January 2005 Selected Offshore News Clips

(Especially noteworthy articles’ headings highlighted in gold.)

PASSPORT FORGER PUBLISHES HIS MEMOIRS

Cioma Schönhaus helped hundreds of Jews in Germany escape certain death during the Holocaust, by faking their identity papers. In 1943, he found refuge in Switzerland. Now, more than 60 years later, he has published his story in a gripping autobiography The Passport Forger.

Cioma was raised in Germany, the son of Russian Jewish emigrants. After leaving art college, he was forced into work as a tailor, sewing machine mechanic, gardener, and metalworker. In June 1942, Cioma received his deportation papers, and was due to be sent with his parents to a death camp in Poland. Luckily for him, the police accepted an appeal from his employers asking for a deferment due to his war-related work in a munitions factory. Cioma said goodbye to his family in a synagogue, which had been turned into a deportation center. “I’d heard that Jews were being burnt. My mother refused to believe it, but I did,” he said. He was never to see his parents again.

Despite the reprieve, Cioma expected to be deported at any time. He decided to quit work and was one of 50,000 Jews who went underground in Berlin. For most people, this meant a life with no fixed address, no food tokens and no identity documents. Most Jews dared not show their faces in daylight for fear of being asked by soldiers to present their papers. Only 1,500 of those who went underground survived the war. Cioma, in contrast, had a taste of the high life. He was able to fake his own ID papers, and found a way of making money. Members of a church provided Cioma with identity papers. It was his job to remove the old passport photographs and create a counterfeit official stamp. In payment for the forgeries, he received food tokens.

HAS CONGRESS CREATED “FEDERAL POLICE POWER”?

Every American is just a few steps away from committing a crime. That point is raised in new publications that seek to cast a critical eye on lawmakers for their aggressive approach to going after supposed wrongdoing. “I think we should be alarmed on a number of different levels,” said Bob Barr, a former Republican member of Congress from Georgia who also used to be a U.S district attorney. “We’re changing the very nature of society -- the over-criminalization of society.”

From environmental infractions, to corporate crime and prosecuting vice crimes already covered by state law, the federal criminal code has grown 33% since 1982, with an estimated 4,000 punishable crimes on the books today, according to Measuring the Explosive Growth of Federal Crime Legislation, published by the Federalist Society in 2004. Contrasting the growth of federal crimes is an overall drop in the crime rate across the U.S., according to recent Justice Department statistics. The number of murders dropped by nearly 6% and overall crime dropped 2% in the first half of 2004 compared to the same time period in 2003. “Effectively, we’ve created a federal police power,” which was not the original intent of the framers of the Constitution, said John S. Baker Jr., a law professor at Louisiana State University and co-author of the report.

Plus, according to the Sentencing Project, half of the more than two million federal, state and local prisoners today are behind bars for non-violent offenses. The group said that is the result of tougher sentencing guidelines promoted by state and federal officials in the last decade. “Criminal law is sort of society’s last line of defense -- it’s really the hammer that is used against truly bad actors committing crimes we are all concerned about: killing, defrauding, stealing,” said Gene Healy, editor of the newly-published book by the Cato Institute, Go Directly To Jail: The Criminalization of Almost Everything. “When you throw someone who has filled a form out wrong in the same cell with an arsonist you really weaken the force of this sanction.”

Healy said some law enforcement officers are causing ordinary citizens to lose trust in police because they seem to be treating everyone like potential criminals. “If you are an ordinary citizen going about your business, you should be secure in knowing that you won’t be handcuffed and humiliated and if you ever have an interaction with police it will be polite and pleasant,” he said. “That’s the way it is in most places -- but as it becomes easier to throw the book at someone and give them Hannibal Lecter treatment for these minor offenses, than it’s going to change the way we view law enforcement.”

ARE GOLD-RESERVES THE ONLY WAY OUT?

A very simple case can be made to show that world central banks will soon be forced to return to a pure gold-reserve system. If they want to save even a smidgeon of their former power, they really have no choice -- unless they prefer that the whole ship go down before they change course. Right now, international dollar reserves constitute the proverbial hot potato. Nobody really wants them, but no one can afford to drop them, either.

The best way to demonstrate the truth of this is to take a look at Asian central banks, especially those of China, Japan, and India. They are awash in dollars, and they know that dollars are falling and will continue to fall. They also know that if they simply keep them, their value will rapidly decrease over time, and if they sell them, their value will decrease even faster, while if they buy more to keep the dollar and their export-based (rather illusory) profits from collapsing, they will only delay the inevitable and build themselves an even bigger problem.

There can be no greater argument than this to return to a system where gold is held in reserve instead of fiats -- or any other country’s financial obligations (government and agency debt, etc.). Staying on a fiat-based reserve system simply is not an option. The more time is “bought” by these countries continuing to buy dollars to keep their own currencies low and the dollar system from imploding, the bigger the problem gets. All of the participants know very well that, eventually, a point of no return will be reached. Right now, they are still waiting, hoping -- against all better knowledge. But that will stop at some point in time, because it will become impossible to maintain.

The only hope they have right now is that, somehow, their tactics will enable another credit-fueled “boom” of the world economy -- but they really know better. They know exactly that credit-fueled “booms” are what brought us all to this juncture in the first place. Any more of this, and this pressure cooker will simply explode. That is not the kind of “boom” they want. The only viable alternative is the one thing they have collectively tried to abandon and have worked so hard to forever lay to rest. It will take some time to sink in, but sink in it will. Namely, only by exchanging dollars for physical gold reserves can they truly save their countries from this mess. Here is why. In the meantime, take advantage of artificially suppressed, pre-dollar collapse gold prices, and stop complaining about gold price manipulation. It is a pure blessing for those who are wise enough -- like the Chinese. The motto? Don’t fight it -- take advantage of it! Its days are numbered.

THIS IS THE CHINESE CENTURY

America may believe it is still at the heart of events, but the future is being shaped on the margins. The 18th and 19th centuries were the British centuries, in which industrial, political and imperial development in Britain shaped the world. The 20th century was the American century. The U.S. changed the world, providing a margin of victory in two world wars, and developing all the major new technologies: telephones, automobiles, television, jet aircraft, the Internet and so on. We all assume, as Washington undoubtedly assumes, that we are still living in the era of American hegemony, though it is already clear that China may be an emerging superpower.

I think that we may be missing an idea familiar to economists, which was developed in the second half of the 19th century. That idea is “marginalism”. It is one of those concepts universally accepted by professionals, but little understood outside. All that the “marginalist revolution” really amounted to was the recognition that economic change is determined by what happens at the margin of transaction. The extra apple sets the price for all apples. If there is one apple short, all apples cost more; one surplus, and they all cost less.

Clearly, the United States is still by far the largest and most powerful economy on earth, with the most powerful defence technology. Yet it is China, not the U.S., that is changing the global economy. As a producer, an exporter and as an importer, the growth of the Chinese economy is changing the marginal levels of global supply and demand. Over the weekend I was reading many forecasts by eminent economists of the world economy in 2005. The unanimity was astonishing, as one buzzed from channel to channel, subject to subject, and economist to economist. What is the prospect for the dollar? The euro? The oil price? Industrial commodities? Global equity markets? Bond prices? World trade and growth? In every case, China. The forecasts were not based on the absolute size of the Chinese economy, which is still much smaller than that of the U.S., but the forecasters were all convinced that marginal changes attributable to China would be the decisive factor. That and low Chinese costs.

The Chinese economy probably still has another 25 years of high growth ahead of it. Before it reaches full maturity, the Chinese economy will be a multiple of its present size. China has also understood the important of domestic and international freedom of trade and the need for the best possible relations with trading partners. With direct material and financial support, China has been one of the large contributors to the relief of the Indian Ocean countries after the tsunami disaster. The economic maturity of the new China has been accompanied by increasing political maturity. That is the best guarantee for the future of what is beginning to look like the Chinese century.

WASHINGTON IS A SLEDGEHAMMER; WE ARE NAILS

Congress in 1970, responding to a supposed “wave of organized crime”, passed the infamous statute known simply as RICO, which was a mechanism to try alleged mafia figures in federal courts where convictions would be easier. The ACLU and other concerned groups and individuals warned that this new law soon would be abused, but Congress and others ignored the warnings. Not surprisingly, RICO ultimately came to be the ultimate weapon that federal prosecutors could use against individuals and business owners who decidedly were not part of “organized crime”, but the provisions of the law are so powerful that a RICO indictment almost guarantees a conviction of some sort. (And, surprise, surprise, the ACLU itself dropped its official aversion to RICO after pro-abortion groups successfully used the civil portion of RICO to win huge monetary judgments from groups protesting abortion.)

However, RICO is only a small (but powerful) weapon in the arsenal that federal prosecutors are able to use against people they deem to be a threat to state power or injurious to the approved “social order” as desired by the political classes. Today, we see the Patriot Act, a law that Lew Rockwell once told me was “RICO on steroids”, being used not to fight "terrorism," but rather to severely punish individuals in order to “send a message” to the rest of us. Federal prosecutors in Missouri even looked at the possibility of charging the creators of PayPal with Patriot Act violations.

Now federal prosecutors now have decided to put forth the legal fiction that a New Jersey man who was shining a green laser at air traffic near an airport is a “terrorist”. Federal authorities used the Patriot Act to charge David Banach, 38, with interfering with the operator of a mass transportation vehicle and making false statements to the FBI. He is the first person arrested after a recent rash of reports around the nation of lasers being beamed at airplanes. If convicted, Banach could be sentenced to 25 years in prison and fined $500,000. The FBI acknowledged the incident had no connection to terrorism but called Banach’s actions “foolhardy and negligent”. Being that it is extremely doubtful that Banach was trying to force a plane to crash -- the feds have admitted the same thing -- what we can say is that he did a very stupid and potentially dangerous thing. But doing something stupid and committing an act of terrorism clearly are not one and the same, yet federal prosecutors are using the Patriot Act to throw Banach into prison. To put it another way, the feds are using a sledgehammer in a situation that does not even call for a regular hammer.

Yes, Banach did something that was incredibly stupid, but there also was clearly no criminal intent. Once upon a time in America, intent -- the doctrine of mens rea -- mattered when it came to the pursuit of criminal acts. Today in Amerika, the only thing that matters is the accumulation of power by federal officials, who then wield it like a sledgehammer against the rest of us.

10 EX-DIRECTORS FROM WORLDCOM TO PAY MILLIONS

Ten former directors of WorldCom, the telecommunications company whose bankruptcy was the largest in history, have agreed to pay $18 million of their own money to settle a class-action lawsuit by investors who lost hundreds of millions of dollars when the company collapsed in July 2002. The agreement by directors to dig into their own pockets, which is part of a $54 million settlement with plaintiffs led by the New York State Common Retirement Fund, is a remarkable concession. Directors have always relied on their company’s insurance to cover costs associated with securities cases and settlements.

The settlement is a disturbing precedent for directors, whose duties to look after shareholders’ interests have come under harsh scrutiny in the three years since the failure of Enron. Investors have become increasingly frustrated as company directors and officers escaped financial responsibility for losses incurred as a result of fraud. Companies whose executives are accused of engaging in fraudulent practices typically pay those executives’ legal bills and the fines that can result when regulatory proceedings against them are settled. And directors almost never pay in such settlements because they are covered by insurance.

The directors’ personal payments were a requirement of any deal from the start of the negotiations, according to lawyers involved in the settlement. Given the size of the WorldCom debacle, the investors who brought the case sought to make an example of the directors, lawyers involved in the settlement said. The amounts being paid will differ for each director. While the exact individual amounts were not disclosed, the payments will account for 20% of the directors’ aggregate net worth, not counting their primary residences and retirement accounts.

It is clear that the directors faced increasing pressure to settle as the jury trial, which is scheduled to begin on Feb. 28, drew closer. The numerous corporate scandals have heightened public skepticism over the actions of executives and directors. While the insurance policy for WorldCom directors and officers provided $100 million in coverage, the risk was that the directors’ exposure could have been much greater. A securities lawyer who is not involved in the case said that the directors might, indeed, have settled because of the enormous liabilities faced in the jury trial. Last month, for example, the judge overseeing the case stated that the prospectus in one WorldCom bond offering was false and misleading.

LIBERALS OR CONSERVATIVES?

In my capacity as Western Civilization’s principal moral compass and intellectual lighthouse, I thought I might explain politics once and forever. There are altogether too many television shows about politics, too many books by people who would better pass their time in drinking. A final explanation of all things political will allow the papers to concern themselves entirely with coverage of ghastly murders, divorcing celebrities, and the incursions of space aliens into Puerto Rico. In America, politics breaks mostly into two groups, both of whom probably do not have enough to do: liberals and conservatives. I will explain each.

The liberal believes that the group has a right to control every aspect of everyone’s life. He may permit many freedoms, but only those of which liberals approve. Abstract or general freedom holds no appeal for him. The limbic instinct of the inveterate liberal is to harry, regulate, and stifle the individual, of whose penchant for independent action he is profoundly distrustful. Of course he does not think that he is stifling and imposing, but improving and instructing. For the unwilling he has no patience. The liberal believes in the “the masses”, in their infinite plasticity and potential for uplift and betterment, guided by him.

Liberalism is a feminine creed, embodying the kindness, short horizons, modest familiarity with reason, and placidity of the sex. It wants to buy people nice things without reflecting on how to pay for them. As good mothers will, it tries to protect everyone from everything. This is why the Democratic Party unrelentingly promotes security. Children must wear helmets while riding bicycles, canoeists must wear life preservers, we must outlaw guns, and smoking, and drinking while driving, and we should all wear sunscreen so as to avoid melanoma. We must worry about safety until there is nothing left in life but its preservation. With the seldom-recognized totalitarianism of the female, liberals seek to impose happiness, whether desired or not, by therapy and mood-altering drugs, whether desired or not. People must be happy, must be safe, must be forcibly socialized to a life of orderly boring routine whether they want it or not. The herd will provide for all; the price is that all must yield to the herd.

Conservatives by contrast believe that the individual has a God-given right to rob others. As the liberal has good intentions without rationality, the conservative has rationality without good intentions. He worships at the shrine of personal freedom, by which he means only his prerogative of making money regardless of damage done to others. He dislikes government as he dislikes anything that might inconvenience the pursuit of private rapine. Conservatism is a masculine faith, hard-eyed, coldly logical, frequently bloodthirsty, and typically out of touch with any reality beyond the commercial. The conservative has no concern for the less fortunate, who he believes probably deserve it anyway.

Conservatives are fond of war, partly to be sure because of the consequent flow of contracts but also because war is an age-old, genetically mediated hobby of males. A robust conservatism embodies all the brainless pugnacity of the male. Note that history is chiefly the record of armed bands of men poking each other with sharp objects, after which the survivors drink mead and tell themselves how glorious it was. The Iliad, Beowulf, The Song of Rolland, and the Old Testament, for example, all read like the annals of teenage gangs in Chicago. In the conservative mind, martial derring-do is wrapped like a birthday present in notions of glory, valor, sacrifice, virility, and transcendence. Women and most Democrats seem to see it in terms of deeply rooted and intransigent idiocy.

Conservatives conspicuously lack esthetic sensibility, a love of beauty being a concern of women and homosexuals. Show the conservative an Arcadian idyll of rolling fields and ancient oaks and he will see a site for several garish hotels, a parking lot, and a Wal-Mart. A dolphin, an elephant, a panda he calculates in terms of cans of dog food at 37 cents per, and, for an additional three cents a can to cover legal contingencies, he would pack his grandmother. He sincerely has no faint idea why anyone might object.

The solution to the conflict between the two groups should be obvious to all thinking people, if any: Drop them down an abandoned oil well, pump large amounts of potassium cyanide after them, and stuff Oprah into the hole as a plug. A cap of cement could not hurt. The silence alone would justify this wise deed.

IRS COMMENCES ITS ANNUAL ANTI-OFFSHORE TRUST CAMPAIGN

As the tax-filing season began, a top IRS official issued a warning for tax cheats. “Criminal enforcement is back at the IRS,” Nancy Jardini, chief of criminal investigation at the agency, told a crowd of about 200 professional tax preparers. Evidence of the crackdown, she said, is a 50% jump in the number of referrals that the agency’s civil enforcement unit made for criminal investigation. The referrals arose out of IRS audits and efforts by revenue agents to collect taxes. But the increase, which was for October through December 2004 compared to the 2003 period, does not mean every mistake will bring a criminal investigation. “A taxpayer is not accidentally going to stumble into a criminal act,” said Jardini, who graduated from Villanova Law School in 1988. The key is willful and intentional evasion of taxes. “It’s lies,” she said.

One focus for the agency’s criminal investigations is abusive trusts, frequently offshore, that evade taxes. Promoters of these illegal trusts charge $25,000 to $50,000 to set up a trust, which is then moved to some other country that does not have treaties with the U.S. That means income that goes into these trusts is not reported to the IRS for tax purposes. The beneficiary of the trust still has access to the money -- in some cases through an international debit card.

In fiscal 2004, 45 people nationwide were sentenced in abusive-trust cases, with 74% of them receiving jail terms averaging three years. In another case of criminal enforcement, a federal jury in Seattle convicted six defendants last week in a tax-shelter scheme that helped 1,500 people take $120 million in false deductions from 1997 to 2001. The overall average sentence for people convicted of tax crimes last fiscal year involving legal income was 18 months, Jardini said.

DEATH BY TAXES

Low-tax jurisdictions such as the Turks & Caicos Islands are under attack again. Like the movie vampire that never quite dies, the European Union’s “Savings Tax Directive” appears to have come back to life, and is apparently due to come into force on July 1, 2005. The Directive is the widely-reported process by which the high-tax governments of Europe are hoping to stop their citizens from sheltering their savings in low-tax countries like the Turks & Caicos Islands. If the plan comes into effect, then affected countries will have to either charge tax on all interest payments to EU residents (and pay it over to the EU governments) or automatically report the amount of interest paid to the recipient’s national tax authority so that they can tax it themselves.

Automatic reporting would make it easy for the investor’s home authority to impose tax, but would run against the tradition in many countries of protecting investors through client confidentiality and banking secrecy. Taxing interest payments to EU residents might therefore appear at first sight to be more attractive, but the EU clearly sees this as merely a temporary measure. The rates demanded are 15% for the first three years of operation of the system, 20% (the international norm for tax deductions from bank interest) for the next three years but a clearly punitive 35% thereafter. Tax will be deducted from interest payments by the payer (whether a bank or other entity), and 3/4 of the tax must be paid to the investor’s home government.

The European Commission (the EU’s bureaucracy) has been pushing for such a scheme for 15 years, but the process was held up primarily by two members of the EU that effectively act as on-shore tax havens. Luxembourg, despite its small size, has a massive financial services sector, fuelled by its tax exemptions for interest payments. It is therefore unwilling to agree to anything that would risk losing any of this business. Indeed it was the loss of tax revenue to the German government through its citizens putting their money into Luxembourg banks (a process made easier by the removal of border controls in the EU and by the introduction of the Euro) that arguably started this whole process. The UK, whose massive $3 trillion Eurobond market is tax-free -- which allows mainly U.S. and Japanese companies to raise money more cheaply by paying interest to investors without deducting tax -- brings in much wealth and financial sector jobs, was the other objector. The Savings Tax Directive would damage both of these countries’ economies. However after several years of strong pressure they extracted valuable concessions (including an exemption from the new rules for existing Eurobonds) and finally gave way.

One of the strongest arguments used by the UK and Luxembourg was that the Savings Tax Directive would do only harm, not good -- if all savings within the EU were taxed, then investors would simply move their money outside. The agreement between the EU member governments therefore made the Savings Tax Directive conditional on its rules also being accepted by various non-EU countries, specifically the main non-EU European tax havens -- Switzerland, Liechtenstein, San Marino, Monaco and Andorra, and “dependent or associated territories” of EU members -- the Channel Islands, Isle of Man, the Dutch Antilles and Aruba, and the UK’s dependencies in the Caribbean (including the Turks & Caicos). The EU has no formal jurisdiction over these countries, but they were clearly chosen because the EU felt that it could pressure them into agreeing to its demands, either due to geographic proximity or political or economic ties. The Turks & Caicos Islands accepted the inevitable and agreed to sign up to the EU’s proposals on January 26, 2004, after pressure from the UK Treasury that even the UK’s Foreign & Commonwealth Office regarded as excessive.

The Savings Tax Directive is a current danger to low-tax jurisdictions. Although it is still not yet final and should be possible to avoid in its current state, it may well be pushed through and later extended. Overall, there needs to be continued co-operation between low-tax jurisdictions like the Turks & Caicos Islands and their friends and supporters in Europe and the USA. It is important for all of us that the European governments do not win this fight, not just to preserve the sovereignty of small nations but also for the sake of investment and the global economy.

PANAMA A RISING STAR IN OFFSHORE ASSET PROTECTION

In recent years there has been a noticeable increase in smaller countries competing for a larger slice of the growing offshore financial market. While many smaller countries were once under large countries foreign empirical control, they are now independent and free to plot a self-directed course by which they can grow and prosper. Many of these small countries aggressively look for ways to open their economies beyond the traditional markets that have for centuries been dictated by foreign governments. The advantage they now have over the older established offshore financial havens is by studying the existing havens’ histories they can gain insight into what has (and has not) worked. They can then create more up-to-date legislation improving on already existing laws. They may also elect to fill a specialty niche or offer the financial services that are most in demand.

These newer and lesser known international business centers are eager to gain their share of the offshore market finances, and this shows in their aggressive offers to the financial communities. Panama is one such country. Panama currently offers huge tax incentive and residency programs to anyone wishing to invest in tourism, teak reforestation, or historical district renovations. Panama also has a very attractive pesionado program for those wishing to retire to Panama’s tropical climate and beaches. Panama is known mostly for their shipping canal but has many other products and services which have served to produce a long term healthy, and stable economy. Panama currently supplies over 80% of the world demand for teak wood. It has the second largest duty free zone in the world, second only to Hong Kong. Panama has grown to be one of the most stable, leading financial business centers in the world. It’s estimated that 80% of its economic income is from the services sector, a large portion of which is financial services.

Panama has some of the strongest banking privacy laws in existence, dating back to over a quarter of a century. Their ships and mortgages registration law dates back to 1927. There are over 80 banks from which to choose including some of the largest in the world, Barclays and HSBC. Panama financial and business community offers legal entities such as trusts, IBCs, foundations, and century old asset protection laws, all protected by very strong and well maintained privacy laws, violation of which is punishable by incarceration and $50,000 fines as well as corresponding civil liability.

The Panamanian Private Foundation legislation was originally inspired and modeled after the Liechtenstein Family Foundation -- due to its immense popularity in Europe. The group of attorneys who drafted the Panamanian legislation were not satisfied with the many alterations in the Liechtenstein legislation which now contains bits and pieces of various other laws. The creators of the Panamanian law set out to create an entirely new piece of legislation broadening the scope of the Panamanian Private Foundation in order to bring forward a more flexible and modern foundation.

RETIRE IN THE CARIBBEAN ON $800 A MONTH?

I know that I cannot live on Social Security in the U.S. so a couple of years back I decided to see what the rest of the world has to offer as a way of life. I went to England, France, Germany and Amsterdam but they are right up there with the U.S. Costa Rica I was not impressed with, Canada is way too cold, and I did live in Mazatlan Mexico for a year. Mexico is definitely out. The Bahamas and Virgin Islands are right up there with Hawaii and my last name is not Trump. I was stumped? One day checking my e-mail, an old friend sent me a note. We met while we were both living in Mazatlan but this message was not from Mexico -- it was from Margarita Island. Where in the world is Margarita Island? As it turns out my friend had been looking for the perfect place too. He had checked Central America, Equador, Argentina, and a friend of his had recommended this Caribbean island. To make a long story short, he went to visit for 6 weeks, came home, sold everything and moved back. Now he is recommending it to me. You make your own decisions. I have made mine.

Unbelievable property is available for unbelievable prices. Beautiful homes for the price of a small mobile. Maybe you do not want to buy? You can rent a nice apartment for $100 a month. You can rent a very nice security gated apartment for $200 and for $300 you will have the penthouse. Maybe rent for a year? If you are 65 or over the airlines have a “senior discount” with round trip airfare from Caracas to Miami for only $125. Miami is only 3.5 hours away. And they are adding a direct flight from Margarita to Miami early 2005 which will make the time even shorter. I am still trying to find a downside to Margarita Island. I mentally went through food, clothing, utilities, medical, rent/purchase, cars, TV, and all I could come up with was bowling? Then I remembered that I saw a beautiful bowling alley at one of the shopping centers.

NICARAGUA: EXPLORING THE UNDISCOVERED

“Nicaragua? Why Nicaragua?” The question has been asked over and over by everyone I have come in contact with since I returned from vacationing and investigating investment opportunities at a new development called Rancho Santana in this economically downtrodden Central American country. A year earlier, I had have asked myself the same question. Now, my response would read something like, “Because I see a good opportunity there, and a country abundant with untapped natural resources and beautiful coastline that’s been compared to the likes of California in its infancy or more recently, an up and coming Costa Rica.”

And still they would ask, “But what is it about Nicaragua? Is it not dangerous?” The worst appears over. There is a conscientious new government in place determined to rebuild and restructure, there is an economic upswing on the horizon, there is neighboring country support, there is a great potential for a boost in tourism, and, above all, Nicaragua still offers one of the few commercially unspoiled locations that is reasonably affordable for new people interested in buying or living overseas. For all of those reasons, visiting Nicaragua made sense to me. The people are welcoming of Americans and seem to remain as unspoiled as the landscape they inhabit.

GOVERNMENT IS ABUSING “STATES SECRETS PRIVILEGE” TO COVER UP BLUNDERS, ACLU SAYS

The ACLU urged the D.C. Court of Appeals to reinstate the case of former FBI translator Sibel Edmonds, saying that the government is abusing the “state secrets privilege” to silence employees who expose national security blunders. “The government should be applauding, not punishing, employees who risk their jobs to expose threats to our nation’s security,” said ACLU Associate Legal Director Ann Beeson. “If the lower court ruling stands, many thousands of government employees will be unprotected from retaliatory dismissal, with no recourse in the courts, and others will be even less willing to risk exposing misconduct or corruption.”

Edmonds, a former Middle Eastern language specialist hired by the FBI shortly after 9/11, was fired in 2002 after repeatedly reporting serious security breaches and misconduct in the agency’s translation program. She challenged her retaliatory dismissal by filing suit in federal court. Last July, the district court dismissed her case when Attorney General John Ashcroft invoked the so-called state secrets privilege. The ACLU is representing Edmonds in the appeal. The ACLU has announced its willingness to support other national security whistleblowers and has encouraged others to come forward.

In the brief filed, the ACLU sharply criticizes the government’s “radical theory” that every aspect of the Edmonds’ case involves state secrets and therefore it cannot go forward. In accepting the government’s theory, the ACLU said, the district court relied on the government’s secret evidence but denied Edmonds the opportunity to prove her case based on non-sensitive evidence. That approach, the ACLU said, “made a mockery of the adversarial process and denied Ms. Edmonds her constitutional right to a day in court.”

BRAVE NEW ERA FOR PRIVACY FIGHT

As the nation prepares for President Bush’s inauguration next week, privacy activists on both sides of the political spectrum are bracing for a White House push to augment controversial domestic surveillance powers gained under the Patriot Act and other legislation passed since 9/11. “The administration has made it clear that they do intend to continue their move to dramatically reduce privacy and constitutional protection for our citizens,” said former Republican congressman Bob Barr, who now works as a speaker and consultant to organizations like the ACLU. But surveillance legislation is not the only concern on the minds of privacy advocates. They are also looking at technologies and services coming out of the commercial sector that could seriously affect civil liberties.

Some of the important issues to watch this year include Patriot Act enhancements, data mining, a de facto national ID card, privacy legislation and states’ rights, DNA databases, and RFID tags. Marc Rotenberg, executive director of the Electronic Privacy Information Center, expects 2005 to be a busy year for privacy advocates. But he hopes that individuals will not leave it to organized activists to do all the work to protect privacy rights or think that because a specific right does not pertain to them that it is OK for others to lose it. “It’s a mistake to think that privacy is an individualist or atavist right,” Rotenberg said. “I really view privacy as a collective right. When someone else is forced to give up their privacy, yours could be the next to go.”

SNEAK ATTACK ON AMERICAN LIBERTIES

On December 7, 1941, the Japanese bombed Pearl Harbor in Hawaii. 2,388 people -- mostly military personnel, but including civilian men, women, and children -- died. Fast forward some 63 years to today, and look at your calendar for December of 2004. On December 7, you will see that most calendars take note of the Pearl Harbor attack which is still remembered with surprising freshness by many Americans. That is why I found it especially ironic -- and more than a little painful -- that Americans were subjected to another sneak attack on freedom on that very anniversary. December 7, 2004 marks the moment when the House of Representatives passed legislation to provide for intelligence reform. The vote tallies were overwhelming. A day later, and by an even more lopsided margin, the Senate did the same.

The intelligence bill is just the latest fall-out resulting from the 9/11 attacks. Literally within days of the terrorist attacks another lengthy piece of legislation was rushed through Congress. Referenced by a singularly inappropriate acronym, the USA PATRIOT Act was heralded as necessary for law enforcement to prevent further attacks on American soil. The PATRIOT Act has been the subject of controversy ever since, with civil liberties advocates claiming it infringes mightily on American freedoms, and even members of Congress scrambling to defend their votes or to talk of reforms for various provisions of the Act. Of course, defending affirmative votes for the measure are limited to rationalizations of general notions rather than specifics. That is because the text of the USA PATRIOT Act was not available to members of Congress before they voted on it. One positive result of the ongoing controversy surrounding the USA PATRIOT Act seemed to be the demise of the so-called PATRIOT II legislation.

Whatever its reasons, the administration appointed a Commission to investigate the 9/11 attacks. The 9/11 Commission’s report made a number of suggestions for improvements in intelligence gathering and dissemination as well as offered ideas for the interdiction of terrorism within the US. That report ostensibly formed the basis for the intelligence bill recently passed on December 7 and 8. Unfortunately, while it does supposedly address what I personally think are some issues that did require reform, the legislation also allegedly contains some extraordinarily anti-freedom measures. Some of those are said to include the implementation of a de facto national ID card, rumored measures for widespread and inclusive Internet surveillance, the effective repeal of prohibitions to the CIA of spying on Americans in America, and broad opportunities for abuse by authorities.

Do I blame the administration for forcing the issue? Sure. Do I find fault with the people who wrote this legislation? From what I know of its likely content, you bet I do. But our supposed protectors from bad legislation -- the men and women who vote on it -- are the real villains here. The votes held on December 7 and 8 were a sneak attack on American liberty in more ways than one. It seems we do not know much of what is contained in this new legislation shortly to become law. It is also readily apparent that those concerns have no meaning for the many who are glossing over specificities by calling this bill “necessary to fight the War on Terrorism”, a phrase that is sounding more hollow with every passing day even as it is becoming more familiar with every passing bill.

FREE TRADE OFFERS BETTER HOPE FOR AFRICAN NATIONS THAN MORE AID

Does foreign aid work as a tool to raise economic growth, and eliminate poverty, in Africa and the rest of the developing world? The Chancellor of the Exchequer thinks so. Gordon Brown, currently on a highly-publicized visit to Africa, has almost single-handedly put the issue on the political agenda. As well as championing the reduction of debt and of interest payments by African countries, he has launched the idea of a Marshall Plan for the sub-Saharan nations, to double western aid from $50 billion to $100 billion a year. Even without the scourge of war and dictatorship, western aid -- it is argued -- would still be needed to boost investment and create a virtuous cycle of self-sustaining growth.

However, there is a solid body of evidence that queries the proposition that increasing western aid is the route to helping Africa. A recent study by the Swedish economist, Fredrik Erixon, found that in only one country out of 138 was there a positive relationship between economic growth and aid. “It is a striking fact,” says Erixon, “that it is only in the last 15 years, when global foreign aid has actually fallen, that the number of poor people in the world has actually started to decrease.”

There are deep structural reasons why aid is a bad tool for economic development. At the recipient’s end, foreign aid tends to increase the power of corrupt officials. Hiding the stolen money then corrupts the local banking system, turning it into a criminal conspiracy rather than a tool for entrepreneurship. Even when the corrupting effects of aid are minimized, it is patronizing and robs the recipient nation of independence. As if all this were not enough, western aid has never been completely altruistic. Often it comes with conditions to buy western equipment or arms. Above all, western aid has become a good way of salving the conscience of western intellectuals.

IN SOUTH AFRICA, THE GOOD LIFE FOR A FEW

They are the black princes and princesses of the new South Africa. They wear Armani to the office, drive late-model Mercedes or BMW sedans and buy vacation villas in Tuscany. The children of Johannesburg’s new business elite attend once-segregated private schools in neighborhoods that look like Beverly Hills. Ten years after the system of legal racism known as apartheid fell, jewelry shops now market diamonds to this new carriage trade. And the natio’qs world-famous country clubs, where whites once learned enough Zulu to tell a caddy, “Move your shadow,” still thrive. The new black elite loves golf.

Is there something wrong with this picture of prosperity? Rolling back the legacy of apartheid -- essentially an affirmative-action program for the white minority -- was the African National Congress’s top priority when it took power in 1994. But now the ANC’s own affirmative-action campaign is under siege. So-called Black Economic Empowerment (BEE) laws steer government business to firms that include at least 15% black ownership. Yet statistics show that the gap between rich and poor has widened. Between 1995 and 2000, for example, average black household income shrank by 19%, while that of whites -- and of the new black middle class -- rose by 15%. The country’s Gini coefficient -- a measure of inequality -- also worsened.

Respected figures within the former liberation movement, including Moeletsi Mbeki, brother of president Thabo Mbeki, have denounced the program. They argue that its emphasis on creating black corporate owners has forged a selfish new class of well-connected opportunists but done little to help the masses. Setting off a bitter public debate last fall, former Anglican archbishop Desmond Tutu demanded, “What is black empowerment when it seems to benefit not the vast majority but an elite that tends to be recycled?”

FBI KEEPING RECORDS ON PRE-9/11 TRAVELERS

If you are among the millions of Americans who took airline flights in the months before the Sept. 11, 2001, terrorist attacks, the FBI probably knows about it -- and possibly where you stayed, whom you traveled with, what credit card you used and even whether you ordered a kosher meal. The bureau is keeping 257.5 million records on people who flew on commercial airlines from June through September 2001 in its permanent investigative database, according to information obtained by a privacy group. Privacy advocates say they are troubled by the possibility that the FBI could be analyzing personal information about people without their knowledge or permission. The data are called passenger name records, or PNR, and can include a variety of information such as credit card numbers, travel itineraries, addresses, telephone numbers and meal requests.

CHOSEN NATION?

During the 2000 presidential election campaign, George W. Bush famously said that the United States needed a “more humble foreign policy”. During the 2004 presidential election campaign Bush’s opponent, John Kerry, argued -- in essence -- that America needed to become a more humble empire. Bush (our “make the world safe for democracy” president and recent convert to nation building) disagreed with his rival, of course, at every turn. What a difference four years can make -- and, in this instance, definitely not for the better. In order to more fully understand America’s movement toward and open admittance of its renewed nationalism, militarism and imperialism, it is important to look for “first causes”. In his 2004 book, Myths America Lives By, Richard T. Hughes does some work in this regard on our behalf.

Hughes, a Distinguished Professor of Religion at Pepperdine University, argues persuasively that America’s recent foreign policy misadventures did not begin or end with the mendacious activities of the neoconservative cabal surrounding the Bush administration. These calamitous policies have far too much support among the American people in general for us to so easily and totally blame them on such a sorry lot of pseudo-intellectuals as the neoconservatives. Hughes -- like Walt Kelly’s cartoon character, Pogo -- has seen the real enemy and “it is us”.

Hughes instructs us that the English word myth is derived from the Greek word mythos, which literally means “story”. Our national myths become, then, the stories that we Americans tell ourselves about the history, meaning, purpose and destiny of our country. Although almost all of these stories are accepted with blind faith (and, largely, in an unconscious manner), some are much more grounded in reality, history and truth than others. Perhaps the best example of what Hughes writes about is his description of the myth of “America as the Chosen Nation”. Hughes describes wonderfully how the myth of America as the Chosen Nation became central to the story Americans tell themselves about their country’s founding, meaning and purpose. To a point Hughes has no problem with the story of America as a seemingly Chosen Nation. It is when versions of this myth become absolutized that the author begins to point to the dangers of taking the story too literally.

The 2004 presidential election demonstrated once and for all that these myths still have religious power in America. Patriotism is love of one’s country. Nationalism is a corruption of this natural affection and replaces it with the worship of the nation-state as a civil religion. As such, nationalism is a false faith that represents the chasing after idols. But as the Chinese say, “A journey of a thousand miles begins with one step.” Let our initial steps be to understand the “first causes” of our civil religion and -- should we choose to worship at its altar in any way -- to engage in its practices in the most humble manner possible.

ANOTHER INCOME TAX DENIER WILL HAVE HIS DAY IN COURT

Al Thompson gathered two dozen employees of his California manufacturing company, Cencal Aviation Products, four years ago and announced that he had stopped withholding taxes from their paychecks. Mr. Thompson went on to tell his workers that he believed that Americans were tricked into paying taxes and then introduced his new accountant, Joseph R. Banister, a former I.R.S. criminal investigator who travels the country advising business owners that the tax laws are a fraud. Mr. Thompson is to go on trial Wednesday in Sacramento for willful failure to file tax returns and failure to turn over more than $500,000 that should have been withheld. The trial is expected to last three weeks, and a major piece of evidence will be a videotape of the gathering, which showed Mr. Thompson and Mr. Banister being questioned about court rulings that have rejected similar antitax arguments.

His case illustrates some of the reasons that tax evasion is growing, despite repeated statements by the I.R.S. that it is cracking down on those who deny the legitimacy of the tax laws. The Internet, antigovernment news organizations and dwindling law enforcement resources are all factors in the spread of the tax denial movement. The case also highlights a change in tactics by the Justice Department tax division. Criminal cases often take years to develop, allowing tax frauds to continue. For decades, I.R.S. policy was that once a case was treated as criminal, all civil actions ceased. But in 2001, the Justice Department decided to use civil injunctions in tandem with criminal investigations.

Now, within weeks of learning about various tax frauds, Justice Department lawyers ask federal judges to issue orders to shut down Web sites and require promoters to turn over lists of customers and other actions. The lawyers have been successful in their cases each of the 121 times they have asked judges to take action. In Sacramento, Judge Frank C. Damrell Jr. of U.S. District Court ordered Mr. Thompson in 2003 to turn over more than $500,000 that should have been withheld as taxes and to file tax returns. Mr. Thompson refused to obey, saying the judge had no authority. Last March, Judge Damrell had him arrested.

At his trial Mr. Thompson, who is representing himself, is expected to argue that he sincerely believes Congress repealed the tax laws in 1939 and never properly enacted new laws. In a 1991 tax protester case, the Supreme Court ruled that John Cheek, a pilot, could not be convicted of willful failure to file tax returns because he “sincerely believed” he was not required to do so. Mr. Cheek still owed the taxes, however. Mr. Thompson’s defense will be complicated because of Judge Damrell’s orders. Prosecutors are sure to argue that the civil order, as well as a separate state court proceeding, and the fact that Mr. Thompson was jailed three times for civil contempt, gave him ample reason to question whether his belief was mistaken. Prosecutors are expected to argue that he is willfully blind to the law.

VERNON JACOBS DISCUSSES PROSPECTS FOR TAX REFORM IN THE U.S.

The U.S. income tax has been like a pendulum responding to changes in the political environment. As tax rates go down, so do the deductions and loopholes. We are presently at the lowest level of marginal tax rates since before World War II. But as the top tax rates have been reduced, a great many tax loopholes, tax sheltered investments and tax deductions have either been eliminated or greatly reduced. The 16th Amendment gave the Congress the power to assess taxes selectively, without making the tax uniform among the states. Historians and students of that amendment argue endlessly about whether it was really ratified as required and whether the courts have interpreted it correctly. To my way of thinking, the tax law is no more and no less than whatever the judges say it is today. If they construe the 16th Amendment as giving the Congress a blank check on the income and assets of every citizen -- or of even a single citizen -- then that is the law for today.

No matter how we change the tax system, some segments of the public get a windfall and some other segments of the public get the proverbial shaft. If you tax income, you get less income. The higher the rate of tax, the more incentive there is for taxpayers to reduce their income in accordance with whatever exceptions the law allows -- such as tax exempt interest or accumulations of life insurance or unrealized gains on various kinds of assets. If we start to tax goods and services, it is arguable that we will get less consumption. One of the arguments in favor of a sales tax is that we need to eliminate the tax on savings and capital formation in order to have more savings. But we can also expect that as the level of tax on consumer goods increases, there will be much more incentive for tax evasion. Unless the tax rate is so low that the effort is not worth the savings, there will be tax evasion.

It is my humble opinion that the real issue should be about government spending rather than about how we collect the taxes to pay for that spending. Despite the rhetoric of the politicians, higher taxes result in more spending. Less taxes may result in less spending, but only if there is some mechanism to prevent the politicians from finding new ways to get more money. All of the arguments about alternative tax systems are having the effect (whether intended or not) of diverting discussion from the proper role of the federal government in our lives.

I hve been watching the changes in the tax laws for nearly 30 years and have observed numerous periods of intense discussion about fundamental reform of the income tax. However, the politicians benefit greatly from the status quo and they cannot be expected to eagerly relinquish control of the “golden goose” that lays the golden eggs that provide the politicians with nearly unlimited funds to reward their friends and to punish their enemies. I fear that we will have to experience a destruction as severe as that of the former Russian Empire or the old Roman Empire before a majority of the voters will be willing to seriously press for the elimination of the income tax. Until then, the politicians will tinker with the law endlessly.

EVERYONE IS A CRIMINAL

I am a criminal. Yes, that is right. I, R. Lee Wrights, being of sound mind and aging body, do solemnly acclaim and justly affirm that I am a criminal. And, if I do my job correctly, by the time you finish reading this you will realize that you are a criminal also, and that something needs to be done about it. My premise is simply that government, not only at the federal level but in particular at the state and local level, has grown so gorged and bloated that it has become virtually impossible for any of us to remain “law-abiding citizens”. In order to be law-abiding, one must first know and understand the law. Now I ask you, in today’s society how many people really know, let alone understand, “the law”? Moreover, how many policemen really know or, more importantly, understand the law? Do the lawyers and judges, who are charged with the protection of America’s most sacred document, even understand the law? Judging from the number of appealed judgments these days, it would appear that even these “protectors of justice” are unable to effectively untangle the thicket of jurisprudence created by the endless loads of fertilizer produced by the various legislatures.

Government has simply made it too easy to break the law for us not to be criminals. I mean, you are required to have a license or permit to do practically everything. That means that you must go to a bureaucrat somewhere and ask their permission before you proceed or you become a criminal. If you want to drive to work, you must first have a paper from the State that says you are allowed to operate a vehicle. If you want to get a job to support your family, you cannot do so without a number supplied by the benevolent nannies that soil the seats of CONgress. How long does this list have to be before you realize that if you have to ask permission to do everything, not only will you eventually slip up and become a criminal, but you have also ceased to be free? With every new law enacted another little piece of liberty dies.

THERE’S A GOOD TIME AND A BETTER TIME TO INVEST; NOW IS A LESS-BETTER TIME

Over the last century, the average U.S. stock returned almost 10% per year, including dividends. But that number is misleading because it is the result of averaging wildly diverse annual returns. You will hear all kinds of happy talk about how stocks always do well over the long term, but in the long term we are all dead. The harsh reality is that investors unlucky enough to buy at the wrong time could earn piddling returns for more than a decade. Since the 1920s, there have been two such dry spells. The first began in September 1929 and lasted until April 1942. The second started in November 1968 and continued through July 1982. In each case, a process statisticians call “mean reversion” played out in fits and starts. Asset prices changed from expensive to cheap.

For those lucky enough to have their money in the right place at the right time, strong economic tailwinds can drive returns a long way. The latter part of the 20th century was one of those fortuitous periods. After the wars, scandals, inflations and stratospheric interest rates of the 1960s and ’70s, investors had thrown in the towel on stocks and bonds. By the summer of 1982, there were few sellers remaining -- and equally few buyers. Financial assets were considered passé. But as economic conditions improved over the next 18 years, equity investors gradually raised the price they were willing to pay from seven times earnings to almost 40 times. Coupled with normal profit growth, stocks gained 18.5% annually between 1982 and 1999, or almost double the historic average. A $25,000 investment in the S&P 500 in 1982 would have been worth $530,000 (before taxes) by 2000.

Unfortunately, financial markets do not send out engraved notices of pending trend reversals. If they did, stock investors would have received their letters in January 2000 and bondholders would have gotten the bad news in June 2003. Since then, the early stages of painful mean reversions have been under way in each asset class. My hunch is that home prices could be next on the chopping block. Cash is cheap and virtually everything else is expensive. Such a time is not the best time to buy.

NONSTOP SCRUTINY, AS ORWELL FORESAW

Picture Minority Report combined with Orwell’s 1984 and Francis Ford Coppola’s The Conversation: in an effort to prevent future crimes and predict what certain individuals are likely to do, the government has begun working with high-tech titans to keep tabs on the populace. One company has come up with a digital identity system that has tagged every adult American with a unique code. Another company is intent on gaining control of all records -- including state and local files, financial information, employee dossiers, DNA data and criminal background checks -- that define our identity. In addition to iris scanners, voice analyzers and fingerprint readers, there now exist face recognition machines and cameras that can identify an individual by how he or she walks.

One government group is working on infrared detectors that could register heat signals around people’s eyes, indicating an autonomic “fight or flight” response. Another federal agency has floated a proposal to assess risk by examining airline passengers’ brain waves with “noninvasive neuro-electric sensors”. This surveillance state is not a futuristic place conjured in a Philip K. Dick novel or Matrix-esque sci-fi thriller. It is post-9/11 America, as described in Robert O’Harrow Jr.’s unnerving new book, No Place to Hide -- an America where citizens’ “right to be let alone”, as Supreme Court Justice Louis Brandeis once put it, is increasingly imperiled, where more and more components of our daily lives are routinely monitored, recorded and analyzed.

These concerns, of course, are hardly new. The digital revolution of the 1990’s, however, exponentially amplified these trends by enabling retailers, marketers and financial institutions to gather and store vast amounts of information about current and potential customers. And as Mr. O’Harrow notes, the terrorist attacks of Sept. 11, 2001, “reignited and reshaped a smoldering debate over the proper use of government power to peer into the lives of ordinary people.” Some of the material in No Place to Hide is familiar from news coverage. Still, Mr. O’Harrow provides in these pages an authoritative and vivid account of the emergence of a “security-industrial complex” and the far-reaching consequences for ordinary Americans, who must cope not only with the uneasy sense of being watched (leading, defenders of civil liberties have argued, to a stifling of debate and dissent) but also with the very palpable dangers of having personal information (and in some cases, inaccurate information) passed from one outfit to another.

FDR II?

In view of the ideological chasm that seems to separate the admirers of Franklin D. Roosevelt from those of George W. Bush, one might suppose that these two presidents exhibited completely different character and conduct, yet a close examination reveals that they actually have much in common. The similarities, however, are scarcely reassuring to those who are worried about what President Bush might do next.

Roosevelt and Bush came from similar class backgrounds, each being the scion of a wealthy, well established Northeastern family. Neither man ever achieved any notable success on his own in the private sector, and both leaped at opportunities to trade on their family background and social connections by involving themselves in politics at an early age. Despite the advantages of study at premier educational institutions, neither man possessed much interest in or capacity for deep thinking, specializing instead in conducting themselves as bon vivants and backslappers. Neither had to dwell on the concerns that cause ordinary people to lose sleep, such as earning an honest living or meeting the challenges of an occupation, trade, or profession. Neither possessed sterling personal character. Roosevelt seems to have had the wit to know that he was lying; Bush seems content to live in a reality-free environment, confidently awaiting the divine intervention that will transform his fantasies and wishful thinking into facts on the ground.

Both men sought successfully to plunge the nation into war, and having done so, both then gained stature from serving as a “war president”, although Roosevelt’s war was the greatest cataclysm of all time, whereas Bush’s is a much smaller conflict, albeit one replete with important global consequences. Both men engaged in war with cavalier disregard for constitutional scruples. Both men preferred, especially in the conduct of foreign policy, to do as they wished, taking Congress or the courts into account only as a courtesy or in pro forma consultations and hearings.

Neither man learned anything from political opponents or from the failure of his polices to pan out, lapsing instinctively into an “us against them” mentality for dealing with differences of opinion, interpretation, or moral judgment. Both Roosevelt and Bush presided over a huge spurt in the growth of government financed in substantial part by running up debt. No doubt other parallels might also be mentioned, but the foregoing remarks suffice to establish the main point. In government, as many commentators have noted, no failure goes unrewarded. Indeed, the greater the failure, the greater the reward. Franklin D. Roosevelt and George W. Bush exemplify in strikingly similar ways the veracity of this observation.

HONG KONG, CHINA, AND THE WORLD

At a Heritage Foundation luncheon in honor of Rep. Henry J. Hyde, Chairman of the House International Relations Committee, and his bi-partisan congressional delegation, Mr. Hyde gave the keynote speech: “Of the many competing forecasts of the century now unfolding, all agree that the rise of China will be a central determinant of its course. So great is China’s potential that some have prematurely termed this the ‘Chinese century’. Once hazily distant, that imagined prospect is rapidly becoming a tangible reality right before our eyes.

“In its scale and speed, in the ambitions of its leaders and hopes of its people, this development is unprecedented. Far from maturing into a more settled pace of change, the rate appears to be accelerating and broadening as more and more of the country is drawn into the modern world. The process can be compared to the birth of a new and enormous star, its internal temperature soaring as a critical mass rapidly accumulates to the point of ignition, its gravitational waves already beginning to realign the heavens around it.

“Were China a country of modest size, this process would be an interesting, even fascinating, one, with soft ripples of influence confined within nearby horizons. But China is one-fifth of humanity. Its enormity ensures that there can be no insulating boundary between its internal transformation and the world outside. Our attention is focused on the dramatic developments within that country, but we are simultaneously witnessing the emergence of a new and powerful actor on the global stage, one whose actions and decisions will reach deeply into every country on the planet.

“Whether that impact will be positive or negative, cooperative or combative, cannot yet be predicted with any confidence. ... A central fact of China’s revolution is that it is becoming ever more undirected. Despite increasingly strenuous efforts by a once all-powerful regime to preserve its control in all areas, its reforms have released powerful and transforming forces that by their nature are uncontrollable. ...”

The old “evil” city is a powerhouse.

Back in the 1930s, shanghai was the wickedest city on Earth. Just beyond the stately buildings of the Bund, Nanjing Road and the European Concessions lay squalid hovels, armies of leprous beggars, thousands of child prostitutes, and opium dens. Shanghai teemed with gun runners, con men, spies, mysterious White Russians and Jewish refugees. Shanghai still retains a sinister flavor. But today, it has become China’s economic powerhouse, the world’s second busiest port, exporting $74 billion annually, with 13 million registered residents and 7-10 million itinerant laborers, making Shanghai more populous than Australia.

Shanghai’s natives are brash, often pushy, commercially gifted, and always in a rush. A native New Yorker like me feels right at home here. Shanghai has also resumed its role as China’s hippest, most avant-garde, cosmopolitan city, filled with cultural events, galleries, spectacular restaurants and dazzling architecture that makes the downtown look like a cross between Manhattan and a futuristic capital in a science fiction film. The city has now become one of the world’s hottest destinations.

When the communists took over Shanghai in 1949, its business elite fled to British Hong Kong, quickly turning that port into an economic giant. Today, Shanghai is beginning to eclipse snooty Hong Kong, which is looking rather old and tired compared to Shanghai’s pulsating economic power. Shanghai’s hinterland has become the world’s factory, producing everything from black socks to the most advanced technology. Growth is held back only by shortages of power and steel. Unrestrained credit, a torrent of foreign investment, and China’s get-rich- quick policies are producing a dangerous credit bubble and runaway 11-15% annual growth. The communist party clearly has a tiger by the tail.

THESE GUYS MEAN IT

Readers in numbers beyond my ability to reply individually have challenged me whether President Bush’s inaugural speech is a statement of his intentions or merely a celebration of himself and American democracy. Surely Bush does not believe America has the power to remake the world in its own image other than by being an example for others to follow? The answer is that it does not matter whether Bush believes, or even understands, what he said. The neoconservatives believe it, and they control the Bush administration.

The neoconservatives are Jacobins. The neocons are the greatest threat America has ever faced, and they have the reins of power. Americans need to wake up to this fact and stop indulging their macho “kick their Muslim butts” fantasies and their “end times” Rapture fantasies. The Bush administration is not establishing any democracies. It is starting a war that will last a generation. That is the neocon plan. They have put their intentions in writing just as Hitler did. It is no protection that their plan is detached from reality. Robespierre was detached from reality, and that did not stop him. So were Hitler, Lenin, Stalin, Mao, and Pol Pot. People with power in their hands who are detached from reality are the most dangerous people of all.

LONG LIVE SECESSION!

The idea of an American right of secession -- a state’s right to abandon the union -- today invites a veritable cyclone of scorn and bafflement. Secessionism, you will be told, is immoral, treasonous, seditious, the failed machination of slave-holding Southerners whose nutty dream died in the judgment of 1865. What you will not hear is that secessionism is as old as the states themselves, that it was not always a reviled idea, that it cleaves to the heart of a celebrated but perhaps outmoded American principle -- the rebellion against centralized power -- and that it is a founding American act enshrined in our most revolutionary document. “[W]henever any Form of Government becomes destructive,” counsels the Declaration of Independence, “it is the Right of the People to alter or to abolish it, and to institute new Government.”

Although secessionism today is politically impossible, if tenuously legal, the secession specter has arisen again, waking to the Declaration’s call to self-governance. In 2005, it is the blue-state Northerners, bitter from the defeat of Nov. 2, who are, ironically, wearing its robes. If their plaints have an epicenter, it is in Charlotte, Vermont, in the wood-frame house of Thomas Naylor, professor emeritus, agitator, author, Rage Against the Machine fan, and founder and chair of the “Second Vermont Republic”. Naylor seeks the rebirth of Vermont as the independent nation it was between 1777 and 1791. White-haired and soft-spoken, Naylor describes his little band of “rebels” (the Second Vermont Republic boasts 125 card-carrying members) as “a peaceful, democratic, libertarian, grassroots movement opposed to the tyranny of the United States,” which has become “too big, too centralized, too intrusive, too militarized, and too unresponsive to the needs of individual citizens and small communities.”

Like the original red-state secessionists, it is to the founding documents -- the Declaration of Independence and the Constitution of the United States -- that Naylor turns to buttress his belief in the morality and legality of secession. There are also secession movements afoot in Hawaii and Alaska, both complaining, with some validity, that fraud and coercion forced their entrance into the union.

THE BILL OF RIGHTS: SEARCHES AND SEIZURES

The 4th Amendment to the U.S. Constitution is rooted in the horrific government abuses arising from “general warrants” in English history and “writs of assistance” in British colonial history in America. With the aim of protecting the American people from similar abuses at the hands of U.S. federal officials, the 4th Amendment was worded as follows: “The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable searches and seizures, shall not be violated, and no Warrants shall issue, but upon probable cause, supported by Oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.”

The case that ultimately set the basis for the 4th Amendment is Entick v. Carrington, decided in 1775, which the U.S. Supreme Court later described in the landmark case of Boyd v. U.S. (1886) as “one of the landmarks of English history. It was welcomed and applauded by the lovers of liberty in the Colonies as well as in the mother country. It is regarded as one of the permanent monuments of the British constitution, and is quoted as such by the English authorities on that subject down to the present time.” As every American statesman, during our revolutionary and formative period as a nation, was undoubtedly familiar with this monument of English freedom, and considered it as the true and ultimate expression of constitutional law, it may be confidently asserted that its propositions were in the minds of those who framed the 4th amendment, and were considered as sufficiently explanatory of what was meant by “unreasonable searches and seizures”.

General warrants entitled law-enforcement officials to go into a person’s home for the purpose of making a random search in the hope of finding incriminating evidence. In the English colonies, the “writs of assistance” on which government officials relied were general warrants that allowed agents to search for smuggled items -- namely molasses, tea, and rum -- within any suspected premises. Writs of assistance were the primary means by which government officials would uncover smuggled goods and then punish the smugglers. Fury against writs of assistance that helped fuel the Revolution, the conflict in which British citizens living in the New World took up arms against their own government.

Today, there are Americans who argue that the Constitution is an outmoded and antiquated document that is ill-suited for modern times. They argue that modern-day federal officials would never engage in the types of abuses engaged in by British officials and, therefore, that they should be trusted with omnipotent power. Nothing could be further from the truth. How would U.S. officials operate without a 4th Amendment and an independent judiciary to enforce it? Worse than British officials did with their general writs and writs of assistance! How do we know this? Because we have seen how they have operated with omnipotent power in occupied Iraq. With omnipotent power, U.S. officials have behaved much more abominably in occupied Iraq, especially in the area of search and seizure, than British officials behaved in colonial America, which is a primary reason that many Iraqis are reacting to such mistreatment in much the same way that the British colonists reacted to similar mistreatment.

THE “WAR ON DRUGS” HAS BEEN SHRINKING THE BILL OF RIGHTS

The U.S. Supreme Court recently ruled that if you are pulled over by the police for speeding or, say, not wearing your seatbelt, they may bring out drug-sniffing dogs to investigate your car without violating the 4th Amendment. On the Volokh Conspiracy blog, Orin Kerr observes that Justice John Paul Stevens, writing for the majority, indicated that the Fourth Amendment protects not against violations of privacy or invasiveness, but against violation of property rights. Since one cannot have property rights for illicit drugs, a search cannot violate the 4th Amendment.

It is a troubling precedent. It is hard to see how any police search would violate any rights under Justice Stevens’s ruling, so long as the search turned up something illegal. That sort of undermines what the 4th Amendment is all about. That case is just the latest in a number of court rulings and pieces of legislation that have been chipping away at the criminal justice rights of substance-abuse suspects. Ours is quickly becoming a 2-tiered criminal justice system, one in which there are one set of criminal protections for drug and alcohol defendants, and a broader set of protections for everyone else.

Last month in Virginia, pain physician Dr. William Hurwitz was convicted on dozens of counts of drug distribution. Prosecutors and the foreman of the jury that convicted him conceded that Hurwitz did not knowingly participate in a drug trade, but because the pain medication he prescribed made it to the black market, he was nevertheless found guilty. He faces life in prison. Proving intent -- as is required to secure a conviction in nearly every other crime -- apparently was not necessary.

The drug war has been eating at the Bill of Rights since its inception. Asset forfeiture laws, for example, allow law enforcement to seize the assets of suspected drug dealers before they are ever convicted of a crime. Even if the defendant is acquitted or the charges are dropped, the mere presence of an illicit substance in a car or home can mean the loss of the property, on the bizarre, novel legal principle that property can be guilty of a crime.

DRIFTING FROM FREEDOM

Do you feel more or less free today than you did 10 years ago? If you happen to be a property developer, sit on the board of a public corporation, often travel by air, like to spend your own money supporting political candidates and causes you believe in, or are outspoken in your Christian beliefs, you almost certainly answered the above question, “Less free”. Our Founding Fathers and other political thinkers recognized that free peoples most often lose their freedoms not in one sudden blow, but by the endless erosion of liberties they once had. As a student in biology, you may have learned that if a frog is put in a pot of water slowly brought to a boil, the frog will not be aware of what is happening until it is too late. There is increasing evidence Americans, like the frog, are having their liberties slowly boiled away without realizing it.

Our very disturbing drift from freedom is reflected in the 2005 edition of the Index of Economic Freedom just published by the Heritage Foundation and the Wall Street Journal. A decade ago, the U.S. was rated as the 5th-freest economy, this year it has dropped out of the top 10 to #12 -- and we once were the role model for the world. As the authors of the Index of Economic Freedom note, the good news is that the world in general is becoming freer and, as a result, economic growth and prosperity have increased over the globe. The bad news is the U.S. has wallowed in past successes and allowed its competitive advantage to erode.

The reason to care is not only that a loss of economic freedom means less personal liberty, but the findings of this and similar studies confirm the following statement of the authors: “The countries with the most economic freedom also have the higher rates of long-term economic growth and are more prosperous than are those with less economic freedom.” The U.S. is on a government taxing, spending and, most of all, regulating, binge that in the long run is incompatible with a free and prosperous society. We now know poor societies can become prosperous within two generations as a result of free market economic policies coupled with the rule of law. We also know rich societies can quickly become poor -- Argentina was the 7th-wealthiest country on the planet in the early 1900s. Every time you vote for a politician who promises to make the government do more for you, he also is saying that same government will make you less free and ultimately poorer.

THE GLOBAL COUNTERFEIT BUSINESS IS OUT OF CONTROL

Kiwi shoe polish, Callaway Golf clubs, Intel computer chips, Bosch power drills, BP oil. Pick any product from any well-known brand, and chances are there is a counterfeit version of it out there. Of course, as anyone who has combed the back alleys of Hong Kong, Rio, or Moscow knows, fakes have been around for decades. Only the greenest rube would actually believe that the $20 Rolex watch on Silom Road in Bangkok or the $30 Louis Vuitton bag on New York’s Canal Street is genuine.

But counterfeiting has grown up -- and that is scaring the multinationals. “We’ve seen a massive increase in the last five years, and there is a risk it will spiral out of control,” says Anthony Simon, marketing chief of Unilever Bestfoods. “It’s no longer a cottage industry.” The World Customs Organization estimates counterfeiting accounts for 5% to 7% of global merchandise trade, equivalent to lost sales of as much as $512 billion last year -- though experts say this is only a guess. Seizures of fakes by U.S. customs jumped by 46% last year as counterfeiters boosted exports to Western markets. Unilever Group says knockoffs of its shampoos, soaps, and teas are growing by 30% annually. The World Health Organization says up to 10% of medicines worldwide are counterfeited -- a deadly hazard that could be costing the pharmaceutical industry $46 billion a year.

The scale of the threat is prompting new efforts by multinationals to stop, or at least curb, the spread of counterfeits. Companies are deploying detectives around the globe in greater force than ever, pressuring governments from Beijing to Brasília to crack down, and trying everything from electronic tagging to redesigned products to aggressive pricing in order to thwart the counterfeiters. Even some Chinese companies, stung by fakes themselves, are getting into the act. China is key to any solution. Yet slowing down the counterfeiters in China and elsewhere will take heroic efforts, because counterfeiting thrives on the whole process of globalization itself. Globalization, after all, is the spread of capital and knowhow to new markets. The result is a kind of global industry that is starting to rival the multinationals in speed, reach, and sophistication.

ID THEFT VICTIMS COULD BE WARNED, BUT U.S GOVERNMENT ISN’T TALKING

Research and government reports suggest hundreds of thousands of American citizens are unknowingly lending their identity to illegal immigrants so they can work. And while several government agencies and private corporations sometimes know whose Social Security numbers are being ripped off, they will not notify the victims. That is, until they come after the victims for back taxes or unpaid loans owed by the imposter. It is a thorny problem that cuts to the heart of America’s undocumented worker issue.

Either way, immigrant imposters with the least nefarious of intentions -- simply a desire to work -- often unknowingly victimize the rightful Social Security number holders. The problem is compounded by how often ripped-off numbers are used. James Lee, chief marketing officer for private data collection firm ChoicePoint, said the average victim of immigrant-based identity theft sees their Social Security number shared about 30 times. “People need to wake up to this problem,” said Richard Hamp, an assistant attorney general for the state of Utah who has prosecuted several cases involving stolen IDs and illegal immigrants. “They are destroying people’s credit, Social Security benefits, and everything else. This problem has been ignored by the federal government, and it’s enormous.”

But could the victims be warned by the government? They seem to have no problem finding them when they want their money. Melody Millet’s husband Steve was the victim of immigrant identity theft. None of the agencies involved are trying to tackle the problem because they all benefit from it, as does corporate America, she said. The IRS and Social Security collect extra taxes, lenders sell more loans and employers get inexpensive workers. Fixing the problem and telling all the victimized consumers would upset the delicate apple cart that is America’s immigration policy, she said.

MANY VARIABLE ANNUITIES TAX BENEFITS NO LONGER EXIST, BUT THE HARD SELL CONTINUES

Have you bought a variable annuity yet? If you are a baby boomer and your answer is no, get ready for the hard sell. The promoters of these savings vehicles will prey on your insecurity about not having enough money for retirement to get you to sign up for what could be a costly investment. Even if you already have a variable annuity, someone may try to convince you to trade in your existing contract for one with new bells and whistles -- in which are buried higher fees. The problem with variable annuities is they are often a high-cost answer to a problem that may have simpler, cheaper solutions, such as fully funding your tax-deferred retirement accounts or assembling a portfolio of reliable dividend-paying stocks. Still, through Sept. 30, 2004, variable annuity sales were $98.4 billion, about 4% higher than during the same period in 2003. It is insurance salespeople, not Wall Street brokers, who are making most of the sales. Financial planners in particular have been cool to the product. Variable annuities “are tax-inefficient, difficult if not impossible to understand, and have high costs,” says Warren McIntyre, a financial planner in Troy, Michigan.

Sure, potential buyers can ignore the sales fluff and dig into the fine print to figure out if an annuity is right for them. But that can be a real slog. The prospectus for MetLife’s Preference Plus Select Variable Annuity runs over 500 pages, so you know why most buyers wind up relying on a sales spiel. The legions of sales folks are spending time and money to refine their pitches. In February, for instance, at the annual marketing conference of the National Association for Variable Annuities (NAVA) in Tucson, one session will cover, according to the program, “the hot buttons that drive baby boomers’ long-term financial decisions and how to connect the benefits of variable annuities to these hot buttons.”

What exactly is this product that so many are eager to sell? A variable annuity is a contract with an insurance company designed to beef up your assets before you retire. You buy the annuity, either with periodic payments or in a lump sum, and then invest the money by choosing from a selection of stock, bond, and money-market funds, or in annuity parlance, “subaccounts”. It is a “variable” annuity because the returns vary depending on how the underlying investments perform. Many variable annuities also offer an option of a minimum guaranteed rate of return. At some point, perhaps when you are ready to retire, the idea is that you annuitize the cash you have accumulated over the years.

THE SEYCHELLES ISLANDS -- DIVE INTO AN INVESTMENT

4 35 S, 55 40 E, lies a group of islands in the Indian Ocean, northeast of Madagascar. They comprise over 100 islands and are the only mid-ocean granite islands in the world. The Republic of Seychelles was a settlement established by the French in the mid-eighteenth century with only 15 Europeans, five Malabar Indians, and 7 seven Africans. From this, the population grew to 3500 by the time the Seychelles was ceded to Britain in 1814. A single party state, led by Albert Rene, gained power in a coup d’etat from its democratically elected predecessor, fronted by James Mancham, shortly after Seychelles was granted independence from Britain in 1976. During that time, a “campaign for democracy”, based in London and supported by James Mancham, railed against the perceived injustices going on in Seychelles. Besides widespread disappearances, occasional killings, the suppression and eventual expulsion abroad of all dissenting voices, these included further spates of land acquisitions. In 2004 President Rene resigned, to be succeeded by his deputy, James Michel.

Since their independence, per capita output in this Indian Ocean archipelago has expanded to roughly seven times the old near-subsistence level. Growth has been led by the tourist sector, which employs about 30% of the labor force and provides more than 70% of hard currency earnings, and by tuna fishing, and export of cinnamon bark and copra. In recent years the government has encouraged foreign investment in order to upgrade hotels and other services. Private foreign investment is encouraged in tourism, manufacturing and petroleum exploration. The Seychelles International Business Authority set up by the government in 1995, offers incentives and tax concessions to foreign investors. Over 1,000 international companies are registered in the country.

The Seychelles is a signatory to the Lome TV convention benefiting from the provisions of the convention, a member state of the African Caribbean Pacific countries, and a signatory to the Multilateral Investment Guarantee Agency, which protects all investors from expropriation. Offshore banking in Seychelles is possible with few questions asked. In fact, I read somewhere that the president, in an attempt to boost the country’s economy, announced that for $10 million, the Seychelles would grant immunity from prosecution for all criminal proceedings whatsoever.

STATUSES OF MONACO, ISLE OF MAN, JERSEY, GUERNSEY, AND MALTA EXAMINED

U.K. legal profession service provider and consultant The Lawyer Group has released a series of summary reports on the statuses of the laws, taxes, and business environments of the offshore havens.

Links: Monaco, Isle of Man, Jersey, Guernsey, and Malta.

“CLIMATE OF FEAR” PUTS BRAKES ON RUSSIAN ECONOMY

A surprise slump in Russia’s recently booming economy has growing numbers of businesspeople, economists, and even a few officials warning that the bill may be coming due for the Kremlin’s often heavyhanded treatment of private companies. Anatoly Chubais, architect of Russia’s privatizations during the 1990s, said last week that a “climate of fear” has descended over Russian business. The culprit: aggressive Kremlin policies, such as the effective renationalization of the oil giant Yukos, reports that Russia’s secret police are spying on private businesses, and an official reassessment of the way major companies acquired their property.

At the Davos World Economic Forum in Switzerland this week, Kremlin adviser Arkady Dvorkovich admitted what many economists have suspected for months, that Russia’s economic growth has plunged since last summer, and next year’s forecast is around 4%, half the rate of growth during President Vladimir Putin’s first year. Mr. Dvorkovich added that, “We need to restore confidence in what the state is doing.” The news could hardly be worse for Mr. Putin. He came to power five years ago pledging to kick-start Russia’s flagging Soviet-era economy through reforms and market-driven modernization. Instead, perceived bureaucratic abuses, especially the state takeover of Yukos -- which Putin had sworn to prevent -- appear to have deflated business confidence and triggered an exodus of desperately needed investment capital.

IRS GETS TOUGHER ON TRANSFER PRICING

The IRS is stepping up its fight with multinationals accused of avoiding taxes by manipulating tax rules on internal transactions. Litigation between companies and the IRS over transfer pricing -- the method of allocating profits for tax purposes between different part of a group -- is likely to escalate this year, according to Transfer Pricing Journal. Such lawsuits are the most visible sign of widespread tension over the tax implications of international transactions between different arms of multinationals, which account for more than 60% of world trade.

Governments accuse companies of minimizing their worldwide tax bills by shifting profits to low-tax jurisdictions even if they carry out little business in that country. The IRS reckons multinationals’ use of “inflated and undervalued’ transfer prices allowed them to avoid $53 billion in U.S. taxes in 2001. There has been a particularly marked clampdown over the past three years, following a political outcry over tax avoidance by large U.S. companies that had reincorporated in tax havens and manipulated transfer pricing rules to boost their tax savings.

The increasingly vigorous approach is worrying companies, which view transfer pricing as one of their most problematic tax issues. As well as the risk of an investigation, they are concerned about the cost of complying with transfer pricing rules. These oblige them to assess “arm’s length” prices for transactions based on the amount that would be paid if the two companies involved were independent rather than part of the same group. Companies are reporting increased challenges from tax authorities throughout Europe as well as the U.S., according to Danny Beeton of Grant Thornton, a UK tax adviser.

WALL STREET, BANKS, AND AMERICAN FOREIGN POLICY

Businessmen or manufacturers can either be genuine free enterprisers or statists. They can either make their way on the free market or seek special government favors and privileges. They choose according to their individual preferences and values. But bankers are inherently inclined toward statism. Commercial bankers, engaged as they are in unsound fractional reserve credit, are, in the free market, always teetering on the edge of bankruptcy. Hence they are always reaching for government aid and bailout. Investment bankers do much of their business underwriting government bonds, in the U.S. and abroad. Therefore, they have a vested interest in promoting deficits and in forcing taxpayers to redeem government debt. Both sets of bankers, then, tend to be tied in with government policy, and try to influence and control government actions in domestic and foreign affairs.

The strange historical fact, recounted at length and in detail by Murray N. Rothbard, is that the biggest capitalists have been the deadliest enemies of true capitalism. For virtually all of the alleged social “reforms” of the past 50 years were pushed not only by “idealistic” Leftists, but by the very corporate combines caricatured as the top-hatted, pot-bellied “economic royalists” of Wall Street. The neoconservative Right depicts the battle against Big Government as a two-sided Manichean struggle between the forces of light (that is, of capitalism) and the remnants of largely discredited Leftist elites. But Rothbard’s historical analysis reveals a much richer, more complex pattern: instead of being two-sided, the struggle for liberty pits at least three sides, each against the other. For the capitalists, as John T. Flynn, Albert Jay Nock, and Frank Chodorov all pointed out, were never for capitalism.

TAXES