RUSH: We keep waiting for the American people to wake up and they keep hitting the snooze bar, folks. But something, someday, will wake them up. Of that I'm confident. I don't know when. It could be ten years. For example, you would think something like this would. This is fascinating the way this happened. Cyprus has gone ahead and done it, except it's worse than what the original plan was. The original plan in Cyprus was for the banks to be bailed out by the EU if the banks would simply confiscate between six and 10% of everybody's bank deposits. Didn't matter, everybody. Rich, medium, poor.
There was such a cacophony of opposition that they put the news out that the idea was shelved, and the last we heard about this was that they weren't going to do it. And then out of the blue, over the weekend, they did it, and it is worse than ever. Now, when it was originally opposed, the EU, the euro zone and the banks said to the people of Cyprus, "Okay, okay, how about if we just take 10% from the rich." "No, you're not taking anything from anybody." They steadfastly opposed the whole thing. So they let everybody believe that the idea had died and they were gonna try to find some alternative.
And then out of the blue, Cyprus secured a ten billion euro bailout package, that's $13 billion. This is rescue loans, last-ditch negotiations early today. In return for the bailout, Cyprus must drastically shrink its banking sector, cut its budget, implement structural reforms, and privatize state assets. But before they did that, they announced a 40% tax on savings accounts of $130,000 or more. Now, it originally was six to 10% of everything, not just savings deposits, but checking deposits as well. It went away when everybody opposed it. Now, early today rich in Cyprus is defined as $129,000 a year, and those people have now been taxed, they're calling it a tax, 40% of their deposits have been confiscated. Forty percent. And a companion story says that Spain could well be next. It's in the Wall Street Journal, and it's unreal.
Now, we said last week that Cyprus was just the beginning of this trend. And I thought it would happen fast, but not this fast. Remember Spain and Italy were targets last week. Spain, in a nutshell, is going to overhaul its nationalized banks in an effort to boost its flagging economy. And they are gonna impose losses of up to 61% on Spain's largest nationalized banks, which means, in the words of the Wall Street Journal, shareholders in these banks will be nearly wiped out and junior bondholders will lose around 30% of their original investment; meaning, the investors in these banks, their holdings have been confiscated. There will be if the plan happens. In Cyprus, 40%, folks.
Now, I'm sure that the low-information crowd here doesn't know this yet. And when they find out about it, "Cyprus, where's that?" And somebody will point it out to 'em, "Oh, just a tiny little island over there next to Greece? Screw them. Don't they have an archbishop, aren't they religious? Screw them again." And then that will be that. They won't care. But it's just the rich defined as $130,000. That's what had to happen in order for the banks to get their bailout. "Can't happen here, Mr. Limbaugh. Just simply cannot happen. The public is too aware. The public wouldn't put up with something like that." Oh, really? The public wouldn't put up with, say, Warren Buffett having 40% of what he has taken away from him? Ha-ha-ha.
RUSH: We go to the Orlando. This is Jonathan. I'm glad you called, Jonathan. Thanks so much for waiting, and welcome to the EIB Network. Hi.
CALLER: Hey, Rush. Hello?
RUSH: Yeah, hi.
CALLER: Thank you for taking my call. I wanted to address something you were talking about before with Cyprus.
RUSH: Yes, sir.
CALLER: And you didn't take it far enough. You gotta remember that a lot of the money that's on deposit in Cyprus right now, is Russian oligarchs. They are getting their money out of Russia and depositing in Cyprus, and so a lot of that money that's being seized belongs to Russians. And so now you've got the European Community bank seizing Russian money, money that was earned by Russians.
RUSH: Well, this actually is true. How much money are we talking about, though?
CALLER: We're talking about obscene amounts of money. With a population of less than two million people, how many of them do you really think have over $140,000 in Cyprus? A lot of the money that's on deposit in Cyprus is from external sources. It's not from Cypriots.
RUSH: Well, one thing you're right about: Putin and Medvedev have raised hell about this. They are not happy about it. So what do you think the Russians will do, nuke 'em?
CALLER: No, no. I'm just saying that you now have a situation where money that wasn't even earned or produced in the European Community is being seized to prop up European countries.
CALLER: And the same thing is going on here in the States. The media holds up the shiny little bauble, it's called "the stock market," and says, "Look at how it's been growing!" But nobody points outs that that stock market, that that 401(k) that you have money invested in, buys less than 90% of what it would have bought as little as two years ago. You have a government fudging the numbers, that's holding up the price of gas and holding up the price of food for inflationary purposes to tell us that inflation is not a problem. I've gotta go to the supermarket. I've gotta drive to work. My money isn't getting me as far as it used to. That money in the 401(k) is being seized and you're not aware of it. So this is going on all over the world and it's already happening here in the United States as well.
RUSH: Well, look, okay. It's being seized by virtue of inflation, yes. I don't want anybody to get the impression that your accounts are being pilfered the same thing way they are in Cyprus. That's not what he means. Nobody's running in there and taking your 401(k) while you're not looking and not telling you. Not yet. Now, the Democrats have a number of people who proposed that. The popular plan on the table, for your 401(k), is based on the fact that you get a tax deduction for what you contribute. As you know, if you contribute $1000 to your 401(k), you get to deduct $1,000 from your taxable income.
The government has figured out that that deduction is costing them money, and they don't have any money. They need it. Now, the amount of money it's costing them is minuscule compared to the debt, the deficit, or any other comparative that you want to use. It's minuscule. But it's still money that they think is theirs. So the plan that has been proposed by a professor at the New School and supported by George Miller, Democrat from California and a number of others, would be this: The government will come and buy your 401(k) from you at the value it was before the financial crash. They will buy it.
They will give you that money and put it in your 401(k) account and it'll stay there. But the days of being able to contribute to it are over. There will be no more contributions permitted to your 401(k). Instead, the government is going to promise you anywhere from 1% to 3% growth every year. That's it. You can't grow the principal anymore. You are not allowed to contribute. Well, you can contribute to it, but there won't be any tax deductibility granted. That's the plan on the table, to eliminate the tax deduction you get with your annual contribution to your 401(k) or your IRA, whatever you have.
But what his point is that with inflation taking place -- and it is; you can see it in the cost of gasoline and food and so forth -- the value of your 401(k) is shrinking. The amount of money the government will have to pay you, or the banks will have to pay you is decreasing because of the value of money declining because of inflation. In that sense, your 401(k) is becoming less valuable, and you could say that the inflation benefits the government, therefore nobody's running in and confiscating it like is happening in Cyprus. Our wonderful caller did not mean to say that.
He is a brilliant man who is simply talking about the effects of inflation on the value of money and how the government is causing the inflation with the printing of money and purposely devaluing your 401(k) to their benefit. That's his point. The other thing to remember: These banks were Cyprus' only source of income, and they've just blown that up. Who in their right mind is gonna put money into a Cypriot bank again? Who in their right mind would leave any money in a Cypriot bank right now? That's the shortsighted nature of these yokels. But he's right: Our money is being taken by having such low interest rates combined with the inflationary aspects taking place.
So, Jonathan, thanks for the call.
RUSH: By the way, folks, when it comes to Putin, I actually think that he doesn't care that his oligarchs are getting ripped off. I mean, they're taking the money out of Russia, which he probably doesn't like, and he probably doesn't like all these guys becoming as filthy wealthy as they are, because they're wealthier than he is. He would interpret that as a threat to his power. Actually, I could be wrong. Instinct would be that he'd be ticked off at Cyprus or the European Union for taking Russian money, but in fact he may not be all that upset about it. It wouldn't take much to find out, which we'll probably learn soon enough anyway.