Tuesday, March 19, 2013

Incomplete thoughts on the Cypriot bank raid

It may or may not go ahead, and as despicable and crude as it is, there is something about this cruelly novel idea, to simply raid the bank accounts for somewhere between 6 and 15 cents on the euro: a simple, clean money grab at the expense of savers. After all, that's where the money is.

What's to like? The plan is explicit and it clearly signals to the weary public that the government is aiming to shift the burden on those who were least implicated in the crises i.e. the savers. Compare this to the other smoke-and-mirrors approaches that governments and central banks have taken elsewhere: (i) raising taxes (ii) cutting spending (iii) printing money and inflating away debt (iv) killing growth expectations by spreading the pain as thinly, leading to real wage stagnation (v) allowing zombie institutions to exist. I appreciate it isn't one or the other, but all these other measures also shift the cost onto the innocents. It's just not quite as explicit as an outright money grab, but it's all much of a muchness at the end of the day.

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