Worried About a Cyprus-Style Raid on Your Savings? Too late


Worried About a Cyprus-Style Raid on Your Savings? Too late

Your governments are already helping themselves.

One question I’ve heard several times after the shocking Cyprus bank raid was, “How can a government just grab money out of its citizens’ bank accounts?” Another common question is, “How long until it happens in America?”

For those questioners, it’s bad news. It’s pretty easy for governments to take people’s money. And it’s happening right now.

The big difference between Cyprus and America or Britain, is that Britain and America have their own currencies. They’ve got all kinds of underhanded ways of taking citizens’ money. Cyprus can’t do that, so it had to be up front.

I’ll prove it to you. It’s slightly technical, but bear with me. This is how governments get away with it. They take the money in a complicated way and are safe in the knowledge that most people won’t notice.

We all know about inflation. A shopping trolley full of food used to cost $100. Now it costs $110. The price goes up. Another way of looking at it is that the dollar gets less valuable each year. In 2013, a dollar will only buy you about 90 percent of what a dollar would buy you at the start of 2008, before the financial crisis.

Let’s say you set $10,000 aside in a savings account at the start of 2008. And let’s imagine that since then, if you live in America, you’ve had one of the best interest rates available: 1 percent a year (the national average for a U.S. savings account is 0.12 percent, according to bankrate.com). By the start of 2013, you’d have just over $10,500 in your bank account.

But what used to cost $10,000 in 2008 now costs $11,000. You money isn’t worth as much—inflation has eaten away at it. In terms of 2008 values, you only have $9,554. Someone has taken $446 of your money!

Who’s Taken It?

That someone is the government. When Cyprus tried to take 6.75 percent out of people’s banks accounts, there were protests. But if you live in America, the U.S. government has gotten away with taking 4.46 percent of yours (and perhaps more, as we’ll see later).

Here’s how the famous economist John Maynard Keynes described it, as he paraphrased Lenin’s point of view: “By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

They’ve done this through money printing. Since the start of the financial crisis, the government has been printing money at a huge rate. But printing money does not create wealth. The amount of wealth the nation owns stays the same. But all the dollars that everyone owns become less valuable. Money printing takes money away from everyone else, and gives it to those in control of the money machine.

The money printing is called quantitative easing (QE). In this day and age, when money is a number in a computer, the government doesn’t need to literally print the money. It conjures it up digitally. Quantitative easing involves the central bank using this new money to buy government bonds and other debt. This artificially lowers the interest rate—it makes it cheaper for the government to borrow money. It doesn’t have to spend as much on interest payments. It benefits. But you pay, as you get next to no interest on the savings in your bank account and your dollar becomes less and less valuable.

Around the time Cyprus hit the headlines, the British government announced that it was going to do more to grab its people’s savings. But because its way of doing it is indirect and complicated, it didn’t get anywhere near the attention. The Bank of England is supposed to be aiming to keep inflation at 2 percent. In reality, it’s been ignoring that target for months. But on March 20, British Chancellor George Osborne announced that he wanted the Bank of England to focus more on growth, and less on inflation. This is tantamount to giving it a license to print as much money as it wants. His announcement means that British savers will lose far more than the 6.75 percent that was up for grabs in Cyprus.

Central banks argue that QE is not money printing because it will be reversed. This means (in terms of old-fashioned printed money) that the bank promises that it will round up all its newly printed money a few years down the line, and burn it. In the long term, no new money is created because they’ll destroy it all later, they argue.

Can you imagine Britain or America, with their huge national debts, doing this?

If they did, it would have the opposite effect to printing the money. It would become more expensive for the government to finance its debt. Britain and America have not used the current low interest rates to get their finances under control. Instead they’ve been borrowing even more. They’re becoming reliant on this printed money keeping their interest costs down.

Leading financial figures are already admitting they’re not going to burn their newly printed money. “We must tell people that if necessary, QE will turn out to be permanent,” said the former head of Britain’s Financial Services Authority, Lord Turner.

“Quantitative easing will never be reversed,” wrote the Telegraph’s international business editor, Ambrose Evans-Pritchard. “It really is the same as printing money.”

How Much Money?

Now we come back to the question of how much money the government has taken out of Americans’ bank accounts. Our earlier calculation concluded that it was around 4.46 percent. Is that accurate?

Anyone who’s ever been shopping understands inflation. It’s simple. Measuring inflation is not. What used to cost you $100 now costs you $110. But I spent my $100 on a different basket of goods, and for me to buy those items now, it costs $115. For another person’s basket of goods, it now costs $105. How much inflation has there been?

But it gets worse. We used to watch movies on vhs tapes. Now we watch dvds. dvds, at least when they first came out, cost more than video cassettes. Is that inflation—because we now have to spend more to watch movies? Or do we need to find some way to take into account the fact that dvds are better? If so, how much better are they? Fifty cents better? One dollar better?

Unfortunately, measuring inflation is not as simple as reading a number off a machine somewhere. It involves all kinds of value judgements. There are several different types of inflation statistics. Who is in charge of deciding how the official figures are put together? Ultimately, the government.

There’s a huge conflict of interests here. The government has a big incentive to use an index that makes inflation look smaller—so it can get away with printing more money.

So let’s take another look at the $10,000 tucked away in a bank account in 2008. Even including the interest we received, that money will only buy us what $9,554 bought in 2008. That’s according to the government’s inflation index. But, if you look at it in terms of food prices, it’s worth $8,965. When put in those terms, the government’s taken $1,035, or 10.35 percent. That’s more than Cyprus was planning on taking from those with over €100,000.

But even this doesn’t represent all the government has taken.

In 2012, the U.S. government spent just over $3.5 trillion. Through QE, the Federal Reserve has printed $2.7 trillion. That’s a huge amount of money. The dollar is being destroyed before our eyes.

The 4.46 percent, or even the 10.35 percent missing from your bank account is not the full amount the government has taken. It is just the trickle of water that has seeped through the crack in the dam wall. Soon, the whole wall will break and the dollar will end up worthless.

Britain’s and America’s financial policies are destroying their currencies and silently robbing their citizens.

For more on how the government’s out-of-control spending is destroying the economy, see the latest From the Editor section of the Trumpet print edition, titled “We Don’t Have a Spending Problem.”