Silliness In Cyprus

There is a lot of silliness going on across the Atlantic with Cyprus and their bank deposit seizure plan.  (For those that haven’t heard here is a brief summary:

“In exchange for €10 billion ($13 billion) in rescue money, creditors would impose a one-time tax of 6.75 percent on all bank deposits under €100,000 ($131,000) and 9.9 percent over that amount….Anastasiades said savers would be compensated with bank shares. Moreover, all those depositors who opt to keep their money in Cypriot banks for at least two years would receive government bonds with a value equal to their losses. The bonds will be backed up by future revenue generated from the country’s newfound offshore gas deposits.”

And while I think it is absolutely moronic, I also think it is worth putting in context.  One thing that people miss is that there are a lot of threats to wealth.  One is taxes, one is outright confiscation, and one is inflation.  In the US we are in a scenario many refer to as “financial repression”.  This scenario of low/zero interest rates and inflation (2-3%) is terrible for savers as their deposits slowly bleed and lose 2-3% a year to inflation.  

So while everyone is gnashing their teeth and freaking out about Cyprus, realize that here in the US, even though your deposits are safe – nonetheless they are getting confiscated, just by a different means…