|W.I.L. Home Page||Offshore News Digest Home|
|Sign Up||Finance Digest Home|
PAID IN DOLLARS, EXPATS STRUGGLE TO MAKE A LIVING
Erica Nevins’s faith in the dollar was shaken the moment she pressed a crumpled $1 bill into the hand of a little girl begging for money on the streets of Marrakesh, Morocco. “I don’t want this. This is nothing,” Nevins recalled as the scornful reaction of the child, who demanded more.
Since then Nevins, an American fashion executive, has replayed that moment over and over in her head as she confronted the harsh reality of living on a dollar income in Paris and then moving to pricey London. “The absurdity of this is that it’s so true,” she said. “A dollar really means nothing. It’s scary.”
With plunging exchange rates, American expatriates whose pensions or incomes are paid in dollars are scrimping. No more dinners out when a bottle of Perrier for €3.50 translates to $5 and no more Christmas shopping binges when a shiny iPod for €159 is the equal of $230. And ultimately some are moving to greener pastures that match the color of their money.
“Those that can hold out are holding their breath and we’re hoping for a return of the dollar, but those that can’t are going,” said Susie Bondi, an American who has lived in Paris for 12 years, but is moving to Vienna in January with her husband, Fred, to stretch their pension dollars in a city with a lower cost of living.
The past six months have been anxious for expatriates, with the dollar sinking against the euro, the pound and currencies from the Czech koruna to the Costa Rican colón. Those declines are accelerating the flight of expatriates in Europe, according to tax attorneys who listen to the woes of clients who are giving up because they see no relief in sight.
Even U.S. government employees are feeling the pinch in countries with strong currencies like the Czech Republic, where the koruna has gained 17% this year against the dollar. Radio Free Europe, the U.S.-backed international broadcaster headquartered in Prague, is suddenly facing a housing crisis for many of its 500 employees. And the news organization’s new chief executive, Jeffrey Gedmin, ranks the weak dollar with attacks on journalists around the world who have been kidnapped in Baghdad and jailed in Azerbaijan as one of the critical issue that it is facing.
The impact of the sagging dollar has been particularly acute for expatriates who live on fixed pensions paid in dollars or self-employed workers whose clients are largely based in the U.S. Josh Soski moved from San Francisco to Barcelona in September to start a freelance video production company that supplies clients like Current TV in the U.S. with short video features on European stories. These days, he said, he finds himself sitting on his bed, with his head in his hands, obsessively checking currency rates on his laptop. “They pay us $2,500 for a piece, and you cash it in and it is €1,400 or less. That’s shocking,” said Soskin. To survive and hedge currencies, Soskin is now scouting for European clients who will pay him in euros. Other self-employed workers – from medical translators to online entrepreneurs – are simply cutting off their American clients because it is no longer worth working for them.
Many companies with American executives posted abroad are starting to seek advice on how to deal with currency depreciation, according to Achim Mossman, managing director for international executive services for KPMG, a tax advisory firm. In the future, he expects more American companies to pay their employees abroad with local currency, and he is also advising companies to follow calculated formulas to measure the cost of living standards to make salary adjustments. Some employees have successfully pressed their companies to shift from dollars to local currencies.
Nevins, who was paid in dollars while living in Paris, changed her income to pounds when she moved to London earlier this year. But she still cannot resist making constant mental calculations to measure the price of everyday purchases in London. “Everything from a cup of coffee to going to the movies is so much higher,” she said. “An adult movie ticket can range up to $26 and in terms of the holiday season, my boyfriend and I are doing all our shopping online in the United States. We’re not thinking of shopping here.”
That kind of currency fever invades daily thinking, according to some expatriates, who cope by not thinking about exchanges. Others say the downward spiral has become a basic part of life. One expatriate from Madrid recently received an e-mail from a relative in Costa Rica who wrote about the tragic circumstances surrounding the fatal heart attack of a cousin and the cremation of her remains. And then the correspondent closed with a simple last line, “And also, as normal, the dollar fell today against the colon.”Link here.
FATWA AGAINST THE DOLLAR?
Out of control booms in the Petrodollar states are forcing them to reevaluate their dollar pegs.
For all intents and purposes, the Wahabi religious establishment of Saudi Arabia has just issued a fatwa against the U.S. dollar. This bears watching.
While it does not vilify the dollar explicitly, the apparent political aim is to undermine the country’s dollar peg.
“The rulers should seek to try to remedy this crisis in a way that would ease people’s suffering,” the statement said. “We direct this message to the rulers and officials: we remind you of Prophet Mohammad’s words that you are shepherds who are responsible for your flock.”
The statement was posted across the Islamic world. The background to this has been a raging debate in Gulf religious and economic circles about the destructive effects of the sliding dollar. Among the lead-authors is Sheikh Nasser al-Omar, known for his fatwa against U.S.-led forces in Iraq. He has long preached the collapse of American-led capitalism, and now sees a perfect moment to plunge the knife. We can guess that al-Qaeda is thinking along the same lines.
My own hunch is that the next al-Qaeda strike will not be a symbolic blow to a great building or city, but rather a carefully-timed economic blow – either by cutting, or trying to cut, the oil jugular, or by trying to precipitate a run on the dollar.
The Gulf pegs are preventing the region from taking action to stop the oil boom spiralling out of control. Half the Mid-East is now overheating. Property booms have reached unstable extremes in almost all the oil states. Construction has become maniacal.
CPI inflation is 5.35% in Saudi Arabia, the highest in over 10 years. It has reached 10.1% in the UAE and 12.2% in Qatar. The dollar pegs – designed to anchor the currencies – are now forcing the Petrodollar economies to import U.S. devaluation and monetary stimulus. What has been a simmering problem for over a year, has become untenable since the Federal Reserve began slashing interest rates.
The Gulf has roughly $3.5 trillion under management in wealth funds and central banks, so a dollar shift makes waves. Qatar has already slashed the dollar holding of its future generation fund from 98% to 40%.
Stephen Lewis, global strategist at Insinger de Beaufort, said the Fatwa was ominous. “The Saudi government has been the one institution in the region battling to preserve the oil link with the dollar. If these clerics are able to wear down Saudi resistance, this could breach the bulwark. The dollar would quite likely be abandoned as the chief currency for pricing oil in world markets,” he said.
If the Mid-East breaks the pegs, a chain reaction threatens to follow across Asia. China now has 6.9% inflation. It may have to ditch its cheap yuan policy soon enough anyway, or face the sort of double digit rises that destroy regimes.
The Saudi royal family rules by a delicate compromise. Although pro-Western in military and economic alliances, it relies on the endorsement of the Wahabi clerics as a key source of legitimacy. Reluctance to confront this menacing bloc is the main reason why Riyadh tolerated – and helped – the Bin Laden network for so long.
The statement called on the Saudis to take action to stop food price soaring to fresh highs, if necessary with subsidies on key staples.
As the Fed cuts rates ever further to the cushion U.S. property crash bites, Mid-East inflation will go from bad to seriously ugly with the policies now in place. The Saudis, Qataris, and Emirates have all said they will preserve the pegs. But fatwas tend to up the ante.Link here.
MONEY POURS INTO MONACO AND ANDORRA BANKS
Monaco and Andorra – Europe’s top two tax havens – are seeing an influx of funds to their banks, despite governments worldwide actively trying to stop their citizens using tax havens to bank their money. Monaco is attracting money from wealthy individuals seeking a degree of privacy, and keeping their assets away from the clutches of their governments, at record levels with most of the money coming from the Middle East and Europe.
While the banks will not disclose the volume of money they have attracted recently, some industry analysts estimate it could be as much as €20 billion over the last 18 months, with €70 billion in total managed assets overall. Over the last year and a half some of the big names in the banking and finance industries have set up offices in Monaco, including Goldman Sachs. Monaco hopes to double the amount of assets in her banks in the coming years.
Europe’s other tax haven Andorra has also seen an increase in interest. With tax havens attracting high volumes of funds it makes them less likely to co-operate with the OECD, who tries to police money worldwide.
One company who specializes in European tax havens thinks that the OECD is wrong to assume that the money being deposited in Andorra and Monaco banks is by people simply wanting to keep their money offshore – it is also due to high net worth individuals taking up Monaco and Andorra residency.
The source said, “The number of people who have moved themselves as well as their money offshore has been rising over the last ten years, and in particular the number of UK ctizens moving to Andorra and Monaco has been high in the last two to three years, and their combined assets are significant. Taxes in the UK for example have been increasing, and it’s no coincidence that while this has been happening so have the number of Britons moving out of the country. Rather than trying to dissuade people from doing so by painting tax havens as the villains they would get better results if they reduced direct and indirect taxes at home, negating the need to consider a tax haven in the first place.”
Evidence of the rising number of arrivals in Monaco for her tax haven status is the local property market, whose property is on a par with London as the most expensive in Europe. And recent economic activity in Monaco includes the sale of one of the well known Monaco hotels – the Fairmont – showing that Monaco is also able to attract investment in non-financial services industries.
Some Monaco real estate agents suggesting that around40% of their enquiries now come from the UK. The top tax rate in the UK has been 40% for some years now, but an increase in the number of indirect taxes – or stealth taxes, as they are popularly known – often means a tax take of over 50% for high earners.
Both Andorra and Monaco are in the process of making infrastructure improvements. Andorra has invested heavily in road improvements for her ski tourism industry and several new hotels in Andorra have appeared in recent years. Earlier this year an announcement was made by the Andorra government that they had reached agreement with Spain to build a new airport 15 minutes from the border, which will cut traveling time significantly. Currently, the nearest airport is in Barcelona. The new airport could entice tax exiles away from Monaco to lower priced Andorra.
Monaco meanwhile is building an island off Monte Carlo which will include new housing for an estimated 4000 new residents, and will include new Monaco hotels and a university. Andorra property prices start at around €250,000 for a good 2-bedroom apartment. In Monaco, prices are considerably higher, with one bedroom apartments regularly changing owner at over €1 million.Link here.
IMF COMMENTS ON CONCLUSION OF ARTICLE IV CONSULTATION WITH COSTA RICA
An IMF staff mission led by Mr. Dominique Desruelle, Chief of the Central America Division in the Western Hemisphere Department, issued a statement late last week, reporting on the findings of its Article IV Consultation with Costa Rica.
The statement announced, “Benefiting from the authorities’ sound economic policies, Costa Rica’s economy has continued to grow rapidly over the past 12 months but headline inflation remains high, partly caused by high international oil and food prices.
“The strong economic performance has been driven by both private consumption and investment as well as external demand. Exports have increased substantially despite some appreciation of the real exchange rate, indicating that the economy remains competitive. However, there are signs that the economy may be overheating such as labor market pressures, rapid growth of consumer goods imports, and persistently high inflation of non-tradable goods. ...
“For 2008, economic growth is expected to revert to a rate of around 5 percent, in line with potential growth. This growth outlook is predicated on a U.S. slowdown and a moderate reduction in world growth. The authorities and the mission concurred on the need to pay close attention to changes in the global outlook, which has become subject to greater risks.”
Touching on several other key issues – such as external trading and ways of tackling inflation, the IMF statement concluded, “The mission agreed with the authorities on the need for further financial sector reform. It also shared the authorities’ concern about rapid credit growth, which will require continued close monitoring.”Link here.
NEVIS ECONOMY SHOWS GOOD PERFORMANCE IN 2007
Laurie Lawrence, Financial Secretary in the Nevis Island Administration, has revealed that the island’s economy performed well in 2007, and that the upcoming budget will focus on privatization initiatives in a bid to accelerate growth in future years. However, he conceded that the government’s debt is unlikely to be eradicated in the near future.
“The economy has been doing quite well,” he said. “The financial situation is still quite sound. For instance, if you compare up to November of this year with the same period of last year, you would find that we have increased our current revenue by about eight percent and last year during that same period, while we had a deficit of about EC$2.9 million on the current account, this year we actually have a surplus on the current account of EC$5.4 million.”
Lawrence is of the view that the private sector should be the engine of growth in any economy and suggested that Nevis is no exception. He said that the concessions given to the private sector had created increased economic activity, which had also resulted in improved revenue for the government. He announced that the 2008 Budget would focus on entrepreneurship. “We need the private sector now to start to take up the slack to relieve some of the pressure from government and the budget for next year is going to focus a lot on private sector expansion,” Lawrence stated.
Another area discussed by Mr. Lawrence was government debt. He explained that debts had been incurred from capital projects such as infrastructure development, but noted that once there was a surplus on the current side of the budget, the country’s debt would be manageable. “We could never really get rid of debt in small islands. The whole idea of debt is to keep it under control to try to keep it within a certain threshold and I believe with the private sector expansion we will be in a much better position to do that,” he concluded.Link here.
CURACAO CITIZENS STAGE MASS DEMONSTRATIONS AGAINST DUTCH REASSIMILATION
Mass demonstrations against the ongoing process of restructuring relations with the Netherlands have continued on the Dutch Caribbean island of Curacao. Under the leadership of all the opposition parties on the island, several thousand people marched into the old town of Willemstad, demanding a halt to the process, arguing that this is not what the people wanted, and not what they voted for in a referendum in 2005. The demonstrators also criticized the management of the island by the government.
Despite the warning issued by the U.S. and the main coalition party that the demonstration could get out of hand, it was a peaceful and orderly demonstration by hundreds of people with banners showing their dissatisfaction and singing the national anthem and slogans. After the march, the crowd gathered at one of the main squares to listen to the opposition leaders and to the protest songs.
Among the speakers was Oscar Semerel, a union leader pleading for unity against Holland. Two petitions have been accepted by acclamation by the protesters. The first petition concerned the worsening social and economic situation on the island and demanded the government to act against the rocketing prizes of basic food and energy, youth unemployment, cost of schooling, challenging equal access to education and children’s rights, and the abuse of the labor force.
The second petition demanded freezing of the constitutional restructuring process and realization of a broad sustainability in the community to achieve an autonomous status for the island as country within the Kingdom of the Netherlands, at least equaling neighboring Aruba. Also demanded was the immediate transfer of all responsibilities of the federal government to the island.
Since the whole process of restructuring the constitutional status of the island involves bringing back several aspects of the island such as finance and justice back under Dutch control, the protestors say it is time for the United Nations to look into this process and make sure that the islands are not being recolonized.Link here.
VENEZUELA REVIEWS ITS CITIZENS’ USE OF U.S. DOLLAR WITHDRAWALS ABROAD
With a goal to put an end to the so-called “unlawful” use of the U.S. dollars each Venezuelan citizen is allowed to spend on a yearly basis during travels abroad, the chair of the Foreign Exchange Administration Board (Cadivi) Manuel Barroso launched an operation to monitor cash withdrawals of U.S. dollars abroad, even though there is not a clear definition of the related offenses.
First, some 30,000 travelers have to produce evidence of the way they spent the U.S. dollars they purchased at the official exchange rate of VEB2,150 per U.S. dollar. Travelers will even have to account for the $500 they are allowed to withdraw from ATMs on a monthly basis. But what happens if the traveler did not spend all the money? What happens if travelers kept all of the money? Will they be forced to return the foreign currency? Will fines be imposed? “When people travel, the foreign currency they buy is intended for expenses precisely, but it is quite possible that they have some money left, and that is normal,” said Barroso.
He added, however, that they have detected “some deviations. For example, one person withdraws USD500 on the 30th day of the month, and withdraws another USD500 on the first day of the next month, and then goes back (to Venezuela) in the afternoon that day. This is perverse.”
When asked if keeping a part of the foreign currency purchased for travels was a crime, Barroso replied that Cadivi, whenever it deems that the laws have been infringed, is forwarding the relevant documentation to “the General Direction of Inspection and Monitoring of the Ministry of Finance, which is the body with the capacity to impose sanctions.”
The rule governing the use of foreign currency in travels abroad only establishes that “the user shall buy USD500 a month for cash withdrawals in foreign currency, and he can obtain such amount of money only from ATMs abroad.”
Besides cash withdrawals of foreign currency, Venezuelans are allowed to buy $5,000 a year for travels abroad. This sum can only be spent with credit cards. Through December 6, consumptions with credit cards abroad amounted to $4.12 billion, or 90% higher than the amount of U.S. dollars allocated for food imports.Link here.
BRITISH TERRITORIES IN TROUBLE OVER ANNUAL REPORTS, OR LACK THEREOF
The last time the Cayman Islands submitted an annual report was in 2003. The U.K. National Audit Office says that this is one of the better performing British Territories in terms of robust regulatory frameworks. Delivering punctual audit reports and keeping government departments in check is by no means easy in the tropical idylls.
In the 10 years since the last study was launched into the territories’ public sector watchdogs, accounts committees in many of these places still struggle to provide effective, apolitical and timely scrutiny of the executive, the NAO has said. With the exception of The Falklands and The Pitcairns, none of the 11 territories which have permanent populations submitted their last set of figures more recently than December 2005. The Caymans are something of a special case because the Public Accounts Committee has to sign off on their numbers, but it took until November 2006 for the accounts to be released by the PAC.
An acute shortage of capacity in bookkeeping and basic accounting skills, coupled with “inertia or complacency on the part of responsible officials” has made the situation even worse in some areas. The Acting Auditor General of the British Virgin Islands estimated her staffing levels were one third below what they needed to be.
Of the 11 territories monitored by the foreign office, Bermuda, The Caymans, the British Virgin Islands, Gibraltar, the Turks and Caicos Islands, Anguilla and Montserrat are highlighted by the NAO as being globally important offshore financial centers, but the aforementioned lack of capacity has some side effects.
“The capacity limitations in the offshore financial sector have stunted the Territories’ ability to investigate suspicious activity reports,” the NAO said. So attempts to stamp out money laundering, which, whether they like it or not, is associated with offshore centers, is being hampered by the territories’ lack of accounting expertise.
Foreign office chiefs have been urged by the NAO to work alongside the Treasury, the FSA and the Serious Organized Crime Agency to beef up regulatory standards.Link here.
EUROPEAN ONLINE GAMBLING COMPANIES LOSE BET ON U.S. LEGALIZATION
E.U. backs off on WTO dispute over the issue, after U.S. buys it off.
Online gambling firms were dealt a big blow after Europe agreed to settle a trade dispute that could have forced the U.S. to legalize internet betting. European online gambling sites, which had to fold their cards in the U.S. last year when Congress passed legislation to crack down on betting over the Web, had claimed they were owed $100 billion in lost profit potential.
The Internet gambling industry was betting the trade war would lead to legally recognized gambling in the U.S. – the largest market for online betting – and allow the sites to open up shop again. But the odds of that happening look a lot less likely now that the E.U. has decided to drop the issue in exchange for favorable trade opportunities in other industries, including sectors such as mail and courier services, research and development and storage.
Hundreds of online gambling sites still operate in the U.S. But last year’s stepped-up bid by the authorities to stamp out online gambling led legitimate companies such as BetonSports, PartyGaming, and 888 Holdings to close shop in the U.S., wiping out billions from their stock market values. The Poker Players Alliance, a Washington lobbying group, is still hopeful Congress will make online gambling in the U.S. legit and regulated.
The E.U., Canada and Japan each reached agreements with the U.S. on the issue. Still left to settle is Antigua. The international trade dispute erupted when the tiny island nation claimed the U.S. violated its international treaty commitments by going after offshore online gambling outfits without cracking down on American operators offering remote betting on horse and dog racing. The WTO agreed.
In response, the U.S. removed internet gambling from its WTO treaty obligations, raising the ire of much bigger trading partners, including the E.U. European online gambling companies had hoped the WTO dispute started by Antigua would get them back in the U.S. market. The E.U.’s decision to settle disappointed those hopes.Link here.
Antigua in the cold after E.U./U.S. gaming deal.
The on-line gaming sector, which had been hoping for a positive resolution to its WTO spat with the U.S. over legislation which bans internet gaming transactions, was disappointed this week when the E.U. reached a deal with the USA in compensation negotiations at the WTO in Geneva. The E.C. accepted a U.S. offer of openings in other sectors as compensation. The deal between the E.U. and the U.S. was probably cut in November when E.U. Trade Commissioner Peter Mandelson visited Washington for meetings on "Transatlantic Economic Cooperation."
Canada and Japan have apparently also accepted similar U.S. offers, and the office of the USTR said it hoped that India, Costa Rica and Macau would fall in line as well. This leaves Antigua and Barbuda, which brought the original complaint to the WTO, rather isolated, since it has little trade with the U.S. and cannot benefit from trade-related offers of compensation. It has asked the WTO for permission to retaliate against the U.S. by suspending intellectual property laws, permitting it to sell $3.4 billion worth of American content a year on world markets.
Neogtiations between the U.S. and Antigua are continuing this week, but if no deal is reached, Antigua has 45 days to ask for binding arbitration from the WTO. However, it will not be encouraged by what happened last year after the WTO ruled against the U.S., only to have the U.S. renege on its WTO obligations – and it is this that opened the country up to compensation claims from other WTO members.
Representative Barney Frank (D-Massachusetts) has been leading so far unsuccessful efforts in the Congress to modify the Unlawful Internet Gambling Enforcement Act, passed in 2006, which prohibits the use of payment instruments by financial institutions to handle the processing of any form of internet gambling that is illegal under US federal or state law. It was this law which led to the collapse of many global gaming operations.
“The existing legislation is an inappropriate interference on the personal freedom of Americans and this interference should be undone,” said. Rep. Frank, who is Chairman of the House Financial Services Committee. The bill has floundered so far.Link here.
POLLUTION IN INDIA AND CHINA, AND THE U.S.
But with big problems come big opportunities.
“Walking in this climate is such gentle agony,” wrote Guido Gozzano to open his book on India, Journey Toward the Cradle of Mankind. Gozzano (1883-1916), a distinguished Italian poet, visited India in 1912. He spent six weeks on the subcontinent and wrote letters about his travels. He made many observations about the heat. “Never have I been so glad not to be overweight in this climate,” he wrote. “India is truly infernal for anyone with a few extra pounds.” Later, he went on to write about how the heat “creates mirages, dissolves in the air, makes it quiver and flutter on the horizon.”
Wonder what Gozzano would make of India today, where on most days you cannot even see the horizon. It is still hot as hell and humid in Bombay, for example, where many travelers begin their tour of India. (I know the official name is Mumbai, but I found almost all the locals kept referring to the city as Bombay. Plus, the name Bombay conjures up all those familiar images of a long ago past).
Today, the soupy thick smog of pollution makes the air even worse. Visibility is incredibly poor most of the time. For days, I never saw the sun except blurred through a gray screen of smog. You could smell the pollution when you landed and when you stepped outside, and in some places – say, near a standing body of water – the air is so foul, even some locals cover their noses as they walk by.
It is more than just an anecdote about India, or some irritant for travelers. It is a serious health issue for the people living there. According to In Spite of the Gods, Edward Luce’s excellent book on India, air pollution causes about 1/8 of premature deaths in India. Hundreds of thousands of children die due to exposure to contaminated water.
Of course, China, the other big rapidly industrializing nation on the stage, has big problems with pollution of all kinds, too. Air quality in China is awful. I spent some time in China in 2005, and I remember the stink when I opened my suitcase back home. It smelled like I had lived in a bar for three weeks.
Robyn Meredith, in her recent book on China and India, titled The Elephant and the Dragon, also comments on China’s poor air quality. She writes one section from the city of Chongqing, an industrial city of 30 million people. (For perspective, that is about the number of people that live in the whole state of California.) “Sunlight barely reaches the ground, dimmed by thick, gray smog,” she writes. “Skyscrapers just three blocks away are mere outlines because of the air pollution.” Meredith cites the World Health Organization, which says that 200 cities in China fail to meet WHO standards for airborne particulates that cause respiratory diseases. “All but two of the world’s 20 most polluted cities are in India or China.”
You get the idea ... The rapid rise of China and India has come with a cost of serious environmental damage, on many levels. But the governments know about the problem. Things are starting to change. Delhi was the worst polluted city in the world in 2004, but the government has since taken steps to clean it up. Today, all buses run on natural gas, for example.
In China, too, officials are pushing companies to adopt greener methods. A recent story from the Wall Street Journal talked about some of China’s new tougher stance: “Worried that China’s boom is bringing with it supply gluts and high pollution, the government has spent the year trying to rein in the expansion of many industries.” Another recent headline reads, “China Shifts Pollution Fight, New Rules Target Export Industry With Stiff Penalties.”
So let us recap. There is clearly a big problem. We also have some action and policies mandating cleanup and imposing clean air standards. The whole issue is also starting to attract some serious money. As big of a problem as pollution is, I am betting there are some fortunes out there for those who have good solutions.
It is also not just an issue in these rapidly industrializing countries. Look at the biggest economy of them all, the U.S. “Green” is in. The global warming issue – regardless of what you think of its merits – is a popular one with voters. So politicians need green credentials. That means pushing forward measures to reduce carbon emissions, for instance.
There has already been growing opposition to building new coal plants. Utilities have already shelved a number of these projects. Others are in the process of hashing out deals with state and federal regulators. Coal provides about half of our electricity. And coal is a dirty fuel in the eyes of the greenies, who fret about the emission of carbon dioxides (so-called greenhouse gases) and other pollutants.
So basically, the utility industry is under siege. It can only do so much with alternative energy. The nation is not going to get the bulk of its electricity from wind, solar or nuclear power anytime soon. Coal is still king. And utilities must find a way to work with it.
Complying with clean air regulations will cost a bundle. The Environmental Protection Agency estimates that the power industry will spend $2.7-6.1 billion annually between 2010-2020 to comply with the clean air regulations. Those figures will probably prove conservative.
This is the overwhelming issue facing the power industry today: reducing its carbon emissions. This is a difficult issue to tackle and may take some time before real change occurs. Keep looking into this area of the world and you will notice that change will have to come before things get too far out of hand.Link here.
RUSSIA CREATES LIST OF OFFSHORE TERRITORIES NOT QUALIFYING FOR DIVIDEND TAX EXEMPTION
Russia’s Finance Ministry promulgated a list of offshore territories, registration in which will prohibit companies from taking advantage of tax-free dividend transfers to Russia. The Finance Ministry’s list of 41 offshore territories could be attributed to amendments to the Tax Code scheduled to take effect January 1, 2008. The amendments set a zero tax rate for the dividend profit generated by companies from interest in the capital of other organizations (i.e., their subsidiaries). So far, the respective tax rate has been 9% and even 15%, should a foreign company pay the dividend.
The exemption from taxation was initiated by President Vladimir Putin, in order to create incentives for stationing holdings in Russia. When executing this order, the government and the State Duma conditioned tax benefits on a number of terms. To be exempt from the tax, a holding is to have a stake in the authorized capital of the company paying the dividend of at least 500 million rubles (over $20 million). Moreover, this company should not be incorporated in any of offshore territories. The list was compiled based on two criteria – the country’s refusal to provide data on financial transactions and the profit tax that is one-third less than in Russia (24%).
The list does not mention offshore territories as the Seychelles and Barbados, but this omission is of no practical significance. Setting the minimum at 500 million rubles narrows the list of benefiting firms to the biggest companies that are usually affiliated with the government. But these giants will hardly use little-known offshore territories to avoid taxes. In the near future, the analysts speculate, big money will mostly go via Luxemburg, Holland, Austria and Britain – which are not specified in the list.Link here.
U.S. TREASURY PUBLISHES STUDY ON IMPROVING BUSINESS TAX COMPETITIVENESS
The U.S. Treasury Department last week released a study on business taxation and global competitiveness. The study outlines broad approaches to reform meant to inform the public policy debate on the issue, and iss a follow up to the July conference on business taxes that was hosted by Treasury Secretary, Henry Paulson. The study covers three proposed approaches which would improve the competitiveness of the U.S. Business Tax System in the 21st Century:
Assistant. Secretary for Tax Policy, Eric Solomon commented, on the publication of the study, “To maintain the competitiveness of U.S. businesses and U.S. workers in a global economy, an examination of our business tax system in the context of the global marketplace is overdue. As we continue our work on this important issue, we look forward to discussions with Congress, the business community, and other policy makers.”Link here.
CANADA ENACTS BROAD-BASED TAX RELIEF
Canadian Finance Minister Jim Flaherty has announced that the final 2007 budget implementation bill has received Royal Assent. “Our government is establishing a proud legacy of tax relief for all Canadians,” Flaherty stated. “Since coming to office nearly two years ago, we have reduced the overall tax burden by about C$190 billion, bringing taxes to their lowest level in nearly half a century.”
As a result of the package, Canadian businesses will also benefit from a variety tax relief measures. The bill will also eliminate withholding tax on arm’s length outbound interest payments to residents of all countries effective January 1, 2008. This major step forward in Canada’s international tax policy will increase access to foreign capital markets and reduce costs for Canadians and Canadian businesses that borrow from foreign lenders.
Individual benefits from the bill include an additional 1% reduction in the goods and services tax rate, reducing it to 5% from 6% effective January 1, 2008, and a reduction in the lowest personal income tax rate from 15.5% to 15% retroactive to January 1, 2007.Link here.
Companies have been leaving Canada because of tax laws, claims Deloitte.
British Columbia has already lost several potential anchor companies in its technology and biotechnology sector thanks to Canada’s unfavorable tax environment, says a financial expert working in the area. “I serve clients in both technology and biotechnology and in the past two years probably half a dozen of those had to move to the States to attract the next round of financing,” said Paul Fletcher, a Vancouver partner with Deloitte, which released a report this week called “Global Trends in Venture Capital 2007”. “That means moving significant jobs, the management teams and what have you closer to where the investor is . ... There may be a small development team left behind.”
Some 40% of respondents to Deloitte’s survey from the U.S. and 28% of global respondents said Canada’s tax laws are a barrier to investing here. That level of concern was five times higher than the area with the 2nd-worst ranking. 8% of U.S. venture capitalists listed a European area including Germany, Austria, Switzerland and Liechtenstein as having an “unfavorable tax environment.” Among all countries, 28% cited Canada as an unfavorable tax area, compared to 12% for second-ranked Germany, Austria, Switzerland and Liechtenstein.
In some other respects, Canada fared relatively well. Global investors viewed Canada as having lower legal costs and regulatory compliance costs than the U.S. It also fared better than China and India on issues relating to intellectual property laws and effective regulation. Among U.S. companies, Canada was ranked 3rd, behind China and India, as a likely place to expand.
In B.C., Deloitte’s Fletcher listed Neuromed Pharmaceuticals, a University of B.C. spinoff that is developing next-generation drugs to treat chronic pain, as an up and coming company that has had to branch out into the U.S. “You’re turning Canada into a back office or just a [research and development] shop for what have become American companies,” said Fletcher.
Fletcher said while companies can get early financing in Canada, as they develop and they need to seek further rounds of investment, they must go outside Canada. U.S. investors do not want to get caught up in the red tape and tax implications governing Canadian businesses.
“Deloitte’s groundbreaking study confirms what many U.S. and global venture capitalists have long known – that Canada may have the most unfavorable tax environment for foreign VC investment in the industrialized world,” said Stephen Hurwitz, a Boston lawyer with Choate Hall & Stewart, who has long lobbied for changes in Canadian laws for U.S. and other foreign investors.
Venture capital investment in Canada has fallen from $3.1 billion in 2002 to $1.6 billion in 2006 and $852 million through September this year.Link here.
SWISS CANTON OF OBWALDEN VOTES FOR FLAT INDIVIDUAL INCOME TAX
Obwalden has become the first canton to adopt a flat rate of tax for individual income taxpayers, following a recent cantonal referendum. Obwalden’s authorities announced the decision to put in place a flat tax after 90% of the canton’s electorate voted in favor of the proposal.
Obwalden had been forced to review its tax system following a complaint from Socialist Party deputy Josef Zisyadis that reforms put in place in January 2006 had created a regressive tax system, where wealthy taxpayers paid a lower tax rate than those on lower incomes, and which was therefore unconstitutional. Zisyadis succeeded in getting the tax overturned by the Federal Tribunal in Lausanne in June, stating at the time that the court’s decision had “put a brake on the fiscal cannibalism between the cantons.”
After a referendum in 2005, Obwalden, a tiny mountainous region in the centre of Switzerland, brought in an income tax law which cut tax for those earning more than CHF300,000 per year to 1% from 2.35%. Individuals earning up to CHF70,000 paid 8% and those with income up to CHF300,000 paid up to 6%. At the same time, Obwalden also cut corporate tax to 6.6%, making it one of the lowest rates in Switzerland.
Obwalden’s tax reforms also prompted other cantons to respond with tax cuts of their own. This prompted complaints from those on the left that some cantons were engaged in a “race to the bottom” on taxation that would eventually endanger the viability of public finances. The cantonal tax system has also come under attack from the European Commission, which is attempting to make Switzerland change aspects of its corporate tax regime designed to attract holding companies to the jurisdiction.Link here.
BERMUDA BATTLES CAYMANS FOR OFFSHORE HEDGE FUNDS’ BUSINESS
Caymans’ head start makes the job tougher.
The pastel-colored buildings lining Bermuda’s main commercial district are home to thousands of the world’s top hedge funds. But the British colony has been struggling to catch up to its Caribbean cousins, the Caymans and British Virgin Islands, in the race for the $2 trillion hedge fund industry’s fast-growing offshore business.
That could soon change, said Cheryl Packwood, a U.S.-trained lawyer who as chief executive of the Bermuda International Business Association heads the campaign to attract hedge funds. In the next 12 months, the 22-square-mile land of pink beaches and rolling golf courses expects to raise the number of registered funds by 50% to 3,000, she said.
While Bermuda dominates the offshore insurance industry, the Cayman Islands is the epicenter for hedge funds, with about 9,000 of these loosely regulated investments registered in the British territory. But Bermudahas recently made registration quicker, easier and cheaper. It also touts its proximity to the U.S. – only a 2-hour flight from New York, while a trip to Caymans is much longer and often involves a stopover in Florida – and its fewer direct hurricane hits than Grand Cayman.
Managers who invest for foreigners or tax-exempt U.S. clients, such as pension funds and colleges, are attracted to offshore centers because costs are lower and regulatory requirements less stringent than in the U.S. In return, hedge funds bring lucrative business to the offshore centers at a time when many islands are trying to diversify revenue away from tourism.
Bermuda’s primary targets are in Europe, the Middle East and Asia, said Ms. Packwood. U.S.-managed funds are welcome, but tougher to lure. “It has a lot to do with tradition,” said attorney Sarah Moule of Appleby, a law firm that specializes in offshore services. For years, U.S. lawyers have urged hedge funds to set up in the Caymans, she said. Lawyers say they have not even considered Bermuda as an alternative.
However, the Caymans occasionally suffer from a reputation of relaxed oversight, thanks to several recent hedge fund collapses. And the 1993 Hollywood movie The Firm is about a law firm whose nefarious activities include money-laundering in the Caymans. Cayman regulators say that image is unfair. “We do everything we can to combat that,” Yolanda McCoy, head of investments and securities at the Cayman Islands Monetary Authority, said of financial irregularities.
Bermuda’s backers hope its comparatively clean image can draw in funds, but the colony is not without scandals. Dutch businessman and oil tycoon John Deuss stepped down as chairman and CEO of Bermuda Commercial Bank last year following news that the company’s leading shareholder, First Curacao International Bank, was under investigation for money laundering.
Bermuda’s lawyers, accountants and fund administrators point to a string of factors that they say give them credibility as a reputable and attractive offshore center.
Still, Bermuda’s fight for hedge funds will not be easy. “It will be tough for Bermuda because the Caymans law firms have just done such a good job in selling themselves to us," said Ron Geffner, a partner with New York-based law firm Sadis & Goldberg, which set up hundreds of new funds and has generally preferred to go to the Caymans. “There are years and years of built-up relations, and there is a sense that if the relationship is not broken, then don’t fix it.”Link here.
LABUAN OFFSHORE FINANCIAL SERVICES AUTHORITY AIMS TO INCREASE COMPANY REGISTRATIONS
LOFSA aims to increase the number of offshore companies operating in Labuan by 50% over the next year, from about 6,000 currently. Director-general Datuk Azizan Abdul Rahman said various ongoing efforts to promote Labuan International Offshore Financial Center (IOFC) as a preferred financial hub included a rebranding exercise to be announced next month.
“Over a five-year period, we hope to increase the number of offshore companies in Labuan to 50,000,” he told reporters after the Investment Opportunities through Labuan IOFC forum organized by LOFSA. According to Azizan, the rebranding exercise followed a study undertaken early this year to reevaluate Labuan IOFC against other financial offshore centers. He declined to comment on whether the rebranding would involve a change in name and logo.
“Labuan needs to be more visible not only to international investors but also to Malaysian companies that have financial operations overseas,” Azizan said. He added that of the 6,000+ offshore companies, which consist of banks, insurance, leasing and trust companies from over 80 countries, 900 were Malaysian-owned.
Other recommendations by the study include improvement of the information and communications technology infrastructure for delivery systems and enhancement of the legislative framework with the assistance of legal consultants. Azizan added that LOFSA was also in talks with consultants on ways to increase visibility of and draw companies to list on the Labuan International Financial Exchange where 44 companies were now listed.Link here.
Investments pay you each month. Homes do not.
Once upon a time, a house was just the place you lived. But once The Maestro (a.k.a. Alan Greenspan) stepped on the monetary gas back in 2001 and 2002, houses went from being shelter and expenses to investment vehicles. “Working on the problem like a gorilla trying to do long division,” writes Bill Bonner and Lila Rajiva, “our plebe realized he’d got it all wrong. His house was not a dwelling at all, but an investment!” So that cozy little place we parked our car and rested our head, took off in price like a rocket, increasing 20% a year between 2002 and 2006 in some cities. And nothing makes you smarter than having your investments go up in value. After all, you were smart to buy the house in the first place. And since you live there, it is worth more than any other house on the block.
But when it comes to housing it is not a man’s world. Women dominate housing decisions. There are not millions of guys out there pining for new homes. But, there are millions of women who are. The only ones who are not just moved into a new home. But even these women will be thinking about their next dream home within 30 days. The ones with good sense will wait a while before they say, “Honey, in our next house, I think we should get ...”
Ah, but the bloom is off this housing-market rose. However, that does not mean that significant other of yours has given up on moving into that next dream house. Unfortunately, unloading the current dream seems to be mission impossible. Anyone who watched his obnoxious neighbor, who used to live down the street, sell out for peak prices in 2005, cannot bear to accept a lower price than what that S.O.B. got. Even though you were never in his home, you know your house is better.
Most working stiffs do not trade assets for a living. They trade their time and talent for a paycheck. There are very few people mentally equipped to buy and sell investments profitably. And now houses are investments. One young professional asking my advice about whether he should sell his home at a loss and buy the new home his wife desired, wanted to make sure that any guy he was buying from was losing as much as he was. In her book, Overcoming 7 Deadly Sins of Trading, Ruth Barrons Roosevelt explains, “Pride is attaching your ego to the event or situation instead of simply attempting to do your best. When you bring your ego into trading, you lose twofold. You lose your money, and you lose your self-esteem.” There are plenty of people with homes for sale desperately hanging on to their self-esteem, at the expense of not being able to sell their house and find another more suitable one.
Our brains are even wired to work against us when it comes to making rational decisions about selling something like a house. Our reflexive brain, writes Jason Zweig in his book Your Money and Your Brain, responds favorably to things that are familiar. Imagine the warm feelings we have and positive stimulus we receive from our homes. This leads to what Ruth Barrons Roosevelt calls the endowment effect, when “people demand more money to give up something they already have than to buy it in the first place.”
The endowment effect, explains Roosevelt, is the result of loss aversion. “We hate to lose what we already have or had.” So homeowners have it in their heads that they had already made all that money on their homes when prices peaked a couple years ago. In fact, their friendly banker may have helped them spend that phantom gain by providing more and more leverage.
In an article asking whether homeownership may be bad for America, The Atlantic’s Clive Crook puts his finger on what homeownership really is – it makes employees less mobile. Indeed. People need reminding that homes are not investments. Investments pay you money every month. Homes are just the opposite – money pits.Link here.
PGP CREATOR DEFENDS HUSHMAIL’S TURNING UNENCRYPTED EMAIL OVER TO GOVERNMENT
Phil Zimmermann, the coder who created the Pretty Good Privacy (PGP) email encryption scheme in 1991, defended encrypted online webmail company Hushmail’s turning over of the unscrambled emails to the government when given a court order, arguing it is not reasonable to expect that online encrypted email storage is as safe as using encryption software on one’s own computer.
Zimmermann, who sits on Hushmail’s advisory board, spoke to Threat Level after we published a piece contrasting the site’s promises that it had no access to the contents of customers’ encrypted emails stored on their servers with a court case showing that the Canadian company turned over 12 CDs of readable emails to U.S. authorities. Zimmermann is also the brains behind Zfone, software that works with VoIP services to make encrypted online phone calls possible.
“If your threat model includes the government coming in with all of force of the government and compelling service provider to do things it wants them to do, then there are ways to obtain the plaintext of an email ,” Zimmermann said in a phone interview. “Just because encryption is involved, that doesn’t give you a talisman against a prosecutor. They can compel a service provider to cooperate.”
Hushmail offers two ways to use its encrypted email service – both of which Hushmail now indicates can be eavesdropped on following a court order. One, now the default, does the encryption work on Hushmail’s server and works largely like regular webmail. The second, original method uses a Java applet that runs in the user’s browser that takes care of the decryption and encryption of messages on his computer, after the user types in the right passphrase. In this case, messages reach Hushmail’s server already encrypted. The Java code also decrypts the message on the recipient’s computer, so an unencrypted copy never crosses the internet or hits Hushmails servers.
The simple webmail version exposes a user’s passkey to Hushmail briefly, explaining how the company is able to comply with legal orders served on the company for users that choose that option.
Zimmermann said there are technical ways Hushmail could unscramble a customer’s accounts, no matter which way they use Hushmail. “You could have a different, modified Java applet delivered to the user, for example,” Zimmermann said.
But there are counter-measures a user could take to prevent being served a rogue Java applet, Zimmermann said. “You could keep a digital signature of it or a cyrptographic strong hash and compare it each time, or you could keep your own copy and hopefully the copy you got before was the proper one,” Zimmermann said.
But, Zimmermann stressed, the company only undoes encryption when given a Canadian court order and is not turning over customer records wholesale to government agencies. “It would be suicidal for their business model if they did that,” Zimmermann said. “Their hearts are in the right place but there are certain kinds of attacks that are beyond the scope of their abilities to thwart. They are not a sovereign state.”
Hushmail, a longtime provider of encrypted web-based email, markets itself by saying that “not even a Hushmail employee with access to our servers can read your encrypted e-mail, since each message is uniquely encoded before it leaves your computer.” But it turns out that statement seems not to apply to individuals targeted by government agencies that are able to convince a Canadian court to serve a court order on the company.
But Zimmermann says Hushmail remains a useful tool against many other attacks, including protecting individuals from oppressive foreign governments who will have a tough time convincing a Canadian court to issue a search warrant on its behalf. “If you are in a hotel room in Khazakstan or Russia and want to check your mail and you have a laptop, you could be running the Java applet or even running it through SSL,” Zimmermann said. “The behaivor of the Hushmail servers is not going to be influenced by the local government where you are sitting in the hotel.”Link here.
FEDERAL COURT RULES MAN CANNOT BE FORCED TO DIVULGE ENCRYPTION PASSPHRASE
A federal judge in Vermont has ruled that prosecutors cannot force a criminal defendant accused of having illegal images on his hard drive to divulge his PGP (Pretty Good Privacy) passphrase. U.S. Magistrate Judge Jerome Niedermeier ruled that a man charged with transporting child pornography on his laptop across the Canadian border has a Fifth Amendment right not to turn over the passphrase to prosecutors. The Fifth Amendment protects the right to avoid self-incrimination.
Niedermeier tossed out a grand jury’s subpoena that directed Sebastien Boucher to provide “any passwords” used with his Alienware laptop. “Compelling Boucher to enter the password forces him to produce evidence that could be used to incriminate him,” the judge wrote in an order dated November 29 that went unnoticed until this week. “Producing the password, as if it were a key to a locked container, forces Boucher to produce the contents of his laptop.”
Especially if this ruling is appealed, U.S. v. Boucher could become a landmark case. The question of whether a criminal defendant can be legally compelled to cough up his encryption passphrase remains an unsettled one, with law review articles for the last decade arguing the merits of either approach.
This debate has been one of analogy and metaphor. Prosecutors tend to view PGP passphrases as akin to someone possessing a key to a safe filled with incriminating documents. That person can, in general, be legally compelled to hand over the key. Other examples include the U.S. Supreme Court saying that defendants can be forced to provide fingerprints, blood samples, or voice recordings.
Orin Kerr, a former Justice Department prosecutor who is now a law professor at George Washington University, shares this view. Kerr acknowledges that it is a tough call, but says, “I tend to think Judge Niedermeier was wrong given the specific facts of this case.”
The alternate view elevates individual rights over prosecutorial convenience. It looks to other Supreme Court cases saying Americans cannot be forced to give “compelled testimonial communications” and argues the Fifth Amendment must apply to encryption passphrases as well. Courts already have ruled that that such protection extends to the contents of a defendant’s minds, so why should a passphrase not be shielded as well?
Judge Niedermeier took the second approach, saying that encryption keys can be “testimonial”, and even the prosecution’s alternative of asking the defendant to type in the passphrase when nobody was looking would be insufficient.
A second reason this case is unusual is that Boucher was initially arrested when customs agents stopped him and searched his laptop when he and his father crossed the border from Canada on December 17, 2006. An officer opened the laptop, accessed the files without a password or passphrase, and allegedly discovered “thousands of images of adult pornography and animation depicting adult and child pornography.”
Boucher was read his Miranda rights, waived them, and allegedly told the customs agents that he may have downloaded child pornography. But then – and this is key – the laptop was shut down after Boucher was arrested. It was not until December 26 that a Vermont Department of Corrections officer tried to access the laptop – prosecutors obtained a subpoena on December 19 – and found that the Z: drive was encrypted with PGP. (PGP sells software, including whole disk encryption and drive-specific encryption. It is unclear what exactly happened, but one likely scenario is that Boucher configured PGP to forget his passphrase, effectively re-encrypting the Z: drive, after a few hours or days had elapsed.)
According to Niedermeier’s written opinion, prosecutors sent Boucher a grand jury subpoena asking for the passwords because:
Secret Service Agent Matthew Fasvlo, who has experience and training in computer forensics, testified that it is nearly impossible to access these encrypted files without knowing the password. There are no “back doors” or secret entrances to access the files. The only way to get access without the password is to use an automated system which repeatedly guesses passwords. According to the government, the process to unlock drive Z could take years, based on efforts to unlock similarly encrypted files in another case. Despite its best efforts, to date the government has been unable to learn the password to access drive Z.
The opinion added:
If the subpoena is requesting production of the files in drive Z, the foregone conclusion doctrine does not apply. While the government has seen some of the files on drive Z, it has not viewed all or even most of them. While the government may know of the existence and location of the files it has previously viewed, it does not know of the existence of other files on drive Z that may contain incriminating material. By compelling entry of the password the government would be compelling production of all the files on drive Z, both known and unknown.
It is possible that prosecutors will be able to establish that Boucher’s laptop has child pornography on it without being able to access it. At least two federal agents looked at the laptop when the Z: drive was still unencrypted. But if this ruling in the case is eventually appealed, it could have a far-reaching impact in a pro-privacy or pro-law-enforcement direction.
Prosecutors think they can split the idea of immunity into two halves – divulging the passphrase, and then using the passphrase to decrypt the files. A 1996 article by Philip Reitinger of the Department of Justice’s computer crime section proposes a clever device for forcing a defendant to divulge a PGP passphrase and then convicting him anyway:
[E]ven if ... considerations require the government to grant act-of-production immunity to compel production of a key, the scope of the immunity should be quite narrow. The contents of the key are not privileged, and it is the contents that will be used to decrypt a document. Therefore, the government can use the contents of the decrypted document without impediment. Unless the government cannot authenticate the document to be decrypted without using the act of production of the key, granting act-of-production immunity should have little effect.
Translation: Giving a defendant limited immunity in terms of forcing them to turn over the passphrase can lead to a conviction. That is because the fellow technically is not being convicted based on his passphrase. He is being convicted for what it unlocks. Isn’t the law grand?Link here.
THE LAWLESS SURVEILLANCE STATE
Congress exists as a vital enabling arm of the most extreme abuses of the Bush administration.
There are several vital points raised by the new revelations in The New York Times that “the N.S.A.’s reliance on telecommunications companies is broader and deeper than ever before” and includes both pre-9/11 efforts to tap without warrants into the nation’s domestic communications network as well as the collection of vast telephone records of American citizens in the name of the War on Drugs. The Executive Branch and the largest telecommunications companies work in virtually complete secrecy – with no oversight and no notion of legal limits – to spy on Americans, on our own soil, at will.
More than anything else, what these revelations highlight – yet again – is that the U.S. has become precisely the kind of surveillance state that we were always told was the hallmark of tyrannical societies, with literally no limits on the government’s ability or willingness to spy on its own citizens and to maintain vast dossiers on those activities. The vast bulk of those on whom the Government spies have never been accused, let alone convicted, of having done anything wrong. One can dismiss those observations as hyperbole if one likes – people want to believe that their own government is basically benevolent and “tyranny” is something that happens somewhere else – but publicly available facts simply compel the conclusion that, by definition, we live in a lawless surveillance state, and most of our political officials are indifferent to, if not supportive of, that development.
That is precisely why our political class is about to bestow amnesty on telecoms which broke multiple laws in how they enabled the government to spy on us, even though what the telecoms did – on purpose and for years – is unquestionably illegal. Our political leaders in both parties plainly want this limitless surveillance to continue, and they do not think that telecoms do anything wrong even when they work with the government in spying on Americans in ways that are against the law.
They are saying that explicitly. The legislation jointly created and about to be enacted by Jay Rockefeller, Dick Cheney, Congressional Republicans and Harry Reid – with a vital assist from the Jane-Harman-led “Blue Dogs” in the House – is all designed to conceal and protect this state of affairs and to enable it to grow.
There are literally no limits on the ways in which the Federal Government, working hand-in-hand with the largest private corporations, spies on American citizens and maintains files on what we do, where we go, with whom we communicate. These secret, unchecked spying programs reach into virtually every realm.
As Dan Froomkin observed, “Historians looking back on the Bush presidency may well wonder if Congress actually existed.” In actuality, Congress exists as a vital enabling arm of the most extreme abuses of the Bush administration. Could anyone wishing to dispute that depressing fact muster any evidence at all in service of their argument? I do not believe so.Link here.
POLICE BRUTALITY CASES ON RISE SINCE 9-11
Prosecution rate is extraordinarily low.
Federal prosecutors are targeting a rising number of law enforcement officers for alleged brutality, Justice Department statistics show. The heightened prosecutions come as the nation’s largest police union fears that agencies are dropping standards to fill thousands of vacancies and “scrimping” on training.
Cases in which police, prison guards and other law enforcement authorities have used excessive force or other tactics to violate victims’ civil rights have increased 25% (281 vs. 224) from fiscal years 2001 to 2007, the department says. During the same period, the DoJ says it won 53% more convictions (391 vs. 256). Some cases result in multiple convictions. Federal records show the vast majority of police brutality cases referred by investigators are not prosecuted.
University of Toledo law professor David Harris, who analyzes police conduct issues, says it will take time to determine whether the cases represent a sustained period of more aggressive prosecutions or the beginnings of a surge in misconduct. The cases involve only a fraction of the estimated 800,000 police in the USA, says James Pasco, executive director of the National Fraternal Order of Police (FOP), the nation’s largest police union. Even so, he says, the FOP is concerned that reduced standards, training and promotion of less experienced officers into the higher police ranks could undermine more rigid supervision.
For the past few years, dozens of police departments across the country have scrambled to fill vacancies. The recruiting effort, which often features cash bonuses, has intensified since 9-11, because many police recruits have been drawn to military service.
In its post-Sept. 11 reorganization, the FBI listed police misconduct as one of its highest civil rights priorities to keep pace with an anticipated increase in police hiring through 2009. The increasing Justice numbers generally correspond to a USA Today analysis of federal law enforcement prosecutions using data compiled by the Transactional Records Access Clearinghouse at Syracuse University.
David Burnham, the co-founder of the TRAC database, says prosecutions appear to be increasing, but “more important” are the numbers of cases prosecutors decline. Last year, 96% of cases referred for prosecution by investigative agencies were declined. In 2005, 98% were declined, a rate that has remained “extremely high” under every administration dating to President Carter, according to a TRAC report.
The high refusal rates, say Burnham and law enforcement analysts, result in part from the extraordinary difficulty in prosecuting abuse cases. Juries are conditioned to believe cops, and victims’ credibility is often challenged. “When police are accused of wrongdoing, the world is turned upside down,” Harris says. “In some cases, it may be impossible for (juries) to make the adjustment.”Link here.
WHITEWASHING THE REAL CRIMES IN THE DUKE CASE
With the recent announcement by federal authorities that they would not pursue a criminal investigation of police and prosecutors in the Duke Non-Rape, Non-Kidnapping, and Non-Sexual Assault Case, we pretty much have come to a dead end in the sorry aftermath of this affair. As one who has been immensely critical of the federal criminal system in general, I must say that while I am not surprised at the outcome, nonetheless the pure cynicism that came from the U.S. Department of (In)Justice was shocking even to someone as jaded as I have become.
Yes, it seems that the feds have discovered federalism! After taking a cursory look at the case, the feds made the following announcement:
“We believe the State of North Carolina has the primary interests in this matter: protecting the integrity of its judicial proceedings, holding Mr. Nifong accountable for his actions as an officer of its courts, and vindicating the principles of justice under state law.”
This is rich. This comes from the same Do(In)J that saw no problem in prosecuting and convicting Michael Vick despite the fact that there are no specific federal statutes regarding dog fighting, but that such statutes exist in Virginia law. Now, there are specific federal statutes for obstruction of justice, and for misusing federal funds. (The Durham Police Department used federal funds for part of their investigation, and for housing and feeding Crystal Mangum while the case was on-going.) However, the feds have decided to take a powder.
In most circumstances, as one who believes in the balance of political power as set by the Constitution of the United States, I ordinarily would welcome such “restraint” from the feds, especially since they are not known for respecting Constitutional boundaries. However, the fact that federal statutes actually have some weight in a case like this is instructive. What further complicates things is that North Carolina law does not make it easy for state investigators to examine wrongdoing in situations like this.
My sense is that the North Carolina Attorney General Roy Cooper, who performed magnificently in that important press conference last April when he declared Reade Seligmann, Collin Finnerty, and David Evans to be “innocent of all charges,” is at a dead end. It will be nearly impossible for him to pursue criminal charges against former prosecutor Michael B. Nifong and members of the Durham Police Department. And so it will end.
As I survey what is left of this case – some civil suits against Nifong, Duke University, the City of Durham, and some police officers – I realize more than ever that the U.S. has become a country that is run by political rogues, and nowhere is that more apparent than with federal and state prosecutors, and “law enforcement” officials. Indeed, if one wishes to be a lifelong criminal – and get away with it – I would strongly recommend going to work either in a prosecutor’s office or become a member of a federal, state, or local law enforcement agency.
The lawlessness of “law enforcement” personnel in the Duke case was and is breathtaking. People wearing badges or working as prosecutors fabricated evidence, lied to judges, lied to grand juries, lied to the public, hid exculpatory evidence, used federal funding fraudulently, intimidated witnesses, suborned perjury, ran a rigged “lineup”, and obstructed justice. Once upon a time, these things were considered to be crimes, but in the world today in which police and prosecutors rule, they simply are another day at the office.
Each day brings new revelations about just how malevolent those in “law enforcement” really are. From cops who apparently are not investigated when their wives die “mysteriously”, to the rash of unprovoked tasing of innocent people by the police (as seen on YouTube), to innocent people being gunned down in no-knock raids by police (who then cover up the evidence, as they did in the Kathryn Johnston case in Atlanta) or just plain harass and arrest people out of pure spite, as we see in this case in New Jersey, the United States has become a nation where police and prosecutors are near-dictators.
Keep in mind that ordinary citizens are not permitted to lie to grand juries (see Barry Bonds and Marion Jones), destroy evidence and obstruct justice, but such things simply are another day at the office for police and prosecutors. More important, we now have the Bush Administration giving official approval to the crimes committed in Durham. Nifong and the police committed these crimes in broad daylight. Those wanting to gain a sense of just how bad the police and prosecutorial misconduct really was should read the federal civil rights lawsuit that the three indicted players have filed against Durham, Nifong, and the police. As one who has followed this case closely from its beginning, I can assure you that the statements made by the plaintiffs are not over-the-top.
So, we have one more example of police and prosecutors committing real crimes and being able to walk away without a scratch. Unfortunately, it has become a continuing story in this country, as certain classes of people are able to operate lawlessly without ever having to account for any of their actions. This is the United States of America today. There is none other.Link here.
NEW SUPREME COURT OUTRAGE
In a pair of decisions this month, the Supreme Court undertook a breathtaking invasion of Congress’s legislative authority. Despite Congress’s stated intention, federal courts will henceforth assume far greater discretion to sentence convicted criminals to whatever prison terms they like, regardless of Congress’s legislation.
Congress in 1984 adopted legislation pointing toward the establishment of federal criminal-sentencing guidelines. Those guidelines finally appeared in 1987. Their function was to ensure that people convicted of similar crimes received similar sentences, regardless of the part of the country in which they lived and the judge before whom they happened to have been convicted.
The sentencing guidelines now will be considered by federal judges as "advisory," not “mandatory”, even though Congress clearly indicated that they should be mandatory. In its decision in the joined cases of United States v. Booker and United States v. Fanfan, the Court clearly thwarted the intention of Congress.
This pair of decisions reflects a long-standing campaign by federal courts, and courts (meaning judges) generally, to grab authority from voters, legislatures, and juries and exercise it themselves. The first battle in this campaign came in the early nineteenth century, when courts seized juries’ traditional power to decide matters of law. From that point, the formal system in the U.S. distinguished between fact finders (usually meaning juries) and finders of law (judges).
Judges’ campaign to grab power from the people has long manifested itself in what is now the tradition of using specious arguments about the meaning of the federal constitution in justification of decisions invalidating statutes and state constitutional provisions distasteful to the judges. Finally, the Supreme Court in 2000 used its power to short-circuit the constitutional process for selecting Florida’s presidential electors, when it in Bush v. Gore seized that power (lodged by the Constitution in the Florida legislature) for itself.
In Booker and Fanfan, the Supreme Court has announced essentially that it intends to disregard Congress’s policy concerning sentencing of people convicted of federal crimes. Even though most federal criminal statutes are themselves unconstitutional (a fact about which the Court has shown no inclination to take action), one cannot help but lament that in enforcing them, federal judges have in a new way arbitrarily limited Congress’s power to devise appropriate penalties.
The only solution to the Supreme Court’s lawlessness is a campaign of amendments and impeachments. Justices who participate in such decisions deserve to be tossed from office, immediately, for the high misdemeanor of violating their oath to uphold the Constitution. If Congress does nothing in response to Booker and Fanfan, it will have given the justices yet another indication that they are free to legislate as they will.Link here.
AMERICAN HISTORY X
American History X is one of my favorite Edward Norton movies. He plays a fatherless, LA skinhead, white power zealot that is involved in a racially motivated homicide, serves prison time and is released. He has a transformative experience as a result of all this and learns the error of his ways and sets out to make amends. Sadly it ends in tragedy. This is a powerful metaphor for learning revisionist American history during these turbulent times.
As you probably have a revisionist historical bent (even if currently unrecognized), I welcome you to peruse my own American History X. It is a personal blueprint of how to overcome mass media and 19 years of public education. These will make beautiful Christmas gifts for the revisionist, neo-Austrian, dedicated Misean or Libertarian on your shopping list. Give the gift that shows you care. I present them in chronological order from the oldest first to the most recent to follow my personal path of growth from the watery gruel of statist swill that is passed off as history in public schools. You can support the cause of freedom by purchasing these from Amazon through the embedded links, or from the Mises Institute directly.
I consider myself an educated man yet I was able to graduate from an American University with only 3 credit hours in history required, a weak survey course in Western Civilization. These intellectual jolts run up your spine and set the brain ablaze.Link here.
BULLIES, MUGGERS, SNEAK THIEVES, AND CON MEN
A field guide to government operatives.
Somehow it seemed as though the farm had grown richer without making the animals themselves any richer – except, of course, for the pigs and the dogs. ~~ George Orwell, Animal Farm
The beginning of political wisdom is the realization that despite everything you have always been taught, the government is not really on your side. Indeed, it is out to get you.
Sometimes government functionaries and their private-sector supporters want simply to bully you, to dictate what you must do and what you must not do, regardless of whether anybody benefits from your compliance with these senseless, malicious directives. The drug laws are the best current example, among many others, of the government as bully. Our rulers presently enforce a host of laws that combine the worst aspects of puritanical priggishness and the invasive, pseudo-scientific, therapeutic state. They tolerate our pursuit of happiness only so long as we pursue it exclusively in officially approved ways. Gin, yes; weed, no.
Notwithstanding the great delight that our rulers take in tormenting us with their absurdly inconsistent nanny-state commands, they generally have bigger fish to fry. Above all, the government and its special-interest backers want to take our money. If these people ran a store, they might aptly call it Robberies R Us. Their credo is simple and brazen: “You have money, and we want it.”
Unlike the sincere street criminal, however, the robber in official guise rarely puts his proposition to you in the blunt form of “Your money or your life,” however much he intends to relate to you on precisely such terms. When I say “rarely,” I do not mean that the authorities never carry out their plunder blatantly. Throughout the land, for example, criminal courts, acting as de facto muggers, strip people of great sums of money in the aggregate by fining them for conduct that ought never to have been criminalized in the first place – drug-law violations, prostitution, gambling, traffic infractions, reporting violations, doing business without a license, and innumerable other victimless “crimes”. The predatory judges and their police henchmen care no more about justice than I care to live on a diet of pig pancreas and boiled dandelions. They are simply taking people’s money because it is there to be taken with minimal effort. In this manifestation, government amounts to a gigantic speed trap.
The more common way for government officials to rob you, however, involves their seizure of so-called taxes, which take countless forms, all of which are purported to be collected in order to finance – mirabile dictu – benefits for you. Such a deal! You would have to be a real ingrate to complain about the government’s snatching your money for the express purpose of making your world a better place.
Sometimes the “political exchange” into which you are hauled kicking and screaming rests on such a ludicrous foundation, however, that honesty compels us to classify it, too, as a mugging. I have in mind such compassionately conservative policies as stripping taxpayers of hundreds of billions of dollars and handing the money over, for the most part, to rich people engaged in large-scale agribusiness and, sometimes, to landowners who do not even bother to represent themselves as farmers. The apologies that the agribusiness whores in Congress make for this daylight robbery are so patently stupid and immoral that the whole shameless affair resembles nothing so much as the schoolyard bully’s grabbing the little kids’ lunch money and then taunting them aggressively, “If you don’t like it, why don’t you do something about it?”
Government sneak thieves, in contrast, fear that they may occupy more vulnerable positions than the agribusiness gang and similarly impudent special-interest groups cum legislators. They specialize in legislative riders, budgetary add-ons and earmarks, logrolling, omnibus “Christmas tree” bills, and other gimmicks designed to conceal the size, the beneficiaries, and sometimes even the existence of their theft. At the end of the day, the taxpayers find there is nothing left in the till, but they have little or no idea where all of their money went. Finding out by reading an appropriations act is next to impossible, inasmuch as these statutes are almost incomprehensible to everyone but the legislative insiders and their staff members who devise them and write them down in a combination of Greek, Latin, and Sanskrit.
Unlike the government sneak thieves, the government con men openly advertise – indeed, expect to receive great credit for – certain uses of the taxpayers’ money that are represented as bringing great benefits to the general public or a substantial segment of it. Surely the best example of the con man’s art is so-called national defense, a bottomless pit into which the government now dumps, in various forms, approximately a trillion dollars of the taxpayers’ money each year. The government stoutly maintains, of course, that all ordinary Americans are constantly in grave danger of attack by foreigners – nowadays, by Islamic terrorists, in particular – and that these voracious wolves can be kept from the door only by the maintenance and active deployment of large armed forces equipped with ultra-sophisticated (and correspondingly expensive) equipment and stationed at bases in more than 100 countries and on ships at sea around the globe.
Without dismissing the alleged dangers entirely, a sensible person quickly appreciates that the threat is slight – just do the math, using reasonable probability coefficients – whereas the cost of (purportedly) dealing with it is colossal. In short, as General Smedley Butler informed us more than 70 years ago, the modern military establishment, along with most of its blessed wars, is for the most part nothing but a racket. Worse, because of the way it engages and co-opts powerful elements of the private sector, it gives rise to a costly and dangerous form of military-economic fascism. Lately, the classic military-industrial-congressional complex has been supplemented by an even more menacing (to our liberties) security-industrial-congressional complex, whose aim is to enrich its participants by equipping the government for more effectively spying on us and invading our privacy in ways great and small.
Worst of all, despite everything that is claimed for the military’s protective powers, its operation and deployment overseas leave us ordinary Americans facing greater, not lesser, risk than we would otherwise face, because of the many enemies it cultivates who would have left us alone, if the U.S. military had only left them alone. (Yes, Virginia, they are over here because we’re over there.) The president routinely declares that the hugely increased expenditures and overseas deployments for military purposes since 2001 have reduced the threat of terrorism, but, in fact, terrorist incidents and deaths have increased, not decreased. Although privileged elements of the political class gain from militarism and neo-imperialist wars, the rest of us invariably lose economic well-being, real security, and all too often life itself. In 2004, people who said that security against terrorism was their top concern voted disproportionately, by an almost 7-to-1 margin, for George W. Bush. They were conned.
The mugger, the sneak thief, and the con man make up a large proportion of the leading figures in government today. The lower ranks, especially in the various police agencies, have a disproportionate share of the bullies. No attempt to understand government can succeed without a clear understanding of these characteristic types and their typical modus operandi. With this understanding firmly in mind, you will remain permanently immune to the infectious swindle, “I am from the government, and I’m here to help.” The truth, of course, is the exact opposite. The government is not really on your side. Indeed, it is out to get you.Link here.
DOUG CASEY INTERVIEWS RON PAUL
... Who sees future capital and currency controls by the U.S. government as “quite possible”.
There are very few political figures for whom I have any respect. One exception is Congressman Ron Paul (R-Texas). Ron has been a personal friend of mine for many years. I can assure you that he is a “stand up guy,” who has voted “no” more times in Congress not just more than any other member, but more than the rest of that august body combined. He is often called “Dr. No.”
The fact that he has managed to get reelected numerous times in spite of his outspoken stands against the so-called “War on Drugs,” the “War on Terror” and other popular stupidities is one of the few things that make me think all is not absolutely lost in America.
How does he do it? Ron is an almost archetypical country doctor. He simply radiates honesty and sound principles. He is about the last person you would expect to see in Congress. The voters may not agree with everything Ron believes in, but they know they can trust him to do what he says he will do: always vote for lower taxes, less regulation, and against absolutely anything not specifically authorized in the U.S. Constitution.
His campaign for the U.S. presidency on the Republican ticket – once laughed at by mainstream apparatchiks from both parties – has generated a huge groundswell of national support. Recently, his campaign broke the record for the most funds raised online in a single day. That, in itself, raised a lot of eyebrows – and the money has since been put into high-profile ad campaigns libertarian-minded candidates could previously only dream of.
Ron is famous for his principled rejection of fiat currency, and advocacy of hard money – the gold standard. The following interview is from the December 2007 edition of the International Speculator, our flagship publication dedicated to uncovering highly prospective opportunities in pretty much any market sector, but these days mostly in junior precious metals exploration stocks – a sector that has treated subscribers very, very well in recent years.
And they should only continue to do well unless Boobus Americanus stands up on his hind legs and demands some radical changes, at which point we would happily sell the gold we now own as a hedge against the fiscal calamity that is now all but inevitable. Importantly, Ron Paul’s campaign is not about the relatively trivial issue of who should govern, Tweedledee or Tweedledum. It is about what the nature of the government should be – and how much and how fast we can cut it down.
DC: Why would the typical American, who gets far more from government than he or she pays, even consider voting for Ron Paul?
RP: Even those Americans who receive a higher nominal amount in transfer payments than they pay in income taxes suffer from Big Government. Their standard of living is eroded by inflation, their wages are garnished by income and payroll taxes, their civil liberties are under constant assault, and their economic prospects are limited because of the drag the welfare-warfare state places on the economy. Furthermore, unless we reverse course quickly, future generations will suffer a declining standard of living and loss of liberty. Thus, I expect many Americans to vote for me not only out of concern for their own well-being, but out of concern for their children.
DC: What is your outlook for the U.S. dollar, absent any significant change in the current course of things?
RP: Unless we return to a sensible monetary policy and rein in government spending, I expect the value of the dollar to continue to fall.
DC: Do you think we could see currency or capital controls being implemented?
RP: History shows that governments tend to react to economic crises by increasing government control over the free market, so, yes, it is quite possible that the U.S. Government will respond to a future economic downturn with currency and capital controls.
DC: We have seen the other presidential candidates perform all sorts of linguistic gymnastics when asked how they would handle the looming fiscal problems of Social Security and Medicare. While the solutions will obviously not be quick or easy, where would you start?
RP: I would transfer some of the money saved by my cuts in foreign programs and unconstitutional domestic bureaucracies into the entitlements programs to keep the promises to those relying on the system. I would then work to transition to a market system, phasing in an option for younger workers to opt out of Social Security and Medicare taxes in return for agreeing to provide for their own retirement and health care needs without participating in a government entitlement program.
DC: Further on domestic issues, just what do you think the role of the federal government should be?
RP: Ideally, it should be limited to providing protection from foreign threats, securing the borders and ensuring free trade among the states.
DC: By what percentage would you estimate that federal government spending could be cut without causing any great hardship? Which agencies would you cut first?
RP: I don’t have an exact percentage, but I am confident that if the welfare state were cut, along with a corresponding reduction in taxes, private charities would quickly step up to help the truly needy – and do so in a much more effective and compassionate way than government bureaucracies. I would cut the Iraq war, foreign aid and all foreign commitments immediately. Domestically, I would work to shut down the Departments of Education, Energy, and Commerce. I would also work to eliminate all forms of corporate welfare and business subsidies.
DC: There is much talk about the Chinese deliberately keeping their currency cheap in order to undercut U.S. and European manufacturers. And we are increasingly hearing discussions about layering on more tariffs aimed at the Chinese. We assume you are anti-tariff, so do you do anything at all about “unfair” competition or just let the global marketplace sort things out over time?
RP: The United States does not have the authority to tell China, or any other country, what to do with their currencies. The values of currencies should be set by the market. Instead of worrying about the speck in China’s eye, I would focus on the beam in our eye by reducing the national debt, restoring a market in currency by repealing the legal tender laws and ending the continued debasement of the American currency.
DC: Much of the politicking this campaign season has certain religious overtones. Are you a believer in a strict separation of church and state?
RP: Yes. However, I believe state and local communities have the right to adopt policies such as school prayer without interference from the Federal Judiciary or any other branch of the federal government.Link here.
|Previous||News Digest Home||Next|
|Back to top|