When all this began, we were reassured that extraordinary balance sheet expansion and the ZIRP environment were merely temporary and only to get us through the short-term emergency. The following chart and table covering the monetary-policy-on-steroids of the Fed, ECB, BoE, and BoJ suggests this is a long-emergency indeed… and the current disconnect between the ‘planned’ expansion of central bank balance sheets and gold suggests that Cyprus’ central bank head may just replace UK’s Gordon Brown as the worst market-timer ever.
Five years of temporary, emergency-only actions by the world’s central banks… (click for large more legible version)
As all of these actions took place and the balance sheets of the world’s central banks exploded – and each time, Gold has front-run that move…
This time it appears (once again) gold was right (in its guess to April 2013) and unless all the central bankers in the world are about to be forced to stop the seemingly unstoppable plans they have (black arrow indicates Fed and BoJ expectations alone), then Gold (just as in late 2012) is set to recover significantly.
Charts: IMF and Bloomberg
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Supposedly this move was made to “avoid unsettling investors in larger countries and sparking a new round of market contagion.”
In reality, the action was mandated theft, imposed by EU officials to protect senior bondholders.
How can such an action do anything but cause contagion?
The move is expected to raise a mere 5.8 billion euros according to Dutch Finance Minister Jeroen Dijsselbloem, leader of the euro-area ministers. Fallout from this action will cost far more than that.
Contagion-Begging Actions
What is someone in Greece, Spain, or Italy supposed to think?
Consider Spain. By a 526 to 86 vote, the nannycrats in Brussels just passed a regulation that will require a country to accept a bailout if offered. (Please see An Offer You Cannot Refuse; EU Passes Law Forcing Countries to Take Bailout; Is Spain the First Target?)
Also note that EU Court Strikes Down Spain’s Eviction Law.
Think the parlay of EU contagion-begging actions for a second.
Expect Bank Runs
Why would any rational thinking Spanish person keep any money in Spanish banks? They shouldn’t and I suspect they won’t.
Moreover, this is bound to further inflame the situation in Italy, where Beppe Grillo’s Five Star Movement is already the largest party.
In short, this action was one of the single stupidest things the EU could have done and they crammed it down the throats of all Cyprus citizens, hoping to stop the spread of contagion.
My friend Bernd who lives in Germany had these comments. “Judging by the German forums on Focus, Der Spiegel, SZ, FAZ and Die Zeit, there is hardly any support for this action. The name calling and swearing is rather blunt. These guys did not study their Machiavelli. He said roughly if you hurt people, you must never hurt all of them at once.”
The closest Machiavelli quote I can find is “If you need to injure someone, do it in such a way that you do not have to fear their vengeance.”
Rest assured there is going to be vengeance over this action. The Cyprus government will fall, and deposit fear will spread everywhere.
Mike “Mish” Shedlock
http://globaleconomicanalysis.blogspot.com
Wine Country Conference
I am hosting an economic conference on April 5 in Sonoma, California. Proceeds go to the Les Turner ALS Foundation (Lou Gehrig’s Disease).
Please see My Wife Joanne Has Passed Away; Stop and Smell the Lilacs for my association with the disease.
To learn about the economic conference with world-class speakers including John Hussman, Michael Pettis, Jim Chanos, John Mauldin, Mike “Mish” Shedlock, Chris Martenson with guest moderator Lauren Lyster and other Special Guests, please visit Wine Country Conference April 5, 2013
