Black Markets

Trump's Plan for Making Financial Black Markets Great Again

The presidential wannabe's scheme will likely draw more illegal immigrants and fuel illegal evasion of capital controls.

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Donald Trump's plan to not only build a y-u-u-u-ge wall along the border with Mexico, but make our neighbor to the South pick up the tab for construction (at padded government rates, no doubt) is supposed to be an example of his think-outside-the-box policy genius.

And a special genius it is. Trump may have stumbled on an effective scheme for reviving flagging Mexican interest in seeking economic opportunity in the United States. And he seems to have hit on a brilliant stimulus for building underground financial markets.

Trump is already spurring international language skills, having inspired former Mexican President Vicente Fox to fluent English profanity. "I'm not going to pay for that fucking, wall," said the former head of state, who is the grandson of an American who crossed the border to find opportunity in Mexico.

Typically, Trump doesn't plan to leave the choice in Mexican hands. In a memo to the Washington Post, he laid out his proposal that "no alien may wire money outside of the United States unless the alien first provides a document establishing his lawful presence in the United States." That is, he wants to impose targeted capital controls on the flow of cash from the U.S. to Mexico.

"We have the moral high ground here, and all the leverage," adds Trump. "It is time we use it in order to Make America Great Again."

The "moral high ground" claim is questionable, considering that would-be President Trump asserts state dominion over people's money, telling them where and to whom they send cash they earned and own. And there's actually less leverage to be had than in the past. Just as the years since the great recession have seen a net outflow of Mexicans from the United States—Trump's wall looks destined to inconvenience more people trying to leave than enter—so remittances south of the border have also plummeted, by 29 percent between 2006 and 2013.

But we're still talking about an estimated $24 billion. That's a lot of leverage with which to convince Mexico to keep home people who are no longer so eager to come here anyway. That sort of persuasion might be effective when we consider that every dollar remitted back home may generate as much as $1.70 in economic activity, according to researchers. But that leverage will be effective in a perverse way. Tell Mexicans working in the U.S. that they can't send the money they've earned back home where it's used to pay bills, start businesses, and fuel the prosperity that has kept Mexicans home in recent years and there's a fair chance that more of the people currently in Mexico will have to seek opportunity elsewhere.

Like in the United States.

Or maybe they won't. Capital controls aren't new, and people around the world have grown proficient at making sure their money gets from Point A to Point B, no matter what the Donald Trumps of the world say.

One possible workaround is that migrants could smuggle—or pay somebody else (think criminal networks) to smuggle—physical cash back to Mexico. That's a bit risky and crude, though, to the point that elegant alternatives have existed for centuries.

"Migrant workers can also send money home via transfer systems, like the hawala system in the Middle East and India, that use a series of brokers to transfer money without having to physically send it abroad," notes Vox.com's Dara Lind.

But technology has cleared the way for even easier transmission of money, Lind adds. "In Africa, for example, where transaction fees on remittances tend to be highest (13 percent of remittances get eaten up in fees), people have started sending money directly by cellphone for much lower fees than banks charge."

Or people could game Trump's restrictions by bypassing the strict letter of the rules.

"The most obvious way around the new provision would be for those who can prove legal residency to send the money for those who cannot," writes Mary Anastasia O'Grady for the Wall Street Journal. "But wire transfers are only one way of moving money. It could also be deposited in a U.S. bank and withdrawn from automatic teller machines in Mexico by intended recipients."

And even higher-tech workarounds are available to people committed to controlling and using their money as they please. In 2013, the Adam Smith Institute's Tim Worstall marveled at Forbes that "Bitcoin was a great way to beat such attempts to limit your freedom to move your money where you want it to be."

Sure enough, it wasn't long before a growing number of people in places including Argentina and China were using the relatively anonymous and difficult to track digital currency to evade capital controls and bogus official exchange rates.

"Argentines are conducting an ambitious experiment, one that threatens ultimately to spread to the United States and disrupt some of the most basic services its banks have to offer," The New York Times cautioned.

Maybe the fastest growth in the United States will take place among Spanish-speakers.

None of this is to say that Trump's scheme to force Mexico to pay for his planned wall will have no impact—just that it appears bound to fail.

"Although they often are evaded successfully, capital controls nonetheless impose substantial costs in inhibiting international trade in assets," a 1999 Federal Reserve Bank of St. Louis article warned.

Trump's scheme can't force Mexico to pay the bill for his latest monument to his own ego. It can, however, make Mexico a bit poorer and increase the flow of illegal immigrants to the United States where they will have to use creative and probably illegal means to send their earnings home.

That's probably not what the nativist would-be president has in mind. But it does indicate a certain… let's call it "genius."

NEXT: San Francisco Tries to Square Progressivism with Housing Progress

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  1. Trump’s plan

    The plan is what the US generally fails to do – use the leverage we have. We’ve got more money and power than Mexico. They need us more than we need them. It’s silly to just keep bending over to Mexico.

    A government of, by, and for Americans. It’s about time.

    1. A government of, by, and for Americans. It’s about time.

      … what?

      1. Forget it, he’s rolling…

        1. Was this guy not American? Or do we need more of what he was peddling?

    2. Conclusion: Mexico has taken advantage of us in another way as well: gangs, drug traffickers and cartels have freely exploited our open borders and committed vast numbers of crimes inside the United States. The United States has borne the extraordinary daily cost of this criminal activity, including the cost of trials and incarcerations. Not to mention the even greater human cost. We have the moral high ground here, and all the leverage. It is time we use it in order to Make America Great Again.

      Or we could just end the War on Drugs and in one no-cost action, reduce the size and scope of the violent black market while also ending the practice of punishing people for what they put into their own bodies.

      1. But,we can’t end the war on drugs until we figure out how to tax the shit,out of it, control every aspect of it, grow the FDA so we can oversee and regulate it, find jobs for all the cops that are now useless or expand the tax base so they can get early retirement off of the taxpayer teat for 30-40 years, find something for the DEA agents to do (they have families. Do you want them to starve?), find something to do with all of the people incarcerated for drug crimes through expanded reeducation and social services, ensure available housing exists for previous drug dealers that will now be unable to ply their trade because a state-sanctioned drug dealers license will require a clean criminal record, ensure free college educations for former drug sellers, buyers and families, friends and neighbors of them to give them a chance at life and make sure,subsidies exist to offset the loss in value of former crack houses that will now be zoned out of business when the state-sanctioned stores are put in place and their owners demand the city councils crack down on zoning violators.

        See, it’s not as easy as you think.

        -Progressive

        1. My answer – fuck you, you’re not guaranteed a job

          Easy peasy

          1. you’re not guaranteed a job

            Someone hasn’t been paying attention to American politics, have they?

            1. I try not to, for my own mental health

              1. Hm. Maybe that’s my problem…

        2. I’ve met a fair few Republicans who more or less believe the same things. Of course, that doesn’t rule them out from being “Progressive” but they’re not lining up to vote for Sanders, either.

          We didn’t end up with the drug war the way it is because “one side” got their way. This has been a bipartisan effort largely from the start.

          1. The right has been a big supporter of the drug war and largely wants to keep fighting it. I’m just pointing out the argument that the left will undoubtedly make should the right get come to their senses and call for an immediate end to the drug war.

            1. Fair enough, but my point is that the left won’t have a lot of enemies on that front. Plenty of Republicans, from what I’ve seen and heard, would be sooner be convinced to support what you wrote than the “legalize it and let God and/or Smith and Wesson sort ’em out” approach of libertarians.

              1. I don’t know. I think a lot of them are so sick and tired of the ever-expanding,government that they’d take a stand on all the freebies and controls the left will inevitably demand should the drug war come to a rapid halt.

                More likely the drug war will grind on, with MJ being legalized and/or decriminalized and treated pretty much like alcohol. That Genie is out of the bottle with Colorado and Washington and there’s no getting it back in unless a real hardcore drug warrior gets elected president and he decides to use his prosecutorial discretion (read: selective enforcement or rule of man) to go back after them. But I just can’t see that happening should a GOPer win this election…since Cruz has already said it should be left to the states and Trump doesn’t really seem to give a shit about it.

                1. I think we will end up with an ungodly shitshow, much like everything else, whereby people will pat themselves on the back for “not sending people to jail for smoking a harmless plant” all the while reinforcing and expanding the therapeutic-welfare-regulatory state.

        3. As a great woman once said, “there’s too much money in it.”

        4. Sounds like you’ve been talking to my sister.

    3. you’re scaling Peak Retard, b’byeDavis.

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  3. Well, clearly the answer is to start burning mexico from the north down… If the wasteland doesn’t deter people, we start populating it with super mutants. But we’ll need the wall before we release them so the super mutants don’t come north either…

    1. My people tried that…the outcome resembled your Jurasic Park films minus any semblance of survival

      1. Well… the dinosaur super-mutants survived, right?

        1. Not after they hit the Yucatan with that asteroid.

          1. So after the super-mutants stop the Mexicans you want to hit them with an asteroid? I’m starting to like Trump’s wall more and more…

            1. Don’t be silly. We just deprive them of sources of FEV, and their population is limited to however many we create and deploy.

              1. +1 Master

  4. Trump will create black markets? Probably 80% of the Mexican nationals living in our country are living in a black market of quasi-illegality (well, it’s illegal but people in charge of the executive don’t want to prosecute it). They work for cash because employers will get fined if they try to legitimately hire them. And this leads to the massive amount of cash being sent back south of the border.

    Trump offers a solution to the immigration problem (the wall) that is moronic. But at least he respects the rule of law in this instance and doesn’t want to arbitrarily and selectively enforce the laws that were properly passed and reasonably upheld by the courts. That’s being done by the man that believes due process is him personally looking at a file before ordering the execution of American citizens that haven’t even been charged with a crime.

  5. Admittedly, I’ve never read a Trump biography, but sometimes I’m puzzled at how a guy who speaks and thinks like he does has been so successful (granted, he was born on 3rd base, but still). I have read articles about people who have done business with him and who were consistently trying to get paid by him. Pair that with his hair-trigger penchant for suing, or threatening to sue people, and perhaps we close to getting at the basis of his success.

    1. He’s on TV.
      People on the TV box are successful.
      Ergo cum laude: Trump is successful!

      1. Oh yeah? Then explain Melittha Harrith Perry.

        1. She works at Elle magazine, not on the TV box.

          1. I wouldn’t have called her successful when she was on TV. Sure, the 78 regular viewers of her show might have, but the rest of the country didn’t.

  6. Politics isn’t about proposing ideas that will work, it’s about proposing ideas that your constituents like to hear.

    1. +1 FATCA

  7. So is Bitcoin still successful? I know a lot of people were worried that it had inflated value due to speculation. But for transfers like those mentioned in the article, you don’t have to worry as much about volatility. You only need to hold the Bitcoins long enough to transfer them to someone else and for them to redeem them in local currency. Is this how Bitcoin is developing stable value?

    1. I need a citation on anyone paying cash for bitcoin.

      1. Well, there are sites tracking the exchange rate with cash and offering to facilitate that exchange. And at least some of these sites seem legit. I’m sure if Bitcoin were all some big scam (ie. not an honest effort to build a crypto-currency) this would have been exposed by now.

        Also, there was a guy who bought a pizza with bitcoin and pizzas can be exchanged for cash…

        1. But can deep dish be exchanged for,cash?

    2. My understanding is that Bitcoin is facing (or will soon be facing) the opposite problem. It’s a little too stable now. There is a lot of “room at the bottom” (to borrow from Richard Feynman) but that has a finite lower limit (namely, 0.00000001 BTC) and, the more such depth is explored, the more skewed the distribution of Bitcoins will become. You might reasonably trade in thousandths or millionths of BTC, meanwhile a handful of people might command hundreds of thousands or millions of whole BTC. Neither of these are potentially critical failures, but they should caution anyone against reliance upon BTC as a reliable store of value.

      Also, managing the blockchain is becoming unwieldy. The number of transactions that can be processed and verified is rate-limited. This challange may be overcome without undermining the other properties of the currency, but if not, then BTC won’t even be useful as a medium of exchange.

      That’s 2 of the 3 functions of money called into question.

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  9. Trump and the wall is that all Reason has anymore?

    1. Is Bernie one of the white walkers?

  10. Hopefully he will bring back the 1,000 dollar bill.

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  12. Brief reminder that remittances to Mexico are taxpayer subsidized through Directo a Mexico program of the Federal Reserve. Hooray for freedom of capital.

  13. Trump’s Deportation Proposal Isn’t Nazism, It’s A Senate Proposal Called ‘Touchback’ Amnesty..

    Marc Thiessen, former speechwriter to George W. Bush, in an appearance on The Kelly File, said that what Mr. Trump is saying when he talks about sending them back is an actual amnesty proposal called “Touchback” aka “Touchback Amnesty”. It was a Senate proposal that narrowly missed passage in 2007.
    It was endorsed by the New York Times but the National Review was opposed because they called it amnesty. It simply means if illegal immigrants want to stay here, they can go back home and then receive expedited approval to come back in and stay.
    Marc Thiessen explains in the next video and, as he said, Trump’s rhetoric is more fiery than what he’s actually proposing.

    1. I don’t know if this was the only one, but in 2007 there was a push by “W” to give away amnesty and it was halted by the people melting down the phone lines to Congress, showing the senators and representatives that amnesty is not particularly popular, despite the number of push-polls we are told that say so many want it.
      Aside from liking the whole “rule of law” thing, Americans, in general, believe in fairness. How fair is it for all the “line jumpers” to be allowed to stay, or do a “touchback”, when the people, who are following the rules, are waiting to be granted permission to enter?

  14. From the Government’s point of view, there’s a great advantage to ensuring legal status before allowing international money transfers – it means they know who to audit to ensure tax has been paid on the money before it leaves the country.

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  18. In a memo to the Washington Post, he laid out his proposal that “no alien may wire money outside of the United States unless the alien first provides a document establishing his lawful presence in the United States.”

    First of all just how will those implementing this be able to tell the aliens from the non-aliens? Will American citizens wanting to “wire money outside the United States” be required to carry US birth or naturalisation certificates around with them?

    One possible workaround is that migrants could smuggle?or pay somebody else (think criminal networks) to smuggle?physical cash back to Mexico. That’s a bit risky and crude, though, to the point that elegant alternatives have existed for centuries.

    Come now! Why go to all that trouble?

    Why not just send money the old-fashioned snail mail way: stuffing it into a brown paper envelope and mailing the envelope to Mexico. Granted it would not be impossible for postal workers to X-ray mail, but how will they be able to tell which mail came from an alien and which did not?

    Will Trump require all mail leaving the US come with a return address or contact number just-in-case a suspicious postal worker needs to check whether a suspicious envelope came from an alien? (And what happens to those envelopes or parcels which don’t? Will Trump extend civil asset forfeiture to the postal service?)

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