Beyond the Cusp

March 27, 2013

Is Our Money Safe?

The answer all depends on how much money you have, where you have it invested, and how aware you are of the various and diverse challenges which can devalue your money other than straight confiscation. The Cyprus bank debacle introduced the world to the unthinkable, the bald-faced theft of people’s and business’s monies from their bank accounts. The current story on the great Cypriot bank robbery is that the European Union (EU) and the International Monetary Fund (IMF) have agreed to take as much as half of the money in any account above the guaranteed insured deposit amount of one-hundred-thousand Euros. This larceny has redefined the presumed safety of our bank accounts if we have over the government guaranteed deposit insurance amount which is dependent upon the country that has jurisdiction over your bank. The next obvious question is what would happen if the government reached a deal with the IMF in order to receive a bailout and changed the amount they guarantee after they had frozen all accounts, as was done in Cyprus, and instead of guaranteeing $250,000.00, as the FDIC does in the United States, and lowered it to a mere $50,000.00 allowing the world banking powers of the IMF to take even a larger amount of money? The answer is there is nothing which would prevent such a move. So, this makes every penny you have in even a presumably guaranteed deposit of a bank or other financial institution could be adjusted overnight while also denying you access to your account in order to take your money out and keep it safe.

But there are far more devious ways that governments and world organizations can steal your money. What we have to remember is our money is all relative and only worth what the world market allows it to be worth. The usual worth of any particular monetary unit be it Dollars, Euros, Shekels, Rubles or Yen is how it measures with all of the other currencies. This can often be figured by comparing the worth of an ounce of gold in two currencies and figuring out the ratio will give you their relative worth. The current system recognized in much of the world is every currency is weighed against the Dollar as the United States currency is taking its turn as the standard reserve currency. In previous periods the standard reserve currency has been the English Pound Sterling, the Spanish Dollar, and in ancient times it was the coinage of the preeminent empire be it Rome, Greek, Persia, Babylonia, or Egypt. At some times in history salt was used as currency and in the earliest of times there was straight barter which made trade difficult which is what led to making forms of currencies. Gold has been a standard which has withstood the test of time and will likely be recognized along with silver and other precious and semi-precious metals for the foreseeable future. For much of history most countries held their currency value against a set amount of Gold which was presumed to be the amount of Gold and other precious metals in their vaults, in the United States the vault was presumed to be at Ft. Knox. Currently currencies are all relative in value and are no longer pegged to Gold or other forms of set and measurable value. This is what is implied by guaranteeing a currency like the Dollar is backed by the full faith and credit of the United States, whatever that actually means.

One manner in which our monies become devalued is inflation. We all have probably seen the effects of inflation most evident when doing the weekly food shopping. Over time the price of the grocery bill rises despite the fact that we are eating the same amount of food. The prices have gone up because the money we are paying with has less buying power. When inflation gets out of control it can become something called hyper-inflation where the amount of food or other items you can buy with a set amount of money changes weekly if not daily and in the most egregious cases, hourly. When the hyper-inflation was at its worst in Zimbabwe employers would pay their employees daily at lunch time for the whole day and allow them to shop for food and then return to work as if they waited until the end of the day to shop the prices would have gone even higher than they had been at lunch time. The rise of the Nazis before World War II was facilitated by hyper-inflation which befell the German economy after World War I during the Weimar Republic.

But there are policies which governments can willingly pursue which will cause inflationary practices and devalue the people’s monies eventually making saving money counter-productive which only serves to exacerbate the problems as a certain amount of savings are necessary for investment to be possible. The most obvious of these policies is when government introduces additional monies into distribution. This can be accomplished in numerous ways. Government can print more money which will devalue the currency in a direct amount equal to the percentage of the newly printed monies to the previous total amount in circulation. Government can run deficit spending actually borrowing through selling bonds to a foreign or private interest that purchases these bonds as an investment. This is another way that the government has invented more money into the money supply though it has less of an effect as the bonds accrue value over time which spreads the effect out over time. The final path to devaluing a currency is to have the government monetize their deficit spending which means that they simply spend money without taking any money from accounts and without actually selling assets or bonds to outside entities. This can be accomplished by the government or semi-governmental institution buying bonds in order to literally invent new money. This acts exactly the same way as printing more money and placing it in circulation. This is a dangerous risk to run as the effects can easily run out of control which can lead to a period of hyper-inflation and cause the currency to crash in value compared to the rest of the world currencies. This makes import of goods prohibitively expensive and weakens the country’s place in the world directly proportional to the devalued worth of their currency.

With the economic crisis befalling countries in Europe spreading slowly across most of the Euro Zone nations and the repeated crises addressed by the United States Congress recently are signs that both the Dollar and the Euro are in trouble and difficult decisions are going to have to be made going forward. There have been rumors and mention that similar actions to those utilized to bailout Cyprus may be taken in the future in order to stabilize other countries within the Euro Zone such as Spain, Italy, Greece and possibly France. Should this theft become accepted practice, the world can expect banks to become more frail and subject to failure as the people take their monies out of banking institutions and put them elsewhere to keep them safe possibly including their mattresses. Though it has not been mentioned as an alternative approach that may be used in the United States, it does not mean that there are not people in positions of power considering a similar theft of American’s bank accounts. This theft in Cyprus may have a ripple effect far wider and more severe than anybody may have calculated. One can only hope that the potential reaction to this bold sacrifice of trust in the financial system was not something the powers who executed this potential disaster were counting on in order to facilitate some even more draconian and sinister act in the near future. This has the stench of a strong poke at the people with the intent to threaten the sensitive trust upon which our banks and financial institutions use as their foundation. That begs the question of what is the goal that these actions are aiming to attain and what is the desired result. Danger abounds and Europe is under financial attack while the Middle East and North Africa are being politically targeted and governances completely transformed. Perhaps this is simply coincidence but what if it is intentional and there exists some devious change being formulated and thrush upon the peoples of the world?

Beyond the Cusp

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