Will The Cyprus Bailout Trigger The Next Financial Crisis

An international banking consortium led by the IMF agreed to bailout Cyprus. Part of this deal includes the imposition of a levy on bank on bank savings accounts. As a result of this situation, there's now fear that depositors all over southern Europe will take their money out of banks out of fear that this type of deal will become a model for the next round of bailouts.

Posted by Dave in Denver
March 18, 2013
Truth in Gold

In an a deal that needs to still be approved by the Cypriot Parliament, an international banking consortium led by the IMF agreed to bailout of Cyprus. Part of the deal includes the imposition of a levy on bank on bank savings accounts: 10% on bank balances in excess of 100,000 euros ($131,000) and 6.75% on balances below 100,000 euros. Cypriots lined up at ATM machines over the weekend - they can withdraw cash until the ATMs run out of cash up to the amount that has already been set aside for the levy.

This story has received close to no coverage in the U.S. despite the potential implications for people who keep their money in banks in every country. As a result of this situation in Cyprus, there's now fear that depositors all over southern Europe will take their money out of banks out of fear of this type of deal becoming a model for the next round of sovereign bailouts in general. A Washington Post blog article does a good job summarizing the situation:

The European Central Bank will now be on high alert, monitoring activity in Greece, Spain and beyond for evidence that the Cyprus precedent will result in new runs on those nations’ banks. Expect a flood of central bank liquidity into those nations if there is any hint that depositors across Europe seem to be thinking that Cyprus is the new normal and that their seemingly safe bank deposits could be reduced 10 percent without warning (LINK).

The "flood" of Central Bank liquidity referenced above largely refers to the Federal Reserve, which has been quietly funding a massive "ghost" bailout of the European banking system all along. For those of you who are unaware, 50% of the $1.8 trillion in the Federal Reserve bank excess reserve account is money that has been given to the U.S. subsidiaries of the European Banks who are Primary Dealers in this country (LINK). In other words, the U.S. is pretty much keeping Europe from collapsing right now.

Without that flood of U.S.-based liquidity into the European too-big-to-fails, there is no question that either interest rates in the ECB system would shoot through the roof in order to attract capital OR the ECB system would be insolvent. The reason the Fed is the savior in this process is that U.S. too-big-to-fail/prosecute are inextricably tied to the fate of ECB banks via a massive and deadly web of OTC off-balance-sheet derivatives.

The Cyprus situation may in fact ignite a run on the banks in Europe and - for those paying attention in this country (which isn't very many) - a small run in this country. Myself and others have been advising people to keep only a minimal amount of cash in the banking system for quite some time. The reason? Even though great pains have been taken by DC/Wall Street to ensure us that "the water is fine" in the banking system, the world is one unforeseen "small" event away from a global liquidity crisis. Quite frankly, anyone who can read and think, and who still trusts the banking system in this country, is either incredibly naive or tragically stupid, especially after Eric Holders wonderful Senate testimony two weeks ago about the big banks being too big to prosecute for crimes.

Why is any of this relevant to gold/silver? Again, for those who are paying attention and understand how corrupt and fragile the global fiat-based banking system is, the best alternative is - and has been for the last 12 years - to move as much money OUT of the banking system as possible in INTO physical gold and silver that is privately secured outside of the banking system. Don't think for one second that bank deposit confiscation and bank holidays are limited to obscure Grecian islands in the middle of the Mediterranean Sea. This could indeed to be the spark that ignites the global flood of printed napalm paper currencies.

Jim Sinclair has another angle on why this largely unnoticed bailout of Cyprus could have major implications for the next big move in gold that is a must-read: LINK

Whether Sinclair's scenario kicks into gear or not, this event is yet another signal for us that the fiat currency-based banking system is ultimately doomed and the only way to protect yourself from going down with the ship is to move as much of your paper wealth into physical gold/silver as possible. Capito?

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