A Lesson in Cyprus for Americans

A Lesson in Cyprus for Americans
March 20, 2013

Once again, the European Union is teaching Americans what lies at the end of the road of out-of-control federal spending and debt. Cyprus is the latest country that has required a bailout. But this time the authorities have crossed the Rubicon in how they have addressed the problem.

The basic approach to overextended EU countries is to grant them immediate bailout money to enable them to make payments on their debts and other expenses, including their massive welfare doles to their citizenry. As a condition of receiving the bailout money, the EU requires the government to slash expenses, especially by reducing payments to the dole recipients, and to raise taxes. Additionally, bondholders have been required to take a loss on their investments.

Savings Account Confiscations

With Cyprus, things have taken a different turn. To avoid having to slash expenses and raise taxes, the president of Cyprus announced the government would simply expropriate money that people have deposited in the country’s banks. Those who have deposits in excess of 100,000 Euros would have about 10 percent of their monies confiscated. Those with less would have about 7 percent confiscated.

So, here you have an entire group of people who have saved their money, never dreaming that they would have to bear the consequences out-of-control government spending and debt, especially for those on the government welfare dole.

Not surprisingly, the Cyprus plan is having consequences; namely, old-fashioned bank runs. People are trying to get their money out of the Cyprus banks before the parliament formally approves the deal. Even more ominous, depositors are now taking their money out of banks in weaker countries and moving them to stronger countries.

Perhaps that’s why the president of Cyprus kept the nation’s banks closed on an extended “holiday.” Perhaps that’s also why both he and the parliament are now balking at implementing the bank-deposit confiscation plan.

Several years ago, the Argentine government was faced with a tremendous shortfall of revenues to cover its ever-burgeoning expenses. It simply confiscated people’s retirement accounts.

U.S. Precedent

Would the U.S. government ever do these sorts of things? Well, don’t forget that President Roosevelt did it during the Great Depression when he nationalized gold and made it a felony offense to own it, notwithstanding the fact that gold had been the official constitutional money of the United States since the founding of the nation. FDR ordered Americans to deliver their gold to the federal government, which paid them off in cheapened, devalued, irredeemable notes. It was a confiscation of wealth no different in principle from what was done by the Argentine government and what is now being conducted by the Cyprus government.

Today, there is an enormous debate occurring here in the United States over out-of-control federal spending and debt.

The statists are saying, “Don’t worry. Be happy. Everything’s fine. The government should just keep spending and spending and borrowing and borrowing. It’s the key to economic prosperity.”

We libertarians are saying, “Out-of-control federal spending and debt is the road to national bankruptcy. Look at Greece, Italy, Spain, and now Cyprus. Governments cannot spend people rich. They spend people into impoverishment. It’s time to get off this road before it’s too late. It’s time to dismantle, not reform, the welfare-warfare state. Otherwise, be prepared for drastic measures employed by the federal government against the American people.”

If Americans continue following the statists, they will rue the day. Only by following the sound-money fiscal policies of the libertarians can we restore fiscal sanity to our land.

Jacob G. Hornberger (jhornberger@fff.org) is founder and president of The Future of Freedom Foundation. Used with permission of www.fff.org, where an earlier version of this article appeared.