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Money Hacking
Aug. 2nd, 2011 05:07 pmA guy at work wrote recently about his pet peeve, people who still use paper money in the fareboxes. He encouraged all who would not be getting one of the electronic smart cards to at least dive into a nice government program that allows people to buy dollar coins online. As his update at the top notes, however, this program has been cancelled.
In another serendipitous coincidence, I learned the specifics of this cancellation from Planet Money: It has to do with "travel hacking". People use their credit cards with frequent flier bonus point to buy dollar coins in large amounts and promptly take those purchased coins back to the bank. At a dollar a mile, they can quickly accrue free airline miles that make vacations a reality. According to the synopsis: "The top 20 customers bought between $219,000 and $696,000 worth, says Mint spokesman Tom Jurkowsky." That's a lot of miles.
This does the US Mint no good. Currently (as mentioned in the Planet Money piece and the linked related piece) over a billion dollars in coin is being warehoused out of circulation. Those coins only do good if they are circulated.
As usual, I found everyone seemed to blame the wrong culprits, Congress (who authorized the coins) and the Mint (who makes and stores them). After all, those travel hackers are executing a pedestrian version of money laundering akin to the shenanigans I suspect the banks perform daily (suspicions I outlined and illustrated in my last post): buy an asset on loan, use the asset to pay the loan, use the extras provided in the loan transaction to get something free.
Here's a question: Why are the banks so willing to continue frequent flier mile programs or, for that matter, any point- and gift-based system that encourages people to charge purchases? Isn't that the real loophole being exploited? Yes, those purchases add up quickly and generally charge a far greater interest rate than the banks can charge in other venues. Yes, the banks may simply be offering these points to people in hopes they will far into one of their card holder agreement traps, a legal tripwire (like charging too much of the limit, or missing a payment) that allows the banks to boost the interest into usurous territory.
But there's another advantage for the banks: each of those purchases expands bank lending and with it the money supply. For customers to purchase actual money and to pay off the debt quickly, as I pointed out above, means a quick turn-around for indebted money to become reserve money. Those points may be too small to really matter when a bank is making money, and anyway usually get redeemed much later in the quarter.
Ah, but here's another question: Why aren't the banks circulating these coins? This may be a symptom of yet another war between our government and the institutions entrusted with our money supply, the Federal Reserve.
You see, Section Ten of Article One of the US Constitution reserves the right to "coin" money to the federal government. The US Mint is therefore a branch of the Federal Government. By contrast, our paper money is issued by the Federal Reserve, a legally-recognized conglomeration of privately held banks; the Reserve loans reserve notes to the Federal Government.
By failing to circulate dollar coins, the banks (who rely upon the Federal Reserve as the lender of last resort) could be sending tons of potential profit for the government back to that government for storage, favoring instead notes that prove more profitable for the Fed. According to Ellen Brown in her book The Web of Debt, this is exactly what the banks did just after the Civil War with government-issued greenbacks; hoard those US Notes customers brought in in favor of bank-issued notes, which were backed by gold, not the US government. (President Lincoln had issued these notes to fund the Union's Civil War effort without incurring private bank loans.)
In this fight between sovereign power over the private institutions to which most nations have conceded control of their money and debt, there is some hope, but much of it is being ignored by the mainstream media. Iceland, for example, is revolting against the private banking monopoly that put it in excessive debt and choosing default over humiliation. What comes next there should at least be interesting.
In another serendipitous coincidence, I learned the specifics of this cancellation from Planet Money: It has to do with "travel hacking". People use their credit cards with frequent flier bonus point to buy dollar coins in large amounts and promptly take those purchased coins back to the bank. At a dollar a mile, they can quickly accrue free airline miles that make vacations a reality. According to the synopsis: "The top 20 customers bought between $219,000 and $696,000 worth, says Mint spokesman Tom Jurkowsky." That's a lot of miles.
This does the US Mint no good. Currently (as mentioned in the Planet Money piece and the linked related piece) over a billion dollars in coin is being warehoused out of circulation. Those coins only do good if they are circulated.
As usual, I found everyone seemed to blame the wrong culprits, Congress (who authorized the coins) and the Mint (who makes and stores them). After all, those travel hackers are executing a pedestrian version of money laundering akin to the shenanigans I suspect the banks perform daily (suspicions I outlined and illustrated in my last post): buy an asset on loan, use the asset to pay the loan, use the extras provided in the loan transaction to get something free.
Here's a question: Why are the banks so willing to continue frequent flier mile programs or, for that matter, any point- and gift-based system that encourages people to charge purchases? Isn't that the real loophole being exploited? Yes, those purchases add up quickly and generally charge a far greater interest rate than the banks can charge in other venues. Yes, the banks may simply be offering these points to people in hopes they will far into one of their card holder agreement traps, a legal tripwire (like charging too much of the limit, or missing a payment) that allows the banks to boost the interest into usurous territory.
But there's another advantage for the banks: each of those purchases expands bank lending and with it the money supply. For customers to purchase actual money and to pay off the debt quickly, as I pointed out above, means a quick turn-around for indebted money to become reserve money. Those points may be too small to really matter when a bank is making money, and anyway usually get redeemed much later in the quarter.
Ah, but here's another question: Why aren't the banks circulating these coins? This may be a symptom of yet another war between our government and the institutions entrusted with our money supply, the Federal Reserve.
You see, Section Ten of Article One of the US Constitution reserves the right to "coin" money to the federal government. The US Mint is therefore a branch of the Federal Government. By contrast, our paper money is issued by the Federal Reserve, a legally-recognized conglomeration of privately held banks; the Reserve loans reserve notes to the Federal Government.
By failing to circulate dollar coins, the banks (who rely upon the Federal Reserve as the lender of last resort) could be sending tons of potential profit for the government back to that government for storage, favoring instead notes that prove more profitable for the Fed. According to Ellen Brown in her book The Web of Debt, this is exactly what the banks did just after the Civil War with government-issued greenbacks; hoard those US Notes customers brought in in favor of bank-issued notes, which were backed by gold, not the US government. (President Lincoln had issued these notes to fund the Union's Civil War effort without incurring private bank loans.)
In this fight between sovereign power over the private institutions to which most nations have conceded control of their money and debt, there is some hope, but much of it is being ignored by the mainstream media. Iceland, for example, is revolting against the private banking monopoly that put it in excessive debt and choosing default over humiliation. What comes next there should at least be interesting.