Ignore Cyprus at Your Own RiskLouis James As Dennis Miller so eloquently pointed out in a recent Casey Daily Dispatch, most Americans would not be directly affected if North Dakota decided to seize citizens money in order to pay its bills, but all Americans would be deeply disturbed by such an action. The principle of the matter couldnt be clearer; outright theft is wrong. But itd probably be fear, not principle, that would have people heading for their banks in droves to withdraw cash as fast as possible. Of course, on a moral plane, government money printing is equally reprehensible and cowardly to boot; it takes value out of peoples savings just as surely as taking money out of their bank accounts, but in a hidden, indirect way. (One could make the same argument of taxation in general, unless its voluntary.) But again, most people wont storm the Fed with pitchforks and torches as a matter of moral rectitude. They would, however, if the government simply reached into their bank accounts and seized money those people had planned to spend tomorrow. And if North Dakotas hypothetical troubles were mirrored in other, much more populous states, like New York and California, its easy to see how people in those states wouldnt want to wait for their governments to do the same thing. This is the abyss toward which the EUs hard line with Cyprus has pushed all of Europe. Europeans living outside Cyprus should not kid themselves that this is just a Cypriot problem anyone with a bank account in Greece, Spain, Italy, etc. should be thinking very hard about how safe their cash is from confiscation. As we go to press, the Cypriot parliament has backed away from the bank levy on everyone that caused so much uproar, but the new deal still seizes money from larger depositors. This does not undo the fact that its still stealing nor that the ECB asked for some of every citizens savings. Europeans living in non-PIIGS countries should not kid themselves about the impact on themselves if the countries near default tumble like dominoes. Key point: with a fractional reserve banking system, it doesnt take a majority of bank depositors to decide to withdraw their cash to put their banks out of business. If something like 10% of depositors decided to withdraw all of their money, banks would be in real trouble and even if only a smaller percentage were to initially decide to keep their cash at home, they could spook the required fraction into panicking and pushing the banks into insolvency. In stable times, fractional reserve banking may seem like free goodies for all, but during unstable times, it makes banks that much more precarious. Things have to be pretty dire for an entity like the ECB to demand action that could spark such a panic. But wait the banks are backed by the governments, so depositors are safe, right? Yeah, right the same bankrupt governments that are facing insolvency themselves Is This IT? Weve been saying for some time that the global house of cards could topple at the slightest rustling of the wings any of a number circling black swans. Something like the ECB turning draconian with Cyprus and scaring the heck out of everyone else in the EU seems more like a swan dive right into the heart of the teetering structure. Many mainstream commentators are dismissing the significance of the Cyprus debacle but the same type of people also dismissed the threat of the subprime crisis until it could no longer be denied. This does not prove that whats happening regarding Cyprus today is the tipping point future historians will point to as the beginning of the end of the EU and hence the rest of the old economic order. But it could be. Skepticism from the mainstream does not prove that Doug Casey is right about the global economy exiting the eye of the storm this year, but its a great contrarian indicator. What is absolutely clear is that the extreme measures the ECB has just shown it is willing to take are solid evidence that we are right about just how shaky things are just how close to the crumbling edge of the abyss the whole world is. Even if the direct, overnight theft of Cypriot bank deposits does not spark a bank run across Europe, it wont change this fact. The ECB will certainly admonish us all to pay no attention to the man behind the curtain, but weve all seen the truth. The question to ask is not, How can we be certain? That ones easy to answer: we cant be. The question to ask is, What do I risk if this is it and I fail to prepare for the hell thats coming two steps behind? To Doug, me, and all of us here at Casey Research, the answer to that is obvious: if we bet on the resumption of the economic storm and the so-called recovery continues, well miss some opportunities and maybe lose some money on investments that dont work out but if we dont make that bet and the economy does come unglued, we will suffer heavy losses. If Doug would say when the wheels fall off the economic recovery, the vast majority of people will see a substantial reduction in their standard of living and many will simply be wiped out. We dont plan to be among them. What to Do? If the inevitable has now become imminent, the general recommendations that Doug Casey has offered many times before become even more applicable and important. They are: Personally, I just sold my sports car and consolidated down to one vehicle. We really didnt need two, and Im using some of the proceeds to speculate on an emerging gold producer that has the potential to return ten times my investment. I plan to speculate on more great companies in the months ahead, especially if the market goes into a true panic, which it has not yet. Saving in gold has long been my practice, so thats nothing new for me. As for the future, I plan two things: A) invest in technologies and companies I believe have great potential, starting with some of those covered by the Casey technology division; and B) work hard to keep myself from becoming obsolete. Do not underestimate the importance of the latter; there is medical technology right around the corner that could drastically prolong the human lifespan. Everyone not at deaths door should have at least a 25-, if not 50-year financial plan. Its the speculate component of Dougs liquidate, consolidate, speculate, and create formula that most people have the most trouble with. Weve said many times that the essence of speculation is to buy low and sell high. The best way to do that is to buy when theres blood in the streets which is what is shaping up in the market now. Despite persistently high metals prices, theres panic in the air, and few are willing to buy. Its at times like these, when everyone has given up on a commodity, sector, or asset class that cannot dry up and blow away like metals and mining that you can buy at stupid-cheap prices. We have documented and commented upon the weakening market for metals and mining stocks, particularly gold stocks, in these dispatches for some time now. Weve pointed out the widening gap between the value the market is giving to good companies and the commodities that underlie them, such as gold, which has traded sideways, not down, over the last year and at a price point previously deemed unsustainably high. It is clear to us that a potentially life-changing buying opportunity is shaping up today, and it may just be the Cyprus black swan that turns out to be the tipping point in our favor. Now, no one can time a market bottom, except by accident. But when you can buy something that has to go up when its selling cheap, you can make a lot of money if you have the patience to endure until it does go up. In the case of mining stocks today, we dont think that patience will be required for a long time, but it will have to hold up to extreme volatility in the near term. This is, frankly, not a viable plan for everyone. People prone to panic when stock in a good company drops 30% for no reason often end up inverting the speculators formula, buying high and selling low. But for those who have the discipline to stand by their judgment of what has value, regardless of what the rest of the market is saying, its times like these that create the most leveraged buying opportunities opportunities that literally set the foundation for accumulating serious wealth. To help you get in on the ground floor of the coming precious metals mania, Casey Research has put together a very special online event: Downturn Millionaires. This free webinar will premier on April 8 and features some of the worlds most successful natural-resource speculators like Doug Casey and Rick Rule who will reveal how they made their fortunes in beaten-down markets and what you need to do to emulate their success. For more information and to register, click here. linkwithin_text=Related Articles: 