissolution of the ...

WATCH: Cyprus President Explains Why It's OK To Steal

 Link to this Video
Nicos explains why he's cool with government theft.
His words to the people on why the the EU is stealing their money.
Nicos Anastasiades, president of Cyprus, says he had to steal expropriate seize accept a tax on bank deposits to save the island from bankruptcy.  Speaking about the Euro bailout plan in a televised address to the nation, he says Cyprus faces 'a state of emergency,' and an exit from the euro would been worse.  Anastasiades was elected last month on a promise to tackle the country's debt crisis.
Here's a suggestion from us, Nicos.

Punish the bondholders who made the risky bets and not the depositors who did nothing more than commit the egregious sin of trusting the banking system.

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AMAGERBANKEN - $2.8 Billion Bank Failure In Denmark: Senior Bondholders Whacked 41%

Flashback.  What should have happened in Cyprus.

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Whack the bondholders who made risky bets, not depositors
It may turn out to be the most important bank you've never heard of.
Amagerbanken was taken over by the Danish government today.  As with the Irish banks, Amagerbanken suffered huge losses on loans to property developers and investors in commercial real estate.  But the rescue comes under new regulations which stipulate steep losses for bondholders.  According to Bloomberg, senior bondholders and depositors over the insured limit will face losses of approximately 41%.
Some bondholders, however, still fall under a government guarantee, but expect Amagerbanken to be held up as an example by those who favor haircuts for bondholders rather than bailouts.  In particular, we can expect Ireland's Fine Gael party (pronounced feena gail) to point to Denmark when they make their own case for unilaterally restructuring Ireland's bank debt.  And when they do, the cat will be out of the bag.
For two years, central bankers and government finance ministers (who know next to nothing) have been claiming that the sky will fall and there will be tanks in the streets if bondholders are forced to take losses.  Clearly that is not the case.  First Iceland, then Denmark, then Ireland.  After that, the race is on.
From Reuters

COPENHAGEN, Feb 7 (Reuters) - Denmark was lumbered with a $2.8 bln bill on Monday as Amagerbanken (AMBA.CO) became the country's tenth bank to fall into the state's hands in the wake of the global financial crisis.

Amagerbanken said on Sunday it would transfer its assets to Finansiel Stabilitet A/S, the state company that administers failed banks, and administrators would close the bank.

Amagerbanken, which was Denmark's eighth biggest bank in terms of lending, said fourth-quarter writedowns wiped out its equity, attributing a large part to failed property investors. [ID:nLDE7150JC]

The failure of Amagerbanken was roughly the same size as the mid-2008 collapse of Roskilde Bank, previously the biggest Danish bank failure.

The bill to the government for taking over Amagerbanken is 15.2 billion Danish crowns ($2.8 billion), which is the price that the state administrating company Finansiel Stabilitet will pay for the remaining assets.

The Danish banking industry will cover 2.2 billion crowns of that cost through the country's depositary guarantee scheme, Amagerbanken Chairman Niels Heering told a news conference.

If total losses from Amagerbanken rise above 15.2 billion crowns, Danish financial institutions would have to bear a larger burden than 2.2 billion, Heering said.

--
This clip is worth the 40 seconds...

 Video of the Tsar Bomb -- the 50 Mega-Ton monster in the photo for this story.

SCHIFF: 'Banks Are Just A Few Rate Hikes From Insolvency'

Great clip.  Schiff battles CNBC bank bailout drones.
Peter Schiff on Closing Bell this afternoon.  Start watching right at 1:00.  Other guests are Jason Pride of Glenmede, and Hank Smith of Haverford Investments.
One of the buy-side tools exclaims:

I think everyone agrees TARP saved the banking system.

Schiff responds:

The banks are in the worst shape they've even been.  They are a just a few interest rate hikes from insolvency.

Maria Buffoonromo and a few other idiots talking book.  Schiff goes off, and Maria, ever the financial media protector of JPMorgan et al., gets killed.  It's more of the same, but the true colors come out for a few minutes. (Hat tip to Josie)

99.9% probablility of total and utter collapse before April 2013, says Max Keiser

99.9% probablility of total and utter collapse before April 2013, says Max Keiser
Posted: 17 Mar 2013 09:16 AM PDT
Max Keiser predicts CIVIL WAR in America before April 2013, due to global fiat money collapse. He suggests that China pulling out of the propping up of American Debt will be the trigger. That and the upward move in interest rates. China are buying GOLD and investing in their own gold-backed currency?
2008 was a pre-cursor to how bad it’ll get, 2013 will be CATASTROPHIC for everyone.
The Total and Utter Collapse Before April 2013 Says Max Keiser
Max says, “Is there any way to stop this? No, there’s no way to stop this. Systems Analysis says that when you complicate a system to the degree that this has been compromised and complicated, there’s a 99.9% probablility of total and utter collapse before April 2013. There is only one possible outcome, ‘Civil War in America,’ inter-generational; destitute young versus capitalist old.”
We can apply Max’s Systems Analysis of the BROKEN/LEVERAGED/OVER-COMPLEX banking/trading system to the BROKEN/LEVERAGED/OVER-COMPLEX covert/intelligence system, no?

Cyprus Bailout Timeline

Cyprus EU bailout timeline.
Peep the first minute of this Bloomberg clip for background on Cyprus, the economy, banks, application to the EU.  Analyst discussion follows the timeline.

The Artist Taxi Driver goes off:

MUST SEE: The Great Cyprus Bank Robbery

Who's Next After Cyprus...Eventually The U.S.

Will a bank account seizure tax ever happen here?
Spain, Italy, Greece, Portugal and perhaps even the United States.  Stuart Varney on Fox Biz earlier this morning.

The common global trait - drowning in debt.

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Nuclear war on savings and wealth.

After The Banksters Steal Money From Bank Accounts In Cyprus They Will Start Doing It EVERYWHERE

Cyprus is a beta test.  The banksters are trying to commit bank robbery in broad daylight, and they are eager to see if the rest of the world will let them get away with it.  Cyprus was probably chosen because it is very small (therefore nobody will care too much about it) and because there is a lot of foreign (i.e. Russian) money parked there.  The IMF and the EU could have easily bailed out Cyprus without any trouble whatsoever, but they purposely decided not to do that.  Instead, they decided that this would be a great time to test the idea of a "wealth tax".  The government of Cyprus was given two options by the IMF and the EU - either they could confiscate money from private bank accounts or they could leave the eurozone.  Apparently this was presented as a "take it or leave it" proposition, and many are using the world "blackmail" to describe what has happened.  Sadly, this decision is going to set a very ominous precedent for the future and it is going to have ripple effects far beyond Cyprus.  After the banksters steal money from bank accounts in Cyprus they will start doing it everywhere.  If this "bank robbery" goes well, it will only be a matter of time before depositors in nations such as Greece, Italy, Spain and Portugal are asked to take "haircuts" as well.  And what will happen one day when the U.S. financial system collapses?  Will U.S. bank accounts also be hit with a "one time" wealth tax?  That is very frightening to think about.
Cyprus is a very small nation, so it is not the amount of money involved that is such a big deal.  Rather, the reason why this is all so troubling is that this "wealth tax" is shattering confidence in the European banking system.  Never before have the banksters come directly after bank accounts.
If everything goes according to plan, every bank account in Cyprus will be hit with a "one time fee" this week.  Accounts with less than 100,000 euros will be hit with a 6.75% tax, and accounts with more than 100,000 euros will be hit with a 9.9% tax.
How would you feel if something like this happened where you live?
How would you feel if the banksters suddenly demanded that you hand over 10 percent of all the money that you had in the bank?
And why would anyone want to still put money into the bank in nations such as Greece, Italy, Spain or Portugal after all of this?
One writer for Forbes has called this "probably the single most inexplicably irresponsible decision in banking supervision in the advanced world since the 1930s."  And I would agree with that statement.  I certainly did not expect to see anything like this in Europe.  This is going to cause people to pull money out of banks all over the continent.  If I was living in Europe (and especially if I was living in one of the more financially-troubled countries) that is exactly what I would be doing.
The bank runs that we witnessed in Cyprus over the weekend may just be a preview of what is coming.  When this "wealth tax" was announced, it triggered a run on the ATMs and many of them ran out of cash very rapidly.  A bank holiday was declared for Monday, and all electronic transfers of money were banned.
Needless to say, the people of Cyprus were not too pleased about all of this.  In fact, one very angry man actually parked his bulldozer outside of one bank branch and threatened to physically bulldoze his way inside.
But this robbery by the banksters has not been completed yet.  First, the Cypriot Parliament must approve the new law authorizing this wealth confiscation on Monday.  If it is approved, then the actually wealth confiscation will take place on Tuesday morning.
According to Reuters, the new president of Cyprus is warning that if the bank account tax is not approved the two largest banks in Cyprus will collapse and there will be complete and total financial chaos in his country...

President Nicos Anastasiades, elected three weeks ago with a pledge to negotiate a swift bailout, said refusal to agree to terms would have led to the collapse of the two largest banks.
"On Tuesday ... We would either choose the catastrophic scenario of disorderly bankruptcy or the scenario of a painful but controlled management of the crisis," Anastasiades said in written statement.
In several statements since his election, he had previously categorically ruled out a deposit haircut.

The fact that the new president had previously ruled out any kind of a wealth tax has a lot of people very, very upset.  They feel like they were flat out lied to...

"I'm furious," said Chris Drake, a former Middle East correspondent for the BBC who lives in Cyprus. "There were plenty of opportunities to take our money out; we didn't because we were promised it was a red line which would not be crossed."

But apparently the wealth confiscation could actually have been far worse.  According to one report, the IMF and the EU were originally demanding a 40% wealth tax on bank account holders in Cyprus...

As the President of Cyprus proclaims  to his people that "we' should all take responsibility as his historic decision will "lead to the permanent rescue of the economy," it appears that the settled-upon 9.9% haircut is a 'good deal' compared to the stunning 40% of total deposits that Germany's FinMin Schaeuble and the IMF demanded.

Could you imagine?
How would you feel if you woke up someday and 40% of all your money had been taken out of your bank accounts?
At this point, there is still some doubt about whether this plan will actually be adopted or not.
Right now the new president of Cyprus does not have the votes that he needs, but you can be sure that there is some high level arm twisting going on.
Originally the vote was supposed to happen on Sunday, but it was delayed until Monday to allow for some extra "persuading" to be done.
And of course the people of Cyprus are overwhelmingly against this wealth tax.  In fact, one poll found that 71 percent of the entire population of Cyprus wants this plan to be voted down.
The funny thing is that Cyprus is not even in that bad of shape.
The unemployment rate is around 12 percent, but in other European nations such as Greece and Spain the unemployment rate is more than double that.
Cyprus has a debt to GDP ratio of about 87 percent, but the United States has a debt to GDP ratio of well over 100 percent.
So if they will go directly after bank accounts in Cyprus, what will stop them from going after bank accounts in larger nations when the time comes?
In the final analysis, this is a game changer.  No longer will any bank account in the western world be considered to be 100 percent safe.
Trust is a funny thing.  It takes a long time to build, but it can be destroyed in a single moment.
Trust in European banks has now been severely damaged, and that damage is not going to be undone any time soon.
A recent blog post by the CEO of Saxo Bank, Lars Christensen, did a great job of explaining how incredibly damaging this move by the IMF and the EU truly is...

This is a breach of fundamental property rights, dictated to a small country by foreign powers and it must make every bank depositor in Europe shiver. Although the representatives at the bailout press conference tried to present this as a one-off, they were not willing to rule out similar measures elsewhere - not that it would have mattered much as the trust is gone anyway. It is now difficult to expect any kind of limitation to what measures the Troika and EU might take when the crisis really starts to bite.
if you can do this once, you can do it again. if you can confiscate 10 percent of a bank customer's money, you can confiscate 25, 50 or even 100 percent. I now believe we will see worse as the panic increases, with politicians desperately trying to keep the EUR alive.
Depositors in other prospective bailout countries must be running scared - is it safe to keep money in an Italian, Spanish or Greek bank any more? I dont know, must be the answer. Is it prudent to take the risk? You decide. I fear this will lead to massive capital outflows from weak Eurozone countries, just about the last thing they need right now.

This is the biggest moment that we have witnessed since the beginning of the European financial crisis.
Financial authorities in Europe could try to calm nerves by at least pretending that this will never happen again in any other country, but so far  they are refusing to do that...

Jeroen Dijsselbloem, president of the group of euro-area ministers, on Saturday declined to rule out taxes on depositors in countries beyond Cyprus, although he said such a measure was not currently being considered.

Such a measure is "not currently being considered" for other members of the eurozone?
Yeah, that sure is going to make people feel a lot more confident in what is coming next.
I have insisted over and over that the next wave of the economic collapse would originate in Europe, and we may have just witnessed the decision that will cause the dominoes to start to fall.
The banksters have sent a very clear message.  When the chips are down, they are going to come after YOUR money.
So what do you think about the bank robbery that is taking place in Cyprus?  Please feel free to post a comment with your thoughts below...

Euro Officials Signal Flexibility on Cypriot Bank Levy

European policy makers signaled flexibility on the application of an unprecedented bank tax in Cyprus, seeking to overcome outrage that threatens to derail the nation’s bailout. European shares and the euro fell.
While demanding that the levy raise the targeted 5.8 billion euros ($7.6 billion), finance officials said easing the cost to smaller savers was up to Cyprus. A vote on the tax, needed to secure 10 billion euros in rescue loans, was delayed for a second day until tomorrow. Banks will remain shut through March 20 after a holiday today, a government official said. Euro-area finance ministers plan a conference call at 7:30 p.m. Brussels time today to discuss the matter.
“If the government wants to change the structure of the solidarity levy for the banking sector, the government can decide as such,” European Central Bank Executive Board member Joerg Asmussen said today in Berlin. “What’s important is that the planned revenue of 5.8 billion euros remain.”
While Cyprus accounts for less than half a percent of the 17-nation euro economy, the raid on bank accounts risks triggering new convulsions in the financial crisis that began in 2009 in Greece. Moody’s Investors Service said that the move is a significant step toward limiting support for bank creditors across Europe and shows that policy makers will risk financial- market disruptions to avoid sovereign defaults.
The tax is “a worrying precedent with potentially systemic consequences if depositors in other periphery countries fear a similar treatment in the future,” Joachim Fels, chief international economist at Morgan Stanley (MS) in London, wrote in a client note.

On Line

Scenes of Cypriots lining up at cash machines raised the specter of capital flight elsewhere and threatened to disrupt a market calm since the ECB pledge in September to backstop troubled nations’ debt. With no government in Italy, Spain in the throes of a political scandal and Greece struggling to meet the terms of its own bailout, more turmoil could hamper efforts to end the crisis.
The Standard & Poor’s 500 Index fell 0.4 percent and the Euro Stoxx 50 Index slid 1 percent at 4:56 p.m. in Frankfurt. The euro weakened 0.9 percent to $1.2957, paring a loss of as much as 1.5 percent.
Borrowing costs in other debt-strapped nations rose. Italian 10-year bond yields climbed 5 basis points to 4.65 percent. The rate on similar-maturity Spanish yields jumped 6 basis points to 4.98 percent. Germany led gains among higher- rated nations’ securities; the yield on its two-year notes dropped below zero for the first time since Jan. 2.

Traders ‘Aghast’

“Traders and investors are aghast at these measures,” Michael McCarthy, a chief market strategist at CMC Markets in Sydney, told Bloomberg Television.
Russian President Vladimir Putin called the tax “unfair, unprofessional and dangerous,” according to a statement posted on the Kremlin website. Russian companies and individuals have $31 billion of deposits in Cyprus, according to Moody’s.
Cypriot banks had 68.4 billion euros in deposits from clients other than banks at the end of January. Of that, 21 billion euros, or 31 percent, were from clients outside the euro area, 63 percent were from domestic depositors, and 7 percent were from other nations within the euro region, according to data from the Central Bank of Cyprus.
Cypriot President Nicos Anastasiades exhorted political factions to support the deposit levy, which he pledged is a one- off measure that will avert a collapse of the financial system that in turn would have led to the country’s exit from the euro.
“A bank collapse would cause indescribable misery,” Anastasiades said in a televised address yesterday. He called the crisis the country’s worst moment since the 1974 Turkish invasion that has left the island divided.

Depositor Swap

In a bid to ease a run on banks, depositors who keep their account for two years will receive securities linked to future revenue from the country’s gas reserves, the president said.
He said he would also seek to soften the impact on savers. The potential changes include taxing deposits less than 100,000 euros at a 3 percent rate, while setting the levy at 10 percent between 100,000 euros and 500,000 euros and at 12 percent for deposits greater than that, Antenna TV reported, without saying how it got the information.
The government will propose to euro area finance ministers that deposits of less than 20,000 euros be exempt from a bank levy, two Cypriot lawmakers with knowledge of the talks said, asking not to be identified.

Proposed Levy

The levy -- as of now 6.75 percent of all deposits up to 100,000 euros and 9.9 percent above that -- whittled the euro- area’s bailout of Cyprus to 10 billion euros, down from an original figure of about 17 billion euros, near the size of the nation’s 18 billion-euro economy.
“Obviously, people would have preferred to pay nothing, but it’s a better deal than it could have been,” said Marshall Gittler, head of global foreign-exchange strategy at Limassol, Cyprus-based IronFX. “It’s unusual to ask depositors to take a hit, but if they hadn’t then the hit would have fallen uniquely on Cypriot taxpayers, so in a sense it’s fairer.”
Euro-area finance deputies began a conference call at 4:30 p.m. Brussels time to discuss modifying the terms of the tax and prepare for the finance ministers’ call later, according to two people familiar with the matter.
The bank tax was the alternative to imposing losses on bondholders in a so-called bail-in. That step was opposed by the Cypriot government, the European Commission and the ECB, German Finance Minister Wolfgang Schaeuble said on ARD television last night.

‘Difficult Time’

“It’s up to them to explain it to the Cypriot people,” Schaeuble said. “Clearly, the taxpayer should not be asked” to rescue banks from insolvency, he said, adding that Cyprus faced a “very difficult time” unless it accepts the tax.
Anastasiades, whose minority government took office less than three weeks ago, holds 20 seats in the 56-seat legislature. The third-biggest faction, Diko, which supported him in his February election, holds eight seats. Cyprus’s communist Akel party, with 19 seats, plans to vote no.
In Cyprus, where a poll showed 71 percent of Cypriots said parliament should reject the levy, the immediate effects were on display. Many cash machines ran out of money, including cooperative bank ATMs, Erotokritos Chlorakiotis, the general manager of the Cooperative Central Bank, told CYBC.
A man in the coastal city of Limassol drove a bulldozer into a bank branch to protest the levy, CYBC reported. At a cooperative-bank branch in the capital Nicosia, a sign informed customers that it was shut on instructions from the Central Bank of Cyprus. Nicos Nicolaou, 57, said he hoped his deposits would not be affected.
“All my life I never had deposits in banks because I didn’t trust them,” he said. “I only worked with co-ops.”
Andreas Andreou, a 48-year-old public servant, said he felt betrayed by Anastasiades’s concession.
“We voted for him to save us and instead he’s disappointed us,” Andreou said.

Betrayal of Our Boys in Cyprus: Ministers pledged to protect UK soldiers' cash. Now they say savings WILL be hit

24 hours after George Osborne insisted military would not suffer

Payments to British pensioners on island suspended until vote on levy

Treasury Minister said Government would reimburse armed forces' losses

FTSE 100 initially fell by 1.5% but closed for the day just 0.5% down

Savers will lose up to 10% from accounts under unprecedented settlement

Move prompts fresh fears the eurozone could be on the verge of break-up

EU leaders call for country to exempt smaller savers from account tax

Cypriot banks will remain closed on Tuesday and Wednesday

Ministers were accused of betraying British troops last night after it emerged they will be hit by the EU raid on Cypriot banks after all.
Servicemen will only be compensated for ‘reasonable losses’ if their funds are ‘connected with their service in Cyprus’.
Last night MoD officials said that could mean those who have transferred funds to Cyprus to save for their retirement could lose out.
The volte-face came 24 hours after Chancellor George Osborne insisted the military would not suffer.
Scroll down for video

Servicemen will only be compensated for 'reasonable losses' if their funds are 'connected with their service in Cyprus'

Hands off: Demonstrators protest as Cypriot President Nicos Anastasiades's convoy drives to parliament in Nicosia

Anger: A protestor outside the parliament building in Nicosia where the president and minsters are meeting to discuss possible alterations to the deal

As the crisis worsened, the Treasury also announced it is freezing pensions to Britons in Cyprus while the details of the tax grab are finalised.
Elderly expats won’t get any money until at least Thursday when Cypriot banks are due to reopen – and  thousands may have to change their bank account to try to dodge the  tax raid.

Suspended: Treasury Minister Greg Clark said that pension payments to expats living in Cyprus had been suspended until the island's parliament voted on a controversial levy on bank deposits

Under the plans, Cyprus is getting a £8.7billion bailout but Germany will not fund the deal unless every account holder pays a 6.75 per cent tax, with a 9.9 per cent raid on those with more than 100,000 euro (around £85,000).

On a day of fresh drama:

• Panic spread as it was revealed Cypriot banks will be closed for three more days
• Stock markets fell around the world and around 0.4 per cent was wiped off the value of the euro
• A vote on the tax grab in Cyprus was delayed until today
• The Cypriot government suggested deposits below 100,000 euro being hit with just a 3 per cent tax, rising to 15 per cent for those above 500,000 euro (£430,000)
• Last night a spokesman for the eurozone also hinted that all depositors with less than 100,000 euro could be protected
  

In all, up to 60,000 Britons on the island are set to lose out. 

But it was the volte-face on the 3,000 troops that angered MPs at Westminster.

At the weekend, Mr Osborne said: ‘For people serving in our military and our government out in Cyprus, we are going to compensate anyone affected by this bank tax.’

Yesterday the Treasury refused to say that all their losses would be compensated for.
A Treasury spokesman said: ‘We will compensate on reasonable losses – whether they are from current or savings accounts – if they are a result of serving in Cyprus.’

Despair: Traders in London react this morning as markets struggled in light of the decision by eurozone leaders to part-fund a bailout of Cyprus by taxing bank deposits

MoD sources said that would not cover ‘speculative investments’ and instances where troops had moved funds to Cyprus because they want to buy property or retire there.

Labour MP Kate Hoey said British expats were ‘having their money stolen on the orders of the German government’.

Shadow Armed Forces minister Kevan Jones said: ‘It is absolutely vital that no member of our Armed Forces is out of pocket. Repayments and compensation from government must cover all losses. 

Uncertainty: The news has sent shockwaves throughout world markets, with European bank shares falling by more than two per cent

Blame: A police officer stands in front of a bus station where an anti-bailout banner blames German Chancellor Angela Merkel for stealing 'life savings'

Anything less would be seen as betrayal across the military community and throughout the country.’
There are around 18,000 Britons of pensionable age in Cyprus, of whom around 12,000 claim a UK pension.

In a tense Commons debate, Treasury Minister Greg Clark announced that pension payments to the island are being frozen so the money doesn’t end up in accounts that might be raided.
‘Any UK pensioners in Cyprus can be assured that their future pension payments are being held safely and a normal payment service will resume as soon as the situation in Cyprus becomes clear,’ he said.
http://www.dailymail.co.uk/news/article-2295115/Cyprus-bailout-crisis-Betrayal-Our-Boys-Cyprus-Ministers-pledged-protect-UK-soldiers-cash-Now-say-savings-WILL-hit.html

Reaction from Cyprus of proposed bailout tax

Talks: Cypriot President Nicos Anastasiades (left) and President of the Parliament Yiannakis Omirou (right) who are discussing possible amendments to the bailout deal

Under pressure: Cyprus President Nicos Anastasiades arrives at the presidential palace in today

But not all pensioners are likely to go online and ‘switch the bank account to which payments are made’ as Mr Clark urged.
Mr Clark said that they should contact the International Pension Centre through the Department for Work and Pensions website ‘as soon as possible’ for details of how to switch the bank account that they use to receive their cash.

Frozen pension payments will be reviewed when there is a deal in Cyprus.
A statement from eurozone finance ministers yesterday urged Cyprus to alter the terms of its levy in order to exempt smaller savers and shift the burden onto accounts above €100,000.
'Small depositors should be treated differently from large depositors,' the statement said as it suggested that the principle of protecting deposits below six figures should not be breached.

Criticism: Russia's President Vladimir Putin said the levy was 'unsafe, unprofessional and dangerous'

Withdraw: The news of a levy on bank deposits caused panic on Saturday evening as Cypriots rushed to withdraw money from banks

Last night Cypriot President Nicos Anastasiades phoned European Economic and Monetary Affairs Commissioner Olli Rehn to warn him that there might not be enough support for the deposit tax to pass in Parliament.
He is reported to have told Mr Rehn: ‘When I warned you that there would not be a parliamentary majority to pass the agreement, you didn’t want to listen. Give my regards to Mrs Merkel.’

Expats living in Cyprus yesterday told Mrs Merkel to keep her ‘hands off’ their money. Almost all cash machines on the island have been drained meaning Britons have been forced to borrow from friends or use credit cards.
Former Tory Defence Minister Sir Gerald Howarth said: ‘Most service personnel would have invested in British banks but some may have invested locally with a view to retiring in Cyprus. Unless they were warned that they shouldn’t invest in local banks, this is an example of where the military covenant should be invoked.’

Tory MP Patrick Mercer, a former colonel, said: ‘There can be no question that if Her Majesty has asked her troops to serve overseas in Cyprus then the Government must protect their financial wellbeing.

'I’m sure they can pay for it the generals take a pay cut for a couple of days or sack the latest soft furnishings refurbishment officer in the MoD.’

Fears: The developments in Cyprus have prompted fresh concerns that the eurozone could break up

Enlarge  

Risk map: Most of the nations at 'extreme' risk from a eurozone collapse are in Europe but some are in Africa

Daylight robbery! Expats blast the 'bullies in Brussels'

They arrived in Cyprus dreaming of a carefree life in the Mediterranean sunshine.
But last night these expats were left in a state of anxiety after their Cypriot current and savings accounts were frozen in the EU raid.
They said they felt ‘trapped’, and blasted the move as ‘daylight robbery’.
Since the banks closed on Friday they have been unable to access their money either via cash machines or online. Some could lose thousands in hard-earned euros.
Even those who might lose a more modest amount are worried it could happen again and plan to close their accounts permanently when the banks open again, possibly on Thursday.
At a lively meeting in a coffee shop in the village of Pyrgos, they spoke of their anger at Germany and the European Union, who they blame for the unprecedented bank tax.

These expats were left in a state of anxiety after their Cypriot current and savings accounts were frozen in the EU raid. Since the banks closed on Friday they have been unable to access their money either via cash machines or online. Some could lose thousands

1 The bingo winner

Cath Bradbury, 61, from Littleborough, Lancashire organised the meeting. She has had a house on the island for ten years and moved there permanently last year.
The cash machines in Cyprus are mainly empty but Cath was lucky that a bingo win last week meant she had some cash in her purse.
She could lose hundreds of euros from her Cypriot current account. Mrs Bradbury said: ‘We’ve worked all our lives to come here, sometimes with three or four jobs at a time. We sold our home and bought here putting money into the Cypriot economy.
‘But now I feel ripped off, cheated and bullied. Not by Cyprus but by Brussels and the Germans. It is all so Angela Merkel can win her election in September. Europe needs to be warned that if they do this here they will be able to do it anywhere.’

2 The programmer

Computer expert Roger Varley, 56, from Kent is set to lose up to 2,000 euros in his savings and current account after moving to Cyprus six years ago when he was made redundant.
He said: ‘I am not old enough to retire so I work out here, I pay taxes and contribute to the economy. My wages go straight into my current account but because of the time of the month that the account was frozen I won’t lose as much as I could have done. It could have been much worse.’

3 The accounts worker

Pat Sharman, 71, a former accounts worker from London has lived in Cyprus for 12 years and is set to lose 5,000 euros from her savings.
She said: ‘This is daylight robbery there is no other way to describe it.  Merkel has justified this to her own people by saying the people who are responsible for this mess should pay for it. But we are not responsible for the banks, we have worked hard all our lives and paid our taxes.
'I have worked since I was 15, at times I have had four jobs so that we could eventually sell our house and come here. I’m furious that hard working people living on this tiny island have been targeted in this way.’

4 The former engineer

David Sharman, 71, is Pat’s husband. He said: ‘We have sold our homes and invested in this island, we have put money in the economy.  It is wrong that we are being punished.

5 The widow

Christina Allbeson, 66, from Oldham, has been forced to borrow from friends after her current account that her state pension is paid into was frozen.
She moved to Cyprus with her husband Rodney ten years ago but he died of a heart attack after two years.
She said: ‘I have been surviving on my pension and things get harder every year. I need my pension to pay for everything. I am down to what is left in my freezer to eat.’

6 The cattery owner

Walter Litherland, 67, a former civil engineer from Liverpool runs a cattery on the island with wife Teresa and is set to lose money from his current account.

7 The nurse

Cilla Rowland, 65, a former nurse from Taunton, Somerset, moved to Cyprus to retire with her sister Delise five years ago.
She will lose 500 euros and plans to withdraw all her savings.
She said: ‘I started work at 15 and spent more than 40 years in nursing to be able to afford to move out here and retire. We are not extravagant and don’t spend a lot. We live off our pensions and losing 500 euros will hit us hard. As soon as the banks are allowed to open I will be closing my account.’
8 Closing his account
Stewart Bradbury, 64, from Littleborough, Lancashire had put £1,000 into his bank current account to buy a new shotgun. He could lose up to 100 euros.
He said: ‘It is outrageous that we are going to lose money because of an edict from Brussels dictated by the German chancellor.
'The biggest economy in the EU is bullying one of the smallest and the victims are people who have worked all their lives and are surviving on pensions. We will be closing our accounts.’ 

9 The housewife

Carol Jones, 67, a housewife from Birmingham has lived in Pyrgos for five years and can’t access her money from her current account. 10 the importer
Tony Mooney, 49, from Wembley, moved to the island ten years ago and runs a business importing alcohol to sell to local bars.
He was due to pay for a big order and is set to lose 15,000 euros. He said: ‘This is theft, pure and simple. I work hard all year and pay my taxes, now they are putting my business at risk.’

11 The animal lover

Walter Litherland’s wife Teresa, 60, said: ‘What worries me is that as the people on the island suffer more we are going to see an increase in the number of animals being abandoned.
‘We are already seeing more cats being abandoned and brought to us. People are really starting to suffer financially.’

12 The traveller

Chris Pook, 71, from East Grinstead travelled before settling in Cyprus several years ago, he can’t access his account

13. Locked out

June Burton, 60, who moved to the island several years ago, says she feels desperate after being locked out of her current account.

Corzine’s Crime of the Century

Last week, a court approved a settlement deal among commodities firm MF Global’s bankruptcy trustees that will reimburse its customers for 93 percent of the value of their accounts, from which about $1.6 billion had disappeared during the firm’s bankruptcy. But even if they eventually see 100 percent of their funds returned, the firm’s misappropriation of customer funds under the leadership of Jon Corzine will remain a shocking example of financial malfeasance. It looks like Corzine could have gotten away with the crime of the century.

If you aren’t familiar with Jon Corzine, he is the man Vice President Joe Biden called first during the financial crisis because he considered Corzine “the smartest guy I know about the economy and finance.” Corzine spent much of his career at Goldman Sachs, becoming chairman in 1994. After Goldman Sachs went public, Corzine was forced out of the chairmanship, but he left with a $250–400 million payout. He quickly parlayed that money into a New Jersey U.S. Senate seat, and then the governorship of New Jersey in January 2006, before losing to Chris Christie in the next election.

Three short months later, he took over as chairman and CEO at MF Global, a commodities broker. Corzine planned to transform MF Global into an investment bank that some thought could become the next Goldman Sachs. That is where Corzine began to run into trouble. Most investors have their accounts at either a bank or a traditional brokerage house. Banks have offered deposit insurance for the past 80 years, and brokerages have done so for the past 40. Since such institutions can dip into investors’ funds at any time, they pay fees to a government-operated insurance fund for protection in the case of bankruptcy.
But no such entity exists for commodities brokers such as MF Global, because they are not permitted to use clients’ funds in this way. The Commodities Exchange Act of 1936 says:

Customer funds to be segregated and separately accounted for
(a) All customer funds shall be separately accounted for and segregated as belonging to commodity or options customers. Such customer funds when deposited with any bank, trust company, clearing organization or another futures commission merchant shall be deposited under an account name which clearly identifies them as such and shows they are segregated as required by the Act.

In fact, the predecessor of MF Global had acquired its commodities accounts from the 2005 collapse of REFCO, which at the time was the largest independent firm in the futures industry. Despite huge losses and a large scandal, there was no invasion of REFCO’s accounts. Given that, how has no one been charged with a crime for the actions taken at MF Global in late October 2011? It is clear that funds from private commodity accounts were used illegally. Have Jon Corzine’s connections put him above the law?
Samuel Tenenbaum, clinical associate professor of law at Northwestern and a director of the Investor Protection Center, has followed this case since its inception. He believes that the two relevant agencies in this case, the Securities Exchange Commission (SEC) and the Commodities Future Trading Commission (CFTC), will not bring criminal charges, despite the fact that “clearly the law was broken.”
The Commodity Customer Coalition (CCC), which was formed in the aftermath of the MF Global bankruptcy and now has 10,000 members, agrees that the law was broken. The group’s cofounders, James Koutoulas and John Roe, authored a white paper on the MF Global matter. Their work examines the critical point in late October of 2011, when, they state, Mr. Corzine was informed that MF Global was overdrawn by $175 million with J. P. Morgan. According to the paper, Corzine personally ordered MF Global treasury official Edith O’Brien to transfer $200 million in customer funds from segregated accounts to MF Global in the U.K.; $175 million was then transferred to J. P. Morgan to clear the overdraft. When Corzine appeared in front of the House Subcommittee on Oversight and Investigations to explain the scandal, he was no longer the “smartest guy in the room.” Corzine admitted that he issued the order, but denied knowing it was customer money.

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To Reassure Investors, Fed Stresses It Will Not End Stimulus

WASHINGTON — Each time in recent years that the Federal Reserve has paused in its efforts to stimulate the economy, it has come to regret the decision as premature. Its leading officials say the recovery has been slower as a consequence of those pauses. It is a mistake they do not want to repeat.

Enlarge This Image

Gary Cameron/Reuters

Ben S. Bernanke, chairman of the Federal Reserve, said there would be a risk to the recovery in letting interest rates rise.

When the Fed’s policy-making committee meets on Tuesday and Wednesday, its members are likely to spend a lot of time talking about the potential costs of the current stimulus campaign. Then the Fed’s chairman, Ben S. Bernanke, will probably seek to reassure investors that the Fed plans to press on.

The central bank is buying $85 billion a month in Treasury and mortgage-backed securities because it wants unemployment to fall more quickly. While recent economic data suggests that growth is quickening, Mr. Bernanke has said that the situation remains unacceptable and that the pace of progress is uncertain.

Mr. Bernanke and the Fed’s vice chairwoman, Janet L. Yellen, “have been abundantly clear in recent commentary that the improvement in the labor market to date falls far short of what they will need to see before reducing monetary policy accommodation,” Joseph LaVorgna, chief United States economist at Deutsche Bank, wrote last week in a note to clients.

Also, the federal government has just embarked on another round of spending cuts, known as sequestration, and the extent of the resulting drag on the economy may not be evident for several months.

“The Fed will not take overt steps to scale back its asset purchases any time soon,” Lou Crandall, chief economist at Wrightson ICAP, a New York-based financial research firm, wrote last week. “The Fed is not going to take any chances until it is sure that we have avoided another spring/summer swoon.”

The central bank has said that it plans to hold short-term interest rates near zero at least as long as the unemployment rate remains above 6.5 percent. It was 7.7 percent in February. The asset purchases are intended to hasten the arrival of that moment by further reducing long-term borrowing costs for businesses and consumers.

Mr. Bernanke built a broad consensus among Fed officials last year in favor of taking both steps, and analysts say that supporters of the policy remain firmly in the majority of the Fed’s 12-member Federal Open Market Committee. Only one official dissented at the most recent meeting in January.

But Fed officials who disagree with the policy, including some who do not hold votes on the committee this year, have become increasingly vocal in their criticisms. And among officials who support the purchases, there is disagreement about how much longer the Fed should keep its foot on the gas.

The focus of those concerns has shifted from the remote threat of inflation to the possibility that low interest rates could destabilize financial markets, in part by encouraging investors to take outsize risks.

Such concerns can dilute the impact of the Fed’s efforts by causing investors to doubt how much longer rates will remain low. In response, Mr. Bernanke and other supporters of the current policies have tried in recent weeks to persuade markets that the purchases will continue because the benefits far outweigh the potential costs. Indeed, Mr. Bernanke argued recently that pulling back could pose even larger risks to stability by weakening the economy.

“In light of the moderate pace of the recovery and the continued high level of economic slack, dialing back accommodation with the goal of deterring excessive risk-taking in some areas poses its own risks to growth, price stability and, ultimately, financial stability,” he said this month. “Indeed, as I noted, a premature removal of accommodation could, by slowing the economy, perversely serve to extend the period of low long-term rates.”

In seeking to persuade markets that it plans to press forward, the Fed must also contend with evidence that the economy is gaining strength. Fed officials projected in December that the economy would expand 2.8 percent to 3.2 percent this year, the fastest growth since the recession. Analysts expect an updated forecast on Wednesday to be modestly more optimistic.

The Fed has said that it will continue to stimulate the economy for an unusually extended period, even as the recovery gains strength. Since the benefits of that policy depend on its credibility, it is searching for ways to communicate more clearly with investors so that expectations of its eventual retreat do not become a premature drag on growth.

“At this stage in the business cycle, central bankers obsess that market participants will expect policy tightening to come sooner and more sharply than is consistent with sustained economic expansion,” said Vincent R. Reinhart, chief United States economist at Morgan Stanley.

Cyprus Turmoil Sparks Run On Banks Wall Street Bracing For Wild Ride - Stuart Varney

xrepublic.tv/node/2569  via @sharethis

Cyprus: Could There Now be a Run on Spanish, Italian & Greek Banks?

Well if I lived in Spain. Greece or Italy, do you know what I would be doing tomorrow? Trotting off down to my local bank and withdrawing all my savings and then either stuffing it under my mattress, putting it into a German bank, or buying property or gold with it.
Future historians may look back on today and decide it was the day which marked the beginning of the end for the euro, or the European banking system. I could hardly believe my ears when I heard last night that the Cypriots were being forced to levy money from savings accounts by Brussels. Even if you ignore the fact that it is totally unfair on people who have saved up money for their retirements (or other purposes) and they have already paid tax on it, it is surely economically stupid too. The only conclusion will be that savers in other countries will take the hint and launch a stampede on their own banks. Frankly, if they don’t they will be acting irrationally. It might not happen tomorrow or next week, but the next time there is any future crisis with the euro, you can bet your bottom euro it will happen.
Thank God we are not part of it. And that may well turn out to be Gordon Brown’s biggest legacy.

Global systemic crisis 2013: The Huge Statistical Fog makes it necessary to change from instruments to visual navigation – Traps, benchmarks and templates

leap2020.eu / – Public announcement GEAB N°73 (March 16, 2013) -

In the Up & Down trends published in the GEAB January issue, our team wrote the following in the Down section “Economic indicators”: « Between short-term economic indicators which describe only what occurred in the week, others which are manipulated by governments to reflect the message they want to give, and finally others which no longer have any relevance in today’s world, economic reality is at the very least very badly portrayed, even disguised, by these figures followed however by businesses, banks, and even countries. As an example, only currency exchange rate variations make it no longer possible to say if it’s Brazil or the United Kingdom which is the sixth largest world power. This statistical fog prevents dependable navigation which is paramount in these times of crisis ». Whether it be the fruit of intentional manipulation by the players in their efforts to survive or the result of the extreme volatility of the bases for calculation (such as currency values and the US dollar in particular), this trend is, in fact, confirmed. Reliable and relevant indicators on the world economic, political and social situation are, however, essential in order to get through the crisis without mishap. But those used by governments or businesses are, at best, useless in the current period of major world restructuring and, at worst, harmful. This is why in this GEAB issue our team has decided to detail which indicators reflect the true situation and those which are window-dressing. This work also makes it possible to highlight that it’s not always the indicators themselves which are skewed, but the way in which they are interpreted or the reasons studied which make them change.
In a world where so many “phantom assets” or doubtful debts, so many opaque or worthless derivative products circulate, finance is increasingly disconnected from reality. Financial indicators (particularly stock exchange prices) must therefore be interpreted with the greatest care as we will see further. In the same fashion the weekly soap opera of “economic life” keeps us on tenterhooks, sometimes with the publication of “confidence” or “sentiment” numbers, sometimes with central bank announcements… But fundamentals don’t evolve at this pace and reality has no use for this Coué method consisting of holding onto psychological data. This short-term information has more of an effect of hiding the economy’s profound ill health than to really influence reality as they claim, in particular during this time of major crisis.
As for the true statistics, the way these numbers are calculated sometimes doesn’t reflect the true economic landscape at all: the same applies for example to the unemployment or inflation numbers, two criteria well anchored in reality however and rightly playing a significant role. But as the popular expression says, “in failing to stop the fever one broke the thermometer”. And the question is then to decipher the statistics to have a clearer view, as we will do for the United States below.
As well as the statistics describing the real economy (employment, consumption, volume of international trade, energy consumption, etc) and the virtual share of the economy (de-industrialization, debt), it’s also interesting to consider social and political reality through indicators reflecting poverty, demography, conflicts, political deadlock, etc…
Finally, certain general indicators like Gross Domestic Product (GDP) or rates of exchange should obviously be followed but whilst keeping in mind that the first can be artificially massaged by the “virtual” share of the economy (rotten bank assets for example, or central bank activity) and the second temporarily perturbed by speculation, although in the long run it still really reflects the relative state of various countries’ economies.
In short, it’s a question of keeping a critical eye on the daily statistics we are given. We will apply this precept, mainly to the United States, in the following part because the distortion is the most exaggerated there and as regards Europe it takes place in the Anglo-Saxon media each day.
It’s all the more important to find good benchmarks and eliminate the deception that we are witnessing a real paradigm shift out of the system set up by the United States or, in other words, the collapse of the world that they created. For several decades, in fact, they have held their role only because they could put themselves above rules of the world game thanks to the pre-eminence and indispensable character of their currency: the dollar. The questioning of this advantage has forced them to become just one power like another. That requires a considerable adjustment which, for example, is reflected in the abysmal trade deficit, de-industrialization or the country’s debt, with huge consequences on their ability to influence and standard of living.
The countries in the US sphere of influence, mainly the United Kingdom and Japan, totally aligned on the US economic model’s principles and which have benefitted from the aftermath of their patron’s privileged situation, are also suffering. Europe, close to the US economic model, particularly since the fall of the Berlin Wall, but whose integration project is aimed at increasing independence as regards the United States, is partly involved in the maelstrom but has structural characteristics which provide it with the tools to be able to get clear. That said, in 2013, it’s not only the western powers but the whole world which will reel, including those new powers represented by the BRICS in which the bubbles caused by the use of the Fed’s easy money in the US and then the world economy are beginning to appear (1).
As regards the European situation for example, it’s far from perfect with high unemployment, lifeless or negative growth and now a political crisis which is sapping the beginnings of confidence in the Euro markets. Nevertheless, the European countries don’t have as painful an adjustment to make as the United States. In Euroland’s case, the necessary change, far from being finished, has all the same begun to a great extent. Remember that according to our team, the EU doesn’t have a future in its current form, constantly blocked by British procrastination, undermined by uncontrolled expansion mainly driven by Washington, paralysed by sclerotic Brussels institutions, and moreover suffering from a severe democratic deficit. A powerful Euroland, naturally integrated by a common currency, flexible and free of any dead weight, constitutes the new motor capable of breathing life into the dynamics needed to resolve its problems; in this sense, it’s the only future-bearer solution on the continent. As we analyze later, these dynamics which, as LEAP anticipated, allowed it to conquer the storm which beat down on it in 2011-2012 will now, as the Euro crisis becomes a political crisis, allow it to overcome the major political challenge of European integration: its democratization (a democratization without which, despite all its assets, it wouldn’t have a future).
Finally, before giving our recommendations and the GlobalEurometre, we give our analysis of the Korean geopolitical situation, the new proxy battlefield between China and the United States.

Financial markets: an indicator which should be read back to front

So fittingly, let’s start with the symbol of the US recovery, the stock exchange, which posts incredible results: the Dow Jones, the S&P 500 or the Nasdaq indices have either broken their 2008 records, or are very close (2). The one and only reason for this rise is clear and is even officially recognized (3): the stock exchanges only owe their salvation to the Fed whose liquidity injections artificially inflate the stock exchanges. So, it’s about an indicator which is massaged and certainly not reflecting the real economy, the objective being to give renewed confidence through the stock exchanges’ rise and thus revive consumption. It’s not so sure that this goal will be achieved one day whilst consumer confidence remains lower than the lows of the 1995-2007 period (not taking into account that the six month future confidence Index is even seven points lower (4)).

US consumer confidence Index, 1978-2013 – Source: Calculated Risk

Nevertheless, even this “bright spell”, a priori unquestionable, must be put in perspective. Is it a record when the Dow Jones is compared to gold, in certain aspects a more credible measure than the US dollar?

Dow Jones Index versus the gold price, 2003-2013 – Source: ZeroHedge

Or how to be delighted by stock exchange performance when volumes are 40% to 50% weaker than before the crisis and so weak that only casino-like speculation moves prices?

NYSE volumes, 2004-2013 – Source: ZeroHedge

It’s plain to see, stock exchange prices have completely disconnected from the real economy and thus isn’t a relevant indicator any more. It’s illustrative to see that the distortion is the largest in the United States, whereas in Europe the Euro Stoxx 50 Index has stagnated since 2009 like many other European national indices (the CAC40 for example) and that the SSE Composite Index has been falling for more than two years (!) in spite of Chinese dynamism. This indicator’s lack of relevance is further illustrated by the Nikkei’s sudden rise (+40% in less than 4 months) at the time when Japan is at its worst with insupportable debts and a steep trade deficit these last two years. Stock exchange prices, if an indication of anything, is of the degree of the economy’s virtualisation, the speculative phenomenon’s extent, and the degree of a country’s debt. The LEAP team has never attached anything other than very little importance to stock exchange price moves; however, in a certain manner, we could legitimately read their moves contrary to what they are supposed to say: the higher the stock markets, the more catastrophic the true economic situation, and conversely. The numbers thus dissected in the rest of the article are : unemployment, currencies, real estate, trade balance and consumption.

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Notes: (1) Source: Asia Times, 25/02/2013
(2) Which isn’t necessarily good news when one knows what happened the last time stock exchanges reached these levels…
(3) Source: The Examiner, 21/02/2013.
(4) Source: Bloomberg, 01/03/2013.

Samedi 16 Mars 2013

LEAP/E2020

Lu 1335 fois

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