"Retroactive" Tax on Deposits

Remember this post?

Spain will now retroactively tax bank deposits to January 1, 2014 stating the move will boost growth and job creation. And for your information, it's 6 July 2014 today. Luckily it's only 0.03% tax. But it's a lot of money for those wealthy millionaires.

 

I have never heard of such things. How can you retroactively tax deposits? Let's say i used up all my money in February 2014 and it was a lot of money. Then I would be bankrupt now due to the "retroactive tax".

Also, let's say I put all my cash in gold in February 2014, then I still have to be taxed on the deposits from before February 2014. 

Your money isn't safe, it's better to act now, before it's too late. If you act too late, you'll be retroactively taxed before you know it.

Bank Deposit Vs. Interest Rate

There is a very interesting correlation between bank deposits and the deposit interest rates that I haven't noticed yet.

Whenever yields are low, be it that the government lowers interest rates or imposes taxes on deposits. The result is that people will flee out of bank deposits and move their money either into equities or gold. Or anything else for that matter. This is because investors are searching for yield on investment. If interest rates are low, they will find a better use for their money than putting it in a bank.

Take Spain for example. Ever since the treasury yields peaked out in 2012, the same happened in the bank deposits in Spain.

Spain 10 Year Yield

As you can see here, the peak in Spain deposits (green chart) can also be found in 2012.

Eurozone deposits

Spain's tax on deposits

Today I read about the new tax on Spanish bank deposits.

I wonder how fast the deposit outflows will accelerate in Spain's case, because the trend is not good. See the precipitous decline in Spanish deposits (green). I'm waiting for the May 2014 numbers to come out soon.

I also think the negative rate from the ECB will have its effects soon.

Actually, a tax on deposits is just the same as negative interest rates. It all comes to your money being routed to the government either through inflation or through taxes...

Eurozone deposits

PIIGS Bank Deposits Outflow Accelerating

As I noted a month earlier, Spain's bank deposits posted an outflow and this outflow is accelerating for the month of May 2013. This time, Italy is posting outflows too.

Greece, Cyprus are of course still in a decline. I expect bail-ins to come if this trend continues. Europeans should be worried about their deposits.

Spain's government bonds shoot up above 6%

Spain's government bonds shot up today to 6.1%. At this rate we're rapidly approaching the "danger zone" of 7% and above, often mentioned by James Turk. You can easily see LTRO I and LTRO II in this chart 1. Maybe Spain will need LTRO III to make the yields drop again...

Chart 1: Spanish Bond Yields (10 YR)

Meanwhile, people keep fleeing into German bonds, which dropped to 1.5%.

Chart 2: German Bond Yields (10 YR)

Banks And Their Exposure to the PIIGS

In the news of today, Spain has been in the center spot of attention. Spanish bond yields have been rising quickly and financials have seen weakness in their share price. In this article I want to see which banks have the most exposure to Spain and to the PIIGS in general.

During the stress tests of July 2011 the exposure of 90 banks to the PIIGS countries' government debt was released by the European Banking Authority (EBA).

To find out which banks are exposed to the PIIGS and which banks to avoid, please go to my article here:
Analyzing bank exposure to the PIIGS

Employment Deteriorating for the PIIGS

Since the crisis of 2008, the unemployment rate for the PIIGS has been increasing rapidly. As a consequence, lately investors are putting their hard earned money in more healthy countries like Switzerland and Germany.

Go HERE to read a more in depth analysis on this matter.

Belgium Downgraded by Fitch

Today Belgium was downgraded by Fitch from AA+ to AA with negative outlook. All of this due to the Dexia fiasco. I'm from Belgium and I can say that the bailout of Dexia was the most immoral thing the government has ever done. Dexia has an enormous amount of Greek debt (US$5 billion write down)  and everyone knows Greece is going to default sooner than later. Supporting Dexia was the dumbest act ever. The only reason why Belgium government bonds are doing well is because Belgians have an enormous amount of savings and the unemployment rate is improving.

But we see the consequences already from Dexia. Several cantons lost several millions of money. Of course, we tax payers will need to pay for this.

Amount of shares in Dexia per capita

4 other countries were downgraded as well:

Italy: A => A-
Spain: AA- => A
Cyprus: BBB => BBB-
Slovenia: AA- => A

Surprisingly, the euro went up...