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In The News and Readers Write In (with our answers to Questions)..........
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DOMINICAN REPUBLIC BANKING - EXCHANGE RATES:
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Due to the previous devaluation of the Peso vs. the US Dollar (which has now gone the other way) many Dominicans have converted their currency holdings to US Dollars.  As such, the local banking system is flush with US Dollars and the result has been a decline in US Dollar interest rates as a result.  Most banks are currently offering anywhere from 2 to 4 percent on US Dollar savings accounts and up to 5 or 6 percent on time deposits.  However, time deposits at local banks in Pesos will offer up to 20 percent.   In addition, the current exchange rate is about 28 Pesos to one US Dollar, down from the previous high of 52 Pesos to the Dollar.  What is going on?  The current government is attempting to contract the money supply with three main goals in mind.  One is to curb and possibly reverse the inflation that existed under the previous administration, the second is to encourage more investment and third, to silence the outcry for adopting the US Dollar instead of the local currency as a medium of principle exchange.  On the last point, indeed, many businesses have stopped indicating prices in Dollars and have gone back to Pesos as a result.  All positive moves to stop the erosion of the national currency and to maintain control over the Central Bank and ability to influence economic policy.  Once a country accepts the US Dollar as its legal tender, or allows for a scenario whereby the Central Bank becomes nothing more than a puppet instrument for another foreign government, then such a country has just lost is sovereignty.  It would seem to me that this is something the current administration seemingly does not want to accept or see happen, and a admirable point to be sure.
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IN THE NEWS:
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NEW US CITY TAX STUDY – RELEASED AUGUST 2004:
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Taxes aren't just a function of income. According to a survey conducted by the District of Columbia, a hypothetical family of four in Bridgeport, Conn. with household income of $75,000 paid an estimated $13,272 in income, property, sales and auto taxes in 2003.
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http://money.cnn.com/pf/features/lists/taxburden/
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EDITOR’S NOTES: These figures are LOCAL State and City Taxes ONLY and do NOT include FEDERAL income or other kinds of taxes.  The US national average (for State and City Taxes alone) came out to about 9 percent, with the winners at the top of the list including Bridgeport Connecticut with a whopping 17 percent.  In order to come up with a more accurate and complete tax assessment, add on federal income taxes and social security payroll taxes to these figures (which may in fact place you above 50 percent in terms of the total income and payroll deduction taxes you are paying)..
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According to the recent 2003 US Census Bureau Report (as reported by CNN): More than 35 Million Americans are Poor (live just below the poverty line) and 45 Million Americans have no health insurance.   Also, as we reported previously, it has been declared that 25 Per-Cent of all Americans currently employed are classified as working poor (which means they are working, but barely surviving economically speaking – in a nation with 300 plus Million people, this is an astonishing number).  In addition, it has been reported that the vast majority of ALL new home mortgages are a special kind of interest payment ONLY mortgage.  Meaning that people purchasing homes are only making interest payments on the loans for the first 5 years, 10 years, or whatever the period.  Another very interesting and telling statistic as this means that young home buyers are NOT building equity or accumulating long-term wealth and are in essence paying the bank rent (while at the same time still legally on the hook for the entire mortgage balance). 
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According to some statistics, most Americans are working from January 1 until about May or June to cover their tax obligations (after that you are supposedly working for yourself).  If the information mentioned above is now true in that MOST new US mortgages are interest ONLY (and in some cases, no money down as well), a thought just occurred to me.  Americans are working half the year for the government and probably the other half of the year for the bank (just making the interest payments and never really paying down the debt or mortgage).  What kind of society will exist, and what kind of future will American children have?  They will work the entire year for someone else (the government or the bank) and in reality never accumulate wealth and never own anything?  Is this what the American Dream has become – an entire life of paying rent or leasing (not to mention taxes eating up the rest of it)? If we are now at the stage whereby citizens own nothing, then who does own everything? Is the government?  Is it a few wealthy families, banks or companies?  Some of our clients have made the comment that the US is looking more and more like a third world nation and the third world nations are starting to look more and more like the US (of 100 years ago in terms of taxes, government policy, etc.).  What do you think?
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SURVEY: US HOME SCHOOLING UP 29 PERCENT – More parents seek control of curriculum, environment – CNN, Wednesday August 4, 2004
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Almost 1.1 million students were home-schooled last year, a 29 percent increase since the last government survey in 1999. The growth comes as more parents, frustrated with traditional schools and limits on curriculum, say they would rather handle lessons themselves.
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http://www.cnn.com/2004/EDUCATION/08/04/home.schooling.ap/index.html
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EDITORS NOTE: This comes back to the argument of why is someone paying taxes for government services that do not deliver?  Congressman Charles Rangel, when interviewed about the idea of school vouchers (in essence rebating SOME but certainly not all the tax money that citizens have paid for public education so they could at least offset other education options for their children), balked and declared his disapproval for such an idea.  He then asked the question: What if citizens did not want to pay (taxes) to support other services they did not wish to use?  Let us see now – Some politicians are saying, the government does not want to give you your money back or let you opt out for the future (you must pay in no matter what).  However, the public schools are failing (not to mention dangerous in some cases) and parents MUST take matters into their own hands in terms of education.  Hmmm, very interesting, but perhaps not so much so as the following news item (the things to come?).
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GREENSPAN: AGING TO STRAIN US - Fed chief says quick fix for social safety net programs vital to avoid more painful steps later.  August 27, 2004, CNN-MONEY
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JACKSON HOLE, Wyo. (Reuters) - Rising pressure on U.S. finances from an aging population makes it vital to fix the social safety net soon with steps such as increasing the age for full retirement benefits, Federal Reserve Chairman Alan Greenspan said Friday.  Financing expected future shortfalls in entitlement trust funds solely through increased payroll taxes would likely exacerbate the problem of reductions in labor supply by diminishing returns to work, Greenspan warned. He said it would be preferable for Americans to work longer.  Changes to the age for receiving full retirement benefits or initiatives to slow the growth of Medicare spending could affect retirement decisions, the size of the labor force and saving behavior, Greenspan said, leaving no doubt that was his preferred option.  He said altering policy to encourage a longer working life for Americans would help.  Earlier this year, Greenspan urged Congress to cut the growth of Social Security and Medicare, warning that without immediate measures, the U.S. will face unsustainable deficits, rising long-term interest rates and slower growth in living standards.
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EDITOR’S NOTES: I hate to say we told you so, BUT we do not have to as now Alan Greenspan already has in public.  If you are a baby-boomer, then expect the following fun ideas in store as a courtesy of your politicians.  Extended age at which you can start collecting Social Security (75 years old, 85 years old?), and possibly MORE payroll deductions for Social Security as well (higher Social Security Taxes taken out of your paycheck) plus reduced benefits (including Medicare Health Insurance benefits).  Alan Greenspan of course says he favors that Americans simply work longer.  Why not, we can make it into a contest?  If you can make it to 100 years of age, you get a social security check – if you don’t, then tough luck, you loose.  The other idea is to allow Americans to work into a ripe old age in order to keep some benefits, such as Medicare.  I can see it now – an 80 year old man with cataracts driving a FEDEX delivery truck in downtown Chicago so the government will continue to pay for his blood pressure medication.
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But that is not even the best part.  For me, the most interesting thing is that it has been declared that ILLEGAL IMMIGRANTS are now eligible to sign up for and collect social security benefits (even thought they never paid into to it and are in the US illegally anyway).  The hits just keep on coming.
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http://money.cnn.com/2004/08/27/news/economy/greenspan.reut/index.htm?cnn=yes
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READERS WRITE IN:
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Dear John - Thanks for your monthly reports.  I (we) thoroughly enjoy them and have developed a completely different outlook towards economic and political agendas that directly effect our futures.
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EDITORS REPLY: Thank you for the comments.  My goal is to get people to think about the long-term, read as much as possible, and to understand so they can make up their own minds.  You do not need to agree with me, and it does not matter what your political affiliations are, but in the least be informed and think.  The most frightening thing for any government is a population that can think for themselves, but a necessity in a democracy (lest it not remain a democracy for too much longer).  So, the real point or lesson is that things are not always, exactly as we are told, plus history does tend to repeat itself.  For example, what was the so-called energy crisis in the early 1970’s all about?  Do you remember?  Was it simply because those greedy Arabs wanted more money or was it something else?  The fact is that OPEC became very nervous when President Nixon took the US off the gold standard, and they wanted to be paid in gold (they did not want to accept US funny money that was no longer backed by anything).  After the stand off, Nixon agreed to let them raise the price of oil and they finally agreed to be paid in US currency, but the deal was they had to keep the money in US banks (they did not call him tricky dick for no reason). 
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Flash forward to the present. Have the Arabs become nervous now knowing the US Government can freeze all the bank assets? Have the Arabs slowly started to pull their money out of US banks and convert it to gold instead?  If so, how will that effect the US money supply, economy, etc.?  Not too long ago, Sadam Hussein decided he did not want to paid in US Dollars (and wanted Euros instead).  The result was that with the increase in the value of the Euro vs. the US Dollar, Iraqi oil became more expensive in US Dollar terms.  American Oil companies needed to first buy Euros (at an exchange rate somewhere above 1 to 1, meaning it cost US$1.15 to buy 1 Euro as an example) and then pay for the oil purchases.  What if ALL the Arab nations or even all the oil exporting nations started doing this (no longer accepting US Dollars as payment)?  Was this a factor in the current Iraqi War, or was it really something else?  I do not know, but an interesting piece of public information not exactly highlighted on American news reports.  Indonesia now is starting a new movement to push for payment in gold among ALL Muslim Countries that export oil (I bet you never heard that one either).  In short, with anything (social security, new no money down interest only mortgages, job outsourcing abroad, refusal to accept US currency as payment, etc., etc.) the questions you need to ask are: Why is this happening? Is this a long-term trend or just temporary? If a trend to watch, then what started it and where could it end up?  What are the economic impacts? If we connect the dots for seemingly unrelated issues, does it form a bigger picture?
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Another Reader Writes:
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John - Remember a while back, somebody asked you about the Noni farming scheme at San Cristobal in Panama?  I ran across these stories in the Panama News recently.  I found it fascinating reading, and fits in with your caution about buying real estate from web-sites.  But it does appear from these stories, that Roger Gallo was taking kick backs for endorsing this deal, which is unfortunate.  Another case:  Last year, I was at an investment trade show, and passed by a booth of two guys selling lots in Nicaragua.  They told me International Living is selling land at inflated prices at something called Rancho Santana.   A lot of it is sold sight unseen, off the Internet, and then later the buyers find out it's only worth half what they paid, if anyone would buy it.  I think this just shows the marketing power of infomercials on the Internet, and people falling for slick endorsements without really knowing what they're getting into.  Well, don't quote me on anything - I don't want to be involved.     But people need to be aware of what goes on.
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EDITORS REPLY: Thank you for your letter and I kept it anonymous as I always do for anyone that writes in.  In regards to Roger Gallo, I have to say that I have known Roger for many, many years.  In all that time, I have always known him to be hard working, ethical and very above board (even a bit opinionated at times, like me, which is why I guess we have gotten along).  However, his Escape Artist web-site is basically a huge search engine in and of itself for all things relating to expatriation.  This means that he makes his money selling advertising space on the site to various companies and individuals, whether it is foreign language tapes or real estate or whatever.  So, I would say I am quite sure if someone advertised on his site, that they did pay him.  I would also tend to guess that if Roger knew that something funny was going on, that he would back away from it at the time he became aware, (if that was the case here, and I am only speculating).  I do know that he is just as concerned about his reputation as anyone in business is (or should be).
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I do not think there is anything wrong with anyone advertising real estate on the Internet and recent statistics from the US indicated that today (2004) about 10 percent of such real estate is purchased site unseen.  That of course is something I would NOT suggest.  Finding a property that looks appealing on the Internet (or in a magazine for that matter) is fine, but one still needs to see the place in person to make any kind of sound decision.  There are many, many offers floating around out-there, and any buyer should do some poking around accordingly (and due diligence as well).   How do you know any property is of value in terms of price?  Go visit, look around, ask around and find out what similar properties are selling for in the area.  This to me is nothing more than common sense.
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Another Reader Writes:
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John - Are you still Bullish on Investing in DR? I am interested in doing this however information from your report is a couple of years old so I am interested in what your current analysis is for commercial paper investments as well as interest bearing notes etc. What are the rules about removing cash from DR to another country? I believe that I read that up to 10k can be moved. Please clarify for me. I am still considering visa and naturalization but not until later in the year.  What is the real story regarding the power situation etc. as I have heard and read many stories?
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EDITORS REPLY: Well, as with anywhere else, I suppose there are all sorts of stories and misinformation floating around, but yes – many of our clients have purchased real estate in the Dominican Republic and continue to do their banking (or maintain other kinds of investments) without any problems.  However, all of our newer or more current information can be found on the newsletter section of our web site, whether it is banking, real estate, politics, etc.
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In terms of commercial paper, just as with commercial paper in the US (short term corporate bonds or notes, from 30 to 180 days maturity) one should invest with a sound company, preferably what can be called a blue chip company.  Meaning if you loan your money to a company like Pepsi-Cola, chances are you will get your money back at maturity where as if you loan it to company not so well capitalized, then you are taking a chance.  This is no different in the Dominican Republic as it is the case anywhere else, but there are some very good local companies in the DR to consider if commercial paper is what you want.
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In regards to the movement of currency, there are NO currency controls in the Dominican Republic.  You can just as easily transfer or receive US Dollars as you can Euros.  
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In terms of the economy, the new administration of President Fernzndez is certainly trying to set the course for long-term improvements.  The exchange rates have come way down from the previous highs of about 52 Pesos to the Dollar (it is currently about 28 at the moment), which is a signal of the taming of inflation.  Government public works projects are in the making, including a new monorail public transportation system for Santo Domingo, to be built by a Brazilian company.  Government tax revenues are up due to cost cutting (reduced number of government employees) and other measures.  So, all in all, the right medicine is being applied to turn things around for the better, although it will take time for sure.
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On the issue of electricity, this is a problem as a huge deficit was left over by the previous administration (in excess of US$100 Million Dollars owed to the private power plants or generating companies).  As a result, no tickee – no shirtee as they say in the Chinese laundry or on other words, no pay generator bill, no get electricity.  The current government administration has been paying off the deficit slowly as they can, but this will continue to be an issue to address for awhile as we go forward.  However, the immediate result or problem has been lack of sufficient electricity capacity in the grid simple because the power plants are operating at 40 percent capacity (if not less in some cases, it at all in other cases).  So the problem is NOT there is insufficient capacity to meet the electrical needs of the country (on the contrary), but if the power plants are not getting paid off in time then they will stop operating which is what has happened.  That is the bad news.  The good news is that Venezuela has agreed to supply petroleum at a reduced priced via a long-term agreement (all oil comes from either Venezuela or Mexico, no Arab Oil thank you very much).  In addition, with the drop in the exchange rates, it has now become LESS expensive to buy US Dollars in the exchange markets (and thus less expensive to buy foreign petroleum priced in US Dollars in terms of the local currency, the Peso).  So there is a bright spot on the horizon, but this is not the only long-term issue in my opinion.
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This problem of foreign oil in order to generate electricity (not to mention for other purposes) has a much bigger global impact and one in which I tend to think the Dominican Republic is in a much better position to survive.  I try to see the larger picture if there is one, and in the case of foreign oil and global energy needs, I do think the US especially will have some very serious problems within the next 5 to 15 years at least (and beyond).  The fact is that oil is a limited resource, dwindling fast while global consumption (especially in North America) keeps going up, depleting the supply even faster.  The president of Exxon-Mobil has already made the comment that in 2010 the oil industry will ONLY be able to meet and supply 50% of the petroleum needs.  If this is true, it means that higher gasoline prices are on the horizon and perhaps rationing as well.  In the Dominican Republic, local citizens have learned to live with electricity shortages and have sought out alternatives.  Battery inverter systems, solar panels and individual home or building generator systems are VERY common in the country.  In short, the electrical problem now in the DR is not now lack of supply, but rather another cause.  However, eventually on a global scale, it will be lack of supply and much higher prices (perhaps US$100 per barrel in 2010).  So, who will be better prepared both psychologically and physically as well?
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Another Reader Writes:
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John – Please Pass This Along to Your American Readers: When Franklin Roosevelt, a Democrat, introduced the Social Security (FICA) Program. He promised:  1.) That participation in the Program would be completely voluntary.  2.) That the participants would only have to pay 1% of the first $1,400 of their annual incomes into the Program.  3.) That the money the participants elected to put into the Program would be deductible from their income tax each year.  4.) That the money the participants put into the independent "Trust Fund" rather than into the General operating fund, and therefore, would only be used to fund the Social Security Retirement Program, and no other Government program, and, 5.)  That the annuity payments to the retirees would never be taxed as income.  Many of us have paid into FICA for years and are now receiving a Social Security check every month-- and then finding that we are getting taxed on 85% of the money we paid to the Federal government to put away, Also, you may be interested in the following:
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Question: Which Political Party took Social Security from the independent "Trust" fund and put it into the General fund so that Congress could spend it?
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Answer: It was Lyndon Johnson and the Democratically controlled House and
Senate.
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Question: Which Political Party eliminated the income tax deduction for Social Security (FICA) withholding?
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Answer: The Democratic Party.
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Question: Which Political Party started taxing Social Security annuities?
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Answer: The Democratic Party, with Al Gore casting the "tie-breaking" deciding vote as President of the Senate, while he was Vice President of the U.S.
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Question: Which Political Party decided to start giving annuity (social security) payments to immigrants?
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Answer: That's right! Jimmy Carter and the Democratic Party. Immigrants moved into this country, and at age 65, began to receive SSI Social Security payments!  The Democratic Party gave these payments to them, even though they never paid a dime into it!  Then, after doing all this lying and thieving and violation of the Original contract (FICA), the Democrats turn around and tell you that the Republicans want to take your Social Security away!  And the worst part about it is, uninformed citizens believe it! Perhaps we are asking the wrong questions during this 2004 election year!
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EDITORS REPLY: Well, politics aside, the bottom line is that the government sponsored social welfare state is a mess, and certainly has not lived up to the promise originally made by the politicians.  Also, I can also say Dominicans hate to pay taxes and the low signup rate for the new Social Security program is part of that paradigm.  Why?  Because they are ingrates or selfish?  No, it is because they are convinced the more money they give to the government, the more it will be squandered, mismanaged if not outright stolen by the politicians.  Some foreigners say the Dominican Republic is a third-world nation filled with uneducated peasants.  Perhaps, but they do seem to have more common sense then their North American counterparts.
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Another Reader Writes:
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In the August newsletter you stated the following: 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).  How many generations before does this automatically? Does Scotland have this provision as well? Does Ireland consider Scots part of the Family there for this provision, and if I have a blood relative in Ireland can I get citizenship there?
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EDITORS REPLY: First of all, I did not make this statement, but rather it was one of our readers who wrote in via a reprinted letter in our last bulletin.  However, the statement is accurate to some extent in some cases.  Which is to say that there certainly are some nations that consider citizenship to be hereditary regardless of where the next generation is living and regardless if that next generation has acquired another nationality.  The Japanese, for example, consider you to be Japanese no matter what.  Italy and Ireland are also two examples of nations that may recognize your rights to citizenship based upon the previous citizenship of parents or grandparents.  I do not have all the exact information you are looking for, but would certainly encourage you to contact a local consulate of whatever country your parents or grandparents came from with these questions.  Of course, make sure you have some proof, such as birth certificates of your parents or grandparents, passport, etc.
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Another Reader Writes:
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I understand the value of the dollar in DR and other countries and how you can live a better life retiring there, but you fail to bring up one issue, which is the safety in the country you move to. What I mean by safety is economy and general governmental services like the police, fire dept, hospitals, and laws of the country. Many counties are not stable in many areas that we here in the US take for granted. I'm sure that many of these areas of safety have been corrected but there are many that have not. Many born Dominicans that live in the US will agree to this. This is the problem with 3rd world nations. But hey I love DR and its people.
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EDITORS REPLY: Well, I would say that no country is perfect, but one must weigh out factors that are important to you and based upon that, then make a decision.  The US has wonderful roads and infrastructure, in most cases professionally trained Police and other civil service employees, modern public transportation systems, strict security and investment regulations, etc., etc.  However, a society is much more than good roads and police departments.  In addition, the issue of so-called safety is relative as well.  For example, when the electricity goes out for one day in New York or Los Angeles, people panic and there is extensive looting and robbery.  In the Dominican Republic, when the power goes out, people flip on the battery inverter to watch television or light a candle and play dominoes (and maybe drink the Presidente beer in the fridge before it gets warm).  In the US, young school children bring guns to school and shoot their schoolteachers and fellow students.  In the Dominican Republic, children are raised to respect their parents and teachers (the teacher will tan their hides and then when they come home, get a second tanning from their father.  In the US, parents go to jail if they discipline their children).  In the US, college education has become so expensive that many middle class people cannot afford it, and certainly have difficulty getting any kind of governmental assistance to pay for it.  In the Dominican Republic, while there is no organized governmental student loan program, the cost for some of the very best private universities is about US$2,000 per year – and many Dominicans living in the US are sending their children back home to the DR be educated for this reason).  In the US, most married couples MUST both work to make ends meet and end up spending less than 10 hours a week with their children, dumping them off in day-care under the watchful guidance of complete strangers.  In the US, elderly parents are very often shuttled off to old age homes.  In the Dominican Republic IT IS ASSUMED and EXPECTED that elderly parents will live with their children AND that grandparents (and or other adult siblings) will assist with child rearing if needed.  In the US, it is expected that the state or government will take of you (and why you give them up to have or more of your money in taxes for the privilege).  In the Dominican Republic, family is number one and not the government, plus FAMILY takes care of family.  In the US, many American cities have some of the highest violent crime and murder statistics of all the so-called wealthy and modern industrialized nations.  In the Dominican Republic, there is crime (anywhere there are people, there is some degree of crime) but no where near the levels of violent crime and murder in the US.  However, if you do shoot a thief in the DR, you are not violating his civil rights when you do it.  In the US in many poor neighborhoods, local residents are constantly worried someone will commit a drive-by shooting and spray their living room with an automatic machine gun while they watch television in the evening.  In the Dominican Republic, poor people are worried about when the electricity will come back on so they can watch television and the thought of a drive-by shooting does not even enter their wildest imagination.  Buy hey, I like the US, but just to visit (maybe) – I would not want to live there.  Just ask many of the US born Americans that have expatriated to the Dominican Republic, Panama, etc if they would really consider going back.
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Another Reader Writes:
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Hi, John - Hope you are weathering well there. I am now back in the Florida hurricane path, which put me in mind that you may want to mention to your readers whether they should be concerned about that consideration when contemplating a move to DR.  I suspect better housing there is suitably constructed to withstand such weather, but it may be an unanswered question on the minds of many who may be terrified by incessant ranting by the TV news about the dangers and damage. (One minor advantage Panama enjoys is lack of intense tropical storms.)
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EDITORS REPLY: Many people are concerned about moving to the Caribbean in terms of the hurricane issue.  However, you are correct in that I would be more concerned about living in Florida than the Dominican Republic in this regard.  It is not that the DR does not get hurricanes, but it is also true that the country does have an advantage as to where it is geographically located.  Most storms do either pass the country, either moving directly west towards Jamaica and the Mexican Yucatan Peninsula or directly due north, taking a stab at Puerto Rico and the Bahamas instead.  Typical building methods are concrete block, reinforced by metal bar and poured concrete (even the roofs are concrete), which is not the case in Panama. 
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Telephone 809-334-5387 or 809-756-1917 
Email: info@ascotadvisory.com
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