The IMF estimates that there is something like $18 trillion in financial assets parked in offshore financial centers.
Let’s imagine that some $6 trillion of this money was illegally gained, used to finance terrorism, etc.
What would happen if the U.S. government, running out of options and failing to reach a compromise on budget and economic problems, were to seize these illegal funds and divert them to the U.S. treasury and used that money to pay our national debt back down to around $10 trillion.
So we’re imagining here that the government just uses force to seize these funds and then uses it to pay its creditors.
Would this reduction in debt from funds parked off shore boost our economy?
Would it cause inflation since it is a direct cash transfer to creditors and not simply increasing the monetary base or something which can keep the money trapped in the financial system?
Would it increase aggregate demand at all?
Would the Federal Executive be able to use these funds without an appropriation from congress since they were “seized” and not a receipt from taxes, duties, imposts into the treasury?
Assuming most of these banks wherein this offshore money is stored have correspondent accounts with banks that are part of the federal reserve system, could something like this even be pulled off if the U.S. so desired to use its might in that way?
You’re assuming that the Bahamas or Panama or whatever offshore nations we’re talking about would even cooperate and give up the money. A massive exodus of cash like that might collapse their banking systems. It might well be in their interest to reply to the US government’s request with a picture of someone’s middle finger.
Like this: Nuclear blackmail with pathetic demands: Give in?. Only in this case, it’s the US doing the blackmail and Bermuda having to cave (and we leave Russia and China out of it). Of course, that ignores the fact that much of that money is probably owned by Russians and Chinese (and French and English and US) and that the entire world banking system would promptly act to freeze us out.
Presumably there would be some sort of Financial Mutually Assured Destruction in play that would encourage the US government to negotiate with said offshore governments or not bother. I suppose if in reality if a sizeable chunk of the world’s wealth was declared “no-longer-wealth” you’d get a meltdown along the terms of what happen when AIG blew up in 2008.
I see what you mean. But, I was thinking more that the government in some way would seize this money against the will of these institutions.
So for example, perhaps the CIA had some kind of stuxnet type program wherein accounts with these illegal funds would wire the funds to the U.S. treasury.
I’m more interested in the other questions of; what the ramifications would be of such a realization of cash, that actually exists out there, suddenly in the hands of the treasury…and I tried to think of some remotely plausible way in which this could happen.
Note that a good chunk of that $18 trillion isn’t even held by US citizens abroad, but instead citizens of other countries, so the US would have really no right to it.
I agree…but we’re talking about a government that randomly drops bombs from drones on suspected terrorists. I can’t imagine it’s outside the boundary to steal a hypothetical criminals money in their bank account.
I would think that a hell of a lot of people and corporations (even those not engaged in illegal activities) would suddenly become very concerned that the US government would be able to seize an immense amount of cash, apparently without due process, and suddenly have a compelling interest to find something else to do with their assets.
I would also imagine that other countries would see what the US has done, and would feel more justified in reaching into US banks using unorthodox means to seize money that they think should be theirs.
I’m not sure what $6 trillion in seized cash would do to our national debt and our economy, but I think it would be quite a serious matter for the stability of the world’s banking systems.
I’m not sure what you mean by cash. I don’t think you mean currency, but if you did, there’s only about a trillion of that outstanding. And you couldn’t move it around using software. You’d need trucks for that. (Or you could just shred it, and print new bills. Probably cheaper than shipping it.)
If you’re talking about bank accounts, then really you’re just talking about electronic records. You could use a computer virus to change the records. But there’d be nothing to stop bank managers from changing them back the next day.