Lessons from Cyprus

Cyprus is once again in the news. This is time it’s not for the Greeks or the Turks fighting who controls the island country, but because it is broke. Cyprus is an island about the size of Vermont with an economy identical in size. Unfortunately, its debt load is 145% of GDP. It has been a tax haven for tax evaders. It has been a depository for Russian money…mostly laundered…making its banking business way out of proportion to the size of the country and its economy.

Over the past several years, things have gone from bad to worse and Cyprus and its banks are on the verge of collapse. A member of the European Union, Cyprus went to the European Central Bank looking for a bailout. It got an agreement, but in exchange for the bailout the ECB required that the Cypriote Government confiscate 10% of cash deposits in its banks. Overnight the banks closed and remained closed for over a week. When they opened, depositors were only allowed to withdraw 300 Euros/week. It was a disaster.

There is a general consensus that the Cyprus is not so much a country debt situation…but a banking situation. For reasons known only Cyprus and Greece, the Cyprus Banks took all of that Russian money and invested in Greek bonds. Of course the Greek economy was and is on the verge of collapse and its bonds are worth…well…zero!!!! The banks couldn’t come up with the money to pay its depositors and went to they Cypriote government for money and the Cypriote government didn’t have any so they went to the ECB . Voila…he who pays the piper picks the tune. Cyprus confiscated 10% of all deposits in excess of $100,000.00. The saga in Euro land goes on.

This is scary stuff. Can you imagine a government coming in and saying give us 10% of all your accumulated wealth just because? It couldn’t happen here they say. Unfortunately, it does. The Estate Tax is exactly the same thing. Only our government takes 45% of accumulated wealth over $ 5 million of a deceased’s estate. Money that was earned and taxes paid on already.

When it comes to Progressives, there is no end for the desire to take your money. They take from the rich to give to…the rich…and then take from the middle class to give to…government bureaucrats. There is talk in Washington of raising the gasoline tax. There is the estate tax and the income tax. There is talk of a national sales tax and a value added tax. They print more money to devalue the worth of your currency. Many of these are regressive taxes that affect EVERYBODY regardless of income or class.

Cyprus should be a lesson to all of us. People like me keep saying look over there…look to Europe…to see where we are headed. Will that little island have a direct effect on the American economy? For what it’s worth, probably not! But this is a teachable moment. If they can do it there, they can do it here. And here’s a word to the wise: THEY WILL!!!!