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Our on-line
newsletter bulletin now going on our sixth year!
Offering our clients and readers news items and headlines
often not covered by the mainstream media, articles of interest
regarding banking, economics, real estate, taxes, living or investing
abroad, plus much more. Finally, our very popular readers write
in section, with answers to some of the questions many of our readers
have - that no one else wants to answer truthfully, except us!
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Visit The Main Newsletter Section & Read Past Issues On-Line:
Dominican Republic Real Estate, Residency Filing, Banking and Interest Rates.
Panama Residency and Retirement. Naturalization and Dual Citizenship - Expatriate Issues.
Economics commentary, inflation, housing, stock markets and investing -
Plus a Whole Lot More !
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Our July 15, 2006 Newsletter Edition
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IN THE NEWS:
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FARM PROGRAM PAYS $1.3 BILLION TO PEOPLE WHO DON'T FARM
By Dan Morgan, Gilbert M. Gaul and Sarah Cohen - The Washington Post - Sunday, July 2, 2006
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El Campo, Texas - Even though Donald R. Matthews put his sprawling new
residence in the heart of rice country, he is no farmer. He is a
67-year-old asphalt contractor who wanted to build a dream house for
his wife of 40 years. Yet under a federal agriculture program
approved by Congress, his 18-acre suburban lot receives about $1,300 in
annual direct payments, because years ago the land was used to grow
rice. Matthews is not alone. Nationwide, the federal government
has paid at least $1.3 billion in subsidies for rice and other crops
since 2000 to individuals who do no farming at all, according to an
analysis of government records by The Washington Post. Some of
them collect hundreds of thousands of dollars without planting a seed.
Mary Anna Hudson, 87, from the River Oaks neighborhood in Houston, has
received $191,000 over the past decade. For Houston surgeon Jimmy Frank
Howell, the total was $490,709. I don't agree with the
government's policy, said Matthews, who wanted to give the money back
but was told it would just go to other landowners. They give all
of this money to landowners who don't even farm, while real farmers
can't afford to get started. It's wrong. The checks to Matthews
and other landowners were intended 10 years ago as a first step toward
eventually eliminating costly, decades-old farm subsidies. Instead, the
payments have grown into an even larger subsidy that benefits
millionaire landowners, foreign speculators and absentee landlords, as
well as farmers. Most of the money goes to real farmers who grow
crops on their land, but they are under no obligation to grow the crop
being subsidized. They can switch to a different crop or raise cattle
or even grow a stand of timber - and still get the government payments.
The cash comes with so few restrictions that subdivision developers who
buy farmland advertise that homeowners can collect farm subsidies on
their new back yards. The payments now account for nearly half of
the nation's expanding agricultural subsidy system, a complex web that
has little basis in fairness or efficiency. What began in the 1930s as
a limited safety net for working farmers has swollen into a far-flung
infrastructure of entitlements that has cost $172 billion over the past
decade In 2005 alone, when pretax farm profits were at a
near-record $72 billion, the federal government handed out more than
$25 billion in aid, almost 50 percent more than the amount it pays to
families receiving welfare.
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http://www.truthout.org/docs_2006/070206B.shtml
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EDITORS NOTE:
As we have said before, social welfare systems started out as a noble
idea. Today it is something else, and it is unbelievable to say
the least. And you want to know why there are no funds for
education or other issues?
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RUSSIA BRINGS REVITALIZED ECONOMY TO THE TABLE
By David J. Lynch, USA TODAY - July 13, 2006
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The bear is back. Forget the wounded, impoverished creature that
lost the Cold War and depended on foreign charity to balance its books.
Thanks to high oil prices and prudent fiscal policy, Russia today is
flush with cash and brimming with confidence. Eight years after
it bottomed out in the aftermath of the Asian financial crisis, the
Russian economy is in its fourth consecutive year of 6% annual growth.
Unemployment has been roughly halved and inflation tamed. In
financial and economic terms, it's just a totally different country
than it was eight years ago, says Roland Nash, Moscow-based head of
research for investment bank Renaissance Capital. Indeed,
Russia's economic rebirth is insulating the Kremlin against outside
pressure, thus complicating U.S. diplomacy on issues such as Iran and
North Korea. In January, Putin paid off Russia's debt to the
International Monetary Fund and now boasts more than $250 billion in
foreign exchange reserves, the third-largest stockpile in the world.
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http://www.usatoday.com/money/world/2006-07-12-russia-cover-usat_x.htm
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EDITORS NOTES:
Russia has recently announced they will pay off of its remaining $22.3
billion Paris Club debt AND also ALL monies owed to the IMF. In
addition, foreign cash reserves and GOLD reserves at the Russian
Central Bank are climbing, and while still below those levels of China
and Japan, it is not inconceivable that Russia is now in the position
to become one of the new economic superpowers and net lenders to the
world if they stay on this course (instead of an economic basket case
with outstanding loans). Indeed, a sort of alliance with the EU
and China puts Russia in league with other more stable and growth
orientated economies as well. Interestingly enough, even though
they have not directly said so (although they have said in terms of
priorities, the EU is number one with China a close second), it would
seem they now view the US as a has-been economy, and the facts do not
entirely dispute that. How it is possible that a nation that was
in dire financial straights just a few years back is possibly now in a
position to overtake the US in terms of lower debt and higher economic
growth? It would seem, in terms of China and Russia, the former
communists have adopted capitalism, and have beaten the originators
(the US) at their own game. Forget about the old glory days and
what once was. Follow the trends, follow the money and follow the
growth. By the way, did you know Russia is the major supplier of
natural gas to all of Europe, and has extraordinary large natural
domestic deposits of gold and oil? Stolchinaya anyone?
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THE READING ROOM:
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Many clients want to know where they can get some additional
information about some of the issues and topics we cover in our
newsletters. With this in mind, here is a brief list of very
worthwhile books you may want to read (all are available on Amazon):
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Basic Economics: A Citizens Guide to the Economy, Revised and Expanded (2003)
Author - Thomas Sowell
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Black Rednecks and White Liberals (2005). Author - Thomas Sowell
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Attention Deficit Democracy (2006). Author - James Bovard
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The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good (2006). Author - William Easterly
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Against Leviathan: Government Power and a Free Society (2004). Author - Robert Higgs
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Empire of Debt: The Rise of an Epic Financial Crisis (2005). Author - William Bonner
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Second Great Depression: Starting 2007, Ending 2020 (2005). Author - Warren Brussee
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READERS WRITE IN:
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John - I have read your column for several years now and would like to
say it is enjoyable and informative. However, I must say, it is very
painful, truthful, and almost depressing, but yet, I NEED to continue
to keep reading this to stay informed! I have also been reading
International Living, Escape Artist, Doug Casey, etc for many years
also. I am one of the many (Libertarian) Baby Boomers that will
soon retire (4 more years!). I have experienced many
life-sobering events since graduating as a wide-eyed, naive college
graduate (Marketing) in 1974 - namely, the first oil embargo in 74,
minority/female hiring in business, downsizing, etc. My career
paths have somehow (not by choice, but by financial survival) led me
toward government service. I worked 13 years in the Air Force as
an officer, until 92, when the military was downsized, and I was given
an early out. I then got a job a year later (after 1 year
unemployed) in the Post Office as a mailman. I did this for 6 yrs
until I hurt my knee, and was "laid off" again (plus another year of
unemployment). Now, I have worked for the Navy as a civilian for
almost 7 years. My question, is now that I will retire
(HOPEFULLY) in 4 yrs with civil service, with all my eggs in one
government basket, and wanting to live abroad and retire there, will I
be more at risk of "THE MAN" dictating when, where, and how I can
live?? All of my retirement saving are in the government Thrift
Saving Program (TSP). Any suggestions/comments?
Thanks.
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EDITORS REPLY:
Well, you are not alone, if that is any consolation. I honestly
do not know what to tell you, other than, if all your eggs are in one
basket and those eggs happened to be controlled by government or set up
in such a way that government can dictate how and when you have access,
then you are at their mercy. I do not know how aggressive they
may become or how many more people will continue to expatriate and opt
out of the system, but the numbers already are staggering (from what I
have seen). We already have seen recent legislation or change in
policy inside the US to tax expatriates even more, and I tend to think
this is going to be a continuing trend, especially if the number of
expatriates increases (which I think it will). It could very well
be that they decide to restrict money transfers out of the country
using some other excuse of course, and that they offer some sort of tax
or other penalty (higher tax rates) for those people living abroad, or
even refuse to pay the pension if you decide to live abroad as
well. Again, I am offering up speculation on my part, so take it
for what it is. I do know when you have your own private money
invested, be it in a bank savings account in another jurisdiction
(another country), be it in your own annuity or pension plan with an
insurance company (again in another country), you have more control and
more options. In addition, when you own your own home without a
mortgage and have diversified into other hard assets, such as gold and
silver, you have more options - not less. What choices do you
have if the government decides to reduce your pension going forward or
put strings attached to it? That I think is the difference between
having control over your own affairs versus relying on the mercy of
bureaucrats. If history is any guide, and IF the US continues on
the path they are on, usually the populace that is NOT prepared shouts
out for MORE government control and intervention (not less) and is
willing to give up freedom for so-called economic security as a
result. The point is, those people that have behaved responsibly,
have saved their own money, invested, set up independent retirement
plans, etc. are usually the targets of such pogroms. The
so-called Great Depression of the 1930s is just one example whereby the
US government outlawed the ownership of private gold and went about the
business of confiscating it. God only knows what they may
consider the next time around. However, one thing is for
sure. No government in history has survived economically with
consistent and chronic trade deficits, inflation and government debt
exceeding 400 percent of gross domestic product (which is the case
today in terms of the US). Those people that are caught behind
the eight ball (in other words, who saved nothing, are mortgaged or
leveraged up to the eyeballs, have no equity and are in reality broke)
always seem to think it is a good idea that government take assets from
those that do have something to take. The question is - where do
you fit in? If you are among the multitudes that have zero
assets, equity or savings (which is the vast majority), then chances
are you very critical of the idea of expatriation and strict private
property rights. If however, you are in the minority, then watch
out, as you may just very well be a plump target waiting to be
plucked. They say the first step in avoiding a trap is by knowing
of its existence in the first place (Amen - knowledge is power and
ignorance is bliss, but ignorance of course at the same time dangerous
to your own financial well being).
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ANOTHER READER WRITES:
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I bought and read your DR e-book, which I thought was well written and
comprehensive. I have read that the DR taxes its citizens on their
worldwide income, just like the USA. Is this true? If it is, are the
bureaucrats unenthusiastic about collecting offshore-source income tax
as they are at collecting domestic income tax? Also do they interpret
ownership of IBCs the same as the US IRS, or is there more latitude
regarding tax liability? Does the government confiscate the property of
its citizens at whim, the way the US does? Do police enter residents'
homes un-announced and, without having to give a reason and without
having to report to the court or to anyone else, take the residents
into custody without giving the person access to a lawyer or to make a
phone call to anyone--the way it is now in the US? If not, do you feel
that the DR is headed in that direction? I don't like living in a
police State, and if the DR is a much freer place, I'm interested.
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EDITORS REPLY:
Thank you for the positive comments regarding the Dominican Republic
Report. On the tax issue, there is an exemption for new
residents, which technically expires after three years. The
Dominican Republic does claim the right to tax certain kinds of foreign
source income after that point, but again, this is why proper planning
can be important for you (and many clients have arranged their own
affairs accordingly). However, to address the other questions, I
think it all comes down to culture, experiences and public
expectation. Dominicans by nature are generally very libertarian
in much of their outlooks, even though I do not think they even realize
it. In terms of law and order matters, Dominican society as a
whole is based upon respect and individual responsibility. If you
are a crook or commit a crime, do not expect any kit glove treatment
and shooting a cook trying to rob you does not violate the robber's
civil rights either. On the other hand, after living under a
dictatorship for some many years whereby there were abuses (the country
has been a democracy with free elections for roughly the past thirty
years), there is a generation that still remembers this and there is
sensitivity to what might be called government abuse as well. So,
I think there is a balance that is reached between the two, as least
from what I have seen. I would say that the problem with the US
is most Americans have no value for the freedoms they did have because
they took them for granted (and now they are so easily taken away under
the guise of protection or security) whereas new democracies (Panama,
Dominican Republic, etc.) are certainly sensitive to things that are
fresh in the memory of many that still remember. Generally
speaking, if you are decent law-abiding citizen you have nothing to
worry about, and well-heeled persons are treated respectfully (from my
own experiences). However, if you do break the law they will
throw the book at you. With that said, I do think it interesting
to note that there are more people incarcerated in the US (as a
percentage of population) than just about any other country on earth
and the crooks seem to have more rights than the victims. I like
the Dominican system better to tell you the truth.
.
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ANOTHER READER WRITES:
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In reply to what we stated in the last newsletter, which is as
follows: Most people, even staunch Libertarians, would admit that
taxation is a necessary evil in any society. After all, the money
to pay for public school teachers, police, firemen, construction and
maintenance of roads, among other things or public goods has to come
from some place.
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A Reader Says The Following:
You obviously don't know much about libertarians. Ever hear of
private schools, private police forces, private (toll roads),
etc.? Taxation is theft, pure and simple.
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EDITORS REPLY:
Well, one can certainly debate what functions government should or
should not perform. I have my own opinion on the matter, as do a
number of other people as well. However, regardless if you
believe in large government acting as the great social benefactor
(which I am not in agreement with), or a government that provides for
some very basic services, the truth of the matter is the money does
indeed have to come from someplace. I am not so naïve or
foolish to think that government can do whatever it is they are doing -
for free. Therefore, I view government as a service provider and
I view taxation as payment for those services. The real question
is, how much service do you want, how much are you willing to pay for
it, and if you are currently paying - are you getting your monies
worth? Which is to say, if you currently live in a country that
taxes you too much, or is not providing the services as promised, then
one choice you do have is to find another service provider, another
government, or another country better stated. Do I think taxation
is theft? Excessive taxation, taxation being paid for services
not well performed or delivered - then yes. There is something
known in legal definitions as theft of services when you pay for any
service not delivered, or not delivered to the standard promised.
So, one can possibly make this argument. But again, government is
nothing more than a form of organizing society, or a format for men and
women to cooperate on common goals and benefits. You want to
privatize everything, that's fine, and many things probably should be
left to the private sector. But keep in mind, one way or another, you
are going to pay, albeit perhaps in a private scenario we can call it a
fee for service instead of tax payments (but either way, you are taking
money out of your own pocket to pay for it). The argument or
debate remains open as to how much any government could or should be
doing, and how much could or should be left to the private
sector. The only difference between government and the private
sector in theory is that government confiscates your payment by force
(regardless of how well they deliver) whereas payments to a private
company are voluntary (you can stop paying if you are not getting the
service or you can also switch providers). This I think is the
real crux of the matter and why I tend to think freedom and true
democracy is found when you indeed have a course and recourse when the
service goes downhill. When the government is in charge of such
things, you then have no options as they will continue to take your
money by force if necessary, regardless of how well or poorly they are
delivering such services. This is often enough the problem and
why the only true way for citizens to have a voice; an out or a choice
is when the payments are voluntary or when other service options are
available in the market place. In theory this only happens when
there are numerous private providers, whereas government is a
monopoly.
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ANOTHER READER WRITES:
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Hi! Another newsletter mostly full of mostly distorted views.
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EDITORS REPLY:
First and foremost, thank you for your letter. I have reprinted
the sections you extracted from the previous newsletter, plus you own
comments as well as my own follow up accordingly. I suppose some
people interpret what I say or write as being done simply for the sake
of being critical, but that is not the intent. I do try to
provide views, news and commentary on subjects that seem to be glossed
over or not mentioned by the mainstream media. Indeed as a
previous reader has said, the information is not always happy or
perhaps is sobering, which many people do not want to hear or even
discuss. Opinions and points of view are certainly like noses
(everyone has one). I do think other people are entitled to their
opinion, but I also think no one has the right to force certain social
or economic systems on others also. People should be given the
freedom of choice, and the ability to live the life they wish (and
under the kind of social or other kind of system they wish as well)
providing of course they are not harming anyone else in the
process. With that said, I think other points of view are
certainly valid, and I do not hold the monopoly on ideas (both good and
bad). However, I do believe what I believe, am glad to hear
someone else's view, and am glad to defend my own. So, here we
go:
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Re-Printed from the Last Newsletter:
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Both Europe and the US have now had 70 years of big brother government
run socialism, government intervention and dictates regarding how we
work, eat, build our homes, etc. and so on. If they cannot get it
right after 70 years, will they ever?
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This Reader Says:
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A lot of things are right with Europe and are being copied by
developing countries. Some time ago Margaret Thatcher wanted to
effectively end the National Health system in the UK but was voted
out. Now this system delivers high life expectancy, and good
health education at much lower cost in proportion with the GNP than the
US. Systems of national universal health care are being created
in Brazil (1988) Thailand, Bolivia, Venezuela and other developing
countries as we speak. I do want regulation on the food we eat,
why should McDonalds get away with fats that are known to cause heart
disease in the US and be able to export these problems to the
developing countries? Should commercial organizations be allowed
to push baby milk to countries where basic hygiene is low with the
result of excessive infant mortality? Centrally regulated education
systems in the UK and Japan produce excellent results in international
comparisons. They have got it right in many aspects!
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EDITOR:
I agree. Some nations have gotten it right and kudos to the
politicians in those countries for doing so. When politicians are
truly working for the public good, and have their eye on efficiency and
provide for good delivery of such services (public health care, pension
plans, public education, etc.) they can certainly do wonderful
things. However, the tendency is more towards waste and
inefficient delivery of such services as the problem with government
is, there is no accountability. Meaning, if the government
bureaucrats waste taxpayer funds or do not deliver, they simply go back
to the tax payers for even more money plus they often enough keep their
jobs in the process (in other words, the never seem to get fired for
poor performance and or the system goes on regardless of what political
party is in). If a private school did not provide a good
education, if a particular health care provider did not deliver on
services, then the consumer has a CHOICE. He or she can go to
other options (quite one and sign up with another). With such
government systems, if it works well - great. But when it does
not, you have no choice. In theory, you can vote the politicians
out, but in practice that does not always solve the problem. If
the public health care and public education system in the UK is
top-notch, then congratulations are due to the British. However,
that is not the case in the US, and specifically not in terms of public
education. In regards to public health care, I can only refer to
many, many of our Canadian clients who complain about being placed on a
waiting list for six months to get knee surgery (as just one
example). When they get any x-rays taken in the public system,
they cannot take those x-rays to a private physician because they
Canadian government claims it is government property (no
kidding). A cottage x-ray industry has popped up just over the
Canadian border in the US, to service Canadians who want a fast and
efficient private (paid out of pocket) x-ray service. When you
have to cross borders to another country for health care services
because your own nations social health system is inefficient,
impractical or simply does not serve your needs - I think that is a
problem. As I said, hats off to the British if they have gotten
it right, but I would say it is more of the exception than the norm
when you look at such things worldwide where socialized health care
does exist.
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This Reader Says:
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Remember US is 5 percent of the World's population sitting on 15 % of
the natural resources. Social redistribution of land has already
taken place in many countries to give people more freedom. Which
social democratic policies are you for and which are you against?
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EDITOR:
I am not against such services or systems for people that want
it. I simply do not want to be forced into a system or program I
do not wish to pay for, nor use. In addition, I do NOT want
anyone to take my property, my money or my assets that I have earned
and worked for honestly and legally. I find it amusing that the
people with no money are always very quick to want to take it from that
those that have it, as the solution. The thief does this with a
weapon and it is called robbery. The government does it and it is
called a noble social welfare for the common good. The real
solution should be for such persons to learn and develop good habits,
become educated, develop work ethics and morals so they have a better
chance of success themselves going forward (instead of spending time
and energy complaining or otherwise trying to rob someone else of the
money or property that was earned legally, honestly and morally).
There is room for discussion as to what role government can play in
that purpose (a hand up instead of a hand out), but acting as nothing
more than a modern day Robin Hood is not the answer (after 40, 50, 70
years of this, the proof is there that it has not worked). Not
only has years of this not accomplished the goal of eliminating
poverty, the strains of keeping such a system going are starting to
show. If you think there are social tensions now, you have seen
nothing yet. Just wait for the government to tell all the middle
class people paying for everyone else that their age of retirement will
be extended to eighty years of age, or the check cut in half because
there are not enough funds. The poor and unemployed have recently
rioted in Europe, but then again that is what they often do (they
squeak, and the social oil flows to appease them and abate tensions - a
form of social blackmail). Wait until the people with the
financial means to get out altogether start doing so in mass, leaving
the system with no financial support. It has been proven time and
time again throughout history that when you tax the people too much,
you end up losing your tax base altogether. That is what happened
in the UK during the 1970s or have you forgotten when income tax rates
approached 100 percent for some people as part of that great British
social experiment? You probably did not notice nor care, because
you were getting the government check, but it is not such a fun
experience if you are the one they are taking the money
from.
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As I have stated before, I view government as a service provider.
You can espouse arguments of nationalism or other things all you wish,
but the bottom line is, government exists to serve the citizens (which
can take on a number of things all depending upon your view).
Using your local cable television company serving your own community as
an example, you can do without it altogether, you can sign up for the
full Monty of 150 channels, or you can pick and choose only the
services you want to pay for. Taking this idea a step forward to
government services, if I do not want the government to take money out
of my salary each month to pay for health care, old age pension (which
I think I should have the good sense to do on my own) or whatever else
- and why should I be forced to do so? Because YOU think it is a
good idea? You pay for it if you want it. In all fairness,
this means I am not entitled to use such government services and that
is fine with me as well. Government wants to be in the health
care business, then good for them, and good for the people that want to
participate. If I prefer to pay into a private health insurance
plan and stay out of the government one, why can I not do so? I
will tell you why. Because government is a monopoly backed up by
force and therein is the danger when it comes to socialism. It
has an unfair advantage over the citizen consumer; leaving him or her
to pay regardless of how well or poorly that service is, with no other
choice (at least not domestically). Sure, the consumer or citizen
can go off and still pay for private services (private education,
private health care, etc.) but then they are paying double, still being
forced to pay into the socialist welfare system that does not serve
them. This is my concern or gripe. If you think the system
works well and you want to participate, then good for you. I am
not of that mindset, nor do I want to be forced into such a thing
either simply because some other people think it is a good idea.
However, with that said, if you take an informal survey, I think you
will find that people who are in favor of such a system almost always
are people taking a benefit. Sadly enough, it is the hard working
middle-class that indeed pays the bulk of taxes to support such a
system and it is they that mostly that want out today because this
system has failed them. Using the US as an example and in terms
of unemployment benefits, did you know that even if you pay into such a
program your entire adult life, it is possible they refuse to allow you
to tap into it (depending upon your previous salary)? I do not
know about the British system, but it is grossly unfair that someone
need fund a public welfare system only to find out that same system
refuses the person because the claim is they earned too much money
previously (or that they supposedly do not qualify for whatever
reason).
.
In addition, the real problem with socialism is an economics conundrum
known as moral hazard. Using a very real example of what I would
call corporate welfare, Citibank and a few other large US banks got
themselves into trouble lending money to Mexico and other South
American countries in the past. The executives at these banks
were excited to loan money to these countries at very high interest
rates, but there was also a tremendous amount of risk. As it
turned out, there was a crisis whereby default was very probable.
In steps the US government via the Treasury Department and guarantees
all the loans the banks have made to foreign governments. The
problem is that the risk and financial hazard had then been indirectly
passed on to individual citizens that had nothing to do with it, and
maybe never even had an account at one of these banks. So, the
banking industry has learned an important lesson. They can put
the funds of depositors at risk, they can do all kinds of foolish
things, and it does not matter, because the American taxpayer will bail
them out. This is known as socializing responsibility, at least
economically. The same idea can be applied to old age
pensions. If I know taxpayers in other cities and towns will
continue paying and I am guaranteed an old age pension, why save any
money? I can take by paycheck every payday and blow it each week
down at the pub, or discothèque or whatever else. Why
not? Someone else will pay for my old age pension, so why should
I care? This is the other problem with socialism. It
teaches people that they can behave irresponsibility and there is no
downside, no moral hazard. The same is true with healthcare and
any other kind of so-called social insurance programs. I will
reply to your comments about corporations below.
.
From One of the Articles Mentioned in the Last Newsletter:
.
Currently almost all oil buying and selling is in US-dollars through
exchanges in London and New York. It is not accidental they are both
US-owned. The Wall Street crash in 1929 sparked off global
depression and World War II. During that war the US supplied provisions
and munitions to all its allies, refusing currency and demanding gold
payments in exchange.
.
This Reader Writes:
.
This is not true. Each article you quote seems to be full of
half-truths and lies. Most of the supplies to the Allies in WWII
were lend lease http://en.wikipedia.org/wiki/Lend-Lease. After
the war ended substantial effort was put into rebuilding Europe and
Japan, through the generosity of the American people.
.
EDITOR:
Well, I did not write that, so I will not try to defend it.
However, I do think the author was trying to convey the idea that, in
times of uncertainty or difficulty (war as just one example), the
default is always gold as the preferred medium of exchange over fiat
paper currency. It is interesting to note, and also unknown to
the vast majority of Americans, that the Saudis insisted the US
government pay for oil in gold during WWII. While the US at that
time did have a self-sufficient supply of oil for the domestic market,
it was not enough for both the domestic market and the war
effort. So, the US did end up buying petroleum from the Saudis
and minted special gold coins to pay for it. Why was this never
revealed? I think it would have been a very sore point
considering the private gold holdings of many Americans was recently
before that confiscated by the US government, and I am quite sure these
people would have been even more agitated to learn it was possibly
turned over the Arabs. Sixty years have passed, but some of these
coins are still floating around. Every once in awhile, they show
up at a coin dealer in Europe (most often Switzerland) and someone buys
it rather quickly (from the profile of the usual buyers, it would seem
to be someone from the local US Embassy doing so). As far as the
altruism goes regarding the US rebuilding Japan and Europe, I think it
was just good business, socially and otherwise. You cannot have
customers who are broke, and the reason the US boomed in the Fifties
was because the industry in Europe and Japan was decimated by the
war. The only supplier in town was the US, and to restore the
economies of these defeated countries meant a customer base and also
social stability there as well.
.
.
This Reader Writes:
.
Peso rates. Up till very recently the Central bank here was
paying 20% for 2 1/2 year deposits. Remember the Peso tends to
devalue against the dollar at 10 percent. Dollar deposits:
You might mention that you can get nearly 5 percent at good offshore
banks with high security. Dependence on oil: You might
mention that one reason that some European economies are successful is
that they have reduced oil consumption. High Speed trains cross
Europe. New metro lines are going in. This does require, dare I mention
it, some central planning. But its not a matter of serious debate
in politics there, it is a 'good thing'.
.
EDITOR:
Let us take this one at a time in order. Yes, it is true that the
Central Bank in the Dominican Republic was paying 20-percent
interest. The current rate ranges from about 10 to 14 percent,
all depending upon maturity. The point is what exactly?
While they have not said so, I surmise that the Dominican Government is
using this as one kind of fiscal policy to try and control the money
supply in circulation that was over-printed by the last
government. As a result of that, and other efforts, the inflation
rate dropped to zero (it is now about 5 percent because of the surge in
oil prices, but taking that out, the inflation rate would be have been
close to zero, which is an improvement over the 50 percent inflation
under the previous government). Not only that, the exchange rates
have not only stabilized, but the Peso had strengthened versus the US
Dollar as well, an incredible achievement in my opinion. However,
you are correct in that prior to the previous government, the average
annual devaluation of the Pesos for about 12 years prior averaged out
to about 5 percent per year, which we have mentioned many times over in
our previous articles. In addition, I do not think (and have said
so) that the Peso is an ideal currency as a store of value in place of
a declining US Dollar. However, for some clients, it may be
attractive for a portion of their assets (along with the Euro, Aussie
Dollars, gold, etc.) especially for those people living or retired
inside the country. I have said before, live in a country with a
weaker currency than your current or base currency and invest in
another that is stronger. This way, you cost of living is less,
you can keep up with devaluations - and you can profit from or at least
maintain the value of your assets.
.
Regarding US Dollar deposits, you are correct in that there are many
other attractive places to invest Dollars, and I have said many times
over, do not put all your eggs in one basket, nor all in one country,
nor all in one currency either.
.
Europe has indeed had much more success with alternative energy and
Europeans in general are much more cognizant of using solar, wind and
other kinds of energy sources. I think Europeans are way ahead of
Americans in this regard, and it will be a good thing going forward
that they are. Regarding central planning, a government support
and proactive participation in a national high speed rail transport
system is a very different matter than welfare programs. You are
talking about a hard asset, a public works project that offers value
for years to come after it is built. Social insurance is nothing
more than a modern day robin-hood wealth transfer system that simply
takes money out of one pocket and places it in another. I am not
against public works projects, such as train systems, bridges,
highways, etc., simply because the whole society benefits
equally. However, in contrast, social insurance programs simply
take money by force from one segment of society and then give it to
another, without equal benefit to all. That is the
difference.
.
From the Last Newsletter Issue:
.
Certainly this was the case for your grandparents, and great
grandparents - and they survived. And the truth is, this is the
case in many countries of the world that have not adopted the political
or economic tenets of socialism, and have not gotten themselves into
such a financial bind accordingly either. Where would you rather
live and under what kind of system as well?
.
This Reader Says:
.
More rubbish. Social Welfare systems originated with Churches in
the middle ages. If you were rich you were expected to give
money to an often-corrupt Church to distribute to the poor. In
many countries a Poor Law or equivalent came to an end well before your
Grandfathers time and pensions etc were set up.
.
EDITOR:
Well I was thinking more in the line of the 1700s and 1800s. The
middle ages had bubonic plague and feudalism also, not something I
would like to see repeated. You are correct in that many laws or
social systems ended well before the time of my grandfather or
great-grandfather and I was indeed thinking of them, and not someone
that lived 500 years ago under feudalism or the medieval church.
.
This Reader Writes:
.
The reforms of the Liberal Government 1906-14 made several provisions
to provide social services without the stigma of the Poor Law,
including Old age pensions and National Insurance, and from that period
fewer people were covered by the system. Means tests were developed
during the inter-war period, not as part of the Poor Law, but as part
of the attempt to offer relief that was not affected by the stigma of
pauperism. Workhouses were officially abolished by the Local
Government Act 1929, which from 1 April 1930 abolished the Unions and
transferred their responsibilities to the county councils and county
boroughs. Some however persisted into the 1940s. The remaining
responsibility for the Poor Law was given to local authorities before
final abolition in 1948. You also forget to mention is that the
US president Herbert Hoover at the time of the great depression
intervened in the economy to mitigate the suffering in a massive
socialist way but only under great pressure. I'm sure this lesson
has been learnt from history and today's leaders would not allow a
similar melt down (particularly as many central banks have been
nationalized).
.
EDITOR:
OK, so here is the question: How are we doing some 70 or so years
later? Instead of having squalor, we now have the working
poor. I do not know what the statistics are in the UK, but 25
percent of the US population TODAY in 2006 is classified as poor or
working poor. If there is some economic crisis, these are the
people at the bottom of the rung that will be first to go.
Interestingly enough, if you look at the statistics from the great
depression in the US, the unemployment rate was 25 percent (which means
that 3 out of 4 people were still employed). In any event, I see
a statistic that is very similar today after 70 years of socialism and
government plans to fight poverty than existed prior to these things
being put into place. Therefore, after all that, why is there
still a statistic declaring 25 percent of the population as being poor
or at the bottom of the barrel? One must conclude it is it
something else or for some other reason than the simple lack of money
in their pocket (socialism took money away from the more well off and
gave it to this group, so they got the money they were lacking).
You tell me - why the same numbers? Regarding the comment about
central banks and passed lessons, the sad thing is they almost never
learn from them. Here is my prediction. The social welfare
state worked fine with a booming economy, with capitalism to prop it up
(I am speaking of Western Europe, Canada, the US and not of course the
former Soviet Union, North Korea and similar countries) and with some
other favorable demographics (more younger people paying into the
system than older people taking out benefits, etc.). Now we
arrive at the crossroads or the real test if you will. The
politicians cannot raise taxes as the citizenry for sure will balk, and
in the case of many European nations where the taxation rate is 60, 70,
80 even 90 percent - fairly impossible as well. So what will they
do? They will run the printing presses and they will also try to
cut back on benefits for the younger generation coming up.
Running the printing presses will result in inflation, it always
does. Therefore, anyone who has behaved responsibly, saved money
and was disciplined, stayed out of debt - will be penalized because of
the inflation the central bankers will create. Those people with
hard assets, such as real estate, gold, other kinds of commodities at
least have a fighting chance (albeit better if those assets are not so
easy to grab as was the socialist solution during the last great
financial crisis). Those people with liquid assets (cash or cash
equivalents) all tied up in one of these fiat currencies are going to
see their purchasing power erode dramatically. What about the
younger generation? Who in their right mind wants to continue
funding a system whereby they know the benefits will be slashed (but
not the payments going in) for themselves in the future?
.
I think the socialists, like your-self, are scared to death and
frightened people do radical things. Which is to say, you and
others like you will do anything to make sure that free lunch keeps
coming. This is why I think it will get worse before it gets
better. There will be more restrictions on the movement of
funds (and reporting, tracking and so on) enacted with the excuse
of fighting criminality or terrorism. The real motivation, in my
opinion, is to stop the money from leaving the welfare state -
period. There are many people out there that are fed up and tired
of slowly going broke funding a system that offers them no value, or
certainly no value in relation to what they are forking over. God
forbid the rest of the population finally wakes up and stops funding
such a system. You know if that happens, your free health care
goes away and you will have to start taking your own money out of
pocket to pay for it (as opposed to getting free health care bought and
paid for by the tax dollars of someone else). This, I know,
concerns you very much. Certainly the politicians know the
numbers do not add up, and the system is going broke fast. They
have to know. How can they not if they are looking at the same
statistics I am? Sure, there are politicians that support such
things who are still living in fantasyland. They in effect want
you to believe one plus one equals seven, but I tell you it does not,
and the system is broke. You, and people like you, are going to
have to start pulling your own weight because the rest of us that have
been pulling that oxcart all these years are tired (and we are tired of
seeing all the hay fed to people free riding in the back instead of us
as well, and I include corporate welfare plus the wider net that
involves all the other nonsense also). I know you want me to keep
quiet, because myself and others like me, are in effect offering the
general public the blue bill (or was it the red pill?) as in the Matrix
films. Once people wake up, there is no going back, and if given a
choice you and I both know that most people will not voluntarily fork
over their hard earned money for such a system. The only way
socialism can function is when the government takes the money by
force. They have to, because they would not get it any other
way. If given an option, most people will not voluntarily choose
or fund the system you espouse (and you know it).
.
From the Last Newsletter:
.
Unfortunately, it is always the average middle class consumer that has
no idea what is being done to him (or her) and suffers in the end.
.
This Reader Writes:
.
The US and other developed countries are incredibly affluent and are
using the earth's resources at an unprecedented rate. If
suffering is moving from a inefficient 2,500 square foot house to an
efficient 1,000 square foot house and giving up the SUV doing 10 mpg
then so be it. Spending the money instead in low energy
activities such as eating out, good food, train journeys, the arts,
education, solar panels so be it. Some Americans actually enjoy
the chance to come home at night and not spend 1 1/2 hours mowing the
lawn with a tractor. I don't see this as suffering, just a
good adjustment. They will probably live longer!
.
EDITOR:
We finally agree on something. However, it is going to be very
difficult, for Americans especially, to wake up and realize they have
to take a step backwards in terms of lifestyle. Europeans are
used to doing with less, living in smaller living spaces, conserving
energy and water, etc. Americans have been lead to believe, the
US is the greatest nation on earth and every generation has the
opportunity to live better (more affluent) than the previous (and
perhaps more wasteful as well). The social stress for many who
awaken to this new reality is going to be difficult for some, and I
would not want to be around when the lid blows off. Want to see a
recent example of human behavior to come when placed under
stress? Look no further than the previous recent hurricane
disaster in New Orleans, or the unemployed Muslims rioting in
France. Wait until the silent majority, the middle class, become
really ticked off.
.
This Reader Writes:
.
I find many of the authors you choose to quote are extreme in economic
views and border on the intolerant. The opposing view on Gold is not
stated is that without it there has been an unparallel increase in
welfare and comparative lack of wars. Economies will adjust to
low energy situation through renewable energy. Lifestyles will
change, Bill Gates will fix malaria and HIV and life expectancy will
increase. The lessons of the great depression have been well
learnt that government intervention in social democracies can have
substantial benefits for the populatation. Gold extraction has
high environmental cost and there is no way it could go back to being
'money' without a liquidity crisis! Your view on socialism: there
are many different flavors. Capitalism also breads
irresponsibility of a bad and pernicious type - greed (e.g. Enron, high
crime rates and large prison populations, inefficiencies in use of
resources, etc.) US commentators often label Europe as socialist
but in fact it is following the 'third way' in many respects.
Brazils social democratic party supports health services, universal
free education, etc.
.
EDITOR:
Well, as I stated previously, I attempt to offer information not found
in the mainstream media and much of it counter to the popular
wisdom. There are plenty of other places to get the same rehashed
baloney and political sound bites. In terms of gold, you are
saying because currency is now fiat and not gold backed, that this is
better because gold standards cause welfare or more poverty? I
believe the numbers are the same (about 25 percent) and not because of
the currency or gold per say. On the warfare theme: we have had
the Korean War, Vietnam War, Cold War, British - Argentine War, War in
the Balkans, Somalia, War in Afghanistan, War in Iraq - what have I
left out? Gold, or lack of, in my opinion has absolutely nothing
to do with these two issues. If you point a connection to lack of
a gold standard and paper money inflation, then another matter because
I do believe the facts indicate a tangible connection to explain why
and how the middle class has been robbed of their savings and hard work.
.
With regards to capitalism and the free market, I do indeed think it to
be a superior system than socialism because of the motivators in puts
in place in the society and among individual citizens (Adam Smiths
invisible hand theory), but it is not perfect. I also fully
recognize that large business especially and monopoly power can
certainly become abusive. So, while I think the government should
get out of competing with the private sector for certain services
(pensions, health care, flood insurance, electricity) I also believe
there has to be a checks and balance in place. I would rather see
some sort of political process that attempts to strike a balance
between public good and good corporate citizenship, than the government
jumping in to provide these services directly with taxpayer
money. An excellent recent book on the subject is: Unequal
Protection - The Rise of Corporate Dominance and the Theft of Human
Rights by Thom Hartmann. It is a good read by a gentleman that is
very objective (neither too far to the right nor the left
politically). In short, I do think it unfair to entirely blame
capitalism itself for the behavior of some companies. On the
other hand, I am not entirely against some form of regulation against
what could become abuses by monopolies or some companies as well.
There has to be a healthy middle ground, and so far, both in terms of
government and how some companies have behaved, both have gone
overboard or to the extreme. On that note, I think it of interest
that Mr. Adam Smith, the father of modern day capitalism, wrote the
following some 200 years ago:
.
To widen the market and to narrow the competition is always the
interest of the dealers. The proposal of any new law or
regulation of commerce which comes from this order, ought always to be
listened to with great precaution, and ought never to be adopted, till
after having been long and carefully examined, not only with the most
scrupulous, but with the most suspicious attention. It comes from
an order of men, whose interest is never exactly the same of the
public, who have generally an interest to deceive and even to oppress
the public, and who accordingly have, upon many occasions, both
deceived and oppressed it. - Adam Smith, The Wealth of Nations,
Book 1, Chapter 11.
.
I do not know about Bill Gates being the answer to the world's
problems, but if he is willing to spend his own money to fund health or
medical research, then my hat goes off to him. Gold of course
does force fiscal restraint on politicians and the central bankers, and
I do not think inflation is a good thing, although I know there are
others that disagree. I guess we will have to wait and see how
all of this turns out, but I often wonder what hat trick they will try
next. Socialism was put into place to supposedly resolve the
inequities in society and offer up a solution to an economic situation
that occurred some 70 years ago. However, it was both a social
and economic experiment at best that in my opinion that has not panned
out as promised, at least not for many people who fund it. I am
very big fan of economists such as Ludwig Von Misses, Lew Rockwell,
Rothbard and others who have accurately predicted the outcome of such
an experiment many, many years ago. In addition, economics is
more than the study of numbers and interest rates, but rather involves
the nature of society and human behavior. In my opinion, like
religion, socialism is a very nice, utopian idea that has no concrete
success in the real world, at least in economic terms (if everyone
actually practiced what was written in the Bible and the Koran, we
would live in a very pleasant world indeed, but human nature tends to
stray just as this utopian idea of socialism gets away from the ideal
as well in terms of the actual delivery and management). I tend
to think that the demise of the Soviet Union, plus China and Vietnams
conversion to capitalism proves it does not work long-term. The
western democratic nations adopted a sort of blended version of it,
with the free market and capitalism in the backdrop, but today we are
seeing cracks in the wall as well. Just as the more, shall we
say, purer versions of full-fledged integrated political and economic
policy in terms of socialism (Soviet Union, etc.) has gone with the
wind, I think democratic socialism is starting to come unglued as being
unsustainable economically as well. However, it will not die a
quick and painless death, as many people who have a vested interest in
it will continue to fight to keep it going. Fans of the socialist
system always want a free lunch, and they will fight to keep it.
They want their neighbors to pick up the tab for retirement, health
care and what else is being offered up. They (the other social
classes, the neighbors, the people a few towns over) have a few bucks
and we have none (or not as much) so they should pay, seems to be the
argument. The government has to take care of me, they say, and
government so far has been glad to do it in these countries that do
have democratic socialist systems in place (but beware what you are
really giving up, when you allow the government or someone else to take
responsibility for yourself). However, I wonder what they will do
(these various governments) once they realize, the turnips (the middle
class) they have been squeezing all these years to fund it are finally
out of juice? Like any other Ponzi scheme, probably it will mean
the gig is up. It was a noble idea, but lets move on to something
that really works, for the long-term. Russia has, China has, and
even Vietnam is on the bandwagon too. So, why is the US becoming
more like the former communists (and like a third world nation with
excessive debt, failing schools, etc.) and the communists more like the
Americans 100 years ago?
.
.
ANOTHER READER WRITES:
.
Dear Sir, I heard that Panama is run by a Dictatorship and is not a
good place to open an offshore account. Word has it Cayman Islands is
better. Is there any truth to that rumor?
.
EDITORS REPLY:
I, for the life of me, have no idea where you got this
information. Panama has had a democratically elected government
for the last 15 years. Because Panamanians had lived under a
military strongman type of government in the past, they are very
sensitive to any suggestion to take away banking confidentiality and
other things currently in place (safeguards for privacy,
confidentiality and to some extent personal protection from government
tyranny). Which is to say, because these political freedoms are
new found and the previous experiences fresh in mind, I think
Panamanians value their own liberty and privacy far more than older
democracies, such as the US, whereby many things are indeed taken for
granted (and whereby many are willing to give up that freedom too
easily because of propaganda concerning a new war on whatever the
soup-du- jour is: drugs, money laundering, terrorism,
whatever). Ignorance is bliss and also dangerous. Turn off
the television and read one hour per night. Read the news (the
real news) from around the world, it's easy to do with the
Internet. Read a new book per month on economics, politics and
history (and read or discover all sides of the arguments: from left to
right, liberal to conservative, from Karl Marx to Adam Smith and so
on. Only then will you know who is telling you something
tantamount to fertilizer and who is not. Governments love it when
their own citizens are ignorant (it is so much easier to control and
manipulate them when that is the case). The average American, I
hate to say, is ironically probably the most ignorant person on the
planet, despite all the media and educational resources
available. Most Americans have no idea what the heck is going on
in other countries, and what they do know or hear is either rumor (one
ignoramus passing on incorrect information to another) or biased media
coverage that only highlights natural disasters or negative events in
other countries. I am not trying to be condescending, so please
do not take this the wrong way, but stop listening to rumors or
incorrect information.
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