The banking crisis in Cyprus shows clearly how fragile our civilization has become. Richard Fernandez over at The Belmont Club describes some of the effects.
With Cyprus unable to convince anyone to bail it out the banks will remain closed until at least next week. And when they reopen they may be subject to capital controls.
Nobody knows exactly what this may involve. But Max Keiser notes that the restrictions could include, but not necessarily be limited to the following:
- Restrictions in daily withdrawals
- Ban on premature termination of time savings deposits
- Compulsory renewal of all time savings deposits upon maturity
- Conversion of current accounts to time deposits
- Ban or restrictions on non cash transactions
- Restrictions on use of debit, credit or prepaid debit cards
- Ban or restriction on cashing in checks
- Restrictions on domestic interbank transfers or transfers within the same bank
- Restrictions on the interactions/transactions of the public with credit institutions
- Restrictions on movements of capital, payments, transfers
Even though these have not been enacted as yet their impact is being felt, and how.
I went to the pharmacy today to buy some milk and medicine for my 3-year-old and the pharmacist informed me that they were no longer taking credit or debit cards. It’s cash only, because that’s what their suppliers are demanding. The same is true at several gas stations on the island, and I don’t doubt that more will soon follow …
We know what happens then. Cyprus shows us. A European country goes from credit, to plastic, to cash, then barter, and then finally, unless the process is halted, to guns, knives and clubs, teeth and fingernails.
Nicholas Nassim Taleb and Russ Roberts discuss the counter intuitive fact is that the stronger we make the system the more inflexible it becomes. The more inflexible it becomes the more fragile it becomes. Ideally our economy would be flexible in such a way that the shocks of the boom and bust cycle and bounce back with a minimum of pain. Maybe we will re-learn that lesson after we’ve had our noses rubbed in it some more.