After the collapse of the Cyprus financial system I
wrote an article called
“Get your Assets out of the Banks
now”.
Please re-read this article which I am republishing
below.
Please also remember that
you cannot buy fire insurance after
your house has burnt down..
Egon von Greyerz
“Get Your Assets out of the Banks – NOW”
by Egon von Greyerz -
March 18 2013
Note: Video Nigel Farage
European Parliament on April 17 2013
“THERE IS NO MEANS OF
AVOIDING THE FINAL COLLAPSE OF A BOOM BROUGHT ABOUT BY CREDIT EXPANSION. THE
ALTERNATIVE IS ONLY WHETHER THE CRISIS SHOULD COME SOONER AS A RESULT OF A
VOLUNTARY ABANDONMENT OF FURTHER CREDIT EXPANSION, OR LATER AS A FINAL OR
TOTAL CATASTROPHE OF THE CURRENCY SYSTEM INVOLVED” – Ludwig von Mises
CYPRUS
The Cyprus event may
later, in the history books, be seen as the catalyst
of the fall of a century long Ponzi scheme. This could rank in line with the
shot in Sarajevo as the start of WW1 or the collapse of Kreditanstalt
in 1931 as the start of the Great Depression.
Isn’t it ironic that exactly 100 years after the creation of the Fed (a
private bank created for the benefit of bankers) that the fragile and
bankrupt financial system is likely to fall due to the insolvency of a couple
of Cypriot banks.
But what is happening in Cyprus
will not be the reason for a collapse but just the trigger for what has
always been inevitable.
There are only two
possible outcomes of the crisis we are now in:
- Either there will now be a run on the massively leveraged (25-50 times)
banking system which would lead to no debt being repaid and a deflationary
collapse.
- Alternatively, we will
now see the beginning of the most massive money printing that the world has
ever experienced, leading to a hyperinflationary depression.
The second outcome is the
most likely although the risk of an systemic
implosion is very high if central banks are too slow in flooding the system
with money. The deflationary outcome would lead to no banks surviving and no
money in the system. And the hyperinflationary outcome would lead to money
being totally worthless. In both cases gold will be a major beneficiary.
But printing money will
of course not solve anything since worthless pieces of paper with ZERO
intrinsic value can never create wealth. At best it will just kick the can
down the road for a very short time.
Cyprus is a mini model of
the world financial system. The IMF, ECB and the politicians thought they
could get away with the depositors taking part of the loss. But they have
clearly not considered the consequences. This action (if ratified) will not
only lead to a run on the Cypriot banks but also on banks in other weak areas
such as Ireland, Spain, Portugal, Italy, Greece etc. Eventually it could spread worldwide.
The IMF, Fed, ECB, BoE, BoJ and other central banks are likely to very soon come
out with a concerted action to support the financial system in order to avoid
a total collapse.
For well over ten years I
have advised investors to get their assets out of the banking system. This
doesn’t mean just their money but also all other investments (stocks, bonds,
gold etc) which are likely to be lost when banks go
bankrupt.
Wealth preservation is
now absolutely critical. This involves eliminating counterparty risk whenever
possible. EverythIng within the banking system has
counterparty risk even if it is segregated or allocated. Lehman, MF Global
and Sentinel are all examples of client assets being lost in the financial
system.
Gold (and silver) will
continue to reflect the total destruction of paper money that the unlimited
money printing will lead to. But investors must hold physical precious metals
and they must be stored outside the banking system.
Egon von Greyerz
Founder and Managing Partner
Matterhorn Asset Management AG / Gold Switzerland
