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Could Cyprus Credit Crunch Create Cash Crisis?

Paul Craig Roberts says that saving the 'dollar bubble' could only be done to the detriment of the stock and bond bubbles:


Now in Cyprus we see a banking solvency crisis that is resulting in a run for cash:


While ATMs in Cyprus are unable to dispense cash it is apparently still possible to use credit, debit, and other bank cards to purchase things. But it is reasonable to expect that as bank reopenings are delayed and as knowledge of the reasons behind the crisis are understood, small business owners will start asking for cash and offering cash discounts more and more?

Will this create an increase, however temporary, in the perceived value of cash over credit money?

I'm thinking that it will. Physical Euros, no matter how small they may be, no matter how paper thin, will still experience an increase in perceived value, however temporarily. Is this crisis potentially the last stand for paper money?

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Nailed it.


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The question is what will people be doing with the cash? Are they rushing to get money out of the banks in order to immediately spend it on real goods that they don't necessarily need at the moment because they fear much higher prices and diminished purchasing power of their money?
Are they rushing to get their money because they don't believe there is enough to go around and they intend to safeguard it at home, and cut back on consumption in case they need the money later?

Ultimately it comes down to - why do they value those notes?

and why are they so evaluated???

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The paper notes are at least tangible. The "money" people in Cyprus thought they had in their bank accounts evaporated into thin air along with the banks' bad assets. Some are realizing (too late) that they would have been better off with the 10% "haiscut" originally offered by the ECB. Their money simply no longer exists. No one has "taken" their money. Depositors "gave" it to the banks to gamble with. The bankers' bets lost. It's as simple as that.
The really interesting thing about the crisis is the behavior of the ECB. That the ECB would not simply back up ALL of the deposits in Cyprus is very telling. 13 billion euros is rather insignificant to them. If the ECB were acting in an inflationary manner it would have been a done deal already. Their reluctance shows that attitudes are changing and the effects are deflationary, not inflationary.