Lebanese People Trying to Protect Savings

As economic growth is slowing and global debt has surpassed $250 trillion, central banks around the world have forgotten a simple economic equation: you can’t spend more money than you take in. Most children grasp the concept, but central bankers seem to have forgotten this rule.

Lebanon has been facing  overwhelming national debt for years as it continues to struggle to overhaul its banking system. The country has accumulated $90 billion in debt. That’s 160 percent of its GDP. Merely servicing this debt costs $10 billion.

The country has admitted that it cannot continue to sustain such a huge level of debt. Its central bank owes the country’s banks $120 billion and has no means of repaying this debt. Lebanon is currently asking for global financial support in the amount of $25 billion. As Nasser Saidi, the former deputy governor of Lebanon’s central bank has stated, Lebanon’s banking system requires intervention to prevent depositors from paying for the banks’ lack of proper management. Confidence in the banking system is at a new low and needs to be restored. All this has happened two years after a global support program that provided Lebanon with $11 billion.

Unfortunately, the situation has only gotten worse. Mr. Saidi explains Lebanon is in the midst of a recession and could soon see an economic depression with a decline in GDP of up to 10 percent. He considers the $25 billion influx of funds necessary for a total restructuring of the country’s debt.

Some Lebanese aren’t waiting for the government to act. With restrictions being put on the amount of some cash withdrawals, they are withdrawing their money as quickly as possible and placing their trust in real estate and luxury items. While Lebanon’s economy is in a state of crisis, purveyors of luxury items such as jewelry, art, and expensive cars, are experiencing a considerable upswing in business.

Not surprisingly, gold is suddenly in vast demand. Lebanese have reason to fear that prospective currency devaluations will wipe out their life savings. Gold is a perennial hedge against inflation and currency devaluation. People are purchasing gold and keeping it hidden to safeguard their future.

Other depositors with savings in the bank are scrambling to withdraw their savings and are using credit cards or cashier checks to invest in more luxury items.

Of course, Lebanon’s central bank is announcing that deposits are perfectly safe and that the currency will continue to be pegged against the U.S. dollar. In a somewhat contradictory statement, the Lebanese Banking Association wants to limit cash withdrawals to “keep the wealth of Lebanon” from leaving the country.

When bankers begin to manipulate the value of a currency, the smart money always turns to gold. The value of gold may fluctuate somewhat, but it will never lose its value.

SUBSCRIBE TO OUR NEWSLETTER

Subscribe for a chance to win a one-ounce Gold Coin, new subscribers will be chosen weekly. Subscribers will receive our top stories once a week. We cover Gold, Mining Exploration, Economics and Finance.