The best comment we’ve read on the collapse in Cyprus is the cartoon in the Interest Rate Observer, issued by James Grant, showing a bank teller looking out from behind her window. “Well, it was your money,” she is saying with a charming smile. “Now we need it.” The headline over the accompanying editorial is “The hardy flower of trust.” It disputes a headline on the Bloomberg wire saying: “Euro’s Cyprus Contagion Seen Contained Even by Bears.” Ideas, Mr. Grant demurs, are hard to contain. “A governmental skimming of bank deposits, imposed from afar on a Saturday morning and presented to the victims as a ‘stability levy,’ will, we think, be impossible to contain. The event will fade but the fact that it happened is indelible.”
Grant’s comment was written and mailed before the deal announced overnight, under which some depositors money will be taken and others won’t (until the next crisis?). All the niftier that Grant’s managed yet again to put into better prose than we can turn out ideas that hadn’t quite made it to our own typing hands. It speculates that the breach of trust at Cyprus will “instill some salutary apprehension in our central-bank sedated markets.” It notes that supposedly confidence is hard to gain but easy to lose, then observes that on the “incomplete evidence of 21st century monetary affairs, confidence is next to impossible to lose,” though central bankers have been trying.
The salient issue Grant’s sees does not have to do with deposit insurance or what it calls the “cynical elevation of one class of bank creditor over another.” He is on a higher plane. The issue is the “broken trust of money.” The raid on bank accounts of wealthy depositors in Cyprus is, Grant’s notes, at least “an explicit taking.” Feature, by contrast, the theft by inflation. Since March 2009 alone, it notes, “inflation has erased 17.3% of the value of the pound, 8.3% of the value of the euro and 8.7% of the value of the U.S. dollar.” What gets Grant’s is that this was, by central banks, targeted.
This leads Grant’s to remark on what it calls the “riddle of our times.” It is that central banks “cry out to be mistrusted.” The newsletter hopes its readers will not turn a deaf ear. By our lights there is hope rising in the Congress. We marked this point in our editorial “Getting Beyond the Fed,” about Congressman Kevin Brady’s Centennial Monetary Commission Act. It’s no small thing. It would undertake an intensive, and urgent, study of all the options for our monetary system and report as the nation is marking the double jubilee of the Federal Reserve.
Whether the measure will prosper in the Congress is not yet clear. We tend toward the optimistic view. It didn’t look like the bill to commission an audit of the Federal Reserve would prosper, either. But after a decade of pressing by Congressman Ron Paul, it finally passed the House by an overwhelming bipartisan vote. It died in the Senate. The Brady commission would be a more establishmentarian, bipartisan, but potentially no less radical review. It is a sign that mistrust of the Fed was, even before the collapse at Cyprus, rising in the Congress that created the Fed in the first place. It vindicates Grant’s warning that the kind of mistrust at the teller windows in Cyprus will be hard to contain.