During the last week of December last year, my colleagues and I were confronted with some surprising news: our department is being broken off the parent company and sold. We will continue providing infrastructure support services to the parent company with exclusivity once the transaction is complete. And as a consequence of the planned sale, over the past few months we’ve been deluged with projects that need to be complete prior to the transition date in order to get as much out of us before we become a separate entity to which our parent company will have to write out bigger checks for the same work. It’s like having three months in which to do the work we typically do in a year.

Additionally, during this period of being busier than usual, the Blade Center that we run our development environment on decided to die while the aftermarket warranty servicer balked at the replacement cost of the parts need to repair it and tried every delaying tactic in “the book”. In short, work has been quite hectic lately.

We appear to have gotten the bulk of the work completed (including having the Blade Center back in service) and I now have some breathing space to shift my focus back to blogging. And I don’t really mean the kind of stuff that I’ve tried to pass of as posts lately, light on research and heavy on the rants. Though, I have to admit that I appear to get more traffic on my site when I go on my populist rants than when I publish something I think has at least some informational quality and is actually worth reading. Strange. Maybe I am better off making a spectacle of myself?

Actually, I wanted to put down on “paper” some of things I’ve been thinking and reading about recently but haven’t had the time to devote to them.

Just today I spent a few hours on a post that is somewhat of a reply to my friend Benjamin Cole’s guest posts on Historinas about recent changes in cash holdings and possible implications. That post isn’t forthcoming as I decided in the middle that the subject is a black hole, and I’ll explain what that means. It ended up in the recycle bin on my desktop, a very frustrating thing for the research devoted to it. But the short of my conclusion is that the methodology behind estimates of US currency holdings abroad are not very mature, and probably not reliable. The explanation for the latest revisions in accepted methodology for measuring related variables are not inclusive of all the ways cash can move off shore, but rather just expansion to identifiable and some not readily identifiable sources. Regardless of the claim of being able to measure off shore cash flows, a look at what is measured reveals it as dubious at best.

The post that went into the trash was the skeleton of a takedown of the off shore cash flow methodology, piece by piece, using Feige 2008 as my strawman (sorry Mr. Feige). There was no offense intended. But it is one of those things that I would label as being absurdly unscientific, not because it lacks data, it did not. It included an abundance of data that might be useful for other studies. It was absurd because it claimed included data support the conclusion, that there’s billions in cash held domestically in large denominations, or circulating to support illicit uses that was previously believed to be off shore. It did not prove that. The most that it could prove is there were sources of cash inflows that were not previously captured in the accepted estimates. But these sources are not by any means disentangled from ordinary cash issuance, and including them in the measurements of US currency holdings abroad serve only to deflate the estimate without regard to accuracy.

Translating my criticism into more simplistic terms, Feige, who has been instrumental in many of the recent methodology revisions, found an unexplainable pattern in the currency issuance of Southern regional Reserve Bank cash offices. And instead of attempting explain it to ensure it is a offshore inflow he makes the assumption that it is an offshore inflow without any evidence. And that insofar is the progress on development of the methodology of measuring the flow of cash abroad.

Aside from this, the paper is what I like to refer to as tabloid economics, presenting salacious, superficially plausible claims, like ‘missing cash ‘ supporting illicit uses and tax evasion domestically, then throwing a bunch of data at it hoping nobody actually looks at it. This kind of irresponsible economics, like rants of supposed experts in bubbles, creates more harm and victimization than anything we could or would ever do on purpose.

Basic rules of thumb when talking about cash that make sense to me:

  • We don’t know where all the US currency in existence is or what it’s used for.
  • If we don’t know where it is, claims about its use are simply that. I say ‘prove it’.

Here is what I know about cash that I think is far more important than anything the tabloid economists can come up with. And, unlike estimates of foreign US currency holdings, US household and non-profit checkable deposits and cash measurements are available on FRED. Just take a look at the yoy activity for this variable just prior to and during the Great Recession – it is completely off the charts compared to the previous time period this measure has been recorded (since 1949). It’s simply astronomical – the anatomy of a demand shock in motion.



When I see things like this, any mention of an illicit economy, proved or unproved, seems entirely unimportant. Maybe it’s just me. But I don’t feel taken advantage of by it as if its presence is any new phenomenon or revelation – it’s always been there. No, rather, I feel raped by legitimacy, outright – and if there has been a recent rise in levels of illegitimate economic activity, this no doubt is a major contributing factor. When it’s safer to engage in the illicit complete with a stash of $100 bills in the mattress for rainy days than it is to gamble with legitimacy producing this kind of result, which would a rational person choose? I feel rather stupid now because I looked for a legitimate new job when there weren’t any to be had, eventually ran out money, and had to cope with that tragic nightmare. Maybe next time I’ll be ready with a special cavity in the mattress and new income quicker than “normal.”