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Weekly
Update Bulletin On-Line.........
.. In The News and Readers Write In (with our answers to Questions).......... |
| IN
THE NEWS:
. . BUSINESS WEEK Magazine reports on Corporate Fraud in America - July 8, 2002. WAS ENRON THE END OR JUST THE BEGINNING? . From the On-line Article: . The daily drip of scandal is spreading to all parts of the corporate scene. At Tyco International Ltd., there are major accounting problems and its CEO is charged with cheating on sales taxes--even tampering with evidence. There's Merrill Lynch & Co. paying $100 million in fines for misleading investors. People scratch their heads at mainstream companies such as Stanley Works trying to evade taxes by setting up sham headquarters in Bermuda. (Ordinary taxpayers know they must make up the shortfall to pay for homeland defense and education.) They see trusted companies such as Merck & Co. booking questionable revenues. Finally there's Martha Stewart, the doyenne of domesticity, tarnished by allegations of insider trading and obstruction of justice. Martha Stewart! . The latest financial bomb--and potentially the most damaging to investor confidence--is WorldCom Inc. It may turn out to be the biggest fraud in American economic history--and the biggest bankruptcy. . . http://www.businessweek.com/magazine/content/02_27/b3790012.htm . . EDITORS NOTE: I will also add XEROX to the list, and the fact that US unemployment figures have gone up again due to new and recent corporate layoffs (WORLDCOM to layoff up to 95,000 people according to some estimates). However, on the subject of STANLEY WORKS, I take issue with Business Week's reference to re-incorporating in Bermuda as a sham. It is a legitimate move to reincorporate in a jurisdiction that is more favorable, just as many US companies choose to incorporate or reincorporate in such US jurisdictions as Delaware or Nevada for certain benefits. Why is it that to move the jurisdiction of a company from Wisconsin (for example) to Delaware is fine, but it is called a sham when the new jurisdiction involves someplace outside of the US? The answer is obvious, but I take issue with the double standard, all the same. . . AS A FOLLOW UP TO OUR REPORTING OF THE DECLINING VALUE OF THE US DOLLAR IN WORLD CURRENCY MARKETS, The Following also from BUSINESS WEEK Magazine: . Some respected economists and market analysts' worry that the dollar's slide could turn into a tailspin. Two of the preconditions for a dollar crash are in place: a giant trade deficit and a crisis of investor confidence. Such a downward spiral could mean big problems for the economy: Inflation would surge, export-led foreign economies would suffer, and there wouldn't be much the Federal Reserve could do. Any Fed attempt to stop a dollar crash by raising rates would kill the healthy housing market, stall the economy--and probably fail to bring back foreign investors anyway. "I'm concerned," says Edward E. Leamer, an economist at the University of California at Los Angeles' Anderson School of Management. "The speed of the adjustment is the critical issue." . http://www.businessweek.com/magazine/content/02_27/b3790016.htm . EDITORS NOTE: The final point of the above article is to calm nervous investors and paint somewhat of a rosy picture. In other words, to say things are not so bad. However, the points made on the negative side do mimic some of the other issues we have highlighted earlier, especially the out of control trade deficit (and the outrageous amount of debt the US Federal Government is carrying). Also, while the article says the White House quietly approves of a falling dollar (also a point we commented on), pointing to lower costs of US goods abroad, and thus in theory stimulating US exports, it also ignores the fact that foreign goods become more costly. With that in mind, one must remember the amount of foreign oil the US consumes and the impact on both inflation and consumer prices as a result of higher priced oil. In other words, inflation and higher interest rates are in the cards for the future with regards to the US if this trend continues, not to mention a tumbling stock market as foreigners (Europeans especially) look to dump US holdings (many already have). In fact, an early indicator might be the next upcoming US Treasury Bond sale (for the additional US$450 Billion), both in regards to how well received it is in foreign markets and what the interest rates are on the bonds in the end (if higher than interest rates from the last bond auction). . Also, it is important to note that all of this was a long time in the making and has nothing to do with the current politicians in power. Loss of domestic manufacturing and jobs, reliance on foreign sources of energy, inflation, artificially low or manipulated interest rates (in other words cheap money propped up by the US Federal Reserve) which we have also reported on previously, all have lead to the current situation. And there is no quick fix, as the problem did not come up over-night either. Will the politicians finally take a hard look at the problems and make the right decisions, or will they continue to borrow, in essence putting the problem off and stealing from the future? . A READER SENT IN THE FOLLOWING NEWS STORY: . CANADIAN COURT RULES AGAINST IRS IN TAX CASE Wednesday, July 10 - By Paul Willcocks . VICTORIA, British Columbia (Reuters) - A Canadian court, citing questions about possible misconduct by U.S. tax agents, has denied the United States access to evidence in a probe of an author who advises Americans how to avoid taxes through off-shore banks. . http://ca.news.yahoo.com/020710/5/nk1w.html . . EDITORS NOTE: Well, I am glad to see Canadians getting their national pride back, if even for just a brief moment. . .. . EDITORIAL: What is an Expatriate - Unpatriotic Traitor or Smart Thinking Realist? . There was a very recent news program appearing on the FOX NEWS network, July 2, 2002 with Bill O'Reilly and Democratic Congressman Charles Rangel, from New York. The topic was school vouchers and the idea of giving parents US$2,000 as an option to send children to the private school of their choice rather than continue relying on an ever failing Public School education system. The reason I think the program and the issue is important, is because it touches upon a much larger issue of accountability by government run programs and the tax-payer's right (or lack thereof) to back out (and choose something else). . Congressman Charles Rangel dove right into the issue by asking the questions, What if participation in Social Security, Medicare and other programs or services were amended for such a voucher type system? In other words, what if Americans were allowed to back out of government run services and programs that did not work, and were offered the opportunity to get their money back (or no longer pay in) so they could seek other similar services or programs in the private sector? For Congressman Rangel, like many other politicians, the idea is unimaginable. However, it is only unimaginable to the extent that it offers citizens a choice where as they have none now. Which is to say, that even though public education is failing (in part because the government has diverted funds away from education and into other things), even though Social Security has been publicly declared as being in dire straits financially and even though the government is involved with a number of programs or services it cannot afford and does not operate well - you, the American tax-payer, still must fork over your money and suffer paying for something that does not work. Stated another way, the idea of holding government accountable in the same way you can hold services in the private sector accountable - by TAKING YOUR BUSINESS ELSEWHERE (and letting them suffer the economic loss of not having your business, or we can say, your money any longer). . It is a new interesting concept, or is it really so new? Thomas Jefferson, when writing the American Declaration of Independence, basically explained that citizens have the right to reject their government when their existing government affiliation is no longer working, or is not fulfilling the social contract it has with it's citizens. Stated another way, if the Government is in breach of contract, get rid of them and get another government. Of course, the above issue is not about something so drastic, but it is about the idea of opting out of government run social programs and social services (which could include education) if the government is not fulfilling its mandate. In short, if government is not doing the job. So, what does this have to do with expatriates? . Well, in part, many people chose to expatriate, or leave, as their only viable option to get themselves out of such a situation. This is not the only reason of course, but I tend to think it is a reason for a great number. Just as their grandparents or great grandparents before them, they made a conscious decision to leave their existing country in order to find what is important to them elsewhere (or the opportunity to live the kind of life under the kind of government they would prefer). What items or issues are important? The opportunity to leave a peaceful life where they will not be taxed to death or regulated to death could be one. The ability to save and invest their own money for retirement rather than rely on a bankrupt government run program to do it for them. The ability to educate their children and not have to sacrifice all of their savings or retirement in the process is another, and the list goes on. In short, these are certainly some of the issues at large for the group known as expatriates. . The fact that they (expatriates) have come to realize that they DO have choices has government officials like Congressman Charles Rangel mad as hell (and scared to death). Congressman Charles Rangel asks the question, What if everyone decided to back out of paying for government programs they did not want? Exactly. What if people did realize that they had a choice? Where would you be Congressman if taxpayers refused to support economically, those programs which do not work and in fact are nothing more than wasteful spending? I believe many government officials do know the answer to this question already, and why many are so opposed to the options of expatriation, tax havens, offshore companies and trusts, etc. Ironically enough, they refuse to want to do the things (to fix the problem) that might convince their customers, so to speak (the American taxpayer), from going elsewhere. . ON ANOTHER NOTE, this very recent July 4, Americans celebrate their country and their independence (or in fact the creation of their existing government which has for sure changed a great deal over the years). However, one of the news commentators from the FOX NEWS network went out on the streets of New York on July 3 to ask Americans if they knew what they were celebrating. If the answers were not so sad, they would make for wonderful comedy. One gentleman was convinced July 4 has something to do with a war with the French, but was certain it has nothing to do with England or even Germany after some coaching by the news commentator. One middle-aged woman thinks it has something to so with independence from World War I and II, whatever that means. Another mature gentleman, possibly the next congressional delegate from New York, claims it is a celebration of independence from terrorists, and the list goes on. Many people in fact could not even offer any kind of answer, meaning they did not have any kind of reply at all (regardless of how far fetched it might be). . I have a few clients that are convinced there was or is some sort of agenda to dumb down the population in the US over the years . Since I try to look at things from a balanced perspective, I am not always so quick to buy into such conspiracy theories. However, with regards to education in America, now I am not so sure. Which is to say, if the answers of the people on the streets of New York is any kind of indication about the level of knowledge and education of the general population at large, it explains a few things. . In any event, while a great multitude spent the day drinking beer and cooking hot dogs (and probably did not spend too much time thinking about anything else or even why they were drinking beer and cooking hot dogs), I spent July 4 writing this. I am just different I guess, although for me, it also confirms that I made the right decision - to expatriate. In some way, I guess that every day is Independence Day now that I think about it. . . . READERS WRITE IN: . . Are you aware that the US PASSPORT office requires anyone who renews their passport disclose their SS Number as a form of ID otherwise the US Embassy says they could not accept the application to renew a person's passport. Many Websites have confirmed that disclosure of SS Number was not required and since this is another form of invasion of privacy of US Citizens, what authority does the US PASSPORT Office have to do to demand someone have a SS Number any how since this was never required before in the last 40 years that I have renewed my US Passport overseas? Please ask your other readers about their input and why this damn SS Number system is required. What does it have to do with passports anyhow? . EDITORS REPLY: It has absolutely nothing to do with passports, but everything to do with taxes and another way to possibly deny you a passport based on the fact that you might have some sort of outstanding or pending tax issue (with our friends at the IRS). We did discuss this new situation in a previous newsletter, but to review it once again very briefly: When you NOW apply for a passport (or renew your passport), a complete search is done to find out if you owe alimony, child support, have any outstanding tax issues (or if the IRS claims for you to have any outstanding tax issues, regardless if you actually do or not) and so on. The point being, if you do, then you will be refused a passport. It's that simple. Welcome to the NEW United States (enjoy the ride). . . Another Reader Writes: . John - In further reference to the lack or absence of economic GROWTH in real dollars (yen, euro, mark .lb) and continued escalation of small business failures during the past twenty years worldwide I find this paragraph from an interview with Gore Vidal quite poignant! Just last Wednesday the Republicans harnessed another 450 billion dollar load on all our backs by increasing the debt limit again. This is really crazy, crazy stuff isn't it? . This link to Vidal's interview is included - Keep up the good work John!! . From the on-line article: . Yes. With no exceptions. We are not the world's policeman. And we cannot even police the United States, except to steal money from the people and generally wreak havoc. The police are perceived quite often, and correctly, in most parts of the country as the enemy. I think it is time we roll back the empire -- it is doing no one any good. It has cost us trillions of dollars, which makes me feel it's going to fold on its own because there isn't going to be enough money left to run it. . http://www.alternet.org/story.html?StoryID=13529 . . EDITORS REPLY: Thank you for the information. . . Another Reader Writes: . Greetings, . I have been getting your newsletter and in the future I have been planning to pursue residency. I have a question that pertains to this. I have been researching on the web and came across an article stating that a bill has been introduced there that would extend the waiting period from one year to 10 years for the permanent residency. Please comment on this for me. I am already 55 and if this is the case, I might have to reconsider. . EDITORS REPLY: Well, if you are talking about the Dominican Republic, the truth is that I have not heard of such a bill, but that does not mean that it does not exist, however I would say that it does not seem to be a topic highly considered. Of course, someone could also introduce a bill that requires chickens to wear hats, but introducing a bill and getting it passed into law are of course two very different things. If anything changes in the Dominican Republic, regarding residency or otherwise, I will keep you posted (but I tend not to think so, although for sure many high tax nations would like to see the flow of middle class people to places like the DR halted if possible). . . Another Reader Asks: . Hello, I would to know is my money secure under the FDIC (US Bank Insurance Program)? . EDITORS REPLY: Well, this is a very interesting question and one I very much like to answer, as I think most Americans really have no idea what FDIC is or how is works. Also, many Americans always want to use FDIC as a point of reference with regards to safety of banks or banking outside of the US. However, the reality is that FDIC is an illiquid insurance company (if it were a private insurance company, it would be broke and unable to provide the insurance vs. claims) and I dare to say, a PONZI scheme as well. In addition, even though other countries do not have the exact same kind of system in place, they might have another, which actually guarantees a higher level of solvency for the banking system in its own country than what FDIC provides in the US. For example, as of March 2002, the bank insurance fund only has US$1.24 to cover each US$100 of insured deposits. So, if you want to make a comparison perhaps to the Dominican Republic, whereby the Central Bank requires that banking institutions post reserve requirements ranging up to 20% (for certain kinds of unsecured loans, such as outstanding credit card balances), the reality is that the Central Bank of the Dominican Republic has perhaps up to 10 times the reserve deposits and coverage that FDIC has (taking an average). . The following chart taken directly from the FDIC website indicates that the Bank Insurance Fund ONLY has 1.24% coverage and that this is in fact below the 1.25% minimum reserve ratio THEY have established (so they are below their own minimum guidelines). In short, how well do you feel knowing that the FDIC can only payout US$1.24 for each US$100 you have on deposit with your local US bank (should your bank go under)? Only you can answer that, but I certainly am not thrilled about it. . . http://www2.fdic.gov/qbp/grgraph.asp?rptdate=/qbp/2002mar . Also, we have talked about a very real
banking crisis once again in the US, and the numbers do not lie.
The following chart was revised June 12, 2002 and highlights that bank
failures are once again on the rise after leveling off from the last banking
crisis in 1999. In fact, the following chart indicates that 6 banks
have already failed this year, and that 124 are in crisis (or are having
financial difficulty). Of this total (6 that have failed plus the
124 in crisis), the total assets of these banks are, US$54 Billion Dollars.
By the FDIC's own accounts, they only have US$30 Billion in the fund as
of MARCH 2002 (plus an additional US$11 Billion is the Savings Bank Fund,
bringing the grand total to US$41 Billion). Therefore, if we take
for granted that this small number of banks and financial institutions
out of 9,000 something covered by FDIC end up going south, the FDIC insurance
fund is once again bankrupt, as it was in 1995. In other words, if
one assumes that FDIC might have to bail out ONLY 130 banks as of TODAY,
and pay off US$54 Billion Dollars to depositors, with only US$41 Billion
in the kitty, you can do the math. Interestingly enough, this is
a small number of the total 9,000 something institutions guaranteed by
(or supposedly guaranteed) by the FDIC. So, 130 banks go under, FDIC
is wiped out (again), which leaves no money for the deposits in the remaining
9,000 banks, credit unions, etc.
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