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WHEN THE TAXMAN FREEZES YOUR BANK ACCOUNT
The following horror story is true. It is my story. If this can happen to me, it can happen to you. If this story will not persuade you to buy some gold coins or to set up a gold storage account outside the U.S., I do not know what will. If owning gold is more than you can handle, then you need to consider an off-shore banking account. I will get to that at the end of this report.
A month ago, I was planning a morning flight out of Memphis to Atlanta. I had a 6:15 flight. So, at about 5:00 a.m., I went to my local bank. There, I inserted my ATM debit card. I entered $100 to withdraw. I got a note out of the machine, “Insufficient Funds”. I was convinced that I had $500 in the account. I use it for my monthly bills. I do not keep much money in it because I worry about identity theft. I had a plane to catch, so I could not wait to find out what was wrong. When I got to Atlanta, I called my wife. I told her about the problem. She looked into it. Here is what she found out. A bank employee in the bank’s Alabama operation had frozen my account two weeks earlier. The bank had not notified me of this freeze. Why had she done it? Because she was ordered to by a woman in the Texas Department of Revenue. What had that to do with my account in Mississippi? I had not been living in Texas since 1998.
My wife called the woman who ordered my bank account frozen. She was told that she had not paid taxes since 2003 on a solely owned corporation operating in Texas. But she owed no taxes. That corporation had ceased operating in Texas or anywhere else. A corporation is a legal entity. It is not a proprietorship. Why had they frozen my account? A month earlier, I had added my wife to the account. Her name came up on a computer operated by the woman in Texas. So, because of a corporate account still on the books in Texas, my account in Mississippi was frozen. My wife had her accountant send a FAX to the woman in Texas, telling her that the corporation no longer operated in Texas. The woman then contacted the woman in Alabama, who removed the freeze. In the meantime, every check I had written bounced. I was then assessed bounced-check fees by every one of them.
The lady in Texas told my wife that she freezes accounts all day long. That is her job. Obviously, she is very good at it. As for the size of the tax said to be owed, she refused to disclose to my wife’s accountant on what basis the tax was assessed. Why no warnings – from Texas or the bank? Because this tactic will not work if the account holder has the opportunity to withdraw the funds. So, here is the deal. A tax-collecting bureaucrat in Texas uses a data base to identify every bank account in the country that has a person’s name on it. Irrespective of the legal separation of a corporation from the assets of that corporation’s officers – the so-called “veil of the corporation” – the tax collector can freeze any bank account in any bank in the country. She just contacts a low-level bank employee – the freeze lady, I guess – to freeze an account, and on the bureaucrat’s word, the account is immediately frozen. The owner of the account is not informed of the freeze until the checks start bounding or the ATM reports “Insufficient Funds”.Link here. Frozen bank account ruffles nuns – link.
WITH RESIDENCY IN ARGENTINA, I AM A MEMBER OF MERCOSUR
I see Mercosur as my passport to living and working in the South American continent. By getting my Argentine residency now, while it is relatively easy, I am making sure that my family has greater freedom to live where and how it wants to. Many people do not know what Mercosur is. I did not know before moving to Buenos Aires 18 months ago. Mercosur is a political and economic bloc of countries, similar to the EU. Five countries in South America – Argentina, Brazil, Paraguay, Uruguay, and Venezuela – are members. Five other South American countries are associate members – Bolivia, Chile, Colombia, Ecuador, and Peru. Colombia signed an agreement at the end of 2005 that moves it closer to becoming a full member.
Growing up in the U.S., I did not have a clear idea of the limitations that the borders of different countries place on people. When I was 17, my father lost his job, and we moved between States, from Oklahoma to Texas. We had to get new driving licenses and register the cars in the new state, but other than that, the move had the same challenges that any move has … packing, unpacking, registering in new schools, etc. We could have been moving across town. We could drive across the state border without being stopped. We did not have to show any identification. We did not need any kind of visa to enter. My father found a new job and did not have to have a work permit. We did not have to worry about paying any duties when we brought our truck load of things from one state to another.
This is what happens to the borders between countries as they form a political and economic bloc. You no longer need to have visas, work permits, or pay duties on your personal items. You become free to take yourself, your family, your possessions, and your money from one country to another, just as my family did when we moved from Oklahoma to Texas. We are planning a driving trip to neighboring Uruguay. We are member of the Argentine Automobile Club. They have emergency road service, in addition to maps and other services. For example, we also bought our car insurance from them. Since Argentina is a member of Mercosur, we can drive our car into any Mercosur country and the insurance is valid. We can drive our car from Argentina to Uruguay and back without any problems. You can not drive a car between the U.S. and Mexico without getting additional Mexican insurance.
I lived and traveled in Spain before it became a member of the European Community – when its scenery, people, and climate made it a lovely place to live, but there were few jobs and a great deal of poverty. When the announcement was made that Spain would become a member of the European Community, investment poured into Spain, and it has become a land of opportunity. Europeans from other countries come not only to vacation, as they had done before, but to buy real estate. Many buy second homes for their vacations and have retired there. They invested wisely. Right now in Argentina, you only need to show $800 monthly income as an individual or family to get residency. This creates an incredible opportunity. If I am correct, Mercosur will grow in influence and my family and I are gaining access to all of South America at bargain basement prices with our Argentine residency.Link here. Wikipedia entry for Mercosur here.
MEDICAL PRIVACY? SURELY YOU JEST
How many times have you walked into a doctor’s office, signed a privacy notice and worried you signed away important medical privacy rights? Let me put your mind at ease. You did not. You do not have any medical privacy rights in the first place. Signing the form is a farce. In 2003, without fanfare or publicity, the Bush administration amended the federal medical privacy rule known as HIPAA (Health Insurance Portability and Accountability Act), allowing the prying eyes of any health-related business to read your medical records, any time they want, without your knowledge or permission. Now President Bush tells us in his State of the Union Address that – thanks to his leadership – Congress is poised to pass legislation to put every American’s medical records online so they can be zapped around the world via a national electronic health network without the delay and fuss of photocopying and snail mail.
The bill is not a bad idea. We need a more efficient way to move and share medical records to improve the quality of our healthcare and reduce costs. But an electronic system to handle the most sensitive information must be built with patient control of who sees and uses that information. Without patient control, we will simply be creating the most valuable commercial database in the world. The purpose of medical records is to improve treatment, not corporate profits. The Bush administration amendment to HIPAA lists examples of the more than 600,000 businesses that can fish through identifiable medical data. They include employers, drug and insurance companies, marketing firms, accountants, banks and financial service companies, data warehousers, medical transcribers, legal firms, pharmacies and government agencies.
This past summer, a Florida medical center, a drug company and a pharmacy battled a lawsuit filed by a group of patients who received free drug samples and a brochure about a new antidepressant drug in the mail. The patients were mortified. How did the drug company know they were taking an antidepressant? How did the drug company obtain their addresses? How could they be allowed to send drug samples in the mail? What if their children had opened the mail and taken the drugs? The patients settled the lawsuit because they have little if any legal standing. HIPAA allows medical centers, drug companies and pharmacies to ship around your medical records for their own profit motive.
On several occasions, Bush has promised to protect medical privacy in the bill. In January 2005, he said, “I think my medical records should be private. I don’t want people prying into them … unless I say it’s fine for you to do so.” Exactly. It is time for Congress to admit that we do not have a privacy law any more and to build patient control into the national electronic health system before we start uploading Americans’ medical records into cyberspace for private corporations to see, use and abuse – and profit from – as they please.Link here.
“GENERATION DEBT” IS GOING DEEP INTO THE RED
Young adults seen facing huge credit-card balances as incomes stagnate.
Zoe Paul has made drastic changes to her former lifestyle. As a Web designer in San Francisco during the heady dot-com era, she started her mornings at Starbucks, bought her coworkers drinks during happy hour, and ate out nearly every night. Now 30, Paul works without benefits for a small ad agency in the Bay Area and worries daily about being laid off. To help pay off $10,000 in credit card debt, she routinely empties coins into a jar by her bed. When furnishing her living room, a trip to a furniture store was not an option; instead, she bought a tweed sofa bed from a thrift shop for $67. She packs lunch every day. Cable is gone, so is Internet access. The most painful trim: Abandoning her daily Starbucks run. “That’s a thing of the past. Now it’s a treat,” she said.
Serves her right, you think? Many 20- and 30-somethings raised on MTV and InStyle magazine have tried to mimic the glamorous lives of the rich and famous through the use of credit cards. But as the 21st century has ushered in skyrocketing housing prices, stagnant income levels and 5- or 6-figure student loans to pay off – a seismic shift has occurred: A growing number of young adults are reassessing their lifestyles and mimicking the frugal habits of their Depression-era grandparents. They clip coupons, organize grocery-shopping trips to Sam’s Club instead of darting to Whole Foods and now consider a $4 cappuccino as an infrequent luxury. “Life just seems more expensive these days,” said Paul. “When I was growing up, I didn’t know a lot about handling money or being frugal. Now I’m learning.”
With the median home price rising by 26% in the past five years – while young adults’ income has gone up less than 10% – people in their 20’s are playing an endless game of catch-up. Buying a home is not even in the cards since prices in many urban areas where young people go to start their careers have more than doubled. “It used to be that spending more than 30% of your income on housing costs was a major cost burden, but many young people are spending 40, even 50%,” said Bruce Nissen, director of research at Florida International University’s Center for Labor Research and Studies. “Housing price and rents both have tripled, way faster than income.”
A college degree is mandatory for most entry-level professional jobs, but most of today’s job growth is in low-paying, low-skill industries like retail and food preparation. That translates into a very bad time for 20-somethings to be entering the labor force, said Nissen. “The job market is expanding but 80% of these new jobs don’t require a college degree. So your choices are working at either Burger King or Wal-Mart where, obviously, the pay is not good.” And with deep cuts to education and tax breaks aimed mainly at older, wealthier Americans, government no longer has young adults’ back. Many economic forecasters believe that those under age 35 will be the first generation not to equal or surpass their parents’ standard of living. That is a disturbing reality for a group that should be in its prime, looking toward marriage and their first home. Instead, they struggle to pay hefty student loans and credit card debt.Link here.
IRS ISSUES “DIRTY DOZEN” TAX SCAM LIST FOR 2006
The IRS has issued its annually updated list of so-called “Dirty Dozen” tax scams for 2006 along with an alert to taxpayers this filing season to watch out for schemes that promise to massively reduce or eliminate taxes. Two new schemes have worked their way onto the list in 2006: “zero wages” and “Form 843 tax abatement” – in which filers use IRS forms to claim that their tax bills have been wrongly inflated. Also high on the list in 2006 is “phishing”, a favorite ploy of identity thieves, who steal personal information for financial gain – recent years have seen increasing numbers of criminals working through the Internet, posing even as representatives of the IRS itself, with the goal of tricking unsuspecting taxpayers into revealing private information that can be used to steal from their financial accounts.
Several of the usual suspects from last year remain on the list, for example, schemes that seek to exploit charitable organizations, and the use of frivolous arguments to claim that no tax is owed. “When it comes to taxes, everyone has to pay their fair share,” IRS Commissioner Mark W. Everson stated. “I urge taxpayers not to be taken in by hucksters who promise to lower or eliminate taxes. Getting caught up in the Dirty Dozen or similar schemes can lead to big headaches.” Also on the “dirty dozen” list of schemes are zero wage returns, trust misuse, fivolous arguments, return preparer fraud, “Credit Counseling Agencies” fraud, abuse of charitable organizations and deductions, employment tax evasion, “no gain” deduction, and offshore transactions designed to evade taxes. Two noteworthy scams have dropped off the list this year are “claim of right” and “corporation sole”.Link here.
WANTED: EXCELLENT MANAGERS, STORM EXPERIENCE REQUIRED
I watch in amazement the bullish rhetoric that continues to come from the mouths of our political and financial establishments, while the cold hard facts are completely dismissed. Having had a pulse and a set of eyes in 2000 to 2002, which happily I still possess, I wonder how so many individuals could again deny the facts so plainly set before them solely for the comfort that bullish rhetoric brings. Then I remember I am dealing with rationalization, not rationality. The Journal of Behavioral Finance says it this way: “Rationalization does not mean ‘acting rationally’. It means attaching desirable motives to what we have done so that we seem to have acted rationally. In other words, people seek justifications for their behavior. And rationalization, which is largely about perception, often comes post hoc.”
So, it all boils down to investors’ perceptions. For investors to become willing to hire excellent storm managers, they must encounter something to change there thinking enough to come to the realization that a storm is setting in. Further, to overcome inertia and act, they must perceive that the approaching storm is not a summer rain shower, but a level five hurricane. After all, the umbrella of diversification may be enough to shelter them from the summer rain. But, this same umbrella is an ill-suited tool for a level five.
Chances are that you like hearing bad news about as much as I like the ostracism I receive from its conveyance. The fact is – hurricanes scare us. I get that. I am human. Yet, if we allow this fear to deter us from preparing for the storm, we will have done ourselves a great disservice. So, for your own benefit, I ask the reader to momentarily close the door on your emotions, and reason with me, with Spock-like logic, to see if we can ascertain our current position, and in so doing, properly prepare for what lays ahead. First, I would like to touch on an article that I wrote last summer titled, “An Asset Allocator’s Nightmare”. My point in that article was that the dramatic increases in various indices made it less likely, not more, that the indices would continue their upward progress.
But, since that time, as evidenced by the charts and stats below, these major markets have moved higher still. What exactly does this prove? Perhaps it proves that I am wrong, that we should go back and listen to the old familiar tunes … “if you miss just a few days out of the markets…” or “market timing is impossible”. Yet, if we race into these indices before we “miss out” on the next wave of winnings, in retrospect, we may look back on such a hasty decision with regret. More likely, it proves that manias can go on longer than expected and that history takes longer to unfold than you or I would like. Throughout history, those who have rationalized that some “new” occurrence is the reason why they should “hurry up and get in” on such rapid price increases, have not fared well at all. They eventually learn that historic and scientific evidence always wins out.
Storm clouds are on the horizon. For those who are hoping that the umbrella of diversification will protect them, consider the following comments that are outlined in the Seventh Edition of the Investments Planning Textbook used by the College for Financial Planning: “Diversification and the reduction in unsystematic risk require that asset’s returns not be highly positively correlated. When there is a highly positive correlation, there is no risk reduction. When the returns are perfectly negatively correlated, risk is erased. This indicates that combining assets whose returns fluctuate in exactly opposite directions has the effect on the portfolio of completely erasing risk.” (Emphasis mine.) The charts from “An Asset Allocator’s Nightmare” and the charts above make one thing perfectly clear. Today, the markets around the world have a high positive correlation – that is, they move (in step) together. Though the tools in the marketplace that are negatively correlated are few, they are there for those who are willing to listen, learn, and act.
So, why do we not act? In answering this question, let us again turn to The Journal of Behavioral Finance. The earlier mentioned article states: “The mathematician, [Blaise] Pascal wrote ‘ordinary people have the ability not to think about things they do not want to think about.’ In other words, intrinsic laziness often causes individuals to be inefficient, but proper pressure will reduce this kind of inefficiency and boost productivity.” So basically, it is human nature. From discussions I have had with numerous individuals, both personally and professionally since last August, this lesson bears repeating. When it comes to investing, we are hard-wired to fail.
The reality of our current environment requires us to realize that most investors, investment advisors, and investment managers are set up to sink their ship in the storm that is directly in front of us. I would encourage you to download our research paper, “Riders on the Storm: Short Selling in Contrary Winds”, in order to gain a better understanding of the systemic risks that are straining our markets, the history of short selling from 1610 to Refco, and the character traits excellent storm managers. Forget the couch potato strategy and the pretty pie charts of the ‘90s. This is a time to search of the very, very few managers who have already been following John Templeton’s maxim for years. “Never follow the crowd.”Link here.
DEFICIENT MARKET THEORY
How nice life would be if all bad ideas went out of style, like the divine right of kings, medicinal bloodletting and leisure suits. Unfortunately, a muddled notion called the efficient market hypothesis refuses to go away. This absurd thesis holds that nobody can beat the market, stocks always are correctly priced according to what is publicly known about them and any mispricings are chimeras. Such blind faith in the market’s omniscient rationality led to investor losses of $1 trillion in the 1987 crash and $7 trillion in the 2000-02 postbubble slump. It ignores the commonsense effects of fads and manias. Every year or so I take another look to see if this silliness is on the way out. But then I find that, like Dracula emerging from his tomb, efficient market dogma keeps returning to do harm. Many investment advisers still believe in it. Their clients should beware. Lately the most common failings of efficient market practitioners have been:
(1) Overdiversifying. Sure, it is wise to spread your holdings into several investment classes. But efficient market acolytes believe you should have a slice of every investment available, from iffy junk bonds to Kazakhstan stocks. Today a torrent of dollars is washing through European, Japanese and other foreign bourses, attracted by a few years of glittering performance. Do not let a short period of superior investment returns abroad fool you. Most recently the well-followed EAFE Index (Morgan Stanley’s 21-nation basket for equities in Europe, Australasia and the Far East) has sharply outrun the S&P 500 – by 9.8 percentage points annually for the past three years. During longer periods, however, the story is very different. Over the last 15 years the S&P outdistanced the EAFE, 11.5% to 7.3% annually.
(2) Not bottom-feeding. Baron Rothschild once advised that the best time to invest is when “blood is running in the streets.” That is when prices are the lowest for good stocks. But efficient market devotees believe that one should not try to take advantage of any crises. After all, they claim markets are always correctly priced. So the best plan, they say, is to wait until things settle down. Of course, prices are typically higher then. In the real world, though, emotion trumps rationality, resulting in large opportunities for those who can keep a cool head and can properly assess risks and rewards.
(3) Using beta as a benchmark. This keeps turning up. Beta measures how much a stock rises or falls with the broad market. It is not a gauge of volatility. To efficient market folk, high-beta stocks are riskier than low-beta issues but have better long-term results. Baloney. Eugene Fama, a prominent efficient market theorist, trashed the beta myth in a 1992 paper with fellow academic Kenneth French. They showed that in a tabulation of stocks no correlation exists between high beta and good returns.
A better approach is to buy fine stocks like Chevron (59, CVX), Tyco (25, TYC), and UST (39, UST).Link here.
LESSON FROM SHANGHAI
Last year was another great one for emerging markets. The MSCI Emerging Markets Index delivered a 34.8% return in U.S. dollars. Colombia, Egypt and Saudi Arabia all registered triple-digit-percentage gains, and only the Chinese and Venezuelan equity indexes ended the year in negative territory. The emerging market bonds also turned in a stellar performance, with the JPMorgan EMBI+ posting an 11.8% total return. These eye-popping returns drew, naturally, rivers of cash into emerging market stock and bond funds. Of course, low bond yields and lousy stock returns in the U.S. helped stimulate a global appetite for risk that has driven up the demand for emerging market assets. But beware. Emerging market booms are usually followed by busts. That is why you can often expect to take a white-knuckle ride and at the same time not realize outsize long-term returns.
That said, U.S. investors should, as part of a long-term strategy, have some foreign exposure. Having some of your portfolio overseas generates diversification benefits because foreign markets are less than perfectly correlated with the U.S. market. Accordingly, an allocation of, say, 10% of your portfolio to foreign markets will reduce the portfolio’s risk while increasing its likely returns. But where should you go to obtain your overseas exposure? Many investors embrace a top-down, go-for-growth strategy. They believe that countries with expected rapid growth are the best places to be. This strategy appeals to common sense.
However, even a casual inspection of the data should give one second thoughts about the strategy. The highest growth rates were generated in China and Venezuela, but their equity markets were the only ones in the emerging market universe to register losses last year. Fortunately, painstaking research out of the London Business School sheds a great deal of light on the go-for-growth investment strategy. They compiled data for 53 stock markets, and, for 17 of these markets, the data span a 105-year period. They found no statistically significant link between previous GDP growth and investor returns. If anything, their findings suggest that owning shares from low-growth countries would have been a better long-term strategy than owning those from high-growth countries.
Over the last decade China’s average annual GDP growth was 9.2% (again, in real terms). Astonishing. No other country comes close. For investors, however, China’s stock market has recently dished up the worst possible combination: high volatility and negative returns. Since its June 2001 peak, the Shanghai composite index has fallen by 44%. Forget GDP growth. What count in emerging markets, as in other markets, are the dividend yield and the expected growth in dividends. The current yield on the Shanghai exchange (A shares) is only 1.1%, and dividend growth prospects are not good.
In countries where minority shareholders have good legal protection and strong rights, they do just what we would expect: They extract dividend payments. In China the tiny dividend yields reflect the weak standing that minority shareholders have in the legal scheme. It is all too easy for insiders to loot Chinese companies, leaving scraps for dividends. Unfortunately, in the near future there will be even less to loot – let alone pay out in dividends – because overcapacity is rearing its ugly head and profit margins are being squeezed. Add to this the fact that Beijing controls two-thirds of the shares of China’s 1,400 listed companies. Notwithstanding the government’s attempts to jack the markets up, clear-headed, long-term investors see Beijing’s ownership of shares as a supply overhang and an impediment to a well-functioning market.Link here.
U.S. PLEDGES TO HALT “TAX ABUSE” INVOLVING TRANSFER OF IP TO OFFSHORE SUBSIDIARIES
In a stark warning to the IDA and others who promote U.S. investment in Ireland, senior American cabinet minister John Snow pledged that his administration was developing rules to halt “tax abuse” involving U.S. companies transferring intellectual property and patents to overseas tax havens. The IDA denies that Ireland is a tax haven, and a spokeswoman said the authority did not feel threatened by the remarks of the treasury secretary. However, Snow’s remarks indicated that the American concerns over what Microsoft and other multinationals have been doing in relocating assets, was raising concerns at a high level in Washington.
“We feel the existing rules have not been effective at getting at this problem,” Snow told the senate finance committee meeting. He was questioned about media reports that said U.S. companies have slashed their tax bills by transferring intellectual property to low-tax countries. He was particularly quizzed about details of how Microsoft had shaved at least $500 million from its annual tax bill by vesting $16 billion in an Irish company, Round Island One Ltd. The Irish firm, the reports said, received licensing fees from copyrighted software that originates in the U.S. but pays low Irish taxes on this revenue. While Mr. Snow did not mention Microsoft, he said the pending rules aim to remove “some of the incentives to engage in the sorts of behaviors that deny revenues to the United States treasury … this is a serious issue and we need to deal with it,” the treasury secretary insisted.
His officials are believed to be working on changes in the rules on the migration of intellectual and intangible property offshore and are expected to have new rules in place later this year. However, the U.S. already has extensive transfer pricing Controlled Foreign Corporation laws which apply U.S. tax to unremitted foreign profits, and it is not clear how far these could be strengthened without driving companies out of the U.S. altogether. And nobody has suggested that Microsoft is guilty of “abuse”, although the company gets plenty of abuse from politicians, of course.Links here and here.
MOVING TO FIJI
We had this crazy dream. It is a common one … a captivating one even. But one that was, for most people, but a dream. The dream was to pack up and take off and live on a beautiful South Pacific island. Islands that seem to float, adrift, on impossibly blue seas. Places of paradise untouched by the ravages of industrial man. For us, this is a dream we dream while we are awake. We bought property in Fiji years ago as an investment. Only 8% of the entire South Pacific is available for purchase to non-indigenous people. It took a total of five years, and all of a sudden we had chartered a new course – uprooted from what was familiar and comfortable, to brave a whole new world. I was a journalist/columnist, Brad a busy chiropractor. Life in California was spinning out of control – poor air quality, high taxes, water that was just too scary to swim in, let alone consume, and influences that were definitely unacceptable for our teenage daughter and young son.
We landed in Nadi International Airport, Fiji. One husband, one wife, 13-year-old daughter, 7-year-old son. It was January 1, it was humid, we were dressed for California winters, and we were wilting. My daughter just realized there was no MTV, no shopping malls, no Starbucks. My son noticed all the men were wearing sulus – the male version of a sarong – translated, skirt. The two of them threw themselves on the baggage carousel hoping to get back to California … back to civilization where men are men and women wear makeup. We had exactly 10 days from touchdown to accomplish the following: find a place to rent, find a crew to help build our home, register the kids in school, and buy a car. We were on a package “deal” that included 9 nights accommodation at a budget resort, and two meals per day. After that, we were on our own. Literally. In all these 330 islands we knew exactly three people – the Australian man who sold us our property, and an American couple who ran a resort within walking distance of our home site. We were refugees. Expats. Renegades. Nomads.
We survived. I would like to say that we thrived, but for the sake of responsible journalism, I would say we muddled through. Perhaps it was because we were brave. I think it was more that we were just too stupid to know any different. Our first week found us a bit overwhelmed by our alien environment, as we sought to explore the nooks and crannies of Fiji. Our home was being built on a hill overlooking the ocean, backed onto a virgin rainforest. In week two we got into the swing of what would be our routine. The first day I kissed the kids goodbye, saw my husband off to the worksite, and shut the door to the harmony of quiet – my first day alone in paradise. Blissfully, blessedly alone. The shackles of civilization were broken, I was free – a butterfly testing its newfound wings.
In the almost 10 years we now have lived in these isles of Fiji, many things have changed. You cannot get that 4-bedroom house with caretaker for $300 any more. Real estate prices are starting to climb as more and more people “want out” of the industrial world. Yet, amazingly, these wonderful, warm and welcoming people who call Fiji their ancestral home remain charmingly the same. Since they retain most of the land, it will never be turned over to commercial developers to become another Hawaii … with miles of sky rises rimming the beaches. It has developed, and tourism is booming, but on a small and intimate scale, and all the while retaining a unique cultural heritage.
My two children were raised on Fijian soil. One has bloomed into adulthood, and the other is nearing completion. The end product of these two fine citizens of the world is a pleasure to behold. They have a global attitude, and a presence we would have never dreamed could be attained. They have learned to embrace cultural diversity, to respect the earth, to tread lightly, yet true. They are becoming what I want to be when I grow up. We have moved again – to a smaller outer island in the Fijian archipelago. The home we lovingly built is for sale, as we make a new place for ourselves. Here, life is simpler still. Away from the “main island” colors seem a bit brighter, palms taller, skies bluer. We have become Kai Viti – residents of Fiji. So that when relatives in the States ask us “when are you ever coming home?” we know the answer. We are home. How much better can one life get?Link here.
UPCOMING LINUX DESKTOP ENVIRONMENT COULD GREASE SKIDS FOR TRANSITION FROM WINDOWS
Developers on the projects expected to make up the next major version of the K Desktop Environment (KDE) want KDE 4 to offer features and software interaction beyond what is available now, and better, easier access for users to their files and information. Among the ideas are universally available personal information and a desktop that is tailored for and responds to the things users do most. Ian Geiser, a KDE developer and official U.S. representative for the KDE project, says KDE 4 will most likely be released in late 2006, though internal debate could push the release back to early 2007.
KDE 4 is expected to integrate better with the hardware it runs on because of Solid, a layer used by KDE applications to work with the underlying platform and hardware. The project also will provide an application programming interface (API) to allow applications to more easily work with different operating systems. The major goal of the project, according to Solid’s lead developer, Kevin Ottens, is for KDE to better detect and interact with hardware. Currently KDE correctly handles media such as CD-ROM and USB flash disks, but does not always pick up on some of the other things users plug into their computers, such as printers and network adapters. With Solid, Ottens says users should look forward to better network discovery and configuration, keeping the most recently used network in memory, and suggesting to users the best wireless network in range for use. Ottens says Solid will solve many hardware issues facing KDE users.
Geiser says that by making KDE more of a modular system, where developers can create things for the desktop with an expanded array of tools, development will move faster. The difference between past versions of KDE and version 4 can be compared to the leap in applications for Windows 3.1 and Windows 95, Geiser says. Microsoft’s API change from Win16 to Win32 between releases was better for developers because it was easier to use. The ability for developers to add to and create for KDE, Geiser says, is almost as important as the work those involved with KDE itself do for the desktop environment.
Geiser called KDE a “complete platform” in the same way that the Mac OS or Windows Vista is one. As far as he sees it, it is the platform that users work with – and making that more usable and extensible will bring more people to work with it. “I think KDE has come to this idea that we solved the problem of the Linux desktop,” Geiser says. “Now we have to create something developers can build on.”Link here.
OUTSOURCING IS CLIMBING SKILLS LADDER
The globalization of work tends to start from the bottom up. The first jobs to be moved abroad are typically simple assembly tasks, followed by manufacturing, and later, skilled work like computer programming. At the end of this progression is the work done by scientists and engineers in research and development laboratories. A new study by the National Academies, the nation’s leading advisory groups on science and technology, suggests that more and more research work at corporations will be sent to fast-growing economies with strong education systems, like China and India. In a survey of more than 200 multinational corporations on their research center decisions, 38% said they planned to “change substantially” the worldwide distribution of their research and development work over the next three years – with the booming markets of China and India, and their world-class scientists, attracting the greatest increase in projects.
Whether placing research centers in their home countries or overseas, the study said, companies often use similar criteria. The quality of scientists and engineers and their proximity to research centers are crucial. The study contended that lower labor costs in emerging markets are not the major reason for hiring researchers overseas, though they are a consideration. Tax incentives do not matter much, it said. Instead, the report found that multinational corporations were global shoppers for talent. The companies want to nurture close links with leading universities in emerging markets to work with professors and to hire promising graduates.
“The story comes through loud and clear in the data,” said Marie Thursby, an author of the study and a professor at Georgia Tech’s college of management. “You have to have an environment that fosters the development of a high-quality work force and productive collaboration between corporations and universities if America wants to maintain a competitive advantage in research and development.” The multinationals, representing 15 industries, were from the U.S. and Western Europe. The authors said there was no statistically significant difference between the American and European companies.
Dow Chemical is one company that plans to invest heavily in new research and development centers in China and India. Today, the company employs 5,700 scientists worldwide, about 4,000 of them in North America, and most of the rest in Europe. But the moves overseas will alter that. The swift economic growth in China and India, William F. Banholzer, Dow’s chief technology officer, said, is part of the appeal because products and processes often have to be tailored for local conditions. The rising skill of the scientists abroad is another reason. “There are so many smart people over there,” Mr. Banholzer said. “There is no monopoly on brains, and none on education either.” Such views were echoed by other senior technology executives, whose companies are increasing their research employment abroad.
The globalization of research investment, industry executives and academics argued, need not harm the U.S. In research, as in economics, they said, growth abroad does not mean stagnation at home – and typically the benefits outweigh the costs. Still, more companies in the survey said they planned to decrease research and development employment in the U.S. and Europe than planned to increase employment. In numerical terms, scientists and engineers in research labs represent a relatively small part of the national work force. Like the debate about offshore outsourcing in general, the trend, which may point to a loss of competitiveness, is more significant than the quantity of jobs involved.Link here.
U.S. GOVERNMENT PLANS MASSIVE DATA SWEEP
Little-known data-collection system could troll news, blogs, even e-mails.
The U.S. government is developing a massive computer system that can collect huge amounts of data and, by linking far-flung information from blogs and e-mail to government records and intelligence reports, search for patterns of terrorist activity. The system – parts of which are operational, parts of which are still under development – is already credited with helping to foil some plots. It is the federal government’s latest attempt to use broad data-collection and powerful analysis in the fight against terrorism. But by delving deeply into the digital minutiae of American life, the program is also raising concerns that the government is intruding too deeply into citizens’ privacy.
“We don’t realize that, as we live our lives and make little choices, like buying groceries, buying on Amazon, Googling, we’re leaving traces everywhere,” says Lee Tien, a staff attorney with the Electronic Frontier Foundation. “We have an attitude that no one will connect all those dots. But these programs are about connecting those dots – analyzing and aggregating them – in a way that we haven’t thought about. It’s one of the underlying fundamental issues we have yet to come to grips with.”
The core of this effort is a little-known system called Analysis, Dissemination, Visualization, Insight, and Semantic Enhancement (ADVISE). Only a few public documents mention it. ADVISE is a research and development program within the Department of Homeland Security (DHS), part of its three-year-old “Threat and Vulnerability, Testing and Assessment” portfolio. The TVTA received nearly $50 million in federal funding this year.
A major part of ADVISE involves data-mining – or “dataveillance”, as some call it. It means sifting through data to look for patterns. If a supermarket finds that customers who buy cider also tend to buy fresh-baked bread, it might group the two together. To prevent fraud, credit-card issuers use data-mining to look for patterns of suspicious activity. What sets ADVISE apart is its scope. It would collect a vast array of corporate and public online information – from financial records to CNN news stories – and cross-reference it against U.S. intelligence and law-enforcement records. The system would then store it as “entities” – linked data about people, places, things, organizations, and events.Link here.
PRIVACY AND ANONYMITY ON THE INTERNET: JUST HOW FAR DOES BIG BROTHER’S EYE SEE?
Privacy and anonymity on the internet are as important as they are difficult to achieve. Here are some of the the current issues we face, along with a few suggestions on how to be more anonymous. Online privacy issues are in the news every week now. This is good for us, because when it is newsworthy and notable it means people still care about the privacy of their personal information in some fundamental and important way. Privacy on the internet (or rather, a lack thereof) has been with us for ages, but as technology converges we are all forced to make some important new choices about what we are willing to disclose. Let us start with a few examples.
Recent events have found the Electronic Freedom Foundation warning users not to use Google Desktop’s new “search across computers” option, which stores a user’s indexed data on Google servers for up to 30 days. It is making headlines, but it is just the tip of the iceberg. In recent weeks we have also heard about government attempts to subpoena information from Yahoo, Microsoft and Google. Perhaps a subpoena for all the files indexed on your Google Desktop is not that far away. Then there are the wiretaps in the U.S. by those three-letter agencies, which we are just hearing about now. First reported by the New York Times, these were wiretaps on U.S. citizens that were sometimes done without requiring court approval at all. I do not know about you, but even when I am not doing something wrong (which is most of the time), I get very nervous when I hear about privacy issues popping up in this way.
This is on top of all the old news that barely makes headlines anymore – botnet Trojans controlling access to your computer’s data and stealing your identity, rampant spyware infections that have been with us for years and are sometimes quite nasty, the fact that only about a third of the public even know what spyware is, and finally, there is even the occasional military breach that exposes the personal information of people who probably value their privacy very much.
Where are we headed with online privacy? Well, perhaps you should publish your darkets secrets in a public blog right now and get it over with. The fact is, we have not had much, or any, privacy online in quite a while. In the search for privacy, what do we have to do to become anonymous on the internet?Link here.
OFFSHORE TRUSTS ARE BEST – NOW MORE THAN EVER
We have long advocated the use of offshore asset protection trusts (APT) as an ideal means to protect assets and assure their distribution to your chosen heirs and beneficiaries. The geographic location of an offshore APT adds a significant layer of protection – distance. It also places assets outside the jurisdiction of your home country courts. And it avoids the public and lengthy probate process required by a last will and testament. If your estate is valued at $500,000 or more, you should consider an offshore APT.
Now there is another, perhaps decisive, reason for choosing an offshore APT, rather then a trust located within the United States. There is an expanding U.S. state legislative movement to weaken significantly the most attractive aspects of trusts – trust integrity, privacy, limits on possible beneficiaries, and lower estate taxes – all highly important factors in creating your trust. If these factors are important to you, then do not set up a trust in any of these U.S. states: Arkansas, Kansas, Maine, Missouri, Nebraska, New Mexico, Utah, Tennessee, New Hampshire, North Carolina, Oregon, South Carolina, Virginia, Wyoming or the District of Columbia. If you already have a trust in these places, you had better reconsider.
You need to know about an obscure initiative from the National Conference of Commissioners on Uniform State Laws (NCCUSL). It is called the Uniform Trust Code (2005) or UTC. As its name implies, this group wants to make state laws more uniform, but trust laws are now in their gun sights. This UTC represents a radical shift in the legal treatment of trusts, greatly increasing the rights of beneficiaries and diminishing a trusts’ ability to shelter assets from a beneficiary’s creditors. For 400 years plus, English and U.S. trust law has been based on a simple concept: that a donor (grantor) can make a gift subject to whatever conditions he wishes to impose. While there are some limited exceptions to this rule, (a grantor may not make a gift contingent upon a child marrying a certain person), the old rule clearly supports a grantor’s right to restrict a gift.
But the radical, new UTC, more than ever before, gives trust beneficiaries a much greater right to challenge in court the grantor’s wishes. This can really hurt asset protection because in debtor-creditor law the general rule is that a creditor “stands in the shoes” of a debtor. That means a creditor may use any property or other right that the debtor can exercise. Some say this means that a creditor may be able attach a beneficiary’s interest in a trust formed in a UTC state – or even force the trust to make a distribution to the creditor. In “discretionary trusts” beneficiaries have no right to receive income or principal from the trust, and cannot force a trustee to make distributions. Until now this trust has prevented any creditor, including the federal government, from making a claim against trust assets. In UTC states, that is no longer true.
This is just the tip of the iceberg. The UTC’s radical expansion of beneficiaries’ rights also requires full disclosure of heretofore private trust arrangements to beneficiaries and expands the types of creditors who can invade the trust. No wonder experts predict a litigation explosion, as beneficiaries sue demanding greater distributions and more information and as creditors demand those same rights. If the UTC is not already law in your state, contact legislators and demand they oppose it. But your best bet is forming an offshore asset protection trust in a jurisdiction that avoids weakening traditional law.Link here.
50 YEARS AGO: THE DAY KHRUSHCHEV DENOUNCED STALIN
For 10 days in February 1956, Moscow’s few Western correspondents had been covering the 20th Congress of the Soviet Communist Party, where “the cult of personality”, a veiled reference to Stalin, was repeatedly denounced. But the night after the congress formally closed, the party’s Central Committee building was humming with activity into the early hours, its windows ablaze with light. Why, we wondered, after the congress was over? And then the rumours began. Khrushchev, it was said, had made a shattering report to a secret session, openly denouncing Stalin by name as a murderer and torturer of party members. This was so traumatic that it is now said some delegates had heart attacks during the speech, and others committed suicide afterwards.
In those days a Westerner was lucky to have any unofficial Soviet friends. Under Stalin, no Soviet citizen would have dared risk unauthorized contact with a foreigner. It would have meant instant arrest as a suspected spy. True, in the three years since his death, Moscow’s citizens had relaxed somewhat under the warm glow of Khrushchev’s “thaw”, but not all that much. Fear still lurked only just beneath the surface, and Muscovites were still very wary. But Kostya Orlov, a young Soviet citizen of my acquaintance, seemed quite unperturbed when I met him. Without any notes, he launched into a detailed account of the very speech we had been hearing about, which was even more sensational than I had thought. He said it was being read to party meetings, and that a friend of his was a local party secretary who had let him see it.
But the question was, could I believe him? Yes, it fitted in with what little we did know, and Orlov had been right about lesser matters before. Still, I did not feel I could on my own break the censorship and file such an earth-shaking and dubiously sourced story from outside the country. What if it were a false plant? The consequences could be dire, both for me and for Reuters. I called Sidney Weiland, who was my boss, and arranged to meet him at midnight. To avoid microphones, we tramped through the snow as I told him the whole tale, pausing just now and then under street lights to consult my notes. And in the end we decided we did believe it.
I asked Reuters to keep my name off the story and use a dateline other than Moscow. After all, I had to go back there and was desperate not to be suspected of breaking the censorship. In any event nothing happened to me when I returned, until the autumn, that is, when shockwaves from the speech unleashed the Hungarian uprising, unrest all over Central Europe and even within the Soviet Union itself. In Moscow the thaw turned to deep freeze, and soon afterwards the KGB began to put pressure on me. So I asked to be recalled to London, and never expected to go back to Moscow. But 32 years later, in the new thaw of Mikhail Gorbachev, I did go back. By then it was obvious to me that Orlov could not possibly have been acting on his own.
So who had ordered that he should pass details of the speech to me? Could it have been Nikita Khrushchev himself, who wanted the world to know that he had broken with Stalin? Everybody I asked agreed that it probably was and I think so too, but will never find out for sure.Link here.
DUTCH ANTI-OFFSHORE SMEAR IS DISHONEST
There is no better example of the dishonest manner in which the world’s tax collectors seek to smear and discredit all offshore financial activity than a recent study commissioned by the Dutch Finance Ministry. The report is not only a mishmash of anti-capitalist leftist propaganda against offshore tax havens, it blithely assumes what is now leftist dogma – that legal tax avoidance is to be equated with illegal tax evasion and criminal money laundering. Try to minimize your personal or business taxes within the letter of the law and suddenly you become a suspected tax criminal!
A major theme of the anti-offshore smear is alleged “money laundering”, an all-purpose crime prosecutors twist to fit any criminal indictment. Both the IRS and the UK’s Inland Revenue consistently distort legal tax avoidance and money laundering. John Healey, a UK Treasury official says, “Tax avoidance and the industry that drives it are increasingly an international phenomenon, and it is vital that we have effective international co-operation to tackle it, as we do for tackling terrorism, organized crime, money laundering and fraud.” I heard a high U.S. Justice Department official say he and his colleagues assume that any offshore financial activity is probably criminal! If these dissemblers have their way legitimate tax avoidance will be understood as being the same as smuggling cocaine and blowing up innocent people.
Which is why the Dutch report is so odd in its content and conclusions. The report’s bottom line? The Netherlands is a tax haven and that makes it vulnerable to money laundering. The report estimates dirty cash laundered in the Netherlands is $22 billion annually, about 5% of Dutch GDP. (Passing strange that the Finance Ministry would attack tax laws that bring in so much foreign investment and taxes). This distorted thinking assumes that any nation that has low or no taxes automatically allows and is engaged in money laundering. In fact, tax havens worldwide now have tougher anti-money laundering laws than the U.S. or the UK. But low taxes do attract money and business to places such as Panama, the Channel Islands and – yes – the Netherlands. (If volume of offshore business measured in dollars is the rule, then the U.S. and the UK are the leading money launders in the world … as indeed they are).
For major multinational corporations the Netherlands has been a tax haven for decades because of its extensive network of tax treaties worldwide. Those with business operations in more than one country take advantage of these available tax treaties, a process tax lawyers call the “stepping stone” principal. (The IRS derisively calls it “treaty shopping”.) Stepping-stone transactions are most useful when passive interest or royalty income is involved, although other commercial and service businesses can also use this system. The tax treaty network allows a Dutch company to invest money virtually anywhere. Under treaty terms, the interest it receives is not subject to withholding taxes in the countries where the money is invested.
The tax collectors in the high tax socialist welfare states will not rest until all global tax competition is destroyed, to be replaced with uniform high tax confiscation everywhere. Thanks to national sovereignty, this is not about to happen. Unlike the Dutch bureaucrats who authored this report, most tax haven nations are not suicidal.Link here.
ISLE OF MAN BUDGET CONFIRMS ZERO CORPORATE TAX RATE
Isle of Man’s 2006 budget included a package of measures to further stimulate the inflow of investment and business to the Island, including the introduction of zero corporate tax as of 5th April 2006. The new 0% tax regime is in accordance with the promised five year public taxation plan announced in 2000, which has been delivered on target, two years ahead of other UK Crown Dependencies and other competitors in the full implementation of a zero tax strategy. This is intended to stimulate inward investment by businesses establishing on the Island, and will also provide a consistent treatment across all sectors of the economy as part of the Isle of Man’s commitment to a diversified economy.
Presenting an integrated strategy of business and individual tax incentives, the Budget also introduces a cap on personal income tax at a maximum level of £100,000 per annum, irrespective of earnings. It is foreseen that this will attract high-net-worth individuals and active entrepreneurs to the Island with the drive to further stimulate the Isle of Man’s burgeoning economy. By making a tax system that is simple to understand and available to all, Treasury Minister Allan Bell is keen to provide a competitive advantage to the Island, in line with its fiscal strategy to promote the Isle of Man as a quality business centre of international standing. The introduction of a new Manx corporate vehicle, due later this year, is a further key element of its coordinated fiscal policy.
The Budget aims to deliver for the individual as well as business via a number of measures that will benefit all households on the Island. As part of the personal tax measures, an increase in personal tax allowances was announced, to £8,670 for single people and to £17,340 for married couples. Combined with an increase in the Personal Allowance Credit by 40% to £350, this will help the less well off, giving almost £3 million income to the neediest
In line with Tynwald statutory directives, says the government, the budget has been achieved without creating a deficit. The Isle of Man Treasury budgets for a surplus and balances its books year on year. The new tax measures are introduced without any increase in taxes or cut in public expenditure. As such, the Isle of Man says it is one of the most successful economies in Europe, and is now in its 21st year of unbroken growth, with unemployment below 1.5%. In the last ten years, its annual growth has averaged 7.4%, compared to an EU average of 2½%. Standard & Poor’s and Moody’s have awarded the Isle of Man Triple A and AAA ratings respectively.Link here.
THE END OF DOLLAR HEGEMONY IS INEVITABLE, SAYS RON PAUL
A hundred years ago it was called “dollar diplomacy”. After World War II, and especially after the fall of the Soviet Union in 1989, that policy evolved into “dollar hegemony”. But after all these many years of great success, our dollar dominance is coming to an end.
It has been said, rightly, that he who holds the gold makes the rules. In earlier times it was readily accepted that fair and honest trade required an exchange for something of real value. First it was simply barter of goods. Then it was discovered that gold held a universal attraction, and was a convenient substitute for more cumbersome barter transactions. Not only did gold facilitate exchange of goods and services, it served as a store of value for those who wanted to save for a rainy day.
Though money developed naturally in the marketplace, as governments grew in power they assumed monopoly control over money. Sometimes governments succeeded in guaranteeing the quality and purity of gold, but in time governments learned to outspend their revenues. New or higher taxes always incurred the disapproval of the people, so it was not long before Kings and Caesars learned how to inflate their currencies by reducing the amount of gold in each coin – always hoping their subjects would not discover the fraud. But the people always did, and they strenuously objected.
This helped pressure leaders to seek more gold by conquering other nations. The people became accustomed to living beyond their means, and enjoyed the bread and circuses. Financing extravagances by conquering foreign lands seemed a logical alternative to working harder and producing more. Besides, conquering nations not only brought home gold, they brought home slaves as well. Taxing the people in conquered territories also provided an incentive to build empires. This system of government worked well for a while, but the moral decline of the people led to an unwillingness to produce for themselves. There was a limit to the number of countries that could be sacked for their wealth, and this always brought empires to an end. When gold no longer could be obtained, their military might crumbled. In those days those who held the gold truly wrote the rules and lived well. That general rule has held fast throughout the ages. When gold was used, and the rules protected honest commerce, productive nations thrived. Whenever wealthy nations – those with powerful armies and gold – strived only for empire and easy fortunes to support welfare at home, those nations failed.
Today the principles are the same, but the process is quite different. Gold no longer is the currency of the realm; paper is. The truth now is: “He who prints the money makes the rules” – at least for the time being. Although gold is not used, the goals are the same: compel foreign countries to produce and subsidize the country with military superiority and control over the monetary printing presses. Since printing paper money is nothing short of counterfeiting, the issuer of the international currency must always be the country with the military might to guarantee control over the system. This magnificent scheme seems the perfect system for obtaining perpetual wealth for the country that issues the de facto world currency. The one problem, however, is that such a system destroys the character of the counterfeiting nation’s people – just as was the case when gold was the currency and it was obtained by conquering other nations. And this destroys the incentive to save and produce, while encouraging debt and runaway welfare. The pressure at home to inflate the currency comes from the corporate welfare recipients, as well as those who demand handouts as compensation for their needs and perceived injuries by others. In both cases personal responsibility for one’s actions is rejected.
When paper money is rejected, or when gold runs out, wealth and political stability are lost. The country then must go from living beyond its means to living beneath its means, until the economic and political systems adjust to the new rules – rules no longer written by those who ran the now defunct printing press.
In the short run, the issuer of a fiat reserve currency can accrue great economic benefits. In the long run, it poses a threat to the country issuing the world currency. In this case that is the U.S. As long as foreign countries take our dollars in return for real goods, we come out ahead. This is a benefit many in Congress fail to recognize, as they bash China for maintaining a positive trade balance with us. Foreign countries accumulate our dollars due to their high savings rates, and graciously loan them back to us at low interest rates to finance our excessive consumption. It sounds like a great deal for everyone, except the time will come when our dollars – due to their depreciation – will be received less enthusiastically or even be rejected by foreign countries. That could create a whole new ballgame and force us to pay a price for living beyond our means and our production. The shift in sentiment regarding the dollar has already started, but the worst is yet to come.
Using force to compel people to accept money without real value can only work in the short run. It ultimately leads to economic dislocation, both domestic and international, and always ends with a price to be paid. The economic law that honest exchange demands only things of real value as currency cannot be repealed. The chaos that one day will ensue from our 35-year experiment with worldwide fiat money will require a return to money of real value. We will know that day is approaching when oil-producing countries demand gold, or its equivalent, for their oil rather than dollars or euros. The sooner the better.Link here.
FRÉDÉRIC BASTIAT’S THE LAW IS WORTH READING AND RE-READING
Frédéric Bastiat was the great French proto-Austro-libertarian whose polemics and analytics run circles around every statist cliché. His primary desire as a writer was to reach people in the most practical way with the message of the moral and material urgency of freedom. The essay was published in French in 1850. This piece was published in English as part of Essays on Political Economy (G.P. Putnams & Sons, 1874) with authoritative translation by British economist Patrick James Stirling, with changes by David Wells. Spellings are American English.Link here. Available in PDF format here.
CARIBBEAN REAL ESTATE A HEDGE AGAINST COOLING U.S. MARKET?
With the U.S. domestic market showing signs of cooling, Ricardo Cardenas, vice president and regional director of RE/MAX Caribbean and Central America, believes the Caribbean market could act as a low-risk hedge against falling U.S. real estate prices. “Property values are low in many areas, but they are appreciating rapidly, so a relatively small investment can yield good returns,” Mr. Cardenas noted, adding that there are few legal barriers to prevent Americans from buying homes in the region. “If you plan to use a second property for short vacations, up to 30 days, typically no visa is required. Many islands have a U.S. or British title system and there are no restrictions on full ownership. In Honduras, for example, you can purchase up to three-quarter of an acre of land in your own name without forming a corporation.”
While the Caribbean is currently witnessing a boom in the building of high-end real estate developments, Mr. Cardenas says that there are still many bargains to be found. “Many people think of the Caribbean as the string of islands running from Florida all the way to Venezuela, but Central America also has a Caribbean coast and prices are generally lower there. You can find some surprisingly affordable homes in Panama, Costa Rica and the Bay Islands in Honduras.” Other growing markets cited by Cardenas include Turks & Caicos, Belize, Grenada, St. Croix, St. Kitts & Nevis, St. Vincent & the Grenadines, and the Dominican Republic. “These areas are less travelled, and have less infrastructure, but attractive prices, ranging from $200 to $500 per square foot.” Conversely, the Cayman Islands, St. John (U.S. Virgin Islands), Puerto Rico, and Jamaica are seen as more mature markets, and therefore harder to find real estate at bargain prices.
Multiple listing services, such as those found in the U.S., are still relatively rare in the Caribbean, and according to Cardenas, potential buyers should seek out expert advice to guide them through the buying process. “You need to use someone who is based in the immediate market you’re interested in, knows the price trends, and is well-versed in local regulations,” he advised.Link here.
MORE SECURITY IS NO SUBSTITUTE FOR LESS FREEDOM
The following happened in the United States of America on February 9 of this year. The scene is the Little Falls branch of the Montgomery County Public Library in Bethesda, Maryland. Business is going on as usual when two men in uniform stride into the main reading room and call for attention. Then they make an announcement: It is forbidden to use the library’s computers to view Internet pornography. As people are absorbing this, one of the men challenges a patron about a website he is visiting and asks the man to step outside. At this point, a librarian intervenes and calls the uniformed men aside. A police officer is summoned. The men leave. It turns out they are employees of the county’s department of Homeland Security and were operating way outside their authority.
We are indebted to reporter Cameron W. Barr of The Washington Post for the account of this incident, which, I feel constrained to repeat, did not happen in China, Cuba or North Korea. Rather, it happened a few days ago in this country. Right here in freedom’s land. There are those of us who would say the country has become less deserving of that sobriquet in recent years. They would point as evidence to the detention of U.S. citizens without charges, counsel or recourse, to laws empowering the government to check up on what you have been reading, to revelations of illegal eavesdropping. And there are others who would say, “So what?” They are in the 51%, according to a recent Los Angeles Times/Bloomberg poll, who say we should be ready give up our freedoms in exchange for security. Apparently, they are ignorant of what Benjamin Franklin said, “They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety.”
Apparently, they are also unversed in something candidate Bush said in 1999: “There ought to be limits to freedom.” Mind you, this nugget of wisdom was not dropped in a discussion of national security. Rather, it was the future president’s reaction to a Website that made fun of him. Seven years later, he is clearly getting his wish. It chills me to know that does not chill more of us. Indeed, of all the many things I cannot fathom about certain of my countrymen and women, their ability to be sanguine at the threatened abrogation of their rights is very near the top. The only way I can explain it is that freedom – the right to do, say, think, go, live as you please – is so ingrained in our psyche, has been such a part of us for so long, that some are literally unable to imagine life without it.
Look, freedom is a messy business. It is also a risky business. But it means nothing if we surrender it at every hint of messiness and risk. That is cowardly and it is un-American. You would think we would have learned that lesson after the Sedition Act of 1918, the excesses of Joseph McCarthy, the surveillance of Martin Luther King. But apparently the lesson requires constant relearning. And vigilance. So thank you to the Little Falls library for having the guts to say, hell no. Some things should never happen in freedom’s land.Link here.
THE LAND THAT TIME FORGOT – REAL ESTATE IN THE GALAPAGOS ISLANDS
One of the best kept secrets in international real estate investing is that it is still possible for foreigners to purchase property in the world famous Galapagos Islands. This is something even most Ecuadorians do not know since various bills have been drafted and approved to exclude foreign investors and developers, BUT, these bills have never been passed into law. There is still time to grab a little piece of this wonderland though real estate opportunities are admittedly somewhat limited. Most of the Galapagos is a national park with only 3% of the land being available for development and most owners of private land are not in any hurry to sell. Savvy investors are snapping up what they can to ensure they and their descendants always have a vacation home in this land that time has forgotten.
The Lonely Planet Guide classifies the Galapagos as Evolution in Action and superlatives seem inadequate to describe the hauntingly beautiful yet barren volcanic setting in which the wildlife thrive. Unique species such as giant tortoises, the largest in the world, and for which the islands are named (up to 250 kg) roam the Santa Cruz Highlands. Marine turtles are easily spotted through the crystal clear waters sleeping on shallow, sandy ocean floors. Marine iguanas, the only true marine lizards accompany you as you paddle along snorkeling the hundreds of coves, snuffing through their noses to eliminate salt from their bodies. Seals and sea lions, whales, dolphins and even sharks swim calmly by you seemingly totally disinterested in your presence. On top of all this there are 58 resident bird species and over 30 other migrant ones – a bird lover’s paradise. Sometimes as many as 750,000 seabirds are in residence in the Galapagos (after all it is nothing but ocean all around).
Not all of the islands are inhabited and most of the residents live in the charming town of Puerto Ayora on Santa Cruz Island, where the streets are paved with organic cobblestones and the houses are framed with bougainvilleas. You will not see cars parked out front very often as automobiles (except for public vehicles and taxis) are prohibited, but you will usually spot a boat in front of the garage. There is a major renaissance and restoration sweeping the area as old houses are lovingly restored and remodeled to provide all modern conveniences. Best bet is to purchase property with a substantial home already in place since all building materials must be transported from the Ecuadorian mainland and dynamite is often needed to blast for a solid footing. Building a new home can be a daunting operation even for native Spanish speaking Ecuadorians. For the more adventurous however, there are occasionally opportunities further inland and there is even a small exclusive subdivision underway at Santa Cruz gardens, although this has been sold out since it was offered to the public.
More information on the Galapagos can be found in several web sites and the highly recommended Ecuador Handbook by Julian Smith (Moon travel handbooks) and the Lonely Planet Guide to Ecuador.Link here.
WHEN IT WILL NOT REQUIRE A TYRANNY TO DEPRIVE US OF OUR FREEDOM
It received just a few column inches in a couple of papers, but the story I read last week looks to me like a glimpse of the future. A company in Ohio called City-Watcher has implanted radio transmitters into the arms of two of its workers. The implants ensure that only they can enter the strongroom. Apparently it is “the first known case in which U.S. workers have been tagged electronically as a way of identifying them.” The transmitters are tiny (about the size of a grain of rice), cheap (£85 and falling fast), safe and stable. Without being maintained or replaced, they can identify someone for many years. They are injected, with a local anaesthetic, into the upper arm. They require no power source, as they become active only when scanned. There are no technical barriers to their wider deployment.
The company that makes these “radio frequency identification tags”, the VeriChip Corporation, says they “combine access control with the location and protection of individuals”. The chips can also be implanted in hospital patients, especially children and people who are mentally ill. When doctors want to know who they are and what their medical history is, they simply scan them in. This, apparently, is “an empowering option to affected individuals.” For a while, a school in California toyed with the idea of implanting the chips in all its pupils.
A tag such as this has a maximum range of a few metres. But another implantable device emits a signal that allows someone to be found or tracked by satellite. The patent notice says it can be used to locate the victims of kidnapping or people lost in the wilderness. There are, in other words, plenty of legitimate uses for implanted chips. This is why they bother me. A technology whose widespread deployment, if attempted now, would be greeted with horror, will gradually become unremarkable. As this happens, its purpose will begin to creep. Ultimately, I do not believe that you or I or most comfortable, mentally competent people will be forced to wear a tag. But itwill become an increasingly acceptable means of tracking and identifying people who could be a danger to themselves, or who could be at risk of sudden illness or disappearance, or who are otherwise hard for companies or governments to control. They will, on the whole, be people whose political voice is muted.
As it is with all such intrusions on our privacy, it will not be easy to put your finger on exactly what is wrong with this technology. It will not really amount to a new form of control, as all the people who accept the implants will already be subject to monitoring or tracking of one kind or another. It will always be voluntary, at least to the extent that anything the state or our employers want us to do is voluntary. But there is something utterly revolting about it. It is another means by which the barriers between ourselves and the state, ourselves and the corporation, ourselves and the machine are broken down. In that tiny capsule we find the paradox of 21st-century capitalism – a political system that celebrates choice, autonomy and individualism above all other virtues demands that choice, autonomy and individualism are perpetually suppressed.
There will be no dramatic developments. We will not step out of our homes one morning to discover that the state, or our boss, or our insurance company, knows everything about us. But, if the muted response to the ID card is anything to go by, we will gradually submit, in the name of our own protection, to the demands of the machine. And it will not then require a tyrannical new government to deprive us of our freedom. Step by voluntary step, we will have given it up already.Link here.
ONE VIEW OF FREEDOM: NOT HAVING TO REMODEL
Drive past Madrid, N.M., home of the Mineshaft Tavern and a tribe of people who are still wearing tie-dyed T- shirts, and you will not find much. Pass the last of the roadside miners’ cabins, and what you will find is miles of beautiful scenery in all directions. But if you go a few miles past Madrid, turn off on a dirt road known to locals as Mail Box Road and follow the ruts a few miles, you eventually will come to the home of Rick Ruff, Airstream guardian angel. Ruff, now in his late 50s, lives there with his collection of six Airstreams, all venerable, all collectible. He has no electricity. He trucks in his water and propane. Solar panels recharge the battery in his residence, and two aging generators are run from time to time for the sole purpose of running power tools. He stays in touch with the world with his cell phone. Rick lives light.
A former leather crafts worker, in time he gave up making leather bags and other craft work. He started fixing people’s Airstreams. He will also go and pick up a trailer for you and bring it back to your house, having recently towed an antique trailer from Southern California to Santa Fe. That is how I met him. Last November, when I bought my 1971 Safari, a 23-footer, the seller told me about Rick. I called him immediately because, well, I was scared to death about what I had done. I was even more scared about what I might have to do. I hired Rick to re-rivet a window, install new tires, and do assorted other tasks before having him transport the Airstream to the family ranch. Other people are devoted to Airstreams. Use the Web to explore the cult of Airstream, and you will find dozens, perhaps hundreds, of people who have either restored their own Airstream or offer to help others do it.
This simple purchase has already had an impact on how we live. We may never live as austerely as Rick Ruff, but its space has redefined our ideas of what we want or need. Plans for building a walk-in closet have been abandoned. Plans for doing a major bathroom remodel have been canceled. I figure the Airstream has already saved us about $40,000 in remodeling expenses. That makes it a pretty good $5,900 investment, no?Link here.
GLOBAL CREDIT OCEAN DRIES UP
One by one, the eurozone, the Swedes, the Swiss and now even the Japanese, are turning off the tap of ultra-cheap credit that has flushed the global system for the past year, keeping the ageing asset boom alive. The “carry trade” – as it is known – is a near limitless cash machine for banks and hedge funds. They can borrow at near zero interest rates in Japan, or 1% in Switzerland, to relend anywhere in the world that offers higher yields, whether Argentine notes or U.S. mortgage securities. Arguably, it has prolonged asset bubbles everywhere, blunting the efforts of the U.S. and other central banks to restrain over-heating in their own countries. The Bank of International Settlements last year estimated the turnover in exchange and interest rates derivatives markets at $2.4 trillion a day.
“The carry trade has pervaded every single instrument imaginable, credit spreads, bond spreads: everything is poisoned,” said David Bloom, currency analyst at HSBC. “It’s going to come to an end later this year and it’s going to be ugly, even if we haven’t reached the shake-out just yet,” he said. “People have a Panglossian belief in the march of global capitalism but that will change as soon as attention switches back to U.S. financial imbalances,” he said.
There were early signs of panic this week when the Icelandic krone crashed 8% in two days, setting off dominoes in high-yielding currencies of New Zealand, Australia, South Africa, Hungary and Brazil. The debacle was triggered when the rating agency Fitch downgraded Iceland’s sovereign debt, a move that would not normally rattle markets. The new skittishness comes against a backdrop of ever more hawkish moves by Japan and Europe. “There are several hundred billion dollars of positions in the carry trade that will be unwound as soon as they become unprofitable,” said Stephen Lewis, an economist at Monument Securities. “When the Bank of Japan starts tightening we may see some spectacular effects. The world has never been through this before, so there is a high risk of mistakes.”
It is an open question whether the yen, euro, Swiss franc and Swedish krona carry trades have occurred on such a scale that they have led to over-investment in Latin America and beyond, and compressed U.S. yields, fuelling the American housing boom in 2005 despite Fed tightening. There are other big forces at work: huge purchases of U.S. Treasuries by Asian central banks, and petrodollar surpluses coming back to the U.S. credit markets. Stephen Roach, chief economist at Morgan Stanley, warns that the carry trade is itself, in all its forms, a major cause of dangerous speculative excess. “The lure of the carry trade is so compelling, it creates artificial demand for ‘carryable’ assets that has the potential to turn normal asset price appreciation into bubble-like proportions,” he said. “History tells us that carry trades end when central bank tightening cycles begin,” he said. Ominously, almost every bank other than the Bank of England is now tightening in unison.Link here.
OFFSHORE HAVEN U.S.A.
Most American taxpayers, heavily taxed as they are, do not know it, but the USA is one of the greatest tax havens in the world – for foreigners only. The U.S. has long been a safe haven for foreign investors. And now with the decline of the U.S. dollar, it has also become a nation with real estate and business assets available for sale at bargain prices. Why do you suppose the Chinese want to buy U.S. oil companies and Dubai wants to buy management control of U.S. port operations? Cheap dollars and bargain prices.
Because the U.S. must compete in the world market for investment funds and most competitor nations permit foreign investors that invest there to earn interest income exempt from paying any taxes, the U.S. provides similar exemptions to attract capital in the form of loans from foreign investors. Tax laws are very favorable to foreign investment that pays tax free interest, no capital gains or estate taxes and allows many methods of deferring payment of any U.S. taxes to a later time. But foreign investors must be careful or they can get caught, just like American taxpayers, with U.S. income taxes on profits as high as 65% and estate (inheritance) taxes on U.S. assets held at death as high as 48%. Proper planning can avoid these traps, however.
Many foreigners do not necessarily want to immigrate to the U.S., but they may want their money invested in the U.S. once they understand how U.S. tax laws favor them. E.g., Senior X, who lives abroad, invests in the U.S. stock market and earns dividend income. His U.S. investments are growth investments and the shares are held almost exclusively for capital gain. If Senior X sells those shares for a profit shortly after purchasing them he might receive a large, short-term capital gain. There is no U.S. tax on Senior X. Except for real estate gains, foreign investors are generally excluded from paying tax on any capital gains earned in the U.S.
Foreigners can also escape estate taxes on U.S. real estate by acquiring it in the name of a wholly owned foreign corporation instead of holding it their individual name. With no direct ownership of any U.S. property the beneficiary of a foreign owner of U.S. real estate will receive only the shares of the foreign corporate owner. There is no U.S. estate tax on a foreigner when the decedent foreigner only transfers shares of a foreign company. All this means that, under the right circumstances, the USA may be the best tax haven in the world for non-Americans, foreign corporations and immigrating foreigners.Link here.
MEXICO – THE FRAUD OF THE CENTURY
A secret report commissioned by the Mexican government on Mexico’s “dirty war” under the Institutional Revolutionary Party (PRI) in the 1970s has caused a major scandal after being leaked to the press. It accuses the military of carrying out a genocidal policy against suspected subversives in the south between the end of the 1960s and the beginning of the 1980s. Even taking into account a number of mitigating factors, especially the fact that President Vicente Fox, who commissioned the study, thinks the report does not give enough weight to the many abuses committed by the guerrillas during the 1970s, the information is potent enough to unmask (once again) the unmitigated fraud that was the PRI.
The exercise is not just academic. Many killers remain at large, 500 people are still missing, scores of families will probably never see justice done, and the PRI is still a major force in Mexican society. During my visit to Mexico last week, I had a chance to talk to some of the presidential candidates as well as a broad spectrum of intellectuals, business representatives, and journalists. The overall consensus is that the PRI will continue to wield colossal power through the state and local government structure as well as Congress, where it will command a solid bloc of votes. Even though Roberto Madrazo, the candidate of the party that ruled Mexico for most of the 20th century, is running third, he cannot be written off.
The most important truth contained in that report is one that it does not formulate directly, that most political power thrives on fraud. In more advanced democracies checks and balances limit the scope of the fraud and therefore its practical consequences. But even in countries with a measure of economic prosperity and a democratic tradition those checks are not nearly enough, so the lessons of the PRI era have universal relevance.
For decades, the PRI maintained a foreign policy based on the principle of “non-intervention”. In theory, this meant, we don’t care what you do in your own countries, so let us do as we please in ours. In practice, it meant, we will wink and nod at any subversive current or government that espouses Third World ideology, and even at domestic revolutionaries, whatever their crimes, as long as they do not actually promote revolution against us in Mexico. This translated into a connivance with all types of revolutionaries, giving many of them safe haven, supporting their causes at international forums, and providing huge subsidies to an intellectual class which was allowed to criticize the PRI mildly from time to time in return for the promise not to question the premise of one-party rule. This policy helped spread and legitimize the ideas that translated into violence and poverty throughout the Latin American region.
We knew, of course, that this policy did not, as the PRI hoped, inoculate Mexico against armed revolution. What we did not know until this report came out, was that the revolutionary fervor actually masked what – by the PRI’s own standards – can only be called a fascist or extreme right-wing policy of genocide, obliterating entire villages and killing scores of innocent victims. The PRI obviously understood the times. So long as it maintained a corrupt aid to revolutionaries inside and outside Mexico and an inflamed anti-imperialist rhetoric, it had carte blanche from all sorts of intellectuals, civil society movements and human-rights groups to practice a systematic negation of everything the PRI, a supposed progressive animal, stood for.The left broke with the PRI in the 1990s, when, in one of its many opportunistic turns, that party espoused globalization and began to (somewhat) open up the economy. But the story of the PRI up to that point is the story of ideological and political fraud on a colossal scale in the interest of power.
Mexicans would do well to remember this when they go to the polls in July and non-Mexicans should take notice of this new reminder that, even in the hands of governments we might feel inclined to support, the state can sometimes be, in Nietzsche’s words, the coldest of all cold monsters.Link here.
OFFSHORE TAX HAVENS ONE OF THE ENRON MESS’S PHONY VILLAINS
At long last the shady characters who ran the Enron Corporation into the ground, destroying the jobs, retirements and investments of many thousands of innocent people, are on trial in Houston, Texas, the scene of the crime. But one of the phony villains in the Enron mess was said to be offshore tax havens. As usual, they got an undeservedly bad rap in the unthinking news media. That was because of a Byzantine web of “partnerships” created in offshore havens by the artful dodgers at Enron that, in part, allowed the former energy trading giant to pay no U.S. corporate income taxes in four of its last five years. It turns out that Enron, exploiting legal U.S. tax law loopholes, set up no less than 881 subsidiaries offshore, including 692 in the Cayman Islands, 119 in the Turks & Caicos, 43 in Mauritius and 8 in Bermuda.
Good business practice often dictates that domestic corporations create offshore subsidiaries for legitimate reasons, including keeping overseas profits from U.S. taxes, avoiding onerous U.S. regulations and insulating foreign business partners from U.S. taxes. None of this would be necessary if American lawmakers had the sense to abolish corporate income taxes. Shareholders already must pay income taxes on earnings anyway. Why pay taxes twice? And taxes are ultimately are paid by consumers in higher product prices. The great attraction of tax havens is exactly that they impose no taxes on international business corporations (IBCs) registered in their country. Repeal of U.S. corporate taxes would produce more U.S. jobs, more business and more taxpayers earning more money – far too simple an economic solution for a majority of the U.S. Congress to grasp.
The Enron debacle also has exposed the morass that is the then “Big Five” (now down to four) international accounting firms that together and individually have been wreaking investor financial havoc for years. But the villains here certainly include oppressive U.S. tax laws, crafty politicians who write those laws, and, let’s face it, human nature itself. Tax havens are not to blame. They are merely geographic accommodations offering maximum financial freedom.Link here.
LAWSUIT PLAGUE IS GOOD REASON TO REMOVE ASSETS FROM AMERICAN LEGAL SYSTEM’S GRASP
One of the main reasons you need to consider moving some of your assets offshore is to defend against the continuing plague of lawsuits in America. Two recent examples: (1) Shannon Peterson, a special education teacher in an Arvada, Colorado public school, is “being sued for bathing before leaving for work.” The elderly couple who lives upstairs from her Denver condo unit have been complaining about noisy pipes, and unfortunately for Ms. Peterson they happen to have a son who is an attorney at a large law firm. Represented by their son, the Smiths sued Peterson citing the “reckless and negligent use of her bathtub.” (2) Two years ago a former mental patient killed a New Jersey state trooper, first ramming his cruiser head-on, then killing him with two shotgun blasts through the car’s windshield. The trooper’s widow is suing the killer’s parents, the makers of her husband’s police gun – because it jammed after he had fired seven shots from it, and Ford because the deployment of the car’s airbags on collision allegedly delayed his exit from the car.
Plainly there are many good reasons, besides protecting one’s assets from lawsuits, why a U.S. person may wish to move all or part of their financial affairs offshore, away from their home country: wider access to better investments, far greater financial and banking privacy, etc. But especially for Americans, lawsuits are a real hazard. With more lawyers and lawsuits per capita than any other nation, U.S. persons are more susceptible to being sued than they are to the flu. We are not just talking claims by an ex-spouse or angry employee. Anyone who conducts a business or profession in the U.S. becomes a target for litigation.
One professional group that has been a special target for contingency fee lawyers are health care providers – doctors, dentists, nurses, hospitals, clinics and pharmaceutical companies. Why? Lawyers see them as sources of cash with deep pockets for settlements or jury verdicts. All these lawsuits have driven the cost of malpractice insurance beyond affordability for many medical professionals. In many areas medical specialists especially vulnerable to being sued simply have moved away or even stopped practicing. This year the American Medical Association identified 20 states facing a “medical liability crisis,” where medical malpractice insurance costs are so high that many physicians have to abandon their practices or “go naked” without malpractice coverage. [Ed: Before “going naked” a practitioner should definitely un-exposed his or her personal assets, e.g., using techniques discussed on this site.]Link here.
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