This week’s iteration of the Euro crisis surfaced in tiny Cyprus, and the EU attempted to force government confiscation of private customer bank deposits before another bailout would be authorized. Can governments really steal from private citizen’s bank accounts, and could it happen here? The answer to both is a qualified, yet disturbing “Yes.”
Due to massive public and private debt and a deep financial connection with fiscally troubled Greece, Cyprus is the sixth of the EU’s seventeen countries to receive massive monetary infusions to maintain solvency. In an unprecedented move, the EU voted to have Cyprus raid Cypriot bank deposits for up to 38% before another bailout would be authorized.
Americans should take note, not only of what’s happening in the Eurozone with Cyprus right now, but especially at how our domestic fiscal policy mirrors what’s been happening in Europe, and at how the U.S. is creating a similar future crisis.
To recapitulate the issue in simple terms, global economic growth, especially in the Eurozone, has slowed dramatically, since the financial crisis of 2008. This has revealed the problematic fiscal policies of many countries, which have continued to spend exorbitantly in spite of reduced tax revenue. When economic growth declines, so do tax receipts. That gap between spending and receipts creates significant budgetary deficits, which is unsustainable, and jeopardizes the liquidity and viability of the banking systems of the respective countries, since they hold much of their debt.
The Cypriot parliament voted late Friday on a plan to come up with the requisite 5.8 billion Euros needed for unlocking the 10 billion Euro bailout. Customer accounts with greater than 100,000 Euros are at risk of being raided by their own government. A defalcation of customer deposits would be a new low for any government that now has to pay the price for their own imprudent fiscal management.
It’s unlikely, given current laws and regulation, that U.S. bank customers would face a similar governmental theft of their deposits. But that can easily change, and some experts fear such a scenario is possible in light of some developments, especially for retirement accounts.
In November, Atlantic Monthly ran a story, “The 401(k) Is a $240 Billion Waste.” Time Magazine ran a similar story. Both referenced a Danish study, that concludes that government should abolish the tax-advantaged status and deductibility of retirement accounts, for they amount to “subsidies” granted to “the rich.” As soon as government recognizes a benefit as a subsidy, they believe they own it.
Also in November, Investor’s Business Daily reported that The American Society of Pension Professionals and Actuaries had launched a campaign to alert retirement planners to possible changes to individual retirement accounts.
On January 18th, Richard Cordray, the acting head of the newly formed Consumer Financial Protection Bureau (CFPB), was interviewed by Bloomberg. They reported, “The U.S. Consumer Financial Protection Bureau is weighing whether it should take on a role in helping Americans manage the $19.4 trillion they have put into retirement savings, a move that would be the agency’s first foray into consumer investments.” The CFPB was created by the Dodd-Frank legislation with wide-ranging powers. The agency works within the Federal Reserve, a corporation privately owned by member banks, and is insulated from congressional oversight, and its budget is not subject to legislative control.
The National Seniors Council (NSC) issued this warning two years ago. “A recent hearing sponsored by the Treasury and Labor Departments marked the beginning of the Obama Administration’s effort to nationalize the nation’s pension system and to eliminate private retirement accounts including IRA’s and 401k plans.”
“This hearing was set up to explore why Americans are not saving as much for their retirement as they could,” explains National Seniors Council National Director Robert Crone, “However, it is clear that this is the first step towards a government takeover. It feels just like the beginning of the debate over health care and we all know how that ended up.”
Deputy Treasury Secretary J. Mark Iwry presided over the hearing. He is a long-time critic of 401k plans because he believes they “benefit the rich.” He also appears to be the Administration’s point man driving this effort.
“This whole issue is moving forward very quickly,” warns Crone. “Already there is a bill requiring all businesses to automatically enroll their employees in IRA plans in which part of every employee’s paycheck would be automatically deducted and deposited into this [government] account. If this passes, the government will be just one step away from being able to confiscate all these retirement accounts.”
There are many who question the NSC’s take on this, and others who outright deny it. But when those at the highest levels of government harbor an ideology distinctly more European than American, anything is possible. Once sacrosanct principles of private property ownership and individual liberty are at risk of subjugation to the prevailing ideology. Cyprus may be just the beginning, and not just for EU states.
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