Our News Bulletin On-Line:  Topics Include
Banking Investments Interest Rates Small Business Free Zones - Taxes Incorporation Services Mutual Funds Offshore
Life insurance Annuity Retirement Products  - Panama Dominican Republic Belize Bahamas Chile Argentina Ecuador Tax Havens
news headlines money market bank interest
 Offshore Incorporation Services   |   Offshore Information & News Articles   |   Offshore Banking Services
Send an Email Via Reply Form 
offshore incorporations news
Write an Email Message Direct 
..
<  Return to Ascot Advisory Main Directory Page from Here  >
.

<  GO TO MAIN NEWSLETTER DIRECTORY PAGE FOR BACK ISSUES >
..
offshore company banking services
Weekly Update Bulletin On-Line.........  
.. 
In The News and Readers Write In (with our answers to Questions)..........
.....
.
DOMINICAN REPUBLIC REAL ESTATE: 
.
In regards to the Santo Domingo Metropolitan Area, we recently visited a new middle-class single-family home development about 20 minutes outside the city.  Incredibly enough, these modest single level, but well built, homes measuring about 1,700 square feet of construction (with room to go up or add-on) are selling for US$45,000 – Brand New Construction.  The company doing the construction is well established and very reliable and the project has city sewer and water as well.  While not what you might call super luxury homes, they are very reasonable and comfortable properties in a middle class area for use as a second home or retirement home.  In addition, we recently looked at some brand new homes in the Zona Oriental, 2,300 square feet of construction with a bathroom in each bedroom and Spanish Tile Roof for US$72,000.  So, for those people that have made the comment that there are no reasonably priced homes left to buy in the Caribbean, I am here to confirm the contrary.   What’s the catch?  These are homes built and marketed to the locals, so the selling or real estate agent does not speak English (but speaking Spanish can save you a ton of money).
.
.

Since our last newsletter bulletin, we have been overwhelmed with letters from readers and as such, this current issue is composed of thoughts, comments, questions and concerns of people just like yourself that have taken the time to write in.
.
READERS WRITE IN:
.
John, I liked your discussion of second passports.  You mentioned Germany. Germany changed its historic blood law in 1999 allowing Germans to hold two passports and at this time 3% of all Germans (2,250,000) hold two passports as far as the government knows. It is probably more but there is no data.  Passports do not equal citizenship.  Many Americans are automatically citizens of other countries but do not know it, certainly do not have passports of that county (good examples being Ireland and Italy). Cubans that leave Cuba over the past two generations remain citizens of Cuba, says Fidel. However, they do not have passports since their passports expired if they ever had them in the first place. You are correct that a passport is just a travel document.
.
EDITORS REPLY:  Thank you for writing.  I had heard from some of my German clients that this was being discussed in the German Government (making changes to allow Germans to obtain dual-citizenship) but was unaware that this was passed into law or regulation.  On the same token, I have heard that Holland was doing the same (making changes to allow Dutch Citizens to obtain dual-citizenship) but have not heard more on the matter.  Most other EU countries do permit dual nationality (dual-citizenship and a Second Passport) as does the US, Canada and the vast majority of the other nations on the planet.  There have been and still are a few however that do prohibit dual citizenship (or require that citizens relinquish existing citizenship in order to gain another), but such countries are in the minority.
.
Another Reader Writes:
.
John - While I agree with you that jobs will continue to move offshore to China and other such places, it is not as DIRE as you make it out to be.  There are still a shortage of nurses and medical professionals, which cannot be moved offshore.      And many other jobs will remain: school teachers, store managers, dentists, advertising professionals, TV producers, used car salesmen, etc. etc. etc.  There are still plenty of people with plenty of money, to buy those things made offshore.  In fact, the offshore manufacturing only exists as long as there are wealthier consumers somewhere else to buy what they make.  That's why people go to Wal-Mart - to buy a T-shirt made in the DR.
.
EDITORS REPLY:  Thank you for your letter, and I must admit you do make a very valid point.  Which is to say, it is of course ridiculous to assume that every single job inside the US will and can be transported elsewhere.  However, the long-term trend would seem to be, in general, very few NEW jobs inside the US for those in the job market (and now it is the higher skilled, better educated people having difficulty).  I think the current unemployment statistics and so-called new job creation statistics is an indicator of this.  In other words, we are hearing about record company profits, an economy on the rebound – But, where is the new job growth??  According to the author of the book, The Globalization of Poverty, the jobs that WILL remain inside the US involve: Construction Jobs, Health Care Jobs, Civil Service (government employees including Police, Fireman and School Teachers), plus some other service industry jobs.  Apart from that, everything else is up for grabs to be outsourced. 
.
On the subject of some jobs, such as nurses, the US has gone through cycles within the last twenty years regarding nursing shortages before.  What did the US hospitals do?  They recruited nurses from the Philippines, Scotland and a number of other countries.  If you do not believe me, go talk to a nurse who has been working within the US health care industry for the last 15 to 25 years and you will find out I am telling you the truth.  In fact, especially when we are talking about recruiting an employee from a developing country (such as they Philippines), they can be and are willing to work for less than their American counterpart because, chances are, whatever wage you pay them is much higher than what they could get at home – so there is another twist to this problem as well (importing skilled workers who will work for less salary). 
.
In the news recently, Microsoft announced three interesting things: a new cash dividend payout to stockholders, a plan for 3,000 new jobs in Redmond, Washington – AND a new production venture in India.  Microsoft is being very tight lipped about the details for India, but many business analysts have taken a guess that the new production facilities in India will employ 4,000 people.  So, 3,000 new jobs in Redmond, Washington is good news - but not as good as 7,000 new jobs in Redmond – and even worse to possibly learn about the other 4,000 jobs might be going elsewhere.  I am not being critical of Microsoft by the way, but merely highlighting what I think is a general trend to be aware of in US business and industry.
.
Also, while I do agree that certain jobs cannot be exported, it would seem to me that there are not enough of these other non-transportable jobs to go around, and perhaps not at the same wage or salary (assuming you could make the transition from an electrical engineer to becoming a fireman, as just one example).  Let us say you are an electrical or design engineer working for General Electric.  Let us also say you job is gone and is being outsourced to an engineer in China for half the salary (maybe even less).  How do you switch gears, get the qualifications and education or experience to become eligible for a job as a fireman, retail store manager, television producer, etc.?  Perhaps you can get a new job doing one of these things, but do you really want to do that?  What are the differences in salary?  Imagine then, if you will, a man or woman with a Doctorate Degree in engineering selling used Hondas (for half the salary they were earning before) simply because they are NO other jobs to be had in their field or line of education?  This is the real issue or problem (not that there will be NO jobs, but what kind and at what salary?).  If these trends continue, which it looks like they will, there are going to be some severe lifestyle changes for a large number of people going forward - and changes, which they may not be prepared for either financially or psychologically.
.
OK, what is the one possible solution for you?  Well, if you find yourself among those who have to choose between becoming a used car salesman or school teacher, with a drastic reduction in salary (and I do not wish to demean or belittle any of these jobs, by the way) and are a middle class individual (economically speaking) then the idea of expatriating to a lower cost country is a very real alternative.  So, if you have a total of, let us say, US$100,000 or more in liquid assets (your equity in your home, your pension plan savings, your investments, etc.) it is very possible to take an early retirement and live off your investment or bank account interest income abroad.  Or, if you do have the capacity otherwise to secure a monthly income or say US$1,500 or more, while an income like this in the US or Europe puts you in dire straights financially, it may offer you a very comfortable upscale lifestyle elsewhere.  Many of our clients have moved to Ecuador, Dominican Republic, Panama, Thailand, just to name a few places.  In addition, many have reported they live just fine in a very nice luxury apartment or home, complete with a live-in maid, etc. with a monthly income of about US$1,500 or so (maybe more depending upon how active you are, how much you spend on leisure activities, if you want to play golf everyday on a private course, etc.).  Obviously the choice to live in another country is not always an easy one, but it can be done and it can allow you to live much better on much less.  In addition, it is not about lack of patriotism or love for your home country, but rather about survival and maintaining your current standard of living.  In fact, your life may even be greatly improved.
.
.

Regarding Our Suggested Reading Book List from the Last Newsletter, One Reader Writes In:
.
I too read "The Dollar Crisis" but found I agreed with the author's suggestion of minimum wage in 3rd world countries, as a start to making a level playing field for the workers of the world. I believe he said it would take a period of ten years. I'm not sure what your objection to that idea is??
.
EDITORS REPLY:  The author of the Dollar Crisis makes some valid points about wages, consumption and standard of living, but fails to calculate the inflationary effects of higher salaries across the board (world-wide) for the simple sake of putting more money into the hands of workers in other countries.  It is a bit more complicated than simply saying you want to see a Chinese worker earn the same as an American or European for the same job function, out of fairness, altruism or whatever the motivation
.
For example, wages are a function of a number of factors, including supply – demand of qualified workers in that local market (or simply workers in general regardless of job skills), local cost of living where the worker is living, etc.  Increasing the wages of workers worldwide and across the board will surely increase the costs of produced or finished products, which was NOT discussed or calculated in the book.  If you think companies are willing to absorb these increased labor costs and NOT pass them onto consumers in the form of higher prices, you are sorely mistaken.
.
For example, you are able to buy underwear manufactured in China (or Honduras, or where ever) in US stores for US$3.99 per pack of three BECAUSE labor costs are lower in the jurisdictions where they are manufactured.  You increase the cost of labor and you also increase the cost to the consumer as well, so where is the gain?  Do you want to pay US$20 for that same package of underwear so the worker can have a higher salary?  Perhaps you do, but I would wager to bet most of your other fellow shoppers would not.  Also, you in turn increase the cost of living for the worker getting the higher salary because he or she needs to buy underwear too, and now pay more for it, so everything gets passed down in a connected chain effect.  So an increase in labor costs or salaries in turn increases costs paid by the consumer for the products they buy, and since workers are consumers too, they also earn more but pay more as well.  Also, we are not just talking about factory workers because minimum wage law applies to everyone:  hotel chambermaids, waitresses, bus drivers, supermarket and department store checkout line cashiers, etc., etc.  So, the local cost of living automatically goes up in these poorer countries for ALL products and services as costs are increased or passed along to the consumer due to wage increases.
.
Not to go off on a tangent, but this reminds me of something that happened while I was working as a young fellow many years ago on Wall Street as a trainee.  At that time, I was told I would be getting a salary increase, of what came out to US$12 per month.  However, it was announced that very same month that the public transportation fares were going up (for New York City public buses and subways).  After doing the calculations I figured out it was going to cost me US$15 more per month to get to work with the new higher transportation fares (it ended up costing me US$3 per month AFTER my new salary increase, not calculating taxes).  So, I can personally relate to the concept of earning more, but in reality keeping less of it in my own pocket.  In addition, the only countries or people helped by higher minimum wages in China, Honduras, India, etc. are the same countries pushing for it (US, European Union, Japan, etc.).  This is because, the labor cost advantage goes away in these so-called third world nations (so do the jobs for these people by the way), and the inducement then is to keep jobs inside the EU and the US instead of shipping them abroad.  So, I do not buy into the argument that this is being suggested (higher wages in China or wherever) for humanitarian reasons (it is to help reduce the now unmanageable US trade deficit).  All well and good for each country to try and do what is in their own best interest (such as pushing for higher wages in China), but let us be very clear and honest in that such an argument is a really another disguised weapon in the trade wars to benefit the G-7 countries and not necessarily help workers in foreign lands have a better life (such workers are not living the lifestyles of the rich and famous at the moment, but they do seem to feeding their families on about US$300 per month because they can afford to - due to their local cost of living, which is quite incredible when you think about it).  Again, the argument is about being very plain, honest and above board with what is being suggested.  The US and the EU has the right to push for higher wages in China (or where ever else) because it is in their own best interest to do so (to discourage outsourcing and loss of jobs abroad).  However, such developing nations have a very competitive wage advantage at the moment as well, and it is in their best interest to exploit it (to bring new jobs and foreign investment within their country).  This is what the free market is all about – competition.  Many people tend to forget this, or to say, they want to rally around free market global trade when it suits them and cry foul at other nations when it does not (other developing nations that have lower labor costs, lower or no corporate income tax, etc.).  It is a two way street.
.
Another Reader Writes:
.
John - You should get a Pulitzer Prize for such a great newsletter.  It reinforced a lot of my thoughts on foreign citizenship and passports.  Also the part about the DR healthcare is very informative.  I have several questions that I am sure you will be able to answer and they are as follows:  What are your favorite country currencies for the future?  Are IBC earnings and individual income, both derived from doing business with people or other entities outside the DR and worldwide individual income coming from sources outside the DR taxable in the DR?  How does this relate to being a non-resident, with a home or renting in the DR versus after becoming a DR citizen?  I hope this is not too much of a mind-boggling question!!  Another question I have, which is kind of personal is - what do you perceive as the advantages of living in the DR versus Panama?
.
EDITORS REPLY:  On the issue of the Pulitzer Prize, I appreciate the vote of confidence, but I doubt I will be placed on the nominee list anytime soon.  On the topic of currencies, I suppose that the Euro, the British Pound and the Australian Dollar appear to be more likely to hold value versus the US Dollar (I suspect the US Dollar will start heading south again after the US Presidential Elections).  Those willing to speculate may wish to keep an eye on China, especially because the currency is currently artificially very undervalued versus the US Dollar.  Generally speaking, look for countries that have positive economic growth, a positive balance of trade (they export more than they import) and sound economic policy, as this will be an indicator of their currency.  However, in regards to ALL paper fiat currencies, gold is still king (and real estate is not a bad idea either).
.
On the taxation issue, some kinds of foreign source income are technically subject to local taxation in the Dominican Republic, although I tend to think the collection of data, reporting and actual payment is spotty at best.  However, if you wish to be 100 percent in compliance with what is written in the tax code (regardless if enforced or not) then you may wish to consider holding investments under the umbrella of a Panama Foundation or similar kind of vehicle.  A Dominican Company can be very useful for certain kinds of tax planning (the purchase of local real estate inside the country for example), but it is not as good tax-wise as say a Panama Company, Nevis Company, etc.  So, it really depends what you are trying to accomplish, where your investments are located and what kind of income you have (where your sales are generated if a business, etc.).  However, keep in mind that bank account interest in the Dominican Republic is still 100 percent locally tax-free at the moment, although the nice folks from the IMF are pushing for a new tax on banking interest (however, I do know there are strong lobbies very much against this idea, including the banking community).  Once again, related to the previous letter about global wages, a clear cut case of one government or group from a high tax nation trying to coerce the removal of tax benefits in another (the IMF trying to push for elimination of tax-free bank account interest in the DR).
.
In regards to taxation matters, most countries treat residents equally as citizens when it comes to most taxation matters (green card holders in the US may not realize it, but getting that green card changes the ball game completely for them tax-wise).  However, there are some special exemptions granted to new residents in the Dominican Republic, which does exempt them from taxation on foreign source income for a period of time after they become residents.  However, if you are simply a tourist, then of course there are NO tax obligations to discuss at all.  Meaning, if you purchase a home in the DR and only visit 60 or 90 days out of the year as a tourist, then the discussion of taxes becomes a moot point (you are not tax domiciled if you are a tourist).  However, with that said, you will not be able to obtain a local driving license unless you have residency or more precisely your Cedula Card (you are technically allowed to drive with your foreign license as a tourist for 30 days) and there are some other motivations for possibly obtaining residency as well.  However, you certainly are free to own real estate as a foreigner (without becoming a resident or citizen) and there are no restrictions.
.
Which country is better – Panama or the Dominican Republic?  For me, it is not a case of one being better than the other, just different, or I should say offering different things.  I have lived in Panama, I do visit often and I would have no problem living in Panama full time again.  However, I can say many things are much easier and simpler in the Dominican Republic (such as the residency and naturalization process, US Dollar bank account interest is of course higher in the DR, there are also many more direct airline flights to Europe).  Also, even though Panama is trying very hard to make itself over as a tourist destination, I would say the DR still offers much more in terms of leisure activities (golf, resorts, etc.).  Also as I have said numerous times before, we have clients that love Belize, Ecuador, Thailand, etc., so it really comes down to your own person likes and choice.
.
Another Reader Writes:
.
I am interested in making a deposit in a U S Savings Bank in the Dominican Republic.  I was browsing on the Internet and noticed that you have many web sites.    Could you tell me more about the massive bank failure in 2003 and what is this IMF standby agreement all about?  Did this affect people who had their money invested in Banks in the DR?  You are very optimistic about the security of using DR banks to acquire a better interest rate.  This is my concern.
.
EDITORS REPLY:  Well, first and foremost I can say that many of our clients would prefer NOT to deal with a US owned banking institution, as the concern is that personal information may be at risk.  Meaning, it is very easy for pressures to be exerted upon the parent bank (in the US), to gain information about bank accounts with the foreign subsidiary, even though is many cases it is against the law in the foreign location to divulge such information.  Apart from that, I know that many people feel safer banking with a bank that might be owned or might be a subsidiary of a US or European Bank, but as the Argentines found out, when problems cropped up, they (the foreign owned banks) chose to run the other way and leave depositors hanging out to dry.  Interesting enough, in the case of Argentina, the local banks stayed the course (they had to, they had no other choice).  So, this is just some food for thought about ONLY considering a US or European owned bank for your banking options.  Also, my experience has been that some of the foreign owned banks in the DR are NOT competitive with interest paid on banking deposits, so it is worth your while to check around (perhaps they feel you should be satisfied to earn less than the going market rate, and like it – simply because they are XYZ bank, a wholly owned subsidiary of a banking group in the US, for example).
.
On the take over of BanInter by the Superintendent of Banking in 2003, I have covered this in detail previously, so I really do not want to repeat this in too much detail again.  However, I can say that NOT one depositor lost any funds (thanks in part to the Government Banking Insurance and also to the Central Bank’s additional guarantees for depositors also).  I can also say that many people view this is a political issue rather than anything else.  Meaning, it is very interesting to note that the President of the Bank was supposedly charged with money laundering, yet he was released from jail in December 2003 (after being locked up earlier in the year) and the federal prosecutor has yet to bring the case forward in front of a judge for full trial.  In my book, either you are guilty or you are not.  Either there is evidence or there is not.  So, we will have to wait and see what pans out, but again, very strange that 18 months after the government announced these charges (and after the general public panicked from the news and caused a run on the bank accordingly) the man has not has his trial with all the supposedly incriminating evidence levied.  Also, it has been rumored he had a shouting match with the now former President of the country over a few issues right before hand (perhaps a case of who has the bigger you know what?).  Also, the banking group did own the largest daily newspaper in the country (Listin Diaro) plus a number of other newspapers, television stations and radio stations.  Some say, with the Presidential election coming up in 2004, it seemed would or could appear that perhaps the motivation was to take control of all these media outlets before the election, which was possible for the government to do with a money laundering charge (it was no secret that the former President of BanInter favored the PLD party and Dr. Leonel Fernandez).  So, was it dirty politics or was the bank really in trouble?  I guess we will have to wait for the trial.
.
However, I do have confidence in many of the local banks and the banking system (as you indicated from my previous comments).  It is also interesting that many foreign banks have made investments in local banks or bought local banks outright within the last two years.  In addition, Scotia Bank, a Canadian Bank, has been here for more than 60 years.  A large banking group from Trinidad has also recently bought a local bank.  So, I also tend to think that if things were that bad, why would foreign banking groups want to come to the Dominican Republic?
.
What can I say about the IMF (one of my favorite organizations) and why are they here? (I am being sarcastic I hope you know).  Well, the now former President borrowed foreign money like it was going out of style (US Dollar Sovereign Bonds), saw the local currency devalue by over 100 per-cent (depending upon what date of exchange you want to use) and under his tenure, increased sales taxes from 8 to 12 percent, plus witnessed a general decline in the economy (the GDP was growing at about 8 per-cent per annum when Dr. Fernandez was President before, just for some reference to the period BH – Before Hipolito – the guy that just lost the last election).  It is interesting to note that the IMF has the same cookie cutter approach that they have used for the last twenty years when negotiating any loans to a government, which is: DEVALUE the national currency, INCREASE taxes and especially sales taxes (they like sales taxes for some reason) and RESTRUCTURE the government’s finances so almost all government revenues goes to pay back the IMF fairly quickly.  Of course they insist on ALL these things first (the devaluation of the currency especially) before they hand over the money.  Very nice, but unfortunately it is the people of the country that suffer from inflation (loss of buying power of their national currency), have to pay more for everything due to higher sales taxes, and generally suffer from an economy held hostage by the IMF.  Not to go off on a tangent, but Argentina just announced this month (August 2004) that that have told the IMF, once again, to get lost (after now realizing the medicine of the IMF is more poison than medicine – Hooray for Argentina and Don’t Cry for Me IMF) and that they will fix their own mess themselves (and pay off the IMF in due time).
.
So, getting back to the Dominican Republic in 2003, in comes the IMF or International Monetary Fund to save the day and help all poor countries in economic difficulty (their promotional brochure is great, but the product delivery leaves something to be desired).  So, you are correct in that they are back (reminds me of Jack Nicholson in the Shining).  Of course, keep in mind Dr. Leonel Fernandez had paid off the open IMF loans before (during his previous Presidency 1996-2000), canceled the Dominican Republics drawing rights or open line of credit and in essence, kicked them out.  But, they (IMF) are back – let back in by the former President, Hipolito Mejia.  Anyway, the current new President, Dr. Leonel Fernandez, has his work cut out for him (but we think he will do the right thing, as he has proven already before).
.
Another Reader Writes:
.
Dear John - I too enjoy receiving your updates and very often nod my head in agreement on a large number of the points you advance.  Your 23 July update, which dealt in part with health care and public health institutions, prompted me to ponder the HIV question as it relates to Dominican Republic residency and dual citizenship for foreign nationals.  What is the country's policy on considering applications for residency in respect of personal health issues such as HIV, etc?
.
EDITORS REPLY:  As part of the residency application process, applicants are asked for a blood sample, urine sample and x-ray.  Immigration is looking for AIDS, Illegal Drug usage and TB with these tests.  Any applicant testing positive for any of these things will be denied.
.
Another Reader Writes:
.
I thought your newsletter was timely and interesting. Your reporting on the advances being made in the scientific sphere by China and its ultimate effect on US jobs is a wake up call, but it will be ignored until the debacle occurs.  Yes history repeats itself, politically and economically and can we really separate the two?  The industrial revolution put England in the drivers seat for many generations.  However Europe and America not only caught up, but then surpassed the English.  In  1945 the US had the initiative but, bit by bit, it has been dissipated, first the radio and TV industry to Japan, then steel making to underdeveloped countries who using modern methods made steel cheaply totally from scrap iron, with a minimum need for coke et.  Then there were the inroads by Japan on auto making.  Then arose rivals in the chip making and other computer products by Taiwan and Korea - Today China is the upcoming rival, and having a availability of labor that can produce (the Chinese are not dumb and uneducated) and a history of economic power, (remember in the early 19th century China was probably the largest industrial power on earth). They are not hesitant to assert their economic power, and the US cannot stop them.   Admitting China to the WTO was the economic equivalent of Lee surrendering to Grant at Appomattox.
.
EDITORS REPLY:  Thank you for your letter and your comments.  I think it sufficient to say, we live in a changing world (as we always have).  Those that understand these changes or trends and learn how to take advantage of them will fare well.
.
Another Reader Writes:
.
JOHN - AS ALWAYS, I APPRECIATED YOUR ASCOT NEWSLETTER. I ESPECIALLY LIKED THE ARTICLE ABOUT 2ND CITIZENSHIP AND DUAL PASSPORTS. READING BETWEEN THE LINES, I BELIEVE YOU STILL RECOMMEND THE DR AND PANAMA AS TWO COUNTRIES WHEREBY THIS PROCESS CAN BE ACCOMPLISHED WITHOUT UNDUE PROBLEMS.  I WOULD LIKE TO COMMENT ON THE HISTORICAL SIGNIFICANCE OF COMMERCE, ECONOMY AND WEALTH FROM A HISTORICAL POINT OF VIEW. I WISH TO QUOTE FROM A SPEECH GIVEN BY CONGRESSMAN PHILLIP CRANE OF ILLINOIS WHEN HE WAS SPEAKING TO THE HOWARD RUFF SEMINAR IN JANUARY 1979. THAT WAS AT THE TIME HE WAS MAKING A BID TO RUN FOR PRESIDENT. HOWEVER, HE SHOT HIMSELF IN THE FOOT WHEN HE PROPOSED LEGISLATION THAT WOULD HAVE PUT TV CAMERAS IN THE HOUSE OR REPRESENTATIVES SO THE PEOPLE BACK HOME WOULD KNOW WHAT THEIR CONGRESSMEN AND WOMEN WERE DOING. (THEY DID NOT WANT THAT AND FROM THAT POINT ON, HE LOST ALL HOPE TO BECOME PRESIDENT)

HE EXPLAINED THAT HIS PHD IS IN HISTORY. THEN HE SAID THAT MANY PEOPLE WHEN THEY DISCOVER THAT FACT, ASK HIM WHAT HE HAS LEARNED FROM STUDYING HISTORY. AND HE SAID, "I HAVE ONLY LEARNED ONE THING! THAT IS THAT PEOPLE DON'T LEARN FROM STUDYING HISTORY."  THEN HE PROCEEDED TO PRESENT A VERY SCHOLARLY DISSERTATION REGARDING THE WORLD ECONOMIES THROUGH VARIOUS CIVILIZATIONS. HE STARTED WITH THE ROMAN EMPIRE. THEY TOOK THEIR GOLD COINS AND TRIMMED JUST A TINY BIT OF GOLD OFF THE EDGE OF EACH COIN. THIS WAS THEIR METHOD OF CONTRIBUTING TO INFLATION.  HE DREW PARALLELS WITH SEVERAL CIVILIZATION ERAS, INCLUDING THE FRENCH EMPIRE AND THEN THE BRITISH EMPIRE.  EACH CIVILIZATION REMAINED ON TOP FOR ABOUT 200 YEARS.  EACH THOUGHT THEY COULD CONTROL INFLATION -- BUT NONE WERE SUCCESSFUL MUCH BEYOND 200 YEARS. THEN THE SYSTEM COLLAPSED AND THE MAJOR WORLD POWER SANK INTO A SECOND OR THIRD-RATE POWER.

REALIZING THAT OUR NATION BEGAN IN THE YEAR 1776, WE ARE AT ABOUT THE END OF OUR 200 YEARS. HOWEVER, HE ADDED THAT WE DID NOT BECOME A MAJOR NATION IN THE WORLD POWER SYSTEM UNTIL THE EARLY 20TH CENTURY. SO WE PROBABLY HAVE A FEW YEARS TO GO BEFORE WE MIGHT EXPECT MAJOR PROBLEMS.  THEN HE BEGAN TO ADDRESS THE CAUSE OF INFLATION. HE ASKED THIS QUESTION: "WHAT DO THEY CALL IT WHEN YOU AND I PRINT MONEY? COUNTERFEITING. WHAT DO THEY CALL IT WHEN THE STATE OF CALIFORNIA PRINTS MONEY? COUNTERFEITING. WHAT DO THEY CALL IT WHEN THE FEDERAL GOVERNMENT PRINTS MONEY? 'BALANCING THE BUDGET.'"

THEN HE TOOK A DOLLAR BILL AND HELD IT UP. HE ASKED, "WHAT DOES IT DO TO MY DOLLAR WHEN THE GOVERNMENT PRINTS MONEY?" HE WADDED UP THE DOLLAR BILL AND THREW IT ON THE FLOOR AND SAID, "THEY ARE STEALING FROM ME AND FROM YOU. WE KNOW WHAT CAUSES INFLATION. IT IS PRINTING PAPER MONEY. AND EACH CIVILIZATION THINKS THEY ARE SMARTER THAN THE LAST ONE AND THEY CAN CONTROL THE CURRENCY SO THAT THERE WILL BE NO END TO THE PROSPERITY SO GENERATED.  AFTERWARDS, IN OUR PRIVATE DISCUSSIONS, WE CONCLUDED THAT THE MAJORITY OF THE PEOPLE IN THE ROOM ONLY COMPREHENDED ABOUT 10% OF WHAT HE PRESENTED. I HAD ALREADY BEEN THROUGH SOME STUDIES THAT PREPARED ME AND I BELIEVE I MAY HAVE UNDERSTOOD 25% OR PERHAPS MORE.

ANYWAY, I WANTED TO PASS THIS ALONG TO YOU FOR WHAT IT IS WORTH. IF YOU WANT TO USE ALL OR SOME PART OF THIS, PLEASE FEEL FREE TO DO SO.  THANKS AGAIN FOR YOUR EFFORTS TO CONTINUE TO FEED US VITAL INFORMATION. I FOR ONE APPRECIATE YOUR EFFORTS.
.
EDITORS REPLY:  Thank you for taking the time to write in.  I would say the synopsis is that history does indeed repeat itself and there is no such thing as a new economic theory.  If you spend more than you take in or earn – you will go broke, regardless if discussing your personal finances or your government.
.
Another Reader Writes:
.
Hello John - thanks for the regular, interesting newsletter. As Government in Dominican Republic is to change in August, what can one expect for the following Investments:  Is Construction sector still too much in trouble or may a soon recovery be possible for the end of this year?  For the moment, many apartments in Santiago seem to be impossible to sell, due to inflation and prices no normal worker can afford.  How about land and "urbanization" terrains in Dominican Republic? I have bought some in 2001 when Peso was at 16.50 to US$1.  The prices of land have not increased in the way that inflation has increased. Is it possible that the change of government in August may impact so far that inflation comes down to an affordable level? Would this no selling now but waiting. What do you think?
.
EDITORS REPLY:  Well, I would say that real estate prices have remained fairly stable or perhaps increased slightly (perhaps 10 percent or so) in US Dollar Terms, where as they have more than doubled in Peso Terms.  So, you are correct in that real estate prices have increased to levels that have made some homes or properties unaffordable for the working class and middle class families (in terms of prices reflected in Dominican Pesos).  Real Estate almost always keep pace with inflation, although not always immediately or in direct step, but it is an asset that is a hedge against inflation for this reason.  I do think however, based upon what I just said, that it is a buyers market or renters market at the moment, with very slow real estate activity.  Even the builders are building with cash only and are not looking for bank financing for construction.  So, sellers or landlords will either have to reduce prices if they want to sell or rent property right now – or wait until such a time in the future when salaries and wages might have the opportunity to catch up.  In other words, the real problem is that cost or living and prices have gone up across the broad for Dominicans earning Pesos, BUT their salaries have not gone up in tandem.  However, foreigners with US Dollars or Euros will find prices very reasonable still based on the current exchange rate, so in this case and also for Dominicans that have had savings in US Dollars or Euros before, they can afford new homes and apartments.  I will say there are some landlords asking for outrageous rents, often in Dollars and up to US$1,500 or US$2,000 per month – but these are the folks smoking some of that funky tobacco they grow in Jamaica.  The foreigners are not dumb enough to pay San Francisco prices in Santo Domingo, nor is there any Dominican (including doctors, lawyers, architects, business owners and other professionals with higher than average incomes) in a financial position to pay the equivalent of RD$60,000 Pesos or more per month for rent (about RD$25,000 is an average professional monthly salary in the Dominican Republic).  However, many of these landlords can afford to sit for two years with a vacant apartment (asking for such rents albeit with no takers) because they have paid cash, which again, is a common thing to do.  So, while the economy is not so hot in the DR, people are not getting thrown out of their homes by the bank (because the bank is not in the picture).  
.
Just as everywhere else, when the government runs an economic policy that allows for inflation (or devaluation of the national currency), the middle class get hurt economically speaking, and hurt quite severely I might add.  The only thing saving many people and many middle class people is that many Dominicans do own their own homes outright (no mortgage).  Part of the reason for this is that interest rates have always been outrageous (interest earned on bank deposits are very high and you can imagine that interest rates on bank loans even higher than that – up to 40 percent at the moment for a mortgage in Pesos).  So, since there is no artificial interest rate tinkering and manipulation like you have in the US, interest rates are TRUE market rates.  This has been a good thing, as it has encouraged many people to pay cash for homes or build their own home over time and in piece-meal as they can afford to (which is why you see so many residential homes that look abandoned midway through construction, although they are NOT abandoned but rather the owner is saving enough money to continue once again when they can afford do so without a bank loan).  Unlike many other countries whereby citizens and consumers are leveraged up to their eyeballs with debt, this is not the case for most Dominicans and one saving grace to be sure.
.
Another Reader Writes:
.
I had the pleasure of reading your previous bulletin, and am most interested in your thoughts and detailed assessments of impending USA and global economic conditions.  Relative to this, you have suggested reading the following books: THE DOLLAR CRISES, THE PRICE OF LOYALTY, IN AN UNCERTAIN WORLD, THE PARTY'S OVER, THE GLOBALISATION OF POVERTY AND THE NEW WORLD ORDER.  From the above, it may be implied that USA and the world in general may experience very volatile and challenging times soon.  What are the assessed major risks, their consequences and time frame as well as suggested remedies that individuals or investors may consider?  Your early reply would be much appreciated.
.
EDITORS REPLY:  There are a number of statistics and demographics at work, which no politician has a magic bullet for or seems to want to address seriously.  To sum it all up, you now have VERY large aging populations in Japan, Europe and the United States (people are living longer due to improved health care and there was a severe drop in the birth rate over the last 30 years or so in the industrialized nations).  This is and will put a tremendous stress on the government run pension systems (Social Security) and public health care programs (old people tend to get sick and require more expensive health care than do younger people as an average).  Relocation of factories and jobs to low wage countries equate to employment issues and a general drop in tax revenues (just at a time when government expenditures for social programs will be going up).  Balance of trade has been negative for some time and looks like it will continue to be so for the so-called wealthy G-7 industrialized nations (importing more than they export) leaving this out as an option for a way to address the other problems I just mentioned (trying to get more money via possible economic growth).
.
Governments may look to increase taxes for those still working and paying into the system, plus may use other policies such as inflation to work themselves out of trouble (printing more money causes inflation or devalues the value of the money, causing imported goods to become more costly, foreign energy such as oil to become more costly and generally increases cost of living – but governments often like this option because it does not cost them too much and politically more palatable than to raise taxes, as just one example).  Foreign sources of energy, such as petroleum, continue to become a problem as such resources are quickly being depleted and foreign governments with such commodities can hold the developed industrialized nations hostage in terms of cost and supply (the President of Mobil – Exxon announced that in 2010, demand will outstrip the currently known petroleum supply by 2 to 1).
.
What is the answer?  Well, I suppose the old saying of - If you cannot beat them, then join them might apply.  Domestic corporations of the industrialized nations are relocating either their manufacturing to low cost countries for labor and production cost savings and or themselves (their corporate charter, reincorporating in another jurisdiction) for tax savings.  Maybe that could be one option for yourself as one way to maintain your lifestyle (consider living in or retiring to a country with low cost of living whereby your current income or pension goes a long way).  Which countries (and currencies, investments, economy) will be poised to do well over the next twenty years or more?  Those nations that have a positive balance of trade (they export more than they import), those nations that do not have lopsided population issues (nations with far more young people paying in than older people taking money out), those nations with natural resources, commodities or otherwise favorable conditions.   Generally speaking, it may also be worthwhile to keep an eye on what governments end up doing to stem the red ink.  Gold and other precious metals may provide a hedge against those governments looking to artificially inflate their own money supply.  Reasonably priced real estate in other markets may be of interest also (very small handyman or refurbished summer bungalows are selling for over US$500,000 in places like New England and New York – who can afford it?).  Perhaps selling now while the real estate bubble is topping off, and buying a brand new 2,000 square foot luxury home or apartment for half (or less than half) elsewhere (preferably in another country not correlated to the North-American housing market) makes sense.   Keeping assets safe and away from governments looking to become creative at confiscating assets in order to balance the budget perhaps is something else to think about as well (retirement plans, 401K and domestic annuities may look awfully tasty to a hungry national government looking for some dough or looking to change the beneficial tax status on such plans).  Aside from all these ideas, one tried and true idea is to get out of debt.  Do not live on credit cards, try to own your own home for cash (no mortgage) and try to save enough to become independent of government run social welfare programs (they may not be there or may be greatly reduced when it is your turn).  Perhaps easier said than done, but a firm goal to work for.              
..


.

Telephone 809-334-5387 or 809-756-1917 
Email: info@ascotadvisory.com
..
...