Little Greece, smaller Cyprus
Remember in 2009 when Greece began to fall apart. At first the conventional wisdom was what material impact could this small country have on the Eurozone, much less the world economy. This small country with no industry to speak of other than tourism and olive oil, plus a massive shipping industry that went untaxed and kept all of its funds offshore. Though large and influential, the shipping business was more of an international industry run by greedy, corrupt, and anti-philanthropic egotists that were not central to the Greece's participation in the Eurozone.
That some European banks had lent openly to Greece by looking through Greek profiligacy and depending on the Euro relationship, losses that may be incurred there were seen to be digestable and subject to negotiations and extensions.
What a mistake these assumptions were. Greece's woes were the beginning of the Euroland recession, the Euroland discord, and many chaotic decisions.
Now we have even smaller Cyprus. Again some academics and pundits, even on Bloomberg news and PBS news hour last night, discounted any impact of the Cyprus situation on the broader economic landscape. Do reports that put Cypriot bank deposits at many multiples of Cypriot GDP( 80x, 8x, 4x) who knows but the numbers are alarming and should have been alarming for a long time). Cyprus seems to make the Cayman's look like chopped liver.
This of course is not the fault of the average Cypriot citizen. It is the fault of the banks and the government's willingess to encourage Russian oligarchs to hide and launder money through their banking system. To steal savings deposits from average citizens should be criminal.
The stodgy short sighted Brussels group that created the solution to this could have possibly opened a Pandora's box that will spread new thoughts of government wealth confiscation elsewhere. Even if that does not actually happen, just raising the thought was a dangerous confidence warning. From this perspective, what has happened in Cyprus should not be taken lightly or be brushed off as something of little importance. That will take time to know.
That some European banks had lent openly to Greece by looking through Greek profiligacy and depending on the Euro relationship, losses that may be incurred there were seen to be digestable and subject to negotiations and extensions.
What a mistake these assumptions were. Greece's woes were the beginning of the Euroland recession, the Euroland discord, and many chaotic decisions.
Now we have even smaller Cyprus. Again some academics and pundits, even on Bloomberg news and PBS news hour last night, discounted any impact of the Cyprus situation on the broader economic landscape. Do reports that put Cypriot bank deposits at many multiples of Cypriot GDP( 80x, 8x, 4x) who knows but the numbers are alarming and should have been alarming for a long time). Cyprus seems to make the Cayman's look like chopped liver.
This of course is not the fault of the average Cypriot citizen. It is the fault of the banks and the government's willingess to encourage Russian oligarchs to hide and launder money through their banking system. To steal savings deposits from average citizens should be criminal.
The stodgy short sighted Brussels group that created the solution to this could have possibly opened a Pandora's box that will spread new thoughts of government wealth confiscation elsewhere. Even if that does not actually happen, just raising the thought was a dangerous confidence warning. From this perspective, what has happened in Cyprus should not be taken lightly or be brushed off as something of little importance. That will take time to know.
posted by John Borden at 10:16 AM
2 Comments:
If this idea has any potential of spreading over time, should one just put their savings in "too bit to fail" U.S. banks or load up on gold that has backed off in recent months.
No, I don't think so at all. The U.S. economy is making steady if slow progress. While we can't predict negative exogenous events, some exposure to equities is almost essential to building retirement assets. We should certainly realize that at best Social Security will stay at the minor levels that it is at and may be taken away or taxed away from individuals with any level of assets. Index funds with Vanguard, Ginnie Mae guaranteed funds, strategic balanced funds with Fidelity, and many other less risky equity exposure funds are available. Do keep so me cash, money markets and gold for a rainy day, or maybe five years of rainy days and a sparse livelihood
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