Cyprus Banking Crisis Offers Lessons For the United States on Debt


Even if Cyprus constitues about 0,2% of the Eurozone's output, the ripples it sent out today, and will continue to send out over the coming weeks, are a mini-version of what to expect when the weakest link almost snaps and rattles tne entire chain in the progress.

One lesson we must learn here: debt cannot be infinite without a severe deflation and the paralysis of the political system; the endless printing by the Fed and a suppressed inflation cannot last forever, as one will give out before the other, and the result would be an economic shift of spectacular proportions.

The market signals on Cyprus indicate that such a scenario would involve a huge drop in trades and those invested in the USD would be wiped out immediately; as Russian investors are finding out, the apparent safe heaven turned out to be a very dangerous place after all, and we can't precude the freezing of the financial system to prevent its decapitalization, as we saw happen today.

There is still limited time for Washington to find its focus and think about the general welfare over the political infighting for temporary points, while the world is sending a clear message: Get it together, or collapse.