Financial Crisis: Lessons from Cyprus for Everyone

Although officially “solved”, the Cyprus crisis is of significance to investors, savers and actually every private household in many countries. Seen as a “small scale” model scenario for a “real” crisis in the euro or, in fact, any paper currency worldwide, the handling of the Cyprus crisis offered very interesting reading and insight into how bureaucrats handle — or intend to handle in the future — any kind of lack-of-trust problem in the economy.

Said German finance minister Wolfgang Schäuble: “Touching personal savings always is a very sensitive area, and we need to be very careful when doing so. In order to prevent a bank run, this should always be undertaken over a weekend.” He went on to demand procedures and policies for enacting “special rules” allowing to push through currency controls and ceasing of assets between Fridays and Mondays so there would be “no further need for extended bank holidays” as seen in Cyprus in March.

With this kind of thinking exposed, it is obvious what will happen in many additional places beyond Cyprus if there is any problem — which in light of the publicly known financial state of many countries, including core-European economies and the U. S., is not too far fetched at all.

U. K. Independence Party leader Nigel Farage, MEP, who due to his role in Brussels has significant additional insight into the inner workings of that bureaucracy and those bureaucrats’ irresponsible way of thinking, has already warned everyone having any exposure to the PIIG countries and even the rest of the EMU area to “get out your money while you can”.

The question to be answered, then, would be where to move those funds to. With all paper currencies effectively in the line of fire in the event of a euro, let alone dollar, collapse, there is little use even considering classical safe-heaven investments such as U. S. bonds (of all investments!), cash U. S. dollars themselves, or even Swiss francs and similar. The obvious answer would be moving into tangible assets like real estate or precious metals (the latter also being suitable for smaller quantities than your average minimum property price). Also, some “alternative” investments might be suitable, particularly if they offer regular returns (cash flow) and not just a chance of capital appreciation (which may or may not happen at some uncertain point in the future).

When there is nothing to be found offering such return, the point for “dumb” precious metals just sitting in one’s vault is even stronger: for precious metals offer the safest protection against economic turmoil even if they do not usually provide cash flow like dividends.