A Currency for the Criminal Element

Adventures with a money changer on the black market in Buenos Aires
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The Daily Reckoning | Wednesday, May 1, 2013 May Day, May Day... what happened to all the angst? The subterranean economy keeping Argentina afloat... Plus, Bill Bonner on the epic migration of U.S. dollars overseas, and plenty more... ------------------------------------------------------- External Advertisement It’s Statistically Shocking... Yet 100% True When news of the “Lobbying Index” first leaked out of Capitol Hill, it inspired political intelligence expert Robert Williams to launch a full-scale investigation. “Information this shocking should never be hidden from American investors,” said Williams. After spending 10 months inside of Congress, he confirmed that the “Lobbying Index” has indeed trounced the S&P 500 for 12 years in a row. It’s statistically hard to fathom... “Yet 99% of Americans don’t have a clue that this information even exists.” To view Williams’ astonishing findings, including the details swirling around a new bill called “Unicorn,” just click here. Addison Wiggin, lamenting the relocation of Red Emma’s coffeehouse in Baltimore.... May Day. We have a sentimental attachment to this day -- the international worker’s holiday inspired by the “Haymarket Affair” in 1886, when police mowed down a crowd protesting in favor of the eight-hour workday. Poster on a wall in Montmarte, Paris crica 2005 This year, however, socialists must think they have us all licked. “On May 1, 2012, tens of thousands marched in the streets of New York,” says one source cited on Wikipedia, “and around the U.S. to commemorate the worker's holiday and to protest the dismal state of the economy, the growing divide between the rich and the poor and the status quo of economic inequality.” Occupy Wall Street and labor unions were out in force, too. Protests were organized all across the United States and Canada. May 1, 2013? Bubkis. “It’s a quiet May Day,” writes our Dave Gonigam in the 5 Min. Forecast. “The few people in Greece who still have jobs are out on strike. But in the United States, there’s nary a sign of the Occupy movement.” Sigh. What happened? We ask because we share a passion with at least one facet of the old Occupy movement. “The problem we are in now started with FDR taking us off the gold standard,” read a blog post on the occupywallst.org blog site back in 2011. “Now all the money in this country is created by banks as ‘DEBT.’ There is no gold standard -- your money is worthless. We need to restore the classical gold standard. Less speculation, and people making money off money.” You may recall yesterday we were discussing the “exorbitant privilege” the U.S. political class enjoys by way of printing the world’s reserve currency. That privilege also inflamed the passions of the Occupy movement as the crisis in 2008 unfolded. “Good monetary policies,” Lewis Lehrman told us during our interview at his home, “lead to a stable purchasing power of the currency over a long period of time. The middle-class working people -- who have only time to take care of their families and go to work and have no time to pay attention to the financial gymnastics on Wall Street or in Washington -- can be assured that 30 years from now, when they retire, the purchasing power of their savings is approximately the same as when they earned it... that nobody has stolen the value of their wages in pursuit of some national employment objective or Federal Reserve policy designed to bail out the commercial banks. “The purchasing power for the dollar I put in the bank in 1971 is worth about 12-15 cents. That equation shows the enormous issuance of dollars to finance our deficits. It may look like the system is continuing, but the price has been paid by the U.S. consumer.” “Let’s face it,” our friend Ralph Benko cites the Republican strategist Dick Morris in a piece for Forbes.com. “Politicians have abused the right to print money. We cannot trust them to limit their power and to face fiscal facts. The abuses of Obama and Bernanke illustrate this grim fact for all to see: Gold is coming! “Monetary policy can be a force for stagnation, as now,” Mr. Benko sums up. “Or it can be a force for fostering a climate of equitable prosperity and robust job growth. Time for elected officials, public intellectuals, journalists and us regular citizens to examine the evidence.” Heh. Until then, we’re stuck with a dollarized world... the implications of which include a migration of U.S. dollars outside the country at an entertaining rate. Our friend and mentor Bill Bonner reports on a recent run-in with the great migration in South America, below... [Ed note. “Even our traditional tip of the chapeau on this day to Red Emma’s has a sense of finality,” writes Mr. Gonigam solemnly in The 5, “The ‘worker-owner collective’ whose coffee shop and bookstore has given many an Agora Financial employee a caffeine jag over the years is pulling up stakes. “May 18 is the last day at their current location, two doors down from our own. They’re moving about a mile north where they promise ‘a vastly expanded book selection, a dedicated on-site classroom space and a full vegan/vegetarian restaurant.’ Adieu.] After 13 Years... The Daily Reckoning Is WHAT? It all started on Jan. 19, 1999, when William “Bill” Bonner and Addison Wiggin started what would become one of the most controversial, and most useful, free financial e-newsletters in history... all from a rented apartment. But now, after 13 years, something rather shocking has happened. This is one of those things that happen only once... CLICK HERE for the full story. The Daily Reckoning Presents: Price controls didn’t work for the Romans. or any of the other hundreds of governments that have tried them. But who knows? Maybe they’ll work for the Argentines... A Currency for the Criminal Element By Bill Bonner A few weeks ago, we went to São Paulo, Brazil. There, too, we found taxi drivers who knew a lot more about monetary crises than the typical U.S. economist. Said one: “I remember. I was just a kid. But my father would call and tell us to run to the grocery store. He had just been paid. We’d dash for the grocery store, meet him there and buy everything we could. We spent every cent in just a few minutes.” Our friend was recalling what it was like in the late 1980s in Brazil. The government had caused inflation... then hyperinflation. Prices rose so fast that as soon as people got some cash, they ran to the grocery store to spend it. Later, there was no point. In 1990, hyperinflation in Brazil reached 30,000%. What cost 1 real (the Brazilian currency) in 1980 cost 1 trillion in 1997. The hyperinflation wiped out the middle class... and wiped the shelves clean. “It’s hard to run a business when you don’t know what your money is going to be worth,” said our friend. “Businesses tended to just stop.” And here in Argentina, there came an announcement this week. The government will freeze the price of gasoline for the next six months. Price controls didn’t work for the Romans. They didn’t work for the Germans. They didn’t work for the Zimbabweans... or any of the other hundreds of governments that have tried them. But who knows? Maybe they’ll work for the Argentines... Or gasoline will begin to disappear from the filling stations. But inflation is just getting started here. The rate is officially about 10%. Unofficially, it’s about 30%. Officially, you can trade a dollar for 5.4 pesos. Unofficially, you’d be a fool to do so. The black market rate is 8 pesos to the dollar -- and more. So what do we do? We stick with the “king of cash,” the U.S. dollar. Which explains why the dollar is so popular. Every time we come to Argentina, we bring the maximum -- $10,000 -- in $100 bills. Then, when we need to buy things, we trade our dollars on the black market. Isn’t that illegal? We don’t know. Could Islam’s “secret shame” soon send oil prices soaring? No, I’m not just trying to say things that stir up trouble. There really IS a “dirty secret” that may keep millions of Muslims up at night. And by 2014, it could spark a bloody new war across the most sensitive oil regions of Islam’s Middle East. Fortunately, you can protect yourself. Before oil hits $220 a barrel... and gasoline soars to $8 a gallon... watch this revealing new presentation on how smart Americans could prepare. Click here now. We went to a money changer in Buenos Aires. At first, we couldn’t find it; there are no big signs to tell you where it is. So we asked a policeman for directions. Turned out, he was standing right in front of the money-changing shop. It may be illegal. But it’s certainly popular... and, apparently, tolerated. If everyone were forced to use dollars and exchange them at the official rate, the economy would probably collapse tomorrow. Instead, there is a whole subterranean economy that functions on dollars. Which explains this item in the U.S. press, from former domestic policy adviser to President Reagan Bruce Bartlett: “A new report from the Federal Reserve Bank of San Francisco explains cash has not only held its own against competitors but continues to grow in popularity. Measured in dollar terms, there is 42% more cash in circulation today than five years ago... “Many economists believe that the rise in cash is strongly related to growth in the so-called underground economy -- criminal activity such as drug dealing, as well as tax evasion by people working off the books for cash. Strong evidence for this proposition comes from examining the distribution of cash holdings by denomination.” Criminal? What’s he talking about? People are just trying to do business in a world where you can’t trust the local paper money or the people who control it. Right now, many people trust the dollar more than their home currencies. So the foreigners suck up dollars created by the Fed. This explains why there is so little consumer price inflation in America -- even while the Fed aggressively increases the money supply. They ship it overseas... in $100 bills. Bartlett continues: “As one can see, 84% of the increase in cash since 1990 has been in the form of $100 bills, which have risen to 77% of the value of cash outstanding in 2012 from 52% in 1990. “I seldom use $100 bills for anything except Christmas gifts to nieces and nephews, nor do I ever see people use them in stores. I suspect that most people have the same experience. For large purchases, most law-abiding people use checks or credit cards.” Not here they don’t. They use stacks of $100 bills! In Argentina, even if you buy a fancy house, you come with a suitcase full of $100s. More Bartlett: “One consequence of the rising share of U.S. currency held abroad is that it may distort analyses of the relationship between the money supply and economic activity… “Incidentally, exports of cash appear in the Commerce Department’s data on international transactions (Line 67). It is recorded as an increase in foreign-owned assets in the U.S., but is better thought of as an almost costless way of financing a good chunk of our current account deficit. It’s like borrowing money from foreigners that most likely will never have to be paid back, at zero interest.” We are proud to be a part of this great money migration... But we fear the day when it comes home! 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