Mark Nestmann: Uncle Sam says it can confiscate … everything

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by Mark Nestmann:

Last week, we welcomed the news that the Brennan Center for Justice had published a batch of formerly secret government documents dating back to the 1950s. The files relate to Presidential Emergency Action Documents (PEADs); secret plans drafted to ensure “Continuity of Government” (COG) in the aftermath of a nuclear war, and later, in other emergency conditions. The Brennan Center received around 500 pages through a Freedom of Information Act inquiry; another 6,000 pages remain classified and weren’t released.

For nearly half a century, PEADs dealt only with establishing contingency plans for the government to continue operating after a Soviet nuclear attack. But starting with the 9/11 attacks, the disaster scenarios under which PEADs would come into effect have been expanded to include terrorist attacks and possibly other emergency situations.

Among the powers that PEADs reportedly give the government are the authority to impose martial law; round up and detain individuals deemed a security risk; confiscate private property; impose price controls; ration food; revoke passports; and censor foreign news broadcasts.

The 56 PEADs that appear to currently be in effect are classified “secret.” None have ever been declassified or leaked. Indeed, it appears they’re not even subject to congressional oversight. Media coverage of the document cache the Brennan Center received focused on these facts and on efforts by some in Congress to require presidents to submit all PEADs to Congress for review.

But what went mostly unsaid in the media reports (although not by the Brennan Center itself) is that Americans have been living under a continuous state of emergency since November 14, 1979 that has nothing to do with PEADs. That’s the date President Jimmy Carter ordered the seizure of more than $12 billion in Iranian assets. Carter’s order was the first declared national emergency after enactment of a 1976 law called the National Emergencies Act (NEA), which terminated all previous national emergencies. Seventy additional states of emergencies have been declared since then, and 40 of them remain in effect.

For example, consider Proclamation 7463, which came into effect September 14, 2001, three days after 9/11. This document, signed by President George W. Bush, gave the government emergency powers to use military force against Al Qaeda; the terrorist organization which took credit for the 9/11 attacks.

The NEA requires Proclamation 7463 and all other national emergencies to be renewed annually and reviewed every six months by Congress. But even though Al Qaeda has largely been dismembered, Bush and his successors have renewed this emergency declaration 20 times, most recently in September 2021. And Congress has never reviewed Proclamation 7463 or most other national emergencies despite the legal requirement to do so.

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National emergencies can be invoked under 136 statutory powers.  But most of them are authorized under a 1978 law called the International Emergency Economic Powers Act, or IEEPA. And the vast majority of IEEPA emergencies are sanctions directed against specific individuals, groups, or countries, such as President Carter’s 1979 freeze of Iranian assets. (We discussed what we characterized as the “hidden world” of Uncle Sam’s sanctions in this article from 2021.)

Despite the word “international” in its title, the IEEPA gives the president executive control over the entire US economy. At the stroke of a pen, the president can shut down entire sectors of it, including the foreign exchange markets and international wire transfer networks. The president may unilaterally ban all transactions with any person or entity and freeze its assets without a criminal conviction, a criminal charge, or even an administrative hearing. Indeed, according to the Treasury Department, it has the power to confiscate “any financial instrument” under IEEPA.

There’s little doubt that use of this authority would provoke an enormous political backlash if done on a large-scale basis. But there’s been virtually no political consequence after the Treasury Department’s Office of Foreign Assets Control (OFAC) froze assets of individuals mistakenly deemed enemies of the state thanks to declarations of national emergency issued under authority of IEEPA.

And if the president believes that a general confiscation of assets is necessary, there’s a playbook prepared by the International Monetary Fund on how to do it. The IMF declared in a 2013 report that this would be a good option to prop up cradle-to-grave welfare states. The report suggests a “one-off capital levy” – outright confiscation – of 10% or more of private savings for that purpose.

Here’s how this scenario might unfold. Let’s say there’s a financial meltdown worse than the one which started in 2007. Over-leveraged American megabanks are again facing financial ruin, as they did then. The government’s game plan would probably be for the Federal Reserve to drop interest rates to zero and start buying the megabanks’ distressed assets with money created out of thin air. This is the same quantitative easing (QE) strategy it used during that crisis, and again in 2020 with COVID-19.

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The problem is that dropping interest rates to zero would be highly inflationary. Massive QE would further spur inflation. With official inflation rates hovering around 8%, and real inflation rates at close to 17%, the Fed can’t take these steps without risking hyperinflation. But without the Fed’s support, Wall Street’s megabanks could collapse, perhaps in a matter of days or even hours.

That won’t be allowed to happen, because it would likely lead to an almost immediate global financial collapse as the crisis spreads internationally, as it almost certainly would. Instead, Uncle Sam will need to find a way to recapitalize their balance sheets. For instance, the president could invoke the IEEPA to carry out the IMF’s capital levy. The president could also let politically disfavored banks fail and use bail-ins to avoid paying off uninsured depositors. In other words, if you have more than $250,000 deposited in such a bank, instead of getting your money back, you’d get a stock certificate representing ownership of an insolvent bank. (Cyprus, anyone?)

One possible scenario would be for the president to begin with a capital levy, and if political opposition became too intense, resort to bail-ins. But both options might be required to calm the financial markets.

This obviously is an extreme scenario, and we hope it never gets to this. But if it does, you’ll be glad if you have a solid Plan B strategy in place.

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