Ever since Central Banks began topping up selected banks’ cash reserves to prevent them from going broke, the likelihood of rampant price-inflation has flourished. So far, it has affected mainly high-end corporate salaries and bonuses and the things the recipients spend them on – multi-million-dollar paintings and mansions, etc. The rich are getting noticeably richer.
The reckless money-creation has also benefitted government bureaucrats and other dependents such as welfare recipients and the military-industrial complex. When the new money eventually filters down to the man and woman in the street, that will mark the beginning of the currency collapse we’ve all been warned about for so long. Large and regular across-the-board increases in the prices of food and other commodities will speedily devalue the money in our bank accounts and pension funds.
Speedily, but not instantaneously. For instantaneous financial losses, consider the following three examples.
Last month, some insolvent banks in Cyprus (they had invested in Greek bonds and other rubbish) suddenly converted up to 60% of customers’ current and savings account balances into shares in the banks, without notice or warning. The shares may not be sold; there is no free market for them.
In effect, the rule of law was suspended; the money was flat-out stolen. The government of Cyprus was too much in debt itself to bail out the banks, and reckoned the only way to save them was to steal the customers’ money. The European Central Bank agreed.
A week later, an international Dutch bank (ABN AMRO, owned by the Dutch government) confiscated all its customers’ gold bullion being held in safe custody. The bank did agree to pay for the bullion, though at artificially low prices. The custody contracts were simply ignored, and the bank used the bullion for its own purposes. (ABN is ten times the size of the biggest Cyprus bank, and half the size of the Royal Bank of Canada.)
18 months earlier, a commodities broker in the USA (about the same size as the Cyprus bank) confiscated all its clients’ Trust Account balances (“segregated funds”) and put the money in its own general bank account. Even with this illegal bail-out, the firm went bust; the clients’ money was never returned. The relevant government agencies decided not to prosecute anybody for the theft.
It’s a growing trend. These three thefts are expected to become precedents for insolvent banks throughout the US and Euro currency-blocs. We amateur investors have to wonder how vulnerable our deposits and assets are, held by professional custodians however reputable.
For centuries it has been legal for banks to lend out multiple times their deposit-bases. As long as a prudent balance is kept between the expiry-dates of unsecured loans from customers (savings and cheque accounts) and of secured loans to customers, there should be no danger. But “segregated funds and investments” have always been untouchable, until now. Suddenly, it’s a dangerous world we live in.
When secured loans go bad, things can quickly get nasty. That’s what has been happening over the past several years, since some of the world’s most senior bankers and auditors allowed personal greed to over-ride their traditional ethics and practices. When assets held in trust become vulnerable to theft at the whim of the custodians, where will our savings be safe?
Which bank or broker can we trust? Could it happen here in Cayman? Yes, it could – if Britain allowed it. God knows our government is just as incompetent as Cyprus’s, in the management of money. It would be nice to hear some assurance from the custodians of our money, locally. And from our Monetary Authority, too, and the FCO. What do they all think of the shenanigans going on in Cyprus, Holland and the USA?