IMF has plans to impose 10% tax on deposits

What happened to Cyprus, doesn’t stay in Cyprus. We already warned everyone about this in this article. What they do to Cyprus, they will do to every European country. That was my statement.

And here we finally have it. The IMF is setting up plans to impose a 10% tax on the savings of citizens of European countries.

After citing their colleagues, IMF economists are throwing themselves into the water. “The tax rate needed to bring debt ratios (relative to GDP) to the level of the end of 2007 would require a tax of about 10% of all households with positive net savings.” These calculations, we specify the IMF has been made to 15 countries in the euro zone. Let us recall that such arguments are intended merely suggestions to “theoretical” character. They are no less iconoclastic. But is it soft solutions leveraging outside of inflation, the most hypocritical of all?

 I wonder what will happen to the deposits of the European banks. If I had savings in the bank, I would take them out of the bank and store them at home or buy gold.

=> And yes, the bank deposits are falling.

PIIGS Bank Deposits Outflow Accelerating

As I noted a month earlier, Spain’s bank deposits posted an outflow and this outflow is accelerating for the month of May 2013. This time, Italy is posting outflows too.

Greece, Cyprus are of course still in a decline. I expect bail-ins to come if this trend continues. Europeans should be worried about their deposits.

Bank Deposits Update: Spain is in trouble

Time for another bank deposit update for the month of April 2013.

Cyprus continued to have a bank run in deposits, but the most interesting event is that Spain’s deposits are starting to deteriorate too.

Guess where the deposits are going to? Yes, Germany, France, Italy and even Belgium.

That means that money is flowing from the periphery into the center of Europe. I wonder how long this imbalance can continue.

Chart 1: Bank Deposits Periphery of Eurozone

Bank Deposits Update

Remember the Cyprus debacle in March? We were worried about deposits declining.

In February, deposits declined in Cyprus, Ireland, Greece, Portugal. But they increased in Italy and Spain.

In March, we see the same happening again. So I don’t see any significant changes. Maybe the Cyprus crisis was just a little drop in the sea.

Chart 1: Bank Deposits

Belgium the next country to fall

As I said before here and here, Belgium is the next domino to fall after Greece.

If you don’t believe me, believe Zerohedge. As you can see on chart 1, the countries on the left have the least equity/capital reserves as a percent of deposits.

So to avert insolvency of Belgian banks, depositors need to be thrown into the fire eventually. But luckily, Greece will be first…

Prepare yourself.

Chart 1: % bad debt that can be impaired before deposit haircuts

Bank Reserve Requirements in the Eurozone

Following the crisis in Cyprus of which I talked about here, there has been a question on how much stress the banks can have during a bank run, before their liquidity is at stake.

A typical bank balance sheet looks like this (Figure 1). If the deposits get drained on the right side, the cash gets drained on the left side. The question is, how high is the limit of a drain on deposits?

Figure 1: Balance Sheet

Let’s analyze the bank reserve requirements first. 

Chart 1: Reserve Requirements

Then we look at the capital and reserves of the banks. The capital and reserves are given in the last column (Table 1).

Table 1: Bank Statistics

Chart 2: Capital and Reserves to Deposit Ratio

Go here to read more.

Bitcoin Exploding on Cyprus

And if you hadn’t noticed, bitcoin just exploded 20% to the upside on the Cyprus news, which bodes well for gold obviously.

Chart 1: Bitcoin

What does Cyprus mean to your money?

On 15 March 2013, Cyprus said it will impose a levy of 6.75% on deposits of less than 100,000 euros and 9.9% above that. The measure will raise 5.8 billion euros ($7.5 billion), which implies that we have about 68 billion euro ($85 billion) in deposits in the Cypriot banks. What this means is that each depositor in a Cypriot bank will get a haircut on their savings. This event is actually a very important one in history as it marks the first time that depositors actually lose their money, despite the presence of a deposit insurance. Of course, you can’t have deposit insurance without a bailout of the banking system by the IMF. But to have this bailout, depositors need to have a cut (imposed by the IMF). It’s sort of a paradox: “from now on deposit insurance is not insured anymore”.

Many people think that their deposits are safe when they put their cash in the bank, but they either lose it to inflation or in this case lose it to the government. The result is that investors lose confidence in the banking system and will go to assets like precious metals which don’t have counterparty risk.

To read more go here.

Belgium Downgraded by Fitch

Today Belgium was downgraded by Fitch from AA+ to AA with negative outlook. All of this due to the Dexia fiasco. I’m from Belgium and I can say that the bailout of Dexia was the most immoral thing the government has ever done. Dexia has an enormous amount of Greek debt (US$5 billion write down)  and everyone knows Greece is going to default sooner than later. Supporting Dexia was the dumbest act ever. The only reason why Belgium government bonds are doing well is because Belgians have an enormous amount of savings and the unemployment rate is improving.

But we see the consequences already from Dexia. Several cantons lost several millions of money. Of course, we tax payers will need to pay for this.

Amount of shares in Dexia per capita

4 other countries were downgraded as well:

Italy: A => A-
Spain: AA- => A
Cyprus: BBB => BBB-
Slovenia: AA- => A

Surprisingly, the euro went up…