We alerted you early Monday, March 18, about the plan in Cyprus to confiscate private bank deposits, an idea the sparked understandable outrage among the peasants. Cypriot legislators, apparently very fond of keeping their necks out of nooses, rejected that plan. Now, the International Monetary Fund and the European Central Bank have arranged a bailout for Cyprus, allowing the country to avoid bankruptcy, for now. The bad news is that in exchange for riding to the rescue the IMF and ECB required Cyprus to pony up $7.5 billion. That’s not exactly the sort of chump change you find between the couch cushions. So how did they do it?
From CBS News:
In order to raise $7.5 billion, bondholders and wealthy savers at the country’s two largest banks will face significant losses, with the remainder coming from tax increases and privatizations.
Laiki, the country’s second-largest bank, will be restructured, with all bondholders and people with more than $129,480 (100,000 euros) in their accounts facing significant losses. A “bad bank” will be set up to house uninsured deposits and the lender’s poorly performing loans, with guaranteed deposits being transferred to the nation’s biggest lender, Bank of Cyprus.
Deposits at Bank of Cyprus above the $129,480 insured level will be frozen until it becomes clear whether, or to what extent, they will also be forced to take losses. The money from those deposits will eventually be converted into bank shares. German Finance Minister Wolfgang Schaeuble said he expected slightly more than 50 percent of savings at Bank of Cyprus to be involved in the swap.
So, the depositors with savings over that $129,480 will take a “haircut,” as the common parlance has it today. Depending on which bank a saver had his money deposited in, he could either be virtually wiped out, or forced to give up 50 percent of his stash for stock in the Bank of Cyprus, which ranks right up there with shares in the next Jim Carrey movie in a list of desirable investments. And what about the “tax increases?” Stay tuned.
Watching this financial carnage, many here in the United States have been asking “Could it happen here?” I’ve got news for you. Here are three ways that it already IS happening.
1. Quantitative Easing, or Ben Prints Dollars Like They Are Going Out of Style
One reason that Cyprus had to go hat-in-hand to the Russians, and then to the IMF and ECB, is because they don’t have their own currency. They use the Euro, so unlike the U.S., they can’t just crank up the printing press the way our Federal Reserve has done. So, even though the government isn’t directly confiscating your cash, by printing more dollars, it makes the ones you have saved worth less. If the rate of inflation is 2%, and you are getting .05% interest on your savings, surprise! The government has made some of your savings disappear just as genuinely if they had reached into your bank account and taken them.
2. The Obamacare Medicare Surtax
Nancy Pelosi wasn’t kidding. We had to pass the bill to find out what is in the bill. The Orwellian named “The Affordable Care Act” has many little surprises waiting for all of us. If you are thinking that you won’t be affected by most of them because they affect only those “rich” people, married couples who earn over $250,000 or individuals who earn more than $200,000, guess again, Peasant. From Fox Business News:
Retirees could be surprised to find that they are victims of the surtax if, as Keebler puts it, they did the right thing”and worked hard, lived modestly and invested wisely so that they wouldn’t be a burden on their kids or society when they left the workforce. Here’s the problem: If the decide to sell the home they’ve lived in for 35 years when they retire, thanks to the surtax, they could lose some of the profit they make because it’s considered a “capital gain,” that is, investment income.
Although income received from a pension, traditional IRA or company-sponsored retirement plan is not subject to the additional tax, it can push your other income above the threshold, exposing it to the surtax. This is referred to as the “bubble” effect. Here’s how it works:
Fred and Wilma are in their mid-60s and semi-retired. Wilma is a freelance writer, earning $20,000 per year. Fred worked part-time job at the hardware store and earned $17,000. Their CDs and mutual funds generated $45,000 in income. Each receives pension income, for a total of $120,000. They withdrew $80,000 from Fred’s traditional IRA to buy a new car and a time-share unit so they could escape the Massachusetts winters. Here’s what Wilma and Fred’s taxable income looks like:
Earned Income $ 37,000
Investment Income $ 45,000
Pension $ 120,000
Taxable IRA Withdrawal $ 80,000
(Less Threshold Amount) $ (250,000)
Amount Subject to Surtax $ 32,000
Surtax of 3.8% $ 1,216
Although their pension income and IRA withdrawal are not, themselves, subject to the surtax, they form a $200,000 “bubble” that causes Fred and Wilma’s other income to rise above the $250,000 threshold.
Presto! $1200 of savings handed over to the federal government to provide health care for the many deserving people waiting for assistance from Barack’s stash. I have been telling you for four years that Obamacare’s ultimate objective has never been to provide health insurance for the uninsured. The objective has always been to facilitate the One’s scheme to “remake” America by redressing the “unfairness” that currently exists when people like Fred and Wilma, and their children and grandchildren, people who complete their educations, live in the suburbs, and work and strive to achieve success, have better health care than illegal aliens, welfare baby factories, or the wino on the corner, leaning on his shopping cart and swearing at passersby. Medicaid for all, except of course for the political royalty.
If Obamacare is not repealed, and if history is any guide, this surtax will have to go up. Consider the predictions about the costs of Medicare and Medicaid, and the eventual reality. From National Review:
Nearly half a century ago, Congress established the two programs that lie at the heart of today’s fiscal crunch: Medicare and Medicaid. The bean-counters assured lawmakers that these brand new entitlements were affordable. By 1990, they predicted, Medicare’s hospital benefits would cost taxpayers “only” $9 billion. The actual cost was a cool $67 billion.
The most egregiously wrong prediction came two decades after the programs were launched. It had to do with the portion of the Medicaid program that sends cash to hospitals that treat large numbers of low-income and uninsured patients. In 1987, congressional budget experts assured lawmakers that the cost of this health-care entitlement five years hence would be less than $1 billion. The actual cost, thanks to accounting shenanigans by hospitals and complicit state governments, was an astounding $17 billion.
Obamacare presents another way for the government to confiscate one portion of your savings, the accumulated value of your house, albeit in a rather sneaky, underhanded way. How appropriate for a law enacted through bribery and back room deals.
The Death Tax
This one isn’t new, but it still deserves a mention. The estate tax is a Marxist-inspired way to try to reduce “inequality,” and it should be repealed. It is unconscionable double taxation that penalizes a lifetime of hard work. As of January 1, 2013, it has gone up to 40% on estates over $5 million. That’s better than the 55% on estates over $1 million that Barack “The Income Redistributor” Obama wanted. When he thought that the higher rate was going to become law, rancher Kevin Kester told Fox News:
“There is no way financially my kids can pay what the IRS is going to demand from them nine months after death and keep this ranch intact for their generation and future generations,” said Kester, of the Bear Valley Ranch in Central California.
Two decades ago, Kester paid the IRS $2 million when he inherited a 22,000-acre cattle ranch from his grandfather. Come January, the tax burden on his children will be more than $13 million.
Mr. Kester got a slight reprieve, which is small consolation. Where is the moral authority to confiscate the wealth his family accumulated over generations?
Those of us here in America who look at what’s happening in Cyprus, and breathe a sign of relief, are like that famous frog who discovers too late this his nice warm bath his turned into a boiling cauldron, a few degrees at a time. As long as profligate federal spending by an ever-expanding government continues, your savings are not safe, and pretending that everything is fine while Barack Obama and his merry band of Marxists scheme 24/7 to destroy this country doesn’t change that reality.
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