Watch Spain

Look, it should be pretty well obvious that a bank run will not materialize in Cyprus. How could it? The population is limited to 300 euros a week and there are armed guards and security forces everywhere.

Incidentally, there aren’t really “banks” in Cyprus anymore either. Last I checked, I can take my money out of a bank…

The currency controls have effectively created an entirely different social structure on the island, and euros there have significantly different value from euros anywhere else. By all measures, Cyprus is no longer a capitalist country.

However, there will still be long term damage done. If you’re a Cyprus resident, will you be depositing much money with your trusty bank branch over the next few years? Dark pool currency is going to swell, and since modern banking is built on top of fractional reserve systems, that will carry a heavy toll.

Now, avert your attention back to Spain. Yesterday, yields of Greece, Italy and Spain bonds all exploded. Today, there’s been some retracement in Greece and Italy bonds. But Spanish 10 years are flat. No recovery.

You need to have your eyes pegged on Spain. She’s the real danger. Not the tiny island tax shelter. You know the problems with Spain well enough – youth unemployment, Catalonia wanting to cede from the country, housing crisis, huge debt – if Spanish bonds start to blow out and it looks like Europe needs to step in, well…currency controls aren’t in place there yet.