Cypriophobia

Details of the new Cyprus bank heist have emerged, and this time they're not going to let any representative legislators get in the way by voting the damn thing down.  Long story short, they government of Cyprus decided to respect the EU rules for deposit insurance and leave bank balances under 100k euros untouched... but they'll grab up to 40% of accounts over that limit.  Depositors with money in the Cyprus Popular Bank - which, as the name cheerfully/ominously implies, is largely owned by the government - could get screwed even worse, because that bank will be completely dissolved.  It's the second-largest bank in an island nation notorious for having very large banks.

What I find most interesting about this story are the repeated assurances - often delivered with a sneer at doomsday prepper hysteria - that nothing of the sort could ever happen in the United States.  But every article pooh-poohing the "hysterics" mentions something our government is doing, or has done, that echoes the crisis in Cyprus.  They talked about raiding pension funds and stuffing them with government I.O.U.s; American liberals are salivating at the thought of doing the same to our 401k accounts.  Cyprus is in turmoil because it's part of the euro, so it can't monetize its debt - but is our ability to do so truly unlimited, or wise?  Cypriot banks used the huge wads of cash they got from foreign depositors to make risk investments (among other things, they bought lots of Greek debt, which means they got suckered by promises from yet another socialist basket case.)  American banks, responding to rules set in place by liberal politicians, also made risky bets that didn't pan out.

It all boils down to governments making promises they can't keep... and insisting those promises are still valid, long past the point of no return, unto the point of systemic collapse.  The American economy is huge, so we're able to afford a great deal more folly, but why is anyone sanguine about our alleged immunity to the forces of fiscal reality... or smugly convinced that our government would never begin taking steps beyond the conventional understanding of taxation, especially if it looks like nations further down the "progressive" death spiral are getting away with it.  Allow our debt to keep piling up, and measures unthinkable today will become quite thinkable in the not-too-distant future.  


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