The financial crisis in the Euro Zone continues to haunt financial markets globally. This week’s iteration of the crisis surfaced in tiny Cyprus, and the EU attempted to force government confiscation of private customer bank deposits before another bailout would be authorized. Can governments really steal from private citizen’s bank accounts, and could it happen here? The answer to both is a qualified, yet disturbing “Yes.”
Due to massive public and private debt and a deep financial connection with fiscally troubled Greece, Cyprus is the sixth of the EU’s seventeen countries to receive massive monetary infusions to maintain solvency. In an unprecedented move, the EU voted to have Cyprus raid Cypriot bank deposits for up to 38% before another bailout would be authorized.
Americans should take note, not only of what’s happening in the Eurozone with Cyprus right now, but especially at how our domestic fiscal policy mirrors what’s been happening in Europe, and at how the U.S. is creating a similar future crisis.
To recapitulate the issue in simple terms, global economic growth, especially in the Eurozone, has slowed dramatically, since the financial crisis of 2008. This has revealed the problematic fiscal policies of many countries, which have continued to spend exorbitantly in spite of reduced tax revenue. When economic growth declines, so do tax receipts. That gap between spending and receipts creates significant budgetary deficits, which is unsustainable, and jeopardizes the liquidity and viability of the banking systems of the respective countries, since they hold much of their debt.
The Cypriot parliament voted late Friday on a plan to come up with the requisite 5.8 billion Euros needed for unlocking the 10 billion Euro bailout. Customer accounts with greater than 100,000 Euros are at risk of being raided by their own government. A defalcation of customer deposits would be a new low for any government that now has to pay the price for their own imprudent fiscal management.
It’s unlikely, given current laws and regulation, that U.S. bank customers would face a similar governmental theft of their deposits. But that can easily change, and some experts fear such a scenario is possible in light of some developments, especially for retirement accounts.
In November, Atlantic Monthly ran a story, “The 401(k) Is a $240 Billion Waste.” Time Magazine ran a similar story. Both referenced a Danish study, that concludes that government should abolish the tax-advantaged status and deductibility of retirement accounts, for they amount to “subsidies” granted to “the rich.” As soon as government recognizes a benefit as a subsidy, they believe they own it.
Also in November, Investor’s Business Daily reported that The American Society of Pension Professionals and Actuaries had launched a campaign to alert retirement planners to possible changes to individual retirement accounts.
On January 18th, Richard Cordray, the acting head of the newly formed Consumer Financial Protection Bureau (CFPB), was interviewed by Bloomberg. They reported, “The U.S. Consumer Financial Protection Bureau is weighing whether it should take on a role in helping Americans manage the $19.4 trillion they have put into retirement savings, …read more
Source: FULL ARTICLE at Western Journalism