The End Of Systemic Trust: The Canary Just Died

Tyler Durden's picture

Submitted by Lucas Jackson,

“When it becomes serious, you have to lie."


-Jean Claude Juncker, PM of Luxembourg, and the head of the Eurogroup council of eurozone finance ministers


May, 2011

Prior to yesterday, if you were trying to handicap how the unelected leaders of the Eurozone were going to react to a tough situation, you only had to refer to the quote above from Mr. Junker to understand their mindset.

But so long as someone at the ECB was willing to flood the world with free EURs (with significant backup provided the US Federal Reserve) the market closed its eyes, held its breath and took the leap of faith that all was well.

However, post the Cyprus decision, the curtain has been pulled back and wizard revealed with all his faults and warts.  The age of innocence is dead and with it died institutional and retail trust, confidence in the system writ large and the rule of law.

It would be hard to over-emphasize how significant the Cyprus situation is.  The EU demonstrated under no uncertain circumstances that they will destroy the rule of law to maintain their own power.  It was a recognition of tyranny that many of us have always assumed was the case but yesterday became reality.

The damage done here is not related to the size of the haircut - currently discussed between 3 and 13% - but rather that the legal language which each and every investor on the planet must rely on in order to maintain confidence in the system has been subordinated to the needs of the powerful elite.  To the power elite making the major decisions in DC, London, Berlin, France, Brussels, et. al., laws are like ice cream, easily melted.

Which begs the question, who is next?  Will it be Portugal?  Greece? Spain?  Italy?  France???

Will they impose a “one-time” tax on your bank account?  Your house?  Your stocks and bonds?  Retirement accounts?

The major banks of Europe are levered beyond anyone’s wild guess.  They cannot afford a hit to their capital base lest they be exposed for the over-levered giants they are.  This, of course, opens up the exposure all of these banks have to the greater than $1tr derivatives market where the failure of any one of these derivative banks could lead to the collapse of them all.

So, of course, the powers that be in Europe must do everything in their power to prevent the world from noticing that their banks are broke.  This means they will lie and take anything they deem necessary.  Including the forceful seizure of savings accounts of innocent people. 

The Government Is Your Friend?

Markets have been rallying for years on the back of the idea that government’s are going “all-in” to save the current economic system.  To many of the talking heads on the business channels, we are supposed to view this as a good thing.

This has produced all kinds of non-market based solutions such as the bailout of the major US banks and their subsequent TBTF moniker, the “bailout” (I use the term loosely because this was really a political stunt) of GM and a never-ending stream of free money being handed out by the major central banks.

The markets have seemed to like this ham-handed involvement and have rallied to all-time highs.

But all along the way there have been those of us who have said that there will eventually be a price pay.  With the Cyprus decision, investors now know what the price is: your money is not really your money.  Your bank account is not really your bank account.  Your bonds, stocks, home and anything else you think you own isn’t really yours.  The governments of the world will take it from you whenever things get bad enough.

Look at China.  Do you think if the global economy ever shrinks far enough that the Chinese will allow all those American companies to keep their assets on Chinese soil?  How likely is it that the Chinese will suffer through their own problems of inflation and social instability and yet allow Apple, GE, GM and the rest to keep benefiting?

Think about global mining and oil stocks?  Most own assets in countries other than the home domicile of the company.  If the prices of precious metals and/or oil ever meaningfully breaks out, do you think the poor governments that originally granted the mining/drilling concessions will simply respect the rule of law and allow these multi-national corporations to keep sending their country’s wealth abroad?  Not likely.

How about in the US?  Could the US declare a bank holiday and unilaterally devalue the currency in one swift move?  I will get over 9,000 responses saying this could never happen in the good ol’ US of A but of course it could.  In fact it has already been done before during FDR’s first 100 days in office.  The template already exists.  Electronic banking only makes the process that much easier.

Technically, since the Fed has been running a policy of monetary inflation since about 1920, the government here already has been quietly taxing the savings accounts of its citizens without their permission for decades.  The subtle difference between what Europe is doing in Cyprus and what the Fed does every day to American citizens is that the Cyprus theft is happening in one discrete event while the Fed’s theft drips in slowly over years.

But no matter which way you look at the situation, expect things to deteriorate from here

 

Lehman Part Deux

What could be next?

Bank runs will continue apace where they are already going and will begin in countries previously seen as impervious to such events such as France, Germany and even Switzerland.

The difference in pricing between the paper and physical precious metals markets will rise.  Good luck to those of you owning paper gold and thinking this will help you when things get bad.  The legal language on your piece of paper is worthless.  If savings accounts aren’t sacrosanct, then neither is that ETF.

Did you or your firm stash a bunch of money off-shore in some tax-friendly haven that probably has a favorable relationship to the British Crown?  Best of luck with that.  Tax havens are nothing more than legal arbitrages.  With the value of law moving to zero, the value of your account approaches the same.

Trade wars will begin to rear their ugly heads as the losers in the currency wars retreat to their last line of defense.  Once you tear up the rule of law, trade agreements quickly get thrown by the wayside once your domestic situation deteriorates enough.

Moar and moar government micro-management of individual economies, markets, sectors and companies.  The Amateur Barack Obama and his minions will continue the tradition started by George II of abandoning free market principals to ostensibly save the free market.  Once they are done there will be little left of the market and none of us will be free.

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HedgeAccordingly's picture

ES going to go UNCh .. Hunch - Apple 450 sauce - http://hedge.ly/XUjNRK 

Pladizow's picture

Ask the average American, "What's a Cyprus?"

The sheep are ripe for slaughter!

resurger's picture

i know .. they are old school rappers

BLOTTO's picture

Hey gang - no one is talking about Cyprus on facebook...I just checked.

.

Therefore, everything is ok.

.

Whats on tv tonight - Survivor?

knukles's picture

Premier of the New Survivor Cypress

Half_A_Billion_Hollow_Points's picture

As a gold & bitcoin holder, I was trying to give a fuck.  

 

Well at least I tried for a little while.

AssFire's picture

Looking for a soultion, the bankruptcy manager in Detroit ran the numbers with the same rates..

came up with is $4.46, 14 gold toofs and 3 cartons of menthols.

The Big Ching-aso's picture

GM was the  U.S. version of Cyprus.   I just figure the EU took the same playbook and ran with a proven winning pattern.  Now all they need is a good kicker for the extra point.     My guess the next football will be Italy, Portugal, or Spain.    That plus their football hides are stained darker too.

fourchan's picture

im here to check out the chick on the tree.

 

ripped off on the thumbnail again, thanks tyler.

krispkritter's picture

Here ya go: http://image.yaymicro.com/rz_512x512/0/ae8/woman-lying-on-a-palm-tree-ae...

 

Just remember to use coconut oil for lube and palm leaves for paper towels, you don't want to spoil the ambience...

Edward Fiatski's picture

Virgin olive oil is more of a theme here. :) Works just as good!

FEDbuster's picture

Jon Corzine has been hired as a consultant by the Cyprus leadership.

BTW just checked my gun safe my silver, gold, ammo and guns are all safe and sound. 

TheGardener's picture

Nice palm tree but skinny milf. Glad she wears something.

macholatte's picture

 

RE: Lucas Jackson


Well said.  Well done.

Bananamerican's picture

"When it becomes serious, you have to lie" -Junker

"When it becomes more seriouser, you have to steal" -Junkie

When it becomes serious as a heart attack, only then do you kill" -Junk

fonestar's picture

I've been on this forced meditation on the probabilistic outcomes of Bitcoin.  Ie, introducing a free-floating currency with strong deflationary tendencies into a highly manipulated, inflationary world.  In my mind every bitcoin node on the network is causing a black hole effect, or a tear in the fabric of the fiat universe.  Game theory and I don't see what the opponents move is without in effect validating my position.

This is taking me to some pretty trippy and scary places in my mind..........

fiftybagger's picture

When bitcoin gets through 50, lookout.  It will run a hundred fold IMHO

The Bitcoin Channel

fonestar's picture

I agree BJF... this thing is huge and I mean huge... $50 is a major psychological barrier and it will get a lot of attention, if not press when it crosses that.  We will see BTC do what silver has been repeatedly denied the chance to do.

BTW I noticed you have to approve comments on The Bitcoin Channel now?  I guess that's because of all the BTC haters out there?

Relentless's picture

imho, once Bitcoin starts to accelerate, I would expect to see a large amount of govt sponsored action, both in an attempt to affect its value and also to crack its security and render it worthless. If your favorite security focussed three letter agency can crack the coding on bitcoin, then they can do whatever they want to it.

BailoutBandit's picture

Bitcoin was probably developed by the intelligence community to track black market transactions and form another angle to suppress PM's.

fonestar's picture

Yes, I am sure it is one big scam just like the public internet is one giant conspiracy.  I find it interesting that people will trust their ATM machines, voting machines, kiosks, web browsers going to ssl enabled sites, wireless access points, RFID embedded driver's license, email money transfer, online banking, satellite communication systems... oh except bitcoin.... that one is a big scam!

If you really believe such a thing I suggest melting your computer's hard drive, sell everything for gold and hide in a deep cave.

BailoutBandit's picture

Don't get mad. Probably not 100% everything is a scam. But there's higher probability when an alternative deflationary currency is developed by an unknown source and this digital currency assigns a unique identifier to every transaction and stores it in the block chain. Oh and this digital currency is mainly used in black or grey market transactions or to avoid taxes. No one is interested in that? Ok...

Texas Ginslinger's picture

Keep in mind that Cyprus is an important tax haven site.

My take on this is that the IMF and EU power has decided to take care of 2 problems at one time by using tax dodger (dirty) money to fix the Cyprus bailout.

They send a strong message to tax dodgers everywhere that you can run with your money, but you can't hide.

Most of the tax dodging (dirty) money in Cyprus is Russian. 

Russia controls a lot of the gas supply to the EU.

Will be interesting to see how this plays out - tit for tat... 

pods's picture

I was thinking about that angle too.

Putin on Gazprom's shoulders shutting down the switch and the gas stops flowing.  Who really runs Bartertown?

pods

Creepy Lurker's picture

You'd think they would have learned the last time, but they're stubborn.

RickC's picture

Maxed Out Moma thinks this is actually a lesson for Italy and she makes a good case for it.:

 

http://maxedoutmama.blogspot.com/2013/03/cyprus-shot-fired-at-rome.html

 

 

machineh's picture

Survivor Cypress

What's dat ... another Cajun swamp drama?

The Big Ching-aso's picture

The canary not only died it also took a big loose pasty shit while it flopped around the cage spraying spooey everywhere before it settled on top of the NY Times.

This just in's picture

That's not spooey. It's NYT editorial content.

wee-weed up's picture

The canary not only died, but a much bigger bird just landed on its carcass - a black swan!

resurger's picture

nah! Bones on fox , the Jeffersonians are investigating Zerohedge.

TruthHunter's picture

"Whats on tv tonight - Survivor?"

I believe its the Season Finale of Biggest Loser

Esso's picture

That's kind of a no-brainer. The biggest loser is the dopeys of Cyprus who had money in a bank.

2nd place, anybody who leaves money in a bank after this debacle.

Overflow-admin's picture

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Everything is ok in Wonderland... until the wolves arrive!

Meat Hammer's picture

"...how I could just kill a man..."  Especially if he's a banker.

Midas's picture

Ever hear a Glock go click like a camera?

Panafrican Funktron Robot's picture

http://www.youtube.com/watch?v=ra1N6ouWnyg

It will be interesting when most white people in the U.S. have to deal with ghetto conditions.  I guess the hope is that we'll get our shit together enough to actually do a proper revolt.  

knukles's picture

Question before the house?

If the world's central banks have the world awash in free limitless money via the bankers, why do the bankers and politicians have to steal bank deposits from the peasantry?
Why the fuck even bother?

Because it's a.......

So, is central bank money not worth anything?
Even more so, the IMF et al just can't seem to wait to give it all away... for free, as much as they can, as quick as they can....

Sumptin's wrong, Lucy
       -Desi Arnez

resurger's picture

Dah!

Because its fun!

+1

disabledvet's picture

Because starting in the 90's certain people realized not just America but the whole world would be "LinkedIn"...and in very short order. Those who got in...and stayed in...are called "billionaires"...and some are worth even far more than that. "everything changed with the launch of the 4S"...and is now "changing again" with Google Apps.

MsCreant's picture

I have been thinking about this. I need to preface this comment with "I don't know finance very well" like a lot of folks here because it is not how I make my money.

Here goes:

By printing, everyone's money is devalued. The rich, foreign investors, everyone. Right now the printing/cash is being held onto and is not moving through the economy so we are not having an inflation experience just yet. It is like everyone is crowded onto a small cliff and no one dares move or the whole thing falls. But everyone has their money clutched to their chest.

They need to stop devaluing the money itself and start taking it from individuals so that the money keeps it's buying power.

I know, I don't buy that either, it is too little to really matter.

Alternative:

They take the depositor money so that they cover their tracks (story wise, narratively) for the printing. Our attention goes to the thefts, instead of the printing operations.

Alternative:

The system is so fucked that even a move likes this makes it look like something can actually be done about it, when in fact it cannot. The theft is an illusion designed to give us hope.

Alternative:

Same as before, but not about hope, but about deliberate detonation. Do this to trigger unrest, then say the collapse happened because of this event when, in fact, this is an attempt at a controlled demolition.

That is all I got babe.

Tinky's picture

"The theft is an illusion designed to give us hope."

That is correct. But the absurdity of this particular move reveals an accelerating desperation on the part of those (politicians, mainly) who seek to kick the proverbial can down the road. And, needless to say, when a drunk driver continues to drink and accelerates, the likelihood of a fiery crash increases sharply.

ZerOhead's picture

It's too late and there simply isn't enough in those accounts even if they took 100% anyway. They are merely attempting to buy time and waiting delusionally for an economic recovery that is not (cannot actually) going to happen.

Worry not however... the theft of 'money' from accounts will now stop since the idiots have realized that it threatens the immediate incineration of the same banking system they have been bought to protect.

They will now steal it the olde fashioned way... through inflartion... by quietly printing behind the scenes from here on in.

knukles's picture

Yorp, the printing of too much devalues it, OK
And spot on about everybody holding on to it so no economic recovery

The big deal here is that if they'd gone after the bondholders, most of the debt was issued under British law meaning one impairment is all impairment and an event of default so all of the Cypress debt held everywhere would be in default, have to be written down, etc., etc., etc...
So instead of further impairing the banks by writing down the debt, just steal other people's money.
Because the ECB and IMF don't want to lend anymore to Cypress because?.....
It's a bad credit risk?!?!?!?!?!?!?!
Booyah!

(sigh, so this is what we've come to, eh?)

sschu's picture

To that end, a failed banking system implies a reset which implies the question of why even have the Euro?  Issue your own currency and provide some flexibility to restructure.

And Euro solidarity is all that matters to the big dog, Germany.  That is the key to their export driven economy.  Without a "cheap" Euro, Germany's products, while good, would be 50% more expensive and exports would drop.  And then we know what happens to Angela's political career.

Maintaining the Euro façade (to the Deutsch at least) is far more important than a small number of depositors losing a small amount of money on some small island in the Mediterranean.

sschu

Element's picture

An interesting fact that should be acknowledged as well is that it has been the MMT people who have argued at great length and in explicit detail for the need to eliminate the insane doomed euro architecture mistake, and the re-institution of National Sovereign fiat currencies. To back away from financial and political federalism, not to increase it. They are more anti the euro than the goldbugs are. In fact goldbugs often use the MMT logic as the basis for their own arguments to remove the euro.

And if you're not going to have a gold standard, then the MMT argument is sound (and more or less proven correct from the fiat theory perspective).

 

Skateboarder's picture

I'll take all of the above - it's the perfect answer. At the level of global theatrics, I think it is safe to expect events like this to serve more than one intended or unintended purpose. Trial balloon on many counts. Guinea pigs, guinea pigs, everywhere.

Uncle Remus's picture

So, the printers are using money in the laundry and launder their freshly printed money...