The Patriot Act, Its Zero Sum Effects…

Euro

The New Laundering Haven

The (USA) PATROIT Act on October 26, 2001 was signed into law by then President George W. Bush titled as such the Act is a contrived seven letter acronym (PATRIOT),  which in combination stand for Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001. The intent of the Act was to dramatically reduced restrictions on law enforcement agencies’ ability to search various media channels like telephone, e-mail communications, medical, financial, and other records; along with easing restrictions on foreign intelligence gathering within the United States boarders and expanded the Secretary of the Treasury’s authority to regulate financial transactions, particularly those which involved foreign individuals and entities.  It also broadened the range of law enforcement’s discretion including those of the immigration authorities in detaining and deporting immigrants suspected of terrorism-related acts. The other interesting side bar is the act also expanded the definition of terrorism to also include domestic terrorism, thus enlarging the number of activities to which the USA PATRIOT Act’s had over sight of.

However as the United States enacted this legislation in response to the terror attacks of 911, it missed the full picture if you will.  In essence the zero sum game which was now set to play out as the intent was to track down the “bad guys” if you will and in fact there are a lot of “bad guys” and they typically have a lot of money too.  So as we saw this law go into effect, we also started to see many US dollars flee the shores of the States and head for Europe, and the haven of the Euro.  Yes, as our friends and purported comrades in arms on the European continent didn’t pass similar legislation so the Euro became the new resort if you will for laundering of the worlds tainted money supply and it was so long to an old friend the US dollar as Uncle Sam and the laundry business was now a thing of the past.

Now it’s not the purpose of this post to declare this as either good or bad, however to educate the readers of the effects as has been written on this blog many times over.  People need to take into account the cause and effect relationship of their actions.  As something might make all the sense in the world upfront and then bam, you’re smarting from the results as you failed to see the coming train when you stepped onto the tracks.  Here is no different, as while as unsavory as it might have sounded this illegal activity kept vast amounts of hard US dollars on shore and in circulation.  As a side bar, money laundering by its own nature is inefficient but necessary* and this “inefficiency” added to our real GDP as it was worth spending a high percentage of the tainted money to clean it up.

However with the USA PATRIOT Act’s the issue became to two fold one, where first dollars left the US shores which meant the number of remaining dollars lessens.  So let say there is a pot of $1,000 to pay your salary, however now $200 is taken from that “potential” pot and sent somewhere else.  Your maximum earning capacity is now reduced by 20% and nothing from your perspective has changed.  This is the reason the national debt number is so important as this shows in short what has left our bucket of money and is no longer available to us.  So the larger this grows, the less we will have as a consumption based economy and is a recipe for failure without the proper checks and balances.

The second impact from the act as mentioned above is the loss of the secondary spending of the money is “churn”, because as this happens additional affluency is created in the system as one dollar spent typically results in $7 in the chain as it passes hands.  So this conversion spending which we lost again has a hard impact upon our economy and the creation of value within the system.  All in all, this single act has had a significant impact on our economy and is an excellent of example of “Shoot – Then Aim” mentality…

*Note: Those who are not aware of how money laundering works, it’s the act of taking money gained from illegal means (prostitution, drugs, etc) and running it through a front business to make it appear as legitimate  money.  An old example, was in the day organized crime would buy laundrymats and then run the illicit money through the company’s books as though the  machines where being used and even pay taxes.  However with the advent of the water meter, this venue soon died off as an effective means of “laundering” as law enforcement could then compare water used to sales receipts and if the two didn’t match, well you guessed it.

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About Joseph Campbell

As a strong believer in the fact that "people work for people", it has been a life driver to better to understand the complexities of the various aspects which drive efficiency within this axiom, especially the concepts of leadership. Supporting this, I have been fortunate enough to having experienced this as leader on a global basis over the last decade and half. During this time it has been clear there are three core drivers being Life, Leadership and Economics.
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