Bank Failures, Sovereign Bond Collapses, Savers Head for Their Mattresses

Stock-Markets / Credit Crisis 2013
March 28, 2013 - 05:21 PM GMT
By: DeviantInvestor

Throughout the colorful history of organized crime in the United States, periodic eruptions of inter-gang Mafia violence have dotted the criminal landscape. When turf wars broke out between competing crime families in major cities such as New York and Chicago, the combatants would conduct their warfare from unsavory redoubts such as abandoned warehouses or low-rent hotels and apartments. In such locations, the soldiers would spend their off hours sleeping on rented mattresses until the internecine conflicts had run their course; hence the expression “going to the mattresses.”

Well, there is another turf war going on, a worldwide one, one that threatens the entire economic and political landscape of the planet. It is between all the hard working savers on the planet and the ever greedy criminal bankers and their cohorts in government. The real big canary singing out an extreme danger warning to all traditional savers who wish to entrust their wealth to banks and other paper vehicles – stocks, bonds, etc., is the incredible emergency banking shutdown in the tiny island nation of Cyprus. Granted, Cyprus represents only .02% of the population of the European Union. Yet what is occurring there is the harbinger of great risk to traditional savers on every continent; and equally important, there are many more scary danger signs raising their ugly heads as well.

To recap for a moment, let’s briefly itemize the situation in Cyprus. Cyprus, like just about every other country on the planet, has for decades been politically committed to a socialist based economy. In this scenario, politicians have promised benefits to the various voting classes which have far exceeded their annual tax revenue. This has caused its government to continually accumulate deficits that have resulted in a very large national debt in relation to its GDP. This debt has been collateralized by sovereign bonds sold to and purchased by large banks in Europe and elsewhere. Now this debt has become so large the government of Cyprus can no longer afford to pay even the interest, let alone reduce principal. What happens at this juncture, is that a powerful international banking institution, in this case, the European Central Bank (substitute your favorite lender of last resort – the Federal Reserve, the IMF, the World Bank, etc., etc.), has agreed to come to the rescue of the cash strapped government and help it make its current annual debt payment.

However, this emergency funding comes with a draconian penalty for the trusting taxpaying savers. In this instance, the European Central Bank has cut a secret deal with the Cypriot government to raid the bank accounts of all the country’s bank depositors, between six and ten percent (the latest plan is to confiscate about 40% of uninsured deposits). This proposed robbery, if it comes to pass, will confiscate billions from citizens and non-citizens alike who have placed their trust in the security of Cyprus’s banks. What has resulted, of course, is riotous response throughout the nation and frantic sell-offs in world equity markets.

What is important to understand here, though, is that this same game plan has been occurring for several years now in many countries throughout the world. Here is the short list of some of the transgressions that unscrupulous governments, under pressure from their major bank lenders, have perpetrated, and continue to perpetrate upon unsuspecting savers.

October 2008 – Argentina’s leftist government, facing a gigantic revenue shortfall, proposes to nationalize all private pensions so as to meet national debt payments and avoid its second default in the decade.

November 2010 – Headline – Hungary Gives Its Citizens an Ultimatum: Move Your Private Pension Fund Assets to the State or Permanently Lose Your Pension – This is an effective nationalization of all pensions.

November 2010 – Ireland elects to appropriate ten billion euros from its National Pension Reserve Fund to help fund an eighty-five billion euro rescue package for its besieged banks. Ireland also moves to consider a regulatory move that compels some private Irish pension funds to hold more Irish government debt, thereby providing the state with a captive investor base but hugely raising the risk for savers.

December 2010 – France agrees to transfer twenty billion euros worth of assets belonging to its Fonds de Reserve pour les Retraites (FRR), the funded portion of its retirement system, to help pay off recurring social benefits costs. No pensioners are consulted.

April 2012 – Argentina announces that its Economy Ministry has taken an emergency loan from the national pension fund in the amount of $4.3 billion. No pensioners were consulted.

June 2012 – Treasury Secretary Timothy Geithner unilaterally appropriates $45 billion from US federal pension funds to help tide over US deficits for the remainder of fiscal year 2011.

January 2013 – Treasury Secretary Geithner again announces that the government has begun borrowing from the federal employees pension fund to keep operating without passing the approaching “fiscal cliff” debt limit. The move effectively creates $156 billion in borrowing authority from federal pension funds.

March 2013 – Open Bank Resolution finance minister, Bill English, is proposing a Cyprus style solution for potential New Zealand bank failures. The reserve bank is in the final stages of establishing a rescue scheme which will put all bank depositors on the hook for bailing out their banks. Depositors will overnight have their savings shaved by the amount needed to keep distressed banks afloat.

Ladies and gentlemen, this trend is JUST getting underway. Bank failures, sovereign bond collapses, and national government bankruptcy are just around the corner. Because of the interconnectedness of world debt markets and derivatives risk, counted in hundreds of trillions of dollars, the risk to traditional investment vehicles looms ever closer. We’re at critical eleventh hour crossroads where savvy investors need to head for “the mattresses” to protect their life savings.

We may be biased but we strongly feel that the very surest and safest “mattress plan” in this extremely dangerous financial environment, is to invest in the one vehicle that has survived every crisis in recorded history, precious metals. When all else fails, gold and silver will be there to save you.

Can They Do That?

Although few depositors realize it, legally the bank owns the depositor’s funds as soon as they are put in the bank. Our money becomes the bank’s, and we become unsecured creditors holding IOUs or promises to pay (see here and here). But until now the bank has been obligated to pay the money back on demand in the form of cash. Under the FDIC-BOE plan, our IOUs will be converted into “bank equity.” The bank will get the money and we will get stock in the bank. With any luck we may be able to sell the stock to someone else, but when and at what price? Most people keep a deposit account so they can have ready cash to pay the bills.

h/t seeking alpha

But until now the bank has been obligated to pay the money back on demand in the form of cash.

Small amounts, yes. Most people take cashier's checks. Banks don't have money on hand for large withdrawals. A friend of ours demanded cash, got the run-around, demanded cash from the manager which they didn't have on site and later on it was gotten and given to him. You can demand cash, but good luck getting any if others are also demanding cash. It's going to be ugly if a bank run happens here.

Actually in the “LONG RUN” he’s right. My only beef with this is that it appears that all of that gold bullion that is in the repositories doesn’t really appear to be there.

By “there” I mean, there are more and more reports of gold bullion adulterated with Tungsten or in some cases iridium. And then there are reports about Germany wanting to repatriate it’s gold holding and being told that they need to wait a bit on that, (years).

And then there is the Re-hypothecated Gold of “Gold Certificates”. So if these reports are even partially true then there is no “there” there. It”s all been squandered or more likely stolen by those same “Banksters” that the author has been warning about.

Don’t be in the way when the SHTF.

Too True.

It’s fun to read about surviving a SHTF, or a disaster. But man-o-man living in one really does bite. As some have said before, if you haven’t already done so then it’s to late to prepare when SHTF is already here.

OK, so it is time for prudent Freepers to reduce their bank balances.

What to do with your cash? Some PMs may be a good investment, but I have a few other suggestions.

Every action/investment should make you:

Healthier. Maybe a small garden for home grown veggies? Fruit trees? Exercise equipment? Better air filtration for your home?

Get those medical tests done that you have been putting off?

BTW, last year I paid for some medical tests that my provider would not cover. It turned out I had a life-threatening problem that would have killed me within two years! Surgery fixed it. I was both prudent and lucky. More plastic and metal parts for old darth.

Safer. A larger, safer vehicle? Alarm or a camera system for your house or business? Concealed license along with a better firearm and some training? Money turns ammo into skill!

Spend your money on preps that you will use. I like Jack Spirko’s philosophy about preps that make your life better now. You can find Jack at www.survivalpodcast.com Love his shows.

Richer. Get out of debt FIRST!

Invest in a sideline business? Buy some farmland or rental property? Learn some skill that will always be in demand such as welding?

Right now I think the markets are incredibly risky, not to mention rigged. So traditional stocks, bonds, etc. are too dangerous.

The best investment is something YOU have total control over such as a business no matter how small.

Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.