![Page 1: The Cyprus Bank Deposit Seizure: New Realities in a World of Government Debt](https://reader036.vdocument.in/reader036/viewer/2022081403/5568632ed8b42a203d8b4b4c/html5/thumbnails/1.jpg)
The Cyprus Bank Deposit Confisca5on: Is Your Money Safe Anywhere?
May 9, 2013 Professor Lew Spellman
www.TheSpellmanReport.com
SPEAKER SERIES
![Page 2: The Cyprus Bank Deposit Seizure: New Realities in a World of Government Debt](https://reader036.vdocument.in/reader036/viewer/2022081403/5568632ed8b42a203d8b4b4c/html5/thumbnails/2.jpg)
Visions of the Columbia Space ShuMle
![Page 3: The Cyprus Bank Deposit Seizure: New Realities in a World of Government Debt](https://reader036.vdocument.in/reader036/viewer/2022081403/5568632ed8b42a203d8b4b4c/html5/thumbnails/3.jpg)
Can It Happen to an Economic-‐Financial System?
• Typically not vulnerable to a cyclical event becoming a meltdown
• Natural Dynamic Equilibrium Self Correc5ons – usually via prices
• Policy Correc5ons mainly fiscal and monetary policy
• Monetary Policy is Discre5onary and frequently changed
• Analog computer simula5ons
![Page 4: The Cyprus Bank Deposit Seizure: New Realities in a World of Government Debt](https://reader036.vdocument.in/reader036/viewer/2022081403/5568632ed8b42a203d8b4b4c/html5/thumbnails/4.jpg)
Policy Can Destabilize an Economy
• Economic systems inherently more resilient to shocks (than space craZ, but economies do “crash” (Dynamic Instability)
• Europe does not allow wages to fall or the currency to cheapen so Greece and Spain have no natural correc5on
• Fiscal Expansion or Austerity? • Zero Interest Rate Policy is a destabilizer
![Page 5: The Cyprus Bank Deposit Seizure: New Realities in a World of Government Debt](https://reader036.vdocument.in/reader036/viewer/2022081403/5568632ed8b42a203d8b4b4c/html5/thumbnails/5.jpg)
Why and How Did the US Become Vulnerable?
• Why: 50 years of sustained growth created a sense of perpetual growth
• Led to “Shared Prosperity”(En5tlements) • Financial Guarantees Thought to be Costless Subsidy • Too much debt to date
– Past the “R&R” “Bang point” (seeng off the downward dynamic process)
• Far, too much commiMed government spending, mostly en5tlements over the next 40 years implies more debt
• Demographics hurt badly • Poli5cal Process Didn’t Want to Know How Much it all Cost
![Page 6: The Cyprus Bank Deposit Seizure: New Realities in a World of Government Debt](https://reader036.vdocument.in/reader036/viewer/2022081403/5568632ed8b42a203d8b4b4c/html5/thumbnails/6.jpg)
Tax Revenues vs. Debt Last 6 years 7 Trillion 6 Trillion 5 Trillion 4 Trillion 3 Trillion 2 Trillion 1 Trillion 100 Billion US Growth in Tax Collections US Increase in Debt Over 6 Yrs. = >$100 Billion Over 6 Yrs. = >$7 Trillion
![Page 7: The Cyprus Bank Deposit Seizure: New Realities in a World of Government Debt](https://reader036.vdocument.in/reader036/viewer/2022081403/5568632ed8b42a203d8b4b4c/html5/thumbnails/7.jpg)
US Deficits and the Growth of Debt
![Page 8: The Cyprus Bank Deposit Seizure: New Realities in a World of Government Debt](https://reader036.vdocument.in/reader036/viewer/2022081403/5568632ed8b42a203d8b4b4c/html5/thumbnails/8.jpg)
Interest Cost of Large Scale Deficits as a percent of GDP
![Page 9: The Cyprus Bank Deposit Seizure: New Realities in a World of Government Debt](https://reader036.vdocument.in/reader036/viewer/2022081403/5568632ed8b42a203d8b4b4c/html5/thumbnails/9.jpg)
When an Economy “Crashes” What Happens?
• Government Default on its debt • Financial Prices Crash • Banks Fails • Capital flight • Unemployment/Bankruptcies • AZer geeng through na5onwide bankruptcies • All resources now cheap, currency cheap, liMle debt: Start again
![Page 10: The Cyprus Bank Deposit Seizure: New Realities in a World of Government Debt](https://reader036.vdocument.in/reader036/viewer/2022081403/5568632ed8b42a203d8b4b4c/html5/thumbnails/10.jpg)
This is Not Uncommon
• Mexico: 1983, 1994 • Argen5na today (has not reached boMom) • Asian Contagion: 1997 • Russia: 1998 • Greece: 2011 • Iceland: 2010 • US: We are extremely vulnerable and not exempt
![Page 11: The Cyprus Bank Deposit Seizure: New Realities in a World of Government Debt](https://reader036.vdocument.in/reader036/viewer/2022081403/5568632ed8b42a203d8b4b4c/html5/thumbnails/11.jpg)
How Does Treasury Sell Risky Debt
• Cram it down the throat of the financial ins5tu5ons via regula5on or incen5ves – Banks – Insurance Companies – Pension Funds – Money Market Mutuals – Hedge Funds
![Page 12: The Cyprus Bank Deposit Seizure: New Realities in a World of Government Debt](https://reader036.vdocument.in/reader036/viewer/2022081403/5568632ed8b42a203d8b4b4c/html5/thumbnails/12.jpg)
Laying-‐off the Debt on Central Banks
• Central Banks “large scale asset purchases” beMer known as Quan5ta5ve Easing (QE)
• Fed, ECB, Bank of Japan all doing it • Paying for it with money or claims on money • While they claim it is a cyclical economic policy, it’s a secular debt
support policy • Induces Other Central Banks of the World to do the same via the 2-‐
part process called “Currency Wars” – Limit the apprecia5on of their currency by selling their currency
against the dollar – Keep on Expor5ng to the US (run trade surpluses) – Buy Treasuries with the dollars so US doesn’t impose trade sanc5ons – Last year $555B of the $1.2 Trillion was Foreign Official purchases
![Page 13: The Cyprus Bank Deposit Seizure: New Realities in a World of Government Debt](https://reader036.vdocument.in/reader036/viewer/2022081403/5568632ed8b42a203d8b4b4c/html5/thumbnails/13.jpg)
Now Its Your Turn: Government Debt Crammed onto Your Balance Sheet
• Proposals for the Government to take over or manage your IRA or 401k account (State of the Union)
• “Guaranteed Re5rement Accounts” Two versions, turn in your IRA or supplement it
• Now CFPB is seeking to “protect” consumers by managing your investments to “safe” Treasuries
• Read The Feds Want Your Re5rement Accounts • Its actually easy for the US to tax your IRA by changing the amor5za5on schedule by which it is taxed
![Page 14: The Cyprus Bank Deposit Seizure: New Realities in a World of Government Debt](https://reader036.vdocument.in/reader036/viewer/2022081403/5568632ed8b42a203d8b4b4c/html5/thumbnails/14.jpg)
Conclusion: Government Debt Problems Become a Private Wealth
Tax • Your “bank” (insurance co. etc.) assets go down and banks goes down and the government financial guarantee can’t be fully honored
• Currency falls in value (Bill Gross: Sell Currencies of Serial QE Offenders)
• Infla5on depreciates the value of fixed income assets
• Wealth Confisca5on (Bill Gross, Haircuts) • Explicit One-‐Time Wealth Tax 26% (BCG)
![Page 15: The Cyprus Bank Deposit Seizure: New Realities in a World of Government Debt](https://reader036.vdocument.in/reader036/viewer/2022081403/5568632ed8b42a203d8b4b4c/html5/thumbnails/15.jpg)
Another Stealth Tax • Financial Repression = Very low market rates and posi5ve
infla5on • Lowers real cost of carrying debt for the gov’t debt issuer at
the expense of the holder • No compensa5on in yield for the risk of default or generally
rising yields due to infla5on or end of QE • Major loss of the market value of government bonds if
interest rates rise • Ten year Treasury bonds decline 31% in market value if
market yields climb to normal 5% • All ins5tu5ons hold debt whether government or private
and are affected and many prospec5ve re5rees hold them for “safety”
![Page 16: The Cyprus Bank Deposit Seizure: New Realities in a World of Government Debt](https://reader036.vdocument.in/reader036/viewer/2022081403/5568632ed8b42a203d8b4b4c/html5/thumbnails/16.jpg)
Treasury Nominal and Real Yields Not Enough Return to cover the risk of
falling market prices or infla5on
![Page 17: The Cyprus Bank Deposit Seizure: New Realities in a World of Government Debt](https://reader036.vdocument.in/reader036/viewer/2022081403/5568632ed8b42a203d8b4b4c/html5/thumbnails/17.jpg)
All 5me low yields with lots of risk
![Page 18: The Cyprus Bank Deposit Seizure: New Realities in a World of Government Debt](https://reader036.vdocument.in/reader036/viewer/2022081403/5568632ed8b42a203d8b4b4c/html5/thumbnails/18.jpg)
How Cyprus Bank Depositors Went Down
• Banks bought “safe” Euro Zone government bonds • When Greece Defaulted, assets declined below deposits and other debt: This is
insolvency (more debt than assets) • Cyprus had commiMed to recapitalize banks • Needed Rich Uncle assistance, but Germany and the Dutch decided enough was
enough • Bank Regula5on requires solvency and without it liquida5on follows • In Bankruptcy, assets are liquidated to pay off claimants in order of priority • Government could NOT make good on deposit insurance to cover depositor losses • Deposits, what were leZ had a capital ouwlow restric5on (from bank and country) • Tossed out Rule of Law since the 1930s order on order of priority • The new “template” Its now buyer beware • Is the FDIC any beMer prepared
![Page 19: The Cyprus Bank Deposit Seizure: New Realities in a World of Government Debt](https://reader036.vdocument.in/reader036/viewer/2022081403/5568632ed8b42a203d8b4b4c/html5/thumbnails/19.jpg)
Geopoli5cal Reac5ons
• Countries Will Seek to Insulate Themselves – Germany Will No Longer Be the Rich Uncle of Europe-‐there will be separa5on (drop out of Euro party gaining trac5on)
– Foreign Central Banks are not so eager to support US Treasuries-‐switching to suppor5ng their own equity markets
– BRIC Countries seeng up their own payments systems to avoid holding the dollar
![Page 20: The Cyprus Bank Deposit Seizure: New Realities in a World of Government Debt](https://reader036.vdocument.in/reader036/viewer/2022081403/5568632ed8b42a203d8b4b4c/html5/thumbnails/20.jpg)
The Geopoli5cal Opportunity: Capital Safe Haven at a Price
• Countries Lining Up to be friendly to foreign flight capital
• Safe haven countries can charge for being the safe haven (the Brazilian 2% capital inflow tax) which improves their fiscal picture
• Switzerland losing ground to Singapore • China gold accumula5on and transac5on currency agreements likely leading to a world reserve currency that is gold backed
• Canada and/or Australia but at the cost of trade
![Page 21: The Cyprus Bank Deposit Seizure: New Realities in a World of Government Debt](https://reader036.vdocument.in/reader036/viewer/2022081403/5568632ed8b42a203d8b4b4c/html5/thumbnails/21.jpg)
Texas State Gold Depository • Both a haven and in a wealth form that stands up to sovereign default and infla5on
• Individually owned gold stored at a cost held in the name of the state. A Texas source of revenue (my guess it will bear 2% fee per year).
• Cons5tu5onal protec5on from US confisca5on • State Guarantee makes it a beMer product than private depositories
• Will Lead to a Global Wealth Preserva5on Industry in Texas
• Did someone say the “S” word?
![Page 22: The Cyprus Bank Deposit Seizure: New Realities in a World of Government Debt](https://reader036.vdocument.in/reader036/viewer/2022081403/5568632ed8b42a203d8b4b4c/html5/thumbnails/22.jpg)
Individual Protec5ons Being Devised
• Off shore trusts • Swiss Annuity type products – Taxable. but Tax Friendly
• Seek Managers, Lawyers, Financial Planners , and Tax Advisors who understand global risks presented by government financial strains
![Page 23: The Cyprus Bank Deposit Seizure: New Realities in a World of Government Debt](https://reader036.vdocument.in/reader036/viewer/2022081403/5568632ed8b42a203d8b4b4c/html5/thumbnails/23.jpg)
Follow Up Presenta5on
• Global Estate Planning Lawyer and Other Professionals Will Discuss – sign up to be contacted at registra5on on way out or leave business card
![Page 24: The Cyprus Bank Deposit Seizure: New Realities in a World of Government Debt](https://reader036.vdocument.in/reader036/viewer/2022081403/5568632ed8b42a203d8b4b4c/html5/thumbnails/24.jpg)
sign up and send to a friend