On the Cyprus Solution and What About NZ?

Gold Survival Gold Article Updates:

March 26, 2013

This Week:

• On the Cyprus Solution and What About NZ?
• The Now Infamous RBNZ OBR 
• RBNZ Looking to Increase Banks Capital Ratios
• Easter Opening Hours

Gold is down over NZ$40 an ounce since last week. Care of the “solution” in Cyprus maybe? The kiwi dollar is also a bit stronger now that things are “solved”. Our thoughts on the “solution” below.

You can see in the chart below the NZD gold price bounced down off the 50 day moving average. We remain in the downwards channel depicted by the lines in the chart.

Silver is also down too from a week ago. Today sitting at NZ$34.31 an ounce versus $34.90 last week. Silver remains in the very tight range that it has been for the past month and a half. So it’s chart doesn’t look much different than the past few weeks really. Not too many words of wisdom to add about it really.

On the Cyprus Solution

Well yet again “the fix” is in. The problems have been “resolved” in Cyprus. Some Cypriots and rich Russians will lose a few Euros between them but all’s well again. That seems to be the line of the mainstream in the west. Because it couldn’t happen here could it? 

Of course in the UK and USA bank failures and bank runs have already occurred in recent years. But unlike Cyprus, deposit holders received a government bailout and did not have their savings touched. (Well not directly – instead they continue to lose out more subtley via currency debasement).

But things aren’t so rosy for the average Cypriot. Bix Weir’s of Road to Roota shared the following comments a few days ago:

“I received an email from a long time Road to Roota subscriber who actually LIVES in Cyprus. He is an English national but retired to Cyprus about 10 years ago. Although his email may seem unimaginable to those of you in “financially stable” countries that false sense of stability will not be around for long…

Last One Out’s a Rotten Egg…Thank You Roota!

3/20/2013

Hi Bix –

Just a note from a very loyal subscriber to say THANK YOU…thank you for sticking to your guns when everyone else said you were crazy. I’m a long time follower of yours going back to your GATA days and took your advice to withdraw all my money from “the system” back in 2009. Friends and family who followed my subsequent advice over the years are very happy they did the same.

Those who did not listen are coming to the realization that there are no scenarios where they will ever get their money back. Although they are looking for people to blame they are also mad at themselves for waiting so long to take any action. I was tempted to give them a loud “I TOLD YOU SO” for mocking me all these years, but I find myself feeling very sorry for them and lending them cash to get by the best they can.

A few observations… The purchasing power of physical cash is rising as not many have any and folks are trying to stock up on essentials. Bartering should be kicking in soon as nobody (shop owners included) wants to part with their real goods and also nobody knows what our future “cash” will be if we leave the Euro. There are many rumors that they are going to tax or nationalize all retirement account as well.

I know Cyprus is not a huge country but we have all been violently awoken to reality over the past few days. You have always said that the end will come quickly and boy were you right in our case! Cypriots have come to realize that no fractional banking system can survive when the required blind faith in the system is lost.

There is no doubt that this same realization will hit the rest of the world very soon so tell all your subscribers that ROOTA WAS RIGHT ALL ALONG!

Bless you and all those who are fighting the Bad Guys.

Stephen Xxxx

Paphos, Cyprus”

Scary stuff for the average person on the street. Especially if they had very little cash on hand.

What About NZ?

Down under we have been lucky to date to have not experienced too many harsh effects due to the slow but steady death of the global monetary system. No bank failures or bank runs here. 

But as Stephen from Paphos notes above “no fractional banking system can survive when the required blind faith in the system is lost.” And at the end of the day it is all about confidence. We don’t see that confidence eroding overnight here, but who knows what the effects down under would be if we do see bank runs spreading across Europe? 

While our banks may supposedly be safer than most, we do still get a large portion of funding from offshore (sorry we can’t find the link on the RBNZ site with the latest numbers right now so you might just have to take our word for it today!) and this is where the risk lies to our banking system. 

After all in 2008 it was probably for this reason that the RBNZ received US$9 Billion from the Federal Reserve in USD currency swaps. This funding that many other other central banks also received likely stopped the global banking system from completely seizing up. Here’s a video of Bernanke getting quizzed about the $9 billion the RBNZ received. 

These swaps received very little attention at the time.

As we have reported over the past couple years and again last week, if a bank failed here there is no government guarantee in place and no deposit insurance. So under the RBNZ Open Bank Policy, deposit holders will be held liable for a failed bank’s poor decisions. The old adage of don’t leave all your eggs in one basket springs to mind. So does a variation on that – make sure some of them are gold or silver eggs too!

The Now Infamous RBNZ OBR 

The RBNZ Open Bank Resolution (OBR) has become quite widely known across the globe in the past week. As we mentioned in last week’s email, Jim Sinclair has been very vocal of late. On Friday morning he had another interview on King World News where he mentioned New Zealand in relation to the Cyprus debacle. And how New Zealand and Spain are also looking at trying to shift the onus when a bank fails to depositors and away from Central Banks…

Sinclair:  “The gamble was they were going to shift the onus of the funds required from the busted banks to the depositors and away from central banks.  That would have been to the depositors, and away from QE.  This is also being proposed in New Zealand and in Spain, but in tiny, negligible amounts.  Obviously no amount of theft is acceptable, but the theory coming out of Cyprus was a 10% theory, and that is enormous money.”

To be Forewarned is to be Forearmed

At least the RBNZ is upfront about it – even if they haven’t been shouting it from the rooftops. We know that if a bank fails here our deposits may be at risk. So we can prepare for this possibility. Remove some cash and turn it into hard assets.

Unlike in Europe where deposit holders up until now have believed all their funds were safe, or at the very least safe up to the insured limit. Now there will be many europeans not so sure about the safety of their savings. Especially after President of the Eurogroup of euro zone finance ministers, Jeroen Dijsselbloem, stated that Cyprus may be used as a template for the rest of Europe. He then tried to backtrack out of that but he couldn’t put the following words back in his mouth unfortunately…

“If there is a risk in a bank, our first question should be ‘Okay, what are you in the bank going to do about that? What can you do to recapitalise yourself?’. If the bank can’t do it, then we’ll talk to the shareholders and the bondholders, we’ll ask them to contribute in recapitalising the bank, and if necessary the uninsured deposit holders.” Source. 

RBNZ Looking to Increase Banks Capital Ratios

Speaking of banks capital, yesterday the RBNZ put out a press release outlining they are consulting on increasing the amount of capital banks have to hold against home loans with a high loan-to-value ratio. This is likely in response to reports that “In recent months, banks have been writing bigger mortgages as a ratio to the value of property. About 20 percent of the nation’s $180 billion in residential mortgages are written at loan-to-value ratio of more than 80 percent, and 10 percent above 90 percent.” Source.

Not surprisingly the banks don’t like the sound of this. 

Bankers knock new capital plans

Keeping more capital on hand equals less lending which equals less profits.

Of course the dirty little secret is that no bank has sufficient reserves to repay all deposit holders, regardless of what it’s governing Central Bank decides to stipulate as minimum capital ratios. That is simply the nature of modern fractional reserve banking. 

This Weeks Articles

We have an in depth article looking at Central Bank gold buying statistics on the site for you this week.

Whom to Believe on Gold: Central Banks or Bloomberg?

And lastly if you want a very thorough run down on Cyprus and it’s implications then this article by ex-banker Satyajit Das is one of the best we’ve read…

The Case of Cyprus — Another European ‘One-Off’!

Easter Opening Hours

Local gold and silver suppliers are closed Easter Friday and Easter Monday. However we still have access to offshore suppliers so if you’re looking to get some gold or silver “eggs” on Friday or Monday we still have options for you, so get in touch:

1. Email: orders@goldsurvivalguide.co.nz

2. Phone: 0800 888 GOLD ( 0800 888 465 ) (or +64 9 2813898)

3. or Online order form with indicative pricing

Have a golden week!

Glenn (and David)
goldsurvivalguide.co.nz
Ph: 0800 888 465
From outside NZ: +64 9 281 3898
email: orders@goldsurvivalguide.co.nz

The Legal stuff – Disclaimer:

We are not financial advisors, accountants or lawyers. Any information we provide is not intended as investment or financial advice. It is merely information based upon our own experiences. The information we discuss is of a general nature and should merely be used as a place to start your own research and you definitely should conduct your own due diligence. You should seek professional investment or financial advice before making any decisions.