The Age of Diktat Commences As EU Finance Ministers Place A Levy On Cyprus Bank Deposits …The Club Med Catastrophe Gets Worse, Much Worse

1)  … On Saturday March 16, 2013, Jesus Christ pivoted the world into the age of diktat as the  EU Finance Ministers placed a levy on Cyprus bank deposits.

Colossians 1:17 presents that God’s Son, Jesus Christ, is apart from any part of creation. The Son is before all things, that is He is eternal, while creation stands in time.  Furthermore, He being the only begotten of the Father, raises Him to a unique position above all that is due to His creative act.  He is the agent and tool of creation, as well as preserver thereof. It is His power that holds creation together.

And Ephesians 1:10, presents that Jesus Christ is God’s economic and political plan administrator; on Friday, February 15, 2013, He brought forth the fullness of Liberalism’s prosperity by producing peak sovereignty, and peak seigniorage, establishing peak prosperity, with World Stocks, VT, Nation Investment, EFA, and Global Industrial Producers, FXR, rallying to new highs, as Major Currencies, DBV, topped out and turned lower.

And on Saturday March 16, 2013,  Jesus Christ pivoted the world into the age of diktat, as the Euro Area Finance Ministers placed a levy on Cyprus bank deposits.  It is Jesus Christ who is at the helm of the economy of God, Ephesians 1:10.  He is now bringing forth New Dynamos (from the dynamos of corporate profit and global growth to the dynamos of regional security, stability and sustainability), a New Age, (from the age of investment choice to the age of diktat), New Economic Action (from inflationism to destructionism), a New Trust (from trust in bankers, carry trade investing and credit to trust in nannyrats, totalitarian collectivism, public private partnerships and debt servitude), a New Paradigm, (from liberalism to authoritarianism), a New Sovereignty, (from the Banker Regime of democratic nation states to the Beast Regime of regional governance), a New Seigniorage, (from the seigniorage of investment choice to the seigniorage of diktat), and a New Money System, (from the fiat money system to the diktat money system,)  as heralded in Revelation 1:1, as the Revelation of Jesus Christ, which will feature authoritarianism’s austerity.

While the Troika’s Greek Bailouts, I, II, and III, destroyed the national sovereignty of Greece, they had the effect of fracking the stratum of investments, for further investment gain.  In contrast, the EU Finance Ministers’ actions with the Cyprus banking deposits levy, to fund a unique bailin as well as a bailout of Cyprus to prevent its sovereign default and keep its banks open,  breaks apart the very bedrock of traditional governance, and shifts the global investment tectonic plates, stimulating currency deflation and stock investment derisking, making for a megashift, that is a total makeover of Planet Earth.

The EU Finance Ministers levy on Cyprus’ bank deposits introduces the diktat money system, where diktat, not choice, serves as currency, money, that is wealth, and power; the fiat money system has been relegated to the dustbin of history.

The Milton Friedman Free To Choose Floating Currency Regime, also known as the Banker Regime, is dissolving away, as the Beast Regime of Regionalism, Totalitarian Collectivism, and Debt Servitude, presented in Revelation 13:1-4. is clearly rising to rule the world.

The paradigm of liberalism commenced the age of investment choice in 1931, with nation investment coming of age, as the US rose in power when the Banker Regime inaugurated the fiat money system, a creature from Jekyll Island, with the provision of the Federal Reserve Act. The US started its rise to preeminence forming the second of two iron legs of global hegemonic power, the other being he existent British Empire.

The EU Finance Ministers levy on Cyprus bank deposits pivots the world from liberalism to authoritarianism and the world entered into the age of diktat.

Sovereignty provides seigniorage, that is moneyness. The sovereignty of the US as the world’s leading power has been eroded by the EU Finance Minister’s levy on bank accounts. And the sovereignty of the Beast Regime, consisting of regional governance in the world’s ten regions, and totalitarian collectivism and debt servitude in all of mankind’s seven institutions, is coalescing.

Said another way, the EU Finance Ministers diktat over Cyprus Banking established Eurozone regional governance as new sovereignty replacing the sovereignty of nations states, as well as dislocating the seigniorage, that is the moneyness, of Nation Investment, EFA, Small Cap Nation Investment, IFSM, and Global Industrial Production, FXR.

The seigniorage of diktat, that is the moneyness of diktat, is replacing the seigniorage of investment choice; depositors in Cyprus banks lost money on Saturday March 16, 2013, to the Beast Regime.

And in other news, Eurozone regional governance was greatly strengthened, and national sovereignty washed away in Spain as Mike Mish Shedlock reports EU Court strikes down Spain’s eviction law.

With the failure of national sovereignty, clearly the Beast Regime of Regional Governance. Totalitarian Collectivism and Debt Servitude, is replacing the Banker Regime of Floating Currencies and Nation Investment.

The world no longer operates on the Banker’s fiat money system, rather it operates on the Beast’s diktat money system, where diktat serves as currency, money, that is wealth, and power. The Milton Friedman Free To Choose Floating currency system is history, as the US Dollar is now rising, and is no longer serving as the International Reserve Currency.

2) … A timeline presentation of news reports provides the details of the world entering into the age of diktat, where a German, ECB, and EU Finance Minister led Eurozone Empire, is rising to be sovereign in Europe, as Cyprus is revealed as neither a sovereign nation state nor a solvent country: new sovereigns are rising in power in the EU defining a New Europe.

Bloomberg reports Cyprus bank deposits to be taxed in $13 billion bailout. Euro-area finance ministers agreed to an unprecedented tax on Cypriot bank deposits, as officials unveiled a 10 billion-euro ($13 billion) rescue plan for the country, the fifth since Europe’s debt crisis broke out in 2009. Cyprus will impose a levy of 6.75 percent on deposits of less than 100,000 euros,  the ceiling for European Union account insurance, and 9.9 percent above that. The measures will raise 5.8 billion euros, in addition to the emergency loans, Dutch Finance Minister Jeroen Dijsselbloem, who leads the group of euro-area ministers, told reporters early today after 10 hours of talks in Brussels. The International Monetary Fund may contribute to the package and junior bondholders may also be tapped in a so-called bail-in, the ministers’ statement said.  Officials have struggled to find an agreement that would rescue Cyprus, which accounts for just half of a percent of the euro region’s economy, without unsettling investors in larger countries and sparking a new round of market contagion. Finance Minister Michael Sarris said the plan was the “least onerous” of the options Cyprus faced to stay afloat.

Benson Te writes Tax on savers: Cyprus’ $13 billion bailout to be funded by taxing depositors in Cyprus, abetted by the IMF, increasingly desperate politicians will now tax depositors in order to bailout banksters. This is financial repression at its finest. This is monumental. Governments today have become more brazen. They are not content with imposing implicit taxation channeled through inflation, but now take on the recourse of outright confiscation of private property. With inflation, lost purchasing power means lesser quantity of goods or services to acquire. With taxation, people simply lose money and the attendant services derived from it. True, Cyprus maybe small, but this serves a trial balloon on what governments will resort to, as today’s crisis deepens or remains unresolved. Yet politicians forget that when you tax something you get less of it. Incipient signs of consternation may translate to potential bank runs, not limited to Cyprus but to crisis stricken Euro nations. Depositors from the PIIGs could express fear of the same policies that could be implemented on them.

Ansuya Harjani of CNBC asks Will Cyprus turn the tide for gold? Tom Price, global commodity analyst at UBS, however, believes the case for gold is rising with the new element of uncertainty the Cyprus bailout has cast in Europe. Euro zone finance ministers want Cypriots with deposits of over 100,000 euros ($128,950) to fork out 9.9 percent of their savings while those with less than a hundred thousand euros will be hit with a 6.75 percent levy in order to raise 5.8 billion euros, so that the country is eligible for an international bailout. Investors are concerned that taxing depositors will set a dangerous precedent for the euro zone and ultimately risk runs on regional banks. “One of the reasons gold has been coming off is that there has been a view that the risk in Europe was limited and most of their financial market issues were resolved – this Cypriot package highlights a new risk relating to the terms of the deal,” Price said. “This uncertainty could provide a brand new support for gold for days or even weeks,” he added. Price expects the precious metal to trade in a range of $1,600-$1,700 in the coming weeks.

Deepanshu Bagchee of CNBC reports Cyprus bailout disaster risks new euro crisis. Even as Cyprus’s President Nicos Anastasiades addressed the nation on Sunday night, saying savers would be compensated by shares in banks guaranteed by future natural gas revenues, he was said to be working to renegotiate terms of the highly criticized bailout deal. Over the weekend, analysts warned the decision by the euro zone to force bank depositors in Cyprus to contribute towards a bailout a first in the euro zone debt crisis could hurt other peripheral nations, the euro and the global stock market rally.

That warning appeared to be coming true as the Euro, FXE, tumbled on Monday, falling below $1.29 in Asia trade to its lowest level this year. Asian equity markets were also deeply in the red as jitters over the Cyprus bailout dealt risk appetite a blow. Read more in Cyprus bailout crisis slam brakes on risk on. In his televised address, Anastasiades said he had to accept a tax on bank deposits in return for international aid, or else the island would have faced bankruptcy. About 25 lawmakers from the communist-rooted AKEL party, the socialist EDEK and the Greens said they won’t vote for the tax in the 56-seat Cypriot parliament amid deep resentment over a move some called disastrous. If Parliament rejects the tax, that would put the entire aid package in jeopardy. The vote was initially set for Sunday but was postponed until Monday a national holiday in Cyprus. The announcement of the vote postponement set off an immediate scramble among top European financial officials. One lawmaker told The Associated Press that European Central Bank was pressuring Cypriot authorities to hold the vote without delay.

Bailout is a Disaster.  Still, the structure of the bailout shocked many, including Sharon Bowles, chair of the European parliament’s economic and monetary affairs committee, who called it a “disaster” for European Union rules and the single market. Euro zone finance ministers forced Cyprus’ savers to pay as much as 10 percent of their deposits towards a bailout of the country’s troubled banking sector, a move which is expected to raise 5.8 billion euros. In return, the country will get 10 billion euros ($13 billion) in assistance. The arrangement, structured as a bail-in, would give depositors shares in the banks in return for the levy. According to the Financial Times, Cypriot authorities were trying to shift more of the burden to deposits larger than 100,000 euros, and adding an additional bank holiday on Tuesday to prevent a run on the nation’s banks. Sebastien Galy, senior currency strategist at Societe Generale warned the levy could unleash a sell-off in the Euro, FXE, and the stock  and bond markets of peripheral nations on Monday. In Asia, equity markets took a beating, with stocks in Japan and Australian falling 2 percent.”This will probably go down as an ill thought-out rescue plan with consequences for peripheral Europe,” Galy wrote in a research note. “It breaks a cardinal rule, namely public trust on which money reliess. Some peripherals will suffer at the opening in Europe and [it will] hit the Euro, FXE.”  Doug Kass of Seabreeze Partners on Twitter predicted European stock markets, VGK,  could fall 3 to 4 percent on Monday, while the S&P 500, SPY, could fall 1.5 to 2 percent and Spanish and Italian 10-year yields could jump 15 basis points. “The news is a wake-up call to investors that the European sovereign debt issue is far from being resolved,” Kass said in a note. “When the dust has settled on this deal, which I hope it never does, we will see that the single market has been sold down the river for a shoddy price,” said the EU parliament’s Bowles.

Mike Mish Shedlock writes Cyprus rapes citizens with 6.75% to 9.9% tax on deposits.  The hot news out of Cyprus today is the direct confiscation of depositor’s money via an alleged tax on deposits of 6.75 percent on amounts less than 100,000 euros and 9.9 percent above that. The measures will raise 5.8 billion euros, Dutch Finance Minister Jeroen Dijsselbloem, who leads the group of euro-area ministers, told reporters early today after 10 hours of talks in Brussels. The euro region’s bailout kitty and, possibly, the International Monetary Fund will look to make up the shortfall. A partial “bail-in” of junior bondholders is also possible.  Funds to pay the levy were frozen in accounts immediately, ECB Executive Board Member Joerg Asmussen said.  Officials have struggled to find an agreement that would rescue Cyprus, which accounts for just half of a percent of the euro region’s economy, without unsettling investors in larger countries and sparking a new round of market contagion. Read that last paragraph carefully. Officials raped Cyprus citizens to avoid “unsettling investors in larger countries”. Here’s the deal. Large investors should have risk. The nannycrats and thugs in Europe still don’t see it this way and this is the most blatant example of theft yet, all in the name of preventing contagion.

Mike Mish Shedlock reports Cyprus details. UK to compensate troops and government workers. Chancellor George Osborne says the UK will compensate any British troops in Cyprus hit by plans to introduce a bank levy as part of a £9bn EU bailout. Greece exempt from haircuts. Ekathimerini reports The account haircut does not affect bank accounts in Cypriot bank branches based in Greece, per sources in the Greek Finance Ministry. German Finance Minister wanted 40% haircuts. Also from Ekathimerini,  Cyprus state broadcaster CyBC reported on Saturday that German Finance Minister actually entered the Eurogroup meeting on Friday proposing a 40 percent haircut on Cypriot bank accounts. Sarris stated on Saturday that this had also been the proposal of the IMF.

Mike Mish Shedlock writes Put a German Flag in Cyprus; Poker or Chicken? Cyprus Archbishop says Leave the Eurozone and readopt the Cyprus Pound. EU officials are now swarming over Cyprus threatening to cut off funds to Laiki , Cyprus’ second largest bank if the deal does not go through. Nonetheless, Cyprian politicians are balking because they know what will happen to those who go along with EU blackmail threats. Making matters difficult for President Nicos Anastasiades, the Cyprian government controls only 28 of 56 seats in the chamber and needs support and backing from two deputies of a small pro-European party. Today’s vote was postponed for one obvious reason. The votes are not there.

Cyprus President Nicos Anastasiades now states “depositors would be offered bank shares covering the full amount of their losses, while those who left their savings in banks for another two years would be rewarded with bonds backed by future income from exploiting Cyprus’s natural gas deposits.”  The Mish response is “Please be serious”. Bank shares are worthless, and if they are not, they should be and soon will be. As for leaving money in the bank for two more years, subject to still more confiscation at the whims of the EU, I also say “please be serious”.

Poker or Chicken? Some have likened events in Cyprus to the world’s largest game of poker. A game of “chicken” where one side has an unfair advantage is more like it. The Financial Times reports “The message, delivered by the ECB’s chief negotiator, Jörg Asmussen, meant that if no deal was reached, Laiki would collapse, probably bringing the island’s largest bank down with it, and saddling Nicosia with a €30bn bill to reimburse accounts covered by the country’s deposit guarantee scheme. It was money Nicosia did not have. All of the island’s account holders would be wiped out.” Apparently this is another one of those “offers you cannot refuse”. The ECB is willing to inflict €30 billion in damages on Cyprus to collect €5.8 billion from Cyprian citizens.

Put a German Flag in Cyprus. Here is an interesting quote courtesy of Google Translate: Put a German Flag in Cyprus. Russian President Vladimir Putin placed an angry call to Cyprus president Nikos Anastasiadis Sunday morning. The Putin reportedly said verbatim “Better to put the German flag at the Presidential Palace. Don’t you understand this decision will destroy your country?” Who will trust banks on Tuesday? Not sure if that story is validated but the quote seems reasonable enough.

Contagion-Begging Actions. What is someone in Greece, Spain, or Italy supposed to think? Consider Spain. By a 526 to 86 vote, the nannycrats in Brussels just passed a regulation that will require a country to accept a bailout if offered. (Please see An offer you cannot refuse; EU passes law forcing ountries to take bailout; Is Spain the first target?) And Reader Scott had this pertinent comment, “This has simply got to be ruinous for legitimate business in Cyprus; right off the bat every business in Cyprus is having part of its capital confiscated; governments may not understand this but a lot of people and businesses are on a razors edge; that $1000 rent payment may not withstand a $67.50 haircut; a monthly payroll of $100,000 might not be made if 10% of the businesses cash is seized.”

My friend Bernd who lives in Germany had these comment, “Judging by the German forums on Focus, Der Spiegel, SZ, FAZ and Die Zeit, there is hardly any support for this action. The name calling and swearing is rather blunt. These guys did not study their Machiavelli. He said roughly if you hurt people, you must never hurt all of them at once.” The closest Machiavelli quote I can find is “If you need to injure someone, do it in such a way that you do not have to fear their vengeance.”

“F” the EU. It will not stop here. There will be more demands and more haircuts. Staying in the eurozone cannot be worth the price. It is high time something be crammed straight down the throats of the EU and for that matter, straight down the throats of anyone in Cyprus parliament who votes for the imposed terms. I encourage 100% of Cyprus citizens to take every penny out of their banks the second the “bank holiday” ends. Justifiable vengeance is coming, in spades.

And Mike Mish Shedlock writes Merkel says “Cyprus is a special case” Is Spain the next “sepcial case”? Portugal? Merkel guarantees German deposits.  The pertinent question for today is “How many lies will people believe?” I ask that because a German government spokesman says The compulsory levy to pay the depositors in Cyprus, was a special case as Merkel guarantees German deposits for the first time since 2008. The compulsory levy to pay the depositors in Cyprus, is a “special case”, says the Chancellor. The real driver for this blatant theft is the re-election of Merkel. Heaven forbid Germany provide any more bailout funds lest German voters get upset and flock to “Alternative für Deutschland“ (AfD – Alternative for Germany), a political party founded by a group of anti-bailout, eurosceptic German professors, businessmen, economists and journalists. Merkel is willing to cram this “special case” down the throats of Cypriot citizens or her re-election bid in September may be in jeopardy.

Daily Silver New reports Why Russia’s Putin is pissed over IMF and Cyprus deal.

Charles Wyplosz of Social Europe writes The next blunder.  The Cyprus bailout package contains a tax on bank deposits. This column argues that the tax is a deeply dangerous policy that creates a new situation, more perilous than ever. It is a radical change that potentially undermines a perfectly reasonable deposit guarantee and the euro itself. Historians will one day explore the dark political motives behind this move. Meanwhile, we can only hope that the bad equilibrium that has just been created will not be chosen by anguished depositors in Spain and Italy.

The decision to tax all Cypriot bank deposits has attracted massive attention (Spiegel 2013) – and rightly so. It is a huge blunder:

  • In the unlikely event that all goes well, the government will receive a bit of cash – but not enough to cover the loan generously offered by its European partners – and the Cypriot banking system will be history.

  • The alternative is a massive bank crisis in many Eurozone countries – a huge blow to the euro, maybe even a fatal one.

Not an emergency measure. Policymakers have been debating the Cyprus bailout for nearly a year; this cannot be classified an ‘emergency action’. They engaged in a lively debate whether Cyprus is ‘systemic’ or not, the answer to which can only be ‘it depends’. It depends not on the size of Cypriot banks but on the way the Eurozone acts. They also debated the Russian deposits that apparently represent a sizeable proportion of bank liabilities. The debate turned around the issues of how dirty this money is and how to do the laundry. They also debated on the size of a possible loan to the Cypriot government. The government itself requested something to the tune of 100% of its GDP, why not? After all this amounts to 0.2% of Eurozone GDP.

Eurozone’s help: Suffocating solidarity. From what is known:

  • Cyprus will receive a loan of about half the requested size under the usual austerity conditions.

  • The gross public debt of Cyprus will rise from its current level of some 90% of GDP to about 140%, a level that is unsustainable and will eventually require some deep restructuring.

This debt trajectory is a forecast, of course, but well in line with experience.

The effects of this Eurozone austerity programme are now well known. Cyprus joins a distinguished list of countries that benefit from suffocating Eurozone solidarity (Wyplosz, 2011).

  • The programme will impose tough austerity;

  • Its public-debt-to-GDP ratio will grow because deficits will not go away and because GDP will decline.

  • There will the need for more loans as economic predictions will be found to be ‘disappointing’ over and over again.

  • Unemployment will skyrocket, spreading intense economic and social suffering.

Who knows, populist parties could well be on the rise, adding political drama to economic pain. This technology is now well oiled.

The bank deposit ‘confiscation’. What is new is that bank deposits will be ‘taxed’. The proper term is ‘confiscated’. Like everywhere in the EU, bank deposits in Cyprus are guaranteed up to €100,000. Depositors have arranged their wealth accordingly, only to be told that the guarantee has been changed ex post.

Taxing stocks is optimally time-inconsistent (Kydland and Prescott, 1977). It is a great way of raising money but it has deep incentive effects as it destroys property rights. What is at stake is the credibility of the bank deposit guarantee system throughout Europe.

The system was shaken in 2008 but in the opposite direction. Followed by all other countries, Ireland offered a full guarantee in a successful effort to stem an impending bank run. The cost to the government was such that it triggered a run on the public debt that led to the second bailout after the Greek ‘unique and exceptional’ one.

That move has now been recognised as a mistake, which may explain how Cyprus is now being treated.

The Eurozone’s ‘corralito’. Because it is time-inconsistent, the decision to tax deposits has been preceded by a freezing of bank deposits. This is remindful of the Argentinean corralito of 2001, which led to economic dislocation, immense suffering and such anger that two governments fell (Cavallo 2011). Hopefully, the Cypriot corralito will not last too long. The question is: how bank depositors will react in Cyprus and elsewhere? The short answer is that we don’t know but we can build scenarios:

  • The benign scenario is that depositors in Cypriot banks will accept the tax and keep their remaining money where it is. Depositors in other troubled countries will accept that Cyprus is special and remain unmoved.

  • A less benign scenario is that depositors in Cypriot banks come to fear another round of optimal, time-inconsistent levies. This is what theory predicts. After all, if policymakers found it optimal once, why not twice, or more?

Under the less benign scenario:

  • We will have a full-fledged bank run as soon as the corralito is lifted. Since bank assets amount to some 900% of GDP, there is no hope of any bailout by the Cypriot government.

  • Any new European loan would immediately translate into a run on the public debt.

Enter ECB, stage right. At this point in the scenario script, the ECB enters the play. Being the only lender of last resort, the ECB will have to decide what to do.

  • In principle, it could stabilise the situation at little cost as total Cypriot bank assets represent less than 0.2% of Eurozone GDP or 0.5% of the central bank’s own balance sheet.

  • But this would involve the risk that it could suffer losses – especially if the banks are badly resolved, i.e. the bankruptcies are badly handled.

This is not unlikely since the ECB does not control Cypriot bank resolution. Remember that the current version of the banking union explicitly leaves resolution authority in national hands. In Cyprus, as almost everywhere else, national authorities are deeply conflicted when it comes to their banking systems. Powerful special-interest groups become engaged when banks go bust and governments decide who pays the price. Thus, it is a good bet that Cyprus’s bank resolution will be deeply flawed. The risk to the ECB is real. Proper resolution under European control could have been part of the conditions for the loan just agreed. But this does not seem be the case. The omission most likely reflects a belief by policymakers that the Cyprus crisis has been solved successfully. The problem is that this belief is false: Cyprus’s predicament remains even under the benign scenario.

All the conditions for a total disaster are in place. The really worrisome scenario is that the Cypriot bailout becomes euro-systemic, in which case the collapse of the Cypriot economy will be a sideshow. This will happen when and if depositors in troubled countries, say Italy or Spain, take notice of how fellow depositors were treated in Cyprus.

All the ingredients of a self-fulfilling crisis are now in place:

  • It will be individually rational to withdraw deposits from local banks to avoid the remote probability of a confiscatory tax.

  • As depositors learn what others do and proceed to withdraw funds, a bank run will occur.

  • The banking system will collapse, requiring a Cyprus-style programme that will tax whatever is left in deposits, thus justifying the withdrawals.

This would probably be the end of the euro.

Conclusions. The likelihoods of these three scenarios – benign, less benign, and total disaster – are difficult to assess.

  • What is clear is that the Cyprus bailout has created a new situation, more perilous than before.

  • Once more a deeply dangerous policy action is decided apparently without any awareness of its unintended consequences.

It is also another violation of sound existing arrangements. We have a no-bailout clause in the Maastricht Treaty – a clause that was essential to the Eurozone’s stability. Putting it aside in the case of Greece was the heart of the today’s problem – the reason the crisis spread (Wyplosz 2010). This no-bailout clause has once again been put aside summarily. We are now witnessing another radical change as a perfectly reasonable deposit guarantee is being undermined. Historians will one day explore the dark political motives behind this move. Meanwhile, we can only hope that the bad equilibrium that has just been created will not be chosen by anguished depositors.

References Cavallo, Domingo (2011). “Looking at Greece in the Argentinean mirror”, VoxEU, 15 July.

Kydland, F E and E C Prescott (1977), “Rules Rather than Discretion: The Inconsistency of Optimal Plans”, Journal of Political Economy 85(3): 473-491.

Spiegel, Peter (2013). “Cyprus depositors’ fate sealed in Berlin”, FT.com, March 17 6:23 pm.

Wyplosz, Charles (2010). “And now? A dark scenario”, VoxEU.org, 3 May.

Wyplosz, Charles (2011). “The R word”, VoxEU.org, 29 April.

Yanis Varoufakis writes Cyprus’ Stability Levy: Another sad euphemism They called it a ‘stability levy’, when they meant a tax on Cypriot depositors (including the savings of poor widows and small children) so that they spare holders of Cypriot government bonds (including hedge funds who are now having a party in Mayfair and New York) as well as minimise potential long-term losses by the European taxpayers. In effect, faced with the prospect of lending to Cyprus a sum equal to its GDP, so as to bail out its banks Ireland-style, the Eurozone balked. They realised, post-Greece and post-Ireland, that something has to give (beyond the minimum working conditions and social welfare provisions of common folk) in order to minimise the size of the aggregate loan. And they chose to hit depositors directly (at a rate of 9.9% if their deposits exceed 100 thousand euros and 6.75% for smaller deposits) before the oncoming austerity-driven plague eats into them instead (as it did in Greece, Ireland and Portugal were savings were used up by stressed household in the daily struggle to survive after jobs and benefits disappeared).

The LastGreek writes in comment, Until this weekend I had never heard of the term “bail in.” I am familiar with the term “sleep in.”  Yani, as silly as “stability levy” sounds, why do you call it a “tax” when it is nothing more than a confiscation (for those accounts < 100K euro)  a theft? Moreover, is there not some sort of quid pro quo where the penalized account holders in exchange for the “stability levy” get some (illiquid/bs) bank shares? Europeans when they deposit their money in banks do so with the knowledge that each account is insured up to 100k euro. Now, I am not just thinking of a bank run on Cypriot banks when their bank holidays are over. No, I am thinking about bank runs across the eurozone (especially in the PIIGS). Why? Because the lesson I take from this (aside from the obvious that governments lie all the time, as did the Cypriot government going back on its wordon this) is that money in the hand is worth more than money in the bank. So much for the expression “as good as money in the bank,” eh?  I have a soft spot for Cyprus. Then again, I have a soft spot for all countries (and lands) under illegal, military occupation, you know, like Palestine. Cyprus is like a mini Switzerland, they export mainly financial services. What else can they do? 40% of the island of Aphrodite, the most beautiful and richest part, is under Turkish occupation.

Photoroobit writes in comment The so called “Russian money” came to Cyprus solely because it was promised, guaranteed in fact, that Cyprus will remain a money heaven. If that were not the case, the money would have gone elsewhere – to Belize and Singapore, there are quite many places this money could have been parked. Common people in Russia do not want to bail out Cyprus and are rejoicing at the news of upcoming confiscation because as they see this is money stolen by politicians and Soviet management classes that usurped power in the country and is stealing its natural wealth. Also the ruling junta in Moscow is only motivated by personal enrichment of its members, not by strategic considerations, otherwise bailing out or perhaps buying Cyprus makes a great deal of sense. If the tax is imposed, the owners of large offshore accounts would probably move to other jurisdictions, which in turn means that Cyprus would lose probably its entire banking system (would lose 50 billion to get 10). One cannot have a united and equitable Europe based on notions of a centralized empire, unelected and unaccountable governance, taxation of the poor and arbitrary confiscation.

Alfredo writes in comment The UE was a mistake. Getting in, was easy. Now how do you get out? People want out, but are afraid to lose money going back to lira. Germany is hitting the tempo, the others dance. This is a german lander union, not european union.

Felix Salmon of Reuters reports The Cyprus Precedent.  I stuck my neck out in January, saying that Cyprus was “certain” to default. After all, the Europeans weren’t willing to come up with the €17 billion needed to bail the country out, and EU economics commissioner Olli Rehn told the WSJ’s Stephen Fidler that Cyprus would have to restructure its debt. But now the bailout has arrived, and — in something of a shocker — there’s no default. Instead, €5.8 billion of the bailout is going to come directly from depositors in Cyprus’s banks, in the form of what the EU is calling an “upfront one-off stability levy”.

Don’t for a minute believe that this decision is part of some deeply-considered long-term strategy which was worked out in constructive consultations between the EU, the IMF, and the new Cypriot government. Instead, it’s a last-resort desperation move, born of an unholy combination of procrastination, blackmail, and sleep-deprived gamesmanship.

The details aren’t entirely clear yet: we’re told that deposits of more than €100,000 are going to have to pay a tax of 9.9%, for instance, but it’s not obvious whether that applies to all of the large deposit or just to the amount over €100,000. And there’s still a real chance that the Cypriot parliament could scupper the whole deal. But for the time being, everybody’s going on the assumption that the deal will go through, that Cyprus will get its €10 billion bailout from the EU, and that everybody with a Cypriot bank account in Cyprus (a group which includes members of the UK military) will see their accounts taxed by at least 6.75%.

In January, I said this wouldn’t happen:

The last thing that Cyprus or any other country needs is a bank run, which will leave the national balance sheet in the classic pinch where “on the left, nothing’s right, and on the right, nothing’s left”. What’s more, in many ways the precedent of forcing depositors to take a haircut would be even more damaging than the precedent of imposing a haircut on Greek bondholders: at that point there would be really no reason at all to have deposits in any Mediterranean country.

It might seem a little bit like shutting the stable door after the horse has bolted, but the lines in front of broken ATMs certainly suggest that there will indeed be a substantial bank run out of Cypriot banks when they reopen on Tuesday morning. (Cyprus’s loss, here, is likely to be Latvia’s gain.) Cyprus has been relying up until now on its status as an offshore financial center, especially for Russians. That has bloated its banks with deposits, and if the deposit bubble bursts, the government has no money at all to bail out the banks. Cyprus’s president, Nicos Anastasiades, said today that he was forced to choose this path because the only alternative was the collapse of Cyprus’s two major banks, with “catastrophic” consequences. What he didn’t say is that those banks aren’t remotely safe yet — not with the prospect of a massive bank run hanging over their heads.

And of course it’s not only Cyprus where a bank run is a very real fear. If bank deposits can be seized in Cyprus, they can be seized in other EU countries as well. Ed Conway has a fantastic post explaining exactly why this is a horrible idea:

Given that this policy was not merely rubber-stamped but engineered by Eurozone finance ministers and the IMF (indeed, the IMF wanted an even deeper cut of deposits), it sends a disquieting message to anyone with deposits in a euro area bank. Although the ministers were quick to insist that this is a one-off and is “exceptional”, anyone even vaguely acquainted with the initial Greek bail-outs will remember precisely how long such exceptions last.

“The best the rest of the world can hope for,” says Neil Irwin, “is that Cyprus’s case is sufficiently unique that it won’t spark panic in Athens and Madrid (or in Lisbon, Dublin and Rome).” But his post is headlined “Why today’s Cyprus bailout could be the start of the next financial crisis”, which gives a reasonably good idea of how optimistic he is that any bank run in Cyprus will be contained.

And Europe won’t be home dry even if depositors in Portugal do decide to keep their money in their home country on Monday morning. That might make this bailout look like a brilliant wheeze. But the consequences of this choice are permanent: countries like Ireland and Portugal might not be at risk of a deposit tax right now, but they’re still getting bailed out on a continuous basis, and the more fraught the bailout negotiations become, the more likely it is that the EU will insist on bailing in depositors. It’s an option on the table, now, and as a result a deposit run is surely more likely to happen whenever a Eurozone country finds itself in need of a bailout. Which, of course, is always the worst possible time for a bank run.

From a drily technocratic perspective, this move can be seen as simply being part of a standard Euro-austerity program: the EU wants tax hikes and spending cuts, and this is a kind of tax: “a one-off wealth tax”, as Matt Yglesias puts it. Other taxes would raise less money, or if they didn’t they would be more harmful to the Cypriot population, since much of this one is going to be paid by Russians. Cypriots are sadly going to have to pay somehow, and although this is an unpleasant way of forcing them to do that, it’s also extremely effective and almost impossible to replicate by any other means.

But there’s something sacred about bank deposits, and especially about insured bank deposits. The one part of this scheme that no one is defending is the 6.75% tax on deposits less than €100,000 — the level to which Cyprus guarantees all deposits. As Nick Malkoutzis puts it,

Anastasiades also has to explain to Cypriots why small-time depositors have to pay a similar levy to the one some eurozone countries supposedly demanded so alleged Russian oligarchs would be forced to pay for bailing out the island’s banking system. Furthermore, he has to inform them why the Cypriot government’s pledge to guarantee deposits up to 100,000 euros – supposedly even in the most extreme circumstances – is not even worth the paper it was written on.

What we’re seeing here is the Cypriot government being forced to break one of its most important promises — the promise that if you put your money in the bank, and your deposits total less than €100,000, then they will be safe. What’s more, there’s no good reason for insured deposits to be hit in this manner: the same amount of money could be raised just by taxing the uninsured deposits at a slightly higher rate. The insured depositors are being hit, it seems, just so that the uninsured depositors can be taxed at single-digit rather than at a double-digit rate.

Meanwhile, people who deserve to lose money here, won’t. If you lent money to Cyprus’s banks by buying their debt rather than by depositing money, you will suffer no losses at all. And if you lent money to the insolvent Cypriot government, then you too will be paid off at 100 cents on the euro.

This is more by accident than by design. As Joseph Cotterill explains, Europe dragged its feet on Cyprus for so long that it effectively missed the deadline for doing a bond restructuring. It takes time to put that kind of a deal together, and there simply isn’t enough time between now and Cyprus’s next big coupon payment to do that. As a result, the EU found itself with a massively reduced menu of options: either fund the bailout itself, in full — an option which the Germans were adamant would never happen — or force a haircut on Cyprus’s depositors. Given the balance of power in the Eurozone, it comes as no surprise that in this battle, Germany won and Cyprus lost.

They won dirty, too: by forcing a tough all-night negotiating session in which Anastasiades was given what you might call an offer he couldn’t refuse. Either confiscate deposits wholesale, or see those deposits rendered even more worthless when the ECB cuts off its funding to Cypriot banks, a decision which would — through devaluation and insolvency — lead to depositors losing as much as 60% of their money.

The big winner here is the ECB, which has extended a lot of credit to dubiously-solvent Cypriot banks and which is taking no losses at all. And although they might wake up bruised, the big Russian depositors are probably winners too, given that they risked losing everything and will end up losing just 10%. Finally, of course, there are all the hedge funds who have been betting that the Cypriot government won’t default: they’re all popping Champagne right now.

The big loser are working-class Cypriots, whose elected government has proved powerless in the face of decisions driven by Germany, and who are now edging towards fury. The Eurozone has always had a democratic deficit: monetary union was imposed by the elite on unthankful and unwilling citizens. Now the citizens are revolting: just look at Beppe Grillo. Across the continent, they’ve lost their democratic right to determine their own fate at the ballot box, and instead they’re being instructed what to do by Germans. Now, in Cyprus, they’re simply and directly losing their money.

Someone with €8,000 of life savings in the bank can ill afford to lose an arbitrary €540, but that’s exactly what is going to happen. The Cypriot parliament is probably not going to revolt this weekend, but any politician who votes for this bill is going to have a very, very hard time getting re-elected. This decision is important not only because of the precedent it sets with regard to bank depositors, but also because of the way in which it points up just how powerless all the Mediterranean countries (plus Ireland) have become. More than ever before, it’s Germany’s Europe. That’s bad for Cyprus, and it’s not even particularly good for Germany.

3) … Volatility rose and world stocks sold off slightly, led lower by the National Bank of Greece, as well as Greece.

On Monday, March 18, 2013, Volatility, ^VIX, rose as World Stocks, VT, traded 0.3% lower. Nation Investment, EFA, -0.8% and Small Cap Nation Investment, IFSM, -0.5%. Emerging Markets, EEM, -1.1, as China continued lower, YAO -1.2, ECNS, 0-.9, CHII, -4.1, CHIX, -1.4, and CHIM, -2.5. Other country fallers included the following

RSX -2.4, ERUS -2.6

EWH -1.3

EWD, -1.2 with ERIC -3.6

EWA -1.2

EPHE -1.9

EPOL -1.7

EFNL -1.6

EWN -1.4

GREK -3.1

EWP -2.0

EWG -1.6

EWI -1.4

Banks traded lower as follows; the world has passed through Peak Banking, as the European Financial, EUFN, and the Too Big To Fail Banks, RWW such as JPM, and C, are now trading lower.

IXG -1.2

EMFN -1.8

EUFN -1.6,, NBG, SAN, DB

CHIX -1.4

RWW -1.2

KRE -1.0

UK Banks, BCS, RBS,

Swiss Banks, CS, UBS

Major ETFs, seen in this Finviz Screener traded lower.

TAN -2.4 and FAN -0.9

IEZ -2.2 and OIH -2.2

COPX -1.5

PSP -1.1

IYC -1.0

Of note, the Russell 2000, IWM, was the Index loss leader of the day, trading 0.56% lower; this as a result of the Regional Banks, KRE, trading lower; with FITB being a high volume loss leader.  Last week Maxwell Fisher wrote Cincinnati based Fifth Third Bancorp has a well earned reputation as a conservative, well run institution. Despite having much of its asset base in two of the states (Michigan and Florida) most devastated in last decade’s recession, Fifth Third has only been unprofitable one year in the last twenty, in 2008. In contrast, 2012 proved that the roughly $120 billion asset bank is back to its pre-recession levels.

Commodities traded 0.5% lower, with base metals, DBB, Agricultural Commodities, JJA, CANE, JO, trading lower, and Gold, GLD, and Silver, SLV, trading higher.

The Euro, FXE, traded 0.8% lower and Emerging Market Currencies, CEW, traded 0.4% lower, as the US Dollar, $USD, traded 0.7% higher to 82.68.

Reuters reports a massive boondoggle at the end of the age of credit California officials OK $8.6 bln in debt for high-speed rail. California officials approved on Monday the sale of up to $8.6 billion in state bonds to help build a planned high-speed rail system projected to cost $68 billion.

4) …. Summary

The news reports highlight a widening Nordic Latin European Divide, and suggest that a German, ECB, and EU Finance Minister led Eurozone Empire, is rising to power in Europe, as Cyprus is revealed as neither a sovereign nation state nor a solvent country. This is a fulfillment of bible prophecy of the rise of regional governance, totalitarian collectivism, and debt servitude, to replace the  democratic nation states in the Mediterranean Sea, Revelation 13:1-4.  Such news witnesses the economic and political coup d’etat accomplished by the First Horseman of the Apocalypse, the Rider on the white horse, who has a bow but no arrows, effecting the transfer of sovereignty from sovereign nations to sovereign regional bodies, such as the EU finance ministers, and the ECB, Revelation 6:1-2.

It has been God’s plan from eternity past to produce a series of empires, these being presented in Nebuchadnezzar’s Statue of Empires, Daniel 2:25-45. Today we are seeing the dissolution of the global hegemony of the US, which is economic, political and banking in nature, and the rise of a Ten Toed Kingdom of Regional Governance, where the toes are a miry mixture of iron diktat and clay democracy.

Germans cannot be Greeks; but most assuredly they will be one, living together in a debt union and gulag of debt servitude, with the periphery profligate countries of Portugal, Italy, Ireland, Greece, and Spain, existing as hollow economic moons revolving about planet Germany, which will rise to be a type of fierce revived Roman Empire, out of which will come the Little Horn, that is the one seeming little authority, who will rise in power through Authoritarianism’s schemes, such as regional framework agreements, Daniel 7:7.  He will be the Sovereign world leader, Revelation 13:5-10, and will be accompanied by the Seignior, that is the top dog banker who takes a cut, Revelation 13:11-18. This Eurozone King, the Prince of the People, will set up his global rule in Jerusalem, and govern the world for three and one half years, that is during the time period known as The Great Tribulation, Daniel 9:25

It is Jesus Christ who is at the helm of the economy of God, Ephesians 1:10.

He vigorously worked the money printing presses at the US Federal Reserve, the ECB, the PBOC, and the BoJ, producing peak sovereignty and peak seigniorage, and strongly leveraged up carry trade investing such as the EUR/JPY, and bubbled up the most toxic of debt, such as that held by JPMorgan, JPM, and traded by the Distressed Investments in Fidelity Investments, FAGIX, mutual fund; all of which established the fullness of liberalism’s prosperity on March 15, 2013, as world stocks, VT, peaked out, and as major world currencies, DBV, traded lower.

He is now bringing forth a New Age, (from the age of investment choice to the age of diktat), New Economic Action (from inflationism to destructionism), New Dynamos (from the dynamos of corporate profit and global growth to the dynamos of regional security, stability and sustainability), a New Trust (from trust in bankers, carry trade investing and credit to trust in nannyrats, totalitarian collectivism, public private partnerships and debt servitude), a New Paradigm, (from liberalism to authoritarianism), a New Sovereignty, (from the Banker Regime of democratic nation states to the Beast Regime of regional governance), a New Seigniorage, (from the seigniorage of investment choice to the seigniorage of diktat),  a New Economy (from crony capitalism and European socialism, and Greek socialism, to fascist regionalism), and a New Money System, (from the fiat money system to the diktat money system),  as heralded in Revelation 1:1, which is best described in total as The Revelation of Jesus Christ, which will feature authoritarianism’s austerity.

One Response to “The Age of Diktat Commences As EU Finance Ministers Place A Levy On Cyprus Bank Deposits …The Club Med Catastrophe Gets Worse, Much Worse”

  1. Larry Gold Says:

    Hi – Larry Gold here of Daily Silver News. Thank you for linking to my article. I think it is important to spread the word on world economics and politics, and I appreciate the topics you discuss in your blog. You have an excellent writing style – I would love for you to guest author on Daily Silver News.

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