Cyprus is a small island in the northeastern Mediterranean. An ancient center of Greek settlement, Turkey invaded it July 20, 1974 and since that August has ruled 38% of it. The events that portend big changes for all of us relate to the southwestern Greek part of the island, a major banking center that invested heavily in Greek real estate and lost.
The "troika" (ECB, EU and IMF) demand that Cypriots pay to have their banks made whole. The government decreed a tax on all accounts and a 3-day "bank holiday" (closure). This has been extended to next Tuesday March 26 at least. The structure of the tax and who will re-capitalize Cypriot banks is the subject of fierce discussion. Which currencies and power blocs emerge as winners will impact precious metals and the shape of the new monetary order. Examining the situation in Cyprus will help you make better decisions on investment, allocation and asset classes. Things are getting stormy.
To review: overnight last Friday-Saturday the government of Cyprus announced that it was going to tax, i.e. seize 6.75% of all bank accounts less than EU 100k and 9.99% of larger accounts. After outrage from Cypriots, by Tuesday the government had changed its plan to a 3% tax on deposits below EU 100k, 6.75% on those 100-500k and 15% on larger accounts. The plan continues to be changed and now exempts accounts less than E 20k but it is the principle that is vital. Eurasia is in turmoil.
This precedent, perhaps a trial-balloon for larger nations is greatly disturbing in itself. The National Health Mandate shows how governments can decree taxes on anything and compel citizens to buy services. When DC changed standards for calculating CPI to cut COLA adjustments to Social Security it was similar theft. But more is at play in Cyprus. Comments by major figures in European finance and politics recall the pressures on Czechoslovakia to surrender to Hitler in 1938.
Estimates are that deposits in Cyprian banks are 25% Russian, totaling about $25 B. There long have been stories in Anglo-American and, more recently German media about Russians using Cyprian banks to launder money for re-investment elsewhere. In January, when Cyprus' Finance Minister announced that his nation needed EU 17.5 B to save its banks, Wolfgang Schaeuble, Finance Minister of Germany that in effect would fund much of the bailout replied, "Cyprus needs to play by the rules we have on money laundering in Europe, sign the same rule book." He added that "Russia needs to tighten its financial market rules that have fostered money laundering." German Chancellor Angela Merkel has an election in the fall and bailing out Russian "mafia" would not sit well with the people who have been stuck with funding the Euro experiment. The opposition Social Democrats already are blaming her for fascist-type stealing from the people. Trying to find the middle, Merkel now tries to sound firmly flexible, saying "Cyprus is our partner in the Euro area and that is why it is our duty to find a solution together." The Euro-experiment in regionalization hits reality again. The Germans are sunk in the continent again. Having faced about, Cypriot politicians now term the deal "blackmail" while Schaeuble warns against "irrational, irresponsible solutions to the crisis."
Here's a joker: Europe gets 36% of its natural gas and much of its oil from Russia. Gazprom, the Russian natural gas giant has offered a $2.5 B loan to tide Cyprus over. The offer has risen to $5B. Russia has offered to float Cypriot banks indefinitely for rights to its large offshore natural gas fields. An article in the Telegraph commented, "Imagine waking up to find that your money is safe but Gazprom owns your nation's debt" adding in a sub-head "Merkel may be playing into Russia's hands." Cypriots, Greeks who lived in the former Soviet Union and some Western journalists have noted that Russian money came to Cyprus not only because it was dirty but to avoid taxation. A lot of it already has been moved and not to the Euro zone. Chrysta Eliades, 58, a British-born Cypriot and a retired businessman with close ties to the Russian community, said investors from Russia who were generally opposed to Mr. Putin's government
"moved their money out days ago and are going to leave the Euro zone altogether. And where are they going to go? To a non-Euro zone country, this means the UK."
England's long imperial rivalry with Russia brims with intriguing mutual interests. An example related to the bail-out / Gazprom link is TNK-BP, Russia's third largest energy company and one of the top ten energy companies in the world. It is owned 50-50% by BP and the AAR, a "consortium of Russian businessmen" and was formed by the merger of BP's Russian holdings with Russian properties.
English Banks, economy and currency are in bad shape. GDP is negative and its debt, constantly rising was downgraded by Moody's to Aa1. The brightest comment the Economist could muster about England's fiscal situation is that "England is not the only country with problems." It would help if Britain could juice its banks with a few Billion pounds made in Russia and a steady influx of Russian oil money. A British journalist put it bluntly, "Why not just make the Russians bleed. If, as widely suspected, it's largely mobster money, would anyone care apart from the Russians themselves? As for where the Russians then put their dodgy money, well, there's always London." Yes, there's always London where the twice daily "gold fix" is currently being investigated. A change in business as usual in the fix could be very constructive for precious metals.
Re Cyprus, the focus of these major events, President Putin's advisor Sergei Glazynov commented March 20 that "Cyprus should be under Russian jurisdiction" if it wants Russia to bail it out. Putin wants control of the monies Russian businesses are offshoring. This is part of a world wide government agenda to control all wealth.
"Cyprus should have requested a loan from the Eurasian Economic Community" Glazynov added in a swipe at EU power. The currency wars are intimately conjoined with geopolitics, economic health, market behavior and military might.
Russia is a major buyer of gold. Britain is the base of the fiat bloc and pioneered geopolitical attrition and management. Russia considers the NATO attack on Libya and Syria and the installation there and in Egypt of the British-formed Muslim Brotherhood to be a diplomatic-military-financial attack on its share of the global pie. Currency-power wars wear many guises. Events in Cyprus are bullish for the $ and for precious metals as action Monday and Tuesday indicated. The Russians don't want to bleed for England or Germany or to kowtow to fiat currencies. The Germans know this. The Euro is slipping against the dollar. Events in Cyprus are bullish for both the $ and precious metals. England and perhaps America have set the EU-Germany against Russia, another chapter in a long story that began with the Treaty of Rapallo in 1922. The story keeps unfolding.
Dennis Gartman commented on the big power game in Cyprus:
"One does not steal Russian mafia money and get away with it…Russian Mafia figures do not take well to being stolen from, and they take even less well to be made fools of. People will be hurt over this decision; some shall be killed."
As noted, major power-money-resource wars are being waged. These are the fearful "formless wars" Spengler foresaw as basic to "the era of world peace." It is the age of the new Caesars with their often ambiguous relation to governments. Russia may have set up Cyprus to take a hit for its tax policies and diverse money transfers.
"Most of the Cyprus bank deposit tax is assumed in Berlin, London and Washington to be extracted from Russian bank deposits in Cyprus banks. This is one of the biggest attacks on Russian financial interests since the US and the NATO alliance went to war in Libya, killing Russian arms supply charges, infrastructure contracts, and past-due state debt." Other messages were sent as well, e.g. that everyone, even ambassadors are expendable in this power lust.
It should be noted that since its 1840s forays into Afghanistan and Egypt and the ensuing Crimean War, Britain (followed in recent decades by America) aligns with Turkey against Russia while Russia sides with Cyprus, the Balkan nations and more recently, to twit the Anglo-American axis, with Iran, Syria and briefly in Egypt till America made it into a "partner for peace" and a linchpin of its proxy bloc. Cyprus has been a key British military base since WW I.
President Putin made himself heard in a phone call 1-29-13 to Pres Cristofias of Cyprus. As quoted in Business Insider and in the Greek press link here (scroll down for the gist). Mr. Cristofias recalled:
"President Putin assured me that the Russian Federation is ready to contribute, with the EU, in the financing of Cyprus. It is natural that the Russian Federation is interested in Cyprus being financed from the EU as well, as it [Cyprus] is a member of the Union. The Finance Ministry of the Russian Federation is in contact with the European Commission and I hope that there will be a positive outcome on this issue soon… this helping hand will save Cyprus." Then came the tax, the storm, the back tracking and jousting. As often and as Orwell described, Germany is being pulled between Oceania and the Russian - Eurasian blocs. Pay attention: behind the curtains it works like this on us, too.
A Russian expat in Cyprus told the Telegraph, "If Russian people take back their money it will be a great problem for Cyprus. Cyprus with Russian money can get more profit than with the EU. I think they want to drive Russian money out of Cyprus and into other countries in the EU, because it's a great deal of money. "Dario Perkins, an analyst at Lombard Street Research emphasized this angle, telling AP that "the German government couldn't be seen bailing out Russian Mafiosi" in the run-up to a forthcoming general election in Germany. It is like the witches' brew in Macbeth: "fair is foul and foul is fair..." It is a realm of ambiguity, betrayal and war.
I have written about the sound and sensible plan of OMFIF (Official Monetary and Financial Institution Forum) for a new international reserve consisting of BRICS currencies, dollars and gold. OMFIF's offices are in London and South Africa and India are members of the British Commonwealth. Some would add America to the club. So the emerging monetary order is a synthesis of the three major blocks forever grinding their gears for example in Mongolia. Alas, the managers of the system seem to take a giddy delight in turbulence. Cyprus is a tiny economy but the stakes wagered are global in scope and go to the heart of the anarchic power lust of those steering the mad joy ride that is like a game of chicken. After all, the Russian and English intelligence services have been incestuously mixed since the 1920s. In the 1940s their menage expanded to include American and German services. Their couplings reflect the agenda of bankers, diplomats, NGOs and in due course the poor suffering soldiers and citizens of their nations and those in the way of their eugenicist agenda for facilitated management of generic human inventory. In this game, reason yields to the giddy thrills of anarchy. ECB chief negotiator Joerg Asmussen is talking tough to Cypriots. Volcanic pressures are building.
There is going to be significant market turbulence. Do not sell bonds now and take some profits. We are entering a strange twilight period that should be bullish for both $s and gold with gold gaining as the new currency system is put messily in place. After a stumble, American markets should go higher for awhile. The miners remain grotesquely undervalued, especially silver (First Majestic (NYSE:AG) and Silver Wheaton (NYSE:SLW) should be thriving) but for reasons I have indicated previously are unlikely to rise as expected. Still, the under valuation is so extreme that metal miner ETFs (GDXJ, SIL) should rise. Natural resource ETFs ((NYSEARCA:MOO), (NYSEARCA:CUT)), energy stocks that boost dividends like Vanguard Resources (NASDAQ:VNR), consumer staples (VDC, XLP), health care (NYSEARCA:XLV) and pharma (NYSEARCA:XPH) which are conjoined to the government-insurance cartel should do well. The Age of Aquarius is an era of sterility and attrition, of opacity in governance and of humans transparently exposed. Understand it and survive it.
In a speech he gave near the end of his life, Aldous Huxley (1894-1963), author of Brave New World (1931) noted that the directors of the emerging world order would use technology and psychology to condition and manage the human herds they ruled. But he added, "they will themselves remain undomesticated" and "in the end, they will run wild." We see this in markets divorced from economic and demographic realities, in fiat creation of fictive credit and we see it in the geopolitical-fiscal games of the new Caesars who initiate hi-tech feudalism. If one cannot serve government, one needs to get out of its way and thrive at the edges of the tilt. The situation in Cyprus shows us the future to which its crisis is a path.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in AG, SIL over the next 72 hours. 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.