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Our February 15, 2006 Newsletter Edition
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IN THE NEWS:
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GOOGLE TOOSES IRS UNDER THE BUS - By David Litter, Web Pro News, February 2, 2006
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Google CFO George Reyes talked about the impact of taxes on the search
advertising company's bottom-line, an impact that caused their
earnings-per-share to fall short of market expectations: Google pays
more tax in the US than it does in international markets. That impact
resulted in the swift and merciless punishment of the stock by
investors, who wiped out $20 billion of Google's market capitalization
the day after the announcement.
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http://www.webproworld.com/
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EDITORS NOTES:
Google pays more tax in the US than it does in international
markets. No kidding, so do most other US companies as well.
Why do you think they are either leaving the US altogether or shifting
(outsourcing) many parts of their operations overseas (cheaper labor is
one, lower taxes are another). Ironically though, US companies
currently pay some of the lowest income tax rates at home compared to
the last 40 years historically. So, if US corporate income taxes
are at an almost all time low, AND taxes elsewhere are even less
elsewhere - what predictions can we make about the future? Why
would any sane company want to stay inside the US when they can do it
cheaper someplace else? The bottom line: If you think outsourcing
and loss of American Jobs (plus tax revenue) is a problem now, just
wait. Also, since corporations provide a bulk of the bribes or
payoffs to the politicians - ahem, excuse me, I should say political
campaign contributions - politicians will continue to turn a blind eye
and chase or clamp down even further on the middle class in terms of
tax revenue (and collection). Who else are they going to get it
from and who else politically and economically is so weak they cannot
fight back? On the other hand, a coach airplane ticket to Europe,
Latin America and many other places can still be purchased for less
than US$700 - Better make your reservations before the price of oil
pushes the fares up.
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SAVINGS RATE AT LOWEST LEVEL SINCE 1933 - Business Week Magazine
By Martin Crutsinger - Associated Press Economics Writer
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JAN. 30 - Consumer spending rose at a rapid pace in December, far
outpacing income growth, a development that helped to push the savings'
rate for the year down to the lowest level since the Great
Depression. The Commerce Department said Monday that
consumer-spending rose by 0.9 percent in December, more than double the
0.4 percent rise in incomes. The 0.5 percent decline in savings
for the year followed a savings rate of 1.8 percent in 2004. There have
only been three years that the savings rate has fallen into negative
territory. The savings rate dipped by 0.9 percent in 1932 and the
record 1.5 percent decline in 1933, years when Americans exhausted
their savings to try to meet expenses in the face of soaring
unemployment as the country struggled with the worst economic crisis in
its history.
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http://www.businessweek.com/ap/financialnews/
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EDITORS NOTES:
Funny they should offer up some parallels to the current economic
situation and the so-called Great Depression of the 1930s - don't you
think? I have said before that politicians lie, but statistics
and numbers do not. It is noteworthy that the ONLY time in recent
economic history (the period 1913 to 2000) the national savings rate
went negative was over 70 Years ago when the country experienced a deep
economic retraction, also known as the Great Depression. Are we
back to where we started or are things really that good these days,
economically speaking? We reported in recent newsletters that the
US Federal Reserve was scarred to death about deflation during the 2002
- 2004 period and because of that starting printing money like mad
(which as we know now resulted in the wonderful housing bubble).
Ladies and gentlemen - when was the last time the US economy
experienced deflation (falling prices for homes and other goods)?
I will give you a hint. It was some time between 1929 and
1940. Can you guess when?
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MEDICARE DRUG BENEFIT MAY COST $1.2 TRILLION - Estimate Dwarfs Bush's Original Price Tag - By Ceci Connolly and Mike Allen, Washington Post Staff Writers
Wednesday, February 9, 2005
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The White House released budget figures yesterday indicating that the
new Medicare prescription drug benefit will cost more than $1.2
trillion in the coming decade, a much higher price tag than President
Bush suggested when he narrowly won passage of the law in late 2003.
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http://www.washingtonpost.com/wp-dyn/articles/A9328-2005Feb8.html
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WHILE YOU WERE SLEEPING OR OTHERWISE GETTING READY FOR CHRISTMAS: DID YOU KNOW ABOUT: S. 1932: Deficit Reduction Act of 2005?
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Nov 18, 2005: This bill passed in the House of Representatives without
objection. A record of each representative's position was not
kept. The bill would cut $38.8 billion over five years and $99.3
billion over 10 years. Medicaid and Medicare spending reductions would
account for 50% of the savings, with 27% from Medicaid and 23% from
Medicare over 10 years.
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http://www.govtrack.us/congress/bill.xpd?bill=s109-1932
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EDITORS NOTES:
Speaking of medication, I must ask the question - Are these politicians
on Drugs? First they pass legislation for a new prescription
medical drug plan for the American public in 2003. This plan was
said to cost about US$400 Billion Dollars (of new money mind you), then
that estimate increased to US$700 Billion and now the new estimate in
2006 is US$1.2 Trillion Dollars. However, what they NEVER told
you was that a new bill was introduced in October 2005 designed to cut
US$100 Billion Dollars from Medicare and Medicaid. And get this -
a record of each congressman's position was not kept (they do not want
YOU to know how they voted, both Democratic Congressman and Republicans
alike). Why do they offer a new Medicare Drug Program to the
public in 2003 thought to cost or require an additional US$400 Billion
in new funds to make it happen (using the low figures and not even the
higher ones) and then in November 2005 they vote to take away US$100
Billion Dollars in funding for Medicare (signed by President Bush in
January 2006)? I mean these are the supposedly intelligent people
with advanced university degrees elected to run the government.
Are they that dumb or are we? Or, are they very clever to offer
up a new drug benefit plan they know the government cannot afford, but
they do so with hoorahs and news releases and then, quietly, without
any news or press releases take the money away (because they know they
never had it to begin with)? This is not about partisan
politics. I do not care if you say you are a supporter of the
current man in the White House or not, democrat or republican,
conservative or liberal - the US Government would seem to be
broke. Numbers do not lie, only politicians do - remember
that. Also, this has absolutely nothing to do with any kind of
argument for or against a Medicare Drug Program. It is about
however, the fact that the true financial state of the state is in dire
straights. They cannot even afford aspirin. In addition,
are these people we have managing the country and national finances
really that stupid - or really that conniving and devious? If you
answer yes to either one, the result is not good - is it? As Mr.
Ripley used to say - Believe it or Not.
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ARE WORKERS EARNING LESS THAN THEY USED TO?
December 14, 2005 By Carl P. Close, Craig S. Marxsen
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Economists have noted a slowdown in the growth of output in the U.S.
economy from the early 1970s to the mid 1990s. After 1973, when the
cool-off began, the annual increase in real GDP fell from 3.6 percent
per year to 2.8 percent. In human terms, this meant that millions of
Americans had to delay the purchase of a new home or car, buy cheaper
quality clothing, and save less of their incomes than they would have
had the economy remained vibrant. For those at the margins of our
economy, slower growth meant a precarious existence between the Scylla
of a dead-end job and the Charybdis of the welfare state.
According to the 2005 Economic Report of the President, the growth of
real output declined because annual labor-productivity growth slowed
from 2.5 percent (prior to 1973) to 1.5 percent (from 1973 to 1995).
Consequently, real weekly earnings what workers took home in
inflation-adjusted dollars actually decreased during much of the latter
period.
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http://independent.org/newsroom/article.asp?id=1645
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EDITORS NOTES:
So, you mean to say that real wages AFTER adjusting for inflation have
actually gone down in the last twenty years? Would that be the
official inflation rate the government was telling us, or the REAL
inflation rate? Here is some news they never told you:
Wages for the average American worker has only increased ½
percent (one half of one percent) annually since 1973 after factoring
in inflation and or cost of living. Is that why the middle class
citizens are going broke? I guess the devil is in the
details. These little nitpicker details they somehow fail to talk
about or discuss. 1970s Style Stagflation here we come? Let
me see, where did I put that polyester suit of mine anyway? Time
to get out the old disco records.
.
On a similar note regarding the national debt and these annual GDP
growth statistics, the 2005 Economic Report of the President says that
annual economic growth is down to about 1.5 percent (and has been for a
while). In regards to any fiat money supply (any national
currency that is no longer back by gold, but supposedly backed by or
based upon a nations GDP) one way to at least try and control inflation
is to make sure you do not print or create more paper money at a rate
in excess of the economic growth rate. So using our example,
since paper money is no longer backed by anything, the only way to hold
it value is to make sure you do not create any more than 1.5 percent of
it (if that is the annual GDP growth rate). With this is mind it
is interesting to note that the US Federal Reserve increased the money
supply by roughly 20 percent or so between the period spanning 2002 -
2004 (whereas the economy or GDP only grew by 3 percent, or some other
similar very low number during that same period. In fact, the GDP
went negative at one point, but I will use the most rosy and
conservative numbers possible). Where did all that cheap and free
money go? Into the housing market of course, creating a
bubble. However, never mind all that for now. Let us think
about how they will pay off the US$8 Trillion Dollars with one year
T-Bills, twenty-year treasury notes and thirty-year treasury bonds that
make up this amount.
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They are hoping that economic growth will save the day and pull the
country out of any quicksand. But is this really going to
happen? If we collected every single US Dollar Federal Reserve
Note (every US$1, US$5, US$10, US$20, US$50 and US$100 bill) that
exists in the world today, right now, it would total up to about US$1.4
Trillion Dollars (and the US Federal Reserve Banks says so). Let
us then look at annual GDP or annual economic growth then as a savings
account, to see how fast our money would grow or should grow based on
the annual interest we get. If we have US$100 earning 4 percent
each year (constantly year in and year out) in 30 Years we would
increase our money in the account by a factor of 3.3 - In other
words, in 30 Years based on an annual steady GDP growth rate of 4
percent per year, US$1.4 Trillion Dollars in paper money representing
the US economy (and more new money being printed based on sound
economic principals of ONLY increasing the money supply exactly as it
correlates to annual GDP) then there should be US$4.62 Trillion Dollars
of money in 30 years time. If the annual GDP growth was an
impressive 6 percent each and every year for 30 years, then in that
case the US$1.4 Trillion should grow to US$8.4 Trillion (remember we
are taking about after 30 years time). If however, the annual
growth rate is 2 percent per year (which seems much closer to
historical figures over the last 30 years or so) then that US$1.4
Trillion Dollars would become US$2.52 Trillion Dollars in 30
years. So, currently there is US$8 Trillion Dollars worth of
debt, some of it coming due in one year, some of it coming due in five
years, ten years, twenty years and so on. Let us imagine we did
not have to come up with any new money to pay off this debt until 30
years from now, and that economic growth of the economy would do its
thing and that we grow our way out. The first I learned in Miss
Johnson's third grade class was that 2.52 was a much lower number than
8. Where is the money going to come from? Chances are, not from
economic growth. So, what is left? Raise taxes, and or
simply print more money faster than the rate of economic growth - which
causes inflation or devaluation of the money. You already know
this is what has been going on because cost of living and prices for
many things have gone up exponentially faster than your salary or
income increases. Sure, Wal-Mart keeps rolling back everyday low
prices because the only thing that has happened is underwear,
television sets, socks, CD players, Palm Pilots and all the other
do-dads are NOW being made by a guy in China, or Indonesia or anywhere
else who is earning a fraction of what US labor costs were or
are. In other words, the only reason why prices have stayed the
same or have even come down is because companies have been able to cut
labor costs (by sending the production abroad), and nothing more.
What has happened to products or services that could not be outsourced
(medical care costs, medicines, education and university costs, locally
produced items like local food products)? Have they gone down or
have they gone up? Why?
.
What is the solution or the answer? That depends on you.
All of these statistics and economic information is out there, in the
2005 Economic Report of the President, in the Federal Reserve Bank
economic reports and a host of other places. If they know all
this, and if their solution is put a guy like Ben Bernanke in charge of
the printing presses (a man who already publicly said, full steam ahead
boys and order more ink) then you have some idea where this is all
going. You can disagree with me, you can tell me I am out of my
mind, but at least be aware of some possible choices on the economic
menu. Which is to say, one option is to stay put and stick it
out, another option is to change restaurants. Other restaurants, or
other countries that is, are showing annual GDP growth of 6, 7, or 9
percent, have almost no social welfare programs (and much lower taxes
as a result), have less government debt as a percentage of GDP, have
local banks that still require applicants to pay a 25 percent down
payment and actually qualify by income for a mortgage, and maybe in
some cases, still have something to export and sell. I do not get
this stuff from a science fiction novel. The information is out
there and often enough from your very own government economists.
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WILL THE OIL PRICE REACH $100-A-BARREL IN 2006? January 19, 2006
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Oil prices have started the year by rebounding to $67-a-barrel, not far
short of the $71 high of August 31st 2005. The coldest Russian weather
in 50 years may now compound mounting concerns over Iran's nuclear
ambitions and the threat posed by rebels to supplies from
Nigeria. Oil analysts weigh up these various factors and there is
a consensus that says a combination of any two or three adverse
developments could easily send oil above $150-a-barrel. Indeed, the
formerly ambitious target price of $105-a-barrel set by Goldman Sachs
now looks rather measly. Charts say $80 peak - Chartists can also
point to an established upward pattern in oil prices which would give
us an upside of around $80-a-barrel in 2006. The question is whether
oil spikes suddenly higher as it has in the past in similar
circumstances when subject to unexpected events. Indeed, the sole
economic factor that would crush the present momentum in the oil market
might be mayhem in the financial markets and an economic slowdown or
recession. The sudden slump in Tokyo stocks after the Internet share
scandal came to light is a reminder that unexpected events can spook
capital markets, especially with their current overblown valuation
levels.
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http://www.ameinfo.com/75932.html
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EDITORS NOTES:
Goldman Sachs estimates of US$105 per barrel now seams measly?
Say it isn't so. The article does say that: the sole economic
factor that would crush the present momentum in the oil market might be
mayhem in the financial markets and an economic slowdown or
recession. Wait a minute now. What kind of mayhem in the
financial markets are we talking about here? What
recession? You mean to tell me we have two choices? High
priced oil and inflation or low priced oil and recession? How
severe of a recession? Which door will helicopter Ben decide to
open? What is all this talk about stagflation (inflation, high
unemployment and recession all at the same time)?
.
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THEY ARE HOT ON THE MONEY TRAIL - Drug dealers and money launderers risk long arm of IRS criminal unit, By Adam Lynn, News Tribune, January 2nd, 2006
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The holidays are over. Tax filing season is just around the
corner. That means W-2s soon will be in the mail, as will offers
from tax shelter experts offering you ways to beat the federal
government at the tax game. Bradley Heath asks you to reconsider
opening e-mails with subject lines like never pay taxes again - beat
the IRS. Evading payment of federal income taxes is more than cheating
the government out of revenue - - it is a crime. It is the job of
Heath, the supervisory agent of the IRS criminal investigation unit in
Tacoma, and his crew of nine special agents to pursue tax evaders in
Tacoma, Spokane and Vancouver, Wash. If they catch you doing
something wrong, they can do more than audit you. They can cart you off
to jail. Increasingly, his unit is called upon to investigate
other so-called white-collar crimes, including money laundering, drug
trafficking and other illicit enterprises where large sums of money
change hands and cross-county, state and federal lines. Heath
said his agents usually investigate two to 10 cases per year.
.
The criminals have gotten smarter, and we have had to adapt, he said,
pointing out that almost every IRS criminal investigation unit has a
computer forensics expert on its staff or available for
consultation. In the past two years, Heaths agents have helped
successfully prosecute:
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A Rochester man who stole trees from U.S. Forest Service lands, sold
them and hid the proceeds in other bank accounts. Greg A. Gray was
sentenced to 30 months in federal prison and $12,430 in restitution
last month.
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Brian D. Borgelt, former co-owner of Bulls Eye Shooters Supply in
Tacoma. Borgelt pleaded guilty in July to failure to file a federal tax
return after ATF and IRS agents investigated him in connection with the
theft of a rifle later used in the Washington, D.C., sniper shootings
of 2002. Borgelt is to be sentenced this month and faces up to a year
in prison and $100,000 fine.
.
A former Bremerton auto dealer who went on the run for nine years after
being indicted for tax evasion and defrauding the IRS - Allen C. Martin
got 14 months in federal prison after being convicted of conspiracy to
defraud the IRS in December 2003. Court records show he owed more than
$59,000 in taxes and penalties at the time of his arrest.
.
Confiscating the bad guys money and property is one of the biggest
satisfactions of the job, Heath said. The IRS criminal division
takes a cut of such forfeitures but also turns much of the money and
property over to local law enforcement agencies, Heath said. They must
use the cash to buy equipment to help them in their jobs.
.
http://www.thenewstribune.com/news/local/story/5433911p-4907285c.html
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EDITORS NOTES:
The man says his agents usually investigate two to 10 cases per year.
Vancouver, Washington has about 143,000 residents as of the 2000
Census. Spokane has 200,000 and Tacoma about 200,000. This
figures do not even calculate or include what might be called the
greater metropolitan area, making the combined total of all three
certainly far, far greater than 550,000 when summed up (to round off
the numbers). But let us use 550,000 for arguments sake.
One Percent of this number (550,000) is Five Thousand and Five Hundred
(5,500). What do you think, as a percentage of the entire
combined population, results in the number ten? How about
two? The zeros run off the calculator - that is how small of a
fraction the result is. They investigate 2 to 10 cases per year
and whom do they get? A guy stealing Christmas Trees, another guy
that owns a rifle shop and a disgruntled car dealer.
.
Also, our man says: Confiscating the bad guys money and property is one
of the biggest satisfactions of the job. Yeah, I will bet it
is. The author of the news article also reveals to us - The IRS
criminal division takes a cut of such forfeitures. They get a cut
do they? I wonder how much of an annual bonus is tied into how
much they snatch in a calendar year? Notice the title of the
article, which talks about drug dealers and money launderers. I
have said it before and I will say it again. Forget all about the
reasons provided unless of course a guy stealing Christmas Trees and a
car dealer fit into that category. I will suggest to you that A.
The government is going broke (forget about going, they already are),
B. One of the ONLY ways they can get funds for agency operations is to
directly take it from the general population and C. God help the middle
class that are in the line of fire.
.
You might be interested to know that as the Roman Empire was moving
downhill, a very serious problem developed because Rome was not exactly
sending funds on a timely basis to the soldiers out in the provinces
(and of course with inflation it did not go as far as it used to
anyway). So, what did the Roman soldiers start doing? Well,
they started to steal money from the very same people that they were
meant to protect and safeguard. The Roman soldiers said: we are
here to protect you from the marauding hordes (such as the Huns from
Germany) and also to maintain law and order. The people out in
the outer regions with Roman Garrisons started to think - yeah, but who
is going to protect us from you guys (the Huns might not be such a
terrible option). You know your history, so you know the rest.
.
On that note, here is a very interesting and true story you may wish to read:
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WHEN THE TAXMAN FREEZES YOUR BANK ACCOUNT, By Gary North - January 26, 2006
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The following horror story is true. It's my story. If this can
happen to me, it can happen to you. If this story will not
persuade you to buy some gold coins or to set up a gold storage account
outside the United States, I don't know what will. If owning gold
is more than you can handle, then you need to consider an offshore
banking account. I'll get to that at the end of this report.
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A month ago, I was planning a morning flight out of Memphis to Atlanta.
I had a 6:15 flight. So, at about 5 a.m., I went to my local bank.
There, I inserted my ATM debit card. I entered $100 to withdraw. I got
a note out of the machine, Insufficient Funds. I was convinced
that I had $500 in the account. I use it for my monthly bills. I don't
keep much money in it because I worry about identity theft. I had
a plane to catch, so I could not wait to find out what was wrong. When
I got to Atlanta, I called my wife. I told her about the problem.
She looked into it. Here is what she found out. A bank employee in the
bank's Alabama operation had frozen my account two weeks earlier. The
bank had not notified me of this freeze. Why had she done it?
Because she was ordered to by a woman in the Texas Department of
Revenue. What had that to do with my account in Mississippi? I
had not been living in Texas since 1998. My wife called the woman
who ordered my bank account frozen. She was told that she had not paid
taxes since 2003 on a solely owned corporation operating in Texas. But
she owed no taxes. That corporation had ceased operating in Texas or
anywhere else. A corporation is a legal entity. It is not a
proprietorship. Why had they frozen my account? A month earlier,
I had added my wife to the account. Her name came up on a computer
operated by the woman in Texas. So, because of a corporate account
still on the books in Texas, my account in Mississippi was
frozen. My wife had her accountant send a FAX to the woman in
Texas, telling her that the corporation no longer operated in Texas.
The woman then contacted the woman in Alabama, who removed the freeze.
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Then, the next day, someone in Alabama re-imposed it. My wife's
accountant contacted the woman in Texas. "Why did you put the freeze
back on?" The woman denied that she had. She blamed the office in
Alabama. They must not have looked at the date on the original freeze.
They thought it was a new freeze order. Again, she contacted
Alabama, and the second freeze was removed. In the meantime,
every check I had written bounced. I was then assessed bounced-check
fees by every one of them. The lady in Texas told my wife that
she freezes accounts all day long. That is her job. Obviously, she is
very good at it. As for the size of the tax said to be owed, she
refused to disclose to my wife's accountant on what basis the tax was
assessed. She made it clear to my wife that no money had been
removed from my account. My wife's name also appears on our joint
account in Arkansas. But the money in that account exceeded the amount
of the tax said to be owed. Thus, the account could not be
frozen. The lady in Texas waited until a smaller account with my
wife's name on it appeared on her screen. Thus, the freeze would shut
down the account. A frozen account guarantees that someone will
contact the lady in Texas. Why no warnings - from Texas or the
bank? Because this tactic will not work if the account holder has the
opportunity to withdraw the funds.
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So, here's the deal. A tax-collecting bureaucrat in Texas uses a data
base to identify every bank account in the country that has a person's
name on it. Irrespective of the legal separation of a corporation from
the assets of that corporation's officers - the so-called "veil of the
corporation" - the tax collector can freeze any bank account in any
bank in the country. She just contacts a low-level bank employee - the
freeze lady, I guess - to freeze an account, and on the bureaucrat's
word, the account is immediately frozen. The owner of the account is
not informed of the freeze until the checks start bounding or the ATM
reports Insufficient Funds. Did you know this? My wife's
accountant didn't.
.
http://www.lewrockwell.com/north/north430.html
.
EDITORS NOTES:
This is more common than you think. We had a client awhile back
that had ALL of his accounts frozen. He went down to the IRS
office with his accountant and after the two-hour meeting, the IRS
officer agreed that everything was in order and no additional tax was
due (that the accounts should be unfrozen because there was no errors
on the tax return and no additional monies owed). Here is the
kicker. It took the man over ONE YEAR to get the IRS to request
the removal of the freeze on his accounts AFTER the IRS admitted
everything was fine and dandy. Thank God he was able to borrow
money from friends and relatives so he could keep his small business
afloat, make payroll for his employees and generally speaking,
live. Do you know what he did after that? He sold the
business and then he got the hell out of there fast, first his money,
then himself. He said that he would never ever put himself in a
position to allow something like this to happen again. As the
author of the article, Mr. North says, if this does not convince you to
get your assets safely tucked away, nothing will. By the way, Mr.
North is an older gentleman (you can see his picture on the website
reference below) and while I do not know the man personally - I have
the strong tendency to believe he is not a drug dealer, money launderer
not Islamic fundamentalist. But just my opinion or analysis -
what do I know?
.
GOT YOUR TAX BILL FOR 2005 YET?
Want to know where your tax money went? If you are a bit curious,
you can visit the following web site. However, just as a general
FYI, 25-percent of your money went to the Military and about 20 to 30
Percent went to pay the interest (just the interest, and not the
principal) on the National Debt. Check it out and see where the
rest went.
.
http://www.nationalpriorities.org/auxiliary/interactivetaxchart/taxchart.html
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OTHER REALLY FUN STUFF: I was doing some research the other day, and found this little gem.
.
U.S. Treasury statistics indicate that, at the end of 2004, foreigners
held 44 percent of federal debt held by the public. About 64% of that
44% was held by the central banks of other countries. A large portion
was held by the central banks of Japan and China. This exposes the
United States to potential financial or political risk that either bank
will stop buying Treasury securities--or start selling them heavily. In
fact, the debt held by Japan reached a maximum in August of 2004 and
has fallen nearly 3 percent since then.
.
For instance, military strategist Thomas Barnett believes that the
world's nations are essentially paying the United States to be the
world's policeman. This is in the interest of world's nations as long
as the world without stable U.S. political and military power is less
desirable than one stabilized by the single superpower. This can be
compared with shop owners paying for the protection of mafia in an area
fallen in to lawlessness.
.
http://en.wikipedia.org/wiki/U.S._public_debt#Consequences_of_foreign_ownership_of_U.S._debt
.
EDITORS NOTES:
So then military strategist Thomas Barnett is saying that the US is the
Mafia and Bush is Don Corleone? And so Dick Cheney would be what
- Il consigliore? Then that means all the poor Americans are married to
the mob (metaphorically speaking)? So all this is a protection
racket - is it? Makes sense, or in the least, it answers a lot of
questions for me. Say, I just realized something. If the US
Government is in fact the Mafia, then we can use the RICO Act to lock
up all the politicians and confiscate all their assets - no?
Maybe not, but it is an idea to help pay down the national
debt.
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READERS WRITE IN:
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WOW!!!! What easiest and most efficient way to get $100,000 out of the
US into a DR CD. The Central Bank is making available new
RD$100,000 CDs for expiration in one or two years. These are issued
with a financial incentive of three points above the current rate of
17% and 21% yearly yield. At the time of issuing these CDs, their rate
will be 20% for one-year term deposits and 24% for two-year term
deposits. Interest yield can be cashed in monthly. From DR1 Newsletters
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EDITORS REPLY:
Here we go again, another gem from DR1. Here is the complete
story and not just a few tantalizing headlines. The Central Bank
of the Dominican Republic has been accepting money from the general
public for roughly four years now (for investment certificates offered
by the Central Bank). This is nothing brand new and this all came
about when the Central Bank stepped in to guarantee all the
certificates of deposit issued previously by Ban-Inter. Now, what
happened was, a large number of people (who were not accounts holders
or depositors at Ban-Inter) were disgruntled about this (I will tell
you why below) as you had a bank taken over by the Superintendent of
Banking (whereby the local Dominican Banking Insurance Fund stepped in
to guarantee the accounts) and in addition to that, the Central Bank
said they would also act as a guarantor for all depositors also.
So, in effect, you had a takeover of a local bank by the authorities,
and not one depositor lost a penny (which is of course a positive thing
and proof that the local banking safeguards in the Dominican Republic
do work).
.
However, specifically discussing these certificates of deposit, the
Central Bank in essence swapped the CDs of Ban-Inter for certificates
issued and guaranteed by the Central Bank directly, albeit for a One
Year Term and higher than average interest rate. Why?
Because the Central Bank wanted to motivate depositors to keep their
money tied up or invested so everyone did not all show up on the same
day to withdraw funds. Why? Because this would probably
mean the Central Bank would have to issue or print more money, having
an effect on the local inflation rate (and further devaluation of the
currency). So, the result was a very good deal for these
depositors. However, people that did not have money tied up at
Ban-Inter said: hey, we want this deal too. So, bowing to public
pressure, the Central Bank started to accept or allow the rest of the
general public (people not previous account holders at Ban-Inter) to
get these same rates and situation as well.
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Technically speaking, this is a violation of the Central Banks charter,
and the Central Bank is not a financial institution set up or geared
towards working with the general public. The same holds true for
the Central Bank of the United States, otherwise known as the Federal
Reserve. In any event, there are no branches on every corner, no
debit cards, nor are there other kinds of retail banking services like
you can find and expect with a regular retail bank. Even though
this whole thing was meant as a temporary measure to avoid any sort of
banking crisis (and I highly applaud these moves by the way) we will
have to wait and see if this becomes a permanent thing or not.
Personally, I suspect the government has figured out taking in deposits
like this allows them to A. borrow local money in the national currency
and not have to worry about foreign currency exchange risks (which is a
very good thing when you can avoid borrowing money from foreigners) and
B. have a tool to steer economic policy for the country, such as
mopping up excess capital in the local market when this is beneficial
for policy to do so. Remember, we have talked about the
differences between the US Central Bank (Federal Reserve) and the
Dominican Central bank before. The US Federal Reserve plays games
with interested rates, artificially raising them and lowering them,
which can cause other kinds of havoc (such as housing bubbles, consumer
credit problems and so on). For the most part, the Dominican
Central Bank allows the free market to set interest rates, so you do
not have this sort of Keynesian Socialist monkey business going
on. Secondly, the Government (and indirectly the people) owns the
Central Bank of the Dominican Republic. The US Federal Reserve is
a private tax-free corporation that was granted a special charter by
the US congress in 1913, and therefore is owned by private
stockholders. It is the best tax-free private monopoly granted by
any government in the world. Too bad the rest of us could not get
in on that deal.
.
Anyway, the common question I get from clients is: Should I invest in
these things and is my money safe. I have said time and time
again, if you are living in the country (or at least visiting often),
it is not rocket science to want to invest your money at 21 percent
interest and live off the interest. However, we are talking
Pesos, which is the local currency. But, when one considers that
US$100,000 converted into Pesos at the current exchange rates offers
you about RD$60,000 Pesos per Month in interest, the idea becomes very
attractive. Even half that amount surely will give you a monthly
interest sufficient to pay your rent on a nice apartment, and your
electrical bill and your telephone bill, etc. Interest on current
US Treasury Securities will not give you enough monthly interest to
rent an apartment in funky town, never mind anything else. Also, many
of my own clients that invested in these certificates from the central
bank tell me that they get direct deposit to their local peso savings
account (in regards to the interest off these central bank
certificates) and the money in there like clock-work each and every
month. So far so good, but what is the catch?
.
The catch is you need to go down to the Central Bank building in Santo
Domingo or Santiago at 7:00AM in the morning, and hopefully you will be
one of the recipients of the numbered tickets they hand out (they only
hand out a certain number, so if you get there late, you might have to
come back the next day). With you ticket in hand, you will wait
around for three hours with all the other people doing the same thing
until your numbered is called and you can transact your business.
Same thing when it comes time to redeem it or renew it. The
options regarding the interest include direct deposit to your local
retail bank savings account (which seems to work well) or a check you
pick up in person (waiting on line for three hours once a month, which
is not something I am a big fan of). However, please understand
that this is not a retail bank. There are no debit cards, no
personal account officer, no drive up teller window, etc. It is
the Central Bank. However, the next question is: can you be
assured that your money is safe? Yes. If the Central Bank
cannot make payments, it is time for shotguns and canned goods because
believe me, the end is near when that happens. Plus, the Central
Bank controls the printing press and as a worse case scenario, they can
always simply print more money. Hopefully they will be
responsible and smart enough not to do this or get to a point whereby
they have to do this (my mind wanders to thinking about our good
friend, Helicopter Ben at the US Federal Reserve), but that aside, it
is probably or should be one the safest deposits you can make.
Just understand what the complete picture or story is with this.
Also, if you do not have a Cedula, you can bring your Passport as ID to
make an investment. Dominicans do not discriminate; they accept
money from everyone - providing it is in Pesos, the national currency.
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ANOTHER READER WRITES:
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Hey John - Just catching up on some reading and loved your historical
outline of the income tax in your 12/30 Newsletter. Most people do not
understand that a very small percentage of people pay a large
percentage of income tax. I always get nuts when I hear the liberal
types spout off about any tax decreases favoring the rich. Same old
mantra - over and over again. What most people do not understand is
that poor people don't pay taxes period. So, if your trying to
stimulate an economy through tax brakes you have to give the largest
percentage of the brake to the population that pays the most. I once
read that the real tax rate for Americans is about 75%. This is a
statistic that accounts for all taxes paid, state, local, and federal.
It calculates the high cost of consumer items because of taxes and
regulations imposed on business, which of course is passed on to the
consumer. When you add it all up it's huge. I often imagine what it
would be like if we could go back to the tax structure before 1913
today. No income tax, cheaper goods and services. No enormous
government sponsored entitlements like Social Security and Medicare.
Simply put - smaller government. I know that the prospect of
eliminating these social entitlements frightens the hell out of our now
government dependent society but they just don't get that government is
not there to " HELP" them but there to rake them over the coals.
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Can you imagine what would happen if workers received all of their hard
earned money in their pay checks with the understanding that they would
have to file quarterly tax returns and write the check for the taxes.
There would be a tax revolt for sure. It would become apparent that
they could well afford to provide for themselves what government
promises to provide. Couple that with lower business tax, which
translates into cheaper goods and whalla - an independent population
that provides for it's own retirement and medical care. Gee, what a
novel idea. There will be those who ask, " but what about the poor
people". There will always be about 10 to 15% of the population who are
somewhat indigent for a myriad of reasons. In the past, private local
charities and families took care of these people. Free care in
hospitals has existed for a long time and would continue to exist.
Besides, health care would be so much cheaper if government had stayed
out of it to begin with. Anyway, great piece - I always enjoy
your newsletter.
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EDITORS REPLY: Thank you for the letter and your comments.
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ANOTHER READER WRITES:
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I feel compelled to respond to your last newsletter. I have been
reading the newsletter for some time and make a point of reading each
one with relish. I was amazed to see you share my view exactly
regarding the future of North America. Sometimes I think it's only me
that sees the freight train coming I refer to the idea of North America
sliding into totalitarian and the introduction of "a strong man who
will put things right if given the power" The similarities with nazi
Germany are uncanny Weimar Germany here we come first the runaway
printing presses then social chaos then the emergence of a strong man
placing the blame on others and given power by the desperate masses to
"fix" it. I want to leave here before the close the border perhaps on
the pretext of a terrorist threat and the imposition of martial law. I
don't have a lot of money I can probably get 100,000 Canadian together
and my wife has a modest $1,000 Canadian pension. I have been looking
at Margarita Island off the coast of Venezuela mainly because the cost
of living is very cheap there (food, rent real estate). My only
concern is Chavez versus Bush though that's probably why it's so cheap.
I would be curious what your thoughts are on relocating to Venezuela.
Many thanks for taking the time to pen your perceptive comments they
are really appreciated.
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EDITORS REPLY:
Well, I have been to Margarita and my impression was that it is a place
that I could probably feel comfortable living. For sure, gasoline
is cheap as are electricity rates, along with some other things.
Real estate seems to be quite reasonably priced as well. The only
concerns I have about Venezuela are the currency controls (you can get
your money in, but it might not be so easy getting it out) and other
government restrictions associated with that. In regards to the
current government, the other issue is that it can be very difficult to
predict what kind of moves they may make in the future. One would
hope and assume they would never be that foolish to actually consider
confiscation or foreign owned assets inside the country, but you never
know. Venezuela has petroleum, which is a double-edged
sword. On the one hand, this is good for locals, gasoline is
cheap and electricity is cheap. On the other hand, does Venezuela
really care about world opinion and do they even need to be worried
about internal policies that might scare foreign investment capital
away? I do not know or have the exact answer. I can only
try to offer some ideas and possibilities. They used to say - he
who has the gold makes the rules. Today I think he who has the
petroleum is in the same kind of position. At best, I would say,
live in Venezuela (maybe rent for awhile before considering buying) but
do most of your banking elsewhere (Panama, Dominican Republic,
etc.). Certainly keep some money in the country for living
expenses, but I would tend to be a bit uneasy and putting it all there,
lock, stock and barrel.
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ANOTHER READER WRITES:
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Thanks for the newsletter I received the other night. I actually looked
into an area called San Isidro and saw new construction being done. I
spoke to a few friends and relatives from DR who said it's a nice area.
What I'd like to know is if this is a good place to by a house for
investment purposes. I have land in Boca Chica (about 4500 square feet)
but I'm not thrilled about the area. Actually that leads to my next
question. Where would be the best place for me to advertise the land I
have in Boca Chica? I'm about 95% sure that I want to sell it. Any
thoughts or guidance would be much appreciated.
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EDITORS REPLY:
The truth is, as we spoke about before, there are many middle class and
working class areas you may wish to consider, that are inhabited by
honest, hard working people that want to have a safe neighborhood just
as much as you do. San Isidro is out near the military base and
some of the areas in the general vicinity are basic or typical average
middle class neighborhoods. Your neighbors are going to be bank
clerks, tellers, schoolteachers and bus drivers (whatever).
However, these are some of the areas where you can probably find a
decent house ranging anywhere from about US$60,000 up to US$120,000 (or
the equivalent in pesos better said). Of course there is a
difference between finding a decent home in a middle class neighborhood
that you plan to live in and speculating on real estate. If you
want to speculate, what you do is buy really inexpensive property on
the outskirts of the city and wait for the city to eventually come to
you (which might take 5, 10 or 15
years).
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What can I tell you about Boca Chica that you do not already
know? Personally, I think it has one of the nicest beaches on the
Caribbean side of the country and it is only about 40 minutes by car
(without traffic) from the capital. The problem is, the place has
gotten a reputation as a spot for what, shall we say, can be called
adult activities. The kinds of people or tourists you get at Boca
Chica tend to be single men, and mostly Italians for some reason,
looking for action. You are not getting young families from
Europe, married couples or college kids into wind surfing like you have
or will find in Cabarete, and that is the difference. I think
Boca Chica would be a perfect place, especially for families with young
children, as the beach is very sheltered and the water shallow (with a
very slow and long grade before you reach deeper water). However,
as I mentioned, the ambiance off the beach is the problem, and not the
beach itself. And just as an aside note (for this reason I just
mentioned) most wealthy and upper class Dominicans stay far and wide
from Boca Chica and go away on the weekends to La Romana or Punta Cana,
even though Boca Chica is certainly much closer.
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ANOTHER READER WRITES:
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Good Day. I am interested in moving to the Dominican Republic and
I find it impossible to forward a letter to some people I do
know. Does the Dominican Republic not a postal service?
What does a person has to do in order to write to people living in this
Country. This is the 21st century - if you any advice PLEASE let me
Know.
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EDITORS REPLY:
The Dominican Republic does indeed have a government owned and operated
postal service, but at times the word service can be a misnomer.
However, with that said, I have found the same to be true in other
countries, such as Panama as well. I have gotten regular mail
sent through the postal system, although I will admit that what
probably should have taken one week often enough takes 60 days or
more. What can I tell you? If you want guaranteed delivery
of anything within 2 business days, my advice is to use Fedex, UPS, DHL
and some the other private services (Airborne Courier has a local
office as well) that operate, and operate quite well I might add.
Generally speaking, private services (private hospitals and medical
clinics, private ambulance services, private courier services, etc. and
so on) tend to work quite well in the Dominican Republic and often
enough do so for a fraction of the cost for similar things in Europe or
North America. Public services in contrast, not so well at times,
but then again the Dominican Government is not taking 60 percent of
your paycheck in income taxes either (as in the case of your native
Germany). Which would you rather have? A government that
takes more than half your income away OR one that does not, which means
you have to fork up US$35 every once in awhile for a courier
envelope? Personally, I prefer the US$35 because it usually is a
heck of a less amount than the amount if the government was taking away
half my monthly income, but I am a bit funny that way.
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