The Slog plots the course of a deadly global chain reaction
How the rape of Cyprus will torpedo the banking system
I’ve been moving money around over the last few days. I still am, and I don’t know many people in my immediate circle who aren’t. We all seem to have the same aim: to be in the safest place with the safest currency. And the catalyst for all of us busily doing this is specifically, the Cyprus bank heist involving depositor confiscation; and leading on from that, the growing evidence that the political and financial Establishments globally have every intention of applying such glorified State theft in the future.
What I want to do in this piece is posit a hypothesis about just how nasty this could all get – and how quickly. But first let me offer you some evidence thus far that all trust in Sovereigns keeping their fingers out of our tills has disappeared for the majority of those who are awake. As I’ve said before, nothing gets Fritz, Pierre, Tommy or Vladimir off the sofa quicker than a Sovereign with a bad kleptomania habit.
Simply because French President Francois Hollande pushed through a raft of tax rises and stepped up his campaign against the rich – no obvious grand larceny involved – France suffered a surge of capital flight in the second half of 2012. The net loss in just two months was over €50 billion. Six months before that – when the Spanish situation looked dire – €100 billion flew away in ten weeks.
On Tuesday, a German opinion poll showed that only 2 in 5 Germans trust Merkel when she says their money is safe in a bank. That is incredibly significant.
Last weekend, the leader of Britain’s fast-growing anti EU Party UKip advised British expats to put their money in Spain somewhere offshore. Hardly anyone dismissed his comment as scaremongering.
Yesterday, credit agency Moody’s issued a strong advisory document to clients opining that the EC/ECB lunacy in Cyprus had set a dangerous precedent for future rescue efforts, and by definition made the region more prone to bank runs if depositors in other debt-strained countries think their money is no longer safe.
“Policymakers appear very confident that market conditions are benign enough and that they have the tools to avoid contagion to other peripheral economies and their banking systems,” Bart Oosterveld, managing director of sovereign risk at Moody’s, told Reuters,”but we think that that confidence may well be misplaced.”
Last night into the early hours, I spoke to five senior manufacturing corporates in the US. Of the five, one was already withdrawing money from Europe, three were actively considering it, and one was due to raise it at a Board meeting this Friday. None of them were doing nothing about it.
As I’ve said previously here at The Slog, the trouble with allowing a piece of Dutch Gouda like Jeroen Dijsselbloem to chair the EC’s FinMin group is that while he might be terrific with red wine and French bread, he knows less than nothing about econo-financial anthropology, and he has never worked in a proper commercial capacity. Neither he – nor Rehn, Schäuble, Asmussen, Moscovici, or the rest making up the numbers – either like or understand genuine free markets and the way they operate. They are just so many Canute courtiers telling the Fuhrerine in Berlin that she can push the waves back…or contain them in a bottle.
But Cyprus taught us how quickly the big, hot and smart money disappears. It happened so fast, in fact, that the Cyprus Bank depositors left behind – the entirely innocent in most cases – will pick up the bill. Not oligarchs, not ESMs, not ECBs, and most definitely not Berlin: just ordinary savers who have amassed €100,000 euros during a lifetime. People like this are not the self-styled élite: they’re you and me and people we know. (And if it’s not you, then you have my genuine sympathy…but it should still concern you).
So: we have some evidence. We know human nature. We see the danger. And we have a situation complicated by the fact that there is, as regards the ECB, only weekly reporting of capital flight from the eurozone. Research and experience show that this isn’t fast enough: a week is a long time in Cyprus.
For Mario Draghi, however, I’d imagine it’s too frequent: what Dracula in his dark underground cave would like is no reporting of it. But there you go: he’s stuck with it…or is he? The past is no guide to the future…especially not in the EU. Go to the ECB website, and you will note there that the Central Bank hasn’t released any financial stats for over a week now. You may also spot that the open-request search engine box has disappeared. Monetary, financial markets and balance of payments statistics haven’t been updated at all for over a month.
Yesterday’s EC FinMins document (about which Djisselbomb knew nothing, it seems) contained this rather toxic ‘Emergency Decree’ style paragraph (my emphasis):
‘Member States may introduce restrictions on capital movement, including capital controls, in certain circumstances and under strict conditions on grounds of public policy or public security. In accordance with the case law of the European Court of Justice, measures may also be introduced for overriding reasons of general public interest.’
So then, strict rules…followed by, er, measures. Measures? What kind of measures guys? I suspect they mean “we can do anything we want in the public interest”. Uh-huh.
What we can already see – in the Target2 data – is that the eurozone was severely lopsided long before the Cyprus bank job. Target2, by the way, stands for Trans-European Automated Real-time Gross Settlement System. It is the much-abused payments system that conveniently enables citizens across the euro area to settle electronic transactions in euro. And at just over €500 billion, for example, TARGET2 claims on the Eurosystem are the largest and fastest growing item on the Bundesbank’s balance sheet. Very mind-concentrating if you work in Frankfurt, or rule from Berlin.
Anyway, capital flight data. With its usual prescient accuracy, PIMCO opined recently (my emphasis) that:
- The large TARGET 2 positions developing among national central banks in the eurozone reflect capital flight from the periphery to the core, and de facto introduce transfer and burden sharing elements of a common fiscal policy.
- Monetary policy ends up substituting for fiscal policy without going through the same democratic channels that governments’ expenditure and taxation decisions entail. Taxpayers in the eurozone are contingently liable for eventual losses incurred by the Eurosystem’s monetary policy operations.
And also, of course, they’re the ultimate payees when f**kwits at the top can’t even close a bank competently. But to the above analysis now, we need to add ‘bank depositor’ to the term ‘taxpayer’. It’s the same poor mugs, just being stung twice. The pocket-book is emptying, the salary is standing still, there’s no interest to live on, and there’s that €100K nest egg sitting in RBS. Dear God, what a nightmare thought for anyone: Stephen Hester having direct access to your money.
Nothing – and I mean nothing – directs you to eurozone capital flight data on the ECB website. It is missing from all the usual places: I’m sure it’s there somewhere, but the point is it’s not easy to find. Again, no doubt the Eunatics think this is a smart move, but it isn’t. It will just make depositors in the eurozone more suspicious. Beyond the ECB’s site, Google ‘ECB capital flight data now’ or variations on that theme, and nothing comes up beyond ancient papers or the capital leakage from Spain over a year ago.
But enough of this: deliberate bureaucratic obfuscation is not exactly news. My fear this morning is that what we’re going to see is a capital flight chain reaction that goes way beyond either Cyprus or the borders of the EU.
Within the EU itself, The Slog exclusively revealed yesterday that Djisselbloem already has a concerted, worked out process for establishing capital controls right across the eurozone. In the last 24 hours I have spoken with twenty or more opinion leaders in investment, banking and currency controls. There was a unanimity among those people that the entire eurozone will have blanket currency controls within two months at the latest…because without that, the capital flight would be irreversibly disastrous for the region. It is in fact significant that none of those with whom I spoke were even slightly surprised by The Slog’s scoop: the main fear they had was whether the eurogroup would get its act together in time to stem the outflow.
Here’s how it will develop – in my view. Many US corporations will move their eurocash back to the US. Some, however – and millions of richer US citizens – will have been alarmed by Bernanke’s yes-no-maybe-hard-to-tell-panic-not-sure ‘answer’ to a question at his last Fed press conference about Washington thieving from private bank accounts. Throughout the West and the Anglosphere, in fact, evidence built up last week to demonstrate that almost every State in those regions had a Djisselbloem Plan to steal our money, and contingency plans to control money flows.
“Given the current atmosphere,” a senior wealth adviser told me this morning, “Why would you not get your money out?”
My hunch is that the vast majority of the capital flight will go to Asia. Once there, it will do one or more of the following things: buy property, buy gold, or buy dollars. Although we are talking enormous sums of property money here, we aren’t talking about anything beyond perhaps 100,000 people: the Glitz Bricks trend I identified seven months ago will simply heat up. Thus there is unlikely to be a bubble there: but there will, I’m sure, be a rapid advance in the price of gold bullion. And the Dollar must strengthen as millions of private investors in turn see that as the best currency for their liquidity to rest in while they think about it.
Put those two factors together, and you have a major problem for US exports, and a major devaluation of Sterling. The rare (not to say unique) result of those will be a US debt and deficit getting bigger faster, and a run on the Pound coupled with declining UK exports in a depression-spiralling world. If the Fed can no longer fiddle the gold valuations (it’s an expensive process) then there will in turn be a run on America’s stock markets towards bullion, and a knackered US Bonds sector terrified by Washington’s debt trap.
You don’t have to be a rocket scientist to work out what happens next: things will get Draconian, citizens will at last get angry, and politicians everywhere will panic as they realise that citizens with less and less money simply cannot pay more and more tax. Not only will they not pay: they will finally grasp how a few gangsters and incompetents have screwed them royally.
The prow of the Titanic is out of the water. Looking at the situation today in an atmosphere of rural calm here in France, I find it very hard indeed to escape the conclusion that we are reaching the exponential acceleration stage of the econo-fiscal globalist model’s descent to the seabed.
Having so stupidly let the genie out of the bottle, Brussels-am-Berlin have at most a week to lasso the ether and get the bugger back in again. I doubt very much if they can do it.
Any more than I can blend torpedoes, Canutes, Titanics and genies into a consistent metaphor. Stay tuned.