Larry White and George Selgin and Jerry Dwyer will be speaking at the Heritage Foundation tomorrow.
The Federal Reserve at 100: How Well Has It Done?
Has the Federal Reserve functioned as it was intended? How well has the Fed managed the economy and calmed business cycles? Do its successes outnumber and outweigh its failures? Join us as leading experts address these and other important questions.
My call to repeal the anti-money laundering laws got published in the current issue of the Cayman Financial Review. In "Repeal the anti-money laundering laws" I explain how the AMLs stifle currency competition. I concluded:
There are political costs to consider. The increased scrutiny of politically exposed persons and sanctions greatly complicate AML compliance, increase costs and can cause unintended political by-products. In addition, to the extent the AML programs are successful, they can divert funds away from monitored channels to places with no financial intelligence. Iran trades with gold marginally reducing demand for the U.S. dollar in international trade. Individual Iranians use bitcoins as an alternative to their currency instead of the U.S. dollar. Just recently, the Cuban interest section in Washington, D.C. is closing for lack of legitimate banking options because of AML and FATCA compliance concerns.
AMLs stifle needed new payment systems such as bitcoin. Less regulated industries such as technology are adapting much faster than the financial system. Actors in the financial industry are often late adopters to quickly changing technologies. On the other hand, new electronic monies have been less regulated (though this is changing).
It is bitcoin, Liberty Reserve and others that are allowing faster and cheaper mobile payments to more of the world’s population, including the unbanked, than has ever been possible. These changes mean more money is reaching the people who need it most ─ and faster including situations when lives depend on it. Grafting a failed AML approach from the polyester-wearing disco music era onto the fast changing 21st Century technologies can’t end well.
In conclusion, as I cited in my 2001 Congressional testimony on what became the USA PATRIOT Act, money launderers do not have a statistically significant chance of being caught so the deterrent effect of our AML approach is negligible. Only a minuscule fraction one percent of CTRs and SARs result in criminal convictions. I know of no examples where AML reports prevented any terrorist events.
Our AMLs are a failure: the drug trade continues unabated, financial fraud is more prevalent now than ever, and terrorist groups continue to finance their operations. The greatest tragedy is what everyone knows and policymakers don’t seem to care: it is the unbanked, the poor, and the racially and ethnic minorities in rich countries (and the populations of poorer countries) that suffer these costs for such elusive benefits.
Time to reboot our AML policies to aid law enforcement, encourage innovation, cut costs and protect privacy and other human rights.
On a humorous personal note, the original story ran with a bio that added a "g" to the end of my dot org email address before I got it corrected.
Relatedly, Larry White made many of the same points in his talk at the Cato Monetary Conference last year. Video here.
Edit: The American Banker has a white paper out calling for reform of the AMLs making similar arguments to mine. They want to "modernize" them "using predictive analytics to pinpoint suspicious activity."
As I noted in a recent post, the prolific Ralph Benko gave mad props (which was what I understood kids were saying when praising someone or something last time I was even attempting to keep up on pop culture) to Freebanking.org blogger Kurt Schuler. Well, he's at it again, so thanks again to Ralph for acknowledging Kurt's work.
before going on to explain the Bolshevik's plans for printing lots of money not to fill their coffers but to destroy the value of money for payment. Lenin thought work, and work alone, should be used--because, you know, evils of capitalism, etc. (This makes me wonder if some of the work-based hourly valued local currencies such as the Ithaca hours were inspired by this idea. Before digressing too much, note to self, write blog post on Marx and Hayek.)
Ralph's post concludes:
Lenin's savage statements toward money may have been a blend of ignorance and rationalization. White and Schuler: "the underlying rationale for the argument was subsequently explained by the historian E. H. Carr in a brief memorandum for Fetter (1977, p. 78): 'None of the Bolsheviks wanted, or planned, inflation. But, when that happened (since the printing press was their main source of revenue) they rationalized it ex post facto by describing it as (a) death to the capitalists and (b) a foretaste of the moneyless Communist Society.'"
As vikingvista pointed out in a comment on my last Bitcoin post, the reporting on this issue often has little to do with reality. In this example, after the central bank of Thailand issued a warning about Bitcoin that was reported by some as "Thailand Bans Bitcoin" which wasn't entirely accurate, as the Library of Congress explained:
"According to news reports, the Bank of Thailand ruled the bitcoin illegal on July 29, 2013.128
However, it appears that “it issued a preliminary ruling that using bitcoins . . . was illegal
because of a lack of existing laws” in the case of a currency-exchange license application by
Bitcoin Co. Ltd. Other businesses that have licenses have continued operating bitcoin exchanges
On the one hand, some libertarians/digital currency enthusiasts pretty much equate the advent of Bitcoin as manna from Heaven. On the other hand, some like Paul Krugman equate it with a harbinger of the end of (Progressive) Western Civilization as they know it. Hype is hype, and I'll leave it at that. More notable has been the counter-factual reporting on Bitcoin--on both sides.
AmongTech posts that the Reserve Bank of India, "Dogecoin recognized as official currency by Bank of India." They explained:
The online currency based on the famous internet meme “Shibe” or Doge has been recognized as an official currency by the Bank of India. It has also recognized similar online currencies such as Bitcoins and Litecoins as official currency.
The creation, trading or usage of VCs including Bitcoins, as a medium for
payment are not authorised by any central bank or monetary authority. No regulatory
approvals, registration or authorisation is stated to have been obtained by the
entities concerned for carrying on such activities. As such, they may pose several
risks to their users . . .
The RBI press statement could hardly be construed as recognizing Dogecoin an "official currency." No, the sky isn't falling, but nor are the streets paved with gold.
Free banking proponents often criticize central banking, rightly, for its poor track record maintaining the purchasing power of the monetary unit. That is, we suffer from inflation under central banking. Despite our criticisms, there remains a lot of confusion (equating the Consumer Price Index--or one of them at least--with inflation, eg.).
One of the biggest lessons that seems to have pierced a popular discussion is the minimum wage debate. Including, but not limited to, President Obama's State of the Union address. In that address recently, the president spelled out his case citing a few states that have acted on their own as well as private businesses acting of their own accord before adding:
Today the federal minimum wage is worth about twenty percent less than it was when Ronald Reagan first stood here. And Tom Harkin and George Miller have a bill to fix that by lifting the minimum wage to $10.10. It's easy to remember: 10.10. This will help families. It will give businesses customers with more money to spend. It does not involve any new bureaucratic program. So join the rest of the country. Say yes. Give America a raise.
Obama said, "the federal minimum wage is worth about twenty percent less than it was when Ronald Reagan" gave his first State of the Union address. Obama's not far off, but it’s actually closer to 16 percent less.
And using Reagan to make a case to raise the minimum wage should be taken with a grain of salt since the former president never increased it during his two terms. And by Reagan’s last State of the Union, the minimum wage was $2 less than when he first took office, if you factor in inflation.
The statement is largely accurate but needs clarification or additional information, so we rate it Mostly True.
Anecdotally however, I have noticed that there is a strong correlation between those who support a raise in the federal minimum wage and having a central bank with easy credit policies. I would love to be able to see some cross tabs in polls to back up my observation, but I'm pretty sure of it based on personal observation.
Ideally, one would think, that the intellectual disconnect would offer a teaching opportunity, but there seems to be little sign of that. I suspect that since so very few people are personally affected by the minimum wage that the debate is more about style than substance. And half of those affected positively are young (I don't want to get into the debate now about those priced out of the workforce).
Since the minimum wage idea is more abstract than meaningful for most supporting the idea of raising it at the federal level (and, I think, of the Fed's easy money policies), we may has lost that teaching opportunity. Or so I thought. At least locally in DC, one friend of ours Dave Doctor made the same inflation points at a hearing that actually does affect the lives of people here. As the Washington Post reported (and an audio clip here), the issue affects Metro riders too:
"There was Dave Doctor, 43, of Arlington, holding forth on the nation’s monetary system, then pivoting to the issue of subway dust."
“If you’re upset about the increase, the place to go is not to these people, it’s to the federal government,” said Doctor, in defense of Metro. After rattling off a bunch of percentages regarding growth in the nation’s money supply, he said: “There are so many more dollars out there now. The Federal Reserve created this. . . . The fares actually are not going up. The value of our money has gone down.”
Doctor, who manages an apartment building, said: “To put it in perspective, let’s say they charged one bottle of water for a fare. Then they increased it to two bottles of water. But then you find out the bottle only has 25 percent as much water as it used to.” He went on in this vein until a buzzer sounded, signaling his three minutes were up.
Hopefully these and other examples will start to get those who default to defending the Fed to challenge their thinking.
Our friend and colleague Ralph Benko gave freebanking.org blogger Kurt Schuler mad props (do the kids still say that?) over on the Gold Standard Nowsite "Lenin on Keynes: "more striking ... than any ... Communist revolutionary." He raises the question, was this quotation attributed to Lenin authentic or apocryphal, “the best way to destroy the capitalist system [is] to debauch the currency.” He continues to label Kurt and his coauthor Michael V. White "two eminent monetary scholars" and goes to them for the answer.
The foreign law specialists and analysts at the Library of Congress have issues a new report on bitcoin, "Regulation of Bitcoin in Selected Jurisdictions." Thanks to their blog In Custodia Legis for pointing it out to me.
The 25 page report does not provide any overall analysis or conclusions beyond this introduction:
This report surveys forty foreign jurisdictions and the European Union, reporting on any
regulations or statements from central banks or government offices on the handling of bitcoins as
well as any significant use of bitcoins in business transactions.
Topics covered include whether
bitcoins are recognized as legal tender, the possibility of negative impacts on the national
currency, concerns about fraud, and how transactions using the Bitcoin system are viewed by
Of those countries surveyed, only a very few, notably China and Brazil, have specific regulations
applicable to bitcoin use. There is widespread concern about the Bitcoin system’s possible
impact on national currencies, its potential for criminal misuse, and the implications of its use for
taxation. Overall, the findings of this report reveal that the debate over how to deal with this new
virtual currency is still in its infancy.
The report does provide a country-by-country survey of the legal landscape for bitcoin.
President Kennedy was not assassinated for being anti-Fed. I don't know how much more clearly that can be said. His death on November 22nd, 1963 was a sad tragedy, but it had nothing to do with any stupid and baseless Executive Order silver certificate conspiracy.
The Library of Congress' Congressional Research Service dispelled this nonsense in a 1996 report, "Money and the Federal Reserve System: Myth and Reality" (CRS Report for Congress, No. 96-672 E) by G. Thomas Woodward. Explains Woodward about the EO 11110:
The notion that Federal Reserve Notes are especially harmful has given rise to one particular conspiracy theory relating to an executive order in 1963. According to author Jim Mars, Executive Order 11110 issued by President Kennedy on June 4, 1963 authorized the issuance of $4,292,893,815 in United States Notes. Mars further asserts that after President Kennedy's assassination, the order was never carried out.
The claim is not borne out by the facts. First, E.O. 11110 had nothing to do with United States Notes, and did not affect any section of law referring to them. Second, E.O. 11110 did not anywhere mention any quantity of money; wherever the $4 billion-plus figure came from, it was not E.O. 11110. Third, The President had no authority to issue such an edict. Even utilizing the provisions of the Agricultural Adjustment Act of 1933, the most the President could issue without statutory authorization was $3 billion.
What E.O. 11110 did was to modify previous Executive Order 10289, delegating to the Secretary of the Treasury various powers of the President. To these delegated powers, E.O. 11110 added the power to alter the supply of Silver Certificates in circulation. Executive Order 11110, therefore, did not create any new authority for the Treasury to issue notes; it only affected who could give the order, the Secretary or the President.
The reason for the move was that the President had just signed legislation repealing the Silver Purchase Act. With this repeal, the Treasury Secretary could no longer control the issue of Silver Certificates on his own authority. However, the issuance of certificates could be controlled under the President's authority. Hence, for administrative convenience, President Kennedy issued Executive Order 11110.
Ironically, the purpose of the order and the legislation was to decrease the circulation of Silver Certificates, with Federal Reserve Notes taking their place. As economic activity grew and prices rose in the 1950s and early 1960s, the need for small-denomination currency grew at the same time that the price of silver increased. The Treasury required silver for the increasing number of Silver Certificates and coins needed for transactions. But the price of silver was rapidly approaching the point that the silver in the coins and in reserve for the certificates was worth more than the face value of the money.
To conserve on the silver needs of the Treasury, President Kennedy requested legislation needed to bring the issuance of Silver Certificates to an end and to authorize the Fed to issue small denomination notes (which it could not at that time). The Fed began issuing small denomination notes almost immediately after the legislation was passed. And in October 1964, the Treasury ceased issuing Silver Certificates altogether. If anything, E.O. 11110 enhanced Federal Reserve power and did not in any way reduce it [emphasis added].
Of course, the baseless conspiracy mongers attracted to this silliness argue that the Congressional Research Service "issues unjustified opinions" all the time (so some have laughable argued with me on Facebook, etc.--no, CRS has never issued an "opinion" in its history). Since the conspiracy nuts are congenitally opposed to believing any "establishment" sources, I'll offer two more they should consider to put this craziness to rest.
If you look at a copy of EO 11110 you will find that it does not order the issuance of Silver Certificates. It orders an amendment to EO 10289 . . . Those functions did not include the power to issue Silver Certificates. The purpose of EO 11110 was to add that power to the list . . . EO 11110 did not order the printing of Silver Certificates. It ordered the amendment of a previous executive order so that the United States Code would authorize or "empower" the Secretary of the Treasury to issue Silver Certificates if the occasion should arise . . .
Let's put this issue into perspective. The proponents of the JFK Myth assert that Kennedy was assassinated because he was about to issue Silver Certificates, thereby denying the bankers their customary interest payments on the nation's currency. However, the reality was just the opposite. Previously, the President could have issued Silver Certificates on his own authority; but, with the signing of EO 11110, he delegated that authority to the Secretary of the Treasury. At that time, the Secretary of the Treasury was Douglas Dillon from a well-known and powerful banking family. That means Kennedy surrendered the power to issue Silver Certificates and gave it to a member of the banking fraternity who could do with it as he pleased "without the approval, ratification, or other action of the President." Dillon, of course, would have strong motive to preserve the dominance of Federal Reserve Notes. The theory that Kennedy was getting ready to issue Silver Certificates is without evidence or logic.
Griffin takes the CCLI to task for making up additional baseless bs, "The Christian Common Law Institute has exhaustively researched this matter through the Federal Register and Library of Congress. We can now safely conclude that this Executive Order has never been repealed, amended, or superseded by any subsequent Executive Order. In simple terms, it is still valid." To which he replies:
This is not supported by the facts. The power granted to the Secretary of Treasury to issue Silver Certificates was rescinded on September 9, 1987, by Executive Order 12608, signed by President Reagan. The official purpose of the Order was stated as "Elimination of unnecessary Executive orders and technical amendments to others." It did not affect EO 11110 directly but did affect the parent EO 10289 - along with 62 other executive orders. That is how paragraph (j) was amended to remove the power in question. This Order can be found in its entirety in the Federal Register 52 FR 34617.
Even if one won't believe CRS or Griffin, consider that Bill Still of "The Money Masters" fame debunks the JFK myth unequivocally (and to be clear, TMM itself is riddled with bad information and out of context quotations--I have been told repeatedly that Still has tried for years himself to correct the bad info but the copyright holder won't make changes; I can't confirm that):
And for the record, no, President Lincoln wasn't assassinated for trying to get rid of the Fed either which wasn't created for another half-century after his death. The best way for the free banking, sound money, anti-Fed, pro-gold, pro-Bitcoin, whatever advocates to succeed is to denounce the anti-Semitism and debunk baseless conspiracy mongering of the idiots trying to latch on to our issues.
Yours truly was a guest on an internet show tonight on the Fed and central banking.
Mike Shanklin is an independent freedom advocate and founder of VoluntaryVirtues.com, a website dedicated towards advancing free markets, property rights, and individual freedom. Voluntary Virtues advances freedom through educational interviews, narration videos, public speechs, and updates on current events.