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The first part published over a year ago described the need for a central banker to point to his police power over banks rather than his printing power to inspire confidence.

Yesterday (March 19th, 2013), the eurozone gave Mr. Draghi authority to police eurozone banks which he can use sometime starting next year. So, that step has been achieved. However, banks everywhere received a severe challenge to the trust placed in them with the Cypriot debacle over the last week. While the Cyprus parliament rightly rejected the deal, the damage has been done. One can expect a run to occur as soon as the banks open.

Hopefully, adequate liquidity will be provided to satisfy the run. At this point it might be useful to satisfy the run with disbursements in cold hard PAPER cash up to the deposit insurance protection limit per depositor (EUR 100000). Too bad the ECB does not issue denominations above EUR 500 - satisfying the run would be a lot easier if they did. Denominations of about EUR 2000 would make this easy to deal with, and allow the depositor to walk out of the bank with less than 51 notes of a denomination that can be used for real life transactions of an individual, such as paying rent.

The next step the ECB would take is to RAISE interest rates to protect the euro against inevitable decline and to attract the cash that is heading under a mattress for a few years back into the banks.

Interestingly, the tax proposed by the Cypriots may been acceptable to its people if the tactics used had not made it feel like robbery rather than taxation. If provision had been made to satisfy a run by keeping the banks open and allowing people to withdraw their money from the banks in the form of cold hard cash prior to imposition of the tax, many people would simply have chosen to keep their money in their banks and treat the tax as a cost of keeping their money safe and liquid. Even the "Russian" depositors may have looked at it this way - especially if their costs of transmitting cash exceeded the tax. In fact, it could be made into a regular tax, which contributes to the stability and resiliency of the economy ("crisis resistant"), by encouraging people to keep a much larger amount of cash outside the banking system and out of view of confiscatory authority.

One is led to wonder how much of the current stagnation of the European economy can be ascribed to the reduction in confidence and "animal spirits" caused by European efforts to kowtow to U.S. "money laundering" laws that blackmail non-U.S. banks and governments into providing a view of transactions that did not take place in the United States. A currency whose value is revocable at will or that exposes the privacy of transactions is not one that inspires risk-taking or confidence.

With regard to one's own investment, it might be interesting to watch whether the ECB reacts to the situation along the above lines. If so, the euro should go on a tear and the dollar will be headed for a fall.

Disclosure: I am long GLD, SLV. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.