Sunday, March 17, 2013

Will The Cyprus Bailout Trigger The Next Financial Crisis?

In an a deal that needs to still be approved by the Cypriot Parliament, an international banking consortium led by the IMF agreed to bailout of Cyprus.  Part of the deal includes the imposition of a levy on bank on bank savings accounts:  10% on bank balances in excess of 100,000 euros ($131,000) and 6.75% on balances below 100,000 euros.  Cypriots lined up at ATM machines over the weekend - they can withdraw cash until the ATMs run out of cash up to the amount that has already been set aside for the levy.

This story has received close to no coverage in the U.S. despite the potential implications for people who keep their money in banks in every country.  As a result of this situation in Cyprus, there's now fear that depositors all over southern Europe will take their money out of banks out of fear of this type of deal becoming a model for the next round of sovereign bailouts in general.  A Washington Post blog article does a good job summarizing the situation:
The European Central Bank will now be on high alert, monitoring activity in Greece, Spain and beyond for evidence that the Cyprus precedent will result in new runs on those nations’ banks. Expect a flood of central bank liquidity into those nations if there is any hint that depositors across Europe seem to be thinking that Cyprus is the new normal and that their seemingly safe bank deposits could be reduced 10 percent without warning  (LINK).
The "flood" of Central Bank liquidity referenced above largely refers to the Federal Reserve, which has been quietly funding a massive "ghost" bailout of the European banking system all along.  For those of you who are unaware, 50% of the $1.8 trillion in the Federal Reserve bank excess reserve account is money that has been given to the U.S. subsidiaries of the European Banks who are Primary Dealers in this country (LINK).  In other words, the U.S. is pretty much keeping Europe from collapsing right now.

Without that flood of U.S.-based liquidity into the European too-big-to-fails, there is no question that either interest rates in the ECB system would shoot through the roof in order to attract capital OR the ECB system would be insolvent.  The reason the Fed is the savior in this process is that U.S. too-big-to-fail/prosecute are inextricably tied to the fate of ECB banks via a massive and deadly web of OTC off-balance-sheet derivatives.

The Cyprus situation may in fact ignite a run on the banks in Europe and - for those paying attention in this country (which isn't very many) - a small run in this country.  Myself and others have been advising people to keep only a minimal amount of cash in the banking system for quite some time.  The reason?  Even though great pains have been taken by DC/Wall Street to ensure us that "the water is fine" in the banking system, the world is one unforeseen "small" event away from a global liquidity crisis.  Quite frankly, anyone who can read and think, and who still trusts the banking system in this country, is either incredibly naive or tragically stupid, especially after Eric Holders wonderful Senate testimony two weeks ago about the big banks being too big to prosecute for crimes.

Why is any of this relevant to gold/silver?  Again, for those who are paying attention and understand how corrupt and fragile the global fiat-based banking system is, the best alternative is - and has been for the last 12 years - to move as much money OUT of the banking system as possible in INTO physical gold and silver that is privately secured outside of the banking system.  Don't think for one second that bank deposit confiscation and bank holidays are limited to obscure Grecian islands in the middle of the Mediterranean Sea.  This could indeed to be the spark that ignites the global flood of printed napalm paper currencies.

Jim Sinclair has another angle on why this largely unnoticed bailout of Cyprus could have major implications for the next big move in gold that is a must-read:  LINK

Whether Sinclair's scenario kicks into gear or not, this event is yet another signal for us that the fiat currency-based banking system is ultimately doomed and the only way to protect yourself from going down with the ship is to move as much of your paper wealth into physical gold/silver as possible.  Capito?


  1. Bailout-ageddon. LOL.

  2. It just underscores that you don't own it if you don't hold it.
    Sadly, it is extending to fiat currency held in banks.
    And why should savers now keep their stored wealth in the banking system??

  3. This very well could be a tipping point. The whole world now understands that bank deposits are not safe. The IMF and Germany were even pushing for a 40% haircut.

  4. Dave:
    Thank you for your timely insights. The F'ing gigantic angle to the Cypriot theft of private funds - and sure to be humongous ripple effect throughout the western banking world - is a majority of those funds are Russian and specifically the KGB's! Is the IMF totally myopic and insane to think there will be no push back? Cyprus has been a black banking center for the KGB and Russian oligarchs since the late 80's. And the IMF is giving the Russians a giant middle finger and stealing their cash! Oh BOY! There will be retribution from the Russians. You can bet on that! So where do they start? Gold market as Sinclair suggests? Let us not forget that they - Russians - also control the majority of energy used in Western Europe as well. This is going to get interesting.

  5. Capito ? Capitissimo !!



  6. But banks are not really 'friendly' for cash withdrawals. Reports to be filed and they make it so hard to get your own money out. Any advise?

    1. Reply to Anonymous Banks not 'FRIENDLY', you go to your bank and wire funds to a gold and silver dealer. Now you have real money and can convert to paper trash on a needed basis, problem solved.

  7. I've been reading for years about this current monetary Armageddon. It never comes. Money now is all electronic entry, so gold does nothing for those who own it. It will not be exchangeable for anything except electronic entries. So cut the Sinclair-Sprott Armageddon chicken little b s.

    1. So the FED has just been printing "electronic entries"? Wait..... WHAT? How many employees does it take to operate that machine?

    2. Man, are you dumb!
      Gold will be exchanged for everything in a black market
      completely outside the 'electronic' system.

    3. Goldman Bearish Gold Call Overrun by Inflation: Argentina Credit

      Argentines are buying more gold than ever to protect their savings from the Western Hemisphere’s fastest inflation as the country’s bonds suffer the worst returns in developing nations.

      While Goldman Sachs Group Inc. called for gold prices to peak last month and billionaire George Soros cut his stake by more than half, Banco de la Ciudad de Buenos Aires, Argentina’s only gold trader, is talking with mining companies to buy the metal directly as surging demand exhausts its supply of scrap. The bank began marketing gold to individuals after the nation tightened currency controls in October 2011, selling 280 kilos in its first year for 102.6 million pesos ($20 million).

  8. It doesn't take much for one's imagination to run wild with visions of banks in many countries throughout Europe and the UK announcing a "Holiday" in order that the bankers can get their shit together and then screw their customers.
    Maybe the Bitcoin will come to the rescue ! Forget that.

    One thing is for's events as they unfold regarding the financial world is in no way playing out the same way 20 or 30 years ago. The lack of industrial exporting alone having moved out of the U.S. makes things having to do with electronic entries highly volatile.
    Think about it - there's nothing substantial that most if not all the electronic entries have backing them.

    Physical gold and silver are certainly great insurances for what may lie ahead. Namely the unpredictable. It's just playing it smart - that's all.

  9. Michael JacksonSunday, 17 March, 2013

    Except who to say that the electronic system can't break/shut down? I knew quite a few physics from france, russia, india, and pakistan that are certain of this. Our banking system is very venerable electronically by hackers and it can be a sure thing that some have been "inside" as well without the media telling us. better to keep sheep feeling safe.

    ok, let's remove the gold/silver debate for now. Look at the current economic "system". Now ask yourself, "Is this system sustainable?" The answer is simple: NO! Imagine that you ran your paycheck/income that way. At some point, it has to collapse. Even if we disagree, everyday ask yourself this question. If it's NO each time, then you have a serious problem to deal with. Don't be fooled that it will all work out - it can't. This is an unrecovable broken system. For me, I know I can't outbeat it as I'm unemployed but I can keep watch and look for the hidden "cracks" that may not be realized by others that the damn is breaking (pun intended). When I saw this news several days ago, I saw the "crack". And I think I found another one:

    On the state worker pension fund site for nevada, it had a strange pdf that talked about the federal government allowing the states to declare bankruptcy, allowing them to default on pensions. It was never there before and I thought it was strange (

    That was last week. Today, I get an email from Americans for Prospersity supporting federal government allowing states to delare bankruptcy. What was said here in a previous post or comment? That pensions, cd's, savings - they would all be wiped out? I haven't seen anything in mainstream about this but maybe some have. But things don't look good, people. We can all disagree on things but the system will collapse once it cannot be contained. I'm going to hate waking up that morning. But I think I HATE even more is telling people all this and it falls on deaf ears. I know people on pensions and they won't listen. It is not worth e-mailing or printing up the facts anymore. You waste time and paper for nothing.

  10. Sinclair has it slightly wrong. Before the fall the domestic KGB ran the interior and never touched the real money (hard dollars) which was always operated by the international KGB through the export bureaus in the embassies. The international KGB and the domestic KGB had totally different training routes. International think engineers from Moscow University with two other languages and from their into the embassy structure. Domestic think social studies like political education and a preference for violent physical sports.

    The fall soviet Union was like the police chief played by Rod Steiger in "the heat of night" taking over the aircraft industry, which happened all across the Soviet Union. This created political infighting and chaos across the country which was called the war of the oligarchs as the two forces fought each other for control. The nasty little thug Yeltsin was supported by the domestic KGB and Putin cut his teeth doing arms deals in international with Saddam Hussien.

    Also the accounts in Cypress now have to pay a special tax. That means the parties have to be identified to the IMF, the source of the money disclosed and the tax levied and agreed with the creditor banks. Until then the you have an IMF blocked account, how would like that snake pit. Iraq still has it's accounts blocked by the IMF and is negotiating to try and free them and it's a country that has been approved off by the UN. 10%, 40% or 60% it's theater for the rubes in wonder land, looks like a 100% to me.

  11. JPMorgan and other banks tinker with risk models

    In December 2011, the CIO came up with a plan to change its risk models. It estimated that by calculating risk differently, the bank could reduce its risk-weighted assets by $7 billion - more than half the targeted amount - without having to actually sell the securities.

    The CIO famously went on to lose more than $6 billion last year from bad credit derivatives bets that came to be known as the "London whale" trades. One of the main reasons the losses grew so large, according to Senate investigators, were the changes that JPMorgan made to its risk models.

    A JPMorgan spokesman declined to comment. The largest U.S. bank has acknowledged mistakes but said senior management acted in good faith and never had any intent to mislead anyone.

    Investors say they fear that JPMorgan is not alone in tinkering with risk models to meet tougher capital requirements laid out in new regulations known as Basel III.

    Global banks are spending hundreds of millions of dollars to install elaborate computer models to measure risk and make sure they are adequately capitalized. Under Basel III, banks can shrink their risk-weighted assets - and boost profits - if they can build a model to prove the bond or loan is not so risky.

    While banks can use these models legitimately, they can also be tweaked to try to game the system, said Adam Compton, a portfolio manager at Atlanta-based hedge fund GMT Capital Corp.

    "You're naive if you don't think it ever happens," said Compton, who scrutinizes financial statements for banks.

    As JPMorgan's experience with the CIO shows, the line between optimizing capital and manipulating it is fine, and often hard for outsiders - including regulators - to discern, say experts in regulatory measurements of risk.

  12. Get Your Assets out of the Banks – NOW”


    The Cyprus event may later, in the history books, be seen as the catalyst of the fall of a century long Ponzi scheme. This could rank in line with the shot in Sarajevo as the start of WW1 or the collapse of Kreditanstalt in 1931 as the start of the Great Depression.

    Isn’t it ironic that exactly 100 years after the creation of the Fed (a private bank created for the benefit of bankers) that the fragile and bankrupt financial system is likely to fall due to the insolvency of a couple of Cypriot banks.

    But what is happening in Cyprus will not be the reason for a collapse but just the trigger for what has always been inevitable.

    There are only two possible outcomes of the crisis we are now in:
    - Either there will now be a run on the massively leveraged (25-50 times) banking system which would lead to no debt being repaid and a deflationary collapse.


    - Alternatively, we will now see the beginning of the most massive money printing that the world has ever experienced, leading to a hyperinflationary depression.

  13. Arizona lawmakers back gold, silver as currency

    PHOENIX (AP) -- Arizona lawmakers say the global economy is on the precipice of financial ruin and the U.S. dollar could soon be worth less than the paper used to make it.

    These doomsayers are pushing forward legislation that would declare privately minted gold and silver coins legal tender, no different under state law than the U.S. dollar printed by the federal Department of Treasury.

    The measure is Arizona's latest jab at the federal government, which prohibits states from minting their own money. It also reflects a growing distrust of government-backed money.

    "The public sees the value in it," said Republican Rep. Steve Smith, of Maricopa. "This is the type of currency we have had over the history of mankind."

    The bill, which advanced in a 4-2 vote by a House committee Monday, states that gold and silver should be legal currency not subject to tax or regulation as property. The Republican-led Senate gave the bill its blessing in February in a 17-11 partisan vote.

    The bill would let people use the precious metals as money as long as businesses agree to take them. If made law, it would take effect in 2014.

    Keith Weiner, president of the Gold Standard Institute, which supports gold-backed currencies, said he envisions a system where people can pay for goods and services with debit and credit cards backed by gold and silver.

    Paper money is a "recipe for worldwide bankruptcy," Weiner told Arizona lawmakers Monday. "Everybody is going bankrupt on this system so we need a sound and honest money system, such as gold and silver."

    1. This is great news, I always liked Arizona and Nevada as states that encouraged individual freedoms and supported the constitution of the United States. I guess it's time to pack my bags.

    2. "I always liked Arizona and Nevada as states that encouraged individual freedoms and supported the constitution of the United States."

      I have lived in Nevada for 35 years and the feeling here is that, although we do have a lot of people supporting individual freedoms and the constitution of the United States, it's not as supported by all those in power here and never will be. Yes, you'll see the tea party here in the news but it's not as pronounce as everyone thinks. Nevada seems to be leaning towards Kalifornia except it will be more "moderate" (we have to become more "liberal" due to our over-dependence on tourism instead of industry). We're starting to get very lax over illegal immigrants (like the state wants to give them all free driver licences with no background checks) and promises to them that it can't financially keep (like obamacare to all of them) but illegals can vote and officals here loves votes in their favor. Sure, we're debating about concealed weapon permits on University's campuses but most here find that it's just a lot of drama with no sustance - i.e. Legislators drag their feet and do nothing.

      If you go to a medical clinic, one of the questions after all the medical questions is: "Do you own a gun at home?"(for example and this was before any of the recent killings with guns that have been in the news). Although I will give the police force here credit for controlling crime on the streets, I can also see police officers going through people's homes here, looking for guns, in the future. I would suggest Arizona over Nevada.

  14. ETF Outflows Overshadowing Strong Physical Gold Demand: Ex-US Mint Director

    The outflows from the gold exchange-traded funds this year are masking strong physical demand, says a gold strategist and an ex-director of the U.S. Mint.

    As of beginning of the week, ETF outflows for the year were 141 metric tons, said Barclays, while U.S. Mint sales of gold coins have been strong, at 265,000 ounces so far this year, versus 210,500 in the first quarter of 2012. The firm noted halfway through March, gold-coin sales were 34,500 ounces, which is already the more than 50% of the full month sales in March 2012.

    The difference in demand shows dichotomy in the market, said Edmund Moy, chief strategist for gold-backed IRA provider Morgan Gold, and a former director of the U.S. Mint.

    The data show that at the micro level, demand for gold is strong, as it is for silver, he said. Weaker prices for gold have prompted some selling out of ETFs, while the weaker prices may have encouraged some physical buying, gold market sources have said. Moy added that gold prices are likely to remain volatile.

    “Because of our fiscal situation and because of the worldwide economy, there’s going to be greater volatility in the price of gold. But as long as the (U.S.) deficit is rising,” gold prices will rise, Moy said.

    “Longer term, what a lot of gold investors do not understand is that the gold price and demand is (affected) by the debt ceiling and how close we come to hitting it. The correlation is lock-step,” he said.

  15. German Economist: 'Europe's Citizens Now Have to Fear for Their Money'

    For the first time, bank customers in a crisis-plagued euro-zone country are being forced to contribute to its bailout. In an interview, German economist Peter Bofinger warns the strategy is "extremely dangerous" and could lead to a run on banks.

    SPIEGEL ONLINE: The Cypriot government wants to minimize this panic effect. The Wall Street Journal reported today that the latest proposal in Nicosia would include only a 3-percent one-time levy for small-scale depositors rather than the 6.75 percent tax included in the deal reached in Brussels over the weekend.

    Bofinger: That wouldn't change anything. If you live in a home, then you expect 100 percent safety. If someone says to you, "Three percent of your roof could cave in," then you still wouldn't want to live there anymore.

  16. Dave check out Harvey! One bank? The one with all the trimmings? Extension for Putin!! 13.9 tonnes of gold? No $100 drop at fomc meeting? Keep an eye on lease rates for a stash nearest you! Bonds for pension $! Gaddafi? Love what u do! gold? Safe Haven??? Giligan wasn't the only one living on that island...

  17. Question

    Lets us assume that the same occurs here

    I ( and many otehr businesses ) have a " savings" account in which we hold client monies and monies set aside for VAT & Other taxes

    I assume it is possible that we could lose 40% or so of this too ?
    If so, that is going to undermine the whole financial system

    On a personal note, the tax man will only get it once - as I will deduct losses from payments and disolve the company after if I need to

    Is it any wonder the cash only society is growing ? reducing the amount of tax being paid anyway ?

  18. Many people in Cyprus withdraw their money because they are afraid if getting rob by those banks. I can't blame them.

    business economics