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Wednesday, March 27, 2013

Eight Steps of the Expected

Zerohedge looks back to history to predict what is coming down the road. 
To anyone paying attention, reality is now painfully obvious. These bankrupt, insolvent governments have just about run out of fingers to plug the dikes. And history shows that, once this happens, governments fall back on a very limited playbook:

Direct confiscation: As Cyprus showed us, bankrupt governments are quite happy to plunder people’s bank accounts, especially if it’s a wealthy minority. Aside from bank levies, though, this also includes things like seizing retirement accounts (Argentina), increases in civil asset forfeiture (United States), and gold criminalization.

Taxes:  Just another form of confiscation, taxation plunders the hard work and talent of the citizenry. But thanks to decades of brainwashing, it’s more socially acceptable. We’ve come to regard taxes as a ‘necessary evil,’ not realizing that the country existed for decades, even centuries, without an income tax.  Yet when bankrupt governments get desperate enough, they begin imposing new taxes… primarily WEALTH taxes (Argentina) or windfall profits taxes (United States in the 1970s).

Inflation:  This is indirect confiscation– the slow, gradual plundering of people’s savings. Again, governments have been quite successful at inculcating a belief that inflation is also a necessary evil. They’re also adept at fooling people with phony inflation statistics.

Capital Controls: Governments can, do, and will restrict the free-flow of capital across borders. They’ll prevent you from moving your own money to a safer jurisdiction, forcing you to keep your hard earned savings at home where it can be plundered and devalued. We’re seeing this everywhere in the developed world… from withdrawal limits in Europe to cash-sniffing dogs at border checkpoints. And it certainly doesn’t help when everyone from the IMF to Nobel laureate Paul Krugman argue in favor of Capital Controls.
The thought strikes me that we truly live in a perverse world where "free trade" demands the free movement of  labor and bars the free movement of capital. I don't recall David Ricardo ever working through the implications of that arrangement.  As for the inflation prediction, we'll see about that.  I have no doubt, of course, that the various governments will be doing their best to inflate, the question is whether they can actually manage to cut the link to credit or not.

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46 Comments:

Anonymous kh123 March 27, 2013 1:52 AM  

The "necessary evil" of income taxes seems a form of cargo cult economics: We may not have needed it before, but who knows exactly what a larger, bustling modern world needs! Create a temple with the initials IRS, demand prostration annually when the trumpets sound, and let us hope rendering ave imperator will keep the ship afloat. Rain dances with the animal spirits.

Blogger LP 999/Eliza March 27, 2013 2:07 AM  

Confiscation is the name of the game, the question how people will take their denial blinders off to see the obvious.

OT: Great luck!! An unnamed org debited, withdrew from my bank account $841.--. The bank and unnamed org will be investigating and correcting the error even though I have little hope of a swift resolution. I am mildly amused at this colossal error and I await their phone call this week - anything to disrupt a holy week. Anyways, I am expected or was pressured to pay bank this error of $841.--, it was as if the error was my fault even though it was made by a 3rd party. Not that anyone cares but I'll post any updates this week. Afterall, it could never happen to anyone else!

Anonymous rob case March 27, 2013 2:09 AM  

Isn't the reason we're seeing Cyprus blundering around the way it is precisely because it cannot print more money (at least for as long as it uses the Euro)?

Anonymous Jack Amok March 27, 2013 2:25 AM  

Isn't the reason we're seeing Cyprus blundering around the way it is precisely because it cannot print more money (at least for as long as it uses the Euro)?

Well, yes, but that was a necessary condition for the problem to get this bad in the first place. That Russian money wouldn't have been flowing into Cypriot banks if the Russians thought the Cypriots could just crank up the printing presses and inflate away their problems (along with the value of the Russian deposits).

The Euro crack-up is kind of hilarious in a sense when you realize how bass-ackwards those extra-smart Eurocrats got it. They seem to have thought that good money would drive out bad if they merged all the banking systems. Of course it was the opposite.

Anonymous Roundtine March 27, 2013 2:25 AM  

Yes, very interesting on capital controls. If the money stops flowing, the goods will stop flowing, and then the people will stop flowing. Krugman had a post about how the global free movement of capital is a failed experiment. But it logically follows that if the free movement of capital, the most easily transferable of the major economic factors, is a failed experiment, then the free movement of goods and people will also be seen as a failed experiment. It simply takes longer for them to flee.

Anonymous Will Best March 27, 2013 2:37 AM  

But according to facebook the most important thing any American needs to be worried about is marriage equality!

My friends think I am insane for looking at the EU and taking that to mean stock up on survival items and other forms of undocumented wealth. I have known for a decade that I wasn't going to see 1 cent of social security back, but we are tracking so far below that now.

Anonymous rob case March 27, 2013 2:41 AM  

"Well, yes, but that was a necessary condition for the problem to get this bad in the first place. That Russian money wouldn't have been flowing into Cypriot banks if the Russians thought the Cypriots could just crank up the printing presses and inflate away their problems (along with the value of the Russian deposits)."

Believe it or not, I think your response has been the first I've read anywhere that begins to describe the problem.

What I'm still not clear on though is why the Cypriot banks are bankrupt. I've only been following the daily papers, and I haven't seen any attempt to explain how this situation arose.

Anonymous Anonymous March 27, 2013 3:00 AM  

I think the Cyprus banks were especially heavy in Greek bonds. I don't think that was very smart... so screw em.

Anonymous dh March 27, 2013 3:16 AM  

I think the Cyprus banks were especially heavy in Greek bonds. I don't think that was very smart... so screw em.

I think that's the problem. No one is willing to let the banks twist.

It is a little unclear to me why the ECB/EU/IMF care if some banks in Cyprus fail. Are we to believe that a tiny wealthy island nation can't survive without any domestic bnaks?

Anonymous The Master Cylinder! March 27, 2013 3:24 AM  

"and let us hope rendering ave imperator will keep the ship afloat."

This is completely OT, but it's funny anyway. Years ago (this is back in the 90s) I and my g.f. made our first visit to Las Vegas, and naturally we thought we HAD to stay at Caesar's Palace. It just wouldn't be Vegas without staying there.

As we walked up to the front entrance to check in, there was a guy dressed as Caesar in full Roman Emperor get-up, and by his side a beautiful black gal dressed as Cleopatra in full Egyptian regalia, the two of them greeting the guests. I nodded to Caesar and said, "Ave, O Imperatore!" [vocative, mind you.]

Very graciously, he corrected my pronunciation. I thought that was spectacular.

Anonymous kh123 March 27, 2013 3:54 AM  

That's why the economy's failing - the rain dance prayers aren't in the proper tense! Get Krugman on the phone.

This and Nate's last story have made my week thus far.

Anonymous zen0 March 27, 2013 4:24 AM  

rob case is puzzled:

What I'm still not clear on though is why the Cypriot banks are bankrupt. I've only been following the daily papers, and I haven't seen any attempt to explain how this situation arose.

rob, rob, rob. I know you must have access to the internet (obvious) so you can do your own research. Try reading this daily instead, especially the comments:

Cyprus Mail

Start with Our view: Eurogroup deal designed to kill off Cyprus, not cure it

You will soon discover that venality and corruption might be involved.

Anonymous Kristin March 27, 2013 4:43 AM  

@ rob case
What I'm still not clear on though is why the Cypriot banks are bankrupt

Expanding credit ---> mal-investment.

So there.

I learned that when I was in Austria.

Anonymous Roundtine March 27, 2013 4:52 AM  

The banks in Cyprus printed "money." Banks do not lend out deposits, they make loans and then obtain deposits to fulfill reserve requirements.

When you buy crap assets with your money, you lose and you take a hit to your equity. If you are leveraged 50:1 against equity and you lose 2% on your loans, all of your capital is gone. If you lose more, your bond holders lose. If you lose more, depositors are on the hook. So this is one issue: the banks are insolvent. Currency policy is irrelevant on this issue.

Next you have the government response. In many countries they can just print up money, but it depends on what the banks borrowed. In some countries, banks have big U.S. dollar losses and their governments can't print USD, they are also up the creek. Cyprus is in a similar position, they can't print euros. What is "odd" is that the ECB and EU refuse to print. This is why the dispute is really political in nature, its about sovereignty and who has the power.

This is why the Fed gave billions to foreign banks and billions more in swap lines to foreign central banks. It's political. Look at the euro: Cyprus is inside a political union with Europe, and they are given the shaft in their hour of need. They held Greek bonds when they could have dumped them, and what do they get for their solidarity? Nothing. Germans and others are turning anti-bailout and the politicians are trying to preserve their political project. Meanwhile, the U.S. bailed out banks across Europe, Asia and South America. Politics is driving economic decisions.

Blogger JD Curtis March 27, 2013 6:37 AM  

Private Bank Account Raids Spread to Italy, Spain

Anonymous Sigyn March 27, 2013 6:53 AM  

From Mr. Curtis' link (well, from the linked article therein:

"If the bank can't do it, then we'll talk to the shareholders and the bondholders, we'll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders...

"If we want to have a healthy, sound financial sector, the only way is to say, 'Look, there where you take on the risks, you must deal with them, and if you can't deal with them, then you shouldn't have taken them on,'" he said.


Hear that, guys? By depositing money in a bank account, you're assuming the bank's risk.

Also, Dijesselbloem wants to not touch the bailout fund anymore and "recapitalize" banks by cannibalism (wow, how does that even WORK?)--but what DOES he want to do with the money, I wonder?

Anonymous Roundtine March 27, 2013 6:58 AM  

but what DOES he want to do with the money, I wonder?

He wants to pop some tags.

Blogger Jamie-R March 27, 2013 7:20 AM  

This says enough of what they're thinking:

"While few eurozone economies depend on the banking sector as heavily as Cyprus does, Berenberg Bank economists noted on Monday that bank assets in three other eurozone countries were bigger as a percentage of gross domestic product than in Cyprus, where they amounted to more than 700 per cent of GDP in 2011.

In Luxembourg, the percentage was an astounding 2500 per cent, the economists said, while in Ireland they were more than 800 per cent and in Malta close to 800 per cent."


Appears entirely German in thinking considering their economy either decouples from the Euro, or enforces banking restrictions on the biggest threats to the EU project and its core unifying focus now, the monetary union.

Blogger Nate March 27, 2013 7:57 AM  

" I have no doubt, of course, that the various governments will be doing their best to inflate, the question is whether they can actually manage to cut the link to credit or not."

Obviously I need to finish up my response post haste... can't have you wandering in the wilderness alone forever. Time to bring you back to the fold.

Come back to team Whiskey Zulu Vox. Come back. We have cookies... and my nespresso machine is nicer than yours.

Blogger GF Dad March 27, 2013 8:02 AM  

VD - if labor can move geographically, but the worker is tax by the homeland (as the US has decided to do in perpetuity), is labor really free to move?

Anonymous Salt March 27, 2013 8:15 AM  

In the US, I can see confiscation via banking but not a push into in your face hard asset forfeiture. There's that pesky gun issue. At least with the banks, they stand between the robber barons and the victims.

Anonymous ericcs March 27, 2013 8:28 AM  

"If the bank can't do it, then we'll talk to the shareholders and the bondholders, we'll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders..."

"..ask.." ??? I love this terminology. The banksters have taken a cue from the progressives. They attempt to maintain some kind of polite fiction that depositors have a choice, ie., they will be "asked". But just like progressives, they spew nothing but lies about feel-good intentions to placate the masses, while their real agenda is simply outright theft based on politicized whims of the moment.

And the rationale??? Nothing other than the tired old game of blame-the-victim. Gee, where have we seen that before? Welcome to the progressive Manichean world, where what they want is what they want just because they want it, and everyone else can go crawl into a hole and die.

Anonymous Alexander March 27, 2013 8:55 AM  

Whatevz yo, Cyprus ain't got no chili.

Blogger Billy Hall March 27, 2013 9:17 AM  

A very informative article and lots of really honest and forthright comments made! This certainly got me thinking a lot about this issue so thanks a lot for posting!
Arlington Roofing Company

Anonymous Dot connector March 27, 2013 10:39 AM  

"Afterall, it could never happen to anyone else!"

Dear LP999/Eliza identity theft is indeed a growing crime. I had false charges come from a USAA bank that caters to the military. But I am sure you wouldn't be surprised to find that the leftards and their goons ie... police in leftist cities are light on that crime too especially if the perpetrators are non-white. Might I suggest a credit union, they are better at catching those charges and are less likely to blame the victim like a 'TBTF' leftard bank would do.

Blogger Nate March 27, 2013 10:40 AM  

My response is up boys.

Anonymous Clay March 27, 2013 11:19 AM  

Roatan is my dest. & quickly as I can.

Blogger James Higham March 27, 2013 11:21 AM  

They're not even trying to cut the link to credit.

Blogger James Dixon March 27, 2013 11:30 AM  

> Hear that, guys? By depositing money in a bank account, you're assuming the bank's risk.

That's always been a given, Sigyn. It's just that the government has done its very best over the past 80 or so years to hide that fact from the average person. To the point where it's considered not to be the case by the average person.

And, in point of fact, there's been some reason for that view. Major safeguards were put in place to the point if, were the rules actually followed, it would take a major bank run across numerous institutions to bring the system down. But first they did away with a bunch of he safety rules, and now they're changing the rules on the fly to benefit the politically connected, so all bets are off.

Anonymous Daniel March 27, 2013 11:37 AM  

OT: As predicted by several of the Ilk - Groups Refuse to Pay Bounty on Cop-killer's Corpse

Blogger JDC March 27, 2013 12:28 PM  

@Nate - I read this article hunting at Wal-Mart and wondered what Nate was doing so far north.

Anonymous Clay March 27, 2013 12:58 PM  

@JDC

I think the Nater doesn't hunt deer. He's moved to the TRUE SOUTH...and might shoot a pig or twelve.

Mebbe a feral ct or dog, tooo.

Anonymous Clay March 27, 2013 1:04 PM  

Damn, I hate you can't edit.

Blogger Nate March 27, 2013 1:13 PM  

Nate kills dear... though granted down here the dear are dog sized.

Blogger Nate March 27, 2013 1:21 PM  

deer.... dammit... hogs and coyotes too..

Blogger JDC March 27, 2013 1:43 PM  

Coyote hunting is fun. In MI, you can hunt all year if it is private property and they "have done, or are about to do damage." We all know what those clever little b**rds are up to. I'm now in the process of perfecting my soup to tan the hides. I'm finding battery acid isn't working as well as an alum mix...but may just break down and purchase the entire kit.

Anonymous Clay March 27, 2013 2:01 PM  

Woo-hoo! Coyotes are fun to shoot! I bought one of thos $275 little boom-boxes (remote control, even!)that will bring'em right in. "Wounded rabbit", seems to work best.

I've even seen the damn yotes attack the caller.

Only problem is.....I shot all the yotes on my place, so now I have to drive up & down the woods, to get permission to shoot other folks yotes. They would pay me per carcass.

No Sir/Ma'm.

My Pleasure.

Only had one woman tell me I couldn't, but have hand many people tell me t

Anonymous Clay March 27, 2013 3:31 PM  

Nate, there are some Humongous deer down here. They get big, because they're smart, they feed mostly at nite, and live a long time. Soy Beans. They sit in the woods, and watch the young backs and doe go out to feed in the fields, to make sure he doesn't get the lead suppository. Unforunately, I can't post pics of some of the Monster bucks that have been taken down here. They may be smaller than some Northern bucks in body-size, but, we go for horns and B&C

Of course, once the rutting season cranks up, the buck loses his mind, and that's when the big ones are taken.

I'm not saying this, because you don't know already, but to inform those who might not.

Blogger LP 999/Eliza March 27, 2013 4:11 PM  

OT: Updates - I totally forgot that I only keep 2 dollars in the account. I was wrong, we are actually $841.-- in the negative and every week we are in the negative we shall be charged $25 per week. Both org's are talking, trying to correct this error, I'm not yet ready to invoke WRE b/c they are trying their best and all parties know that both parents are sick. It is not like I am telling mom or dad about something that can be fixed with one keystroke.

The stunning factor was that the bank did use my entire mother's social sec. check as repayment. So now we only in the negative by $61.00.

Easter is still easter and nothing is going to ruin it. All these errors and lessons are just lessons for the future and exhibiting kindness.

Anonymous MendoScot March 27, 2013 4:52 PM  

This morning the Argentine government announced that farmers who failed to put their soy stocks on the international market to generate dollar income for the Central Bank would be charged under the Prevention of Terrorism Act. 7/8.

I can't agree that the Falklands would be the war target. Argentina has simmering border disputes with all it's contiguous countries.

Anonymous Dot connector March 27, 2013 4:53 PM  

"every week we are in the negative we shall be charged $25 per week."

LP that definitely sounds like what one of the national TBTF banks would do. Credit unions are loosening their membership requirements and they would more than likely catch any strange charges like that one and ask you before they processed it saving you lot of hassle. There is probably one in your area that you could join. Anyhow hope you have a great Easter. God Bless!

Blogger LP 999/Eliza March 27, 2013 5:09 PM  

"Direct confiscation: As Cyprus showed us, bankrupt governments are quite happy to plunder people’s bank accounts, especially if it’s a wealthy minority. Aside from bank levies, though, this also includes things like seizing retirement accounts (Argentina), increases in civil asset forfeiture (United States), and gold criminalization."

I could not help but wonder if this is exactly why capitalism for gov't workers is great, they think the more money people earn, the more that shall be plundered, err, confiscated in tax revenue, redirected to pay down nat'l fiat/fake debt. Whatever it is, whomever it us, wants mo money and isn't going to stop.

Anonymous Concerned Rabbit Hunter March 27, 2013 5:31 PM  

I suppose I expected Adria Richards to say we should build a more welcoming developer environment, whatever that is.

Heat, Kitchen?

Anonymous kh123 March 27, 2013 6:20 PM  

"7/8."

It's like the film industry with the recent release of Jurassic Park in 3-D: They're so far out of ideas that they're recycling the old hits.

Anonymous Jack Amok March 27, 2013 11:18 PM  

Expanding credit ---> mal-investment.

bingo. All that Russian money flowing into Cyprus had to go somewhere to earn interest (at least in theory). If you don't have much of an economy yourself (what the hell does Cyprus make, anyway?), you have to find somewhere else to "invest." I guess for Cyprus it was Greek bonds.

Yeesh. I think Thomas Kinkaid paintings might hold their value better.
To expand on the equation, credit expansion => mal investment => banking crash => contracting credit

And then we're all rockin' Granddad's clothes. This is awesome.

Anonymous The other skeptic March 28, 2013 12:22 AM  

That's a very large number of venereal infections. Not good.

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