Why Cyprus Matters to Investors

Why Cyprus Matters

Could Politicians Loot
Your Life Savings Account
As They Did in Cyprus?

They ALREADY HAVE...
And Have Plans to Take It All

A Savings Survival Guide

BY

Craig R. Smith
Swiss America

and

Lowell Ponte



A Swiss America Trading Corporation
White Paper
Spring 2013

Copyright 2013 by Swiss America Trading Corporation

All Rights Reserved, including the right to reproduce this paper,
or parts thereof, in any form except for
the inclusion of brief quotations in a review.

Printed in the United States of America.

Parts of this White Paper originally appeared in
THE GOVERNMENT'S NEXT TARGET:
TAKING YOUR IRAs, 401Ks AND PRIVATE PENSIONS
Copyright 2013 by Swiss America Trading Corporation
All rights reserved.

For more information, contact publisher David M. Bradshaw.

Idea Factory Press
13232 North 1st Avenue, Phoenix, AZ 85029
Tel. (602) 918-3296
Ideaman@myideafactory.net


Why Cyprus Matters

Executive Overview

Who owns the money in your bank account?

Government owns your bank account, according to the European Central Bank, the European Commission and the International Monetary Fund (IMF).

For the Mediterranean island of Cyprus, this "troika" affirmed in March 2013 that private bank accounts - originally including even mom-and-pop accounts of less than 100,000 Euros that had been guaranteed against loss by the Cypriot government - can be looted through a one-time levy of 6.75% to 15% or more if government needs the money.

This precedent creates uncertainty about the legal status and individual ownership rights of all private property, a legal precedent that governments outside of Europe also might soon use.

Although the United States is the biggest provider of funds for the IMF, President Barack Obama thus far has raised no objection in law or principle to IMF's approval for government expropriation of money in private Cypriot bank accounts.

What does Cyprus mean for the U.S. Economy?

Like the Black Plague that killed half of Europe's people seven centuries ago, a financial "Green Plague" spreading economic contagion has been unleashed by the account looting in Cyprus.

The Green Plague's first symptom is a loss of trust in government and the banking system. It's second symptom is a desire to take one's cash and flee.

In the U.S., the first "immune response" to news of the bank account seizures in Cyprus was a sharp triple-digit plummet in the stock market, and a double-digit surge in the price of gold.

This contagion has the potential to plunge Europe into recession or depression, an economic death spiral that in the interconnected global economy could quickly drag China and the U.S. down, too.

The precedent Cyprus has set is for government closing banks without warning, and then announcing that it is confiscating depositor money.

Cyprus also set precedents for government imposing controls that restrict how much money an account holder can withdraw or remove from the country. It allowed the government to turn liquid accounts into fixed-term accounts that depositors cannot withdraw for years without paying a substantial penalty.

Under the deal reportedly reached on March 25, Cyprus' second-biggest bank known as Laiki is to be restructured into a "good" bank for insured deposits of 100,000 Euros or less, which would remain intact and be moved to the larger Bank of Cyprus, and a "bad" bank for deposits too big to be fully insured. The "bad" bank's depositors might not learn for years if their "haircut" means a loss of 20%, 40% or more of their deposit.

This will not inspire confident Eurozone investing. In other struggling Eurozone economies such as Greece, Spain, Portugal and Italy, the example of Cyprus could prompt millions of local and foreign depositors to take the money out of their bank accounts before the spendaholic, money-hungry politicians do.

We will not know until at least late April 2013 how many in Europe have already done this, and how far and fast the Cyprus Green Plague contagion is spreading.

We do know that Cyprus is causing a deficit of trust, a loss of faith in government and financial institutions likely to last for generations.

This deficit of trust could reduce growth and cast a shadow over the optimism and resilience needed to build our economic future.

Cyprus, writes Time Magazine economic columnist Rana Foroohar, might "become the economic equivalent of the assassination of Austrian Archduke Ferdinand, which started World War I," by shattering the economic unity and slow recovery of Europe, which is roughly 25% of the global economy.

Have wealth or bank accounts been confiscated in the United States?

Yes, and such confiscation is happening today.

President Franklin D. Roosevelt in 1933 closed banks and confiscated citizen wealth at a fixed government price, then a year later enriched the government by nearly doubling the value of what had been expropriated.

President Jimmy Carter signed a law that gave government the means to strong-arm banks into making billions of dollars of loans to credit-unworthy individuals who were in politically-favored groups. These coerced bank loans precipitated the Great Recession that still cripples the U.S. economy.

A major factor in today's sick economy is that governments in both Europe and the United States have turned regulatory power into de facto government ownership and politicalization of the banks....and therefore of the economy, which seems less and less to follow the free market values of capitalism and private property.

The political sin of Cyprus was not that its once-solid banks had faltered after it joined the Eurozone in January 2008, only months before recession hit. Nor was it the near bankruptcy of Cyprus banks and the need for a bailout of 17 Billion Euros - a trivial amount to cover for a Eurozone that since May 2010 has spent more than $600 Billion to bail out other member nations.

Cyprus' sin was to be a small tax haven where people found a bit of protection from greedy politicians hungry for more taxes. Cyprus also had banks that paid much higher interest rates than mainland European banks, and held tens of billions of Euros of deposits from wealthy Russian oligarchs. German Chancellor Angela Merkel, up for reelection this September, does not want German taxpayers and banks paying to protect the fortunes of Russians.

Merkel's government made it a condition of bailing Cyprus out that it could no longer be the kind of "financial center" it has been. Because this was a large source of Cypriot income, this condition means that the island's economy will now sink - and the promised Eurozone bailout will be far too little to keep Cyprus from insolvency. This could push Cyprus out of the Eurozone, into the arms of Russia, and back to its previous national currency, the Cypriot Pound.

Are American bank accounts being expropriated today?

Yes. Their value is being drained in slow motion, as has been done for many decades, via a policy of inflation that deliberately debases the value of every dollar as an invisible de facto tax. As a result, today's dollar has less than two cents of the 1913 dollar, a cumulative inflation expropriation of $222 Trillion in today's dollars from the American people. It also, in effect, expropriates a portion of the savings of those in Europe and throughout the world who depend on the value of the U.S. Dollar.

The U.S. Federal Reserve also practices "financial repression" by holding interest rates below the rate of real world inflation. This means that those who have their savings in bank accounts paying 1% or 2% interest are having their dollar-denominated wealth eaten up by government-driven and Fed-driven inflation. This facilitates the looting of savings accounts via inflation.

Who Were the Winners and Losers in the Cyprus Bank Raid and Bailout?

Simone Foxman at The Atlantic numbers among the losers everyday Cypriots who now face years of austerity and hardship, and small-fry Russians caught in this trap. Democracy lost, too, she says, because 67% of Cypriots wanted to leave the Eurozone. [14]

The "free flow of money in Europe" is also one of her losers. Another way to say this is that the Euro lost - and the Eurozone will never be the same, or even be long for this world, because of Cyprus.

Cyprus, in effect, split the Euro currency in two, as some northern Europeans had long proposed doing. They wanted the Eurozone divided into a kind of First Class and Second Class system in which the "lazy and profligate" southern European nations would not have currency or credit quite equal to northern Europeans.

This Eurozone Class System is precisely what events have produced in Cyprus, where tight capital controls are expected to last for years and impose limits on the flow of Cypriot Euros that will make them inferior for international business purposes to, say, German Euros with no capital controls. [15]

Germany has in a sense pushed Cyprus halfway out of the Eurozone by making the island nation use a Second Class Euro currency.

Germany can now create a Eurozone-wide class system merely by Cyprus-ifying and imposing capital controls on other southern Eurozone nations, one by one.

Among Foxman's winners are northern Eurozone policymakers, who saved billions in bailout money and made a precedent and an example of tiny Cyprus, whose GDP is smaller than Vermont's and only two-tenths of 1% of Europe's GDP, as a way to intimidate larger southern European nations.

The Eurozone redefined bank deposit holders as if they were shareholders in order to justify seizing their accounts. Heaven only knows how much blowback and how many unintended consequences for Europe and the Euro this will produce.

Foxman's final winner from the Cyprus bailout: The Cayman Islands, Luxembourg, and other Tax Havens, because "All that Russian money has to go somewhere."

What Other Future Dangers Do We See in the Crystal Ball of Cyprus?

The troika of Eurocrats, the European Central Bank, and the IMF were initially willing to let Cyprus expropriate pension funds to reach the threshold for a bailout - and changed their minds only when German Chancellor Merkel called this unacceptable because of the harm it could do to middle-class citizens.

President Barack Obama's Administration is considering ways to confiscate the more than $18.5 Trillion of savings in American retirement accounts - 401(K)s, IRAs and pensions - by replacing them with less valuable government debt obligations used to create "annuities," a confiscation similar to what the government of Argentina in 2008 did to private pension holders.

The larger our governments become, the more the more hungry and desperate they become for deposits of private wealth that can be devoured. Private bank accounts, retirement accounts, and pension funds are targets that spendaholic politicians in both Brussels and Washington, D.C., clearly have in their cross-hairs for expropriation.

Americans need to study Cyprus for what it reveals about emerging politician plans in Europe and the U.S. for taxing and controlling people.

Americans who act wisely today can secure their life savings against what happened to the money and bank accounts of Cyprus.

It might be no coincidence that the two final letters of Cyprus are "US."

Introduction

Who owns your money?

You might think that you do, that your life savings are your personal property just like your home or your jewelry.

Today's politicians, however, increasingly act as if money is something created, given value, and perpetually owned by the government.

As we explain in our 2012 book The Great Debasement: The 100-Year Dying of the Dollar and How to Get America's Money Back, today's leftist politicians believe in Modern Monetary Theory, which defines paper currency as a "creature of the state" created by the government for its purposes, not yours.

Today's "progressive" politicians assume that you "didn't build" your savings, that whatever money you have accumulated came from government and is subject to being taxed or otherwise confiscated out of your hands whenever government wishes to redistribute it to serve the higher collective good.

You might have earned and set aside a few dollars in your own pocket or bank account, but, according to progressives, this wealth does not legitimately belong to you. It belongs to the state, which can reclaim this money - by force if necessary - whenever our rulers wish to redistribute to favored others what you selfishly thought were the fruits of your labor.

To progressives, private property is an obsolete, primitive idea based on greed and selfishness. All that matters to them is the collective, as represented by the government - and their own limousines, their caviar, and their use of your money to buy their perpetual reelection as the superior ones who rule over the rest of us.

Until March 2013, the people of the sunny island of Cyprus naively assumed that what they had earned by the sweat of their brow and saved in local banks was their money.

They then received a terrifying wake-up call that could soon be coming to your local bank.

Washington, D.C., has already has been quietly taxing away a large share of the value of your savings, and is making plans to directly expropriate them.

Welcome to Cyprus

Ancient Greeks believed that their goddess of love and beauty, Aphrodite, first came ashore on the eastern Mediterranean island of Cyprus.

The valuable metal that ancient Greeks mined there took its name from the island, aes Cyprium, later shortened to Cuprum, then copper.

Cyprus, with its rich farmland and balmy Southern California-like climate, has been coveted by conquerers for thousands of years. The latest are Turkish troops who seized the northern third of the island in 1974, later proclaimed it the Turkish Republic of Northern Cyprus, and remain today as 18% of the divided island's roughly one million people.

In March 2013, the 77% of Cypriots who are of Greek ancestry rose in protest against what they saw as a takeover by another invader.

Their Republic of Cyprus in January 2008 joined the Eurozone and accepted the Euro as its currency, just in time for its economy to be pulled down by the Great Recession that later that year hit much of Europe and the United States.

Like their Eurozone kin in Greece, the Greek Cypriots had a weak economy but strong credit - because lenders assumed that Germany would bail out any Eurozone nation's debt in order to protect the Euro currency. The Cypriots borrowed heavily and invested heavily in Greece. When, with Eurozone encouragement, Greece stopped paying on its bonds, the banks of Cyprus lost billions.

By March 2013 the two biggest banks of Cyprus were near bankruptcy.

The Greek Cypriot government and Cyprus' once-respected banks desperately needed a bailout and made a deal to get at least 10 Billion Euros from the "troika" - the European Commission, European Central Bank, and International Monetary Fund (IMF).

Angela Merkel Is Not Pleased

The Eurozone is a group of 17 nations that relinquished their own currencies and the right to print their own money in favor of a new fiat currency implemented in 1999 called the Euro.

The Euro, some believe, is really the Deutschmark in disguise and is Germany's third attempt in the 20th Century to become the ruler of Europe, this time via money and trade. The Eurozone was intended to have a disciplined common currency that should give Germany an advantageous trading position with neighboring, Euro-using nations. [17]

What German policy miscalculated was that some Eurozone nations, especially the PIIGS - Portugal, Italy, Ireland, Greece and Spain - would be offered vast loans by banks that assumed Germany would ultimately pay any such debt to keep Euro nations from defaulting. The PIIGS were intoxicated by the multi-billion-dollar credit cards they were offered as Eurozone members, and they spent like drunken teen-agers, running up huge debts that they could not pay when the global economy slid into recession.

From Germany's point of view, the result has been a nightmare of more than $600 Billion worth of bailouts.

To get this money, the Cypriot government agreed to ante up another 5.8 Billion Euros itself - to be raised by imposing a progressive "levy" on all island bank accounts...6.75% on accounts up to 100,000 Euros, 9.9% on accounts above 100,000 Euros, and 15% on accounts above 500,000 Euros.

The Eurocrats of the troika blessed this deal to confiscate a hefty piece of all Republic of Cyprus bank accounts, despite the Cypriot government guarantee against loss of up to 100,000 Euros in all bank accounts - similar to the Federal Deposit Insurance Corporation protection for American bank accounts.

Like American progressives, these Eurocrats assumed that governments' needs are always superior to individual rights.

(Old-fashioned Americans are usually shocked when they read the European Declaration of Rights, because every specified human right ends with a clause saying that it can be ignored whenever government "needs" to do so. Thank heaven that American rights are what our Declaration of Independence called "unalienable" and come from the Creator, not from self-serving governments and politicians.)

When Cypriots awoke on March 18 to find their banks closed, local ATMs drained of cash, and their savings and checking accounts inaccessible, their outrage soon boiled over in angry street protests.

Imagine how you would feel if you were suddenly locked out of your bank and bank accounts. How would you pay your bills or buy food for your family if you had set nothing aside for emergencies?

This confiscation was exactly what the newly-elected President of Cyprus had explicitly promised only two weeks earlier that he would never do. And then imagine learning that a hunk of money equivalent to several years' interest would be seized from your savings.

Why, furious citizens shouted, were ordinary people being robbed to cover the debts to foreign bankers incurred by Cypriot politicians and banks?

The troika, it seemed, had invaded Cyprus - like so many other invaders over thousands of years - and was looting the savings of ordinary citizens, merely because politicians needed the money and therefore felt entitled to take it.

The United States is the biggest funder of one third of this troika, the International Monetary Fund (IMF), but President Barack Obama did not threaten to withhold IMF funds unless it quit this bank robbery in Cyprus. By his ominous silence, the President became an accomplice of the looters.

Keynesian Kleptomania

American politicians have systematically looted all bank accounts in the United States for the past 100 years.

This has, with some historic exceptions, been done not by openly seizing all or part of the money in citizen bank accounts - but by stealth, the debasing of the dollar's value through deliberate inflation as an invisible form of taxation.

As a result, the 2013 U.S. Dollar has less than two pennies of the purchasing power of the 1913 dollar.

In our 2011 book The Inflation Deception: Six Ways Government Tricks Us...And Seven Ways to Stop It!, we quoted economic historian G. Edward Griffin's explanation of how the wealth-eroding power of manufactured inflation has been and is used as a means of confiscation, a de facto invisible tax:

"Inflation has now been institutionalized at a fairly constant 5% per year. This has been determined to be the optimum level for generating the most revenue without causing public alarm. A 5% devaluation applies, not only to the money earned this year, but to all that is left over from previous years. At the end of the first year, a dollar is worth 95 cents. At the end of the second year, the 95 cents is reduced again by 5%, leaving its worth at 90 cents, and so on. By the time a person has worked 20 years, the government will have confiscated 64% of every dollar he saved over those years. By the time he has worked 45 years, the hidden tax will be 90%. The government will take virtually everything a person saves over a lifetime."

Inflation can also be an ideological weapon used to wage class warfare, redistribute wealth, and overthrow nations and economic systems, as liberal British economist John Maynard Keynes explained in his 1919 book The Economic Consequences of the Peace:

"Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency," wrote Keynes. "By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens...."

"As the inflation proceeds and the real value of the currency fluctuates wildly from month to month," Keynes continued, "all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery."

"Lenin was certainly right," Keynes concluded. "There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."

Inflation is a key method by which the wealth of the people they rule has been confiscated by Progressive bureaucrats in Washington, D.C., and by Social Democrat Eurocrats in Brussels. Inflation is achieved simply by printing vast quantities of fiat paper money - dollars or Euros - and spending them into the economy to dilute and debase the value of currency workers have earned and saved.

Financial Repression

For thousands of years, successful cultures taught that thrift was good, and that it was far better to be a saver than a spendthrift. To paraphrase Benjamin Franklin, a penny saved is a penny earned.

In cultures where people postponed their pleasures and saved their money, the resulting accumulation of capital led to investment and prosperity.

Keynes wrote instead of savings as "the paradox of thrift." Economies, he taught, are expanded not by saving - which slows down the flow of money - but by spending, which accelerates the passing of money from one pair of hands to the next.

Prosperity, Keynes wrote, requires "animal spirits" of optimism, risk-taking and entrepreneurship...and requires trust that those who succeed will not have their earnings or savings confiscated.

Unlike most economists, Keynes practiced the theories he preached, making one fortune by investing, losing it, and then making a second large fortune. He knew that increasing taxes in a down economy, or government looting of private savings accounts, would mortally wound the animal spirits needed to improve the economy for everybody.

In Cyprus we are witnessing European welfare states dying because they have killed off the freedom and animal spirits that centuries ago made Europe prosperous and a source of enlightenment to the world.

In recent years, the Federal Reserve has used a cynical policy that prods savers to withdraw their bank accounts and invest them instead in higher-risk ventures such as stocks to stimulate the economy.

Economists have a formal term for the Fed policy: "Financial Repression." [18]

Fed policy can drive up or down the rates both of inflation in the economy and of interest that banks pay those with savings accounts.

Lately the Fed has deliberately driven down the rate banks pay to savers below the rate of inflation - classic financial repression - which means that people with savings accounts are losing money every day they leave their money in the bank.

Real world inflation of at least 7% each year is eating up the value of dollars in bank accounts faster than the bank's interest payments of 1% or 2% are increasing it. And your savings' purchasing power spirals down the drain even faster when bank fees nibble away at your principal in these accounts, and government taxes the interest you are paid.

Traditional savers are conservative, prudent, careful people who sleep better with their life savings secure in a bank. These are the values that built America.

Trouble is, many traditional Americans are being robbed blind by politicians and economic manipulators who, through inflation, are expropriating 5% or more of the wealth of working Americans via the stealth tax of inflation.

Most Americans have had far more expropriated quietly from the value of their savings accounts than even the greediest Cypriot politicians schemed to snatch directly via a one-time fee on citizen savings accounts.

Are you ready for a future where the old will be too poor to retire and must work until they drop in harness? Are you ready for a future where the young will have no place to advance up the job promotion ladder clogged by seniors who cannot retire? Are you ready for a declining society where a majority of takers and spenders devour a dwindling minority of makers and savers? This is the alternative future we can see in the crystal ball of Cyprus.

The Coming Savings Grab

Does anyone doubt that today's rapacious, spending-addicted progressive politicians would hesitate to confiscate your life savings not only via inflation, but also directly if they had a pretext, an emergency of some kind, a plausible justification that they thought would let them get away with such a savings grab?

During President Barack Obama's first term, he massively expanded the welfare state and dependency on government. He effectively nationalized one-sixth of the economy via Obamacare, seized control of several major banks and two of the nation's three biggest car companies. He expropriated 90% of a trillion dollars' worth of student loans. He increased the Federal Government's share of our Gross Domestic Product by 25%, and added $5.8 Trillion to our nation's debt - which now exceeds America's entire annual production, public and private.

In President Obama's second term, he will need enormous amounts of money to pay for his unrestrained big-spending, ever-bigger government agenda.

His next takeover target is almost certainly the $18.5 Trillion that Americans have saved in their personal Individual Retirement Accounts (IRAs), 401(K) plans and pension accounts that hold U.S. Dollars and paper securities.

The Last Vast Pools of Private Money

These are the biggest pools of private money left in America, and our spendaholic politicians are eager for any excuse to siphon this treasure into the government's coffers.

In 2010 President Obama's Treasury and Labor Departments, as well as then-ruling Congressional Democrats, were openly discussing ways to confiscate private retirement accounts and put in their place government "Annuities" backed by Treasury or other government securities, as the American Enterprise Institute reported.

Progressives apparently see such confiscation of savings as a way to enrich government, stimulate the economy and redistribute wealth. Progressives think it is unfair and unequal that self-reliant, responsible citizens defer their pleasure to create savings accounts with their hard-earned, hard-saved money.

Progressive plans to grab your savings were moved to the political back burner after Republicans won control of the House of Representatives in November 2010. Any economic crisis, however, could give the President a pretext to impose, and Republicans a reason to acquiesce to, these prepared plans overnight by Executive Order.

Between 41 cents and 46 cents of every dollar the Federal Government now spends is borrowed money, even as the "full faith and credit" of the government behind our faith-based U.S. Dollar is waning. The People's Republic of China and Japan used to be eager to buy U.S. debt, making it America's #1 export. Today such lenders are backing away, and 90 percent of American treasury obligations are now purchased by the Federal Reserve - America's own quasi-private Central Bank.

A major factor in today's sick economy is that governments in both Europe and the United States have turned regulatory power into de facto government ownership and politicization of the banks....and therefore of the economy, which seems less and less to follow the old values of free market capitalism and private property.

The government is literally paying today's credit card bills in our left pocket with more credit cards in our right pocket. It is adding more than a trillion dollars to our debt every year for as far as the eye can see. We are living in an Alice-in-Wonderland economy addicted not to productive work, but to the Federal Reserve conjuring ever-more free stimulus trillions out of thin air just to stave off collapse.

The Day Your Savings Vanish

Like the people of Cyprus, you will get no advance warning, no chance to get your money out, and no choice in the matter on the day your life savings - if denominated in U.S. Dollars - vanish.

The government and its media lapdogs will simply announce that President Obama, facing a Pearl Harbor-like digital foreign attack on our banking system or other vague crisis, "acted decisively and heroically to save the savings of working Americans."

The banks and related institutions, and possibly the stock exchanges, could be closed for a few days by government orders, then re-open with the actual paper money in people's pension, IRA and 401(K) accounts missing.

In place of their hard-earned savings, people will be given new accounts based on new financial instruments that promise to pay a reliable rate of return, in effect government annuities backed by trillions in new Treasury notes.

Those below retirement age will be required to pay stiff penalties if they attempt to withdraw the value that these accounts purportedly have. People might be prohibited from withdrawing more than a small monthly amount from the accounts at all, and even this will be in rapidly-inflating, debased dollars of falling value.

This, Americans will be told, is part of the price we all must pay for President Obama saving our savings.

The confiscated private money itself will vanish, spent almost instantly by President Obama and other politicians to fund and enlarge the welfare state on which a majority of Americans now depend.

President Obama could also use executive powers in other ways. He might order outright wealth redistribution.

Mr. Obama could command issuance of a new currency in which one "New Dollar" would be worth 10, 100 or 1000 old dollars - much as happened with the Mexican New Peso in 1993 or the Israeli New Shekel after a period of hyperinflation in 1986. This could catch those possessing a larger quantity of cash than their tax filings show.

Such manipulation is easier for small national currencies than for the U.S. Dollar, which is the World Reserve Currency used by almost all nations in key transactions and as part of their own Central Bank reserves. Nevertheless, such a sudden re-valuation of the dollar could occur.

The U.S. Government and Federal Reserve are already devaluing the dollar as a way to make American export goods cheaper in the global "race to debase," known as the "currency wars" among nations.

Our deliberate debasement of the dollar is one reason why Russia increasingly trades in its currency, not dollars, with Japan. Russia and the People's Republic of China also increasingly trade in each other's currencies, not dollars, and both have sought to reduce the dollar's power and role as the Global Reserve Currency.

Similar Seizures

Confiscation of savings is no fantasy. Many recent precedents for it already exist. Argentina in 2008 effectively expropriated the money in private pension funds, leaving in its place debased government bonds with a market value only 29 percent of the bonds' face value.

In Cyprus, after the legislature was forced to back off its scheme to snatch money directly from small as well as large bank accounts, the politicians then proposed as their "Plan B" the idea of grabbing wealth from their nation's pension funds. [19]

A Wall Street Journal investigation reported that Spain has diverted roughly 90% of its 65 Billon Euro national Social Security Reserve Fund into risky Spanish debt. Governments in Italy and France have done likewise with pension funds. [20]

In other precedents, Bulgaria transferred approximately $60 Million in private retirement savings into a government pension scheme. Ireland levied money from the National Pension Reserve Fund to bail out banks. In 2010 Hungary demanded that citizens give the government their private savings or forfeit all state pension money they had been promised.

Our politicians of both major parties looted and spent $2.66 Trillion from the Social Security Trust Fund, leaving paper I.O.U.s in its place. Mr. Obama's comrades diverted almost three-quarters of a trillion dollars from the Medicare Trust Fund to bankroll Obamacare.

Then-Secretary of the Treasury Timothy Geithner temporarily funded the government via executive branch "extraordinary measures" - from May until August 2011 by selling assets of the Civil Service Retirement and Disability Fund and the G Fund of the Thrift Savings Plan, and again in January 2013 by borrowing from the federal employee pension fund.

In 2012 California Governor Jerry Brown signed into law the first government-run retirement program for private employees, reportedly funded by requiring companies with 5 or more employees to divert 3 percent of each employee's pay to CalPERS, the California Public Employees Retirement System. This new law is expected in its first year to add $6.6 Billion to the coffers of a California government retirement system already underfunded by as much as $500 Billion.

This is one more way to tax private sector workers' earnings to bankroll fat pensions for the public employee unions that have run a once-golden State of California into the ground, as the Federal Government is now doing to the country.

California has also begun declaring previous legal tax breaks invalid, then billing investors retroactively not only for taxes they legally avoided but also for penalties on imputed past taxes not paid. This violates one of the most fundamental principles of Western law - that someone cannot be punished ex post facto for "breaking a law" that did not yet exist when he purportedly broke it.

No wonder California is now experiencing a "reverse gold rush" of successful people fleeing to preserve the money they have earned from new sky-high taxes. By destroying this state's once-prosperous economy, politicians have made it appropriate that the animal on the California flag is not a bull, but a bear.

Caveat Emptor

In 1933, acting without warning (as 80 years later would happen to savers in Cyprus), President Franklin Delano Roosevelt by Executive Order 6102 closed all the banks and commenced looting private wealth. [21] FDR soon re-opened the banks after he had destroyed America's Gold Standard dollar, a major step on the downward path to today's fiat dollar with no intrinsic value whatsoever. This is the Fed's "elastic currency" that Progressive politicians in 1913 chartered the new Federal Reserve to "furnish." This began the Great Debasement that in 100 years has brought us to today's greatly debased political and economic system.

To prevent future bank runs by frightened depositors, FDR signed into law federal insurance on bank deposits. The most recognized of such insurers is the FDIC, the Federal Deposit Insurance Corporation, which today promises: "Each depositor insured to at least $250,000 per insured bank."

Some depositors mistakenly believe that their money is protected against loss because they have several accounts of under $250,000 each in the same bank. No, FDIC says it will cover only a total of $250,000 per bank, no matter how many different insured accounts are involved.

FDIC has generally made good on accounts even in excess of this limit when individual banks have gone bad, but it is not required to do so. If a major national collapse or run on hundreds of banks occurred, FDIC today has only about $33 Billion in reserves (along with an emergency line of credit for $500 Billion - raised from $30 Billion during the Great Recession in 2009 - that can be used only if both the U.S. Treasury and Federal Reserve approve).

As of December 31, 2012, deposits in American domestic offices totaled roughly $9.447 Trillion, of which the FDIC estimates that $7.382 Trillion was in "insured deposits." Compared to such numbers, $33 Billion - or even $500 Billion - are tiny fractions of the accounts FDIC promises to fully insure. In a major economic collapse, the FDIC would be overwhelmed. [22]

Even so, American bank accounts increased dramatically in 2012. Then, starting in January 2013, net deposits at the 25 largest U.S. lenders have had their biggest drop since the immediate aftermath of the 9/11 terrorist attacks. One reason may be surviving the New Year "Fiscal Cliff." Another may be the abrupt end of a $1.6 Trillion backstop for the FDIC known as TAG, the Transaction Account Guarantee program. TAG's demise may have led some sophisticated investors to believe their money has safer, better places to go than American banks. [23]

In today's world of fractional-reserve banking, banks lend out most of the money people deposit with them, which is how they can afford to stay in business and pay depositors interest. This system, however, means that banks simply do not have enough cash on hand to return the money of a large fraction of depositors if panic stampedes them into a run on the bank.

Presumably the U.S. Government and Federal Reserve would turn on the printing press in a banking collapse and would conjure out of thin air as many trillions of dollars as are needed to cover FDIC-insured deposits - but the value of these dollars would be washed away in the resulting tidal wave of high inflation.

Caveat Emptor, the ancient Roman admonition "Let the Buyer Beware," should remind people that they must exercise due diligence, even in a bank with an FDIC symbol on its door. Does your bank have a good reputation? Is it prudent? Not all financial instruments sold by or in FDIC-approved banks are FDIC-insured, and many customers have been burned by failing to understand this.

In March 1985 in Cincinnati, Ohio, many who were depositors in respected Savings & Loans such as Molitor Loan and Building Company and Charter Oaks Savings Association believed their accounts were secure. They then heard local radio superstar Bill Cunningham (who today is a national radio and television star) warning listeners about such S&Ls: "It's time to panic. Take your cots and tents and line up. You better be the first in line, or you might not get your money." [24] Many who listened to Cunningham, and acted quickly, saved much of their savings.

In March 2013, Fox News Channel reporter Bill Hemmer, a Cincinnati native, told viewers of how, at his father's urging, his mother in 1985 rushed to Molitor and was the last one admitted before they locked their doors.

She came away with 90 percent of the family's savings from the cash-short institution. Those who arrived later got nothing, even though depositor accounts were promised to be guaranteed by ODGF, the Ohio Deposit Guarantee Fund.

Ohio's Governor closed 70 S&Ls for three days to cool down the bank run fever that threatened to sweep the state. [24-25] A Savings & Loan crisis shook Maryland, too, and frightened savers across much of the nation.

From 1980 until 1991, approximately 1,500 commercial and savings banks, along with 1,200 Savings & Loan associations, failed and were resolved by regulatory agencies. The loss from this was almost $240 Billion to rectify, roughly $150 Billion of which was charged to taxpayers when Federal Savings and Loan Insurance Corporation (FSLIC) reserves funds were insufficient. [26]

In our post-Cyprus world, the media calls what the Hemmer family suffered a 10% "haircut." For hard-pressed families in 1985 Cincinnati or 2013 Cyprus, the loss of some or all of their savings, and of all of their trust, must have felt like a scalping.

We must always remember that promised insurance did not keep Cincinnati savers safe a mere 28 years ago, and that Eurocrats initially authorized seizing not only the Cyprus bank accounts of the wealthy but also the government-insured bank accounts of middle-class families who had been promised that their money would be safe.

In today's world of debased, inflatable fiat money and debased, rapacious politicians, our savings and retirement bank accounts are not necessarily safe. You cannot trust government fiat money and insurance promises - whether from the Economic and Monetary Union [EMU] of the European Union or from the United States Government - to secure the value of your savings. [27] You must do that yourself using things that have protected individual savings for thousands of years.

The Great Withdrawal

President Obama is eager to "spread the wealth around" that rightly belongs to achievers who have earned and saved it. Yet the more he takes from these savers, by "means testing" or a hundred other Progressive gimmicks, the more he will discourage people from saving for their own retirement - and the more he will make retirees dependent on an already-bankrupt government.

People need to wake up and see the bull's-eye, the red laser dot, where greedy, grasping money-hungry politicians are aiming for their IRAs, 401(K)s, pensions and savings accounts.

Your retirement nest egg could be targeted for political confiscation, so one prudent decision could be to "Move it or lose it." It is wise to diversify a portion of your savings into something that will not be lost if the politicians suddenly confiscate America's retirement accounts, or further debase the dollar's value to cover the stratospheric debts caused by out-of-control government spending.

The more money government takes, the bigger it gets. And the bigger government gets, the more money it needs to take from us to sustain itself and its dependents. If this expansion of the state continues, it will soon devour us all.

This all-consuming expansion of government began with the rise of socialism in Europe and with the Progressive takeover of the United States in the election of 1912. It took President Woodrow Wilson only one year to implement both the Federal Reserve System and the Income Tax, which, just like taxes today, was passed by politicians promising that it would tax only the rich.

This began the 100-year Great Debasement of the United States, both economically and culturally, that we explain in our book The Great Debasement: The 100-Year Dying of the Dollar and How to Get America's Money Back.

What happened in 2013 in Cyprus could be one of the factors moving Western civilization past the point of no return that might take us into permanent economic depression and a new Dark Age.

Yet our soon-forthcoming book takes a more optimistic view.

For the past 100 years, the Left has been driven by utopian visions of building heaven on Earth by investing all its hopes and dreams in The State. An all-powerful state, they believed, should replace free market capitalism and even God at the center of their Brave New World.

Most Leftists have looked to Europe and its welfare states as the locomotive pulling humankind towards this socialist paradise.

History changed on March 25, 2013, as the European bank raid in Cyprus showed that the Social Democratic welfare states of Europe can never again be trusted to act in a moral and civilized way.

Europeans from across the political spectrum and the continent have begun what our book title calls The Great Withdrawal, as millions begin withdrawing not only their money from European and American banks and turning to better kinds of exchange than paper fiat dollars, but also withdrawing 100 years' worth of the hope, trust and godless utopian faith they had deposited in government.

Socialism died on March 25, 2013.

Welfare states may stagger on, and even keep expanding for a few more years - but on Earth A.C. (After Cyprus), no thinking or moral person is a True Believer socialist anymore.

Belief in Big Government suffered a mortal wound in Cyprus. The pseudo-religious cult of the political Left has no future. [28]

Those who still pretend to worship The State are now just the greedy vulture Leftovers and courtiers who feed on the carnage left by Big Government. And today's Big Government has become a predator, preying on the people it was supposed to serve.

We are at a turning point in history and will soon see whether The Great Withdrawal is a right turn that Reboots Enlightenment thinking, restores free minds and free markets and a higher faith, and rescues humankind from The Great Debasement.

Sources

[1] Ambrose Evans-Pritchard, "Cyprus Has Finally Killed Myth that EMU is Benign," London Daily Telegraph, March 27, 2013. URL: http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9957999/Cyprus-has-finally-killed-myth-that-EMU-is-benign.html

[2] Wolfgang Munchau, "Europe Is Risking a Bank Run," Financial Times, March 17, 2013 URL: http://www.ft.com/intl/cms/s/0/b501c302-8cea-11e2-aed2-00144feabdc0.html#axzz2OcZ4q0n2; George Friedman, "Europe's Disturbing Precedent in the Cyprus Bailout," Stratfor Geopolitical Weekly, March 26, 2013. URL: http://www.stratfor.com/weekly/europes-disturbing-precedent-cyprus-bailout

[3] Deepanshu Bagchee, "Cyprus Finance Minister: We Hope People Will Believe Us," CNBC, March 17, 2013. URL: http://www.cnbc.com/100560892

[4] "Cyprus Bailout: Dijsselbleom Remarks Alarm Markets," BBC News, March 25, 2013. URL: http://www.bbc.co.uk/news/business-21920574?print=true; William L. Watts and Sarah Turner, "Markets Drop on Fear Cyprus Deal Is New Blueprint," MarketWatch/Wall Street Journal, March 25, 2013; Luke Baker, "Cyprus to Shape Future Euro Bank Rescues: Eurogroup Head," Reuters, March 25, 2013; Helena Smith and others, "Cyprus Bailout: Savings Raid 'Could Happen Elsewhere,'" The Guardian, March 25, 2013; Bruno Waterfield, "Cyprus Bail-Out: Savers Will Be Raided to Save Euro in Future Crises, Says Eurozone," London Daily Telegraph, March 25, 2013; Rob Williams, "Cyprus Deal Is Model for Future Bailouts Says Top European Official as Banks are Told to Open," The Independent, March 25, 2013; Steve Goldstein, "Dijsselbloem Shocker Is U.S.'s Template, Too," MarketWatch/Wall Street Journal, March 25, 2013. URL: http://articles.marketwatch.com/2013-03-25/commentary/37999129_1_insurance-fund-uninsured-depositors-nova-bank

[5] "German Economist: 'Europe's Citizens Now Have to Fear for Their Money" (interview with economist Peter Bofinger), Der Spiegel/SpiegelOnline, March 18, 2013. URL: http://www.spiegel.de/international/europe/interview-with-german-economist-peter-bofinger-on-perils-of-cyprus-bailout-a-889594.html

[6] Karl Whelan, "It's Official: The Eurozone Is In Recession," Forbes Magazine, November 15, 2012; Marco Gioannangeli and Tracey, "Get All Your Money Out of Europe Now," London Daily Express, March 24, 2013. URL: http://www.express.co.uk/news/uk/386559/Get-all-your-money-out-of-Europe-now; Robert Watts, "Ukip Urges Brits to Withdraw Their Money From Spanish Banks," London Daily Telegraph, March 23, 2012; Armin Mahler, "Savers Be Warned - Your Money's Not Safe," Der Spiegel/SpiegelOnline, March 25, 2013; Simon Kennedy, "Saaving Cyprus Means Nobody Safe As Europe Breaks More Taboos," Bloomberg, March 25, 2013.

[7] Rana Foroohar, "Continental Commitment Issues," Time, April 1, 2013. URL: http://www.time.com/time/magazine/article/0,9171,2139173,00.html

[8] Jean-Claude Juncker Interview "The Demons Haven't Been Banished," Der Spiegel/SpiegelOnline, March 11, 2013. URL: http://www.spiegel.de/international/europe/spiegel-interview-with-luxembourg-prime-minister-juncker-a-888021.html; Charles Forelle, "Luxembourg Lies on Secret Meeting," Wall Street Journal, May 9, 2011. URL: http://blogs.wsj.com/brussels/2011/05/09/luxembourg-lies-on-secret-meeting/

[9] Annika Breidthardt and others, "Insight: Money Fled Cyprus As President Fumbled Bailout," Reuters, March 25, 2013 URL: http://www.reuters.com/article/2013/03/25/us-eurozone-cyprus-muddle-insight-idUSBRE92O0TM20130325; Rick Moran, "How Much Cash Fled Cyprus Prior to Bailout Deal?" American Thinker, March 26, 2013. URL: http://www.americanthinker.com/blog/2013/03/how_much_cash_fled_cyprus_prior_to_bailout_deal.html; Tyler Durden, "Have the Russians Already Quietly Withdrawn All Their Cash From Cyprus?" ZeroHedge.com, March 25, 2013. URL: http://www.zerohedge.com/print/471901; Tyler Durden, "Cyprus - The Answer Is Uniastrum," ZeroHedge.com, March 28, 2013. URL: http://www.zerohedge.com/print/472062

[10] Margarita Papantoniou, "Cypriot Politicians' Loans Written Off," GreekReporter.com, March 29, 2013. URL: http://greece.greekreporter.com/2013/03/29/cypriot-politicians-loans-written-off/

[11] Carsten Volkery, "Last Minute Deal: The End of the Cypriot Banking Sector," Der Spiegel/SpiegelOnline, March 25, 2013. URL: http://www.spiegel.de/international/europe/cyprus-to-shrink-bank-sector-under-last-minute-bailout-deal-a-890731.html

[12] Jason Ma, "Eurozone Signals Deposit Grab In Future Bank Bailouts," Investor's Business Daily, March 25, 2013. URL: http://news.investors.com/economy/032513-649274-cyprus-template-bank-depositors-bondholders-losses.htm; Moran Zhang, "Cyprus Crisis 2013: Are US Depositors' Money Safe With the Bank?" International Business Times, March 31, 2013. URL: http://www.ibtimes.com/cyprus-crisis-2013-are-us-depositors-money-safe-bank-1161807

[13] "Hands Off Our Banking Sector, Luxembourg Tells Euro Zone," Reuters, March 27, 2013. URL: http://www.cnbc.com/100596002

[14] Simone Foxman, "Cyprus Bailout: Winners and Losers," The Atlantic, March 25, 2013. URL: http://www.theatlantic.com/international/archive/2013/03/cyprus-bailout-winners-and-losers/274340/

[15] Joe Weisenthal, "If This Economist Is Correct, Then The Value of a 'Cypriot Euro' Could Be Weak For Years," Business Insider, March 27, 2013. URL: http://www.businessinsider.com/economist-cypriot-capital-controls-could-last-years-2013-3

[16] Carter Dougherty, "Retirement Savings Accounts Draw U.S. Consumer Bureau Attention," Bloomberg, January 18, 2013; Ken Blackwell and Ken Kluklowski, "Obama's Power Grabs Create an Imperial Presidency," CNSNews, June 18, 2012. URL: http://cnsnews.com/blog/ken-blackwell/obama-s-power-grabs-create-imperial-presidency; Gary DeMar, "Obama Administration to Go After Retirement Accounts," Godfather Politics, November 23, 2012. URL: http://godfatherpolitics.com/8220/obama-administration-to-go-after-retirement-accounts/
Jerome R. Corsi, "Now Obama Wants Your 401(K): Treasury, Labor on Path to Nationalize Retirement," WND.com, November 25, 2012. URL: http://www.wnd.com/2012/11/now-obama-wants-your-401k/; Newt Gingrich and Peter Ferrara, "Class Warfare's Next Target: 401(K)," Investor's Business Daily / American Enterprise Institute, February 18, 2010. URL: http://www.aei.org/article/society-and-culture/class-warfares-next-target-401k-savings/; John White, The Feds Want Your Retirement Accounts," American Thinker, February 22, 2013.

[17] Charles Moore, "Southern Europe Lies Prostrate Before the German Imperium," London Daily Telegraph, March 22, 2013 URL: http://www.telegraph.co.uk/news/worldnews/europe/cyprus/9948545/Southern-Europe-lies-prostrate-before-the-German-imperium.html; Mike Shedlock, "Merkel's Vision: 'United States of Germany,'" Townhall.com, March 26, 2013.

[18] Carmen M. Reinhart, "Financial Repression Back to Stay," Bloomberg, March 11, 2012. URL: http://www.bloomberg.com/news/2012-03-11/financial-repression-has-come-back-to-stay-carmen-m-reinhart.html; Carmen M. Reinhart and M. Belen Sbrancia, "The Liquidation of Government Debt," National Bureau of Economic Research (NBER) Working Paper # 16893. March 2011. URL: http://www.imf.org/external/np/seminars/eng/2011/res2/pdf/ crbs.pdf; Alberto Giovanni and Martha De Melo, "Government Revenues from Financial Repression," American Economic Review, Vol. 83 #4 (September 1993). URL: http://www.jstor.org/discover/10. 2307/2117587 uid=3739560&uid=2&uid=4&uid=3739256&sid=21101221127691; Buttonwood, "Carmen Reinhart and Financial Repression," The Economist, January 10, 2012. URL: http://www.economist.com/blogs/buttonwood/2012/01/debt-crisis/print; Member of the European Parliament Nigel Farage, "Europe Is About to Impose Extreme Repression," King World News (Interview), June 22, 2012. URL: http://kingworldnews.com/kingworld- news/KWN_DailyWeb/Entries/2012/6/22_Nigel_Farage_-_Europe_is_About_to_Impose_Ex- treme_Repression.html

[19] Jason Ma, "Cyprus Eyes Pension Fund Grab As Time Runs Out," Investor's Business Daily, March 21, 2013. URL: http://news.investors.com/economy/032113-648900-cyprus-may-seize-pension-funds-in-solidarity-fund.htm?ref=MoreArticles

[20] Stephanie Gruner Buckley, "Spain Is Running Out of People to Borrow From After Raiding Its Own Pensions Piggy Bank," Quartz/Atlantic Monthly, January 4, 2013. URL: http://qz.com/40640/spain-is-running-out-of-people-to-borrow-from-after-raiding-its-own-pensions-piggy-bank/

[21] "Executive Order 6102," Wikipedia.org, March 1, 2013. URL: http://en.wikipedia.org/wiki/Executive_Order_6102

[22] "FDIC - Statistics on Depository Institutions Report (2013). URL: http://www2.fdic.gov/SDI/rpt_Financial.asp or http://www2.fdic.gov/SDI.main4.asp

[23] Dakin Campbell, "U.S. Bank Deposits Drop Most Since 9/11 Terror Attacks," Bloomberg, January 23, 2013. URL: http://www.bloomberg.com/news/2013-01-23/u-s-deposits-post-biggest-drop-since-9-11-as-fdic-ends-support.html; Michelle Clark Neely, "Is the End Near for the Popular Transaction Account Guarantee Program?" St. Louis: St. Louis Federal Reserve Bank, Summer 2012. URL: http://www.stlouisfed.org/publications/cb/articles/?id=2266; Tyler Durden, "With $1.6 Trillion in FDIC Deposit Insurance Expiring, Are Negative Bill Rates Set To Become The New Normal?" ZeroHedge, September 24, 2012. URL: http://www.zerohedge.com/print/455854

[24] Adrienne Bosworth and others, "The Crisis: Fifteen Days that Shook Cincinnati," Cincinnati Magazine, May 1985. Page 39. URL: http://books.google.com/books?id=Rx8DAAAAMBAJ&pg=PA38&lpg=PA38&dq=Molitor+Savings+Cincinnati&source=bl&ots=4mpIYcWZCx&sig=uJtnbNbM1kvUq4aO57Ai5BrNuM8&hl=en&sa=X&ei=qxhVUYjnAaeViQKTioDADA&sqi=2&ved=0CC0Q6AEwAA#v=onepage&q=Molitor%20Savings%20Cincinnati&f=false

[25] Ibid.; "Ohio Governor Shuts 70 S&Ls for Three Days," Associated Press/Los Angeles Times, March 17, 1985. http://articles.latimes.com/print/1985-03-17/news/mn-35244_1_home-state-savings-bank

[26] George Kaufman, "The U.S. Banking Debacle of the 1980s: A Lesson in Government Mismanagement," The Foundation for Economic Education-FEE/The Freeman, April 1, 1995. URL: http://www.fee.org/the_freeman/detail/the-us-banking-debacle-of-the-1980s-a-lesson-in-government-mismanagement#axzz2P6VySTTV [Full disclosure: co-author Lowell Ponte has been a Contributing Editor at FEE's Ideas on Liberty Magazine aka The Freeman]; "The Savings and Loan Crisis and Its Relationship to Banking," Vol. 1 Chapter 4 of History of the Eighties, Lessons for the Future," Washington, D.C.: Federal Deposit Insurance Corporation/FDIC, 1997. URL: http://www.fdic.gov/bank/historical/history/167_188.pdf

[27] Clifford F. Thies and Daniel A. Gerlowski, "Deposit Insurance: A History of Failure," Cato Journal, Vol 8 No. 3 (Winter 1989). URL: http://www.cato.org/sites/cato.org/files/serials/files/cato-journal/1989/1/cj8n3-8.pdf; Kam Hon Chu, "Deposit Insurance and Banking Stability," Cato Journal, Vol. 31 No. 1 (Winter 2011). URL: http://www.cato.org/sites/cato.org/files/serials/files/cato-journal/2011/1/cj31n1-7.pdf; Ambrose Evans-Pritchard, "Cyprus Has Finally Killed Myth that EMU is Benign," London Daily Telegraph, March 27, 2013. URL: http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9957999/Cyprus-has-finally-killed-myth-that-EMU-is-benign.html

[28] Ambrose Evans-Pritchard, "Cyprus Has Finally Killed Myth that EMU is Benign," London Daily Telegraph, March 27, 2013. URL: http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/9957999/Cyprus-has-finally-killed-myth-that-EMU-is-benign.html

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