The Savers versus the Takers: Potential Social Unrest

Being a saver will be punished by the takers.

The Savers: Those with a savings account, a personal retirement fund, a pension fund, equity in their homes or other cash assets.

The Takers:  Governments with unreasonably high debt levels, supra-international institutions such as the EU, Central Banks, and financial institutions.

Reduced to its most basic, the financial crisis that started in 2008 and what we now see in 2013 has occurred because of unsustainable debt. Governments at all levels have been on a spending spree since the mid-1980s and they have outspent their ability to raise revenue. They have run out of tax money and have used up most of accounting tricks which allow them to kick the debt can down the road. At the same time, the large commercial banks have allowed themselves to become “over-leveraged.” This is a polite way of saying they took a series of incredibly high risks with saver’s money and now those risks are at a substantial risk of blowing up. They also have huge exposure or potential loses through derivatives as well. Derivatives are seen as weapons of mass destruction in the financial community.

Stripped of all the economic, financial and governmental jargon, here is the issue and why you should be afraid if you are a saver.

1. Governments are holding massive debts and unfunded liabilities and they need more money.

2. Banks are over leveraged and they need/want more money to prop up their risks.

3. Savers have cash and other assets.

4. Governments and banks will change the rules so they can take this cash and other assets.

5. Savers will lose their money and debtors will gain from this.

How are they taking your money? Sometimes it is quite clear and other times it is difficult to appreciate what they are doing to you. However, here are the main ways it is happening:

1. Tax or levy: The government can simply impose a direct tax or levy on your individual savings account. This is what just happened in Cyprus in the spring of 2013. The government there simply took money out of accounts in the banks and imposed capital controls so Cypriot citizens could not get their money out of Cyprus.

2. Indirect tax or levy: The government can take an indirect tax by taking money from the banks based on their total holdings of savers money. Then the banks have to make this back from the savers. This is what Spain is doing by imposing a 3% tax on all savings which has to be paid by the banks.

3. Taking depositor’s insurance money: The government can plan to take deposit insurance money in a time of crisis. Instead of this money going to the depositors as it was planned, it will instead go to bailing out the bank itself. The Bank of England and the US Fed are jointly planning for just such an event.

4. Long term low interest rates. By keeping interest rates artificially low, the central banks are helping debtors incur more debt through lower costs. However, this means those with savings accounts are getting paid virtually nothing for their savings. Those with investments for retirement are getting little as well, meaning their retirement years will be poorer than they thought.  Even these small earnings are eaten up by inflation.

5. Lines of credit based on home equity. If you have equity (value) in your home, banks are often pushing you to take on more debt by getting a line of credit against your house. They arrange a home equity line of credit and drive you into debt. You lose some of your equity and you pay them interest for the privilege of doing that! This is a bad idea if you are a homeowner, especially if there is a substantial part of your mortgage remaining.

6. Inflation. Governments and economists claim that inflation rates are around two percent per year. In your own world it may seem that prices are increasing faster than two percent per year and you are right. Government figures often do not include expenses such as fuel and housing! By allowing real world inflation to run around five percent (+) and then by paying you nothing on your savings, your own purchasing power and real value is decreasing while the cost of the debt for government and banks goes down. Inflation is a silent but effective form f theft from savers and a means of rewarding debt laden governments at your expense.

The confiscation of money in private bank accounts was generally thought of as being an illegal and unacceptable practice. Now, as governments become desperate, is becoming a matter of national policy, overturning years of protection for savers.

Do the government and the bankers actually have the power to do this?  The answer is increasingly – yes.

In the 2012 American election, both candidates and many pundits tried to frame the election as being between the “makers” who work and the “takers” who live off government benefits.

The ongoing financial crisis may turn this into social unrest and a struggle between the “savers” and the “takers.”

This is economics for the rest of us. Savers beware!

 

***Feel free to ask questions or leave comments below. We will reply.***      This article is an adaption of an earlier article published in March of 2013.

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