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Our November 1, 2007 Newsletter
Edition
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DOMINICAN
REPUBLIC: THE NEXT DUBAI?
.
Dubai
is an interesting place simply because the leadership there has been on
a tact to diversify away from oil based revenue. Logically the
stuff is indeed running out, and unless sand starts to fetch similar
prices, there really is not too much they have to sell in the world
market (in terms of commodities other than oil). And so we find
the country of Dubai repositioning itself as a haven for banking,
investing, high-end real estate and in short, a somewhat unique
tax-free financial haven in the middle east. Of course, if you
bought real estate in Dubai ten years ago, you probably would be
patting yourself on the back today. Since then, prices of course
have gone through the roof making the costs out of reach for many
investors.
.
Along
these lines, we see some parallels in the Dominican Republic, as it's
leaders also have supported The Independent Financial Center of the
Americas, copied to some extent on what was done in Dubai, and is
labeled as a new international financial center at the heart of
the Americas. The Independent Financial Center of the Americas
will house private and commercial banks and an electronic exchange,
called LAIFEX. Mr. Gaetan Bucher, President of the Independent
Financial Center of the Americas commented: The Independent
Financial Center of the Americas is being purpose built from the ground
up: the legislation, regulation, operating systems and physical
infrastructure have been meticulously planned and researched. We are
applying the best practice of other financial centers, to create a new
model for the 21st century, which responds positively to greater
regulatory scrutiny and appeals to market participants operating in an
increasingly innovative marketplace. Of course, unlike Dubai, the
Dominican Republic already has a somewhat diversified economy to build
upon (tourism, banking, telecommunications, exports of sugar, coffee,
iron-nickel ore, etc.). What does this mean for you, the
individual investor?
.
Well,
one of the things happening right now is the accelerated development of
the real estate market on the southern coast of the Dominican Republic
(the Caribbean side where Santo Domingo, the capital of the country is
located and where the new financial center will be located as
well). Which is to say, investors in the past have traditionally
been focused on the north coast or the more tourist related areas and
as such have often overlooked or ignored the dynamics going on with the
South Shore. Indeed, this new financial center, estimated to cost
US$850 Million Dollars worth of infrastructure development is taking
place in the heart of a beach front area about 45 minutes outside of
Santo Domingo, and the local market there is a prime spot to take
advantage of this project in terms of real estate. But, that is
not the entire story. Real estate in the capital as well also
stands to benefit, not to mention the area we like to predict could
become the next Punta Cana (whereby you can still purchase beach front
real estate for about US$16,000 an ACRE, not a small house lot, but an
acre).
.
While
it is true that the new luxury sea view condos under construction and
located close to the new financial center are priced in the US$250,000
range (which is still a bargain when compared to similar high end
projects in the Punta Cana area), it is also true that you can find a
very nice and affordable home in the capital for less than US$150,000
as well. One of our clients, a retired couple, purchased a 2
bedroom home in a very nice middle class area of the capital recently
for US$95,000. Granted the place needed some upgrades, but for a
total of US$125,000 they got themselves a nice home, a brand new
kitchen and other major improvements in the process (and because the
home is valued at less than RD$5 Million Pesos, or less than US$150,000
they have NO or ZERO annual property taxes as well). Along these
lines, there are many reasonably priced and worth while real estate
opportunities to consider now on the south shore, including in the
capital, and we have been working with a number of clients with their
real estate purchases accordingly. Which is to say, if you are
looking for the next best place to invest in the Dominican Republic
(either as a current home or future appreciation), then the Caribbean
side of the country (the south shore) and specifically the coastal
environs extending out from Santo Domingo) may be one key location to
add to your investigation list. Remember that development can
move slowly in the Dominican Republic, but eventually it does
happen. Identifying a reasonably priced property or home now
means you can still participate in a growth market without breaking
your bank account (and while housing values continue to tumble in the
US, they continue to go up in other markers not embroiled with
sub-prime mortgage problems). The idea is to identify some of
these growth areas before everyone else does, and before the prices go
up later on.
.
The Dominican Republic, the
second-largest CAFTA economy after Guatemala, is slated for a GDP expansion of 8.0
percent this year and another 4.5 percent next year, the IMF
says. That means the 2007 estimate has been revised upwards from
the 6.0 percent predicted in July.
.
For
more information about purchasing real estate on the south coast
(Caribbean side), please contact our office at 809-334-5387 or
809-756-1917 or via email: info@ascot-advisory.com In
addition, some of our clients have recently asked us to put together a
short tour program (three or four days) to allow for interested persons
to visit some of these properties we have spoken about, plus perhaps
explore opportunities in banking, etc. We are in the process of
developing this, so anyone with an interest that would like to get more
information can also send us an email as indicated above as well.
.
The link for the International Financial
Center of the Americas is below:
.
http://www.ifcamericas.com/
.
.
A
NOTE TO OUR READERS:
.
Over
the years, about eight years now in fact, we have attempted to provide
a public and free newsletter, one that could offer ideas, insights, and
analysis we thought to be of value. Stated more clearly, we
wanted to act as a sort of looking glass into political, economic and
social developments so that, our own clients specifically and other
readers of the newsletters in general, could think about ways to
protect themselves and benefit from various changes or trends
underway. Such changes or issues of course touch upon a number of
different inter-related topics (politics, economics and social trends).
.
However,
some of the criticism we have received (and correctly so) over the
years, regarding the newsletter, has been that much of the information
has been too general in nature, without offering specific suggestions
for banking, real estate and other such things, and this indeed has
been the case on purpose. Which is to say, more pointed
recommendations regarding specific banks, investments, taxation,
strategies, and other matters (banking and real estate for example)
have been reserved for paying clients. In any event, while some
clients have suggested we start charging for a private and paid
subscription newsletter, we would like to continue with the format we
have always had. Albeit, working more closely and in more
specific detail with clients hiring our firm for whatever services,
again, as we always have done before as well.
.
.
IN THE NEWS:
.
.
TRUMP ANNOUNCES INTERNATIONAL STRATEGY WITH
NEW HOTEL COLLECTION
By Amanda Marsh, October 11, 2007
.
The
world is Donald Trump's oyster, and he has found the pearl in the
growing international hospitality market. Trump, along with
children Donald Jr., Ivanka and Eric, is one of the latest developers
to announce a significant step into the international arena. Further
global-zing the Trump name, the Trump Organization announced the
creation of the luxury Trump Hotel Collection last night.
.
The
Trump Hotel Collection, which will all be new construction, also has
projects, some previously announced, underway in: Baja, Mexico (392
rooms, 2010); Cap Cana, Dominican Republic (400 rooms, 2010); Dubai,
United Arab Emirates (310 rooms, 2010, pictured); Fort Lauderdale, Fla.
(298 rooms, 2008); New Orleans (435 rooms, 2010); Panama City, Panama
(369 rooms, 2010); Toronto (261 rooms, 2010); Aberdeen, Scotland (450
rooms, 2010); and Waikiki, Hawaii (463 rooms, 2008). Several of the
developments have a residential and/or a condominium component. Each
will have the Trump Attaché service and The Spa at Trump
facilities. We find that travel is viewed as global entity today,
Jim Petrus, COO of Trump International Hotels Management L.L.C. told
CPN today. People who travel in our segment of the market enjoy
traveling to new destinations, and we've studied the (accessibility),
amenities, infrastructure and global demand for each of the markets
we're building in. In many of the countries, such Panama and the
Dominican Republic, the company is finding a niche in an emerging
market lacking luxury product. Trump has always been at the
forefront of a movement, and this is why he is carrying forward (in
these areas), Petrus added.
.
http://www.cpnonline.com/cpn/content_display/regions/international/
.
EDITORS NOTES:
Do not think for one minute that because the jet-set are moving into
Punta Cana that the real estate deals are gone. Indeed, high end
projects have now started to change the reputation and face of the
county, but that also means that there is room for appreciation in some
of the undiscovered parts of the country as well. For example, as
we alluded to above, there are tremendous opportunities available on
the Caribbean side (the South Shore) of the country.
.
.
RETIREES FIND THEIR PARADISE -
October 1, 2007
.
SANTO
DOMINGO, Dominican Republic - Sitting behind a massive wooden desk, the
Dominican Republic's minister of tourism lists the attractions that
lure visitors to this Caribbean nation: endless beaches for
sun-seekers, white-water rapids for adrenaline junkies, merengue for
music lovers, and then there are the condos. Real-estate tourism
is booming, said Felix Jimenez. Any doctor, dentist or
small-business owner from the United States or Canada can afford to
live here in paradise.
.
The
Dominican Republic - as well as other sunny destinations in the
Americas - has joined the crush to win the hearts and wallets of the 70
million U.S. baby boomers marching toward retirement. Beaches
along the nation's famous coastlines are studded with as many
real-estate signs as palm trees, and construction projects are blooming
in once-remote hideaways as the Internet fuels a global land rush.
.
With
more than 10,000 tourists a day flocking to the island, foreign
investment is at a seven-year high of $1.2 billion. And there are more
than $2.5 billion worth of real-estate projects under development,
Jimenez said. Perhaps nowhere is the shift being felt more than
the coastal region known as Bavaro-Punta Cana, where the
all-you-can-eat budget beach resort was virtually invented decades ago.
.
Driving
along a busy road shared by tourist buses, bulldozers and backhoes,
Emil Montas points out the dentist office, shopping mall and hardware
store that have sprung up over the last few months. n May, real-estate
impresario Donald Trump sold $350 million worth of empty lots at Cap
Cana in four hours - establishing a new record for the island.
.
By
any measure, this is one of the most ambitious projects in Latin
America or the Caribbean, said Enrique Marchena, the incoming president
of the Caribbean Hotel Association. And what makes that ambition
realistic is the baby boomer boom, he said. The appeal of living
or retiring in places where the weather is milder and dollars stretch
further is easy to grasp. While isolated beaches and cheap drinks
lure tourists, it's healthcare, accessibility and cheap labor that draw
retirees. Medical attention and infrastructure are huge factors,
Haskins said. Then there's the ability to afford a maid, a
gardener and all those things you can't even think about in the
U.S. The minimum wage in the Dominican Republic is $99 a month,
in line with Mexico and far cheaper than Puerto Rico - the island's two
biggest competitors in the Caribbean, making domestic help affordable.
.
And
the government and private sector are pouring money into new
international airports - there are six of them - and multi-lane
highways. Hidalgo Montesino, 70, and his wife, Sonia, are Miami
residents who bought a two-bedroom, two-bathroom apartment for $117,000
near the town of El Cortecito in the Bavaro-Punta Cana region.
The floors are marble, the countertops are granite, and the walls are
real cement - not the Sheetrock that they use (in South Florida),
Montesino said of the home he expects to move into in a few years.
.
Just
a few miles from an airport, a new shopping center and a modern
healthcare facility, the condo has all the comforts of home, he said.
And it lacks some of the hassles of South Florida living. Because the
house was under $150,000, they don't have to pay property taxes and
insurance isn't required. I know people who have lived in Miami
for years who are going broke because of all the insurance and tax
problems, Montesino said. And the people there are so much nicer.
There's a reason we're putting our money (in the Dominican Republic).
.
http://www.hispanicbusiness.com/news/
.
.
AFFORDABLE HOMES ABROAD - By Maya Roney,
October 11, 2007
.
Whether
they're looking for a first or second home, Americans may find better
values and quality of life overseas. Thinking about buying a nice
four-bedroom house in Louisville? How about one on an island paradise
instead, Aruba, say? They cost about the same - around $240,000
but Aruba has better beaches. And with home values still shaky in many
U.S. markets, international property could be a better investment.
.
The
Caribbean, Mexico, Central America, and Canada are home to some of the
most affordable housing markets in the world, according to Coldwell
Banker's 2007 Home Price Comparison Index (HPCI) survey, which looked
at the average sales prices of single-family four-bedroom homes with
approximately 2,200 square feet of space in 77 markets outside the U.S.
.
Many
Americans also choose to purchase foreign property as an investment, or
relocate overseas for business reasons. HiFX, a firm based outside
London that provides foreign exchange services, estimates that there
are more than 500,000 relocations of Americans to foreign countries per
year, with the biggest concentrations of Americans residing in Mexico
(approximately 1 million), Canada (700,00), and Britain
(200,000). According to a recent survey conducted by HiFX,
Americans who invested in overseas residential properties from 2001 to
2006 achieved investment returns that were two to four times what were
generally available in the U.S.
.
http://www.businessweek.com/globalbiz/content/oct2007/
.
EDITORS NOTES:
While we agree with the general consensus of the author of this
article, it is also true that one must consider a number of other
factors. For example, is Aruba a beautiful place?
Absolutely. However, the island is very small and potable water
cannot be obtained from a well. Therefore, very expensive water
desalination plants are one cost to consider for something as basic as
drinking water. In addition, everything needs to be imported, and
so, basic food or other consumer items will be more expensive as a
result. Last but not least, Aruba was a former Dutch possession,
and as such, still has the very costly social welfare state programs
and the high taxes that go along with it. And so, again, one must
calculate all these variables into the decision making process when
shopping for a new home or country. In contrast, there are indeed
some Caribbean and other destinations (Dominican Republic) that are
self sufficient in food production (nothing really needs to be
imported, apart from foreign brands that local consumers may wish to
buy as sort of a luxury purchase) and do have plenty of potable water,
or other basic resources as well. Again, something to consider
when contemplating what your current and future cost of living expenses
might be.
.
.
DEVELOPING
NATIONS URGE IMF TO MONITOR RICH STATES
By
Lesley Wroughton - October 19, 2007
.
Developing
nations turned the tables on the industrialized world on Friday by
calling on the IMF to keep a closer eye on how rich nations manage
their economies in the wake of a global credit crunch that sprang out
of problems in the U.S. mortgage market. After years of being
lectured to by the rich world about the importance of prudent economic
policies, developing nations felt they had the upper hand at weekend
meetings of the International Monetary Fund and World Bank in
Washington.
.
While
finance ministers from the Group of Seven rich nations club were locked
in talks in Washington, trying to find a cure for turmoil in global
financial markets, their G24 developing nations counterparts said their
economies were largely untouched by the ill effects of the cash
crunch. With members like India and Brazil, the G24 said in their
final communique that developing nations were the new driving force, as
well as stabilizing forces, in the global economy.
.
http://www.abcnews.go.com/Politics/wireStory?id=3754473
.
EDITORS NOTES:
Are the critics from the developing nations correct in what they
say? Let's take a look at some interesting news items below.
.
.
FRENCH
PM FILLON TELLS FARMERS FRANCE IS BROKE
By
Henry Samuel in Paris, September 25, 2007
.
France
is bankrupt and can no longer afford to pay its workers generous
salaries and subsidies, its prime minister has declared. Francois
Fillon made the undiplomatic outburst during a trip to the French
island of Corsica, where farmers were demanding more government
money. I am at the head of a state that is in a position of
bankruptcy, he said. I am at the head of a state that for 15
years has been in chronic deficit. I am at the head of a state that has
not once passed a balanced budget in 25 years. This can't go on.
Mr Fillon's government is due to announce the 2008 budget this week
with a deficit of 41.5billion (£29billion).
.
http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2007/09/24/
.
.
CHANCELLOR
TO START TAXING OVERSEAS EARNINGS
By
Christopher Hope, October 10, 2007
.
People
who live in Britain but do not pay tax on their overseas earnings will
be made to pay their fair share from next April under new tax rules.
Alistair Darling said rich individuals who are non-domiciled for tax
reasons for more than seven years would have to pay £30,000 a
year to stay in Britain. The proposals would raise just £650
million and put off overseas workers from coming to the UK, he claimed.
.
But
to Tory jeers, he also put forward his own proposals for dealing with
the controversial tax loophole, where non-doms are not subject to tax
on their overseas earnings. Mr Darling said non-doms currently
contributed £4 billion in taxes and any reform of the current
system had to be fair, workable and affordable. When the Tory
plans emerged last week, Labour was critical of the plans saying that a
lot of these tax exiles were doctors and nurses who would be hit hard.
The new rules come into force after April 6, and - crucially - will
apply retrospectively. This means any non-dom living in Britain before
5 April 2001 will have to pay up.
.
Put
another way a non-dom who has lived in the UK for five years until
April will only be let off the annual £30,000 charge for another
two years. Mike Warburton, senior tax partner at Grant Thornton,
said: It is not simply a question of whether or not to pay the
£30,000 charge. Many non-domiciled individuals may have
established company holding structures and family trusts outside the
UK, and these may now contain hidden tax charges. Non-doms who
refuse to pay the fee - and there will be highly paid accountants
crawling all over the new rules - will be taxed on all their worldwide
income and gains, whether or not they are remitted to the UK, the
Treasury said.
.
http://www.telegraph.co.uk/news/main.jhtml?xml=/news/2007/10/09/nbudget609.xml
.
EDITORS NOTE:
Here is a new twist (but not unexpected) in that the UK now all of a
sudden wants to tax its non-resident citizens (those living
abroad). They must really be hard up, financially speaking, to
now change policy that has been in place for decades upon
decades. A sign of the times perhaps?
.
.
REFORMS NEEDED OR WE GO BANKRUPT - October 2, 2007
.
Senior
councillors in Aberdeen insisted last night that the local authority is
in danger of going bankrupt if controversial reforms are not put in
place. The Liberal Democrat-SNP administration has pushed through
a raft of proposals to overhaul adult, children and young people's
services, as well as plans to modernise the schools' estate in the
city. It now has a framework on which it says it can make
improvements to better support people at a rate that is better value
for money. The move represents the most comprehensive review of
services in 11 years and is aimed at making budget savings of
£43million over the next four years. The authority says it
had to take action because its social work budget alone is expected to
be overspent by £8million in 2007-08.
.
http://www.thisisnorthscotland.co.uk/
.
EDITORS NOTES:
Once again, the common theme or problem seems to be that the so-called
wealthy, developed and modern industrialized nations can no longer
afford the expansive and expensive welfare state that was created in
the past. What will they do?
.
.
SOCIAL
SECURITY RECIPIENTS GET 2.3 PERCENT RAISE:
Average
monthly check to increase by $24, smallest
rise in four years
Associated
Press - Oct 17, 2007
.
Come
January, Social Security benefits for nearly 50 million Americans are
going up 2.3 percent, the smallest increase in four years. It will mean
an extra $24 per month in the average check, the government announced
Wednesday. The cost of living adjustment means that the monthly
benefit for the typical retired worker in 2008 will go from $1,055
currently to $1,079 next year. The 2.3 percent increase is the smallest
since a 2.1 percent rise in 2004. It compares to an increase of 3.3
percent last year and a jump of 4.1 percent in 2006, which had been the
biggest advance in 15 years.
.
The
COLA is based on the change in consumer prices from the July-September
quarter of this year compared to the same period last year. Benefit
payments have been tied to inflation since 1975. Advocacy groups
for the elderly said that the small increase announced Wednesday
underscored the need to revamp the cost-of-living adjustment to better
reflect prices paid by retired people, including the money they spend
on health care.
.
The
Senior Citizens League said a study it has done showed that in eight
key spending areas, people over the age of 65 have lost 40 percent of
their purchasing power since 2000, reflecting such factors as a
doubling in the price of gasoline and home heating oil over that
period. The government also announced Wednesday that nearly 12
million wage earners will pay higher taxes next year because the
maximum amount of Social Security earnings subject to the payroll tax
will rise from $97,500 currently to $102,000. In all, an estimated 164
million workers will pay Social Security taxes in 2008.
.
The
Social Security Administration on Monday had a ceremony to highlight
the opening wave of baby boomer retirements, a generation of 78 million
people born from 1946 to 1964. The first of those boomers will turn 62
next year, making them eligible for Social Security benefits. An
estimated 10,000 people a day will become eligible for Social Security
benefits over the next two decades, putting a severe strain on the
pension program.
.
If
no changes are made, the Social Security trust fund is projected to
deplete its reserves in 2041 and even sooner, in 2017, Social Security
is scheduled to start paying out more in benefits than it collects each
year in payroll taxes. Medicare is facing even greater funding problems
because of the rapidly rising cost of health care.
.
http://www.msnbc.msn.com/id/21341970/
.
EDITORS NOTES:
The sad thing is that the inflation rate as calculated by some
economists outside of government is estimated to be closer to ten
percent. Regardless, the US government has also announced that 12
Million tax-payers will be paying higher social security taxes (or
contributions as they are called, although a contribution in theory is
something voluntary) in 2008, which may be of concern to some of our
clients. This ties in to our previous predictions that taxes will
go up, cost of living will go up, the value of the US Dollar will go
down along with the US standard of living as well. The
politicians must surely know what they are doing - no?
.
.
750,000
AMERICANS TAKE 50% DROP IN SOCIAL SECURITY
by
Jim Freeman - October 18, 2007
.
Don't
worry about losing your Social Security benefits in 2040 or 2050. Three
quarters of a million American citizens are already losing
theirs. Every month, the Social Security Administration (SSA)
either mails off or direct-deposits payments to American retirees
living overseas. Apparently, more SSA checks are sent to
Polish-American recipients in Warsaw, Poland than any city in the world
except Chicago. Huge numbers of foreign-born Americans retire back to
their country of origin after a working life in the United States.
Hundreds of thousand of others choose to live in countries where the
cost of living affords them (or used to) a sustainable lifestyle.
And all of them are being skinned.
.
http://www.opednews.com/articles/opedne_jim_free_071018_750_2c000_americans_ta.htm
.
EDITORS NOTES:
The above article talks about an American retiree who has been
blind-sided by the devaluation of his retirement income (social
security) while living in Poland. Indeed with the devaluation of
the US Dollar, life in Europe has become very expensive indeed for
bearers of US Dollars. Of course, on the other hand, life is
still affordable using US Dollars in places like the Dominican
Republic, Panama, Ecuador, Paraguay, Argentina, Brazil, Cambodia,
etc. In short, devaluation of the currency, also known as
inflation, truly hurts the retired and those living on a fixed income
the most. For this reason, diversifying your investments into
other asset classes (gold) and other currencies (Euro, Aussie Dollar,
etc.) is a necessity for survival.
.
.
NUMBER
OF PENSIONERS GOING BANKRUPT RISES BY 700% IN FIVE YEARS
By
Cahal Milmo - October 5, 2007
.
Pensioners
have become so laden with debt that the number filing for bankruptcy
has increased eight-fold in five years. Campaigners are blaming the
worrying rise on a combination of cheap credit, soaring living costs
and the complicated benefits system. Nearly 8,000 people aged 65
or over took the ultimate financial sanction last year and sought
bankruptcy, up from 900 in 2002. The figure is just one of a series of
statistics this week showing the growing financial burden and
consequences of an ageing population.
.
The
number of centenarians in England and Wales has reached a new high and
is forecast to pass 40,000 by 2031. Councils fear that services for the
elderly will have to be cut unless the Government finds an extra
£2.7bn over the next three years to fund the growing demand for
state care. A predicted increase of 400,000 in the number of
older people by 2010 will place an unbearable burden on publicly-funded
services such as home carers or nursing homes and lead to additional
costs for the NHS, according to the Local Government Association. With
more than a third of the population likely to be over 50 by 2025, and
the over-nineties forming the fastest-growing age group, debt problems
among pensioners is likely to worsen, experts say.
.
http://news.independent.co.uk/uk/this_britain/article3028736.ece
.
.
INCOME-INEQUALITY GAP WIDENS: Boom in Financial Markets Parallels
Rise in Share For Wealthiest Americans - By GREG IP - October
12, 2007
.
The
richest Americans' share of national income has hit a postwar record,
surpassing the highs reached in the 1990s bull market, and underlining
the divergence of economic fortunes blamed for fueling anxiety among
American workers. The wealthiest 1% of Americans earned 21.2% of
all income in 2005, according to new data from the Internal Revenue
Service. That is up sharply from 19% in 2004, and surpasses the
previous high of 20.8% set in 2000, at the peak of the previous bull
market in stocks. The bottom 50% earned 12.8% of all income, down
from 13.4% in 2004 and a bit less than their 13% share in 2000.
The IRS data go back only to 1986, but academic research suggests the
rich last had this high a share of total income in the 1920s. The
IRS data show that the median tax filer's income -- half earn less than
the median, half earn more -- fell 2% between 2000 and 2005 when
adjusted for inflation, to $30,881. At the same time, the income level
for the tax filer just inside the top 1% grew 3%, to $364,657.
.
http://online.wsj.com/article/
.
.
LIFE
IS HARDER NOW, SOME EXPERTS SAY
Generation
gap: After paying the bills, middle-class pockets are emptier
By
Bob Sullivan, MSNBC - Oct 16, 2007
.
Shopping
malls are packed every weekend. Restaurants can't open fast enough.
Everyone seems to be wearing designer shoes, jackets and jeans and
sipping $4 lattes. Credit card commercials constantly advocate
splurging and, it seems, U.S. consumers are all too ready to
comply. So what's the problem? Why do so many middle class
Americans with so much stuff say they feel so squeezed? If they are
dogged by debt, isn't it their own fault?
.
Perhaps,
some experts say, things are not as they appear. Bankruptcy law
expert and Harvard University Professor Elizabeth Warren spent a lot of
time crunching consumer spending numbers for her popular books, The
Fragile Middle Class and The Two-Income Trap. In both, she makes
this point: Despite all those $200 sneakers you hear about and the long
lines at Starbucks, consumers are actually spending less of their
income - much less - on discretionary items like clothing,
entertainment and food than their parents did. In fact, after taking
care of essentials like housing and health care, today's middle class
has about half as much spending money as their parents did in the early
1970s, Warren says.
.
http://www.msnbc.msn.com/id/21309318/
.
EDITORS NOTES:
If it is true that today's younger generation in the US will be (or
already are) worse off economically than their parents, how in the heck
are they expected to pay higher social security tax payments to finance
all the baby-boomer retirees? We highlighted, what we believe,
may be a new trend of younger people expatriating and some even
immediately right after graduating from the University. If indeed
this is a new trend involving the younger generation, I wonder who will
be left behind to pay the bills? I also wonder what the
government will do once they realize anyone with common sense is
getting out post haste?
.
.
THE UNITED STATES OF SUB-PRIME DATA SHOWS
BAD LOANS PERMEATE THE NATION - PAIN COULD LAST YEARS - By Rick Brooks and
Constance Mitchell Ford - October 11, 2007
.
As
America's mortgage markets began unraveling this year, economists
seeking explanations pointed to sub-prime mortgages issued to
low-income, minority and urban borrowers. But an analysis of more than
130 million home loans made over the past decade reveals that risky
mortgages were made in nearly every corner of the nation, from small
towns in the middle of nowhere to inner cities to affluent suburbs.
.
The
analysis of loan data by The Wall Street Journal indicates that from
2004 to 2006, when home prices peaked in many parts of the country,
more than 2,500 banks, thrifts, credit unions and mortgage companies
made a combined $1.5 trillion in high-interest-rate loans. Most
sub-prime loans, which are extended to borrowers with sketchy credit or
stretched finances, fall into this basket.
.
High-rate
mortgages accounted for 29% of the total number of home loans
originated last year, up from 16% in 2004. About 10.3 million high-rate
loans were made in the past three years, out of a total of 43.6 million
mortgages. High-rate lending jumped by an even larger percentage in 68
metropolitan areas, from Lewiston, Maine, to Ocala, Fla., to Tacoma,
Wash.
.
To
examine the surge in sub-prime lending, the Journal analyzed more than
250 million records on mortgage applications and originations filed by
lenders under the federal Home Mortgage Disclosure Act. Sub-prime
mortgages were initially aimed at lower-income consumers with spotty
credit. But the data contradict the conventional wisdom that sub-prime
borrowers are overwhelmingly low-income residents of inner cities.
Although the concentration of high-rate loans is higher in poorer
communities, the numbers show that high-rate lending also rose sharply
in middle-class and wealthier communities. As home prices
accelerated across the country over the past decade, more affluent
families turned to high-rate loans to buy expensive homes they could
not have qualified for under conventional lending standards.
.
The
Journal's findings reveal that the sub-prime aftermath is hurting a far
broader array of Americans than many realize, cutting across
differences in income, race and geography. From investors hoping to
strike it rich by speculating on condominiums to the working poor
chasing the homeownership dream, sub-prime loans burrowed into the
heart of the American financial system -- and now are bringing
deepening woe.
.
In
Stockton, Calif., for example, high-rate loans accounted for 33% of
total home-loan volume last year, up from 13% in 2004. During the first
half of this year, the Stockton area had 8,169 foreclosure filings, or
one for every 27 households. According to RealtyTrac, of Irvine,
Calif., that makes Stockton the nation's foreclosure capital.
Seven of the 10 large metro areas now struggling with the highest
foreclosure rates -- including Miami, Detroit and Las Vegas -- saw
borrowers barrel into high-rate loans much faster than the country as a
whole.
.
Who
will be left holding the bag for mortgages that go sour? Wall Street
bought lots of sub-prime loans and packaged them into securities for
sale to investors. The data show that lenders shifted even more of
their riskiest loans to investors as the boom began to fizzle.
.
http://online.wsj.com/article/
.
EDITORS NOTES:
Indeed we postulated in the past that a very large number of these
sub-prime mortgages were applied for by what might be deemed to be
middle-class borrowers. Better said, a group of people trying to
keep up and demonstrate affluence in terms of the kind of home they
lived in, but in fact a home and lifestyle they could not really
afford. Just as credit cards have allowed some people to make
purchases for things they could not afford otherwise (if they had to
pay cash), so has the easy lending practices of bankers allowed a false
sense of economic growth, or false sense of economic accomplishment,
when the painful truth is, the standard of living has gone down for the
middle class in the US. This entire debacle involving the
sub-prime mess and general housing market only finally brings to light
what has been apparent for some time. Meaning, the middle class
can no longer afford the same lifestyle that their parents had
previously.
.
.
FOREIGN INVESTORS FLEE U.S. - By Robert Morley -
October 19, 2007
.
Led
by Japan and China, investors dumped U.S. securities by the truckload
in August, sparking fears of a growing global aversion to U.S. assets.
Investments totaling a record-breaking $163 billion fled the United
States in August, according to the latest Treasury Department figures.
For the first time since 1998, foreigners on balance sold U.S.
government Treasuries. Asian investors alone, including Japan ($23
billion) and China ($14.2 billion), dumped $52 billion. These
numbers are absolutely stunning, said Marc Ostwald, an economist at
Insinger de Beaufort. But the numbers would have been much worse if not
for inflows from Cayman and British hedge funds that were used to cover
speculative U.S. positions when credit conditions tightened in August,
according to the Telegraph.
.
The
Treasury reported $69.3 billion in net sales of U.S. marketable assets,
making the previous record outflow of $21.2 billion, set more than 17
years ago, look tiny in comparison. As the Treasury data was
released, the dollar took it on the chin. On Wednesday, the greenback
continued is downward trend and traded lower against each of the 16
most actively traded currencies except the Japanese yen. The dollar has
fallen beneath the value of the Canadian dollar for the first time
since 1976, has hit all-time lows against the euro, and is plummeting
against gold, silver and oil. It now takes over $750 to buy a single
ounce of gold, $100 more than it did during August.
.
http://www.thetrumpet.com/index.php?q=4324.2575.0.0
.
.
AUSTRALIA
AND ITALY ARE TURNING BACK THE CLOCK ON DEMOCRACY
By
Charlotte Meyer - October 12, 2007
.
According
to John Keane, a professor of politics at the University of
Westminster, Italy and Australia are turning back the clock on
Democracy. Keane tells ABC NEWS that voters are becoming
disillusioned with democracy and politicians, and for the first time in
a generation we are seeing an organized opposition to democracy.
.
In
recent years, the world has become disillusioned with the American
crusade for democracy and critics have pointed to the short-comings of
democracy in many parts of the world. Opposition to democracy still act
in the name of the people. However, they use this disillusionment to
revoke democratic institutions in their own countries.
.
Keane
points to Italy and Australia as troubling examples of this trend. He
argues that in these societies, the basic rules of democracy have
changed. The political systems supports winning as many elections as
possible. They discourage public debate and opposition and enforce the
idea that parliament makes laws for people to follow. Keane says
that: This is not democracy, this is a bowdlerization and degradation
of democracy.
.
http://whydemocracy.net/house/news/
.
EDITORS NOTES:
Fairly recently a new series has appeared on the BBC titled: Why
Democracy? Indeed, why even such a question? One might
speculate that the series is meant to argue the case for democracy and
point out why such political forms are superior to others.
However, if you start to examine the content more closely, it does seem
to plant the seed of doubt regarding democracy as the prevailing ideal
form of government for the future. And with that, one must ask
why the change of heart?
.
Throughout
history, anytime there has been economic crises of one form or another
(especially as it involves government spending, value of the local
currency, inflation, deflation and related things) it has usually been
the case that totalitarian form of government has been the result (both
Julius Caesar and Napoleon Bonaparte interceded to save their
respective nations from a financially bankrupt democratic government,
or at least that is the reason they provided). Now, I am not
saying this is in the cards, but then again, why the heck even bring up
the idea, and why now? Why even have a public debate regarding
democracy as indeed the best form of government organization?
Something to ponder, or then again, maybe not.
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