Dear Readers,

The world is losing faith in money. With the onset of the Cyprus banking crisis, Europeans are scrambling to withdraw from their bank accounts.

I really don't want to talk about this because Cyprus is a small matter when compared to the overall worldwide economic picture. But the mere thought of yet another national bank going under is enough to send shockwaves through the PIGS nations, which will lead to further shockwaves in Europe, and then the rest of the world

For those who aren't up to speed, let me simplify the situation.

The Cyprus Bank Bailout

Cyprus banks hold 68 billion euros in deposits, including 38 billion in accounts of more than 100,000 euros - that's a lot of money for an island of 1.1 million people which could never sustain such a big financial system on its own.

Because of its exposure to Greece, the outsized banking sector of Cyprus was crippled and needed bailout funds in the tune of 10 billion euros to avoid bankruptcy. But in order to secure the emergency funds, Cyprus must raise 5.8 billion euros on its own.

In order to come up with the funds, Euro zone finance ministers forced all Cyprus' savers to pay up to 10 percent of their deposits to raise the 5.8 billion euros; in other words, lose 10% of their savings. Obviously, this is not a favourable outcome for those with money in Cyprus banks.

In order to avoid a possible bank run, the government ordered to shut down all bank doors. Cyprus banks don't reopen until Tuesday, but when it does, it will have strict capital controls (the first in Eurozone history) to avoid a possible - no, probable - bank run.

Cypriots were outraged by the proposal. The streets overflowed with citizens besieging cash machines to withdraw what they could, only to find most of the machines already emptied. Businesses won't accept payments by debit and will only take cash. Yet, no one has any cash because the bank machines have been emptied. Imagine its pay day and you can't be paid because the banks are closed. This is just a small taste of what has happened all of last week in Cyprus.

It was clear that the full levy on all depositors wasn't going to work. In a non-shocking announcement, Cyprus' parliament rejected the levy on all depositors calling it a "bank robbery."

Today (Sunday) marks the last day of talks as Cyprus must come up with a solution to raise the money by tomorrow. Talks from the representatives of the IMF, ECB and European Commission -- collectively known as the troika -- were centered on a possibly levy of around 25 percent on savings over and above 100,000 euros at failing No. 1 lender Bank of Cyprus. Of course, there were other talks in the works including a "voluntary haircut" that would not require parliamentary approval or an 11-percent levy on big deposits at Bank of Cyprus that would.

If a decision is not made, the Cyprus banks probably have enough money to last them a few days, but no more.

So while a possible levy of 25 percent on savings above 100,000 euros will spare the bulk of the population, what about larger foreign depositors, such as Russia? Russia currently has around £22 billion in deposits in Cypriot banks, accounting for nearly one-third of all deposits in the Cyprus banking system. That's larger than the GDP of Cyprus.

While that doesn't seem like much, what happens when investments in Europe, whether held by Russian, Chinese, or any other oligarchs, are pulled out because they fear their money may be used to bailout the insolvent European nations?

According to JPMorgan, the share of large or uninsured deposits is about half of total deposits in the Euro area banking system including the peripheral countries. That's scary.

For the world's sake, let's hope a proper solution is brought to light and that firm commitments to the stability of other European banks are preserved.

As I mentioned earlier, I really don't want to talk about the Cyprus banking crisis. It's a small bailout of £10 billion (less than US$13 billion.) Heck, the whole banking system in Cyprus has less than £$70 billion in deposits. I knew about this story last week but chose not to talk about it because it would have little effect on our markets. The proof is in the pudding; US markets didn't react to Cyprus one bit.

Instead, I chose to talk about Japan last week.

The Greatest Economic Experiment in Modern Era

Japan is about to inflate its way out of a 23-year deflationary spiral in one of the greatest economic experiments in our modern era - second only to the US' massive QE programs. The big difference? The U.S is three times bigger than Japan in terms of GDP.

The Bank of Japan is expected to expand its 101 trillion yen (US$1.06 trillion) asset buying program by more than 10 million yen. It will also likely start buying Japanese government bonds with remaining maturities of up to five years by removing the upper limit of three years by the end of April.

Japan's US$1.16 trillion ($1.06 trillion + 10%) stimulus dwarfs Cyprus' US$13 billion bailout by a long shot. Japan's expected asset buying program expansion of 10% alone overshadows Cyprus' bailout by nearly 8 times.

All around the world governments and central banks are expanding the current debt bubble. As a result, the global banking system failures and massive dilution to money are brining light to new forms of wealth protection.

Bitcoin: The World's Largest Online Currency

Bitcoin, an open-source software code founded in 2009, is a complex and anonymous type of electronic currency that can be swapped for local currencies like dollars, yen and euros.

Users create accounts and use their local cash to buy Bitcoins, at a rate that fluctuates with the supply and demand of the market -- just like any other currency. The Bitcoins can be stored in an online wallet, used to make purchases and converted back into local currencies.

The beauty of Bitcoin is that -- unlike most currencies that are controlled by central bankers -- Bitcoin is highly decentralized with the number of Bitcoins in circulation expanding at a predictable and limited rate. Bitcoin also notes that its accounts cannot be seized by local authorities.

If you think that Bitcoin is simply just a novel idea, think again.

The Strongest Currency: Up 1,439,900%

Nearly two years ago, Bruce Wagner, organizer of New York's Bitcoin developer's meet-up, told Forbes that, "Someday (Bitcoin) will probably have the Fed scrambling...They still don't know what Twitter is. By the time they figure this out, it will have already taken hold."

On Thursday, the value of one Bitcoin hit an all-time high of US$72, up 84% from just two weeks ago on news of the Cyprus bailout. That means there is over US$800 million worth of Bitcoin in circulation. It also means that since Bitcoin was introduced, the value of a Bitcoin has gone up 1,439,900%.

Bruce Wagner was right. Not only has the value of a Bitcoin increased exponentially, the Fed is beginning to scramble. Virtual currencies have garnered so much attention that even regulators are now taking notice as earlier this week the Treasury Department said it is applying money-laundering rules to so-called virtual currencies.

They say virtual currencies such as Bitcoins could become a haven for criminal activity. An FBI report last year revealed that at least one online service accepts Bitcoins in exchange for illegal drugs. I guess no one buys drugs with dollars anymore...

The recent media explosion of virtual currencies such as Bitcoin brings to light that people around the world are truly beginning to lose faith in central bank controlled paper money. When you have money that can be printed from thin air, stored in government controlled banking systems that can impose bailout taxes on your savings, it would be stupid not to look for alternative ways to protect your savings and wealth.

I am not writing about Bitcoin because I am promoting it. As a matter of fact, I don't. I still don't trust my wealth and security to open-source software codes or virtual currencies - even if they return me 1,439,900%. Perhaps if I had invested some dollars in Bitcoin years ago, I may be singing a different tune. However, Bitcoin already glitched earlier this month which caused the currency's value to briefly plummet 23% before recovering.

Do you know what alternative currency doesn't glitch and is being hoarded by central banks around the world?

Gold Hoarding Intensifies

With the recent media frenzy surrounding Cyprus, Bernanke's announcement of continued QE, and Japan's upcoming massive stimulus increases, gold's value should only rise.

As I mentioned in "The Coming Shockwave," countries around the world engaged in the race to devalue have been big purchasers of gold because they know they need to protect themselves from their own currency.

In January, I talked about Germany requesting their gold back from the U.S and France. Now it seems the Swiss want to do the same.

According to Swissinfo:

"A right-wing group has submitted more than 106,000 signatures to the federal authorities, seeking a vote on stopping the sale of gold reserves held by the Swiss National Bank (SNB). It also wants gold bars stored in the US to be returned.

The group, led by members of the Swiss People's Party, the far-right Swiss Democrats and the Lega dei Ticinesi movement, is confident a nationwide vote will be called on the issue once the signatures are verified. A date still has to be set by the government.

People's Party parliamentarian Luzi Stamm criticised the sale of gold reserves which started 13 years ago following a decision to abandon the gold standard.

"Gold reserves guarantee the stability of the Swiss franc. They ensure that that private savings, salaries, pension keep their value," Stamm said.

He warned gold must not be the object of speculation for the SNB or for politicians.

The initiative also seeks to enshrine in the constitution a clause obliging the central bank to keep a minimum of 20 per cent of its assets in gold, twice the current level. Promoters say higher gold reserves will boost the SNB's credibility.

In addition, they want to force the government to disclose where the gold reserves are stored.

An important part of the reserves are kept in the United States, according to People's Party parliamentarian Lukas Reimann. He doubts whether the heavily indebted country can be trusted with the Swiss gold.

"It is only in safe hands if it is kept in Switzerland," he told journalists."

Back on June 2011, in my Letter, "The Greatest War in History," I mentioned that many US states were beginning to introduce precious metals as legal tender.

Now it appears that some states also want their gold back.

Texas Rep. Giovanni Capriglione now has a bill in play that would move the state's gold from New York to a depository within the state of Texas itself.

Via the Texas Tribune:

"Freshman Rep. Giovanni Capriglione, R-Southlake, is carrying a bill that would establish the Texas Bullion Depository, a secure state-based bank to house $1 billion worth of gold bars owned by the University of Texas Investment Management Company, or UTIMCO, and currently stored by the Federal Reserve.

"...We're trying to figure out the right amount of gold to have here in Texas," Capriglione said. "We don't want just the certificates. We want our gold. And if you're the state of Texas, you should be able to get your gold."

Meanwhile, Argentines are buying more gold than ever to protect their savings from the fastest inflation in the Western Hemisphere.

According to Bloomberg, Banco de la Ciudad de Buenos Aires, Argentina's only bank offering gold bullion coins and bars to investors and savers is negotiating with mining companies to purchase gold direct because there is so much demand.

It's estimated that prices in Argentina are rising 26 percent a year and Argentines are using gold to protect their wealth because buying the buying of US dollar has been banned since last year.

One Argentine, as Bloomberg reported, bought gold a year ago and is already up nearly half as a result of a devaluing Argentine peso.

So while the world watches the paper market of gold being manipulated, the physical world continues to explode.

It's catch up time.

Until next week,

Ivan Lo

Equedia Weekly