money

Cyprus and the Unraveling of Fractional-Reserve Banking

"The 'Cyprus deal' as it has been widely referred to in the media may mark the next to last act in the the slow motion collapse of fractional-reserve banking that began with the implosion of the savings-and-loan industry in the U.S. in the late 1980s. This trend continued with the currency crises in Russia, Mexico, East Asia, and Argentina in the 1990s in which fractional-reserve banking played a decisive role. Even more than the unprecedented financial crisis of 2008, however, recent events in Cyprus may have struck the mortal blow to fractional-reserve banking. For fractional-reserve banking can only exist for as long as the depositors have complete confidence." Continue reading →

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Post-Cyprus Blues: Confusion and an Erosion of Faith

"It may be misleading to project the crisis and resolution in Cyprus onto other quite different financial crises in other quite different economies. The common ground may be a rising fear of capital controls and the search for safe havens that won't implode or change the rules overnight. The sudden emergence of risk in what was perceived to be a safe haven will likely spark interest in non-banking safe havens, for example, precious metals, and what correspondent Mark G. calls the Glass Jar Bank, which he observes is still a popular alternative in Eastern Europe to entrusting one's cash to banks." Continue reading →

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See You in Court: Russians May Sue Over Cyprus Losses

"Big depositors- many of them Russian — face losses of up to 40 percent as the result of a so-called 'bail-in' to back 10 billion euros in EU financial aid to stabilize the Cypriot banking system. 'It's worth trying, it's not going to be easy, its not going to be a one-off, 24-hour court case, but the nature of the action itself sounds like expropriation,' said Andrey Goltsblat, at law firm Goltsblat BLP. There could be a basis to sue either Cyprus or individual banks, say lawyers who have been contacted by current and prospective clients seeking redress. 'People are just frustrated and ... are trying to find a way to get their money off Cyprus,' said Goltsblat." Continue reading →

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Cyprus’ New Reality: Cash Society Without Cash

"Cyprus’ sudden acquiescence to demands by international lenders to confiscate 40 percent or more of bank deposits over 100,000 euros ($130,000) and limit withdrawals to 100 euros per day, while keeping the banks shut, has turned much of the country overnight into a fright-filled society with many people unable to get their hands on enough cash to pay for anything except food. Credit cards weren’t being accepted because businesses believe they won’t be paid, making the instruments as worthless as the plastic of which they are made. Checks weren’t being accepted either as Cyprus has become a cash society, even if most people are cashless." Continue reading →

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Think Twice Before Accepting Bank Transfers For Online Payment

If you're a seller on Ebay or any number of other peer-to-peer commerce sites, chances are you've run into a buyer who either maliciously charges-back the transaction despite having received the product, or a buyer who is operating using someone else's stolen credit card or other financial account. The accepted wisdom is that a bank transfer is the safest payment option to accept, on the basis that it cannot be reversed once it is credited to the recipient's account. Unfortunately, that is not true in the case of ever-increasing online fraud. Continue reading →

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‘Mr. Yen’ cautions on Japan’s ‘unsafe’ debt trajectory

"'A debt ratio of 245pc of GDP is not really safe, and it is not happening because we are investing,' said Takehiko Nakao, Japan's 'Mr Yen' or vice finance minister in charge of the exchange rate. Mr Nakao said the scope for further fiscal stimulus is running out and the country must restore public finances to a sustainable path by the middle of the decade. The comments touch on an acutely sensitive topic. A number of global hedge funds and banks have begun "shorting" Japan's debt, the world's biggest at $23 trillion. They are mostly taking positions through the credit default swap (CDS) market, betting that Japan will be the next big crisis theme." Continue reading →

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Whom to Believe on Gold: Central Banks or Bloomberg?

"Based on current data, the net increase in central bank gold buying for 2012 was 14.8 million troy ounces – and that's before the final 2012 figures are in for all countries. This is a dramatic increase, one bigger than most investors probably realize. To put it in perspective, on a net basis, central banks added more to their reserves last year than since 1964. The net increase – so far – is 17% greater than what was added in 2011, which was itself a year of record buying. Whatever gold's price movements, positive or negative, central bank officials have continued adding a lot of ounces to their reserves." Continue reading →

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Bill Bonner: What a wicked world!

"The insiders risk losing everything if they run out of money. Without money, they can’t buy votes. They can’t continue to move resources to themselves. And they can’t afford their phoney programmes and claptrap redistributions systems either. In short, without access to money everything falls apart. So, a government such as Cyprus will do anything – including stabbing its major industries in the back – in order to keep the cash flowing. Cyprus is a tax haven and a money centre. Clipping bank accounts is ruinous for its business. But if that’s what it takes to stay in business, that’s what the Cypriot insiders will do. Is Britain different? France? America?" Continue reading →

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Thomas Sowell: Can It Happen Here?

"The U.S. government is very unlikely to just seize money wholesale from people's bank accounts, as is being done in Cyprus. But does that mean that your life savings are safe? No. If they do it slowly but steadily, they can take a big chunk of what you have sacrificed for years to save, before you are even aware, much less alarmed. That is in fact already happening. When officials of the Federal Reserve System speak in vague and lofty terms about 'quantitative easing,' what they are talking about is creating more money out of thin air, as the Federal Reserve is authorized to do -- and has been doing in recent years, to the tune of tens of billions of dollars a month." Continue reading →

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Federal Reserve Monetary Policy To Target Wealth Inequality?

"The gap between the wealthy and the rest of America is a hot-button issue in Washington-especially in the White House and Congress. Recently, the Federal Reserve has also taken a greater interest in the topic. And some analysts are asking whether financial inequality in the U.S. might soon become part of the Fed's decision-making process. In a recent research note, Credit Suisse research analysts Neal Soss and Dana Saporta wrote that 'the issue of growing income and wealth disparity in the U.S. is gaining stature among Federal Reserve officials and may become the next important macroeconomic variable for monetary policy.'" Continue reading →

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