Dear Reader
Different faces but the same
old story is being replayed in a small part of the Euro-zone, Cyprus,
and that story is one of the Cypriot banking crime syndicate gambling
with depositor funds on the debt markets, this time it's Greek bonds,
yes, these master-eds of the universe used depositor funds to pile into
soon to go bankrupt Greece because of the high yields they offered so
that the bankster's could bank bonuses on the basis of fictitious
profits as illustrated by the fact that they have dumped an infinitely
pile of losses (Greek Bond's ) onto Cypriot tax payers, far beyond
anything that any other Euro-zone member has had to face to date.
The Damage Has Been Done Expect a Bank Run
The emerging details early Monday morning in the face of a literally eye popping deadline are that of at least 40% of deposits over Euro 100k will be stolen
in the two largest cypriot banks, one of them Laiki (2nd largest) will
definitely be wound down, many mainstream commentators have jumped onto
the fact that the depositors will receive shares in the banks which
might be fine if the shares were given AFTER the banks were restructured
i.e. bad assets being written down, but they are not instead the
depositors are likely to be handed what amounts to worthless toilet
paper in exchange for their hard cash.
The damage has been done, as the one thing that the
banking system relies on has been destroyed and that thing is
confidence. No depositor in Cyprus has any confidence in any cypriot
bank and will try to transfer out of the Cyprus tax haven at the
earliest possibility so there will be a bank run on cypriot banks the
unfolding of which will be inline with the capital controls have been
put in place.
The damage has been done to the Cypriot economy as its
biggest industry the finance sector has been destroyed to result in huge
job losses.
The damage has been done as all businesses have been
impacted severely due to both many businesses having had their bank
deposits stolen and for Cyprus having become a cash economy, where
credit is scarce and not trusted by suppliers, so expect many non
finance related business to go bust over the coming months.
The damage has been done to the reputation of Cyprus,
where it is now seen as a high risk destination for tourists and
investors for the reason of perceived instability, just as Greece's
tourist industry has suffered.
The damage has been done geopolitical as Turkey profits
from this crisis as Northern Cyprus is not only stable, but like the
mainland is prospering. Also there is the potential for conflict with
the suggested sale of Natural gas deposits around Cyprus as they
effectively belong to both North and South Cyprus, whilst this does not
mean a military conflict it will make investors more reluctant to enter a
potential conflict zone given the flammable nature of natural gas.
Why Should Germany Bailout the Cyprus Tax Haven?
As ever the blame is being leveled at Germany for German
tax payers not digging deeper into their pockets to bailout Cyprus as
illustrated by the Cypriot born Dragon's Den star Theo Paphitis laying
the blame at the Germans for not finding the extra Euro 6 billion rather
face the truth that the Cypriot Bankster's and the Cypriot politicians
are WHOLLY responsible for the current crisis because this crisis has
its roots in actions several years AFTER the 2008 financial crisis i.e.
Cypriot bankster's used depositor funds to gamble on Greek bonds and off
course lost heavily which is why the banks went bankrupt.
Bank Holiday Financial Armageddon - The Path to Hyperinflation
Well over a year ago I attempted to map out how euro-zone
financial armageddon might play out for the UK that would start with a
Bank Holiday that would keep getting extended until the Government had
worked out the mechanisms for stealing your savings. The big difference
between the UK and euro-zone members is that the UK can and would print
an unlimited amount of currency to prevent nominal loss to depositors
Cyprus style, the consequences of which would be a collapse in sterling
and resulting very high inflation whereas that option has not been
available to the likes of Cyprus by virtue of having the Euro so it is
forced to outright steal depositor funds.
What is Probably Likely to Happen IF the Euro-zone Collapses
I expect the UK
government would nationalise the bankrupting banks either in part or
full as they did with Northern Rock, Lloyds and HBOS, for if depositors
in any significant number actually started to lose any of their
deposits then that would result in a catastrophic loss of confidence
in the UK financial system and spark runs on all banks.
My best minimum advice
is to prepare for the worst rather than leave it to chance, because if
the government is facing a bank rescue bill that runs in the
trillions it may decide that the pain of closing the banking system for a
few weeks (Extended Bank Holiday Month) is better
than the implications of more than doubling the national debt which
would make George Osbourne's £140 billion annual deficit look like
peanuts.
A closure of the banking
system (Bank Holiday Month) will result in a huge drain on cash in
the economy, therefore I suspect the Bank of England has already
secretly prepared itself for this eventually by printing a huge quantity
of actual bank notes by the container load, ready to ship out as soon
as the crisis bites, which would be necessary to cover a closure of
the banking system the effect of this would be highly inflationary,
because printing actual bank notes is the same as that which happened
during Weimar Germany sparking hyperinflation when people ended up
buying loafs of bread with Wheel barrows full of worthless currency,
this is what would happen, inflation would go through the roof, forget
5% per year, we would be at 5% per month! So a closure of the banking
system would probably not be the worst of what could follow.
Similarly the Cyprus banks have been on a Bank holiday
since 18th March that keeps getting extended with the latest news
suggesting that they will re-open on Tuesday 26th March, though I
wouldn't bank on it, given that a bank run by frightened depositors is
certain, they will likely remain closed for the whole of this week.
Meanwhile the ECB keeps shipping in cash to distribute at
falling withdrawal limits from Euro 500 per day to 100 from today per
account via ATM cash machines that tend to run dry within minutes of
their daily refills.
THIS IS HIGHLY INFLATIONARY. As I have explained several
times over the year that printing and distributing actual bank notes is
the road to Hyper inflation because it sends the velocity of money
through the roof as no one wants to hold onto money that is constantly
losing its value. Whilst inflation can be contained in Cyprus due to its
small economy, however Germany KNOWS from its own experience of what
the contagion risks are if the same started to take place in larger
Euro-zone nations that would require infinitely more bank notes to be
printed in the event of banking crisis bank holidays, which most
obviously points to Greece as being next. Therefore the ECB will likely
enact severe cash withdrawal limits right across the euro-zone due to
the inflationary consequences.
Whilst Cyprus dithers its away through the current
crisis, this will however set a dangerous destabilising precedent in
that bank deposits can no longer be deemed to be SAFE anywhere! for the
fundamental reason that it is impossible for bankrupt states to
guarantee anything! Let alone 100% of deposits. Instead at the crunch
point they will seek to STEAL ALL OF YOUR WEALTH as I originally warned
several years ago in the Inflation Mega-trend Ebook of Jan 2010
(and earlier in articles), which is why people need to seek to protect
their wealth by removing it from banks and parking it in assets that are
less susceptible to the Inflation stealth theft such as property that I
will seek to illustrate again later in this article.
Risk of Contagion
The risk is now of contagion of bank runs spreading
across the euro-zone because the likes of Spanish Banks are STILL
BANKRUPT! The People of SPAIN Understand this, they also now understand
that they could be NEXT to have their savings stolen by a state that
cannot guarantee anything! As one thing is virtually guaranteed that
Cyprus is NOT the end of the story, for after the bailout of the cypriot
banks within a few months another euro-zone countries banks will also
explode in spectacular style, the warning signs of which will be made
manifest in that nations bond markets.
What You Need to do to Protect Your Bank Deposits
I have been warning of the risk that the periphery
sovereigns pose to the bank deposits for several years now and
repeatedly suggested that all depositors in PIIGS banks should move
funds out of periphery banks and into either hard assets or the likes of
German bonds with detailed steps of what should be done as illustrated
in this article -
In which respect I enacted my emergency Financial
Armageddon plan last week, where the focus was to move funds from high
risk euro-zone banks to low risk wholly UK owned banks. Everything
went smoothly apart form one transaction of early Friday afternoon for
£16,000 which has gone awol! The transaction was supposed to leave
Santander early Friday afternoon and arrive at a small UK private bank
in about 2 hours time (Faster Payment service). Whilst logging in
later in the afternoon I could see that the transaction had been marked
as having left Santander but there was no sign of arrival of funds at
the destination bank.
Now well over 60 hours later the funds have still not
arrived, further more attempting to log into Santander since late
Friday has resulted in the following maintenance message.
Whilst Santander states it is scheduled maintenance,
however there was NO prior warning of maintenance nor does it explain
the fact that funds that were supposed to take a couple of hours to
arrive have still not arrived well over 48 hours later. I guess all
will be revealed early Monday when either the opening shots of
Financial Armageddon have been averted or not.
This illustrates the risks that the whole banking sector
poses in that when it shuts down it will be in an instant, and then it
will be too late to draw your funds out so you really need to act
well before Financial Armageddon strikes. And certainly do not pay
attention to any soothing words out of the Bank of England as
illustrated by the fact that one of the last statements out of the
central bank of Cyprus prior to freezing the banking system was that
depositors money was safe in Cypriot banks.
The key message is stick to the depositor guarantee limits of Euro 100,000, £85,000 per banking licence.
UK Stealth Theft of Bank Deposits
For countries such as UK the theft has been by STEALTH by
means of high inflation that equates to approx 14% STOLEN from UK
savers over the past 4 years i.e. the amount that savers have lost after
REAL Inflation (CPI+1.5%) and Taxes (20%) as savings interest rates
have been artificially depressed by the Bank of England so as to funnel
wealth into the bankrupt banks and monetize the governments large budget
deficit. All Cyprus is doing is stealing directly from depositors
because as being in the euro-zone it CANNOT PRINT MONEY AND INFLATE as
the UK and US have been doing.
UK Budget Detonates its Latest Inflation Nukes
Forget all of the propaganda that spouts from politicians
or its economic propaganda mouth piece the OBR. For the truth remains
as I voiced right at the beginning that the coalition government would
continue to increase debt, each and every year of the coalition
government towards a target of £1.33 trillion by March 2015 which is set
against coalition / OBR propaganda for paying down debt.What is the consequences of £120 billion of QQE fraud and an official debt mountain by the time of the next election of about £1.5 trillion ?
What is the consequence of about £420 billion of extra fiat currency by the time of the next election hat will continue to be ramped by by at least £120 billion per year thereafter ?
The consequences of this will be two fold -
1. It amounts to a a mega- sustained monetary stimulus
2. It calls for much more QE from the Bank of England to print money and BUY the debt to KEEP UK Interest rates LOW.
What does this mean in economic terms?
It means inflation is going to be ratcheted ever HIGHER
as the Government is in effect stimulating the economy by nearly £500
billion! If the academic economist that populate the mainstream media
actually understood economics then they would be shouting at the tops of
their lungs of the consequences of £420 billion being injected into the
economy by the time of the next election, which is GROWTH + INFLATION.Even on the official doctored inflation indices, UK inflation is expanding exponentially, the Bank of England inflation reports have repeatedly proved worthless as official inflation has come in over the past 5 years at 10% HIGHER than the Bank of England target!
The bottom line is this - The inflation mega-trend is exponential as the following graphs illustrate -
Protect Your Wealth from the Inflation Mega-trend
My focus during the past 5 years that dates back to March
2009 has been to seek to profit from the consequences of the Inflation
Mega-trend as I warned of right at the beginning - 05 Mar 2009 - Bank of England Ignites Quantitative Inflation
The policy of quantitative inflation right across the
globe sparked the stocks stealth bull market that still continues to
this day - 15 Mar 2009 - Stealth Bull Market Follows Stocks Bear Market Bottom at Dow 6,470
Many times I am asked in the comments section of the
Market Oracle for a breakdown of my portfolio to illustrate my
perception of future inflation impact on asset classes in that respect
here are my portfolio's current and target trend trajectories.| Jan 2012 | March 2013 | Dec 2013 | |
|---|---|---|---|
| UK Property |
0%
|
50%
|
60%
|
| Cash & Bonds |
60%
|
32%
|
18%
|
| Stocks |
40%
|
18%
|
22%
|
So clearly, as I have been flagging for much of 2012, I expect the 'stimulus' of £420 billion to increasingly find its way into higher house prices over the coming years and I expect UK interest rates to remain depressed which means cash will continue to lose out to inflation, especially following 'money printing' Mark Carney's take over at the Bank of England.
George Osborne Boosts UK Subprime Housing Market Ahead of Election Boom
George Osborne announced a series of additional measures
in along stream of give away's aimed at inflating the UK housing
market the most significant of which is the policy of zero interest
rates which artificially depresses UK interest rates as a consequence
of inflationary Bank of England QE Money Printing to the tune of more
than £500 billion to date.
Budget UK housing market boosting measures included - - An emergency £3 billion for infrastructure and house building to kick start growth.
- Interest fee home equality loans of upto 20% of a deposit upto £120k to help people buy new build houses which means house hunters only need to find a 5% deposit for a LTV of 75%! i.e. £10,000 up front deposit to buy a £200k new build on an 75% LTV mortgage of 150k (note loan is interest free for 5 years).
- The government will make available an £130 billion guarantee for new mortgages for properties upto £600k so that the banks will lend to more risky borrowers, i.e. those without deposits to buy any new or existing build. This effectively means creating new mortgage / property demand of upto 200,000 per year (not clear if this excludes buy to let 2nd homes).
Other indirect boosts to the economy were also announced
such as helping small business with a £2,000 NI Cut, and canceling the
3p fuel duty rise.
Embryonic Bull Markets of 2012 Morphing into Bull Markets of 2013
If you have been reading my articles at the Market
Oracle, then you will know that I have been flagging embryonic bull
markets for the UK and US for virtually the whole of 2012 that I
expect to accelerate into full blown bull markets during 2013.
This years convergence
towards housing market bottoms such as the UK and US presenting one of
those once in a couple of decades opportunities to climb aboard what
still are embryonic bull markets, just as I strongly suggested the
birth of a new multi-year stocks stealth bull market in March 2009
Housing Market Trend Trajectory
Whilst I have yet to get around to concluding towards a
detailed multi-year trend forecast for UK house prices, see my earlier
detailed analysis and concluding trend forecast for the US Housing
market as an approximate interim guide for trend trajectory - 12 Jan
2013 - U.S. Housing Real Estate Market House Prices Trend Forecast 2013 to 2016.
US House Prices Forecast Conclusion -
As you read this, the embryonic nominal bull market of 2012 is
morphing into a real terms bull market of 2013, with each subsequent
year expected to result in an accelerating multi-year trend that will
likely see average prices rise by over 30% by early 2016, which translates into a precise house prices forecast based on the most recent Case-Shiller House Price Index (CSXR) of 158.8 (Oct 2012 - released 26th Dec 2012) targeting a rise to 207 by early 2016 (+30.4%).
Creating a UK Subprime Housing Bubble
The chancellors announcement of £130 billion mortgage
guarantees effectively amounts to seeking to ultimately create a UK
version of U.S. Fannie Mae and Freddie Mac that will eventually blow
up in spectacular style as more and more house buying voters expect to
be bribed at each election and therefore the £130 billion will
mushroom to one day stand at well over £1 trillion of liabilities, off
course the bust will come AFTER the next housing boom, so this and the
next government need not worry themselves for the consequences of
creating a UK subprime housing bubble as the consequences of which tax
payers will be liable for in a decade or so's time which means
another financial crisis as this repeats the SAME mistakes of mortgage
backed securities i.e. the lenders are not liable for the risks so
can take on more risky loans for commission as the liabilities will be
with tax payers.
George Osborne UK Housing Market Statement:
So this Budget makes a new offer to the aspiration nation. And what symbolises that more than the desire to own your own home.
Today I can announce Help to Buy.
The deposits demanded
for a mortgage these days have put home ownership beyond the great
majority who cannot turn to their parents for a contribution. That’s
not just a blow to the most human of aspirations – it’s set back
social mobility and it’s been hard for the construction industry. This
Budget proposes to put that right – and put it right in a dramatic way.
Help to Buy has two components.
First, we’re going to commit £3.5bn of capital spending over the next three years to shared equity loans.
From the beginning of
next month, we will offer an equity loan worth up to 20pc of the value
of a new build home – to anyone looking to move up the housing
ladder. You put down a 5pc deposit from your savings, and the
government will loan you a further 20pc.
The loan is interest free for the first five years. It is repaid when the home is sold.
Previous help was only
available to those who were first time buyers, and who had family
incomes below £60,000. Now help is available to all buyers of newly
built homes on all incomes. Available to anyone looking to get on or
move up the housing ladder.
The only constraint will be that the home can’t be worth more than £600,000 – but this covers well over 90pc of all homes.
It’s a great deal for
home buyers. It’s a great support for home builders. And because it’s a
financial transaction, with the taxpayer making an investment and
getting a return, it won’t hit our deficit.
The second part of Help to Buy is even bolder – and has not been seen before in this country.
We’re going to help
families who want a mortgage for any home they’re buying, old or new,
but who cannot begin to afford the kind of deposits being demanded
today.
We will offer a new
Mortgage Guarantee. This will be available to lenders to help them
provide more mortgages to people who can’t afford a big deposit. These
guaranteed mortgages will be available to all homeowners, subject to
the usual checks on responsible lending. Using the government’s balance
sheet to back these higher loan to value mortgages will dramatically
increase their availability.
We’ve worked with some
of the biggest mortgage lenders to get this right. And we’re offering
guarantees sufficient to support £130 billion of mortgages. It will be
available from start of 2014 – and run for three years. And a future
Government would need the agreement of the Bank of England’s Financial
Policy Committee if they wanted to extend it.
Help to Buy is a
dramatic intervention to get our housing market moving: For newly
built housing, Government will put up a fifth of the cost. And for
anyone who can afford a mortgage but can’t afford a big deposit, our
Mortgage Guarantee will help you buy your own home. That is a good use
of this Government’s fiscal credibility.
In the Budget Book, we
also set out more plans for housing: Plans to build 15,000 more
affordable homes. Plans to increase fivefold the funds available for
building for Rent. And plans to extend the Right to Buy so more
tenants can buy their own home.
Meanwhile George Osborne literally choked on his budget
as he tried to suppress the underlying truth of an ever expanding debt
mountain as the government prints debt to bridge the unbridgeable gap
between that of government spending and revenues that feeds the
exponential inflation mega-trend.
The bottom line is this - At least George Osborne is
trying to sort out Britain's economic mess when those that created the
mess, Labour's response is to tax businesses, borrow and spend on an
unproductive public sector black hole which would BANKRUPT Britain!
The big picture remains as I have iterated countless time's which is
one of exponential inflation, for further protection strategies see my
latest ebook The Stocks
Nadeem Walayat
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