Good evening, let's cut to the chase. The politicians in euro zone with their genius intellect will force depositor in Cyprus to pay for a bail out. In order for Cyprus to qualify for a bail out the depositors in banks located inside Cyprus will have to take a hair cut. The hair cut will be determined by the amount of Euros within their accounts. The hair cut formula is as follows: "
Euro zone finance ministers want Cypriots with deposits of over 100,000 euros ($128,950) to fork out 9.9 percent of their savings while those with less than a hundred thousand euros will be hit with a 6.75 percent levy in order to raise 5.8 billion euros so that country will be eligible for an international bailout." (Source CNBC; http://www.cnbc.com/id/100561394).
Although I am against any bailouts ideologically I am not foolish or inflexible to realize the insanity of the situation. All major central banks have been printing money. To decide to change course now will cause a huge bank runs in Cyprus and perhaps Spain, Portugal and Italy. If this happens this will destabilize the entire global banking system. What governments must due it to cut back on the generous pensions, medical benefits and other retirement benefits. Also they must raise taxes to help pay down their debts. There is no escape the financial crisis of 2008 nearly caused a great depression. I still believe we are in a great depression but hidden by money printing by central banks. Forcing hair cuts on depositors is just a dumb idea after all the money printing over the past few years.
However, I do agree in principal about paying for the bail outs however the inconsistency of the politicians will cause even greater harm to the psychology of global markets. Basically investors and citizens alike will lose faith and no longer trust the integrity of their decisions. We cannot pretend the all countries who participated in the FIFA World Cup are winners or the 49ers won the superbowl along with the Ravens. They are winners and losers and we must recognize losing is a natural and necessary function to economic and human growth. However, the politicians toyed with the system so much that the pain will only be intensified when we are force to take it.
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