Yesterday, I wrote about the drama happening in Cyprus with the banks. There is a bailout being discussed that would include taxing (seizing) a percentage of bank deposits. So anyone with money in a bank in Cyprus would take a hit. Whether or not this goes through, the cat is out of the bag. It opens up the potential for it to happen almost anywhere.
So what are the chances that something like this could happen in the United States? My answer to this question is a vague one at first glance. I think it is possible, but I doubt it would happen in the same form.
I read several articles about the Cyprus banks when the news came out. The most interesting reading were the comments at the bottom of the articles (mostly American, but perhaps a few British comments too). Almost all of the comments were negative towards the bailout scheme. Many were principled stands in favor of property rights. But one comment I saw a few times was about how it is already happening in the U.S. Bank depositors (which is most adults) are having their money seized from them on a daily basis. They just don’t know it.
I saw one person make an analogy of putting a frog in boiling water. In the U.S., the frog was not placed in hot water. It is gradually coming to a boil and the frogs are not noticing (at least as much as they should). In Cyprus, they just threw the frogs right into the boiling water, so they are revolting.
There really isn’t much difference between devaluing the currency through monetary inflation and directly seizing money sitting in a bank (which is really mostly digits). The bank confiscation is more direct, more noticeable, and more immediate. The inflation is a bit slower and more subtle.
I doubt that we will see an action like this in the U.S. First, the U.S. government and central bank will learn from the chaos in Cyprus. By seizing money directly, it just encourages people and corporations to withdraw their money and find another place for it. Another place could include a foreign bank, stocks, gold, housing, or under a mattress. Actually, taking money and putting it into a foreign bank or under a mattress are really the only ways out of this list that actually gets the money out of the U.S. banking system, and even putting it in foreign banks is questionable. But regardless, the U.S. government does not want to see a run on the banks and will therefore not try what the government of Cyprus trying.
Secondly, there is no need for the government to do this. As I just mentioned, you can get the same thing accomplished through the Federal Reserve. Does is really matter if the government directly takes 10% out of your checking account or does it by increasing the money supply by 10%? Either way, you have lost purchasing power. The only difference is that the monetary inflation is more subtle and is not as likely to cause a revolution.
Another thing I’ve seen mentioned with this whole incident is the possibility of the U.S. government going after 401k plans and other retirement accounts. I have discussed this before. I am glad that people are talking about this because it makes it less likely to happen. I think the government will try this, but it will be subtle at first. We can only hope that enough Americans will get really mad if and when the politicians try.
In conclusion, if you are an American with savings in a bank account, you are already having money seized from you, unless it is in something other than currency. The Federal Reserve will continue to devalue your money for as long as it can get away with it. There will be no direct confiscation because it isn’t necessary. Why do that when you can do the same thing in another way, without causing a major revolt?