Money Grabbin’

February 17, 2014

By: Kelly Diamond, Publisher

On the near anniversary of the Cypriot bank account seizures, the Eurozone is toying with the idea of dipping in once again. 

Both the EU and now Italy are making some plays for people’s capital and it ain’t pretty.

EU Financial Crisis money grabThis isn’t the behavior of a stable economy, or a nation or union that has its economic ducks in a row.  This is the behavior of economies that see the writing on the wall, and are clearly desperate to plug the holes.

First we have Italy: winner of the 2012 Bailout Award alongside Spain to the tune of 600 Billion Euros.  Evidently that wasn’t enough, because here we are, not even two years later and Italy is not doing any better.  In fact, I discussed a particular issue of and Italian business fleeing (like an economic refugee in the night!) Italy and relocating to Poland just last August.  Nope, Italy hasn’t learned its lesson and is still squeezing their citizens to the point of suffocation but NOW, they are skimming 20% off the top of every wire transfer coming into an Italian’s account.

You would think by now, these tax hiking advocates would have learned that jacking up the tax burdens don’t generate MORE revenues.  No different than a shopkeeper jacking up the price of his goods/services.  It’s not a straight equation that if you get 100 people coming into your shop buying 10 units each that they will continue to do so at any price.  They do so because that particular price point made sense for them to buy 10 units each.  If you hike the price, they will not continue to buy at the same volume across the board.  Some will.  Some won’t.  Some will take their business elsewhere.

Now apply this to governments: if they hike the taxes on everyone, they won’t simply get 20% from everyone.  Some will take their accounts out of the country to some other bank in the Eurozone that doesn’t impose that tax.  Some will no longer accept wire transfers and will accept other forms of payment… such as perhaps Bitcoin or precious metals.  And yes, perhaps you will still have those who are willing to do business in Italy regardless of the new tax.  I can’t imagine many would accept these terms for long.

As it stands, the tax is preemptive.  The government is presuming everyone who is receiving a wire transfer is receiving it as a form of profit, compensation or potentially participating in a money laundering scheme.  The burden is on the individual Italian to prove that was not the case.  Perhaps they were being reimbursed for expenses?  Or they had lent the money to someone and were receiving repayment?  That’s fine.  Now go down to some bureaucratic office and cross your fingers that your proof is sufficient!  Dump your precious time into this black hole rather than produce. 

A similar burden is on homeowners with their property taxes.  The county appraiser comes along and appraises your home at some ridiculous rate.  Either you pay the taxes on that new amount, OR you contest it.  If you don’t contest it, that’s the new value of your home as far as the tax collectors are concerned.  If you do contest it, expect to spend a few hours at the County Appraiser’s office.  Don’t forget the stack of comps you need from the MLS to prove your house is worth less than the county says!

I had to do this a few times.  I deliberately showed up with tired, hungry kids.  I also told the appraiser that if my house was worth that much, I would sell it to the County Appraiser right now.  They laughed, while grimacing at my kids.  (My son might have drooled on their stacks of papers… my daughter might have drawn all over their cubicle with a highlighter, but I was too busy talking to the bureaucrat to be sure.)  I said, “Either put your money where your mouth is, or adjust the appraised amount.  Still funny?” 

We do this in the US every April: what can I deduct from my tax obligation?  Kids?  Charity?  Medical care?  Home improvements?  Relocation?  State income taxes?  Property taxes?  Interest on your student loans? 

We do this to prove that we should get some of our money back because we spent some of our earnings on deductible items. 

In the end, it’s a horrible inconvenience and imposition that the government would presume to feel entitled to your money until you can prove they are not.  This attack on Italian capital is just another in a series of money grabs by government in general.  I’m not being glib about it either.  It is ANOTHER attempt at capital controls.  It will backfire, since the work around is rather simple: find a non-Italian bank.

Then there’s the EU.  Just when you think they couldn’t possibly conjure up anything more ridiculous than some of the already profoundly absurd “solutions” to their economic woes, an EU document comes out saying, “The savings of the European Union’s 500 million citizens could be used to fund long-term investments to boost the economy and help plug the gap left by banks since the financial crisis, an EU document says,” according to Reuters.

Therefore… what?  The Commission will ask the bloc’s insurance watchdog in the second half of this year for advice on a possible draft law to mobilize more personal pension savings for long-term financing.

Mobilize?  Is that really the euphemism du jour?  The European Central Bank is going to give banks the go-ahead to start investing with pensioner money?  Backed by what?  A retiree in the Eurozone should’ve already seen the writing on the wall when the Cyprus debacle was going down.  Waiting until the government institutes protocols that limit withdrawals is foolish… never mind too late.

If you recall, I took the healthy skeptic approach to the introduction of the MyRA in Obama’s State of the Union speech.  Bobby Casey took the “HOLY SHIT” view of it.  I’m wondering if he might be right.  I’m not quite at the “holy shit” threshold yet, but as I said, “If this were proposed in a total vacuum, and nothing else was amiss in the banking industry, perhaps I’d not think much of it.  But the global (and even domestic) context in which this was proposed could be something with bigger implications moving forward.” (Yeah, I just quoted myself!  HA!)

Well, no sooner do I write that, does Zerohedge make this claim: “Inspired by the recently introduced “no risk, guaranteed return” collectivized savings instrument in the US better known as MyRA, Europe will also complete a study by the end of this year on the feasibility of introducing an EU savings account, open to individuals whose funds could be pooled and invested in small companies.”

These desperate actions and words are indicative of a European Central Bank that knows it’s screwed up.  Five years after the European economic crisis, and banks are complaining they can’t get money to the private economy, so the answer is take the money from the private sector and fund the private economy… with policies that mandate that pensions be tapped for that purpose.

I’m not against banks investing.  But most banks out in Europe are undercapitalized.  They have already over-extended themselves in that regard.  This isn’t about investing in small burgeoning businesses at all.  This is about bailouts. 

And as if bailouts weren’t already proving to be a failed solution, the EU is threatening to revive the securitization market “which pools loans like mortgages into bonds that banks can sell to raise funding for themselves or companies. The market was tarnished by the financial crisis when bonds linked to U.S. home loans began defaulting in 2007, sparking the broader global markets meltdown over the ensuing two years.”

I might not hold a doctorate in economics, but I’m pretty sure I just read: Securitization was a huge factor in the collapse of the European markets, therefore, we will see if we can dabble in that market again… but this time, without the collapse.

Again, you’d think a lesson would have been learned right?  It’s like getting hit by a car, and rather than learning that you should look both ways, you decide that it was because it was bright outside that you were hit.  Then the next time, rather than looking both ways, you decide it was because it was a blue car that you were hit.  Then the next time, rather than looking both ways you decide it was because you were wearing a hat.

How many excuses will there be for fast and loose policies? 

The US is taking cues from the EU and the EU is using the US as a guinea pig when it comes to creative ways on how to steal from their respective constituencies. 

Consider the following article published last year: “Cyprus is the Template for How to Fail”.  On March 25, 2013, President of the Eurogroup, Jeroen Dijsselbloem said, “If there is a risk in a bank, our first question should be ‘Okay, what are you in the bank going to do about that? What can you do to recapitalize yourself?’ If the bank can’t do it, then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalizing the bank, and if necessary the uninsured deposit holders.”

This is absolutely where the EU is heading.  That’s not even a debatable issue.  Cyprus is the future of the EU.  Period.  However, if you read the entire article, it’s not just the EU.  Most countries have a similar protocol already in place buried in their monetary protocols.  Check out the bit about the U.S.  When you put money into a U.S. bank, the money isn’t yours anymore.  You become an unsecured creditor of the bank.  And if you think the FDIC will save you, think again.

Look at what’s on the books already.  Look at the policies and behaviors of the large western economies.  Look at their track records.  You cannot research those three things and walk away thinking your money is safe in some U.S. bank.  Banks serve a purpose, but they cannot serve that purpose when they are undercapitalized and unstable and otherwise being propped up by feeble governments.

You have options… for now.  You can still withdraw your money.  You can still close accounts here in the US.  You can still move your money offshore post-tax.  There isn’t one Cypriot who held over 100,000 Euros that wouldn’t have given their left eye for the opportunity to have moved their money elsewhere before it was too late.  There isn’t one among those numbers who wouldn’t advise you to heed the warning signs and move your wealth someplace safer.

You don’t have to be a victim of government monetary folly.  Think about safer holdings.  Strongly consider offshore accounts, real estate investments, and holdings.  Seriously evaluate other stores of wealth like precious metals and BitCoin.

Most of all, though, let go of the idea that your money is safe in a US bank, that US Treasury Bonds are stable, and that the FDIC will protect you.  The FDIC doesn’t have enough money to insure every bank account up to $250,000.  Your insurance is your diversification and internationalization strategy.

If you are interested in learning more about creating a custom plan for you and your assets, click here to schedule a consultation.

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Comments

  1. GamerFromJump says

    You know how they say you shouldn’t assume “evil” when “stupid” is just as good an explanation??

    When dealing with progs, assume evil.

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