Cyprus: Will We Ever Learn?

Bank savers outside Cyrpus seem undisturbed by its crisis. What does it take...?

OVER the last 30 years, writes Miguel Perez-Santalla at BullionVault, I have seen a lot of changes in the marketplace.

One of the biggest changes of course was the formation of the European single currency – the Euro. Prior to its existence all of today's 17 member countries had their own currencies. Italy, Spain and Greece, to name a few, were often devaluing their currencies. Doing this was one of their solutions to avoid the pain of economic mismanagement. The pain would still come to the general populace, but it looked spread out more evenly amongst its citizens through inflation.

South America and Africa are two continents that have also greatly suffered at the hands of devaluing currencies and mismanaged governments. Some countries have gone through major changes and not only devalued their currencies but changed the name of their currencies to create a better image, such as Argentina did from the Peso to the Austral and back to the Peso. Now under new government they are suffering devaluations again. The currency is poised to lose at least 20% of its value it is believed when the country takes action, which is expected to happen soon.

By enabling such behavior, the central banks and other official-sector players are sadly like drug dealers. They lend out easy money to many different governments to get them beholden to the organization that runs them. This effectively is a basic function of the International Monetary Fund (IMF), followed by support of the world's major banks. But all these machinations are hidden behind high-sounding names and rhetoric. Political protection and independence from any governing body that has the people's interests at heart is what enables the central banks to wheel free and easy.

In today's big news Cyprus was able to get a bailout deal. This led many investors apparently to believe that the situation is now resolved. However, the lasting damage will become more apparent not only to the Cypriot economy but to the world as time goes by. Cyprus had to shut it second-largest bank to acquire €10 billion in financing, some $13 billion. They had essentially to attack the funds of any depositors with more than €100,000 – the insured deposit limit which last week's botched proposal had dared to breach.

Even with the insured level restored, is this new action a form of theft? Or is it just another devaluation? For those bank savers who get hit, it is both at the same time.

Due to its crisis, Cyprus is expected to run well below capacity in the coming year, with the government deficit at perhaps 10% of GDP. We can expect to see many Cypriots leaving their home country in search of better opportunities. This of course will cause the malaise to extend for a greater period of time on that tiny island.

Oddly enough people are quoted as saying that Cyprus is so small that any contagion will be contained. This is a misguided view. Already we see in today's Wall Street Journal its headline "Spain brings the pain to bank investors". There, investors are losing their money by way of restructuring of these banks, which devalues their shareholders and bondholders investments. It's another game played before our eyes of money manipulation. The Spanish government had warned that losses imposed on investors at these banks would be significant. For instance one bank, Banco de Valencia SA faced losses of 90%.

Do you think that these investors – instead of having cash, stocks, or bonds – would have preferred to be holding at least some physical gold? I believe the most important take away that the public should have from the recent activities of the European Central Bank (ECB) is the unveiling of the truth of the intentions and activities of the central banks. The small island of Cyprus, in one way, has become an important pivotal point of understanding for the public. It is like the curtain being lifted to show that Wizard of Oz is not all-powerful or even a god, but simply men turning the wheels of the economy, and apparently to cement their own power.

It is no wonder, in our world of pain and suffering due to these poor economic policies, that countries are beginning to rebel. They are turning away from free-market policies to the closed-door policies and quasi-communist characteristic of such cases as Argentina, Venezuela and Bolivia. The funny thing is it is not the free market system that is failing. It is a central bank system in hand with government policies that are failing the world.

The Cypriots suffer their losses because of Greek bonds. The Greeks suffer their losses because of the central banks. The people of the US suffer their losses because of the mortgage crisis. The mortgage crisis was caused by loose money from the Federal Reserve and government policies. The global economy has suffered from those losses, and it is a domino effect, though we turn our heads and try to disavow any knowledge of it.

In all of this there is only one constant. That constant is that to protect your assets, physical gold is the only transferable form of wealth accepted all over the world and which cannot easily be manipulated by central banks. Of course this does not mean they don't try.

In a quote from Wells Fargo Securities, LLC, from this past Friday's Topic of the Week report in reference to Europe they said "It does not appear that depositors have started to withdraw funds in other countries. However, the situation bears watching." In the end if we have not learned from recent events we will never learn. If we care about our assets and our families we need to hold some gold.

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Miguel Perez-Santalla is vice president of business development for BullionVault, the physical gold and silver exchange founded a decade ago and now the world's #1 provider of physical bullion ownership online. A fierce advocate for retail investors, and a regular speaker at industry and media events, Miguel has over 30 years' experience in the precious metals business, previously working at the United States' top coin dealerships, as well as international refining group Heraeus.

See the full archive of Miguel Perez-Santalla articles. Or visit his personal blog and postings via Miguel Perez-Santalla on Google+

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