The Coming Shakeout In the Underground Economy

Economic outlook.

| March/April 1984

  • 086-012-01
    "It's finally happened, Hosgood, your withholdings exceeded your salary ... here's your bill!"

  • 086-012-01

As we conclude the first quarter of 1984, the short-term economic future would seem to be fairly easy to predict: Until the November elections have come and gone, it is highly unlikely that the Federal Reserve Board will do anything to tarnish the shine on our national economic "recovery" ... a recovery, remember, that is still being fueled by the pumping of more and more paper money—dollars that have absolutely no backing in real terms—into the system. Indeed, as previously mentioned in this column (see A Change of Seasons), we'd all be well advised to take advantage of these fragile "good times" by using the increasingly available money to do some long-term good, such as taking steps to get a little closer to being free of the debt treadmill or—should you be lucky enough to have already stepped away from that nightmare—stocking up on quality tools and those things that can be expected to retain the same real value indefinitely because they'll perform the same tasks regardless of the times to come.  

At any rate, with the financial events of the coming months pretty much in hand (barring, of course, any one of the number of threatening international incidents that could quickly upset the Federal Reserve Board's carefully balanced apple cart), we thought it would be interesting to take a look at speculation that reaches a bit further into the future ... in the form of the following essay, reprinted by courtesy of Newsletter Digest.

The ten most powerful Western nations (Japan included) met at an economic summit in Williamsburg, Virginia, in May. Information as to their conclusions and plans released after the meeting was meaningless. So we have been watching for clues to what really transpired. Now we have the first clue . . . the announcement of a new currency, the exchange probably to take place early in 1985. The reason offered is that counterfeiting has now become a serious problem. We can think of several other reasons. Black market dollars, involved in drug traffic and other illicit activities, are probably fully as important. But undoubtedly of far greater concern is the huge, largely untaxed, worldwide underground economy.

The purpose of the currency exchange, then, is first to mobilize the billions of dollars in fifty and one hundred dollar bills around the globe. Once a date for the exchange is announced, they will have to be spent . . . and taxed. Second, this massive infusion of new money may be being timed to abort the next downturn in the business cycle and keep the economic recovery going. Third, to provide an opportunity to gain greater control over the underground economy in the future. How? The sudden increase in tax revenue could permit a reduction in the income tax, encouraging many who have been evading taxes to come back into the fold; next, change of emphasis to a new "value-added" tax (a nationwide sales tax) would also effectively increase the tax take from the remaining underground economy as all retail purchases are taxed. The most important reason, however, is to allow slack for another round of years of inflation, necessary to continue the international debt scam. Inflation is, of course, another layer of taxation. Keep the economy booming, and nobody will object.

What will the exchange rate be? A one-for-one could prove to be insufficient, with a resumption of exponential inflation a few years from now making a 1 to 100 exchange necessary. From the point of view of those who will make the decision, we think 1 to 10 (one new dollar for ten old dollars) would be favored. The psychological effect would be far ranging. It will appear possible to pay a debt denominated in billions rather than trillions. This will encourage people to spend again. There will result a BOOM in the economy. There will be a substantial drop in interest rates. The budget will be balanced, the national debt reduced. The stock market will soar to Dow 200 (not 2000, if the rate is 1 to 10).

Who will benefit? The U.S. Treasury, the international bankers. It will appear possible to retain the huge international debt structure and the great banks' enormous interest income. And it will work, but only for a time.

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