Thread: Next Up For Cyprus: Depression - So much for the hope of recreating Icelands recovery

Krugman's "Smoot-Hawley Moment"

Submitted by Bruce Krasting on 03/25/2013 13:04 -0400

I'm constantly amazed at the things Paul Krugman has to say. This guy is on the top of the list of global economic thinkers. He has all of the credentials, and a huge platform to spin his views of what's good and bad, and what should be done next. PK's OpEd in the Times today is another example. (Link)

PK does a summary of Cyprus. I believe he has all of the facts straight, and I agree with him when he says:

Global capitalism is, arguably, on track to become substantially less global.

The broader story of Cyprus is about capital controls. It's not just the harsh new controls on the Island, it's all over Europe. There is not a country on the globe that has not established some form of controls the past few years. America has done it in subtle ways, using ZIRP, QE, Dodd-Frank and the Department of Justice to contain the free flow of money. I think a big clampdown in China on money is right around the corner. This trend scares the crap out of me. Krugman is on the other side of the spectrum. He loves capital controls. He wants to see more of them:

The bad old days when it wasn’t that easy to move lots of money across borders are looking pretty good.

"Looking pretty good?" OMG!

Given that big shots like Krugman want to see more controls of money, its a good bet that more controls will come. I think the likes of Krugman are ignoring the realities of 2013. They are doing so very much at the peril of the global economy.

The CIA keeps track of global cross border debt. The numbers are huge, and growing fast:

- Total World External Debt was $69T in 2012. In 2011 it was $63.6T. In one year it grew by $5.4T. World GDP growth was 3% while cross border debt rose by 8.5%.

- In 2004 World External Debt was $43T, or 65% of World GDP. In 2012 total External debt was 85% of GDP.

- The External Debt numbers for the USA are worth noting. Yes, 1995 is a long time ago, and the world is a different place today. I still find these results troubling:

In his typical style, Krugman establishes what is "true" and what is "false".

The truth, hard as it may be for ideologues to accept, is that unrestricted movement of capital is looking more and more like a failed experiment.

Krugman's conclusion is that a cornerstone of global activity is a failed experiment and that the solution is to install more capital controls. Mr. K will get what he wants. More controls are coming - that's certain now. The entire house of cards that is Global GDP is at risk. The failed experiment that PK thinks is the rise in external debt, could easily morph into the failed experiment of the global economy.

I wonder if PK (and all the others who are pushing for more controls) are not having a "Smoot-Hawley Moment". In 1929 tariffs and other restrictions on trade were established. A global depression followed. In 2013 the tariffs and restrictions are on money, not goods. But if the result of those controls is a reduction (or even stability) of the external debt numbers, then the global economies will fall with it.

And this is what the world's "smartest" economist is calling for.

Krugman's "Smoot-Hawley Moment" | Zero Hedge

Have The Russians Already Quietly Withdrawn All Their Cash From Cyprus?

Submitted by Tyler Durden on 03/25/2013 17:00 -040

Yesterday, we first reported on something very disturbing (at least to Cyprus' citizens): despite the closed banks (which will mostly reopen tomorrow, while the two biggest soon to be liquidated banks Laiki and BoC will be shuttered until Thursday) and the capital controls, the local financial system has been leaking cash. Lots and lots of cash.

Alas, we did not have much granularity or details on who or where these illegal transfers were conducted with. Today, courtesy of a follow up by Reuters, we do.

The result, at least for Europe, is quite scary because let's recall that the primary political purpose of destroying the Cyprus financial system was simply to punish and humiliate Russian billionaire oligarchs who held tens of billions in "unsecured" deposits with the island nation's two biggest banks.

As it turns out, these same oligrachs may have used the one week hiatus period of total chaos in the banking system to transfer the bulk of the cash they had deposited with one of the two main Cypriot banks, in the process making the whole punitive point of collapsing the Cyprus financial system entirely moot.

From Reuters:

While ordinary Cypriots queued at ATM machines to withdraw a few hundred euros as credit card transactions stopped, other depositors used an array of techniques to access their money.

No one knows exactly how much money has left Cyprus' banks, or where it has gone. The two banks at the centre of the crisis - Cyprus Popular Bank, also known as Laiki, and Bank of Cyprus - have units in London which remained open throughout the week and placed no limits on withdrawals. Bank of Cyprus also owns 80 percent of Russia's Uniastrum Bank, which put no restrictions on withdrawals in Russia. Russians were among Cypriot banks' largest depositors.

So while one could not withdraw from Bank of Cyprus or Laiki, one could withdraw without limitations from subsidiary and OpCo banks, and other affiliates?

Just brilliant.

And if there was any doubt that the entire process of destroying one entire nation was simply to punish Cyprus, it can be completely cleared away now:

ECB officials contacted Latvia, another EU country that has received large Russian deposits, to warn authorities against taking in Russian money fleeing Cyprus, two sources familiar with the contacts said.

"It was made clear to our Latvian friends that if they want to join the euro, they should not provide a haven for Russian money exiting Cyprus," a euro zone central banker said.

If one thinks there is any material Russian cash therefore left in Cyprus with this epic loophole in place, we urge them to make a deposit in the insolvent nation. One person who certainly will not be allocating any of his money into Bank of Cyprus is German FinMin Schaeuble:

German Finance Minister Wolfgang Schaeuble said the bank closure had limited capital flight but that the ECB was looking closely at the issue. He declined to provide figures.

Perhaps because if he did, it would become clear that the only entities truly punished by this weekend's actions are not evil Russian billionaires, but small and medium domestic companies, and other moderately wealthy individuals, hardly any of them from the former "Evil Empire."

Companies that had to meet margin calls to avoid defaulting on deals were granted funds. Transfers for trade in humanitarian products, medicines and jet fuel were allowed.

The stealth withdrawals by Russians of course means that the two megabanks are now utterly drained of capital, and that the haircuts on those who still have unsecured deposits with the two banks will be so big it will likely mean a complete wipeout of all deposits. As in 0% recovery on your deposits!

In other words, by now any big Russian funds in Cyprus are long gone, and the only damage accrues to the locals: for one reason because their money over the critical EUR100K threshold has been "vaporized", and for another because the marginal driving force and loan demand creator in Cyprus, the Russians, are gone and are never coming back again.

This is what passes for monetary real-politik in the New Normal - an entire nation becomes collateral when pursuing a wealthy group of people. And the "wealthy group" is victorious in the end despite everything...

If we were Cypriots at this point we would be angry. Very, very angry.

Have The Russians Already Quietly Withdrawn All Their Cash From Cyprus? | Zero Hedge

Cyprus: The Unique Template in Nine Theses


Submitted by Marc To Market on 03/25/2013 17:12 -0400

Based on the latest discoveries, such as seen in the recent pictures from the European Space Agency, scientists are concluding that the universe is not inflating quite as fast as they previously thought. And so too, back here on Earth, we are finding things are not quite as they may have appeared. The attempt to reflate the world economy is proving more difficult.

Many European officials had recently been congratulating themselves that the European crisis had passed. The Outright Market Operation facility, brandished but not triggered, and forbearance by EU officials appeared to have turned the corner. Yet this was just another swing of the European pendulum. Each time unresolved issues flare up, officials put it out and in doing so think they have put the fire out. They have not.

After relatively easily absorbing the inconclusive Italian elections and the rejection of the terms of the first aid offer to Cyprus and the brokering of another deal, the markets had a more dramatic reaction to the suggestion that Cyprus may be a template for future aid packages. This spooked market participants who sent Italian and Spanish equities, and especially bank shares, sharply lower.

European peripheral bond markets sold off. The euro fell to new five month lows against the dollar.

1. Many observers continue to under-estimate the political will of the European elite for EMU to succeed. As Fed Chairman Bernanke observed, there are no ideologues in a crisis. European officials are willing to sacrifice many sacred cows on the alter of EMU. It is an evolving situation, and as more institutional capacity is innovated, the range of the policy response can be enlarged. There remains among the commentariat class a profound skepticism of the EMU's viability, especially it seems in the Anglo-American traditional and social media. Many thought Greece was going to be jettisoned in 2011 and 2012. Some gave it weeks or months to survive a year ago. They greet each problem and official misstep with a cry that the end is nigh. Yet there is no Plan B and without a compelling alternative vision, Plan A persists.

2. In order for EMU to survive, it will be shaped by the most powerful interest, which is Germany. As the US pivots toward Asia and the UK threatens to leave the EU, the centuries-old balance-of-power politics is giving way to a German-led block. Its ideology of ordo-liberalism advocates a strong state and strong markets, as opposed to the Anglo-American neo-liberalism, which allows for a smaller role for the state. There is a sense in some of the local press that Germany is fatigue of aid and it is not coincidental that the Bundesbank just made public a report that has been available to several weeks showing that, due to home ownership rates, many European, include Spaniards on average, are richer than Germans. Of course, political sensibilities are running high as the national election draws nearer (in September), and the first German party to officially advocate leaving EMU, has been launched. At the same time, the cost to Germany has thus far been quite limited, and what de minimis funds it has had to raise, has been more than offset by the lowering of government's borrowing costs and interest on its loans.

3. We have arguing for some time that the Troika is not the united front it previously was. The Cypriot crisis has brought this issue to the surface and many now share our insight The EC would seemingly be content for Europe to deal with the issue alone, which is easy enough after the IMF has generally assumed the funding of roughly a third of the aid packages. Germany, which initially did not want to include the IMF, now see it as an ally. The ECB has shown itself to be willing to use the leverage it has (such as granting Emergency Lending Aid by the national central banks and definition of acceptable collateral) to pursue its interests.

4. Germany and the IMF have long wanted to increase the private sector burden sharing when aid is needed. Brussels has been a reluctant party. Germany and the IMF are winning that fight. There is an established order of seniority (in practice if not in law) for cases of insolvency. In Cyprus, the initial plan, proposed by the newly elected Cypriot President, and agreed to by the Troika and Germany, was a violation of this by taxing small depositors while equity investors and unsecured creditors were kept whole. However, the new plan exempts small depositors and hits shareholders, bondholders and uninsured depositors. European officials seem to have greater confidence increasing the role of the private sector in aid programs.

5. It is not yet clear the extent or duration of the capital controls. Some observers are arguing that capital controls are a violation of the governing treaties, and because one cannot take unlimited amount of funds out of Cyprus at the moment, it means that this marks the end of the monetary union. They suggest that now the euro in Cyprus worth less than the euro elsewhere. We do not find that logic compelling, based on what we currently know about the controls. We accept that there may be unintended consequences, and the situation can evolve into something different, but presently, we do not see these administrative measures, as inconvenient as they are, to be tantamount to the introduction of Cypriot euro.

6. Cyprus is going to face a deep and prolonged adjustment process. In the global division of labor it was a entrepot, providing commercial and financial services. Broadly understood to include finance and insurance (9.2% of GDP), real estate and construction (17.8%) and wholesale and retail trade (23.2%), it accounted for nearly half of the Cypriot economy in 2012. Manufacturing only counted for 5.9% of the value-added of the economy, which is down from 9.5% in 2000 and 7.2% before the financial crisis. It simply does not have the manufacturing capacity to export its way to growth. This suggests that whether inside EMU or out, there is a painful restructuring process ahead. What ails Cyprus is not that its currency is too high. It is that its developmental model, which leaves aside whether it is a low tax jurisdiction (complying with the global standard for tax cooperation and fully aligned with Code of Conduct for Business Taxation of the EU and the OECD) or a tax haven, as the German narrative suggests, is broken.

7. As has been the case since the crisis first erupted, European officials, the IMF (and many private sector economists) have over-estimated growth in the stricken countries. This has serious implications for trying to stabilize the debt/GDP ratio, which seems the official goal--putting countries back on sustainable fiscal trajectories. The risk is that adjustment in the Cypriot economy is so severe that the economy contracts sharper than officials forecast. The bottom line is the downside risks to the economy mean that this aid package may not be the last for Cyprus.

8. What appears to be large natural gas and oil fields on its continental shelf suggests the way forward. However, this may prove more mirage than reality for years to come. The problem is arguably more about politics than economics. One of the strategic errors of European officials was allowing Cyprus to join its clubs (EU and EMU) without united the island. That should have been one of the prerequisites but that would have forced European officials into compromising with Turkey, perhaps over EU membership, which it was not prepared to do. In addition, getting the gas to market is more difficult and costly (relative to the size of the Cypriot economy) than often acknowledged.

9. Cyprus 2.0 was constructed in a way that allows an end-run around parliament. This is a shame and ultimately counter-productive. The lack of democratic legitimacy means that it will always taste like foreign imposition. It means that parliament will not take ownership for the program. It also shows that European officials to be still tone deaf, seemingly failing to realize monetary union is a elitist project and without strong public support is vulnerable to various populist movements from both the right and left.

Cyprus: The Unique Template in Nine Theses | Zero Hedge

The "Wealth Tax" Contagion Is Rapidly Spreading: Switzerland, Cyprus And Now ....

Submitted by Tyler Durden on 03/25/2013 19:27 -0400

It was only yesterday that we wrote about comparable problems to those which Russian depositors may (or may not be?) suffering in Cyprus right, this time impacting wealthy Americans and their Swiss bank accounts, where as a result of unprecedented DOJ pressure the local banks will soon breach all client confidentiality and expose all US citizens who still have cash in the former tax haven under the assumption that they are all tax evaders and violators.

And in the continuum of creeping wealth taxes which first started in Switzerland, then Cyprus, and soon who knows where else, there was just one question: "The question then is: how many of the oligarchs, Russian or otherwise, who avoided a complete wipe out and total capital controls in Cyprus, will wait to find out if the same fate will befall them in Switzerland? Or Luxembourg? Or Lichtenstein? Or Singapore?" Today we got the answer, and yes it was one of the abovementioned usual suspects.

The winner is.... Lichtenstein.

Yes: the little principality that is an even greater tax (evasion) haven for the world's ultra wealthy, even more so than Zurich, Geneva or Zug, is now under Big Brother's microscope.

But fear not. All the other tax havens listed above are quite certainly about to meet the iron, resolute fist of the US Department of Injustice. After all, unlike TBTF banks, depositors are hardly "systemic", and thus Eric Holder and his henchmen will have zero reservations when pursuing the full extent of the (selectively crony) US laws against them.

From Bloomberg:

The U.S. has asked Liechtenstein to hand over data on foundations that may have been used to hide untaxed American money from the Internal Revenue Service, a step that may threaten Swiss banks.

The U.S. wants to know the number of foundations set up by fiduciaries -- lawyers, accountants, financial advisers and asset managers -- for American taxpayers, according to a letter sent by the Department of Justice to authorities in the Alpine principality. A “formal request” to fiduciaries will follow, the DOJ said.

“Seeking documents from the Liechtenstein fiduciaries is an important investigative step,” which will shed light on “the roles of banks, of bankers outside of Liechtenstein,” the Justice Department wrote in the letter, adding that it looked forward to receiving the data by March 29.

The DOJ is investigating at least 11 financial firms, including Credit Suisse Group AG (CSGN) and Julius Baer Group Ltd. (BAER), for allegedly helping Americans hide money from the IRS. The Liechtenstein request will add to the information the IRS garnered as 38,000 Americans avoided prosecution through an amnesty program, which involved paying back taxes and penalties and disclosing their offshore accounts and bankers.

“It’s a further evolution of the Department of Justice using third-party fiduciaries to gather more information on these structures and the banks involved,” said Milan Patel, a former IRS trial attorney who is now a partner at Zurich-based law firm Anaford AG. “This could be bad news for Switzerland, as the information could be used against more Swiss banks.”

In case anyone is still confused about what is going on, here is the summary: any geographic venue that for whatever reason was once considered a global tax haven in the "Old Normal", be it Switzerland, Greece, Luxembourg, Singapore, or as the case may be Lichtenstein, is now fair game for confiscation and otherwise expropriation of local capital.

Alas, as this money will not be enough to plug what is not a liquidity but global insolvency black hole, which is made worse daily by the endless interventions of central planners, once the deposits of the wealthy at these small, powerless to defend themselves countries is concluded, next come the entities with the really big deposits: the US, the Eurozone, and the grand daddy of them all: China.

In other words, the forced ~30% wealth tax on all financial assets is coming. Just as foretold here first in September of 2011 and as was recapped last weekend.

The "Wealth Tax" Contagion Is Rapidly Spreading: Switzerland, Cyprus And Now .... | Zero Hedge

From Blessing To (Soon To Be Confiscated) Curse: When Cyprus' Massive Deposits Were A Great Thing

Submitted by Tyler Durden on 03/25/2013 15:53 -040

In the aftermath of this weekend's earth-shattering developments out of Cyprus, in which countless people lost billions in savings, having forgotten their money is nothing more (or less) than a general unsecured liability of an insolvent banking sector which in the absence of the Bernanke and Draghi moral hazard-put are simply easy confiscation targets, it is difficult to conceive that having a massive surplus of deposits was actually a good thing. Ironically, this was precisely the case as recently as 10 months ago, as this May 2012 presentation from the Bank of Cyprus titled "International Banking Services: Strategic Business Crossroad - A Reliable Financial Center" (don't laugh) makes all too clear.

Behold page 11 of 33 - the first page highlighting the strength of the banking sector in Cyprus:




It is here that we read that the "Size and structure of the Cyprus financial system reflects Cyprus’ role as an international business centre" and that "This is reflected in the growing number of companies registered in Cyprus and the increasing size of the banking system" as measured by the record amount of banking deposits.

Ironically, these very deposits would not even a year later serve as the basis for the complete collapse of the same "strong" banking system, and lay the groundwork for the upcoming endless depression that the citizen of Cyprus will be subjected to for many, many years.

Because in the New Normal, what was recently a blessing, becomes a curse (literally, when one factors the earlier statements by the Church of Cyprus) in a few short months.

The full quite enjoyable "Cyprus - A Reliable Financial Center" presentation, which we urge everyone stuck in a cognitive bias box to read:

more at the link: http://www.scribd.com/document_downl...d&source=embed

From Blessing To (Soon To Be Confiscated) Curse: When Cyprus' Massive Deposits Were A Great Thing | Zero Hedge

everything you see going on now is Trial Ballons by the Globalist Banksters to see what they can get away with

Cyprus bank bailout agreement is pure theft: 40% of private deposits to be looted from selected accounts

Monday, March 25, 2013
by Mike Adams, the Health Ranger
Editor of NaturalNews.com (See all articles...)

(NaturalNews) A brand new looting arrangement has been reached concerning Cypriot banks. It involves seizing the funds of all accounts over 100,000 euros, then stealing up to 40% of those funds sometime over the next few weeks, or whenever EU bureaucrats get around to deciding exactly how much to steal.

So instead of 10% being stolen from most accounts, as was originally proposed, the new deal is that 40% will be stolen from selected accounts, but not from accounts holding less than 100,000 euros. Why the 100,000 threshold for having your money stolen by the banking system? Because all EU bank accounts are insured up to 100,000 euros. So the banksters figured they could just steal anything over 100,000 and say, "Heh, it wasn't insured, your loss!"

IMF chief Christine Lagarde characterized the theft as "a lasting, durable and fully financed solution." And if that's not enough of a solution, they can always loot more private accounts to reach a new solution!

Sure, it's a great solution... if you're the banksters stealing all the money from private account holders. But from the point of view of depositors, this "solution" looks a lot more like a mugging.

Entire accounts seized indefinitely

It's actually worse than just the 40% being stolen from private accounts: all accounts over 100,000 euros are now indefinitely frozen (seized) until the banksters figure out exactly how much to steal. "Large deposits with Bank of Cyprus above the insured level will be frozen until it becomes clear whether or to what extent they will also be forced to take losses, the Eurogroup of finance ministers said in a statement." (USA Today)

Not everybody is fooled by all the bankster happy talk, of course. As Colm McCarthy writes on the Independent.ie website:

...the eurozone countries collectively do not have an actual deposit guarantee fund in place, and the volume of deposits in many eurozone countries, not just those already in financial distress, is large relative to the fiscal capacity of the state. Bank runs by retail depositors are a serious risk, particularly in those countries whose governments lack financial credibility.

And from Mats Persson of GulfNews.com:

The Eurozone set a risky precedent when it decided to go for depositors. Images of long queues outside ATMs will have registered in other parts of the Mediterranean. If Cypriot depositors are forced to pay today, why not Spaniards tomorrow? ...Events in Cyprus have shown just what a high-risk gamble the euro was... If you could design a system whereby a splinter could take down an elephant, this would be it.

No deposits are ever safe while the central banks are running things

The bottom line truth in all this is that no deposits are ever safe in any bank run by a government. Governments are inherently liars, and when it comes down to a crisis, it's always easier to just STEAL money from depositors and call it a "tax."

The business of banking, it seems, has largely become a business of theft. No wonder everybody's flocking to bitcoin, the decentralized crypto-currency that's not controlled by any government anywhere: www.weusecoins.com

That's also why the Natural News Store has just announced it is now accepting bitcoin currency as payment for orders. Anyone with bitcoins can now buy prepared foods, superfoods, organics, supplements and much more, directly from the Natural News Store.

Learn more: Cyprus bank bailout agreement is pure theft: 40% of private deposits to be looted from selected accounts