It can't happen here... right?

So there’s been some buzz this week about the Latvian government’s crackdown on people who talk smack about the banks and the currency there. A lot of it appears to be of the sort of smug can’t-happen-here variety. I’m not so sure.

The ball got rolling on Monday with a Wall Street Journalpiece focused on Dmitrijs Smirnovs, an economist who was hauled in for two days of questioning after he told a small newspaper that people should keep their money outside of banks and outside the Latvian currency, the lat. (He’s been let go, but he’s still under investigation.)

It turns out the professor is not alone in Latvia, where spreading “untrue data or information” about the country’s financial system is a criminal offense. Another economist a while back spoke up about the country’s current-account deficit and got a visit from the government’s counterespionage agency; he turned over some data to back up his assertion and hasn’t heard anything else since.

Of course all too often “untrue data or information” turns out to be data and information that’s completely truthful but damaging to the government. Reading about Latvia brought to mind the vaguely ominous remarks of FDIC chairwoman Sheila Bair last summer, when she blamed bloggers for a series of bank runs in California. “We’re very mindful of the media coverage and blogs in controlling misinformation. All I can say is were going to continue to stay on top of it.” Alas, the pathetic reporters assembled did not press her for details, either of the alleged offenses, or her ideas about how to “control” them.

If a professor in Latvia can get in trouble for three simple sentences (“All I can advise is this: First, don’t keep money in banks. Second, don’t keep money in lats.”), and if a senior official of the U.S. banking system is already making noises about “misinformation,” what does this portend?

Advice to stay out of U.S. banks remains pretty “fringe” at this point, but advice to get out of the dollar is all over the place; it’s not mainstream exactly, but it’s enough to snag bestseller status for Addison.

No, I don’t expect an imminent attempt to silence people who speak ill of the banks or the dollar. But for a government that has enacted sedition laws at certain sorry turning points in its history, every baby step is something to watch out for. Sheila Bair warned us as much last summer.

The Daily Reckoning