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The End Of Systemic Trust: The Canary Just Died
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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There are no investors only HFTs gunning the 'market'
You could have World War 3 and this market would be up!
Asia deep red, Euroland solid red, euro down, US markets surging up from the daily lows. Only a matter of time before the upward grind with all indices green continues. This time is truly different. The only thing that matters is the Fed's promise of continual printing, anything else is irrelevant. Any bets on how long that will go for?? I have no idea but we're probably thinking years.
Life happens.
sunny
"Asia is deep in the red".
I'm sure something will float up in Macau. Or Australia.
Asia exaggerates their risk.
I have decided to advance my bank 10% now to help them. No, I lied. Actually I just took out almost all of my settled cash out of my broker account. Yeah, I am paranoid, stupid, short sighted and foolish to miss this great stock market run up.
Once all that treasure is buried in back yards, stand your ground laws will become indispensable.
Once you got it in there, they make you need a permit for digging. DHS satellites will help to enforce the new Bernanke-Draghi bill.
Unless it's under a tree or roofline, throw up a cheap tarp and dig it up on a three day weekend. Building Department holiday.
If it's out in the swamp, don't need no stinkin' permit. Just dig it up on a cloudy day when Bis Sis is blind.
Did Cyprus' economy take a 10% haircut or not
People I talk to are all excited that "things are coming back". It's really pretty amazing when you truly experience the fact that people really believe in Kenyesian "economic upswings" like a religion. Maybe it's replaced religion and the PTB know they have created a new religion amongst the people-the "hope" for a better life through "upswings".
Facts are such downers when it comes to religions....
Look, my question is this... US dollar positive?
Dunno, on this last day of the planet, the 10 year is up?!
One interesting thing to watch is the impact
Kuroda's policy has on 0 to 5y Japanese rates (currently
between 0.03 - 0.11%). I wonder if the plan is
to push rates negative ( and take bank funds held at BOJ to
zero or small negative . This would be same type of action but
silent .. ie people get negative rate on bank deposits and collateral
which effectively means BOJ / govt quietly taking money
out of account but just a little each year ( say the get it to
-0.01-0.1.. So people don't realize their getting a small
hair cut each year ..Beware Fed will watch BOJ and follow .
"the rule of law" has long been destroyed in ANY country in the wold with a STRONG banking system (cartel).
The more power the central bank have to print money the more vanished "the rule of law" is.
And now the realization begs the realization, where the central bank is MOST powerful to print money (without visible inflationary consequences), there you will find the LEAST democracy and the least rule of law.
This action violates centuries of precident. Since the Knights Templars trust has been the foundation of all banking. It is the basis of "Law". Private property rights no longer exists, if an entity can "take" any portion of your account for any reason. This is huge.
Our whole financial system was in the past built on trust, without this trust Who in their right mind would leave their capital in the hands of a theif?
With zero intrest, there is now only potential liability in the keeping of funds in any bank.
Yes...but! Even if one trusts that the government (bank, whomever) will take a portion of their capital, they would still be wiling do let them so long as they:
a. had no other alternative, and/or
b. had reason (rational or not) to believe that they would be in a better position given any and all alternatives.
Hence the reason why the people have tolerated the Federal Reserve and its inflationary theft all these many years. They preceive that it works. That the benefits, as a whole, of a central bank outweigh the costs.
This does changes things, I believe. It isn't that Cyprus is doing anything drastically different, except that they are doing it in a way that even the dumbest fuck can understand, and it reeks of unfairness. That same dumb fuck hadn't batted an eye all these many years when it was done to others on his behalf, but now...things are different this time!
Let's see what happens.
Negative rates will be the way Japan / US
steal their citiZens money ( the central banks
will drive rates negative and pretend its market
forces .. ( no inflation ect)..
"Why oh why didn't I take the blue pill?"
When push comes to shave, government will sacrifice the citizen to protect government. The only good thing to come out of the Great Cyprus Theft is that a few more people understand this is the raw truth rather than a radical claim.
+1 Doesn't need to wait for push coming to shove. It's in the inherent nature of the beast.
While true, I beg to differ. The rule of LAW has been undermined, ostensibly as a test case, in Europe.
While it probably won't undermine the currency imminently, confidence in the rule of law is effectively shattered.
And who or what ultimately enforces said Rule of Law? Honest Abe? Or maybe FDR the Gold bandit? Slippery Dick Nixon or Slick Willy? Ah, I know, Eric Holdem up!
The Rule of Law serves the enforcers.
"There's no way to rule innocent men. The only power any government has is the power to crack down on criminals. Well, when there aren't enough criminals, one makes them. One declares so many things to be a crime that it becomes impossible for men to live without breaking laws."
Ayn Rand
Hmm, try this:
Until a day or two ago the first €100,000 in a Eurozone account was protected by law.
Now? Who knowsI'd also argue that this was also a form of protection for the banks too (if I was so preternaturally stupid as to have say, 250,000 in an account and the bank went tits-up, they can tell me to whistle for150,000)
But now? How can anyone have confidence in the law?
NO! And they'll back that up with a drone up your ass.
I am confident that laws were made to be broken. I mean, why else would we have a thriving prison industry?
Cyprus gives new meaning to the term, March Madness.
What I learned from zerohedge; while they devalue our FRN's, we are able to buy less, or keep up with debt payments. While they are awash in free money, able to scoop up hard assets of J6P for pennies on the dollar, & as Jefferson said, leave us homeless on the continent our forefathers conquered.
But isn't that the whole idea? Elites have to eat! /sarc
This, of course, opens up the exposure all of these banks have to the greater than $1tr derivatives market
Oops! You meant 1,000 $tr or "greater than $1 quadrillion derivatives market." JPM alone is in the $100s of trillions. If one goes what happens to their counterparties? This is off the books hyper-leverage. Not all the wealth on the planet can bail this out!
+ 0r - 1.4 Quadrillion by my back of the Big Mac wrapper calcs. Pretty big deal. Bigger even, than Cyprus, with a GDP about the size of Bakersfield, CA.
Seems Detroit BK prospects should have been the Earth shaker with 8 or 9 times Cyprus GDP.
Mouse that Roared, I guess.
what are you talking about "now know"?
if you read the fine print when you opened your bank account; better yet, if you understood the hofjuden run scam called fractional reserve central banking, you would know the money in the bank is not some exclusive private, personal and sacrosanct property of yours: http://tinyurl.com/cner4my
a bank account is not the private property of the depositor. the bank account is still the property of the bank. the money in the bank account is not some privileged "private property". the money you put in was loaned to the bank at interest and exchanged for a claim on future gains. unless the bank account contract specifically states that the bank accepted depositors money for safekeeping, the deposit was implicitly swept into loans. effectively, you exchanged property rights (to your money) for a claim on principal + future gains by loaning your money for interest. those that do not know the difference between property rights and claim will be sorry.
Currency itself is not really money, as in store of wealth. It too is a bank owned financial instrument. It's a Central Bank marker against something of supposed value. Used to be PM's, but now it's the Full Faith and Credit of bearded Keynesian fools. That it is exchanged for anything is only by permission and at the value set by it's issuers. But hey, it's as good as it's backers, cough, cough.
Now, if we really believe we "own" the bills in our wallet, what's this about?
http://codes.lp.findlaw.com/uscode/18/I/17/333
Argentina makes grab for pensions amid crisis....
http://online.wsj.com/article/SB122460155879054331.html
Everything's on the table for the blood suckers...
except physical gold, no way they can touch that. I grew up with a friend whose parents simply kept their gold when Rosenfelt confiscated it at 32 an oz. They didn't do a thing with it, passed away, and my friend still has the gold tucked away. Compare that with any other long term, and safe, investment.
Unlike their government, the people of Argentina saved their money and are buying gold to retain their buying power.
As the saying goes, "First time, shame on you. Second time, shame on me."
JUNCKER
Something that has yet to be mentioned: either $85 billion monthly contributed by our Fed to the foreign banks was insufficient to backstop the Cypriot banks, or the recipients of the $85 billion monthly were unwilling to allocate a significant portion of it to do so.
Neither notion is a confidence-builder.
Did it really die? People are so stupid and gullible.
I have a feeling this entire event will be a distant memory by next week and the stock market will hit new highs.
"Now however, Zero Hedge feels like it is on spin cycle - wash, rinse, repeat - with the calls of a faltering economy when leading indicators are pointing towards a recovery." aka Paul Krugman
The Paul Krugmann, or ZH's own pet "Paul Krugman" who is periodically thrown into the forums like a Guy Fawkes mannequin ?
The pet rat that actually reads the singing, dancing NYT one.
REPOST
Google Trends "Cyprus"
Related searches weather cyprus 100cyprus holidays
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45Note: nothing about that on Facedebouc!
Trust died a while ago. Didn't our courts decide that, while your money resided in a bank account, the bank could take your money and gamble with it? Isn't that why, should there be a run on the banks here, they do not have enough cash to cover all the deposits? That's why the idea of physical gold and silver, buried in the backyard, is starting to sound sane....
Something useful with gold:
Street scrap gold buyers may give 5 to 20 % of gold content vlaue (a rip off). The process of melting and refining is not complicted. My brother and mother were goldsmiths. Just take the scrap gold and mix it with about 20% of equally weighted grocery store BORAX and SODIUM CARBONATE. The mixture does not have to be exact. Heat to 1940 degrees farenheight in a carbon or similar crucible with an aceteline torch slowly. Then when liquid, skim off the impurity slag with a acrewdriver, and pour the 98 % molten gold into a cast iron mold as you wish. Use facial, arm, and body safety shields in case of liquid metal splatter if you are careless. The process is simple, and with common sense is safe, but can be dangerous if you do not give your full attention. Like operating power equipment. A cast iron kitchen skillot under the crucible in case of breakage is an aditional safety precaution. In the end you have a pure gold ingot with impurities removed suitable for barter.
What you forgot to mention is that they will blame the free market for it all, and that the people are now so dumbed down that they will believe them, and then will have another round of crap before they finally learn that the "free market" is really nothing but a bunch of politically connected cronies pushing risk on the tax payer and keeping all profits for themselves.