Steve Forbes sees in Cyprus the seeds of multiple conspiracies. Welcome to the club, Steve.
Forbes asks: “Can a Cyprus-Like Seizure of Your Money Happen Here?” Before moving on to his numerous other conspiratorial views, I will answer this question.
Your bank deposits do not belong to you, but to the bank. In case of bank default, the deposits belong to other senior creditors until various debts of the bank have been satisfied. Your only salvation is in government insurance, to the extent this is honored.
Lew Rockwell offers the following advice. It should be heeded:
After Cyprus, if you or your business has more than $250,000 in a fractional-reserve bank, get the "non-insured" portion out. Put it in another bank, or buy gold, or do something else good with it. This is the least radical move you can make as a bank-denier, but surely the beginning of prudence.
Forbes also answers his own question affirmatively:
Don’t put it past our politicians to try it in a financial emergency. The breaking of contracts by the U.S. government, unfortunately, has happened before….
It is difficult to use the term “contracts” when the US government is involved. Consider the structure: the government is a) one of the parties to the agreement, b) the adjudicator of disputes regarding the agreement, c) the writer of the rules to the agreement, and d) the modifier of previously written rules regarding the agreement.
If a stranger walked up to you and offered to play this role, would you voluntarily agree?
Consider all of the financial aspects of our lives where this is the case: retirements plans, trusts, banking arrangements, brokerage accounts, real estate holdings, tax policies, etc. To varying degrees, there is no security in any of our financial positions, or legal strategies designed to protect or enhance our financial positions. The government controls the terms and adjudicates the disputes to agreements of which it is a party.
Forbes goes on to list a few of the US government transgressions of the past; conspiracy facts, as these are historically known events:
In 1933–34, amid the depths of the Great Depression, the U.S. government seized the American people’s gold holdings.
In the early 1970s President Richard Nixon annulled contracts selling soybeans to Japan.
For this one, Forbes goes on to note the blowback: “(Japan responded by investing in Brazil, which became one of our major soybean competitors.)”
In 2009 the Obama Administration pushed through a brazenly political restructuring of bankrupt General Motors and Chrysler, and huge payoffs were made to the United Auto Workers, a pro-Obama union, at the expense of bondholders.
Forbes doesn’t list the famous act of Nixon in 1971, but any attempt to compile a complete list would be futile.
Forbes moves on to conspiracy theory. Many of these have been floating around the hidden corners of the internet since the early days of the crisis, but now, with Forbes’ blessing, one can certainly say these have gone mainstream:
There have been rumblings from some revenue-hungry Democrats about finding ways to tap into individuals’ retirement accounts.
Some form of this will happen; I suspect the legislation is already written. I think all it will take is another bear-market disaster, similar to 2008 – early 2009. The government will promise a “make-whole” transfer, offering to credit to the individual the high-water mark of his retirement account if he transfers the assets to a government-approved account.
Most of the money in 401(k)s is pretax dollars and grows tax free, depriving the government of needed revenue. Why not integrate them with Social Security and then means-test the benefits?
Yes, why not? The government writes the rules; the government can change the rules.
Holders of Roth IRAs may be in for a rude shock. Their contributions have been made with aftertax dollars, with the promise that the ensuing benefits would be exempt from federal income tax. Slapping a special “emergency” levy on these assets will become an irresistible temptation for politicians as the pot of assets gets bigger.
Isn’t it interesting that recent tax law allowed the conversion from traditional IRAs to Roth IRAs. This accelerated tax receipts to the government, as the tax had to be paid on the previously deferred amounts at the time of conversion as opposed to in the future, coincident with standard withdrawals. If Forbes is correct, the government will take two bites at this apple.
Forbes offers an example from history of a similar action:
Your Social Security “contributions” are made with aftertax dollars, and it was promised that those benefits would be tax free, but Washington started chipping away at that vow back in the 1980s. Today millions of Social Security recipients find a portion of their benefits subject to the IRS.
Forbes notes the stupidity of this Cyprus plan; any hint of a crisis in another state will send depositors scurrying to withdraw cash, furthering the banking crisis. He is right, but anyone not insuring against this risk today, anywhere in the world, is already playing with fire.
In fact, that the technocrats first proposed taking a haircut from all accounts was somewhat baffling to me. I have only recently written that the elite (the inner circle well hidden from even many senior-technocrats) desire to defend regulatory democracy over all else as the economic crisis is managed. This will ultimately lead to sovereign defaults if this is what is necessary to maintain the people’s faith. They will not allow insured deposits to fail.
Allowing the banking system to fail the masses is a sure way to have the general population turn against the system. I couldn’t believe that insured deposits would take a hit, as initially proposed in the Cyprus plan. In the final plan, Cyprus chose to keep whole the insured deposits –perhaps someone took a phone call. My theory has survived. Three weeks and counting!
In the meantime, I welcome Steve Forbes to the club of conspiracy theorists.