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Dominican Republic Real Estate, Residency Filing, Banking and Interest Rates.
Panama Residency and Retirement. Naturalization and Dual Citizenship - Expatriate Issues.
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Our March 30, 2006 Newsletter Edition
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IN THE NEWS:
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AMERICAS FINANCIAL HUB TO SET UP IN DOMINICAN REPUBLIC
Friday, March 10, 2006
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NEW YORK, March 10 (Reuters) - A privately owned offshore banking
center is being set up in the Dominican Republic to serve as the
capital markets hub for the Americas, similar to The Dubai
International Financial Exchange in the Middle East. The
Independent Financial Center of the Americas will be a clearing and
settlement house for emerging market debt and other products, and will
house private and commercial banks as well as an electronic exchange
called the Latin American International Financial Exchange (LAIFEX),
the new firm said in a statement issued on Friday. The Dominican
Republic will house this $850 million complex on a 17 sq km Greenfield
site bordering the Caribbean sea. The government of Leonel
Fernandez has backed the plan, which is still setting up its new
jurisdiction and regulatory framework. The exchange, which could
start running electronically within one year, will facilitate primary
and secondary debt trading both regionally and globally. In the
Middle East you have DIFX but in the Americas you don't have that, so
this would be a capital market for the Americas and will be
geographically centered between North and South America and Spain, a
company representative said.
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http://today.reuters.com/investing/
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EDITORS NOTES: This is not a surprising development in the
least. When we spoke with the director of the Santo Domingo Stock
Exchange a few years back, this project was on the table at that time
(the idea was to try and make the Dominican Republic a securities
trading hub for Latin America). It took a few years, but it looks
like it has finally arrived.
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GOING GLOBAL - By Hugh R. Morley - March 12, 2006
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The rapid rise of the global economy is reshaping the way New Jersey
companies do business, creating new opportunities and challenges. This
weekly column explores the growing ties between Garden State businesses
and the rest of the world. Need to find a cheap call
center? Picking the location of a call center can be tough now
that you can go pretty much anywhere in the world. The Boyd Co.
Inc., a Princeton-based corporate site selection consultant, says it
can help. The company scoured the globe, studying the cost of
operating a 45,000-square-foot call center staffed with 500 employers
making 2.5 million minutes in calls a month. Boyd looked at 72
American locations and 30 overseas, and then ranked them. Most
expensive on the list was Copenhagen, Denmark, with an operating cost
of $23.2 million. Of that, about 90 percent were salaries -- Danish
call workers on average make $16.85 an hour. Rent and equipment costs
came to $1.3 million each. And the cheapest site in the world was
the Filipino capital, Manila, where the center cost $4.2 million. That
included a labor bill of $2.6 million -- the average hourly call-center
wage is $2.13 -- and $220,000 for rent. Low-cost centers
elsewhere were: Delhi, India ($4.4 million); Santo Domingo in the
Dominican Republic ($5.1 million); Monterrey, Mexico ($6 million); and
Warsaw, Poland ($6.6 million).
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http://www.northjersey.com/
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The March 20, 2006 Issue of Fortune Magazine has a New 10 Page Section
about the Dominican Republic. If you have Adobe Acrobat or
similar program that can read a PDF document, then you can visit the
following link to download it for free:
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http://www.timeinc.net/fortune/services/sections/fortune/intl.html
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U.S. BABY BOOMERS RETIRING IN PANAMA
by Lourdes Garcia-Navarro, March 9, 2006
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It's a good bet that most people at one time or another have thought
about running away to a tropical paradise. For most, it remains just a
fantasy. But booming housing prices in the United States and a rising
cost of living for retiring Baby Boomers is prompting more Americans to
look to retiring abroad. Of course, that's not a new idea. But as
traditional spots in Mexico and Costa Rica become more expensive, an
increasing number of Americans are now buying their own piece of
paradise in parts of Central America that were once considered
dangerous backwaters -- places such as Honduras, Nicaragua and Panama,
previously off-limits because of volatile political climates.
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http://www.npr.org/templates/story/story.php?storyId=5253095
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EDITORS NOTES: There are two primary groups of people
expatriating these days. One involves the baby-boomers who are
trying to find a way to afford a home (for retirement in many cases)
and a very affordable place to live whereby they can have a decent
lifestyle on whatever pension or savings they might have. The
other group of people we are starting to see as a newer trend, are the
younger generation (ages 28 to 40) who sincerely believe they are the
generation getting the short end of the stick in terms of higher taxes,
reduced government pension benefits going forward AND an overall worse
economic and job scenario as many jobs now move abroad to India, China
and where ever else. Many of these similar kinds of stories have
focused on retirement issues involving the baby-boomers alone, but we
think it to be a very telling trend that the younger generation is
looking to, shall we say, exit stage left, as well.
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SHIFTING FORTUNES IN FOREIGN EXCHANGE RATES
Monday, March 20, 2006
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In 2005, the Federal Reserve abandoned its cheap dollar policy, and
tried to defend the greenback against the Euro and yen through a series
of baby-step rate hikes, without puncturing the US stock market rally
or the US housing bubble. The Fed achieved its twin objectives, because
Asian central banks and Arab oil kingdoms were heavy buyers of US
Treasury bonds, keeping US mortgage rates low. The most notorious
Asian buyers of US debt were China and Japan, which recycled hundreds
of billions of US dollars acquired through foreign currency
intervention back into the US debt markets. All told, Asian central
banks hold a whopping $2.75 trillion of foreign exchange reserves, led
by Japan's $851.7 billion, China's $818.9 billion, Taiwan's $257.3
billion, and South Korea's $217 billion.
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Beijing is on course to top $1 trillion in FX reserves this year, and
wants to diversify this year's build-up of cash away from the US
dollar. Beijing's satellite colony, Hong Kong, owns another $127.8
billion of foreign currency reserves. Therefore, the US Treasury is
afraid to identify China as a currency manipulator, even after the US
rang up a $202 billion trade deficit with China, due to fear that
Beijing and its satellite could retaliate by selling US bonds, and
driving mortgage rates higher.
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http://www.freemarketnews.com/Analysis/194/4194/2006-03-20.asp?wid=194&nid=4194
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THE WAGES OF NEO-LIBERALISM - PART 1:CORE CONTRADICTIONS
By Henry C K Liu, March 22, 2006
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The Fed under its former chairman Alan Greenspan repeatedly went on
record to assert its belief in the heresy that highly aggressive
monetary ease was doubtless also a significant contributor to
stability. Greenspan said in 2004 in hindsight after the bubble burst
in 2000: Instead of trying to contain a putative bubble by drastic
actions with largely unpredictable consequences, we chose, as we noted
in our mid-1999 congressional testimony, to focus on policies to
mitigate the fallout when it occurs and, hopefully, ease the transition
to the next expansion. By the next expansion, Greenspan meant the
next bubble, which manifested itself in housing after 2000. The
mitigating response was a massive injection of liquidity into the US
banking system. There is a structural reason that the housing
bubble has replaced the high-tech bubble. The US trade deficit finances
the US capital account surplus, which provides low-cost mortgages for
the US housing market. Houses cannot be imported from low-wage
countries like manufactured goods, although many of the contents in
houses, such as furniture, hardware, windows, kitchen equipment, bath
fixtures and heating and air-conditioning equipment are manufactured
overseas. Construction jobs cannot be outsourced overseas to take
advantage of cross-border wage arbitrage - although many low-skill
construction jobs are filled by illegal immigrants. But a housing
bubble is not different from any other types of debt bubbles. It will
burst if income fails to grow with asset value to sustain debt-service
payments.
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What is even more pathetic is that in the US, the Federal Reserve is
legally owned by its member banks, not the government, or the people,
although some 98% of the profit made by the Fed goes to the US Treasury
by law. Board members of the Fed are nominated by the member banks and
appointed by the US president, and as a group they predominantly
represent the special interests of the banking sector.
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http://www.atimes.com/atimes/China/HC22Ad02.html
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INDIAN CALL CENTRES + AMERICAN STUDENTS = OFFSHORE MATH TUTORING. By Amrit Dhillon, New Delhi - March 20, 2006
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IF AMERICANS can call someone sitting far away in India to sort out
problems with their computer or credit card, it's only a small step
further for parents struggling with a child's homework to say:
Hey, lets get a math tutor to help Randy with the algebra. It's
not quite as simple as that, but almost. Americans are turning to
Indian math tutors to help children improve their marks in a novel form
of outsourcing. The world over, parents have a problem helping
their kids with math homework. If they can go to their computer and get
someone to help them, it's a huge relief, says Shantanu Prakash, chief
executive of Educomp Datamatics. The cubicles in the Educomp
Datamatics office in west Delhi look like those of any Indian call
center. Men and women sit in front of computer screens with headphones
on. Only, they are not giving bank balances or sorting out a
technical problem with the oven. They are guiding students through
problem solving using a whiteboard and digital pencil so that each can
see what the other is writing. It's a huge generalization but
Indians tend to be good at math. It explains why so many Indians write
software. India did, after all, invent the zero. (It reached Europe
much later via the Arabs.) American schoolchildren, in contrast,
tend to do badly in math. According to US statistics, about 40 per cent
of year seven children fail in math and English.
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http://www.theage.com.au/news/business/indian-call-centres--
american-students--offshore-maths-tutoring/2006/03/19/11427
03218230.html
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EDITORS NOTES: You never know what you are going to read in this
newsletter, but sadly enough - it is all quite true.
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A NATION POLARIZED BETWEEN RICH AND POOR - AMERICA'S BLEAK JOBS FUTURE. By Paul Craig Roberts, March 6, 2006
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On February 20 Forbes.com told its readers with a straight face that
the American job-generation machine rolls on. The economy will create
19 million new payroll jobs in the decade to 2014. Forbes took
its information from the 10-year jobs projections from the Bureau of
Labor Statistics, US Department of Labor, released last December.
If the job growth of the past half-decade is a guide, the forecast of
19 million new jobs is optimistic, to say the least. According to the
Bureau of Labor Statistics payroll jobs data, from January 2001 -
January 2006 the US economy created 1,054,000 net new private sector
jobs and 1,039,000 net new government jobs for a total five-year figure
of 2,093,000. How does the US Department of Labor get from 2 million
jobs in five years to 19 million in ten years? I cannot answer
that question.
.
However, the jobs record for the past five years tells a clear story.
The BLS payroll jobs data contradict the hype from business
organizations, such as the US Chamber of Commerce, and from studies
financed by outsourcing corporations that offshore jobs outsourcing is
good for America. Large corporations, which have individually dismissed
thousands of their US employees and replaced them with foreigners,
claim that jobs outsourcing allows them to save money that can be used
to hire more Americans. The corporations and the business organizations
are very successful in placing this disinformation in the media. The
lie is repeated everywhere and has become a mantra among no-think
economists and politicians. However, no sign of these jobs can be found
in the payroll jobs data. But there is abundant evidence of the lost
American jobs.
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Information technology workers and computer software engineers have
been especially heavily hit by offshore jobs outsourcing. During the
past five years (Jan 01 - Jan 06), the information sector of the US
economy lost 645,000 jobs or 17.4% of its work force. Computer systems
design and related lost 116,000 jobs or 8.7% of its work force.
Clearly, jobs outsourcing is not creating jobs in computer engineering
and information technology. Indeed, jobs outsourcing is not even
creating jobs in related fields. For the past five years US job
growth was limited to these four areas: education and health services,
state and local government, leisure and hospitality, financial
services. There was no US job growth outside these four areas of
domestic non-tradable services. All of the occupations with the
largest projected employment growth (in terms of the number of jobs)
over the next decade are in non-tradable domestic services. The top ten
sources of the most jobs in superpower America are: retail
salespersons, registered nurses, postsecondary teachers, customer
service representatives, janitors and cleaners, waiters and waitresses,
food preparation (includes fast food), home health aides, nursing
aides, orderlies and attendants, general and operations managers. Note
than none of this projected employment growth will contribute one
nickel toward producing goods and services that could be exported to
help close the massive US trade deficit. Note, also, that few of these
jobs classifications require a college education.
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In the US the myth has been firmly established that the jobs that the
US is outsourcing offshore are being replaced with better jobs.
There is no sign of these jobs in the payroll jobs data or in the
occupational statistics. Myself, and others, have pointed out that when
a country loses entry-level jobs, it has no one to promote to senior
level jobs. We have also pointed out that when manufacturing leaves, so
does engineering, design, research and development, and innovation
itself. On February 16 the New York Times reported on a new study
presented to the National Academies that concludes that outsourcing is
climbing the skills ladder. A survey of 200 multinational corporations
representing 15 industries in the US and Europe found that 38 percent
planned to change substantially the worldwide distribution of their
research and development work, sending it to India and China.
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http://www.counterpunch.com/roberts03062006.html
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WHEN YOU CAN'T OBSCURE THE NEWS, BUY IT: HOW THE ECONOMIC NEWS IS SPUN. By Paul Craig Roberts, March 2, 2006
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Readers ask me to reconcile the jobs and debt data that I report to
them with the positive economic outlook and good news that comes to
them from regular news sources. Some readers are being snide, but most
are sincere. I am pleased to provide the explanation. First, let
me give my reassurances that the numbers I report to you come straight
from official US government statistics. I do not massage the numbers or
rework them in any way. I cannot assure you that the numbers are
perfectly reported to, and collected by, the government, but they are
the only numbers we have. Here is how to reconcile my reports
with the good news you get from the mainstream media:
.
When the US Department of Labor, for example, releases the monthly
payroll jobs data, the press release will put the best spin on the
data. The focus is on the aggregate number of new jobs created the
previous month, for example, 150,000 new jobs. That sounds good. News
reporters report the press release. They do not look into the data to
see what kinds of jobs have been created and what kinds are being lost.
They do not look back in time and provide a net job creation number
over a longer period of time.
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This is why the American public is unaware that higher paid jobs in
export and import-competitive industries are being phased out along
with engineering and other professional knowledge jobs and replaced
with lower paid jobs in domestic services. The replacement of higher
paid jobs with lower paid jobs is one reason for the decline in median
household income over the past five years. It is not a large decline,
but it is a decline. How can it be possible for the economy to be doing
well when median household income is not growing and when economic
growth is based on increased consumer indebtedness?
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Paul Craig Roberts was Assistant Secretary of the Treasury in the
Reagan administration. He was Associate Editor of the Wall Street
Journal editorial page and Contributing Editor of National Review.
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http://www.counterpunch.com/roberts03022006.html
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READERS WRITE IN:
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In regards to the news article appearing in our last newsletter
titled: IS THE INFLATION CAMP ON THE BUBBLE? By Kevin Duffy
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Hi - Great article this one. Maybe I say that as I had figured
most of scenario for myself and so agree with content. But as I
am not a trained economist - can you enlighten an unenlightened
reader. What is the safest response to this scenario?
Neither the 'wood shed' nor being 'smashed under a new wave of
inflation' appeals that much. I am a 'saver' by nature - but
looks like that will not help so much.
.
EDITORS REPLY: Well, my grandfather used to always say, hope for
the best but plan for the worst. Smart old guy he was. In
any event, the problem is that it can be difficult to say with pinpoint
accuracy exactly what will happen and when. However, on the other
hand, it is also true that we can predict what are the most likely
probabilities or projected trends based upon what we do know today, and
also based upon some common sense (and history also). In other
words, politicians want to tell you that deficits don't matter, we are
in a so-called new economy (so the old rules of economics no longer
apply), that outsourcing is very good for the average citizen (and that
new and better job prospects await us down the road), etcetera and so
on. As Mr. Ripley used to say - Believe it, or Not.
.
I would say that really this is the key point (believe it or
not). Which is to say, the nightly television news programs with
their panels of financial experts and former government officials as
so-called guest participants give you nothing but clear skies and happy
thoughts. However, the numbers do not lie. The question is
what are some of the most likely future scenarios and what can we do
about it? Certainly you know for yourself in terms of your own
personal finances, you cannot continue to live on or spend borrowed
money forever. In addition, all that debt needs to be paid for
somehow, not to mention to looming liabilities in the government
welfare pension and healthcare systems nobody wants to talk about (the
coming wave of baby-boomers tapping into the Social Security and
Medicare, which is a pay-as-you go or in essence a Ponzi scheme).
So, how are they (the politicians and other wizards in charge of the
economic levers) going to pay for or reconcile all of this? It is
not rocket science really. They need to take more money from you
(the taxpayer) going forward (one way or another, via taxation or
otherwise), or they need to simply create more money out of thin air
(run the printing presses, so to speak), or a combination of the
two. Neither one of these ideas is palatable as one indicates
higher taxes (and even lower disposable income for the average citizen
and loss of financial assets), and or inflation (devaluation of the
purchasing power of whatever cash you do have, or will have). In
addition, we have some other nasty little side effects, such as asset
bubbles be it in the stock market, be it in the housing market, and so
on. What is the point? You can see certain events like
these unfold in real time and have a chance to do something about it
then and there. You can see it happening while it is happening,
so it is not some hidden thing that sneaks up on you (if you take the
time to simply peruse the already existing information that is out
there in the public domain). Which is to say, there is a plethora
of readily available statistics that the government themselves produces
for you to read, decipher and interpret on your own.
.
I am not so concerned about these economic cycles or issues as I am in
terms of being able in the future to actually have the ability to move
your money out the door, out of the country that is, later on.
The variable that you do NOT know or see clearly while it is happening
are the various government shenanigans the politicians are involved
with to address these problems or issues. They know what it
coming and what is going on - how can they not if they themselves
produce the very same statistics and information you have access
to? So, with that said, what are the possible scenarios?
Well, aside from the higher inflation, higher taxation scheme, it would
also seem that the politicians are setting the stage for restriction on
the free and unfettered movement of money by private citizens, be it
through direct controls, reporting of transfers and or perhaps even
permission to send your own funds abroad in the future. How can
we make such a statement? What else could be the agenda? We
reported to you previously that some recent statistics (produced by a
variety of sources including many government agencies) would seem to
indicate that LESS than one percent of money movements or financial
transactions involve what might be called illegal or nebulous
activity. I repeat - less than one percent. And for that,
we read about a gentleman in the last newsletter than had a problem
when paying off his credit card balance, a group of catholic nuns in
Boston that had their bank account frozen, etcetera and so on. In
addition, the following is reported (I shudder to even imagine it might
be true):
.
Bank Of America and Compass Bank managers (probably all other U.S.
banks too) have been instructing their employees in the last few weeks
on how to respond to customer demands in the event of a collapse of the
U.S. economy - specifically telling the employees that only agents from
the Department Of Homeland Security will have authority to decide what
belongings customers may have from their safe deposit boxes - and that
precious metals and other valuables will not be released to U.S.
citizens. The bank employees have been strictly prohibited from
revealing the banks' new guidelines to anyone. (However, employees have
been talking to friends and family).
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Source: http://bellaciao.org/en/article.php3?id_article=9995
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Paul Kasriel, Director of Economic Research at Northern Trust and
co-author of the book Seven Indicators That Move Markets, has
said: We have the most highly leveraged economy in the postwar
period and the Fed is still raising rates and in the past 30 years or
so, whenever the Fed has raised interest rates, we have usually had
financial accidents. Our federal government is spending like a drunken
sailor so my advice is to put on your safety harness as it is going to
be a wild ride. My bet is that we are going to end up on the rocks.
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Sebastian Edwards, the Henry Ford II Professor of International
Business Economics at UCLA's Anderson School of Management and a
research associate of the National Bureau of Economic Research and has
been a consultant to the Inter-American Development Bank, the World
Bank, the OECD and a number of national and international corporations,
has stated that: The future of the U.S. current account - and
thus of the dollar - depend on whether foreign investors will continue
to add U.S. assets to their investment dollars. Any major reduction in
the USA's ability to obtain sufficient foreign financing would cause
the dollar to fall by 21% to 28% during the first three years of any
adjustment period, cause a deep GDP growth reduction, and push the USA
into recession.
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Robert E. Rubin, director of Citigroup Inc. and former Secretary of the
Treasury; Peter Orszag, Senior Fellow at Brookings Institution; and
Allen Sinai, Chief Global Economist at Decision Economics Inc., made a
presentation to a joint session of the American Economic Foundation and
the North American Economics and Finance Association recently.
They stated that: the scale of the nation's projected budgetary
imbalances is now so large that the risk of severe consequences must be
taken very seriously. Continued substantial deficits could cause
a fundamental shift in market expectations and a related loss of
confidence both at home and abroad. This, in turn, could cause
investors and creditors to reallocate funds away from dollar-based
investments, causing a depreciation of the exchange rate, and to demand
sharply higher interest rates on U.S. government debt. The increase of
interest rates, depreciation of the exchange rate, and the decline in
confidence could reduce stock prices and household wealth, raise the
cost of financing to business, and reduce private-sector domestic
spending
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Source: http://www.resourceinvestor.com/pebble.asp?relid=18069
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All of this may sound like wild-eyed speculation, and I must admit,
perhaps it is. However, on the other hand, why would any
government need to be paranoid about the free movement of capital,
especially in a so-called free, democratic, capitalistic society (and
economy)? What are the aims, goals or concerns? Let us look
at a very recent article about Dubai, but forget about Dubai itself as
a supposed very naughty place for radical Islam and instead let us
focus on what J. Henderson is saying in the recent article: The Truth
About Dubai, in regards to restrictions on money transfer
systems. The article says:
.
Much of the political slandering of Dubai is based on a protectionist
desire to prevent the free flow of capital across borders mixed with a
stereotypical impression that the city is a murky bazaar of money
laundering and arms trafficking. In fact, Dubai has long been a
crossroads of trade, barter, and informal cash transfers. Historically
it has weathered many efforts by colonial powers and foreign
governments to control its economic destiny. This began in the 1800s
when the British imposed an exclusive trade arrangement monopolizing
its lucrative trade links with India. More recently, Dubai traders
created black markets in gold, helping Indian expatriates to bypass
India's ban on gold futures trading from 1962-2004. Dubai traders have
also helped import consumer electronics and clothing into nearby Iran,
helping people there sidestep US economic sanctions (which only apply
to US corporations).
.
In a region of the world not known for economic freedom, market
capitalism has deep roots. Dubai is a key center of hawala, an
unregulated private system of payments and currency trading between the
Middle East, South Asia, and Southeast Asia. Similar to a banking
system of clearing checks, hawala brokers facilitate transactions and
money transfers for a 1%-2% commission. For less money than a typical
bank rate, the centuries-old payments system eases currency and gold
transfers between Dubai's many migrant laborers and their families
abroad.
.
Unfortunately, hawala is under pressure from the US government, which
is trying to impose its own bank reporting and record keeping
regulations throughout Dubai. The US regulatory efforts are a misguided
attempt to prevent money laundering and the financing of terrorism. If
informal cash transfers are regulated in Dubai, they will flee to other
unregulated locales. Neither legitimate nor illegitimate informal
payments can be eradicated by banking regulations. The restrictions
will, however, crush the only available means for Dubai's many
expatriate workers to send money to their families abroad. The
regulated banking system is not a viable option for them. In India, for
example, family members are likely to live in remote villages without
the modern financial services institutions found in urban centers. They
may be too uneducated or illiterate to utilize formal banking services,
or too poor to afford the higher fees associated with highly regulated
money transfer vehicles.
.
http://www.mises.org/story/2078
.
Some comments about gold:
.
Governments, Wall Street and business around the world hate it when
gold prices rise because it usually reflects an early warning of some
kind of trouble ahead, nearly always financial. It may be signaling
rising inflation or deflation as well as a general lack of confidence
in fiat or paper currency. When the gold price rises sharply against a
country's currency, as it has in the US, it points to trouble ahead for
that country's economy and monetary policy. At least it's worked that
way in the past. What's also worked is that when gold vies with an
inflated paper currency (because too much of it has been printed), gold
always wins. If investors lose faith in a paper currency or just have
enough uncertainty about it, they usually turn to gold.
.
Source: http://www.globalresearch.ca/index.php?context=viewArticle
&code=LEN20060222&articleId=2027
.
The bottom line is this. When you start tracking and restricting
the free flow of capital (money) you are neither successfully stopping
the so-called bad guys from moving money around nor are you doing
anything other than to restrict the flow of funds from the legal and
honest people in the society. The bad guys will always find a
way, so you are not stopping them, not really. The result by
default is an intentional or accidental stopgap on the free flow of
capital by the average, honest, law abiding citizens that are left
over. Is the latter result truly intentional on the part of
politicians? Are the pieces of the chessboard being placed to
make sure the gate can be shut, so that citizens cannot get the much
needed cash out of the country (much needed if the Chinese and other
Asians decide to cut off the credit to the US government) if things go
bad? Hard to say for sure with distinct certainty, but once
again, I cannot believe that they are that stupid (that stupid to not
realize what they are doing). If they are, they should not be in
a position of power to manage the nations money and finances. If
they are conniving wolves with an agenda that they are slowly trying to
spoon food to the general public under the guise of something else,
even worse and another problem altogether - albeit one with the same
result (which is extreme difficulty to get your money out in the
future).
.
Once again, what does all this have to do with your original
question? The economy tends to move in waves and cycles.
This is nothing new. What's new, are these other problems and
issues converging to what some would call, the perfect storm
(government pension and health insurance liabilities, national debt
that is now approaching dangerously high levels, demographics, transfer
of all kinds of jobs to low wage jurisdictions,
etc.).
.
You asked the question that more or less was a request to break it all
down in simple terms. What are some of the ways to protect your
savings against inflation, against devaluation AND possibly against
confiscation (of one sort or another)? The answer is to
diversify. If the end goal is to confiscate assets from the
general citizenry, then the obvious answer is to get it out of
reach. If the solution is something else, such as inflation, then
that means putting your funds into other currencies and other assets,
such as gold and real estate. Regardless, either keeping US
Dollars abroad or actually converting those funds into other stronger
currencies (and other assets such as gold or real estate, that is
located elsewhere as well) solves both of these problems. What
other currencies and what other counties? Again, who is poised to
do well, or at least does not have the same kinds of problems as the
US? Europe, while they have an even more serious problem than the
US in terms of aging populations, also do not have the national debt
levels AND in general the average citizenry does not live off of credit
cards (not to mention that banks in many European countries insist on
20 to 50 percent down payments for a home mortgage). So, in this
regard, the Euro probably stands a better chance than the US dollar of
holding value. Australia is another interesting idea, in terms of
buying Aussie Dollars. Australia is probably the only so-called
wealthy industrialized nation that has plenty of commodities (remember
we spoke about a possible coming bull market in commodities in past
newsletters) and is the only nation in the group that actually has a
favorable surplus with China (Australia sells more to China than they
buy, resulting is a net surplus of trade in their favor). So, in
this regard, the Aussie Dollar probably will bode well.
Australia's high taxes do not necessarily make for an entirely
attractive place to relocate to, but their currency has more of a
chance of holding value. Also consider the growth and economic
possibilities of other countries such as Argentina (they have
commodities and the Central Bank has been buying a whole lot of gold
recently, a very smart move), Brazil (Brazil will probably do very well
plus they recently discovered oil deposits which never hurts), and last
but not least we have the old standby, the Swiss Franc (and other gold backed
currencies out there as well).
.
You can buy and hold gold in a number of countries, such as Hong Kong,
Thailand, Austria, Switzerland, Singapore and many of the Arab
Countries as well (Dubai), so I do not think too much discussion in
needed on that. In terms of real estate, this may come down to
where you would like to live, and or where do you think the growth will
be in terms of demographics and economics going forward. Many
so-called developing or emerging markets will be poised to do well in
the coming years if they manage their countries well. Read the
following comments and link below:
.
In recent months, major countries in the region have moved to pay off
their loans to the IMF ahead of schedule and free themselves of direct
oversight from the Fund. Announcements in December from Argentina and
Brazil, which are paying off $9.8 billion and $15.5 billion
respectively, inaugurated the trend in the region. In addition, Bolivia
was relieved of its outstanding obligations to the IMF by last year's
debt relief agreement at the G8. The country's newly elected president,
Evo Morales, has indicated that he may let his standby agreement with
the IMF expire at the end of the month.
.
http://www.tompaine.com/articles/2006/03/16/latin_america_unchained.php
.
It is quite ironic that the so-called wealthiest nation in the world
continues to pile on debt, whereas the so-called poor third world
nations are trying to pay it off. In addition, many countries,
such as the Dominican Republic, Brazil, Thailand, India and so on do
not have the aging population demographics found in Europe or North
America (the people in these countries keep having lots of children,
for better or worse, and this means larger and larger pools of younger
people coming up behind the older ones, so no problems with state run
Ponzi scheme pension plans - if in fact they do exist). There
will be the issue of jobs for all these young people, but if foreign
(US) corporations continue to move manufacturing and operations to
these jurisdictions, then certainly that will help to address this
problem. In addition, these countries tend to have raw
commodities and natural resources of one kind or another (which should
offer a financial boost if commodity prices do escalate due to US
Dollar inflation), not to mention these are some of the places where
all the jobs are these days (where all the companies in North America
and Europe are relocating operations to, in order to cash in on lower
labor costs and improved pool of educated workers). Indeed we
have read some information how R&D is now being relocated out of
North America and into India as just one example. In addition,
the above mentioned news story highlights a new financial services hub
in the Dominican Republic as well. In short, follow the money and
or follow the economic growth. You do not need to be a Harvard
educated economist to understand an economy growing at 7, 8 or 9
percent per year (Dominican Republic today in 2006, Uruguay, Brazil,
etc.) is better than an economy growing at less than 2 percent (US,
Europe).
.
What about real estate? Well, there is a major difference between
buying a home to live in and speculation. In the least, it
certainly is very possible today to buy the same home, if not more of a home (larger, better, whatever) in places like the
Dominican Republic, Ecuador, Brazil, Thailand, etc. In other
words, from my own perspective, while very inexpensive raw land located
outside a growing city would be for pure speculative purposes, a house
is where you live - your home. That being the case, using the DR
as just one example, it is still possible to purchase a new upper scale
home or apartment (perhaps 1,600 square feet or more) in the capital
for about US$120,000 to US$150,000. On the north coast, we know
of someone that recently bought an ocean front villa (about 2,000 plus
square feet with one heck of a patio and view) for US$150,000.
So, if you have to live somewhere, why not live in a larger, better
home at half the price (and put the rest into the bank to live off the
interest, or into gold, or into other currencies, etc.).
.
Aside from all of this, consider a second citizenship for yourself as
well. Already many Americans are finding it quite difficult to
open a bank or brokerage account these days simply because they have
the wrong passport (US passport). Europeans also now have a
problem because unless they can demonstrate residency (or citizenship)
from a non-EU nation, then that leads to tax and other kinds of issues
as well. The game plan is quite simple. Set yourself up so
your money is not a sitting duck to a hostile takeover (of one kind or
another) and that goes for you personally as well. Hopefully the
hostile takeover will never come (one can have hope at least), but if
does, remember the old boy scout motto - be prepared. In summary,
I have no doubt that US Dollar interest rates will be going up.
The way you will make out is, IF you are able to earn higher rates with
your US Dollar deposits abroad AND have a lower cost of living in
another country as well.
.
Some Other On-Line Articles Worth a Read:
.
The Beginning of the End of the Petrodollar: What Connects Iraq to Iran
Posted: 2006/03/15
.
http://mathaba.net/0_index.shtml?x=530827
.
Imagine the American consumer as a fatigued soldier, having guarded
global economic growth throughout the past decade against all attacks.
Yet now enemies threaten from every direction: inflation, indebtedness,
property bubbles, energy prices, and terrorism. America's
near-zero savings rate, a jittery property market, and threats to
employer-sponsored health and pension programs are just a few of the
forces testing the U.S. consumer's will. And the world is in trouble if
Americans close their wallets before enough others around the world
open theirs. One-third of U.S. corporations' foreign-affiliate
income, which is a proxy for their foreign earnings, came from emerging
markets in the first three quarters of last year, a record high and up
significantly from 25% in 2002. Many American companies, from General
Motors and Boeing to UPS and PepsiCo, are betting their future health
on emerging-markets growth.
.
http://www.truthabouttrade.org/article.asp?id=5283
.
Some Famous Quotes to Consider:
.
If the American People ever allow private banks to control the issue of
currency, first by inflation then by deflation, the banks and
corporations that will grow up around them will deprive the people of
all property until their children will wake up homeless in the land
their fathers conquered. So said Mr. Thomas Jefferson, 3rd
President and author of the Declaration of Independence.
.
By a continuing process of inflation, governments can confiscate
secretly and unobserved an important part of the wealth of its
citizens. There is no more sure or subtle way to overturn the
existing basis of society than to debase (remove the gold and silver
backing) the currency. It engages all the process of economic law
that comes down on the side of destruction and does it in a manner that
not one person in a million can diagnose. So said Mr. John Maynard
Keynes (ironically the father of the quackery economic theory so much
embraced over the previous 70 years).
.
Our system of credit is concentrated in the hands of a few men, a power
so organized, so subtle, so watchful, so interlocked, so complete, so
pervasive that we had better not speak above our breath when we speak
in condemnation of it. We have come to be completely controlled by
small groups of dominant men. So said Mr. Woodrow Wilson, 28th
President. Eleven years after signing the Federal Reserve Act, it
has been rumored that on his deathbed, Woodrow Wilson admitted that he
had unwittingly betrayed America. Woodrow Wilson was the US
President that signed the legislation allowing for the creation of the
US Federal Reserve, essentially taking away the power of the US Federal
Government to print money and placing it in the hands of private
bankers (see Thomas Jefferson's words once again
above).
.
.
ANOTHER READER WRITES:
.
Hi john - What is your recommendation about cashing out of US controlled PR and investing in Uruguay?
.
EDITORS REPLY: Well, without being redundant, I would say in part
the previous reply above applies here. However, specifically
regarding Uruguay, they have an excellent banking system and in fact
have strict banking confidentiality. There are no exchange
controls and a large number of local and foreign banks are
represented. The economy in Uruguay has been growing positively
for the last three years and in now in March 2006, the economic growth
is reported to be almost 7 percent. In addition, the economy in
Uruguay is strongly influenced by its neighbors Argentina and Brazil,
two countries that I think will do very well economically in the coming
years for many of the reasons we mentioned previously. Also as I
have already commented about Argentina, the Central Bank in Buenos
Aires has been buying gold. Which Central Banks will do well
(have a very stable currency that holds its value) going forward?
One that prints paper money like there is no tomorrow or one that puts
its reserves into gold?
.
.
ANOTHER READER WRITES:
.
I am an American in Shanghai and have set up a business in Hong
Kong. I am considering investing 500,000 US Dollars in the Isle
of Man. Can you advise me of the tax implications on the
investment, and whether I have to report to the IRS?
.
EDITORS REPLY: The IRS would very much like for you to report and
pay any related taxes on all and any accounts your may have
abroad. In fact, its used to be the case that the IRS definitions
spoke about banking or brokerage accounts alone, BUT that definition
was changed in recent years to also include life insurance and annuity
products. However, one way around that may be to consider a trust
or foundation as the owner of such investments. Keep in mind that
the foreign earned exclusion for Americans ONLY involves salaried
income. Passive income, such as bank account interest or
investment income is subject to the full treatment.
.
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