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Our October 17, 2007 Newsletter
Edition
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IN
THE NEWS:
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.
DOMINICAN REPUBLIC EXPORTS INCREASE 64
PERCENT THROUGH AUGUST 2007
By Jorge Pineda, October 10, 2007
.
The
Dominican Republic's exports rose 63 percent in the first eight months
of 2007, led by higher prices for iron-nickel ore and demand from the
US. Exports increased to $1.57 billion through August this year,
from $962.7 million in the same period a year earlier, the country's
export and investment agency said in a statement on Tuesday. The total
for 2007 may reach $2.2 billion, a 44 percent increase from 2006,
according to the statement. The figures exclude the Dominican
Republic's manufacturing free-trade zones. The Dominican Republic
had earlier reported a budget surplus of 20.4 billion pesos ($609
million) in the first nine months of the year. Government
revenue, excluding foreign aid and loans, rose 33 percent from a year
earlier to 171.3 billion pesos. Spending climbed 20 percent to 150.9
billion pesos, excluding foreign debt payments, the country's finance
ministry said last week on its website.
.
http://www.caribbeannetnews.com/news-3902--18-18--.html
.
.
VIETNAM
DEVEOPS TASTE FOR LUXURY GOODS
By
Ben Stocking, Associated Press Writer - September 23, 2007
.
In
a country whose peasant army once marched on flip-flops cut from old
tires, Gucci beach sandals priced at $365 can come as a shock.
But the luxury market is booming in Vietnam, where Ho Chi Minh's
communist revolution exalted equality and the common man just a
generation ago. As the country begins to embrace private
enterprise, its nouveaux riches are snapping up shoes at Gucci,
handbags at Louis Vuitton and watches at Cartier, offering proof of how
much the country has changed after decades of war. I sold a
$4,000 leather jacket recently, said Do Huong Ly, a stylish young
saleswoman at the Roberto Cavalli shop in Hanoi.
.
Not
long ago, displays of wealth were frowned upon in Vietnam. Those
tire-sandaled troops who bested the French colonial army and outlasted
the Americans embodied frugality and egalitarianism. The revolutionary
government snatched up the assets of the wealthy and redistributed them
to the poor. But since the late 1980s, a government that once
micromanaged all economic affairs has been introducing free-market
reforms and courting foreign investors, and with them have come new
western styles and attitudes. Some of Vietnam's shopaholics are
young people who work for multinational corporations but still live
rent-free with their parents. Others work for powerful state-owned
companies and many have made fortunes in Vietnam's small but booming
private sector. They indulge their urge to splurge at Dolce and
Gabbana, Burberry, Escada, Rolex, Clarins, Shiseido and the like.
.
In
the two decades since Vietnam began implementing its economic reforms,
the nation's poverty rate has been cut in half, and per capita income
has doubled in the last five years. Vietnam's older generation,
shaped by the hardships of war, finds itself at odds with younger
Vietnamese over the new consumerism. The war generation wasted
nothing and always saved for the future, convinced that catastrophe
lurked around every corner. But opinion surveys show that the 60
percent of Vietnamese born after 1975 are very optimistic about the
future, and determined to enjoy the here and now. Van, for
example, enjoys pampering herself at the salon with massages and
manicures. But she lives in fear that her father, a college professor,
will learn about her five Louis Vuitton handbags. I can't tell
him I have these, she said. And I would never tell him how much
they cost. He would think that I was completely irresponsible.
.
Van's
indulgences are modest compared to those of Vietnam's super elite, who
tool around in the ultimate status symbols: a shiny BMW or
Mercedes-Benz. And pay cash. In America, you pay in
installments, said Nguyen Hoang Trieu, luxury car dealer in Ho Chi Minh
City, the former Saigon. Here, you pay all at once, in cash.
Sometimes people come in here with $400,000 in a suitcase.
.
http://news.yahoo.com/s/ap/20070923/
.
EDITORS NOTES:
I wish to call your attention to the statement of Mr. Nguyen Hoang
Trieu, a luxury car dealer in Ho Chi Minh City, who says: In America,
you pay in installments and here (in Vietnam), you pay all at once, in
cash. Which is to say, in previous newsletters we had commented
that there would NOT be a credit crisis in many countries outside of
the US. Why? Simply because these are CASH economies, and
the consumers in such places are not drowning in debt. Hard to
believe, but true.
.
.
LESSONS
FROM CREDIT CRISIS
By
Dr. Rod Monger, Special to Gulf News - October 10, 2007
.
When
the US sneezes, the world catches cold. At least that used to be the
old saw. But these days, the US economy is feeling poorly, with the
so-called sub-prime credit crunch and weakening dollar. But the local
UAE economy doesn't even have the sniffles. Of course, the US is
still a major factor globally with an estimated 30 per cent of the
total gross domestic product, 20 per cent measured by purchasing power
parity (an adjustment economists make which takes into consideration
inflation and foreign currency exchange rates). But that share
continues to shrink (from about half of the world production just after
Second World War) due in part to fast growth in countries like Brazil,
Russia, India and China, which together now exceed the US share.
Still the US cannot be ignored, especially in the UAE which continues
to tie its currency exchange rate to the dollar.
.
Events
in US credit markets have created two questions locally. First, to what
extent will the US sub-prime crisis be felt in this region, and second,
is there any reason to believe that we may have a credit crunch of our
own here in Dubai. The answer to both questions is probably not.
.
http://www.gulfnews.com/business/Business_Feature/10159400.html
.
.
ECONOMICS TO DECIDE DOLLAR PEG SHIFT
- October
10, 2007
.
The
Gulf Co-operation Council (GCC) countries backing the dollar peg now
would have to rethink their strategy if inflation got out of
hand. If the dollar drops further and Gulf currencies fall with
it, the region will import more inflation from its trade partners in
Europe, whose euro currency has surged to record highs against the
dollar. Central banks cannot ignore popular sentiment and let rising
inflation and falling exchange rates go unbridled for long.
Therefore, it will be finally economics and not political convenience
that decides if the GCC will remain tied to dollar woes.
.
Except
for Kuwait, which in May dropped the dollar peg in favor of a basket of
currencies to ward off imported inflation, the remaining five GCC
states have kept their currencies linked to the dollar. They have
agreed to keep the dollar peg until monetary union in 2010. By keeping
the peg, the Gulf currencies have become undervalued against the dollar
by about 20 to 25 per cent, according to estimates.
.
UAE's
official inflation rate for 2006 was 9.3 per cent, but international
agencies place it above 10 per cent. Analysts say the surge was
caused by rent increases as housing supply fell short of population
growth. In 2006, the annual inflation reached the highest level of 11.8
per cent in Qatar, followed by the UAE at 10.1 per cent, Oman 3.2 per
cent, Kuwait and Bahrain three per cent each, and Saudi Arabia 2.2 per
cent. This year, inflation in Kuwait hit 5 per cent in the first
quarter and in Saudi Arabia it increased to 3.1 per cent as food and
housing costs climbed. Serhan Cevik, an economist at Morgan
Stanley, says the weaker dollar will worsen already high inflationary
pressures in the Gulf countries.
.
Average
inflation in oil-exporting economies in the Middle East has soared from
0.1 per cent between 1998 and 2002 to 6.5 per cent this year.
Imported inflation is becoming a bigger threat, as currencies pegged to
the dollar keep weakening, says Cevik. Moreover, the abundance of
petrodollar liquidity is going to continue with higher oil
prices. Inflation rates would not get corrected unless the
authorities decide to revalue exchange rates, Cevik says. The
greenback fell almost 2 per cent against a basket of major currencies
in the week after the Federal Reserve cut America's short-term interest
rates on September 18, hitting a new low for the post-1973 floating
era. The fall was particularly pronounced against the euro, where
the dollar fell to a record $1.41 per euro on September 25.
.
Saudi
Arabia's decision not to follow the Fed's lead and cut interest rates
fuelled speculation that the oil kingdom was about to break its 21-year
peg with the greenback. There was also the fear that a plunging dollar
will fuel inflationary pressure in America and thus limit the Fed's
ability to cut interest rates further. With inflation rising fast
in Saudi Arabia, the link to a falling dollar is causing a growing
headache.
.
http://www.gulfweeklyworldwide.com/article.asp?Sn=4827&Article=17066
.
EDITORS NOTES:
With spiking US inflation (the inflation that supposedly does not
exist) being exported to the oil producing nations in the Middle-East,
indeed the pressure is on to dump the dollar. As we alluded in
previous newsletters, no foreign country wants to go down with a
sinking ship, and so it will be interesting to see how this all pans
out. However, if Saudi Arabia dumps dollars in favor of some
other currency, that will be a telling sign for sure, as friendship
does have it limits when it comes to money.
.
.
UAW
SWAPS NEXT GENERATION'S WAGES, BENEFITS FOR U.S. JOBS
By
Mark Trumbull, The Christian Science Monitor, October 1, 2007
.
A
historic deal between America's largest carmaker and the industry's
labor union promises to help Detroit become more competitive with Asian
rivals. In that sense, the tentative agreement reached Wednesday
represents a win for both sides. But for workers, it's as much about
sidestepping defeat as declaring victory. At the core of the
accord between General Motors and the United Auto Workers is a simple
trade-off: The union makes major concessions that will help the company
bring down labor costs, and in return it wins the hope of retaining
many of its remaining US jobs.
.
http://www.alternet.
org/workplace/64023/
.
EDITORS NOTES:
According to a news article appearing in the UK Telegraph on October 1, 2007:
For GM, as well as the Veba deal, it has got the UAW to concede that
not all workers do the same job, and therefore should not be paid in
the same way. A new class of entry-level workers will be created, paid
as little as $14 an hour for menial jobs compared with $70-$75 an hour
for normal UAW members.
.
AND
HERE'S the rub, as they say. If you recall, we commented not too
long ago, on the fact that New York City had decided to roll back entry
level or starting salaries for new Police Officers to what they were
over twenty years ago (of course the cost of living nor prices for
homes, while in decline at the moment, has not been rolled back to what
is was twenty years). Now of course, as this trend
continues, we see General Motors suggesting the same thing for
its workers as well. What are the implications and why all of a
sudden is it so important to reduce wages inside the US? Is this
another new trend and why?
.
.
COLLECTING
OF DETAILS ON TRAVELERS DOCUMENTED U.S. EFFORT MORE EXTENSIVE THAN
PREVIOUSLY KNOWN - By Ellen Nakashima-
Washington Post Staff Writer, September 22, 2007
.
The
U.S. government is collecting electronic records on the travel habits
of millions of Americans who fly, drive or take cruises abroad,
retaining data on the persons with whom they travel or plan to stay,
the personal items they carry during their journeys, and even the books
that travelers have carried, according to documents obtained by a group
of civil liberties advocates and statements by government officials.
.
The
personal travel records are meant to be stored for as long as 15 years,
as part of the Department of Homeland Security's effort to assess the
security threat posed by all travelers entering the country. Officials
say the records, which are analyzed by the department's Automated
Targeting System, help border officials distinguish potential
terrorists from innocent people entering the country.
.
But
new details about the information being retained suggest that the
government is monitoring the personal habits of travelers more closely
than it has previously acknowledged. The details were learned when a
group of activists requested copies of official records on their own
travel. Those records included a description of a book on marijuana
that one of them carried and small flashlights bearing the symbol of a
marijuana leaf.
.
The
Automated Targeting System has been used to screen passengers since the
mid-1990s, but the collection of data for it has been greatly expanded
and automated since 2002, according to former DHS officials. The
DHS database generally includes passenger name record (PNR)
information, as well as notes taken during secondary screenings of
travelers. PNR data -- often provided to airlines and other companies
when reservations are made -- routinely include names, addresses and
credit-card information, as well as telephone and e-mail contact
details, itineraries, hotel and rental car reservations, and even the
type of bed requested in a hotel.
.
The
records the Identity Project obtained confirmed that the government is
receiving data directly from commercial reservation systems, such as
Galileo and Sabre, but also showed that the data, in some cases, are
more detailed than the information to which the airlines have
access. Ann Harrison, the communications director for a
technology firm in Silicon Valley who was among those who obtained
their personal files and provided them to The Post, said she was taken
aback to see that her dossier contained data on her race and on a
European flight that did not begin or end in the United States or
connect to a U.S.-bound flight. It was surprising that they were
gathering so much information without my knowledge on my travel
activities, and it was distressing to me that this information was
being gathered in violation of the law, she said.
.
James
P. Harrison, director of the Identity Project and Ann Harrison's
brother, obtained government records that contained another sister's
phone number in Tokyo as an emergency contact. So my sister's
phone number ends up being in a government database, he said.
This is a lot more than just saying who you are, your date of birth.
.
Edward
Hasbrouck, a civil liberties activist who was a travel agent for more
than 15 years, said that his file contained coding that reflected his
plan to fly with another individual. In fact, Hasbrouck wound up not
flying with that person, but the record, which can be linked to the
other passenger's name, remained in the system. The Automated
Targeting System, Hasbrouck alleged, is the largest system of
government dossiers of individual Americans' personal activities that
the government has ever created. He said that travel records are
among the most potentially invasive of records because they can suggest
links: They show who a traveler sat next to, where they stayed, when
they left. It's that lifetime log of everywhere you go that can
be correlated with other people's movements that's most dangerous, he
said. If you sat next to someone once, that's a coincidence. If
you sat next to them twice, that's a relationship.
.
http://www.washingtonpost.com/wp-dyn/content/article/2007/09/21/
.
EDITORS NOTES:
It is always difficult in a so-called free and democratic society to
balance out security versus civil liberty issues, and I try to
understand both sides of the coin when thinking about such
things. However, I also must also admit that this sort of
detailed and micro record keeping reminds me quite a bit of the
dossiers and detailed files kept by the STASI, or Ministry for State
Security in the former East Germany. I know, it sounds like a
ridiculous comparison to make or perhaps one heck of a stretch, and
maybe it is. But, it happens to be true that the STASI kept files
on up to 6 million East German citizens, or what amounted to about
one-third of the entire population. Now think about how many US
citizens fly and what percentage of the population that comes out to
(the actual number approaches 70 Million, or about roughly 25 percent
of the overall US population - according to statistics offered by the
office of travel and tourism industries).
.
They
claim all of this record keeping is meant to help border officials
distinguish potential terrorists from innocent people whishing to
travel (both internally or domestically and abroad). Has anyone
bothered making these guys aware of the fact that there are hundreds of
thousands of people that cross the border illegally every year
regardless? In other words, it's not as if these initiatives will
do any good when you have so many people NOT even passing through a
formal border check area (whereby someone is going to look up a
database). And so, what is all this record keeping really for
exactly? I do not know the concise answer to that question, but
in a supposedly free society, I think it is something worth asking.
.
One
comment presented on a recent bulletin board posting says:
.
Beginning
in February 2008, U.S. Customs and Border Protection (CBP) will
implement their Advance Passenger Information System (APIS), the gist
of which is that you will need permission from the United States
Government to travel on any air or sea vessel that goes to, from or
through the U.S. The travel companies will not be able to issue a
boarding pass until you are cleared by DHS. This applies to ALL
passengers, US citizens and visitors alike. And how do you get said
permission to travel? That's for your government to know and you to
never find out. Now TSA proposes to do for DOMESTIC travel what
APIS will do for international routes. That's what I said: the new TSA
rule would require that you obtain PERMISSION to travel within the U.S.
.
http://blue-patriot-woman.dailykos.com/
.
If
you are interested in reading the Transportation Safety Administration
(TSA) proposal for such a Secure Flight Plan program, you can do so via
the link below.
.
http://dmses.dot.gov/docimages/p102/484384.pdf
.
Once
again, without trying to sound like a conspiracy theorist, I will leave
you with the following thoughts to ponder. If these efforts and
initiatives are indeed meant to restrict travel or access in or out of
the US (in other words, your ability to leave), who then might be
affected and why is this necessary? Could such a list of persons
include: someone that owes taxes or is currently involved with a tax
dispute or some form of litigation, or perhaps someone that is labeled
a malcontent due to criticisms or comments made previously, or maybe
even someone that wrote a critical term paper in college? If
someone's reading material is being noted, could you find yourself on a
no-fly list because you decided to take a certain book with you on an
airplane that was authored by a so-called controversial person (Noam
Chomski comes to mind)? Why would it be necessary and important
to lock down the populace, or otherwise restrict travel? Is there
some crisis coming that would necessitate such a draconian measure?
.
We
may never really know the answer, at least not in the short-term, but
there are some interesting statistics and news items out there worth
considering. For example, we highlighted the fact that roughly
5,000 British Citizens are getting the heck out of the UK each and
every week currently, AND the UK government appears to have taken
notice in the drop in tax revenue as a result (assuming there is a link
or connection, and we would postulate that there is). The Office
for National Statistics (ONS) in the UK show that the UK's public
finances were further in deficit than expected in August, and also
showed a sharp drop in corporation tax receipts, which almost halved to
£704m from £1.28bn in August 2006 (and a modest fall in VAT
receipts). If the corporations have moved much of their
manufacturing (and taxable income) abroad, AND if the middle class are
now leaving in droves - then who will be left behind to pay the
bills? Maybe that is both the point and the worry. Keep in
mind that in both the US and the UK, personal income taxes (paid by the
middle class) currently (now in 2007) make up the bulk of government
tax revenue. If you were a government that was perhaps in dire
straights, financially speaking, what would you do if your tax payers
were abandoning ship? Would you attempt to stop certain cash cows
from moving to greener pastures, as it were? If so, how would you
do it? Perhaps stopping them from traveling is one method?
Then again, maybe all this is much ado about nothing. You
decide.
.
.
U.S.
SETS NEW RECORD FOR TRAVEL ABROAD IN 2005
.
The
U.S. outbound market grew by three percent in 2005 when compared to
annual 2004 figures to post a new record for total U.S. outbound
travel. In 2005, 63.5 million U.S. travelers went abroad, surpassing
the 2004 record of 61.8 million. The growth came in travel to the
overseas regions, up five percent, and to Mexico, also up five percent.
U.S. travel to overseas countries increased to 28.8 million, a new
record. Travel to Canada declined almost five percent. Spending
by U.S. travelers going abroad also set a new record in 2005 at $95.2
billion, up by six percent compared to 2004. Spending by U.S. travelers
in countries outside the United States totaled $69.2 billion, and the
money spent on air transportation, via foreign air carriers, totaled
$26.1 billion in 2005.
.
The
top five overseas markets visited by U.S. travelers in 2005 were: the
United Kingdom, France, China (combined total for the PRC and Hong
Kong), Italy and Germany. Destinations that experienced the highest
growth in U.S. visitation between 2004 and 2005 were the DOMINICAN
REPUBLIC, up 50 percent, Japan, up 40 percent, India, up 33 percent,
Hong Kong, up 25 percent, Costa Rica, up 24 percent and the Peoples
Republic of China, up 21 percent. Contributing to the new record
for outbound travel, seven of the top 25 U.S. outbound destination
markets posted records in 2005, including Japan, Dominican Republic,
China (PRC), India, Hong Kong, Costa Rica and Thailand. Also, Asia,
South America and Eastern Europe, set regional records for U.S.
outbound visits between 1985 and 2005.
.
http://tinet.ita.doc.gov/tinews/archive/tinews2006/20060926.html
.
EDITORS NOTES:
The Office of Travel and Tourism Industries also released a profile of
the U.S. travelers who visited overseas destinations and one very
interesting statistic that caught my attention was that the average
household income was $111,600, up one percent from 2004. In other
words: What is the profile of the average American Traveler who is
visiting places outside of the US, and by default the average
expatriate as well? One part of the answer, based on income
profile, is the middle class (which of course is logical, and most poor
people do not vacation in Europe or take Caribbean golf trips).
Extrapolating this out - one can argue that in terms of the profile of
whom in the society is jumping ship, as they say, it is most blatantly
the middle class. That is the socio-economic group that travels
abroad, visits foreign nations, is expatriating and is (was?) the part
of the previous population that pays most of the taxes. Once
again the question is: If you were a government concerned about falling
tax revenue - would you be alarmed about the middle class leaving, and
if so, what would you do about it?
.
.
BUSH
RESTRICTING TRAVEL RIGHTS OF OVER 100,000 U.S. CITIZENS
By
Sherwood Ross - September 3, 2007
.
The
freedom to travel of more than 100,000 Americans placed on watch and
no-fly lists is being restricted by the Bush-Cheney regime.
Citizens who have done no more than criticize the president are being
banned from airline flights, harassed at airports, strip searched,
roughed up and even imprisoned, feminist author and political activist
Naomi Wolf reports in her new book, The End of America. (Chelsea Green
Publishing)
.
Making
it more difficult for people out of favor with the state to travel back
and forth across borders is a classic part of the fascist playbook,
Wolf says. She noticed starting in 2002 that almost every time I sought
to board a domestic airline flight, I was called aside by the
Transportation Security Administration(TSA) and given a more thorough
search. During one pre-boarding search, a TSA agent told
her: You're on the list and Wolf learned it is not a list of suspected terrorists but of journalists,
academics, activists, and politicians who have criticized the White
House.
.
http://www.afterdowningstreet.org/?q=node/26399
.
.
NEW
RULE WOULD TRANSFER NO-FLY LISTS FROM AIRLINES TO FEDS
By
Margaret Allen - September 23, 2007
.
The
world's air carriers are formulating reaction to a move by the federal
government to take over terrorist watch list screening of their
passengers. In late August the U.S. Department of Homeland
Security filed its official notice of proposed rulemaking, which had
been anticipated for some time. The airlines -- largely through the
anonymity of their industry trade groups -- and any other concerned
parties are on notice now to file their comments on the proposed rule
by Oct. 22. Since 2005, travelers have been screened by the airlines,
which match names against a master list supplied to them by DHS's
Transportation Security Administration. Some 2.4 million travelers a
day will be affected by the rule, DHS said.
.
Under
the proposed rule, which would affect passengers in 2009, airlines
would forward to TSA for screening all passenger information they
gather, according to the filing. Even those air carriers that fly
over the lower 48 states, such as a flight from Canada to Latin
America, would be required to submit passenger data to TSA. It
raises, certainly, some data privacy issues, Lott said. We're
concerned why the U.S. government would need passenger information on
passengers with no plan to step foot on U.S. soil. San
Francisco-based Edward Hasbrouck, a prominent world travel Web
authority widely respected as an expert on international travel,
consumer rights and privacy, was set to comment this week at a TSA
hearing Sept. 20 on the proposal. In comments to the Dallas
Business Journal, Hasbrouck roundly criticized the rule, saying it sets
no boundaries on how long airlines retain personal data they collect,
nor limit what they do with it.
.
The
rulemaking is silent with regard to what happens to the data, Hasbrouck
said. That data is worth billions of dollars. It's a
government-compelled theft of billions of dollars of information, with
no restrictions. He also criticized the rule as an infringement
on civil liberties and the right to travel. Hasbrouck condemned
what he said would in the future be a permission to travel
system. This is a fundamental change in the system, he said,
noting the current system looks for people barred from flying, while
the new system requires each traveler to receive TSA permission to
board. TSA didn't return calls seeking comment.
.
http://www.msnbc.msn.com/id/20951244/
.
.
SUBPRIME LOAN CRISIS CAUSES BIG PROBLEMS
FOR CITIGROUP AND UBS
By Eric Dash and Julia Werdigier,
October 1, 2007
.
Citigroup
issued a profit warning today, estimating a 60 percent drop in
third-quarter earnings because of write-downs for securities backed by
subprime mortgages and loans tied to corporate takeovers.
Separately, UBS, Europe's biggest bank, predicted an unexpected loss in
the third quarter because of a $3.42 billion write-down for the value
of mortgage-backed securities and announced a management
shake-up. Citigroup said it would write down about $1.4 billion
on loan commitments and would record losses of about $1.3 billion on
the value of securities backed by sub-prime loans. It will also record
a loss of $600 million in fixed-income credit trading because of market
volatility. At UBS, the bank said it plans to cut 1,500 jobs and
that Clive Standish, its chief financial officer, and Huw Jenkins, the
head of its investment bank, are stepping down.
.
http://www.iht.com/articles/2007/10/01/business/web-profits.php
.
EDITORS NOTES:
Merrill Lynch, the well known American brokerage firm, recently
announced losses of over 5 Billion Dollars, due directly to sub-prime
mortgage problems. Five Billion Dollars, with a B - and that's no
bull.
.
.
WHEN
CENTRAL BANKS PLAY WITH FIRE - By Axel Merk,
September 28, 2007
.
In
our assessment, the US Federal Reserve's interest rate cut was wrong.
Forget about the moral hazard of whether the cut would plant the seeds
for further bubbles. Lowering interest rates is wrong because it will
do few any good, but cause harm to many. As the most imminent
result, the US dollar has accelerated its decline. When a country's
central bank cuts interest rates, it is rare that the currency reacts
in textbook fashion and declines more than a token amount versus other
currencies.
.
That's
because, among other reasons, lower interest rates may boost growth and
make the currency more attractive for investments. Not so this time
with the Fed's cut: lower interest rates are unlikely to boost economic
growth. The reason? The markets are facing a valuation problem, not a
liquidity problem. Will a sub-prime borrower be helped by the cut
in interest rates? Will his or her adjustable-rate mortgage that is
about to reset to a much higher rate suddenly become affordable? Will
mortgage derivatives suddenly become tradable? Or will these illiquid
derivatives be accepted as collateral once again for speculators to
borrow money? We believe the answer is a clear no because the problems
are prices, not access to money. To heal the excesses of the
housing bubble, we need lower home prices; sub-prime borrowers are best
helped by downsizing, not by receiving subsidies. There is no shortage
of consumers to borrow; there is a shortage of lenders to lend.
Conversely, there is plenty of cash around; it's just that those who
have cash are not willing to pay the prices demanded.
.
The
Fed's grave mistake was to lose control of money supply during the
credit-driven expansion. As volatility, risk and fear are returning to
and are priced back into markets, we are facing a market-induced credit
contraction. As investors pare down their leverage and demand higher
yields to be compensated for risk, the Fed is nothing but a small, and
in this case almost irrelevant, participant in the markets. It's in
this context that former Federal Reserve chairman Alan Greenspan is
correct when he laments in his memoirs that central banking is becoming
less important.
.
The
markets are facing a major challenge, though, if central bankers,
including Fed chairman Ben Bernanke, believe they are stronger than the
markets. Pushing liquidity at any cost when the markets demand a
contraction is what gold bugs have been waiting for; that's a positive
way of saying Bernanke may live up to his Helicopter Ben reputation,
flood the market with fiat money and risk further decreasing the
purchasing power of the US dollar.
.
http://www.atimes.com/atimes/Global_Economy/II28Dj01.html
.
.
WHY
THE HECK IS BEN BERNANKE CHANNELING STEPHEN KING?
September
26, 2007 - By Andrew Gordon
.
Some
of you may remember Ronald Reagan's famous question to voters during
the 1980 presidential campaign when he ran against incumbent Jimmy
Carter: Are you better off today than you were four years
ago? From trouble in the Middle East to runaway oil prices,
voters responded with a resounding NO! and voted Reagan the 40th
President of the United States. Now, 27 years later, the details
have changed, but the big picture looks frighteningly familiar. Instead
of trying to free Americans held hostage by the Ayatollah Khomeini in
Iran, we're trying to send home thousands of American soldiers fighting
in Iraq. And oil prices, which peaked in 1980-81, are peaking
once again.
.
The
market? Back then it was stuck in the mud, unable to make gains for the
previous eight years. And now? Well, it rallied about three
percent since the Fed lowered the benchmark interest rate by a
half-point last Tuesday. That's the upside. Unfortunately, it
comes with strings attached. For one thing, it opens the door to
inflation.
.
For
another thing, it may have put an end to a mild correction now. But it
also increases the chances of a much bigger correction later. If
you think things were getting bad, you haven't seen anything yet. A
recession means the job market contracting not just by 4,000 jobs, but
by tens of thousands of jobs. And if inflation is let loose by
the Fed's action, the price of oil could easily zoom past $100 based on
what the dollar was worth in 2006.
.
http://www.americanchronicle.com/articles/viewArticle.asp?articleID=38655
.
EDITORS NOTES:
It has also been reported recently that the US Federal Reserve has
injected $38 billion additional money into markets during the last week
of September 2007 alone. The Federal Bank of New York added six
billion dollars in 14-day repurchase agreements, 20 billion dollars in
14-day repurchase agreements, seven billion dollars in seven-day
repurchase agreements and five billion dollars in one-day repurchase
agreements. That's a whole lot of grease to be throwing on the
griddle, or stated another way, we can speculate that is one heck of a
barbecue they are planning - or should I say barn-fire?
.
According
to the measuring worth website (see the link below), the question is
asked: How much money would you need in the year 2006, to have
the same purchasing power of $500 in year 1970? The answer is
$2,595.26 It has also been calculated that one US Federal Reserve
Note with a stated value of ONE
Dollar in 1913 (the year the Federal Reserve was created) would
be worth FOUR
CENTS in 2001. I wonder what it would be worth now, in
2007? In less than 100 years, the paper money has lost something
close to almost 100 percent of its value. It did take the Romans
500 years to completely devalue the Denari, so I suppose we are making
progress in the current and modern world of ours.
.
http://www.measuringworth.com/ppowerus/
.
.
QUOTE OF THE MONTH: Every time history
repeats itself, the price goes up.
.
Speaking
of which, the following news item may be of interest to you:
FINANCIAL CRISES: LESSONS FROM HISTORY
.
http://news.bbc.co.uk/2/hi/business/6958091.stm
.
.
CANADA
DOLLAR SURGES PAST WEAK GREENBACK, BONDS UP
September
28, 2007
.
The
Canadian dollar surged past a hobbled U.S. dollar on Friday, as the
market ignored some softer-than-expected figures on the Canadian
economy for July and focused on sizzling commodity prices.
Canadian bond prices rose on the domestic data. The currency is
near its 31 year high of US$1.0064. It reached parity with the
greenback for the first time in 31 years last week and has done so
several times since, but has so far been unable to close above that
level.
.
http://today.reuters.com/news/
.
EDITORS NOTES:
The nerve of those Canadians. The first time in 31 years the
Canadian Dollar is worth more than the US Dollar. And those rice
farmers in Vietnam are buying BMW's and Gucci sandals for cash.
What is the world coming to? Where is Andrew Jackson when you
need him?
.
.
READERS
WRITE IN:
.
Just
got your latest newsletter with the changes in immigration which now
requires $2,000 a month income. I considered applying for some time
(result of getting your mailings) but that means I would not qualify
now since that is more than my Social Security. Did they do away with
the old system of putting $15k in the bank and having a guarantor.
.
EDITORS REPLY:
This is not the first letter we received about this, so I decided to
reprint it so I can answer a few people all at once as obviously many
people are confused about this new process that is available in the
Dominican Republic. Which is to say, the regular or previous
process or requirements still are in place or still exist (whereby one
must demonstrate economic solvency and a guarantor). This new
program or process was initiated (I believe) to compete with the
programs in Costa Rica and Panama, in terms of specially attracting
retirees, or those people with some sort of stable passive income (who
may not be of traditional retirement age, but have the where-with-all
to retire early none the less). However, while this new program
is extremely attractive to the younger 40 something business owner that
managed to sell his business (and only one example of the kind of
person that would find this appealing), the still existing normal or
regular process is not unattractive for everyone else either. In
other words, when you compare the requirements and time lines in
other jurisdictions, the Dominican Republic still remains to offer a
process that is both reasonable and attainable for middle class
citizens coming from North America or Europe.
.
.
ANOTHER
READER WRITES:
.
EXCELLENT
as Always! Your talking point about the 80 year old man was
excellent! I agree with you whole heartily! I have a friend who
was a nurse in the US and hurt his back and is on disability. He
receives only 800.00 per month. On that amount of income his life was
one big hardship living in the US. He moved to Philippines were
he rents out a house for 90 US per month and can afford to go out to
dinner, go to the movies a few times a week, buy clothes etc. He misses
the US sometimes but he could not survive here. And you are right, it
is more common than not. Keep up the great work, I enjoy your
newsletter so much!
.
EDITORS REPLY:
Thank you for writing in. It is indeed too bad one has to find
the affordable middle class lifestyle, or maybe even better said simply
survival, in another foreign country, but as the French would
say: C'est La Vie.
.
.
ANOTHER READER
WRITES:
.
Dear
Mr. Schroder - I receive a Government Pension which is in Deficit for
more than 60 MILLION DOLLARS. I decide to contact you because,
Even some professionals do not know how IRS operates for retiree living
abroad. Thanks you for any information you could find to clarify
this issue. It will be very appreciated.
.
EDITORS REPLY:
According to the IRS website, the following questions and answers are
offered directly (see link below):
.
Question: I am a U.S. citizen who
has retired, and I expect to remain in a foreign country. Do I have any
further U.S. tax obligations? Answer:
Your U.S. tax obligation on your income is the same as that of a
retired person living in the United States.
.
Question: Are U.S. social
security benefits taxable? Answer:
Benefits received by U.S. citizens and resident aliens may be taxable,
depending on the total amount of income and the filing status of the
taxpayer. Under certain treaties, U.S. social security benefits are
exempt from U.S. tax if taxed by the country of residence.
Benefits similar to social security received from other countries by
U.S. citizens or residents may be taxable.
.
http://www.irs.gov/publications/p54/ar02.html#d0e7799
.
The
bottom line is, in plain English, the IRS considers your Social
Security or other Pension Benefits subject to US taxation regardless of
where you are living, and if you have a pension coming in from another
country - that might be taxable as well. With respect to the
information we provided about the new tax benefits offered to retirees
and investors living from any passive income for the Dominican
Republic, the Dominican Republic is NOT going to tax you on this
income, but the US government will continue to do so (even if you are a
green card holder or permanent resident that has decided to return back
home to the Dominican Republic, assuming you are a Dominican Citizen in
such a case, Uncle Sam still wants his pound of flesh). It
is interesting to note that if you earn between zero and US$7,500 the
US tax rate is 10 percent. If you earn between US$7,500 and
US$30,650 your tax is US$755 plus 15 percent of the amount over
7,550. Assuming the average person is getting US$900 per month
from social security, that comes out to US$10,800 yearly, of which the
tax liability would be $1,242 or US$9,558 AFTER taxes. I
challenge anyone to live on US$9,500 in the US and unfortunately I
think many people are starting to question the Social Security program,
for a number of reasons.
.
While
there is not much you can do about any social security benefits (what
they might be, and if you will be taxed on such income or not), if you
are a participant in a US company pension or annuity program, you may
want to consider taking a lump sum distribution if it is available (all
depending upon the amount and if you do not loose out in doing
so). Why? Because there may be some strategies to employ
with these funds, or better said all depending how you reinvest these
funds, to reduce or defer US tax obligations accordingly. Of
course, as you say, if the government program is already in deficit by
60 Million Dollars, and if they stop cutting checks as a result, then
of course the tax on zero income is zero. Hopefully it will never
come to that.
.
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