Could The "Cyprus Fiasco" Occur In The United States?

[Delenda Carthago]

As has been assiduously explained by members of the European statist oligarchy, the reason for the deposit tax levy, in addition to the broader unsecured debt "bail-in" bailout of Cyprus, was due to the unique funding structure of Cypriot banks, in which the bulk of funding was in the form of deposits (whether Russian or domestic), leaving a tiny €2 billion in the form of junior bonds. Since the bailout would require realigning the balance sheet to a new, sustainable "fresh start" in which assets were remarked to a realistic value, it would mean impairing liabilities all the way down the capital structure. Naturally, politics played a big part in the decision to impair what Germany primarily saw as a Russian money-laundering haven, while local depositors were merely "collateral damage."
Politics aside, the bottom line is that the Rubicon has been crossed, and deposits have now been forcefully confiscated in what Europe promises to be a standalone case. What is certain, is that nobody will wait to find out how long it takes before Europe's class of increasingly more desperate and ill-meaning despots is found to be have lied once more (as it has about everything else since the start of the European crisis). And while the mainstream media will be focused primarily on Europe in the coming days, as BCG and we have warned (http://www.zerohedge.com/news/2013-03-16/everyone-shocked-what-just-happened-and-why-just-beginning), the topic of "wealth taxation" is now front and center, and it stars not only Europe, but the US as well.
The question then becomes: what does the funding structure of the US private depository institutions look like, and is there any possibility of Cyprus "wealth tax" recurring on the other side of the Atlantic. To answer this question, we present the summary layout of the consolidated US depository system, which according to the Fed's December 31, 2012 Flow of Funds (http://www.federalreserve.gov/releases/z1/current/z1.pdf) report had a grand total of $15 trillion in assets, and a matched number of liabilities, of which 72%, or a total of $10.9 trillion was in the form of deposits (checkable, small and large time, and savings).
Visually, this looks as follows:
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/03/US%20Deposits_0.jpg (http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/03/US%20Deposits.jpg)
So, if the US was to go the Cyprus route, and begin impairing balance sheet liabilities to remark assets, there would be precious little space (with just $4.3 trillion in total other funding liabilities), before one would need to start eating into the deposit base, should Congress decide to implement a very "fair and just" financial asset tax in the US next.
Will Congress do this? Obviously, nobody can answer that question now. However, it was "absolutely certain" as recently as 48 hours ago that Cyprus too would see no depositor "bail in" either. Then things changed rapidly. What is known, is that according to the same BCG chart we showed last night, the necessary debt-reduction needed in the US to reach a sustainable debt level, was over $8.2 trillion using debt numbers as of 2009...
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/03/global%20write%20offs_0.jpg (http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/03/global%20write%20offs.jpg)
... Since then consolidated US debt has risen by over $5 trillion.
Which means that if, indeed, the US proceeds with its own wealth tax, then deposits may well be one "wealth class" that gets impaired. Of course, since in the US other financial assets, namely the stock market, account for a far greater proportion of household net worth, it is quite possible that instead of impairing deposits at US banks, which already subsist solely due to the Fed's $2 trillion in excess reserves, the government may instead choose to generously tax simple 30% of all of your stock holdings, and achieve the same "wealth transfer" result.
http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/03/Household%20Balance%20Sheet%20Q4_0.jpg (http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2013/03/Household%20Balance%20Sheet%20Q4.jpg)
Why?
Because it's only fair, as the second coming of the glorious global socialist revolution has made it all too clear.
And remember this: there are no longer any rules, and any assets, any "wealth" saved, stored, and hidden, is now fair game in the global forced wealth transfer game.



http://www.zerohedge.com/

[Prof. Oblivion]

No, this will not happen in the US.

[Sinister Cultural Marxist]

If the US went back on its FDIC assurance to depositors you would see chaos on the streets. You have a run on the banks and chaos in Cyprus, and what would that do to the global economy if it hit the world's largest economic power? You'd better believe that it would be a last minute resort.

[Delenda Carthago]

If the US went back on its FDIC assurance to depositors you would see chaos on the streets. You have a run on the banks and chaos in Cyprus, and what would that do to the global economy if it hit the world's largest economic power? You'd better believe that it would be a last minute resort.
My experience has taught me that you should never expect the people's overreaction to anything. To a series of countries that kind of stuff has happened before and nothing major ever occured by the spontaneus. Look at Cyprus for example. Organizing is the only hope.

[Delenda Carthago]

The KKE on the developments in Cyprus



http://inter.kke.gr/mail_icon.gif (http://inter.kke.gr/News/news2013/2013-03-19-cyprus/sendto_form)
http://inter.kke.gr/print_icon.gif



http://www.902.gr/sites/default/files/styles/902-normal/public/Media/20130318/kypros-trapezes1.jpg?itok=GjPZSYWn
The Press Office of the CC of the KKE, in its statement in relation to the decision of the EUROGROUP about Cyprus, notes the following:

“The KKE denounces the anti-people decision of the EUROGROUP about Cyprus and the negative impact on the people’s income which the imposition of this heavy tax on the bank accounts will have. The KKE stands at the Cypriot people’s side, expressing its solidarity against the barbaric anti-people measures which are imposed by the EU-IMF-bourgeois governments on the peoples of both countries.”

Meanwhile, the Party Base Organization of the KKE and the Base organization of KNE in Cyprus are calling for participation in the demonstration on Tuesday 5.00 PM outside the Cypriot parliament, with the slogan “The plutocracy must pay for the crisis-Conflict with the EU, IMF, and bourgeois governments in Cyprus and Greece”.

In its statement, the organizations of the KKE and KNE in Cyprus note amongst other things:

“The KKE stands at the side of the Cypriot people, expressing its solidarity against the barbaric anti-people measures which are imposed by the EU-IMF-bourgeois governments on the peoples of both countries. We call on the Cypriot people, the workers in Cyprus as a whole to resist this anti-people political line. They must not allow any hands to be laid on the people’s income, something which has as its goal the continuation of the profitability of banking capital and the monopolies.

Now more than ever is the time for the workers of Cyprus to draw conclusions about the role of the EU and its mechanisms. It has been demonstrated that the EU is a predatory alliance which from its very nature benefits capital. The “solidarity” and the “collective values” which are constantly being promoted by the bourgeois governments were exposed in reality through the blackmail scenarios of the EU-IMF-Russia.

Now they are calling on the people to pay for the damage. Once again the loan packages confirm that they have as their goal the acceleration of the predetermined measures, in the framework of the controlled bankruptcy of member-states.

We must not wait!

Both the Cypriot and Greek peoples must choose another path when they are confronted by the dilemma of a “haircut” or bankruptcy. They must choose the path of rupture with and overthrow of the capitalist system. The system which brings unemployment, poverty for the families of the popular strata, which imposes a “haircut” on the people’s income. They must choose the path of conflict with the monopolies and their representatives, the EU, IMF and their domestic bourgeois governments.”



http://inter.kke.gr/News/news2013/2013-03-19-cyprus/

[Domela Nieuwenhuis]

Although it is not likely due to it's size and economic importance, it very well might!
In Greece, Cyprus and Iceland there was no clear sign of it twenty years ago. And at the rate things are going now, who knows?

I live in Holland. This country is seen as one of the most stable economies in the world. Even though we have a triple a status, this boat is rocking pretty hard. I imagine yours is too.

We live in unsure times, this crisis might be on it's way out, but there still remains the chance of a backdrop.

[Delenda Carthago]

We live in unsure times, this crisis might be on it's way out, but there still remains the chance of a backdrop.
On its way out? No my friend. That, with the beggining of 2008, was just Act One. We have a loooong way to go I tell you!:tt1:

[Delenda Carthago]

And even when it will have a resurect, it wil be small, fragile, and with nothing to give to the working class and the people of the capitalist countries. The only way out is a war. Prepare for it.

[Sinister Cultural Marxist]

My experience has taught me that you should never expect the people's overreaction to anything. To a series of countries that kind of stuff has happened before and nothing major ever occured by the spontaneus. Look at Cyprus for example. Organizing is the only hope.

Well, the federal backing of people's savings accounts has been a pretty significant part of the American economy. It's been taken as a given since it was implemented after the depression and has offered a sense of stability and safety for the many middle class Americans with some surplus wages left over to invest. This is even more the case in the US, where the social safety net is largely limited to social security and health care, meaning that those savings are a critical part of American financial planning. Hitting middle class savers with an arbitrary 10% loss of value would do a lot to erode people's faith in the system, and it would also cause economic chaos. After all, it is institutions like the insurance on deposits which helps keep bank runs from happening.

I agree that organizing is the only hope. I'm not saying that such an event will necessarily lead to a socio-economic revolution. However the unrest on the streets would increase significantly from the relatively low level it remains at as the current default. Even in Cyprus you had a run on the banks and people with bulldozers threatening to knock down a bank.

I'm also not saying that these kinds of things won't happen, just that the US government would have to really run out of other options to consider something like this.

[Prof. Oblivion]

The federal government will never get rid of the FDIC or tax deposits. It has absolutely no need to ever do that. The US first off has monetary policy, unlike Cyprus, which makes this entire idea absolutely silly. And second, the author is parroting the same tired nonsense that the national debt is a problem. It is not.

This article is completely unrealistic.

[Mather]

I don't think that what is now happening in Cyprus will happen in the US, at least not in the near future. The fundamentals of the US economy are very different to that of Cyprus and other countries in southern Europe. That is not to say that the US economy is invulnerable and it is susceptible to future shocks from the global economic crisis, just that the problems faced by the US economy are different (in some respects) to those of countries like Cyprus.

However, there is now a good chance that what is happening in Cyprus could repeat itself in countries like Greece, Italy, Spain and Portugal.

[Mather]

The Cypriot parliament has voted against the bailout, with 36 votes against and 19 abstentions. Not one MP voted in favour of the bailout in the 56 member chamber.

The Guardian: Cyprus rejects bailout deal leaving eurozone facing fresh crisis (http://www.guardian.co.uk/world/2013/mar/19/cyprus-rejects-eurozone-bailout-savings-tax)

BBC News: Cyprus warned over bailout rejection (http://www.bbc.co.uk/news/world-europe-21854353)

There is talk of Cyprus seeking some sort of alternative deal with Russia, which has a substantial (around 40 billion Euros) amount of money deposited in Cyprus.

[A Revolutionary Tool]

So the government would tax 30% of all stockholdings? Aren't the large majority of stock in America held by the top bracket economically?

[Delenda Carthago]

The federal government will never get rid of the FDIC or tax deposits. It has absolutely no need to ever do that. The US first off has monetary policy, unlike Cyprus, which makes this entire idea absolutely silly. And second, the author is parroting the same tired nonsense that the national debt is a problem. It is not.

This article is completely unrealistic.
The interesting fact is, why didnt Cyprus went the USA way and just print more money? The States in the eurozone have that ability on a sertain level and the debt of Cyprus, being it a small country, was not that big of a deal.


I personally think that everybody have an interest in keeping euro strong. Both USA and EU, maybe China too. Dollar is about to fall down to the ground due to inflation, yuan seems to not be able to be a strong currency, euro is the last resort before gold I think.

[Prof. Oblivion]

The interesting fact is, why didnt Cyprus went the USA way and just print more money? The States in the eurozone have that ability on a sertain level and the debt of Cyprus, being it a small country, was not that big of a deal.

Cyprus cannot print Euros. The Euro crisis would not be nearly as large of a problem had these individual countries had their own monetary policy.



I personally think that everybody have an interest in keeping euro strong. Both USA and EU, maybe China too. Dollar is about to fall down to the ground due to inflation, yuan seems to not be able to be a strong currency, euro is the last resort before gold I think.The dollar is not going to "fall to the ground due to inflation". Gold is not a currency. This post clearly shows that you don't know much about this topic.

[Domela Nieuwenhuis]

No country within the euro-zone is allowed to print money on their own. The EU acts as a sovereign monetairy state in this. Only the EU is allowed to print money.

Upon printing money (eg. Euro's) not only Cyprus would be effected, but the whole zone. The inflation would grow so much, that it would outgrow the costs of "saving the banks".

[Delenda Carthago]

Cyprus cannot print Euros. The Euro crisis would not be nearly as large of a problem had these individual countries had their own monetary policy.

The dollar is not going to "fall to the ground due to inflation". Gold is not a currency. This post clearly shows that you don't know much about this topic.
I was wrong on the first one. But dollar is going to crash. You think I m ignorant(while your post is just a simple offensive nothing)?

Dont take my word. Listen to others.

http://finance.yahoo.com/blogs/daily-ticker/fed-keeps-printing-dollar-worth-less-toilet-paper-20110328-102419-726.html

http://www.reuters.com/article/2010/11/04/china-usa-easing-idUSTOE6A301Q20101104

http://www.telegraph.co.uk/finance/economics/6146957/China-alarmed-by-US-money-printing.html


just a few of them to paint a picture.


Gold is not a currency but is the method to value all money. Thats why the biggest economies in the world are buying as much as they can.

[Prof. Oblivion]

I was wrong on the first one. But dollar is going to crash. You think I m ignorant(while your post is just a simple offensive nothing)?Yes, I do think that you are ignorant. You didn't even understand the heart of the issue regarding the Euro crisis, which is the lack of sovereign monetary policy. How can you claim to be so correct when you cannot understand the very heart of the matter?

You are spamming me with links instead of defending your own position. In any realistic scenario the creation of money by the Fed can't cause large amounts of inflation or hyperinflation. The most notable downside to it is the devaluation relative to other currencies.


Gold is not a currency but is the method to value all money. Thats why the biggest economies in the world are buying as much as they can.None of the three currencies you are discussing are backed by gold.

[Delenda Carthago]

Yes, I do think that you are ignorant. You didn't even understand the heart of the issue regarding the Euro crisis, which is the lack of sovereign monetary policy. How can you claim to be so correct when you cannot understand the very heart of the matter?

You are spamming me with links instead of defending your own position. In any realistic scenario the creation of money by the Fed can't cause large amounts of inflation or hyperinflation. The most notable downside to it is the devaluation relative to other currencies.

None of the three currencies you are discussing are backed by gold.
Yes. I am ignorant.OK.

You said that dollar cannot and will not be influenced by inflation and that I dont know what I am talking about. Yet, I am not the only one who believes so. And I brought proofs to that. Your answer is on the same level of the first one. You just accuse me that I dont know. Not that you know something else, and what is that anyway. Just that I dont know. So tell us, and perhaps we will learn.


Also, the fact that you also talk on "Euro crisis", tickles me to ask you to elaborate on that.

[Prof. Oblivion]

Yes. I am ignorant.OK.

You said that dollar cannot and will not be influenced by inflation and that I dont know what I am talking about. Yet, I am not the only one who believes so. And I brought proofs to that. Your answer is on the same level of the first one. You just accuse me that I dont know. Not that you know something else, and what is that anyway. Just that I dont know. So tell us, and perhaps we will learn.


Also, the fact that you also talk on "Euro crisis", tickles me to ask you to elaborate on that.

Through open market operations the Fed can indirectly control inflation to a limited extent by increasing/decreasing the money supply. However, the amount of money needed to be created to create inflation of the sort to which you and Mr. Schiff refer would need to be so incredibly large, and would need to enter into the economy and circulate so fast, while the Fed refuses to implement contractionary monetary policy. That is impossible. Inflation of the type you are referring could only occur in the US from some type of profound supply shock, such as the entire eastern seaboard being destroyed in nuclear detonations.

Just because others believe it (most notably right wing monetarists, who you are siding with) does not mean it is correct.

[Domela Nieuwenhuis]

Yes. I am ignorant.OK.

You said that dollar cannot and will not be influenced by inflation and that I dont know what I am talking about. Yet, I am not the only one who believes so. And I brought proofs to that. Your answer is on the same level of the first one. You just accuse me that I dont know. Not that you know something else, and what is that anyway. Just that I dont know. So tell us, and perhaps we will learn.


Also, the fact that you also talk on "Euro crisis", tickles me to ask you to elaborate on that.

He is right about inflation though. Inflation is when you make the same money, but you have to spend more. Devaluation is when you make the same money, you spend the same, but the value of a currency is lowered in relations to others (so what you get by just printing more money).

Only if the prices rise as a result of devaluation, is printing money (indirectly) causing inflation.


On the topic of the euro-crisis: i think it is the result of a failing monetary policy, by not taking in account the huge cultural differences there are within the EU.
The though probably was: if they can do it in the united states, we can do it here.
But they didn't seem to have realised that, even though Europe is only slightly bigger, it holds more than double the amount of inhabitants, multiple languages, even more different cultures. How they have handeld money might just differ enormously from what the EU expects from all countries.