The EU Crosses the Rubicon; How Far Behind Is the US?
At the start of the year, econo-blogger Aaron Clarey (aka "Captain Capitalism") wrote Enjoy the Decline: Accepting and Living with the Death of the United States. Before providing numerous ways to find some pleasure in the midst of Weimar USA (which Dr. Helen and Kathy Shaidle have each discussed elsewhere at PJM), Clarey laid out some of the economic reasons why the US was likely hosed, including this:
Normally when we think of a wealth tax we think of property taxes, estate taxes or car registration fees. But there is a nice conglomeration of wealth nobody has dared to think would be taxable. And not just taxable, but easily stolen as well.
Your retirement plans.
Estimates vary, but there is roughly $ 18 trillion invested in the various IRA, 401k and 403b retirement plans. This also says nothing about the trillions more invested in regular ole brokerage accounts earmarked for retirement. Even though it doesn’t come close to closing the $ 60 trillion gap, such a large and liquid pot of gold is irresistible to our progressively socialist politicians looking for perpetual re-election. Here we enter “conspiracy theory territory” where only “crazy right-wingers” imply such things as scare tactics to discredit the lovable and well-intending socialists. The only problem is it’s happened before and quite recently as well.
In 2008 Argentina stole the private pensions of its workers, nationalizing those funds to deal with their own debt problems. Bolivia did the same in 2010, as did Hungary. And Bulgaria did their own scaled-down version of confiscating people’s private pensions in 2011. Of course, those are just no-name South American countries and backwater Eastern European countries. That can’t happen here in America! Why, we’re Americans! We have rights!
Unfortunately, the Democrats took note of what Argentina did in 2008 and have since bantered around ideas of rescinding the tax benefits of those programs, even outright nationalizing them. There was hope with the Republican backlash of 2010 that such outright theft would be made impossible, but with the 2012 election decidedly going left, socialist politicians’ chops have been re-whetted for a piece of your IRA pie. Ultimately, however, the real risk is not so much the political desires of socialist politicians, but that the economic situation is so dire it will essentially force the decision to confiscate people’s retirement accounts. That is the true risk of promising ourselves everything.
Which brings us to Paul Rahe in Ricochet yesterday. Rahe spots the EU crossing the Rubicon:
This weekend, the government of Greek Cyprus -- under pressure from the European Union -- negotiated a bailout that had as one of its provisions an assessment on the capital of those with deposits in the banks on Cyprus. Those with under 100,000 Euros in their accounts are slated to receive a 6.6% haircut while those with more than 100,000 Euros in their accounts will be docked 9.9%.
Whether the government can secure the approval of the Cypriot legislature for this unprecedented move remains unclear. There is talk of lowering the tax on deposits under 100,000 Euros to 3% and of raising the tax on larger deposits to 12.5%. But while the difference no doubt matters to ordinary Cypriots, whose savings are modest, and to the Russian oligarchs who have parked huge sums in the Cypriot banks, when viewed from a larger perspective, it matters not one whit. Indeed, at this point, it does not even matter whether the Cypriot government backs off from this plan altogether.
Banks are fiduciary institutions. The rely on trust; and, if there is a breach of trust, they are cooked. Individuals deposit money in banks instead of stuffing it in their mattresses because they believe that it will be safe there. Once they realize or even suspect that the money they put in the bank is anything but safe, they will take what is left of their money and run -- and the bank will collapse. And Cyprus is not Las Vegas. What happens in Cyprus cannot possibly stay in Cyprus.
The Greeks will draw their own conclusions, as will the Spanish and the Italians and perhaps even the Irish and the French. No one who lives in a country that is in financial trouble and that may need emergency help from the European Union will entrust his loose change to a bank in his own country. The Euros is his mattress will retain their full value; those which he entrusts to the bank may, at least in part, be confiscated. All of this ought to be a boon to the Swiss.
It would be hard to imagine what one could do to turn an ongoing crisis into a total catastrophe that would be more effective than the terms imposed by the European Union on Cyprus. That such a move is in contemplation is an indication of the degree to which the authorities in Brussels and Nicosia are in the grips of desperation.
“If I lived in Europe I’d have cleaned out my bank accounts and canceled direct deposit before I sat down to write this post," Moe Lane adds. “Because there’s nothing quite as precedent-setting as a one-time, last-ditch emergency measure.”
Which brings to mind the question: can it happen here? Considering that for a century, the goal of “Progressivism” has been to transform America into Europe, it’s only a matter of time before any horror story in the EU replicates itself in some capacity in the US.
Update: But of course: "American libs support Cyprus-style wealth confiscation scheme, while bailout roils world markets." Or to put it another way, "If you like your money, You can keep some of it, maybe."
I added the image I created for Tom Blumer's piece for PJM titled, "Obama: Our Out-of-Control Debt Is ‘Sustainable’ for the Next Decade." Somehow it seems equally apropos here, right down to the Chamberlain-esque umbrella.
* Or a socialist state that's winding down; the weather and dining in Northern California was remarkably pleasant this weekend.