This is a very important topic. Untraceability is the one key feature missing in Bitcoin. I have used various techniques to remove taint in the past, but my methods have had to evolve as the Bitcoin ecosystem changed. It's not an easy proposition.
Money laundering involves "illicit" sources of money. Since the government defines at any given moment what is considered illicit, and many are losing confidence in the government on a daily basis, where does that leave us?
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This isn't about "If you're doing nothing wrong, privacy doesn't matter." I used to use that argument also. I think recent political realities (and my own education on these topics) have changed my point of view today. The US Government, from my perspective, is increasingly less safe.
You've touched upon an important point which illustrates why privacy is essential for everyone. The truth is that there are so many laws on the books at the federal, state and local levels that nobody really knows whether or not they are a criminal. It's not a simple case of asking yourself Did I hurt or steal from anyone? Who knows what law you may have violatedmaybe you installed a flush toilet with too large of a tank, or maybe you sold someone an incandescent light bulb. It's ridiculous how many things are illegal, and your life could be turned upside down if the government decided to make an example of you. The current IRS scandal is a perfect example of how the government can selectively choose to enforce laws against groups they don't like.
Governments are supposed to protect the rights of their citizens. Consider the 4th Amendment to the U.S. Constitution:
The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated... It seems to me your financial records and personal correspondence are your papers, but this is not how the government sees it. They tell us that case law asserts that if you place your money in the care of others (banks) or send your email through a common carrier, then you give up your right to privacy. Really? So if Chase Bank decided to publish in a newspaper the names, addresses, transactions and account balances of everyone who had an account with them, then this would be OK and they would face no civil or criminal liability? No, not hardly.
So, if we can no longer depend on government to protect our basic rights, then we must take matters into our own hands. Bitcoin is a good start. I advise everyone to take stock of all the open-source projects out there that decrease the power of centralized authorities and pick a few to put your support behind. Some of those projects include Tor, I2P, Bitmessage, Open Transactions, Ripple (once it becomes open source), OpenWRT, Linux, various 3D printing projects, etc. It's going to be a long fight but one which we will ultimately win. We have mathematics on our side.