Hey everyone, I'm back after a few days of being glued to the TV watching March Madness lol.
Big news today from the Eurozone! Most of you are probably aware by now that the island of Cyprus is on the verge of financial collapse. They've been hoping to secure a bailout deal for almost a year now, but until today they hadn't been able to reach any kind of agreement with the European Union.
Last week there were reports that the Cypriot government was planning to seize citizens' bank assets through taxes on their savings accounts, but there was enormous backlash from the public, rightfully so, and they scrapped the idea. Or so we thought...
As reported today, Cyprus has struck a deal with the EU to secure a $13 billion bailout. As part of the agreement, Cyprus has to come up with $7.5 billion of its own money that essentially acts as collateral for the loan. Being that the country is basically bankrupt, the Cypriot government has decided to go forward with the seizure of citizens' assets in order to raise the money to secure the loan. All bond-holders and people with more than 100,000 euros (about $130,000) in their accounts could see a seizure of up to 40% of their assets without their approval.
You can read the full story here: http://www.foxnews.com/world/2013/03/25/cypriot-leaders-creditors-secure-agreement-toward-bailout/?test=latestnews
This story is the latest example of government overreach. We're seeing government's worldwide becoming more and more Communist-like in their actions. As the article notes, Russian Prime Minister Dmitri Medvedev linked last week's reports about asset seizures to "a certain period of time by Soviet authorities, who did not stand on ceremony when it came to people's savings." Now we see even more extreme seizure measures in today's deal than those Medvedev was speaking about last week.
When Russian leaders are speaking out against these kinds of tactics the world should probably pay attention...
Medvedev's statements could be driven by the fact that a great deal of the money in Cypriot banks belongs to Russians, but I'm not sure his statements are based on that alone. In recent months, there have been several articles from Russian newspapers warning people in the U.S. that certain measures taken by the Obama administration mirror those of the Soviets as they established Communism.
When we hear these stories we of course begin to wonder if something like this could ever happen in this country, and the answer is yes. I say yes because it has happened before.
In 1933 in the midst of the Great Depression, President Roosevelt issued Executive Order 6102 forbidding the hoarding of gold by U.S. citizens, claiming it would stall economic growth and make the depression worse. The Executive Order also required all citizens to turn over their gold to the Federal Reserve.
The following year, the Gold Reserve Act was established nationalizing all gold and requiring it to be turned over to the U.S Treasury, effectively ending the gold standard for our currency. Without the gold standard in place, the Federal Reserve now had the ability to issue more money into circulation. More money in circulation equals more national debt.
Eighty years later we find ourselves knocking on the door of $17 trillion in debt with an extremely weak economy, which gives credence to the idea that something like the seizures in Cyprus could indeed happen here in the future.
Isn't it the case that the government cannot bail the bank out because the government does not have a high enough credit limit, because this bank lost so much money? If that is true, how is the government 'seizing' people's money? I think the government is simply not able to cover everyone's loss.
ReplyDeleteDid you read the accompanying article? They are literally taking money from the accounts of people to put up for the loan from the EU. That's seizing assets. They aren't asking first, they're just doing it.
ReplyDeleteYes, I read the article. The government could just let the bank fail, in theory. What I think you are not understanding is that the money that is being taken out of the bank is what the bank lost. If the bank is failing and needs a loan from the government, that means it does not have the money to pay everyone whose money is supposedly in the bank. The government is not 'taking' the money. The government is saying that the money is no longer there and it will not make those depositors whole with the loan they are getting from the EU central bank.
ReplyDeleteI think you should be upset with the way the story is portrayed in that link. The link says the government is taking the money to save itself and then later it says that the loans are going to save the banks. Which is it? It is the latter. The government does not have a big enough tax base to get a big enough loan from the EU bank. The amount it can get means that they cannot save everyone who has deposits above 100K Euros. As a conservative, I would think you'd find it offensive for a government to go into debt to the EU bank just to save two very large private banks who mostly take deposits from Russian mobsters.
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