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Our July 1, 2007 Newsletter
Edition
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DOMINICAN
REPUBLIC REAL ESTATE:
.
Quite
a number of clients and readers have written in saying, they do not
have three million dollars to buy some sand in Punta Cana, BUT they
still would like to have a beach property in the Dominican Republic
just the same. Fear not, I think we have found the
solution. Which is to say, I want to introduce you to your own
personal version of Donny Trump to help you afford a home in the Punta
Cana - Bavaro area, and he will not even charge you to have a drink
with him (Donald Trump invited potential investors to have a drink with
him at the opening of Trumps Punta Cana project, but of course you had
to pay US$100,000 for the privilege). Ironically, this gentleman
who happens to be an expatriate living in the country for about seven
years now, can possibly build a new villa for you - for less than that
(130K). In fact, he handles assisting with finding a building lot
for you, can handle all the construction if you wish (or supervise
construction if you want to use your own contractors), and certainly
can possibly build a villa or even an entire apartment building (his
specialty) for less than what those high priced homes cost
elsewhere. For more information, please send an email to: JS@ASCOTADVISORY.COM
with your complete contact details and we can put you in touch.
.
.
IN
THE NEWS:
.
.
VIETNAM
TO BUILD CAR PLANT IN DOMINICAN REPUBLIC - June 16, 2007
.
The
Vietnam Automobile Industry Corporation (Vinamotor) would build a car
plant in Dominican Republic at the end of this year, creating jobs for
over 1,000 locals, said a source from Santo Domingo. The plant
with an initial investment of US $70 million is designed to manufacture
buses, trucks, tractors and motorbikes using the latest technology from
the Republic of Korea. According to the source, Vinamotor is
nurturing a hope to export these products to eastern US states which
are to benefit from tax preferences provided for in a free trade
agreement signed between the US and Dominican Republic. The
Dominican source added, up to now, Vinamotor has had exported 50 buses
worth US $2.3 million to Dominican Republic.
.
http://www.nhandan.com.vn/english/business/160607/business_7tin.htm
.
.
DOMINICAN
REPUBLIC DIPLOMATS MAKING A MARK IN ASIA
Wednesday,
June 13, 2007
.
NEW
DELHI, India: When Columbus set foot on the island of Hispaniola,
today split between the nations of Haiti and the Dominican Republic, he
thought he had arrived in India. Over half a millennium later, an
intrepid team of Dominicans landed in India and have started exploring
the Subcontinent, making friends and attracting potential investors to
the Dominican Republic. Ambassador Hans Dannenberg Castellanos, the
Dominican Republic's envoy to India, said while few Spanish-speaking
nations have embassies in New Delhi, there are enormous opportunities
in many areas of the burgeoning Indian economy. He explained that
an attraction for Indian and Southeast Asian businesses is our
geographic location and DR-CAFTA (the Dominican Republic/ Central
American Free Trade Agreement) which allows easy access of DR-produced
products into the United States which could attract manufacturing
plants for pharmaceuticals and textiles. Officially accredited to
Thailand, Malaysia and Vietnam, Dannenberg Castellanos believes there
are many opportunities in the powerful economy of Malaysia.
Listing just some of the trade areas, he pointed to rice, agricultural
issues, irrigation and tourism for Vietnam. For Thailand, he spoke of
trucks, tractors, cars, tuna, and other canned goods. And in Malaysia,
the Technological Corridors and Educational Centers were just some of
the possibilities. A pleasant surprise for the dynamic, young
Minister Counsellor Gabriella Bonetti was the fact that companies from
the DR are looking to invest in India's booming real estate
market. A recent visitor to the embassy, Lelei LeLaulu, President
of Counterpart International, which works closely with Dominican
organizations, noted -Despite its lack of size, Ambassador Dannenberg
Castellanos' team has made a big impression in the Indian capital which
hosts representatives of the most important countries and businesses in
the region. What laymen see as an endless round of cocktail
parties for diplomats, the receptions are where, unencumbered by the
formal embassy surroundings, they get much of their business done. So,
to test the effectiveness of the Dominican Republic team what better
source than diplomatic photographer Mr Kapoor, whose family has
photographed (and heard much of the talk in the process) all the major
receptions for a century. Asked who was currently the most
popular and therefore, the most effective ambassador on the frenetic
Delhi diplomatic circuit, Kapoor unreservedly replied, Ambassador
Dannenberg Castellanos, Dominican Republic.
.
http://www.caribbeannetnews.com/news-2019--18-18--.html
.
EDITORS NOTES:
Let us examine what we have here. A supposedly third world nation
of rice farmers (Vietnamese) investing in and establishing the first
foreign automobile factory in the Dominican Republic (using South
Korean automobile technology), and we have a country thought to be
another third world country full of banana farmers (The Dominican
Republic) investing in Real Estate in India, among other things.
In addition, the first subway - commuter rail system in
Santo Domingo is being done by a Brazilian Company. Apart from
that, we told you previously about China launching a space satellite
for Nigeria, and Caterpillar opening yet another factory in China in
order to keep up with the new demand in Southeast Asia, India, Latin
America, etc. (which is the case of Chinese workers making a high end
product in a Chinese factory, for sales orders filled in other Third
World nations - and the only thing American about it is the name plate
on the equipment, nothing more). Which leads us to ask: Is
it possible that the so-called Third World Developing Nations are
becoming integrated, in terms of technology and economics, and thus
leaving out the former so-called modern first world economies in the
process? In other words, could it be true that the growth and
development is being accomplished away from or without the supposedly
wealthy industrialized first world countries? Indeed, the
promoters of globalization have argued that even though the
manufacturing jobs have left the high wage, high tax welfare states -
that the future growth and need will still be there in terms of other
higher level industries or jobs. However, is this really
true? Is it possible that General Motors, Ford, Pfizer, Merck,
Motorola, IBM (and so on) have all become truly irrelevant in terms of
so-called American know how and technology? History has proven
time and time again, that where there is no domestic capital
investments (new factories being built abroad rather than at home as
one example) and the national savings rate of it citizens close to
zero, that economic trouble (no growth if not extremely slow growth) is
just around the corner. And touching once again on this theme of
recession or depression, whatever you want to call it, the US (and
other industrialized nations) seem only to be important as large
consumer markets mainly, which is to say the manufacturing and
production for export virtually non existent in such countries.
However, on the theme of the US economy being nothing more than one big
consumer round-about, the US consumer does make up about 70 percent of
domestic US GDP and about 20 percent of the worlds GDP, which means
what happens in the US will affect the global economy to some extent,
BUT not a much as you might think. Caterpillar says they expect
US sales to FALL by double digits inside the US this year (2007) but
that will be compensated for by the higher double digit growth in sales
elsewhere. Meaning, even if the US should fall into an economic
funk, the rest of the world (and the so-called Third World especially)
looks like they should be in decent shape or at least better shape,
regardless (and as we have seen, they are already trading or doing
business with each other, perhaps leaving the so-called wealthier
industrialized nations out in the cold).
.
Gail
D. Fosler says in an article titled: The
U.S. Economy
Has Slowed Moderately, but the Current Global Expansion is Broad
(Jan. 11, 2007):
.
The
global economy is fast approaching the point where EMERGING MARKETS
will represent HALF of GLOBAL
gross domestic product and three-quarters of global growth. In
other words, for the first time in modern industrial history, what goes
on in emerging markets is MORE important to the direction of global
growth than events in the industrial world.
.
http://www.conference-board.org/UTILITIES/pressDetail.cfm?press_ID=3038
.
Perhaps
an important trend to watch in terms of where you invest, where you
live, etcetera. However, if that does not get you thinking, the
following news articles surely
will.
.
.
THE
SPECTER OF CHINESE CURRENCY MANIPULATION
By
Robert Flint, Dow Jones Newswires, June 13, 2007
.
Many
of the powers of Capitol Hill have entered into an alliance to exorcise
this ghost: Republicans and Democrats, Senators and Congressmen,
corporate lobbyists and union officials. So far, the Yuan-busters
haven't had much luck in officially pinning the manipulation label on
China, much less penalizing the Asian giant for its foreign exchange
policies. But legislators are definitely trying to kick things up a
notch while the Bush administration still pursues a conciliatory policy
regarding currency reform. The reason for the surge in currency
legislation is the frustration over China's massive trade surplus with
the U.S. and what many influential voices believe is a deliberately
undervalued Chinese currency. The under-valuation, or misalignment, of
the Yuan translates into the loss of millions of U.S. manufacturing
jobs because of unfair competition, maintain the critics of China's
currency policy. While Treasury Secretary Henry Paulson and his
predecessors have attempted to engage China in dialogue to speed up
currency reform to allow the Yuan to appreciate, China has always
answered it will proceed with currency reform at the pace it deems
appropriate. Therein lies the crux of the problem. Legislators,
unions and business groups all want more pressure brought to bear on
China to force it to move faster. In reality, there's little the U.S.
government can do beyond asking nicely. A country's currency regime is
a matter of national sovereignty and neither China nor any other
country is willing to yield on that point.
.
http://biznes.onet.pl/5,1553130,wiadomosci.html
.
EDITORS NOTES:
Did someone mention the need for an exorcist? If there is any
uncertainty, I think that I can offer some ideas about which evil
spirits need to be expelled from Capitol Hill.
.
.
THE
COMING COLLAPSE OF THE US DOLLAR
By
M R Venkatesh - June 11, 2007
.
The
skew in the global financial system -- commonly called global imbalance
-- seems to be fast spiraling out of control. For some time now
economists have been engaged in the mother of all debates: whether the
US dollar would collapse by as much as 40% when compared to other
currencies (some are even betting on the US dollar going belly-up) or
whether there would be an orderly devaluation -- that is, a gradual
revaluation of other currencies vis-à-vis the US dollar.
In effect, the question that is confronting us is not whether but when
and by how much. This global imbalance can be understood in
economic terms by simply examining the massive size of America's twin
deficits -- trade and budgetary. Put modestly, Americans have been
living way beyond their means, consuming much more than what they could
possibly afford and, in the process, borrowing far beyond their
capacity for too long. This was facilitated by a policy of
maintaining weak currencies across the world, notably in Asia. This
policy of maintaining a competitive exchange rate for their currency to
boost exports has resulted in a race to the bottom amongst various
countries. Nevertheless, this arrangement suited countries, both
Asian (with a huge unemployed population) and American, (as it provided
cheap imports for its huge consumption binge). While the going
was good, everyone profited and expected the arrangement to continue
indefinitely. Unfortunately, linearity as a concept has limited appeal
in real life, much less is global macroeconomics. No wonder, of
late, countries are discovering that this arrangement has its
limitations. The current account deficit of the United States
translates into current account surplus of exporting countries. To
cover this deficit, US borrows: this corresponds to the forex reserves
of exporting countries. The crux of the issue is that no other country,
barring the US, has such a huge consumption pattern and an ability to
absorb this huge export surplus. In substance, countries are
producing their goods, exporting it mostly to the US, and parking the
resulting export surpluses with the US to facilitate US to finance its
imports!
.
Obviously,
what aids and sustains the US dollar is a 'suspended sense of
disbelief' amongst countries about the value of US dollar. Yet, common
sense tells us that the excess supply will obviously result in a fall
in the value of any product. The US dollar is no exception. Late
Iraqi leader Saddam Hussein was fully aware of this paradigm. Seeking
to exploit the inherent weakness of the US dollar, Saddam wanted to
trade his crude in Euros, which would have lead to a lower demand for
the US Dollar and thereby triggered a dollar collapse. And those were
his 'weapons of mass destruction -- WMD. And if some analysts are
to be believed, Venezuela and Iran too possess the very same WMD.
Naturally, it requires some specious arguments and military
intervention to protect the US dollar. Never in the history of mankind
has a national army protected the national currency so vigorously as
the US Army has done is the past decade or so. What is bizarre to
note here is that despite the fact that crude is produced mainly in the
Middle East; officially it can be purchased in dollar terms from one of
the two oil exchanges situated in New York and London. Obviously,
should Iran carry out the threat to commence oil trade in Euros or
better still an oil exchange, the US dollar would come under tremendous
pressure. The US dollar is akin to the promissory note of a
defunct finance company. It is common knowledge that a currency, when
not backed by anything precious is just a piece of paper. When US
abandoned the Gold Standard in early 70s, countries habituated by then
to the US dollar under the Bretton Woods arrangement continued to
accept the US dollar as an international currency without demur as the
world was not prepared for any other alternative. Else, the global
economy would have collapsed by 1971. But the diplomatic silence
did not solve the problem. It merely postponed it and it has come back
to haunt us. Post gold standard, by a tacit approval of the
Organization of Petroleum Exporting Countries (OPEC) and strategic
maneuvering, the US had ensured that its currency is implicitly backed
by crude, instead of gold. This explains the American 'geo-political
and strategic interests' in the Middle East. But over time even
this was found to be insufficient and consequently the oil standard of
the 70s gave way to an implicit multiple commodity standard of today.
Naturally, commodity prices -- including crude prices -- have soared in
the past few years. Unfortunately, this arrangement too is failing the
US. No wonder, the US dollar increasingly resembles a promissory note
of a defunct finance company. It is no coincidence that global
trade in most commodities, including oil, is denominated in US dollars
as the respective international exchanges are located in the US. To
what extent are the prices of these commodities manipulated to protect
the US dollar is anybody's guess. However, it may not be out of
place to mention that a barrel of oil which cost less than $10 to
produce is sold approximately at $70 in the international market.
But as commodity prices go up it has lead to inflation across the
globe. No wonder, countries are forced to increase their interest rates
to fight inflation. This has triggered an interest rate hike
across continents and the US is finding it extremely difficult to
sustain its current borrowing program: it hardly has any elbow room to
maneuver. Meanwhile, countries are increasingly realizing that
the value of the US dollar that they are holding is fast eroding,
whatever be the officially managed exchange rate. And if fewer
people want the US dollar -- as for instance when oil is traded in Euro
the demand for the US dollar will fall -- it would trigger an
avalanche. No wonder, the US Fed is unwilling to make public the
M3 figures, as it does not want the holding position of the US dollar
to be publicized. Interestingly, in such a doomsday scenario,
some economists are still betting on central banks of other countries
to defend the US dollar. It would seem that the US has outsourced even
this sovereign function to the central banks of other countries. After
all, should the US dollar collapse, the biggest losers will not be the
US but those who have US dollar-denominated Forex reserves. Naturally,
countries holding US dollar reserves are caught on the horns of a
serious dilemma -- should they seek to correct the global imbalance, it
could result in the imminent collapse of the US dollar, and should they
continue to defend the US dollar, they would be a long-term loser as
the current arrangement has seeds of self-destruction.
.
While
every central banker is conscious of this fact and thereby seeks to
postpone the inevitable while nervously looking for his counterpart in
any other country to break ranks and thereby trigger the
collapse. Surely, the emperor is without any clothes. There are
only two possibilities from here on: Either we are witness a global
meltdown of the US dollar, or allow controlled US dollar devaluation
(read, revaluation of other currencies). If it is a global meltdown the
global economy is doomed, if is an orderly devaluation, it is damned.
.
http://inhome.rediff.com/money/2007/jun/11dollar.htm
.
EDITORS NOTES:
Many of our clients in Costa Rica, Honduras and every other country
that does not use the US Dollar has asked why the local currencies in
the countries where they are living are strengthening (worth more than)
the US dollar or holding steady ground in terms of exchange
rates? I will give you a hint, it is NOT because the currencies
of these countries have been going up necessarily due to some
underlying economics per say in these nations (that would on
their own explain this scenario). In other words, the US Dollar
seems to be heading for the basement (or the underground septic tank
for those of you who do not have a basement). However, the
question is, will the answer be to switch from one fiat currency to
another as the all encompassing solution? The answer is NO, or at
least not exactly for all of your assets. There are two things I
can think of that almost always act as a hedge, one is real estate and
the other is commodities (gold in particular). In terms of real
estate, it could very well be the case that buying real estate now (in
another country utilizing another currency) may turn out to be one of
the best decisions you make, in terms of the current USD exchange rates
today AND in terms of what they MIGHT be two to five years down the
road. At the moment, Dominican Republic real estate still is
priced at about 30 percent less that the rest of the Caribbean, and
probably why you are starting to see the so-called smart money filter
in, with regards to luxury real estate purchases. Donald Trump
may come off as arrogant at times, but the man is not stupid, at least
not when it comes to business deals (and you should take note that many
of his newer investments or real estate projects are outside of the US
right now).
.
The
other idea of course is to diversify out of the US Dollar for whatever
funds you wish to have liquid, but again, the question is how?
Surely your local bank down the street in the US does NOT offer you the
ability to open a savings account in another currency. However,
this is why banking abroad (in Europe, Hong Kong, even in places like
the Dominican Republic, Uruguay, etc.) becomes an important idea and
also why, especially if you are an American, getting another passport
and another citizenship so vitally important as well (many banks abroad
will not allow US citizens to open accounts, no matter how many times
you ask). Of course, the reason for this is not because they
dislike Americans, but rather to avoid any hassles and pressures from
the US taxation authorities (as anyone else going broke, they chase
money and markers anywhere and everywhere, or at least they try to in
any event). However, it could also be the case that as more and
more individual citizens attempt to save themselves and get their money
out, calls for currency controls by politicians (stopping you from
moving your own money abroad) and or issues surrounding taxation
matters, are brought to the forefront.
.
Even
FORBES
Magazine, now in June 2007, is talking about other currencies and real
estate as a hedge (see link below). When a magazine like Forbes,
the icon of American Capitalism, starts to advise other foreign
currencies over the US Dollar, you know that something is up:
.
http://www.forbes.com/personalfinance/investoreducation/2007/06/06/
.
.
WHY
THE US DOLLAR WILL COLLAPSE
By
Greg Peel, FN Arena News - June 12, 2007
.
Economists
of the ilk of Nouriel Roubini and Morgan Stanley's Stephen Roach have
been pushing the line for at least a couple of years now that the US
current account deficit, which has been creeping up consistently in the
twenty-first century, is unsustainable. The world cannot continue to
finance the US insatiable appetite for consumer exports, and eventually
something has to give. What is likely to give is the value of the US
dollar. The US dollar is akin to the promissory note of a defunct
finance company, says M.R. Venkatesh, a charted accountant from
Chennai, India. Is M.R. an authority on such matters? Not,
indeed, a globally recognised one, but M.R. does have the capacity to
encapsulate the problem in pretty simple terms - an achievement that
often eludes macroeconomists. And it is simply the factual evidence
that is damning. Put modestly, Americans have been living way
beyond their means, consuming much more than what they could possibly
afford and, in the process, borrowing far beyond their capacity for too
long. The reason the US has found itself in this position is, to
a great extent, a result of the rise of China and other Asian emerging
economies and their decision to keep their exchange rates pegged at low
levels against the US dollar as a result of the region-wide currency
collapse that occurred in 1997. However it must be remembered that
China still represents only the third largest surplus on the other side
of the US current account ledger. Germany is number one and Japan
number two. When the Chinese economy began to accelerate the
balance of currencies actually suited both parties. China was able to
fuel a manufacturing surge that employed vast numbers of its peasant
population, and the US was keen to voraciously consume whatever cheap
exports came its way. But like any drug, it is often foolish to think
that a little bit will do and the habit will never get worse. The trade
imbalance with China has become much worse. If you buy a car from
a dealer financed by the a loan from that same dealer - a transaction
that occurs every day of the week in Australia - the amount you owe is
fixed and as long as you can make the interest payments everything is
sweet. What is unlikely to happen is that you would buy another car the
next, year, and then another, without having disposed of or paid off
the first. This would probably lead you into bankruptcy eventually were
the car dealer not diligent with its credit assessment. The US is
buying affordable export goods from China on credit. China lends the US
the money to do so by buying US Treasuries. The money it lends
represents the receipts from the sale of the goods. This seems like a
fair arrangement, except that the amount of goods bought on credit
never falls - it just rises year on year. And China is not the only
country exporting goods to the US. The spark for the whole transaction
lies in undervalued foreign currencies - those which make the exports
appear cheap in the first place. And the US is hooked on a consumption
drug.
.
In
mid May the US national debt stood at about US$8.85 trillion, or
US$28,000 for every man, woman and child. The current account deficit -
that which is financed by foreign rather than domestic reserves - stood
at $850 billion or 7% of GDP at the end of 2006. The US is, on
the other hand, having trouble with its own export economy. Traditional
leviathans like General Motors are struggling to stay afloat in the
face of global competition from countries with much cheaper labor. In
order for the US dollar not to collapse as the country continues to
move to what appears, from a corporate point of view, to be ultimate
bankruptcy, the Fed has continued to raise interest rates. The US
has been bankrupt once before - in 1971. It had reached bankruptcy by
financing the long and painful Vietnam War (any analogies here?). But
in order to avoid the collapse of the global economy at this point the
world capitulated to the US decision to abandon the gold standard. The
US dollar has not been backed by gold since 1971. It is simply a
promissory note from the US government. All other currencies are
measured against this global reserve currency. As inflation
begins to creep back into the global equation - rather ironically as a
result of rising commodity prices driven by China's all-consuming need
for resources to make the products that it then exports to the world -
the Fed is again looking at raising rates. The decision to do becomes
far more onerous the larger the actual amount of debt involved. Were
the US to cut rates to stimulate the economy and attempt to trade its
way out of insolvency this would mean risking no longer attracting the
lenders - foreign Treasury buyers - in the first place. On March
28, 2006, the ASIAN
DEVELOPMENT BANK is reported to have issued a memo, advising
members to BE READY FOR A COLLAPSE OF
THE US DOLLAR. The US dollar has been falling steadily, although
a recent pick up in economic data suggests the end is not yet quite
nigh. But the reason the Asian Development Bank issued its warning is
because the Fed STOPPED PUBLISHING the quantum of M3 - the aggregate of
all US dollars circulating in the world. If your car dealer asked
you to outline your existing debts and you refused, would he lend you
the money for the car? What have you got to hide? he would ask. The US
dollar is merely a promissory note, an IOU. How many of them are out
there? We don't know anymore. But we do know that the Treasury's
printing presses do not sleep.
.
http://www.fnarena.com/
.
EDITORS NOTES:
The Treasury's printing presses do not sleep, so the article
says. That used to be the motto for Citibank (that they do not
sleep). I wonder if there is a connection? In any event,
depending upon what statistics you look at, it is estimated that
anywhere from 40 percent to 60 percent of all US Dollars in circulation
are OUTSIDE of the United States. If that is true, my mind starts
to wander, and I recall the rumors I heard some time ago (and these are
just rumors mind you) about the idea to create two currencies with
respect to the US Dollar, one form of domestic funny money for the
unsuspecting masses still living inside the US (unfit for export or
foreign consumption), and another for world trade (which would in
theory be the real deal, or the real money, as it were). I just
guess we will have to wait and see. But, it certainly is
interesting to also note that the current account deficit for the US is
about 7 percent of GDP, now in 2007. The IMF and World Bank
decrees that some of these so-called Third World nations that have a
current account trade deficit exceeding more than 5 percent are HIGH
RISK borrowers (and are countries to place on the watch list in terms
of credit risk, internal finances, etc.). So, what does it say
when the US starts to look like a high risk Third World nation, at
least on paper? Will the IMF have to step in and save the
US?
.
.
HOW
CURRENCY DEVALUATION DESTROYS WEALTH
By
Henry C K Liu, Asia Times - June 14, 2007
.
In
today's financial world, a liquidity boom produces rising nominal or
face value in return on investment (ROI) with an increasingly hollow
economy in two ways: (1) by devaluing all currencies against real
assets and (2) by keeping down wages and worker benefits around the
globe. Thus while all currencies devalue steadily but not at the
same pace, all of them devalue faster against real assets and slower
against labor cost, because wage adjustments tend to lag behind both
real and nominal inflation rates. This translates directly into low
real valuation for labor, structurally constraining growth of demand to
fall behind growth of supply. This in turn leads to an overcapacity
economy of declining consumer purchasing power. THE LAWS OF OVERCAPACITY: The
first law of overcapacity is that it is deflationary (falling market
prices of assets), which in turn requires falling wages to maintain
corporate earnings. The second law of overcapacity is that it
discourages new plant expansion, so that existing capital assets
appreciate in market value in nominal terms as liquidity increases,
causing the stock markets to rise even though their economic value
remains stagnant. But the laws of overcapacity naturally lead to
a downward economic spiral that ends in depression. The global regime
of declining currency value is one that will lead to a new form of
slavery, despite a rise in living standards from higher labor
productivity and resource utilization as a result of technological
progress.
.
Universal
currency devaluation is masked by an exchange-rate regime in which
currencies rise and fall unevenly against one another around the
benchmark US dollar as the prime reserve currency, while all currencies
fall against hard assets in unison but at different rates due to
varying local conditions. A network of interlocking asset bubbles
then grows around the world as a result of dollar hegemony and the
emergence of deregulated global currency and financial markets, jumping
over national borders, fueled by a general devaluation of all
currencies while the trading public is distracted to focus on the
relative exchange value of one currency against another. Thus
while both the US dollar and the euro steadily fall, Europeans are
comforted by seeing their currency rise against the dollar in recent
years when in fact the euro has merely been temporarily falling at a
slower rate than the dollar. As the dollar, the prime benchmark reserve
currency for trade and finance, devalues against assets, the
exchange-rate regime in the current international finance architecture
will eventually drag all currencies down with the dollar, lest the
trading partners of the United States find themselves saddled with
trade penalties associated with inoperative exchange rates.
.
A CONFUSED PUBLIC: The general
public is further confused by uncertainty about whether a rising
currency is good or bad for them. They are told to rejoice when their
currency falls, as the goods they produce will sell in larger quantity
because they can be bought with less money by foreigners, even their
own income per unit of production will fall and they themselves will be
crowded out of restaurants and shops in their own home towns by
suddenly richer foreign tourists. Ironically, while any normal
citizen should find the prospect of receiving less money for the same
amount of product he or she produces unappetizing, policymakers insist
that there is no alternative systemically. In the meantime, the rich
get richer from declining wages worldwide.
.
http://www.atimes.com/atimes/Global_Economy/IF14Dj01.html
.
.
LOSING
THE ECONOMY TO MYTHOLOGY
By
Paul Craig Roberts, Counter Punch - June 11, 2007
.
Economic
discussion in the United States is trapped in ancient ruts. Both right
and left are stuck in old habitual ways of thinking. Neither shows
inclination or ability to think independently of ideology. For a
country beset with economic problems, this is problematic. The
left-wing, which refuses to accept that the Great Depression was caused
by the Federal Reserve's mistaken monetary policy and still blames
corporate power and greed for the 1930s decade of high unemployment, is
disturbed at the loosening of the leash on corporate power. Generally
speaking, the left blames President Reagan for boosting corporate power
by cutting taxes and for spear-heading union-busting by firing the
striking air controllers. John Kenneth Galbraith was correct that
unions provided a countervailing power, one that has been removed. The
left-wing is correct that corporations have grown in power and that
income inequality has worsened. But the left is wrong in attributing
these developments to tax cuts and dismissed air controllers. The
purpose of Reagan's reduction in marginal tax rates was to cure
stagflation and worsening trade-offs between inflation and employment
that had undermined Jimmy Carter's presidency. Reagan's tax policy
brought a record economic expansion that did not require rising rates
of inflation to sustain. It is impossible to argue that the decline in
inflation and home mortgage rates benefited the rich more than others.
The rich have a lot of margin in their budgets. The poor have none.
.
US
income inequality was worsened and the unions busted by the collapse of
world socialism and the rise of the high speed Internet. These two
developments, which were not part of Reagan's economic program, made it
possible for corporations to substitute foreign labor for American
labor in the production of goods and services for American
markets. Until the collapse of world socialism, corporations did
not have access to the large pools of excess labor in China and India.
Until the rise of the high speed Internet, corporations could not hire
professional services supplied from distant lands. These two
developments meant that highly productive and highly paid American
labor could be substituted out of production functions and replaced
with equally productive but much cheaper foreign labor, because large
excess supplies of Asian labor suppressed Asian wages below the
productivity of labor. Industrial unions were busted by the
movement of plant, equipment, and technology abroad. The
professional middle class was adversely impacted by the ability of
corporations to contract for the delivery via the Internet of
professional services from abroad and by the ability to import cheaper
foreign workers on H-1B, L-1 and other work visas. Jobs
off-shoring is dismantling the ladders of upward mobility in the US,
polarizing the population into rich and poor, and, thereby, worsening
the income distribution. Americans need to understand that it is
jobs off-shoring, not lower tax rates, that is worsening the income
distribution. Because of the million dollar cap on tax-deductible
executive pay, executive incomes depend primarily on
performance-related bonuses. The multi-million dollar CEO pay checks
are not salaries. They are bonuses for making or exceeding profit
expectations by such practices as off shoring jobs and lowering
production costs. We have created an incentive system in which a few
corporate executives are amazingly well paid for destroying jobs and
career opportunities for Americans. The more they can worsen income
inequality by off shoring American jobs, the higher they are paid.
.
The
remedy to this crazy incentive system is not higher tax rates.
High marginal tax rates curtail real output. The Federal Reserve then
tries to force more output by pumping up the money supply to increase
demand, and the economic system responds by raising prices instead of
output. This is the serious economic problem that Reagan's supply-side
economic policy cured. To resurrect this problem on top of our other
problems would be anything but helpful. The emotional remedy for
obscene pay packages is a surtax on multimillion dollar incomes.
Princeton economist Alan Blinder, a former vice chairman of the Federal
Reserve, says that the entire range of tradable professional services
can be off shored. I agree with him. He estimates the number of these
jobs at approximately 50 million. Should such displacement occur,
what occupations would absorb such numbers of economically displaced
Americans? As I have documented relentlessly, in the 21st century the
US economy, according to the non farm payroll data of the Bureau of
Labor Statistics, has been able to create net new jobs ONLY in non
tradable domestic services, jobs such as waitresses and bartenders and
health and social services. Free trade ideologues claim without
evidence that the lost jobs will be replaced by better jobs. They do
not explain why any such better jobs, should they materialize, would
not themselves be off shored.
.
http://www.infoshop.org/inews/
.
EDITORS NOTES:
Well, we gave you some data and details before and indeed it is true
that according to the US Bureau of Labor Statistics, the jobs are there
- BUT for waitresses, home health aides, lawn care engineers (also
known as gardeners), ambulance drivers and the like (which are jobs
often taken by immigrants certainly willing to work for less, placing
downward pressure on salaries domestically). In addition, one can
read between the lines when Henry Liu basically is trying to say that
the politicians know darn well that the standard of living WILL fall in
the US when he says: the policymakers insist that there is no
alternative systemically. Which is to say, the middle class WILL
surely get poorer, and that would seem to be the sanctioned game plan,
or of course something that is common knowledge among those in
positions of authority with access to the real economic information (of
course you already know what we have to say about that - Exit Stage
Left, and have your boarding pass ready). Also, recent statistics
tell us what is going on. The
June 1, 2007 Bureau of Economic Analysis Personal Income and Outlays
Report tell us that BOTH real and disposable income - actually fell.
Personal income (DPI) decreased $9.7 billion, or 0.1%, in April,
according to the Bureau of Economic Analysis. Personal consumption
expenditures (PCE) increased by $52 billion, or 0.5%. The bottom
line, US income levels are falling YET for the moment American
consumers are either spending more (still shopping as usual) or the
effects of inflation on gasoline and food prices are taking its
toll. In other words, most people are still living in Fantasy
Land, and God help them if they ever wake up to reality. Here is
another wake up call:
.
.
ECONOMIC
GROWTH WEAKEST IN MORE THAN 4 YEARS
Thursday,
June 28, 2007 - Associated Press
.
WASHINGTON
- The economy limped ahead at just a 0.7 percent pace in the first
quarter, the slowest in more than four years, as some businesses
clamped down on spending given uncertainties about the severity of the
housing slump. The Commerce Department's new reading on gross
domestic product for the January-to-March period, released Thursday,
was a slight upgrade from the 0.6 percent growth rate estimated a month
ago. But it still fell short of economists' forecasts for a 0.8 percent
pace and will probably turn out to be the weakest point for the economy
this year. Gross domestic product measures the value of all goods
and services produced in the United States. It is considered the best
barometer of the country's economic standing. Although businesses
turned cautious, consumer spending remained sturdy, preventing the
economy from stalling out entirely. Even though the economy
slowed in the first quarter, an inflation gauge picked up speed.
The inflation gauge tied to the GDP report and closely watched by the
Federal Reserve showed that core prices -- excluding food and energy --
rose at a rate of 2.4 percent in the first quarter. That was higher
that previously estimated and was faster than the 1.8 percent pace in
the fourth quarter. The Fed has said
that inflation poses the biggest potential danger to the economy.
The new inflation reading was outside the central bank's comfort zone,
which ranges from 1 percent to 2 percent, and was an unpleasant
surprise for the Fed, said Nariman Behravesh, chief economist at Global
Insight.
.
http://www.dallasnews.com/sharedcontent/dws/dn/latestnews/stories/
.
.
OIL
HITS $70 A BARREL - June 28, 2007 - Associated Press
.
Oil
futures briefly hit $70 a barrel in New York trading Thursday for first
time since Sept. 1 after a government report showed that gasoline
inventories dropped unexpectedly just as the summer driving season is
about to hit its peak.
.
http://www.forbes.com/feeds/ap/2007/06/28/ap3866657.html
.
.
COST
OF GAS AND FOOD ROSE SHARPLY LAST MONTH
By
Jeremy W. Peters - June 16, 2007
.
Americans
felt the pinch of higher gas prices and eroding wages last month, even
as an important gauge of inflation drifted lower, government figures
showed yesterday. Over all, the Consumer Price Index rose 0.7 percent
in May, the Labor Department reported. The core rate, which excludes
food and energy, was up just 0.1 percent, a welcome development that
encourages the Federal Reserve to keep interest rates steady. The
news on the core rate, which has been inching steadily downward,
cheered investors, who continued a stock rally that started
midweek. But for consumers, the news was hardly reassuring.
Prices for staple household purchases like gasoline and food rose to
even higher levels last month, effectively causing most Americans to
take a pay cut. After taking inflation into account, the average weekly
earnings for workers in non-management jobs, some 80 percent of the
work force, fell for the second consecutive month in May.
.
http://www.nytimes.com/2007/06/16/business/16econ.html
.
EDITORS NOTES:
There still are some people doing well or holding ground as it were,
economically speaking, but that is not the point or real longer term
problem. Any time in history when there have been wide
divergences in income distributions (in other words, rich and poor with
almost no middle class) and or the prospects for the middle class start
to deteriorate, that is when the trouble begins. With that, the
real question is, are things very different today then the were say 75
years ago (the Great Depression of the 1930s) in terms of government
finances, jobs, and so on? In other words, how much opportunity
and wiggle room is there for application of certain economic policies
this time around for some sort of economic band-aid? Many
politicians and economists like to say that things are different
today. I would say that is an understatement, and I do not mean
in a positive way either. Remember the quote from one of the
above articles: policymakers insist that there is no alternative
systemically. No alternative - eh? How about an airplane
ticket?
.
.
RULING
OPENS U.S. TO FOREIGN RETALIATION
By
Matthew Lee - June 15, 2007
.
Think
you have a tax problem? A Supreme Court ruling this week could leave
Uncle Sam, and American taxpayers, liable for untold millions on U.S.
diplomatic properties abroad. While New York City celebrates the
decision allowing it to sue foreign governments for more than $100
million in back property taxes, the State Department is bracing for
retaliation overseas. The fear is that governments will take
similar measures against the United States, which maintains the world's
largest diplomatic presence with more than 3,500 buildings. Many of
them could be subject to taxation by local authorities and lawsuits to
recover money owed. More broadly, the finding could also
jeopardize traditional rights and privileges that date back to ancient
Greece and are enshrined in international treaties, notably the Vienna
Convention, which grants immunity from most civil and criminal
prosecutions to diplomats on foreign soil. The court's 7-2 ruling
chipped away at some of those immunities by finding that New York has
jurisdiction to sue the governments of India and Mongolia for nearly
$20 million, more than $41 million with interest, in property taxes
local authorities say are owed on residences at the countries' U.N.
diplomatic missions in Manhattan. Officials in New York now say
they will use the decision to go after other governments they accuse of
refusing to pay property taxes.
.
http://www.guardian.co.uk/uslatest/story/0,,-6712732,00.html
.
EDITORS NOTES:
Two things come to my attention. First off is the question - How
Broke is New York City really? I mean to say, in the last
newsletter we gave you a news story about New York City Police starting
off with a take home pay of US$1,400 per month, which represents a
retreat to what the wages were 20 years ago (New York's finest just
about eligible for food stamps and free government cheese today in
2007). Now they want to change the status quo and start taxing
foreign embassies and consulates. Fair enough, let's get those
free loading foreign nations to pay up, but there is a backlash to all
this and it will be the US taxpayers footing the bill at the end of the
day after all is said and done. To quote from the article:
A Supreme Court ruling this week could leave Uncle Sam, and American
taxpayers, liable for untold millions on U.S. diplomatic properties
abroad. American taxpayers liable for untold millions of
dollars? Sure, why not - - Just increase the taxes once again,
Americans don't mind, or do they?
.
.
UTAH
SCHOOLS HIRE MEXICAN TEACHERS
Tuesday,
June 12, 2007 - FreeMarketNews.com
.
Several
Utah school districts have just hired a total of 12 new teachers from
Mexico. The State Office of Education has been working on the plan for
almost a year. This is part of an agreement Governor Huntsman made with
Mexico when he visited there a couple years ago. School districts
say they're happy about it. The teachers will be filling positions that
districts can't seem to staff right now. At the same time, the teachers
will help a growing population of Hispanic students in the state.
School districts are having a harder and harder time finding elementary
school teachers, science and math teachers.
.
http://www.freemarketnews.com/WorldNews.asp?nid=43580
.
EDITORS NOTES:
School districts are having a harder and harder time finding elementary
school teachers, science and math teachers, so says the article.
The United States: a country with a population lacking in math skills,
engineering and the sciences to such an extent they have to go abroad
to look for employees? Really? The article also says:
School districts say they're happy about it (in regards to having to
hire Mexican schools teachers). Sure they are happy about it -
can you imagine why? HOWEVER, it
is also very interesting to note that school teachers in the rest of
the country are being laid off left and right. Sixteen school
teachers recently laid off in Hudson County, New Jersey (and make note
some were bi-lingual Latinos). FIFTY
teacher layoffs and the closing of an elementary school are being
planned in Gloucester, Massachusetts. In Lorain, Ohio -- More
than one third of Lorain City School teachers will have to look for
work next fall as the school administration announced 246 teachers out
of 700 will be laid off (and speculation is they will need to lay off
120 more). In Ypsilanti, Michigan budget reductions will
eliminate 17 teacher positions and seven and a half support staff
positions, and two teachers from Spanish and/or drama will be
eliminated from elementary schools. In Dayton, Ohio - More than
200 teachers and around 85 teacher's aides have lost their jobs with
the Dayton Public Schools. In Scranton, Pennsylvania teacher
layoffs stand at 108, and about 60 school support staff, including
janitors, clerks and aides, also lost their jobs due to the school
closings and mergers. Should I go on? In Perth Amboy, New
Jersey the Perth Amboy school district is cutting more than 40
positions, including five elementary teaching jobs, due to funding
restrictions. In any event, the folks in UTAH claim they cannot
find elementary school teachers, science and math teachers (and they
need to go to Mexico to hire school teachers). You explain it to
me, because for the life of me, it does not make any sense (actually it
does, it is called reversed outsourcing whereby you bring in skilled
white color workers from abroad - for half the regular local
wages). Where is that guy that wrote to me awhile ago, arguing
about how civil service jobs could NOT be outsourced or affected by
globalization initiatives, and how I was foolish to discuss it?
Maybe he was laid off from his government job and lost his internet
connection? Oh well.
.
.
MILWAUKEE
POLICEMAN FOUND TO BE ILLEGAL IMMIGRANT
By
Kari Lydersen - The Washington Post - June 19, 2007
.
Fellow
Milwaukee police officers knew him as Jose Morales. But after an
anonymous phone tip this winter, an investigation revealed that Jose
Morales is dead, and the officer known as Jose Morales is his cousin
Oscar Ayala-Cornejo, 24. He is an illegal immigrant from Mexico who had
assumed Morales' identity as a high-school student in 1999. In
court papers filed Friday, Ayala-Cornejo agreed to plead guilty to a
federal felony charge of falsely claiming to be a U.S. citizen. Under
the plea agreement, he will face six to 12 months in jail. The
police department suspended Ayala-Cornejo after he was arrested May 30
and has since taken him off the payroll. Alexander Ayala, 26,
Oscar Ayala-Cornejo's brother, is a U.S. citizen who is an officer in
the same South Milwaukee district and has been placed on administrative
duty. John Balcerzak, president of the Milwaukee Police
Association labor union, said the incident shows the department should
beef up its background checks. This is a wake-up call to our
department and departments around the country, he said. When I
was hired 20 years ago, they went to old neighbors and high-school
teachers. People are really concerned he was able to do this, and they
feel let down by him. Ayala-Cornejo had documentation of his
assumed identity, including a driver's license. He attended one high
school using his given name, then switched to another school, enrolled
as Morales and graduated in 2001. That yearbook shows his picture with
Morales' name. Ayala-Cornejo joined the police department as an
aide in 2001 and became an officer in December 2004. In 2005, he was
assigned to District 2, a mostly Latino area on the city's South Side,
which is also home to many residents of German and Polish
descent. Latino leaders note that working under someone else's
identity is common practice for many of the estimated 12 million
illegal immigrants in the United States.
.
http://seattletimes.nwsource.com/html/nationworld/2003753360_immigcop19.html
.
EDITORS NOTES:
Many people tell me they are concerned about inefficiency, screw ups
and such things when the discussion comes up involving police
departments in other countries. In this case, it is disturbing to
learn that a police department in the US does not even know who they
have working for them (and carrying a gun I might add), and they
probably would not have known unless for an anonymous tip. In any
event, we are just about one year away (2008) from the National ID card
mandate in the US, complete with high resolution colon scan (you might
want to get that colon cleanse product, you know, so you have a nice
looking colon when it comes time to snap the photo) and a radio
frequency homing device built right into the card. And to top it
all off, the US police official stopping you, asking for your Papers
Please, might be an illegal immigrant working under an assumed identity
(if that is not ironic, then I do not know what is). Never say
never, it could happen (I was only kidding about the colon thing, but
you never know).
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