Fox News contributor Charles Payne falsely claimed that the Cyprus banking crisis could happen in the U.S., describing the Cypriot financial situation as the natural “end game” for all nations in debt and in need of a bailout. The realities of the U.S. economy, however, delegitimize Payne's comparison.
On Monday, the European Central Bank (ECB) approved a bailout for the island nation of Cyprus, with the caveat that roughly six billion euros of the total 16 billion euros in requested funds be financed through a tax on savings deposits at Cypriot banks. Lawmakers did not approve the controversial measure, but are facing pressure from the ECB to reach a deal by Monday or risk a cutoff of financing for Cypriot banks.
Earlier this week, the island nation of Cyprus considered bailing out its indebted banks with the help of a onetime tax on all deposits. Lawmakers did not approve the controversial measure, but are facing pressure from the European Central Bank to reach a deal this week or risk a cutoff of financing for Cypriot banks.
On the March 22 edition of Fox's America's Newsroom, contributor Charles Payne discussed the Cypriot debt crisis, falsely claiming that, “Constitutionally, you definitely could see it happen here.” Payne concluded the segment by warning that Cyprus is a “cautionary tale,” which proves that “when a country gets its back against the wall to a certain degree, anything can happen, and ultimately, even the biggest empires in the world, including America now, aren't immune from that.”
But Payne's fear mongering ignores significant differences between the banking and deposit insurance systems in Cyprus and the U.S., realities even Fox Business host Stuart Varney has reluctantly acknowledged.
CNBC reported that unlike Cyprus and other European nations that have borrowed in a currency controlled by the ECB, “the U.S. is the issuer of the currency in which its debt is denominated.” Because Cyprus cannot issue currency to pay off its debt, it must accept the conditions imposed by the ECB. However, as economist Paul Krugman noted when commenting on right-wing comparisons of the U.S. to Greece, the U.S “literally can't run out of money. After all, it can print the stuff. So there's almost no risk that America will default on its debt.” The very structure of the U.S. economy precludes it from needing to accept draconian measures imposed by a central bank outside the U.S.
CNBC also illustrated a fundamental difference between the Cypriot and U.S. economies, citing former president of the Dallas Fed Bob McTeer:
There are other fundamental differences between the U.S. and Cyprus. For one, the U.S. does substantial financing through its capital markets and is not as reliant on banking. “In the U.S. the dog is the economy and the banking system is the tail,” McTeer said. “In Cyprus it's the other way around apparently. The banking system was bloated relative to their overall economy.”
Since the bloated banking system in Cyprus is what ultimately caused the need for a bailout from the ECB, using the Cypriot crisis to stoke fears about government seizure of private funds in the U.S. further misses the mark.
Another key distinction of the U.S. system is the Federal Deposit Insurance Corporation (FDIC), which according to CNBC “has never lost money backing deposits. Although the banks had to borrow money, the banks are better capitalized than they were before the crisis.”
Even Fox's Stuart Varney has backed away from claims that the U.S. government could follow Cyprus and seize private bank accounts. On the March 18 edition of Fox's America's Newsroom, Varney suggested that U.S. citizens had reason to fear for their bank accounts, saying, “Who's next? Which other governments which have run up enormous debt will also go towards begin seizing private bank accounts? Who else is next? Maybe Spain? Maybe Italy? How about America?” However, Varney negated his own argument on The Sean Hannity Show the following day, saying that a run on the banks is “possible in Europe, but I doubt it in America [...] your money in a bank account, you think it's safe, I believe it is safe in America, but elsewhere in the world, it's clearly not.”