Global Confidence Hanging By a Thread
The Cyprus bank holiday is now extended until Thursday while Eurocrats figure out how to pull their head out of their own ass. Meanwhile, we are told that the "damage" is done, because this entire fiasco impairs global confidence in "deposit insurance". Apparently, Cyprus is the only thing standing between us and our trust in the global banking system. Suffice to say that if the fate of the global financial system now hinges upon the whims of a country smaller than a million people whose island is a safe haven for Russian mob money, then the globalized Ponzi is already fucked company. All we are doing now is waiting for Wall Street and the Idiocracy to shit its pants again - and then take notice. Even as I write, the Cypriot Parliament rejected the Eurozone's bank bailout offer, so they are not exhibiting what one would describe as a constructive approach. Last year, around this time, the fate of the world economic system hinged on the troubles of Greece, a nation of 11 million people. At this rate, soon a single bounced check at a payday loan store will collapse the global economy...
The Problem with Deposit "Insurance" Is That It's Not Insurance
Here in the U.S., we are told that there have been no losses on deposits since the Federal Deposit Insurance Corporation (FDIC) was created back in 1933. That's an accident of history. Had the FDIC been created in 1929, that same assertion could not be made, because the bank runs of the Great Depression occurred in the years leading up to and including 1932. The reason that it's not really insurance is because the FDIC is required to maintain a mere 1.15% required deposit reserve fund, and apparently they can't even maintain that level. Of course, even at that puny threshold, a 1.15% reserve ratio in banking terms is like jumping out of a 10 story window and using a pillow to break your fall. Yet, since 2008, the fund has been pounded by ongoing bank closures, so as of one year ago the fund balances stood at $11.8 billion or equivalent to .17 % of deposits. $11.8 billion now "insures" roughly $7 trillion in deposits. Apparently the fund will top out at 1.35% by 2020 - 12 years after the financial crisis. On the bright side, Zerohedge informs us that most Americans don't have any money that needs to be insured.
[Original Post: March 18th, 2013]
In the Idiocracy, risks are ignored as long as possible, and then a while longer. Of course, the biggest headline over the weekend was over the Cyprus bank deposit confiscation to fund the bank bailout. Given that the country is a haven for Russian mob money and has a banking sector 8 times the size of the economy, who knew something like this could ever happen?
I said back in October, that the most likely catalyst for a global bank run, would start in some small corner of the world and work its way out from there...So far, so bad. Too early to tell if this one gets out of hand or not. I also said in that same post that the global carry trades would be the real problem when the flight to safety gets underway. And of course, over the past several months, the carry trades went supernova as first the U.S. and then Japan went into overdrive handing cheap loans to speculators which they could use to buy up global risk assets at 10x leverage until such time as it all blew up in our face. The amount of leverage in the gloal markets today due to these debt monetization programs, dwarfs what obtained in 2008, and therefore the amount of market risk is commensurately higher.
History 101: Never Go All In Against the People
Of course, the Lost Boys of the Idiocracy (aka. apologists for the status quo) are outraged that any Cyprus-like confiscation could ever occur. The sheer "idiocy" is contagious ! The concept of "private property" is now in question and Socialism and Communism are running rampant. Unfortunately, the "idiocy" has been taking place for decades as the concentration of wealth is greater now than at any time in human history. The number of billionaires has grown 10 fold since 1987, and the distribution of wealth is such that the top 1% of people globally have twice as much wealth as the 90th percentile of people. So anyone who is "shocked" by what happens next is not only clueless about history and reality, but deserves their certain fate. Again, nothing matters until it matters. These godless morons were never outraged that the world economy had turned into a Ponzi Scheme to their benefit, only now do they express outrage because their wealth and assets are finally at risk.