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About The Author:
John Schroder of Ascot Advisory Services writes articles for a number of publications and e-zines regarding topics and issues of interest or concern to clients.  As an expatriate himself, John has lived abroad for many years, and assists clients with services related to the topics on this web site.
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Our November 15, 2006 Newsletter Edition
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IN THE NEWS:
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BOOM! BUST! BOOM?
Business Week Magazine - November 6, 2006
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Housing has gone from a sure thing to a complete muddle. Median prices fell nationwide for a second straight month in September, the first time that has happened since 1990, according to a report on Oct. 25. Homeowners don't know whether to sit tight or bail. They have no idea whether they're experiencing the beginnings of a deep bust that will leave a permanent hole in their wealth, or a small hiccup.  There's a lot to learn from history. While national downturns in home prices are rare, we have plenty of experience with busts in local markets. Remember, many regions that have been strong in recent years, such as New York, Boston, and Los Angeles, were mired in slumps in the early or mid-1990s. People who bailed out of them at the bottom are still kicking themselves or blaming their ill-informed spouses.  How common is this boom-bust-boom pattern? Over the past three decades about 40% of housing busts in big metro areas have eventually been followed by strong recoveries. That's according to a Business Week analysis of inflation-adjusted housing prices. In an additional 15% of markets, prices adjusted for inflation barely got back to their previous peaks after 15 years. In the remaining 45% or so of markets, prices adjusted for inflation were still down a decade and a half after their pre-bust peaks.  The disparity between winners and losers was striking: Among the winning markets, the average inflation-adjusted gain after 15 years was 43%, while among the losers the average inflation-adjusted loss was 19%.
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http://www.businessweek.com/magazine/content/06_45/
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US UNEMPLOYMENT RATE DROPS TO 5-YEAR LOW - November 4, 2006
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The US unemployment rate dropped to a five-year low of 4.4 per cent in October as employers added 92,000 new jobs - showing signs of a strong labor market before Tuesday's congressional elections.  Workers saw solid wages gains last month.  Workers average hourly earnings climbed to $16.91 in October, a sizable 0.4 per cent increase from September. That increase was bigger than the 0.3 per cent rise economists were expecting. Over the last 12 months, wages grew by 3.9 per cent.  Growth in wages is good for workers, but a rapid and sustained advance makes economists fret about inflation flaring up. That is not good for the economy or workers' pocketbooks, ultimately, because inflation can eat into everybody's buying power.  On the payroll front, job losses in manufacturing, construction and retail offset gains in professional and business services, education and health, government and elsewhere.  Factories shed 39,000 jobs in October, marking the fourth straight month of employment cuts. Construction companies got rid of 26,000 jobs, while retailers trimmed 3,500 positions.  Professional and businesses services, meanwhile, added 43,000 jobs. Education and health expanded employment by 28,000, and the government payroll swelled by 34,000.
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http://www.theage.com.au/news/Business/
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EDITORS NOTES:  Like many things in life, one must look under the hood or peel back the layers of the onion.  In this case, the report clearly says that the US continues to loose manufacturing jobs, and now the building sector is showing signs of layoffs as well (the result of the housing bubble).  Also, while the report says that 92,000 new jobs were added, one THIRD were in government and NOT private industry.  So, the government hires a bunch of people and then announces things are looking up employment wise for the country? I suppose that it would be true that things were looking positive, assuming you were one of those people that recently obtained a government job.  It would seem to me, if jobs continue to be outsourced, that the only domestic employer remaining will be the government.
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ONCE SAFE, PUBLIC PENSIONS ARE NOW FACING CUTS
By Mary Williams Walsh - The New York Times - 06 November, 2006
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After losing a leg in the line of duty, Dan Toneck, a San Diego police officer, spent nearly a year in rehabilitation before returning to work, doing his job for another five years with an artificial limb.  Mr. Toneck, 37, was granted a disability retirement last year after 16 years on the job. Some of his fellow officers wept as he left headquarters for the last time.  Then, 10 months later, the impossible happened. San Diego cut his pension by about 10 percent, along with those of about 180 other disabled city retirees. They're trying to pay the bills on the backs of the employees, Mr. Toneck said.  Across the country, government workers' pensions are protected by guarantees even stouter than those on pensions in the private sector. The legal promises often backed up by union contracts cover more than 15 million people.  Years of supporting court interpretations have enshrined the view that once a public employee has earned a pension, no one can take it away. Even during New York City's fiscal crisis 30 years ago, no existing pension promises were reduced.  But now a number of state and local governments are quietly challenging those guarantees. Financially troubled San Diego is the highest-profile example, but a handful of states, cities and smaller government bodies have also found ways to scale back existing promises and even shrink some current payments.  While still only scattered cases, these examples may be an early warning sign of what could be coming elsewhere. As local officials take stock of unexpectedly large obligations to retired public workers, some are starting to question whether service cuts, sales of government property and politically acceptable tax increases can ever go far enough to bring things into balance.  Mr. Toneck said that years ago, while he was still on the police force, he saw signs that San Diego was cutting corners. He recalled having to go to Kmart to buy jumper cables for his squad car. He was not surprised to learn the city had shortchanged the municipal pension fund. But he never dreamed his pension could be reduced.  It was guaranteed, written in stone - when I retire, I make this much and they're not going to be able to touch that, he said.  His pension was set at about $35,000 a year. But last May, he received a letter saying he would start getting about $31,000 instead.  He and the others on disability pensions fell victim to an ambiguously written pension statute that lawyers noticed while combing through San Diego's financial records in the wake of a pension scandal. But there do not have to be accusations of wrongdoing for a government to start looking into whether its obligations to retirees can be reduced.  Some places, including Oregon, Rhode Island, Milwaukee County and several cities and towns in Texas, have already cut public workers' pensions on the basic argument that their pension funds had gone disastrously out of balance. Whether because of investment losses, faulty calculations or other factors, these places have declared that they can no longer sustain a level of benefits that had looked affordable just a few years ago.
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http://www.truthout.org/issues_06/110606LA.shtml
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EDITORS NOTES:  Here we go, and once again - How Broke Are They, Honestly?  The article says: Some are starting to question whether service cuts, sales of government property and politically acceptable tax increases can ever go far enough to bring things into balance.  So are we saying even with tax increases, AND pensions cuts that the whole thing is a no can do?  In other words, even that will not take them out of insolvency?  When the government cannot pay pension and other social benefits, this should sound some alarms - economically speaking - and it is the case across the US in many municipalities.  Michael Aguirre, the city's independent attorney has actually said that San Diego still had not developed a plan for paying all of its obligations - AND suggested in public statements that he might end up filing bankruptcy for the city of San Diego.  I am not even trying to be sarcastic - that is what he said.  Laurence Msall, president of the Civic Federation, a nonpartisan research group in Chicago says - It's not a far-off crisis - The taxpayers need to understand the seriousness of our situation.  So, which is it?  Everything is fine and dandy or municipalities across the country are facing bankruptcy?  What is in store for Social Security and government social programs?  That is the unanswered loaded question for sure as we slowly but surely move into the next decade.    
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IT'S NOT THE ECONOMY, STUPID
By Jacob S. Hacker - The Washington Post - 10/31/2006
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In the final days of this fall's campaign, Republicans have turned to an unexpected issue: the economy. President Bush touted the nation's prosperity last week, insisting that a strong economy is going to help our candidates - And why not? The Dow is soaring. Unemployment is low. Inflation is tame. Gas prices are falling. And the overall economy has been growing steadily. If Americans practice what political scientists call retrospective voting (captured by President Ronald Reagan's famous question: Are you better off today than you were four years ago?), then one would think that incumbent politicians should be cruising to victory.  There's just one problem: Despite the sunny talk and favorable numbers, voters aren't happy with the economy. Though they've become somewhat more positive in recent weeks, they remain strikingly dissatisfied - and favor Democrats by wide margins on economic issues. 
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But the problem isn't the public - it's the standard statistics used to judge the economy. Inflation, unemployment and economic growth all capture economic performance at a particular moment or period. Yet a growing body of theory and evidence suggests that to understand public perceptions, one should look at the security and stability of family finances over time. With that perspective, the grounds for unease suddenly look much clearer.  Consider the evidence of rising income inequality in the United States. In a path-breaking recent paper, The Evolution of Top Incomes: A Historical and International Perspective, Thomas Piketty of Icoles Normales Supirieure in Paris and Emmanuel Saez of the University of California at Berkeley have shown that the share of national income held by the richest 1 percent of Americans - stable at about 32 percent throughout the middle decades of the 20th century - began to rise sharply in the late 1970s and by 2002 had surpassed 40 percent. In the past few years, most income gains have gone to people at the very top of the income ladder, with middle-class Americans seeing only a small boost in their economic standing.  Yet there's another reason for middle-class dissatisfaction. Many assume that growing income inequality means that rich people are becoming steadily richer. But virtually all income statistics are based on annual snapshots of Americans' finances, so they cannot tell us whether rich people stay rich - or whether poor people stay poor. In other words, these statistics tell us about inequality, but not about mobility - either up the income ladder or down it.  This is a major oversight, because there's good reason to think that our economic lives are more unstable than they used to be. Bankruptcy, for instance, is much more common today than it was just 25 years ago, and research by Elizabeth Warren of Harvard Law School - presented in a 2003 law review article, Financial Collapse and Class Status - shows that many of those who file for bankruptcy were once squarely middle class. Princeton economist Henry Farber, in his article - What Do We Know About Job Loss in the United States?, has found that the likelihood that a worker will lose a job over a three-year period has been rising - and is now about as high as it was in the early 1980s, which saw the worst economic downturn since the Great Depression.  In my own research using the Panel Study of Income Dynamics - a survey that has traced a large sample of Americans over time - I've found that family incomes have become much more unstable since the 1970s; the gap between our income in a good year and our income in a bad year has expanded. Increasingly, it seems, Americans are living on a financial roller coaster.
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http://www.sltrib.com/opinion/ci_45824650
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GOLD STILL AIMING AT $1,000 AN OUNCE - BUT WHEN?
By Myra P. Saefong, MarketWatch - Nov. 3, 2006
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SAN FRANCISCO (MarketWatch) -- For the tough gold traders who've stuck it out, it's been there, done that and earned that, lost that -- many times over, all year long. What to do next is the question.  Gold futures climbed to a 26-year high above $700 an ounce back in May and haven't traded anywhere near that level since.  Since then, a worldwide economic slowdown has begun and the anticipated increase in demand for commodities has therefore been reduced.  We would not be surprised to see $1,000-plus gold from sometime in 2007 at the earliest to 2009 at the latest, said Julian Phillips, an analyst at Gold Forecaster.com.  Key to the gold's rise is the dollar's demise, especially in an election year.  And the dollar is more vulnerable than ever, said Ned Schmidt, editor of the Value View Gold Report, asserting his belief that the dollar bear market will accelerate after the U.S. election.  Gold is the only defense against the results of the U.S. election, he said.  If the Democrats win, gold will go up. If Republicans win, gold will go up with both parties ... masters at providing a leadership vacuum.  Meanwhile, the glut of the dollar debt in central banks around the world is approaching a critical level, Schmidt said, and central banks are slowing their acquisition of U.S. debt, which will further weaken the dollar.  And the economy will enter recession in the first quarter of 2007, he said, depressing the greenback even further.
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http://www.marketwatch.com/news/story/
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LOW INFLATION RATE?  SOME CONSUMERS BEG TO DIFFER
By John Waggoner, USA TODAY - 10/31/2006
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Ask most economists about inflation, and they'll tell you it's low. Ask the average consumer, and you might get a very different answer.  Sean Taylor, 34, an information technology consultant in Trenton, N.J., ticks off the changes in his bills in the past nine years: property taxes, now $9,000 a year, up 105%; heating oil, $238, up 109%. His wife, Carrie, a state employee, pays $87 a month for health care; nine years ago, it was free. His income varies from year to year. Her salary is $75,000, up from $45,000, or 67%.  And she's been promoted twice, he says.  Sure, you can get a lot of computer these days for your dollar. And auto prices have scarcely budged. But the cost of several big-ticket middle-class basics -- housing, health care premiums, energy, college tuition -- have vastly outstripped the overall inflation rate in the past two decades. Those rising prices, combined with flat wages, mean that the typical middle-class life -- a house, college for the kids, a secure retirement -- is fading for many.  For some key consumer items, however, inflation has run much higher for much longer.  College tuition and fees are up 290% in the past 20 years, or about 7% annually. By contrast, the overall consumer price index has risen just 84%, or 3.1% a year, over that period.  Medical care is up 174%, or 5% a year. Doctor visits are up 137%, or 4.4% a year. Prescription drugs: 178%.  Energy - up 132%, or 4.2% a year.  Joe Kopf, a salesman in Hilton Head, S.C., ticks off the items in his household that have jumped in price: Gas, prescriptions, medical bills, home taxes, airfares, he says in an e-mail.  My income is not keeping up with inflation.  In feeling that inflation has drilled a big hole in his middle-class lifestyle, Kopf has lots of company.
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http://www.usatoday.com/money/economy/inflation/
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EDITORS NOTES:  As I have said many times over, there is the truth and there is everything else.  I honestly do hate to report this stuff - it is depressing, but I am not making it up (I wish that I were).  What irks me to some extent is that politicians think everyone is completely stupid.  Possibly what we might say is the equivalent of trying to put lipstick on a pig and enter it into a beauty pageant.  Either inflation is a problem (in part because the mad scientists at the Central Bank are running the presses) or it is not.  The economy is growing or expanding, and we are exporting new and better products abroad manufactured at home, or it is not.  The housing market and banking industry is sound, or it is not.  Our local municipal governments are financially sound - or they are not (maybe even broke in some cases, teetering on bankruptcy filing).  We are in a recession, or we are not.  There is no way to put makeup on hard and fast statistics or alter the truth with a bit of eye shadow.  Either we face up to some of the economic minefields we have out there and try to really fix them, or we put duck-tape on the old jalopy and hope it will take us another 20 miles before it breaks down (which seems to be the path taken most often by politicians).  Personally, it does not seem to be the case that it will even make it that far.  
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HYGIENE FEARS OVER HOSPITAL'S PLAN TO TREAT CATS AND DOGS
By Amy Iggulden - 30/10/2006
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Plans by a debt-ridden NHS hospital to treat sick cats and dogs to raise money were criticized yesterday as a hygiene disaster waiting to happen.  Ipswich Hospital in Suffolk is hoping to reduce a deficit of 24 million by giving radiotherapy to pets.  The hospital expects to make 50,000 a year - enough for two nurses - from weekend treatment for cats and dogs suffering from cancer.  The plan will raise questions about the availability of radiotherapy at a time when more than half of cancer patients needing treatment are waiting longer than the recommended four weeks, according to a report from the Society of Radiologists.
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http://www.telegraph.co.uk/news/
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EDITORS NOTES:  I have had a few people who have written in the past highlighting the British National Health Service, and criticizing me in the process for my views on socialism in general, and some aspects of socialized medicine we have discussed in other issues.  My opinion remains the same.  How is it possible that a hospital part of the government social health system is now broke, or in the least, so mired in debt?  How is it possible that human beings in the UK national health system need to wait more than one month for treatment, yet animals will be fast tracked on Saturday mornings?  My guess is that the dog owners will be paying cash, and that is the real difference - reminds me of the old saying: You get what you pay for.  Anyway, maybe if you agree to take a few cancer suffering hamsters or poodles into the therapy room with you, they will bump you up the list?  I like animals, but I do not want a Great Dane as a bedmate next to me in the recovery room - but that's government for you or maybe that is simply the British Government for you (although, sharing a hospital room with a Great Dane just might be an improvement over some of the characters you might encounter - but that is another topic for another day).  Only a government operated socialized medicine health care program could or would ever consider allowing dogs and cats into public hospitals that were meant to service humans.  Could you imagine going to visit your private doctor only to find an English Sheep-Dog and a Boa Constrictor with the flu waiting in line with you?  What are you in for pal?  Woof.  Yeah, I have the same thing, must be something going around.
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AMERICANS HAVING SURGERY OVERSEAS SAVE BIG BUCKS
Associated Press - November 2, 2006
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NEW DELHI, India (AP) - Greg Goodell flew from Iowa to India to have his arteries unclogged. Rick Thues made the trip from California for a new hip. John Terhune ventured from Indiana for a hip-and-knee combo.  Combined, all three saved about $140,000, including the cost of travel and hotels, by having their surgeries last month in New Delhi instead of America - where the health care system had simply failed them.  All in their 50s and fully employed, these men are among the estimated 500,000 Americans who are taking their health into their own hands by choosing medical care abroad. Many are stuck in a growing gap of uninsured or underinsured who are too young for Medicare and left with only losing health care options: siphoning their retirement, living in pain or possibly dying.  Our share of the American dream has been lost in the past five years, said Thues, 53, a computer consultant from Orange, Calif.  Look at what we've outsourced - I'm even outsourcing my own health for God sakes.
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http://www.fortwayne.com/mld/newssentinel/news/local/15911233.htm
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EDITORS NOTES: We have highlighted this new trend to you over the past few newsletters, and it does indeed seem to be more common, and more of a necessity than you might realize (considering the number one cause of middle class American bankruptcy filing is health care related bills).  However, my argument or opinion is, if it is cheaper to be treated medically abroad, and cheaper to educate your kids, and cheaper to buy a home (for cash - or better said to become mortgage free), and in general simply cheaper to live - why just not relocate altogether and save the airfare?  I keep hearing comments hear and there, in different news reports about tightening the belt, taking the poison, and so on.  Why do we, the average hard working citizen need to take the equivalent of economic or financial poison?  Why?  Let the politicians cut their own government pensions - let them take the poison.  The rest of us can saddle up on out of there and think about returning when the smoke clears (if it ever does).   
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CANADA STUNS MARKET WITH PLEDGE TO TAX INCOME TRUSTS
By Randall Palmer, Reuters News - Tuesday Oct. 31, 2006
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OTTAWA (Reuters) - Stung by plans for multibillion-dollar conversions to tax-advantaged income trusts, Finance Minister Jim Flaherty shocked markets on Tuesday when he announced plans to tax the sector.  Flaherty signaled concern that the flow of conversions to income trusts could become an uncontrollable torrent that would damage the economy and erode government revenues.  His new plan, which he described as a way to level the playing field between trusts and regular corporations, broke a campaign pledge by the minority Conservative government not to change rules on how Canada taxes the trusts.  Things changed a great deal this year and we faced a situation where Canada was moving to an income trust economy. Is that a good thing for Canada?  The answer is no, it's a very bad thing for Canada - it's bad for the Canadian economy. We're concerned about competitiveness and productivity.  Flaherty's package of measures would tax distributions by income trusts while also cutting corporate taxes by half a percentage point and changing tax policy for pensioners. He said it would ease the tax burden by C$1 billion a year.  Income trusts, now a C$200 billion ($180 billion) sector of the Canadian market, avoid most corporate taxes and pay the bulk of cash flow directly to investors. They have surged in popularity in recent years as investors embraced their rich yields.  However, even the government admits that the structure robs it of hundreds of millions of dollars of tax revenues, and economists say the model can deplete firms' capital and leave them less able to invest for growth.  One of the largest Canadian trusts, CI Financial Income Fund, savaged the surprise move.  This is the most bizarre, Third World policy that I could imagine, CEO Bill Holland told Reuters. It doesn't even make sense to me -- how can they keep changing the rules?
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http://ca.today.reuters.com/news/
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EDITORS NOTES:  Canada now has a Third World tax policy?  The gentleman from the article asks: How can they keep changing the rules?  Let me break it down for you, as it is quite simple really.  They are going broke.  The social welfare state is kaput, on the ropes, bleeding red ink, or stated another way - they are running out of money, honey.  You really do not need to be a rocket scientist to figure all this out.  The real problem or concern is, one can only speculate that this is just the beginning of similar things to come.    
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CHINA'S MOUNTAIN OF FOREIGN CURRENCY SOARS ABOVE $1 TRILLION
By Gary Duncan, Economics Editor
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China's burgeoning mountain of foreign currency reserves has finally breached the $1 trillion mark, the country said yesterday, raising questions over how long it can sustain its present monetary and exchange rate regime.  Official figures for the scale of Beijing's foreign exchange holdings have yet to be released, but state television reported that they had reached $1 trillion (527 billion). The news had been expected, with China's currency holdings officially standing at $987.9 billion in September and these rising by about $18.8 billion each month this year.
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http://business.timesonline.co.uk/article/0,,16849-2440506,00.html
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EDITORS NOTES:  In another news article on the same story, it is said that China's currency reserves increase by nearly 30 million dollars per HOUR each and every day, or by about 18 Billion per month.  Can you imagine?  Thirty Million Dollars Per Hour.  Experts warned of a fast-paced reconstitution of the reserves - 70 per cent of which are believed to consist of US dollars - because such a course could lead to a dramatic fall in the dollar's value.
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THE EURO RISING AS A RESERVE CURRENCY AHEAD OF A $ CRISIS
By: Julian D. W. Phillips, Gold Forecaster Global Watch - November 6, 2006
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So much has been written about the coming $ crisis, but the $ keeps holding on, moving within a 5% band up and down, but not outside that band.   Why doesn't the crisis come?  The main reason is that it is a huge global currency subject to so many influences, whether it be in demand by all nations across the globe to pay for oil, or in demand by say Argentina to sell meat to China.   As the currency in which 86% of the globes transactions were denominated the actual intrinsic value of the $ was not that pertinent.  This value, so it is taught, should reflect the entire Balance of Payments of the nation.   And it usually does.   However, in the past a currency was allowed to go further and reflect not only the Trade Balance, but the real attractiveness of the nation as a place to put one's capital.   In the seventies Germany was remarkable with its economic strength forcing it to revalue many times, it was in such demand.   It had a surplus on its trade balance as well as on its capital account.   The main reason for either a devaluation or a revaluation was to steady the global flow of capital across the world leaving one nation facing a drain (e.g. the U.K. who imposed capital exchange controls to slow this down) and another the inflow of capital.  Today we have a remarkable and different situation where the $ is the currency of oil and the currency of global trade, not just the money of U.S. citizens.   On the home front the $ is the money of a country whose Balance of Payments should be devaluing hugely, but is not because the persistent practice by nations receiving its currency is to re-invest these surpluses back into the States, so balancing the Balance of Payments through new capital investments.   But this is not because the U.S. is considered the prime place for nations to invest their capital as the U.S. is doing nothing whatsoever to rectify the Trade deficit except complain about the behavior of other surplus nations particularly China.   So the expected $ crisis is averted time and time again!  But there is a gentle and osmotic process underway, a lessening of the role of the US$ in the global reserves.   Alan Greenspan the ex-Federal Reserve Chairman has confirmed that both private investors and central banks are shifting away from the U.S. $ and toward the EURO.  On the date that the EUR was born, the switch of old now defunct European currencies to the EUR resulted in European reserves in the EUR constituting 16% of the global reserves according to the I.M.F.   Today, and mainly in the last year, that percentage has risen to 25%.   At that time the $ accounted for 76% of global reserves prior to 2005.  Today it is reported that they account for 65% of global reserves.   The switching has begun led by Russia, but with others beginning to follow.
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Capital Controls?  Greenspan put it this way from the U.S. perspective, We'll get to the point at some point that willingness to finance it will slow, and if you can't finance it, it won't happen, Greenspan said of the broad trade measure.   Greenspan warned, however, that if the United States threw up barriers to isolate itself from the pressures of globalization, the adjustment process could be a little bit more problematic.  A little more problematic is a wonderful understatement.  Translated, this means Trade barriers rising against nations trading with the States and the possible use of Capital Controls to prevent capital from leaving the States.   Will this be confined to the reserves of those nations against whom barriers are erected?   If so, these nations are rapidly getting to the stage where they will be able to cope.   As the U.S. role as a global driver wanes, so will its ability to effect major trading partners wane with it.  But the immediate market effect, the effect on the global monetary system and the fear engendered in the stability of the global economy and its future will be far more dramatic.   The isolation that the U.S. may impose on itself will allow the U.S. economy to boom tremendously as imports are replaced, but the inflation rate will roar alongside this change.   Of course retaliation to such moves will find U.S. goods being replaced outside the States too, boosting the remaining major nations but leaving minor nations to take most of the blows.
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http://news.goldseek.com/GoldForecaster/1162828950.php
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EDITORS NOTES:  After reading the article, it would seem that the above author is hinting that the US may take the path of currency controls if the exodus gets that bad.  In other words, let me say it plain and outright - it could be the case that IF foreigners stop investing inside the US or buying US Government Debt, the US Government might (and I stress might) decide to refuse the free flow of money out of the US (which is what currency controls are or do in effect).  We have suggested or hinted ourselves that the US might do this to stop the bleeding for tax and revenue reasons, but here we have an author saying it could be the case for other reasons as well.  It seems to me, if you do not have a bank account abroad with some money stashed away (in USD, Euros or whatever) NOW is the time to get moving.  As the US continues to loose economic hegemony, there will be a stampede for the exits and out of the US Dollar.  Once that happens, look out, and it certainly is reasonable to assume that the US might barricade the exit doors to stop the financial leakage.  Under normal circumstances if all the debt were domestically held and whereby there was very little if any foreign borrowing, it might not be such am alarming event.  However, that is not the case today.  American consumers and the government are living (and borrowing) off the good will of foreigners.  At some point, the gavel will come down.  The only reason it has not been a free for all is because those foreigners have been investing back into the US (for the moment), and because the USD is the currency of oil and the currency of global trade, not just the money of U.S. citizens (to quote the above author). But that could change, and it is changing, albeit slowly to prevent a free fall off the cliff (no foreign nation holding US Dollars wants to see that happen, so they are slowly but surely dumping dollars and converting to other currencies and or gold little by little rather than all at once).  This is not about criticism towards the US, but rather simple unemotional economics.  No one wants to go broke.  No one wants to keep holding a currency that is inflating and loosing it value. Why has the US Central Bank (Federal Reserve) stopped reporting the statistics that would give a clear indication as to how much money they are printing?  What is it they do not want you and the rest of the world to know?
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A number of things could happen to put the final nail in the coffin.  OPEC could decide to price oil in Euros.  The Asian countries, China in particular, could become spooked by what they see and dump their USD and US Government holdings (they, along with South Korea, have already been quietly dumping dollars).  Within the last two years alone, USD as a percentage of foreign reserves has dived from 76 percent down to 65 percent - representing a 15 percent drop.  Which is to say, the Central Banks of foreign nations are getting rid of their US Dollars (the central bank of the Dominican Republic has talked about both Euros and British Pounds to replace USD foreign currency reserves and it is a smart move if they do).  Where do you think this is all going?  What will be the affect for you personally?  There are many tell tale signs of other things going on that do not bode well.  Having the capacity to protect the value of your liquid cash is the only action plan that is sensible (which means banking abroad, and diversifying into other currencies and or assets).         
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READERS WRITE IN:
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Hello. I am writing to you hoping you can help me. I am interested in purchasing a condo in the Dominican Republic and I am trying to find financing options. I have been searching for a US based lender but unfortunately, they will not lend if purchasing outside the US. Would you be able to help me or know whom I can contact?  Thank you for your time and assistance.
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EDITORS REPLY:  You will be very hard pressed to find a bank or any other kind of US lending institution that will offer financing for a property purchase in another country.  Likewise, it will be difficult if not impossible to find a Dominican Bank willing to loan money towards real estate in the US either.  There is too much of a risk for the bank in that should the borrower default, the legal costs and process to sequester the property in another country too prohibitive to consider such a loan.  With that said, you can of course apply for a mortgage from a local bank in the Dominican Republic, but I must warn you that they are quite strict in terms of lending practices.  They do not give the money away as many US banks seem to do (which is why I tend to think many Dominican Banks are in much better shape than their US counterparts when you consider the loan portfolios).  Usually you must have at least 25 percent of a down payment, usually the maximum term is 15 or 20 years AND interest rates are going to be in the 15 percent neighborhood.  In addition, the bank will probably insist on an additional co-signer that can prove sufficient solvency or assets as well, just in case you default.  Truthfully, most of our clients pay cash for any real estate purchases, which is not entirely out of the question if you sell a US$400,000 property in the US with some equity and buy an equivalent or larger property in the Dominican Republic for often less than half that amount.  The other option is - if you must borrow, to try and take a home equity loan against your US property as in the least, the interest rate will be lower. 
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ANOTHER READER WRITES:
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Dear Sir - I look forward to reading your monthly reports regarding the Dominican Republic and Panama.  I have a short question for you. Can you tell me the rate of return (interest) paid currently by the investment fund you supplied information about (some months ago).  At the earliest point, it was 10 percent per month (I believe) and then fell to 8 percent per year.
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EDITORS REPLY:  Well, there are no investments I have ever spoken of that offer 10 percent per month, ten percent per year maybe, but not per month.  There are private money lending scenarios whereby you might find an offer of 2 to 4 percent per month, in Pesos, but we are talking about small high-risk micro loans in such a case.  In any event, unless otherwise stated, ALL interest rates quoted in the Dominican Republic for bank accounts or certificates of deposits and commercial paper investments are annualized yields (non compounded simple interest, which means if you reinvest the interest, the return is actually higher after you factor in compounding).  Interest rates for both USD and Peso deposits have come down, but you can still find up to about 14 or maybe 16 percent or so with Peso commercial paper, and anywhere from 7 to 10 percent in USD commercial paper.  Bank time deposits are another matter, and the best rates I have seen lately for USD certificate of deposit have been about 4 percent. BUT, here is the key point.  While it is true we all want to earn the highest possible rate of interest - that is not the only concern you should be completely focused on.  The ability to have your funds in a country with NO currency controls and the ability to easily switch between USD and other currencies will probably be just as important going forward.  Having the ability to get a higher rate make not look so attractive if you cannot get your money out (if indeed there are currency controls instituted in the US going forward).
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ANOTHER READER WRITES:
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I feel an impending collapse of the way of life, as we have known it here - Unites States.  I am interested in a second passport.  I am willing to renounce my US citizenship if necessary.  I am considering Venezuela for my home and I am concerned about protecting my assets as well.  What about Margarita Island?
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EDITORS REPLY:  First off, it is indeed very difficult to know for certain exactly where things might end up economically speaking.  However, it is also true, that we can make some logical and sensible observations based upon statistics and what we do know right now.  In other words, despite what politicians tell us in campaign speeches, we know the national government debt is a certain amount (a very high and economically dangerous amount), we know there will be tremendous strains on the government welfare system due to large numbers of people who are aging (and who will be tapping into the pension and health care programs), we know there is a trade deficit that has persisted and grown out of balance for years, and we also know what both blue collar and white color jobs have been sent abroad.  The question then is - how will all these things affect us economically going forward?  Who will pay for all this and more importantly - HOW?  What will the politicians end up doing once the chickens come home to roost, as they say?  Will taxes go up, and if so, by how much?  Will government services and pension checks be cut?  Will our children and grandchildren be stuck with a mountain of debt they cannot dig themselves out of?  Will the central bank (Federal Reserve) continue to devalue the money as an economic quick fix - reducing the purchasing power of our savings and inflating prices?  Will the politicians start shutting the window, trying to stop Americans from moving their money and themselves abroad as a panicked response?  Will the politicians and government become more aggressive in confiscating assets of private citizens - as was the response of the Roosevelt administration during the 1930s in terms of private gold owned by citizens?  These are all questions one must ask, and doing so not far fetched either considering the current state of affairs.  And indeed, many people are starting to ask these kinds of questions and as a result, thinking about what is best for their own long-term survival.
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In terms of the citizenship question, there are many, many clients of ours that have already sought out dual citizenship options as a way to hedge or protect themselves.  In addition, the process is not as difficult, nor costly as you might think, and dual citizenship is recognized by many countries as well, including the US.  Some of our US clients have already renounced US citizenship, but it is not necessarily the case that you must do so.  Why have clients sought out another country of citizenship, another passport, plus banking and investment options abroad?  The answer is because it offers them options and solutions, and the ability to get a bank account open is certain places (Switzerland for example) as just one benefit of many.
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With regards to Venezuela and Isla Margarita in particular, it is certainly true that gasoline is dirt cheap, electricity as well, and with regards to housing and general cost of living - quite favorable.  However, my only real concern with Venezuela is the currency controls in place.  In terms of banking, it like the roach motel, money checks in, but it does not check out.  In other words, you can get your money in, but strict government currency controls do not make it so easy to move it out later on.  If you had your heart set on living in Venezuela, I would not keep any substantial amount money there.  Instead, consider banking in Panama, The Dominican Republic, Brazil, etc. Also, in terms of the residency process, the requirements are not very restrictive, but there is a very long wait to be eligible for naturalized citizenship (and a second passport, if that is your goal).  However, generally speaking, it is certainly possible to live in one country, bank or invest in another (or more than one), obtain a dual citizenship from another, and conduct business in yet another.  The benefit is that you can pick the best of all that is available in each country based upon your own needs, likes and requirements.
Ascot Advisory Services 2006 - 2014

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