Bernanke leaves door open for Cyprus-style confiscation of savings

Federal Reserve Chairman, Ben Bernanke refused to say that the United States will not use Cypriot techniques of taxing the people by confiscating a percentage of their savings accounts to fund government operations.

During a press conference held to explain his view the economic conditions in the United States, Bernanke identified what he called the growth of private payrolls, increase in spending by households and companies, gains in the housing sector as signs that his expectations of a recovery in the economy were correct.

The Fed Chairman said his meetings with the Federal Open Market Committee concluded that the economic outlook is following its own pre-established expectations.

But when asked whether the U.S. would consider a Cyrpus-style approach to taking money from savers, Bernanke was ambiguous at best, as he usually is when the time comes to speak clearly.

The thought that a government -either by its own decision or due to outside pressure- seizes private monies to finance its operation or as part of a bailout plan is not new. People in Latin America and in the very same United States have already been victims of this practice. More recently, the government of Cyprus accepted to subtract funds from private citizens as a condition to get a so-called bailout from the European Union.

After much pressure, the Cypriot government sort of backed off, which caused banks across the country to close their doors after rumors of  imminent bank runs. “I was wondering if you can tell me how if a run on the banks happens in Cyprus, how that might affect U.S. markets. And also is it possible for the U.S. to levy a tax on regular deposits here? Or why not?”, asked a reporter.

Bernanke responded that the only trigger for actions such as the ones taken in Cyprus would be if depositors panicked. With his statement, and while not stating clearly whether it would happen in the U.S. or not, Bernanke left the door open for account seizing in the U.S.. Bernanke added that he believes it is unlikely that Cyprus’ scenario replicates in the United States. He then reminded the audience that in the U.S. the FDIC insures savings and that this fact is an assurance for depositors who may be concerned.

Unfortunately, the FDIC has only a very limited capacity to pay all depositors. In fact, the FDIC has shown weakness when it came to meeting its obligation in the recent past. In September 2009, the institution weighed the possibility of borrowing money from banks in a clear example of incapacity to do the job it created to do. The FDIC’s case is another one of those where the banks bailout the government and not the other way around.

In February 2012, the Obama administration showed concern about the FDIC’s ability to meet its obligations citing that the entity would become insolvent. On March 4, Congresswoman Chairman Sheila Bair said the FDIC was on its way to becoming insolvent and that its job to insure bank deposits would be in danger. It is important to note that the FDIC only insures deposits of up to $250,000. “Without these assessments, the deposit insurance fund could become insolvent this year,” Bair said.

So where is all of Ben Bernanke’s optimism coming from? An even more important questions is, do Ben Bernanke’s opinions about the economy matter? In the case of Cyprus, its own government’s word did not matter, because the European bankers had their hands tied around the government’s neck and it is them who decide what is done about the economy all around the continent. They did so in Spain, Greece, Portugal, Italy and now in Cyprus.

Just as Bernanke, the Fed and the banks are to blame for all economic hardship in the U.S., in Europe the usual suspects are the European Central Bank and the continental bureaucracy that work for the bankers themselves.

 

Luis Miranda
The Real Agenda

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