Payments amounting to $600 will soon need to be reported to the government, but the Internal Revenue Service (IRS) announced that it will be postponing the implementation of the reporting requirement for one year. Although the requirement is not quite as invasive as when Congress was considering enacting surveillance on bank accounts with $600 in yearly activity, it’s not far off.

Acting IRS Commissioner Doug O’Donnell said, “The IRS and Treasury heard a number of concerns regarding the timeline of implementation of these changes under the American Rescue Plan. … The additional time will help reduce confusion during the upcoming 2023 tax filing season and provide more time for taxpayers to prepare and understand the new reporting requirements.”

Confusion over the implementation may be the reason cited, but the real problem is how intrusive this requirement is. Previously, the law only required reports to be made (via form 1099‑K) if an individual received more than 200 transactions that amounted to more than $20,000. Now, thanks to the American Rescue Plan Act of 2021, a single $600 payment or any combination of payments that add up to $600 in a year (e.g., ten $60 payments) will trip the requirements just the same.

In fact, the real confusion has been centered around just how this style of surveillance can be considered constitutional. Many have been left asking, “Why don’t Americans have stronger financial privacy rights?”

Unfortunately, laws, regulations, Supreme Court decisions, and even inflation have consistently chipped away at financial privacy for over 50 years. As I explained in a recent paper, even a law titled the “Right to Financial Privacy Act” failed to really deliver the level of privacy Americans should have—notably, the level most Americans thought the Constitution provided.

Americans may have a year to relax, but Congress should take this time to fix the issue. Not only should the reporting requirement be repealed to lessen the burden on Americans, but also more fundamental reforms should be enacted to establish financial privacy protections that Americans should have had from the beginning.

In the final days of 2022, the Internal Revenue Service (IRS) announced that the Infrastructure Investment and Jobs Act’s infamous cryptocurrency reporting requirements were being put on hold. While this sudden change is far more welcome than when Congress wrote the law seemingly overnight in late 2021, the temporary pause shouldn’t distract from the fact that the reporting requirements should be repealed entirely.

A Quick Refresher on the Infrastructure Act

As the name suggests, the Infrastructure Investment and Jobs Act was primarily written with the supposed intention of rebuilding roads, bridges, railways, ports, and the like. Yet to do so, the sprawling 1,039-page bill needed pay-for provisions to offset the spending. Therefore, in the Fall of 2021, Congress slipped in a provision with two amendments targeting the cryptocurrency market. The Joint Committee on Taxation initially estimated that this change would drum up some $28 billion in tax revenue—a number later revised down to just $2 billion.

The first amendment changed 26 U.S. Code § 6045 (the “broker definition”) to label not just traditional exchanges (e.g., Coinbase, Robinhood, etc.) as brokers but also cryptocurrency miners and even software developers. In doing so, the amendment requires said brokers to report the name and address of each person, or “customer,” they interact with. However, an immediate problem with this requirement is that miners simply do not have access to that information. Therefore, by mandating that they report what they cannot possibly offer, the amendment effectively bans cryptocurrency mining in the United States.

The second amendment changed 26 U.S. Code § 6050I to require anyone engaged in a business transaction of $10,000 or more in cryptocurrency to report the transaction to the IRS. The report must include the name and address of the payer, as well as their taxpayer identification number, the amount paid, the date, and the nature of the transaction. Failure to file a report within 15 days, reporting incorrect information, or missing information may result in a $25,000 fine or five years in prison. Unfortunately, the IRS failed to address this section in its announcement. 

The Blockchain Association, Coin Center, Proof of Stake Alliance, Electronic Frontier Foundation, and many others raised the alarm when the cryptocurrency reporting requirements were first slipped into the Infrastructure Investment and Jobs Act. Across the board, these critiques have made it clear that this law should never have been written in the first place. Put simply, the reporting requirements are unjustified and unconstitutional.

Solutions on the Table

While the law should not have been enacted and it should not have survived this long, many solutions have emerged over the past 17 months. Representatives Patrick McHenry (R‑NC) and Tim Ryan (D‑OH), and Senators Ted Cruz (R‑TX), Cynthia Lummis (R‑WY), and Ron Wyden (D‑OR) have all introduced different pieces of legislation to address the problem. Now that the 118th Congress is getting ready to get off the ground, it should take this time to move forward before the IRS does.

In The Wall Street Journal’s “Year-End Review & Outlook,” Sam Goldfarb deftly summarized a recent shift in the Federal Reserve’s focus away from PCE inflation —which slowed to a 2.4% rate from July to November— to a diverse hodgepodge of services prices.

“In recent remarks, Fed Chairman Jerome Powell has emphasized that, even in recent months, there has been only a modest slowdown in price increases for core services outside of housing. That is an area of the economy seen as most sensitive to labor costs, which have shown few signs of decelerating.”

Although Mr. Powell’s latest story may seem a useful pretext for ignoring increasingly obvious signs of slowing inflation since June (or for raising Fed interest rates relentlessly), it suffers the unfortunate defect of being entirely false.

My Table shows The Personal Consumption Expenditures (PCE) price index numbers for the entire index, for goods and services separately, and for 15 representative categories of services aside from housing (which is shown but excluded from average inflation rates in the last row). A rough unweighted average of the average annual inflation rate among those 16 “core services less housing” was 7.3% before June but 3.4% since. Few would call that a “modest slowdown.”

The last two columns compare the total percentage change (not the monthly or annual change) from November 2021 to June 2022 with the changes from June 2022 to November 2022. All of Chair Powell’s statistics, by contrast, only compare changes from November 2021 to November 2022—the ritualistic “year-to-year percentage change” which masks dramatic changes in inflation before and after last June. “It will take substantially more evidence to give comfort that inflation is declining,” said the Chairman. But his favored year-to-year changes are painfully slow to reveal changing trends because each new month adds just 1/12^th to an average that still carries a lot of obsolete old baggage.

To split the Chairman’s12-month changes into two very different periods, the column before June includes seven months while June to November is five. But this is a trivial difference which cannot begin to explain why PCE prices rose 4.5% before June but only 1% since. Since June, health care prices rose 0.9% over five months (or 0.18% a month). Education rose by 1%. Transportation services rose 0.3%, Hotels 0.1%, Prices of legal services were unchanged as were prices of household maintenance, while foreign travel costs fell ‑0.9%. The Chairman’s stereotype of such different services being extremely labor-intensive with prices passively tied to wages is weak in theory and fact. Competitive service firms cannot just raise prices at whim without losing too many customers. They move prices up or down (e.g., by advertising special sales and coupon discounts) depending on changes in market demand, not on changes in variable costs such as wages.

Inflation peaked in June and slowed dramatically then. Fed Chairman Powell has conceded to critics that housing inflation has been exaggerated and will be coming down this year, and that flat or falling prices of goods will continue. Energy prices are quite likely to subtract from his favored year-to-year measures of inflation because Russia’s invasion of Ukraine pushed them much higher than they are likely to be this spring and summer. So, that leaves only services less housing to worry about, in theory, if they showed any sign of being tied to wages and if nonfarm labor costs had not slowed as much as they have this year. 

As it turns out, most service prices also peaked in June and have also slowed dramatically with only minor exceptions. Fed loyalty to Phillips Curve Theory (that job loss lowers wage-push inflation) is famous.

But the first step toward a softish landing is to get the facts right.

Entertaining crackdowns on Americans’ voluntary use of software has been a theme of policy leaders’ response to fraud charges at centralized crypto exchange FTX. Following last week’s FTX hearing, Senate Banking Committee Chairman Sherrod Brown (D‑OH) floated the idea of “maybe banning” crypto. Earlier this month, Commodity Futures Trading Commission Chairman Rostin Behnam considered how the federal government might help offshore crypto exchanges that block U.S. users “protect those firewalls.”

Banning open-source software and barring the doors to the global Internet is no way to lead the free world. It shortsightedly undermines new ways of organizing civil society and commerce by prohibiting a technology that may prove key to developing robust cultural institutions over digital networks. Furthermore, it is inconsistent with American values, rejecting tools used to counter authoritarian overreach the world over. U.S. crypto policy must embrace, not eliminate, Americans’ freedom to write code, access information, and digitally organize.

A state-sanctioned informational firewall is a tool of authoritarian regimes, whereas cryptographically secure software is a tool of democratic civil society. To overcome state censorship and access dissident content, Chinese anti-lockdown protesters had to bypass “China’s Great Firewall” to reach American websites. Blockchain technology, by contrast, allowed protesters in Hong Kong to preserve the archives of a pro-democracy newspaper that authorities pressured to shut down.

While crypto has been used by repressive actors themselves, such as North Korean state-sponsored hackers, a blanket U.S. crypto ban would not distinguish between those using technology to subsidize human rights violations and those using it to combat them. One also suspects such a ban would do more to harm law-abiding software developers and civic innovators in the U.S. than to thwart the ambitions of terrorists and their state sponsors who respect no laws.

When it comes to the role that open-source and cryptographically secure networks will play in the future of civic life and geopolitics, one of the most formidable analyses comes from tech entrepreneur and investor Balaji Srinivasan’s The Network State.

In a book that combines technological forecasting, cultural criticism, and political theory, Srinivasan describes how social movements can leverage digital networks to organize online communities devoted to a shared belief, build new institutions, and, most provocatively, found new polities. Srinivasan defines these polities, or “network states,” as:

[S]ocial network[s] with a moral innovation, a sense of national consciousness, a recognized founder, a capacity for collective action, an in-person level of civility, an integrated cryptocurrency, a consensual government limited by a social smart contract, an archipelago of crowdfunded physical territories, a virtual capital, and an on-chain census that proves a large enough population, income, and real-estate footprint to attain a measure of diplomatic recognition.

Srinivasan sees crypto as key to this potential phenomenon because “only decentralized networks can give rise to network states.” Unlike centralized networks, decentralized ones provide exit rights that allow users to opt out of services while still holding onto their digital assets. In addition, integrated cryptocurrency blockchains provide a recordkeeping and payment system that resists tampering and censorship. Trustworthy records are key because, as Srinivasan argues, studying history is essential to making sense of and building in the present. Hence Big Brother’s eagerness to destroy or falsify the historical record in Orwell’s 1984. Moreover, by using smart contracts (self-executing software that can document individuals’ consent and limit administrators’ discretion), network states can incorporate the idea of the voluntary social contract.

The Network State makes bold claims and predictions, and Srinivasan is frank about the limits of projections and potential failures of both theories and technologies. Nonetheless, dramatic policy proposals—like banning crypto—require exploring broad implications.

While some might view the prospect of new network states competing with America as another reason to ban crypto, attempting such a ban could provide the ultimate justification for bringing such network states to fruition. (Srinivasan explores the related idea of a Bitcoin seizure triggering political conflict that contributes to the appeal of network states.)

But even if one fully accepts the possibility of network states, such states may bring about more benign (or salutary) impacts than existential risks: think chains of special economic zones in the developing world, as opposed to peer competitors seceding from or displacing the Union.

For that reason, one of the greatest lessons of The Network State for U.S. crypto policy is the potential benefits and vitality that a crypto ban would sap from America itself. Along the path to network states, Srinivasan traces intermediate outcomes short of sovereignty, including “network unions” that leverage crypto networks to help people organize around common goals.

There’s a version of this idea that should sound familiar to students of American history. Socially, network unions can be tools of Tocquevillian civil society of every stripe—from socially-conservative Benedict Option communities to libertarian Galt’s Gulches to progressive communes. Culturally, regardless of whether one plans to spend any time in the metaverse, an open-source version of the idea has far greater creative potential than a walled garden. Economically, network unions can form the bases for incorporating new real-world townships with zoning and other development reforms. (When combined with physical property, network unions become “network archipelagos” in Srinivasan’s phrasing.) Politically, network unions can facilitate organizing on any part of the ideological spectrum, allowing users to communicate with one another and track campaign goals using trustworthy channels and ledgers without relying on third-party applications.

Regardless of whether one buys into the potential of crypto, let alone network unions or network states, an outright crypto ban would destroy much of that possible upside without any guarantee of mitigating risks. By contrast, crypto policy tailored to relevant risks can help capture potential benefits from novel institutional designs while protecting against known downsides. Moreover, risk-based crypto policy, unlike a crypto ban, would be consistent with an American tradition of technological and cultural dynamism that we’ve struggled more to reclaim than lose in recent years. And, ultimately, a crypto-permissive policy stands against the censoriousness of Great Firewalls and for Americans’ ability to write, use, and organize with software as free people.

Faced with dismal adoption rates of its central bank digital currency (CBDC), the Central Bank of Nigeria has restricted cash withdrawals to push citizens into using its CBDC. Unfortunately, restrictions on (and the eventual elimination of) cash are just one of the risks that Norbert Michel and I warned about in a paper we published in November.

Nigeria launched its CBDC (the eNaira) in the fall of 2021, but few Nigerians have been eager to use it. Current estimates suggest less than 0.5 percent of Nigerians are using the CBDC. To put that number into perspective, more than 50 percent of Nigerians use cryptocurrency.

When it comes to increasing the popularity of a product, the private sector usually only has so many options. For instance, the product itself could be improved or the price could be discounted. To their credit, the Central Bank of Nigeria tried both options. In August, the CBDC program was changed so that Nigerians no longer had to have bank accounts to use the CBDC—a bid to attract the 55 percent of adults that are unbanked. And then in October, the central bank offered a 5 percent discount for taxi payments in an effort to “discount the price” of using the CBDC.

Yet governments have a few privileges that ordinary businesses do not. Namely, they can “increase adoption” by establishing legal barriers to hinder alternatives or outright prohibit those alternatives. The Central Bank of Nigeria already took steps to prohibit cryptocurrencies, but now it seems even cash isn’t safe as cash withdrawals are now limited to ₦100,000 ($225) per week for individuals and ₦500,000 ($1,123) for businesses.

Nigerians can likely expect those restrictions to increase over time. In a statement, central bank Governor Godwin Emefiele said, “The destination, as far as I am concerned, is to achieve a 100% cashless economy in Nigeria.”

Interestingly, some have tried to defend the move. Simon Chantry of Bitt—the company that was contracted to develop Nigeria’s CBDC—responded that he “wouldn’t be surprised if we see central banks try different, creative options to stimulate [CBDC] adoption.” Restrictions on freedoms have been characterized in many ways, but describing them as “different” and “creative” is a concerning strategy.

As it stands, there appears to be no unique benefit that a CBDC may offer that the private sector is not already providing or developing. Norbert Michel and I have documented this reality extensively, but it should also be evident by the fact that just 0.5 percent of Nigerians are using the CBDC. More so, it should be evident by the fact that the Nigerian government has resorted to restricting alternatives.

As governments continue to weigh the costs and benefits of CBDCs, they should be mindful that if a product or service has to be forced on citizens, it’s probably not a product or service that should be offered at all.

After an interruption due mostly to my move to Spain, I’m pleased to be back in the saddle again, wrapping up my series on the New Deal.

I ended a previous installment of this series by observing that, despite many dire forecasts, the U.S. economy avoided a severe, post-World War II depression, and “appeared to do so with very little help from the federal government.” In particular, while the federal government drastically reduced its military expenditures as soon as the war ended, it didn’t make up for that reduction with any corresponding increase in public works or other peacetime spending. Yet instead of slumping again, the economy saw its first investment boom since the ’20s.

So much for postwar fiscal policy. But what about monetary policy? Might the postwar economy have been kept humming with the help of generous doses of easy money? Could that have been all it really needed to prosper again?

These questions seem worth asking for at least two reasons. First, as we’ve seen, the partial recoveries that took place during the mid- and late 1930s were themselves mainly due not to fiscal stimulus but to monetary growth fueled by heavy gold imports. So it’s only reasonable to wonder whether monetary expansion was also the key to the economy’s postwar performance. Second, postwar Fed policy appears to have been exceedingly easy, having mainly consisted of the continuation, up to the famous Treasury Accord of March 4, 1951, of the Fed’s wartime commitment to keep interest rates low by propping-up the prices of various Treasury securities.

Before the Accord

That U.S. monetary policy was easy during World War II no one denies. At first, gold flows remained the main driver of monetary expansion: indeed, thanks to the “cash and carry” policy adopted soon after the war began, which allowed U.S. merchants to sell war materials to Britain and other nations at war with Germany provided they paid in cash, gold flooded into the United States like never before. In just two years, the U.S. monetary gold stock grew by $5.5 billion. During that same time, the Fed’s government security holdings hardly budged, and banks hardly borrowed from it. So it was entirely thanks to all that gold that the U.S. monetary base grew by about $3.35 billion, allowing the (narrow) money stock in turn to expand by about $13 billion.

The passage of the Lend-Lease Act of March 1941, allowing the allies to get war supplies from us gratis, or nearly so, caused the gold inflow to quickly taper off. But once the United States itself went to war, Fed officials determined “to use its powers to assure at all times an ample supply of funds for financing the war effort.” The result was a set of new policies that became a far more potent cause of monetary stimulus than gold imports had ever been.

Of those new policies, the most important consisted of the Fed’s formal agreement to buy as many 3‑month Treasury bills as it had to to keep the rate the Treasury paid on them at just three-eighths of one percent. The Fed also offered, though informally, to keep the interest rate on 25-year Treasury bonds at 2.5 percent. Once these agreements went into effect, in the summer of 1942, instead of pursuing monetary policy in the usual sense, the Fed, in the words of Chairman Eccles, “merely executed Treasury decisions” (Meltzer 2003, p. 579).

As a result of these arrangements, the Fed went on to purchase very large amounts of Treasury securities, expanding the monetary base and total money stock correspondingly. The last grew more than 20 percent in both 1942 and 1943, and by not much less than 15 percent during 1944 and 1945. Thanks to wartime price controls, posted consumer prices only rose by about 11 percent during this same period. But no one doubted that they would rise a lot more once those controls were lifted.

Yet the Fed’s interest-rate pegging went on for several years after the war ended. Although the Fed’s formal agreement to peg the bill rate ended in 1947, and that rate quickly rose to one percent, and eventually rose even more, rates on longer-term Treasury securities never exceeded their wartime targets until the Treasury Accord went into effect. It’s therefore not at all implausible to suppose that long rates were kept below their “natural” levels during this time, and that (as many theories suggest) those low rates gave an artificial boost to investment spending.

In short, it’s tempting to think that, while postwar fiscal policy fell well short of Keynesian economists’ recommendations, easy money stood in for it, playing an outsized part, not just in helping the U.S. economy steer clear of a postwar depression, but in fueling the postwar investment boom, albeit at the cost of a later, if still not very severe, recession.

Not So Easy

But this is another of those temptations that needs resisting. For starters, it’s worth noting that the same Keynesians who had been so keen on fiscal stimulus saw no corresponding advantage in easy money policies. The view then prevailing amongst them, Alan Meltzer observes (2003, p. 607), “was that monetary policy had, at most, modest effects on output and prices.” Consequently, they neither recommended nor promoted a postwar, easy money policy, so that, assuming the Fed really did pursue such a policy, it did so for reasons other than the standard macroeconomic ones that are widely recognized today.

Although he became a Keynesian with little help from Keynes, Fed chair Marriner Eccles’ views on the respective roles of fiscal and monetary policy resembled those of most Keynesians of his era: while he had long favored aggressive deficit spending to combat depression, it was his opinion regarding the futility of trying to do the same by means of easy money that prompted Representative Goldsboro’s famous remark about “pushing on a string.” Eccles was also a thoroughgoing inflation hawk, who considered an “inflated money supply” the fundamental cause of rising prices. If he allowed the Fed to cooperate with the Treasury during the war, it was for patriotic reasons, and not without frequently criticizing the Treasury’s heavy borrowing.

Of course, neither Eccles’s views nor those of Keynesians generally ruled out the possibility that monetary policy remained as easy after the war as it had been during it for reasons apart from their advice. Then as in more recent times Fed officials worried that rate increases would harm bondholders and worsen the deficit. And the fact remains that rates weren’t allowed to rise, except to a very limited extent, until 1950. But plenty of other evidence suggests that, although rates stayed low, after the war ended, those low rates were no longer a symptom of an easy money policy. Instead, money growth was subdued throughout the immediate postwar period.

How could that be so? Friedman and Schwartz (1963, p. 577) call the modest pace of monetary expansion “[t]the foremost puzzle of the immediate postwar period.” But—as Friedman and Schwartz themselves recognize—solving the puzzle is mainly a relatively simple matter of taking account of the dramatic postwar change in borrowing by the federal government. During the war it borrowed heavily, and rates were held down despite this by means of a combination of substantial Fed purchases of Treasury securities and the government’s (apparently credible) commitment to take steps to avoid postwar inflation.[1] In contrast, after the war rates stayed low with little help from the Fed, because, instead of borrowing more, the government started paying off its wartime debt. Between the start of 1946 and the end of 1948, the Federal government’s outstanding interest-bearing debt declined by $37 billion, from $227 billion to $190 billion. During that time, the amount of the debt held by the Fed hardly changed. “In actual practice,” the IMF’s I.G. Patel (1953, p. 82) observed several years later,

it would be a mistake to think that the Federal Reserve Banks’ open market operations in support of the bond market led to any steady monetization of the public debt. Except for two periods (1947–48 and the first months of the Korean War), the Federal Reserve Banks were, in fact, able to reduce their portfolio of government securities.

Nor were the exceptional periods Patel mentions ones during which the Fed might be said to have relapsed into its wartime, easy money ways. During the first, although its Treasury bond holdings rose from $1.5 billion to $11 billion, it offset all but $1 billion of this increase by selling shorter-term securities; and as soon as Fed officials recognized the possibility, during the latter part of that period, that the Fed’s bond purchases were contributing to excessive bank lending, they countered them by imposing higher bank reserve requirements, which they maintained until May 1949, despite the downturn that began some months earlier. When the Fed reentered the bond market during the Korean War, it raised banks’ minimum reserve requirements once again—enough, Patel says, “to reduce potential bank credit expansion by about $12 billion” (ibid., p. 86).

Tight-Money Inflation?

For the rest of that postwar demi-decade, Alan Meltzer (p. 631) observes, “the Fed had little enough to do” to stick to its agreement to keep interest rates from rising above their wartime targets. Indeed, until the Korean war began, its main challenge was one of keeping rates—long-term rates especially—from falling below those targets, as they did frequently. Doing that meant selling rather than buying Treasury securities, which was, as Patel notes, “the reverse of debt monetization” (1953, p. 84). Money growth decelerated accordingly, with annual M1 growth quickly declining from its wartime double-digit levels to less than 6.5 percent in 1946, 5.51 percent in 1947, less than one-half of one percent in 1948, and minus one percent in 1949! Nor did Fed officials mind this, for so far as they were concerned the Fed’s principal postwar duty wasn’t helping the government pay its bills: it was keeping a lid on inflation.

Even so, inflation was a problem. Although controls had kept the observed rate of consumer price inflation below two percent during the last years of the war, once they were relaxed that rate rose quickly, reaching a peak annual inflation rate of over 20 percent for the year starting in March 1946. However, it’s necessary to distinguish here between inflation that consists of prices “catching up” to their equilibrium levels after having been held below them by controls for some time, and inflation that’s the result of an ongoing easy money policy. That the inflation of the latter 1940s was mainly of the first sort is suggested by the fact that, after rising quickly to its spring 1947 peak, the inflation rate fell off just as quickly. Although the outbreak of the Korean War led to another burst of inflation, its cause was a wave of “scare buying” by a public convinced that the government was about to start rationing goods again, and it also tapered off quickly.[2] That is, it also can’t be attributed to deliberate Fed policy.

Indeed, according to most assessments of that policy, to the extent that it contributed to the postwar behavior of consumer prices, it did so not by keeping money too loose in the immediate postwar period, but by tightening too much in response to both “catch-up” and “scare buying” inflation. Its tightening in the response to the first almost certainly contributed to the 1949 recession, and to the first outbreak of deflation since the Thirties. Consequently, despite the fact that the average inflation rate for the whole 1946–1951 period averaged a far from trivial 6.5 percent, Alan Meltzer (2003, p. 582) is quite right when he insists that during it the Fed “was far from an ‘engine of inflation’.”

Net Investment, Naturally

But might the Fed have been an “engine of investment”? The combination of low nominal interest rates and high inflation during most of the 1946–1951 period meant that real (inflation-adjusted) interest rates were mostly negative, and sharply so during 1946 and 1947. And that happens to be precisely when private net fixed investment suddenly awoke from its decade-and-a-half long slumber. After that, as inflation declined, giving way to deflation in 1949, while nominal rates rose, real rates shot up, and investment fell off again. It sounds, some would say, like a classic case of excess money creation causing an unsustainable investment boom by driving real interest rates below their “natural” levels.

But here once again, appearances deceive. Stepping back to take in the larger picture shows that, despite the 1949 setback, there was nothing unsustainable about the postwar investment revival. Instead, after that setback, which was itself relatively minor, net private fixed investment returned to and soon exceeded its previous postwar high. Moreover, as the next chart shows, it continued on that modest upward trend, with only modest interruptions, for almost two decades after the March 1951 Treasury Accord freed interest rates from their former limits. Thus liberated, those rates eventually rose substantially; and because inflation was held in abeyance for most of the next two decades, real interest rates also rose. These developments strongly suggest that the postwar revival of net investment didn’t depend on the Fed’s ability to keep interest rates low.

***

To conclude: neither fiscal nor monetary stimulus played any substantial part in the postwar investment boom. Postwar fiscal policy had as its chief aim reducing the federal debt, and was therefore remarkably austere. Postwar monetary policy had as its chief aim keeping a lid on inflation, which invited over-tightening. Despite their essential conservatism, neither of these policies was so stringent as to have stood in the way of a robust recovery of overall private spending. That was itself no small thing. But if we seek the springs of the pronounced and permanent revival of investment, which was the key to a lasting recovery, we must keep looking.

Continue Reading The New Deal and Recovery:

• • Intro
  • Part 1: The Record
  • Part 2: Inventing the New Deal
  • Part 3: The Fiscal Stimulus Myth
  • Part 4: FDR’s Fed
  • Part 5: The Banking Crises
  • Part 6: The National Banking Holiday
  • Part 7: FDR and Gold
  • Part 8: The NRA
  • Part 8 (Supplement): The Brookings Report
  • Part 9: The AAA
  • Part 10: The Roosevelt Recession
  • Part 11: The Roosevelt Recession, Continued
  • Part 12: Fear Itself
  • Part 13: Fear Itself, Continued
  • Part 14: Fear Itself, Concluded
  • Part 15: The Keynesian Myth
  • Part 16: The Keynesian Myth, Continued
  • Part 17: The Keynesian Myth, Concluded
  • Part 18: The Recovery, So Far
  • Part 19: War, and Peace
  • Part 20: The Phantom Depression
  • Part 20, Coda: The Fate of Rosie the Riveter
  • Part 21: Happy Days
  • Part 22: Postwar Monetary Policy
  • Part 24: The RFC
  • Part 25: The RFC, Continued
  • Part 26: The RFC, Conclusion
  • Part 27: Deposit Insurance

  _____________________________

  [1] Mark Toma argues that, during the war, “the Treasury and Fed were implicitly committed to future money growth rates that would be consistent with low long-run inflation and [that the Treasury would] at the same time would restrict the quantity of government bonds that would be covered by the 3/8 percent peg…. In fact, the Fed encouraged limits on the weekly issues of new Treasury bills throughout the pegging period, although Treasury pressure sometimes served as a countervailing force.”

  [2] For details see Blinder and Brunet (2021) and sources cited therein.

In the midst of the Senate hearing investigating the fall of the cryptocurrency exchange FTX, Senator Elizabeth Warren (D‑MA) introduced a new bill—the Digital Asset Anti-Money Laundering Act of 2022—seeking to heighten the financial surveillance of individuals. Although the bill does little to nothing to address the issues behind FTX, it would levy a hefty blow to financial privacy for American citizens.

Self-Hosted Wallets

The bill first seeks to classify self-hosted wallets as money service businesses. For those unfamiliar, self-hosted wallets are merely the digital equivalent of a wallet in your pocket or purse. Although one may enjoy certain comforts and conveniences from using a third-party service like Coinbase to custody cryptocurrencies, self-hosted wallets allow individuals to have full ownership of their cryptocurrency. More so, where much of the financial surveillance in the United States depends on what’s known as the third-party doctrine, self-hosted wallets offer individuals protection from government surveillance and censorship.

Yet Senator Warren’s bill would put an end to that protection by ordering the Financial Crimes Enforcement Network (FinCEN) to finalize its infamous wallet rule. That rule originally came just days before Christmas in 2020 when FinCEN opened a brief comment period. If established, the wallet rule would have forced companies to report know-your-customer (KYC) information, among other things. However, the rule generated so much public backlash that Representative Warren Davidson (R‑OH) later introduced a bill—the Keep Your Coins Act—specifically to protect Americans from such policies. Yet, it seems Senator Warren seeks the opposite.

Were that not enough, the bill seeks to classify cryptocurrency miners, validators, and network participants as money service businesses as well—worsening many of the still unfixed issues in the Infrastructure Investment and Jobs Act.

Mixers

The bill also sets its sights on cryptocurrency mixers. Again, for those unfamiliar, mixers offer individuals the opportunity to enhance their privacy when using cryptocurrencies on public blockchains where transactions are visible for anyone to see. Mixers, as the name suggests, mix funds and then return them to the customer for a fee—a valuable service when using a publicly transparent ledger. Both the Department of Justice and Chainalysis have noted that mixers do not make funds impossible to trace for law enforcement purposes. Instead, they just offer the opportunity to improve one’s financial privacy.

Not content with the chance of that occurring, however, Senator Warren’s bill would prohibit banks and other financial institutions from using mixers or handling cryptocurrencies that have been run through mixers in the past. This type of prohibition brings up many of the concerns that came up earlier this year with the sanctions placed on Tornado Cash—an open-source mixer. For instance, it’s not clear how the law would be enforced. Are cryptocurrencies permanently blacklisted after being sent through a mixer? Or will a certain number of public transactions make them “legal” again? More so, how is the public expected to comply with these rules? As it is currently written, the bill’s requirement is akin to forcing financial institutions to trace the life of every penny before accepting deposits.

Forced Reporting

One other notable piece of the bill is the requirement for Americans to report to FinCEN if they transact more than $10,000 in cryptocurrency if at least one party in the transaction is outside the United States. The Infrastructure Investment and Jobs Act already changed the law to soon force individuals to report on one another when using $10,000 or more in cryptocurrency. However, it appears Senator Warren’s bill would require a second report to be filed on top of that for cross-border purposes—an interesting strategy given the Infrastructure Act continues to face legal challenges.

Many issues come out of this proposal. First, cryptocurrencies do not discriminate based on geographic location. In fact, there is often zero indication of where a transaction is taking place as blockchains are borderless by design. Therefore, it’s unclear how citizens are expected to comply here. But even if compliance was possible, this measure is fundamentally at odds with the Constitution. No American should be forced to report their private, financial transactions to the government if the government is unable to provide a warrant.

Conclusion

There are many issues to talk about regarding FTX and its management, but this bill adds nothing to the conversation. It merely uses the dust from the company’s collapse as a cover for increasing financial surveillance.