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Author: yodaorange Big red star, 1000 posts Feste Award Nominee! Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 455709  
Subject: Cyprus or US: Who is the sucker? Date: 3/20/2013 4:36 PM
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Look Around the Poker Table; If You Can’t See the Sucker, You’re It [1]

With every breath of financial air you take it these days, you get a dose of the Cyprus banking fiasco. By now, everyone knows the basic situation:

1) Cyprus banks need an emergency loan in order to remain “solvent”
2) The EU/ECB/IMF offers them a loan, but demands accounts with >= 100K Euros forfeit 9.9%, accounts less than 100K must forfeit 6.75%
3) The public did not receive the forfeiture message well. They took to the street in protest. You likely have seen photos of them with “NO” written on the palms of both hands.
4) Lots of other details that are not pertinent to my point can be found here [2]

What I find interesting is how this compares to the US.

1) Federal Reserve forces short term interest rates to ~ 0% in 2008
2) Inflation remains ~ 2% per year
3) Short term funds, for example Money Market Funds, traditionally have positive real returns, i.e. greater than inflation. Let’s stipulate that MMF funds would be ~ 2.5% in a “normal” environment
4) American depositors and savers are “forfeiting” 2.5% per year, starting in 2008. Counting 2009,2010, 2011 and 2012 collectively the forfeiture is 10% which EXCEEDS the maximum forfeiture in Cyprus
5) Maybe I missed it, but I do not recall seeing any protests anywhere in the US over this 10% forfeiture.
6) This forfeiture is called Financial Repression which I have posted on before. [3] Carmen Reinhart has written on this extensively. The essential elements are to force negative real interest rates and have “capital controls” in some form. The major beneficiaries of Financial Repression are the US government and banks.

Comparing Cyprus to the US:

1) Cyprus account owners are being asked to do financial repression in one operation, like amputating an arm or a leg.
2) American account owners are being bled to death by a thousand cuts
3) Cyprus citizens have rioted and are influencing politicians to possibly alter their behavior
4) American citizens are doing . . . nothing . . .

BOTTOM LINE is that American’s are the suckers at the poker table. They have been financially repressed to a greater extent than the proposed Cyprus repression without protest. Bottom line to the parties in the Cyprus bailout: confiscate the same amount of funds at a slower pace and all will be fine. Ask the US how to do this, they are experts at it.

Thanks,

Yodaorange



[1] Origin of the Sucker at the Poker table quote, Warren Buffet used a version in 1988
http://quoteinvestigator.com/2011/07/09/poker-patsy/

[2] Cyprus bank bailout FAQ’s by Washington Post
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/03/18/e...

[3] Yodaorange post: Financial Repression: Why You Should Care<i/>
http://caps.fool.com/Blogs/financial-repression-why-you/7820...
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