Haircut.. How Short Do You Want It?

I have gotten funny looks when I have commented that the US beat Cyprus to the punch in regards to seizing depositor funds. The catch is that we have just used smoke and mirrors better than our counterparts around the world.

Bill Gross had a piece in today’s Baron’s online that speaks specifically to this point:

But the point of this Outlook is that even IF… even IF QEs and near zero-bound yields are able to refloat global economies and generate a semblance of old normal real growth, they will do so utilizing historically tried and true “haircuts” that rather surreptitiously “trim” an asset holder’s money without them really knowing they had entered a barbershop. These haircuts are hidden forms of taxes that reduce an investor’s purchasing power as interest rates lag inflation. In the process, governments and their central banks theoretically reduce real debt levels as well as the excessive liabilities of levered corporations and households. But they represent a hidden wealth transfer that belies the vaunted phrase “good as money.”

We have been running at 0% interest rates for several years with inflation running at a 2% rate, so silently our government has seized 10% of your assets in banks without you really realizing.

Click here for a link to the full article.