New additions to the modern financial lexicon aside, recent events in Cyprus have re-awoken a dormant fear- that of having our privately held wealth taken by the government. Are bank accounts really safe? Inexorably, a brief look at history will illustrate that this is far from a new phenomenon. Are bank accounts safe? Think that the government cannot take your money from you bank account? Think again.
“Cyprus’d” – (verb) Def.– to have one’s money forcibly appropriated by the government.
In the 1930’s the great depression slayed hundreds if not thousands of banks and left deposit-holders with such a gaping hole that many never used a bank again in their livelong days. Since this time the Federal Deposit Insurance Corporation (FDIC) serves to guarantee, federally, accounts of financial institutions in the even that they cannot pay creditors- a welcome safety-net, were it not for the fact that being federal brings with it a new set of concerns.
Ironically enough, Cyprus’s problem was that it couldn’t simply print its way out of trouble like the US; Cyprus was not able to print its own Euros as Ben Bernanke would have done Dollars in the event of some Armageddon-esque mass depositor run on the banks in the US.
The 10% and upward “haircut” of Cypriat accountholders is however, in fact nothing new. Governments have always had one hand in the back-pocket of the populace when they run low on funds- only the barefacedness changes, relative to the immediacy of the need for a capital fix.
EXECUTIVE ORDER 6102, issued by US president Franklin Delano Roosevelt 80 years ago, on April 5th 1933, banned private gold ownership in the United States, forcing gold owners to take their bullion to a bank and exchange it for Dollars at the prevailing rate. This was chalked up to a “national crisis” and failure to comply was met with 10-year jail times and monetary fines which today would sit around half a million dollars. Roosevelt and his band of merry men then proceeded to devalue the dollar by raising gold prices (which he could do, seeing as they controlled the entire domestic supply, and the US at the time still functioned on the Gold Standard system, despite the UK fleeing it 18 months prior). Nowadays this would probably be glibly described by bonus-protecting bankers as “Quantitative Easing”. The abandonment of the Gold-Reserve banking system and the concurrent movement to our Fractional-Reserve banking system mean that the illicit movements of government are no less numerous- just less overt. The printing press also doesn’t make much so much noise…
You would be mistaken if you thought that government treachery was limited to the USA as History would suggest that it was in fact the Brits who set the trend in Governmental thievery. If you are to conclude that bank accounts aren’t all that safe, you might be surprised to hear that historically, gold vaults have not been either.
In 1638 as the English Civil War was approaching citizens who were keeping their money in the National Mint for “safe keeping” were probably feeling a little less than patriotic when their ruling King Charles I commandeered 200,000 pounds of gold (a spectacular sum in today’s terms). This money was unceremoniously appropriated as a “loan”- which would have been excusable, were it not for the fact that the British government defaulted on the loan thereafter.
Are Bank Accounts Safe Now?
In 2014 in Australia new legislation passed allowing the government, after 31st May, to transfer all money from accounts that hadn’t been used for three years into its own accounts as its own money. Any account holding upward of $1 that had seen a deposit or a withdrawal in the past three years would then be transferred to the Australian Securities and Investment Commission. You don’t want to know what you have to do to get it back….
Not only do bank deposits fail to protect your capital from inflation they have also routinely been shown to be, since the dawn of our financial system as we know it now, a penalty-free withdrawal for the government when it needs a cash fix. Nothing is sacred. Bank accounts are not safe.