Saturday, March 23, 2013

The situation in Cyprus

Along with much of the western world, my husband and I have been following the banking situation in Cyprus with great concern.

In case you haven’t heard, little tiny Cyprus is in the middle of a great big banking crisis. It’s a complicated situation best summed up in this article.

For the last week or so, Cypriots have had their bank assets frozen pending some decisions within the EU about how much of their own money they get to keep. Yes, really. Ordinary everyday citizens are going to have to "donate" some of their savings to bail out the EU. Cypriots immediately descended on every ATM in the country (because the banks were closed) and withdrew every bit of funds they could... which wasn’t much.

When the screams of outrage hit the bankers’ ears, they modified their diktat to say that only rich people would be "donating" their money. Nonetheless until the complicated situation is resolved, banks have been closed for the past week.

Needless to say, citizens are panicked. They can’t access their money. One of the reasons all the banks are closed is because of the very real possibility that everyone will descend on the banks all at once in order to withdraw every last penny. Cypriot banks don’t have liquid cash enough to cover everyone's assets. No bank on the planet does. That’s just a banking fact.

"With banks in Cyprus closed until Tuesday," notes Reuters, "Cypriots have been besieging bank cash machines all week. Faced with an almost certain run on banks when they reopen, parliament also gave the government the power to impose capital controls."

Remember those words: CAPITAL CONTROLS.

With no money moving around the country, businesses are suffering – notably grocery stores and other critical infrastructure. Stores are insisting on being paid in cash – no credit cards, no checks – and cash is suddenly very scarce. Deliveries aren’t getting made, shelves are going bare. “At the moment, supplies will last another two or three days,” said Adamos Hadijadamou, head of Cyprus's Association of Supermarkets. “We'll have a problem if this is not resolved by next week.”

According to this article, yesterday the Cypriot parliament passed a total of nine bills, covering three main elements of the “rescue” plan. What’s most distressing to the average Joe is that pension funds would be nationalized, and no one can make large withdrawals out of Cyprus. There is also a levy being considered that would seize 15% of all deposits over 100,000 euros.

In effect, Cyprus is – abruptly and suddenly – a financial dictatorship. That’s what “capital control” means.” Cypriots are no longer in control of their own money – the government is. Don’t get me wrong, Cyprus banks have dirty hands in this deal, but my biggest concern is for the ordinary everyday Cypriots who are suffering. And what seems to stun the Cyprus population is how fast this all happened.

Obviously, the repercussions throughout Europe are significant. Now no one in Europe can assume their money is secure. Many Europeans are concluding that if it can happen in Cyprus, it can happen anywhere... and they’re withdrawing their money from banks. The ripple effect is powerful and fast. There is a very real possibility of a continental financial meltdown.

How does this affect the United States? Well, if nothing else it’s a big warning shot across the bow and a situation I believe we should take seriously. How do you think American markets will be affected if Europe fails financially? Do you think our own government won’t one day stoop to confiscating our personal assets? There’s been talking about seizing control of 401(k)s and other retirement vehicles – but few (until now) could imagine a bank holiday and confiscated liquid assets here in America.

A concerned reader emailed me about the money confiscation in Cyprus. “May I ask what is your 'take' on that?” she asked. "If indeed money is being confiscated, it's too true that what one country gets away with can go to another country, and another, and another… ad nauseum. I'm just debating about what to discuss with my husband about the (pretty low but it's all we've got) savings account...”

I replied: The situation in Cyprus worries us exceedingly. It illustrates that no one's money is safe if it's not in their physical possession. And of course, fiat currency is always suspect to begin with.

Please understand that I would NEVER presume to advise anyone on their money. I'm not a financial adviser or an economist, and my understanding of these things is limited at best.

What I can do is tell you what WE would do. If we had a savings account (and we don't), we would remove all the cash, close it down, and convert the cash into something tangible like silver. These can be purchased anonymously from coin dealers. We wouldn't pay for the silver with a check, we'd pay in cash, in person. Then we'd take that silver and put it someplace no one knows about but us.

I know someone who is considerably wealthy. About fours years ago [Update: now that I think about it, it was probably five or six years ago], he saw the financial trouble on the horizon. He took his enormous savings and gradually converted everything into gold, silver, and platinum, which are in his physical possession (or, that is, hidden somewhere only he knows). He bought silver when it was $3/ounce, gold when it was in the $300/ounce range. Imagine how much he's worth now! – and no government can confiscate his wealth because they don't know where it is. Pretty smart, IMHO.

We don't have any spare money (most of our income goes to bills) but we're big believes in tangible assets. Fiat currency is NOT tangible. Gardens and cows and canning jars and pressure canners and stored food ARE tangible.

My husband once read a financial article that pointed out how banks and the government do not consider money in the bank to be YOURS. Rather than actually being your property, bank deposits are considered a LOAN to the bank. Banks take deposited money and loan it out or pay off debts or otherwise make use of it. Oh sure, they’re under obligation to give you some when you ask for it; but the reality is you’re loaning money in the bank in exchange for safekeeping and convenience.

The FDIC has something like $33 billion in an account to cover $10 trillion worth of bank deposits. Do you really think your modest $1500 savings account will be first on their list to reimburse if the banks fail or are seized?

Viewed in this light, savings accounts and retirement accounts can start to look downright scary – insubstantial, insecure, and arbitrary.

It’s for these reasons that we prefer to put any spare cash into tangible assets: improvements to our barn or garden, a new bull, some canning jars… These are items whose value will increase over time in a changed economy.

Just something to think about as we watch the situation in Cyprus unfold.


  1. Everyone needs to remember that this has already happened in this country. And I'm not talking about the banking issues that happened at the beginning of the Great Depression. I'm talking about MF GLOBAL. This company swindled over a billion dollars from investors.

    Then when the company filed for bankruptcy, the creditors were put at the front of the line instead of the customers which was highly illegal.....


    This was used as a beta test to see what they could get away with.

    1. To top it off, the man that used money that was not his, money that was untouchable to and by the people that had to have it deposited in their margin accounts, Jon Corzine walks free among us.

      Nothing happened to, nada, nothing.

      This is exactly what "banks" (I use the term lightly) do with our money every day. They consider my checking account and investment with them and they risk it continually. Then when I attempt to withdraw money, if I take more than what the gov wants me to have there is a form filled out and reported to the IRS. Sometimes the physical cash is not there because the Fed Res tells the banks how much cash they can have, while the common Joe thinks that it is "how much the banks MUST have".

      Banks are the ones that lobbied for all government checks to be direct deposited. You can no longer get your military retirement or SS check and go cash it. You must beg for it from your bank.

      We cleaned out our retirement and other savings to build a home because we did not want anything left in the bank. Now we have a list of tangibles we are buying every month. I am unsure what we will use to pay our property taxes with when the big collapse comes. Many people lost their paid for homes during the depression because they could not pay the taxes on them. It's another way of saying, "You don't own that", after years and years of scrimping and saving and years spent doing the building.


    2. And what really shocks me (which I guess it shouldn't by now) is that Corzine is NOT IN JAIL!

    3. And Enron and Lehmen Brothers and...Governments are ripping us off each and every day through regulations and taxes or by allowing non-government "chosen" private entities do so. Get used to the charcoal smell;we're ALL toast.

  2. Of all the areas dealing with this on going slow train wreck of a collapse that would cause the most strife between Prepper me and my non-prepper wife it would be accessing our investment, savings or retirement accounts.

    The wife, bless her pure kind heart, is really a liberal emotionally (and politically unless I head her off before she votes with plenty of logic) and does not really buy into my doomer views. However she is also a very earth loving person and values almost everything I do in the sustainable/prepping venue for that reason. She loves it even to the point of now insisting we begin buying miniature cattle, but the main selling point for her was the tax write off we would also receive if that tells you anything.

    As much as I would love to turn our accounts into tangibles, especially more land, I can't, so I just look at it as money already gone at this point and try and steer as much into investments I hope will not lose too much value.

    In the case of a bank holiday or retirement account seize maybe it might do us some good keeping the tyrants from coming and looking too closely at our tangibles but who knows. I just count it as money already lost myself and the price of keeping the wife happy.

    1. Interesting take.

      Just Me

    2. At least I am lucky. We own land already and have most of our essential preps in place. There is always much more I would do if I could but I can afford the luxury of ignoring the accounts in question. If I could access them we would be set like royalty in a collapse situation but I would rather lose the accounts than my wife, even if I would be proven right eventually.

    3. There is a tax write off for buying miniature cattle?

  3. the banking and money problems have been happening for a good long time taking down small countries one at a time...eventually it will be our turn...which is a very good reason to do what a person can do now to get out of debt and to prepare their household for dealing with a major lifestyle change. i feel at this time that if a person wants to remain in denial of what is happening then they deserve everything they get or dont get as the case may be. i have gotten now to the poiint where i do not put in any bank what i cannot afford to lose. neither do i stuff it under the mattress off those debts! and teach yourself skills that will be needed to help yourself earn a living and sustain yourselves.

  4. It's getting worse as the gas stations are drying up because the suppliers will only take cash. The stores are starting to run out of product because the suppliers want cash.
    What an incredible mess and it's all man-made.

  5. Wow. Mrs Lewis, you have a knack for communicaton - good grammar, good sentence structure and organized thoughts.

    Even though I, too, have been watching the Cyprus situation, I'm going back and read your post again. Gotta make sure I didn't miss anything.

    Just Me

  6. You are a bit wrong in the beginning. Cyprus has asked the EU to be bailed out, not the other way around. The EU wants to give 5 billion if Cyprus comes up with another 5 and simply proposed this solution. It was denied afaik...

    1. Thank you for the clarification!

      - Patrice

    2. Yes I was going to say that, Cyprus has asked for help from the EU central bank because its government has made poor decisions resulting in this crisis. Cyprus has a huge banking sector because it is a tax haven and a lot of the money in Cypriot banks is foreign money, mainly Russian. I dont have that much sympathy for people who are avoiding the taxes in their own country by hiding their money abroad.

  7. Be aware:

    During our Great Depression Mr. Roosevelt, by executive order, outlawed the private possession of gold. That can happen again and could be expanded to include possession of other precious metals.

    A few years ago North Korea made everyone turn in their old currency for a new currency. However, they put a limit on the amount that could be redeemed. Folks that had "Too Much" of the old currency were not allowed to redeem it - too bad - so sad.. That can happen here.

    And, I suspect that if we were to examine some of our WWII era "laws" we would find that we still have anti-hoarding laws on the books that allow governmental confiscation of "excessive quantities" of stored foods and household commodities.

    Hangtown Frank

  8. Cyprus like Greece, Italy and Spain have few choices. Those in power tend to look for solutions to problems like this that maintain the status quo and of course maintain their power. To qoute a liberal friend of mine in an arguement over excessive property taxes "the government taxes those with the money". The same kinds of things happened here in the great depression. They are happening in Greece, Spain and Italy. It will (and is) happen(ing) here. This isn't about the "banksters" (although they do make great scapegoats). This is as simple as the situation is so dire the choices suck and the politicians prefer choices that push off the inevitable rather then letting it all collapse and then rebuilding. It WILL happen here. Here is the takeaway: during this phase the government will take assets, raise taxes, limit freedoms and bank withdrawals, increase inflation, and place wage and price controls. None of it will work in the long run (probably) but it will hurt you. So during this phase of the great reset you need to protect yourself. Yes it can be done. Most of the names of the 'old" rich we would all recognize today made their millions during the great depression. Of course you and I won't be nouveau rich because of this we will simply be able to come out of this a little better off then those who fail to prepare.

    1. The gov has enabled the bank(sters) to turn $9,283 Billion In Deposits into $297,514 Billion In Derivatives. That is 9.283 trillion in fiat currency turned into 297.514 trillion in lottery tickets. The fed is giving this money to the banks in the form of almost zero percent loans, and the tab for this is being added to our national debt that you and I must pay for.

      The banks are every bit as culpable as the gov. The bridge between the two world, Bernanke, should be charged with treason and a fitting punishment should be awarded to him and all his minions. The gov thinks Wall St. is going to save our nation, but they are sucking us all down into the drain. I think most of us here are just trying to build a strong enough life raft to survive it.

      I still remember when banks were small local institutions that you put your money into and could get it out of when you needed it. They weren't investing your money in Wall Street, but they might be investing it in Joe's farm, or Flo's new house and neither recipient ever planned to default.


  9. My grandparents lived thru the depression...They had all their money with them...They NEVER used a credit card, bought all the things that they needed with cash....Then in the 60's my dad told them they needed to put their money in the bank in cd' they was all handed down from them to my aunt and then to my dad etc...My sister got it all when he died and now it is gone too....But, they never wanted for anything as my grandma was very frugal and canned everything, made all their clothes...You get the picture....I am trying my darn hardest to pay down our debt....Hubby isn't on board with this, burt I stress all the time...We have no savings acct. and very little in our checking...I am 65 and am not able to get ss or medicare because I didn't work enough outside the home...I stayed home and raised our 4 children, who are now grown and have children of their own....So, it will be GOD and GOD alone who will have to take care of me....I have bone issues and nerve impingement and can't get help for either due to no money....I LOVE how GOD takes care of me and I have no need for the government to do anything...
    Thanks for listening....Cling to JESUS for everything.
    Love from NC

  10. I read last night they'd gotten their 'bailout' and 'avoided bankruptcy.'

    I didn't read the details, but it makes me shudder to think....

    Bailout? With whose money and whose parachute?


  11. More on the Cyprus story:

    "If the Cypriot government balked at the bank levy, the IMF and German officials were likely to demand even stiffer terms, including a "bail-in" arrangement whereby account holders with more €100,000 would forfeit up to 40% of their savings in return for shares in restructured banks."

    Well. Otay.



    1. That's what it appears happened. The IMF, EC, ECB got everything they originally wanted and the EU<100,000 accounts are getting 40% hair cut in one bank and may be completely taken over in the other bank.

      It's all bad. Banksters deserve their bad reputation.


  12. There is absolutely no reason to believe this could not happen here in the U.S. We all see Social Security, Medicare, and public pensions all heading for a cliff and politicians simply willing to just kick the can down the road making is some future Congress problem to solve.

    In addition, we have already had some politicians and "think tank" gurus floating the idea of nationalizing 401(k) and IRA in this country and giving people a "guaranteed" return on anything they steal from you. While this has not gained traction just yet, it only takes a crisis to bring it home for all of us.

    My wife has extended family in Cyprus and she was visiting there this summer with our daughter so sadly we have ringside seats to this disaster.

    I love your idea of keeping primarily tangible assets. I think confiscation is a very real possibility at some not so distant future in the THIS country.

  13. Oh it absolutely could happen here. Except there won't be anybody to bail the US out.

  14. I wanted to make a small correction to your article.
    You say that the "back account tax" is to bail out the EU, that's not quite correct.
    Cyprus (like some other countries we could mention) has been spending beyond its income. As part of the EU it doesn't have full control over its expenditure (policies set at the EU level) and the EU is getting tired of bailing it out. It needs to get more money from somewhere or fall out of the Eurozone. It can't raise income tax enough (and we've seen many times that that just drives earners out of the country) so in desperation it's looking at stealing the money from savers.
    Cyprus is not stealing this money from savers to bail out the EU, Cyprus is stealing this money from savers because the rest of the EU is no longer going to bail out Cyprus.

    Of course this is fundamentally no different from what Quantative Easing is. More money created with no more wealth created reduces the buying power of the money each person already has. The "bank account tax" is just more overt (since Cyprus can't print more Euro the QE route is not open to it).

  15. Confiscation of assets all ready occurs in the USA.

    A young train engineer called my husband for advice last year. His wife had decided she wanted a divorce. To simplify the financial part, he was going to take some of his 401K money and pay off their outstanding bills and pay down their mortgage, making the wife eligible to refinance the home she would be awarded and get it put into her name and his name off the mortgage.

    He was flat denied by Vanguard when he attempted to get some of his money out. He didn't want a loan, he wanted to take his money out, pay the 10% penalty and the taxes on it and straighten out his finances. NO, was the answer. I looked at the paperwork and nowhere could I find anything of the sort. This 401K program is applied for and otherwise handled on the internet, period. There are a few things you can take a loan out for, such as first time homebuyer or medical bills, neither of which applied to their situation.

    We called Vanguard and asked them to physically send the agreement that stated money could not be accessed until 59.5 years of age and they sent an unsigned multipage agreement, not the one on the internet that you check the block on when you set your account up.
    This young man's name is still on a home mortgage that he had to give up to his wife because she doesn't qualify for the mortgage in the amount necessary to refi; he was willing to spend his money to reduce it, so his name would be off and he would then be eligible to purchase a second home. Vanguard said they have his money until he's 59.5, he could not afford the loan that had to be paid back because that is not taken into account when child support was calculated, and with the monthly repayment of the loan and child support, he'd have nothing to pay his bills with or even rent an apartment with.

    Yes, lots of messy details about a marriage that was destroyed by human selfishness, but the point is that he/they have money they can not get to. She was awarded half of this account, but that didn't help her finances either.


  16. If only they had had the foresight to hoard, sorry I mean make some provision for the future.