Skip to comments.Cypress To The Hill
Posted on 03/18/2013 9:28:08 AM PDT by Shout Bits
Last Week, the EU and Cypress imagined another way to fund government bailouts and spending wealth confiscation. Under the still changing plan, bank savings would be confiscated at a rate of 3 to 15%. The reaction, which only a EU bureaucrat could not foresee, has been a run on the banks; only an idiot would keep his money in a bank when confiscation was on the table. The EU showed its communist side with the plan; to the EU, there is no distinction between private and public wealth, and personal savings are not particularly sacred. Indeed, many European nations have annual wealth taxes, albeit at much lower rates. Those familiar with the Takings Clause in the US Constitution's Fifth Amendment might release a righteous howl: never in the US! We are protected! We have rights! Well, no. Confiscation at a greater rate than in Cypress did once happen in the US, and without a vote, and another form of confiscation is happening right now.
The case of US wealth confiscation was Pres. Rosevelt's infamous 1932 Executive Order #6102, which outlawed private ownership of gold and silver. Prior to Pres. Nixon's abandonment of the gold standard, cash and gold were the same thing much as are five nickels and a quarter. The gold standard made currency devaluation difficult, but shortly after forcing every citizen to convert his gold into currency, FDR and the Democrat Congress changed the gold window from $20.67 to $35 per ounce. The real value of everyone's cash savings immediately dropped, which has always been the left-wing prescription for economic malaise. FDR's gold manipulation was practically the same as the EU's confiscation, only his was harsher. As with all devaluations and confiscations, FDR's scheme did not work because money is a veil the market easily can see through; only investment and wealth creation solve economic malaise. Confiscation does, however, allow governments to continue their free-spending ways.
Today, the US Fed is pumping unprecedented liquidity into the monetary system. The Fed is using a two pronged approach to benefit government at the expense of savers. First, the Fed is buying government and semi-private bonds, pumping fresh cash into the market. Less well known, the Fed is also paying .25% interest on most money that banks return to the Fed. Normally, capital reserves held by banks are invested in highly secure private assets like repos and corporate paper, but these assets now have to compete with a very lucrative and risk-free Fed reserve window. Why should a bank invest in economic growth when it can earn a nice spread between CDs and the Fed? The Fed's scheme prevents much of its money from reaching the private market, while slowly repairing the big banks' balance sheets. Once the free money ends, however, look for the value of cash savings to plummet as banks are forced to actually put their money into the private market (i.e. increasing the M1 by multiplying cash through new loans). FDR and the EU both played the game of confiscation and devaluation, but the Fed's game is stealthier.
Of course FDR and the EU's confiscation schemes leave many assets untouched. Only cash is subject to full confiscation, often called devaluation. Indeed, negative cash (i.e. debt) benefits from devaluation, and governments owe the most debt. Other productive assets such as real estate and machinery eventually adjust their prices to compensate for devaluation. Stocks typically relinquish only some of their value to currency devaluation. Only cash savers are unprotected when governments look to confiscate. Savvy investors can avoid government devaluations and confiscations, but simpletons who see banks as stable, rather than instruments of government manipulation, get the shaft.
It is easy to look on Cypress with bemusement and pity, what with their debt equal to 8x their economy. It might be comforting to think the EU's blatant confiscation cannot happen in the US, but it already has been the victim of worse. Politicians from both major US parties oppose a simple audit and sensible supervision of the Fed, which currently is unaccountable to any body. The cynical calculus is easy; the Fed is the enabler of government abuse, so why should the establishment rock the boat? Without the Fed's loose money policies, the US Government might already be in bankruptcy under an impossible debt burden. The better way to view Cypress is as a dire warning for a nation whose sovereign debt already exceeds its GDP.
Shout Bits is available on Facebook: http://shoutbits.com/2013/03/cypress-to-the-hill/
Cypress is a tree!
Cyprus is an island in the Mediterranean Sea.
If you’re going to pimp your blog, at least get your spelling right.
Not in a million years would I give your blog a hit.
Insane in the membrane.
Yes Pan-Yan, that was the intended joke. I really screwed up by pasting it into the body.
Well somebody is certainly Insane in the Brain.
Oh well, I screwed up, and I will have to take it.
I thought it was pretty clever, myself.
the joke in the title was possibly clever, but the mistake in the body is very embarrassing.
I still stand by the points in the article, but nobody is going to take them seriously now.
Well, there is that.
Cyprus is an island in the Mediterranean Sea.
Maybe the author is referring to a talking cartoon tree that is having financial difficulties.
Alas, try to be funny no one takes you seriously. Try to be serious no one reads it.
Nobody takes blogs seriously anyway.
I didn’t see no mistake.
Sam , the Low Info Voter
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.