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Dear All,
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I'm putting out this second update on the subject because I feel the Cyprus events are that significant. There is talk now of the IMF and Brussels amending the terms of the bank deposit confiscation plan, which is obviously blowing up in a manner unforeseen by these geniuses.
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It matters little what revisions might be made to the proposal, even were it to be scrapped entirely. The cat is now out of the bag. The IMF and Euro-elites have revealed their souls and what they are willing to do. A threat alone is sufficient to shake capital flows, although the IMF/Euro plan is far more than a threat. The capital markets have gotten the message. Depositors will be pulling capital not only from Cyprus but from European banks altogether. Small depositors throughout the continent will sharply increase the portion of their cash savings held in physical form (i.e. hidden at home) and large depositors will likewise look for less threatening places to park cash, the most obvious being privately vaulted gold in safe locales.
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Do not think for one moment that the sanctity of the U.S. banking system and the FDIC (which has $1,500. in assets for every $1.0 million it insures) is not subtly in the mix here. Of course the dollar is being bid now and U.S. banks are likely the short term beneficiary of funds exiting Europe, but capital markets have long term instincts. This weekend's developments are net negative for the entire western banking system.
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It is economic law that capital flows to where it is treated best.
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Jeff
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