Cyprus is the crisis of the week. Bailout or bail-in, one thing is for sure there will be winners and losers and justice won’t be done.
The borrowers win and the savers lose.
There are many lessons to be learned or underlined. Here are some.
Your money is never safe.
Whatever they tell you, whatever has gone before, whatever you do, your money is never safe.
Even US treasury bonds are not risk free.
There is always someone or something trying to get at your money. From bank robbers to burglars, to financial companies fleecing fees, to stealth taxes, to financial repression, these are all hold ups of one sort or another.
Always imagine you can lose whether you put your money in a treasury bond, a property or a crazy pink sheet. They are all on the same axis of risk and no asset sits at zero.
Governments will grab the biggest pot of money easiest to hand when it wants or needs money.
Sadly governments are never comfortable with the idea of private property. Your earnings are in their minds theirs. The state and state spending is a world of its own and the machine must be fed.
One way it gets fed is by collecting mountainous pots of private capital together in huge easy to access pots which it can then raid. Whether this is pensions or bank deposits, it’s the same mechanism. Round up industries by regulation into a small number of big players, then take control of the money flows.
Strategically you should try to keep your assets away from these pools unless you can exit them easily. Unsurprisingly, exits are very often gated to stop you leaving.
Hogs get fed, lambs get slaughtered.
So savers in Cyprus had their money confiscated. Did you hear the borrowers got an equivalent surcharge? Why not, they after all caused the mess. Do expect justice. The bond holders, well that would be the EU itself, no haircut there then. So the savers got hijacked and the pigs got off free and kept their low interest rates. At least don’t be a lamb.
Diversify your assets.
Spread your money. Have multiple banking arrangements. The more money you have the more completely separate arrangements you need. Keep your money in blocks easily enough to move in a single phone call. Ive heard stories of people with millions unable to get access to their accounts to move funds, even in countries without problems, because the amounts were too large. Know the insured amount and the instant access maximum and use the account accordingly. Small sums move through gates quicker.
However its not just about spread, its also about liquidity. For example if you want to buy gold, don’t buy 1oz coins, buy 10 10th ounce coins. In an uncertain world liquidity is very important. Cyprus capital controls kill liquidity, so you can tell, liquidity is your friend and not the friend of those who would plunder your assets.
Who would do that in America though? It couldn’t happen here?
All I can say is Executive order 6102.
In 1933 FDR confiscated all the gold at $20 and 67 cents an ounce then months later devalued the dollars he gave in return by revaluing Gold to $35. This effectively cut the value of savings in half.
Align your finances with the finances of your government.
If you country is a hard work efficient administration which carefully looks after its affairs and runs balanced budget, do likewise. If the country is borrowing and spending like a sailor, do the same.
Well not quite. However realise that the behaviour of the government is the path that will be facilitated because government needs to oil the wheels of its trajectory.
If the government is borrowing at low interest, then borrow at low interest too, the difference being, buy hard assets with the borrowings rather than waste the money.
The government will have to forgive its debts and likely yours too. How? Inflation.
That might sound weak, but imagine you are banking in Cyprus and have levered up on say stocks. You have a loan with the bank and an overdraft. Do you care?
It is alright to be a puritan supping gruel while the world is parting, but when the reckoning comes, it won’t be the revellers paying, it will be you.
The situation is both dire and fascinating but the real lesson is not in the headlines.
Cyprus followed the path of credit boom, property boom, tax boom, state boom, credit bust, property bust, tax bust, state bust.
Notice there is no mention of banks in that statement and that’s because banks are just the vending machine for government policy.
While it might seem to have blown up overnight, the Cyprus crisis has been brewing for years.
It’s the same crisis that hit Iceland, Ireland, Portugal, Spain and Italy.
It’s the same crisis brewing in America, France and Japan.
The Cyprus situation is a product of chronic government behaviour and its acute actions today are neither the cause or the solution to the problem of unsustainably indebted first world countries.
The governments and institutions have been hollowing out the wealth of their nations for a decade. If you want to see where it all went, just go to Asia.
Chronic looting is the bane of finance be it at a state or private sector level.
It goes both unnoticed and unpunished.
For example in the UK the pension industry appears to have turned in a performance half that of the Dutch pension industry. No one is crying robbery, because it is a crime that has been perpetrated slowly. No one even thinks of it as a crime all the while vulnerable pensioners have to scrape by on half the monthly money they would have got if their money was looked after a few hundred miles away.
The government looted British pensions and so did the industry. What is more the process continues unabated.
Strategic diminution and confiscation is woven into the fabric or our society.
Chronic action is how US income tax went from 2 per cent on incomes over $100,000 (in inflation adjusted dollars or about a third of a million in gold value adjusted dollars.) to where it is today.
The gentle goose plucking of Colbert goes on. Whether a shorn Sheeple, a boiled frog or a slice and diced customer, the result is the same, loss. The results and the realisation might be acute but the mechanism was chronic.
Chronic is what really decides your future.
To avoid the acute you have to track the chronic because if you don’t one day you will see that the thing you thought you had or were going to get is gone.
That thing could be your pension, your savings, your lifestyle or even in the case of health insurance or provision, your life.
Cyprus should be a wake up call to us all.