Major news hit the wires on Saturday March 16th. Cyprus, although a very small island in Southern Europe, is the next country to announce a bailout of its banks. European officials and the government in Cyprus worked out a deal in which depositors become part of the bailout: every depositor of a bank in Cyprus will be charged a "one-time fee" of either 6.75% (for deposit less than 100,000 euros) or 9.9% (for deposits exceeding 100,000 euros). Source: Reuters.
More facts related to this crucial event:
- The rescue package by the EU and IMF is worth 10 billion euros ($13 billion).
- The government stated that this bailout deal was a much better alternative than bankruptcy. Without this deal, the two largest banks would have gone bankrupt.
- The "one-time fee" of 6.75% or 9.9% on deposits will be swapped with bank shares of an equal value.
- The news triggered a massive run on ATM's on Saturday, which were out of money a couple of hours later.
- Obviously most citizens are angry and frustrated about the fact they do not have access to their savings. It has been reported by Reuters, BBC and other media outlets.
- This bank bailout deal should have been approved by the Parliament on Sunday March 17th, but it was announced this morning to be delayed to Monday March 18th.
So far the news. What follows is our analysis, which you will not find in the mainstream media. We see 5 important facts expressed in the Cypriot case.
On the highest level, what we are witnessing right now is something very simple yet not visible to most people. We are in a primary trend, and one that is deteriorating. As Einstein said, nothing in this universe is moving with a constant speed. It is the same in finance: nothing goes up in a straight line. Trends develop over time in a disorderly fashion. Until the full effect of a trend is clear, you need to detect them by their (early) signals.
(1) Confiscation is happening in broad daylight. The above mentioned news regarding Cyprus is an act of outright confiscation. No discussion about it. People need to hand in part of their savings to prevent the bankruptcy of their banks. Confiscation is more actual than ever before, and it has many faces. Inflation, which is constantly underreported by governments, has been around for decades and will continue to be an "invisible" form of confiscation. The trend towards more severe cases of confiscation has just become clear as well.
(2) Paper assets continue their value depreciation. Hard working citizens and savers are clearly victims of this act of confiscation. Savings will be robbed by 6.75% or even 9.9% and, in return, the savers will get shares of almost bankrupt banks. Here is an important question: who is not hurt by this act of confiscation? The answer: the very, very small minority of wise people who are holding their savings, not in paper based money but in physical assets that preserve purchasing power: primarily (but not only) gold (PHYS) and silver (PSLV).
(3) The debt crisis travels around the world in cycles. Every trend moves within cycles. The debt crisis is traveling from region to region across the world, from Europe to the US to Japan to China, and circles back. As time elapses between waves, the majority of people seem to forget the crisis, rendering the trend rather invisible until a very advanced stage.
Let's take Europe as an example. The European debt crisis created a huge panic in 2011 and 2012. Out of the blue, right before the summer of 2012, the political leaders stopped the bleeding by their interventions. Did they solve anything? No, they only gave a massive amount of painkillers to the economy and the media. The debt crisis moved on and made its next stop in Japan. Most Europeans think that the debt problem is somehow solved. The harsh reality for Europe is that every day is a day closer to the next wave, which will hit harder than the previous one. This applies to the West in general.
The so-called "one-time fee" on deposits in Cyprus is very likely to become a worse measure in the future. Within the current trend, it is as good as a fact that new, and more severe, measures will follow "for the good of the government and the banks."
(4) The banking and monetary system is fundamentally unsound. The banking crisis is a simple expression of the debt crisis, which is the fundamental problem. Although they are brought in an isolated way in the mainstream media, they are part of the same underlying problem: EXCESSIVE DEBTS. Let's look again at Cyprus. Although the debt to GDP ratio is about 70%, which is not at all top ranked in the world, additional debt is needed to prevent the bankruptcy of banks. The government is not able to take on these amounts themselves, so borrowing from the EU and IMF is required, deteriorating their debt situation.
The red line in this ongoing global debt crisis, although not directly visible to most, is that governments continue to take on additional debt. By doing so, they postpone a fundamental solution to the ailing financial and monetary system. The debt crisis takes a live on itself: the cause of the problem is used as a solution. Did you ever wonder why it is getting worse?
(5) The gold price has been a warning all of us for more than a decade. The previous four points we just mentioned are reflected in the price of gold in different currencies. You can ignore this powerful fact at your own peril. It does not matter if dollar and euro gold are in a prolonged phase of correction right now because those are short to mid-term trends. The primary trend is what matters.
One of the contributors of Gold Silver Worlds recently wrote: "Desperate times call for drastic measures." That will be the argument of governments [...] Private property rights will be suspended and the phase of outright confiscation will start. Governments in desperate need of financing will start to nationalize corporations, homes, farm land. [...]
Claudio Grass, managing director at Global Gold in Switzerland, recently stated in the article "Government and gold confiscation - tips to protect your assets": My advice to everyone is simple and clear: "Get out of the current financial system, avoid paper money and the banking system in general and move into physical precious metals." He continued: Confiscation is already here. If you keep your money in a bank account or "invest" it in bonds, you are actually losing money in real terms (i.e. after inflation). The decrease of your wealth basically results in an increase of the wealth of governments and banks. This is confiscation of the buying power by inflating the money supply.
Precious metals in physical form, outside the banking system, are the antidote against what is happening in the world today. Protect yourself, there is still some time to do it (before it is too late).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.