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Tuesday, March 26, 2013

Savers and Takers: Where Your Savings Money Will Go Expained in Plain Language by Two Ex-Central Bankers

***Feel free to ask questions or leave comments below.  We will reply.***

Being a saver will be punished by the takers. 

The Savers:  Those with a savings account, a personal retirement fund, a pension fund holder, equity in their homes or other cash assets.

The Takers: Governments with unseasonably high debt levels, supra-international institutions such as the EU, bankers, and financial institutions.

Clip art by Ron Leishman -
Reduced to its most basic, the financial crisis that started in 2008 and what we now see in Cyprus occurred because of debt.  Governments in general have been on a spending spree since the mid-1980s. They are running out of tax money and have used up almost all the accounting tricks which allow them to kick the debt can down the road.  At the same time, the banks allowed themselves to  become “overleveraged.”  This is a polite way of saying they took a series of incredibly high risks with saver’s money and now those risks are blowing up.  They also have huge exposure or potential loses through derivatives as well.

Stripped of all the economic, financial and governmental jargon, here is the issue and why you should be afraid if you are a saver.

1. Governments are holding massive debt and unfunded liabilities  and they need more money.

2. Banks are often over leveraged and they need/want more money to prop up their risks.

3. Savers have cash and other assets.

4. Governments and banks will change the rules so they can take this money.

5. Savers will lose their money and debtors will gain from this. 

How are they taking your money?  Sometimes it is quite clear how they take your money, other times it is difficult to appreciate what they are doing to you.  However, here are the main ways it is happening:

1. Tax or levy:  The government can simply impose a direct tax or levy on your individual savings account. This is what just happened in Cyprus.

2.  Indirect tax or levy:  The government can take an indirect tax by taking money from the banks based on their total holdings of savers money. Then the banks have to make this back from the savers. This is what Spain is doing.  See

3.  Taking depositor’s insurance money:  The government can plan to take deposit insurance money in a time of crisis. Instead of this money going to the depositors as it was planned, it will instead go to bailing out the bank itself. See for what the UK and USA have been thinking in this area.
4.  Long term low interest rates. By keeping interest rates artificially low, the central banks are helping debtors incur more debt through lower costs.  However, this means those with savings accounts are getting paid virtually nothing for their savings. Those with investments for retirement are getting little as well, meaning their retirement years will be poorer than they thought.

5.  Lines of credit based on home equity.  If you have equity (value) in your home, banks are often pushing you to take on more debt by getting a line of credit against your house. So they arrange a home equity line of credit and drive you into debt. You lose some of your equity and you pay them interest for the privilege of doing that!

6. Inflation. Governments and economists claim that inflation rates are around two percent per year. In your own world it may seem that prices are increasing faster than two percent per year and you are right.  Government figures often do not include expense such as fuel and housing! By allowing real world inflation to run around five percent and then by paying you nothing on your savings, your own purchasing power and real value is decreasing while the cost of the debt for government and banks goes down. Inflation is a silent but effect thief!

The confiscation of money in private bank accounts was generally thought of as being an illegal and unacceptable practice. Now, as governments become desperate, is becoming a matter of national policy, overturning years of protection for savers.

Do the government and the bankers actually have the power to do this? For more on this see:   or

In the 2012 American election, both candidates and pundits tried to frame the election as being between the “makers” who work and the “takers” who live off government benefits.  
The current financial crisis may turn this into a struggle between the “savers” and the “takers.”

This is economics for the rest of us.  Savers beware!


  1. Interesting. What can savers do to protect themselves?

  2. A tough queston at a tough time. For myself, I keep the minimum amount of money in an account to meet monthly requirements. Additionally, I keep enough cash in hand (not in an account) to meet about three to four months expenses. For the longer term, you can invest in real property or precious metals which will hold some value no matter what the ups and downs of the banks and markets. Avoid credit cards, home equity lines of credit and avoid being "financialized" in general terms(see )