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Mar 262013
 
Cypriot citizens protesting the EU imposed raid on their bank savings.

Cypriot citizens protesting the EU imposed raid on their bank savings.

As we described in detail in our eight times updated article about the Cyprus banking crisis (which you really should read if you haven’t already), the EU forced the Cypriot government to seize funds from private bank accounts in that country to partially fund the EU’s ‘bailout’ of the Cyprus economy.

Although private individuals, the world over, have reacted with astonished horror at seeing a government suddenly abrogate every notion of the sanctity of private property and swoop in and take money from people on an arbitrary and colossally unfair basis with no prior public debate or discussion, the financial markets reacted calmly – this would be expected, because the money being taken out of ordinary regular bank savings accounts was seldom money held on behalf of major financial institutions, and the bailing out that it was funding would generally benefit those same institutions.

So, after noting the totally self-serving lack of disapproval by financial institutions, the Chairman of the Eurozone (the grouping of EU nations that use the Euro), Dutchman Jeroen Dijsselbloem, has claimed that this gives him the authority to insist on similar actions in other countries in the future.

This marks a huge reversal of public policy.  Previously, while smaller EU bank depositors were given a €100,000 guarantee by a process similar to our FDIC guarantee (which goes up to $250,000 here), larger depositors were also protected by an ‘unwritten’ understanding  Quite sensibly, the EU and its Eurozone subgroup wanted to instill confidence in bank depositors.  A 100% safe banking system is one of the essential building blocks of any economy and currency; without a reliable banking system, the entire economy becomes dysfunctional.

But the Eurozone has now decided that it will risk the integrity of its banking system, and has gone on record as saying that if a participating nation and its banks get into trouble, it will consider funding at least some of the bailout by seizing funds from bank depositors.  The next two countries likely to feel the impact of this new approach will be Spain and Italy.

Details here.

Implications for Preppers

So why are we writing about matters in the Eurozone?  Aren’t we supposed to be focusing on things to do with prepping in the US?

This is an important issue that you need to understand, because it is an early signal of what could happen here.  Goodness only knows that our economy is in as bad a shape as any European economy, and there is no sign that our deficits will convincingly shrink at any point in the future.  Government spending as a percentage of total GDP seems predestined to only grow and grow and sooner or later must reach a tipping point where everything collapses.  This is not a matter of ‘if’.  It is a matter of ‘when’.

The US economy is like ‘the emperor’s new clothes’ – it only continues to work as long as no-one questions its validity.  It is perhaps also an example of the saying ‘If you owe a bank $100,000, then the bank owns you; but if you owe a bank $100,000,000, then you own the bank’ – in this case all our creditor nations consider that it is in their best interests to continue to support the US dollar and US economy, but if (when?) they no longer feel this to be in their best interests, our economy could collapse as quickly and as spectacularly as any third world nation.  Currently we as a country are ‘too big to fail’, but as our economy continues to become a smaller and smaller share of the total world economy, our status as ‘too big to fail’ becomes more and more questionable.

What would happen if we lost the support of our creditor nations?  What would happen if we could no longer fund our deficit spending, and if our creditors would start to call back the money we owe them rather than rolling it over again and again?

Which brings us to the implications about developments in the Eurozone for us here in the US.  What we are seeing in the Eurozone is a callous calculated decision that if governments and their largest banks get into financial trouble, it is now becoming acceptable to turn to private citizens to bail them out, and to arbitrarily just take money from people on any basis that is quickest and easiest for the government.  In the case of Cyprus, and as is now being threatened for other European nations too, this is in the form of simply taking a flat percentage of the money you have in your bank accounts.

Europe is a stable grouping of nations in which the rule of law and concepts of due process, democracy, and protecting the private ownership of assets are all well established universal principles.  But when they are faced with financial expediency, we have seen how quickly these bedrock principles have been abrogated and abandoned.

Could it happen here, too?  You bet!

What would happen – to you, and to our society – if it did happen?

For yourself, personally, you need to realize that this would be a sudden event with little or no warning.  One day our President and his advisors might wake up and say ‘Heck, it’s time to put a stop to this ever larger burden of debt around our neck’ and before the day is out, have enacted regulations to free all bank accounts and passed any necessary legislation to authorize the taking of bank funds.  To succeed, it would have to be done with no prior warning; otherwise people would urgently withdraw money from their banks.

The worst part of this scenario?  The government would probably have the enthusiastic support of much of the country behind them.  The 50% of the population who pay no tax and may instead be net beneficiaries, receiving government support, have become so immersed in the selfish concept of personal entitlement that they’d be delighted to see the ‘rich people’ being forced to ‘contribute their fair share’ some more.

Bottom line?  You can no longer rely on the safety of your money in any bank.  And that FDIC guarantee?  Just like the government could increase it from $100,000 to $250,000 back in 2008, there’s no reason why it couldn’t decide to reduce it down to $25,000, or to withdraw it entirely.  The FDIC guarantee is, as it proudly says, ‘backed by the full faith and credit of the US government’ – but what happens when the government acts in bad faith, or when the government runs out of credit?  We’ve seen both those eventualities occur in Cyprus, and now being threatened elsewhere in Europe.

For society as a whole, there is one significant difference between the US and European countries.  We have an armed citizenry.  Would the riots, stone throwing, arson and such like that have been a constant backdrop in troubled countries such as Greece whenever their government announces proposed austerity measures become something more violent in the US if the government announced a taking of a large slice of our savings?  Quite possibly so.

Which might be why the DHS is equipping itself with such an extraordinary amount of ammunition, armored vehicles, and automatic weapons.  Is this the event they are anticipating and preparing for?

The irony is that many of the people who would violently protest are people who would not be affected at all by a government seizure of personal bank accounts.  They’d be opportunistic rioters/looters rather than truly aggrieved citizens facing the loss of a large slice of their life savings.  But in a way, that makes such an occurrence more threatening rather than less threatening, because these anarchistic ‘protesters’ can not be reasoned with and won’t respond to calls for fairness and peaceful protesting.

Clearly, if such a thing happens, no matter what your own feelings on the fairness of the government’s actions might be, you’re going to want to get out of Dodge quickly.  Don’t under any circumstance participate in protests, peaceful or otherwise.  You don’t want to be caught up in any such civil disturbances, and you doubly don’t want to be caught up in any arbitrary ‘sweeps’ by armed-to-the-teeth DHS forces seeking to ‘restore order’.

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David Spero[suffusion-the-author display='description']

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