Ever heard that adage about canaries in a coal mine? It really isn't about giving miners the bird; it's about giving them advance warning. When the canary drops dead, stops singing, or starts going crazy trying to get out of the cage that's a good sign things are about to go from bad to worse.
Cyprus -- the nation right next to Greece, the other basket case of Euro-economics -- isn't singing. By now, anyone with a bank account there is going crazy trying to get out.
Tweet tweet, though. They're still singing. At the top of their lungs. And it's a warning shot for the rest of the economies of the world balancing huge debt atop huge spending. But the key lesson is governments don't wind up holding the bag, the people do.
Things got kind of dicey in Cyprus when word leaked out a bid to shore up the beleagured nation's economy with a bailout was tied to, among other items, a tax levy that would seize up to 9.9% of private bank accounts to help pay for it. Those affected would get IOU's in the form of bonds in the banks, to back up their "investment" so they could imagine being made whole again after the very same banks got out of bankruptcy conditions.
Notice I used the word "seize" rather than the nicer euphemism of "levy." That's because when voters approve, it's a levy. When the government takes, it's a seizure.
And markets have been experiencing a bit of a seizure since word hit the public. Runs on ATM's left Cyprus cash-starved, and banks were put on holiday through most of the week while officials tried to figure out just how to handle their irrational citizens who thought losing from six to ten percent of their savings was asking a bit much.
This is why bank-states such as Switzerland and the Grand Cayman Islands exist.
What's scary about this is Americans asking "could it happen here?" Europe is an advanced economic system, much as we are. The numbers below in the interactive element from the Associated Press aren't exactly encouraging. There are several elements to this data, but very telling is the lack of growth over the entire continent.
We face stiff challenges here at home, especially because America is no longer the fortress protected by oceans to the east and west, nearby markets to the north and south and the capacity to fend for ourselves. We are a big element of the global economy, so when Europe, China or India sneeze we feel the chills of a cold coming on.
Economists like to tell us the consumer helps drive economic recovery, and they're correct. But the fear of consumers they'll see past recessions and depressions is of equal power in leading to stagnation or, worse yet, back-sliding into a repeat of the poor growth marking much of the past four years. Confidence, like reputation, takes a long time to build but a moment to destroy.
The government of Cyprus and the Eurozone bankers are trading on the confidence of the people to help rebuild the economy. Telling savers their bank accounts are fair game is a reputation they can ill-afford now. We don't have to be economists to figure out losing money people work a lifetime to save is bad business.