Tuesday, March 19, 2013
Cyprus Bail In-Out and the Euro Dollar
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In a desperate move to avoid a national default, the Cyprus government has agreed, in principle, to a deal with the EURO Zone's finance ministers to accept a 10 Billion Euro loan. In exchange for that loan, Cyprus is allowing the Euro Zone to grab up to 10% of every savings account in the nation. Yikes!
Looks like the rest of Europe wants the Cyprus citizens to get a little "skin in the game."
Hoping to avoid the government theft of their private savings, Cypriots all over the island started running to any ATM to drain their accounts. Unfortunately, the ATMs around the island were drained within hours. The Cyprus government, hoping to avoid a bank run, shut down all the banks until Thursday.
What a mess for the Cypriots, and the EURO.
The Cyprus Parliament has yet to formally vote on the "one-off" savings account tax, but it is likely to be forced to do so in order to avoid default. Cyprus president, Nicolas Anastasiades, urged politicians to back the tax, saying it was essential to prevent the country falling into bankruptcy. He said, "I chose the least painful option, and I bear the political cost for this, in order to limit as much as possible the consequences for the economy and for our fellow Cypriots."
There is a lot going on in the world's currencies today. There is much talk about global currency wars, and that talk is ringing true. The countries that can print money (like the USA) and are burning up their presses in an effort to out-print other governments. If you need any proof of that, open up a EUR/JPY daily chart and see what the Japanese have been doing since November. That picture says it all.
The problem for the Cypriots, is that they are not authorized to print Euros. If they could, you can bet they would be burning their presses 24/7 in order to get themselves out of debt and lower their interest rates (just like the USA). Unfortunately, the Cypriots are unable to print money and must actually start tightening their belts. It is going to be a painful process for the citizens of that country.
Over the next several months (and couple of years), the trading world is going to see all sorts of trends develop in the Forex Markets. Be sure to pay attention to the Currency Wars, not only to the players that are participating (i.e., who can print their own currency), but to any major news coming out of these countries.
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