The news over the weekend is that the Cyprus banking system will have a “holiday” on Monday which was “scheduled” AND at least Tuesday which was not. The ECB and IMF wanted a 40% haircut to balances and apparently the deal reached is one where balances under 100,000 Euros will be reduced by 6.75% and by 9.9% for those over 100,000 Euros. Understand that much of what is deposited in Cyprus are funds from wealthy Russian oligarchs and mafia.
This is a disaster on so many levels I can’t even count them all. First off, what happened to the rule of law? I thought that in a capitalistic society that equity holders lose first, then preferred shareholders followed by unsecured then secured debtors… DEPOSITORS are the absolute last in line to lose money. This is being called a “tax.” It is not. It is outright theft! In this case the depositors are first in line which will surely cause a bank run in Cyprus… which will be followed by runs in other places like Greece, Spain, Italy and Portugal. Make no mistake, this could turn into something ugly and HUGE very quickly as the world runs entirely on confidence and won’t run without it.
My first thought was why? Why would the banksters promote a bank run which this surely will do over $10 billion or less? This is not even chump change and could be printed instantaneously with no cost. Are they “pulling the plug?” Has the tipping point arrived? Is this “payback” for the 20 tons of heroine that Russia seized a week ago? What is the possible upside to scaring depositors into withdrawing all of their funds? This cannot be a “mistake” where they are miscalculating the ramifications, no one is that stupid.
If I had to guess, this will end up where “currency blocks” are formed. The Euro may split into a north/south currency where Russia is included with the “hard money” Germans of the north. I can see 1 or 2 Asian currencies, a South American currency and a U.S./Mexico/Canada currency. Have the central banks who have been accumulating gold over the past years seen this “coming?” You bet they have which is why they been buyers!
This coming week will be extremely interesting to say the least. How fast will the bank runs spread? How far? And of most humor is that the hedge fund community is now the least long and most SHORT the gold market that they’ve been since at least 1999… Aug. to be exact, and we all know what happened then. I’ve read many comments where people believe that the precious metals will be smashed this coming week as they have been “trained” to do with dollars being the “safe haven” trade. I don’t think so; “this time is different.” In the past the dollar caught all of the safe haven trade… because the populace needed to be trained. You must understand that when everything IS under control, the “show” of dollar strength and gold weakness was doable. Whether the Cyprus situation is real, done by stupidity or “planned” doesn’t matter, REAL fear will be generated. …And with real fear will also bring with it REAL purchases of metal.
Investors (depositors) the world over will see this and shortly understand that the rule of law is no longer and that “possession” is now more than 9/10th’s of the law. The possibility exists that within 2 weeks the entire system is shuttered. No stock trading, no banking, no credit or ATM cards. With this will come “distribution” or lack of it and the shelves will be bare even if you do have dollar bills to spend. I am not being overly dramatic here, the possibility exists that this event sets off the forest fire. If it is not this it will be something else sooner or later as the mathematics of the current system do not and cannot balance out. I cannot believe that this is a “mistake,” only if you wanted to implode a system would something like depositors being defrauded occur. [the above was written Saturday late]
After pondering further on this situation, I find it extremely curious that gold has been boxed in for the last 5 months only leading up to THIS. THIS being a potential bank run that doesn’t need to happen here and now but apparently will. Everything possible has been done over the last 5 months to separate owners from their precious metals and to scare as many as possible away. Since the late 90’s, whenever “something bad” financially happened, gold would go down and the dollar would strengthen. It wasn’t “right” but it was the way it was. Now we have a different setup. Those who own gold now and have hung on will only have it parted from their dead, cold, hands. Everyone else has been scared away to the point that even hedge funds collectively are short and betting on the price to drop… at the same time that …along comes an event that has the possibility of tanking the global banking system. What I am saying here is that a huge move could be afoot and one that is “sanctioned.” Just my thoughts.
Could “Cyprus” be avoided? Yes, and it still can be easily with some $10 billion of confetti. IF it is not avoided? Then it is game on and “the wind” will be at the PM backs and those that fought so hard for so long to suppress the prices will be on the other side of the trade and “mark” prices to the moon! It is hard to tell now but a far better picture and clearer read on the situation will be available probably before “beer thirty” this coming Friday (maybe even far sooner). Those who stepped up over the past month or so and purchased gold or silver on the dips will probably be well rewarded in very short order!