|
|
|
Our on-line
newsletter bulletin now going on our sixth year!
Offering our clients and readers news items and headlines
often not covered by the mainstream media, articles of interest
regarding banking, economics, real estate, taxes, living or investing
abroad, plus much more. Finally, our very popular readers write
in section, with answers to some of the questions many of our readers
have - that no one else wants to answer truthfully, except us!
Want to See our Other Back Issues from 2002 - 2005?........Click Here
|
|
|
|
Visit The Main Newsletter Section & Read Past Issues On-Line:
Dominican Republic Real Estate, Residency Filing, Banking and Interest Rates.
Panama Residency and Retirement. Naturalization and Dual Citizenship - Expatriate Issues.
Economics commentary, inflation, housing, stock markets and investing -
Plus a Whole Lot More !
.
|
Our July 1, 2006 Newsletter Edition
|
.
DOMINICAN REPUBLIC BEACH FRONT REAL ESTATE:
.
They say life is beach. The truth is not always, but it certainly
does not have to cost that much to live on or near one. Our
resident real estate man in the know from the beautiful Samana
peninsula, Mr. Bruce Pierson, tells us the following is a sample of
what is going on in the real estate market there. They are
working on the new International Airport as we speak in Nagua, so once
those jets start flying in with all those hungry tourists, prices
usually tend to take off as well (you may want to give Bruce a call
before they put the final touches on the tarmac). Since history
often repeats itself, this is what happened a few years back with the
bay islands in Honduras (Roatan). The airport went up and so did
the real estate.
.
French-Creole style house in small guarded project - 1 bedroom on 820
square meter lot US$120,000 http://www.drparadise.com/detail/sale/s707.html
.
French-Creole house on second line from the beach - US$165.000
http://www.drparadise.com/detail/sale/s706.html
.
Italian designed tropical mountain house - 2 bedrooms, large patio - 150.000 Euro
http://www.drparadise.com/detail/sale/s700.html
.
On the Higher End:
.
350,000 Euros. House and 3 apartments with swimming pool in gated community.
http://www.drparadise.com/detail/sale/s703.html
.
Tropical luxury property with swimming pool, 5 bedrooms on 2000 square meters
5 min. from the beach, next to the Golf course - US$550.000
http://www.drparadise.com/detail/sale/s702.html
.
Bruce Pierson - DR Paradise / Homes, Villas and Estates
Homepage: www.drparadise.com
Email: bruce.pierson@verizon.net.do
Telephone/Fax. 809-240-6054
Cellular Tel. 809-949-4467
USA: Voice over IP- (908)-212-7524.
.
.
IN THE NEWS:
.
.
BOGUS HURRICANE AID HIT $1.4 BILLION, GAO SAYS
By Larry Margasak, Wednesday June 14, 2006 - The Associated Press
.
WASHINGTON - The government doled out as much as $1.4 billion in bogus
claims to victims of Hurricanes Katrina and Rita, getting hoodwinked to
pay for football-season tickets, a tropical vacation and even a divorce
lawyer, congressional investigators have found. Prison inmates, a
supposed victim who used a New Orleans cemetery for a home address, and
a person who spent 70 days at a Hawaiian hotel all were able to wrongly
get taxpayer help, according to evidence that gives a new black eye to
the nation's disaster-relief agency. Federal investigators
informed Congress that one man apparently used assistance money from
the Federal Emergency Management Agency for a sex-change operation.
.
http://seattletimes.nwsource.com/html/nationworld/2003059911_fraud14.html
.
.
DISASTER AID SPENT ON PORN
By Eric Lipton, Washington Bureau - June 15, 2006
.
AS MUCH as $US1.4 billion ($A1.9 billion) in government disaster aid to
victims of hurricanes Katrina and Rita - nearly a quarter of the total
went to bogus or undeserving victims. The improper or fraudulent
payments went to a dizzying array of con artists or other undeserving
recipients, according to the analysis by the Government Accountability
Office, which is to announce its findings at a hearing in the US
Congress this week. In one case, a man stayed more than two
months on the government tab at a hotel at more than $100 a night. At
the same time, he was getting $2358 in government rent assistance, even
though he had not been living in the property he claimed was damaged in
the storm. Emergency aid was used to pay for football tickets,
the bill at a Hooters in San Antonio, a $200 bottle of Dom Perignon,
Girls Gone Wild nudity videos, even an all-inclusive week-long
Caribbean vacation, the report says. More than $5 million went to
people who had provided cemeteries or post office boxes as the
addresses of their damaged property. The Federal Emergency
Management Agency also provided cash or housing assistance to more than
1000 prison inmates, totaling millions of dollars. One inmate used a
post office box to collect $20,000. Another person collected 26
payments using 13 Social Security numbers - a total of $139,000 even
though public records show the claimant did not live at any of the
addresses reported as damaged. In another case, 24 payments,
totaling $109,708, were sent to a single apartment, where eight people
each submitted requests for aid eight times, each time using their own
Social Security numbers.
.
http://www.theage.com.au/news/world/disaster-aid-spent-on-porn/2006/06/14/1149964606045.html
.
EDITORS NOTES:
Your tax dollars at work - only in America, as they say, but the truth
is it happens elsewhere too. Here is the real issue or argument,
when it comes to expatriates (or those that wish to become
expatriates). The champions of the modern day social welfare
state would like to paint expatriates as some sort of anti-social
malcontents that wish to shirk their so-called financial social
responsibilities (and of course the logic is such persons should be
chased, hounded, taxed even more, etc.). However, as former
Superior Court Judge Andrew Napolitano has said: Unless you work for
it, sell to it, or receive financial assistance from it, the government
is not your friend. Stated perhaps another way - Since when has
the government done anything well when they have gotten involved in
activities that they have no business in doing or what should better
left to the private sector? Social Security is just one glaring
example. What if the government did not take away US$6,000 from
your salary every year and instead allowed you to invest it or spend it
as you wished? Some people will indeed behave responsibly and
save or invest that money. Some people will not, but it is their
own choice. The government cannot regulate or legislate morality,
common sense or virtue among its citizens. These traits have to
come from within the individual. Not only that, simply giving
money away probably encourages more vice, not less (and even more
chances for fraud as well).
.
According to the year 2000 US Census, New Orleans had a population of
484,674 (let us use a round number of 500,000). Let us say for
argument sake you simply gave each and every legitimate resident of New
Orleans US$10,000 each to spend as they wished (to hopefully aid with
home repairs, spend at Hooters, or whatever else, although one would
hope people have enough common sense to use the funds wisely and for
legitimate home repair purposes). You can of course determine
legitimate residency by asking for proof of a driving license with a
valid local address, recent utility bills, etc. That amount,
under such a plan, would come out to US$5 Billion Dollars. Very
recently in the US Congress, a bill is going through to award another
US$20 Billion Dollars for hurricane relief. How much money have
they spent already and where did it go? How much fraud and waste
has already taken place?
.
Most people, even staunch Libertarians, would admit that taxation is a
necessary evil in any society. After all, the money to pay for
public school teachers, police, firemen, construction and maintenance
of roads, among other things or public goods has to come from some
place. However, how much is enough and just how much should the
government be doing? When is taxation a necessity and when or
what activity is simply pure waste? Expatriates and Libertarians
(who are often one and the same) are not social malcontents who enjoy
the suffering of others or who otherwise are miserly, cold-hearted
individuals who do not wish to be of help. On the contrary, they
just want to be left alone, to earn money and otherwise live legally,
to have the freedom to make up their own minds - AND if it is the case
of paying taxes, that those funds are not simply handed over to someone
else to be spent at Hooters or to pay for a Hawaiian vacation taken by
politicians or anyone else for that matter. Is this too much to
ask? It would seem so. Once again, anytime the government
gets involved in what amounts to nothing more than a social welfare
program (intended to do good of course), the end result is highly paid
bureaucrats (who are paid much more than they are worth), inefficient
and bloated bureaucracies, and a strong potential for fraud (and
financial disaster in terms of the management of tax payer
funds). If you want to give citizens who are in need money to
help out with a crisis, just give it to them and be done with it.
The more politicians and others who have their hands in the cookie jar
usually results in more cookies for them and less for the people who
deservingly need it.
.
Noted Austrian economist Ludwig Von Mises got it right. One of
his arguments for getting the government out of peoples lives and
leaving such matters to the private sector (or in such a case the
non-profit volunteer sector) was that natural accountability
occurred. Meaning, if people donating funds to a charity such as
the Red Cross, and other similar organization, were to find out that 75
percent of the donations went to pay for administration, advertising
and executive salaries (instead of going direct to aid relief for the
persons or entities intended), then chances are the public would stop
voluntarily funding it. Money talks and you know what walks, or
if you do not do a good job (or what you are supposed to do), we the
people are not going to hand over our dough. However, government
is another matter. If the government bureaucrats waste or
mismanage the money, what is the recourse? You could of course
stop paying taxes as a tax protest, but that might land you in the
pokey. So, government has a forced cooers ion deal going
on. They collect money from citizens by force, and if the public
schools are failing, if FEMA pays for a night out at hooters, if a
politician spends US$100,000 on an antique furniture set for his or her
office, or if the social welfare programs such as Medicare and Social
Security are broke - oh well. This is the problem. Not the
intent, not the idea, but rather the delivery, which almost always is
wasteful, unaccountable and poorly done when government (and
politicians) are involved. The only thing that keeps private
companies accountable (and in business), and charities as well - is the
fact that the money can be voluntarily cut off by the public (or in the
case of a private company, that the general public stops buying the
company product) when something is not right (or faulty). Both
Europe and the US have now had 70 years of big brother government run
socialism, government intervention and dictates regarding how we work,
eat, build our homes, etc. and so on. If they cannot get it right
after 70 years, will they
ever?
.
.
THE MARK OF THE BUST - By Martin Mayer, The New York Times, June 14, 2006
.
What may be the most important number in the American panoply of
economic statistics appears every Thursday night as an appendix to the
weekly statement of the condition of the Federal Reserve System. This
generally ignored number - few, if any, newspapers cover its release -
has the unusual virtue of accuracy, for it is a simple financial
statement derived from an adding machine, not from a computer or a
formula. What the number announces is the quantity of government
and agency securities held "for foreign official and international
accounts" - that is, for foreign central banks and finance ministries -
by the federal reserve banks. It is important because over time it
measures the demand for American assets by private enterprise in the
world's creditor nations. It is important also because it is very large
- last week, about $1.63 trillion. Three years ago, just before the
invasion of Iraq, it was about $900 billion. The week President George
W. Bush took office, it was $693 billion. America's appetite for
imported goods throws $600 billion to $700 billion a year into the
hands of foreign suppliers. The businesses that receive these dollars
have two fundamental choices about what to do with them: Spend or
invest them in the United States, or convert them into their own local
currency.
.
Exporters to America who keep the dollars and use them for American
purchases and investments create what economists call an autonomous
flow of funds back to the United States, financing the American trade
deficit with an American investment surplus. This produces the
argument most closely associated with the new Federal Reserve chairman,
Ben Bernanke (though Alan Greenspan believed it, too), that the U.S.
trade deficit is caused by a surplus of savings that can't be
profitably invested in the home countries of our trading partners.
Financing for America's trade deficit comes before - and actually
causes - the deficit itself. If instead of investing their
dollars in the United States, foreign exporters want to take the
proceeds of their sales in their own currency, their central banks will
in effect sell them that currency for their dollars. Back in the late
1960s, when Great Society deficits and the Vietnam War prompted the
first serious sell-off of dollars (and forced the United States to
abandon gold convertibility because too many holders of dollars, led by
President Charles de Gaulle of France, wanted gold), those central
banks lent those dollars into the new Eurodollar market, where they
traded somewhat separately from domestic dollars. This created a
nightmarish prospect of the United States losing control of its own
currency, and in 1971 the Fed chairman, Arthur Burns, negotiated a deal
with the European and Japanese central banks. The deal was that they
would return to America the dollars they acquired in their own
economies, and the Fed would invest the money on their behalf, in
absolutely safe government securities, without charge and at the best
rates. The most common worry is that the number will shrink
suddenly, with foreign governments dumping their dollar holdings,
driving down the dollar's value and driving up American interest rates,
but that's not a real danger. If the price of U.S. government
securities dived, the foreign central banks would have to bear the
loss. This would be a budget item for their governments, whose leaders
would not like it at all. What we have to watch out for is a
sudden and drastic increase in foreign official holdings. Rapid growth
in this number in the late 1960s and 1970s forecast the recessions of
the early 1970s and 1980s, and it could happen again. Recent
large increases in foreign official holdings indicate that foreign
private investors see fewer attractive places to put their money in the
American economy. They could presage a significant fall in the price of
American assets, stocks (witness the recent drops in American stock
markets) and bonds and real estate and all, and a hard landing for a
world economy still floating on the crest of cheap credit.
.
http://www.iht.com/
.
.
WILL BERNANKE SAVE THE DOLLAR? - By Axel Merk, June 15, 2006
.
Recent hawkish comments by Federal Reserve (Fed) Chairman Ben Bernanke
caused jitters in US and global equity markets; as is the typical first
reaction when there is a sense of panic in the market, US investors
liquidated some of their more speculative foreign investments and
repatriated the money. As a result, the dollar enjoyed an overdue rally
after it had been sliding for weeks versus major currencies. Did
Bernanke ring in a new era at the Fed? Will he be able to help contain
inflationary pressures? And will the dollar regain its strength?
Bernanke spooked the markets by daring to say what has been ignored for
too long: inflation is heading our way. We already experience inflation
on anything we cannot import from Asia - from the cost of healthcare
and education to the cost of local services. Low interest and tax rates
in the US, combined with Asia's growth policies have created an
oversupply of goods has lead to low consumer goods and high commodity
prices. Corporate America has up till recently been faced with little
pricing power because consumers neither needed to pay more for goods
(cheap imports), nor could they afford to (high debt); to maintain
margins, outsourcing was accelerated, keeping a lid of job and wage
growth. Slowly, but surely, however, inflation has been creeping
through the production pipeline. Gradually, wage pressure is
increasing; corporations are finding ways to pass on higher prices; and
finally, some of these pressures appear in government statistics.
.
Bernanke has a problem, a big problem: inflation is creeping up just as
the economy is slowing down. Some have pointed out that it is quite
common for inflation to continue to climb for a couple of months as the
economy is slowing down; as a result, we should not be concerned about
it. These are the same 'experts' that only saw the internet bubble out
of the rear view mirror and are still do not acknowledge there is a
housing bubble. What many underestimate are the extremes we face:
Inflationary pressures have been ignored for a very long time because
they did not make it through to the government's "core inflation"
statistics. The Fed relied on globalization to contain inflation.
The consumer is far more interest rate sensitive than ever before. Just
about everything is bought on credit now. Bernanke's predecessor
Greenspan loved this efficient consumer. The problem is that this
efficient consumer has to cut back much more sharply when faced with
higher interest rates (or shocks, such as losing a job).
.
As interest rates edge up, the economy will slow down sooner than it
would if the consumer was not as interest rate sensitive. This is
exacerbated, as consumers can no longer extract additional equity out
of their homes. We do not need falling housing prices to harm consumer
spending - stagnant prices are harmful enough. Anecdotal evidence also
suggests appraisers are under a lot of pressure to keep up the values
of homes to allow those who want to refinance to lock in still low
long-term rates. All those who have taken out 100% mortgages while
locking in only 1, 2 or 3 years will learn that they can only refinance
if their property is assessed to be worth at least as much as their
homes.
.
http://www.merkfund.com/merk-perspective/insights/2006-06-15.html
.
EDITORS NOTES:
The question posed is will Helicopter Ben save the Dollar? Save
it from what or from whom? The real question should be - who will
save the average citizen from the irresponsible central bankers like
Bernanke and the rest? The US Federal Reserve over-prints the
money supply, devalues the currency and creates inflation. Then
they raise interest rates and play other economic games to supposedly
undue what they did before. Round and round it goes, like a dog
chasing its own tail. Unfortunately, it is always the average
middle class consumer that has no idea what is being done to him (or
her) and suffers in the end.
.
Some very good articles to read on the subject are listed here:
.
http://www.safehaven.com/showarticle.cfm?id=3083&pv=1
.
http://www.financialsense.com/editorials/petrov/2004/0926.html
.
Mr. Nick Barisheff wrote the following on May 11, 2006:
.
Without the fiscal restraints inherent in a gold-backed currency,
politicians worldwide were able to promise social programs and expand
government bureaucracies that could be delivered through borrowing
money created by the central banks rather than through direct taxation.
They could embark on military campaigns with borrowed dollars that
future generations would have to repay. And borrow they did,
particularly in the US. In 1971 the total US federal debt stood at $436
billion. Today, that number exceeds $8 trillion. The 2005 increase in
the federal debt of $571 billion was more than the total debt in 1971.
Worse still, when calculated in accordance with Generally Accepted
Accounting Principles (GAAP), and taking un-funded Social Security and
Medicare obligations into account, the total federal debt is actually
$49.4 trillion. This equates to more than $160,000 for every American.
.
Just as all previous attempts to implement a purely fiat monetary
system have failed, so will this 35-year paper money experiment.
Throughout history, kings, emperors and politicians have never had the
self-discipline to limit their spending in the absence of the
restraints imposed by gold. While the timing of a US-dollar collapse
and the global currency crisis that will accompany it may be difficult
to predict, it looms ahead nevertheless. There is little chance
that the mountain of US debt will ever be repaid, or that the US trade
deficit will be reversed. Without massive inflation, the US has no way
to meet its $50 trillion Social Security and Medicare obligations. As
global investors look to other currencies, they will realize they are
not fundamentally any better. Most foreign central banks will attempt
to debase their currencies to match the decline in the US dollar in
order to stay competitive in exports, resulting in a round of competing
currency devaluations where all paper currencies decline relative to
gold, silver and platinum. Individual investors, institutions and
central banks will turn to the historical safe haven of precious metals
to protect their wealth.
.
http://www.321gold.com/editorials/barisheff/barisheff051106.html1
.
Editors Comments:
The case for gold, real estate (purchased at reasonable and not
inflated prices, or better stated, real estate in a market not involved
with a bubble situation), and other kinds of commodities in the broad
sense - continues. The case for figuring out a way to invest and
live in an environment where the possible impact of such pending issues
is minimized continues as well. If inflation is looming on the
horizon, which is one of the worst evils in terms of reduction in
wealth and in turn lifestyle of the middle class, then the question
remains how to safeguard yourself and your assets. Many clients
often ask: Should we convert all of our liquid assets (cash) into
Euros, Dominican Pesos or whatever else? The simple answer is no,
but seeing what is taking place and diversifying certainly offers the
chance for a better outcome. It is sort of like playing a round
of poker. There is no guarantee that you will win the jackpot,
but certainly having a better hand or set of cards than your opponent
gives you a better chance. However, if you think some of these
issues are just wild-eyed theories, then ask yourself the
following. How is it possible that the national currencies of
some so-called poor third world undeveloped nations have actually
increased in value versus the US dollar recently? I am referring
of course to the Brazilian Real, the Dominican Peso, the Chinese
Renminbi (the Chinese currency is estimated to be really worth up to 30
percent more versus the US Dollar, but is kept artificially lower by
the Chinese Government for trade purposes) and the Argentine Peso
(Argentina is a country whereby the central bank is now stocking up on
gold reserves after coming through a financial crisis a few years back
- interesting, no?). The hype some people hear is that they
should consider living in a country the uses the US Dollar as their
national currency (Panama, Ecuador, etc.). Do not believe
it. If it is true that the US Dollar is ready for a fall, these
countries will take an economic tumble right along with the mother
ship, or at least be subject to the same inflationary woes. No,
the key is to diversify into other asset classes and also into other
currencies that probably have a higher chance of maintaining
value. Of course we have always said, live in a country with a
weaker currency, invest in a country or assets that probably will hold
value. So, by living in a host of smaller nations (Dominican
Republic, Thailand, Philippines, Costa Rica, etc.) whereby your pension
funds or bulk of your liquid assets are in either US Dollars or Euros,
then at least you have a fighting chance of keeping up with inflation
purely because of the exchange rate (if the currencies of these
countries are weaker, as the exchange rate versus the Dollar continues
to increase, you are constantly exchanging your US Dollars for more and
more of the local currency each time, thus keeping up with any local
inflation).
.
.
FORECLOSURES FEARED AS ARMS ADJUST UPWARD, HOUSING PRICES DIP - Can't refinance, trapped by higher payments, Associated Press - June 20, 2006
.
NEW YORK - In 2003, Anita Britten refinanced her two-story brick
cottage in Lithonia, Ga. using a hybrid adjustable rate mortgage, or
ARM. Her lender reassured her that she could refinance out of the
riskier loan into a traditional one when her interest rate started to
reset. Three years later, Britten can't get a new mortgage and
her monthly payment has jumped by a third in six months. She can't
afford her payments and may face foreclosure if her financial situation
doesn't change. As more ARMs adjust upward and housing prices
begin to dip, many Americans like Britten can't refinance and are
finding themselves trapped in too-high monthly payments. For those who
can't make their payments, foreclosure -- the legal process by which
the lender repossesses the house because the owner has defaulted on
payments -- is the only way out.
.
This year, more than $300 billion worth of hybrid ARMs will readjust
for the first time. That number will jump to approximately $1 trillion
in 2007, according to the MBA. Monthly payments will leap too, many
beyond what homeowners can afford. For example, Britten's monthly
payment jumped from $1,079 to $1,340 at the beginning of this year. It
rose again on June 1 by another $104 and is scheduled to increase again
in December. Britten, who is also paying off student loans, went to a
credit counseling service to help her avoid foreclosure. I've
gotten rid of all my credit cards and I'm not supposed to refinance for
another year, she said. All I can do is tread water right
now. ARMs are a ticking time bomb, said Brad Geisen, president
and chief executive of property tracker Foreclosure.com. Through
2006 and 2007, I'm pretty sure we'll see a high volume of
foreclosures. The hardest hit states so far are those that have
experienced the roughest times economically. Michigan, Texas and
Georgia lead the pack, specifically around Detroit, Dallas and Atlanta,
whose major employers have run into strikes, bankruptcies and industry
downturns. But as the housing market slows, experts expect
foreclosures to skyrocket in those areas that have experienced the
highest appreciation rate -- like California, Florida, Virginia and
Washington, D.C.
.
There is a direct correlation between foreclosure sales and market
activity," said Dr. James Gaines, a research economist at The Real
Estate Center at Texas A&M University. If the rate of appreciation
is not there, then there is an increase in foreclosure sales.
Gaines pointed out that although California's default notices are
rising by the thousands, actual foreclosure sales remain in the
hundreds. Because of California's still-active housing market,
homeowners there can sell their properties before going into
foreclosure. On the flip side, in less active markets like Texas
and Georgia, homeowners can't find a buyer in time and are forced into
foreclosure. But as the housing cools in these once hot markets
at the same time that ARMs reset, many homeowners may be unable to dump
their properties before going into foreclosure, Gaines predicts.
Additionally, Gaines pointed out that these same real estate markets
also boasted a higher percentage of ARM originations, because most
buyers could only get into their homes using an unconventional
loan. California, where the median home price reached $468,000 in
April, leads the nation in the percentage of homes purchased with
adjustable rate mortgages. Nationwide, ARMs account for 24 percent of
all home loans.
.
http://www.belleville.com/mld/belleville/business/14858822.htm
.
EDITORS NOTES:
If you are an American and want to know why your adjustable rate
mortgage is costing you more and why you may possibly face
foreclosure? You can thank the US Federal Reserve for creating
the real estate bubble in the first place, and then tinkering with
higher interest rates to supposedly reduce the inflation they
themselves created.
.
.
WHY THE DOLLAR BUBBLE IS ABOUT TO BURST
By Steve Masterson - June 14, 2006
.
Currently almost all oil buying and selling is in US-dollars through
exchanges in London and New York. It is not accidental they are both
US-owned. The Wall Street crash in 1929 sparked off global
depression and World War II. During that war the US supplied provisions
and munitions to all its allies, refusing currency and demanding gold
payments in exchange. By 1945, 80% of the world's gold was
sitting in US vaults. The dollar became the one undisputed global
reserve currency -- it was treated worldwide as safer than gold. The
Bretton Woods agreement was established. The US took full
advantage over the next decades and printed dollars like there was no
tomorrow. The US exported many mountains of dollars, paying for
ever-increasing amounts of commodities, tax cuts for the rich, many
wars abroad, mercenaries, spies and politicians the world over. You
see, this did not affect inflation at home! The US got it all for free!
Well, maybe for a forest or two. Over subsequent decades the
world's vaults bulged at the seams and more and more vaults were built,
just for US dollars. Each year, the US spends many more dollars abroad
that at home. Analysts pretty much agree that outside the US, of the
savings, or reserves, of all other countries, in gold and all
currencies -- that a massive 66% of this total wealth is in US
dollars! In 1971 several countries simultaneously tried to sell a
small portion of their dollars to the US for gold. Krassimir Petrov,
(Ph. D. in Economics at Ohio University) recently wrote, "The US
Government defaulted on its payment on August 15, 1971. While popular
spin told the story of `severing the link between the dollar and gold',
in reality the denial to pay back in gold was an act of bankruptcy by
the US Government." (1) The 1945 Bretton Woods agreement was
unilaterally smashed.
.
The dollar and US economy were on a precipice resembling Germany in
1929. The US now had to find a way for the rest of the world to believe
and have faith in the paper dollar. The solution was in oil, in the
petrodollar. The US viciously bullied first Saudi Arabia and then OPEC
to sell oil for dollars only -- it worked, the dollar was saved. Now
countries had to keep dollars to buy much needed oil. And the US could
buy oil all over the world, free of charge. What a Houdini for the US!
Oil replaced gold as the new foundation to stop the paper dollar
sinking. Since 1971, the US printed even more mountains of
dollars to spend abroad. The trade deficit grew and grew. The US
sucked-in much of the world's products for next to nothing. More vaults
were built. Dr Bulent Gukay of Keele University recently wrote,
this system of the US dollar acting as global reserve currency in oil
trade keeps the demand for the dollar artificially high. This enables
the US to carry out printing dollars at the price of next to nothing to
fund increased military spending and consumer spending on imports.
There is no theoretical limit to the amount of dollars that can be
printed. As long as the US has no serious challengers, and the other
states have confidence in the US dollar, the system functions.
The problem for so many countries now is, how to get rid of their
vaults full of dollars, before it crashes? And the US has bullied so
many countries for so many decades around the world, that many will see
a chance to kick the bully back. The US cannot accept even 5% of the
world's dollars -- it would crash the US economy dragging much of the
world with it, especially Britain.
.
http://www.indymedia.org.uk/en/2006/06/342746.html
.
EDITORS NOTES:
Had you listened to your stock broker, your neighbor, your brother in
law or the know it all at the company water cooler - and not bought
gold when it was US$290 per ounce, you would be kicking yourself right
about now. Had you jumped in at the height of the real estate
bubble and paid top dollar for a house you would be lucky to sell at
that same price today, plus got one of those no money down adjustable
rate mortgages - you would be full of regret as well. Uncommon
wisdom is often found by not following the crowd because the crowd is
not always right (in fact, quite often the crowd is quite gullible and
easily duped).
.
The question is then what do you do? Quite simply, live within
your means and plan for the future. Also, do not allow yourself
to become beholden to any government, politician, central banker or
commodity trends either in terms of your own welfare or financial
success. Meaning, just because you had the luck (good or bad) to
have been born into any particular country and political or economic
system, does not mean you have to stay there and suffer. You can
and have the right to live where you want, invest where you wish, and
generally speaking, conduct yourself in a very legal and civil way to
make your circumstances better. That sometimes is easier said
than done, but it is possible. Your current government or country
may tell you that you are not allowed to own gold (tell them to go
pound sand). They may tell you that you cannot keep deposits or
investments in other currencies, or in other countries. Why
not? They may discourage you from living in another country or
buying real estate some place else. Why - what are they afraid
of? Imagine if you can, a scenario where there was no central
government taking away 60, 70 or even a higher percentage of your
earnings each year. Imagine a case, where there was no government
run plan for health insurance, old age pensions or whatever else.
What would you do? How would you live? Certainly this was
the case for your grandparents, and great grandparents - and they
survived. And the truth is, this is the case in many countries of
the world that have not adopted the political or economic tenets of
socialism, and have not gotten themselves into such a financial bind
accordingly either. Where would you rather live and under what
kind of system as well?
.
They want to know if Ben Bernanke will save the Dollar. Who will
save us from Ben? As I write this, my mind wanders to the
self-proclaimed reverend Jim Jones, who duped a whole of lot people to
drink some poisoned juice drink. All I can say is do not drink
the political or economic fruit juice they try to offer. Former
US central banker Alan Greenspam told Americans to go out and get one
of those adjustable rate mortgages. Remember? Now he is retired
(probably fly fishing in Idaho with a very nice pension). In
comes Helicopter Ben, a self proclaimed fan of the printing
press. Interestingly enough, the US Federal Reserve says they
will no longer issue M3 statistics to the public (one of the key
statistics to tell you how much money they are printing). What
are they hiding or why do they not want you to know how much money they
are printing?
.
.
READERS WRITE IN:
.
.
Could you please advise me on current saving interest rates on 50,000 dollars?
.
EDITORS REPLY:
Well, it is true that rates for US Dollars, Euros and Pesos have come
down from say two years ago. However, with pressure from the US
and EU central banks to raise rates there, this will place pressure for
higher rates abroad, although it does take some time for this to
trickle through. In any event, for US Dollar time deposits (CDs
or certificates of deposit) you can expect about 3 to 4 percent.
But, you can also expect anywhere from 6 to 9 percent in US Dollar
commercial paper at the moment as well. In Pesos, expect about 10
percent with the banks, and of course some higher number (14 to 18
percent) with Peso commercial paper.
.
.
ANOTHER READER WRITES:
.
Hello John - I have been reading your newsletters for many years now.
After leaving Miami I retired first in Brazil (too dangerous) and now
Thailand for 3 years. Simple question: how do you think the Thai Baht
will do against the US greenback in the coming years? My retirement
portfolio is mainly US based med/large cap stocks and bonds.
.
EDITORS REPLY:
The Thai Bhat has certainly been historically what many would consider
to be a weaker currency in terms of exchange versus the US Dollar and
Euro. However, it is also true that I think much of the previous
economic problems are behind Thailand and not only that, they did it on
their own (after the IMF and World Bank stepped in to help South Korea,
they in the process snubbed Thailand shortly after). In any
event, I would say the Bhat is probably a currency that will either
drift within a fairly narrow range, if not one of the currencies we
have talked about before whereby if you have Dollars, you can keep up
with any local devaluation. Which is to say, it is not
necessarily a reserve currency versus a US Dollar decline, but rather
one that will offer better purchasing power if you have dollars to
exchange (live in a country with a weaker currency, invest in a country
with a stronger one). However, it probably is a prudent idea no
matter where you are living to consider diversifying out of US based
assets, or reduce your US based holdings if you have the chance to do
so. Not a case of necessarily selling all your Dollars or Dollar
based assets out of sheer panic, but perhaps consider moving into some
currencies that have a better chance of holding purchasing power going
forward (Euro, Aussie Dollars, etc.). Gold also is very, very
easy to buy in Thailand (anonymously I might add) and another option
for some (but not all) of your investment funds as well. In fact,
I think it quite ironic that it is probably easier to buy and use gold
for business transactions in so-called communist Vietnam and other
Asian countries, than it is in North America.
.
.
ANOTHER READER WRITES:
.
I have been appreciating your newsletters and would like your advice
about moving to the D.R. is it possible to purchase a condo or
something similar for about $75,000 (US Dollars)? Where would you
suggest I look and can you recommend a spot?
.
EDITORS REPLY:
Well, as Ms. Joanne Hammond from the Coldwell Banker office from
Cabarette recently told us, $70,000 can buy you a 1,291 square foot
villa with 3 bedrooms, 2 baths, in a gated community in the hills of
Sosua. There are similarly priced apartment-condo properties in
Punta Cana, and in addition, it is still possible to purchase
properties for this price (or perhaps better said for the Peso
equivalent) in many of the middle-class areas of Santo Domingo as
well. Generally speaking, at least in the case of Santo Domingo,
all you need to do is access the real estate sections of the local
newspapers and you will find plenty of advertisements for new
construction is that price range (and some higher priced properties as
well). Stay away from the over-priced projects marketed to
foreigners. US$600,000 for a property, which is equivalent to
about US$19 Million Pesos at current exchange rates, should buy you the
equivalent of the Playboy Mansion in the local market (with perhaps the
bunnies thrown in for good measure). There is a minute percentage
of the local market than can afford this kind of price tag (there are
some very, very wealthy Dominicans, but even still, that is a lot of
money for a property in the DR). So, if it is your intent to sell
the property down the road, just keep in mind that unless you can find
another unsuspecting foreigner to pay that kind of money, you are not
going to be able to sell that property so easily. If you take the
time to look around, you can find very nice and very affordable
properties. While it is true that real estate prices have gone up
in the country, you can probably still find a small new apartment or
perhaps an older one in you price range. Although I will say that
the average cost for what I would consider to be an American or
European standard home or luxury apartment (new construction) in the
capital to run you between US$125,000 to US$150,000 at the
moment. However, we are talking about a roughly 1,800 square foot
property that an American or European would feel very comfortable in
(and maybe even more than what you have at the moment). So, the
point is, look around and find out what is available in the local
market before you jump in. Of course it all depends upon what you
want and do keep in mind, just as anywhere else, beach front property
always carries a premium or higher price tag. There are some of
these higher priced properties mentioned by Bruce Pierson in Las
Terrenas, but on the same token it should be noted that these higher
priced properties are very upscale, very large and directly on the
beach. So, it all depends what you want and can afford.
Certainly these prices beat the one-bedroom apartment scenario we
mentioned from St. Lucia in the June first newsletter edition, whereby
they are asking US$400,000. I do not think you need to consult Bob
Barker to figure out where the price is right: 400K for a
one-bedroom apartment in St. Luica or a 5-bedroom house with a swimming
pool on a half acre building lot in Semana for
550K.
.
.
ANOTHER READER WRITES:
.
I appreciate receiving your monthly newsletter on RD. You hit upon very
important items that interest me. I am a new arrival and live on the
north coast and I am especially interested in the financial system here
in the RD. I notice in the local Listin paper that in the Dinero
Section, there is never information on local interest rates. I have a
CD with Banco Popular that pays between 9 and 10 percent. How do I get
information on the Commercial Paper rates that you mention? Do the
local banks in Santo Domingo have private banking facilities such are
available in Europe, for example? Would I be able to leverage
investments to take advantage of low Yen interest rates as one can in
Europe? I would appreciate any information that you have on this
subject.
.
EDITORS REPLY:
You are correct in that rates for commercial paper are not usually
reported in local newspapers. It is hard to say why exactly that
is the case, but it certainly could be that many companies do not want
to show their hand so to speak, in terms of what they are willing to
pay in interest to borrow money, and it could also be the case that
many, many average middle class people are not familiar with local
commercial paper investments as well. One thing that I can say
regarding most middle class persons from the US, Canada and Europe is
that they are familiar with stocks, bonds, mutual funds and similar
kinds of investments. To a large extent, it is true that a large
percentage of the population in the DR is not familiar with such
investments, and many even do not know what a bank CD or time deposit
is either (at least among the poorer, working class segment of the
population).
.
To answer your question about investing in commercial paper, there are
many small brokerage firms that do handle or can offer commercial paper
investments, both is US Dollars and Pesos (it is very difficult to find
commercial paper in Euros). In addition, some of the larger banks
and one we work with, does indeed also have a private banking division
that some of our clients utilize as well. However, even so, I
will say that going to a brokerage firm will offer the chance for a
wider variety of offerings. Also, keep in mind that while some
banks do handle or offer commercial paper, they are not going to
blatantly push such investments because the truth of the matter is,
commercial paper is competition for other traditional bank
deposits. In addition, the profit margins for the banks are
probably higher with CDs or time deposits, so going to the banks will
result more of an emphasis on that rather than commercial
paper.
.
.
ANOTHER READER WRITES (in regards to the previous newsletter comments about electricity in the Dominican Republic):
.
You are correct on the energy issue, lack of payment is 90 % of the
problem. The other 10 % is the government. In actual fact
you could say 100 % is the government, however as the lack of
leadership created the problem. Why pay if you get it for free
and there is no accountability?
.
EDITORS REPLY:
Well, it is very difficult to start collecting higher rates, if at all,
for services that were subsidized by the government previously, or even
free. We see a similar parallel in Bolivia and the current
political backlash there. Which is to say, this political climate
change to the left came about or started with the privatization of the
public water utilities in Bolivia. The water utility in Bolivia
was privatized (an American company was involved) and the rates for
water shop up like a rocket ship accordingly, creating a social
backlash as a result. If you are a foreign company moving in to
take over a previously government owned utility in any country, you
must be aware of a few things. First off, the utility probably is
and has been losing money for some time and the over run costs probably
absorbed by the government (tax payers) as a result. In this
regard, you should assume that the utility is being subsidized one way
or another. If you think this only happens in third world
countries, you better think again as the same scenario occurred with
Air France and the French Government. Aside from this, also
assume that utility prices offered to the public most likely have been
kept artificially low as a social benefit issue as well. So, you
are entitled (as a foreign company buying the utility) to make a
profit, but at the same time, you need to have common sense as well.
.
In the case of the Dominican Republic and electric utilities, the
government did start off with a gradual subsidy to the retail or front
end companies (the generators were split off and sold apart, so the
company that owns the generator is not the same company selling you
electricity on the front end, in fact, the company that sells you
electricity to your home is buying it wholesale from a generator plant
owned by another foreign company). The result was the front-end
bill to consumers, while increased, was not as high as it could have
been because of this. In this regard, I think they did the right
thing to ease into local price increases. In Bolivia, they
doubled or dramatically increased the water prices to consumers
overnight, creating resentment among the locals. It was extremely
stupid on the part of the foreign owned water company to do this and
also, as part of the negotiation with the Bolivian Government, they
should have arranged for the same kind of deal (a slowly phased out
subsidy and slowly phased in price increase over time to reflect what
probably are the real or actual operating costs, which were hidden from
the general public previously because the utility in the past was
government owned). However, in the comment that people should pay
for any service or product they use is, I am in agreement. But,
again here is the problem with any kind of socialism or government
subsidies for any private service.
.
Socialism, in my opinion, is one of the worst ideas ever dumped upon
the general population: politically, economically and socially.
Socialism, in any degree or form, results is stronger and more abusive
and invasive central government. The only way socialist policies
can be carried out is when such so-called central planning is taking
place, which can be another evil unto itself (absolute power corrupts,
and absolute power corrupts absolutely). So, politically
speaking, socialism always leads to an all-powerful central government
dictating the economic (and thus political plus social life) of its
citizens. It also creates an atmosphere of a minority group
dictating policy, and confiscating assets of a majority group - namely
the middle class as the majority getting the short end. In
addition and perhaps worst of all, it creates an atmosphere of
entitlement among the populace (or other special interest group, which
we can say is probably the less well off, but that is not always the
case). Plus, in general, it creates an atmosphere of
irresponsibility, sloth and indifference towards rational
self-responsible behavior among the entire population. In other
words, socialism and subsidies taught people to become wards of the
state, in one way or another. It also encourages people to not
bother taking care of themselves as well.
.
We can use the example of US Government flood insurance in the case of
the US to highlight this last item. Which is to say, a citizen in
Idaho is paying funds in the form of taxation to the US central
government in order to subsidize people who continue to live in a flood
prone area, and who could not get private flood insurance (homeowners
insurance covering flood damage) any other way. Why should
someone in Idaho have to pay tax dollars to subsidize cheap flood
insurance given by the government to someone in another area?
There was a recent news story of a woman living in one of these flood
prone areas who has put a claim in six of the last seven years because
her house was flooded out by storms in each case. In short, the
woman has rebuilt her home with government funds from other taxpayers,
many times over. It would have made more sense to simply buy the
home from the woman at current fair market value and suggest she live
some place else (the mountains might be a nice change of pace).
However, government does not think this way. They will continue
collecting taxes from the citizen in Idaho, and continue paying claims
to rebuild the flood victims house many time over going forward.
However, what does the flood victim learn from all this? Nothing,
and this person will not be motivated to raise the footing 10 feet up
or whatever else to minimize any future flood damage. Why should
she? The government will step in with cheap flood insurance,
subsidized by other taxpayers, year in and year out. In
economics, we call this an issue of moral hazard (or lack
thereof). There is no downside for the person obtaining the
benefits, so who cares or why change ones behavior?
.
What does this have to do with the price of tea in China or the
situation with electricity in the Dominican Republic? Once a
government, any government, starts to give the populace or a special
interest group either something for free or any very cheap subsidized
rate - such persons will come to view this as an entitlement over
time. In other words, a god given right they are entitled
to. Not only that, they probably will really not appreciate it
anyway. In the case of the poorer neighborhoods in the Dominican
Republic, the people leave ALL the lights on in the home (whether they
are even home or not). Why? So, they know when the
electricity comes back on. All well and good, but the problem or
point is, because they do not pay (or think that it should be free
because it was before) they waste electricity. For sure it is a
problem, but one created because of previous government subsidies and a
sort of welfare culture, although in this case on a very limited and
specific scale (that does not apply across the board or to the same
extent it does in the US or Europe). Just imagine if the
governments of North America or Europe told all their citizens that the
monthly payments into the state pension scheme taken out their
paychecks (social security) was being doubled the next day (and maybe
even benefits cut in half)? All hell would break loose because
people have now come to expect low monthly payments into a guaranteed
government pension plan is the standard rather than the
exception. However, just like cheap water or electricity, the
government cannot afford it anymore. Maybe it is time to think
about drilling our own wells and putting up solar panels (both
literally and figuratively), and we will keep our own money in our own
pockets going forward, thank you very much.
|
|
|
