El Conquistqdor Francisco de Orellana

El Conquistqdor Francisco de Orellana
The Conquistador who put the Amazaon baisn "on the map"....Francisco Orellana

Monday, March 25, 2013

Forget Cyprus… The Fed is Stealing Your Money

What really initiated the riots and the run on local banks was the proposal of a wealth tax. Euro zone officials wanted to collect a one-time tax of 6.75% on deposits under 100,000 euros and 9.9% on larger deposits.

Of course, people took to the streets. Everybody knows that such wealth taxes are nothing more than organized robbery by the government.

What’s really surprising is that we have a similar thing going on in the U.S. It's been going on for the past few years. And yet, nobody seems to care.

Screw the Depositors, Let’s Save the Bankers

The rationale behind the one-time tax was really simple. Euro zone authorities would provide a bailout to Cyprus. In exchange, they would collect this bank levy.

In other words, the plan was to steal money from depositors to save the banks.

Of course, the government rejected that plan. Local politicians knew people would probably lynch them on the streets if they had voted in favor of this robbery.

So they found another solution. Instead of stealing money from all depositors, they will steal money only from the very rich.

It’s estimated that authorities will confiscate about 30% of deposits above 100,000 euros, which are not guaranteed under European Union law. But they could end up stealing more… nobody knows at this point.

Those are the terms of the last-ditch deal reached between Cyprus and international lenders to save the banks.

Throughout this whole Cyprus mess, what really caught my attention were the similarities between this proposed one-time tax and what the Fed has been doing. Let me explain.

How the Fed is Secretly Stealing Your Money… and Giving it to the Banks

Although our own government has been doing something similar for the past few years, I don’t see the kind of outrage I saw in Cyprus.

Of course, they haven’t done it in such a direct way. They’re smarter than that. They know people would never accept such a one-time confiscation of deposits.

Instead, they do it through negative interest rates (interest rates below the rate of inflation).

Here’s how it works…

As you know, the Federal Reserve has promised to keep interest rates close to zero for a very long time. Because of its policies, the U.S. inflation rate is now higher than interest rates.

This means that savers can’t earn anything on their deposits and money market accounts. If you leave money in the bank, you will be losing purchasing power every single year because of inflation.

While super low rates and money-printing are bad for savers, they’re great for bankers.

With short-term borrowing costs near zero, banks can profit by investing in government notes that pay a higher interest rate. This help from the Fed was a big reason why banks recovered from the 2008 collapse … the same collapse they helped bring about.

For the past four years or so, the Fed has been punishing savers in order to save banks. Isn’t that the same thing the euro zone authorities were proposing in the Cyprus case?

While European authorities wanted to levy a tax of 6.75% on depositors, the Fed is imposing a tax in the amount of the inflation rate.

What’s the inflation rate? It depends on how you measure it. The Fed says it’s 2%. But Shadowstats.com, using the same government methodology that was used in the 1980s, estimates inflation is actually close to 9%.

Judging by my grocery bills and gasoline costs, I think 9% is much closer to reality than what the Fed claims.

In a way, what the Fed is doing is worse than the Cyprus proposal. The Fed takes our money in a much sneakier way. It does it through negative interest rates, using inflation as an invisible tax.

That’s why I believe precious metals deserve a place in your portfolio. Gold and silver love negative interest rates. They continue to be good assets to hedge your portfolio against the Fed’s actions. At the end of day, Cyprus has nothing on the Fed.

Evaldo Albuquerque
Editor, Pure Income

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