March 26, 2013
The events in Cyprus have given us an opportunity to re-learn some valuable lessons.
Lesson #1: Do Not Trust Politicians
Nicos Anastasiades, the current president of Cyprus, had made it a campaign promise during the previous election that bank deposits would be safe. Like nearly everything a government official will tell you, the opposite is usually true; Anastasiades’ promise turned out to be worthless. To put salt in the wound, it has been alleged that Anastasiades tipped off his close friends about the impending crisis. According to Italian media, they were then able to move 4.5 billion euros out of the country in the week before the banks closed.
Lesson #2: Ditch the “This Can’t Happen Here” Mentality
Of course it can. What happened in Cyprus can happen to any country for any number of pretexts, and has throughout history. But could it happen in the US? According to Judge Andrew Napolitano, it could. The Judge says, “People who have more than $100,000 in the bank are targets for any government that’s looking for money to shore up its own inability to manage its finances.” Click below for a quick interview with the Judge on the topic.
Lesson #3: Recognize the Pattern (Bank Holiday, Wealth Confiscation, Capital Controls)
Restrictive and confiscatory measures put in place by desperate governments usually follow a certain pattern of steps. The events in Cyprus are no different from other examples in the past. It usually starts with a surprise ‘bank holiday’ or at the beginning of a long weekend. Once the banks are closed, the government is free to confiscate as much wealth as it can get away with. This can come in the form of a “tax” on deposits, like in Cyprus, devaluating the currency, or the nationalization of pensions, among other measures. After the wealth has been confiscated, capital controls are usually put in place before the banks are allowed to reopen. This is done to prevent the remaining wealth from fleeing the country. Don’t forget the pattern: 1. bank holiday, 2. wealth confiscation measures, and 3. capital controls.
Lesson #4: Take Action Before it is Too Late
Last but certainly not least, you must take precautionary action and internationalize before it is too late to act. Unless you are part of the political elite, you won’t know exactly when the window of opportunity will slam shut. For Cypriots that moment came on the morning of Saturday, March 16 , 2013. It is better to be a year early than a minute late.
While the window of opportunity is still open for those of us in the US and Europe (excluding Cyprus) to internationalize our savings, our income, and ourselves, the warning signs are clearly there, and the writing is on the wall. International Man will equip you with the information you need to take action. Join the IM community for free, and get the IM Communiqué delivered to your inbox.