By Lowell Ponte, Special for USDR
On November 16, 2014, the world of banking and money was officially flipped upside down because of actions taken by the G-20 nations meeting “down under” in Brisbane, Australia.
People deposit their money in banks for safety. But on November 16, this gathering of 35 national leaders turned your bank into one of the most unsafe places to put your money.
Without warning, these G-20 leaders agreed that the money in your bank account can be seized to pay bank debts.
And some of these leaders – especially President Barack Obama – have already begun imposing billions of dollars in regulatory penalties on banks to squeeze money out of them to grow their governments.
These spendaholic down-under-handed G-20 politicians have just added your bank account to the bank assets they can now legally grab.
“Laws and rules are being changed to make government confiscation of bank deposits as ‘unsecured assets’ easier via what governments now call ‘bail-ins,’” Craig R. Smith and I warned in September 2014 in our latest book DON’T BANK ON IT! The Unsafe World of 21st Century Banking.
“Under today’s law,” we continued, “you no longer necessarily ‘own’ your bank account. Your bank does.” [DBOI page 216]
LIKE A THIEF IN THE NIGHT
Surprised by what the G-20 nations approved, Examiner.com seemed dazed as it reported:
“[W]e are all now faced with the realization that the money we thought was our own, and protected in our checking and savings accounts, no longer is.”
“And after Sunday at the G20 meeting,” Examiner.com continued, “the risks of holding any cash in a bank or financial institution will have to be weighed as heavily and with as much determination of risk as if you were holding a stock or municipal bond, which could decline in an instant should the financial environment bring a crisis even remotely similar to that of 2008.”
They could have gotten all this “news” months ago by reading our over-the-horizon radar assessment in Don’t Bank On It!, where Craig Smith and I wrote: “When you open a bank account you are taking a risk. You are making an investment, gambling with the fruits of your labor.” [Page 213]
“The risk you take by trusting your money to a bank,” we continued, “…is far greater than most people realize – and that risk is rapidly increasing.”
Our 256-page book explores 20 major risks to your bank account….and shows people how to protect themselves and save their savings.
Most depositors have naively ignored such risks because they believe their bank account is protected by the FDIC, the Federal Deposit Insurance Corporation.
Alas, as we document, in an economic meltdown the FDIC would be able to replace only $1 out of every $14 in bank accounts that it “insures” – roughly seven percent of dollars lost.
The collapse of just one of America’s five biggest banks would bankrupt FDIC….but the ruin of one such “Too Big To Fail” bank could set off a domino effect of other falling banks and crash our entire economy.
The amount of exposure to derivatives and other factors that these giant banks carry, as we show, is astronomical – light years beyond the ability of the Federal Reserve or U.S. Treasury to bail out….at least without dooming the U.S. Dollar itself.
At the G-20 meeting in mid-November, the agreed-to “bail-in” policy makes clear that even government FDIC-like insurance will no longer necessarily protect bank depositors.
Indeed, as we document, way back in December 2012 the FDIC and the Bank of England published a joint paper in which they endorsed and agreed to the new “bail-in” policy under which your bank account can be taken to pay for bank shortcomings.
WELCOME TO UNSAFE BANKING
Far from a sure or safe thing, your bank account is now an “at risk” investment, a gamble like buying shares of stock in the Wall Street casino, just as we warned in Don’t Bank On It!
And what is your bank now paying you in interest for taking the 20 huge risks now threatening your bank account? The answer, we documented, is (by a deliberate Fed policy that economists call “financial repression”) less than the real rate of “cost inflation” that is now running between 6 and 11 percent.
This means that you lose purchasing power every day you keep money in the bank. Your money is not growing. It is evaporating.
Our banks now offer their depositors high risk and less-than-zero inflation-adjusted reward.
Government policies have thus made it irrational to keep any significant amount of money in a bank account.
HOW WE GOT HERE
“We took new steps toward strengthening our banks,” said President Barack Obama at the G-20 gathering, “….making sure that we’ve got a financial system that’s more stable and that can allow a bank to fail without taxpayers having to bail them out.”
What he meant is that, henceforth, those who thought their money was safe in the bank will now be among the first in line to lose if their bank starts to run out of money.
In the financial crisis that began in 2008-2009, the Federal Reserve rushed to prop up “Too Big To Fail” giant banks by quietly making or arranging a staggering $16.115 Trillion – roughly equal to the entire annual Gross Domestic Product of the United States – in various loans to rescue banks and other financial institutions. [DBOI page 187]
To prevent this from happening again, the world’s most powerful nations resolved to replace future bailouts with what they called “bail-ins.” This meant that the assets of bank shareholders, creditors and depositors would be used to pay a bank’s shortfall before taxpayer money would be used.
Scarcely three months after the FDIC-Bank of England memo agreeing to this, the Eurozone carried out its first “bail-in.”
The citizens of the Mediterranean island Cyprus awoke one morning in March 2013 to find their banks padlocked, their accounts inaccessible via ATM, and their bank credit cards no longer usable. The government, with European and International Monetary Fund approval, had seized their bank accounts to pay the deficiencies of Cypriot banks.
This “bail-in” would be the “template” of future government policies towards troubled banks, the Netherlands finance minister told a reporter.
The people of Cyprus have been under currency controls ever since, restricted in how many Euros they could take out of their island country.
Why Cyprus? It is a small nation on which to test the new deposit-grabbing policy. Worse, in the view of European welfare states with high taxes, Cyprus was a tax haven whose banks paid depositors higher interest and did more to protect their privacy than in most other European nations.
By seizing Cypriot banks and their accounts, the European Union aimed to shut down a competitor and snatch billions of Euros from Russians and others sheltering their wealth on the tiny island. The EU succeeded in choking Cyprus as a tax haven, but the EU failed to prevent wealthy Russian oligarchs from withdrawing their bank accounts.
SAVING YOUR SAVINGS
Could a Cyprus-like bail-in happen here? Of course, as President Obama affirmed with his support for the G-20 policy.
And, as we explain in Don’t Bank On It!, far far worse is coming.
The good news is that you can protect yourself and your family from the 20 major risks your bank account now faces. Our new book explains what is coming, as we did with the G-20 bail-in policy, and save your savings now.
Don’t be taken by surprise, like a thief in the night stealing your bank account.