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What’s Money Anyhow?

March 23rd, 2013 - 2:26 am

With Cyprus unable to convince anyone to bail it out the banks will remain closed until at least next week.  And when they reopen they may be subject to capital controls.

“The purpose of this law is, in case of an emergency for purposes of public order or security, to assign powers to the (Finance) Minister, or the (Central Bank) governor to take and impose temporary restrictive measures, including restrictions on capital controls,” said the bill, a copy of which was seen by Reuters.

Nobody knows exactly what this may involve. But Max Keiser notes that the restrictions could include, but not necessarily be limited to the following:

Restrictions in daily withdrawals
Ban on premature termination of time savings deposits
Compulsory renewal of all time savings deposits upon maturity
Conversion of current accounts to time deposits
Ban or restrictions on non cash transactions
Restrictions on use of debit, credit or prepaid debit cards
Ban or restriction on cashing in checks
Restrictions on domestic interbank transfers or transfers within the same bank
Restrictions on the interactions/transactions of the public with credit institutions
Restrictions on movements of capital, payments, transfers
Any other measure which the Finance Minister or the Governor of Cyprus Central Bank see necessary for reasons of public order and safety

The de facto capital controls began when the banks closed their doors. After all, the ultimate form of capital control is a cobwebbed “gone fishing” sign in front of the bank; closing their portals is like pulling the plug on the financial system as the Cypriots knew it.  Fox reporter Shemaine Bushnell, who is married to a Cypriot, describes what life is like when plastic no longer works.

NICOSIA, Cyprus – And so it begins…what I had been passively worrying about the last week has now hit me hard.

I went to the pharmacy today to buy some milk and medicine for my 3-year-old and the pharmacist informed me that they were no longer taking credit or debit cards. It’s cash only, because that’s what their suppliers are demanding. The same is true at several gas stations on the island, and I don’t doubt that more will soon follow …

What once was the top shopping hub for the entire island has now become a ghost town … Coffee shop talk used to be about the latest trend in fashion, gossip about friends and political opinions. Now it’s more about which ATM is still dispensing cash, and when will the banks reopen, or even if business will still be taking credit cards after tomorrow …

Once the financial system shuts down everything else progressively turns itself off. Bushnell continues: “if banks stay closed, bills will not be paid, Internet and cell phone service will be interrupted, and even electricity and water could be shut off. I do not believe it will come to such a desperate situation, but I have made my own preparations, as I’m sure other Cypriots have done.”

With plastic gone, the whole system of virtual tokens on which an economy functions defaults back down to paper and instances it drops right down to barter. The Australian Broadcasting Corporation’s Cyprus correspondent writes that unless the system is restarted, the sheer need to physically survive will compel Cyprus to abandon the Euro and print its own devalued currency.

A senior EU official told the Reuters newsagency in Brussels that if Cypriot banks are wound up, Cyprus will be forced to abandon the euro.

“If the financial sector collapses, then they simply have to face a very significant devaluation and, faced with that situation, they would have no other way but to start having their own currency,” the EU official said …

In the meantime, Cypriots have turned to cash for everyday transactions, with facilities such as electronic payments out of action. “It’s already become quite clear that Cyprus has moved into a cash only economy,” said London School of Economics southern Europe specialist James Ker-Lindsay.

“You know, petrol stations are no longer taking credit cards, I think a lot of supermarkets and, meanwhile, you’ve got all sorts of businesses which obviously can’t conduct transactions anymore because they can’t use electronic banking, they can’t get money out of the island, they can’t get money in.”

Some banks are limiting the amount of cash depositors can withdraw from ATMs each day and Dr Lindsay says its clear most of the tiny nation’s financial institutions will collapse if a bailout is not forthcoming by the end of the weekend.

A world without financial services is Hobbesian. The Wall Street Journal describes the life of one gas station operator. “To keep his business running, Mr. Yianni had to pay €22,000 ($28,000) up front—about a third of it in cash—to secure a delivery of gasoline on Wednesday. Now he needs to bring in enough cash so he can restock.” And that means cash. No exceptions, no room for pity. Not even for old ladies or cute children. It’s cash — or barter.

When an elderly woman entered Mr. Papayiannis’s office to ask if he would accept a Laiki Bank check for €170 to buy some groceries and get some cash back, he answered quickly.

“It’s not even conceivable,” Mr. Papayiannis told the woman, who left without making a purchase.

Restaurant and kiosk owner Sakis Siakopoulos said he has resorted to barter in order to meet his obligations. A supplier of meats from Greece, he said, agreed to accept a shipment of Cypriot Halloumi cheese instead of a bank transfer.

Dylan Matthews at the Washington Post has charted out all the possible exits from this hell. He covers all the bases: a) Negotiate another European bailout, complete with haircut; b) implement a more traditional European bailout; c) bail out the banks themselves; d) accept a Russian bailout; e) convert deposits to CDs;  f) leave the Euro and …. wait for it … f) hope for an American bailout.

Yeah, right, I know, but Ben Bernanke can technically decide that the latest round of asset buys the Fed is conducting should be switched from mortgage-backed securities to Cypriot bonds. If he buys those at bargain basement rates, Cyprus could finance the bailout without bankrupting itself. Same goes for any other central bank, like the Chinese or Indian banks. Brazil could get involved, maybe Britain or Canada. Who knows, it could be a whole party. Whether any of these countries think it’s worth the political risk of bailing out a tiny island in the Mediterranean which none of their constituents care about is another story. That’s why discussion focuses around Europe’s central bank rather than any institutions outside the European Union.

Cyprus might be bust but for the sake of the greater good old Ben Bernanke has to ride to the rescue.  Because maintaining confidence in the larger global system is something that must be achieved at all costs. Otherwise the music stops and who knows what happens then?

Well we do know what happens then. Cyprus shows us.  A European country goes from credit, to plastic, to cash, then barter, and then finally, unless the process is halted, to guns, knives and clubs, teeth and fingernails.

So the music must always play.  Once financial rescues are perceived as simply banks bailing out each other with fake printed money the penny will drop. Cyprus demonstrates what happens once confidence evaporates.  The system doesn’t just slowly chug to a halt, it implodes. Ka-boom.

One moment the banks on the island were open for business as usual. In the next instant the very same banks, physically the same on unchanged buildings and streets, were regarded as bankrupt. All that changed was information.

I have often written that the world crisis is at heart a crisis of information.  The correspondence between physical things and the abstract financial system that values them has fallen out of sync. It cannot remain this way. The financial database is full of lies; and parenthetically, the political system, which is the handmaiden of the financial system, is as full of lies as well. Somehow they have to be brought into near alignment again.

Pretending that space aliens are going to invade, as Paul Krugman suggests, as an excuse to print money, or deciding we can borrow ‘infinite amounts’ as Bloomberg says, ain’t gonna work.

The challenge in the coming years is to unwind this deficit. The challenge is to bring the official narrative into line with the physical facts.  If we won’t do it willingly then reality will do it for us. Guaranteed. Whatever the media or political or financial elite say one fact has remained unchanged since the beginning of the world.  Nobody ever beat arithmetic.

The Three Conjectures at Amazon Kindle for $1.99

Storming the Castle at Amazon Kindle for $3.99

No Way In at Amazon Kindle $8.95, print $9.99

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All Comments   (40)
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The purpose of the (manufactured) Cypriot banking crises is to allow the EU to create billions of Euros without restriction by any oversight authority, especially the German central bank.

Example: the Russian oligarchs have, say, 10 billion Euros in a Cypriot bank. The bank is closed, but its branches and affiliates overseas remain open. The oligarchs withdraw their money in London, but the withdrawal isn’t booked in Cyprus. When the tax is applied to Cypriot banks on the (fantasy, withdrawn) account, billions of new Euros will be created from nothing.

The PR—we taxed the rich—allows the EUcrats to continue to govern; the safety of the oligarch’s money keeps Russian natural gas flowing to the EU. Aside from the damage to the economy, it’s win-win.
1 year ago
1 year ago Link To Comment
I think that I shall never see
A bailout lovely as a tree
So said an ode by Ogden Nash
That lesser minds like mine rehash
A cypress tree like Cyprus banks
When standing firm receives no thanks
But Cyprus banks and cypress trees
Lay cold and dormant in a freeze

1 year ago
1 year ago Link To Comment
I was reading Radosh's article on how, despite everything, President Obama's Israel trip was an olive branch extended to Netanyahu. It was hard to miss the hostile reaction of many of his commenters, and reminded of how allies can diverge and turn hostile -- witness CPAC -- as emotions rise. The Founders called each others names. And resistance movements through history have fought each other as hard as the common enemy.

Reading about the Bloodlands of Eastern Europe, one wonders, how could people have hated each other so? Yes it is hell. And the hell isn't just the product of physical violence, it is the product of what causes the physical violence; hostility in men.

In time it is sickening and the only way out is not to take part. You will find that people drop out simply because they can't go on. One of the most illustrative scenes of the Second World War was the humiliation of the French girlfriends of German soldiers. It was mean, petty and savage. It was also, in its way, almost inevitable.

Anyone who is swept up in the bad parts of history will find not only his body, but his soul at risk. I can see that at some point the only thing left to write is to write nothing. The length of the silences will convey more information than words can tell.
1 year ago
1 year ago Link To Comment
BC has become the place where conservatives go to hate on liberals and leftists. It is saturated with anger, despair, depression, and fear. The outlook is consistently pessimistic; the mood, dire; the visions, apocalyptic. It is a hellishly unhappy place, abounding with doomsaying prophecies and predictions. Flat out, it's a bummer: one that repeats itself over and over and over. A version, or at the least a representation, of hell itself. So, I'm gone.
1 year ago
1 year ago Link To Comment
Allow me to suggest Paul Krugman's webpage, where readers can be comforted with the promise that we can all print money forever with no consequences and all will be happy happy joy joy from now on, world without end, Amen.

All that's being noted here is that the many things that have been predicted for years are now starting to happen. The domino's are starting to fall. If it makes one feel good to pretend that no domino's will hit any others, or better yet that they don't really exist at all, well whatever gets you through the night, I guess.

I believe there actually is hope - but the death of the current system has to come before a rebirth, and that is going to be incredibly painful and destructive. Cyprus is finding out today what that process is like.
1 year ago
1 year ago Link To Comment
On September 11, 2001, it was Michael Moore who wrote, “Many families have been devastated tonight. This just is not right. If someone did this to get back at Bush, then they did so by killing thousands of people who DID NOT VOTE for him! Boston, New York, DC, and the planes' destination of California – these were places that voted AGAINST Bush!”

This was before the war in Iraq. This was before the war in Afghanistan. This was on the day the planes were plunged into the World Trade Center, and Michael Moore was effectively advocating the mass murder of Republicans. This was the man the Democratic Party invited to its convention in 2004. This is a major player within the Democratic Party and the man who effectively represents the American Left. This is the man who has demonized gun owners and proposed draconian gun control, which naturally leaves his proposed victims to think this is a precursor to mass murder of Republicans.

Michael Moore spoke for himself when he wrote “Stupid White Men”. He trashes America, he promotes a future civil war, and now the victims of his demonization are accused of “relentlessly trashing America” if they dare to defend themselves or express their own opinions.

The Left is responsible for building dams that dispossessed one Indian tribe after another throughout the American West; Woody Guthrie himself sang the praises of Grand Coulee Dam. Yet, the Left never ever apologizes for its own faults; it blames conservatives for the very racism that it has historically been the worst practitioner of. It was conservatives of the 1930's who railed against destroying the salmon runs; it was conservatives who railed against the expense. Yet, against a harsh record of dispossession, systematic racism, and environmental degradation, the Left refuses to apologize for its trespasses.
1 year ago
1 year ago Link To Comment
America is Americans. The nation is the people. All of the people--leftists and liberals as well as conservatives. Many commentators at BC have in the past posted enraged, hate-filled remarks about liberals and the left. Some have averred that would not be at all troubled by a blue city--Chicago, New York, San Franciso--being destroyed by a terrorist nuke. Some have called for or hinted darkly at the need for civil war. That's really no different from the obscene rantings of Michael Moore. It also constitutes a trashing of Americans, hence America. You may not like them. Often I don't. More's to the point, I don't like their views; I am friends with liberals and a few leftists, and not a few family member whom I love are liberals. Nor do I like the views of those conservatives who are brimming with bile and angry despair, and who are unconstrained in expressing rhetorically murderous sentiments toward fellow Americans who are liberals or leftists.
1 year ago
1 year ago Link To Comment
Many commentators at BC have in the past posted enraged, hate-filled remarks about liberals and the left.

I'm calling you out. Show me an enraged, hate-filled remark from BC.
1 year ago
1 year ago Link To Comment
On Spengler, Roughcoat wrote, “When I was younger, it was the leftists who relentlessly trashed America. Now it's the right wingers--on this blog, at Belmont Club, etc.”

It's amazing how some people cannot tell the difference between America and Barack Obama's presidency.
1 year ago
1 year ago Link To Comment
How do you feel about the 51 percent of the electorate that voted for Obama?
1 year ago
1 year ago Link To Comment
I, for one, will miss them when TSHTF and they don't last three days past the last handout.
1 year ago
1 year ago Link To Comment
Yes they will, as they come boiling out of their caves like so many orcs. They will go feral very, very quickly. Cheers -
1 year ago
1 year ago Link To Comment
From the "Daily Telegrap []h" via NRO "The Corner []"All money transfers will be frozen indefinitely. Laiki Bank, the island’s second largest lender, will be wound down, ... Individual savings up to €100,000 will be moved to the Bank of Cyprus. All Laiki deposits above €100,000 will be placed in a bad bank and sold off at a discount of up to 40pc.

The wind-down of the Popular Bank, known as Laiki in Greek, means it will not need to be recapitalised, finding between €2.3bn of the €5.8bn in debt reduction that Cyprus must raise to qualify for its €10bn eurozone bail-out and ECB liquidity.

To raise the remaining cash, Cyprus is expected to resurrect a “stability levy” of between 9pc and 10pc on all bank deposits over €100,000, protecting small savers,
1 year ago
1 year ago Link To Comment
This is scary stuff. Good thing I live in the U.S. where something like this couldn't possibly happen.
1 year ago
1 year ago Link To Comment
Given they way governments prey upon oil companies, it's time for another


Be sure to read the comments too to see what to do when LoFos "Question Authority!" and Authority Answers Back.

Particularly the part about the Brazilian prosecutors offering to settle for $.01 on the $1.

In December, Chevron and Brazilian prosecutors said they were near a settlement in the civil case and that Chevron was ready to pay 311 million reais ($159 million) to compensate for damages caused by the spill, less than 1 percent of the amount initially sought.

The prosecutor called the offer "reasonable." Chevron said a settlement would render the suits extinct and that it, and not Transocean, would pay all costs.

1 year ago
1 year ago Link To Comment
Econ 101, pre-revisionists. Money, currency, coin, bitcoins, binary code, any means of exchange above direct barter is based on faith. To paraphrase W bad information equals bad faith equals no currency.

From an entirely different perspective what would happen to the balance of power in the region if we actually bought Cyprus (Louisiana Purchase, Gasden Purchase, Alaska)??? A permanent US territory.

1 year ago
1 year ago Link To Comment
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