Mish's Global Economic Trend Analysis |
Reader Asks "Where's the Money?" Posted: 23 Mar 2013 12:54 PM PDT Reader Robert at Americans for Limited Government asks an interesting question. Robert writes ... Hello MishI believe that's a rhetorical question. Robert knows the answer. Even with the EU kicking in 10 billion euros (a loan not a gift), the money is not there. If the banks were sufficiently capitalized, there would not be a need for capital controls. End of the Single Currency in All but Name Jeremy Warner at the Financial Times has an interesting article on this very subject. Warner says If capital controls are introduced in Cyprus, it is the end of the single currency in all but name. With the European Central Bank threatening to pull the plug on Monday by denying further liquidity support, and showing absolutely no sign of blinking, Cypriots have little choice in the matter. The present plan is only slightly more palatable than the last. The two most problematic banks are to be restructured, with uninsured creditors taking a 40 per cent hair cut. That gets the Cypriot authorities some of the way towards the €5.8bn they need, or is that €6.7bn? Reports suggest the beastly Troika has upped the ante. In any case, the balance, whatever it might be, is going to come from "taxing" uninsured deposits above €100,000 in other banks in the way originally proposed.This is precisely what happens in a fractional reserve lending system when faith is lost. And faith certainly has been lost. Why shouldn't it be lost? The entire global financial system would be recognized as insolvent if even 25% of the people tried to get their deposits. Mike "Mish" Shedlock http://globaleconomicanalysis.blogspot.com |
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