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Our August 30, 2007 Newsletter
Edition
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IN
THE NEWS:
.
.
U.S.
DOLLAR FALLS AGAIN, AFFECTS TRAVEL ABROAD
By
Ellen Creager - July 12, 2007
.
Traveling
to Europe or Britain this summer? Bring extra money. In the
middle of the busy summer travel season, the U.S. dollar has sunk to a
new low this week against the British pound and the euro. It now
costs at least $2.03 to buy one British pound and $1.38 to buy one
euro. That's the most expensive in decades for the pound and the most
expensive ever for the euro. Even Canada's dollar, the loonie,
rose this week to 95 cents U.S., the highest in 30 years. All of
this is bad for American travelers. I wrote about his issue Sunday, but
now the picture is suddenly even gloomier than I described.
.
http://www.freep.com/apps/pbcs.dll/article?AID=/20070712/BLOG20/70712006
.
.
DOLLAR-SMART
DESTINATIONS
By
Ellen Creager - Detroit Free Press
.
Forget
the familiar spots; consider the many places you still get a bang for
your buck. Poor measly dollar. It's shriveling against the euro.
It's a weakling against the British pound. It's even starting to waver
against the Indian rupee and the Thai baht. Is there anyplace in the
world that the dollar is still almighty? Sure. You just have to know
where to go. Rural Spain and Portugal are not so bad, but the
rest of Western Europe is so expensive now; everyone I talk to is just
flabbergasted at how much they are spending. They are not prepared for
the actual shock of spending $100 on lunch, says Tim Leffel, the
Nashville-based author of: The World's Cheapest Destinations.
Instead of Europe, look in our own hemisphere, he urges. I advise
so many people to go to Latin America, he says. It is easy to get
there, there is a steady exchange rate, there is almost no time change
and it is a bargain. Places like Nicaragua, El Salvador, Ecuador
and Argentina all are cheap for Americans. El Salvador and Ecuador
actually use the dollar as their official currency, plus the cost of
living is low.
.
http://www.freep.com/apps/pbcs.dll/article?AID=/20070708/FEATURES07/707080520/1032
.
EDITORS NOTES:
The author of the above article makes the very poignant
statement: You just have to know where to go. Sounds so
simple - does it not?
.
.
EMERGING
MARKETS FLOODED BY LOCAL-CURRENCY GLOBAL BONDS
By
Walter Brandimarte - July 14, 2007 - Reuters News
.
Emerging
debt investors were flooded this week by billions of dollars in
local-currency global bonds offered by governments and companies,
despite market concerns related to the U.S. sub-prime mortgage
market. A large chunk of the new issuance is denominated in the
Brazilian real, which has gained more than 14 percent so far this year.
But sovereign bonds are also being offered in other strengthening local
currencies, such as the Colombian peso, the Peruvian sol and even the
stable Egyptian pound. Despite being denominated in local
currencies, those bonds are more accessible to international investors
because most are settled in international markets and payable in
dollars. The risk of currency devaluation, however, remains with
the investor. The reality is that U.S. dollar sovereign debt
issuance CONTINUES TO DECLINE for very good reasons and you're seeing
more local debt issuance, said Jeff Grills, a fund manager with JP
Morgan Asset Management in New York. As these economies are
growing, this is not a bad thing, as long as you look at what it is
relative to GDP. And you're also seeing a lot more corporate issuance,
which can be good or bad depending on the quality of the issuer, he
added.
.
http://africa.reuters.com/business/news/usnBAN430652.html
.
EDITORS NOTES:
According to a July 17 news article from Money Week: Our strongly held
belief is that a full scale US balance of payments crisis is only being
prevented by the unprecedented generosity of overseas (largely Asian)
central banks. Their high and rising dollar surpluses are destined
either to increase at an increasing rate (due to the ongoing
deterioration in US competitiveness relative to the likes of India and
China), or lead to a massive dollar devaluation. The combination of
rising oil price and abundance of dollars is forming the basis of an
unhealthy and potentially explosive cocktail. Over the course of
the past few days the dollar has deteriorated both against the euro and
sterling. The result of these trends, if the dollar is not
devalued, is likely to see the US current account deficit, as a
percentage of GDP, rise to 8%-10% within the next two to three years.
The message is pretty clear, Japanese and Chinese central bankers
should be prepared either to buy lots more US debt or prepare to see
(in the absence of any Renminbi revaluation) the dollar fall a lot
further on the foreign exchanges.
.
http://www.moneyweek.com/file/32261/can-a-dollar-devaluation-be-avoided.html
.
(EDITOR):
So, let us say for argument sake, you have bonds denominated in the
Brazilian Real (we especially like the long term fundamentals for the
Real as a currency, plus Brazil is self reliant on energy - we like
that, and those guys can Samba pretty good too) or the Egyptian Pound
paying 8, 9 or 10 percent interest. Let us also say, for argument
sake, the USD continues its slippery downward slope and these
currencies continue to appreciate (giving you interest and currency
appreciation at the same time). Let us say in addition, for
argument sake, you perhaps hold some of these bonds in your offshore
brokerage account, and are perhaps tax-free as well. As Moishe
from Panama likes to say: Couldn't Hurt.
.
.
SOME RECORDS AREN'T WORTH THE HOOPLA
- By
David Leonhardt - July 18, 2007
.
So
have you heard the one about the stock markets new record high?
Last Thursday, stocks had one of their best days in years, with the Dow
Jones industrial average and the Standard & Poor 500-stock index
both jumping about 2 percent. A record day on Wall Street.
The next morning, newspapers around the world, including this one, made
prominent mention of the record. The Wall Street Journal led its Friday
paper with this headline: Dow Again Soars to Record High Despite
Unease. Yesterday, the Dow cracked 14,000 for the first time,
before closing at 13,971. Technically, all the talk about records
is accurate. But it's also fundamentally wrong. In fact, the attention
that's being showered on Dow 14,000 goes a long way toward explaining
why our economy has become so susceptible to speculative bubbles.
.
Today,
the S.& P. remains 17 percent below its inflation-adjusted 2000
peak. A share in a mutual fund tied to the S.& P. 500, in other
words, can't buy nearly as much today as it could in early 2000. Now,
in a way, this might be considered a good sign. If the market isn't
really at a record high, it may still have a lot of running room. But I
wouldn't be too confident about that. Relative to corporate earnings,
stocks remain more expensive than they have been at any time except the
1920s and the 1990s. That's the thing about bubbles: they usually
take a long time to overcome. The normal pattern after a huge boom like
the sort we recently had in stocks and then real estate is years if not
decades in which an investment doesn't keep up with savings accounts.
And what kind of a record is that?
.
http://www.nytimes.com/2007/07/18/business/
.
EDITORS NOTES:
Financial Week
Magazine reports that (in the July 23, 2007 issue): Companies
are buying back so much stock or retiring it as a result of M&A
activity that net equity issuance has plummeted in the past several
years to a negative $600 billion. And that, more than anything, may
explain why stock prices continue to advance even as the corporate bond
market retreats because of fears of higher defaults and interest rates.
However, a stock price advance reflecting a dwindling supply of shares
looks suspiciously to us like a liquidation process rather than a
source of financial support. (Editor):
In plain English,
the author of this article is saying that he thinks the reason the US
stock markets are (were) rallying up is due to stock buy back
initiatives. In other words, yes it is true that some companies
are reporting good earnings, but the speculation is that they are using
this money to buy up their own stock (as opposed to investing that
money into new factories or equipment domestically inside the
US). It is an interesting theory or analysis to say the least (to
explain the run up).
.
.
CENTRAL AMERICA MIGHT STEAL THE US A LARGE
PART OF ITS RETIRING BOOMERS
July 17, 2007
.
Several
countries from Central America are trying to attract U.S. retirees with
fiscal incentives. With a good preparation and a few sacrifices, North
American boomers may enjoy an equally, if not a better retirement than
in their own country. Many Central American countries are betting
U.S. baby boomers will be the generation that globalizes
retirement. They're gearing up by offering financial incentives
that could make retiring internationally a smart financial move for
some individuals. The same advances that allow companies to do
business across borders are making it possible for people to live out
their golden years in another country. If someone retires in
Panama, for instance, she or he can talk to children and grandchildren
via phone or email every day, fly home a few times each year, and
probably even get a satellite dish to keep up with favorite TV programs.
.
Many
will also appreciate the generous incentive package the Panamanian
government has put together: Retirees on Pensionado visas get import
exemptions on their household goods and cars, may not have to pay
property taxes for up to 15 years and even receive special discounts
such as 10% off prescription drugs, 25% off domestic airfares and 50%
off movie tickets. Anticipation of the boomers' arrival is
fuelling wild speculation on real estate in and around Panama
City. It is also spurring the development of retirement
communities all over the country such as Valle Escondido, a gated
development in the mountains with its own sewage and water systems,
paved roads, 24/7 security, a golf course and Internet access. Home
construction costs typically run about $55 to $60 per square
foot. Throughout Central America, countries are jockeying for
position, trying to attract flocks of North American retirees they
believe will be willing to settle a bit farther south than Florida or
Arizona for the right price.
.
http://www.seniorscopie.com/
.
EDITORS NOTES:
Once again, I give you our trading places theory. Solvent middle
class North-Americans moving down to Latin America (and why not if the
cost of living is cheaper?) AND of course poor, low skilled or
unskilled people going in the other direction. Such a deal.
.
.
BRAZILIAN HYDROELECTRIC STARTS IN DR
- July
17, 2007 - Prensa Latina
.
Dominican
President Leonel Fernandez initiated the construction, to be by a
Brazilian enterprise, of the Las Placetas hydroelectric project in
northern Dominican Republic, a government source informed on
Tuesday. The hydroelectric project in San Jose de las Matas,
Santiago Province, is 125 miles from the capital and will supply 87
megawatts to the national energy system, with an investment of 285
million dollars. The first detonation was made by the president
yesterday with the presence of the Brazilian ambassador, civil and
military officials, church authorities and executives of the Brazilian
firm Andrade Gutierrez SA. The 14 year financing for construction
costs is by the Brazilian National Bank of Social and Economic
Development (BNVDES), the NIB-NORDINT Investment Bank and credit lines
from Sweden, Norway, Finland and Portugal. The Government
Information Center scheduled an investment recuperation of seven years
at most, and entry of this project into the energy system will
represent a saving of over 40 million dollars a year, as well as
reducing dependence on foreign hydrocarbons. Construction of the
hydroelectric will generate 1,400 direct and 2,400 indirect jobs, and
stimulate commercial activity in the zone.
.
http://www.plenglish.com/
.
.
POTENTIAL
ENERGY CRUNCH MAY BRING OTHER FUELS TO FORE
By
Bhushan Bahree - July 16, 2007
.
World
oil and gas supplies from conventional sources are unlikely to keep up
with rising global demand over the next 25 years, the U.S. petroleum
industry says in a draft report of a study commissioned by the
government. In the draft report, oil-industry leaders acknowledge
the world will need to develop all the supplemental sources of energy
it can -- ranging from biofuels to nuclear power to oil extracted by
unconventional means from the oil sands of Canada -- to meet soaring
demand. The surge in demand is expected to arise from rapid economic
growth in such fast-developing countries as China and India, as well as
mounting consumption in the U.S., the world's biggest energy
market. The findings suggest that, far from being temporary, high
energy prices are likely for decades to come.
.
http://online.wsj.com/
.
EDITORS NOTES:
As I have said before, the developing or third world countries seem to
be moving towards more integration in terms of investment and
technology sharing, which would make for an interesting economic
trend. China especially derives about 60 percent of its current
GDP from US sales, but it is also noteworthy that they too have been
actively courting developing markets, seemingly trying to diversify
away from the US in terms of dependency on that market (note recent
efforts by the Chinese in India, Latin America, Africa - Nigeria comes
to mind, etc.) What of course is also notable is the comment that
HIGH ENERGY PRICES
are likely for decades to come (of course this is a statement is coming
from the oil industry, so nothing unexpected there).
.
.
1.1MILLION WILL GO BANKRUPT - Tuesday - July 17,
2007
.
An
interest rate increase of just 0.25 per cent next month would put
1.1million Britons into bankruptcy, analysts warned yesterday.
The average rise of £70 on a mortgage, plus other loans, could
leave those already struggling with repayments one pay cheque short of
disaster. Debt help specialists Thomas Charles stressed: If
November sees a hike, the rate of personal insolvencies will rise to a
level never seen before.
.
http://bankruptcy.org.uk/news/bankruptcy/
.
EDITORS NOTES:
Also from the same web site: The first quarter of
2006 saw the highest number of personal insolvencies ever seen in the
United Kingdom. The figures reveal that 23,939 people went
into bankruptcy January to March 2006. This is an increase of 81%
compared to the same quarter last year. These figures represent the
fastest growing rate of personal insolvency since 1991.
.
.
WE'RE
BREEDING A NATION OF BAD DEBTORS - By Andrew O'Hagan
.
When
I was growing up, there was something vaguely terrifying about the idea
of debt. People who couldn't pay their bills were in a category of
their own, constantly plagued by sheriffs' officers, repossession men,
by the authors of threatening letters, and all that worrisome business
known to attend on those who live their lives in arrears. In Britain,
working-class people usually hated debt, middle-class folk disliked it
but had a bit of it, and the upper orders were enslaved to it. Time was
when a person's class could be identified by their attitude towards
debt, and a notion of affordability held some sway. Not any more.
We now live in a society where everyone lives in debt and where the
connection between what you earn and what you can buy is quite unreal.
Everyone is encouraged to imagine they can have it all, and hang the
consequences. I can remember when it was quite swish to have a
credit card; now the infants in the streets have them, and we are a
nation up to our eyes in outrageous (often impossible) repayments.
Money problems, especially for the middle classes, have become a fact
of life, and having a nice car and a plush house is no longer evidence
of success. It is just as likely to be evidence of an impoverished life
being eked out on the never-never.
.
One
step down from bankruptcy is something called an individual voluntary
arrangement (IVA), where a company convinces a person's creditors to
accept a smaller payment to that owed, the idea being that a smaller
amount is better than the nothing they will receive if the person goes
bankrupt. Credit experts revealed this week that the number of
middle-class English families taking up IVAs has gone from 5,000 four
years ago to this year's figure of 40,000. This astounding figure has
been little commented on in the press, but represents a crisis for
British families. Bankruptcies are up, too; in the first six
months of this year, British banks were forced to write off more than
£3.5 billion in bad debts. That could be up to £10 billion
a year by next year, which is more than 10 per cent of what we spend on
the NHS. Are we going mad?
.
http://bankruptcy.org.uk/news/bankruptcy/
.
EDITORS NOTES:
Going mad? Hard to say, although we know that sales of Prozac are
on the upswing in both the UK and the US (as we reported in a previous
newsletter). Going Broke? Now that is another matter
altogether.
.
.
BRITONS DROWNING IN PERSONAL DEBT - July 4, 2007
.
Due
to frivolous spending, expanding school costs and burgeoning fuel
prices over the past several years, Britain now ranks as one of the
most debt-ridden nations, surpassing the United States and all other
European countries. A report issued by Credit Action, a British
financial education organization, found that Britain's personal
debt is increasing by one million pounds every four minutes. Day
by day in the UK we now borrow and spend at an astonishing rate; it is
such a key part of our everyday life, said Chris Tapp, Associate
Director of Credit Action in the report. However there are real
risks associated with this pattern as the numbers of people falling
into difficulty on a daily basis shows. We need to make sure that we
are thinking very carefully to ensure that the money we are borrowing
for today, we can afford to pay back tomorrow.
.
According
to the organizations statistics, total personal debt in the United
Kingdom at the end of April 2007 amounted to £1,325 billion,
while the growth rate increased to 10.4% for the previous 12
months - an increase of £114 billion. Average household
debt is £8,816 pounds for households without a mortgage and
£54,771 for households with a mortgage. Considering the
pounds value is almost twice that of the dollar, it amounts to over
$16,000 USD of debt per household without a mortgage, more than double
the average of household debt in the U.S.
.
http://www.realtruth.org/news/070705-001-UK-debt.html
.
EDITORS
NOTES: According to a July 5, 2007 article from the Economist
Financial Magazine (UK): The ratio of average house prices
to average
incomes is currently flashing red in America, Britain, Spain and
quite
a few other developed countries where it has soared to record highs,
above levels that preceded previous crashes. (Editor): Indeed, we
have noted before that those with some common sense have been taking
profits (selling their overpriced real estate in the UK, US and Spain)
and investing those funds elsewhere (Argentina, Dominican Republic,
Ecuador, etc.). Now that we told you about what is going on in
the UK, let us see what is happening in America currently (see below).
.
.
SECOND
QUARTER 2007 MARKS FIFTH CONSECUTIVE GROWTH IN CONSUMER BANKRUPTCIES
-
July 2, 2007
.
The
National Bankruptcy Research Center (NBKRC), a subsidiary of Lundquist
Consulting, Inc., industry leader in bankruptcy statistics and
analytics, releases findings that the second quarter of 2007 marked the
fifth consecutive increase in bankruptcy filings since the first
quarter of 2006. The second quarter 2007 filings numbered 200,732 - an
11.6 percent growth over the first quarter of 2007 and a 40.6 percent
growth over the second quarter of 2006. On an annualized basis, 1
in every 136 households filed bankruptcy in the second quarter of 2007,
as opposed to 1 in every 190 households in the second quarter of 2006.
(Household numbers are based on 2005 estimates by the US Census.) The
number of Chapter 13 filings in the second quarter of 2007 represents
37.3 percent of total filings, and Chapter 7 filings represent 62.5
percent. While the percentage of Chapter 7 filings is still lower than
prior to the general enactment of the Bankruptcy Abuse Prevention and
Consumer Protection Act (BAPCPA), Chapter 7 filings grew faster than
all other chapters, increasing by 16.4 percent in the second quarter,
compared to a 4.6 percent increase in Chapter 13 filings. The
largest volume of second quarter 2007 filings occurred in California at
16,251 filings, followed by Ohio at 13,401 and Georgia at 11,246.
.
http://www.nbkrc.com/News.aspx
.
.
DELAWARE
SEES RECORD NUMBER OF FORECLOSURES
By
Leslie A. Pappas, The News Journal - July 11, 2007
.
Foreclosure
filings in Delaware rocketed to a record high over the past year, up
29.5 percent from the previous year, court records show. Delaware
recorded 2,962 mortgage foreclosure filings in fiscal year 2007, which
ended June 30, up 20 percent from the state's previous record in 2003.
Delaware filings for the month of June were higher than any month of
the year in all three counties.
.
http://www.delawareonline.com/
.
.
RECORD
FORECLOSURES IN GIBSON COUNTY (Indiana) - Tuesday,
Jul 10, 2007
.
Seven
months into the year, Gibson County sheriff sales on foreclosed
properties are moving at a pace to set a new record. Last week,
the Gibson County Sheriff's Dept. advertised its 99th sheriff sale this
year, compared to 120 at year's end in 2006, which topped a previous
all-time-high 105 sales. Chief Deputy Sheriff George Ballard said
sheriff sales are the result of a court ordered bank foreclosure for
the non-payment of standard monthly mortgages. The sales are
scheduled once each month (usually the third Thursday of the month),
are held in the Gibson County Sheriff's Dept. main office. The
sales are separate from tax sales, which are held twice a year by the
Treasurer's Office for non-payment of real estate taxes. The 99th
sale notice came Friday, shortly after a report that Indiana bankruptcy
filings have spiked nearly 70 percent in the first six months of the
year.
.
http://www.tristate-media.com/articles/2007/07/10/pdclarion/news/news3.txt
.
EDITORS
NOTES: Taking a quick look at the domestic US housing
market, a
news article from the Chicago Herald News on July 18, 2007 says:
Home prices in South Florida are melting like white snow in hot summer
sun. In fact, the consensus is that home prices (in South
Florida) will continue falling for 12 to 18 months and then prices may
be flat as a Frisbee for another couple of years.
.
http://www.suburbanchicagonews.com/heraldnews/business/
.
According
to Mr. Matt Woolsey, writing a July 17, 2007 real estate article for Forbes Business
Magazine, he says: Those looking to spin the real
estate roulette wheel might want to steer clear of Miami. It ranks
first on our list of the nation's riskiest real estate markets.
There, a high share of adjustable-rate mortgages, high vacancy rates
and slumping prices still too elevated for the local populous means
should long-term bond yields climb, interest rates jump or the housing
crisis linger much longer, things could go from bad to worse.
Affairs are not much better farther north--or west. Following in
Miami's wake are Orlando, Sacramento and San Francisco. Given
Federal Reserve chairman Ben Bernanke's continuing worries about
INFLATION, economists say there's a good chance rates could go up in
the next couple of years, meaning that the increased costs of lending
will be passed along to ARM borrowers, and that can mean higher rates
of defaults. What's more, high ARM share generally means a market
is unaffordable to its residents.
.
The
metros with the highest shares of ARMs, according to the National
Association of Realtors, are in San Francisco, San Diego and Los
Angeles, respectively. These three cities are also the most overpriced,
according to our price-to-earnings measure. And these areas are three
of the four least affordable to the local population, according to the
National Association of Home Builders and Wells Fargo's affordability
index. If rates go up or lending tightens, fewer will be able to buy
in, bringing the markets to a screeching halt.
.
http://www.forbes.com/realestate/2007/07/17/
.
.
IF
THIS IS SUCH A RICH COUNTRY, WHY ARE WE GETTING SQUEEZED?
By
Heather Boushey and Joshua Holland, AlterNet. July 18, 2007
.
While
the rich are getting richer, they're slashing Social Security, Medicare
and other social programs for the rest of us. What gives?
.
The
commercial media is telling us two perfectly contradictory stories
about the American economy. The first is how wonderfully rich we are in
the United States. The stock market's booming -- some analysts predict
the Dow will break the 15,000 this year -- the economy is expanding at
a healthy clip, productivity growth is up and unemployment and
inflation are relatively low. But, at the same time, we're also
told that we don't have the money to pay for a robust social safety
net. When it comes to paying for universal health coverage, affording
retirement security for our elderly, investing in programs for the poor
or educating our children, we need to pinch pennies. According to this
storyline, we face a looming entitlement crisis -- we won't be able to
afford to keep the Baby Boomers in good health and out of poverty,
we're told, unless we slash their benefits and privatize the programs
that their elderly parents enjoy today.
.
This
is the line we hear from the Administration when it talks about
entitlement reform: Treasury Secretary Henry Paulson says that The
biggest economic issue facing our country is the growth in spending on
the major entitlement programs: Medicare, Medicaid, and Social
Security. The solution, according to the Heritage Foundation, is
to cut entitlement spending: Reforming Social Security, Medicare, and
Medicaid is the only way to get the budget under control. How can
two narratives that are so clearly at odds with each other be so
pervasive? Are we seriously supposed to believe that Paris Hilton has
to dig between the cushions of her sofa to buy a can of tuna? What
reconciles these two themes is absent from our mainstream economic
discourse: we can't afford all sorts of programs that are clearly in
the common good because most of the benefits of our growing economy
have gone to a very small group of Americans, who have, in turn, seen
their taxes slashed again and again in the past six years. It's a story
that isn't told as often as it should in the commercial press because
it's a supposedly liberal narrative -- never mind that
über-conservative former Fed Chairman Alan Greenspan told Congress
that there is a really serious problem here, as I've mentioned many
times in the consequent concentration of income that is rising.
.
Saying
that the majority of the country's economic gains in recent years have
gone to the top one percent of the income ladder understates the trend.
You have to cut the pie into even smaller slices to get the full
picture. Because while the bottom half of the top one percent of the
income distribution have done far better than the average wage slaves,
it is a smaller slice still -- the top .01 percent -- that has grabbed
most of the gains--seeing an impressive 250 percent increase in income
between 1973 and 2005 -- from an economy that's grown by 160
percent. An analysis by economists Thomas Piketty and Emmanuel
Saez gives us the best perspective of what's going on for everyone
else. They found that despite several periods of healthy growth between
1973 and 2005, the AVERAGE INCOME of all but the top ten percent of the
income ladder -- nine out of ten American families - FELL BY 11 PERCENT
when adjusted for inflation. For three decades, economic growth in the
United States has gone first and foremost to building today's modern
Gilded Age. The recipients of those gains don't care about a fully
funded Social Security system or a healthy Medicare program -- they
don't need them. Meanwhile, even as the top earners' incomes have
gone through the roof, their tax burden has shriveled. At the same
time, the share of federal revenues contributed by corporations has
declined -- by two-thirds since 1962.
.
http://www.alternet.org/workplace/57180/
.
EDITORS
NOTES: Just to prove the point, an item from the July 18,
2007
edition of the Daily Press in Virginia says (regarding Newport
News): The average wage earner finds his or her hourly pay is up
just 3.8 percent from a year ago - 1 percent after inflation. This
year, Social Security benefits are up 3.3 percent, and the average pay
hike for federal workers is just 2.2 percent. But the average property
tax bill for Newport News homeowners is up 8.7 percent, bringing the
increase over four years to 48 percent. The result: A bigger share of
taxpayers' income is going to tax bills, leaving less for other needs.
Add in rising health care and gas prices, and citizens are feeling
squeezed.
.
http://www.dailypress.com/news/opinion/
.
.
FRAN
BRADLEY: THE CHALLENGE OF FIXING MEDICARE - July
17, 2007
.
Those
who are and will be eligible should be concerned. If you are one
of 45 million people eligible for Medicare or among the 77 million baby
boomers who will start becoming eligible in 2011, you had better call
on Congress for prompt action. If you are a taxpayer, join in the call
if you want to avoid paying for a staggering Medicare debt. Inaction
could be catastrophic. Today, 6.9 percent of federal taxes go
toward funding Medicare and Social Security. By 2030, according to Dr.
Thomas Saving, who is a public trustee of the Medicare and Social
Security trust funds, this figure could climb to as high as 50 percent
(with 37.5 percent required for Medicare alone). By 2015, 3.5
million jobs could be lost through the effect of funding Medicare.
Economist Laurence Kotlikoff estimates that payroll and income taxes
would have to increase to 40 percent of salaries just to cover Medicare
expenses. He also estimates that our standard of living could drop by
25 percent by 2030 if taxes are raised to cover the promised benefits.
.
http://news.postbulletin.com/newsmanager/
.
EDITORS
NOTES: Well, you can call your elected representatives (if
you
ever get through), you can write letters, but of course you know our
take on all this (if they wanted to fix it, they would have done it 30
years ago when Alan Greenspan tabled the subject at Congressional
hearings in the 1970s). Now, the current trustee of the Medicare
and Social Security funds, Dr. Thomas Saving (an interesting last name)
predicts that 50 percent of tax payments will be needed to be devoted
exclusively to these programs. I ask the question: If fifty
percent of the budget today is dedicated towards military spending, and
there is seemingly not much money left for anything else - where is all
this other money going to come from in twenty years? Will the
military be downsized or done away with altogether? Assuming that
it is, and if fifty percent of the revenues are dedicated to social
welfare alone, what money will be left for public capital investment
(infrastructure, education, highway projects, and so on)? According to
the CBO (Congressional Budge Office) Social Security, Medicare, and
Medicaid would account for almost 70 percent of all non-interest
expenditures (and by that time, interest on the national debt will
certainly take up much more than the current 10 percent of the Federal
Budget too, if those learned leaders continue to borrow money like they
have, not leaving much money left over even to buy bathroom tissue for
the nice washrooms on Capital Hill). By 2050, outlays for the three
programs would equal 17 percent of GDP and by 2075, 21
percent--exceeding the share of GDP now absorbed by all federal
revenues. I wonder just how broke they already are, or better
stated, just how broke they already know they will become?
.
.
HOUSE
PANEL APPROVES BAN ON IRS USE OF PRIVATE TAX COLLECTORS
July
18, 2007
.
The
House Ways and Means Committee capped a long-running dispute Wednesday
by approving a bill to revoke the Internal Revenue Services ability to
use private debt collectors. The vote was 23-18, with John Tanner
of Tennessee the only Democrat joining Republicans in voting no.
Democrats and the National Treasury Employees Union have been trying to
eliminate the private debt collection program since Congress created it
in 2004 (PL 108-357). They argue that the IRS can collect taxes more
efficiently and that the government should not outsource such a core
government function. Yet Republicans contend that the program
allows the government to take in money that would otherwise go
uncollected because the IRS focuses on larger cases. The
tax collection program provision is the highlight of a tax bill (HR
3056) that also IMPOSES
a NEW TAX ON EXPATRIATES, increases some
penalties, and delays implementation of a controversial new withholding
rule for government contracts.
.
http://public.cq.com/docs/cqm/cqmidday110-000002553679.html
.
.
TAX
COLLECTION BILL COULD MEAN A BIGGER TAX BITE FROM SOME PENSION PAYMENTS
By Susan Kelly - July 20, 2007
.
A
bill passed Wednesday by the House Ways and Means Committee has the
potential to cut into companies pension payments to former employees
who RETIRE TO
OTHER COUNTRIES. The main thrust of the bill, H.R.
3056, is to halt the Internal Revenue Services use of private debt
collection agencies to collect federal income taxes. BUT the bill
includes a provision, AIMED AT
DISCOURAGING PEOPLE from renouncing
their U.S. citizenship to avoid paying U.S. taxes, that requires that a
30% withholding tax be applied on various types of payments to people
who have renounced their U.S. citizenship or terminated their long-term
U.S. residency. Similar measures proposed over the years in the
Senate would have worked as a tax, rather than a withholding, with 30%
of the present value of a future stream of payments due at the point
the individual moved to another country. The revenue the
expatriate tax would produce could prove attractive to legislators. The
Joint Committee on Taxation staff estimates that the overall tax on
expatriates, which applies to other types of income in addition to
deferred compensation programs like pensions, could raise $764 million
over 10 years.
.
http://www.financialweek.com/
.
If
you want to follow this bill plus read the actual wording, here is one
link below:
.
http://www.govtrack.us/congress/bill.xpd?bill=h110-3056
.
EDITORS
NOTES: They call it the TAX
COLLECTION RESPONSIBILITY ACT OF
2007. Why do they always give names to such things, that
often
enough do the opposite in practice? The bill means to return
confiscation and collection responsibility to the IRS (and out of the
hands of private bill collectors or contractors as is currently the
case). Fair enough. But of course, they just could not
resist to stick in another tax increase for expatriates, or those
wishing to expatriate. The bottom line or question I would ask
is: Why is the US Federal Government all of a sudden so concerned
about people that want to expatriate? Are there really that many
people taking off and leaving the country? Remember, we offered
the prediction that there will be a backlash as politicians scramble in
one way or another to pull the proverbial gate down (stop citizens from
leaving with their own money, the remittance of wire transfers abroad
going forward - possible issues with gold ownership, etc.).
Politicians are almost always reactive and very rarely proactive.
If there is nervousness now regarding expatriation, that indicates to
me they have seen the statistics and there are far more people doing
this than reported. That really is the only conclusion I can
surmise, and it falls in line with some of our predictions.
.
.
READERS
WRITE IN:
.
After
reading your reports, I have begun to investigate buying gold as a
hedge against the dollar. Get this. I went to a local coin
dealer here in Ohio to see about purchasing some gold. He told me
(with unconcealed contempt for the state) that if I were to
purchase gold from him, he is obligated to report my purchase to the
state AND charge me income tax on my purchase. Yes, you read that
right, income tax not sales tax! Unbelievable. If he were
to sell me gold and not report it, he faces a 10 year jail
sentence! I thought you might find that interesting.
.
EDITORS
REPLY: Well, this is a new one for me, but to tell the
truth, I
am not surprised in the least. And also, if indeed this is the
new deal (the new New-Deal again, if you get my meaning), why you may
want to think about investments that are, shall we say, someplace else
(call me crazy, it's just a thought). In other places, such as
Thailand and many other parts of Asia, you can buy and sell gold the
whole day long (and the same is true in many, many other countries as
well) without such draconian measures. Why? What is the
logic or reason for imposing income tax on gold purchases that have to
be reported and tracked, using money for a purchase that presumably has
already been taxed at least once already? In any event, here is a
current news article dated July 18, 2007 titled: Gold Rises On
Inflation Concerns (see link directly below).
.
http://www.mercurynews.com/politics/ci_6403740
.
.
ANOTHER
READER WRITES:
.
While
I love your newsletter, I think the incessant reference to the Second
Great Depression is quite irresponsible. My parents lived through the
Great Depression. You have no idea what you're talking about. These are
boom times in contrast to the 30's. Don't be an idiot. If you
really want to scare everyone into leaving the U.S. and taking up shop
in the D.R. and doing business with you, are you really any better than
the country you continually bash? After all, isn't the use all about
scare tactics??? And, really, the references to the Second Great
Depression are merely designed to frighten people into lining your
pockets, aren't they? Be honest, my friend, they are, aren't they?
.
EDITORS
REPLY: I appreciate the fact that you took the time to
write in,
and of course I do not shy away from criticism. In fact, I do
think it only fair that people have the right to express their
opinions. But is it really so irresponsible to discuss certain
things that might impact your personal finances and lifestyle going
forward? I think the term irresponsible should be applied to a
large number of politicians and others, who have in the least aided and
abetted the development of certain negative situations we see today (in
some cases by doing nothing). Of course, it is also incorrect to
place the blame squarely on government or officials entirely for
individual circumstances, as it is individuals themselves that have
gotten into personal financial trouble to be sure (however, our goal is
to hopefully make sure our clients do not get into trouble, armed with
the information and foresight, so they do not become one of those
people that didn't see it coming - whatever it might entail).
.
However,
I am under the impression that you believe that I myself invented the
term Depression in terms of current news articles or media references,
or that perhaps it is myself alone throwing such a word around
serendipitously. In the last newsletter, we gave you two news
articles with the term Depression in the title, that certainly were not
written by me (one from Global Research in Canada, and another from
News Max Financial Magazine). Aside from that, we gave you news
articles from the Sunday Star Times (New Zealand), Market Oracle
(United Kingdom), plus other news items from CNN, Weekly Forex Research
(which also made a direct reference using the term Depression) and
other publications. In addition, even more recently, we gave you
another July 17, 2007 article written by Jeremy Batstone (mentioned
above) titled: Can a Dollar
Devaluation be Avoided?
.
I
think it is abundantly clear, that many financial journalists and
authors of various news publications have been using the D word lately
in terms of financial related analysis. So, please don't shoot
the messenger - all I am doing is pointing out a number of different
opinions and articles (that I had nothing to do with the writing of,
just to be clear). But, the real question is why are all these
other journalists and academics making the reference? What are
they looking at when they come up with such a conclusion? Here
are some very disturbing statistics and information:
.
TOTAL
DEBT has now reached 360% of
GDP, significantly HIGHER than
the 260% it
reached at the height of the DEPRESSION in 1933-34. Personal
savings turned negative in 2005, and worsened in 2006 by $68
billion. The last time personal consumer saving rates
turned
negative (in recent US history) was during the early 1930s. By
the way, middle class citizens in emerging markets, on average, save
upwards of 30 percent of their meager personal incomes, and often
enough pay CASH for purchases. How is it possible that a
so-called illiterate rice farmer is smart enough to save his money, and
the highly educated citizens in the wealthy first world economy
(experiencing a boom, as you say) are not? If you do not
understand what the ramifications of this are, economically speaking,
then I suppose ignorance is bliss.
.
According
to a news article dated July 15, 2007 from the International Herald
Tribune: Only twice before over the past century has 5
percent of
the national income gone to families in the upper one-one-hundredth of
a percent of the income distribution - currently, the almost 15,000
families with incomes of $9.5 million or more a year, according to an
analysis of tax returns by the economists Emmanuel Saez at the
University of California, Berkeley and Thomas Piketty at the Paris
School of Economics. Such concentration at the very top occurred
in 1915 and 1916, as the Gilded Age was ending, and again briefly in
the late 1920s, before the stock market crash.
.
http://www.iht.com/articles/2007/07/15/business/gild.php
.
Despite
several periods of healthy growth between 1973 and 2005, the AVERAGE
INCOME of all but the top ten percent of the income ladder --
nine out
of ten American families - FELL BY 11 PERCENT
when adjusted for
inflation.
.
Relative
to corporate earnings, stocks remain more expensive than they have been
at any time except the 1920s and the 1990s (some of you remember the
Dot.com financial correction at the end of the 1990s - do you not?)
.
We
are now starting to see record numbers of home foreclosures by banks in
terms of failed mortgages, and I think the total damage of the
sub-prime market has a way to go yet.
.
In
the US overall, personal bankruptcies in 2006 averaged 360 per 100,000
with Indiana leading (701 bankruptcies per 100,000) followed closely
behind by Tennessee, Ohio, Alabama, Arkansas, Oklahoma, Kentucky,
Georgia and Michigan. To put things into perspective, personal
bankruptcies hit a record 1.35 million in 1997 and of course, once
again hit the 2 million mark in 2005, where they declined sharply
thereafter, with the higher numbers in 2005 the result of the rush of
people filing bankruptcy in 2005 before the new stricter law went into
effect (the new law lobbied for by the banking - credit card industry,
cutely titled: The Bankruptcy Abuse
Prevention and Consumer Protection
Act, which we highlighted before as well). However, the
statistics show that bankruptcy filings are on the increase
again. It is reported that 789,000 people filed bankruptcy in the
year ending December 31, 2006. While we have not yet returned to
the previous average of 100,000 bankruptcy filings per month, it would
seem that the current statistics indicate we are moving back in that
direction.
.
See:
http://www.bankruptcyaction.com/USbankstats.htm
.
Over
the 10 years, 1997-2006,
household debt rose 133.6 percent,
compared
with business debt, which rose 68.3 percent. The Agonist.org web
site asks: Are people who aren't participating in the same degree
with good economic fortunes using debt to finance their
lifestyle? Total Household Debt
as a Percentage of GDP (National
Gross Domestic Product) went from 44
percent in 1975 to 96 percent in
2006. Total Household Debt as a Percentage of Disposable Income
went
from 61 percent in 1975 to 134 percent in 2006.
The pattern is
clear. Americans are using more and more debt to finance their
lifestyle.
.
http://agonist.org/income_inequality_and_rising_personal_debt_coincidence
.
With
all that said - Do I believe we are likely to see a return of soup
kitchens, bread lines, and former stockbrokers selling apples on street
corners? The answer is no, I do not believe that to be the
case. Am I suggesting the end of civilization as we know it (dogs
and cats living together and other such unbridled mayhem), plus a call
for stocking up on shotguns and canned goods? No, not at
all. HOWEVER, I do
believe a large number of people will be
in for a very rude awakening if these economic trends and issues
continue (and the fact that sales of anti-depressant prescription drugs
have gone up by 6 percent in 2006 alone may be an indicator of
something other than successful drug company marketing). Part of
the reason you are going to possibly see (I said possibly, because all
of this after all, is hypothesis) a different kind of economic
wrenching (and not your daddy's or grandpa's kind of economic malaise)
is in fact due to the differences today in compared to the scenario of
the 1930s. But in as much as those differences may soften the
blow, as it were (if there is indeed some sort of reckoning in the
works, again, possibly), there are some other differences to be even
more concerned about as well.
.
Which
is to explain, we now have so-called social welfare programs and social
safety nets in place, which did come about as a direct result of the
depression era (and later on, Lyndon Johnson's great society
initiatives), although much of these things (Social Security, Medicare)
are really Ponzi schemes at best, when you understand how they
work. There is also banking insurance today, which did not exist
then either - although, looking at the reserves and what domestic US
banks are NOT paying in (as opposed to what they should be), I am not a
fan of the financial condition of FDIC, which I have pointed out in
some previous newsletters. But, there are also some OTHER
disturbing differences today as well. For example, the large part
of manufacturing and industry has gone abroad (outsourcing, etc.) which
was not the scenario in the 1930s (and why the economy boomed, using
your terminology, when World War II ended, supplying manufactured
products to war torn Europe, as the US manufacturers were the only ones
still standing directly after the war). Today almost everything
is now made in China and not inside the US, including products such as
toothpaste.
.
Now
we are seeing the same thing happening to R&D (research and
development, which we were told would be the secret economic weapon in
the US arsenal, but unfortunately China and India did not get that
interoffice memo) and other white color jobs. In addition, the
resulting greatly reduced exports that are no longer fueling the
economy means that economic activity is now principally driven by
consumer spending (70 percent of the GDP is domestic consumer
spending). In addition, the evidence would seem to be that the
housing market and much of consumer spending cheered about previously,
was derived from individual consumers taking on ever more increased
levels of debt (untenable levels in some cases) as opposed to such
people spending actual cash or savings for such purchases (total
household debt as a percentage of disposable income is now 134 percent
in 2006, which is absolutely mind boggling considering what country we
are talking about). Which baits the question: Are we really
talking about a genuine boom, or one that simply was created by cheap
money (artificially low interest rates) and liquidity pumped into the
system by running the presses? If so, what will the result
be? Why do I write about some of these things? I want
clients to think about what some of these trends and situations might
mean going forward.
.
The
problem is, let us speculate for one moment that they perhaps continue
devaluing the money and running the printing press as full speed, and
in doing so, keep everything pumped up, as they say. What's wrong
with that? Everything, if you are the person that was fiscally
responsible his whole life, who has tried to save, stay out of debt,
etc. - simply because you are the person now unfairly punished in the
end by some of these policies (declining value of your savings, higher
taxes, etc.). And along these lines, we also talk about gold (we
are not gold brokers), bonds and other investments (we are not
securities brokers), bank interest rates (we do not own a bank), trends
such as getting good health care abroad at less than half the cost (and
we are not in the medical profession) and bankruptcy (we are not in the
business of assisting clients with bankruptcy filings, and have no
intention of doing so going forward). In other words, we touch
upon a number of different subjects that we know most of our clients
have an interest in and whereby we have nothing to see or any direct
vested gain.
.
You
speak of the so-called Great Depression, in terms of your parents, as
being a very painful experience (and I am sure that it was). But
what if your parents had the where-with-all and good sense to have an
idea what was coming and arrange their own personal affairs in such a
way so that the damage or hardship was minimal for them? What if
they had some knowledge and insight that allowed them to take action
before it was too late? Using another analogy, the time to buy
homeowners insurance is BEFORE
and not after your home is on
fire. The time to understand what some of these economic policies
and trends may do to your personal wealth and lifestyle is before, not
after (presumably so you have time to do something about it).
.
We
talked about the housing bubble awhile ago and the dangers of these new
no money down and interest only mortgages (and a few people wrote in to
criticize our analysis or comments, where as in my opinion, it was only
common sense regarding what the outcome would be). We talked
about food prices going up in the US during the first quarter of 2007
in our newsletters from late 2006 (again, basic economics 101).
We also have warned about possible efforts to restrict fund or asset
transfers (as a political response to stop the financial hemorrhaging),
which is to say, renewed attacks on expatriation and so-called offshore
banking issues (of course only as it pertains to the average citizen,
as it would seem large multi-national corporations can do as they
please) - and what do we now have at the moment? Proposed
legislation to prohibit transfers to such evil countries as Costa Rica,
because they supposedly are belligerent when it comes to sharing local
tax information with foreign governments, actually one in particular
(we highlighted that bill is a previous newsletter). More
recently of course, a reader writes in to say that if you want to buy
gold coins in the US with legally earned and already taxed money, that
the purchase is now a taxable and reportable event (which translates
into double taxation on those funds as a result, even worse if we are
talking about income taxes, which are certainly higher than sales tax
rates). And of course, we now have the Tax Collection
Responsibility Act of 2007, which on the one hand supposedly aims to
get private collection agents out of the picture (in terms of back due
tax collection) YET at the same time, sneaks in some not so positive
things for expatriates (or would be expatriates). Why? What
is the reason? What do these things tell you, as an investor, as
a citizen, as a father or husband concerned about your own family's
well being? Individually perhaps these different things do not
necessarily cause concern. However, collectively does it all
point to a certain pattern or overall trend?
.
In
short, my goal is to make clients aware of certain trends and
statistics we see, and do with that information as they may. Is
this truly irresponsible? I will let you decide (of course you
already have), but If you want the Walt Disney or perhaps the Dr.
Pangloss version of things, you have come to the wrong place (the
entrance to Fantasy Land is two doors down, on the left, and do
remember to ask for the free Prozac sample on your way in from the nice
fellow standing by the entrance). And with all that said, allow
me to be even more clear about what I think is going on, assuming I
have not been already.
.
We
know that the US Federal Reserve was running the printing presses and
expanding the money supply at anywhere from 7 to 10 percent in recent
years (whereas the GDP was supposedly growing at 4 percent or some such
number, or so is the claim). I believe the Fed has basically
created inflation on purpose (devalued the money), trying to combat the
possibility of deflation, which was the problem that occurred during
the 1930s, which is actually the opposite of what they did then (they
contracted credit and the money supply during the 1930s, and they
raised tax rates, making matters worse, or so the analysis
goes). It is therefore no surprise to me that our favorite
chopper pilot, Ben Bernanke (AKA. Helicopter Ben), was given the top
job at the Fed once Greenspan retired, considering his academic
fascination with the depression of the 1930s. I honestly believe
that Ben Bernanke is hoping the Fed can continue over-expanding the
money supply to save the day, with no ill effects (interestingly enough
they stopped reporting the M3 statistics, which directly tells you how
much money they are printing - I wonder why?) Which is to say,
the fairly recent game plan seemed to be priming the pump (over
printing the money supply) while at the same time trying to hold down
or hide the inflation from the consumer market, but individual
consumers already know the effects even if it has not been clearly
stated by the pundits (and the official version is, there is no or very
low inflation - am I right, or am I wrong?). Which is to say,
individuals already know or feel that the cost of living has gone up,
and that it is becoming harder and harder to achieve and maintain that
so-called American Dream standard of living - and so many of these
people have gone into debt to try to do so (rather than admit and come
to grips with the fact they have become victims of what I like to call
the slow burn or controlled combustion - the slow erosion and
devaluation of the US Dollar which really took off when Nixon removed
the gold standard and replaced it with the oil standard).
.
And
of course OUTSOURCING has
answered the challenge of keeping inflation
out of retail prices for consumer products (allowing jobs to be sent to
lower wage markets, allowing retail consumer prices to either remain
stagnant or even fall is many cases, while still allowing for corporate
profit). Now, the next rung in the ladder or next line of attack
seems to on wages for the jobs left behind (we told you that New York
City decided to REDUCE starting salaries for new police recruits back
down to the levels of the 1980s) and of course we reported on the
hiring of Mexican School Teachers in Utah (and I would wager to bet
they are not getting top tier teacher union wages either). In the
private sector, we reported previously on the issues surrounding a
large retail consumer electronics chain that was laying off employees,
because at US$12 per hour, they were simply earning too much money (and
the game plan was to hire new employees for minimum wage
instead). In fact, incredibly enough, a senior officer of the
company publicly admitted that was exactly what they were doing and why.
.
So,
the point is that I do think we are indeed seeing DEFLATION
after all,
first in retail prices (because of outsourced manufactured products,
thanks to everyday low wages in China, which everyone was thrilled
about inside the US in the past), then more recently in falling home
prices (thanks to no money down adjustable rate mortgages, which has
allowed consumers to dig themselves into a hole and use home equity as
a sort of ATM machine, but either way has allowed them to keep spending
- which is what many interested parties want to see continue,
considering this makes up 70 percent of the GDP) and possibly now, we
are becoming more aware of declining domestic wages as another
trend. AT THE SAME TIME
- we are also seeing commodity price
inflation, again, due to that very same over-printing of the money
supply and a declining US Dollar (petroleum has gone up, so has copper,
gold, timber, bauxite, and just about everything else traded in
USD). The latest question now is - Are local municipal
governments going broke, and if so, why are they going broke? Why
are they losing money, and why are they laying off school teachers
during so-called boom times? But, as the various economic bubbles
would indicate, that inflated money is indeed making itself known one
way or another.
.
When
central governments need more money to cover regular operating
expenses, they have a number of options at their disposal. One - They
can raise taxes. Two - They can borrow more money. Three -
They create that extra money out of thin air by running the printing
presses. Municipal or local governments on the other hand only
have options number one and two available, as they do not have the keys
to the press room (as the central or federal government does).
What do we see happening these days in terms of local municipal
taxation? Real estate taxes going up, way up - and in some cases
increased by 30 to 40 percent if not more. What is the central
government doing? Well, they are not directly increasing income
taxes just yet (they have decided to focus on so-called collection
efforts, which includes chasing all those anti-social expatriates), but
we predicted they would probably lay low and do nothing tangible on the
AMT debacle, which will, in and of itself represent a stealth tax
increase for a large number of middle class people (The tax cut passed
in 2001 lowered regular tax rates, but did not lower AMT tax rates. As
a result, certain middle-class people are affected by the AMT, even
though that was not the original intent of the law. People with large
deductions, particularly mortgage interest and state income tax
deductions, are affected the most).
.
The
increased borrowing and debt you already know about (China and other
Asian nations are in essence, bankers for the US), inflating the money
supply you already know about - but let us get back to taxes once
again, because that seems to be the last frontier. As of June
2001, the income tax forms the bulk of taxes collected by the U.S.
government (actually income taxes and social security
collections
account for about 75 percent of the take currently). The IRS
claims there is a so-called tax gap, which represents an estimated $300
billion difference between what the IRS collects and what it believes
taxpayers actually owe. As for the tax gap, many in Congress see
closing the shortfall as a way to increase government revenues without
having to increase taxes (that's political code for, lets chase
everyone we think owes first, before we do something more
drastic). Of course, we now have new initiatives aimed at
expatriates (and I personally do think it will not end there), and let
us not forget: From 2001 to 2006, the federal government increased
spending 45 percent. Where is the money going to come from?
To be sure it would seem they are simply going after the low hanging
fruit first, politically speaking, but we shall see what comes next.
.
There
are three things I believe to be true. First, history usually
repeats itself (although not always verbatim, but it often does repeat
none the less). Second, human nature has not changed in the last
millennium as we human beings never seem to learn from past
lessons. For it we did, problems such as inflation, deflation,
economic crisis, bankruptcy, mismanagement of the money supply, corrupt
politicians and government misspending would have been things of the
past that died out long, long ago. People have not changed over
the least 2,000 years (and neither have the politicians), the only
thing that has changed has been the technology (but basic economic
principles remain as it always did). Last but not least,
politicians throughout history have always taken the path of least
resistance when in financial trouble, and that means inflating their
way out of trouble (or at least trying to). The Greeks and the
Romans had a democracy many, many, many years before the birth of
Christ, and so did many other nations as well thereafter, along with
many similar financial problems that we see once again today (which is
to point out that inflation, deflation and the financial strains of
empire are nothing new). The Romans chose dictatorship over
democracy to hold onto their empire, and of course the Roman Emperors
engaged in currency devaluation or inflation of the money supply too
(clipping coins) as a way to stretch the budget without the masses
being aware of what was going on (and of course, after trying to spread
noble Roman ideals to the rest of the world, they eventually had their
heads handed to them by the invading European tribes - possibly a group
we can define as the unsophisticated and illiterate Third World
citizens of that time, just as some useless sideline analysis). The
British chose democracy and let their empire dissolve. What road
will the US empire take? Regardless of what the answer is, no
democracy has survived more than 150 years (in the same form) and
almost all empires imploded from within (and often government
misspending, corruption and financial crisis being the catalyst).
Does it have to end that way? Of course not, IF the political
will exits to turn the ship around, as they say. Does such a will
exist?
.
I
cannot tell you with 100 percent unbridled certainty what will happen
or what some political leaders might resort to in the future (I wish I
could, it would be nice). However, I can tell you that history teaches
us many things and that certain statistics or economic trends can give
you a fairly good idea of what the direction is. Aside from
everything else, regardless of any possible looming economic issues (or
whatever you want to call it), there is almost the guarantee of higher
taxes (of one form of another) on the horizon for the increased costs
in many of these social welfare programs alone. So, what is the
solution? What are your thoughts chief? What should the
vast majority of your fellow citizens do to make sure they do not
slowly go broke from either increased taxation, inflation or lower
standards of living (or what I like to call a controlled
combustion)? Should we all get down on our knees and say the
rosary? Should we light some candles and pray? You already
know what my thoughts are, in detail. If the politicians want to
sell out the country to multinational corporate interests, let the
corporations have it (the whole deal, the debt, the illegal immigrants,
the pension obligations, the works). If the Fed wants to continue
printing those pretty engraved papers with pictures of famous dead
presidents on them, destroying the value of the life savings of many
middle class people in the process, then let buy them more ink. Doesn't
really matter at the end of the day, what you or I think, does
it? They are going to do what they want regardless. The
real question is, what do you want to do for yourself or your
family? Do you want to light a candle, or do you want to do
something a bit more concrete?
.
To
respond to your comments that all this is simply a scare tactic, I tend
to think that most of our clients are not scared - simply because they
are prepared and have a plan. Scared people do not have a plan,
that is why they are scared. And this, my dear fellow, is the
entire point (that one does have options). Of course, it is quite
true that we do provide services in the Dominican Republic and Panama,
and of course we assist our clients with incorporation services,
residency, legal services regarding real estate transactions, banking
advice, etc. However, with that said, many of our clients have
relocated to Ecuador, Argentina, Thailand, Cambodia, Chile, Dubai and
whole laundry list of other countries (including yes - the Dominican
Republic and Panama). And we have other clients all over the
place as well, in Hong Kong, Malaysia, Japan, China, India, South
America, etc. We have no offices in these places and as the
French would say - C'est La Vie. In any event, am I an
idiot? Perhaps. Only time will tell. And of course,
do with the knowledge and information that you have, as you will - and
if you think it all nothing more than incorrect speculation, then use
this newsletter to line your cat's litter-box (I am sure your cat will
be pleased to have something to read, especially if a tom-cat - - -
- men for some strange reason like to read in the bathroom).
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