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As the global economy implodes, governments throughout the world have responded...
In the United States, Congress, the Securities & Exchange Commission, the Treasury Department, and the Federal Reserve Board have imposed various emergency measures intended to shore up the economy.
Congress has approved a US$810 billion (is that right?) Wall Street bailout, now enacted into law by President Bush. The SEC has banned short selling of financial stocks. The Fed has traded hundreds of billions of dollars of banks' distressed mortgage debt in for Treasury bills.
However, we've only seen the tip of the iceberg when it comes to measures the government can impose in dealing with this crisis. Today, without further legislation, the President can at the stroke of a pen declare a "state of national economic emergency" of potentially unlimited duration. Once he does so, under existing law and precedent, he may:
- Impose a national banking "holiday" closing all U.S. banks or restrict and ration cash withdrawals and the cashing of checks or drafts. President Franklin Roosevelt used this authority in 1933 to closet the U.S. banking system after a run of bank failures.
- Shut down all stock and commodity exchanges. President Wilson invoked this authority in 1914 to shut down U.S. financial markets for four months.
- Impose punitive taxes on inbound or outbound foreign investments. President Kennedy invoked this authority in 1962 to shrink U.S. capital deficits and support the U.S. dollar.
- Investigate, regulate, or prohibit the importing, exporting or holding of currency, securities or precious metals. President Franklin Roosevelt used this authority in 1933 to order the sale of all privately held gold in the United States to the federal government. President Nixon invoked similar authority in 1972 to end the ability of foreign central banks to exchange U.S. dollars for gold.
With few exceptions, the U.S. Supreme Court has repeatedly upheld such seemingly unconstitutional takings as legitimate uses of the president's war or emergency authority.
I don't believe President Bush will assert any or all of these powers unless he feels that he has no choice. However, one event that he won't be able to ignore would be if the U.S. dollar were to suddenly and sharply decline in value.
The dollar has sharply rebounded in value against other currencies in the last few months. However, foreign central banks hold more than US$3 trillion in U.S. dollars. You can imagine what might happen to the value of the dollar if these central banks begin selling dollars en masse.
MARK NESTMANN, Privacy Expert &
President of The Nestmann Group
www.nestmann.com
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