Mr. Bernanke's Reaction to the Cyprus Crisis

Folks,

Here is what Mr. Bernanke said regarding the Cyprus Financial Crisis:  He said,

Bernanke: Cyprus poses 'no major risk' to U.S. banks, economy

The U. S. Stock Market reacted positively to Mr. Bernanke's Comments.

Data as of 5:16pm ET

Wednesday’s Close:

• Dow +55.91
  
  
  14,511.73
  +0.39%
• Nasdaq +25.09
  
  
  3,254.19
  +0.78%

Stocks end higher on Fed stimulus pledge

Mar 20 4:56pm:

U.S. stocks rose Wednesday after the Federal Reserve reiterated that its stimulus measures will remain in effect until the job market gets back on track

In Cyprus, Demonstrations against the now rejected Bailout Plan, linked to expropriating 10% of the Value of Savings Accounts, continued, accompanied by many Placards in English, an interesting one, stating, „Aphrodite is angry.”  Banks continued to remain closed.
 

Aphrodite, or Venus, as she is known to many of us was and continues to be, in the Minds of many, the Goddess of Love.

What we don't know, of course, is just how angry she is and just what she exactly might be thinking about the European Central Bank, which came up with their ,,Rescue Plan” or, for that Matter, Mr. Bernanke, who seems to be steering clear of her at any Cost.  In this Case, the Cost seems to be that of pumping more Money through the „Discount Window” to Financial Institutions deemed „Too big to fail.”

One Thing we know, from Greek Mythology and the Renaissance is that when Aphrodite was born, she was anything but angry.

The Birth of Venus by Sandro Botticelli

 

Her Daddy, Zeus, though, was another Story.  No one would have wanted to mess around with him, especially when he got angry.

Cyprus and the Stock Market

This Column has long been critical of the Policies of The Federal Reserve and others, but particularly those of Mr. Bernanke, by pointing out the Low Interest, Easy Money Policies which The Fed has pursued, not only under Mr. Bernanke but also before (under Mr. Greenspan, for Example), but Policies which have been exacerbated during the Tenure of Mr. Bernanke.

Particularly, in the View of this Column but not only this Column, in the Opinion of others, including many respected Economists both in the United States and elsewhere, the Policies of the Fed have made it possible for the Stock Market to propel to Record Highs, in the Face of a languishing Economy, High Consumer Debt, the Mortgage Crisis, staggering Federal Deficits and so on.

Interesting, however, have been some of the Explanations which have come forward in order to explain the relentless upward Gyrations of the Stock Market from various Apologists and Allies of these Policies, including but not limited to, that Financial Powerhouse known as Goldman Sachs which, some consider to be an Arbiter of the Financial Movements on the Stock Market.

One of the Arguments most strongly pursued by these Apologists has been the „Global Nature” of the Stock Market, meaning that the World Economies are so tightly intertwined that the Stock Market represents not only a Barometer of the U. S. Economy but of the Global Economy and Financial Movements as well.

So, along this Week comes an „Inconvenient Truth,” that of a little Insular Country in the Eastern Mediterranean called Cyprus, a place many People have not even heard of.

Cyprus

Cyprus is a relatively tiny Island with enthic Problems of its own but which joined the Euro and, because of its unique Location, it attracted immense Offsore (well, Cyprus itself is Offshore!!!) Deposits from Russia and elsewhere.  Because Cyprus has close Relations with Greece, much of these Deposits were invested in Greece and other Places where they should not have been invested and the Result has been a Financial Disaster which may cause two or more of the Cyprus Large Banks to collapse and drag the whole of Cyprus into Collapse with them. 

Unspoiled Cyprus Shoreline

The European Central Bank has orchestrated a „Bailout” of Cyprus but, mindful of the Disaster in Greece and looming potential Disasters in Spain, Portugal, Italy or even France, it has „linked” the Bailout to a 10% Expropriation to be levied on all Savings Accounts, in order to help pay for the Bailout.  Although this was later modified to apply only to Savings Accounts above a certain Limit, the Resistance to such a Plan was monumental.  After considerable Turmoil on the Streets, accompanied by a „Bank Holiday” which caused a horrifying Liquidity Crunch in a Matter of Days, the Cypriot Parliament turned down the „Help” thus forcing the Situation forward into uncharted Waters.  Whereas, earlier, Huge Banks such as Deutsche Bank and, possibly, some American Banks and other Foreign Banks were not allowed to fail because of the Greek Financial Crisis (The „Too Big to Fail” Theory), large Cypriot Banks, tiny in comparison to Multinational International Banks may be allowed to fail.  We simply don't know.

However, all this presents a Dilemma for the Apologists and Supporters of the Stock Markets in New York, where the Dow Jones Industrial Average just recently catapulted, at galloping Speed, over the 14,000 Mark, citing, „Strength in the Economy.”

So, the following Explanation came forward:  it said, the  Cyprus Financial Crisis will actually help U. S. Markets because Investors will have no Choice but to seek Refuge in the U. S. Markets.  Throw out the Window „Globalisation,” High Unemployment, Horrendous Deficits, Disastrous Balance of Payments and, lest we forget, „Derivatives” championed by many, not least of whom, Goldman Sachs, which brought the United States Economy and Banking System to the Brink, requiring huge, partly unfunded Bailouts not only of Banks, but of huge other Institutions and Corporations.

It goes without saying that Mr. Bernanke, who has announced his Departure when his current Term expires, has remained silent on this Matter.  The Fed continues, during this continuing Series of Crises, to keep open „The Discount Window” where large, „Too Big to Fail Banks,” (and Financial Institutions, such as Goldman Sachs) can borrow Money at near Zero Interest Rates, while ordinary Citizens must struggle with Mortgage Foreclosures, Credit Card Debt and Student Loans.

„Irrelevant,” one can hear them say.  The Dow Jones has pushed through 14,000 and the Economy is on the Mend.  Global Economy or no Global Economy, Cyprus is 6.000 Miles away from New York.  We simply wonder, how are they measuring the Distance?  Globally, as on a Globe, or Flat Distance, as they did at one Time when everybody thought the Earth was flat and all you had to do in order not to fall off is not go too close to the Edge.