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Our November 1, 2006 Newsletter Edition
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IN THE NEWS:
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30 SECOND GUIDE TO GLOBAL INFLATION
This-is-Money - 25 October 2006
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Americans have had the world's fastest-expanding waistlines for a
while, but now they've got another problem: prices are also
ballooning. According to Credit Suisse, the US is contributing
half of the world's inflation, partly thanks to rather lax
interest-rate policies in recent years.
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http://www.thisismoney.co.uk/news/columnists/
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SURVEY: FEWER QUALIFIED WORKERS BEING FOUND
Central Valley Business Times - October 24, 2006
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Assuming you're qualified now is a pretty good time to be looking for a
better job, according to a survey by Manpower Professional, a division
of Manpower Inc., of Milwaukee. It's a job seeker's market for
educated professionals like accountants, engineers and nurses, it says,
basing its comments on a recent survey. With 45 percent of
employers reporting difficulty filling these types of positions, the
United States is among countries with the most serious talent
shortages. The tight supply of professionals is putting upward pressure
on wages with 38 percent of U.S. employers paying higher wages for the
same positions compared to the previous year. This is a good time
to be in the job market -- if you have the skills that employers want,
says Jonas Prising, president of Manpower North America. In the U.S.,
we've been seeing shortages in specific skill sets such as IT and
engineering. At 45 percent, the U.S. trails only Peru (46
percent) and is tied with Japan among countries reporting the most
difficulty finding qualified professionals. Mexico is close behind at
41 percent. Globally, 29 percent of employers are unable to find
qualified talent and 25 percent indicate that talent shortages are
causing them to pay more for the same job than a year ago. The
latest survey results build on the findings of Manpower's Talent
Shortage Survey undertaken earlier this year, which revealed that many
of the hardest to fill jobs among U.S. employers were positions
requiring advanced training and skills, including sales
representatives, engineers, nurses/healthcare workers, IT and
production technicians and accountants.
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http://www.centralvalleybusinesstimes.com/stories/
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EDITORS NOTES:
I have to admit this is all very confusing. Here we have a case
whereby they say there is a professional labor shortage (where did all
the people go?) and wages are now being pushed up, yet we gave you some
other statistics from Business Week in recent newsletters that claim
professional wages have actually decreased for some of these very same
professions (in part due to lower wages available in outsourced
nations, such as foreign IT people working for US firms in
India). So, who is correct? Is there really a shortage of
qualified people who want to work in the US - or is this making the
case to simply open up the border and allow Mexican Nurses, Accounts
and IT Staff in to fill the shortage? This is all very confusing
and contradictory stuff to say the least. It would seem that
somebody is fibbing. The above article claims that the hardest to
fill jobs among U.S. employers were positions requiring advanced
training and skills, including sales representatives. Are they
kidding? US companies cannot find sales representatives?
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LATINO WORKERS SEND $60 BILLION HOME
Chicago Sun Times - October 19, 2006
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WASHINGTON -- Latin Americans working outside their countries will send
$60 billion home this year, a 12 percent increase over 2005, the
Inter-American Development Bank said Wednesday. The bulk of the
money, an estimated $45 billion, is being sent by the 12.6 million
immigrants from Latin America who ship money home regularly from the
United States, the organization said in a report based on surveys of
immigrants in New York, Los Angeles and Miami.
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http://www.suntimes.com/news/nation/
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POVERTY IS RELATIVE - Latinos Defy Downtrodden Status, Sending Their Successes Home. By Marcela Sanchez, Friday, October 20, 2006
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WASHINGTON -- The cat is out of the bag -- the majority of Latino
immigrants in the United States are poor. By one calculation, up to
three-fifths are working poor or lower middle class, with annual
incomes of less than $30,000. The bad news seems worse when one
considers that as Hispanics gain in the U.S. population, the share of
Hispanics in poverty doubled from 12 percent in 1980 to 25 percent in
2004. Recent immigrants fared worse. In 2006, the U.S. government drew
the poverty line at $20,000 annually for a family of four, or a little
more than $1,600 a month. But for those newly arrived from Latin
America, the average monthly salary was $900, according to a new report
released this week by the Inter-American Development Bank (IDB). If
immigrants, especially Hispanics, are card-carrying members of the U.S.
underclass, society at large is having a hard time convincing them of
it: Latino immigrants are too busy working, buying cars, purchasing
homes, and even investing abroad. Such a lifestyle is not exactly
the picture of poverty. The poor are supposed to be the down and out --
the hungry and depressed standing in bread lines. Under this
stereotype, they struggle for basic goods and services and are left
outside the mainstream, unable to get ahead. Yet observers of the
Latino experience in the United States say that Hispanic immigrants
generally don't fit this mold for two basic reasons: choices and
attitude. Immigrants cut what corners they can to keep rent, health
care, sundry expenses and taxes to a minimum. They also leave family
behind, clearly the most painful among their money-saving strategies to
reduce the number of dependents in the United States. The income
they pull together from their jobs is pumped into work-related expenses
and living essentials, putting 90 percent of their earnings back into
the U.S. economy, according to the IDB. Most of the rest of their
incomes they invest in their homelands as remittances.
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http://www.washingtonpost.com/wp-dyn/content/article/2006/10/19/
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WIRE-TRANSFER CRACKDOWN BY ARIZONA IS CHALLENGED
By Randal C. Archibold, October 19, 2006 - New York Times
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In a campaign to choke off smugglers' finances, the Arizona attorney
general in recent years has periodically seized money wired in large
amounts from people outside Arizona, and even some money sent from
other states to Mexico. The authorities have amassed $17 million
in four years from suspect transfers, singling out those exceeding $500
and believed to be sent as payments to smugglers who have just
transported people or drugs into Arizona, the busiest illegal crossing
area on the border. But the effort has come under legal attack,
first from Western Union, which handles most of the transactions, and
now through a federal lawsuit filed yesterday in Phoenix by three legal
immigrants and an immigrant advocacy group representing the immigrants.
They say their transactions are legal and have been caught up in the
campaign of the attorney general, Terry Goddard. They just
decided it was a lot easier to sweep everybody on in and make people
prove their innocence, Matthew J. Piers, a lawyer representing the
plaintiffs, said at a news conference in Chicago, where the advocacy
group is based. Mr. Piers and the advocacy group, the Illinois
Coalition for Immigrant and Refugee Rights, said the three people
filing suit were legal immigrants who had wired money for legitimate
purposes but who for plausible reasons could not satisfy demands for
information on the transfers.
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One plaintiff, Javier Torres of Burbank, Ill., said he had resold a
car he had just bought and transferred ownership documents before law
enforcement officers demanded them as proof that his wire transfer was
legitimate. The two other defendants -- a woman from North
Carolina and a woman from California -- had wired money to relatives in
Arizona and Mexico, and said they could not meet officers' demands to
speak with the recipients of the transfers because the relatives did
not have telephones and the women had lost track of them. Joshua
Hoyt, executive director of the Illinois group, said it was
investigating other cases, including some referred by Western Union.
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http://www.nytimes.com/2006/10/19/us/19arizona.html
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MORE ABOUT MONEY TRANSFERS BY IMMIGRANTS
By Dennis Wagner - Oct. 18, 2006
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Several years ago, task force investigators began obtaining warrants to
freeze suspicious wire transfers. Recipients cannot get their money
unless they demonstrate to police that it is legitimate. Unclaimed
funds are forfeited under racketeering statutes and used for law
enforcement. Goddard said wire transactions are screened to avoid
interfering with legitimate commerce. However, some advocacy groups for
Hispanics and immigrants claim benign transfers are getting
snagged. Juan Salgado, executive director at Chicago-based
Instituto Del Progresso Latino, said he is concerned that Western Union
customers are being profiled based on their last names. Once
you've become a target, he said, it's very difficult to get your money
back.
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http://www.azcentral.com/news/articles/1018remittances-online.html
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EDITORS NOTES:
The Los Angeles Times, in another article on the same topic, claims
that money was seized from residents in Alabama, Arizona, California,
Colorado, Delaware, Florida, Georgia, Illinois, Indiana, Kentucky,
Maryland, Minnesota, Nevada, New Jersey, New York, North Carolina,
Ohio, Oregon, Pennsylvania, South Carolina, Tennessee, Texas, Utah,
Virginia, Washington and Wisconsin - and so far US Government Officials
have helped themselves to 17 Million Dollars
of it. Interestingly enough, the US has had issues with illegal
aliens for years, and years and years. Granted, the problem has
probably become exponentially worse over the past 5 to 10 years and
recent amnesty programs have only further encouraged it (why go through
the normal and lengthy process when you can simply slip through, hang
around for awhile and are granted residency just the same?). On
the same token, the issue of immigrants (illegal or not) sending money
back home every month is nothing new either. So, what is
different today? Simply said, it would seem to be the sheer
numbers of both (the amount of illegal immigrants supposedly inside the
US, and the amounts of money they generate and send back home).
One must ask the question, if coyotes (the two legged kind) have been
around for say thirty years if not more, helping Latino migrants slip
past the border patrol - why all of a sudden is there such a concern
NOW to somehow stop these guys? We can also ask - Is it really
the coyotes they are worried about, or it is all that cash flowing down
to Latin America (earned we can assume via the honest hard labor of
these illegal workers as opposed to some other kind of illicit or
illegal means)? Why does anyone care if Jose, the illegal
immigrant farm worker, sends money earned, by picking vegetables, home
to momma every month? Would it be better if he were out robbing
people instead?
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In any event, regarding this entire effort to seize funds, they CLAIM
this is stop illicit money transfer activity related to human
trafficking of illegal immigrants, and that any transaction over US$500
is suspect. In other words, publicly the official version of all
this is meant to financially starve off the coyotes (traffickers who
assist illegal immigrants to cross the border), or so they claim.
Of course a similar argument was used in the past to basically
eliminate whatever little amount of banking privacy (and innocent until
proven guilty paradigms) may have existed in the past as it pertains to
fighting the drug traffickers. In regards to this, I ask the
question - has illegal drug usage gone down? Why is heroin a new
problem once again, and how is it possible that 90 percent of the world
heroin production in 2006 comes out of US controlled Afghanistan?
Is it the drugs or is it the movement of money that is the real
concern? Is it the coyotes, or is it the flow of liquid assets
out of the country the real issue? Personally, I do not think
politicians give a hoot about coyotes, were-wolves or anything else
related to the canine family. However, in the last newsletter we
did touch upon this recent North America Union or SPP thing, which
advocates an open border by 2010 anyway, so maybe that is the true
agenda and why such inattention. Granted, a supposed 700-mile
fence has now been signed into being by the US President but seeing in
believing. However, I believe the idea of a fence or no fence,
so-called undocumented workers, or not - is not really the concern
here. It is instead the confiscation issues.
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In a country that supposedly prides itself on rule of law - Where does
any government organization get off seizing money of private citizens WITHOUT proof of anything, and THEN say it will be returned ONLY
if the sender can provide proof that such funds are legitimate.
This is tantamount to claiming that you are declared guilty until
proven innocent and, once again, an extension of the previous court
rulings that claim seizure of assets under such a premise is
constitutional and legal (whereas supposedly incarceration of a human
being requires legal due process, although the new tenants of the
Patriot Act has taken care of that). So, the bottom line, your
assets and your money can be seized or shall we say, incarcerated
without due process of law, and if you do not respond with proof within
a stated period of time, then those assets are forfeited (it becomes
the property of Uncle Samuel).
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Once again, here are some things that blaringly garner my attention in
all this. First off, the fact that 45 Billion Dollars (that is
Billion, with a B) are flowing out of the US is the real issue here (or
the real sore point) - and if you add up the amounts from Europe and
elsewhere, the sum is US$60 Billion. In other words, it's all
about the money folks (and I guarantee they do not stop Western Union
transfers going the other way, from Latin America TO the United
States). So, Jose sends US$600 to momma back home in Honduras and
this offers up the profile of so-called illegitimate funds? There
are arguments by some that claim it is somewhat unfair in that
immigrants (illegal or not in some cases) come to America or Western
Europe, earn money, and then send it back home offering an economic
boost to their previous country. I understand the argument, but
then again, according to the above news story, immigrants (illegal or
otherwise) do of course spend money in the local economy where they are
working and do circulate it back it to the economy as well. HOWEVER,
I am much more concerned about what legal standard is being set for the
future with issues that go beyond just immigration. In addition,
are these governments honestly that broke and have no shame what so
ever to outright take the legally earned money from individuals?
Under some definitions, this can be called stealing or in the least, a
blatant abuse of citizens rights inside a so-called free
country.
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In my opinion, this is just another extension of the continued and on
going confiscation racket started a few years ago by various US
government agencies (all done without warrant or judicial order,
without a jury trial convicting any person of wrong doing). One
recent blatant abuse involves eminent domain and the seizure of homes
or other private property, and now this. I tend to think it only
a matter of time before other kinds of seizures for asset transfers,
bank wires, western union and otherwise are in the works, all done
under some other pretense or ruse. We highlighted complaints by
politicians in our previous issue about tax havens. Perhaps I
have sounded like the proverbial chicken little at times, but if you do
not have a banking relationship abroad (with some funds tucked away) or
a second passport (which is often enough needed these days to get a
bank account open in many other countries if you are an American) - the
clock may be ticking down to a day when it is too late or
impossible. Which is to say, if a Latino immigrant is held to a
standard whereby his or her assets are simply taken away under the
premise they MIGHT be sending
funds to pay a human smuggler, how much of a stretch is it really to
confiscate wire transfers of native born citizens abroad, assuming any
and all such transfers must be related to some nebulous activity (tax
evasion, for example). Suppose you wanted to purchase a second
home in the Caribbean, and wired funds to make that purchase - only to
find those funds taken away by some government official (and whereby
you are assumed guilty of something, with your money taken away, until
proven innocent). Again I ask the question: How broke are they
really, and how desperate are they really as well? Is this the
kind of thing that goes on in a free country, or is there another
agenda here they do not want to admit? Things must be really bad
if they have to start stealing (or I should use the term involuntary
contribution instead, as of course government never steals) a few
hundred dollars from Mexican immigrants - or am I stretching the point
a bit too much?
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BONO, PREACHER ON POVERTY, TARNISHES HALO WITH IRISH TAX MOVE
By Fergal O'Brien
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Oct. 16 (Bloomberg) -- Bono, the rock star and campaigner against Third
World debt, is asking the Irish government to contribute more to
Africa. At the same time, he's reducing tax payments that could help
fund that aid. After Ireland said it would scrap a break that
lets musicians and artists avoid paying taxes on royalties, Bono and
his U2 band-mates earlier this year moved their music publishing
company to the Netherlands. The Dublin group, which Forbes estimates
earned $110 million in 2005, will pay about 5 percent tax on their
royalties, less than half the Irish rate. Among the wealthiest
people I suppose it's the norm, Jill Cassidy, 23, said on South King
Street near a plaque marking the site of Dublin's Dandelion market,
where U2 played some of its earliest concerts. In U2's position,
it does come across as quite hypocritical. The tax move has
tainted the image of Bono, nominated for the Nobel Peace Prize, and U2
at home. Now promoting a new DVD, book and album, the band is fighting
back. Lead guitarist David Evans, known as The Edge, earlier this month
defended the publishing company's move as a sensible decision for a
group that makes 90 percent of its money outside Ireland. Our
business is a very complex business, Evans said Oct. 2 on Dublin radio
station Newstalk, breaking the band's silence after weeks of public
criticism. Of course we're trying to be tax-efficient. Who
doesn't want to be tax-efficient?
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http://www.bloomberg.com/
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EDITORS NOTES:
We reported to you a few issues back regarding similar moves made by
the Rolling Stones and how that has allowed for a tax bill of a single
percent on worldwide earnings as a result of various offshore entities
and other moves (such as recording in Canada instead of the US), so
this should be no surprise. My favorite quote is the last line:
Who doesn't want to be tax-efficient? Indeed. While I
understand the criticism of Bono and U2, whereby there is an apparent
hypocrisy of pushing for more foreign aid and debt relief when at the
same time attempting to pay as little taxes as possible - I also
understand that no one in their right mind wants to go broke
either. We have talked about the trend of higher and higher taxes
(and or borrowed money instead of tax increases temporarily - for the
moment, with higher taxes coming soon) to pay for the costly promised
welfare state obligations to citizens (government pension, national
health care, etc.) in addition to what ever other government
expenditures and largesse (the ongoing and very, very expensive
occupation in Iraq, not to mention all the recent military bases
constructed to protect oil interests). In addition, there are
some seriously difficult demographics (very large number of citizens
who are becoming elderly with low or disproportionate numbers of
younger people working and paying into the system to keep it solvent -
- - this is part of the motivation for a blind eye towards illegal
immigration by the way, to increase the percentage of younger workers
paying in - and in the case of illegal aliens, paying in using fake
documents which means it becomes free money for the government as such
workers can never claim the funds back later on). At the same
time, as many of the middle class find themselves going broke, facing
higher tax bills, lower wage earnings (if they can find a job at all,
forget about applying at General Motors or Ford) and higher cost of
living in part due to inflation schemes by the central bankers -
expatriation becomes the only tangible option. Then again, as
more and more people figure out the only way to survive is to leave
(and or set up offshore companies, etc. such as U2) - the draconian
backlash is criticism and crackdown on such moves, rather than to FIX
the real problem in the first place. Which is to say, the problem
will not be fixed, but instead the only goal will be to stop citizens
from escaping or finding refuge (so they can be held captive and
squeezed like a grapefruit even further, or using another analogy -
burning the household furniture to heat the house, that is until the
furniture or money runs out that is).
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Some current and interesting books to read are: Screwed - The Undeclared War Against the Middle Class by Thom Hartmann, American Theocracy by Kevin Phillips and The Global Class War
by Jeff Faux. Some of these writers are quite liberal (Thom
Hartmann) and some are very conservative (Kevin Phillips, who used to
be a strategist for the Republican Party) but regardless of the
leanings, the statistics, demographics and problems are very real and
reviewing the research done by these authors will shine some
light. However, the only comment I can make about many of these
kinds of books is that it is often the case that the solution presented
is a call for citizens to become pro-active in politics, or some
specific domestic suggestions in terms of investments. My view is
that the aging populations and the levels of debt (both governmental
and private) cannot be combated or addressed by simple activism
(standing in a picket line will not pay off the debt nor turn back the
clock for many aging older people). In addition, the policies
regarding free trade agreements and open borders plus the print till
the ink runs out mentality of the central banks (US Federal Reserve)
are already too entrenched, and are certainly supported by factions far
stronger politically and economically, than you or I. In any
event, they say the first step in avoiding a trap is, knowing of its
existence - Sounds about right to me.
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LIFE WITH FIBROMYALGIA SYNDROME
By Doug Bower - September 24, 2006
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The number-one question posed to my wife and I when strangers find that
we live in Mexico is: What made you decided to move to Mexico?
The answer is painfully simple. I am afflicted with an incurable
pain syndrome that tortures me night and day. The treatment was too
expensive in the United States. So, we had to find a place where we
could afford to treat the disease and move there.
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http://www.americanchronicle.com/articles/
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EDITORS NOTES:
In the last newsletter, we gave you a story about an American traveling
to India to save on health care costs. Here we have a gentleman
that says in terms of his expatriation to Mexico, that he had to find a
place he could afford, both in terms of general cost of living AND
healthcare costs. Not Kansas, not Iowa, not Montana, not sunny
Florida - but rather Mexico. The politicians want you to believe
ALL expatriates are evil anti-social individuals trying to get out of
paying taxes. It is all about economic survival, and nothing more
(and cheaper healthcare costs as well).
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DEFICIT SPENDING AND SOCIAL SECURITY
By: Ron Paul - 10/10/06
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During a speech in Washington last week, Federal Reserve Chairman Ben
Bernanke warned that the coming retirement of the Baby Boomer
generation will place tremendous strains on the nation's budget and
economy. He stresses that Social Security and Medicare must be reformed
sooner rather than later, because demographic trends make the current
system unsustainable over time. In future decades there will be too
many retirees and not enough younger taxpayers. Still, the
problem seems vague and faraway for most. Today's seniors hope the
system will hold together for the remainder of their lives, while
younger working people hope government will somehow fix things before
they retire. Not surprisingly, Congress doesn't want to face the
problem until it becomes an acute crisis.
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http://www.smallgovtimes.com/story/06oct10.deficit.spending/
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DRIFTING TO FUTURE BANKRUPTCY
The Philadelphia Inquirer - October 22, 2006
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The status quo, we're led to believe, is the safe bet, the conservative
option, the riskless alternative. But when the status quo involves
driving off a cliff, maintaining it is the risky, radical, indeed,
suicidal choice. The United States is now engaged in such staticide -
the maintenance of a suicidal status quo. Its policies are driving the
country to fiscal, financial and economic ruin. The only question is
when the crash will occur and which households and businesses will be
in the passenger seats. Financial markets have, it seems, no
inkling of what's coming. But these markets often need a two-by-four
across the forehead to come to their senses. This is one of those
times. Long-term U.S. Treasury Bonds are yielding 5 percent when, in
fact, the United States is facing bankruptcy. Bankruptcy may seem
a strong word, especially when the economy is booming, the deficit
shrinking, and the Dow nuzzling 12,000. But economic growth and rising
stock markets don't preclude economic collapse. Recall: The Great
Depression followed the Roaring Twenties. Or consider Argentina's
decade of outstanding growth and stock market appreciation before going
belly-up in 2002. As for the deficit, it's a figment of
government fiscal labeling with no economic content. If you want to
talk turkey with respect to our nation's finances, consider the U.S.
fiscal gap, which measures the present value difference between Uncle
Sam's projected future expenditures and tax receipts. It stands at $63
trillion! This figure captures all implicit as well as explicit U.S.
liabilities and comes by way of a highly reliable source - the U.S.
Treasury. Former Fed and Treasury economists Jagadeesh Gokhale
and Kent Smetters initially measured the U.S. fiscal gap in a highly
detailed 2002 U.S. Treasury study commissioned by then-Treasury
Secretary Paul O'Neal and approved by Fed leader Alan Greenspan. The
study, which showed a $45 trillion gap, was censored the day O'Neal was
fired (actually drop-kicked) by the White House. Four years
later, after more tax cuts, huge discretionary spending increases, the
dramatic expansion of Medicare to cover prescription drugs, and the
accrual of interest, Gokhale and Smetters put the fiscal gap at $63
trillion. This figure is massive. If anything, it's an underestimate
since it relies on highly optimistic longevity and health-care spending
assumptions. Another way to assess U.S. insolvency is to consider
the immediate and permanent fiscal adjustments needed to close the
country's fiscal gap. Here are some options: 70 percent increase
in personal and corporate income taxes; 109 percent hike in payroll
taxes; 91 percent cut in federal discretionary spending; or 45 percent
cut in Social Security and Medicare benefits.
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Adopting any of these policies or some combination of them would be
incredibly painful. Waiting is no alternative. It just makes the
requisite adjustments larger and more painful. What about
economic growth? Can't the United States outgrow its obligations?
Theoretically yes, but practically no. The postwar norm is for senior
benefits to grow roughly twice as fast as the economy. Yes, there are
ways to restructure U.S. entitlements to limit benefit growth and still
save the day. But Washington has no appetite for anything radical.
Indeed, Washington's concerted approach to our nation's
demographic/fiscal crisis is to ignore it. This "What? Me Worry?"
attitude is in marked contrast to that of America's trading partners in
Europe and Japan. These countries face much worse demographics. But
Japan, Italy, Germany, the United Kingdom, and other countries - even
France - have enacted major pension changes. And each of these
countries has direct control of its health-care expenditures.
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http://www.philly.com/mld/inquirer/news/special_packages/sunday_review/
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THE SHAPE OF THINGS TO COME: More debt, less agility and a whole lot more people.
By Jim Buchanan - October 22, 2006
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At 7:46 a.m. last Tuesday, the population of the United States topped
300 million. Considering the U.S. population as of July 1, 1901,
was 77.5 million, this counts as done-been-super-sized in my
book. I'm not exactly sure how the Census Bureau determined this
date and number, and am uncertain even as to whether No. 300,000,000
was born (one American every 13 seconds) or was what is termed a net
international immigrant (one every 31 seconds). Factoring in a
death every 7 seconds, there's an extra American every 11
seconds. So. What can these new Americans expect? If a slew
of stories that appeared last week are any indication, they can expect
to be broke and not all that nimble. You may have heard some
crowing last week from Washington, D.C. and surrounding environs about
the low deficit numbers for 2006. Although projected around $300
billion, the federal deficit instead checked in at $260 billion.
For a group of leaders who inherited a budget surplus of about the same
amount, you'd think such a deficit wouldn't be something to brag
about. You would be right. Plus, the actual deficit is
higher. Social Security, the program we keep hearing is broke, ran a
surplus of $177 billion, which was promptly borrowed and spent, putting
the actual deficit at $437 billion. (About one-third of the $2.4
trillion borrowed by the government since 2001 has come from the Social
Security Trust Fund). Come January 1, 2007, the U.S. debt will probably
hit $8.5 trillion. That's the good news. A report from McClatchy
Newspapers noted David Walker, Comptroller General, has tallied up all
the government's debts and future spending promises and arrived at a
figure of $46 trillion. That's something on the order of $155,000 for
each American. More to the point, it's the amount each new
American starts out in the hole. Get to work, new Americans! Be quick
about it!
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http://www.citizen-times.com/apps/pbcs.dll/
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OUTLAYS WILL LAY US OUT
By Chris Lester, October 17, 2006
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News that the federal government managed to trim its deficit to $248
billion during its recently completed fiscal year, while welcome, is
hardly cause for celebration. After all, would you throw a party
after spending at least 10 percent more than you were making -- year
after year after year after year? Forget I asked that.
Spendthrifts will always find an excuse. Just like our federal
government. The best news in the U.S. Treasury Department's
year-end tabulations is the simple but worthy message that economic
growth is good. The feds reduced the deficit by $71 billion on a flood
of tax receipts that are the fiscal result of the fifth year of an
economic expansion. Indeed, total federal revenues surged 11.7
percent last year, more than offsetting a 7.3 percent increase in
spending. As a result, we had the smallest ocean of red ink in four
years. Whoop-dee-doo. President Bush quickly reached for
the budget numbers to bludgeon his critics in the weeks leading up to
crucial midterm congressional elections. The budget numbers are
proof that pro-growth economic policies work, Bush said. Give him
some credit. He's got it half right. Corporate income taxes
collected last fiscal year surged 27.2 percent to $353.9 billion.
Individual income taxes jumped 12.6 percent to $1.04 trillion. And
social insurance and retirement taxes increased 5.5 percent to $837.8
billion. More modest increases in other relatively minuscule revenue
categories nudged total receipts to $2.407 trillion. Now consider
this. Total federal revenues have increased 35 percent since fiscal
2003, when Bush pushed through a round of tax cuts. Take a
moment. Let that sink in. Somewhere Arthur Laffer, who scratched out
his famous curve on a napkin over a meal at a luxurious Beltway
restaurant, must be smiling. Laffer's curve surmised that tax
revenues increase along an axis of rising marginal tax rates until
those rates get so high that they discourage economic activity. Beyond
that threshold, though, revenues will decline the higher you push tax
rates. For more than a generation now, tax cuts have generally
generated ever more revenues. Admittedly, at some point lower tax rates
could fall below the optimum level, resulting in a big decline in tax
revenues. The Laffer curve, after all, has slopes on both sides of the
revenue hump. And my hunch is current marginal rates aren't far
from the top of the theoretical hump in the Laffer curve.
Stripped of all the attendant political baggage over the purpose of tax
policy -- whether it is simply an instrument to raise revenues to pay
bills, or a method of shaping society through income distribution --
the Laffer curve has merit. But what really gets my blood
pressure up is the fact that we managed to run up $1.357 trillion in
additional deficits over the past four fiscal years, even as total
revenues surged 35 percent. That, my friends, is an outrage. In
fiscal terms, we've frittered away an entire economic growth
cycle. Although it's against my tightwad nature, I'm not opposed
to some deficit spending and debt if the money is used to enhance the
productive capacity of the nation. By that I mean education,
infrastructure, research and development, and the like. But
here's where the vast majority of our nation's treasure went last
year: Social Security Administration, up 4.3 percent to $585.7
billion, Medicare-Medicaid, up 7.9 percent to $562.4 billion,
Defense-military, up 5.3 percent to $499.4 billion, Interest on the
public debt, up 15.2 percent to $400.2 billion. Those four
categories of spending accounted for 77 percent of $2.654 trillion in
federal outlays during the past fiscal year. If you want a balanced
budget, look there. The message, I think, is painfully obvious.
Our deficit problem is primarily -- if not exclusively -- a spending
problem. And it threatens to haunt us for decades to come. Pick
your poison. Pay now. Or pay a lot more later.
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http://www.kansascity.com/mld/kansascity/business/15775053.htm
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EDITORS NOTES:
Well, how about another choice? Forget the poison (somehow my
mind drifts to images of Jim Jones and his Kool-Aid party in Guyana) -
and opt for a plane ticket instead. Brazil has nice weather, so
does the Dominica Republic, Argentina and Thailand - and things like
real estate, health care and general cost of living not too shabby
either. Think of Bono as you put a U2 CD into the old music
player while you make your relocation plans.
.
James Paulsen, Wells Fargo Bank economy strategist, and noted among
some people because one year-ago he boldly predicted oil prices would
fall and stocks would continue to deliver superior returns - has
said: The present recovery cycle, which began in March 2003,
tends to go through 120-day phases, but its undertow remains strong.
The ten-year yield, at 4.8%, is where it's been for the past 5 years.
Before this recovery ends or peaks, long-term borrowing costs will have
to increase. Fed interest-rate policy: We have got to go higher.
Core inflation remains and will continue. The US Dollar: The
dollar is going a lot lower. Trade deficit: Emerging economies have
been the beneficiaries of the record U.S. trade deficit, driving
worldwide economic growth, particularly in emerging markets. In a
stroke of unintentional genius, this policy will result in a huge
payback in coming years as the world's nouveau middle-class brings the
U.S. trade deficit down with their newfound wealth.
.
The only thing I take issue with is the last statement. One
assumes that governments and private citizens of developing markets,
former Third World nations or emerging markets (whatever you want to
call them) will be interested to purchase US government debt or invest
in the US in the future - But if the dollar continues to decline in
value against other currencies, is this a realistic assumption?
In other words, a drop in value of a nations currency is indicative of
inflation, something fixed income investors (people who buy government
bonds, bank CDs, and so on) tend not to take warmly. Paulsen says
that inflation is a sure thing and a devalued US dollar is as
well. He also says higher interest rates are a sure thing
also. If you re-read the above news article, it says that
interest on the public debt has increased by 15.2 percent to $400.2
billion dollars. Now, if interest rates go up even further - how
much more of a tax increase is needed, and how much more of a
percentage of the government budget is going towards interest payments
alone? Think about it. Will it be the case that very soon,
25 percent (or more) of your government tax payments will go to simply
servicing the debt owned substantially by Asian governments no less
(with no money or less money to be spend on education, roads, social
services and so on)? On another note, one thing I do find
fascinating is that Paulsen uses the term - the world's nouveau
middle-class when talking about citizens of so-called Third World
countries. So, does he also then admit or recognize that the
middle class is growing everywhere else, AND is disappearing in the
US? If so, this is quite an admission from an economist at a
major US bank.
.
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READERS WRITE IN:
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John: Thoroughly enjoy your newsletter. Today's U.S. banks
are required by the Fed Reserve to have a certain percentage of cash
reserves compared to cash transactions. I believe it is now 12%.
In reference to the '30s bank crash, the run on the banks was a huge
cash shortage by the banks and lots of people lost their savings.
Now to my question: What about the European banks? Are they
required to have 40, 60 or 80% of their cash flow as cash
reserves? Which one is considered the best bank in terms of
reserves? Swiss, Swedish?
.
EDITORS REPLY:
Well, this is an interesting question. I do not have the current
statistics to offer, but I tend to doubt that US banks keep 12 percent
of total assets on hand in cash in the tellers drawers. One thing
that is common among almost all so-called modern banking systems is
fractional reserve banking, so I do not think it too important to focus
on that per say if you want to know who has the most secure bank, or
banking system if talking about a country. Which is to say,
focusing on how much liquid cash any bank has on hand, be it 4 percent,
8 percent, or 12 percent is not as important to me as where the other
90 or so percent of the banks capital (or more correctly the savings
accounts owned by individual citizens) is invested or loaned out.
Instead, I would be more concerned about banking practices, types of
loans outstanding, sources of revenue, amount of leverage, equity or
lack thereof, and so on. In other words, if you are concerned
about a financial crisis, I think it safe to say all markets will be
affected one way or another if there is one. The question is, who
is in a better position to weather a storm? The problem with US
banks is that they derive an extraordinary amount of revenues from very
risky products and practices. Reduced or diminished profit
margins have pushed banks into higher profit, but higher risk lines of
business - and therein is the danger. The credit card business is
one example, (which is an unsecured loan without collateral), home
mortgages yet another (whereby a very large percentage involve no money
down, interest only kind of arrangements), and increased loans to hedge
funds (which is like loaning money for someone to gamble it in a
casino). In other words, when- the-you-know-what hits the fan, I
do think it is very possible that the banks will be stuck with
outstanding loans with nothing but thin air behind them. They
already know this is a danger and precisely why they pushed the US
Congress to change the bankruptcy laws in the US recently, so that now,
even if you declare bankruptcy, you are still on the hook for life for
the debt (much good it will do if all the filers are broke regardless,
making someone legally liable to pay off a debt and actually collecting
the cash are two very different things). However, even so, the US
banks have become somewhat smug about these dangers, because much of
this risky debt has been repackaged and sold off as sophisticated
packaged investments, so the risk so to speak has been dispersed among
investors, mutual funds, insurance companies, etc. Personally I
would not touch one of those CDOs (collateralized debt obligations) and
similar packaged investments involving credit card receivables.
They are illiquid (or will become illiquid very fast) and the first to
take a hit in a bad economy. Which leads to the point that
someone will take it on the chin, be it the banks, or be it individual
investors that have bought this garbage chasing yields instead of
safety, or more likely it will be both.
.
Not to go off on a tangent (but what else is new), there already have
been some very severe warning signs that should have been heeded by the
general public, the banking community and the regulators in Washington
- but have not been. First we had the Savings and Loan Crisis in
the US, which highlighted the shabby financial state of the government
run banking insurance programs. Next up, was the case of Citibank
in 1990, which almost faced insolvency (in part due to foolish
foreign loans) and was bailed out via a cash infusion by Saudi Prince
Awaleed Bin Talal (arranged for by the US Federal Reserve by the way)
and his investment company, Kingdom Holding, is probably still the
single largest shareholder of Citigroup. Yes, the Saudis own
Citibank, or a very good chunk of it. You see the interesting
things you learn by reading this newsletter?
.
Looking away from the banking industry for a moment, only to return
with a common point, is the fairly recent case of car products
manufacturer AC Delco, which declared bankruptcy in the US, with its
employee pension liabilities turned over to the tax-payer funded
Pension Benefit Guaranty Corporation (PBGC) - which in itself is close
to insolvency, while at the same time the company retaining its
profitable and unaffected China operations. What is the
point? With the unique exception of the Citibank situation,
private banks and private companies screw up, get into financial
trouble, and then the problem or risk is socialized. Meaning, the
taxpayer always foots the bill for a bailout but certainly they are
never given a share of the profits when times are good (I am not
advocating that they should, but taxpayers should not be handed a bill
for stupid business decisions of corporations either). The final
point being, many Americans sleep better at night thinking a major
banking crisis will never affect them, because of so-called government
insurance programs, and on the surface they might be right (they may
get a check, but where is THAT money coming from?). However, if
the central bank (US Federal Reserve) attempts to bail the banks out by
running the printing presses, then the average consumer suffers with
inflation and a devalued currency. If it is the case of a government
bailout, then the average taxpayer eventually will foot the bill by
paying even higher taxes to cover the additional government borrowing
that will assuredly be needed as there is not enough cash on
hand. Remember the REFCO bonds issued to pump cash into the
government bailout of the Savings and Loan industry? How much
money do you think the FDIC actually has? You should take a look
(the information is all public record). While it is true that US
banks and corporations are reporting record profits - how and where are
all those profits being derived? Looking under the hood, so to
speak, will offer a clearer picture of what is really going on.
Much of the profit hailed in these company reports have been generated
with credit card purchases by consumers, or lucrative taxpayer funded
government contracts. In other words, an economic recovery based
upon borrowed money or government money.
.
Getting back on topic, if we take a look at banking practices in Europe
and Latin America (Dominican Republic to be specific, as a banking
market I know well), you are going to see requirements of at least 15
percent going up to 50 percent (in some European countries) as a
required down payment in order to get a mortgage (in contrast to no
money down in the US, or some very low down payment requirement).
Apart from that - terms of 15 or 20 years is the norm in such cases as
well in Europe and elsewhere. In addition, there is no such thing
as second additional home equity loans in many markets, so homeowners
have not gotten themselves into financial trouble in these countries
because of it. In terms of Europe, most Europeans favor debit
cards rather than credit cards, which means they are spending what they
have in their savings or checking account and are not making simple
consumer purchases with borrowed money. Argentina is another
interesting banking market in that for some time the banks stopped
lending money altogether and ALL the real estate transactions in
Argentina were for CASH. Of course, this was a result of the
previous economic situation which the country slowly but surely has
worked out of. However, I think the banks in Argentina are
actually in better shape today because of the lessons they have
learned, and survived.
.
In any event, I would say look at these kinds of issues, which will be
more important as to how well any bank and the economy of any country
can weather such storms (countries whereby most of the local
transactions in the economy are for cash and NOT borrowed money, strict
lending practices whereby borrowers have to make a down payment and are
not over leveraged in general). Overextended levels of personal
debt and risky lending for stock purchases are part of the reason the
banks and individuals were in severe trouble in 1929. Now, the
levels of debt are even higher today, the regulations that kept banks
out of the securities brokerage industry thrown out the window (which
were put in place because of the 1930s Depression), and government debt
plus trade imbalances far, far, far worse than the case in 1929.
Debt is nothing more than a ticking time bomb, and lending by banks
with no money down or no equity requirements by the borrower a game of
Russian roulette as well.
.
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ANOTHER READER WRITES:
.
I have lots of money and I do not care about taxes - but I would like
to pay less in taxes without the US government asking questions as to
my finances such as where it came from, where it is, or how much I
have. Is it true that by opening an offshore IBC or LLC or
incorporation I can get a bank account in my company name and have a
nominee on the company name?
.
EDITORS REPLY:
Well, the common wisdom by some is that people invest offshore solely
for the purpose of evading or avoiding taxes, and that is not always
the case. Many of our clients have commented that they simply
want to conduct their affairs in private and in peace - without being
accused of criminality or other such premise simply because they have
some money. And if you think about it, common thinking seems to
have evolved to such a point, whereby if you do have cash (and not that
much of it really) then you must be a criminal. Better stated, it
would seem that making money and having cash is in and of itself
criminal, or leads to a high degree of suspicion, whereas drowning in
credit card debt and mortgage debt a good thing - and proof that you
are an honest, patriotic citizen. Which is to say, banks give you
all sorts of hassles when establishing a savings account, yet hand out
credit cards as if they were candy (and often enough, the only
qualifier is that you subscribe to National Geographic magazine or some
such affiliation - and the reason for the pre-approved ready to go
credit card delivered to your mailbox without you even asking for it).
.
In any event, the question you have is - Can you possibly establish a
company, foundation and or a simple stand-alone bank account without
some of these kinds of hassles? The answer is yes. Many
people have done so, and continue to do so today as well. Why are
these people setting such things up? This list is varied, but
certainly just like insurance, it becomes too late once a problem
occurs, which is why many people like yourself have decided it might be
better to be safe rather than regretful later on. In other words,
looking at the statistics and demographics, the time to plan is before
and not after. Will some of these debt and other problems
continue to mount? Will taxes go up and social benefits go
down? Will there be draconian crackdowns on moving money in the
future? Will you have to provide proof and a letter from your
priest confirming your morality simply because you happen to have a few
hundred dollars in cash to deposit to your savings account in the
future? Hard to say for sure, but certainly the current road
taken does not seem to lead to a very promising or favorable outcome.
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