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Economics commentary, inflation, housing, stock markets and investing -
Plus a Whole Lot More !
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Our September 1, 2006 Newsletter Edition
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OUR POLITICAL QUOTE OF THE MONTH:
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Nobody likes to increase taxes. Nobody likes it. It's an election year.
But we need the money. We've got to take what we can take, said
Councilwoman Patty Suedkamp, who is running for re-election this
fall. It's hard, but it's the right thing to do, and that's why
we're here.
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Source: http://news.communitypress.com/ (Erlanger to set property tax rates - August 17, 2006)
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EDITORS NOTES:
The woman says: We need the money - We've got to take what we can
take - It's the right thing to do, and that's why we're here. I
think you are going to be hearing more things like this if you live in
good ole USA going forward. Just thought I would let you
know. This is the first time we have ever heard a politician say
something like this in public. I give her credit for being
honest, but her chances at continued life in elected public service are
slim to none (politicians become elected on lies not truths). You
must admit, it is a beautiful quote - We've got to take what we can
take. However, the fact that this politician is being serious and
honest is what I am afraid of.
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IN THE NEWS:
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STONES GET SATISFACTION FROM TAX SHELTER
By Hugh Davies in London - August 3, 2006
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THE Rolling Stones, famously averse to paying taxes since the band
decamped to the south of France in 1971 to record Exile on Main Street,
have recorded one of rock music's biggest financial hits. With
shrewd management, using offshore trusts and companies, Sir Mick
Jagger, Keith Richards and Charlie Watts paid only 1.6 per cent in tax
on earnings of £81.3 million ($196 million) last year.
Ronnie Wood, with a £90 million fortune, part of it from property
development, is said to have a different arrangement, as he was not a
founding member of the band. Richards, worth £180 million, told a
US business magazine: The whole business thing is predicated a lot on
the tax laws. It's why we rehearse in Canada and not in the US.
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http://www.smh.com.au/news/music/
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EDITORS NOTES:
Nothing new. Some of the wealthy stay wealthy by organizing their
affairs in such a way, internationally, to keep funds secure from
predatory taxation. Others, who were certainly not born wealthy,
such as Mick Jagger and company, become wealthy or at least manage to
keep more of what they earn by doing the same thing. We have
talked about this many times before. Citizenship is voluntary and
how you arrange your affairs for maximum benefit is up to you as
well. You have the option and right to decide how to manage your
affairs, what country offers you the best deal in terms of citizenship,
where to bank, where to invest, where to live or retire, etcetera and
so on. Do you think that all this is too expensive to do or only
for the super wealthy? Better think again, because it is not.
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FURIOUS BORIS RENOUNCES HIS US CITIZENSHIP
August 11, 2006
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Boris Johnson has dramatically renounced his US citizenship after a
heated clash with American immigration officials. The bumbling
Henley MP has enjoyed his entitlement to American status courtesy of
being born in New York when his father Stanley worked for the UN,
although the Eton-educated politician considers himself British through
and through and travels on his British passport. Now he declares:
After 42 happy years I am getting a divorce from America. It is not
just that I no longer want an American passport. In fact, what I want
is the right not to have an American passport. Boris made his
decision when US airport officials took exception to his British
passport last weekend when he and his family attempted to board a
flight to Mexico via Houston, Texas. As soon as the Continental
Airlines guy saw my passport, he shook his head, recounts Boris in The
Spectator magazine. The passport official explained that, as an
American citizen, Boris had to travel on an American passport.
Inspiration struck me, adds Boris, who went on to declare in the
airport: I renounce my American citizenship. I disclaim it. I discard
it.
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http://express.lineone.net/
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EDITORS NOTES:
For those that still seem to think having dual citizenship is somehow
illegal or a problem, here is a guy that was born in New York, is a
member of the British Parliament - and holds dual US and British
citizenship. What ever happened to the argument that a US citizen
might loose their citizenship if they served in a foreign
government? Apparently nothing more than one of perhaps many
false rumors involving dual citizenship - be it in theory or actual
practice. In fact, the story involves this person wishing to get
rid of his US passport voluntarily because it is nothing more than a
nuisance for him when traveling.
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U.S. LAW UNAMBIGUOUS ON DUAL CITIZENSHIP
By Rich Wales, Aug 16, 2006
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Is it possible to be a dual citizen of the United States of America and
another country? YES - in many cases. If you have been a
dual citizen from birth or childhood, or else became a citizen of
another country after already having U.S. citizenship, and the other
country in question does not have any laws or regulations requiring you
to formally renounce your U.S. citizenship before U.S. consular
officials, then current U.S. law unambiguously assures your right to
keep both citizenships for life. The U.S. State Department --
traditionally quite combative in its handling of dual-citizenship
claims - has changed the way it handles these cases in recent years,
and it is now much easier to retain such a status without a fight than
it used to be. The situation is slightly less clear for someone
who becomes a U.S. citizen via naturalization and still wishes to take
advantage of his old citizenship. People who go through U.S.
naturalization are required to state under oath that they are
renouncing their old citizenship, and conduct inconsistent with this
pledge could theoretically lead to loss of one's U.S. status.
However, the State Department is no longer actively pursuing cases of
this nature in most situations. In particular, when a new American's
"old country" refuses to recognize the U.S. naturalization oath (with
its renunciatory clause) as having any effect on its own citizenship
laws -- and insists that the person in question must continue to deal
with his old country as a citizen thereof (e.g., by using that
country's passport when traveling there to visit) -- the U.S. State
Department no longer minds. Similarly, the State Department
doesn't seem to be doing anything any more to people who renounce their
U.S. citizenship as part of a foreign country's "routine"
naturalization procedure (in a manner similar to what the US makes its
new citizens do). However, if the other country in question requires
its newly naturalized citizens to approach officials of their old
countries to revoke their previous status, one will generally not be
able to remain a citizen both of that country and the U.S.
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But I thought U.S. law didn't permit one to be a dual citizen - that if
you were (by birth or otherwise), you either had to give up the other
citizenship when you came of age, or else you'd lose your U.S. status -
- - And that if you became a citizen of another country, you'd
automatically lose your U.S. citizenship. So what's all this talk about
dual citizenship?
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It indeed used to be the case in the U.S. that you couldn't hold dual
citizenship (except in certain cases if you had dual citizenship from
birth or childhood, in which case some Supreme Court rulings -- Perkins
v. Elg (1939), Mandoli v. Acheson (1952), and Kawakita v. U.S. (1952)
-- permitted you to keep both). However, most of the laws
forbidding dual citizenship were struck down in 1967 by the U.S.
Supreme Court. The court's decision in this case, Afroyim v. Rusk, as
well as a second case in 1980, Vance v. Terrazas, eventually made its
way explicitly into the statute books in 1986; up till that time, the
old laws were still on the books, but the State Department was
effectively under court order to ignore them. Rules against dual
citizenship still apply to some extent to people who wish to become US
citizens via naturalization. The Supreme Court chose to leave in place
the requirement that new citizens must renounce their old citizenship
during U.S. naturalization. However, in practice, the State Department
is no longer doing anything in the vast majority of situations where a
new citizen's old country refuses to recognize the U.S.
renunciation. The official U.S. State Department policy on dual
citizenship today is that the United States does not favor it as a
matter of policy because of various problems they feel it may cause,
but the existence of dual citizenship is recognized in individual
cases. That is, if you ask them if you ought to become a dual citizen,
they will recommend against doing it; but if you tell them you are a
dual citizen, they'll usually say it's OK.
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Don't you lose your U.S. citizenship if you move to another country
with the intent of living there for an extended period of time?
No. I used to think this was a totally off-the-wall question and
that everyone knew the answer -- until I told people I was about to
move to Canada, whereupon probably at least half a dozen of my friends
asked me if this meant I would have to give up my U.S.
citizenship. It was once the case that a naturalized U.S. citizen
could lose his citizenship by remaining outside the U.S. for an
extended period. However, this provision was invalidated by the Supreme
Court in Schneider v. Rusk (1964) and was repealed by Congress in 1978.
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http://www.philippinenews.com/news/
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EDITORS NOTES:
So there you have it. I honestly hate to keep harping on this
theme, but the truth of the matter is that there is so much
misinformation floating around, that it is truly mind-boggling.
Become a dual citizen and obtain a second passport to make your life
easier banking and maybe even traveling abroad - or not. Perhaps
even take it to the next level and renounce current citizenship - or
not, if you so wish. Truly a personal decision, but whatever you
decide to do, just make sure you know ALL of the correct information
instead of relying upon bogus rumors and in some cases, outright
lies. Rumors and innuendo do not constitute the facts (and
remember the definition of an innuendo is an Italian suppository).
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CHILD ADVOCATE WORRIES ABOUT NEW FEDERAL RULE ON CITIZENSHIP
Associated Press - Monday, August 14, 2006
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LAWRENCE, Kan. - A new federal law requiring Medicaid recipients to
prove they are citizens could prevent some poor children who are
citizens from receiving medical coverage, a child advocate says.
Medicaid is financed through state and federal funds and provides
health care to about 250,000 people statewide, or nearly one in 10
Kansans. Children, the elderly and the disabled represent 90 percent of
recipients. Under the new law, current Medicaid recipients and
new applicants must provide documents such as birth certificates or
U.S. passports. Before the new law, recipients were able to
self-declare their citizenship.
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http://www.kansas.com/mld/kansas/news/state/15271546.htm
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NEW MEDICAID RULES REQUIRE CITIZENSHIP DOCUMENTATION
The Portland Business Journal - August 7, 2006
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Oregonians applying for Medicaid programs will be required to provide
evidence of citizenship beginning Sept. 1, as mandated by the federal
Deficit Reduction Act, passed earlier this year by Congress. The
law affects those receiving Medicaid-paid Oregon Health Plan medical
coverage, long-term care benefits and family-planning services.
Approximately 500,000 people receive Medicaid benefits in Oregon. The
state Department of Human Services estimates that as many as 3,000
persons may need state assistance in obtaining their documents.
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http://milwaukee.bizjournals.com/portland/stories/2006/08/07/daily3.html
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CITIZENSHIP: PATH OUT OF POVERTY OR INTO WELFARE?
National Data, By Edwin S. Rubenstein - August 9, 2006
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The Senate's proposed guest worker sellout implies an upbeat economic
scenario for the newly legalized. After paying a (trivial) fine,
illegal immigrants who have lived within the law and are gainfully
employed would be on a fast track to naturalization. Goodbye
underground economy; Hello taxes, better jobs, and the American
Dream. But does citizenship really insure economic success?
If poverty rates are any indication, the answer appears to be a
resounding Si! In 2004 (the latest available data) the share of
individuals living in poverty was as follows: (Census Bureau, Income,
Poverty, and Health Insurance Coverage in the United States: 2004,
August 2005) - All persons: 12.7 percent, Native-born: 12.1
percent, All foreign-born: 17.1 percent, Naturalized citizens: 9.8
percent. In other words,' crows Jared Bernstein of the left
leaning Economic Policy Institute, 'there is a huge difference between
the economic status of immigrants who have become citizens and those
who have not. The path to citizenship is also a path out of poverty.
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Maybe. Naturalized citizens are older, have been in the country longer,
and may have honed their English language skills and marketability.
They represent the best and the brightest of immigrant groups.
But rarely mentioned is the role that welfare plays in making it look
like this select group has climbed out of poverty. Poverty rates
are calculated based on cash income, whether from wages or government
benefits. It follows that cash programs like TANF (Temporary Assistance
for Needy Families) Supplemental Security Income (SSI), and
unemployment insurance, reduce the official poverty rate of
recipients. In one of the familiar paradoxes of current
immigration policy, immigrants generally, and naturalized immigrants in
particular, use a lot of government benefits, i.e. are being paid by
the American taxpayer to be here. An analysis of Census Bureau
survey data that 24.9 percent of families headed by illegal Mexican
immigrants and 33.9 percent of households headed by naturalized Mexican
immigrants and receive at least one major welfare program. By
contrast, only 14.9 percent of native households receive any
welfare. Here again, data show that naturalized immigrants are
more likely than non-citizens to exit poverty on public funds. TANF,
for example, is received by 7.3 percent of naturalized Mexican
immigrant households versus only 1.2 percent of households headed by
illegal Mexican immigrants. For SSI the recipient rates are,
respectively, 5.6 percent and 0.7 percent, and for unemployment
compensation, 8.5 percent and 7.2 percent. Nor does the addiction
diminish over time. TANF recipient rates for immigrant households that
arrived prior to 1980 are identical to those that arrived between 2000
and 2005, while SSI recipient is actually higher for pre-1980 arrivals
(6.0 percent) than the 2000-05 cohort. It's not that the new
citizens don't work. About 80 percent of all immigrant households
receiving welfare had at least one person working in 2001. But they are
the working poor--with incomes low enough to qualify for welfare.
Immigrants to the U.S. have often been poor. But wages of most European
immigrants approached (or even exceeded) the levels of native-born
Americans after 10 or 15 years. The Mexican experience is much
different. A Rand study published in the 1990s showed that Mexicans
arriving in the late 1970s received wages half the level of natives; by
1990 their wages were still about half. Many of these poor
workers became naturalized citizens. They have assimilated--into
the welfare state.
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http://vdare.com/rubenstein/060809_nd.htm
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OREGON BILL DEYING CITIZENSHIP TO CHILDREN OF IMMIGRANTS CALLED HATEFUL - August 11, 2006 - By Yvonne Lee - All Headline News Staff Reporter
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Portland, OR (AHN) - Pro-labor activists are blasting a resolution by
the Oregon Republican Party which denies citizenship to American-born
children of immigrants who are not citizens. They say the bill is
a result of ignorance, racism and represents a larger anti-immigration
tendency in the United States.
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http://www.allheadlinenews.com/articles/7004512028
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CANADIAN CITIZENSHIP IS BEING ABUSED
The Leader-Post - Friday, August 11, 2006
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As a taxpayer, I am happy to support the services of the Canadian
Embassy for persons caught abroad in unpredictable situations provided
they live in Canada and pay Canadian taxes. I am less anxious to
provide free services to those who are living and working abroad and
have attained non-resident status, which exempts them from paying
Canadian taxes on income earned outside of Canada. One wonders how many
of those brought back from Lebanon were in this category.
Statistics Canada information tells us there are about 1.7 million
Canadians who are permanent residents of other countries. Many of these
are persons raised in Canada who have gone abroad to pursue their
careers, a large number having moved to the U.S. Of concern,
however, are the large numbers who are coming to Canada specifically to
obtain Canadian citizenship with no intention of permanently settling
here. Having surveyed 350 immigrants from Hong Kong who settled
in Vancouver and then moved back, DeVoretz was convinced most had no
intention of ever staying in Canada. Asked why they wanted
Canadian citizenship they gave three main reasons: A Canadian
passport made it easier for them to work in main land China. They
wanted an insurance policy that allowed them to get out of the country
in case of a crisis. Many wanted to retire in Canada (where they
would be eligible for Canadian health-care benefits). DeVoretz
suggests that the biggest risk of having such a large number of
citizens living abroad may not be the cost of evacuating them during an
emergency, but rather the social costs of taking care of them when they
get old. Although there are strict residence requirements for Old
Age Security and the Canada Pension Plan, most provinces provide full
health coverage to any citizen after only a three-month waiting period.
I agree with DeVoretz when he says: We can't condone citizenship of
convenience. It appears we need new health care guidelines for
the non- resident Canadians who have chosen to live and work abroad and
make no contribution to the Canadian economy.
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http://www.canada.com/reginaleaderpost/news/letters/
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EDITORS NOTES:
First we have told you that dual citizenship is perfectly legal and
more common than you think, at least in terms of Canadian and US
citizens. Now, we are also going to tell you that there is a
storm is brewing over this theme and it has NOTHING to do with national pride and EVERYTHING
to do with money. Meaning, in the past, we have heard talk about
class warfare, between the haves and the have-nots. I will put
another spin on this topic to say that this will truly involve the
haves (those that HAVE a second passport or dual citizenship) and those
that do not as another extension.
.
What is the reason for all this new criticism over dual
citizenship? First and foremost, in terms of lashing out at new
immigrants or the new idea to prove citizenship in order to be eligible
for welfare benefits, the issue is obvious. The welfare state, as
we know it, is going broke, and now there is a new social outcry -
social welfare benefits for CITIZENS ONLY. To be fair, in many
other countries this is nothing new, and even extends out to other
so-called government funded services, such as public education (if you
are not a citizen or legal resident, you cannot attend the public
schools in many other countries). It is only in nations such as
the high tax welfare states whereby new arrived immigrants (illegal and
otherwise) are allowed to game or abuse the system. In other
words, for those new immigrants (illegal and legal) coming into these
welfare states, the criticism and complaints involve the economic
burdens that such persons might be placing on the welfare and other
systems (public education, government funded healthcare) in these
so-called modern wealthy nations (in which case such countries are
finding they cannot afford it anymore, and again, those existing
so-called full fledged citizens find themselves in competition with
newly arrived immigrants for an ever shrinking pie of welfare benefits
due to money constraints). I tend to think that whether there is
enough proof that such persons (immigrants) actually put a strain is
irrelevant. What is relevant is the fact that so-called natural
born citizens see and feel the effects of a welfare state in dire
straights - with no money to pay for all the things promised. The
result is to try and place the blame (perhaps everywhere else rather
than where it truly belongs).
.
The second prong of this attack of course goes after existing citizens
of these welfare states that might have Dual Citizenship. Here we
have the argument that such persons are not really true full fledged
citizens of the high tax nation, and in fact may even have a number of
tax benefits by opting out and not residing full time in the high tax
welfare state as well. So, in terms of those that currently have
citizenship from the high tax welfare state nations (and dual
citizenship from a shall we say, more tax friendly nation) but want to
head for the exit door, the criticism surrounds expatriation as it
pertains specifically to taxation and so-called government benefits
(and of course those left behind who do not have dual citizenship, and
do not have a way out, are crying foul of course). Is it a fair
complaint? Maybe, and then again, maybe there is a tinge of
jealousy or anger in that dual citizens have an escape hatch, whereas
the rest are stuck in bondage (so to speak), forced to remain in the
high tax nation with possibly higher and higher taxes going forward,
and certainly much less in benefits forth coming as well. In
addition, the threat is to make dual citizens unqualified to tap into
the social welfare system because of their status, but is this really
such a threat? Most middle class citizens already know from
experience that if they try to apply for many government programs, they
will be rejected because they are told they earn too much (as if a
household income of US$50,000 was providing some sort of extravagant
lifestyle these days). Which is to say, such people cannot tap
into unemployment insurance (if you think I am joking about this, just
try to apply when your income before you were laid off or let go
reaches a certain amount - sort of like you car insurance company
refusing to pay a claim because they know you have enough cash in your
bank account to pay for repairs, in which case they say you really do
not need the money), cannot qualify for student aid or special loans
for university aged children, and the list goes on. Not only
that, the retirement age to qualify for full pension benefits (social
security) has been extended and who knows if they will cut the benefit
amounts in the future? Even if they do not, chances are a future
pension will consist of inflated and devalued money certainly not worth
too much anyway. Then of course we have the other kinds of
so-called government assistance (government aid during a natural
disaster, such as a hurricane, or assistance when you might be stranded
in a foreign nation at war). So, the threat is they will take all
that generosity away. What generosity? You don't have it
now - what are they taking away? One thing they might NOT be
taking away is taxes from your income to pay for all these things you
are not eligible to obtain, IF you decide to expatriate. That is
the real issue, and that is the real fear - the money to fund all
this. Dual citizenship is not the problem, but rather lack of
money in the welfare state IS. Let us be very clear what the
fears really are.
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It certainly is interesting to note, as we have pointed out, that
so-called poorer third world nations are actively courting and
welcoming such middle class persons from the other high tax welfare
state nations and will continue to do so in our opinion. Why
should they not? Certainly there is no fear that such new
residents will become a burden on the taxpayer-funded welfare state
because it simple does NOT exist in such places. In addition,
such new residents to these so-called third world places (which are
really not so Third World anymore) get the benefits of lower taxation
(specifically because of no large welfare state bureaucracy to
support), lower cost of living, perhaps tax-free banking, pleasant year
round climate, and so on. In short, as we have called it before -
Trading Places. What are such persons giving up in return by
leaving the high tax welfare system? Not much really. After
all, recent events only prove out, being a citizen of the high tax
nation certainly does not offer any guarantees of getting help (if you
happen to be the unfortunate middle class average Joe). So, if it
is true that you are on your own regardless - maybe it is more
palatable to be on your own WITHOUT the government taking 40, 50 or 70
percent of your annual income? In other words, are you really
getting your monies worth being an official citizen of one country
versus another, at least in terms of so-called privileges and the
payments you make for them?
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You have read a number of different news articles above and indeed the
information is very telling. However, there are key points we
have gotten out of all these news stories and they are as
follows. First and foremost, the statistics claim that roughly 12
percent of all native-born Americans are poor, YET almost 20 percent of
foreign-born Americans are poor. This tells us that the US
economy is not producing enough jobs or upward economic mobility for
new immigrants (certainly a sharp contrast to official employment and
economic reports highlighted in the evening news). In addition,
15 percent of native-born Americans receive social welfare YET 34
percent of households headed by naturalized Mexican immigrants and
receive at least one major welfare program. This tells us that
obtaining citizenship in the welfare state does not translate into
economic advancement or self-sufficiency. On the contrary, it may
make it even easier to stay plugged in to Medicaid and so on (and we
are now seeing attitudes that say WELFARE for CITIZENS ONLY, so perhaps
the motivation is citizenship to keep the government benefits
rolling in), but we are not trying to call attention as any form of
racism or ridicule of a particular social group. Instead, we are
trying to confirm for you what is really going on with the long-term
economics and demographics. Which is to say, to confirm our
suspicions of the middle class getting the heck out that are being
replaced by a group of people who will most likely NOT replace the tax
payments lost. Why is all this important for you to know?
Quite simply, if you think there is a sort of aggressiveness and a
negative attitude towards the idea of dual citizenship and expatriation
now - you have not seen anything just yet.
.
Economics
is the driver to political action, and just wait until the
economics make a turn for the worse. Wait until Americas
native-born two-thousandaires (a term borrowed from a previous news
article in another issue that offered the opinion, many so-called
native born middle class citizens have nothing more than two thousand
dollars to their name after calculating home equity or lack of,
savings, etc.) wake up to the fact of higher taxation, reduced
government assistance in various forms, higher cost of living AND a
lifestyle very different from what they had before (simply because the
so-called middle class American dream is no longer affordable).
Are all these thoughts and predictions hard and fast facts? Of
course not, but the demographics and economic statistics are very
real. And they point to the possibility of many things to come,
some of which might (and we stress the term might) include restrictions
on taking money or assets out of the country and a backlash towards
dual citizenship options in the future (if they are hard up now, just
imagine what the situation will be ten years from now when the baby
boomers really start taking social welfare benefits out of the
system). In other words, there is an open window of opportunity
TODAY that may or may not be there going forward. Roger
Gallo, the editor of the Escape from America site (and newsletter),
once told me if you think things are bad now, just wait five
years. He told me that about 10 years ago. Truer words were
never
spoken.
.
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READERS WRITE IN:
.
I read your website regularly. I came across this article and thought you might be interested in it.
.
http://www.usatoday.com/money/advertising/adtrack/2006-08-13-washington-mutual_x.htm
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Consumers spent more than they made for five consecutive quarters, the
Commerce Department reported late last month. When people spend, they
put less cash into checking and savings accounts. And that's
becoming a big problem. Banks last year lent $1.7 trillion more than
they had on hand in consumer accounts, industry researcher Celent
reports. That's up from $700 billion in 1998. Lent out 1.7
trillion MORE than they had in accounts? That's insane!
.
EDITORS REPLY:
Insane or not, the US economy is propped up on a financial house of
cards. Which is to say, consumers are spending borrowed money,
and this trend cannot continue. It will not continue. And
as you point out, they are borrowing money from the banks that the
banks themselves do not have. How is this possible? Very
simple, and how this is one way the Federal Reserve is inflating the
money supply (without telling you this is what they are doing).
Banks BORROW money from the Federal Reserve at the discount window rate
(currently about 5 percent, but it was as low as 1 percent in the
recent past) and then they can loan that out to retail consumers at 6
percent, 8 percent, maybe even up to 18 percent in terms of credit card
balances, obviously making the difference or the spread as
profit. Such a deal, shylock would be proud. Regardless, it
is borrowed money from the US Central Bank (Federal Reserve) being lent
out yet again to other borrowers - consumers (with the retail banks
making a spread, like a bookie). However, all we constantly hear
about on the news are stories about North Korean rockets, the supposed
threat of child predators (they are out there for sure and in no means
something to be ignored, but as a percentage of the population, a very
small statistical number, yet this issue often accounts for roughly 40
percent or more of NEWS stories these days), Ali Baba and the forty
henchmen, and other threats to our personal security. Why is it
that this issue of another kind of direct threat to our personal
finances and economic well being we are talking about now gets almost
NO airtime? Statistically speaking, the issues involving
inflation and a devalued currency certainly have a much higher
probability of effecting you directly than say dangers that lurk in
on-line chat rooms.
.
Speaking of rockets, our head economic rocket scientist at the Fed has
a serious problem. He says he is waiting to review the situation
before considering another change in the Federal Funds Rate. What
is the problem? In brief, he is playing a very tricky balancing
act. He is trying to both prevent deflation and a serious level
of losses for the banks in terms of consumer default, while at the same
time, inflate the money supply - but not let that get out of control
either. Sort of like a mad scientist trying to mix and find the
right blend of two very volatile chemicals - without getting blown up
in the process. Raise the rates too much, and the consumer
retracts, stops borrowing and buying - and puts the economy into a
tailspin (the US consumer accounts for 70 percent of US economic
activity). Don't raise the rates, or not enough, and the consumer
keeps going on a borrowing - buying binge that shoots up the inflation
numbers (and overheats the economy, creates bubbles such as in real
estate, etc.). Part of the problem is not that consumers are not
spending (they still are) but they not only are they spending borrowed
money, but they are now tapping into whatever little savings they might
have had as well. The savings rate in the US has turned negative
(it fell below zero). The last time that happened was about
seventy years ago - at the start of the so-called Great
Depression. As I have said many times over, politicians lie, but
statistics do not.
.
The US has the potential for a very serious domestic banking crisis,
but it is the fault of the banks as well for giving away money to
borrowers on such liberal terms (something that does not happen in
other countries, and why banks in many other countries are actually in
much better financial shape). You want to know why the Federal
Reserve is running the printing presses? They are trying to
starve off disaster by putting even more liquidity into the system to
keep up with this lending - consuming dog and pony show, but all they
are doing is postponing trouble. Remember that the US does not
manufacture anything anymore - not really, not in any meaningful
way. Also remember that seventy percent of the US economy is
composed of US consumer spending, not by exports, not by sales of goods
or products abroad (the US is in fact a net importer or buyer of
foreign goods). The moment the US consumer runs out of cash,
borrowed or otherwise - it is all over. However, they are
attempting to keep the circus going. The result will be that the
US Dollar will continue to fall in value versus other currencies, the
price of oil and other key commodities will continue to go up - and
once again, the average middle class citizen will not know what hit him
(or her). In addition, think about what might happen politically
when all these people who have been raised to believe that the
so-called American middle class dream of cheap gasoline, cheap credit
and monthly purchases of the latest wide screen television (made in
China of course) is a birthright - suddenly get smacked in the face
with an economic sobering? The last time there was a serious
economic crisis, the US government confiscated all the private gold
holdings of its citizens - and most of the citizenry that had no gold
thought it was quite all right (which was the vast majority). Put
that into context today. If you have a home with NO mortgage on
it, own your own car with no bank loan AND have US$100,000 in cash
saved up - are you in the majority or the minority? Are you the
economic equivalent of those that owned the gold before? Think
about it. Also think about what the politicians might do and how
that might affect you going forward. I am reminded of one thing
my grandfather said often - Hope for the best, but plan for the
worst. The old man was not so dumb after all (plus the old man
survived the so-called Great Depression of the 1930s, kept his home,
stayed out of debt and retired fairly comfortably).
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ANOTHER READER WRITES:
.
The Bank of Nova Scotia in Canada informed me that I can not open a
savings acct in the DR only a Checking Account. How would I go
about starting a USD Acct or Peso Acct or Certificates of Deposit in
the Dominican Republic?
.
EDITORS REPLY:
We reported on this some time ago. How frightened are these
politicians and how many middle class people are truly heading out the
door that they have to try and pressure domestic banks that perhaps
have offshore (non domestic) subsidiaries? Meaning, we reported
to you in the past that the Canadian Government basically told Scotia
Bank NOT to permit Canadians to open accounts with Scotia Banks
affiliated branches outside of Canada (this all started with Scotia
Bank in Belize, or in the least where we first heard about it).
Lately, this seems to have eased up, and now Scotia will allow a
Canadian to open an account, but they will not pay you any
interest. Isn't that nice? Also, we reported to you as well
that Citibank started to voluntarily report and send out 1099 forms to
US tax authorities in 2004 regarding US citizens that have accounts
with Citibank branches outside of the US. I say voluntarily
because in many countries where such branches are located, there may be
ZERO local taxation and Zero local reporting as well. I have said
this before and I will say it again. These high tax welfare
states are in serious trouble and they are going to chase tax revenue
from where ever they can (and I will predict this will get worse, and
they might even perhaps restrict the movement of funds outside the
country as well - to some degree this has already started in Canada
with some Canadian Banks refusing to process a wire transfer unless the
Canadian sender can furnish a tax ID number of the foreign recipient -
and we already know that many people in other countries do NOT have
local tax ID numbers, never even mind a Canadian one).
.
With all of that said, I can report to you that many, many of our
clients have established accounts in many, many countries (the
Dominican Republic, Austria, Thailand, Brazil, Uruguay, Panama, etc.,
etc.) either by offering their current passport alone (as a visiting
tourist or non-resident) or in other cases, by demonstrating local
residency or other dual citizenship documents (a passport from another
country). The point is this. Many Canadians and Americans
ONLY consider banking with affiliated banks from their home country
because they THINK it is safer. This is very foolish thinking and
not only that, as recent events in Argentina demonstrate (regarding
foreign banks that had branches there) not so safe as one might like to
believe. Meaning, instead of stepping in and placing additional
capital into these banking units, they (the foreign banks) just walked
away. If you are a Canadian - Why are you wasting your time with
a bank that does not want to open an account for you, or does not want
to pay you interest? If you are American - Why are you wasting
your time with American owned banks that may divulge your personal
details, or possibly do something worse going forward? It is a
very big world out there and many very good financial services firms to
consider doing business with. But the real question is - why are
these high tax welfare governments so concerned about a supposed few
citizens who are banking and moving assets abroad? Is it a case
of a few nutcases, or are there really that many people jumping ship
that the numbers are frightening the politicians? Why are they
pressuring domestic banks so much that might have branches or
affiliates abroad? What are they afraid of? What are they
planning? Makes you wonder - no?
.
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ANOTHER READER WRITES:
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We have only 80,000 in assets but want to leave the USA and buy land,
have a house, start a business, etcetera. You know, the OLD
American dream that is NOT possible in America anymore. I do not know
if it is possible for us or not or what our options are. Maybe as a PT
traveler only but then we would not be able to buy land or a house. I
have been studying your web site and looking hard at panama since we
might be able to buy land for reforestation and obtain citizenship for
40,000 which would leave us enough (maybe) to have a house and live on.
I telecommute to work but do not know if I can do it in panama or not.
My husband is a very skilled automotive technician. Even panama would
have cars to work on I would think. Thank you for your time.
.
EDITORS REPLY:
You are not alone if that is any comfort and I also think it a shame
(and incredible at the same time) how much the US Dollar has devalued
or lost its purchasing power over the last thirty years or so. In any
event, while of course it might be better to have more of a nest egg
rather than less, you are still in the ballgame (albeit you probably
will have to plan your expenditures carefully). Telecommuting is
not even an issue to worry about, as many places offer Internet
services, and quite often high-speed access as well. I think the
real issue for you will be how you plan your home purchase, and having
enough funds after that to provide a nest egg for yourself. In
this regard, real estate has gone through the roof in many places in
Panama, so I would wager to say you will find more bargains elsewhere
(Dominican Republic, Ecuador, Honduras, etc.). With that said,
you may want to consider buying a small tract of land (a few acres)
just outside a metropolitan area and then consider building your own
home. This is very doable with the funds you have, but it will
mean taking on headaches as your own general contractor. That is
the bad news. The good news is that labor rates are dirt cheap,
and you can probably get a 2,000 square foot house built for about
US$50,000 in many places (maybe a bit less, maybe more all depending
upon how you finish it). Is Panama one of those places?
Well, the rush of Americans into Panama has pushed up the prices, so
you may want to look around at all your options. On the issue of
how well a car mechanic might fare out - you may wish to consider
putting the repair shop somewhere on your four or five acre parcel to
avoid paying rent or having double expenses, and believe me, there are
no shortages of vehicles in any of the countries mentioned. You
can do it, but you must plan your expenses
carefully.
.
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ANOTHER READER WRITES:
.
Hello: I have subscribed to your newsletter for about a year now
and really enjoy it. I am and U.S. citizen and am interested in
buying real estate in the Dominican Republic but I frankly don't know
where to start. I'm interested in knowing how to begin my
research, and that research would be in the areas of: 1) The best
way to identify properties (I'm looking for US$ 50-100K properties) -
2) Reputable persons/businesses to conduct business with - 3) Details
as to what are the critical legal issues when conducting a real estate
transaction in the DR (contracts, titles, ownership) - 4) How to
protect myself from being defrauded - 5) How to monitor my property if
I am not able to make frequent trips to the DR - 6)
Advantages/disadvantages of being a U.S. citizen when purchasing real
estate in the DR - 7) Advantages/disadvantages of being married to a
citizen of the DR - 8) Would you characterize the current real estate
market in the DR as overvalued/undervalued? Any information you
can give me to begin my research would be greatly appreciated.
Thank you in advance for your time.
.
EDITORS REPLY:
You have many different questions and I cannot answer them all in
detail, but certainly these are similar questions to what many people
do ask. Taking on the last question first, I still think it to be
true that the prices for real estate in the Dominican Republic are
much, much lower than many other Caribbean destinations. Just
last week we found a house is a well-heeled middle class section of
Santo Domingo for US$90,000 - and there are many situations like
this. Granted, in such a case, it was a smaller one-story home
that perhaps could use some TLC (maybe a new kitchen and some cosmetic
work, but livable as is) - but a home of your own in a nice
neighborhood for 90K is no joke. Better said, you can still find
very reasonable real estate in the DR if you simply take the time to
look (and know where to look). With that said, it is also true
that there are many high end ocean front residential projects being
marketed to foreigners at exorbitant prices as well. In fact,
many of the American news networks have been running stories about all
the Americans buying into these upper end projects recently. In
any event, you have to take your time, look around at the entire market
and not just rely on properties or projects marketed in English to
foreigners.
.
While prices have indeed gone up over the last two years, Joanne
Hammond from Coldwell Banker in Cabarete tells us you can still buy a
high-end 2,000 square foot ocean view villa for less than US$250,000
(in some cases less, in some cases more as well) or a condo for perhaps
US$125,000 or so (Should you wish to contact Joanne regarding real estate on the North Coast, call her personal cell phone at 809-657-4141).
Regarding annual property taxes, Joanne says the following: The
following is how it works here in the Sosua / Cabarete area: All
properties appraised at less than RD$5,000,000 (approx. US$150,000) are
EXEMPT from property taxes. Property appraised over this amount pays 1%
of the value over RD$5,000,000 annually.
.
So there you have it. If you live in the Pattonville School
District (St. Louis, Missouri) and your home was said to be worth
US$149,000 - your 2006 annual real estate tax bill would be
US$5,500. A home in Brooklawn Terrace, Connecticut valued at
US$120,000 would fetch an annual tax bill of US$3,000 (assuming you can
even find a home for that amount, maybe you can find a nice garage for
that price). How much would you pay in the Dominican Republic for
a similarly valued home? Anyone? The correct answer is ZERO (Nada
en Espanol). And states such as Missouri are not exactly known
for high taxes. The average New Jersey property owner pays about
$6,000 in property taxes annually, twice the national average. In sunny
Florida, The typical homeowner in Broward County pays about $3,900 in
property taxes because of years of benefiting from homestead tax breaks
that cap how much property values can go up. A new homeowner at today's
prices, though, would pay much more: about $8,900. (Source: http://www.sun-sentinel.com/ News Article dated August 27, 2006)
.
And If you think the prices or properties in the Dominican Republic are
high, we reported to you in previous newsletters regarding new one
bedroom condos in another Caribbean destination that were selling for
about US$400,000. In that same news article, it was reported that
clients from the UK were buying up these apartments like crazy.
If you have more money than brains and you want to shell out half a
million dollars for a one bedroom condo in the Caribbean, go right
ahead. However, if you think a beachfront or ocean view property
in the Caribbean is unaffordable - think again (because it is possible
in the Dominican Republic). In fact, brand new one-bedroom apartments
with a sea view in Santo Domingo are going for US$70,000 so I am not
blowing smoke. Not only that, what are you currently paying in
annual real estate taxes where you live right now? Calculate what
you save by simply relocating to the DR. If your home in the US
is worth US$300,000 - what are you paying in annual property taxes
alone? In the DR, that same home will cost you US$1,500 per year
in property taxes and with that said - it is still possible TODAY to
buy a decent single family home for less than the equivalent of
US$150,000 whereby your home is TAX FREE (no annual real estate
taxes). Not only that, the US$300,000 property is upper end
beachfront in the DR. What does this amount buy you in the US
these days? Perhaps this amount will get you a shack in Modesto,
California or a converted summer bungalow from the 1940s in Staten
Island, New York? Maybe.
.
In the capital, Santo Domingo, you can still purchase a high-end 2,000
square foot luxury apartment or single family home for less than
US$160,000 or a bran new 1700 square foot townhouse in a very upscale
area for US$135,000. In fact, there are many, many new middle
class apartments being built at the moment that start at about
US$70,000 for a brand new two bedroom, two bath dwelling that would be
quite acceptable for an American or European. There are quite a
few new single family homes offered for about US$120,000 - so, you can
find something very affordable in the Dominican Republic (free from
annual property taxes) if you take the time to look and there is a wide
variety of properties and related prices accordingly (all depending
what you want and where it is located). However, just remember,
these properties I just referenced are often NOT marketed to foreigners
(they are marketed to middle class and upper middle class Dominicans,
but that does not mean they would not be attractive places for you to
consider) which means the information is in Spanish.
.
How do I know? Because I often go out with clients to look at
properties and on my own as well to see what is going on and what is
being built. We are not real estate brokers, BUT we do have two
local lawyers on staff, that handle real estate transactions for our
clients and they also provide a property search service as well for a
flat fee. These properties are listed with agents that do not
speak English in many cases (these are properties being marketed and
sold to the upper middle class local market). If you do find an
agent that speaks English, chances are they are not going to show these
properties to you because the commissions are lower. If you are
interested in this property search service, you can send an email to: info@ascot-advisory.com for more details.
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Can foreigners own real estate in the Dominican Republic?
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Yes, there is no restriction. One need not become either a
resident or citizen in order to purchase real estate, although many of
our clients do so if spending more than 90 days at a time inside the
country, or if deciding to live full time of course. However, a
client need only present a copy of a current and valid passport as the
identity document used for any sales contracts and eventual titles
obtained from the title office. Again, there are no restrictions
for foreigners to own property and unlike Mexico for example, no
restriction for ocean from real estate either. Recent legislation
passed in the country has also strengthened the legal rights of
foreigners in the legal system as it pertains to property ownership and
investments inside the country. In addition, you may use a real
estate purchase as proof of local economic solvency as it pertains the
residency application process as well, should you wish to consider
becoming a resident or even a citizen later on (Ascot Advisory can
provide assistance with both the residency and naturalization process
also).
.
Is there private title insurance available in the Dominican Republic?
.
Yes, there are two companies that do offer local title insurance and
Stewart Title is one from the US that is well known to many
Americans. While obtaining title insurance may offer peace of
mind for many buyers and while we can assist with this process,
regardless of whether or not you decide for pay for private title
insurance or not, in the least you should ALWAYS conduct a title search
by a trusted representative. Searching a title principally
involves checking BOTH title offices where the title will be registered
(the local office in the province or district where the property is
located and the main title registry office also in the capital, Santo
Domingo). This is very important because it could be possible
that a lien or encumbrance is registered in one office and not the
other. Also, it is equally important to check to see of the
seller owes any back due property taxes (there are annual real estate
taxes in the Dominican Republic despite some incorrect information
floating around, but it is very inexpensive by North American
standards). The reason for this that the tax office does not
repossess property for back due taxes as a standard practice.
Instead they will keep a tabulation of the outstanding annual taxes
that might be due, plus the 50-percent late penalty, and refuse to
transfer title to the new buyer until all such taxes have been
paid. Obviously it would be better to know about any issues like
this before you hand over any monies to the seller. Obviously
these kind of matters are what we assist with in terms of the due
diligence process for clients.
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What are some key features of the purchasing process I may not be aware of as a foreigner?
.
One aspect of the property purchase process that may be different for
someone coming from another country is the fact that a notarized sales
contract constitutes an immediate legal right of sale and
possession. The meaning of this is, the moment both the buyer and
seller sign the sales contract, exchange payment and have the contract
notarized, the buyer has the immediate legal right to take possession
of the property. Immediately following this, the process of
registration of a new title into the buyers name begins, but in terms
of legalities the initial notarized sales contract has legal weight
under the law for ownership purposes. Again, the title transfer
in some respects can be considered somewhat of a formality that can
take anywhere from 45 to 90 days, depending upon the expediency of the
government title registration office.
.
Are there any taxes or fees to be paid as part of the title process?
.
Yes, and typically it is the buyer that would pay the costs for such
fees or taxes, which in total can amount to roughly 7.5 percent of the
purchase price. There are a number of government fees and taxes
related to this process, some are fixed fees where as others relate to
or are a direct percentage of the transaction amount. Obviously
once the sales contract is signed and notarized, the property is yours
(as the buyer) so with this logic in mind, the title transfer process
normally something the buyer would want to do for his or her benefit
and it is the buyers attorney that would take charge of this.
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Can I Obtain a local Mortgage or Financing for a Property in the Dominican Republic?
.
Yes, many of the local banks do offer mortgages but once you find out
the terms and interest rates, you may decide against it. Most of
our clients pay cash, either from savings or from a home equity loan
from existing property in the US or Canada. With that said, we
have had a few people that contacted us and said that Scotia Bank
turned them down because they were not residents. Remember,
Scotia Bank is only one of many, many banks and each bank has their own
policies (and not all will necessarily turn you down if you are not a
full time resident). The problem is that local banks are of
course much stricter than US banks when loaning money (which is why the
Dominican Banking system is in much better financial shape than in the
US, but another matter for another day). In addition, if a loan
in Pesos, you will probably find the rates to be in the 14 to 18
percent range. If in US Dollars, perhaps anywhere from 12 to 15
percent, so again, strictly in terms of borrowing money, it will still
be cheaper to do so in North America. Also, remember what we told
you in previous newsletters. Most working class people pay cash
(over time or by saving) and own their own homes outright in the
Dominican Republic. If a Dominican is getting a mortgage, most
likely they are financing no more than 70 percent of the property, and
there is no such thing as a no-money down, interest only mortgage
either.
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ANOTHER READER WRITES:
.
We downloaded your book and it was great! It has a lot of great
information for an American moving to the Dominican Republic. We are
looking for a house in a country club somewhere in the DR. We just came
yesterday we came back from the DR and we experience very high prices.
We are very flexible in the location. Any suggestions? Also, we want to
start a Dominican Company any ideas?
.
EDITORS REPLY:
As related to above, there are many properties considered to be
American or European standard, but the normal market prices are not
going to be found in properties marketed to foreigners (or marketed in
English). There are many very wealthy and upper middle class
Dominicans - and they have to live somewhere (and they are not paying
US$500,000 for apartments or US$1 Million for single family homes
either). Meaning, you can find what you want, just look
around. For example, speaking of a new upper end gated
residential community, there is one going up here in Santo Domingo and
for ¼ (one quarter) acre home lot (1,000 square meters) they are
asking about US$60,000. Add on maybe US$100,000 to construct an
upper end kind of home, and we are talking about less than US$200k for
a very high-end affluent project. Aside from that, there are
dozens of brand new middle class homes available in the US$100,000 to
US$135,000 range - and in terms of amenities and value, hard to beat
it. In contrast, if you look at some of the gated golf course
communities being marketed to foreign tourists, you are probably
finding prices that start at about US$500,000 or US$600,000 for the
very same thing the Dominican is buying for much less elsewhere.
I am not critical of someone trying to earn money or sell real estate
for whatever the market may support, but just understand that there are
two real estate markets ALWAYS. One for the foreign tourists that
do not know any better, and another one (the real one) for
locals. Aside from that, beachfront and tourist areas will ALWAYS
be more expensive as well. This is true everywhere you go and is
nothing new or unique. Also, keep in mind many of these gated
places (marketed to foreigners) charge outrageous management fees and
or are making money on a sort of communalized electrical system as well
(no individual home meters, but rather monthly electricity is part of
so-called monthly maintenance). So, you end up paying say US$600 per
month for maid service (which translates into about 20,000 Pesos) and
the management office is paying a local maid 5,000 Pesos per month to
clean 3 or 4 houses. So, do the math, they collect 80,000 from
four different property owners, pay the maid 5,000 and pocket the
difference. You the foreigner do not know any better because you
think US$600 per month for maid service is a bargain. So, once
again, just understand what the true local prices are for everything
and based on that, you can determine if something is truly reasonable
or not.
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