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Our October 1, 2006 Newsletter Edition
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IN THE NEWS:
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HOW TO EASE THE
SQUEEZE - Globalization will be a bigger success if rich countries such
as Australia are prepared to mitigate its side effects: Joseph Stiglitz tells Glenda Korporaal - September 16, 2006
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ALMOST seven years after images of violent protesters at the World
Trade Organization meeting in Seattle were beamed across the world,
policy-makers are still coming to terms with the potential political
limits to globalization. While China and India are pushing ahead
on the path to becoming world economic powerhouses - their economic
growth being a direct benefit of globalization, such as the lowering of
trade and investment barriers - there remain serious concerns about the
inevitable losers from the process. But as Nobel Prize-winning US
economist Joseph Stiglitz warns in his latest book, Making
Globalization Work (Allen Lane, $35), even the strongest proponents and
beneficiaries of globalization need to take stock of some of the
negative fallout from the process, or risk a more serious
backlash. He also warns of a possible world financial crisis as a
result of the accumulation of billions of US dollars in reserves by
Asian countries such as China, Japan, South Korea, Malaysia, Singapore,
The Philippines and Thailand. Their reserves have risen from about
$US1trillion in 2001 to $US2.3trillion in 2005 (thanks to their
economic success and their exports to the US), while the US itself is
clocking up huge trade and fiscal deficits. He argues that this is a
potential source of instability if the Asian countries dump their
holdings of US treasury bills, part of their reserves, because of
pessimism about the US economy and currency. If, all of a sudden,
there is a change in mind-set and the Asian countries decide they don't
want to hold dollars, there will be downward pressure on the dollar, he
warns. Long-term interest rates will go up and the US economy
slows. The question is whether this happens precipitously in the
form of a crisis or gradually in the form of a weak global
economy. I don't think anyone can predict it. But there is a
growing consensus that there is a significant - probably greater than
10 per cent - chance of the precipitous outcome.
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http://www.theaustralian.news.com.au/
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IMF'S FEARS OF U.S. BORROWING MUST BE HEEDED
By David Crane - September 20, 2006
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You can't expect the International Monetary Fund to come out and say
the world is headed for a global financial crash. And it isn't saying
that. But what it is saying, in its own careful way, is that the
risk of such a calamity is increasing. This may sound quite
strange, given the fact that its latest World Economic Outlook is
forecasting for 2007 the fourth consecutive year of strong global
growth. But it is why Raghuram Rajan, the IMF's chief economist,
told a press briefing in advance of the IMF and World Bank annual
meetings that got underway in Singapore last weekend that he was
feeling a little schizophrenic. As he put it, we are in a world
with strong growth projections, but also one in which the downside
risks are growing. And those risks have increased since the previous
IMF economic outlook in April. The most difficult risk is that of
a disorderly adjustment of what finance officials call the global
imbalances. This is a way of saying the global economy is skewed and it
cannot keep on this way. On one side is the huge and growing
build-up of U.S. borrowings from the rest of the world to finance its
unsustainable trade and budget deficits, and on the other, countries
such as China and Japan ringing up huge trade surpluses with the United
States and lending their surplus funds back to the U.S. to finance its
deficits. This cannot go on forever because the cost of servicing
that debt would become too high, and well before that, the foreign
investors in U.S. securities would become extremely nervous about
continuing to add to their already high holdings of U.S. dollar
assets. The big question is whether these global imbalances can
be corrected in an orderly way or whether there will be a disorderly
adjustment instead. (If there is a disorderly adjustment, the IMF
warns, there could be a substantial further appreciation of the
Canadian dollar). Kenneth Rogoff, the former chief economist of
the IMF, warns that the U.S. is now soaking up roughly two-thirds of
all global net saving, a situation without historical precedent.
This year, the U.S. is expected to borrow $800 billion (US), or about
$2.2 billion a day. As he argues, though, this borrowing binge
might end smoothly, but world financial leaders are right to be worried
about a more precipitous realignment that would likely set off a
massive dollar depreciation and possibly much worse. Indeed, if
policymakers continue to sit on their hands, it is not hard to imagine
a sharp global slowdown, or even a devastating financial crisis.
In its latest World Economic Outlook, the IMF appeals to the major
economic players to avoid a disruptive adjustment scenario, which could
be triggered by a worldwide loss of appetite for U.S. assets combined
with a significantly increased interest rate risk premium. This
would lead to a severe fall in the growth of the U.S. economy and harsh
adjustment in the rest of the world, with a global recession.
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http://www.embassymag.ca/
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IMF FEARS GLOBAL GROWTH CONTRACTION IN 2007 - Urges ECB to move cautiously on interest rate hikes - By Finfacts Team, Sept. 14, 2006
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World economic growth will extend for a fifth record year in 2007, the
International Monetary Fund says, but cautions that the risk of a
severe global slowdown in 2007 is stronger than at any time since the
2001 terror attacks on the US. The IMF forecasts come from the
World Economic Outlook report, published today in Singapore.
While the IMF has been warning for several years of mounting risk for
the global economy, it is the first time it has warned so strongly
about such a sharp potential slowdown. There is considerable
uncertainty about whether the global economy will achieve a soft
landing to a more sustainable pace of expansion or whether the world
faces a period of sharply slower growth, the report says. US
economy would growth 3.4 per cent this year, the same level forecast in
the last IMF report, but it has reduced the prospect for 2007 from 3.3
per cent to 2.9 per cent. The Euro Zone would grow faster than
expected. The IMF have revised its forecast to 2.4 per cent this year,
up from 2.0 per cent, and has also raised its 2007 forecast up to 2.0
per cent from 1.9 per cent. The IMF has also increased its
forecast this year for China from 9.5 per cent to 10 per cent and from
2007 from 9 per cent to 10 per cent. It also has increased the
forecast for Latin America from 4.3 per cent to 4.8 per cent in 2006
and from 3.6 per cent to 4.2 per cent in 2007.
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http://www.finfacts.com/irelandbusinessnews/publish/article_10007293.shtml
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EDITORS NOTES:
Just so you know, the term Growth Contraction means Recession.
So, the IMF tells us the US economy will not do so well, but China and
Latin America will? I have said many times before - Politicians
May Lie, But Statistics Do Not. Also, there is strong evidence
that a slowdown, recession, whatever you want to call it - is almost
destined. The question is - will it be a gradual easing or will
it hit hard like a hammer? Below are some other websites that I
highly suggest you visit and read. In the least, it offers some,
shall we say, less skewed perspective on things. It will also
shock you to realize how high a percentage of America is now foreign
owned. Again, this has nothing to do with xenophobia and there is
no problem in my opinion with free trade (true free and FAIR trade
across the board), or companies in one country owning a company in
another. HOWEVER, just understand America has gone on sale, not
for Americans though, but rather for foreigners due to devaluation of
the US currency. In addition, we reported previously that in
order to protect their US Dollar based investments from this
devaluation (inflation) foreigners will (and already have) start
dumping fixed income investments (bonds) and instead have been buying
other assets as a hedge (companies). What is the problem with
foreign owned companies in terms of the economy? Nothing - other
than guess where all the profits are going to end up? I will give
you a hint, not in the US, but rather in the other foreign nation where
the parent company headquarters are located. If you think the US
is bleeding red ink now you have not seen nothing just yet.
However, do not become angry with other countries or other foreigners,
as they did not set this up or do anything wrong. You can thank
the genius politicians at home for NAFTA and the WTO, and you can thank
the Federal Reserve for inflating the money supply, cheapening the
value of the currency. With that said, I do not want all of you
to become anarchists or become involved in any sort of civil
disobedience. Simply understand what has happened, what is
happening, who is to blame (so you have your priorities straight) and
figure out how to protect yourself and your family in the
process. And speaking of foreign owned, we have another new
record: The data for July showed the deficit running at an annual rate
of almost $820 billion, more than 6 percent of GDP (see news story
below).
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http://www.economyincrisis.org/
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http://www.shadowstats.com/
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Here is some other interesting stuff (considering we heard from
Helicopter Ben from in our last newsletter issue claiming governments
need to do more about addressing fallout from Globalization, including
education to train people to work in the new service economy that
exists because all the manufacturing jobs have now gone away).
Also, in 1999 the World Bank said the following: Globalization appears
to increase poverty and inequality. That is an exact quote in
print by an organization based in Washington, D.C and funded by US
taxpayer dollars. So, why was this information (the result of a
World Bank analysis) never plastered all over the news? In any
event, here is some additional and interesting information regarding
the effort to educate the plebes so they can adjust to the new world
economic order of de-industrialization of the wealthy
countries:
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Despite spending 425 billion of tax dollars annually on public
education, and two billion dollars in annual corporate giving, our
public schools continue to fail as reflected in low test scores both
nationally and internationally, a high rate of high school dropouts,
and a negative school environment that drives 50% of new teachers out
of the profession within five years. Other countries and
America's private schools spend less on education than public schools
and yet they outperform them. It's obvious that funding is not the
issue and more funding doesn't necessarily equate with educational
excellence. Even Bill Gates, the biggest contributor to public
schools admitted (as quoted in Business Week's June 25, 2006 issue)
that his multi-million dollar contribution to public schools was a
crushing disappointment and a complete failure. Sadly, public
education is no longer about educating children. It no longer
prepares them for success in college, the workforce and in life with
meaningful life skills to meet the growing challenges of a highly
competitive and technology-driven global economy. Education
has become a big business and a political football that wins
votes. That is why politicians who have acknowledged the problem
for the longest time have not done taken any meaningful actions to
solve the problem and are not going to stand up to special interest
groups such as the teachers' union, because it's political suicide.
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Source: http://mmdnewswire.com/content/view/607/5/
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DEFICIT HITS NEW RECORD - By Dean Baker, 13 September - 2006
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Most people didn't see this headline, because the deficit that just
soared to a new record was the trade deficit, not the budget deficit.
The newly released trade data for July showed the deficit running at an
annual rate of almost $820 billion, more than 6 percent of GDP. This is
more than three times the size of the $260 billion dollar budget
deficit now projected for 2006. Even adding in the money borrowed from
Social Security, the budget deficit would only be $437 billion, just
over half the size of the trade deficit. Economic and business
reporters, and their editors, have a hard time understanding the trade
deficit, and therefore they largely ignore it. Most of the reporting on
July's trade deficit was buried in the business pages where few people
would notice it. This is too bad, because the long-run impact of
a trade deficit is pretty much the same as the long-run impact of a
budget deficit: lower living standards in the future. As the
editorialists and pundits continuously warn us, our children and
grandchildren will have a higher tax burden because of the budget
deficits that we are running at present. Well, our children and
grandchildren will in effect face a foreign payments tax because of the
trade deficit that we are running today. The foreign payments tax
is essentially the flip side of the trade deficit we face today. The
trade deficit means that we import more than we export - in effect we
are consuming goods and services that we are not paying for. This
allows us to have a higher standard of living at the moment than if we
had balanced trade, just as lowering taxes allows us to enjoy a higher
standard of living at the moment. In the same way that the
government is borrowing to finance the budget deficit, the country as a
whole is borrowing to finance the trade deficit. We are selling off a
wide variety of financial assets, such as stocks and bonds, to
foreigners (individuals, corporations, and governments). At some future
point, we will lose our ability to borrow, or at least to borrow at the
same rate. At that point, the interest and dividends that we will be
paying to foreigners will be a net drain on the US economy, which will
require that we export more goods and services than we import.
Instead of consuming more goods and services than we produce, we will
be producing more goods and services than we consume. The difference
will be the foreign payments tax that is the long-term result of our
current trade deficit. Even though the foreign payments tax
promises to be much larger than taxes resulting from current budget
deficits, it receives almost no attention.
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http://www.truthout.org/docs_2006/091306F.shtml
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EDITORS NOTES:
Remember the statistics regarding what foreign companies own what
percentage of US companies reported on the www.economyincrisis.org
site? Remember we highlighted for you in the last newsletter that
an Indian Company is now buying a US bottled water concern (and they
already own popular Tetley Tea Brand)? Here is the deal (as
quoted from the above article): We (USA), are selling off a wide
variety of financial assets, such as stocks and bonds, to foreigners
(individuals, corporations, and governments). At some future point, we
will lose our ability to borrow, or at least to borrow at the same
rate. At that point, the interest and dividends that we will be paying
to foreigners will be a net drain on the US economy.
.
Europeans at least try to protect domestic industry because they know
what the result will be. You think the largest threat right now
is a bunch of ticked off Arab radicals? Certainly ticked off
radicals is not something to be ignored, but the largest threat to the
survival of the American middle-class is economic, which in turn has
been driven by political policy (created at home, not abroad), which
has in turn created NAFTA and the WTO, which in turn has allowed for US
corporations to relocate and export jobs, which in turn has caused a
decreased tax-base (less tax money coming in to the government coffers,
at least in terms of corporate and wage related income taxes), which in
turn has shifted higher taxes onto the middle class, which probably
will in turn force the politicians to clamp down and place restrictions
on money transfers out (by the average middle class citizen, not the
foreign corporations - God forbid we tick them off, they are our new
lenders - owners ) of the country sometime in the near future (which
will only exaggerate the already existing problem of financial
bleeding, or better said, foreign owned companies that sell in America
but take their profits out). Connect the dots folks - that is all
you have to do in order to see where this is going. This is not about
political bashing (you can thank slick Willy Clinton for NAFTA plus the
WTO and the trade deficit, and you can thank George Jr. for running up
the government debt to levels found only in Third World
countries). This is not about arguments for or against capitalism
versus different shades of socialism either. This is the current
state of affairs and BOTH political parties have brought you
here. Understand it, and realize what it could mean to you and
your family going forward. Which is to say, knowledge is power
and as the good reverend used to say - the truth shall set you
free. In other words, do not let yourself and your families
become just another collateral damage statistic in the war against the
middle class. If you do not like it, you CAN do something about
it (vote with your feet).
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CUTS SHOW FORD WOES ARE WORSE THAN FEARED: Carmaker still wont turn profit before 09 - By Bill Vlasic, September 16, 2006
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DETROIT - The U.S. auto industry took another huge hit Friday as Ford
Motor announced a radical plan to shrink its U.S. operations and halt
the gravest financial crisis in its 103-year history. With its
losses mounting and its market share dwindling, Ford said it will slash
a total of 14,000 salaried jobs, offer buyouts to its entire unionized
workforce, and expand and speed up plant closings in an effort to cut
$5 billion in costs over the next three years. The dramatic
downsizing nearly guarantees that Toyota Motor of Japan will surpass
Ford for second place in U.S. auto sales behind market leader General
Motors. Even with the cuts, Ford said it wouldn't make money in
North America until at least 2009. The company further stunned
investors by suspending payment of its quarterly stock dividend for the
first time in nearly 25 years. When Ford rolled out its first
version of its restructuring plan in January, the automaker said it
would cut 4,000 white-collar jobs this year and eliminate 30,000
manufacturing positions and 14 plants by 2012. But after losing a
surprising $1.4 billion in the first half of the year, Ford's senior
management felt intense pressure from investors and its board of
directors to move faster. The new plan adds 10,000 salaried job
cuts by early next year to the 4,000 previously announced. Overall,
Ford is cutting one-third of its white-collar jobs through buyouts,
attrition or involuntary dismissal.
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http://www.mercurynews.com/mld/mercurynews/business/15534773.htm
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EDITORS NOTES:
You have to love these guys. Ford says one of the ways they will
cut ONE THIRD of white color jobs in part through involuntary
dismissal. Do you know what involuntary dismissal means? It
means you will be FIRED. Why don't they just say so? Harley
Shaiken, a labor expert at the University of California-Berkeley, says:
This is a company that defined U.S. manufacturing greatness - We are
witnessing the decline and retrenchment of a major industrial
icon. So, does this mean US manufacturing greatness is no
more? I have asked the question before in terms of government -
How broke are they really? In line with this, I shall also ask -
How bad is the US economy really as well? None of us have an
exact magical crystal ball, but it certainly true that we can make
educated predictions about what all these various events and trends
could mean economically, politically and socially as well. I have
no doubt that many, many people will be hurt down the road by the
results of all these things, but in the least you do not have to be one
of them.
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THE GATES OF FEAR - - 9/11 and the rules of Canadian citizenship.
By Jane Jenson, Pablo Policzer and Marie-Joelle Zahar - September 11, 2006
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One of the more disturbing consequences of the September 11 attacks has
been the transformation of previously open societies into increasingly
closed fortresses. The pervasive restrictions and surveillances imposed
on the United States by the Department of Homeland Security are by now
legendary. The Netherlands and Great Britain -- countries that were
previously models of toleration, diversity and openness -- are debating
serious restrictions on who is allowed in and who really counts as a
citizen. Canada has long prided itself as an open society, but here too
the calls to shut the gates and build a fortress around our borders are
growing louder.
.
The Lebanon moment - When war broke out, a number of Canadians living
in Lebanon availed themselves of the right to seek help from their
embassy in Beirut, and eventually to be evacuated from the war zone.
The right to diplomatic protection, and by extension the right to
evacuation in times of war, has a long pedigree in international law.
Of the nearly 40,000 people living in Lebanon who hold a Canadian
passport, only 13,000 claimed this right to assistance. Of these, the
Red Cross estimates that approximately 2,500 needed support upon
arrival in Canada, because they had not maintained meaningful ties in
this country. Such numbers do not suggest a major threat to our
rules for managing citizenship. Nonetheless, some commentators and
politicians suggested that only real Canadians should have been
rescued; and that priority should have been given to those with a
strong connection to Canada over those who may hold Canadian
citizenship as a matter of convenience. Indeed, Dr. Granatstein
suggests there is a deeper issue at stake: the need to rethink the
current practice of holding dual or multiple citizenships. One
reason for concern is purely financial.
.
Why, they ask, do Canadians have to pay for those who are not
contributing to the system but want to benefit from it? Dr. Granatstein
suggested that requiring Canadians living abroad to file a tax return
would solve the problem. The United States does this: it requires
citizens (and holders of a valid green card -- the equivalent of being
a landed immigrant) to file annual tax returns with the Internal
Revenue Service. But there is no necessary relationship between
filing a return and actually paying taxes. Credit is given for taxes
paid to other governments and, therefore, it is only Americans living
in countries with very low tax rates who send anything to the U.S. IRS.
Most pay much more somewhere else. Requiring non-resident citizens to
file annual tax returns might remind them of Canada, but it would do
little to actually cover the costs of any evacuation. Moreover, paying
taxes has never been a condition of citizenship, and many non-citizens
pay all sorts of taxes -- from income taxes and deductions for
employment insurance to GST and PST.
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http://thetyee.ca/Views/2006/09/11/GatesofFear/
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CITIZENSHIP ISN'T A SPLIT DECISION
By Gregory Rodriguez - - Los Angeles Times - August 30, 2006.
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Over the last few decades, globalized commerce and booming
international migration have challenged the role of the traditional
nation state and called into question the validity of single-nation
citizenship. Governments, adapting to the mobility of their
populations, have allowed people to claim citizenship in more than one
country. Some theorists think this heralds an era in which we all will
become citizens of the world. But since 2001, the emergence of
another globalized phenomenon -- terrorism -- has caused Western
policy-makers to reconsider the value of old-fashioned one-country
citizenship and the dangers of plural nationalities. In the end,
however, the greatest danger of dual citizenship isn't that radical
jihadis will falsely take our Oath of Allegiance. It's that members of
a truly globalized class -- immigrants and native -- will have no
loyalty to the U.S. or any country. In becoming citizens of the world,
they will become citizens of nowhere. And that has the potential to
undermine the shared sense of fate and community that democracies need
to function. Dual citizenship becomes a type of portable
patriotism, said Noah Pickus, Duke University public policy
professor. It allows elites who have a business in Bonn and homes
in Umbria and New York to feel disconnected from community.
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http://www.cantonrep.com/
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EDITORS NOTES:
Still talking about dual citizenship are we? One thing is very
clear to me: It is all about the money (tax money to be precise),
and NOT about quality of life, inflation, crime, public social services
- or lack thereof, quality of government - or lack thereof, broken
versus delivered political promises, etcetera and so on - - BUT IT SHOULD BE.
Some quotes once again from the above news articles. One reason
for concern is purely financial. Editor: No kidding? Other
news article quote: Moreover, paying taxes has never been a condition
of citizenship. Editor: Oh yeah? It is now, or least they
would like it to be, and in the case of the US, they WILL refuse to
renew your passport IF they have it noted in their little computer
system that you have a tax dispute going on (regardless if you actually
owe or not, it is sufficient enough they say you do). And the
last quote: Dual citizenship becomes a type of portable patriotism - It
allows elites who have a business in Bonn and homes in Umbria and New
York to feel disconnected from community. Editor: This last
one is my favorite parts, spoken like a true fan of the Leviathan
welfare state. Better said, this is the view or argument, that
ALL expatriates or holders of other passports are jet setters (whipping
around the world, sipping champagne, laughing at the poor as the
supposed down trodden suffer because these so-called elites are
supposedly not paying taxes). I have a news flash for the author
of this article, it is NOT the mega-wealthy (they have set up offshore
trusts and similar things years ago - case in point is the news article
we provided in a past newsletter discussing how the Rolling Stones set
up offshore entities years ago and legally paid less than 2 percent in
taxes last year), but rather the middle-class citizens whom are now
seeking dual citizenship and are expatriating. Why? It is
all about economic survival, pure and simple, in case you didn't
know. But, the funny thing is that the patriotism thing is ALWAYS
invoked to make it sound like something tantamount to becoming a spy or
something really heinous. Why is it that the patriotism of the
politicians is never questioned when they waste US$1 Trillion Dollar of
taxpayer money? Why is it that the patriotism of political
leaders never comes into question when there is not enough money for
your local school district, or so-called government health insurance
programs, or other welfare state programs that were promised?
When government falls down on their end of the so-called social
contract (which they do more often than not) no consequences are
suffered by those responsible (in fact, they are usually rewarded with
re-election). However, when individual citizens say they want out
of a very bad deal, then all heck breaks loose and the guns come out
(sometimes literally). Seems to be a very double standard.
.
What about this comment regarding Portable Patriotism? You are
darn right portable and you can vote with your feet should you wish to
(they do not like the fact you CAN become portable, which is the real
fear). THAT is what they are really worried about - your ability
to simply tell them to have a nice day. The author of the above
article asks about loyalty. Where is the loyalty of politicians
towards the citizens of their own country? Why is it that their
loyalty is never in question but yours is? Many, many large
corporations have re-domiciled themselves to other countries to save on
taxes and labor costs, in other words, the equivalent of what might
called cost of living for the average citizen. In fact, we gave
you a news story in a recent newsletter about a US oil industry related
company that did just that - and they got the politicians to give them
a pass, or better said, a special exemption as a now foreign registered
corporation. So, why is there a double standard when individual
citizens want to do the same thing? Could it be that the hundreds
of thousands of dollars in corporate donations to political campaigns
is the only difference? First they tell us globalization is a
very good thing, then the companies leave for other jurisdictions AND
send the jobs to another country (and they say don't worry, its all
good stuff) - and now that individual citizens want to do the same
thing - all of a sudden this is a heated issue? Make up your mind
guys, but you cannot have it both ways. Besides, we are just
doing what you told us was a very good thing - we are going global
(just like Fedex) to benefit from lower taxes and lower living
costs. So, what is the problem exactly? It is very
acceptable for a number of large companies but not for the rest of
us? Is that it? My message to the many politicians that
gladly accept campaign contributions and ahem, various gratuities, in
order to push through these trade agreements and turn a blind eye to
companies reincorporating themselves in Bermuda - If they can do it, we
can do it AND we are not as dumb as you think we are either. The
Bottom line is: DUAL CITIZENSHIP
and a second passport is the human equivalent to corporate outsourcing
and reincorporating in a lower tax jurisdiction. Funny how much
barking is heard all of a sudden when the middle class figure out how
to do what the other guys have been doing for years, beat them at their
own game AND come out ahead in the process - No?
.
.
SEEKING AN EDGE, U.S. PARENTS RECRUIT CHINESE AU PAIRS
By Ginia Bellafante The New York Times - September 5, 2006
.
Driving the need more aggressively is the desire among ambitious
parents to ensure their children's worldliness, as such parents assume
that China's expanding influence will make Mandarin the sophisticates'
language decades hence. Our clientele is middle and upper middle
class, said William Gertz, chairman of the American Institute for
Foreign Study, which oversees Au Pair in America. They see
something really happening, and they don't want to be left
behind. The last two years have seen an astonishing increase in
the number of American parents wishing to employ Mandarin-speaking
nannies, difficult to find in the United States and even harder to
obtain from China. Au Pair in America, the 20-year-old agency
that sponsored the two young women in Connecticut, had received no
requests for Chinese au pairs until 2004, said Ruth Ferry, the program
director. Since then, it has had 1,400. Joan Friend, a
former president of a technology company in northern California who had
been having her two children, Jim, 5, and Paris, 6, tutored in Mandarin
for several years. After her son and daughter began to learn the
sounds of Mandarin, Friend sought more intensive training. She found Yu
through an acquaintance in China, and Go Au Pair handled the
paperwork. Friend said she considered China central to the future
of global economics, saying, I think China will rule the banking world
in my children's lifetime, and I want them to be able to participate in
that if they want to.
.
http://www.iht.com/articles/2006/09/05/news/aupairs.php
.
EDITORS NOTES:
So, we now have well educated upper middle class young American parents
seeking out Chinese nannies so their kids can learn the Chinese
language at an early age. Aside from importing every thing else
from China, now we are importing nannies to teach our kids too?
According to one young mother, it is because China will dominate the
world banking system. Does she want to make sure her kids are
able to fill out a bank loan and job application in the proper language
in the future - as a matter of survival? How things certainly
have changed since the time I was growing up.
.
BACK TAXES DEMANDED FOR INTERNET PURCHASES
By Scott Rothschild - September 5, 2006
.
Lawrence photographer Monte Mace received an unpleasant notice when he
returned from vacation this summer. It was from the Kansas
Department of Revenue, demanding that he conduct a self-audit of
business purchases over the past three years. The purpose of the
audit was to figure out how much tax Mace owed for equipment he bought
from out-of-state companies. The final amount came to
approximately $2,000, though there is some disagreement on that
number. Mace said he is steamed about the whole situation.
I think it's very unreasonable, Mace said. We already pay
thousands in sales tax on items that are sold to my clients such as
photography, wedding albums, etc. Mace's experience is one of
many that has caused a national debate over collecting taxes on items
purchased out of state now that Internet shopping has become more
routine. But while the modern computer age has increased
out-of-state purchasing - - the tax Mace owes is governed by a law
dating back to the Great Depression when the state sales tax was
established.
.
http://www2.ljworld.com/news/2006/sep/05/back_taxes_demanded_internet_purchases/
.
EDITORS NOTES:
Two things here. First I ask the same old question once again -
How broke are they really? They want to chase you because you a
bought an electric toothbrush (or whatever) from a company in another
state via mail order that did not charge you sales tax. Mail
order and catalog shopping has existed for decades, and Internet
shopping is nothing more nor nothing less than an electronic format of
the same old thing - an extension of catalog shopping albeit now
on-line. In fact, all the catalog companies have now put everything
on-line (other than that, same old thing). So, where's the
beef? All of a sudden, now this is a problem? Second, the
sales tax in Kansas has its origins in the Great Depression.
Really? So, when the economy hits the skids, and local
governments become really, really hard up - taxes go up? Is that
the lesson we can learn from this and what we can expect over the next
few years - higher taxes?
.
.
SOCIAL CONSEQUENCES OF THE GREAT DEPRESSION IN AMERICAN THEATER - By Rachel Rossi - September 5, 2006
.
Examining trends in American theater during the Great Depression, one
finds that social concerns are loudly voiced in numerous works, thus
showing that plays served as a reflection of the problems caused by the
economic collapse of the 1930s. Maxwell Anderson's "Both Your Houses,"
Clifford Odets's "Awake and Sing!" and "Waiting for Lefty," and Eugene
O'Neill's "The Iceman Cometh" all aptly express a growing climate of
dissatisfaction and despair in American society which manifested in
various social problems. Dire monetary conditions caused people
to look for someone to blame, to re-examine their individual role in
the context of the group, to believe in money as both the cause and the
solution to problems, to contemplate alternate political systems, and
even to create and destroy dreams. America was festering with broken
people, broken bank accounts, and broken dreams.
.
In Both Your Houses, Maxwell Anderson explores the initial
repercussions of the Great Depression, when a greater political
awareness seemed to arise among the American people. Money became such
a national focus point that the people naturally became more interested
in governmental spending and the allocation of national resources,
perhaps looking to make the government a scapegoat which could be
blamed for their personal monetary troubles. After all, if the
government can't handle its money in an honest and fair manner, it is
no surprise that its people would suffer under such a corrupt system -
and if the government is corrupt, maybe it is to blame for the
widespread poverty among its people, because you can look up and see
the depression all around you (Anderson, 1933: 11). On the other hand,
the government could conceivably provide monetary relief to the people
and thus would be accepted into a savior role. Money and politics,
then, are simultaneously accepted as both the cause and solution to
society's problems.
.
http://www.associatedcontent.com/article/57183/social_consequences_of_the_great_depression.html
.
EDITORS NOTES:
Why did I put this into the newsletter? Well, I just thought it
was interesting that this news article appears now - September 2006 -
and I also found the comments very much dead on as a social - political
analysis as well. Does art imitate life and current events or is
it the other way around? Funny how history repeats itself again
- and again - and again.
.
.
WHERE LIBERALISM EQUALS DEPRESSION - By Neil Clark - London - September 5, 2006
.
As the entry of Bulgaria and Romania into the European Union edges
closer, the condescension towards Eastern Europeans and their countries
of origin grows. The double standards could not be more glaring.
Bulgaria and Romania are routinely portrayed as backward, mafia-ridden
hellholes that will infect the rest of the continent. But is the
political system in either country so much more corrupt than in
Berlusconi-tainted Italy or cash-for-honours Britain? We also
witness this unappealing chauvinism in the way Eastern European
migration is covered in the British tabloids. Eastern Europeans are
castigated for flooding into Britain, yet few people stop to ask why so
many people (427 000 have left for Britain since 2004) are leaving the
region where they grew up and where they have friends and family. On
the rare occasions they do, the pernicious legacy of 40 years of
communism is usually held responsible. But communist rule ended
more than 16 years ago. Can it really still be blamed for the problems
of today? What the people of the region are, in fact, escaping from are
the consequences of the neo-liberal economic policies of the early
1990s, which led to what economist Laszlo Andor has called "Europe's
great depression", the biggest economic slump in the continent since
the 1930s.
.
Away from the glitzy, globalized centres of Budapest, Prague and
Warsaw, millions face poverty and hardship in the former communist
bloc. Gross domestic product in the region fell between 20% and 40% in
the decade after 1989 and, while a minority have seen real wages rise
since the millennium, for the majority the "transition" process has
witnessed a spectacular fall in living standards and a massive rise in
unemployment and inequality. Western politicians laud the countries of
"new" Europe for their "dynamic, flat-rate tax" economies, but deny
there is any link between the economic reforms and the massive exodus.
Had the Eastern countries not thrown out the baby with the bathwater in
the early 1990s by adopting the massively deflationary International
Monetary Fund/EU prescription, their economies would now be in better
shape and much of the current wave of migration could have been
avoided. The large-scale labour exodus may benefit Western
multinationals, but certainly not most Western workers, who are seeing
their wage rates depressed. But the biggest losers are the Eastern
countries, which are being deprived of young, talented and productive
people. The irony is that, far from being backward, Eastern
Europe puts much of Western Europe to shame when it comes to the
quality of its education, public transport and health care.
.
http://www.mg.co.za/
.
EDITORS NOTES:
Two things come to my mind. First, it is another very current
article that makes reference to that D word again (Depression, economic
that is, not the other kind your doctor would prescribe a pill
for). Second, I am reminded that the previous so-called great
depression of the 1930s in fact hit Europe first, and then made its way
across the Atlantic shortly thereafter. Japan went into a 10-year
economic funk starting in the early 1990s, now an economist tells us -
more or less - Eastern Europe too. So, what is the point?
What country or who is next? Can you guess? Kind of
interesting that there are so many economic and statistical parallels
today to the 1920s and 1930s. For example, the US savings rate is
now negative (last time that happened was 70 years ago, during the
early 1930s). The divergence of wealth (the spread between what
percentage has wealth and what percentage does not) mimics the
statistics of the 1920s - again. Of course, we do have some new
statistics, or shall we say, some major differences today as
well. For example, American companies are anywhere from 20
percent to 90 percent foreign owned (all depending upon the industry,
but you should check it out on www.economyincrisis.org for an eye
opener), which was not the case during the 1930s depression.
Also, manufacturing has almost ALL gone to lower labor, lower tax
jurisdictions - and so the US is now a so-called service economy
exporting almost nothing except money and the nations wealth. In
addition, we have some of highest trade (and other) deficits and many
government managed social welfare programs are insolvent (Medicare,
Pension Benefits Guaranty Corp., just to mention two). It surely
is a brave new world.
.
.
READERS WRITE IN:
.
I just finished reading your report and it was right on the
money. When I bought the report all I thought was just another
person glamorizing DR. But you were very honest on what DR is all
about. My parents are from DR and my wife came here when she was
10 years old. And I love DR. But you called it when you
talk about the "tigeres". It is very hard to find honest business
people. My uncle was building a house in Santo Domingo and he was
very frustrated. The contractors were taking there time.
You see the longer it takes the more money they make.6 months turned in
to 14 months. He had to fired the crew and replace them three
times with new contractors. And my uncle is very well connected
in DR. He is a doctor and very involved in politics. And he
still had problems. My friend and I love DR. My friend is a
gringo that married my cousin. He also bought the report.
And lately we have been thinking a lot on retiring in DR. But my
baby is only 15 months old. I will like for my kids to get the
American education. Are there American schools in DR, and if so,
how much will it cost? I can retire from my job in 7 years with a
projected pension of $80,000 a year. Could this be
enough? Around $100,000 in retirement pay out - I figure I
can put this in a DR bank and collect on the interest. Another
question is if I establish residency in DR do I pay any taxes on my
pension?
.
EDITORS NOTES:
Thank you the comments and I do try to be objective about most of what
I write, meaning I try to be honest about the good and the negative
even though I do take sides with certain subjects. However, I do
not agree that it is impossible to find honest business people, but the
truth of the matter is, you do need to look for them and not act like a
fool in terms of managing your own affairs. The problems most
foreigners have when they move to another country is that they do not
accept the fact they are involved with another culture and another set
of ways to conduct yourself (some things are better, some other things
you have to adjust to). You say your Uncle was frustrated (and he
is Dominican), but what did he do wrong? He hired someone either
on a day rate (in which case of course they are going to work as slow
as snails to extend the project into the next century) or he did not
peg payments to levels of completion. Meaning, you hire a
contractor and guy says the job will cost a certain amount. Fine,
but you should also clearly ask about time lines to complete certain
phases of the project and make periodic payments accordingly - and very
little money up front if any. In other words, when 10 percent of
the job is done, ten percent of payment comes across, and as the
project progresses then so does the cash flow. Also, it is the
contractor's responsibility to hire and supervise the workers out of
his fee. You would be quite foolish to allow yourself to get
talked into a fee for the contractor AND also take on the
responsibility of paying day workers whereby the contractor has no
motivation to push them to complete the work. I said in my report
that Tigres respect other Tigres, and that Chickens are eaten.
The meaning is, be a shrewd but fair and honest businessman. Pay
people what you agreed to and pay them on time, but do not pay for work
that is not yet completed and do not be a fool. Someone can take
advantage of you ONLY if you allow him or her to do so. This is
nothing more than common sense.
.
With all that said and to answer your questions, I do think one has the
ability to live a better life in the Dominican Republic - for less
(without some of the other social problems as well). There are
many excellent bilingual and English only private schools in the
Dominican Republic and I think the tuitions are reasonable (on average
probably about US$1,750 or less per school year). For less than
what you would pay for a parochial school in the US, you are getting
the equivalent of a private prep school education in the DR. You
say you want your kids to get a US education? Based upon the
previous news article above, that may not be such a good idea, at least
in terms of relying on the public schools. But, you can afford an
excellent private school education in the DR and let me tell you, many
of these schools are excellent (plus no drugs or kids trying to imitate
Columbine either). And with a pension of US$80,000 you will live
very well and be able to offer your kids and your family much more than
what you can in the US at the moment - and in my opinion, that is
nothing to be ashamed of doing. There are some people who
do not like this idea (your ability to move to another country for a
better life) but then again, most of those people only want to vacuum
your wallet anyway (as opposed to being truly concerned about your
welfare). Looking forward towards the next ten years economically
and socially, countries like the Dominican Republic offer you, the
middle class US citizen, a refuge and a way to offer your family the
kind of lifestyle which will continue to become more expensive if not
impossible in the US going forward (not to mention less taxing as
well). Why do you think so many Dominicans are selling their
overpriced houses in the US, moving back home, buying an equivalent or
maybe even better home for cash (no mortgage) in the DR and putting the
rest in the bank? If you eliminated your monthly mortgage,
eliminated annual real estate taxes (if you buy a residential property
valued at less than RD$5 Million Pesos or about US$150,000 you pay ZERO
property taxes - that is what the Dominican Government has done to help
out its middle class), and your only expenses were telephone, electric,
cable and maybe US$200 per month to send your kids to a private school
or private university - how much would you need to live on? What
kind of lifestyle could you give your family? This is not fantasy
but rather reality, albeit somewhere other than
Amerika.
.
.
ANOTHER READER WRITES:
.
Please forgive my ignorance, but I need to ask one more question:
In the US, I can get CD rates as high as 5.70% with a $10,000 deposit
for one year. So it would seem to me that I should invest in
Dominican Pesos to maximize the return on my investment. Other
than tax-savings, why would I invest in a US Dollar CD in the DR?
.
EDITORS NOTES:
If you look at all the current economic statistics at the moment, the
future for the US dollar is not good. The Organization for
Economic Co-operation and Development (OECD) said earlier this year
that the dollar had to fall by 35% to 50% in order to balance the US
current account gap. The United States - is a net borrower from
the developing world, with a current account deficit that hit a record
of nearly 6.5% of GDP in 2005 and if you add the net present value of
un-funded Social Security and Medicare obligations to the existing US
Federal Government debt - you soon realize that the government is
broke. Stated another way, even if a 100 percent income tax was
enacted today, it would not be enough to pay everything off. Not
to mention what would happen if the Chinese and other Asian countries
decided to dump their dollars and US Dollar denominated bonds, which is
not a far-fetched scenario. So, the bottom line is, the US Dollar
is poised for a decline versus other major world currencies. Now, does
this mean you should put all your liquid cash into Pesos? Of
course not, but it certainly would be a sensible idea to consider to
diversifying into some other currencies not likely to decline and even
other assets, such as gold or real estate in another country (in a
market not currently inflated) and some money into Pesos may be part of
that plan, but certainly not all of it. However, your question
is: What is the benefit of having US Dollars (or any other assets for
that matter) invested in another country, even at a lower interest rate
and tax issues aside? Read the following and decide for yourself:
.
Roosevelt gleefully confiscated all the private gold holdings of US
citizens during the 1930s Depression and through some other related
price fixing shenanigans involving the official price of gold he also
devalued the US Dollar by 41 percent. In terms of who got caught
up and lost out economically, those people that had gold held in
personal safety deposit boxes inside US banks were screwed as were
those citizens that did not have any other currency investments at the
time to help them offset the devaluation. US citizens that had
gold safely tucked away in Switzerland or Canada or even the UK were
safe. Since an even lower percentage of US citizens own gold
these days, and probably have no equity in their homes either - what
will they consider taking next? Am I being alarmist or extremist
to suggest this as a possibility, and only a possibility mind
you? Maybe I am, but history often repeats and politicians are
the same scallywags they have always been. I cannot predict the
future exactly, but the past (and history) is usually a fairly good
indicator of what to expect going forward. This is not to say
anything is for certain, but the truth of the matter is, human nature
(and politicians) have not changed much within the last 2,000 years.
.
In summary, switching from one fiat currency into another, or better
said, dumping all your US Dollar liquid cash and converting into
another is not the complete answer, but it does offer somewhat of a
hedge. Why is it that it can be almost impossible in the US to
have a US Dollar Bank denominated savings account, a Euro denominated
savings account (and or other currencies as well) with the same
domestic US based bank? You can have such a case in the Dominican
Republic however and there are no currency controls (as exist in
Venezuela for example) or restrictions (and with banks in many other
countries) allowing to switch over fairly quickly should you need
to. The US Dollar has already fallen by about 30 percent of value
since 2001 because of the Federal Reserves print until the ink runs out
program. Now we hear that OECD saying it needs to take a further
dive of 50 percent. If that does happen, we are talking about an
80 percent loss in value since 2001. Can you imagine what that
will do to the middle class? Why is the Euro now worth US$1.29
(more or less) when the Euro was worth about 90 US cents just a few
years ago? The answer is not because the Euro gained in value BUT
rather because the US Dollar dropped in value. Indeed, if it is a
choice between deflation and inflation, Bernanke and company will opt
for inflation, which is the course they have already been on since
about 2001. Where did all that slush go? Into the housing
market of course, and resultant bubble that many so-called respectful
economics and investment program talk show hosts told you did not exist
(at the time in 2003 to 2005).
.
According to Todd Harrison, in an article posted on Aug 30, 2006:
.
Caught in the chasm between the haves and have-nots, the middle class
is already on its last legs. With inflation in things we need
(education, healthcare, energy) and deflation in things we want
(plasmas, cars, laptops), mainstream America is stuck in the
middle. While this dynamic is well established, it's been masked
by the benefits of home equity in a finance-based economy. The fork in
the road will become entirely more obvious as adjustable rates
mortgages begin to reset in the months and years ahead. The
attendant societal acrimony should galvanize as this dichotomy is
unmasked and we turn to face our debt obligations. As a result, risk
appetites will likely abate and begin to ripple through the pond of our
collective spending habits. With total debt more than 300% of GDP, one
could argue that the wiggle room is already in our rear-view. There is
a massive difference between hypothesis and application, however, and
we'll feel the pinch as this perception and reality meet in the middle.
.
http://www.marketwatch.com/news/
.
It was also reported in a news article titled - Dollar Devaluation Cannot Right the US Economy, back in December 2004 by Nick Beams:
.
Well-known international economist Barry Eichengreen noted that at
current exchange rates the US current account deficit was on an
explosive path and set to widen from its current level of between 5 and
6 percent of US gross domestic product (GDP) to 8 percent by 2008 and
12 percent in 2010.
.
http://www.wsws.org/articles/2004/dec2004/usdo-d22.shtml
.
So, perhaps look to earn the highest interest rate you can on USD
denominated investments, but that is not the only answer and the truth
is, not your only narrow focus (you might get 6 percent with a US bank
right now and only 3 percent elsewhere, but the strategy to protect
your assets goes way beyond a difference of 3 percent in
interest). The answer then is safety of your assets from
predatory taxation or even downright confiscation, and the ability to
hold liquid assets in other currencies or other stores of value.
Also, many people cannot decouple themselves completely from a USD
based situation personally (people that might have a fixed retirement
pension in USD for example). However, living in another country
that for a variety of reasons I cannot go into here due to lack of
space, allows for such a person with US Dollars to have more buying
power, but all depending upon the specific country of course. IF
you stay in the US you are probably going to see inflation and your
purchasing power decline. Forget about Europe as the decline in
the US Dollar has already made Europe too expensive for Americans and
even Canada has become more expensive for them as well (for the same
reason of the US Dollar devaluation versus the Canadian Dollar).
But, some countries with specific dynamics (the Dominican Republic,
Thailand, Philippines plus a few more) offer the opportunity for you in
the least to tread water, so to speak. In my opinion, treading
water is better than drowning.
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