This Is What Happens When Your Money Is 1’s and 0’s

If you have your money in a bank, stock, bond or even a safe deposit box, it is not really yours. Hard to believe that the world has returned to a time where if you cannot physically touch it and guard it, your assets are not safe. As the people of Cyprus just found out:

Congratulations Cyprus savers – you were just betrayed by both your politicians, and by Europe – sorry, but you are the “creeping impairments” in the game known as European bankruptcy.And so is anywhere between 6.75% and 9.9% of your money, which you were foolish enough to keep with your banks (where at least you were compensated with a savings yield of… 0%).

A current money market yield (such as Vanguard’s VMMXX) is yielding 0.01%. That would be $10 interest on $10,000 in a year. Plus taxes. Since the real rate of inflation is 9%, you are losing $900 every year for every $10,000 of wealth. Unless you are in the stock market which is setting new records daily. Unless you own Apple stock.

It is too late to invest in firearms and ammunition. Your best investment at this time is food and precursors.

David DeGerolamo

Cyprus Depositor Haircut “Bailout” Turns Into Saver “Panic”, Frozen Assets, Bank Runs, Broken ATMs

Late last night, after markets closed for the weekend, following an extended discussion the European finance ministers announced their “bailout” solution for Russian oligarch depositor-haven Cyprus: a €13 billion bailout (Europe’s fifth) with a huge twist: the implementation of what has been the biggest taboo in European bailouts to date – the  impairment of depositors, and a fresh, full blown escalation in the status quo’s war against savers everywhere.

Specifically, Cyprus will impose a levy of 6.75% on deposits of less than €100,000 – the ceiling for European Union account insurance, which is now effectively gone following this case study – and 9.9% above that. The measures will raise €5.8 billion, Dutch Finance Minister Jeroen Dijsselbloem, who leads the group of euro-area ministers, said.

But it doesn’t stop there: a partial “bail-in” of junior bondholders is also possible, as for the first time ever the entire liability structure of a European bank – even if it is a Cypriot bank – is open season for impairments. The logical question: why here, and why now? And what happens when the Cypriot bank run that has taken the country by storm this morning spreads everywhere else, now that the scab over Europe’s biggest festering wound is torn throughout the periphery as all the other PIIGS realize they too are expendable on the altar of mollifying voters and investors in the other countries that make up Europe’s disunion.

Bloomberg’s take on the sacrifice of Cyprus’ savers:

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. Policy makers began meeting at 5 p.m. yesterday in a hastily convened gathering, seeking to overcome differences on bondholder losses while financial markets were closed.

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