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GETTING CYPRUSED

Picture this: It’s a three day weekend. You awake on Saturday morning and learn that late Friday night the president has closed all banks, and frozen all financial accounts. He unilaterally declares that a ‘portion’ of your frozen accounts will be used to pay down national debts, and used to avoid government bankruptcy. ATM machines and electronic transfers are also frozen.

It doesn’t matter that some of your accounts are government guaranteed.

A panic occurs. ATM machines are emptied early Saturday. On Sunday, the president announces all banks are to remain closed until at least the end of the following week. He then announces at the weeks-end that the bank holiday will continue until further notice. And to protect banking staff from threats of violence, senior management has been relocated to secure, safe locations, while mid-level staff work from home.

You need access to your money for living expenses, emergency purposes, managing a business, or to pay salaries. You’re worried about how long and how much the government is stealing from your hard earned savings. You’re furious, and worried about the future.

You think the above scenario can’t happen? It already has.

What you can do to prevent this nightmare from occurring to you is the topic of today’s newsletter….

Avoid Getting Cyprused

The above scenario continues unfolding right now in the Euro Zone in Cyprus, thanks to the European Troika (the IMF, EU and ECB). Emotions are running high. Peaceful demonstrations have turned to violence, as workers and pensioners, young and old, mix together in the streets desperate for access to their money. It’s estimated that authorities will confiscate at least 30% - 40% of deposits above 100,000 euros...and maybe more. Nobody knows at this point. They could lose the lot.

You might be surprised to hear that Cyprus' banks passed a stress test in 2011. They were tested to see if they could survive an economic turmoil exactly as occurred, and they passed. Now they're failing. Clearly, bank stress tests are useless. What did the stress testers miss? If you said a sovereign debt crisis, you’d be correct.

Either the political and financial leaders secretly knew what was going to occur in Cyprus, Greece, and elsewhere, or they were inept. I’ll put my money on the latter. In either case, do you trust who’s at the wheel?

 Today, these same political and financial leaders in Europe and the U.S. see Cyprus as a test case to see if depositors can be successfully milked before a slaughter. If it can be pulled off in Cyprus, then why not elsewhere?

Eurogroup Chair Dijsselbloem stated the obvious when he made the official pronouncement that Cyprus was the new model for bank failures, even though the ECB has since back-peddled from his statement. After all, why not make depositors suffer more, even though as taxpayers they were already getting butchered?

And if it works in the EU, then why not in the U.S. where the government is desperate for more of your money?

Governments across the globe have quietly and slowly been implementing programs to implement levies or haircuts to depositors, always under different names. Since the start of the GFC it’s already happened in Iceland, Ireland, Greece, and through numerous austerity programs in the U.K., Spain, Italy, France, and elsewhere.

Doesn't that have a nice ring to it? I'm going to steal from you and call it a haircut. Or a levy. Or a tax. Or whatever. It's still theft by any other name.

And even in New Zealand. Following the GFC the New Zealand regulatory authorities quietly dropped the $1 million depositor’s guarantee, and are now implementing the new Open Bank Resolution (OBR). But it’s nothing more than a depositor’s haircut scheme by another name in the event of a bank failure. OBR allows banks to reopen the following day, but treats bank depositors as mere creditors in the event of a bank closure. And depositors, as creditors, will have a portion of their accounts frozen and looted to pay off the bank’s debts.

Spain and elsewhere are also planning for failure.

True, all deposits at all banks have never been fully guaranteed; deposits have traditionally only been guaranteed to certain levels by governments. But an implied understanding always existed that banks would protect the average Joe depositor’s money.

Now, the new model is that depositors are responsible for knowing their bank’s investing profile and risks. Right! When’s the last time you’ve been able to obtain a full and timely disclosure from your bank to learn about its true investing and risk profile, both on or off the balance sheets? If regulators and rating agencies can’t sort it out, then how is it that depositors are better suited?

What’s worse, this same depositor’s haircut model is quietly unfolding across the globe. How much you could lose will depend on your deposits, the bank’s indebtedness, the government’s indebtedness, and more. It could be 5%, 15%, 25%, or something much more. This is true even when supposedly guaranteed. It’s being sold in New Zealand as an opportunity to immediately reopen troubled ‘bad banks’ the following day without interruption. But depositors are still Cyprused.

How’s that good for thrifty savers or retirement plans?

Fortunately, the major New Zealand banks are currently served by well-capitalized, highly rated, international banks. The major four Australian banks, and Rabobank, Citibank and HSBC, are some of the best funded, and best rated banks in the world. New Zealand has a conservative banking culture. It’s highly regulated. And New Zealand has never had a reputation as a tax haven, or for money laundering. But we’ve seen how things can quickly change.

Cyprus is an EU country of 1.1 million. From good sources, there are 370,000 bank accounts, and 360,000 contain less than 100,000 euros. "Only" €5.8 billion is needed from the banking system for the government to qualify for an EU bailout, so accounts holding more than €100,000 will be docked an average of  580,000 each.

Currency controls are another form of government theft. Its happened repeatedly throughout recent history, and is happening right now in numerous countries. Follow this link to learn more from a past newsletter about how currency controls are a genuine threat in the U.S. And this newsletter on currency wars provides another perspective.

What’s the difference between Cyprus and the U.S.?

It makes no difference that 40% of all banking deposits in Cyprus are from European and Russian depositors. That means 60% of all deposits are from good, honest, hard-working local individuals and businesses. In the U.S., foreigners hold about 46% of all U.S. public debt. The largest foreign holders of U.S. debt are China at 27%, and Japan at about 25%. The remaining 54% are local U.S. individuals and U.S. businesses. Like Cyprus, if the government goes into a money grab, everybody suffers.

What’s the real difference between passing banking laws in Cyprus and the U.S.?

In Cyrus, when the president proposes a law it must then be approved by the parliament (the U.S. Congress equivalent). To the contrary, in the U.S., the president can simply sign an executive order, and it’s a done deal. From that standpoint, your bank deposits are better protected in Cyprus since you have the safety valve of an accountable parliament to keep control over presidential orders.

In the U.S., just like drone strikes, personal assassinations, and jailing individuals for extended periods without being charged with crimes, it is a done deal simply because the president issues an executive order.

 During President Obama’s first four years in office he averaged 37 executive orders per year. And since 1900, the average for all twenty presidents is 44 executive orders per year. Democrats on average passed 59 per year, and Republicans averaged 34 per year. Harry Truman had the highest number at 113. Gerald Ford averaged 84, Dwight Eisenhower 60, Richard Nixon 58, Ronald Reagan 48, and George H.W. Bush 41 per year. So far, President Obama is below the 59 annual Democratic average with “only” 37 executive orders per year.

Still think it can't happen in the U.S.? It already has. In case you weren't around at the time, it was President FD Roosevelt that issued the executive order that closed the U.S.banks in 1933.   

Is the U.S. really any different than Cyprus or any other country that steals money from its citizens?

What about the U.S. near zero interest rate policy which thrifty savers and pension programs are forced to accept, in order to bail out the banks and the government? With the inflation rate higher than your saving rate, you are effectively being charged to keep your money in the bank. From day to day, your money is worth less than the day before. This is simply another form of theft. Soon it will be worthless. And why aren’t U.S. savers and pensioners marching in American streets?

You already know that wealth taxes are nothing more than organized crime implemented by the government. But the ‘inflation’ tax is a crime worse than burdening taxes or stealing savings directly from depositors. It’s a hidden theft. During recent years the theft has been occurring against the most productive and thrifty members of society. And yet no one seems to care. Instead, governments are stealing by maintaining the low and negative interest rates below the real rate of inflation.

What’s the “real” inflation rate?

 The Fed says it’s 2%. But Shadowstats.com estimates 5% to 9% during the past several years using the same government reporting system used for three decades. You be the judge: During the past year do your grocery bills and gasoline costs seem like they’ve only risen by 2%? Or closer to 5%% Or 9%? What the U.S. government is doing to savers and the retiring baby boomers today is worse than the Cyprus proposal.

Either way, you’re Cyprused.

The government keeps using the same solution that caused the problem in the first place. The Ponzi scheme is bound to end in another unhappy ending.

To understand the seriousness of the issue, understand that the U.S. inflation rate is under-reported and much higher than interest rates on savings. When you keep money in the bank, you lose purchasing power every single day because of inflation.

While the low rates and money-printing are terrible for savers, they’re a boon for bankers and the government programs based upon the lower reported rate of inflation.

I’m from the government and here to help

The Obama administration has already discussed a proposal to nationalize all $17 trillion in American private retirement plans. Under the U.S. Patriot’s Act, the government already has the power to confiscate your savings account with only remote claims to terrorism. And you already know that Obama admires the European socialism model, the very system that has created the problems throughout Europe.

But you may be surprised to learn about the massive domestic build-up of Armored Trucks and munitions for civilian control by U.S. Homeland Security (DHS) on American soil. What does DHS know they’re not telling us? (Thanks for the investigative reporting, Jon E.)

The White House has already given its implicit support for the Cyprus depositor’s theft: "We're obviously monitoring the situation right now," White House spokesman Jay Carney told reporters at a briefing. "We believe it's very important for Europe to take steps necessary, as they have been, to both grow and deal with sovereign debt issues." The White House wouldn't comment on the "levy" when pushed.

When you go to bed tonight, think about who holds the power over your life savings, and all of your assets. Think about how presidential executive orders have been used, and abused. Then think about what more you can do to protect your assets with a little more effort.

If you think Cyprus can’t happen to you, think again.

When governments can just go into their citizens' bank accounts and loot billions of dollars, pounds, euros, etc. at will, we really are close to the end of the financial system as we know it. First, we went from financial institutions making bad decisions being bailed out by governments, then to terrible sovereign decisions bailing out the bad banks and being paid for by taxpayers. Now it becomes outright criminal theft by governments passing laws in the dead of night desperately looting the savings of thrifty depositors.

Already peaceful demonstrations have turned to violence. What’s the next step? A forcible overthrow and remaking of the social and political fabric? According to the Oxford Dictionary  that's the definition of a ‘revolution’.  

 Rebellions over taxes have occurred repeatedly throughout history, as discussed here, and the only surprise is how our generation has accepted levels of taxation that our forefathers would have never tolerated.

 What more can you do to protect your assets?

 Diversify, Diversify, Diversify?

 It almost sounds too simple. But if one bank, or one asset class, or one country fails, then all the eggs in the basket are at risk. If diversifying between two different banks is better than one, then two, three, or more, in multiple countries, is even better.

We’ve written extensively in past newsletters about the importance of diversifying assets, both onshore and offshore. For example, in Currency Controls vs. the Sovereign Individual we discussed the benefits of keeping assets in multiple jurisdictions to mitigate risks.

And when the GFC was unfolding, we also provided examples of how to better structure assets within a banking system to avoid losing them. The same principals apply internationally. In another newsletter, Protecting Assets in a Changing World, we discussed how quickly financial systems can change, and how an international trust can help avoid these losses. And look here to see how to manage assets through an international trust.   

Like in Cyprus, or elsewhere, if the U.S. banking system fails, all eggs will crack.

You can never reduce your risk to zero. But you can certainly mitigate your risks pretty darn close, depending on how you structure your assets in an international trust.

You are simply not well protected if there is domestic systemic risk. There are an overwhelming number of good choices available outside your backyard, allowing you to accomplish a higher level of protection by diversifying assets internationally.

And truth be told, there are actually superior banking options located around the globe. You just need to know what to look for. Offshore Living & Investing, 2nd edition, contains several chapters on offshore banking topics.

Diversification is nothing more than managing assets to mitigate various types and levels of risk.

The main investment risk is often not being able to cash in your investments at full value when you need them. Some assets are subject to a loss of purchasing power due to inflation and the income they produce is heavily taxed. While common stocks, real estate, gold and other natural resource investments sometimes provide a better hedge against inflation - and even some tax deferral - they are always subject to risk of illiquidity and a deflationary cycle.

There will always be ‘liquidity risks’ that is, a risk associated with not being able to gain immediate access to your money, or obtain its reasonable value. Therefore, never have more than a small portion of assets in any one bank or financial institution, or in any one country. Multiple countries, different banks, and different asset classes, is always a better structure.

And having some assets outside of a single, troubled political system at home, is a far superior form of asset protection.

At the end of the day, asset protection should include offshore banking diversification.

If you’re interested in learning more, How to Legally Protect Your Assets, 2nd edition, and Offshore Living & Investing, 2nd edition, are two great books to help you getting started. Or visit this page for more international planning tips.

If you’d like to conduct a confidential review of your personal situation and see for yourself how international planning can fit into your future, contact me here.

Until next time…..

David

David A Tanzer, Esq.
JD, BSc, Ph.D (Hon)
 
For more information visit www.DavidTanzer.com or email to Datlegal@aol.com. David is the author of “How to Legally Protect Your Assets” and “Offshore Living and Investing.”

David A Tanzer & Assoc., PC.
Datlegal@aol.com
DAT@DavidTanzer.com
www.DavidTanzer.com

Vail, CO USA:
Tel. (970) 476-6100
Fax (720) 293-2272

Auckland, New Zealand:
Tel. (64) 9 353-1328
Fax (64) 9 353-1328

Brisbane, Australia:
Tel. (61) 7 3319 6999
Fax (61) 7 3319 6999

(Licensed to Practice Law in U.S. States & Federal Courts; Assoc. Member Auckland, N.Z. District Law Society - Foreign Lawyer; & Assoc. Member Queensland Law Society, AU - Foreign Lawyer)

The comments herein are not intended to constitute a legal or tax opinion regarding any specific legal or tax issue as additional issues may exist; does not reach a conclusion with respect to any specific legal or tax issue addressed herein or any additional issues not included; and cannot be used for the purpose of avoiding legal or tax obligations or penalties with respect to issues in or outside the scope of matters discussed herein.

(c) Copyright by David A. Tanzer & Associates, P.C. All rights reserved. Except as permitted under the United States Copyright Act of 1976, as amended, and pursuant to the laws of all countries, no part hereof may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, electronic or otherwise, without the prior written permission of David A. Tanzer & Associates, P.C. Reprint in whole or part strictly prohibited unless prior written permission is granted. International Copyright protected under the Berne Convention, Universal Copyright Convention  and laws of all other Copyright protected countries, and consistent with the World Trade Organization TRIPS.

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