Click the image to enlarge and see where bail-ins are most likely to happen
What Is A Bail-In?
You’ve heard of bank bailouts – that’s when taxpayer’s money is used to prop up a bank that would otherwise fail.
A bail-in is where a government or bank needs money to prop up failing banks and instead of using taxpayer money (because there may not be enough of it), a percentage of a depositor’s savings are taken from their bank account without the depositor’s permission. It’s legalized theft.
Think something like that could never happen? Think again!
Back in 2013, that’s precisely what happened in Cyprus.
As a result of reckless investing and gambling, their banks had accumulated too much debt and needed to write some of it down. The Cypriot government were out of money so there was no taxpayer money to bailout the banks.
What the government sanctioned was a confiscation of some of the money in bank savings accounts – accounts owned by ordinary Cypriot citizens. But that was not all they did. Capital controls were also imposed which meant people could take out no more than €60 per day from an ATM. You can read more about that event here.
Why Should You Be Worried?
As bad as that Cyprus event was, it happened half a world away, so why should it worry you?
Well, over in the EU, new bail-in rules came into effect at the start of 2016. Similar rules have been introduced in many other (non-EU) countries as well. Not surprisingly, mainstream media have been very quiet about this and have not alerted their viewers and readers to the risks and ramifications that ensue from these new rules.
Make no mistake, bank bail-ins pose risks to retail investors and especially savers throughout the western world.
Here are some things you should be looking at where your savings are concerned:
The Financial Times covered bail-ins yesterday (May 19th) focusing on the risk to investors while continuing to ignore risks posed to savers and depositors including small and medium size enterprises. You can read the full article here.
In the short-term, the use of bail-ins and the confiscation of deposits while protecting some tax payers in the short term, will likely destroy consumer and business confidence in the already fragile Eurozone economies. It will also severely impact on the tax take in EU economies in the aftermath of this and ensuing recessions or depressions.
The backbone of both the European and global economies are small and medium-sized enterprises (SMEs). If their corporate deposits are pilfered through bail-ins, the very capital they use to fund growth – including servicing debt, paying rent and mortgages, employing staff and paying wages – would be highly deflationary and would push economies over the edge and into sharp recession and lead to contagion in the Eurozone and elsewhere.
Bank bail-ins remain one of the greatest, but most poorly analysed and understood threats to depositors and savers today.
Owning gold, silver and other tangible assets is the best way of mitigating your risk where your savings are concerned.