The confiscation of money by Cyprus banks has some people scratching their heads wondering if such a thing could happen in the United States. If a bank suddenly can't pay back its loans to the Federal Reserve or other bigger banks, could it just take and use your money? The answer might be yes, because it's not yours once its on deposit.
The US Federal Deposit Insurance Corporation and the Bank of England just this past December discussed the issue in a joint paper. What most depositors probably do not know is that when you put your money in a bank account (checking too) it becomes the bank's money. All you have is a promise by the bank to pay you back. And of course, this is an "unsecured" debt of the bank so it is the lowest category of debt in bankruptcy and you could end up a total loser.
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.
If our IOUs are converted to bank stock, they will no longer be subject
to insurance protection but will be “at risk” and vulnerable to being
wiped out, just as the Lehman Brothers shareholders were in 2008. [Nation of Change]
Remember when I told you about the MASSIVE withdrawal of money from banks which took place just this past January? Might this first and early run on the banks have had something to do with this?
You might want to think about how you pay your bills and where you keep your money. I've been warning you about this for a long time.
It can happen anywhere, including the United States: the bank in Cyprus will seize deposits as part of a bailout deal negotiated with other EU financiers and a British party leader is urging depositors to get their money out of Spanish banks. While you go happily on, the coming crash in the United States is brewing.
I've done several radio shows about this, written numerous blog posts and tried to warn you for many years that our system of "fiat money" is tied to world events and far more fragile than you are being told.
Now it appears that China will soon over take the United States as the world's biggest economy by 2016. They have also recently joined forces with the Russians in what some are calling a great setback if not utter disaster for our country.
And every day the Federal Reserve is creating the illusion of liquidity with its monetary policy. That illusion is created through the borrowing system. When people say our economy is based entirely upon debt, they are right. There really is no money, or anything of tangible value represented by money. Our financial system is just an agreement between banks to honor each others debt.
When the day comes that the banks no longer honor that debt, we will have a crash, dollars will be virtually worthless and things will go very bad, very quickly.
What should you do? First educate yourself about what is on the horizon. Each person's preparation will differ depending upon your personal circumstances, but one thing is clear. We are far from being out of this mess.
Stock prices are high. Why? The old model of buying stocks with the hope that the dividend returns would give you a better yield than bank deposits has long since gone out of style. We are back to the Clinton years game of buying stocks with the hope of selling them at a higher price, and dividends don't count.
But there is another reason why the stock market might be running so high. It might be the same reason that milk prices are running so high, why gasoline prices are running so high and why interest rates at banks are running so low. It's called "inflation".
Inflation is a term that describes the amount of printed money in circulation. When the money supply is artificially excessive due to government printing of money the bubble of money "inflates". That makes every dollar out there worth less, which means it takes more of them to buy food, gasoline and yes even stocks.
But Bernanke says there is nothing to worry about. Really?
I wouldn't say it's time to panic, but I would say it's time to use your money to buy the things you might really "need" in the future and avoid buying just the things you "want" right now. The day might come when the things you "need" cost more than you "have".
Right now the Fed is printing money to help keep banks open. Why? Because they don't have enough money on deposit to cover the loans they have out or the expenses they must pay to stay open. And why don't they have enough money on deposit? Because so many of their loans have gone into default and had to be written off.
So a lot of the money you put into their bank which they then lent to others, isn't ever coming back. And since banks are permitted to loan far more than they have on deposit (because they borrow money from other banks at one rate and loan it at a higher rate) eventually banks may begin to default on loans from other banks and a domino effect of collapse would take place.
The Fed is propping them up right now with printed money loaned at zero percent interest. And what happens when it all comes tumbling down? You won't have access to what you thought was in your account, because the bank will be boarded up and out of business.
But won't the FDIC insurance cover me? If you are first in line, maybe, but they don't have nearly enough money to cover all of the deposits so those farther back in line could lose everything.
"Well isn't this just like Cyprus?" Not according to Benny at the Bank.
Cyprus does not pose a threat to the U.S. economy or financial
system and there are no signs of stock market bubble, Fed Chairman Ben
Bernanke said on Tuesday.
The Fed chief told reporters that
the central bank was monitoring the situation in Cyprus. "At this point,
we're not seeing a major risk to the U.S. financial system or the U.S.
economy," he said.
Bernanke added, "The only way they'd create
a problem is if the runs become contagious in some sense and other
countries lost confidence." [CNBC]
I wonder what they were telling the people in Cyprus before the banks confiscated the people's money? What? There was no warning?
Are you one of the fortunate to have money in the bank? Do you think the FDIC insures all of it? Well, maybe, but, maybe not. The FDIC insures up to $250,000, but the amount insured is the combined amount in all accounts held under the same social security number. Spreading deposits between banks doesn't increase the coverage.
And just in case you wondered how much of America's deposits are insured, well, total bank deposits in the U.S. are somewhere around TEN TRILLION
DOLLARS and the FDIC deposit insurance fund as of March 31, 2012 had a
whopping $15 BILLION.
Okay, you say, there is no chance the banks are going to fail. You are probably right, but consider this.
Banks loan out far more money than they have on deposit from customers. How much more? That all depends on how much the Federal Reserve has dumped into their accounts. Banks now have tons of money on deposit, but much of it was put there by the Federal Reserve, in other words, printed money to prop up the banks where customer deposits were falling dangerously low and constricting the bank's ability to make loans, the source of their income.
So might your bank fail? Well, what if the Fed one day, with the push of a computer key, decided to "sweep" all of their accounts? Suddenly the banks would have no money to loan, no way to make an income and this could trigger a run on the banks by other depositors hurrying to get their money out before the bank closed its door.
Then might you make a claim for your FDIC insurance? Sure, but do you think they are going to pay some people in full and leave others holding the bag? Probably not. They will probably pay some folks in full (guess which ones) and then pro-rate for the rest.
Take a look at the numbers above and do the math for yourself. Can you say 10 cents on the dollar?
Oh, and might the bank run have already started but you didn't know it? At least one source says it has.
For most people the concept of the Federal Reserve Bank is a combination of confusion over what it is and confusion over what it does. And within that group of confused people are a number of Congressmen and Senators. But for those who care to learn more, I recommend G. Edward Griffin's book "The Creature From Jekyll Island."
Griffin details the creation of the Federal Reserve, but not just from its charter. Griffin details how real wealth in the world has for centuries, been controlled by a very few people. The book illuminates the unprincipled lust for money which drove families like the Rothschilds to finance both sides in war, how the payment of interest has become a vast income stream of untold fortunes for a select few families and how those interests combined to reap huge profits from the economic engine of the United States by forming a private bank with a public name and fooling the US government and the citizens of America as to its purpose.
The bank operates in secret. Conspiracy theorists have linked the FED to the Kennedy assassination and the murder a number of other people who might have been perceived as calling for the bank to be disbanded.
No doubt the Federal Reserve is the driving force behind our monetary policy, largely responsible for our national debt and wields immeasurable control over the American banking system which of course includes mortgage banks and investment banks.
Ron Paul called for an audit of the Federal Reserve throughout his career. Rand Paul has now picked up that mantle and re-awakened the people to the need for this action.
Good for him. Keep this one on the top of your list of priorities. Make this proposal the signature win for Rand in the Senate. This move will help the entire nation and is maybe the best idea Rand has had to date, although he would certainly be the first to admit that he wasn't the first to think of it.
Would someone please explain to these guys in Washington that it is not their job to tinker with the economy? They need to stay focused on the limitations on their power, not continue to look for ways to expand it. They really aren't all that smart, nor do we need them to steer our businesses.
Most politicians in the most powerful positions in Washington agree
in private that there are a half-dozen or so big things they could and
should do that could put a rocket booster on the U.S. economy — but they
are too timid to say it in public.
This is the clear takeaway
from conversations we have had over the past three months with top
lawmakers, officials, their senior aides and the CEOs who advise and
lobby all of them. Many of the conversations were private but many were
not.
The current tax-and-spending debate only flirts with what these insiders
say needs to be done. Instead, top White House and congressional
leaders talk privately of the need for tax reform that goes way beyond
individuals and rates; much deeper Social Security and Medicare changes
than currently envisioned; quick movement on trade agreements, including
a proposed one with Europe; an energy policy that exploits the oil and
gas boom; and allowing foreign-born students with science expertise to
stay here and start businesses.
“Both Democrats and Republicans privately agree,” Warren Buffett told
us. “They just don’t want to be the first to speak out on their side.”
Erskine Bowles, a Democrat who meets regularly with officials at the
White House and in Congress, said lawmakers often plead to him: “Save us
from ourselves.”
The lure of having participated in designing the next boom economy is very enticing to lawmakers. But according to the POLITICO piece, the desire to get the credit gets in the way of getting anything done.
Sen. Rob Portman (R-Ohio) recalls a clinic Bowles held for senators on
long-term fiscal issues. Of the 45 senators who came in and out, almost
all agreed on what needed to be done — but few wanted to say it. The
reasons are simple: the polarization of Congress, the habit of wanting
to claim a political triumph instead of being party to a bipartisan
policy win and the belief the other side simply isn’t on the level and
trustworthy.
But there is another reason why many in America are starting to wonder if trusting any of these men with the kinds of decisions they are being called upon to make is good for the long term. It seems that once big businesses and multi-national corporations made government a player in their game of profit seeking, the rest of us became enslaved.
The country’s most influential CEOs, who have been meeting with Obama
and congressional leaders on these very topics, are telling them if they
do some or all of this, investment, market growth and jobs will quickly
follow.
Bank of America CEO Brian Moynihan said long-term commitments to
measures such as tax reform and trade would provide a “certainty
premium” that would help bring corporate cash off the sidelines. “If we
can just allow people to keep their confidence up by getting some of
these issues off the table,” he said, “you would see the economy grow
and momentum continue to build, and unemployment continue to ease down,
and housing starts [go] up and housing prices [go] up. All that will
continue to build on itself.”
Prior to the Civil War government kept a very tight lid on corporations. During Teddy Roosevelt's term in office we got the Sherman Anti-Trust Act and a renewed concern for the power of large corporations controlling the market. But today corporations not only have a corner on the market in areas such as food production, but they hold patents on seeds and control what other farmers can grow on their own land through lawsuits.
Since the railroads showed how corporations could influence politics,
large corporations have been using their power to push government
toward certain decisions.
Most corporations hire lobbyists who promote their interests
in Washington or state capitals around the country. The lobbyists look
at various bills that are making their way through the governmental
system and determine how it will affect the corporation. The bottom line
is always money. Corporations do not want to see government push
through legislation that might hinder the opportunity for an increase in
profits.
As personal citizens, management within a corporation is
likely concerned with environmental issues or the opportunity for family
members to take time off to be with a sick loved one. As a corporation,
however, these issues can cost the company from increasing revenue – or
worse, work at a loss. Therefore, it is vital for the corporation to
push through their agenda rather than promote an agenda for the good of
the country. This is possible because the corporation is able to donate
large amounts to political candidates, something that private citizens
are unable to do. [corporatehx.com]
While you are busy trying to keep your home, put your kids through school and plan for the future of your own family, others have persuaded you to give them a fat paycheck so they can go off to Washington, cozy up to corporate lobbyists and find a way to help certain businesses make more money by the use of government taxation, regulation and legislation.
This Christmas, instead of a nice Currier and Ives card, why not send your Congressman a note that simply says, "I'll be watching you like a hawk."? That's what they deserve and really, that's what you owe to your kids.
Maybe the importance of the Fiscal Cliff thing is lost on you. Maybe you see the problem as something Congress needs to sort out in order to pay "it's" bills. But you may be missing something even closer to home. The coming crisis (no longer just a 'looming' crisis) could end up taking all of your money from you. Here's how.
Student loan debt now exceeds $956 billion, larger than the auto loan debt or the credit card debt for the entire nation. The default rate is climbing. The 90 day default rate recently passed 11%. In 2007 when the housing crisis began the 90 day default rate was 16%. It then got to 21%. If the fiscal cliff issue isn't resolved the student loan defaults will be devastating.
So how does this affect you? Well, your money, where ever you keep it, isn't there. It's out on loan. And if those loans don't get repaid, you can't go get your money. And if you can't go get your money, you can't pay for food, or housing or electricity.
When people begin to sense that they might not be able to get to their money, whether this weeks pay check or a life's savings, then a panic sets in. Checks, debit cards and credit cards are no longer accepted forms of payment. People will demand cash, because they can't get any of their own.
Prices will skyrocket. It will take hundreds of dollars to purchase what used to be available for pocket change.
The banks will close their doors. The federal government will be called upon to print more money to help failing banks. But the money the print will be worthless, other countries will stop taking it in payment and things will get very ugly very fast.
If there is going to be a run on banks, you ought to consider when you are going down to get your money out, how you are going to pay for things in the future and what you can do to prepare now.
As news reports about talks to avoid the "Fiscal Cliff" fill the day, one recently revealed organization may be masquerading as an effort to "help the nation" while in reality it might be a very specialized effort designed to help the very wealthy at the expense of the most needy among us.
Have you heard about the Campaign to Fix the Debt? It sounds like an
initiative that our country needs at this time. Mark MacKenzie,
president of the New Hampshire AFL-CIO, said the campaign “presents
itself as a grassroots, bipartisan organization that is committed to
lowering our debt. It sounds good, especially in today’s environment of
extreme partisanship and political maneuvering.” Mackenzie warns,
however, that Fix the Debt’s “major contribution to the conversation
over the fiscal cliff is that while the George W. Bush tax cuts for the
wealthy and corporations should be off the table, Americans’ retirement
security and health care most definitely should [not] be.”
I am going to say it again, keep your eyes open for this kind of play. Once the decision is made where the cuts are going to come from, it might be to late for grandma to be spared the knife.
Outspoken conservative Sen. Jim DeMint (R-S.C.) voiced opposition to House Republican leadership’s most recent offer on the fiscal cliff, decrying it as “Speaker Boehner’s $800 billion tax hike.”
DeMint’s
opposition comes as prominent conservatives including Heritage Action
and RedState’s Erick Erickson have also criticized the deal.
Okay, let's assume that the hard liner types who insist that there be no tax hikes and that there be substantial and deep cuts to federal spending win. What happens then?
Where will the cuts be made? Will social security benefits to millions of Americans trying to live on less than $1000 per month be cut, or their medicare insurance costs go up? Will we refuse to replace worn out equipment in our military? Will women and children receiving food stamps or other forms of welfare have to do without? Will military veterans find their benefits cut?
Will retired government employees have to sacrifice the pensions they depend on to live in order to pay current employees? Will the government begin to collect taxes with guns and the confiscation of homes and property only to find that they can't be sold in a nation without capital?
Seriously, what is the solution?
We all know that Obama could tax the richest among us at 100% and it would not solve the issue.
What have nations done throughout history when they ran out of money and needed, or simply wanted more? They invaded other countries and stole their riches as the spoils of war.
We have a president who is inspired by a personal philosophy which is born of a deep hatred for these things which have happened in the past. He hates what he perceives to the "colonialists". He wants to re-distribute the wealth. He wants to tear down greatness to make everyone equal.
Is it possible for us to solve this issue politically? Is there an economic reality which can be achieved which will cure our illness?
So far I'm not seeing that solution rise to the top of the discussion on any side of the debate. Not among the hard liner republicans, not among the Boehner compromisers, and certainly not among the Obama socialists.
Discussion of how the US might get into a war with Iran has now gotten to the point where the creation of a "false flag" incident is being publicly discussed as a possible strategy for Israel to use. This from Jonathan Turley:
Many critics have argued that there is a concerted effort to push the
United States into a war with Iran by supporters of Israel. Patrick
Clawson, director of research for the highly influential pro-Israel
Washington Institute for Near East Policy (WINEP) think tank, seemed
intent to prove those rumors true this week in comments as a luncheon on
“How to Build US-Israeli Coordination on Preventing an Iranian Nuclear
Breakout.” Clawson casually discusses how to create a false flag
operation to push the U.S. into war to overcome any reluctance by the
public. We have been discussing how many leaders like Senator Joe Lieberman
had begun to use the same rhetoric that led to the last two wars in
Iraq and Afghanistan and how the suggest timing of an attack has been tied to the presidential election.
In his remarks, Clawson helpfully lists a series of historical events
used to push the country into war like the Gulf of Tonkin incident that
gave us the Vietnam War. Clawson expressed his frustration in
acknowledging that it is “[v]ery hard for me to see how the United
States President can get us to war with Iran.” However, there is hope.
Clawson explains that the “traditional way” to get the country into a
war is through false flags or manufactured incidents where Americans are
killed. Thus, he observes, “we are in the game of using covert means
against the Iranians, we could get nastier about it. So, if in fact the
Iranians aren’t going to compromise, it would be best if somebody else
started the war.”
The fact that one of the leading analysis for the WINEP would feel
comfortable in making such comments is itself quite chilling. It
indicates that such discussions have become sufficiently regular that it
has creeped into public discussion.
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