Wealth International, Limited

October 2004 Selected Offshore News Clips

(Especially noteworthy articles’ headings highlighted in gold.)


Last year I was the victim of identity theft, a sobering reality in today’s world. An unscrupulous criminal managed to social engineer his way past the formidable security checks and balances provided by my credit card company, my bank, and one of my investment accounts. He methodically researched my background and personal information until he could successfully impersonate me, and then subsequently set forth to change the mailing addresses of my most important financial statements.

It was a harrowing experience, and one worth explaining in the context of the online world. Numerous visits to the local police and the Canadian RCMP revealed some rather surprising things: identity theft is already so common that there are entire units within law enforcement that deal with this issue every day. But as capable as they may be, law enforcement is woefully ill-equipped to track down identity theft that starts online. As a security professional with a healthy dose of paranoia, I was confident that my online identity had not been compromised -- a more traditional approach had been used. But with the sophistication of today’s viruses, millions of others cannot say the same thing.

While not all identity theft starts online, the fact is that online identity theft is now incredibly easy to do. The same methodical, traditional approach that was used to steal my identity by placing phone calls is being sped up, improved upon, and made ever more lethal by first attacking the victim online. Your banking and credit card information can come later. We all know how commonplace these technologies already are: keyloggers, Trojans with remote-control capabilities and even webcam control, and backdoors that give access to all your files. There are millions of these installed on infected machines all over the world, lurking in the shadows. Ever do your taxes on your home computer? All it takes is one Social Insurance Number (or Social Security Number in America), plus some really basic personal information, and you are sunk. To those who still say there is nothing important on their computer that requires them to care about today’s worms and so on, the day their own information is stolen and used against them is growing ever more near.

Link here.


Criminals and terrorists are devising new ways to launder money and move it around the world, even as authorities are tightening the rules to stop them, bankers, regulators and investigators say. At a conference in Vienna this week, speakers noted that, at the most primitive level, this can mean physically smuggling cash across borders, especially using high-denomination notes like €500 bills. At its most sophisticated, it may involve recruiting legal and financial professionals as “gatekeepers” to set up complex webs of holding companies via offshore tax havens.

Over three days of meetings, some bankers voiced frustration at the cost and complexity of implementing anti-money laundering rules, including the constant lookout for transactions by individuals designated as terrorists on international sanctions lists. “You will never find an account ‘Osama bin Laden. Profession: terrorist. Address: Kabul,’” said Albert Cluckers, a senior compliance official at Dutch bank ING. “It’s purely a political issue. Economically speaking, it’s a huge investment for a very, very low result. At the end, it’s the customer who is going to pay for all this.”

In the EU, a new directive due for approval this year will force banks to scrutinize more closely the ultimate beneficial owners of accounts. EU anti-money laundering rules already apply to professions including lawyers, accountants, estate agents, art dealers and casinos and will be extended to cover anyone accepting cash payments over €15,000. Experts said such measures, while essential, would mean money-launderers would seek new ways to circumvent the system.

Link here.


Oleg Deripaska is a very brave man, in all likelihood. When Ernest Hemingway wrote Death in the Afternoon, his study of Spanish bullfighting, almost 75 years ago, he made a point of appreciating the quality of bravery in both bullfighters and bulls. A quality of the matadors he knew, he wrote, “is the ability not to give a damn for the possible consequences; not only to ignore them, but to despise them.”

In the 15 months since Russian President Vladimir Putin began his campaign against oil company Yukos and the oligarch who controlled it, Mikhail Khodorkovsky, Kremlin officials have speculated whether it was a one-off affair or whether Putin would move against other oligarchs whose record of capital accumulation is similar to Khodorkovsky’s. Over time, Kremlin factions have come to believe that Putin’s crusade is here to stay. They have therefore begun to speculate about which oligarch will it be next. Not a single oligarch has shown the bravery as Hemingway described as verging on contempt for the consequences. Unlike Khodorkovsky, most of them have prepared their exits from Russia if things get too hot.

For some time now, many have held that Deripaska -- the controlling shareholder of Russian Aluminum (Rusal), the world’s third largest producer of aluminum, and Basic Element, a holding that includes auto, paper and pulp, insurance, electricity and other assets -- is more vulnerable to Kremlin attack than his fellow oligarchs. But until very recently this was cheap talk. On September 6, however, a new government document appeared that might challenge the president to crack the whip again. Rusal is revealed in the document to be under official investigation for tax optimization practices which, according to a source, cut the group’s tax payments in 2003 to just 2% of its declared sales revenues. In contrast, Yukos, whose principal shareholders are in prison facing trial on charges of fraud, forgery and tax evasion, paid 38% of its annual sales revenues on tax in 2002, and again in 2003.

Link here.


Despite three years of outcry from activists who say the Bush administration has been sacrificing basic individual rights in the name of preventing terrorism, other issues in the presidential campaign have drowned out the protection of civil liberties. Senator John F. Kerry, determined to demonstrate that he can be trusted to protect the country from terrorists, says little on the subject beyond using “end the era of John Ashcroft” as a generic applause line and calling for modestly stronger oversight of a few of the new police powers provided by the USA Patriot Act, a law Kerry voted for.

President Bush, meanwhile, has staunchly defended the Patriot Act, and his administration has asked Congress for even greater surveillance powers to fend off potential terrorist attacks. In the immediate aftermath of Sept. 11, two out of three Americans said some civil liberties had to be given up to fight terrorism. But a recent Pew Foundation poll indicated that half as many Americans now hold that view. Still, protection of civil liberties does not rank high as a concern among most voters this year. The Iraq war and the US economy are the big issues. For civil libertarians who have spent the past three years trying to raise public awareness of the risks that go along with new police powers, that sentiment is frustrating.

Link here. The Democratic candidate is no friend to the Bill of Rights -- link here.


In an unassuming office building on a leafy street near Dane County Regional Airport, a couple rooms of computer equipment are quietly changing the nature of law enforcement in Wisconsin. When they are clicking into action, most people will not even know they are there. And that is the point. They are wiretap machines, meant to allow police to listen in on the private phone conversations of suspected criminals. For years, police here rarely resorted to wiretaps, which require a court order, and that was mostly limited to cases involving severe violence or the threat of it. On average, it happened less than twice a year.

Now it happens more than once a month, due in large part to new computer technology that has streamlined much of what officials describe as a cumbersome, painstaking process. It included tracking down the phone company’s switching equipment, setting up huge recorders and manually starting them with each call, and amassing half a room’s worth of tapes, then methodically indexing them all.

“You’d have to have three reel-to-reel recorders for every line you’d want to wiretap,” said Edward Wall, a special agent for covert surveillance in the state Department of Justice. Wall held up a disk drive from the new system he said could hold 900 hours of recorded conversations, indexed at least half a dozen different ways. It was a little bigger than two CD cases held together, and, he said, held the power to make Wisconsin investigators much more willing to ask for wiretaps to investigate crime. “When they find these are not as hard as they used to be, that mind-set is changing,” Wall said.

Link here.


In America’s war on terror, cutting off the financial flow to the bad guys is a key goal. But it is a particularly elusive one. Even when a patriotic U.S. bank spots something suspicious, it may be hard-pressed to do much about it. And so it is that Citigroup, the world’s largest financial institution, finds itself confronting the fact that a bank it partly owned and managed in Saudi Arabia may have funneled thousands of dollars to terror groups and to the families of Palestinian suicide bombers -- at the behest of the Saudi royal family.

The allegations involve Saudi American Bank, also known as Samba, the Riyadh-based affiliate in which Citi had a 20% stake. In late 2002 Samba was added as a defendant in a federal lawsuit filed by relatives of Sept. 11 victims against prominent Saudis and charities to which they appeared to be connected. The suit, prosecuted by Washington, D.C. lawyer Allan Gerson, among others, alleges that Samba “participated in the fundraising campaign in Saudi Arabia for collecting donations to the heroes” of the Palestinian uprising. Samba has filed a motion to dismiss.

Now Gerson is eyeing an additional suit against Citigroup and has lined up as possible plaintiffs 450 people who have lost relatives or themselves been injured in terror attacks in Israel. Similar allegations could end up being made against a few other Western banks that own stakes in Saudi institutions. A weak point in the plaintiffs’ case is that there may be no evidence that any money went directly from their Saudi affiliates to terrorists. Yet another issue is that, given Saudi banking laws, any foreign bank could not have easily uncovered or thwarted such funding.

Citigroup had run Samba under a management contract since 1980. At one point Citigroup had 30 people at Samba, including the managing director, the treasurer and chiefs of a few departments. Samba was treated as a Citi outpost, with access to all parts of Citi’s network, auditing teams, new technology and marketing expertise. Samba, the second-largest bank in Saudi Arabia, with a 12% share of bank profits in the kingdom, earned $383 million in 2003. It was the linchpin of Citi’s close ties to the Saudi elite. Citigroup’s problems began in 2000, when Saudi Arabia’s royal family issued an edict requiring large banks in the country to create a charitable account that would channel donations to “martyrs” of the Palestinian uprising.

Link here.


Low-key Caribbean can be defined by this round little British West Indies island, 200 miles south of Puerto Rico. Only seven miles long and five miles wide, Nevis is big on natural attractions. There are stunning green mountains and lush rain forests. There are white sand beaches fronting shallow ocean water. There are green monkeys (they came over with British sailors from Africa centuries ago). And there are sheep, lots of sheep, and goats, too -- more sheep and goats than the 10,000-person populace.

It is hard to believe that in the late 17th and early 18th centuries the value of exports from Nevis surpassed those from the colony of New York. In the early 19th century, Nevis actually led the world in sugar production. Today, the main business other than tourism is offshore banking. Religion is big here, too. The island is home to more than 55 churches, including the oldest in the Caribbean still in use -- the 1643 church is on a hillside near the Four Seasons.

A trip into the mountains at least for a day is highly recommended. On this island there is no fast food. There are no casinos. There is little shopping. But there are other delights.

Link here.


We recently heard the story of a man who, in just five short years, lost half of his SFr150 million fortune simply by entrusting it to the care of one of the country’s big, prestigious banks. Naturally, he is suing. But, large as the sums involved may be, he is not alone -- either in his loss or in his resort to litigation. We hear more and more such stories of late. They are stories of people who are tired of losing money, tired of being deceived, and tired of being charged fees for advice that is often dishonest, incompetent, or perhaps both. Financial history is filled with examples of fraud and incompetence. Indeed, it is to these shenanigans that we owe the patchwork quilt blanket of regulations that threatens to suffocate us with every breath. The politicians who rush in, after the event, to sew on new squares do so ostensibly to promote fairness and transparency.

Yet, despite the exponential increase in the amount of regulation and the construction of a vast and expensive enforcement apparatus, can we honestly say that any of the sheep really feel they are better sheltered from the wolves -- those who would take advantage of either their naivety or their foolish greed? We do not think so. Rather, we believe that the effect of this patchwork of legalism has been to transform what used to be unsystematic risk into endemic risk -- one that is an integral part of the system itself.

The phrase “unsystematic risk” is business school jargon for that which we would not expect to occur in the normal course of business. This can be contrasted with the usual risks to which an enterprise is exposed: costs may go up and profit margins down, competition may intensify, technology may render our plant and equipment obsolete, and rising interest rates, labor costs, raw material prices, and insurance premiums could devour our margins. However, these are all problems which we -- or, rather, the entrepreneur in whom we invest -- can seek to overcome. We can never make any investment without running these sorts of risks -- indeed, the returns to our investment arise directly as the reward we earn because we are running them.

On the other hand, if the accountant is fudging the books, or if the company declares assets which do not exist, or if the CEO is otherwise deceiving his shareholders and creditors -- clearly, this is a very different sort of hazard. This is what we mean by “unsystematic” risk. If we are to avoid losing our capital to “unsystematic risk” we must shed our innocence, arm ourselves with a healthy distrust of authorities and large institutions, and maintain a certain disregard of the numerical standards that most take for granted.

Link here.


Rep. Ron Paul, MD, Before the US House of Representatives, October 8, 2004

Mr. Speaker, the 9/11 Recommendations Implementation Act (HR 10) is yet another attempt to address the threat of terrorism by giving more money and power to the federal bureaucracy. Most of the reforms contained in this bill will not make America safer, though they definitely will make us less free. HR 10 also wastes American taxpayer money on unconstitutional and ineffective foreign aid programs. Congress should make America safer by expanding liberty and refocusing our foreign policy on defending this nation’s vital interests, rather than expanding the welfare state and wasting American blood and treasure on quixotic crusades to “democratize” the world.

Disturbingly, HR 10 creates a de facto national ID card by mandating new federal requirements that standardize state-issued drivers licenses and birth certificates and even require including biometric identifiers in such documents. State drivers license information will be stored in a national database, which will include information about an individual’s driving record!

Nationalizing standards for drivers licenses and birth certificates, and linking them together via a national database, creates a national ID system pure and simple. Proponents of the national ID understand that the public remains wary of the scheme, so they attempt to claim they’re merely creating new standards for existing state IDs. Nonsense! This legislation imposes federal standards in a federal bill, and it creates a federalized ID regardless of whether the ID itself is still stamped with the name of your state. It is just a matter of time until those who refuse to carry the new licenses will be denied the ability to drive or board an airplane. Domestic travel restrictions are the hallmark of authoritarian states, not free republics.

The national ID will be used to track the movements of American citizens, not just terrorists. Subjecting every citizen to surveillance actually diverts resources away from tracking and apprehending terrorists in favor of needless snooping on innocent Americans. ...

Link here.


Private banking refers to the confidential and private banking service provided to wealthy individuals or families. Such service is usually provided by international financial groups and requires a minimum of $500,000 to open an account. Tempted by the quickly growing wealthy population in China, private banking sectors overseas have in recent years tried to squeeze into the Chinese market by any means possible.

According to statistics, the American private banking sectors registered an annual average profit of 35% and an annual average income growth rate of 12-15%, exceeding by far those of other banking services. Private banking covers helping clients to manage their large assets including investment and tax planning, and preparing proposals and finding targets for mergers and acquisitions. They even go as far as going to auctions on behalf of their clients to bid for antiques. Often times, clients themselves will not show up and, instead, instruct their financial advisors to come to their doorsteps.

In accordance with the agreement reached when it joined the WTO, China will have to open its market to foreign financial institutions in private banking by the end of 2006. However, private banking sectors of many international financial groups cannot wait any longer. Notably, private banking, due to its private and confidential nature, has become the major channel for transferring bribes.

Link here.


Hurricane Ivan’s impact on the 76 square mile Caribbean Island (normal population 45,000) must rank as the most underreported story of the season. “It’s like a nuclear bomb without the radiation,” said one businessman who wanted to remain nameless. Those Caymanians sufficiently recovered from shell shock to explain what has happened to their country typically describe what they are seeing in such terms. And it is hard to disagree -- physically, and visually, the scene is apocalyptic. Three quarters of the coastline is one endless series of ruin. Dozens of neighborhoods have been depopulated with residents living in hurricane shelters or evacuated off the Island.

On a Saturday morning tour of about half of the Island we saw no more than about 200 people -- the Government’s ballpark estimates is that between eight and ten thousand people left the Island after the hurricane could be grossly understated. Most of the evacuees left after Ivan and are yet to return perhaps because of the “fright of what happened” one woman said. Those that stayed in their neighborhoods are doing what they can to repair their homes and return to some semblance of normality. But it is clear that full restoration will take years without additional help.

At South Sound, an affluent neighborhood with beachfront palatial mansions, not one house escaped severe damage. The once tree lined main road, about a mile and a half long, is denuded. A rumour that made the rounds was that the bodies of 250 people who died in the storm were being hidden in freezers in a supermarket. That was, of course, also vigorously denied by government officials, but residents are finding it hard to reconcile the storm’s fury with the official death count of just two people. To appreciate their scepticism, consider that 8-foot high waves were lashing houses 15,000 feet from the coastline. Consider also that Ivan unleashed its wrath for a full 36 hours, and that for about four hours the vast majority of the Island was flooded. And consider that about half of the Island’s 14,000 registered cars have been totaled -- many as a result of salt water damage, but many others from being tossed around the Island.

Link here.


Here is a way to combine two great offshore benefits into one very appealing package: international real estate investing and a second passport. Both come from a stunningly beautiful and peaceful Caribbean tropical paradise -- St. Kitts & Nevis. These two sister islands form a federation that has been independent from Great Britain since 1983. Located about 1,400 miles southeast of Miami, world travelers often describe them as a corner of the South Pacific in the Caribbean. Densely forested mountains, waterfalls, brilliant tropical flowers and crystal-clear waters abound. The truly appropriate motto of the local tourism authority is: Two Islands -- One Paradise.

Since 1984, the St. Kitts & Nevis Citizenship Act has allowed foreign investors who acquire qualifying real estate to obtain citizenship and a passport. This makes it the oldest existing citizenship-by-investment program. To apply for citizenship, you must invest a minimum of US$250,000 in real estate. In addition, government fees of US$35,000 or more apply, depending on the number of applicants. Offsetting this, St. Kitts & Nevis has some of the Caribbean’s most stunning beaches and some beautiful real estate developments, with prices steadily rising in recent years.

From its inception, the St. Kitts & Nevis economic citizenship program has been one of the most expensive. But it is also one of the only two programs that remain in existence (the other being Dominica). Most of the discontinued programs have been shut down because of scandal, resulting in a diminished reputation for the passports of the issuing countries. However, the St. Kitts & Nevis program has always been operated to the highest standards. It has never been easy to qualify -- all applicants must undergo a thorough background check -- and the relatively high cost of the program means that only a small number of passports have been issued. Among other requirements, applicants must provide bank references and letters of recommendation and demonstrate a clean police record (extract from the register of criminal convictions) of their home country. The result is that the St. Kitts & Nevis passport remains a highly respected travel document, permitting visa-free travel to more than 90 countries, including the United Kingdom, Canada, Switzerland and many others. The passport issued as a result of economic citizenship is the same as for all other citizens. Indeed there is no difference in the citizenship status whatsoever.

Link here.


Much of Latin America is a bunch less developed than North America and Western Europe. On the whole, the región does not suffer a lot from pollution. There are exceptions like Mexico City and Sao Paulo. But they are exceptions to the rule. When you live in an environment that tends to be less industrialized and cleaner than regions in the developed world, you feel more at ease after a while. I am not saying that the less developed a country is the more you feel at ease there and the more quality of life it offers. Instead, in the course of time yours truly has learned to appreciate the quality of life in countries that show characteristics of both the developing and the developed world. Countries like South Africa and Mexico. There are loads of those countries in Latin America.

Knowing a few spots all over the globe to which you can withdraw to enjoy an upmarket and quiet lifestyle at the same time makes life very pleasant as well. Spots like Waiheke Island in New Zealand and the Channel Islands in the English Channel. Or Teopan Island in Latin America. Teopan Island is located in El Salvador, a little less than an hour from the country’s capital San Salvador. Teopan Island may be described as an exclusive resort that tends to attract high net worth local as well as international folks. The beautiful resort is situated in a volcanic crater. If you are into things like unspoiled nature, it may be your cup of tea. The climate deserves to be called virtually perfect throughout the year. The resort is virtually a secret. The residents there so far tend to be well heeled movers and shakers from El Salvador and Central America in general. In a nutshell, Teopan Island resort attracts folks who value nature, privacy and exclusivity.

Since the financial meltdown in Argentina and the trouble in Venezuela, investors have looked at Latin America as a whole rather critically. As far as investing in Latin America is concerned, there appear two prevailing moods. The thundering herd either sees vast opportunities or insurmountable obstacles. It may be a good idea to reckon that the truth is somewhere in the middle. It may also be a good idea to keep a healthy distance to the thundering herd. However, let us keep one thing in mind. The región is producing millionaires at a rate five times that of the United States or Europe. Latin America’s high net worth individuals represent 3% of the world’s high net worth individuals, but they hold about 13% of that group’s wealth. Do you reckon that these figures contain a message about Latin America’s potential?

Link here.


The goal of this article is to provide a comprehensive checklist of information for the individual to consider prior to filing a tax return. It is not designed to teach you the technical competence required to perform self-compliance; however, it will certainly arm you with what you need to know to determine if your US tax preparer knows all that they should to provide you with adequate professional services.

The US, and various other countries, have negotiated income tax treaties based upon preset international models, one being the OECD Model Tax Convention. One purpose of the tax treaties is to avoid double taxation when the tax laws of two or more countries become punitive. For the purposes of US nonresident and resident aliens alike the articles listed below have been highlighted as possibly providing you relief. Typically in the case of US persons -- citizens and green card holders -- the US has conveniently slipped in to most income treaties a provision usually, under Miscellaneous Rules, to enable them to continue to tax their people as if the income tax treaty did not exist. This is typically referred to as a “Savings Clause”. So US persons should get individual consultation as to which income tax treaty articles may or may not apply to them.

Link here.


A little-known federal agency is planning a new monitoring program by which the government would track every car on the road by using onboard transceivers. The agency, the Intelligent Transportation Systems Joint Program Office, is part of the Department of Transportation. According to an extensive report in the Charlotte, N.C., Creative Loafing, the agency does not respond to public inquiries about its activity.

According to the report, cutting-edge tracking technology will be used by government transportation management centers to monitor every aspect of transportation. Under the plan, not only will movement be monitored but it also will be archived in massive databases for future use. The paper reports a group of car manufacturers, technology companies and government interests have worked toward implementing the project for 13 years.

The agency’s website says its purpose is to “use advanced technology to improve the efficiency and safety of our nation’s surface transportation system.” Critics believe the program will be used to line the pockets of business interests that stand to gain from the sale of needed technology and that the government will use the data collected to tax drivers on their driving habits. Though the program has ominous privacy implications, Creative Loafing reports none of the privacy-rights organizations it contacted were aware of the government’s plans. At least one proponent of the plan is actually using the term “Orwellian” to describe it.

Link here.


A microchip that can be implanted under the skin to give doctors instant access to a patient’s records yesterday won government approval, a step that could transform medical care but is raising alarm among privacy advocates. The tiny electronic capsule, the first such device to receive Food and Drug Administration approval, transmits a unique code to a scanner that allows doctors to confirm a patient’s identity and obtain detailed medical information from an accompanying database. Applied Digital Solutions plans to market the VeriChip systems -- the chips, scanners and computerized database -- to hospitals, doctors and patients as a way to improve care and avoid errors by ensuring that doctors know whom they are treating and the patient’s personal health details. Doctors would scan patients like cans of soup at a grocery store. Instead of the price, the patient’s medical record would pop up on a computer screen.

The approval was immediately denounced by privacy advocates, who fear it could endanger patient privacy and mark a dangerous step toward a Big Brother future in which people will be tracked by the implants or required to have them inserted for surveillance, identification and other purposes. “Once the technology is out there and is available, it raises the very real possibility that people in a position to require or demand it will begin to do that,” said Katherine Albrecht, who has campaigned against such devices. “It would obviously be possible to inject one of these into everyone. In the post-9/11 world, we are already racing down the path to total surveillance. The only thing missing to clinch the deal has been the technology. This may fill that gap.”

Link here.


Bob Herbert, op-ed columnist for The New York Times and perennial critic of the purported flaws of capitalism, has an article in the Times of October 8, 2004, titled “Working for a Pittance”. The article complains about the low wages of 9.2 million working families and the plight of the 20 million children in these low-income working families. It goes on to detail the high cost of housing, food, utilities, and transportation and notes the shock in store for such families this winter when price increases for crude oil show up in large increases in home heating bills. The clear implication of the article is that the federal government must do something to alleviate the plight of these families, such as sharply raising the minimum wage.

I accept the description of the facts of widespread poverty cited by Herbert, but I have a radically different solution for them than the kind that he and the rest of his colleagues at the Times would likely offer. If one wants to raise the wages of the lowest paid workers, do not raise the minimum wage. Raising the minimum wage would add to unemployment, because every rise in price serves to reduce the quantity of the good or service demanded. This is one of the best established laws of economics.

Instead of raising the minimum wage as the means of increasing the wage rates of the unskilled and poor, abolish prounion legislation. The repeal or liberalization of licensing legislation, which also serves artificially to reduce employment opportunities in many fields, would result in the same kind of improvement in wage rates at the bottom of the economic ladder as the repeal of prounion legislation. The take-home wages of all workers could be increased by the elimination of compulsory employee and employer contributions to various government programs, such as social security and medicare, which now amount to over seven and a half percent of a low-paid worker’s income.

So too the prices paid by all workers could be substantially reduced by the reduction of government interference. There is no good reason, for example, for the price of oil to be over $50 a barrel and rising. In a free market, that is, a market not hampered by such things as regulations driven by environmentalist hysteria there would be a substantially increased supply of oil from Alaska. The price of oil would also be reduced by removing the obstacles in the way of the production of atomic power and the strip mining of coal. The price of food could be substantially reduced by the abolition of government farm subsidies. The cost of housing could be reduced by the abolition of zoning laws and all other government interference serving to make land artificially scarce. There is no good reason for the cost of a day’s hospital stay being $2,000. All of this would benefit everyone, but it would especially benefit the lowest paid, poorest workers, who can least afford unnecessarily high prices.

The enemies of capitalism and economic freedom shed crocodile tears over poverty. Their policies do not alleviate it but worsen it. As I have shown, economic freedom, not government interference, is the means of overcoming poverty. Workers, the poor, and the public at large have been misled by generations of intellectuals, such as Herbert, into believing that poverty is the result not of the failure to produce wealth but of the success of those who do produce it.

Link here.


Last week the EC took an historic decision that will fundamentally transform the EU, when it recommended that the 25 nation body begin membership talks with Turkey. A final decision needs to be taken by member states on December 17, but the unanimous recommendation of the Commission, coupled with the stiff conditions for membership (which in any case will take years to resolve) means that approval by existing members is almost a foregone conclusion. The accession of such a large, poor, and predominantly Islamic country will fundamentally change the character of the EU, and it would extend the EU’s borders into one of the world’s most unstable and dangerous regions.

The manner in which the EU functions economically will also have to alter significantly, especially in the area of farm policies (33% of all Turkish workers are in agriculturally-based industries, versus 5% in the EU as a whole), fiscal policy, and indeed, the newly promulgated Constitution. If accession talks prove successful for Turkey, one of the first casualties -- which should be celebrated by supporters of a multi-speed Europe -- will be the end of the centralising impulse toward “ever closer Union”. This tendency, pushed by political elites of the EU, has increasingly generated political backlash, manifesting itself throughout Europe through the growth of extreme nationalist, quasi-fascist parties.

The euro was launched in the face of substantial regional disparities amongst the 12 founding member countries (both in terms of unemployment rates and per capita income levels). The problems would increase 100-fold in the event that a country like Turkey was involved in monetary union. Some of the original member states, such as Germany and France, who long saw themselves as the apex of the EU, but now find their influence dissipated through the recent entry of 10 new Eastern European nations, are now likely to embrace a more flexible political structure, which would allow some countries to deepen economic and political co-ordination. All to the good for the euro, we would argue, since it reduces the likely introduction of more members to the euro bloc (particularly those from the East), an entry which could have proved highly destabilizing to the currency union.

If the Turks had better secular education and more incentives to lead secular modern lives, as they undoubtedly would do as part of the EU, they would be less susceptible to the fundamentalist mosques that infect other parts of the Middle East such as Saudi Arabia. From Europe’s perspective, the negotiations will undoubtedly force the EU to lance the boil in terms of confronting inefficient or unworkable structures, such as the Common Agricultural Policy, the proposed constitution and the Stability and Growth Pact, all of which threaten the long term viability of the European Monetary Union. The risks must be measured against the benefits cited above and most importantly, the ultimate hope that a tolerant and democratic Turkey really could become a beacon for rational, moderate Muslims around the world, the ultimate way of winning the so-called war on terror and avoiding a genuine clash of civilisations.

Link here.


Half way along the curved necklace of islands comprising the Windward Islands of the Eastern Caribbean basks a mountainous rock of 290 sq miles (750 sq km). Dominica is a land of steep mountains and cliffs plummeting straight into the blue Caribbean sea on the western side and the grey Atlantic on the eastern. Rising at the highest point to Mt. Diablotin at 4,747 feet, this is a country of raw beauty, rugged headlands and moody mountains, their peaks often buried in cloud.

Originally from the UK, but having lived, cruised and built businesses in the Caribbean over the last two decades, my husband and I always hoped to be able to make a home in Dominica when the time was right. The main attractions? Its untamed, unspoiled tropical countryside, the Dominican people’s natural pride and understanding of environmental stewardship and the chance to be a part of that heritage. The reason it took so long? Formerly it has not been easy to make a living in Dominica, but things are changing. Improved infrastructure and communications, a stable government and support from external organizations are contributing to making the country attractive to outside investment.

Roseau is the capital of Dominica. Small, charming, dilapidated, the heart of Roseau beats with a pure Caribbean rhythm. On every street corner is a vendor selling fresh fruit, vegetables or home made snacks. The narrow, hot streets look unbendingly down towards the seafront, and the cruise ship dock which is neighbor to a large marketplace selling local produce and fish in a noisy, colorful, smelly atmosphere. Dominicans are amongst the kindest and friendliest of all the Caribbean peoples. We work in the region with Caribbeans from every nation, and many of them are a joy to know, but most of our long term friendships have been formed with Dominicans. These people have a resourcefulness and a confidence that is quite rare here. Dominicans speak English and a Creole which is a mix of French, Spanish and English. Education is based on the old British system, and is both rigorous and thorough.

Dominica overflows with natural resources. Because of the rainfall the island is verdant throughout, and there is food to be found growing in such abundance that some of it falls and rots. More importantly, Dominica can support itself with food, water and energy, a claim not many small island nations can make.

Link here.


It began as one of the Bush administration’s most ambitious homeland security efforts, a passenger screening program designed to use commercial records, terrorist watch lists and computer software to assess millions of travelers and target those who might pose a threat. The system has cost almost $100 million. But it has not been turned on because it sparked protests from lawmakers and civil liberties advocates, who said it intruded too deeply into the lives of ordinary Americans. The Bush administration put off testing until after the election.

Now the choreographer of that program, a former intelligence official named Ben H. Bell III, is taking his ideas to a private company offshore, where he and his colleagues plan to use some of the same concepts, technology and contractors to assess people for risk, outside the reach of U.S. regulators, according to documents and interviews.

Bell’s new employer, the Bahamas-based Global Information Group Ltd., intends to amass large databases of international records and analyze them in the coming years for corporations, government agencies and other information services. One of the first customers is information giant LexisNexis Group, one of the main contractors on the government system that was known until recently as the second generation of the Computer Assisted Passenger Pre-screening Program, or CAPPS II. The program is now known as Secure Flight. Bell and his business associates said they are trying to fill wide gaps in existing commercial databases that enable criminals and terrorists to roam the globe, sometimes under false identities. Company founder Donald Thibeau, a former LexisNexis executive, said he formed Global Information in the island nation to take advantage of regulations there that he thinks will make it easier to collect data than in the United States, which has a hodgepodge of information and privacy laws that he said would making doing business far more costly.

Link here.


There was a school of thought that held that cyberspace was its own sovereign nation. For one thing, “The Net perceives censorship as damage, and routes around it.” What government could control what was said on the Net? The more fuss someone made about a particular site or piece of information, the more likely it was to be mirrored widely. Besides, bands of activist programmers could unite to create circumvention technologies such as anonymizing Web sites, clever software to enable anonymous email and Usenet postings, cleverer software to create hidden, uncontrolled networks. For another thing, international laws are all different. So any time a national government did not like something, all anyone had to do was move the material to a site somewhere else, where it was not illegal or even controversial.

“You have no sovereignty where we gather,” wrote John Perry Barlow grandly in 1996, in protest against the Telecommunications Reform Act and its subsection, the Communications Indecency Act. Censorship and intellectual property laws, he wrote, “will not work in a world that will soon be blanketed in bit-bearing media.” Maybe it is time to change that into, “Governments perceive the Internet as damage, and gang up on it.”

The story behind the week-long seizure of two hard drives, or servers, that hosted some 20 of the anarchist news collective Indymedia’s 50 sites worldwide seems to be a case in point, although to be fair, no one knows yet exactly on which nation’s head the dust will eventually settle. More than 40% of the collective’s sites were hosted at a single location. Arguably, the collective could protect its content better by spreading its content among more servers and having more mirrors. But both data and people must have a physical location somewhere. And as long as governments can find out where that is, they will find ways to act, if they can. And we should have known. You cannot sit around saying confidently, “They can’t get me.” They take it as a challenge.

Link here.


Humberto Aguilar, who once used to run his own thriving law firm in southern Florida and who is now a respected part-time lecturer, remembers warehouses in Miami full of the proceeds of drug trafficking. “They were piled high with cash. Everywhere you looked was money,” he recalls. That was in the late 1970s and the 1980s, when Aguilar divided his professional life between representing criminals and laundering some of the contents of these warehouses throughout the offshore world.

For Aguilar, laundering was relatively easy. He knew the corrupt and the corruptible among the banking and legal professions in a raft of offshore states. Upon his request, in return for a cut, these professionals would set up bank accounts to house the dirty money. The cash would then be sent to another offshore state, and then another, before most of it finally returned to the US, clean and untraceable.

Since Aguilar’s days of crime (which ended with a seven and a half-year prison sentence between 1992 and 1999 for drug importation, conspiracy to launder and travelling overseas to perpetuate a felony), the offshore world has undergone a revolution. Offshore regulators have blacklisted badly regulated offshore states. Many tax havens now focus on attracting legitimate business by claiming to offer an uncorrupt financial services system. Nevertheless, Aguilar is convinced that offshore money laundering is still as big a business as it ever was. The difference, he says, is that launderers have to be “more careful and behave differently”. And, he says, they have to be a lot more careful about where they choose to offload their money.

Link here.


Government senator Noel Sloley has called on the Patterson administration to set up Jamaica as an offshore financial center and tax haven -- an idea that JLP leadership aspirant Bruce Golding says that he is already studying. Sloley made his suggestion in a Senate speech in which he also urged the government to free the tourism industry from paying taxes, arguing that it would stimulate greater investment and growth in the sector. The offshore financial center and tax haven suggestion comes only a a week after Prime Minister P.J. Patterson’s own proposal for the transformation of Sloley’s home town Montego Bay, on Jamaica’s northwest coast, into an international business center.

“As night follows day, so you are going to have rich people,” Sloley said in his Senate speech. The wealthy want financial centers with low taxation to preserve their wealth. They are going to find these shelters somewhere.” Jamaica, Sloley argued, could be one such location, but noted that the issue was one that required the agreement of both sides of the political divide in order to “find a way to start our people marching to the promised land.”

He, however, did not address the issue of pressure placed on offshore banking jurisdictions -- including several in the Caribbean -- by the OCED to open up their banking secrecy and tax shelter laws so that they are more penetrable by foreign investigators. Sloley also said that if Jamaica were to develop tax shelters and combine it with a lower income tax rate, it could spur the repatriation of some of the billions of dollars held by Jamaicans in the banks of Miami, Cayman and the Bahamas.

Link here.


Some big European countries see the low (corporate) tax rates as a threat, not only to investments but the welfare state at large. The French Finance Minister Nicolas Sarkozy, a possible French presidential candidate in 2007, has even gone so far as to bully the new member states, arguing that if they are rich enough to keep taxes low, then they should not seek billions of euros in structural aid funds from the older members. In doing so, he was more or less echoing earlier statements, in May, by the Swedish Prime Minister Göran Persson and German Chancellor Gerhard Schröder who have complained that the rich are not taxed heavily enough in new member states.

Of course these statements have provoked a fierce rebuttal from new members including Poland, Hungary, the Czech Republic, Slovakia and Estonia. In support of this stance, the new European Commission has also refuted the French proposals, saying that it rejected any links between tax rates and structural funds. The new member countries are keen to replicate Ireland’s economic miracle. When Ireland joined Europe in 1973, its per capita income was just 62% of the EU average. By 2002 it was 121%. By slashing taxes and the state’s share of the economy, the Irish were able to exploit their access to the EU market and encourage a massive influx of foreign direct investment. By 1998 American multinationals accounted for 70% of Irish exports. The top corporate tax rate, once over 40%, now stands at 12.5%. The state’s share of GDP, which hit 54% in the 1980s, is now down to 33%. Unemployment is less than 5%.

But besides Ireland, the new member countries have another role model within their own ranks, the successes of which they are eager to emulate: Estonia! Who could have believed some 15 years ago that the most powerful free-market winds would now be blowing from the East instead of the other way around?

Link here.


I figure that if I am acting, I might as well have a plan. This concept may not be obvious to others, because often their actions look, to me, more like reactions. I tell my sons that the neighbors sometimes look to me like balls in a pinball machine, being acted upon by forces outside of themselves but making few moves that come from thoughtful deliberation. Perhaps it is perverse, but even if I misstep I would rather it be from my own error than someone else’s impositions on me. Though government’s growth has usurped many decisions from me, there are still a lot of choices left open, even if the environment in which I make them is warped in many places by government action.

I could have sold my home, moved to the country, and built a bomb shelter. So far, I am glad I have not. But that could change. The challenge is to figure out how to rationally plan for the future at a time when lots of absurd things are occurring. The list of absurdities is long, but the poster child is a commercial heard on WBBM radio, the (allegedly) most listened-to AM station in America. In essence, a mortgage company will offer certain qualified persons a home loan, a grant (from a front for home builders) to cover the down payment, and another grant to cover the closing costs. The ad literally says a prospective homeowner can show up with nothing and leave with the keys to their new home. The only qualification implicit in the commercial is that the home buyer be living too close to the edge of their income to be able to save even a few thousand dollars for a down payment. If this is not the proverbial “last marginal buyer”, I do not know who is.

This smells, to me, suspiciously like tech stocks did back in 1999 and early 2000. Most books being published had titles like Dow 36,000. Well, we know how that turned out. You can buy a used copy from $0.37 at Amazon.com.

On the other hand, sometimes absurdities last a really long time. Nixon dissolved the last vestiges of gold’s connection to U.S. legal tender back in 1971, but instead of gold finally winning against fiat currencies, the period 1980 to 2000 saw disinflation. In 2004 dollars, gold’s price peaked in 1980 at about $1,952, so $425/oz gold today is actually down 78% after 24 years. This tells me that no matter how unassailable my logic is, I cannot rely on observations like this to dictate my actions. Smart people who invested in gold during the past quarter century got crushed while balls in the pinball machine who simply followed the herd made a killing in stocks. Ah, but this too is an illusion. The herd was not buying stock in 1982. The herd did not discover stocks until after 1995. Many made quite a bundle in the five years prior to 2000, but a lot of that wealth disappeared in 2000–2002.

Logic tells us that the dollar will be destroyed, that this is an historical inevitability. But like “The Big One” in California, it has not happened yet and waiting for it has been very costly. Real estate seems like a house of cards right now, but it seemed so even before the Fed discovered how to partner with Fannie Mae to allow everyone to use his or her home equity like an ATM and buy a nice shiny Harley Fat Boy. It looked like a top in the housing market years ago yet here we are, still in the ionosphere of mortgage finance availability and low rates. Imagine if houses had to sell for cash in hand. ... That is the limit of how far down real estate could drop if lenders stop lending and borrowers stop wanting to service endless debts.

There are ways to assess the likelihood of change. Though it seems like Voodoo to many, the arcane branch of investing called Technical Analysis can offer tools for forecasting. What does not work, unless one has the patience of a saint and the lifespan of a tortoise, is looking at the fundamentals using logic. Passion rules the tides of these things, and passion does not heed logic, yours or mine. A simple rule of thumb seems to be, if things look extreme, they probably are. But only when extremes seem permanent are they likely nearing a reversal in fortune.

Link here.


New U.S. passports will soon be read remotely at borders around the world, thanks to embedded chips that will broadcast on command an individual’s name, address and digital photo to a computerized reader. The State Department hopes the addition of the chips, which employ radio frequency identification, or RFID, technology, will make passports more secure and harder to forge, according to spokeswoman Kelly Shannon.

But civil libertarians and some technologists say the chips are actually a boon to identity thieves, stalkers and commercial data collectors, since anyone with the proper reader can download a person’s biographical information and photo from several feet away.“qEven if they wanted to store this info in a chip, why have a chip that can be read remotely?” asked Barry Steinhardt, who directs the American Civil Liberty Union’s Technology and Liberty program. “Why not require the passport be brought in contact with a reader so that the passport holder would know it had been captured? Americans in the know will be wrapping their passports in aluminum foil.”

Last week, four companies received contracts from the government to deliver prototype chips and readers immediately for evaluation. Diplomats and State Department employees will be issued the new passports as early as January, while other citizens applying for new passports will get the new version starting in the spring. Countries around the world are also in the process of including the tags in their passports, in part due to U.S. government requirements that some nations must add biometric identification in order for their citizens to visit without a visa. Current passports (which are already readable by machines that decipher text on the photo page) will remain valid until they expire, according to a State Department spokeswoman.

Link here.


No topic I write about stirs a more unexpected response than secession -- the right of a state to withdraw from the United States. You might think the issue was settled forever in 1865, when the North crushed the South in the Civil War. But many Americans, North and South, still like the idea, and many others nearly panic at the mere mention of it. A few readers think I am writing with tongue in cheek when I propose secession. Well, though I see the humor of it, I am not exactly joking. I know it is unlikely to happen, for the time being, but the idea has value as a thought-experiment. It can help free our minds of the illusion that the present political status quo was, and is, “inevitable.”

In history, few things are inevitable. Or rather, they become inevitable only after a certain point. At the moment when Soviet tanks rolled into Central Europe in 1945, Soviet rule became inevitable. It had not been inevitable a year earlier. The defeat of secession was by no means inevitable in 1860. The North was deeply divided over whether to accept it, to compromise, or to go to war. Lincoln himself, though he flatly denied the right of secession, was undecided about how to cope with it. His tragic decision to attack South Carolina after it seized Fort Sumter drove the wavering border states, including crucial Virginia, to join the Confederacy.

Lincoln thought secession could be suppressed quickly. He miscalculated terribly. The result of his decision was a long war, spilling an ocean of blood; and although it eventually “saved” the Union, after a fashion, it did so in a way he never intended. He had meant to save the Union “as of old”, as he often put it, with a limited federal government. But the consequences, as in a Shakespearean tragedy, were the opposite of what he had aimed for. The Federal Government became powerful enough to overwhelm the states -- North as well as South, as the North discovered too late. We are what and where we are, not because of inexorable fate, but because of countless decisions, errors, accidents, and contingencies that combined to produce a world nobody had dreamed of. It might have been inconceivably different.

Link here.


Identity theft involves the most intimate, the most stealthy and perhaps the most intrusive of frauds -- the wholesale lifting of someone’s financial persona to secure bank loans, credit cards and mortgages in that person’s name. Even when the crimes are discovered early, it can take months, sometimes years, for innocent people to restore tattered credit histories. While most consumers usually do not have to pay for illicit purchases on their credit cards, they may be held liable in thefts involving other types of loans.

“Ultimately, victims don’t have to pay debts incurred by another person, but that’s not the point,” said Bridget J. Thomas, a homemaker in Prairieville, Louisiana, who spent months repairing her credit history in 2002 after a thief appropriated her identity to snare about $65,000 in loans. “It’s the sleepless nights, and the time, and the stress you have to go through to clean up your record that really hurts victims.”

Several factors have combined to make identity theft a particularly intractable crime: the growth of the Internet and digital finance, decades of expanding consumer credit worldwide, the hodgepodge nature of local and federal law enforcement, and the changing but often still inadequate regulations governing the credit industry. Everyone is fair game. Thieves recently snatched the identity of a three-week-old infant in Bothell, Washington. The dead have been favorite targets of identity thieves for years. Nor is identity theft limited to people. A growing number of thieves now assume the false guise of entire companies, adopting a business’s employer identification number to secure commercial loans, corporate leases or expensive office products.

Schemes known as “phishing” use e-mail messages to lure unwitting consumers to Web sites masquerading as home pages of trusted banks and credit card issuers, corporate security specialists say. Online visitors are then induced to reveal passwords as well as bank account, Social Security and credit card numbers.

Link here.


Economists and economic journalists do a lot of hand-wringing about America’s budget and trade deficits. They worry that the dollar will plunge and that foreign investors will flee U.S. financial markets. The country is committing the sin of profligacy, it is said, and will suffer for it. But let me make a fearless prediction: The next big financial crisis will not happen in the U.S. Nor will it occur in Europe. No, China is in the biggest danger of a meltdown over the next five years. Within this decade, its financial system will hit a big bump, and the response of China’s political leaders will determine whether the country recovers quickly or slips into depression. Moreover, if a real financial crisis happens in China, the economic and political implications for the rest of the world will be tremendous.

On the surface, this forecast may seem absolutely ludicrous. After all, China has averaged annual growth of almost 10% for the past 20 years -- a faster pace than almost any other country. It is on the verge of making the big jump to being an industrial superpower. And it has run a $100 billion trade surplus with the U.S. in the first eight months of this year alone. Yet if you look back over the last 15 years, it is apparent that financial crises are more likely to hit booming economies than weak ones. The Japanese financial breakdown of the early 1990s came after several years of very strong growth, when it looked like Japan was on top of the world. Similarly, the Asian crisis of 1997 was preceded by several years of huge growth in countries such as Indonesia, Korea, Taiwan, and Thailand. And the bursting of the U.S. tech bubble came after a boom period.

Right now, the Chinese financial system seems to be funding a lot of investment that will never pay off. As we wrote in May, “China is still burdened with a backward financial system that can’t tell a good risk from a bad one -- and often doesn’t seem to care.” As a result, a bubble of unprofitable investments and excess capacity is building up in China. By itself, that is not such a big deal, since capitalist economies regularly overshoot and then retrench. The real issue, though, is that China has built a modern economy on top of a quasi-socialist political system, and it is that hybrid system that could be the key deficiency.

Link here.


Included examples of fraud investigations are excerpts from public record documents on file in the court records in the judicial district in which the cases were prosecuted. Leading the list is a case where an Akron, Ohio man was sentenced to 151 months imprisonment, to be followed by 3 years supervised release, and a $95,000 fine. At trial, the evidence proved the defendants used a maze of trusts and corporations to try to hide approximately $18 million in income generated by various businesses they controlled. Between January 1, 1994, and July 8, 2003, they paid little or no taxes on the income earned, while nonetheless living lavishly. He was convicted of tax evasion for tax years 1987, 1989, and 1990. In addition, between 1998 and 2002, while in federal prison after convictions for racketeering and income tax evasion, assistants kept his businesses running and continued to operate the illegal conspiracy.

Link here.


Devin Theriot-Orr, a member a feisty group of reporter-activists called Indymedia, was surprised when two FBI agents showed up at his Seattle law office, saying the visit was a “courtesy call” on behalf of Swiss authorities. Theriot-Orr was even more surprised a week later when more than 20 Indymedia Web sites were knocked offline as the computer servers that hosted them were seized in Britain. The Independent Media Center, more commonly known as Indymedia, says the seizure is tantamount to censorship, and civil libertarians agree. The Internet is a publishing medium just like a printing press, they argue, and governments have no right to remove Web sites.

The case, which involves an Internet company based in Texas, photos of undercover Swiss police officers and a request from an Italian prosecutor investigating anarchists, raises questions about the circumstances under which Internet companies can be compelled to turn over data. “The implications are profound,” said Barry Steinhardt of the American Civil Liberties Union, calling the Indymedia activists “classic dissenters” and likening the case to “seizing a printing press or shutting down a radio transmitter.”

Internet providers in the U.S. routinely remain silent when ordered by authorities to turn over data, though actual seizures of their servers is rare. The October 7 seizure involves a particularly vocal group -- Indymedia activists work in 140 collectives around the world from the Czech Republic to Uruguay to western Massachusetts and their sites get about 18 million page views a month -- and generated intense interest in Europe, including questioning in Britain’s House of Commons.

The two computers were seized from the London office of Texas-based Rackspace Managed Hosting, and while they were returned October 12 and all the sites are now back up, some that did not have back up are missing posts and photos. The governments involved did not provide The Associated Press with a clear picture of what was sought or which country initiated the action.

Link here.


Living in the shadow of the Jungfrau and the Eiger, the Swiss do not often think in terms of level playing fields. But due to forces both outside and inside the country, that may be changing. Internationally, Swiss banks’ steadfast devotion to the principle of client confidentiality has long tested the patience of tax agencies both in the U.S. and in the E.U. In May, Switzerland and the E.U. negotiated a compromise. Under the deal, the two sides agreed that Swiss banks would withhold a percentage of dividends and interest from all accounts held by EU residents starting in 2005, rather than exchange information about EU taxpayers.

The deal is expected to mean less business for many Swiss financial institutions. But they signed on to the agreement, which the Swiss Parliament has not yet approved, because Swiss banks feared being squeezed in EU countries in which they operate. At the same time, some expect clients will find loopholes to avoid the withholdings -- possibly by changing personal accounts to corporate accounts, or by switching to nondividend-producing financial products.

But if the Swiss are already considering how to maneuver around the new regulations, they are also debating internally about the creation of an overarching federal financial authority that will supervise all Swiss financial companies, in an effort to burnish the reputation of the Swiss financial services industry. And that includes independent asset managers, who currently are subject only to Switzerland’s money-laundering rules, although in 2000 they were required to join a self-regulatory organization. The expert Zimmerli Commission at Switzerland’s Federal Department of Finance is expected to publish a set of recommendations for regulating independent asset managers in January.

Link here.


Sen. John Kerry keeps telling us that “the rich” need to pay more in taxes. The senator and his wife are among the 400 richest Americans. He says that he has “a plan to tax the rich.” Under the senator’s tax plan, what percentage of the Kerrys’ income do you think they would pay the IRS? (a) 50%, (b) 40%, (c) 30%, or (d) 15%. The correct answer is (d). According to an analysis by the Argus Group, a well respected tax law and economics firm, the Kerrys’ average tax rate would only increase by 1.8 percentage points to 15.2% under the senator’s plan, while many small business people would see their average rate rise by 4.0 percentage points, resulting in effective rates as high as 35 to 40%, including certain deduction phase-outs.

Last year, Mr. Kerry and his wife paid only 13.4% of their declared $5.5 million income in federal taxes. President and Mrs. Bush, whose income was only 15% of the Kerrys’, paid a tax rate more than twice as high, 27.7%. Despite all of the senator’s bombast about the rich paying more, under his plan he and Mrs. Kerry would still pay a lower average rate than most middle-income Americans. Mr. Kerry’s running mate, Sen. John Edwards and his wife paid an average tax rate of only 5.1% on their reported $434,000 of income, or less than one-third of what the average taxpayer pays.

As Mr. Kerry’s own tax situation shows, he is not proposing increased taxes on those who are already rich -- through inheritance, hard work, luck or marrying a rich woman -- but is proposing increasing taxes on those who are trying to become rich. His plan proposes to make it more difficult for people to join his club of the very wealthy. If you are already rich, you can tax shelter much of your income, but if you have little in the way of assets, it is almost impossible to shelter your earnings from taxes.

Link here.


The train wrecks of the Justice Department’s domestic War on Terror continue to pile up. Despite the perennial victory claims by Attorney General John Ashcroft and other high officials, three recent cases vivify how federal prosecutors and FBI agents continue tripping over the evidence -- or worse.

The three instances may be only the tip of the iceberg as the government can usually rely on acquiescent federal judges or coerced plea bargains to keep most of its dirty laundry out of view. The public soundbites seek to reassure us that the Justice Department’s domestic War on Terror is going well by invoking largely meaningless numbers. In a July report on the Patriot Act, DOJ bragged, “the Department has charged 310 defendants with criminal offenses as a result of terrorism investigations since the attacks of September 11, 2001, and 179 of those defendants have already been convicted.” But the vast majority of the convictions have had nothing to do with terrorism. Instead, they are a litany of credit-card fraud, visa violations, and other offenses whose prosecution does nothing to protect America against deadly foreign threats -- while the pursuit of PR victories over bogus plots diverts resources from real terrorist dangers.

As the election draws closer, the Bush administration may unveil new arrests on terrorism charges. If so, it would be wise to wait until long after the triumphant press conferences to gauge whether the government has finally got the goods -- or whether the busts are simply another effort simultaneously to frighten and comfort voters.

Link here.


Most economists, and this newspaper, have been fretting about America’s huge current-account deficit and predicting the dollar’s sharp decline for years. The trouble with crying wolf too often is that people stop believing you. After slipping 14% in broad trade-weighted terms since 2002, the dollar had stabilized this year, even as the current-account deficit continued to grow. This has encouraged some economists to offer theories explaining why America’s current-account deficit does not matter and why the dollar need not fall further. But the dollar has now started to slide again: this week it hit $1.28 against the euro, within a whisker of its all-time low of $1.29. Trust us, the wolf is real.

The dollar’s latest slide seems to have been triggered by uncertainty about the presidential election and a flurry of comments from Fed officials. Robert McTeer, the president of the Dallas Federal Reserve, mused (only “theoretically” of course) that when capital inflows into America dry up, “there will be a crisis that will result in rapidly rising interest rates and a rapidly depreciating dollar that will be very disruptive.”

Policymakers’ usual reply when asked about exchange rates is to say that they are set by the market. But if the dollar was truly being set by the market it would now be much weaker. The dollar has fallen by over 30% against the euro since 2001, but its trade-weighted index has fallen by much less because of heavy intervention by Asian central banks, aimed at holding down their currencies against the dollar. This policy seems likely to continue, despite China’s decision this week to raise interest rates for the first time in nine years. That decision was aimed at curbing its overheating domestic economy, rather than bolstering its currency.

Because Asian currencies have been held down against the dollar, America’s current-account deficit has continued to swell, reaching almost 6% of GDP in the second quarter. The dollar is already below most estimates of its fair value against the euro, but it will need to undershoot if the deficit is to be reduced. Economists at UBS estimate that the dollar’s trade-weighted value might need to fall by another 20-30% to trim the deficit by enough to stabilize the ratio of America’s external liabilities to GDP. Though it might seem unthinkable, that could imply a rate of around $1.70 against the euro.

In the three years from 1985, the dollar fell by 50% against the other main currencies. Inflation and bond yields rose and, in October 1987, the stockmarket crashed. America’s current-account deficit is now almost twice as big as it was then, so the total fall in the dollar -- and the fall-out in other financial markets -- could well be larger. The wolf is licking his lips.

Link here.


The inflation-deflation debate continues to intensify. In a deflationary environment, the appropriate strategy involves investing in bonds and cash; this strategy, however, in an inflationary environment will prove suicidal. Therefore, correct prediction of monetary developments becomes crucial for investor survival.

The objective of this article is to present an Austrian analysis of the inflation-deflation debate. We present the Austrian stages of inflation, provide the crucial criteria that allow us to differentiate between those stages, and illustrate them with prominent examples. Then we apply the Austrian inflation theory to the current U.S. monetary environment and infer the current stage of inflation, the likely monetary developments in the future, and the appropriate investment strategies in this environment.

Link here.
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