{"id":37509,"date":"2013-04-12T11:37:50","date_gmt":"2013-04-12T15:37:50","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=37509"},"modified":"2013-04-12T10:38:44","modified_gmt":"2013-04-12T14:38:44","slug":"are-we-a-criminal-element","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/04\/12\/are-we-a-criminal-element\/","title":{"rendered":"Are We a “Criminal” Element?"},"content":{"rendered":"

By Bill Bonner<\/strong><\/p>\n

Back in the USA, stocks rose again yesterday. The Dow finished up
\n128 points. Gold fell $25 per ounce yesterday… and everybody seems to
\nthink it will be going down forever. (A word of caution: probably
\nnot.)<\/p>\n

Last week, we went to S\u00e3o Paulo, Brazil. There, too, we found taxi
\ndrivers who knew a lot more about monetary crises than the typical US
\neconomist. Said one:<\/p>\n

I remember. I was just a kid. But my
\nfather would call and tell us to run to the grocery store. He had just
\nbeen paid. We’d dash for the grocery story, meet him there and buy
\neverything we could. We spent every cent in just a few minutes.<\/em><\/p>\n

Our friend was recalling what it was like in the late 1980s in
\nBrazil. The government had caused inflation… then hyperinflation.
\nPrices rose so fast that as soon as people got some cash they ran to
\nthe grocery store to spend it.<\/p>\n

Later, there was no point. In 1990, hyperinflation in Brazil reached
\n30,000%. What cost 1 real (the Brazilian currency) in 1980 cost 1
\ntrillion in 1997. The hyperinflation wiped out the middle class… and
\nwiped the shelves clean.<\/p>\n

“It’s hard to run a business when you don’t know what your money is
\ngoing to be worth,” said our friend. “Businesses tended to just stop.”<\/p>\n

From Harare to Buenos Aires…<\/h3>\n

And here in Argentina, there came an announcement this week. The
\ngovernment will freeze the price of gasoline for the next six months.<\/p>\n

Price controls didn’t work for the Romans. They didn’t work for the
\nGermans. They didn’t work for the Zimbabweans… or any of the other
\nhundreds of governments that have tried them. But who knows? Maybe
\nthey’ll work for the Argentines…<\/p>\n

Or gasoline will begin to disappear from the filling stations.<\/p>\n

But inflation is just getting started here. The rate is officially
\nabout 10%. Unofficially, it’s about 30%. Officially, you can trade a
\ndollar for 5.4 pesos. Unofficially, you’d be a fool to do so. The black
\nmarket rate is eight pesos to the dollar — and more.<\/p>\n

So what do we do? We stick with the “king of cash,” the US dollar<\/a>.<\/p>\n

Which explains why the dollar is so popular. Every time we come to
\nArgentina, we bring the maximum — $10,000 — in $100 bills. Then, when
\nwe need to buy things, we trade our dollars on the black market.<\/p>\n

Isn’t that illegal? We don’t know.<\/p>\n

Criminal Cash?<\/h3>\n

We went to a money changer in Buenos Aires. At first, we couldn’t
\nfind it; there are no big signs to tell you where it is. So we asked a
\npoliceman for directions. Turned out, he was standing right in front of
\nthe money-changing shop.<\/p>\n

It may be illegal. But it’s certainly popular… and, apparently,
\ntolerated. If everyone were forced to use dollars and exchange them at
\nthe official rate, the economy would probably collapse tomorrow.<\/p>\n

Instead, there is a whole subterranean economy that functions on
\ndollars. Which explains this item in the US press, from former domestic
\npolicy advisor to President Reagan Bruce Bartlett:<\/p>\n

A new report from the Federal
\nReserve Bank of San Francisco explains cash has not only held its own
\nagainst competitors but continues to grow in popularity. Measured in
\ndollar terms, there is 42% more cash in circulation today than five
\nyears ago.<\/em><\/p>\n

Many economists believe that the
\nrise in cash is strongly related to growth in the so-called underground
\neconomy — criminal activity such as drug dealing, as well as tax
\nevasion by people working off the books for cash. Strong evidence for
\nthis proposition comes from examining the distribution of cash holdings
\nby denomination.<\/em><\/p>\n

Criminal? What’s he talking about? People are just trying to do
\nbusiness in a world where you can’t trust the local paper money or the
\npeople who control it.<\/p>\n

Right now, many people trust the dollar more than their home currencies. So the foreigners suck up dollars created by the Fed<\/a>.<\/p>\n

The Great Money Migration<\/h3>\n

This explains why there is so little consumer price inflation in
\nAmerica — even while the Fed aggressively increases the money supply.
\nThey ship it overseas… in $100 bills. Bartlett continues:<\/p>\n

As one can see, 84% of the increase
\nin cash since 1990 has been in the form of $100 bills, which have risen
\nto 77% of the value of cash outstanding in 2012 from 52% in 1990.<\/em>
\nI seldom use $100 bills for anything except Christmas gifts to
\nnieces and nephews, nor do I ever see people use them in stores. I
\nsuspect that most people have the same experience. For large purchases,
\nmost law-abiding people use checks or credit cards.<\/em><\/p>\n

Not here they don’t. They use stacks of $100 bills! In Argentina<\/a>, even if you buy a fancy house, you come with a suitcase full of $100s. More Bartlett:<\/p>\n

One consequence of the rising share
\nof US currency held abroad is that it may distort analyses of the
\nrelationship between the money supply and economic activity. <\/em>
\nIncidentally, exports of cash appear in the Commerce Department’s
\ndata on international transactions (Line 67). It is recorded as an
\nincrease in foreign-owned assets in the US but is better thought of as
\nan almost costless way of financing a good chunk of our current account
\ndeficit. It’s like borrowing money from foreigners that most likely
\nwill never have to be paid back, at zero interest.<\/em><\/p>\n

We are proud to be a part of this great money migration…<\/p>\n

But we fear the day when it comes home!<\/p>\n

Regards,<\/p>\n

\"Bill<\/p>\n

Bill<\/p>\n

To learn more about Bill visit his Google+ Page<\/a> or Bill Bonner’s Diary<\/a><\/p>\n

 <\/p>\n","protected":false},"excerpt":{"rendered":"

By Bill Bonner Back in the USA, stocks rose again yesterday. The Dow finished up 128 points. Gold fell $25 per ounce yesterday… and everybody seems to think it will be going down forever. (A word of caution: probably not.) Last week, we went to S\u00e3o Paulo, Brazil. There, too, we found taxi drivers who … <\/p>\n

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