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The Fed Has Already Imposed A "Cyprus Tax" On U.S. Savers
Submitted by Lance Roberts of Street Talk Live blog,
Over the course of the last few days I have been swamped with media calls to discuss the "deposit tax" on Cyprus account holders and the potential impact on global financial markets and, more importantly, the possibility of such an event occurring domestically. (See recent Fox Business Interview) So far, Cyprus has not been able to pass such a direct tax against depositors and has gone to Russia for a helping hand. However, the question of whether such an event could happen in the U.S. is a much more interesting point of discussion.
While I find it doubtful, but not totally improbable, that a direct deposit tax would be instituted by domestic banks - the issue of the Fed's monetary policies, particularly since the last recession, has had a significant impact on "savers." As we have discussed in the past individuals are not "investors" but rather "savers." Therefore, in planning for retirement, of which there is a very finite and generally short time frame within which to achieve that objective, individuals must not only have a return ON their principal, to maintain purchasing power parity of those saved dollars, but also the return OF their principal so that it may be reinvested to generate further returns. One without the other, as has been see witnessed first hand over the last decade, is a losing proposition in the achievement of those retirement goals. As my friend Doug Short recently showed in his amazing commentary on working age demographics - the age group that should be seeing declines in employment, 65 and older, are actually showing increases. The destruction of principal since the turn of the century, which is far more disastrous than it appears when adjusted for inflation, has ended the dream of retirement for many individuals.
Beginning in 2008 the Federal Reserve began a consistent, and generally unprecedented, series of monetary actions specifically designed to artificially suppress interest rates. The belief is that by creating an artificially low interest rate environment, and boosting asset prices, that it will in turn spur economic growth and consumption. The chart below shows the Fed Funds Rate as compared to the 10-year treasury rate since 2007.
It is hard to believe that it was just 5 short years ago that the 10-year treasury was yielding above 4%. That was a return high enough to offset the rate of inflation. Today, with the Fed keeping overnight lending rates (Fed Funds Rate) at effectively zero - savings accounts are yielding roughly the same. This has in turn forced "savers", by design, to move money out of the safety of personal savings accounts to chase higher rates of return. The next chart shows the declined of personal savings rates as interest rates were pushed lower.
Unfortunately, the drive for higher rates of return has sent individuals buying the most risky of yielding assets driving yields on "junk bonds" to record lows. This will, as it always has in the past, end badly once again.
However, the decline in personal savings rates is not solely due to the artificial suppression of interest rates. The Fed's monetary programs have led to a rising cost of living, particularly in food and energy, which has chipped away at the purchasing power parity of the dollar.
This is not a recent monetary phenomenon but rather one that started more than 30 years ago. As interest rates have steadily been pushed lower by the Fed - the surge in accumulation of debt to offset the declines in savings and incomes has weakened economic prosperity. The chart below shows the decline in GDP, interest rates, savings and incomes. The offset to the declining standard of living has been access to credit.
Here is the point of this discussion. The continued drive by the Fed's monetary policies to artificially suppress interest rates to create a negative interest rate environment for savers is a defacto "tax" on savings as shown in the chart below.
While the individuals in Cyprus have been faced with an outright extraction of capital from their accounts - U.S. savers have had their savings negatively impacted much more surreptitiously.
The problem is that the actions of by the Fed are having the opposite of the intended effect. If you refer back to the chart above you will see that economic growth, savings, and incomes have all declined as the Fed has continually driven rates lower. Lower interest rates have not the boon of economic prosperity as advertised. What history does show is that higher levels of personal savings are necessary to support productive investment which leads to economic growth rates.
What the manipulation of interest have historically led to is speculative financial bubbles. Whether it was the "tech bubble", the "credit bubble" or the "housing bubble" the driver of each can be directly linked backed to the Fed's monetary policy actions. With the Fed now going "all in" with current monetary easing programs it is highly likely that the next asset bubble is already well into formation - the resolution of which is not likely to be any kinder than the past two.
So, can the U.S. potentially have a direct tax on savings? It's already happened.
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There's nothing quite so off-putting as waking up from a pleasant dream to find that a banker has mounted you and been giving it to you all night.
it's called "serving" the customer
And didn't even leave me a Spider-Man towel or a toaster on the dresser.
The savings rate is down because they dont have any money to save.
The end of ben will be stealing ours savinginterest
I cant believe people aren't in front of the fed protesting tbis gift to banks
Fucking dumbasses
Any deposit haircut in any nation should be invalid until an equal haircut has been executed on cayman Islands and other notable offshore havens favored by the global criminal elite.
the real big boys don't invest in offshore havens. they invest right here in USA.....in the halls of congress there are men who take your money and multiply it more than any other assets.
Yep.
http://finance.yahoo.com/blogs/daily-ticker/forget-cyprus-noboby-stealin...
I was surprised to find that article getting some play on finance.yahoo. They are normally Jim Cramer-like cheerleaders.
Its called rape
Gang-rape.
DC + Wall Street + Media.
Reminds me of my favorite Will Ferell quote (a tweet, actually):
"I hate it when I forget to turn my swag off at night and I wake up covered in bitches"
FUCK YOU BERNANKE!
And now the bad news.
"...So, can the U.S. potentially have a direct tax on savings? It's already happened...."
damned right it has but the theft started in 1913 when the rockefeller nazis started deforming the currency and manipulating weights and measures which benefitted them but fucked everyone else....judgment day is going to be a real bitch for satan's little helpers....
I think you forgot to mention the Rothschild Jews.............
That's Francis' job.
Americans' minds are too ruined by flouride and vaccinations to understand that they have been had. Plus, they don't have much in the way of savings anyway.
Starve the beast. Withdraw from financial institutions, support locally ownned shops and stores. Reduce your reliance on the US dollar as a savings vehicle.
And then they tax you again on any Inflationary er Capital gain
Banksters, they are robbers and thieves call them what they are, aided by bribed politicians,
We the People should punish them for their wrongdoings against us
Yes, ZIRP has acted as an indirect and invisible tax on savings.
Bernanke is, however, prepared to use a direct levy on bank deposits as a policy tool.
To the average person, this will be a visible confiscation on already taxed savings.
This is the FED's Ace in the hole, a 10% "levy" (theft) of every penny in every kind of account (checking, savings, IRA, 401K, etc.).
It will be pulled out and used as an "emergency financial system stabilization measure" with promises of compenstaion in the future.
Just wait, it is up his sleeve, and if you didn't see his poker face in the press conference yesterday look again.
True, Americans have already lost 30-40% of their purchasing power (at least) since 2008. Look at foods that have doubled in price...PMs doubled and some tripled....and so on. Money printing causes inflation which is an 'invisible tax' on the average sheeples who do not protect theri investments.
If Ben does an explicit savings tax, there won't be enough Federal Reserve Police to protect him. Not from me mind you, I live on the other coast and keep a minimal amount in a checking account.
Close bank accounts. Purchase little; pay cash. Destroy credit cards. Drive little. Use utilities little. Ditch land-line, use throw away cell phone. Shut off computer and tv. Starve the beast.
The senator from WV should be very nervous.
That is not true. While "savers" are not reaping windfall interest income, they are also privy to the lowest mortgage rates ever. There is no such thing as a correct interest rate...there are always two sides to the equation. If the lender gets less the borrower saves more. Also...you cannot increase wealth of a nation by paying high rates of interest to 'savers'...debt compounds in a money = debt system. Everyone is the poorer when ever greater amounts of fiat are created via debt which include the debt money that needs to be created to satisfy the interest component on existing debt. The idea that low interest rates (caused by the fed or marketplace) are a detriment is false...the other party is an equal winner.
Of course this no way endorses the terminal fraud system of money=debt, fractional reserve and credit for consumption model we live under...this model has stage 4 cancer and there is no stage 5
Perhaps the author would like to describe the nation and the status of savers and borrowers if rates were 20%? And if that benefits "savers' so much that it is desirable how about 30%
There are no free lunches in a debt =money system...it is a mathematically doomed system no matter what interest rates are
There are winners and losers; the winners have all the money, and the losers lost their money. You know, it’s Fed policy: robbing poor Peter to pay rich Paul.
That’s simple enough but what’s really hard to understand is where you came from.
Quite alot of "money" was lost in boating accidents, currencies - not so much.
Interest rates at 20% would benefit savers. Why? Because savers would get a return on their deposits (say10-15%) and would be able to pay cash for the things they've saved up for, and thus no interest anyway. Prices would go down in nominal terms (especially for things like cars and houses) because without the easy money there's incentive for buyers and sellers to meet at a lower purchasing price.
Totally wrong. Someone has to pay that interest it does not grow on trees. The receiver rejoices, the payor does not and has less wealth.
You clearly do not understand how money is created in a debt = money system
All interest has to be created too by the same mechanism...more debt!
It is a foolish notion to believe that it isn't a zero sum game
So the only winning solution is to play in "their" debt game - false dichotomy. Ask mortgage holders how they feel about "winning" on lower interest rates, while seeing a >30% decline in house prices, negative equity and a trapped debt serf.
Oh I think he understands plenty. What he is saying is FUCK THEM! As am I.
zero sum is a closed system like forex trading). in fractional reserve banking the bank only loses when it cannot leverage deposits in the form of loans(creating new money underlying real assets. not zero sum). when there is a dearth of loans at 20% then rates are lowered until demand picks up and savers receive lower rates to reflect the lower demand for loans(lower interest rates). this time the mechanism is broken. savers are receiving lower rates on savings not because of lower demand for loans but because the banks need to loan money to balance bad debt on their books.
what has been created is a negative feed back loop instead of a positive feed back loop. a positive feedback loop just slows down the cycle. a negative feed back loop can only be stopped with destruction and a reset.
New money is created to pay interest with more credit. That's how we got here.
It is a zero sum game in terms of value--all savers get diluted to the benefit of borrowers to the extent that the inflation exceeds the nominal interest rate.
Banks borrow at zero percent, turn right around and pump the proceeds back into bonds... it is as direct a transfer of wealth as deposit confiscation. The more interesting question is why come out into the light of day where even the most out of touch citizen can witness the theft. I have read allot of theories on that one... my vote is hubris, avarice and stupidity...
A very significant and important article, a long time coming.
In recent years there has been general agreement that wage and price controls not only do not work, they are detrimental to economic prosperity. But yet, the control of interest rates is simply price control. It is price fixing at its most detrimental level. It is picking winners and losers in the economy by the Fed and eliminating all supply and demand functions of the price of money.
In this case, the losers are Americans who have attempted to store the fruits of their labors for use at the most opportune time. The winners are the bankers who get to steal these savings at discount and even zero interest rate levels. And, of course, other winners are non-producers who get filtered-down stimulus, originally part of the savers’ bank accounts, gratis the U.S. Congress and Obama.
"The continued drive by the Fed's monetary policies to artificially suppress interest rates to create a negative interest rate environment for savers is a defacto "tax" on savings."
Yep. Bernanke shot his wad straight into a debt trap.
And she's clamped down, you ain't goin nowhere big boy ;-)
wealth tax on bank deposit undoes the Qe inflation route. Its one or the other...just saying, the Merkel put if applied to US would obliterate the Qe play of Ben and also the Zirp easy money.
It would bring austerity bigtime to US, as its taxing the rich not socialising the poor in debt and currency debasement.
In addition, these effects have all apparently given a huge pass to the politicians for enacting some of the worst economic policies ever attempted, if worst is defined by making it less affordable to have an employee in the US.
It's hard to believe that doesn't exacerbate these problems.
What could be worse for the common people?
Ever wonder why the "recoveries" keep getting worse? ('If you look back far enough in history.)
this is so perverse that you actually get a return on borrowing because borrowing rates are lower than the real inflation rate. so if you have a 100000 mortgage at 4% and the inflation rate is 6% or higher(shadow stats) then, given the normal borrowing rate of inflation plus 4%+- , you are receiving a benefit of a discount on your loan totalling 6% of the amount of the loan. in other words, in simple interest over a year's time you are only paying 4000 dollars in interest on the principle when you should be paying 10000 dollars in normal times, a gain of 6000 nominal dollars in the form of a discount to reality. that includes a real discount of 2% above what you are actually paying in interest because the real value of the loan is losing 6% of it's value annually in inflation adjusted dollars. in other words inflation is paying off 2% of your principle annually above what you are paying with your 4% mortgage. the banks are losing money on every loan.
Damn, right.
I just refied my home mort to an even longer duration fixed rate loan.
I figure that will be a great inflation hedge should we need such hedges.
And, since so much of the home mortgage market is backed indirectly or directly by government sponsered (and now owned) entities like fannie and freddy, I can probably thank all of you taxpayers in the US out there who have taken this inflation risk off of my personal books!
or, is it sponseared?
Yup, and when the banksters foreclose on your sorry ass you'll regret that mortgage. How do you like overpaying for that crap house - you'd pay a lot less for that property if the interest rates were a lot higher, and youd have a lot lower basis for property taxes. Just saying, you guys clearly don't understand the credit/cost issues. But be my guest - overpay for your house, that's a good little debt slave...
Nope, sorry Skipjack. That is what happens when the bankers interject some deflation. In this environment the gov't will not have the option of raising interest rates, period. Therefore, the currency continually depreciates without a correseponding rise in rates. Nice try though!
They can't foreclose me, if I can pay it off.
'Just don't ever borrow too much.
. . . And, I bought a foreclosure, so I doubt I overpaid by too much.
Sheeit. My mortgage payment is easily $250/mo. less than what I would be paying to rent a similar place. Nobody owns anything as long as the fux in charge can hold it hostage via property taxes.
Overfed: Real estate is a direct hand into your pocket for any taxing body to take your money. If you rent you'll still pay r.e. taxes.
And, I don't really support this policy, of the gov't subsidizing long-term interest rates for home-owners with a mortgage, but I'm going to try to play by the rules, whatever they are, once they are determined.
Shouldn't we change the rules, if this stuff doesn't work well over time? (And not punish the players who try to comply but whom are not necessarilly politically favored?)
But you need a return on the money you barrow or you loss the interest plus the loss in purchasing power of the money barrowed....
PS. I hate the FED.
Ideally, if a person could borrow right before interest rates go up.....
'Good points. But, if you need a place to live anyway, and its more suitable or affordable than renting . . .
You almost don't even have to make anything on your home -- as long as you're not drained too much by the many taxes and other costs of home-ownership.
Don't try to guess when rates will go up, just refi each time they go lower (by enough), and eventually you will catch the bottom!
'Just don't refi again at the presumably eventually higher rates.
OK, I've participated in the "woe is me" routine. But since I'm not masochistic or pathologically depressed or stupid... Now what? What's next, and what can we do to avoid, prevent or alleviate it? Is see the road forking as follows:
1. If you stay (in US), you do these things: ... Avoid exposure to $ in bank or any place that loves paperwork. Simplify life, eliminate debt, use cash, PM, Bitcoin, barter, supplement your food supply with food from own acreage. Join a Resilient Community.
2. If you leave (the US or broke country XYZ), you do this: Contact network of Expats who've "done it". Perhaps leverage service providers (International Man, Sovereign Man).
Just last night I watched the new episode of Doomsday Preppers on Nat Geo. One guy decided to solve the expected economic collapse by moving to Costa Rica, where he lives a Prepper lifestyle on a few acres. Grows most of own food.
Each case is different, but there are enough patterns to have a basket of canned solutions.
Art of War PDF - Understanding Sun Tzu on the Art of War
http://www.artofwarsuntzu.com/Art%20of%20War%20PDF.pdf
The Art of War by Sun Tzu
http://www.puppetpress.com/classics/ArtofWarbySunTzu.pdf
This thing ends only one way:
Ben Bernanke found in a Batman costume with a belt around his neck, the other end tied to his bedpost, and his dick in his hand.
Only autoerotic asphyxiation can save us now.
[doh!]
I now see that I'm late in posting this.
Um Guys...
This was on Yahoo Finance:
http://finance.yahoo.com/blogs/daily-ticker/forget-cyprus-noboby-stealin...
It may get burried soon, certainly before morning, but look at the 1000+ comments... The article is not important. The general audience site where it's posted is, but the comments are more important.
Looks like some sleepers are awakening only to find that Chairman B.B. stole all their future savings while riding a sand worm.
And Sting sucks at knife fighting.
Thanks!
"Over time, Rickards says, that wealth transfer could reach $1 trillion.
"Rickards says zero interest rates are just one way the Fed is fleecing depositors. Others include increasing inflation, which Bernanke is trying to do, and taxing deposits like Cyprus is pushing for. 'Bernanke is stealing more money from depositors than Cyprus is... looting every day Americans—teachers, firemen and retirees,' says Rickards...
"Rickards says the easy money policy is creating asset bubbles that may feel good for now but will eventually crash. Cyprus could crash much sooner than that."
And you're right; the comments reflect media-suppressed opinion.
The way to get out from under the mental fog spewed daily by the u.s. government and their corporate media anchors and other scum, to obscure the worldwide credit collapse, is to read english on-line news from the foreign countries involved in the crisis of the moment, in this week's case, the Cyprus financial collapse, very well covered 24/7, and with many good comments after most pieces.
If you're not yet a stacker-prepper-self-defender-patriot, you will be after reading the following Cyprus-Mail.c piece and the comments, many/most by Cypriot locals, and the next 10-20 news pieces that emerge before banks open, if they can, next Tuesday, and you'll come away with a new awareness of what it will be like when you wake up one day to find your bank closed, your ATM shooting blanks, your grocery, gas station and other stores, and auto repair and home supply businesses refusing to take credit cards or checks:
http://www.cyprus-mail.com/bailout/central-bank-says-keep-2nd-largest-lender-business/20130321#comments
I haven't substantiated this yet so I don't want to say it is actual news but if substantiated can you say Russian bank run bitchez.
http://www.whatdoesitmean.com/index1669.htm
A Ministry of Foreign Affairs (MFA) “urgent bulletin” being sent to Embassies around the world today is advising both Russian citizens and companies to begin divesting their assets from Western banking and financial institutions “immediately” as Kremlin fears grow that both the European Union and United States are preparing for the largest theft of private wealth in modern history.
According to this “urgent bulletin,” this warning is being made at the behest of Prime Minister Medvedev who earlier today warned against the Western banking systems actions against EU Member Cyprus by stating:
“All possible mistakes that could be made have been made by them, the measure that was proposed is of a confiscation nature, and unprecedented in its character. I can’t compare it with anything but ... decisions made by Soviet authorities ... when they didn’t think much about the savings of their population. But we are living in the 21st century, under market economic conditions. Everybody has been insisting that ownership rights should be respected.”
Medvedev’s statements echo those of President Putin who, likewise, warned about the EU’s unprecedented private asset grab in Cyprus calling it “unjust, unprofessional, and dangerous.”
begs the question...what was the Cypriot saver earning over the period since 2000 vs the US saver...have they been hit twice?
I am expecting everyone with an IRA to be forced to convert to a Roth IRA. This will force all the deferred taxes to be paid at once. It will be claimed that it is not a new tax because the taxes were due on eventual withdrawal. The increase in one time revenue will be claimed to reduce the deficit. The govt. always had a tax claim on the funds, they will just say they just changed the date that it was due and payable.
why heck, a guy named Alan Greenspan already talked about this tax back in errrr.....1966
http://www.lewrockwell.com/north/north204.html
Europe's got it's PIGS .... we got our NIGS ?
Well done piece. The Fed IS at the heart of all the bubbles. To clarify, for those too young to remember, the late 90s under Greenspan and his ever lowered rates wasn't just a tech stock bubble based on the internet speculation. Coca Cola, GE, Pfizer, P&G and tons of other blue chips traded at 40 PEs. They like to rewrite history and say it was internet speculation, but it went well beyond that.
The 2000s saw the final run in housing and we are now in the mother of all bubbles, a completely free money bubble. Interest rates are the foundation of all asset prices and have been fake for a long time. The tragic results for 20 years can be seen in Japan. Ultimately, it is a bubble in fiat currency, which is shit news for everyone. I even worry about precious metals in the next shitstorm. The only smart, yet immoral, thing to do is borrow a boatload, live it up on debt and then default.
Sadly, those with the most debt, who have extracted more value from society than they have added are the winners.
Want some cheese with that whine?
http://www.bankrate.com/funnel/cd-investments/cd-investment-results.aspx...
I had the MFGlobal tax put on me.
Corzine's face- meet toilet.
Beginning in 2008 the Federal Reserve began a consistent, and generally unprecedented, series of monetary actions specifically designed to artificially suppress interest rates.
The Fed Rate is an almost identical image to the 3 Month T-Bill - the 10 Year is a different matter.
http://bullandbearmash.com/chart/weekly-3-month-tbill-largely-unchanged/
Why is this? Because the Fed follows the 3 month T Bill rate - always has.
Thanks to Fed action, the United States is experiencing the same problems as Argentina had for years (except here now, one can get interest-- pretty good interest-- on bank savings. The problem is very few people trust the banks.) The problem is this: interest-free savings coupled with inflation make the accumulation of capital for the average person nearly impossible. Without the ability of the average person to accumulate capital, no one can start a new business larger than a storefront-- i.e. nothing productive. Without new business starts, production stagnates, while demand increases... creating more inflation...
Welcome to Argentina... we all live here now (except an Argentine can get 8-10% interest on their savings accounts... the only problems are 1. The Argentines understand that money in the bank is the property of bank... 2. Everyone expects 20% inflation next year... and so no one saves money... even at 10% interest.
The result has been a boon to the construction industry... as the de facto savings vehicle of Argentines is bricks, blocks, cement, and other construction materials to improve their homes. As they get excess capital, they buy construction materials until they have enough to improve their property.
Derivative debacle held at bay by Fed zero interest rate?
Deadbeat banksters get paid twice for gambling?
Return to Glass-Steagall, taxpayers win, banks lose big.
The FDIC and the Bank of England have a joint paper out (Dec 2012) which explains how they make take depositors insurance money and use it to bail out the bank instead of the depositors. Nice eh?
See http://tiny.cc/z4jcuw
or http://tinyurl.com/c2e8zs5