Tuesday, March 26, 2013

Do Not Trust The Banks

As I have said time and again, you trust the banks if you want to commit a financial suicide. This is what the lesson everyone has to learn from the recent events, which are still unfolding, in the tiny island of Cyprus (read more about it here). The Cyprus government, in cahoots with and by the orders of the European Union and IMF officials, stole bank depositors' money to rescue the bankrupt banking sector of its economy. This heist of depositors' money began with an announcement of confiscation of 6.7% of deposit money of those with total deposits less than €100,000 and 9.9% from those depositors with deposits more than €100,000. This deal did not go through the Crpriot parliament, but they have now agreed on closing down two major banks - which means depositors in these banks loose all their money - and stealing deposit money of those depositors with more than €100,000 deposits. Cyprus government has also closed all banks since last one week and still there are no signs of banks opening soon. They have also announced capital controls which means even if the banks open, depositors can't take out all their money. ATMs also have daily €100 withdrawal limits in place.

Because of all these naked stealing of peoples' money by the government and banking officials, mini bank runs have already started in Cyprus, and there are fears that in future big bank runs can take place across EU and the whole world. If that happens, then, at least, I won't get surprised because bank runs are the logical end results of the illegal way in which today's banks function. In fact, some bank runs have already started in India e.g., during last month alone, in my home town Surat, there were two episodes of bank runs. First two pictures in below figure (from right to left), which I took from local Gujarati news paper, show the long queues outside two troubled local banks. Similar scenes were visible in Cyprus (see third and fourth picture in below figure, and here). We all should get ready to see such long queues outside banks globally in future. This is because today's fraud banks function on an unethical, immoral and illegal standard of 'fractional reserve' where they only keep a fraction of depositors' money in their reserve vaults; rest they loan it out to third parties. In legal term this phenomenon is called, embezzlement or misappropriation of depositors' private property. Banks are fiduciary institutions, especially deposit banks, and their main function is to safeguard depositors' money. But, instead of safeguarding, today's banks are stealing that money as the case of Cyprus now makes it totally clear. They were stealing money surreptitiously before via fractional reserve banking, but now they are so desperate that, with Cyprus case, they have openly started to rob their customers. This trend will accelerate in future as more and more banks go bankrupt openly.

Fig. 1 Bank Runs in India and Cyprus

As I said above, this was bound to happen. The lesson that people will have to learn from this on-going crisis is, that they should, in no event, keep more than necessary money in banks. Keep only that much money which is absolutely necessary for doing your business or other work for which you can not avoid banks. Apart from that, pull out all your money from the banks and keep it in other more safe alternatives like precious metals, Gold and Silver. Precious metals don't have any counterparty risks, and moreover, they both are real money. They both are now slowly moving into the world monetary system. Fiat paper currencies are dying their slow death and will become history soon.

In the end, I repeat again, DO NOT TRUST THE BANKs. Take lessons from what is happening around the world, and don't think that this is an isolated incident which can not take place in your country. All banks are globally connected and trouble in one country will surely spill over to other country banks. Take action now and safeguard your wealth and lives from the unscrupulous politicians and bankers.


  1. Dear Blogger,
    Your work as an emerging economist is much appreciable as I have seen that main focus is the criticism of government which are on looting spree in the name of ‘mixed economy’ by adopting evil ‘Keynesian Economics’. It is humble request to you to provide the alternative solution too. As I can see that you are appreciator of ‘Austrian Economics’, so I expect that you will also post about how Austrian Economics can help our economy and what are pros and cons of such economic model for India. I will also request you to look in other Economic Theory like “PROUT Theory” which was proposed by P. R. Sarkar, which I personally found better than any existing theory as it includes Nature. I hope you will consider my request. Thanks.

  2. Thank you Maftoon for the kind comments. From time to time I do insert few lines in my write-ups about the alternatives. I am sure you understand, that it is little difficult to elaborate everything in a blog entry. You can read my academic published papers for more detailed discussion of the alternatives for India. Just Google my name, Madhusudan Raj, and you should be able to find my papers. Many of them are published in the India Economy Review or you can find them on SSRN (social science research network) website. In any case, I will surely keep your request in my mind when writing future blogs. And, the sound theories of Austrian Economics do take care of nature e.g., please take a look at my mentor Walter Block's important book on Environmental economics: Economics and Environment: A Reconciliation (download the free pdf copy here: http://tinyurl.com/bq9wlmu). In short, Private Property Rights will take care of the nature and everything else.


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