(emphasis mine) [my comment]
Fed admits dollars disappearing
Star-News - Google News Archive - Feb 11, 1986
WASHINGTON — A lot of U.S. greenbacks can' t be accounted for.
A study has concluded that $136 billion in U.S. currency — 88 percent of the total circulation—is missing.
In a comprehensive look at personal money-handling habits, Federal Reserve Board economists concluded that individuals over age 18 are holding $18 billion in U.S. coins and cash. That is about $100 per person.
That is, however, only 12 percent of the $153.9 billion of cash supposedly in circuiatAon. Where is the rest?
“I wish we knew where it was.” said Paul A. Spindt, a Fed economist and one of the authors of the study.
Fed economists know that part of it is in the cash drawers of legitimate businesses and some Is held by people under age 18. Neither group was included in the Fed survey.
Spindt said he doubted, however, whether the amount held by youngsters and businesses would total more than 15 percent. That leaves nearly three-fourths of U.S. currency missing in action.
One explanation is that part of the missing money is being u8ed in the “underground” economy, populated by those intent on evading income taxes by dealing on a cash- only basis.
This explanation, however, would account for only part of the funds, because even ill-gotten gains flow back into general circulation at some point.
Other studies have speculated that as much as one-third to two-thirds of U.S. currency winds up in foreign hands. The Fed economists made no estimate of how much has gone overseas, but speculated that a big part of the money is, indeed, being used by foreigners who would rather deal in the stable U.S. currency than In their own currencies.
“We do know that there are some very large shipments of U.S. currency going offshore to various destinations around the world,” Spindt said.
This money often ends up in areas with high inflation rates. In some Latin American nations, for instance, the citizens exchange local currency on the black market for dollars as a hedge against their own currency' s being devalued.
The study, published in this month' s Federal Reserve Bulletin, has important implications for the central bank in its efforts to control growth of the nation' s money supply.
The basic measure of money known as M1, is defined as currency in circulation and checking accounts. The $153.9 billion estimate for the amount of currency in circulation accounts for about one-fourth of the M-1 total.
If it turns out that a great deal of this money is no longer in the United States, the growth targets the Fed sets for M-1 would have to be adjusted.
The study concluded that the amount of currency in circulation, the $18 billion held by Individuals, is changing hands more rapidly than had been estimated. The study estimated this money was spent and replenished at a rate of about $420 per adult a month.
This turnover of money is known as velocity. In recent years it has failed to perform as policymakers had expected, blunting the effect of Fed efforts to manage money growth.
The study said 14 percent of American families operate on a cash-only basis but most family finances are handled through checking accounts which covered 57 per cent of all family spending.
The study said 42 percent of families have cards for automated bank teller machines but only 30 percent of families used the cards in the month before the survey.
The survey on financial patterns among U.S. families was conducted for the Fed from May to August 1984 by the Survey Research Center of the University of Michigan. which Interviewed 1,946 families.
“We need to take a more careful look at how money is being used in the economy,” Spindt said. He said the authors of the report are recommending that the survey of cash be repeated on a regular basis to get a more accurate reading of peoples use of money.
Confidence in the dollar was collapsing going into the 1980s (see some of my other entries), so why was the share of dollars held abroad increasing?
In the 1980's this meant cocaine producers routed their product through the privileged CIA-protected La Corporacion-Cali-Noriega-Contra coke pipeline, with a commensurate increase in volume and drop in prices (mentioned above). This was a monetary pipeline as well, with the producer economies receiving infusions of hard American currency. In that sense one commodity, cocaine, flowed north while another kind of commodity flowed south: hard currency. …
With that statement in mind, consider these quotes from ex-DEA agents like Michael Levine and Cellerino Castillo:
"For decades, the CIA, the Pentagon, and secret organizations like Oliver North's Enterprise have been supporting and protecting the world's biggest drug dealers.... The Contras and some of their Central American allies ... have been documented by DEA as supplying ... at least 50 percent of our national cocaine consumption. They were the main conduit to the United States for Colombian cocaine during the 1980's. The rest of the drug supply ... came from other CIA-supported groups, such as DFS (the Mexican CIA) ... [and] other groups and/or individuals like Manual Noriega." (Ex-DEA agent Michael Levine: The Big White Lie: The CIA and the Cocaine/Crack Epidemic)