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DREAMS AND DISAPPOINTMENTS: WINE INVESTING IN ARGENTINA
“I’m going to open a winery!” How many times have those fateful words been uttered, in English, French, Spanish, or Italian? Close your eyes and you can almost see the glee on the entrepreneur’s face as he imagines himself running this new enterprise. “After all, I know a lot about wine,” he says. “I have the money to make it happen. I have some good connections.” He kicks back in an easy chair, swirling a glass of cabernet, picturing days of entertaining buyers, attending awards banquets, and hobnobbing with restaurant owners.
If you want to find out where these gleams in the eye have been leading the past few years, head to the Mendoza region of Argentina, where an exploding wine industry and bargain prices have brought a flood of new development. There are supposedly some 16,000 vineyards in Argentina being fed by the runoff water from the Andes Mountains and depending on whom you talk to, some 1,200 to 1,700 wineries. “There’s no way to really know how many wineries are here,” says Charlie O’Malley, who edits The Grapevine magazine and runs Grapevine Wine Tours with his partner Kelly Thornhill. “New ones are opening all the time and there’s always the issue of who has officially filed the right paperwork or not.” Then there is the geography. Mendoza is the main wine province, but good wine is also coming out of Salta Province in the north and Patagonia in the south.
There is no dispute about the growth path, however. Argentina’s wine exports topped $350 million in 2004 and $400 million in 2005. Over the past decade, the industry has collectively invested some billion and a half dollars in the latest technology and has been quite successful in marketing their wines, especially their signature Malbec, to the world. The country’s wines have gone from jug wines mostly meant for local consumption to ones that are winning awards against the best from the U.S., France, and Italy.
The new dreamers are certainly not the first ones to breeze into Mendoza looking to start a winery. The industry has been in place here since the 19th century, with immigrants from Spain and Italy applying their knowledge and hard work in the new world. These days the immigrants still come from wine-producing countries in Europe, but others now join them from the U.S., Canada, Chile, and far-flung places around the globe. They are lured by an exploding growth curve and land prices that can still be downright cheap. Listings often come in under $2,000 an acre. More than a few investors have returned home later with their tail between their legs, however.
Hubris often leads to an investor’s downfall in the wine region of Mendoza. One of the most common mistakes wine investors make is not making an attempt to understand the people, the culture, and the way things work in a foreign country. Another common mistake is to underestimate the importance of finding the correct site for a vineyard.
The basic laws of economics are still favoring Argentina and will for a while. A vineyard in Napa Valley costs 10 or 15 times what a comparable one does in Argentina, yet the best Argentine wines are starting to command respectable prices. “Vineyard prices will never be what they are in California or Italy,” English says, “but they are certainly moving up toward a middle ground.” Many think that Argentina’s best years are still ahead of it. The overall quality is still improving, the word is still getting out, and a lot of production is still tied up in making cheap jug wine and concentrate. In addition, the Torrontés white wines – fragrant and fruity with crisp acidity – are still mostly just known to tourists. It is only a matter of time until wine drinkers looking for the next new thing start discovering this distinctive wine and importers begin bringing in more stock of Argentine whites to add to the wide range of reds. So for all those wine dreamers with a gleam in the eye, there is a bright future ahead – if you take your time and listed to local advice.Link here.
U.S. PLANS TO SCREEN ALL WHO ENTER, LEAVE COUNTRY
The federal government disclosed details last week of a border-security program to screen all people who enter and leave the U.S., create a terrorism risk profile of each individual, and retain that information for up to 40 years. The details, released in a notice published in the Federal Register, open a new window on the government’s broad and often controversial data-collection effort directed at American and foreign travelers.
While long known to scrutinize air travelers, the Department of Homeland Security is seeking to apply new technology to perform similar checks on people who enter or leave the country “by automobile or on foot,” the notice said. The department intends to use a program called the Automated Targeting System, originally designed to screen shipping cargo, to store and analyze the data. “We have been doing risk assessments of cargo and passengers coming into and out of the U.S.,” DHS spokesman Jarrod Agen said. “We have the authority and the ability to do it for passengers coming by land and sea.” In practice, he said, the government has not conducted risk assessments on travelers at land crossings for logistical reasons.
Civil libertarians expressed concern that risk profiling on such a scale would be intrusive and would not adequately protect citizens’ privacy rights, issues similar to those that have surrounded systems profiling air passengers. “They are assigning a suspicion level to millions of law-abiding citizens,” said David Sobel, senior counsel of the Electronic Frontier Foundation. “This is about as Kafkaesque as you can get.” DHS officials said that by publishing the notice, they are simply providing “expanded notice and transparency” about an existing program disclosed in October 2001, the Treasury Enforcement Communications System. But others said Congress has been unaware of the potential of the ATS to assess non-aviation travelers.
The notice comes as the department is tightening its ability to identify people at the borders. At the end of the year, for example, Homeland Security is expanding its Visitor and Immigrant Status Indicator Technology program (VISIT), under which 32 million noncitizens entering the country annually are fingerprinted and photographed at 115 airports, 15 seaports and 154 land ports. Stephen E. Flynn, senior fellow for national security studies at the Council on Foreign Relations, expressed doubts about the department’s ability to conduct risk assessments of individuals on a wide scale. He said customs investigators are so focused on finding drugs and weapons of mass destruction that it would be difficult to screen all individual border crossers, other than cargo-truck drivers and shipping crews. “There is an ability in theory for government to cast a wider net,” he said. “The reality of it is customs is barely able to manage the data they have.” [Ed: If someone from the CFR says not to worry everything must be just fine,the DHS said it will keep people’s risk profiles for up to 40 years “to cover the potentially active lifespan of individuals associated with terrorism or other criminal activities,” and because “the risk assessment for individuals who are deemed low risk will be relevant if their risk profile changes in the future, for example, if terrorist associations are identified.” DHS will keep a “pointer or reference” to the underlying records that resulted in the profile.
The DHS notice specified that the Automated Targeting System does not call for any new means of collecting information but rather for the use of existing systems. The notice did not spell out what will determine whether someone is high risk. But documents and former officials say the system relies on hundreds of “rules” to factor a score for each individual, vehicle or piece of cargo. According to the notice, the program is exempt from certain requirements of the Privacy Act of 1974 that allow, for instance, people to access records to determine “if the system contains a record pertaining to a particular individual” and “for the purpose of contesting the content of the record.”Link here.
GLOBAL ECONOMIC TRAIN WRECK
Bloomberg reported, “U.K. Third-Quarter Personal Bankruptcies Reach Record”. Bankruptcies are soaring, but the response by the biggest lender in the U.K. was to increase loan amounts “because of continuing gains in house prices.” Even as home prices in the U.S. are collapsing, lenders in the U.K. somehow think home prices can keep rising orders of magnitude faster than wages and rents. This same situation is playing out in Canada, Europe, China, and, obviously, the U.S.
According to S&P, “U.S. Credit Quality in 25-Year Retreat Toward Junk”. [See “Ratings: A 25-year march to junk” below.] Among the highlights are that “Shareholder-friendly activity, such as share buybacks, restructurings, and leveraged buyouts, have all increased debt burdens and lowered credit quality.” Buybacks at these levels are NOT shareholder friendly. Headed into an economic slowdown, corporations should be hoarding cash, not squandering it. To make matters worse, corporate insiders are bailing on their own shares by the bucket load as fast as they can. S&P says that “an aggressive financial posture is necessary for survival in a stiff globally competitive environment.” Of course, that is absurd. Unless you are a lemming, you should not have to follow the competition over the cliff. Besides, the idea of lemmings jumping off a cliff as pictured in the 1958 Disney nature documentary White Wilderness is really just a suicide myth, in stark contrast to suicidal credit lending activities by corporations, which appear to be the real deal.
RealtyTrac is reporting, “National Foreclosures Increase 17% in Third Quarter”. Even as foreclosures skyrocket, corporate lemmings are doing everything they can to keep the machine greased and the wheels spinning. I guess the theory must be that as long as the wheels keep spinning faster and faster, they will not fly off the axle. That theory is about to be tested.
Some responses to my blogs blamed the “gold standard” for the Great Depression, while others were arguing that the expansion of credit by GSEs proves we need more government regulation, not less. Those arguing for more government controls are, in effect, arguing in favor of Russian-style communist government central planning that is now thoroughly discredited everywhere. The free market is the answer, not more ridiculous central planning. Government setting interest rates is a problem, not a solution. Government-mandated programs of all kinds at every level are a huge problem, not a solution. Growth in government employment is a problem, not a solution. The government has no business setting prices for orange juice or mortgages. We do not have a free market here, not with 300 government programs promoting housing. The free market did not cause this housing bubble. Stupid government policies did.
Those blaming the “free market” for problems should really be blaming “central planning”. It is ironic to find people arguing for MORE communist central planning, because the current communist central planning (CCCP) is not working. What we really need is a free market, because the markets we have now are anything BUT free markets. As far as the gold standard being the cause of the Great Depression, people simply do not know what they are talking about. Those who think like Bernanke does (the Fed did not cut rates fast enough or soon enough) do not know what they are talking about, either. To dispute the myth that the gold standard is at the root of the problem, let me refer everyone to Murray N. Rothbard’s A History of Money and Banking in the United States:
“Recessions unhampered by government almost invariably work themselves into recovery within a year or 18 months. But the United States, Britain, and the rest of the world had been permanently seduced by the siren song of cheap money. If inflationary bank credit expansion had gotten the world into this mess, then more, more of the same would be the only way out. Pursuit of this inflationist, ‘proto-Keynesian’ folly, along with other massive government interventions to prevent price deflation, managed to convert what would have been a short, sharp recession into a chronic, permanent stagnation with an unprecedented high unemployment that only ended with World War II.”
A list of key government policies and interventions from the 1920s parallels nearly exactly what is happening today. In fact, it is downright eerie. This is not a rerun of That 70’s Show, but rather a rerun of the roaring ‘20s. Keynesian folly by the Fed and this administration in cooperation with foreign central banks everywhere have put the global economy on the brink of disaster. There is no way out. All that remains to be seen is the tipping point that sends this global train on a “23 Skidoo” over the cliff.Link here.
HOW 2006 IS LIKE 1968
Here is one thing that is not an October surprise for these midterm elections: U.S. voters are still polarized, just as they were back in 2000 (Bush vs. Gore) and 2004 (Bush vs. Kerry). Split down the middle into Republicans and Democrats with very few swing voters left in the middle. But let us not blame this polarization on political slogans (“stay the course” vs. “cut and run”) or October surprises. Instead, let us take a look at the financial markets to see the kinds of rifts that have developed, mirroring the rifts in the body politic.
Generally speaking, the stock market goes up and the economy is strong when Americans are happy. Their positive social mood creates harmony even though political, social, and religious views vary widely. Today, though, even with auspicious financial news, people are upset about the war in Iraq, they are mad about illegal immigration, they cannot stand what is going on in Congress, and more than 60% do not like the way the president is handling his job.
One reflection of this negative mood might be the Dow itself. How can that be if it has been going up, which should reflect a positive mood, you ask? Although the nominal Dow (the one priced in terms of the U.S. dollar) has pushed to a new all-time high above 12,000, the Dow priced in terms of ounces of gold is actually down significantly from its top in the year 2000. The same is true if you view the Dow priced in terms of commodities. So an inflated dollar is carrying the Dow higher than it would be if it were measured in real, non-inflated terms. Polarized voters are examples of a split social mood, which can also account for the rift between what the stock market seems to be and what it really is.
Usually, when social mood is positive, the stock market is up, the economy looks good, and incumbents win. Today’s markets and presidential popularity polls mirror another time in our nation’s history when people were polarized over a war and huge changes in society. The year was 1968, when Lyndon B. Johnson’s vice president, Hubert Humphrey, ran for the presidency against the Republican nominee, Richard M. Nixon. It was the year that students protested on college campuses against the Vietnam War, that Robert Kennedy was assassinated after winning the California Democratic primary, and that police beat up anti-war protestors at the Democratic convention in Chicago.
The Elliott Wave Financial Forecast pointed out in the June 2006 issue that, “Today’s interplay of markets against a backdrop of diverging social phenomena – from plunging presidential approval ratings to attacks against the most successful corporations to an increasingly unpopular war – duplicates the collective social experience of 1968.” The markets had been rallying since 1966, but LBJ was hugely unpopular because of the Vietnam War. As the Dow rose about 35% – going from a low of 735 in 1966 to a high near 1,000 two years later in 1968 – Johnson’s popularity fell from about 50% to below 35% and then went back up to around 45%. In each case, although the Dow rallied in the late 1960s and in the mid 2000s, these presidents grew more unpopular as people focused instead on their protracted wars, troop deaths and profligate spending.
Analysts at Elliott Wave International say that the “big difference between Bush’s readings vs. the stock market and those of Johnson is that this time the discrepancy has been building for roughly twice as long” – two years vs. four years. They interpret this divergence between a high-flying Dow and low-tumbling popularity numbers as the precursor to a turn in the stock market. In fact, since the Bush build-up has been longer, they expect that the turn in the markets will be bigger than during 1968-69 when the Dow dropped about 20% from its high. This polarized atmosphere also suggests that the social unrest that the U.S. has been experiencing should grow larger, including more negative and confrontational behavior that we have not even thought of yet.Link here (scroll down to piece by Susan C. Walker).
PAYPAL FREEZES THE ASSETS OF SCIENCE FICTION FANTASY WRITER
Apparently Paypal has frozen the assets of science fiction fantasy writer George R.R. Martin. For some unknown reason his name appears on the U.S. Department of The Treasury in the Office of Foreign Assets Control. The total dollar amount that has been frozen by Paypal is around $50 according to Mr. Martin’s blog post. Mr. Martin said, “There have been times in the past when I’ve had as much as thousand bucks floating in my PayPal account. Believe me, if you think I’m honked off now, imagine how pissed I’d be if they were robbing me of a thousand bucks instead of fifty.”
It is unclear what kinds of weapons of mass destruction one could purchase with $50. To unlock his Paypal account Mr. Martin said, “All I have to do is furnish PayPal with several different proofs of my identity. They already have a credit card number and a bank account number, mind you, but that’s not sufficient, now they want copies of my passport, my birth certificate, and a utility bill.”
What about a pint of blood? We have all heard of these kinds of things happening before. From someone you know who is on a no-fly list to something like what has happened to Mr. Martin. Security is an important issue but it becomes absurd when the target becomes an award-winning author with no ties to any dangerous organization or criminal background. Does this make anyone feel safer?Link here.
TRANSPARENCY INTERNATIONAL PUBLISHES 2006 CORRUPTION PERCEPTION INDEX
The 2006 Corruption Perceptions Index (CPI), launched this week by Transparency International (TI), has pointed to a strong correlation between corruption and poverty, with a concentration of impoverished states at the bottom of the ranking. The 2006 CPI is a composite index that draws on multiple expert opinion surveys that poll perceptions of public sector corruption in 163 countries around the world. It scores countries on a scale from zero to ten, with zero indicating high levels of perceived corruption and ten indicating low levels of perceived corruption.
Almost three-quarters of the countries in the CPI scored below five (including all low-income countries and all but two African states) indicating that most countries in the world face serious perceived levels of domestic corruption. 71 countries scored below three, indicating that corruption is perceived as rampant. Haiti has the lowest score at 1.8. Guinea, Iraq and Myanmar shared the penultimate slot, each with a score of 1.9. Meanwhile, Finland, Iceland and New Zealand shared the top score of 9.6. Countries with a significant worsening in perceived levels of corruption included Brazil, Cuba, Israel, Jordan, Laos, Seychelles, Trinidad and Tobago, Tunisia and the U.S. Countries with a significant improvement in perceived levels of corruption included Algeria, Czech Republic, India, Japan, Latvia, Lebanon, Mauritius, Paraguay, Slovenia, Turkey, Turkmenistan, and Uruguay.
The weak performance of many countries indicates that the facilitators of corruption continue to assist political elites to launder, store and otherwise profit from unjustly acquired wealth, which often includes looted state assets. “Firms and professional associations for lawyers, accountants and bankers have a special responsibility to take stronger action against corruption,” stated Transparency International Chief Executive David Nussbaum. “Led by prosecuting attorneys, forensic auditors and compliance officers, they can be the stalwarts of a successful fight against corruption.”Link here.
DANIEL ORTEGA HEADS TO NICARAGUA VOTE VICTORY
Former Marxist revolutionary and U.S. Cold War enemy Daniel Ortega headed back toward power on Monday in Nicaragua’s presidential election 16 years after voters threw him out to end a war against U.S.-trained rebels. Two quick counts by respected observer groups gave Ortega a big enough lead to win without facing a runoff. An Ortega victory would be a blow to Washington, which backed Contra rebels in the 1980s civil war and fears the leftist would join an anti-U.S. bloc in Latin America led by Venezuelan President Hugo Chavez. Ortega kept a low profile on Monday but thousands of Sandinista supporters set off fireworks through the night and raced through the streets waving black-and-red party flags.
“We have to leave behind all the serious problems our country has suffered in the past, and move forward,” said Ortega’s vice presidential running mate Jaime Morales, a former Contra leader who joined his old enemy’s camp early this year. Ortega led the Sandinista revolution that toppled U.S.-backed dictator Anastasio Somoza in 1979 and then allied Nicaragua with the Soviet Union as much of Central America became a Cold War battleground. When asked in Washington on Monday about the possibility that Ortega has had a change of heart, U.S. Secretary of State Condoleezza Rice appeared skeptical. “We’ll see,” she said.Link here.
As the second largest nation in the Caribbean, the Dominican Republic occupies the eastern two-thirds of the island of Hispaniola and is roughly the size of Maryland. Columbus discovered the island in 1492 looking for a seaway to India. Europeans have been coming ever since, but with less than 20% of the tourists coming from the U.S., it remains an undiscovered “secret” for Americans. The island is larger than the Bahamas, Jamaica, Puerto Rico, all the Virgin Islands and the entire French West Indies combined and is generally regarded as very safe with crimes against tourists rarely reported.
A September 1998 issue of Forbes said, “The Dominican Republic set out in the early 1990’s to remake itself, reform its government, modernize its institutions and open its economy.” Now, a new generation of leaders has determined that the Dominican Republic can change and compete in the global economy of the 21st century. Foreign direct investment has grown from $91 million in 1993 to an estimated over $1 billion in 2005 and is still growing. The Dominican Republic has obtained the highest growth rate of all Latin America for the past decade, averaging 8% annually, while sustaining one of the lowest levels of inflation.
Yet, the lure of the Dominican Republic is not just beautiful beaches, luxurious tropical breezes, and all the other things that come to mind when you think of the Caribbean. The country’s Latin style is a sharp, yet warm, contrast to the character of many nearby islands, especially the British and French-influenced ones. Offshore investors are discovering this country and many are calling it the best investment opportunity of the new millennium. With tax-free banking, almost non-existent property taxes, and the ability to live comfortably on less than $3,000 a month, the area has a healthy economy and clear laws that stand up for freedom of speech, religion, property, and other fundamental rights. This is a country in which it is safe to visit, invest, and live.Link here.
BLUES FOR NICARAGUA
In a period going back to around 1850, five or six generations of Americans have been involved with Nicaragua, a volcanic, earthquake-prone land of forests, lakes and intense blue skies, poor but often beautiful, which is the archetype of the Central American “banana republic”, originally so described because it was usually dependent on its fruit-exporting or similar trade.
During the 1980s the government there was the Sandinista National Liberation Front, led by Daniel Ortega. That government was bitterly opposed by die-hard supporters of the Somoza dynasty, which had ruled and pillaged the country for over 40 years from the mid-1930s onwards. It was also opposed by the U.S. government of Ronald Reagan (1981–1989), which saw the Sandinistas as a dangerously close spearhead of America’s large enemy of the day, international communism.
Out of that fixation came first propaganda, and then active U.S. support for the vindictive army of counter-revolutionaries known by their Spanish name, the Contras, who were coached and directed by the CIA. In its later stages the Contra war was funded, in defiance of the U.S. Congress, by the proceeds of under-the-table U.S. government sales of weaponry to Iran, and by arms-for-drugs deals supervised by those same former state officials and their associates. Some of their most ardent supporters, in the run-up to the 2006 elections, have been lining up to warn for over a year of the dire consequences which would follow if the Nicaraguan people re-elected Ortega. They usually forgot to mention that Ortega’s running-mate this time around was Jaime Morales, a former Contra, whose ample residence Ortega had commandeered for himself during the ‘80s – and held on to ever since, having recently agreed a compensation deal with its former owner.
In 1986 Nicaragua successfully sued the government of the U.S., being awarded $17 billion on six counts of damages arising out of the Reagan administration’s support for the Contras and direct U.S. military intervention, including the mining of Nicaraguan ports. The U.S. government reacted to this, after the verdict, by withdrawing its earlier declaration accepting the Court’s compulsory jurisdiction. But it was in any case a no-win situation for the Sandinista government. Its earlier efforts to reverse some of the depredations of the Somoza family by (forcibly and too hastily) redistributing the family’s ill-gotten land holdings, and to raise the abysmal levels of basic health care and education, had given way to severe curtailment of civil liberties, the imprisonment of opponents, the channeling of over 80% of government revenues to fighting the war against the Contras, and the reported presence of a raft of Cuban and East German advisers sent as proxies for the Muscovite “evil empire”.
The culmination came in the elections of 1990, in which a Unified Opposition Front came to power, strongly backed by the U.S. government and its favored instrument for such occasions, the National Endowment for Democracy. The front was led by Violetta Chamorro, the widow of the liberal newspaper editor Pedro Chamorro, assassinated in the time of the Somozas. The transition however, was messy. A legacy of outstanding property claims, and successful efforts by many Sandinistas to hold on to some of their own gains of both wealth and power, meant that the new government was not as promptly compliant as the imperial masters in Washington wished and expected. Violetta Chamorro later had to be strong-armed into withdrawing Nicaragua’s World Court claim against the U.S., on pain of losing ongoing U.S. financial backing. Her successor as president, Arnaldo Aleman, was so blatantly crooked that he was eventually convicted of embezzlement and corruption, and sentenced to 20 years in jail.
The old enemy Ortega remained. He was still the leader of the Sandinistas. He had stood unsuccessfully in every subsequent election since the 1990 debacle. Consistently, a majority of Nicaraguans said they did not want him back. By around 2002 the realization had no doubt dawned that both an image makeover and some deft manipulation of the goalposts were required. It was time to bring Ortega’s skills in political tradecraft up to date. Ortega made a constitutional pact with the corrupt Aleman, involving fundamental changes to the separation and balance of powers between president and parliament. With his image made over by his wife, who dressed him in democratic blue jeans in place of the long-discarded guerilla’s uniform, and a campaign featuring promises of a fairer future enveloped in the new, less violent colors – pink and white (no more red) – Ortega was reported as having achieved a percentage of around 38% of the vote on November 5th. Under the new rules he had himself had a part in devising, he was elected President without having to go to a second round, which he would almost certainly have lost.
International reaction to the election result has been rather muted. Some on the traditional left are hoping that an Ortega government, may yet be able genuinely to “do something” for the people. I fear such hopes will be in vain, though it would not take much to lift Nicaragua just a little bit out of the depths of its poverty. Experience tends to show that leaders of governments, whatever their campaign colors, and whether they wear flight suits to land on aircraft carriers, jeans on a donkey, or suits in the U.N. General Assembly, will never do anything much for the people other than make extravagant promises which they cannot keep.
Those on the traditional right point to new trade and investment opportunities, in the form of increased exports of primary agricultural products, particularly to the U.S. Real estate near the idyllic Pacific coast surfing beaches seems to offer good prospects – for foreign, mainly U.S., investors. Others say Nicaragua is, regrettably, emulating Fidel Castro’s Cuba, which has become a beach and sex-tourism hotspot mainly for Europeans. Perhaps there is a cynical and dispiriting acceptance that in Nicaragua as elsewhere, politics and government continues to be about power and money, and how to keep hold of them at the expense of possible rivals. And this is just one factor preventing anything truly positive and helpful from being achieved by governments.
For all these reasons, Ortega is unlikely to pick up where he left off in 1990 or earlier. Indeed, given the scale and intensity of the corruption and manipulation in recent years, it is possible that watchers and players in Nicaraguan politics have adapted to the time-honored and even more cynical threat of public humiliation, honed to a fine art in Washington. This is a tough game in which the depredations of those in power, and the ambitions of those out of power, are held in check by dirt – real or concocted – which the other side keep ready to be dished to a complicit, scandal-hungry media at a moment’s notice. No doubt also many other former Sandinistas, like Ortega, have toned down their revolutionary zeal, as they have learned that the political trough does not have to be all yours in order to become fat on it. That indeed was the mistake the Somozas made.
What about the future for Nicaragua? In 2007 and beyond, the context we will have is globalization, biotechnology and wars, both present and future, verbal and real, over natural resources and the environment. Nicaragua has coffee, fruits, forests, and seeds, all attractive to the masters of agribusiness for potential acquisition, genetic modification, and subsequent exploitation as commodifiable intellectual property. It also has coastlines both Atlantic and Pacific, which have long encouraged thoughts of a super-canal to rival Panama’s and facilitate the passage of giant container ships carrying cargoes of manufactures from China. Goodbye lakes and forests, hello oil spills and chemicals! And so, for those coming conflicts, I have a sinking feeling Nicaragua’s role as a rich exploitable resource in the global plantation has already been assigned, with hardly a thought for the still impoverished people who will be required to work it.
The problem, as always, is that revenues from agricultural exports and other projects will be allocated in the first instance to payments of interest on international indebtedness. Nicaragua, like so many poor nations, is locked into the cycle of debt repayment to the international banks. One of the primary roles of U.S. diplomatic representatives in this context becomes that of monitoring the political and economic climate, looking out for and possibly “neutralizing” any looming threats to “stability” – the stability of Wall Street and London banking profits in particular. In this role they are merely the blander and more acceptable civilian successors of the former military presence. In Nicaragua, that role would be eminently consistent with the long history of U.S. oversight and intervention in favor of Wall Street.
Even Ortega, according to an AP report a shadow of his former revolutionary self, seems to be bending over backwards to provide reassurance. “His speeches have focused on reassuring skeptics that he plans no radical changes and will embrace free trade, job creation and close US ties.”Link here.
THE MORAL COST OF LOOSE MONEY
The Hong Kong based financial commentator Mark Faber, as reported by the Economist, believes that high commodity prices cause wars, by funding unattractive rent-seeking governments and starving more productive economies of resources. Since it is clear that low interest rates have in the present cycle been a major cause of high commodity prices, it is worth adding this to the lengthy catalogue of costs caused to the world economy by excessively cheap money.
Cheap money is popularly supposed be an unalloyed good thing, allowing people to borrow money for home mortgages more easily, encouraging business expansion and giving Third World countries access to capital they would otherwise be denied. Like many popular superstitions, this one is largely the opposite of the truth. In moderation, liquidity is essential to the functioning of an economy. Without it, companies very quickly get into difficulties, as trade credit dries up, while investment projects are unable to be financed. Nevertheless, in a modern economy a little liquidity goes a long way.
The period of cheap money instituted by the Fed’s monetary slackness from 1995 and intensified by its misguided policy after 2001, has been longer and more developed than any previous such period, far more so than the credit booms of the late 1920s and the late 1960s. Consequently, it has produced a number of new pathologies, many of which have disturbing ethical or even moral implications.
Truly Fed Chairmen Alan Greenspan and Ben Bernanke have a lot to answer for. You may not think you are longing for the return of tight money, but trust me, taking cheap money’s effects overall, you should be.Link here.
PRIVATE ANNUITY TRUSTS – THE NUMBERS DO NOT SUPPORT THE HYPE
The private annuity trust (PAT) is a tax deferral transaction offered to taxpayers seeking to dispose of appreciated assets, often real estate. The private annuity trust is an old transaction but appears to be more popular than ever. Several websites actively and proudly promote the strategy. There is a National Association for Private Annuity Trusts (“NAPAT”), The National Private Annuity Trust (“NPAT”) and the National Association for Financial and Estate Planning (“NAFEP”), which offers the private annuity trust as its “Premier VI” plan.
Despite its apparent popularity, the PAT is a questionable strategy from a tax perspective. It is far from clear that the transaction works in the manner in which its promoters claim. Even more problematic is that assuming the PAT does in fact offer the tax benefits that it purports to offer, in the typical case (possible beneficial uses of the private annuity trust are discussed below), it is an economically bad transaction from an income tax standpoint. Economic analysis of the private annuity trust reveals that not only is it worse than perhaps most every other tax minimization strategy that would be available to a taxpayer, but the PAT also leaves the taxpayer in a worse economic position than the taxpayer would be in by merely selling the asset and paying the tax.
After a brief description of the transaction, an overview of a few technical problems of the PAT is provided. Then, a few of the claims of promoters are dispelled. Finally, a summary of an economic analysis of the private annuity trust is given.
Despite the degree to which the private annuity trust is presently being marketed, it is simply not a very good strategy. Paradoxically, it represents both an income tax risk if it fails and an income tax detriment if it succeeds. From an estate tax perspective, the benefits of the transaction depend largely upon the seller’s life expectancy. For a seller with a shortened life expectancy, private annuities (without involving a trust) are certainly sometimes appropriate strategies for estate tax reduction. However, private annuities can be done without the income tax bite.Link here.
IS THE U.S. THE WORLD’S BIGGEST TAX HAVEN?
Senator Carl Levin (D-Michigan) told a Senate committee on this week that if the United States is serious about cracking down on money laundering, terror financing and tax evasion, it could do worse than look to its own backyard, as states compete with each other to set up companies with greater anonymity for the company owners.
In testimony at the Permanent Subcommittee on Investigations Hearing: “Failure to Identify Company Owners Impedes Law Enforcement”, Levin, the senior Democrat on the committee, said that while the vast majority of U.S. companies are set up for legitimate purposes, there are a small percentage that function instead as “conduits for organized crime, money laundering, securities fraud, tax evasion, and other misconduct.” However, the task of assessing to what extent this illegal activity is taking place within the U.S. is hampered by the fact that states “have no idea who is behind the companies they have incorporated.” According to Levin, a person who wants to set up a U.S. company typically provides less information than is required to open a bank account or get a driver’s license – a process that has become easier, quicker and faster as states seek to outdo one another. The median fee for company formation is now said to be less than $100, while Delaware and Nevada allow applicants to set up a company in less than an hour for an extra $1,000.
Levin went on to cite one firm in the business of forming shell companies as promoting the state of Delaware as “An Offshore Tax Haven for Non U.S. Residents”. Said Levin, “That type of anonymity is exactly what we’ve been criticizing offshore tax havens for offering to their clients. ... In fact, our last Subcommittee hearing lambasted offshore jurisdictions for setting up offshore corporations with secret U.S. owners engaged in transactions designed to evade U.S. taxes, leaving honest taxpayers to pick up the slack.” Ironically, Levin pointed out, the U.S. was actually rebuked by the FATF for its disclosure laws in a 2006 report, while offshore secrecy jurisdictions such as the Cayman Islands, Bahamas, Jersey, and Isle of Man are now largely praised by the FATF for complying with its recommendation to identify the owners of the companies they establish. The U.S. was one of the driving forces behind the formation of the FATF.Link here.
THE MARSHALL ISLANDS SERIES LLC COULD BE USEFUL FOR ASSET PROTECTION
The Republic of the Marshall Islands (RMI) has closely modeled their corporate laws after the top corporate haven in the world, the State of Delaware. The RMI is a former U.S. dependency in the Pacific Ocean which is now entirely independent. One of the most innovative and useful business entities provided for in RMI Law is the Series Limited Liability Company (LLC).
The RMI LLC Act provides for the creation of a “series” of segregated asset containers within a Series LLC whose debts and other liabilities are enforceable against that asset container alone. The Act also provides that classes or groups of members can be established. This allows each asset container to be treated as if it were a separate company. Thus, the RMI LLC Act allows for the creation of separate sub-companies within one umbrella limited liability company without the need to create separate entities. The concept is similar to the protected cell companies used by many insurance companies within the U.S. and elsewhere. Unlike every offshore protected cell company law of which we are aware, there are no special limitations on the creation of an RMI LLC, so it could be used for any purpose except for banking, trust or insurance services.Link here.
COURTS OF THE STATE – AND THE STATE OF JUSTICE
The attempt to recall Duke non-rape prosecutor Michael Nifong has passed unsuccessfully, and while more people voted against him than for him, he had enough votes to win office, which clears the way for him to continue his unholy march to destroy the lives of three young men on false charges. As I have previously pointed out, he has plenty of enablers, both from the leftist faculty members at Duke and “leaders” of the black community in Durham. Almost all of the criticism directed toward Nifong and this prosecution has been aimed either at the prosecutor, police, or those enablers in the community. That is not surprising, as we have witnessed some outrageous conduct, even by the very low standards that are seen in the pursuit of “law” these days. But while we concentrate upon the picture of Nifong and Durham and the Duke faculty, there is a much larger issue that dwarfs everything else, and that is the government court system itself.
If one definition of insanity is performing the same activity over time and somehow expecting different results, then the institution of government courts truly marks the height of insanity. We come to the courts expecting – no, demanding – just outcomes and then wonder why the results almost always are bitterly disappointing. There is a reason for this phenomenon, and it is not Michael Nifong, the Durham leadership, or the Duke faculty. The reason is much more basic than the influx of dishonest people. In fact, the system itself encourages dishonesty. It should be ironic (and quite telling) that the government’s system of justice, which claims to be an entity formed on behalf of finding truth, is greased by outright lies and cannot function without dishonesty.
Until we understand government courts, we will continue to see people cast into the maw of death and dishonor, all so that some state employees will have the privilege of receiving power, praise, and, of course, a paycheck. Since we are not going to be rid of this monster, we can do the next best thing, and that is not to trust it, nor give it any praise that it does not deserve, anyway.Link here.
U.S. TREASURY FORM TDF 90-22.1 IS A MAP COORDINATE FOR EXTREME DANGER
If you are a U.S. citizen resident anywhere in the world, or in space for that matter, or are a U.S. resident for tax purposes, if you have: “... a financial interest in or signature authority, or other authority over any financial accounts, including bank, securities, or other types of financial accounts in a foreign country, if the aggregate value of these financial accounts exceeds $10,000 at any time during the calendar year, must report that relationship each calendar year by filing TDF 90-22.1 with the Department of the Treasury on or before June 30, of the succeeding year.”
If you comply with this law you automatically add your name to a FINCEN database of potential money launderers. This heightens the government’s scrutiny of everything you do. This is a Treasury form, not an IRS form, so you do not even have the very limited privacy protection that goes along with IRS filings. In this age of databases that control, e.g., your access to credit and your ability to fly, the more bad databases we end up on, and the more likely it is that we will suffer “the slings and arrows of outrageous caution.”
So what are your choices? The course most often chosen is simply not to file. This is illegal and can carry a fine of up to $500,000 and prison time. That being said, I have never known anyone who was prosecuted simply for not filing this form. The government’s preferred modus operandi is to prosecute a person for tax evasion and/or money-laundering, and then add every year they did not file this form as a predicate count in order to run up the total number of years in prison that the defendant is facing. You see this in action when the IRS does its periodic subpoenaing of all offshore credit card records for the entire Caribbean, or when they catch a crooked offshore banker and then use that to extort the names of hundred of clients from him. The second most chosen course is to file the report and hope for the best. So long as everything you do is legal and squeaky clean, compliance is always the best route.
There are two more choices that allow you NOT TO FILE AND NOT TO BREAK THE LAW. (1) You can hire a bonded fiduciary who signs on foreign accounts on behalf of a company, or other entity. In that case you have to trust the fiduciary, make sure the bond is bulletproof, and do your company paperwork in exactly the proper way so you do not end up still having “other authority” as the IRS defines it, and defeating the whole exercise. (2) You could establish a gold repository account, at some place like the Perth Mint where you could be the signatory on the account and still legally not report it because, properly set up, it is a storage contract, not a financial account.
If you (1) avoid using a U.S. representative, (2) set up the account outside the U.S., and (3) make the payment through a non-U.S. payment service, then the whole transaction can be handled privately and without filing any government reports. There are other steps you can take to add layers of asset protection as well – all without filing special reports or tax filings. You can still retain sole signatory authority on your account.Link here.
THE KIWI ALTERNATIVE – A TAX-FREE TRUST IN A HIGH TAX COUNTRY
Anyone who thought that the OECD attack on “tax-havens” would make them go away was self-deluded. The offshore financial services industry has grown to huge proportions. According to published U.S. and U.K. government reports, it now tops $11.5 trillion dollars and despite U.S. and E.U. animosity it is still growing. With this much money at stake an increasing number of high-tax countries are looking for ways to get a piece of this pie. None of them are turning into across-the-board tax havens, but various countries are selecting one or two specific vehicles to which they are granting special treatment. New Zealand has chosen to give the world the tax-free foreign trust structure.
A New Zealand Special Purpose Company structured as the trustee of a non-resident New Zealand trust is not taxable and the trust and its beneficiaries are also non-taxable, except on income sourced in New Zealand. If the New Zealand “offshore” company and trust have no connection to New Zealand whatsoever, then the entire structure is non-taxable in New Zealand. And considering the fact that the company owner and trust beneficiary can be the same person, one can see how this structure can prove attractive when it comes to the offshore formation of a company. One added benefit of establishing such a company structure in New Zealand is the fact that once established the company is generally free to do business, open bank accounts, or invest anywhere in the world. It becomes, in effect, a tax free offshore company but without the “tax haven” implications of the traditional offshore centers.
Depending upon the tax jurisdiction of the settlor, U.S. persons being much more restricted than anyone else, a properly structured New Zealand Trust can provide some or all of these benefits:
A question and answer session with a leading New Zealand trust provider follows.Link here.
COSTA RICA CALENDAR GIRLS DROP EVERYTHING TO STOP ANIMAL SUFFERING
As a happy and blessed expat living in Costa Rica for close to nine years, I have always believed that International Citizens living in a foreign country have a civic responsibility to give back to their “Home Away from Home”. Nothing worse than the image of the “Ugly Gringo” living cheaper in paradise than they could at home and feeling no obligation whatsoever to do anything for their host community, other than contribute to the economy by asking for “Otra Cerveza Por Favor”.
There is also a silver lining in volunteering abroad. One of the first ways my husband and I learned to practice our Spanish was volunteering to teach a weekly cooking class for sexually abused young girls who were watched over by caring Sisters. No Costa Rican sunset can compare with the beauty in the smiles that greeted us each week as we taught these girls how to make pizza and they taught us the meaning of Tasa, Batadora y Cucaharon.
Therefore it was pretty easy to say “yes” when a year ago, I was asked to “Get Naked and Literally Drop Everything” to embrace SASY! (Stop Animal Suffering Yes) in Costa Rica and convince my fellow expat amigas to do the same. Modeled after the original Calendar Girls project, which has raised funds for Cancer Research in England and the popular film, which told their empowering story of female volunteerism, the wild and SASY Calendar Girls of Costa Rica was born over Lunch with the Girls. We had been asked for help by 4 legged friends who desperately needed an advocate. There are numerous community needs hidden beneath Costa Rica’s tropical oasis and as you might imagine, help for much needed shelters, spaying and neutering clinics in low income barrios and reporting and prevention of animal abuse is not always a top priority. So we gathered up a collection of international women who brought their talents, their beauty, their love for animals and Costa Rica and their SASY Ways to create the 2007 Wild and SASY Calendar Girls.
You might be dreaming of living or volunteering abroad or you might already be there. If so, I ask you to consider volunteering and giving back in some small way to your chosen international community. No, you do not need to take your clothes off, but maybe dare to step outside of your comfort zone – out of your gated community of safe and secure expat living and give back in some small way. I think you will find the personal reward and cultural enrichment immense.Link here.
DERIVATIVES: THE BIGGEST BUBBLE OF ALL
Derivatives trading soars to $370 trillion – it will be the root cause for global depression.
An interesting data came out from the Bank for International Settlements. The global market for derivatives soared to a record $370 trillion in the first half of 2006. It is the highest ever and the bubble is bigger than any one can imagine.
The kind of euphoria in derivative trading has never been seen before. The amount of outstanding credit-default swaps contracts jumped by 60% at the end of last year. This year the rise is even faster. It is a typical pyramiding technique. Money is creating false concepts of money and that in turn is creating ever larger amounts of conceptual money. When the balloon bursts, the catastrophe will be unimaginable. The 1929 debacle and resulting depression will be miniscule compared to what is coming.
The derivatives were initially designed for hedging. It has now become the instruments of trade. As an example of what can happen, recently when Amaranth, the hedge fund, bet on the wrong side of the natural gas market, it lost $billions in days and went out of business – taking with it the capital of many investors. But something more sinister happened in the London credit swap market. On the news of Amaranth’s problem, the credit swaps based on Amaranth funds collapsed create a massive problem for the London credit instuments markets. Even that little hedge fund was able to bring the market to its knees. What about when many hedge funds collapse at the same time?
Remember 1987? Before the October crash, the public were arguing about the fact that the market would not give an inch on the down side. Finally, when the crash came, the brokers did not pick up their phones and Dow lost more than 20% in one day. Something much more serious is getting cooked here. The complacency level, the sentiment indicators and above all the fundamentals are all ready to make the market collapse big time.Link here.
UK QUESTIONS TAX STATUS OF “MONACO MILLIONAIRES”
A decision last week by a tax disputes panel has sent an ominous signal of the UK authorities’ intent to crack down on so-called “Monaco millionaires” – wealthy Britons who are resident abroad for tax purposes. The ruling by the Special Commissioners has caught many tax experts by surprise, by upholding an interpretation of tax residency rules by HM Revenue & Customs which runs counter to the tax department’s own guidelines.
The case in question involves businessman Robert Gaines-Cooper, a British-born multi-millionaire businessman based in the Seychelles, who has claimed not to be resident in the UK for tax purposes. Under UK tax law, a person is treated as nonresident for tax purposes provided that they spend no more than 90 days in the country. This allows wealthy business owners to live in low-tax jurisdictions such as Monaco and Switzerland but jet into the UK for one day per week to do business. However, in the eyes of the Revenue, Gaines-Cooper could not be considered non-domiciled because he maintained strong links with the UK, for example, by schooling his son in the country, among other factors.
However, it would also appear that HMRC is now taking a more stringent approach to how it defines time spent in the UK. For example, the common practice of flying into the UK on a Monday, working on a Tuesday and flying out on a Wednesday was usually assumed to count as one day spent in the country. But according to HMRC’s new position, the individual is effectively spending two days in the UK. The accounting profession is urging nondomiciled Britons currently claiming tax residency elsewhere to review their situation.
Reports suggest that Gaines-Cooper will appeal the decision to the High Court, although a hearing might not materialize for about a year.Link here.
SWISS BANKS HOLD ON TO THEIR OFFSHORE CLIENTS
James Nason remembers years of debate and negotiation over tax evasion in Europe, but one moment that stands out for him was when Swiss officials drew a line on how far they could be pushed around. “Swiss bank-client confidentiality is not up for discussion,” Nason, a spokesman for the Swiss Bankers Association in Basel, said he remembered Finance Minister Kaspar Villiger of Switzerland telling a conference of financial professionals in Frankfurt in September 1999.
Villiger’s defiance was a warning to EU officials, then squaring off for yet another round of talks in Brussels about whether, and how, to try to claw back lost revenue from EU citizens investing their savings in foreign tax havens. For decades, EU officials have been trying to plug holes that let tax dollars leak out of Europe through investments channeled into so-called offshore banking centers. Switzerland, as the biggest offshore center in the world, often has been a focus of their efforts.
During the latest EU tax haven negotiations, which began in the late 1980s, Swiss officials, reluctant to weaken their strict privacy laws, did give in to EU pressure and agree to implement a groundbreaking savings tax regime. The tax, which took effect in July 2005, was hailed as a breakthrough in the hunt for lost revenue, but there were fears that it could trigger massive client defections from Switzerland and other European financial centers to rival centers farther afield, like Singapore or Hong Kong. An analysis by the Boston Consulting Group last year predicted that the tax could cause at least €1 trillion, or $1.3 trillion, to leave Switzerland and Luxembourg, another country popular with offshore investors.
In the hush-hush world of offshore banking, hard numbers can be hard to uncover, but so far, analysts said, most investors in Switzerland have decided to stay put. “A year ago, people were quite worried about it,” said Florian Frey, who specializes in financial services at Boston Consulting in Zurich. “But actually, when I look now, no one is talking about it. It is business as usual. It doesn’t seem to be a problem.” Nason agreed that concerns have subsided.
Assets under management in Switzerland have been rising significantly over the last few years, even after the tax took effect, reaching a high of SF4.4 trillion, or $3.5 trillion, in 2005, compared with SF3.5 trillion in 2004, according to the Swiss National Bank and the Swiss Bankers Association. That includes assets managed for foreign clients in Switzerland, which rose to SF2.6 trillion in 2005, from SF2 trillion in 2004. The tax also has not knocked the Swiss bank UBS from its perch as the biggest wealth manager in the world. And a Swiss rival to UBS, Credit Suisse, is in 4th place in wealthy investing, behind Citigroup and Merrill Lynch, according to a survey by the Scorpio Partnership consultancy in London.Link here.
THE WORLD IS NOT FLAT, BUT TAXES SHOULD BE
When one looks at the following list of countries – Macedonia, Romania, Kyrgyz Republic, Estonia, Lithuania, Latvia, Russia, Serbia, Ukraine, Slovakia, and Georgia – what words jump to the front of your mind? Corruption? Mafia? Ethnic cleansing? Danger? War, famine death and pestilence?
What should jump to your mind is FLAT TAX. These countries have figured out that the way to make their economy grow and to increase tax collection for needed government programs is to institute a flat tax. Of course, Hong Kong has known this for years, which explains its perennial good fortune. Meanwhile, the U.S. IRS, UK HMRC, Revenue Canada, and the various tax collectors across the EU and other “highly developed” countries spend every waking hour trying to figure out how to squeeze more taxes out of an already overtaxed populace. Then they are amazed and shocked that the more in independent minded of their subjects want to move their money offshore. They simply do not grasp the concept that so-called “progressive” tax rates punish success, encourage tax avoidance and evasion, and if too vigorously prosecuted cause tax expatriation.
Tussia is a perfect example. Despite its other obvious problems, it went from an empty treasury and massive tax evasion before the flat tax, to a budget surplus after. (Despite that success with personal taxes, they have not figured out that they could multiply that success by using the same remedy for company taxes. There are just too many IMF, OECD and World Bank types swarming around to allow for clear thinking.) The Kyrgyz Republic is my personal favorite. Its 10% business tax rate has allowed us to integrate Kyrgyz companies seamlessly into our various ventures. Bishkek is a small but growing IFC in its own right.
A flat tax is not a universal panacea, but it does help fuel the creation and growth of a middle class in these countries, and historically, personal freedom grows concurrently with the middle class. Macedonia, tied with Kyrgyzstan for the lowest tax rate at 10% will have the lowest in Europe. The results for this tiny landlocked and troubled country have already been noticed. One of the great things about a small country is that it is easier to change the direction of the momentum than for a big country. Macedonia has come a long way from just a few years ago when the regional joke was, “In Macedonia they are so poor they drive stolen Yugos.”
As these countries shake off their Soviet Era management techniques and embrace more entrepreneurial practices they are going to start to become serious players in the world markets. In the meantime, flat tax companies should be considered as a legitimate element in offshore planning – there is nothing that defeats the tax collector at home better than already paying taxes – even at a much lower rate – in another country that is NOT a tax haven, but is simply tax smart.
Tax competition among governments gives the end user better products and services at lower costs. Of course, the OECD does not want to compete, they would rather simply have bureaucrats take ever higher salaries for ever lower production until they have transformed themselves into a new aristocracy as feckless and irresponsible as their predecessors in history. Note that the existence of tax havens and low tax countries actually helps preserve the social fabric of high tax countries. If the rich can expatriate some of their money while paying taxes on the rest, they are less likely to expatriate themselves. One only has to look at the pre-Thatcher days of punitive income taxes and the migration of thousands of Britons to the U.S. for a better deal.Link here.
GPS SURVEILLANCE CREEPS INTO DAILY LIFE
For $5.99 per month, you can turn a cell phone into a surveillance device and track when your target leaves home, where he or she travels and at what speed. You can even detect how much battery power is left on the phone. Marketed as “virtual eyes” on your kids or employees, the service also allows you to construct a virtual “fence” so that you can receive electronic alerts if the phone’s carrier crosses into forbidden areas. Provided by the company AccuTracking, this service is just one of dozens integrating the Global Positioning System (GPS) into everyday life. The system uses satellites to determine the locations of GPS-enabled devices.
From brightly colored cell phones and watches designed to help parents shadow the movements of children, to enhanced mapping websites allowing managers to monitor traveling employees through mobile devices, corporations are cashing in on GPS surveillance technology. But as these increasingly inexpensive products rush onto the market, public-interest groups are raising privacy concerns. Youth-rights’ activists, workers’ advocates and domestic-violence experts say public dialogue is needed to illuminate the consequences of this $20 billion-per-year industry.
“The problem is people are making these acquisitions of technology without hearing the tradeoff, hearing the downside, hearing the flipside of the discussion,” said Lillie Coney, associate director at the Electronic Privacy Information Center (EPIC). EPIC and other groups say surveillance technology is outpacing policies to reign in possible abuses. “It’s imperative that there be more rules established for companies that sell these types of devices, the companies that provide the services.”
The FCC requires nearly all cell phones have GPS technology embedded to help emergency responders pinpoint 9-1-1 callers who may not be able to explain their exact location. But corporations have quickly found profitable uses for GPS. An Internet search for “GPS tracking” reveals dozens of services promising real-time tracking of vehicles, equipment and people.Link here.
YOU WILL BE THANKFUL
On Thursday of this week in the United States, we celebrate a holiday known as “Thanksgiving”. Many of us (including my family and I) will attend church services this morning and many more will eat a very large meal with the main dish usually being roasted turkey. At the table, most likely we will continue what began at church – speaking about those things for which we are “thankful”. At one level, I have no problem with people being thankful for their blessings. Yet, if we truly are thankful for our blessings on a daily basis, then why do we have a special holiday in which we repeat those things that we already have repeated?
In a word, the reason for Thanksgiving Day is government. It is on this day that the government – specifically the President of the United States – orders us to be thankful. Since our government is secular in form and content, we really are supposed to be thankful to government for our bounty. For example, I almost certainly will hear someone at church say that he or she is “thankful that we live in a country where we can freely worship God.” Yet, people around the world have that freedom. One can put it another way, a way that is guaranteed to offend others: “I am thankful that the American state has not yet destroyed all of our freedoms, including the freedom to worship God.”
The U.S. Government actively is debasing the dollar, waging war against people who were not at war with us, arresting people and falsely charging them with crimes, blocking mutually beneficial economic exchanges, making it more difficult to produce and sell goods, and then propagandizing us in saying that the government is the only thing that gives our lives meaning. While we think of the Pilgrims celebrating a successful harvest in 1621, Thanksgiving as an official government-sponsored holiday came to this country via the presidency of Abraham Lincoln in 1863. While armies under his command were destroying the harvests of the southern states, burning houses and forcing families to face the winter without food and shelter, and generally plundering and pillaging, he declared an official day of “Thanksgiving”.
The next president to further make Thanksgiving a government-sponsored holiday was Franklin D. Roosevelt in 1939. Thus, two of the presidents who were most active in destroying the liberties and social fabric of this country were at the forefront of telling everyone else how thankful they should be.
Lest I appear to be an ingrate, I say that I am thankful to God for the blessings that I have received, however undeserved those blessings may be. And I add that I am thankful to God that He has restrained the American state, if for a season, to where it has not done as much harm as it could have done. For now, we worship in relative peace. In the future, perhaps all of the Thanksgiving services will be held in government buildings in which we thank the state for the meager rations placed before us. We are not there, at least yet, and I will be eternally thankful if that day is put off forever.Link here.
NEVER BEFORE HAS IT BEEN MORE POSSIBLE TO START A NEW LIFE IN ANOTHER COUNTRY
Let me tell you one thing I believe – we are living at a time of unprecedented opportunity. Never before has it been more possible to start a new life in another country.
OPENING A NON-RESIDENT OFFSHORE BANK ACCOUNT IS :
a.) Easy b.) Difficult c.) Extremely difficult d.) Impossible e.) All of the above.
And the correct answer is ... e.) All of the above. It really depends on what kind of account, at which bank, and from which country you have a passport. The entire process is counterintuitive. The easiest place for an American to open an account in another country should be at an American Bank or a bank with U.S. branches or subsidiaries. The next easiest bank should be a private, for profit bank. And the hardest place should be a government-owned bank run by civil servants. Right? WRONG! Thanks to international banking hysteria flowing from the Patriot Act.
In Uruguay, for example, if you are an American citizen without Uruguayan residency, none of the U.S. banks here will let you have a bank account, even if you already have an account with the U.S. parent bank! They might let you have an account after you get your residency, but they will still not be thrilled about it. International banks without a U.S. presence are a bit better and seem to be a mixed bag of what they will do and not do, depending upon the day of the week and the phase of the moon. In Uruguay, we have found that the easiest bank at which to open an account is the government owned Banco de la Republica Oriental Uruguay (BROU). If you are willing to start with a savings account with an ATM card that works there and worldwide, you need only walk in with your passport and a $500 minimum deposit and they will open the account.
And Uruguay is better than many other places. Business associates in Panama tell me, “It is easier to get a commercial airline pilot’s license than to open a nonresident account.” Swiss Banks will not even look at you unless you are willing to leave a minimum of $50,000 in an account at all times. Even banks traditionally friendly to nonresident accounts have turned nasty. The Patriot Act and the Basel rules have basically divided world banks into three groups:
Simple transactions, entirely legal and above board are being halted or delayed by banks – usually to earn extra interest on the money without passing any on to the customer – using Know Your Customer (KYC), Patriot Act or Basel rules as an excuse. Regardless of any other consideration, because of U.S. Government pressure, it is harder to open an offshore account as an American Citizen, than anyone else in the world. Because of this, literally hundreds of millions of dollars are flowing into Islamic Banking centers where a more reasonable approach is taken. There are also a growing number of banking alternatives, about which I will write in the future.Link here.
E-PASSPORT: DOORWAY TO THE PANOPTICON
panopticon – a circular prison with cells distributed around a central surveillance station; proposed by Jeremy Bentham in 1791 (thefreedictionary.com)
Several years ago word got round that the U.S. government was going to put an RFID chip into a passport. Privacy advocates rallied and ranted about the insecurity of the technology, the lack of standards, the foibles of technological advance, and the massive infrastructure expenses required to build a system to support an RFID passport, and pronounced the idea Dead On Arrival. Congratulations are due to those intrepid folks, because their voices were heard, their concerns noted, and the International Civil Aviation Organization (ICAO) returned to the drawing board and has now issued specifications for an RFID-enabled biometric passport that focuses on the technical concerns and addresses them quite handily. The concept remains intact and is now much stronger for the technical tests it was subjected to, rather than weaker for its violations of human rights principles.
This is no conspiracy. None of this is secret stuff and Interpol really is interested in catching criminals and beating up child molesters and ICAO really is interested in giving people better methods to guarantee they are who they say they are. There is no “We’re gonna get the peasants now!” mentality. The problem is not insidious intent, but typical scope creep and a basic assumption that differs from those of us in the freedom movement. That scope creep is nothing more than, “Let’s try this one more thing,” over and over again. And the assumption is, quite simply, that we, the peasants, can and should trust them and all of their actions implicitly. There are lots of discussions on privacy of the passport holders, but always privacy between me and you. Not once do they mention privacy from the government or the police forces. It simply does not enter their minds. The concept is as alien as a revolution without dancing.
This is not to excuse any of their actions. On the contrary, pointing out that they do not have evil intentions only emphasizes what the road to hell is actually paved with. And let there be no mistake, this road is indeed paved. Not planned, not under discussion, paved. It is a done deal. The e-Passport specification is law. You never got to vote on it. There were no legislators to petition. No letters to write. No recourse other than a newspaper, if they would even bother with such dry material. ICAO is not an elected organization, and they developed their mandate with only the input they specifically sought. They are not beholden to whatever government claims you, rather that government is beholden to them.
So while we were complaining about Real ID, and National ID, and Piggly-Wiggly Grocery store cards, ICAO simply took the entire debate out of the public view and made it happen. E-Passports, passports with an embedded RFID chip are here and they are here to stay. As of the end of 2006, 16 nations including the U.S. will be issuing the e-Passport according to ICAO specifications. Another 43 nations will be compliant by the end of 2007. And by 2010, all 189 member nations are required to be compliant. Today, there are already more than 50 million e-Passports in circulation, and most people who have them do not even know it. It seems that ICAO wanted to avoid the much maligned “RFID” stigma, so they dropped it from open discussion, changed the name, and the entire thing slipped beneath the radar.
If you want a non-chipped passport, you had better get it now. 2010 may seem like a long way off, but the countries that struggle to meet that deadline are the same ones that struggle for things like food and water. Most of the EU members are geared up for it as we speak and will have it in 2007. As mentioned above, the U.S. is already issuing them. Every day that passes increases your chances of getting a chip in your passport. And even if you do get one without a chip, all you have done is buy some time. By 2020, every legal international traveler will have an e-Passport, as all the non-chipped passports in the world will have expired by then. The e-Passport is here and it is here to stay.
You say you do not travel internationally? Pay attention. Interpol and ICAO both have openly stated that e-Passport is the first step, not the last. Airports are a convergence of security issues as you have people, property, airplanes, airports, and national and international borders all sardined into little aluminum tubes on air. Of course that is the focus today. But the specification for biometrics and the RFID chip structure has been specifically designed to be suitable for use in all travel documents, National IDs, and social service IDs. Indeed, the passport specification itself allows the issuing country flexibility to include any additional functionality they want, including additional biometrics, cross references to social service records such as Social Security, or even allowing the bearer to add in his loyalty shopping cards and bank accounts, if the country allows it. All of it tied directly to your biometric data and uploaded to national and international databases for tracking. Fully implemented, the ICAO specification could be used to secure identity not only at airports, but land and water borders, concerts, sports events, critical infrastructure and industry, and even your local shopping mall. Cameras recording your every public move are passé, last year’s news. The problem with camera recordings is that there are not enough people to watch them. And that brings us to the brilliantly logical and effective piece of the ICAO specifications for biometric RFID passports, facial recognition biometrics. Stay tuned!
Now the fun part. Speculation, rhetoric, paranoia. All of this will be implemented from two directions. Make that is being implemented from two directions. From one direction you will get the “justified” version – international arrivals on flights and border control. From the other side you will get security around social events and infrastructure. How ubiquitous is the corporate ID badge? It will get there too, eventually.
On the travel side you will soon see e-Passport readers on Customs agents’ desks – guaranteed. Also guaranteed within the next two or three years is that you will see kiosks to check-in for flights where you put your e-Passport into the slot and it automatically takes your picture, validates, and prints your boarding pass. Most likely, your boarding pass will include your biometric data as well. Airlines are seen as the first line of defense against international travelers ... er, criminals ... and so they are expected to take on the expense of outfitting every check-in terminal and border station with e-Passport readers, e-Passport enabled kiosks, biometric boarding passes and who knows what else. This will put an even greater burden on your airline employees as they take on an ever burgeoning role as border-agents-with-a-union-paid-smile. You and I will pay for it through higher prices on the ticket and possibly service fees and aggravation and profiling. But folks who trust their government will love the faster lines and easier check-in, even if it costs them their privacy, dignity, and pocketbooks.
And where it is implemented internationally, it is only a hop and skip and reach-around to require it domestically, although this might be harder in the U.S. since Real ID does not conform to the e-Passport specifications. Give it time. Once there are enough e-Passports for the airlines to justify their business cases, the model will be developed and it will scale up and down to all different areas and settings. Almost all major sports events and social gatherings will soon have real-time cameras scanning faces and matching against criminal databases. It has been field tested and it works.
What is really disturbing is that ICAO openly admits that the facial recognition and watch-lists are effective on their own. In fact, they recommend that countries use negative facial recognition testing as a solution to criminal border crossings. This strongly suggests that, if the purpose of facial recognition is to catch criminals, the mug shots and negative testing against the watch-lists are all that is necessary. But ICAO emphatically wants everyone to move forward with positive identification of this holistic, transnational identity. “You are not Osama” is all they need. But they want, specifically, to positively identify you, even if you do not remotely match anyone on a watch list. Why is that, do you think?
Non-digital databases of mug shots will eventually be digitized and added to the global databases. Political rights activists may be able to slow down the adding of driver’s license and other state-created photo IDs, but eventually, I bet it happens. The technology needs some improvements (speed), but it is only a road bump to facial recognition on the highways. On the plus side, this might reduce the number of minor traffic stops to fish for criminals, as the cameras will simply notify the cops which cars to chase when they get a near match. Joe American will love it because he gets surveilled more but probably hassled less, and that is just cool with him. But that assumes your normal traffic stop is actually to fish for criminals and not just a revenue generator. In fact, so far, everyone I have discussed this with seems to love the idea of just scanning their passport and walking onto a plane. The efficiency it provides far, far outweighs any concerns they have over privacy or tracking, even when they are the ones to mention “Big Brother” first. Apparently Big Brother is just fine and the hash result of 2 + 2 is five.
What can you do? To be honest, I am not sure. They have covered many of the bases. There is no public recourse for this, it is a done deal. There is no one to punish, these are not elected officials. Anyone who needs or wants a passport that does not reflect their day-to-day identity better already have their alias identity well established. That is the weakest point in the system. Somehow, they have to get those initial biometrics and identities matched up. That is the opportunity, and you get only one shot at it. Did I mention that one of the checks they do when issuing an e-Passport is to validate that no other e-Passport has been issued with matching biometrics? No double-issuance here.
Even if you get your assumed identity set up with an e-Passport, you will only be able to travel under that identity. It will become your holistic, transnational identity, even if it is not the name your kids call you. Your false identity could easily eclipse the validity of your real identity, and I can only guess at the kind of craziness that could generate. I can just see a bevy of private individuals with successfully false e-Passports on the day the e-Passport and the national driver’s licenses are married together with the bank records and IRS tax rolls and the same biometric shows up on three identities and trips several dozen alarms across a thousand government and corporate databases while they fill up the tractor at the bio-diesel station that just installed a networked photo camera to comply with their insurance policy.
For myself? I came in late to the game, and my state has had digital photos on driver’s licenses for years. I can only assume I am already compromised. So I am going to try and stay away from airports and buy a big, floppy, sexy hat.Link here.
TERRITORIAL LIMITS? WHAT STINKIN’ TERRITORIAL LIMITS?
The world was shocked when the U.S. government arrested a prominent UK businessman for violating U.S. law, even though he runs a perfectly legal UK licensed gaming company. Who the heck do U.S. officials think they are? What jurisdiction do they think they have? No emperor, or commissar, pope or prince in all of history has claimed the kind of jurisdiction the United States government unabashedly asserts for itself:
Remember a country called Panamá and a general called Noriega? Under U.S. law, the U.S. was legally allowed to invade a sovereign nation and arrest and kidnap its head of state, AND sovereign immunity be damned, to try that head of state and throw him in a U.S. prison. This, of course, is the same U.S. government that has exempted itself from the jurisdiction of the International Criminal Court.
That having been said, why is anyone really surprised at the Unlawful Internet Gambling Enforcement Act? This law is so broad that if one were to use a credit or debit card to fly out of the U.S. in order to purchase a prepaid credit card for gambling purposes, everyone involved, the onshore bank, the travel agent, the non-U.S. prepaid credit card vendor, and maybe the taxi drivers at both airports, could all be charged with “conspiracy” or “aiding and abetting”, especially if they had any inkling of the purpose of the trip. The trend is not good, and is only going to get worse. This water is filled with shoals, sunken ships, killer reefs, riptides, and whirlpools.Link here.
AIRBUS PROFITS THREAT COULD TRIGGER “NUCLEAR OPTION” OF CURRENCY CONTROLS
If you have funds in Europe, or a ferme in Acquitaine, be vigilant. Keep a close eye on Europe’s press, because you might one day find your money is nailed more immovably to its Continental home than you had thought. Four years ago, a small “cellule” inside the EC was ordered to draft a report, instigated by Paris, examining the legal basis under EU treaty law for 1970s-style exchange controls. It concluded that Brussels may lawfully freeze capital flows in and out of the EU, and within it, and that this could be done by a “qualified majority” of EU finance ministers. One of its authors relayed that this was not an abstract exercise. It was to enable Europe to stem the rise of the euro if the dollar goes into free fall, the underlying argument being that Washington should not be allowed export the consequences of its own reckless spending policies through a “beggar-thy-neighbor” devaluation.
The idea was to stop money coming in, but it could equally be used to stop money leaving. This study came to mind when French premier Dominique de Villepin lashed out this month at the over-mighty euro. “We can’t let the European Central Bank act alone on the exchange rate,” he said. Ségolène Royal, the new Socialist leader, upped the ante a week later, accusing the ECB of “shattering growth”. Then last week the euro smashed through $1.30 to the dollar, crossing the line drawn in the sand by Paris and Berlin. This entails a near equal rise against China’s yuan. Against Japan’s yen, the euro has risen nearly 70% in six years to an all-time high of ¥151. Hence the move by PSA Peugeot-Citroen to build its 4x4 sportif models in Japan.
EU finance ministers have other means short of exchange controls to bring the ECB to heel and cap the euro. The Maastricht Treaty gives them powers to shape exchange rate policy, a detail missed by the markets. If, for example, the Europols strike a deal with Japan to “manage” the euro-yen rate, the ECB has to adjust monetary policy to meet that objective. This is where it gets ugly. The ECB’s Bundesbank bloc would almost certainly resist such a death blow to the bank’s independence, which is why the threat of currency controls may ultimately be part of the mix. There is little Frankfurt can do to stop that.
After combing through court judgments, the report writers concluded that free movement of capital in the EU is not an “absolute freedom” and could be limited in an emergency. Heavens know where this “nuclear option” would leave the City of London, dependent for its life blood on unhindered dollar flows. Obviously, it would precipitate a membership crisis. The free-market Barroso commission would not likely hatch such a Delors-era plot, but the decision is now out of their hands. What matters is whether France could ever muster a majority of EU finance ministers behind such a scheme. The answer is yes, perhaps, in a slump.
That moment has not arrived. Europe’s housing boomlet is not quite exhausted. Yet monetary union is subtly unraveling. French growth fell to zero in the third quarter on sliding exports. Italy is trapped in a downward spiral, doomed by a 20% currency over-valuation. Fitch and S&P have downgraded its debt to Botswana levels.
Airbus may bring matters to a head. Airbus official last year said that if the euro exchange rate went above $1.30 for long, the company was “cooked”. He said the chances of this happening were almost nil. Well, “nil” may be here. While Airbus has an order backlog of 2,177 aircraft worth $220.3 billion, these delivery contracts are in dollars while costs are in euros. In 2004, the group was shielded by currency hedges at an average rate of $0.98. This year the rate is $1.12, and the hedges are expiring fast. Soon Airbus will face the full violence of the spot market. The aerospace champion is so deeply tied up with Europe’s sense of industrial self-worth that it will not be sacrificed lightly on the altar of free currency flows. When the French premier vowed to do whatever it takes to save Airbus, I believed him.Link here.
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