Cyprus Bank Crisis: Is Europe's Poison Pill Going to Cause a Rush For the Dollar?


We are currently auditing the implosion of the failed experiment that was the European Union. How arrogant and affected by severe Alzheimer's do you have to be to believe that you can unite Europe: a continent where the embers of previous wars are still alive, a cesspool of rotten politics, inept leaders, and a monetary system flawed from the outset?  The latest Cyprus developments are directly planting the seeds for a political civil war in Europe. It is now no longer a question of whether or not countries will exit the euro, it is now a question of who will exit first.

Europe is going to splinter at the seams. The sheer gall that northern European leaders have to suggest raiding Cypriots' bank accounts is something no one should take lightly. It shows how desperate the situation is in Europe and how desperate the "Troika" is.

The European Commission (EC), the International Monetary Fund (IMF), and the European Central Bank (ECB) are all clamping down hard on weaker European peripheral countries with austerity programs and now, threats of fiscal confiscation. The reality is that they have no one to blame but themselves. Granted, countries such as Greece, Cyprus, Portugal, and others were profligate spenders, but the stronger economies of Europe, Germany especially, are equally to blame. They are the countries that practically forced the weaker nations to adopt the euro, putting them in a position where they could not compete against the stronger economies of Germany and France. Moreover, Germany and France rammed loans that are now unpayable down the throats of those weaker countries.

It has gotten so bad in Europe that the rise of neo-Nazi parties is astounding. In Greece, the neo-Nazi "Golden Dawn" party has risen in popularity from 0.3% of the Greeks polled in 2009 to as much as 7% late last year, a 23-fold increase in just three years. From the north of Europe to the Mediterranean in the south, fascist and neo-Nazi parties are growing. As EU Home Affairs Commissioner Cecilia Malmstrom recently stated, "Not since World War II have extreme and populist forces had so much influence on the national parliaments as they have today."

Unless the Troika backs off the weaker, heavily indebted countries, which is not likely, Europe is headed toward massive civil unrest and war. Another worrisome aspect is Russia. According to Moody’s ratings agency, Russians have $19 Billion in Cypriot banks, nearly as much as Cyprus's entire GDP. Russian banks have an additional $12 billion invested in and have loaned another $40 Billion to Cypriot companies of Russian origin. That is just Cyprus. While there are no clear estimates on how much Russian money, legal or illegal, is spread out over Europe, it is safe to assume there are boatloads. In 2012 alone, an estimated $46 billion left Russia, much of it going into Europe.

Vladimir Putin is outraged over the crisis in Cyprus, although Russia decided not to intervene officially to the aid of Russian depositors because it wants to stop capital outflow. How better to do just that by sending the message that your money is not safe outside Mother Russia? I stress officially, because somehow the Russians got their money out. The Russian government, however, will not stand idly by while Russian money is at risk in Europe. Russia largely controls the European energy sector; the European Union depends on Russia for more than 32% of its crude oil, and 39% of its natural gas needs. Many countries in Europe depend upon Russia for 100% of their energy needs. Germany, one of the key architects of this crisis, depends upon Russia for as much as 36% of its energy. If Putin feels Russian financial losses in Europe are unjust, he could threaten to retaliate by "turning off the lights" in Europe.

Due to what is happening now in the next phase of the great financial crisis and the European sovereign debt crisis, war and massive civil unrest in many parts of the world is a very real threat and is starting to affect the financial markets. It is a major geo-political reason why the dollar is now breaking out to the upside. Moreover, it is a major reason why I forecast a much higher U.S. equity market, as frightened capital from all over the world will pour into the U.S. and emerging markets of Asia.

My advice to Europeans and Russians is bring your money to the U.S. and invest it in the stock markets, where it is safe from confiscation. It is safe from confiscation in the European stock markets if you believe those stock markets will do well. Remember: it is better to pay taxes than to have some bureaucrat arbitrarily decide to steal your money.