- Dennis Hastert, martyr to a mutilated legal system
- How any sum of cash can be seized from you in an instant
- Banning cash to punish drug dealers… and save central bankers
- Fed tweaks its language: Dollar soars, gold slammed
- The value of a STEM degree questioned… why we don’t care about so-and-so’s tax plan… more fun with Texas acronyms… and more!
As victims of the “war on cash” go, Dennis Hastert doesn’t cut a sympathetic figure.
But victim he is… and his is a cautionary tale for all of us.
Denny Hastert — consummate politico sleazeball. But he got a raw deal…
As you might have heard, Hastert — the former House speaker — pleaded guilty this week to “structuring” cash transactions to evade federal reporting requirements.
Hastert forked over $3.5 million in hush money. Prosecutors never said who he was paying off or why… but it’s little secret. From a CNN report: “Two sources with knowledge of the federal investigation told CNN in June that Hastert was paying a former student to stay quiet about allegations of sexual abuse from when he was a wrestling coach and teacher in Yorkville, Illinois.”
In the bipartisan sleaze-fest that’s Illinois politics — your editor grew up there and worked in a Chicago newsroom for eight years, so I know it well — Hastert was uniquely repellent.
First elected to the House in 1986, he amassed a $6 million fortune by 2006.
How? Together with wealthy patrons, “Hastert manipulated a series of complex land transactions,” recalls Norm Ornstein in The Atlantic — “buying land at a low price while his associates purchased adjacent land at a much higher price, then merging the parcels and creating a trust that gave Hastert an inflated share.
“Hastert then used his clout as speaker to jam through a stalled transportation bill to which he attached an earmark to fund a highway interchange unwanted by the Illinois Department of Transportation and local residents that was a mile from his land.”
Having established Hastert’s slimy bona fides, we can confidently say nonetheless that his prosecution and conviction is a threat to you and me.
Columnist Brett Arends makes the point well at MarketWatch: “His crime? Withdrawing $1.7 million of his own money from his own bank accounts.
“His own money.
“His own bank accounts.
“Yeah.”
We’ve covered the war on cash periodically over the years… but not in a systematic way.
As you might be aware, federal law requires banks to report all cash transactions over $10,000. It is illegal to “structure” cash deposits to get around this requirement. Arends’ analogy: “It’s like getting a ticket for ‘evading the speed limits’ by driving at 54 miles an hour.”
The law hypothetically aims to prevent drug running and money laundering. Too often, it victimizes everyday honest Americans like the Dehko family from the Detroit suburb of Fraser. We told you about them in 2013. With zero evidence of any drug activity, the IRS seized the bank account of the grocery store they owned.
For sure, they were making regular cash deposits of just under $10,000. That’s because many small-business insurance policies don’t cover cash losses from a robbery or fire for more than that amount.
With the help of the Institute for Justice, the Dehkos got the IRS to back off after a battle that dragged on nearly a year.
The Dehkos fell victim to the practice of “civil asset forfeiture.”
Under this practice, you don’t need to be convicted or even accused of drug trafficking for the government to seize your property. It’s your property that’s judged guilty and confiscated, and your property doesn’t get any due process. And in the case of cash, the amount is irrelevant — over $10,000, under $10,000, doesn’t matter.
William Davis and John Newmerzhycky learned this the hard way. We told you their story earlier this year. They were driving through Iowa, on their way home to California after a World Series of Poker tournament.
What began as a “routine” traffic stop ended with the cops seizing their $100,000 in cash winnings. Eventually, after a lawsuit, they got $90,000 back — $30,000 of which went to their lawyers.
Don’t think yourself invulnerable to what we called “highwaymen in uniform.” The Institute for Justice says the typical roadside seizure is for less than $500.
And don’t think you can evade the highwaymen in uniform by using prepaid cards.
In 2012, the Department of Homeland Security began developing a device it called the Electronic Recovery and Access to Data (ERAD) Prepaid Card Reader — on the theory that drug runners and money launderers are increasingly turning to such cards in place of cash.
From Homeland Security’s website: “The ERAD Prepaid Card Reader is a small, hand-held device that uses wireless connectivity to allow law enforcement officers in the field to check the balance of cards. This allows for identification of suspicious prepaid cards and the ability to put a temporary hold on the linked funds until a full investigation can be completed.”
In the three years since the project began, law enforcement nationwide has used these readers to seize $1 million.
The prepaid card industry is trying to fight back. But it’s a losing battle going back three years — when U.S. Customs started demanding you declare the value of any prepaid cards over $10,000 at the border.
“We know that many students, immigrants and unbanked persons use and rely on prepared cards as their primary means of making payments and managing their finances,” industry lawyer Judith Rinearson said in 2012. “Why should they be singled out and treated disparately from users of other payment products? Why should law enforcement have access to their account balances without a subpoena or other due process?”
The war on cash is taking an increasingly sinister turn this year — open calls from respected members of the power elite to ban cash.
Drugs aren’t the excuse, though. Instead, it’s to enable the lunatic policies of central banks.
The logic — such as it is — goes like this: If central banks are lowering interest rates to near zero, and it’s not achieving the desired stimulus, what’s the next step? Why, negative interest rates. The bank will charge you interest to keep your money on deposit. But negative interest rates only encourage people to withdraw their money and stuff it in the proverbial mattress, so that won’t achieve the desired stimulus either. Guess we should just ban cash — that’ll force people to spend their money and finally generate the desired stimulus!
There are proponents of this daft notion in most of the globe’s major political and financial capitals. The major U.S. supporters are Harvard econ professor Ken Rogoff and Citigroup chief economist Willem Buiter.
To an extent, negative interest rates are already the rule in parts of Europe. Perhaps not coincidentally, cash transactions of higher than 3,000 euros (about $3,300) are banned in France. In Italy, the upper limit is 1,000 euros ($1,100).
See where it’s all going?
Going forward, we will track the war on cash more systematically than we have up to now. Not least because it’s an integral part of Jim Rickards’ dystopian “America 2024” outlook — which we remind you isn’t a forecast as much as a thought experiment, a glimpse at one possible future.
In the meantime, all we can say is… Free Denny Hastert!
To the markets, where once again, it’s all about the Federal Reserve.
Yesterday, the Fed issued one of its every-six-weeks policy statements. There was a curious twist. For most of this year, the Fed said it was focused on “how long to maintain” interest rates at near zero, given economic conditions. The new statement shifts the focus to “whether it will be appropriate” to raise rates “at its next meeting,” given economic conditions.
Which looks to us like a distinction without a difference.
It gets back to our analogy of Fed chair Janet Yellen as a gun-waving hostage taker whose heart isn’t really in it: “We’re gonna raise rates! We mean it — you just watch! We swear we’re gonna do it! Any day now, we’re pulling the trigger!”
Not with GDP coming in below expectations, she’s not.
The Commerce Department issued its first guess at third-quarter GDP this morning. The “expert consensus” was looking for a weak annualized increase of 1.7%. The actual number was a weaker 1.5%.
Econoday tried its best to put a bullish spin on the number: It’s “only two-tenths lower than the average growth of the prior four quarters and comes against a difficult 3.9% comparison in the second quarter. Not a great result, but not bad either.”
Uhhh, whatever you say, guys…
But for the moment, precious metals and currency traders seem to think a rate increase is now baked into the cake.
That’s bullish for the dollar. The euro sank from $1.11 to $1.09 within moments of the Fed’s announcement. It’s since recovered to a hair below $1.10.
Gold, meanwhile, crashed through support that had held precariously for nearly a week. At last check, the bid is $1,150 — a three-week low.
By contrast, stock traders are sniffing out more monetary ease. The S&P 500 sits at 2,089 — down a point from yesterday’s close, which was the strongest since the market’s August swoon began in earnest.
The number of new American expatriates might be even higher than the official numbers.
This week, the Treasury Department issued its quarterly update on the number of Americans who’ve renounced their citizenship. The year-to-date number is 3,221 — just shy of the total for all of 2014…
But hold on: “We believe that the IRS is likely missing a significant number of names from its quarterly publication of expatriates,” writes international tax lawyer Andrew Mitchel.
See, the IRS isn’t the only agency that tracks these figures. So do the FBI and the State Department. They use a different methodology, estimating the number of “Certificates of Loss of Nationality” applied for or issued. For fiscal year 2015, which ended Sept. 30, the number is 5,986.
“I’m currently taking a finance class with my son at Central Washington University,” reads an entry in our higher-education mailbag. “This experience has opened my eyes to the challenges faced by today’s college students.”
We’ve had to truncate the letter to make the most of our 5 Mins. today, but here’s the meat:
“The worst thing about college today is the job market.
“STEM [science, technology, engineering and math] graduates like me had numerous job opportunities decades ago. Not so today.
“For example, my son’s best friend graduated with a degree in mechanical engineering with a 3.7 GPA from a prestigious school. Eighteen months later, he has finally found a job — 2,000 miles away from home. My son-in-law had a double major in two hard-science subjects from a top university. Eventually, he found work as a chemist at a lower salary than he had been making while working for Home Depot.
“My heart goes out to our children. They have it really rough.”
The 5: Wait a minute, the people who’ve been saying for years that if everybody got a STEM degree, it would save the country are wrong? Say it ain’t so!
“We hear all the time from you guys about the stock market and economy,” a reader writes, “but I am interested in what your thoughts are about the tax reform Ted Cruz has introduced into his campaign. Any comments?
[No.]
“Also, I thought it was quite profound that Huckabee stated we should be focused on health and not so much health care — wanting to focus more on cures for heart disease, Alzheimer’s and cancer.”
The 5: Perhaps you’re a newer reader? We have new folks coming aboard all the time.
So here’s where we’re coming from. They’re all charlatans and mountebanks. What’s more, analysis of one candidate or another’s platform is a dime a dozen. We figure we can serve a much better function helping you steer clear of whatever stupid things the politicos are up to.
Once in a while, we’ll throw the spotlight on someone or something because no one else will.
So while it became trendy this year to hate on Paul Ryan — not that it stopped his ascent to House speaker this morning — we had his number on the first business day after Mitt Romney put him on the ticket in 2012.
“To further confuse your California reader (I’m originally from California too), those of us who attended Texas A&M (known only as ‘A&M’ within Texas) refer to the University of Texas as ‘t.u.’ or ‘tea-sips.’
“I’m sure they have ‘friendly’ names for us Aggies too. Unfortunately, the current state of NCAA football conference alignments has separated us from our formerly traditional A&M versus t.u. Thanksgiving Day football game. I have several friends that are in ‘mixed’ families — that is, have spouses from either school. Of course, other states have similar rivalries. Oh, the joy of college sports. At least it distracts us from the folly of Washington politics.”
The 5: And lordy, do we need distractions!
Best regards,
Dave Gonigam
The 5 Min. Forecast
P.S. A ban on cash, such as we discussed today, might still be years in the future.
In the meantime, there’s something bigger to worry about.
We’ll put it this way: If the Federal Reserve bailed out the banks in 2008… what happens if the Fed itself needs a bailout during the next crisis?
Eye-opening answers at this link…
