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The War On Cash: Why Now?
The War On Cash: Why Now?
You’ve probably read that there is a “war on cash” being waged on various fronts around the world. What exactly does a “war on cash” mean?
It means governments are limiting the use of cash and a variety of official-mouthpiece economists are calling for the outright abolition of cash. Authorities are both restricting the amount of cash that can be withdrawn from banks, and limiting what can be purchased with cash.
These limits are broadly called “capital controls.”
Why Now?
Before we get to that, let’s distinguish between physical cash — currency and coins in your possession — and digital cash in the bank. The difference is self-evident: cash in hand cannot be confiscated by a “bail-in” (i.e., officially sanctioned theft) in which the government or bank expropriates a percentage of cash deposited in the bank. Cash in hand cannot be chipped away by negative interest rates or fees.
Cash in the bank cannot be withdrawn in a financial emergency that shutters the banks (i.e., a bank holiday).
When pundits suggest cash is “obsolete,” they mean physical paper money and coins, not cash in a bank. Cash in the bank is perfectly fine with the government and its well-paid yes-men (paging Mr. Rogoff and Mr. Buiter) because this cash can be expropriated by either “bail-ins” or by negative interest rates.
Inflation and Negative Interest Rates
Mr. Buiter, for example, recently opined that the spot of bother in 2008–09 (the Global Financial Meltdown) could have been avoided if banks had only charged a 6 percent negative interest rate on cash: in effect, taking 6 percent of the depositor’s cash to force everyone to spend what cash they might have.
…click on the above link to read the rest of the article…
Austrian Bad Bank “Black Swan” Bail-In Is Unconstitutional, Austria Declare
Austrian Bad Bank “Black Swan” Bail-In Is Unconstitutional, Austria Declare
The subject of bail-ins and bank resolutions is back in the news this month as every eurocrat in Brussels scrambles to determine the best way to recapitalize Greece’s ailing banking sector, which, you’re reminded, is sinking further into insolvency with each passing day thanks to the unyielding upward pressure on NPLs that’s part and parcel the country’s outright economic collapse.
And while you could be forgiven for focusing squarely on the trainwreck that’s occurring in Athens, it would be a mistake to ignore the fact that just a few months back, a black swan landed in Austria when a €7.6 billion capital hole was “discovered” in Heta Asset Resolution, the vehicle set up to resolve the now defunct lender Hypo Alpe-Adria-Bank.
In short, the bad bank went bad, and when it became clear that no further state support was forthcoming, Heta Asset Resolution was itself put into resolution and a moratorium on bond payments was declared.
The debacle raised a number of troubling issues not the least of which involves the beautifully picturesquesouthern Austrian province of Carinthia, which had guaranteed some €10 billion worth of Heta debt despite the rather inconvenient fact that annual provincial revenues only amount to around €2.3 billion.
…click on the above link to read the rest of the article…
Europe’s New Colonialism: ECB Rejects Greek Request To Reopen Stock Market
Europe’s New Colonialism: ECB Rejects Greek Request To Reopen Stock Market
It has been one month since Greek capital controls were imposed, and as we explained earlier, Greece is nowhere closer to having its deposit limits lifted. In fact, with several more months of capital controls at least, the Greek banks are likely to suffer ongoing balance sheet impairments which will ultimately result in depositor bail-ins, with Germany already pushing for haircuts on deposits over €100,000.
However, when it comes to banks there is at least still the illusion that Greece has some residual sovereignty. The reality is that it does not, as Greece is no longer an independent nation, and as of July 15, the Greek “In Dependence” day, every Greek decision needs to get pre-approval from both the ECB, Brussels and, naturally, Berlin.
This was made very clear earlier today when Reuters reported that the Greek stock exchange will remain closed on Monday but might reopen on Tuesday after a one-month shutdown which started on June 29. “It’s certain that it will not open on Monday, maybe on Tuesday,” a spokesperson for the Athens Stock Exchange told Reuters on condition of anonymity.
A spokesman for the Athens Stock Exchange said on Friday a proposal to reopen the bourse had been submitted to the European Central Bank for an opinion before a decision on the matter is made by the Greek finance ministry.Another person with direct knowledge of the matter confirmed that Greek authorities aimed to reopen the bourse on Tuesday.
However, to understand what really happened, one should read the Bloomberg explanation, according to which it was the ECB which rejected proposals by Greek authorities to reopen country’s financial markets with no restrictions in place for both Greek and foreign traders, citing an Athens Exchange spokeswoman.
Ministerial decree is now expected, setting some restrictions in use of money from Greek bank accounts for trading.
…click on the above link to read the rest of the article…
Greek Capital Controls To Remain For Months As Germany Pushes For Bail-In Of Large Greek Depositors
Greek Capital Controls To Remain For Months As Germany Pushes For Bail-In Of Large Greek Depositors
Two weeks ago we explained why Greek banks, which Greece no longer has any direct control over having handed over the keys to their operations to the ECB as part of Bailout #3’s terms, are a “strong sell” at any price: due to the collapse of the local economy as a result of the velocity of money plunging to zero thanks to capital controls which just had their 1 month anniversary, bank Non-Performing Loans, already at €100 billion (out of a total of €210 billion in loans), are rising at a pace as high as €1 billion per day (this was confirmed when the IMF boosted Greece’s liquidity needs by €25 billion in just two weeks), are rising at a pace unseen at any time in modern history.
Which means that any substantial attempt to bailout Greek banks would require a massive, new capital injection to restore confidence; however as we reported, a recapitalization of the Greek banks will hit at least shareholders and certain bondholders under a new set of European regulations—the Bank Recovery and Resolution Directive—enacted at the beginning of the year. And since Greek banks are woefully undercapitalized and there is already a danger of depositor bail-ins, all securities that are below the depositor claim in the cap structure will have to be impaired, as in wiped out.
Now, Europe and the ECB are both well aware just how insolvent Greek banks are, and realize that a new recap would need as little as €25 billion and as much as €50 billion to be credible (an amount that would immediately wipe out all existing stakeholders), and would also result in a dramatic push back from local taxpayers. This explains why Europe is no rush to recapitalize Greece – doing so would reveal just how massive the funding hole is.
…click on the above link to read the rest of the article…
It Begins: ECB Hikes Greek ELA Haircuts; Full “Depositor Bail-In” Sensitivity Analysis
It Begins: ECB Hikes Greek ELA Haircuts; Full “Depositor Bail-In” Sensitivity Analysis
Earlier today we reported that as Bloomberg correctly leaked, the ECB would keep its ELA frozen for Greek banks at its ?89 billion ceiling level last increased two weeks ago. However we did not know what the ECB would do with Greek ELA haircuts, assuming that the ECB would not dare risk contagion and the collapse of the Greek banking system by triggering a waterfall solvency rush in Greek banks if and when it boosts ELA haircuts. Turns out we were wrong, and as the ECB just announced “the Governing Council decided today to adjust the haircuts on collateral accepted by the Bank of Greece for ELA.”
Full Press Release:
ELA to Greek banks maintained
- Emergency liquidity assistance maintained at 26 June 2015 level
- Haircuts on collateral for ELA adjusted
- Governing Council closely monitoring situation in financial markets
The Governing Council of the European Central Bank decided today to maintain the provision of emergency liquidity assistance (ELA) to Greek banks at the level decided on 26 June 2015 after discussing a proposal from the Bank of Greece.
ELA can only be provided against sufficient collateral.
The financial situation of the Hellenic Republic has an impact on Greek banks since the collateral they use in ELA relies to a significant extent on government-linked assets.
In this context, the Governing Council decided today to adjust the haircuts on collateral accepted by the Bank of Greece for ELA.
The Governing Council is closely monitoring the situation in financial markets and the potential implications for the monetary policy stance and for the balance of risks to price stability in the euro area. The Governing Council is determined to use all the instruments available within its mandate.
…click on the above link to read the rest of the article…
The Logic of Interventionism, or How to Wake up in a Prison
The Logic of Interventionism, or How to Wake up in a Prison
Archaic Financial Freedom
The mainstream press is still full of articles about the alleged evils of cash, which we regard as a typical “trial balloon” launched by the powers-that-be. The way this works is that they get a repressive measure they indent to implement out there, not only to propagandize in its favor, but also to gauge the reaction of the serfs. Is there an outcry? Does anyone care? If not, they quietly go forward with putting the measure into practice. If there is a great deal of pushback, they will simply wait for a better opportunity. A useful emergency always comes along after all. The Charlie Hebdo attack in France is a pertinent recent example: Under the false pretext that this is needed to “fight terrorism”, all cash transaction exceeding €1,000 have been banned in France.
German daily Frankfurter Allgemeine Zeitung, has recently published an article about the “hoarding of cash” by citizens of Switzerland and the euro zone. With interest rates either at zero or negative, the cash currency component of the money supply has increased significantly, as more and more citizens prefer to hoard money under the proverbial mattress. The new European “bail-in” regime, so vividly demonstrated in Cyprus, is a major motive as well. Most recently, Greek citizens have resorted to withdrawing their deposits, with mainly small savers withdrawing cash (large depositors are more likely to simply transfer money to other parts of the euro area that seem safer).
…click on the above link to read the rest of the article…
Why We Are All Now Cypriots-to-bein the New Age of Bail-Ins
Why We Are All Now Cypriots-to-bein the New Age of Bail-Ins
According to the mostly ignored and hardly covered piece of newsfrom a couple of weeks ago, it turns out that 11 of the 28 European Union countries have been scolded by the European Commission for failing to implement a new set of rules intended to prop up failed banks. Known as the Bank Recovery and Resolution Directive (BRRD), the stated purpose of the newly required rules is to purportedly protect taxpayers from having to cover the losses of any possible future bank failures, similar to the failures that occurred back in 2008. Taking the place of the more conventional taxpayer-funded “bail-outs,” banks would see their losses recapitalized with the newly-minted practice of the “bail-in.”
A bail-in, in case you aren’t familiar with it, is the emerging alternative to the well-known bail-out. Back in 2008 when a slew of “too big to fail” (TBTF) banks crumbled due to $147 barrels of oil and the bursting of the housing bubble, the entire financial system was put at risk and was deemed to be in need of a rescue. What occurred was an influx of money from outside sources to cover the bank losses, one example being the $700 billion life-line from the US government (which essentially means from the US taxpayer). This is known as a bail-out.
This differs from what occurred with the Cypriot banking system back in 2013, of which has since come to be known as a bail-in. In short, due to Cyprus’ insolvent banking system, all banks in the country were shut down under the “bank holiday” rubric, to go along with withdrawals being limited, if not completely cut off. Upon cessation of the bank holiday measures, it was announced by officials that all bank accounts in excess of €100,000 would have their balances reduced by 47.5% (also known as a “haircut”). As the practice now goes, confiscated bail-in funds are used to recapitalize failed banks, and the depositors who had their balances reduced essentially become owners of a bank that no one has much of an interest in owning.
…click on the above link to read the rest of the article…
The War On Cash: Officially Sanctioned Theft
The War On Cash: Officially Sanctioned Theft
You’ve probably read that there is a “war on cash” being waged on various fronts around the world. What exactly does a “war on cash” mean?
It means governments are limiting the use of cash and a variety of official-mouthpiece economists are calling for the outright abolition of cash. Authorities are both restricting the amount of cash that can be withdrawn from banks, and limiting what can be purchased with cash.
These limits are broadly called capital controls.
The War On Cash: Why Now?
Why are governments suddenly acting as if cash money is a bad thing that must be severely limited or eliminated?
Before we get to that, let’s distinguish between physical cash—currency and coins in your possession—and digital cash in the bank. The difference is self-evident: cash in hand cannot be confiscated by a “bail-in” (i.e. officially sanctioned theft) in which the government or bank expropriates a percentage of cash deposited in the bank. Cash in hand cannot be chipped away by negative interest rates or fees like cash held in a bank.
Cash in the bank cannot be withdrawn in a financial emergency that shutters the banks, i.e. a bank holiday.
When pundits suggest cash is “obsolete,” they mean physical paper money and coins, not cash in a bank. Cash in the bank is perfectly fine with the government and its well-paid yes-men (paging Mr. Rogoff and Mr. Buiter) because this cash can be expropriated by either “bail-ins” or by negative interest rates.
Mr. Buiter, for example, recently opined that the spot of bother in 2008-09 (the Global Financial Meltdown) could have been avoided if banks had only charged a 6% negative interest rate on cash: in effect, taking 6% of the depositor’s cash to force everyone to spend what cash they might have.
…click on the above link to read the rest of the article…
The European “Template” For Dealing With Crises: Freezing Accounts, Bank Holidays, and Capital Controls…
The European “Template” For Dealing With Crises: Freezing Accounts, Bank Holidays, and Capital Controls…
More and more analysts are beginning to take note of the “War on Cash.” However, they’re missing the fact that the actual template for what’s coming to the US first appeared in Europe back in 2012.
Back in March of 2012, when the EU Crisis first began to spin out of control, then Prime Minister of France Nicolas Sarkozy openly called for the renegotiation of the Schengen Treaty: the treaty that established the 26-nation EU as a “borderless” entity in which individuals could move from one country to another with little difficulty and which also made trade among EU members easier.
France was not alone either. A few months later, both France and Germany proposed imposing border controls in June of that same year.
A Vote of No Confidence in Europe
Germany and France’s joint proposal to allow Schengen-zone countries to temporarily reintroduce border controls as a means of last resort might sound harmless. But doing so would damage one of the strongest symbols of European unity and perhaps even contribute to the EU’s demise.
Germany and France are serious this time. During next week’s meeting of European Union interior ministers, the two countries plan to start a discussion about reintroducing national border controls within the Schengen zone. According to the German daily Süddeutsche Zeitung, German Interior Minister Hans-Peter Friedrich and his French counterpart, Claude Guéant, have formulated a letter to their colleagues in which they call for governments to once again be allowed to control their borders as “an ultima ratio” — that is, measure of last resort — “and for a limited period of time.” They reportedly go on to recommend 30-days for the period.
…click on the above link to read the rest of the article…
Why Is The EU Forcing European Nations To Adopt ‘Bail-In’ Legislation By The End Of The Summer?
Why Is The EU Forcing European Nations To Adopt ‘Bail-In’ Legislation By The End Of The Summer?
Are they expecting something to happen? As you will read about below, the European Union says that any nation within the EU that does not enact “bail-in” legislation within the next two months will face legal action. The countries that are being threatened in this manner include Italy and France. If you fast forward two months from this moment, that puts us in early August. So clearly the European Union wants everything to be squared away by the end of the summer. Is there a reason for this? Are they anticipating that something really bad will happen in September or thereafter? Why such a rush?
We all remember what happened when major banks were “bailed out” during the last financial crisis. A tremendous amount of taxpayer money was given to the big banks to help prop them up so they wouldn’t fail. This greatly upset a lot of people.
Well, when the next great financial crisis hits Europe, banks are not going to get “bailed out” this time. Instead, we are going to see “bail-ins”.
So precisely what is a “bail-in”? Essentially, what happens is that wealth is transferred from the “stakeholders” in the bank to the bank itself in order to keep it solvent. That means that creditors and shareholders could potentially lose everything if a major bank in Europe fails. And if their “contributions” are not enough to save the bank, those holding private bank accounts will have to take “haircuts” just like we saw in Cyprus. In fact, the travesty that we witnessed in Cyprus is being used as a “template” for much of the new legislation that is being enacted all over Europe.
…click on the above link to read the rest of the article…
Are They About To Confiscate Money From Bank Accounts In Greece Just Like They Did In Cyprus?
Are They About To Confiscate Money From Bank Accounts In Greece Just Like They Did In Cyprus?
Do you remember what happened when Cyprus decided to defy the EU? In the end, the entire banking system of the nation collapsed and money was confiscated from private bank accounts. Well, the nation of Greece is now approaching a similar endgame. At this point, the Greek government has not received any money from the EU or the IMFsince August 2014. As you can imagine, that means that Greek government accounts are just about bone dry. The new Greek government continues to insist that it will never “violate its anti-austerity mandate”, but the screws are tightening. Right now the unemployment rate in Greece is over 25 percent and the banking system is on the verge of collapse. It isn’t going to take much to set off a panic, and when it does happen there are already rumors that the EU plans to confiscate money from private bank accounts just like they did in Cyprus.
Throughout this entire multi-year crisis, things have never been this dire for the Greek government. In fact, Greece came thisclose to defaulting on a loan payment to the IMF back on May 12th. And with essentially no money remaining at all, the Greek government is supposed to make several large payments in the weeks ahead…
Athens barely made its latest payment (May 12) to the International Monetary Fund (IMF), and it managed to do so only when the government discovered that it could use a reserve account it wasn’t aware of, according to the Greek media.
Kathimerini, a Greek daily newspaper, reports that Prime Minister Alexis Tsipras wrote to the IMF’s Christine Lagarde warning that Greece would not be able to make that May payment, worth €762 million ($871 million, £554.2 million).
…click on the above link to read the rest of the article…
Are They About To Confiscate Money From Bank Accounts In Greece Just Like They Did In Cyprus?
Are They About To Confiscate Money From Bank Accounts In Greece Just Like They Did In Cyprus?
Do you remember what happened when Cyprus decided to defy the EU? In the end, the entire banking system of the nation collapsed and money was confiscated from private bank accounts. Well, the nation of Greece is now approaching a similar endgame. At this point, the Greek government has not received any money from the EU or the IMFsince August 2014. As you can imagine, that means that Greek government accounts are just about bone dry. The new Greek government continues to insist that it will never “violate its anti-austerity mandate”, but the screws are tightening. Right now the unemployment rate in Greece is over 25 percent and the banking system is on the verge of collapse. It isn’t going to take much to set off a panic, and when it does happen there are already rumors that the EU plans to confiscate money from private bank accounts just like they did in Cyprus.
Throughout this entire multi-year crisis, things have never been this dire for the Greek government. In fact, Greece came thisclose to defaulting on a loan payment to the IMF back on May 12th. And with essentially no money remaining at all, the Greek government is supposed to make several large payments in the weeks ahead…
Athens barely made its latest payment (May 12) to the International Monetary Fund (IMF), and it managed to do so only when the government discovered that it could use a reserve account it wasn’t aware of, according to the Greek media.
Kathimerini, a Greek daily newspaper, reports that Prime Minister Alexis Tsipras wrote to the IMF’s Christine Lagarde warning that Greece would not be able to make that May payment, worth €762 million ($871 million, £554.2 million).
…click on the above link to read the rest of the article…
EU and Greece Running Out of Time – As Bank Runs Intensify, Bail-Ins Likely
EU and Greece Running Out of Time – As Bank Runs Intensify, Bail-Ins Likely
– EU and Greece running out of time as talks end “in disarray” – again
– Greece warns Merkel of ‘impossible’ debt
– Concerns Greece out of money by end of April
– Friday’s “agreement” in Brussels falls apart hours later as protagonists fail to agree on specifics
– Greece now insolvent – will run out of liquidity by end of April
– Greek banks on verge of collapse as runs continue – €1.5 billion emptied out of banks last week alone
– ‘Grexit’ could propel gold to over $2,000/oz
– Cyprus style bail-ins look increasingly possible
Greece’s place in the Eurozone is as precarious as ever as talks between Prime Minister Tsipras and European leaders in Brussels broke down – hours after reaching general agreement – and Greece warned Germany that it will be “impossible” for Greece to service debt payments due in the coming weeks if the EU fails to provide short-term financial assistance.
Greece – faced with illiquidity, insolvency and a potential banking collapse – is running out of time and appears to be on the back foot as its international creditors refuse to countenance any debt restructuring, rescheduling or forgiveness.
The warning from Greece came in a letter from Tsipras to Angele Merkel provided to the Financial Times. It comes as concerns mount that Athens will struggle to make pension and wage payments by as early as next week, the end of March, and could run out of cash completely before the end of April.
The letter, dated March 15, came just before Ms Merkel agreed to meet Mr Tsipras on the sidelines of an EU summit last Thursday and invited him for a one-on-one session in Berlin, scheduled for Monday evening.
…click on the above link to read the rest of the article…
A Black Swan Lands In Southern Austria: The Ripple Effects Of “Mini-Greece Going Off In The Heartland Of Europe”
A Black Swan Lands In Southern Austria: The Ripple Effects Of “Mini-Greece Going Off In The Heartland Of Europe”
By far the most notable news of the past week, which has still gone largely unnoticed by the greater investing community whose focus instead was on whether algos would ramp the Nasdaq to 5000, and keep the S&P above 2100, even before Mario Draghi finally began buying bonds that nobody wants to sell, was the “Spectacular Development” In Austria, whereby the “bad bank” of failed Hypo Alpe Adria – the Heta Asset Resolution AG – itself went from good to bad, with its creditors forced into an involuntary “bail-in” following the “discovery” of a $8.5 billion capital hole in its balance sheet primarily related to ongoing deterioration in central and eastern European economies.
This shocking announcement promptly sent the price of Heta bonds crashing as creditors, no longer enjoying the explicit guarantee of the state, scrambled to get out of “northern Europe’s” first Lehman moment.
But while the acute pain came and went for Heta bondholders who have seen a nearly 50% loss in just a few short months, the bigger and far more diffuse pain is only just starting, or as Bloomberg put it, “Austria’s decision to wind down Heta Asset Resolution AG sent ripples through the financial system, causing credit rating downgrades in Austria and bank losses in Germany.”
The first casualty: the beautifully picturesque southern Austrian province of Carinthia.
…click on the above link to read the rest of the article…
