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Offshore News Interview 2002........  

John Schroder of Ascot Advisory Services discusses the days current issues and events...Some thoughts and insight as to what to expect going forward. 

 
Q. This has been an interesting year.  As we go into 2002, what do you see or feel has been some of the important events or those with the most impact? 
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A. Well, certainly the World Trade Center thing in New York has had a major impact.  Not only for the devastation, but with regards to the social impact as well.  Despite the argument that the event has had a negative and major economic effect  which I do not entirely agree with  certainly the new issues of security and increased government intrusion in the name of fighting terrorism will have an impact going forward. 
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Q. Why do you think or say there was no economic fallout? 
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A. I am not saying there was no economic fallout.  Certainly the incident has had a psychological effect with regards to tourism, peoples desire or lack thereof to fly, especially outside of the US, etc.  This most certainly has affected the car rental industry, the airline industry and the general travel industry overall.  In addition, there was or is an impact with regards to insurance claims and building reconstruction costs, plus an impact on those companies with offices in those buildings.  However, I do not buy into the argument that this single event has pushed the US economy into a major recession.  It already was in a recession and was not alone to blame for the current economic problems in the US.  The US has been on a collision course for economic disaster for quite some time, and I do not honestly see any politician willing to make the hard decisions to fix it. 
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Q. What do you mean by that?  What collision course are you referring to? 
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A.   Look, most of the major industrialized countries, or those countries, which are members of the OECD and G-7 have a long-term problem that started a while back.    Namely, they have a situation whereby they cannot afford to keep going the way they are.  Something has got to give.  You cannot keep stretching a rubber band and think it will never break.  More specifically, there was a movement or idea some time ago that governments should do more to solve all the social inequalities that exist in the world, one of the more notable items being poverty.  I think such a goal is wonderful, but you cannot continue to spend more money than you are taking in, and you cannot continue to burden the middle class or kill economic business incentives in the process.  You will in the end defeat the whole purpose by killing off the middle class or push out the businesses paying the taxes in the first place - if you do not have a reasonable balance.  Spending yourself into bankruptcy is not a good idea for someone's personal finances, those of a company and of any government either.  
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Q. So, you think people are generally opposed to such social or welfare programs? 
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A. No, I did not say that.  But certainly if you start taxing the middle class 50% or 60% of their income to support such programs, programs which they themselves are not eligible to benefit from because they are middle class or make too much money according to the government, then those people are going to feel they are being hurt and not helped by it all.  People are not necessarily opposed to paying their fair share of taxes, but there comes to a point where you ask how much is enough or fair and how much is really needed to run the government, any government.  This brings us to the question - What kind of government do you want?  Just how much should the government do (and are you willing to pay for)?  In many of the Nordic countries, such as Sweden and Norway, citizens of these nations pay very high taxes, but I tend to think that in the least the middle class paying the bulk of the taxes get something in return  such as national healthcare, free or government subsidized college tuition, and so on.  One may argue just how well some of these programs are executed or run, but in the least the middle class feel like they are getting back what they pay.  In the US, and some other places, this is not the case.  And by the way, Sweden especially is going broke also, as they can no longer afford it.  People tend to get a bit angry when they pay outrageous taxes, cannot benefit from these things, and then to add insult to injury - we hear that government run retirement programs are broke.  You might as well just throw money into a barn fire and roast marshmallows.  The result is the same. 
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Q. What then in your opinion is fair? 
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A. Do you want a government that takes half or more than half of your income with possibly no real benefits coming back or at least not full value for what you are paying?  Or would you prefer the government takes just what it needs for basic services, lets say 15%, and then the rest is left to you to do what you want?  Certainly the government must provide or is charged with maintaining certain beneficial services, such as roads, public schools, police departments, etc., etc.  What I do not agree with is the case when government gets involved in the private sector or attempts to run or operate programs better left to the private sector.  A perfect example is the US Social Security system, which is going broke.  In addition, which is being tapped into for other things, something I do not agree with either.  By the way, this is one major long-term problem affecting Canada and many European nations as well, not just the US.  Politicians are not businessmen, unfortunately, in the sense they do not care how much of the peoples money they spend or if there will be enough for tomorrow.   Government run insurance programs, which include Social Security, medical care programs, flood insurance, etc., etc are not run like a normal business with its focus on solvency.   Instead, they often enough operate on deficits with the thinking the taxpayers can fork over more money, or they will borrow more money to keep the thing afloat, which is the case today.  
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Q. You do not really believe that? 
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A. I most certainly do.  How is it possible, the US Congress votes themselves a 10% pay increase in December of 2001, almost unanimously and without much debate on the matter?  Yet, Americans are getting laid off left and right and they still are debating over a so-called economic stimulus package, or at least they have been talking about it for almost forever.   It takes them 30 minutes to vote a pay raise, but after how many months they cannot get their act together to decide on the proper fiscal policy for the country?  Give me a break. 
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In addition, since raising taxes are always politically unpopular and I am not even sure how much more taxpayers could stand or tolerate anyway, they instead raise the national debt and borrow the money.  So, they get to say, we did not raise taxes, but who is going to pay off all that debt?  You will, or your children will.  Lets take this further because we are getting to the heart of the matter now.  Lets talk about all the manufacturing and industry, which has left the US over the last 30 years or so.  Its not only that jobs have gone, but tax revenues along with it.  This is the real problem and why the OECD and the US is attacking all of these small countries, namely to look for new sources of tax collection for themselves.  
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Q. So you think the overall outlook is continued government borrowing and chasing tax revenues from other sources, meaning outside of the home country? 
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A. That is pretty much it in a nutshell.  They do not have the money, they owe more money than even exists or is in print, and they cannot raise taxes because it is politically unsavory to do so.  The modus operandi then is to borrow and to chase whatever tax money they can abroad. 
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Q. What do you mean when you say the US owes more money than is in print today? 
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A. Oh, what are you kidding?  There is roughly US$500 Billion Dollars worth of US currency in print or in circulation TODAY.  The US National Debt is over US$6 Trillion Dollars TODAY.  Do the math.  This is why, by the way, it takes two working parents or both couples working today just to stay afloat and maintain a household.  This was not the case 40 or 50 years ago.  Why?  Quite simply the hidden inflation, which does not get included in the official government figures, but has had an effect on everyones standard of living in the US just the same.  To understand this, what has happened is that the US Federal Government has not physically printed this extra money, but instead has borrowed it, as a book keeping entry from the Federal Reserve Corporation, which is privately owned.  You can imagine the interest alone on all this debt that must be paid, never mind even trying to pay it all back. 
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Q. Trying to sum it all up in general, what are your predictions or feelings towards future trends? 
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A.  Well, for starters, I do think expatriation is becoming more of an option and trend for many middle class people.  The knee jerk reaction to that, instead of addressing the reasons or issues why people are leaving and talking their money out of the country (US), has been and will continue to be increased pressures, both through new legislation and diplomatic pressures on those countries where these expatriates are going.  The new so-called war on terrorism is just a new excuse to increase this and further erode civil liberties regarding financial privacy, confiscation and so on.  Look - money is not evil.  People are evil.  The logic is, lets take the money from the evil people, so their hands are tied.  But, you know what?  These people are smart, well organized and freezing their bank accounts, if you can even do so, will not stop them from being evil or performing so-called terrorist deeds.  So, who gets caught in the crossfire?  It is the average citizen, as always.  But, this is to the benefit of the government, meaning to try and stop the flow of money out of the high tax nations.  However, not everyone is buying it, and to some extent, it probably is making lawbreakers out of people who would never consider doing so otherwise. 
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Q.  All of this is financial.  What about other trends? 
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A.  Well, the smaller nations growing economically and doing much better than their larger industrialized counterparts are taking notice, and some are fighting back.  Look at this new political and economic alignment between the nations in the Caribbean, I forget the name of it, but it includes Nevis, Antigua, and so on.  Sort of like a mini European Union for small island nations in the Caribbean.  I think you are going to see more of this going forward, especially with Latin American countries next, if they can ever agree to work together on such a level.  All of this is a matter of survival, as the larger nations, such as the US, really do not want to see these economies break out.  They would rather see all of the manufacturing stay in the US and use these countries as vassal states to some extent for exports, etc.  In addition, it behooves the larger nations to keep these countries indebted to the IMF, as they maintain control this way.  But, as someone once said, you cannot stop progress.  
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Look, all of these countries now have what the US had 100 years ago.  Low taxes, or in some case no taxes, low labor costs, a rapidly growing middle class and consumer market, little government social programs or government operating expenses to burden the tax payers, favorable business legislation, etc., etc.  In other words, they have the free market capitalist formula for success and their economies have been doing much better as a result.  In addition, they are getting many of the well-heeled and self-sufficient refugees from America and elsewhere.  When I say refugees, I am of course being sarcastic, because they are arriving with US$300,000 or more when they come.   They put their money in the local banks and earn decent returns tax-free.  They can afford university education for their kids, they can live a much better lifestyle than they had back in their high tax home country, and they are happy (happy to survive and get away). 
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I have a client that told me not too long ago, the US and Canada are becoming more like third-world countries and those third world countries are becoming what the US and Canada used to be like.  I think he hit the nail on the head. 
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I wish I could tell you that I was the genius that saw this coming, but it was Roger Gallo that wrote a book entitled  ESCAPE FROM AMERICA.  He was the one that really saw this coming, more than 10 years ago.  Many people thought he was crazy  now they do not think he is so crazy. 
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Q. Thank you for the interview.  Always interesting, informative and perhaps controversial as well. 
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A.  Well, I do not know about the controversial part, but I think I say what I believe and also what is in fact the truth.  But, I will take it as a complement. 
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