http://www.wired.com/news/politics/0,1283,32121,00.html

Cash and the 'Carry Tax'

by Declan McCullagh

3:00 a.m. 27.Oct.99.PDT

WASHINGTON -- US currency should include tracking devices that let the government tax private possession of dollar bills, a Federal Reserve official says.

The longer you hold currency without depositing it in a bank account, the less that cash will be worth, according to a proposal from Marvin Goodfriend, a senior vice president at the Federal Reserve Bank of Richmond.

In other words, greenbacks will get automatic expiration dates.

"The magnetic strip could visibly record when a bill was last withdrawn from the banking system. A carry tax could be deducted from each bill upon deposit according to how long the bill was in circulation," Goodfriend wrote in a recent presentation to a Federal Reserve System conference in Woodstock, Vermont.

The 34-page paper argues a carry tax will discourage "hoarding" currency, deter black market and criminal activities, and boost economic stability during deflationary periods when interest rates hover near zero.

It says new technology finally makes such a scheme feasible. "Systems would have to be put in place at banks and automatic teller machines to read bills, assess the carry tax, and stamp the bills 'current,'" the report recommends.

Goodfriend said in an interview that banks might place a kind of visible "date issued" stamp on each note they distributed. "The thing could actually stamp the date when the bill comes out of the ATM," he said.

Congressional critics say they would oppose any such move.

"The whole idea is preposterous. The notion that we're going to tax somebody because they decide to be frugal and hold a couple of dollars is economic planning at its worst," said Representative Ron Paul (R-Texas), a free-market proponent who serves on the House Banking committee.

"This idea that you can correct some of the evil they've already created with another tax is just ridiculous," Paul said. Other economists say a carry tax is not a wise plan.

"This is going beyond taxing banks for holding reserves. It's taxing the public for holding currency too long. That's even more wild an idea," says George Selgin, a University of Georgia economics professor who specializes in monetary policy.

-- Uncle Bob (UNCLB0B@Y2KOK.ORG), October 27, 1999

Answers

Your money, whether you held it in hand or not declines in value because of the Feds policies.

Your 1950 dollar is now worth 10".

How about a carry tax of 10% on the 50's base? Seems fair.

Harvey

-- Harvey Fartz (Harvey_Fartz@Hotmail.com), October 27, 1999.

This DISGUSTS me. Completely. Whatever happened to being able to do whatever I want with MY money? We already cannot withdraw over a certain amount or too much in a certain period of time without drawing suspicion. I earned it, it is MINE. I pay the taxman his due, that's all they need to worry about. If I want to bury it all in my backyard that is my damn business.

DISGUSTED.

-- preparing (preparing@home.com), October 27, 1999.

For some reason, individuals holding cash is a major problem for these banker types. Wish I knew why. One way or another they will eliminate it. Prepare for a cashless economy. Gold is looking more and more interesting, as this unfolds.

-- Hawthorne (99@00.com), October 27, 1999.

I Don't think so, Mr. Goodfriend...........Since you're no friend of mine or any other person who despises tyranny, I suggest the following: Every elected official and every government employee who has taken an oath to uphold and defend the Constitution should be required to have an implanted biochip that enables their masters (the People) to track their every move.

It's amazing how taxpayer money is squandered by paying these self-serving despots!!

-- Don Chen (DChen@musician.org), October 27, 1999.

"Congressional critics say they would oppose such a move..."

Hopefully, this idea will die the early death it deserves.

-- Mad Monk (madmonk@hawaiian.net), October 27, 1999.

Read the second page of the link. It is incredible. My comments in brackets << >>.

Cash and the 'Carry Tax' page 2 3:00 a.m. 27.Oct.99.PDT

continued "There are sweeping implications of these suggestions beyond whatever role they might play in thwarting a deflationary crisis... I think it's a very dangerous solution to what may be a purely hypothetical problem," Selgin said.

Goodfriend discusses an alternative: The Fed should at times prevent Americans from withdrawing cash from their bank accounts. "Suspending the payment of currency for deposits would avoid the cost of imposing a carry tax on currency." <>

But he concludes that such a move would have "destabilizing" effects, and recommends that the Federal Reserve instead "put in place systems to raise the cost of storing money by imposing a carry tax."

<>

The idea has been discussed before. Economist John Keynes mentioned the possibility, but dismissed it because of the administrative hassles involved.

Silvio Gesell, a Keynes contemporary and like-minded thinker, also suggested taxing money to allow lower interest rates.

<>

But Goodfriend says that technology has advanced since then. "In light of recent advances in payments technology and the less-than- satisfactory alternatives, imposing a carry tax on money seems an eminently practical and reasonable way [to proceed]," he writes.

He said the Federal Reserve has technology that would make it "feasible," but refused to give details.

<>

One reason for a carry tax, he says, is the reduced influence of the US central bank when prices are not increasing and inflation is close to zero. During such a period, banks are less likely to make loans -- even if the Fed tries to spur an economic expansion through open market operations.

<>

But if the government taxes the currency holdings of individuals and banks through an occasional carry tax, they may be inclined to lend money even at a negative interest rate in order to avoid holding on to it.

<>

"This proposal is made well in advance of any problem we have in the US. It's not an emergency proposal at this point," he said. The report says Congress would have to pass legislation allowing such a tax.

<>> <>

-- Hawthorne (99@00.com), October 27, 1999.

Sorry, all my comments vaporized.

-- Hawthorne (99@00.com), October 27, 1999.

If anyone wants to type it in, I can fax them the relevant pages from the report. There's about five grafs discussing withholding cash for withdrawls.

-- Declan (declan@y2kculture.com), October 28, 1999.

"Sorry, all my comments vaporized." Here, allow me to attempt to remedy that: --------------(Begin repaired text)-------------- Read the second page of the link. It is incredible. My comments in brackets [[ ]].

Cash and the 'Carry Tax' page 2 3:00 a.m. 27.Oct.99.PDT

continued "There are sweeping implications of these suggestions beyond whatever role they might play in thwarting a deflationary crisis... I think it's a very dangerous solution to what may be a purely hypothetical problem," Selgin said.

Goodfriend discusses an alternative: The Fed should at times prevent Americans from withdrawing cash from their bank accounts. "Suspending the payment of currency for deposits would avoid the cost of imposing a carry tax on currency." [[NOW THE REAL REASON COMES OUT FOR THIS MORONIC IDEA. I CAN HEAR THEM NOW: "Well, Congressman, if you won't pass a carry tax law, at least let us restrict withdrawals as we see fit!"]]

But he concludes that such a move would have "destabilizing" effects, and recommends that the Federal Reserve instead "put in place systems to raise the cost of storing money by imposing a carry tax."

[[IN OTHER WORDS, IT WOULD BE DESTABILIZING TO A STABLE ECONOMY, BUT IF ALL HELL BREAKS LOOSE, IT MIGHT BE JUST WHAT WE NEED, HUH?]]

The idea has been discussed before. Economist John Keynes mentioned the possibility, but dismissed it because of the administrative hassles involved.

Silvio Gesell, a Keynes contemporary and like-minded thinker, also suggested taxing money to allow lower interest rates.

[[THESE GUYS KNOW THAT WHEN MONEY CHANGES HANDS, A TAX IS PAID. IF THE GOV TAXES YOUR CASH HOARD, IT FORCES YOU TO CIRCULATE IT. IT ALSO CREATES MORE TRANSACTIONS TO BE TAXED. IN OTHER WORDS, "SPEND IT OR LOOSE IT."]]

But Goodfriend says that technology has advanced since then. "In light of recent advances in payments technology and the less-than- satisfactory alternatives, imposing a carry tax on money seems an eminently practical and reasonable way [to proceed]," he writes.

He said the Federal Reserve has technology that would make it "feasible," but refused to give details.

[[WE WERE WONDERING ABOUT THOSE MYSTERIOUS MAGNETIC STRIPS IN THE NEW CURRENCY!!]]

One reason for a carry tax, he says, is the reduced influence of the US central bank when prices are not increasing and inflation is close to zero. During such a period, banks are less likely to make loans -- even if the Fed tries to spur an economic expansion through open market operations.

[[SO YOUR ABSOLUTE POWER IS RESTRICTED, IS IT???]]

But if the government taxes the currency holdings of individuals and banks through an occasional carry tax, they may be inclined to lend money even at a negative interest rate in order to avoid holding on to it.

[[WHAT IN FEDERAL LAW IS EVER OCCASIONAL??? IT WILL BE FULL TIME AND IT WILL BE PERMANENT!! AND WHY THE HELL ARE THEY SO INTERESTED IN FORCING BANKS TO LOAN MONEY, EVEN IF AT A LOSS. THEY WANT MORE CONSUMPTION TO FEED THEIR TAX DEVOURING BUREAUCRACY.]]

"This proposal is made well in advance of any problem we have in the US. It's not an emergency proposal at this point," he said. The report says Congress would have to pass legislation allowing such a tax.

[[UH, MR. GOODFRIEND, ARE YOU ANTICIPATING AN EMERGENCY ANY TIME SOON? SAY IN ABOUT 60 DAYS?? IS THAT WHY YOU ARE FLOATING THIS TRIAL BALLOON? ARE YOU REALLY THAT PANICKED, I MEAN, CONCERNED? ]]> [[I'M NOT A GOLDBUG, BUT WHEN WORDS LIKE THIS ARE SPOKEN FROM HIGHLY PLACED FEDERAL OFFICES, IT'S TIME TO CASH OUT AND BUY GOLD AND SILVER.]]

-- Hawthorne (99@00.com), October 27, 1999. --------------(End repaired text)--------------

-- Ron Schwarz (rs@clubvb.com.delete.this), October 28, 1999.

Thanks Ron

-- Hawthorne (99@00.com), October 28, 1999.

"Goodfriend discusses an alternative: The Fed should at times prevent Americans from withdrawing cash from their bank accounts." I wish I could describe what this does to my innards, especially in light of the "your money is safe, don't withdraw cash" mantra being pushed. So, our money is SO safe not even WE can get at it?!?!

-- ldeeds (ldeeds@kumc.edu), October 28, 1999.

And what is so scary about this is the some people WANT their personal rights taken from them!!! They LIKE TYRANNY because those in power offer SECURITY! What ever happened to personal responsibility and critical thinking?!

Check out this post (The comments in the " " are from the person who is IN FAVOR of having our money (and our actions) controlled:

http://messages.yahoo.com/bbs?action=m&board=7088120&tid=staringdownth emilleniumbug&sid=7088120&mid=10516

Shine,

I realize this is just an exchange of opinions so please don't feel too angry. Also, I'm not sure how you came up with one of your points.

Here are my response(s).

>>>>Would you really want to give up your personal freedoms just because something might *appear* to be more secure?!<<<<

"No but if it really *is* more secure, I want it."

Personally, I think that the amount of personal freedoms we might be giving up (then & in the future) would outweigh any possible benefit that "security" might give us. Don't you think that it would set up a dangerous precedent that might allow the government or future courts to allow other freedoms to be taken from us? What might seem reasonable to you now could very well come back to haunt you down the road...

>>>>Don't take the easy road - the rougher road is the best for us,<<<<

"So whenever you can enable someone to take advantage of another -- go for it, allow it, it's wonderful."

That's not what I said, or even intended to say. My meaning is that the government should not control every aspect of our personal lives - that is tyranny, my friend. If someone does commit a crime, then that's when it should go to trial. This is why the Executive Branch and the Judicial Branch are separate entities (not to mention the Legislative Branch) - to keep one entity from having too much power.

By the way, have did crime or "...someone to take advantage of one another..." get into this? When I mentioned about the banks, I'm not condoning what they've done (far from it), but there is a point where personal action must be taken. Don't like a company's actions, then boycot them. Don't legislate them to death. Too many laws only will either drive the companies overseas or else also affect us in the long run. (Some may be positive, some could very well be negative.)

"As with anything, I suspect there is a fine line between personal respsibility and letting the theives have their way and total government control."

Agreed. Like I said before though, forethought with legislation is highly important. This idea, if ever passed into law, would set a very dangerous precedent for tyranny and the loss of many personal freedoms.

(Gee, I guess my High School history did come in handy, huh? :-) )

-- Deb M. (vmcclell@columbus.rr.com), October 28, 1999.

What happens if you hold the cash so long that you owe money on it?!? (e.g. 10% carry tax - hold for longer than 10 years)

Criminals are always one step ahead of the law. I can see it now: "Kiting" cash to keep it current. Run down to the bank and deposit thie $1000, then immediatley withdraw another "current" $1000 in cash.

The whole thing is RIDICULOUS!

-- Jim (x@x.x), October 28, 1999.