Spreading the wackiness

-- by Dave

Did CNBC's Lawrence Kudlow suggest to his national audience yesterday that Federal Reserve Notes might be "counterfeit"?

Let's cut to the video of Tuesday's broadcast of Kudlow and Company, his weekday news-commentary program.

It came during a discussion of last week's bust of NORFED, the promoters of the "Liberty Dollar," who were also planning to put out a special Ron Paul edition of their $20 coin.

Kudlow invited Bernard von NotHaus, the head of NORFED, and was remarkably congenial, if notably ill-informed:

I don't understand why people aren't free to choose. If they want to circulate your coins or your paper, they should be free to do that. I do think it is against the law, but I think in a perfect world they should be free to choose.

Von NotHaus goes on to claim that the NORFED currency was perfectly legal. Just for the record, minting coins to be used as currency in fact is illegal, under 18 USC 486:

Whoever, except as authorized by law, makes or utters or passes, or attempts to utter or pass, any coins of gold or silver or other metal, or alloys of metals, intended for use as current money, whether in the resemblance of coins of the United States or of foreign countries, or of original design, shall be fined under this title or imprisoned not more than five years, or both.

The Liberty Dollar advocates have posted a less than convincing disclaimer on this point. But they seem to be silent on the perhaps more salient point -- namely, that such operations are also likely to run afoul of the Constitution, which in Article 1, Section 8, clause 5 reserves to Congress solely the power to "coin money, regulate the value thereof, and of foreign coin, and fix the standard of weights and measures".

Moreover, von NotHaus then brings up the FBI's affidavit against NORFED and claims he can't find any evidence of wrongdoing there:

You read it -- Ask yourself: What is the crime?

Well, we have read it, and even beyond the obvious problem of promoting "dollars" that obviously are coins with a printed monetary value on them, there is the larger point that NORFED was operating both a pyramid scheme and a money-laundering operation:

The marketing system NORFED operates to sell the currency is a multi-level marketing scheme. The scheme gives NORFED, RCOs, and Associates a profit for selling the ALDs into circulation. When the ALD reached the point of being unprofitable, NORFED conducted a "move up" of the currency. In 1998, the ALD currency was minted using a $10.00 base, meaning that a $10.000 ALD coin, eDollar, or warehouse receipt was backed by one troy ounce of silver. In November of 2005, the thirty (30) day moving average of the spot price of silver reached the "move up point" set by the NORFED. NORFED recalled all of the $10.00 base coins and warehouse receipts and "re-minted" the currency as a $20.00 base currency. This change made what the day prior had been a $10.00 denomination ALD coin, warehouse receipt, or eDollar backed by one troy ounce of silver, a re-minted re-issued $20 denomination coin. This instantly doubled the value of the currency. The "move up" left the silver and gold holdings at the same level as they were at the $10.00 base. Thus the value of the entire currency was doubled without changing the holdings at all. The other effect of the "move up" was a tremendous increase in profits for NORFED, RCOs and Associates.

As we noted previously, the affidavit also details how NORFED laundered large sums of money through various business transactions.

Again, this is all subject to the basic presumption of innocence, but the government's evidence, as I've said, is clearly sound, and there's no indication yet this is a case of ideological persecution; at every step, NORFED has been afforded full due process.

In an event, it was remarkable that not only had Kudlow obviously not yet read the affidavit, neither had anyone on his assembled panel of experts, only a few of whom spoke anyway. One of these was Fortune's Quentin Hardy, who opened with this shot:

For a start: Is it true you have a picture of Ron Paul on this currency?

When von NotHaus eagerly answers affirmatively, Hardy says:

Right away, I'm glad they raided you.

He also dings von Nothaus for calling the FBI "G-boys," and then lays into him:

Dude, with all respect, you are a counterfeiter. What you are doing is undermining the value of American currency. This is not cool. And with a nod and a wink you can say, 'Oh, it's just a barter thing, it's not really a dollar.' But the fact of the matter is, for those who feel that gold is real money, and what the Federal Reserve prints is fake money, they take it as real money, and try to substitute it. Now the feds take rather a dim view of people trying to undermine our national currency. I'm sorry, and we'll test this out in court. Good day to ya.

Kudlow then responds by going to another "expert", and extending the sympathy to von NotHaus even further:

Jason, what Quentin just said didn't sound all that bad to me. I mean, maybe the Feds' money -- maybe the Federal Reserve notes are counterfeit, Jason. This is a whole new ballgame. What's your take?

I spent a year doing investment journalism in the '90s and we had CNBC on all the time in our newsroom. And I can't help but wonder what all those people tuning in -- especially the ones who like to invest in the U.S. dollar -- think about being told that maybe their entire economic foundation is "counterfeit."

I know that Kudlow was a respected analyst once upon a time, but anyone who thinks he's credible now will have a difficult time explaining this.

[Hat tip to s9 in comments.]