When In Nicosia, Do As The Nicosians Do

Joe Doakes from Como Park emails:

The European Union told Cyprus it had to raise 6 billion Euros in order to get 4 billion more from the EU to bail out its banks. Cyprus waited until banks closed last Friday to announce a “one-time” tax on bank accounts. Accounts with less than 100,000 Euros would pay 6.75%; larger accounts would pay 9.9%, all automatically deducted and sent to Berlin.

The idea is . . . unpopular. Cypriot banks are still closed to avoid massive runs of people trying to grab their money before the government does.

It occurs to me, this isn’t a new concept. Didn’t Larry Pogemiller propose a shift away from income taxes toward net worth taxes about six years ago, in a bid to shift the burden of paying for a Nicer Minnesota away from “working families” over to “wealthy retirees?” I don’t remember the automatic deduction feature in his plan, but the basic idea is the same. In fact, it’s older than that. When asked why he robbed banks, Willie Sutton famously replied: “Because that’s where the money is.”

To heck with being an outlaw, Willie should have been a government bureaucrat! He was just ahead of his time, is all.

Luckily, that could never happen here. The President might have the Constitutional power to drop Hellfire missiles on unsuspecting Americans, but he can’t just take money out of their bank accounts. He can’t, right? Right?

Joe Doakes

Don’t be silly.

We’re “doing fine”.

27 thoughts on “When In Nicosia, Do As The Nicosians Do

  1. This subject drives me crazy. I can’t do this right now, but basically this is a bad idea (destroy capital) to respond to decades of other bad policies. The reason this even comes up is we live in a world with too much government fueled by too much easy money. So BOOM! the 1% and the Political Class are effectively screwing everyone else and the Great Equalizer That Isn’t A Great Equalizer–Government–is running out of money at an alarming rate.

    Don’t forget to aggregate all of the broke state pensions, too.

  2. I think what it comes down to is, conservatism can’t function under the current decades of extremely poor monetary policy and financial regulation. Voters lean left and this creates a spiral, because *private GDP* gets increasingly killed and viola no one has anything left except for the 1%, the Political Class, and sophisticated speculators.

  3. No problem; we’ll just go to Plan P

    My free advice to Cyprus:
    1. Pass the bill
    2. Empty your bank accounts
    3. Default on the ECB
    4. Introduce parallel currency and exit EZ

    Given the history of the EU, they will have to keep voting until they get the correct result. Seriously Cyprus could simply default on the ECB and come out tens of billions ahead.

    I sure hope the hedge funds that bought Cyprus govt bonds managed to get out this week.

  4. We lost this one a long time ago. Just as in legalizing marijuana and gay marriage, we must get on with the times.

    Tax Buffett. Tax his trips to the White House. Tax Dayton. Tax Berkshire Hathaway. Tax Buffett and Gate’s foundation. Then…tax Buffett’s secretary’s savings–find out if Gates has a secretary.

    The game is on, let’s play it.

  5. You can’t pay for more government with more government and assets aren’t INCOME, productivity is income.

    They don’t care about what it takes to really–for real–make the economy productive. THEY DON’T CARE.

    So people want to trade security for freedom. It won’t work.

  6. TheFedSucks;

    Great point on bad monetary policy. Ralph Benko (on Townhall) has an article about this very topic today. He highlights how Kevin Brady and several other congressional reps are moving to fix it.

  7. bosshoss4:

    It’s mostly the Fed dual mandate and the fact that they way, way, way under measure inflation. Changing the mandate is one thing, but fixing the inflation measurement at this point is a huge, multi-faceted problem. SS checks ought to be DOUBLE what they are today. The Boskin Comission is a menace.

    I will check the article.

  8. Doing the math, at 1% nominal interest rates it will take all those INSURED depositors under 100K Euros only 8 years to recover from this “tax”. Of course, as long as inflation is running above 1% they’ll never recover from this cut in real terms. So anybody who has money anywhere other than a German bank in Europe is plain stupid for risking their money with no return for that risk.

    Kind of makes that mattress look safer than the bank, eh?

    If you want to destroy the banking system, I don’t think the Eurocrats could have chosen a better way. And without the banking system investment will dry up and the velocity of money will be massively slowed, and society will become poorer, yielding more wealth inequality. How many of you remember folks who survived the Depression who squirreled cash around the house because they didn’t trust the financial system after the US pulled similar stunts?

    I didn’t think I’d see a government stupid enough to do this in my lifetime, but I was wrong. I’m clearly too optimistic about just how stupid socialists, democrats, and social democrats can be.

  9. Nerdbert gets to the point. Yes, the federal government has the power to do this, and FDR is a huge champion of it, from his confiscation of real money to relentless inflationary monetary policy.

    And, for that matter, our government is confiscating our money now with the help of Ben Bernanke, to the tune of about 2% per year–the inflation rate minus the .1% or so interest in bank accounts and CDs.

    So can they do it? Well, what do you think they’ve been doing since 1913?

  10. Well, what do you think they’ve been doing since 1913?
    Taking sovereignty away from the people and the states and giving it to the federal government?

  11. The other thing about overhauling monetary policy is the less ambitious and less talented and the less lucky (although much of the unfair luck in this economy would be gone) would be better off because everyone’s money would go further.

  12. Terry, I was actually referring to the Fed inflating the currency and helping the government steal the value of our bank accounts. That said, you’re absolutely right.

  13. The tax itself is the equivalent to a bank run. Banks will lose between 6.75 and 9.9 percent of deposits. Presumably those assets back loans. Jeebus, what a mess.

  14. Thanks, TheFedSucks!

    I actually saw that on the day it aired, almost by coincidence. I rarely watch CNBC, but that day I was channel surfing and since Maria is usually a voice of economic intelligence (and because I like Grant’s takes) I watched it.

    If you look a little further into Kevin Brady, you find out that he’s the real deal. Erik Paulsen bird dogged me to him a couple of weeks ago. He said that John Kline and Michelle Bachmann were on board with him, too. I can’t if the three of them are working with him as co-sponsors, so I’ll have to lob a call into Erik again.

  15. Why stop at bank accounts? How about the gov’t confiscate other property of “the rich”. You collect art? The gov’t should take 10% of it. Have 3 cars? Gov’t can take one. I know a professional photographer whose Kodak slide collection is probably worth $30,000. The gov’t should take 1/3 of those.

  16. Rather than stealing the money from the savings accounts Cyprus should have done what other countries have done with private retirement accounts: announce that for the savers’ own good and security, the government is requiring that 40% of your assets be converted to “safe, secure” government bonds to be paid back throughout your retirement, protecting you from being ripped off by those rapacious private investment scammers.

  17. Well, Chuck, there’s $19T of money in 401(k) savings. And we already have folks like Sen. Franken (idiot-mn) who are saying that you’re too stupid to save for your own retirement so you need to give all that money to the government who will “secure it” by investing it 3% in US Treasuries and promising that you’ll get it back … someday. Oh, and they want to force you to put 5% of your pay into this new 401(k) account.

    If that doesn’t sound like confiscating private wealth and using that to fund the government just like they do with Social(ist) Security, well, I don’t know what does.

    But I expect something like that not too far down the road. After all, if you’ve been responsible enough sacrifice immediate pleasure to fund your own retirement you’re one of the “lucky ones” who’ve worked and skimped now so that your future doesn’t suck as a dependent of Uncle Sugar. Strange how being prudent and working hard is being “lucky” in today’s society, but you should expect the “unlucky” to come after your money since less than 40% of the country could be bothered to save for retirement, and even then the median value of those savings for retirement is $27K.

  18. Nerdbert-
    If the government really wanted to level the difference between the ‘lucky’ and the ‘unlucky’, they could have made SS a program that used a worker’s wages to purchase T bills, paying some reasonable rate (say, 3%). The T bills would be given to a worker on reaching a certain age. It would represent real wealth, something SS does not do. My back-of-the-envelope calculation shows that it would amount to about half a million bucks at age 65 for an average worker. A half million dollar annuity, purchased at age 65, would return about $2650/month at current rates.

  19. The big question is what will happen when the Cypriot government has taken all of the money in the banks? And what happens when other EU countries in the deep end of the pool start doing the same?

    To think that there are those that desire we be more like Europe, we seem to be on our way.

    I’ve been hearing this quote often as of late: “Socialist governments traditionally do make a financial mess. They [socialists] always run out of other people’s money. It’s quite a characteristic of them.”
    – Margaret Thatcher –

  20. The only surprising thing about the bank account tax in Cyprus was the crude and direct way in which it was imposed. In most countries, savers are taxed much more subtly via inflation, aka devaluation of the currency, aka printing money, aka quantitative easing. When savers find that the government has just taken 10% of their savings they are understandably outraged, but when they find that inflation is running at 10% above their interest rate, so that each year they effectively are taxed 10% on their savings, they rarely make the connection.

  21. Even Bernanke mentioned today that the recent stock market highs are nominal measures only, and that the real Dow was still far below its ‘record high’. When you factor in inflation, the Dow is about at its 1997 high of 8,000.
    This is what Obama means by ‘building the economy from the bottom up and the middle out”.
    I have never, BTW, heard that claim challenged by the MSM.
    Obama policies: Bad for business, bad for the poor, bad for working people, bad for the unemployed, good for the wealthy, the connected, and the politically useful.

  22. Here’s a prime example of media bias:
    Running scared: Rep. Michele Bachmann flees from questions about dubious White House spending claims

    http://www.nydailynews.com/news/politics/bachmann-flees-questions-dubious-claims-article-1.1294103
    No time to ask the prez hard questions about his economic and regulatory policies, but they have time for this shibai? Bachmann is responsible to her constituents, not CNN.
    Here is the lead paragraph from the mentioned WaPo’s ‘fact check’ column (NOT an opinion column, we are told, again and again):

    During last year’s GOP presidential race, Bachmann racked up the highest ratio of Four-Pinocchio comments, so just about everything she says needs to be checked and doublechecked before it is reported.

    In other words . . . ‘in my opinion Bachmann is a liar, therefore I have to check everything she says. And I am a fact checker! That’s what I call myself!’

    This is what passes for journalism today in the Halls of Power.
    The Kessler piece is the usual mixture of supposition and false attribution. But it’s a fact check! It says so right at the top of the page!

    If you wanted to find a perfect example of a DC/media insider, it would be Dana Bash. Daughter of an ABC news producer, married to a CNN corespodent, graduated from GWU with a degree in ‘political communication’.

  23. What it comes down to is this. The Fed has figured out, thanks to a lot of evidence the last few years, that monetary policy is not sufficient to address the problems in the economy. It is going to take fiscal policy changes, which the Fed has no control over. Pity the Congress seems determined not to let any such fiscal policy actions happen.

    Re: Ms. Bachmann
    I noticed Bill O’Reilly dinged Ms. Bachmann about the spending claims as well. Something about “inaccurate” and misleading claims”. Mr. O’Reilly also noted the Congresswoman was playing “small ball”.

  24. Emery-
    Controversy dwells in those places where there is dispute. Fiscal vs. monetary policy is such a place. Our president seems to have put his hope in fiscal policy, though there is little evidence that it can cure our current economic stagnation. I suspect that his confidence in fiscal remedies is due to it being something he has used in the past to good effect. Obama is not someone who thinks ‘outside the box’.
    No one cares what O’Reilly thinks.
    Kessler dinged Bachmann in his ‘fact check’ column because she sourced her ‘facts’ for a political speech poorly. What other politician is held to this standard? Certainly not Obama.

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