Monday, 18 March 2013

Cyprus is just following the British government’s policy of raiding bank deposits

I’ve been perplexed by panicky talk this morning concerning the possibility of Britain eventually following Cyprus’s EU-imposed lead in punishing those of us foolish enough not to have spent all our money when times were good. But this is exactly what the British government has been doing since 2009.

Unless you’re a big company, or rich enough to hire a bunch of highly-paid accountants, any money you might have placed in a British bank deposit account will have failed to keep up with inflation, i.e. your savings are now worth less in terms of spending power than they were three years ago. Many bank deposit accounts are paying out interest which is 2.5% less than the rate of inflation, so the £100 you put in a year ago would now buy only £97.50 worth of goods.

Even one and two-year fixed-rate bonds – where you get a reward in return for not having access to your money - won’t keep up with inflation.

The reason for this is straightforward: the government has caused inflation by deliberately pumping money into the economy via quantitative easing (i.e. printing money). Inflation is good for the government, because it reduces the size of its debts: it’s just bloody awful for those of us who haven’t squandered that portion of our earnings the government so generously allowed us to keep, while it was busily wasting all the money it filched from our wallets via taxation.

During the past three and a half years, the value of many people’s savings will have shrunk by over 6.5% (the amount the government of Cyprus is planning to steal from deposit accounts). Shifting your money between various bonds and ISAs and deposit accounts on a regular basis is a bewildering, complex and arduous undertaking. I, for one, dread having to do it. In the old days, you stuck your savings in a deposit account and your bank paid you interest slightly above the rate of inflation – an unexciting but safe arrangement for those of us who were averse to gambling on the stock market. Back then, the banks needed our money to underpin their degenerate gambling habit. But our government has made so much cheap money available to the banks, that our savings are currently surplus to requirements, allowing them – vicious, greedy wretches that they are – to offer derisory interest rates.

Tellingly, my bank has made great efforts to get us to lend us all our money to fund their gambling on stocks and shares (asking us to pay an up-front fee for the privilege of handing over all our money to them) - but when it comes to persuading us to put our money on deposit, they really can't be bothered to make an effort.

I have almost no understanding of finance – but I suspect that the vast majority of British savers are even more ignorant than I am.

So here’s a simple message: the government is already raiding your bank deposit accounts. It’s doing so to obviate the need – no matter what lies the BBC tells you - to cut spending to any meaningful extent.

Welcome to the EU, where we are all Cypriots.

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