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"Alexander Hamilton started the U.S. Treasury with nothing, and that was the closest our country has ever been to being even." ~~ Will Rogers
"I have a scheme for stopping war. It's this -- no nation is allowed to enter a war ‘til they have paid for the last one." ~~ Will Rogers
Eventually it was going to happen. The U.S.'s monetary and fiscal profligacy had to lead to a questioning of its AAA/"Safe Haven" rating/reputation. Now, Patrick Buchanon writes, Moody's has warned that if the profligacy continues for another decade, the U.S.'s credit rating will suffer. Do you really think ...?!
OK, basic point taken. But someone hit Moody's with a clue stick: The plummeting U.S. dollar shows the market has already docked the country's credit rating. The U.S. can always "print money" and technically avoid stiffing its creditors. U.S. creditors do not care about that. They want to get their loans back plus interest in invariant purchasing-power dollars. And they do not need a withdrawl of the Moody's imprimatur to understand that an AAA rating is a nonsense assessment of that default risk.
Since it began to give credit ratings to nations in 1917, Moody's has rated the United States triple-A. U.S. Treasury bonds have been seen as the most secure investment on earth. When crises erupt, nervous money seeks out the world's great safe harbor, the United States. That reputation is now in peril.
Last week, Moody's warned that if the U.S. fails to rein in the soaring cost of Social Security, Medicare and Medicaid, the nation's credit rating will be down-graded within a decade.
Our political parties seem oblivious. Republicans, save Ron Paul, are all promising to expand the U.S. military and maintain all of our worldwide commitments to defend and subsidize scores of nations.
Democrats, with entitlement costs drowning the federal budget in red ink, are proposing a new entitlement -- universal health coverage for the near 50 million who do not have it -- another magnet for illegal aliens. Moody's is telling America it needs a time of austerity, while the U.S. government is behaving like the governments we used to bail out.
The failure to even remotely address the financial reality of the country's situation is ongoingly noteable and puzzling. One might expect some politician, besides Ron Paul, to take a tack of: "We are about to hit a wall. I say we cut the Pentagon's budget so we can save Social Security." But the old something-for-nothing spiel continues to be the favored approach. Ultimately the blame rests with the voters.
California has already hit the wall. [See here, e.g.] With an economy as large as a G-8 nation, the Golden State is looking at a $14 billion deficit in 2009 and a $3 billion shortfall in 2008. Gov. Schwarzenegger has called for slashing prison staff by 6,000, including 2,000 guards, early release of 22,000 inmates, closing four dozen state parks and a 10 percent across-the-board cut in all state agencies. The Democratic legislature is demanding tax hikes, which would drive more taxpayers back over the mountains whence their fathers came.
Meanwhile, Washington drifts mindlessly toward the maelstrom. With the dollar sinking, oil surging to $100 a barrel, the Dow having its worst January in memory, foreclosures mounting, credit card debt going rotten, and consumers and businesses unable or unwilling to borrow, we appear headed into recession. ...
To stave off recession, the Fed appears anxious to slash interest rates another half-point, if not more. That will further weaken the dollar and raise the costs of the imports to which we have become addicted. While all this is bad news for the Republicans, it is worse news for the republic. As we save nothing, we must borrow both to pay for the imported oil and foreign manufactures upon which we have become dependent.
We are thus in the position of having to borrow from Europe to defend Europe, of having to borrow from China and Japan to defend Chinese and Japanese access to Gulf oil, and of having to borrow from Arab emirs, sultans and monarchs to make Iraq safe for democracy. We borrow from the nations we defend so that we may continue to defend them. To question this is an unpardonable heresy called "isolationism."
Buchanon then goes into one of his typical rants against "globalism". The less rational elements of his populist philosophy undermine his point. Government managed and manipulated trade is the issue, not free voluntary exchange among people who happen to live in different countries. As any resemblance between what we have today and free trade is strictly coincidental, Buchanon's rant does not undermine his conclusion. Yet it rankles. Skipping the rant:
America, to pay her bills, has begun to sell herself to the world.
Its balance sheet gutted by the subprime mortgage crisis, Citicorp got a $7.5 billion injection from Abu Dhabi and is now fishing for $1 billion from Kuwait and $9 billion from China. Beijing has put $5 billion into Morgan Stanley and bought heavily into Barclays Bank.
Merrill-Lynch, ravaged by subprime mortgage losses, sold part of itself to Singapore for $7.5 billion and is seeking another $3 billion to $4 billion from the Arabs. Swiss-based UBS, taking a near $15 billion write-down in subprime mortgages, has gotten an infusion of $10 billion from Singapore.
Bain Capital is partnering with China's Huawei Technologies in a buyout of 3Com, the U.S. company that provides the technology that protects Pentagon computers from Chinese hackers.
This self-indulgent generation has borrowed itself into unpayable debt. Now the folks from whom we borrowed to buy all that oil and all those cars, electronics and clothes are coming to buy the country we inherited. We are prodigal sons, and the day of reckoning approaches.
A Byron Katie aphorism seems particularly apropos here: "I always lose when I fight with reality. But only 100% of the time."
Leading Democrats call for Immediate Fiscal Stimulus
Speaking of the devil:
With the United States teetering on the brink of a recession, Hillary Clinton and Barack Obama, the two Democrat Senators leading the race to become the Party's candidate for the 2008 U.S. presidential elections, have urged Congress to pass immediate fiscal stimulus legislation.
After President George W. Bush hinted heavily that he is mulling a new package of tax cuts to inject life into the ailing economy, Clinton and Obama have seized the opportunity to announce rival plans of their own, as the economy takes center stage on the presidential campaign trail.
Both Clinton's and Obama's plans concentrate on helping struggling homeowners overcome the housing foreclosure crisis, and giving additional financial help to working families and job seekers. Clinton's plan would also earmark $25 billion to mitigate rising household energy bills, after the price of crude oil recently hit $100 per barrel. ...
Paradoxically (or not), no one has indentified any offsetting special interest pork, the eliminating of which would probably increase economic activity.
Sen. John Edwards, who trails Clinton and Obama in the Democrat running, has called for similar measures to help inject cash back into the economy, but even with a Democrat majority in Congress, such plans, which rely heavily on additional spending at a time when the budget is under pressure due to the cost of ongoing military operations in Iraq, would stand little chance of avoiding a presidential veto. They have attracted inevitable criticism from the Republican Party, which has accused the leading Democrat candidates of lacking substance on the economy.
In a scathing attack on Obama's proposal, Republican National Committee Communications Director Danny Diaz stated on the RNC website that the Illinois Senator's economic plans have already been "widely panned", and his new idea is "just more of the same" tax and spend.
Mr. Pot, meet Mr. Kettle. Mr. Kettle ... Mr. Pot. Yes, it is just more of the same tax and spend -- as unabashedly practiced by both parties.
MYSTERIOUS $100 “SUPERNOTE” COUNTERFEIT BILLS APPEAR ACROSS WORLD
The fake counterfeit bills look uncannily similar to the real ones.
"I don't make jokes. I just watch the government and report the facts." ~~ Will Rogers
Fake 2003 series U.S. $100 bills having been showing up in China. Not just your work-a-day fake, the "supernote" counterfeits are so good it is an "international whodunit".
The Bush administration and members of Congress two years ago loudly accused North Korean leaders of being behind the counterfeiting of U.S. currency, but a 10-month McClatchy Newspapers investigation raises questions about those charges. ...
Whatever the origin of the bills, "it's by far the most sophisticated counterfeiting operation in the world," said James Kolbe, a former congressman from Arizona who oversaw funding for the Secret Service. "We are not certain as to how this is being done or how it's happening." ...
[T]he number of supernotes found indicates that whoever is printing them is not doing so in large quantities. Only $50 million worth of them have been seized since 1989, an average of $2.8 million per year and not even enough to pay for the sophisticated equipment and supplies needed to make them.
Industry experts such as Thomas Ferguson, former director of the Bureau of Engraving and Printing, said the supernotes are so good that they appear to have been made by someone with access to some government's printing equipment. ...
Klaus Bender, the author of Moneymakers: The Secret World of Banknote Printing, said the phony $100 bill is "not a fake anymore. It's an illegal parallel print of a genuine note." He claims that the supernotes are of such high quality and are updated so frequently that they could be produced only by a U.S. government agency such as the CIA.
As unsubstantiated as the allegation is, there is a precedent. An expert on the CIA, journalist Tim Weiner, has written how the agency tried to undermine the Soviet Union's economy by counterfeiting its currency.
A couple of thoughts here: Assuming the $50 million in fake bills seized since 1989 is a nontrivial fraction of the number put in circulation, that demonstrates fairly amazing restraint on the part of the counterfeiter -- a lot more restraint than the Fed and financial industry have ever showed. And the CIA's attempt to undermine the Soviet Union differs exactly how from what the Fed et al do routinely to the U.S. and world economies? Just asking.
FOREIGNERS TURN AWAY FROM JAPANESE STOCK MARKET
But is now the time to be thinking of getting in?
"Don't gamble; take all your savings and buy some good stock and hold it till it goes up, then sell it. If it don't go up, don't buy it." ~~ Will Rogers
Japan has tried using hyper-aggressive fiscal and monetary stimulus to reverse the stagnation that set in following the popping of the property/stock market bubble in 1989, to no avail. In many ways, the government's policy has been in line with the advice of those who thought they had figured out where policy went wrong during the 1930s. But 19 years after the Crash of 1929 it was 1948. The U.S. was at the beginning of a massive (and relatively sound) economic boom, despite having blown up a good deal of wealth during the War. No sign of an impending boom in Japan, even without the major war. What gives?
It looks to us that in trying to avoid the pain of coming clean about the malinvestments made during the boom, Japan has also avoided the necessary adjustments that would enable it to move on. For example, regulators allow banks to avoid writing down bad loans, with the result that the banks have no capital to fund truly viable projects. Now Tokyo Stock Exchange president Atsushi Saito has dropped a dime on the regulations the keep the exchange an also-ran among major world financial centers, and that hurt company profitability and stifle needed rationalizations:
Over the past month, Saito has been sending out blunt messages to his constituents and to the Government about the urgent need for deregulation.
Noting that only Italy's stock market among the 30 OECD economies performed worst last year, he told the Nikkei Financial Daily last weekend: "Japan at the moment is not a place where overseas investors are willing to invest.
"Government regulations and court rulings regarding hostile takeover bids prompted many foreign companies to leave the country last year. The Japanese Government and the financial industry want to turn Tokyo into an international financial center, but it has all been talk so far, with few concrete actions taken."
Last year, the Nikkei 225 index lost 11.1%, when even Wall Street managed 6.4% growth. ... Trading by foreign institutions and funds (which appears also to include Japanese funds domiciled abroad) last year accounted for two thirds of the ¥907 trillion combined turnover of Tokyo and the two smaller exchanges, Osaka and Nagoya.
In [the second half of 2007], the Tokyo market shed 15.6%, principally because for the first 6-month period in the market's 5-year recovery, foreigners became net sellers. Large international funds that have the discretion ... have become significantly [underweighted in] Japanese securities against the benchmark MSCI index.
This is despite the Nikkei 225 selling about 15 times forward earnings, very low by historical levels, while profitability continues to strengthen, though growth is likely to ease this year.
The relative cheapness of the Japanese stock market is intriguing. It is one of the few markets where speculative juices did not run rampant last year.
The average 1.6% dividend yield for the entire TSE first section, 1747 companies, now exceeds the 10-year bond rate (1.45%). This crossover is generally considered one of the strongest buy signals for Japanese equities but so far it goes unheeded. Given the profitability of leading companies, given that the sub-prime mess has barely affected the Japanese banking sector, and given Japanese markets' liquidity and depth, the question for policymakers is why Japan has not become a safe haven in the turmoil since August.
An astounding statistic from financial market history is that in the late 1940s, as the great post-War bull market in U.S. stocks was just getting underway, blue chip stock dividend yields were greater than government bond yields. You got partial inflation indexing and a lien on the companies' growth for less than nothing. It indicated the low regard in which stocks were held -- and thus was a great, low-risk opportunity to buy -- and the extreme risk aversion of the day. That the same phenomenon is showing up in Japan is certainly food for thought.
And why, in fact, foreign funds and institutional investors that have piled into Japan for five year -- soaking up heavy domestic selling most of that time -- are now looking elsewhere. ...
Saito does not accept the conventional explanations of a prospective U.S. recession, higher oil prices, the deleterious effects of an appreciating yen on exporters and persistent deflation in the domestic economy.
Not entirely anyway. Though he spent most of his career with Nomura Securities, Saito's last job was in charge of the Industrial Revitalization Corp. of Japan. He spent those four years confronting the consequences of Bubble-era hubris, and particularly of the commercial banking system's inability to change course, even on the brink of collapse.
A business leader who recognizes what has gone wrong. Hopefully a favorable portent.
Saito argues that the opportunity remains for Tokyo's financial services to become a driving force for the domestic economy, and the supreme Asian financial center -- which, unlike his predecessors, he acknowledges it cannot now claim to be against competition from Hong Kong, Singapore, Shangahi, Sydney and even Shenzen.
If that became the case, however, he thinks Japan's financial sector workforce would be closer to London's 7 million than the current 2.7 million.
To that end, Saito's hopes are pinned on legislative approval early this year and rapid implementation of a market liberalization blueprint agreed between the TSE, the Financial Services Authority and the Economy Trade and Industry ministry. ...
The enabling legislation for these reforms is not yet before the Diet and the current fissile political situation is no guarantee it will pass unmolested through the governing parties, let alone the opposition-controlled Upper House.
As Saito has been arguing, the reforms required to make Japanese markets attractive again to international investors and companies also call for a profound change in Japanese official mindsets.
Intriguing characteristics of Japan and its stock market include, but are not limited to:
Will Japan ever escape a system seemingly designed by the Red Queen in Through the Looking Glass, who proclaimed "jam tomorrow and jam yesterday -- but never jam today"?* It certainly bears close watching.
ESCAPEARTIST SHORT TAKES
Continuing our catchup on noteworthy EscapeArtist.com articles, below are selected summaries from this past October's Escape From America (issue #96). For a quick introduction on the e-magazine's publisher, read the first two paragraphs of this Offshore News Digest entry. Article summaries are essentially verbatim -- caveat emptor (Latin for "Visit and check out carefully before buying").
Who Is The Real Rex Freeman? -- An Ex-Pat Warriors' Search for Freedom & Truth. What motivates a person to expatriate and leave his home country? Economics? Climate? Persecution? Opportunity? Lifestyle? Politics? Maybe a combination of all of the above? The following is an historical account of how this path evolved for one such individual who is known as Rex Freeman and how he turned several significant obstacles into the launching pads to his dreams. We offer this as a story of inspiration and hope!
Why a Second Passport Could Be the Wisest Investment You Ever Make -- There are indeed many valid reasons to consider acquiring an alternative citizenship and second passport -- and, depending on your circumstances, moving to a new place of residence. As a citizen and passport holder of two or more countries, you can travel or move your residence more easily, particularly in an emergency. Should the worst occur (such as a war, terrorist attack, etc); this flexibility could even save your life.
Proposed New U.S. Exit Tax -- Individuals expatriating from the U.S. will face a high tax price when attempting to take their assets with them under legislation (H.R. 3056) approved 23-18 by the House Ways and Means Committee July 18. Although the bill's primary focus is to stop the private debt collection program at the IRS, its centerpiece revenue raiser will dramatically change the landscape for those who attempt to give up their U.S. citizenship to escape U.S. tax on their assets.
Leap of Faith (moving to Ecuador) -- The number of expats here is small compared to the numbers in many Central American countries, even nearby Colombia and Venezuela. There are no gringo-only resorts here. If you live in Ecuador, you live mostly among middle- and upper-class Ecuadorians, or other South Americans. You will have a handful of North American or European friends, but you will find yourself immersed in the culture and its traditions. You will also find yourself forced -- and not always comfortably -- to make your Spanish understandable to cabbies, tailors, waiters, and the fellow down the street.
Margarita: A Caribbean Island Cocktail Unlike Any Other -- The minuses mostly gravitate around the popularity the island enjoys among mainlanders, especially during vacation periods. But more are also moving to live here permanently, adding more pressures to local services. Vacation time is the time when locals escape to other nearby islands, such as Coche, or Cubagua, or to the other half of Margarita, the peninsula of Macanao. The important issue is there are escapes, quite easy and pleasant ones, even from here.
Panama Gets Serious About Tourism -- Panama is full of potential, but without a plan, seems destined to repeat many of the same mistakes that countless other destinations have made. With so many proven models out there of what works and what does not, "guessing" is just not necessary.
Panama City: Enter the Dragon! -- Panama's economic progress should not be coldly measured by GDP growth. The reduction of poverty and the improvement of the living standards of the marginalized population need to be taken into account. Regrettably, the growing national wealth has mostly served an unmerited purpose: to make the rich wealthier, while generally encumbering the middle classes and making poorer the already poor. While the country is economically booming, the gap between Rich and Poor has hardly closed.
The Grocery Store -- As an ex-pat, shopping for food can either be an adventure or a nightmare. If you and your family like to try new tastes, and you enjoy cooking new dishes, half of the battle is already won. But some people like to eat only certain food and others may find different spices or even aromas unappetizing or even upsetting to their stomachs.
Health Insurance: Hong Kong -- As Hong Kong continues its development more individuals are choosing to visit or permanently relocate to the city. One of the main issues that concerns the increasing number of foreign nationals and expatriates who are moving to Hong Kong is the state of the city's healthcare service. Hong Kong departed from the UK style National Health Service in 1990 with the creation of the Hong Kong Hospital Authority. The Hong Kong hospital authority, in conjunction with the Department of Health, oversees the management of all public healthcare facilities in the City.
India: Where Treatment Comes Gift Wrapped with a Holiday -- The best part of such a vacation is the cost. A heart surgery in the U.S. may make you poorer by anything between $50,000 and $125,000, depending upon the kind of procedure, the hospital where it is conducted, and the pre-and post-operative care. In India, a similar surgery will cost you $7,000 on the lower side and $25,000 on the higher side.
In addition, here are several summaries from the September 2007 issue of Offshore Real Estate & Investment Magazine (issue #32).
Five Reasons Never To Buy Real Estate In A Foreign Country -- No one who makes a property purchase in another country really knows what he is in for. If we knew in full up front what would be required to make every investment of this kind pay off, none of us would ever buy anything. But take heed of these five situations to guide you when not to buy. (Also, article summarized in this edition of Offshore News Digest, under the heading "Five Reasons to Not Buy a Property in a Foreign Country".)
What is Going On In Russia? -- Do not let the New Cold War put you off buying property in Russia. Most if not all of the political analysis in the English-speaking press is shallow and simplistic, and does not acknowledge the fact that almost everyone in Russia loves the idea of being European.
Buy Your Slice of Paradise Today Using IRA Money Tax-Free -- Most of us have the picture of our dream retirement home tucked away in a corner of our mind. Maybe it is a 200-year-old cottage with herb-filled gardens in the south of Spain, or an airy beach-house along the Pacific in Costa Rica.
The [Doug] Casey Files -- The Continuing Crisis -- In all our publications, we have recently taken a good, hard look at several facets of the unfolding crisis. Over the last week, the Casey Research team has continued doing a forensic analysis of where this all might lead, and especially how it will affect our collective investments. (Also, article summary is the lead entry in this edition of Finance Digest.)
Orwell Would Say "I Told You So!" -- On this sixth anniversary of that horrible day that has come to be known in media shorthand as "9/11", it is not overreaching to say that many Americans still live their lives with a latent undercurrent of fear of what may happen next.
HALF OF DUTCH WILLING TO BREAK TIES WITH ANTILLES
St. Maarten's The Daily Herald reports:
THE HAGUE -- The [servering of] all political ties with the Netherlands Antilles has the support of 49% of the Dutch population. This emerged from an opinion poll carried out by Maurice de Hond on Monday among 1,500 people, commissioned by free daily newspaper DAG.
The islands that want to stay with the Netherlands should be put under direct Dutch government, says 60% of respondents. A minority of 37% wants to keep the Netherlands Antilles within the Kingdom of the Netherlands no matter what.
That old empire mentality dies hard.
... The Parliamentary Consultation on Kingdom Relations (POK) was to be on the agenda during the tripartite meeting of the Members of Parliament of the Netherlands Antilles, Aruba and the Netherlands, which was supposed to start in Curacao on Monday. During these consultations counterparts were to discuss future political relations.
However, the meeting was canceled after Antillean politicians had been threatening over the past few days to boycott the talks. They were demanding an apology from PVV Member of Parliament Hero Brinkman, who described the Netherlands Antilles as "largely a corrupt gang of thieves."
The truth hurts, especially when it comes from a fellow thief.
The Antillean Parliament responded by stating that Brinkman would not be welcome in the Netherlands Antilles if he did not apologize to the Antillean public.
According to the timetable, the relations within the Kingdom are set to change on December 15. It has been agreed that Curacao and St. Maarten will then be granted separate status, like Aruba. Bonaire, St. Eustatius and Saba will become special municipalities of the Netherlands. The Dutch government is taking over part of the island's debts but wants, in exchange, more influence in financial and judicial ...
The article was cut off there, but we get the idea. The basic schema is as outlined by John Perkins in Confessions of an Economic Hit Man, writ small: trade debt forgiveness in exchange for influence. The issue of the Antilles parting ways with the Netherlands started appearing in the news last year. A minor player among offshore financial jurisdictions, it will nevertheless be interesting how this plays out.
WORLD’S TAX EVASION EXPERTS MEET IN SOUTH AFRICA
"This country has come to feel the same when Congress is in session as when the baby gets hold of a hammer." ~~ Will Rogers
New Zealand's The Herald reports that "International tax dodgers and their latest scams will come under the scrutiny of experts from up to 100 countries in Cape Town this (last) week."
The experts will be attending the fourth meeting of the Forum on Tax Administrators (FTA), set up by the OECD.
"FTA meetings, which take place about every 18 months, represent the most significant assembly of heads of revenue and customs from over 100 countries," organizers the SA Revenue Service said ... "Among those attending will be tax authority heads of the UK, Australia, Sweden, Canada, Ireland, Chile, France, Singapore and the U.S." A major topic would be collaboration "to address new avenues of tax evasion that pose a threat to government social security and country development programs."
Got to like the way they cloak their racket with charitable virtue here. Where would we be if government was not around to take care of us and help our economies develop?
"A special session will be devoted to governance and capacity-building for tax administrations in Africa, with the idea of creating a north-south partnership to assist this process.
"Improved revenue collection forms a key feature of economic self-reliance for African countries," [South Africa Revenue Service communications executive Malerato] Sekha said.
The claim is that a continent hamstrung by corruption, poor economic policies, lack of rule of law, and whatnot needs to have more money flowing through government coffers to attain "economic self-reliance". Besides the preposterousness of that idea, it is doubtful that their big-power patrons truly want a self-reliant Africa.
U.S. BILLIONAIRE USED BAHAMAS TO EVADE TAXES
A recurring humorous line in the old Laurel and Hardy movies had a usually hapless member of the police force, having managed to actually collar a wrongdoer or two (guess who), looking out at the audience and rhetorically asking in exasperation, "When will they ever learn?" The unspoken addendum being, of course, "that crime doesn't pay."
The same question, and the exasperation, applies to those who rely on secrecy to evade taxes. These days this is a sucker's bet. The Jamaica Observer reports on a recent instance involving big money:
Real estate mogul Igor Olenicoff, rated 286th in Forbes magazine's list of the 400 richest Americans, pleaded guilty in federal court last week to filing false tax returns. The IRS claimed that between 1998 and 2004, Olenicoff hid more than $346 million in Bahamian offshore bank accounts.
Apparently Olenicoff failed to report certain income on his tax form, and lied in reporting that he did not have control over a foreign finacial account that exceeded $10,000 in assets.
Olenicoff is the founder and president of Newport Beach-based Olen Properties Corp., and owns more than 10,000 apartments and 33 residential communities in Las Vegas and Florida. He faces up to three years in prison, but legal pundits have said that, given the nature of the crime and terms of the plea agreement, he is unlikely to serve more than six months when he is sentenced next year in April. The IRS charged him with filing a 2002 tax statement denying he had offshore accounts. As part of his plea agreement, he is scheduled to pay US$52 million in back taxes. The deal with the government would appear to resolve a long-running dispute between Olenicoff and tax authorities. He is estimated to have a net worth of about US$1.7 billion.
The Russian-born entrepreneur has claimed in the past that overseas entities, some with ties to former Russian president Boris Yeltsin, were behind many of his operations, with his own fortunes well below IRS estimates. He told Forbes magazine last year that Sovereign Bancorp Ltd, a Bahamian company formed in 1990 that controlled his overseas bank accounts, was set up by a Russian investment agency created by the former Russian leader Boris Yeltsin. ...
The case is Olenicoff's second brush with the IRS. His company Olen Properties paid US$272,024 to settle IRS claims for 1994 to 1996, after the agency originally sought US$148 million in back taxes and penalties from his company.
The guess here is that Olenicoff considered trying to stiff the IRS a sport. He was rich enough to buy back most of the freedom he would otherwise have lost, so maybe he thinks it was all worth it. But really, folks, once your net worth exceeds a few million bucks (if not a lot less), the marginal utility of a few more dollars is a lot less than the value of the time you might waste defending yourself, never mind the value of potential jail time. File your tax reports accordingly.
U.S. SUPREME COURT RULES ON TRUST TAX DEDUCTIONS
The U.S. Supreme Court has upheld the IRS on how much in the way of investment advice expenses trusts are allowed to deduct. If a trust were treated similar to a business, it could deduct all of them. If it were treated like an individual, only the amount exceeding 2% of adjusted gross income could be deducted. The IRS claimed the later. A test case went through the Tax Court to Curcuit Court to Supreme Court daisy chain. The IRS won at each step.
The U.S. Supreme Court has upheld a previous decision limiting the amount which trusts can deduct for tax purposes, a decision that it likely to be felt across the trust industry.
In an unanimous verdict, the court ruled that trusts may not ordinarily deduct the full cost of investment advice on their income tax returns, and that these expenses are deductible only when they exceed 2% of adjusted gross income, the same limits faced by individual filers.
The case was brought by Michael Knight, trustee of the Rudkin Trust, who claimed a full deduction for the trust's investment management fees, which totaled $22,241, based on an earlier decision by the Sixth Circuit Court of Appeals. The IRS however, disallowed the deduction, arguing that the trust could only deduct the expenses to the extent that they exceeded the 2% floor mandated by Section 67 of the Tax Code. The disputed amount of tax was $4,448. ...
While the case is not anticipated to have a great effect on the U.S. trust industry in terms of lost business, the verdict is expected to reach far and wide in terms of how trustees and their accountants approach the issue of tax.
We claim no great expertise on the taxation of U.S. trusts. But there does appear to be some foolish consistency in the IRS's contention and the courts' sustaining rulings, as otherwise it would appear that an individual could convert a non-deductible expense into a deductible one by having it assumed by an alter-ego trust instead. We are confident that trust advisors and accountants will come up with some creative countermoves.
U.K. TREASURY GAMBLES WITH PLAN TO MAKE NON-DOMS PAY
U.K.'s so-called non-domestics only have to pay tax on their British source incomes, which is often tiny compared with their total worldwide earnings. This is largely opportunistic on the government's part, similar, e.g., to the case-by-case deals Swiss Cantons can make with would-be immigrants to encourage them to bring in their money and business. If the non-doms do not like the deal they are offered by the U.K. Treasury, they will just settle somewhere else. Imagine if everyone was that mobile. Worldwide tax rates would plummet.
Needless to say, however, these deals rouse envy in the general populous, notwithstanding the net addition to Her Majesty's Treasury that they produce, and notwithstanding that many non-doms hardly fit the profiles of the headline super-rich whipping boys. Thus these arrangements will be an inviting target for politicians wanting to ride the coattails of mob sentiment, i.e., almost all of them. This is Money reports:
[T]here are those who question [the non-doms'] special treatment and the way in which many non-doms are tied to the private-equity industry, reaping vast rewards but paying little tax.
There is a sense in which they have become something of an anomaly, encouraged for the supposed benefits they bring, in business and the presence of their entourages, but an embarrassment as the debate about the widening gap between rich and poor grows ever more voluble.
In response to the pressure and the lead of the Tories, the Government has turned on the non-doms, many of whom it counts among its friends.
From April, following the proposed changes in last year's Pre-Budget Report, those who have lived in Britain for seven years will have to pay a £30,000 charge in order to remain here.
Obviously, for [the richest non-doms], such a sum is chickenfeed. Nevertheless, for the Government it is a gamble -- there are 110,000 non-doms in Britain, according to the Treasury, of whom 23,000 will be affected. Of those 23,000, some are by no means wealthy workers who have chosen to settle in Britain. If they decided to pack their bags, the Government's move could backfire ...
An honest politician is one who once bought, stays bought. The U.K. has reneged on what the non-doms understood to be the terms of the agreement under which they took up residence. (The real agreement is that governments will do whatever they please.) Besides the approximately $55,000 annual hit, the affected non-doms might also figure that, the dam having been breached, the probability that their taxes will be increased again down the line has gone up. Factors such as this will drive the marginal non-dom out of the U.K. Never mind, one man logically points out, all those people who now decide not to come to the U.K. in the first place.
The Treasury's own prediction is that around 3000 will quit Britain while a further 14,000 would opt to pay UK income tax under normal rules (if so, that would bring in an estimated extra £350m in 2009-10).
But Andrew Rodger, director of wealth manager Stonehage, warns: "These are very substantial changes. It's not just people here who are considering an alternative tax jurisdiction. People who are thinking of coming here to set up a business may reconsider." Rodger adds that it is not only income tax that is affected but also capital gains on offshore investments. "The Treasury is talking about 3,000 leaving but they don't make any estimate regarding [people who will leave because of] the [capital gains tax] changes."
Part of the U.K. government's private reckoning may involve the value of a preemptive attack on the general populous getting any ideas for themselves that governments should compete for their taxes. If the hoi polloi started thinking along those lines, well, who knows where that would lead!
HM REVENUE & CUSTOMS READY TO WIELD NEW POWERS
Grant Thornton says HMRC is getting ready to clamp down further on tax avoiders with its new new powers under the Police and Criminal Evidence Act 1984. (1984? Hmmmm.) The new legislation, which GT says came "quietly" into effect last year, means HMRC will have new powers of search, seizure and arrest in relation to unpaid tax. It will also give it the ability to force banks, lawyers and accountants to submit information that relates to serious tax fraud.
HMRC has forced a series of UK banks to cough up information on U.K. citizens who hold accounts in the banks' offshore subsidiaries. GT national tax investigations group director Gary Ashford expects the Government to "enforce" (make an offer the target can't refuse?) a second offshore tax amnesty and advises those with undisclosed taxes to seek financial advice -- from GT, for example -- to avoid excessive tax bills.
Ashford says: "With the 26 November deadline having now lapsed, HMRC will now be risk-reviewing the disclosures they received [from the financial institutions] for investigation. They will also be looking through the information they received from the five big banks to identify those who did not come forward."
"It's also likely that HMRC will embark on a second ODF. They are targeting another group of around 150 financial institutions in a bid to gain further customer details. Given these new rules it seems likely that HMRC will be successful in obtaining customer information relatively quickly."
It looks like no rest for U.K. citizens who evaded taxes by neglecting to report interest income earned in offshore accounts. This is another example, by the way, of the counterproductiveness of trying to have it both ways. It would be natural for a Brit to go with the "safe" option of, e.g., a subsidiary of a bank already known to him or her, when placing funds offshore. But -- surprise! (not) -- the offshore subsidiary of a UK bank can by pressured by the UK government. The safer alternative would actually have been to use a bank with no branches in or legal nexus to the UK.
This thinking does not just apply to the example at hand, where people are doing what we would not recommend -- failing to report taxable income. If you are trying to protect assets from the depredations of a particular jurisdiction (like you know who), make sure the institution given custody of the assets has no physical or legal connection to that jurisdiction. Simple, really.
Recent tax proposals put forward by the UK government are likely to make foreign banks think twice about locating in the UK, the Association of Foreign Banks warned -- link.
OECD STUDY LAUDS UK APPROACH TO CORPORATE TAX PLANNING
And if tax planners still insist on helping their clients reduce taxes, stronger measures will have to be taken.
"If you make any money, the government shoves you in the creek once a year with it in your pockets, and all that don't get wet you can keep." ~~ Will Rogers
The OECD does not like "aggressive" tax planning, and is in favor of measures that discourage it. Should we demand a recount? Tax-News reports:
A tax study conducted by the OECD has recommended a UK-style approach for large corporate taxpayers, tax intermediaries and tax authorities to combat "aggressive" tax planning.
The OECD study into the role that tax advisers play in the use of tax minimization techniques by large companies, has recommended that governments should attempt to reduce the demand for aggressive tax planning by encouraging more constructive dialog between revenue bodies, taxpayers and tax advisers.
How about by reducing the demand for tax planning by reducing rates and complexity? Or is the idea that if everyone "dialogs" about the issue long enough, the irrational prejudice against taxes will dissipate? Or perhaps "constructive dialog" will be more one-way, with the revenue bodies telling the payers and advisors, "Look. You cross this line we start breaking legs. Capiche?"
According to the OECD, this is an approach which Her Majesty's Revenue and Customs (HMRC) began to develop in April 2006 when the terms of reference for the Review of Links with Large Business were published. The UK tax authorities have since launched a risk-based approach to allocating resources to large corporate taxpayers, and have also expressed a strong desire to move to an environment of "real-time" working with these businesses. Both of these are key elements of the OECD's recommendations.
This issue was highlighted at a recent event organized by big-four accountant KPMG, where around 30 business tax professionals from FTSE 350 companies debated the UK's initiatives, now recognized in the OECD study as examples of best practice. While they were largely supportive of real time working and a risk-based approach, they wanted to see tangible benefits in terms of earlier certainty and a reduced compliance burden if they were to move to a system of much earlier and fuller disclosure.
It is certainly understandable that businesses would wish to reduce the uncertainty that accompanies a breakdown in the rule of law. When the law gets so complex that there are mulitiple consistent interpretations and resolution becomes a matter of negotiation with the gun-sporting adversary party, then we have such a breakdown.
Although the FTA remains concerned over the role of tax intermediaries in this form of tax planning, it recognizes that companies determine their own appetite for risk. Its preferred approach is to reduce the demand among corporate taxpayers for complex tax minimization arrangements.
It proposes that tax authorities do this by developing risk management techniques to differentiate between high and low risk taxpayers, so that they can focus time and resources on dealing with the higher risks. This will require more voluntary disclosure of information by taxpayers which, the FTA suggests, can be encouraged by developing "enhanced relationships" with taxpayers and their tax advisers.
Loughlin Hickey, Global Head of Tax at KPMG (and partner in the UK firm), welcomed the study as a first step to improved relations between revenue bodies, taxpayers and tax advisers.
If governments held maximizing their total tax revenues as their highest priority, they would implement low, uniform, flattish tax schedules for natural persons and legal entities alike. But the actual priority is to keep the special interests/government dance going. This involves infinite tinkering with tax codes -- complex tax codes that hit some parties hard if they do not watch out. The demand for planners naturally follows.
Note that KPMG and their accounting brethren do just fine within this system. Their interest is in having high demand for their services, i.e., that tax codes be hard to navigate by part-timers. And given that, they want to avoid looking bad by getting their clients in trouble. It is not surprising KPMG welcomes the study. What they would not welcome, and would lobby against, are truly constuctive changes in the tax code.
"To reap the full benefits of these techniques, tax authorities should invest in developing manageable and meaningful indicators of genuine tax risk, and in training their people to understand and use them. They will also need to work hard to persuade a naturally skeptical business community that the openness and transparency necessary for an enhanced relationship can really benefit large corporate taxpayers," Hickey observed.
Does anyone doubt that if friendly persuasion fails to win over business, that the disclosure incentives will start to take on a mandatory flavor? Vegas should start taking over/under bets on how long before this happens.
The FTA report envisions an enhanced relationship, where companies volunteer information in the event that a different interpretation of tax law between them and the revenue body that may lead to a significantly different tax liability. In return, revenue bodies should offer, "understanding based on commercial awareness, impartiality, proportionality, openness through disclosure and transparency, and responsiveness."
"It may not be easy to persuade companies to provide more information than they are required to by law," added Mr. Hickey, "but I would urge corporates to look very carefully at these proposals in the light of their overall stance on certainty, transparency and governance. Companies should put any concerns they may have about greater disclosure and transparency in the context of the likely benefits of, among other things, earlier certainty and greater clarity in their dealings with the tax authorities." ...
[Mr. Hickey] concluded: "For example, requirements for transparency should apply to tax authorities just as much as to taxpayers and their tax advisers. It may be helpful to have some mutually agreed set of behaviours and common monitoring to ensure that all parties to the relationship have equal interests and accountability in making it work."
There are a lot of legitimate issues addressed here, and there is a certain patina of rationality in the treatment of incentives and benefits. But let us not forget that the whole discussion fundamentally concerns dressing up a pig in a silk dress.
CYPRUS PLACED ON RUSSIAN TAX “BLACKLIST”
The Russia/Cypress business investment connection goes way back. Tax avoidance/evasion has figured heavily in the relationship. Now the Russians have just promulgated another anti-tax evasion rule. Given the loopholes it is unclear what they think they are accomplishing.
The Finance Ministry in Moscow has placed Cyprus on a black list of jurisdictions deterring Russian companies from registering here and then repatriating their dividends tax-free back home.
Despite this negative development, experts told the Financial Mirror that the impact is not that great, since foreign companies investing in Russia through Cyprus subsidiaries are exempt from the rule, leaving many loopholes to be utilized.
If the monies involved are at all significant, readily available alternatives to using dividends to repatriate profits will get significant play, we are sure.
The amendment to the Russian Tax Code came into effect on January 1 introducing a tax exemption on dividends earned by Russian companies through foreign subsidiaries under certain conditions. This exemption does not apply to foreign organizations registered in territories seen as having beneficial tax treatment or that are not required to disclose and provide information on financial operations.
The move is seen as an attempt by the authorities in Moscow to boost their tax revenues and forbid a Russian company from paying the 10% tax rate in Cyprus and then repatriating the profits to avoid paying the 24% corporate tax in Russia.
As at the end of September 2006, the total amount of accumulated investments in Russia was $130 billion out of which $28 billion or 21.6% came through Cyprus.
The draft [black]list was first published on June 18, 2007 and included 59 jurisdictions ... that provide beneficial taxation, as well as some European countries with high tax rates (Belgium, Luxemburg and Ireland). ... The list subsequently changed. All the U.S. territories, Belgium, Ireland, Luxemburg, Portugal, Barbados and some others were removed and the list was reduced to 41.
The speed with which Luxembourg, Belgium, Ireland and Austria got off the list, has given rise to speculation that once again, Cypriot officials were caught napping and either did not see the Russian move coming, or as is the case most of the times, could not be bothered to act. ...
Pieris Markou, Head of Tax Services Deloitte, Cyprus told the Financial Mirror that in recent years Cyprus has seen a tremendous growth of Russian companies expanding abroad and playing an important role in the global markets. Many such companies are seeking listings on global financial markets.
"The above exemption of dividends is an attempt by the Russian government to encourage the flow of income back to Russia. With the inclusion of Cyprus on such a black list, it is inevitable that overseas investments by Russian multinationals would find their way to other jurisdictions and leave Cyprus as a second choice," said [Pieris] Markou [Head of Tax Services Deloitte, Cyprus].
He added that the Cyprus government as well as the private sector has been very active in its attempts to exclude Cyprus from the blacklist but as yet without any success. "I am confident that the efforts will continue, but we understand that the problem does not lie with the specific provisions of our tax legislation but are more in connection with the exchange of financial information between the Cypriot and Russian authorities," he said.
Sounds about right. Big country tells small country to fork over tax-related information on demand, or be blacklisted.
[Peter G. Economides, Chairman of the international tax consultants Totalserve Management Ltd.] explained that the positive aspect of the whole issue is that most Cyprus- registered companies are not subsidiaries. "In fact, most Cyprus companies are Cyprus holding companies that receive dividends from Russia as opposed to paying dividends to Russian companies, and therefore completely avoid taxation.
"The problem that arises is that maybe certain dividends from countries like The Netherlands will be completely tax-exempt in Russia, given that Holland is not on the blacklist, which will give them an advantage over Cyprus. In our opinion, even if Holland is not on the blacklist and our efforts to remove Cyprus from the list take time to bear fruit, there are still ways to get around this problem, such as, for example, using a Dutch company as an intermediary company, thus avoiding taxation."
Lots of ways to skin a cat in this case. There always are.
Angelos Gregoriades, Senior Tax Partner at KPMG told the Financial Mirror that while the Cyprus government should intensify its efforts at the highest level to be removed from the blacklist ... Russian experts, however, do not believe the new blacklist will be that important, because the major companies which are close to the Kremlin and are mainly enjoying the income privileges, do not as a rule use shady offshore schemes, according to a report carried by RIA Novosti.
When you are "close to the Kremlin and are mainly enjoying the income privileges," then probably no scheme at all is needed.
The amendments to the Tax Code will set zero tax on the profits from income companies receive [from their subsidiaries]. Until recently, the rate was 9% for Russian companies and 15% for foreign ones. Exemption from these payments was granted at the request of President Putin, who instructed the ministry to create stimuli for large companies to register at home. ...
"Because of the proviso requiring at least a 500 million rouble stake in share capital, only major companies affiliated with the state would be able to use the privilege, but they are unlikely to use some obscure offshore territory to register," [said Valery Tutykhin from the law firm John Tiner and Partners].
His forecast is that major investments in the foreseeable future will be channeled mainly through Luxembourg, the Netherlands, Austria and Britain, which are not on the ministry's list.
As for Cyprus, [Tutykhin] added, although on the list, it will remain attractive for Russian businesses, because the ministry's instruction will in no way affect the present tax-optimizing schemes involving local companies. It will not cancel the very convenient Russia-Cyprus agreement on avoiding double taxation either.
In addition, according to Ernst & Young partner Pyotr Medvedev, the limitation on using Cyprus to channel dividends is easily avoidable. For example, a Cyprus company can pay dividends to a Dutch one, while the latter will transfer the money to Russia where it comes under the zero tax application.
The tax advisors interviewed seem to be partial to Holland. It should be clear there are almost an unlimited number of ways to (legally) end around specific anti-tax avoidance rules, such as the one Russia introduced against remitted dividends from Cypress.
Additional link: here
ANTIGUA AND BARBUDA SURPRISED AT UK’S E-GAMING WHITE LISTING DECISION
It seems the small Caribbean nation of Antigua and Barbuda cannot catch a break. The U.S. passed an anti-offshore gambling law, in apparent contravention with the U.S.'s World Trade Organization treaty obligations, that badly hurt Antigua's economy. Dutifully pursuing the remedies available within the WTO treaty, the U.S. responded to the rulings in favor of Antigua by saying, in essense, "The WTO? How many divisions do they have?" The European countries who made noises about backing up Anitugua were bought off for a few pieces of silver (see here and here). Now, showing once that in politics no remedy means no shame, the UK has decided Antigua does not make its white list cut after "careful assessment of their representations against the published criteria":
The government of Antigua and Barbuda has expressed surprise and disappointment at the UK government's recent decision to leave the Caribbean jurisdiction off of its e-gaming "white list," preventing operators there from advertising their services in Britain.
In a low-key announcement earlier in the month, James Purnell, the UK government's Secretary of State for Culture, Media and Sport, confirmed that the Australian state of Tasmania was the only new territory to be admitted to the white list, following amendments to its tax legislation. ...
"We are somewhat taken aback by this announcement," Kaye McDonald, Antigua's Director of Gaming, responded. "Our country has extensive experience in the supervision of remote gambling." She added that the decision was all the more surprising because Antigua had been working with the UK government over the past few months to "sort out our few remaining issues" and had been fully expecting the UK to endorse its e-gaming regulatory regime.
New powers contained in the UK Gambling Act 2005 banned gambling adverts from companies operating outside the European Economic Area (EEA). The move meant that some popular gaming websites have been unable to advertize in the UK since September 1st 2007, when the Gambling Act came into force. The EEA comprises all member states of the EU plus Iceland, Liechtenstein and Norway. In this case, it also includes Gibraltar.
Last year, independent research suggested there were around 2,300 gambling websites worldwide. Antigua was considered to have the largest number with around 537 sites, followed by Costa Rica (474), Kahnawake (Canadian Reservation) (401) and the Netherlands Antilles (343).
Only the Channel Island of Alderney and the Isle of Man were able to demonstrate that they had in place a rigorous licensing regime designed to stop children gambling, protect vulnerable people, keep games fair and keep out crime.
Jurisdictions which wanted to be exempt from the ad ban had to pass a stringent assessment of their regulatory standards, including the ability to demonstrate that they adhere to fair tax principles, in particular, openness, equal availability and equal treatment.
It is nice to know that all members of the EEA "rigorously" stop children from gambling, protect vulnerable people, keep games fair and keep out crime -- so one assumes, anyway. Must be be something in the air that side of the Atlantic.
$48 MILLION IN FLORIDA COUNTY’S TAX MONEY FROZEN
The St. Petersburg Times reports another instance of subprime termites coming out of the woodwork:
Frustrated and angry city officials blame the county tax collector because some of their property tax revenues have been frozen.
Municipalities are not the only ones affected. None of [County of] Pinellas' 47 taxing districts are able to tap some money they are supposed to get from property taxes. And they face the possibility of forever losing some of that funding.
The money -- a countywide total of $48.1 million -- was in a state-run investment pool when the State Board of Administration froze the fund in late November to prevent a run on the account.
Cities, counties and other taxing authorities began pulling investments out of the pool late last year as the stock market began tanking and it became obvious that some of the pool's investments were not performing well. Embarrassed state officials are investigating why those investment decisions were made.
How about because the "investment" decisions did not seem like such a terrible idea at the time. It was the middle of a mania. Everyone else was doing it. Those smart men from Wall Street explained how everyone was going to achieve extra returns, with only minor additional risk, by investing in a market -- people who did not qualify for standard mortgages -- that had been inexplicably overlooked heretofore. Sounded convincing coming from the experts ...
In the meantime, local governments across the state have to deal with the fallout.
"It's absolutely still locked up, (but) the money's there," Pinellas Park City Manager Mike Gustafson said ... "No one's real happy with the situation, but we're all trying to wait and see what happens statewide."
The freeze on funds is bad enough for cities that have already been hit by a tax cut, but they have other revenue streams, such as franchise fees. Gustafson said Pinellas Park is in good financial shape and, if necessary, will take money from its contingency fund to cover the frozen funds.
It is unclear how the freeze will affect St. Petersburg, which, of the cities, has the largest amount frozen -- $3.2 million. ... But some taxing authorities, like the Lealman Special Fire District, have no source of revenue other than property taxes. Right now, $135,876 of the district's money is frozen. "It's not that big of an impact right now," Lealman fire Chief Rick Graham said. "If it becomes (permanent), we're not going to make payroll." ...
City leaders fault [Lealman tax collector Diane] Nelson for failing to pull the money out of the investment pool before the freeze took place,failing to tell the cities in a timely way what she was doing with their money, and for placing more money than expected in a fund consisting of investments that could prove to be worthless.
The rest of the article goes into mechanics about what happened vs. what could have happened to have avoided the hit. None of that would matter if the tax monies had been parked in someplace sound, rather than reaching for yield or subcontracting the job to someone else -- the state-run pool managers. Some lessons one might draw here:
(1) People do foolish enough things with their own money. When they are managing someone else's there is that much less motivation to avoid that.
(2) Bad assets backed by subprime mortages, and many other loans credulously made in the later stages of the credit mania (real estate was only the most visible manifestation), are going to show up in lots of unexpected places going forward. Be careful.
HOW TO BLOCK GOOGLE ANALYTICS FROM TRACKING YOU
Among all the security risks one encounters online, Google Analytics (aka Urchin) -- a service that helps website owners analyze how users use their sites -- is arguably a lesser one. Be that as it may, it is widely used and adds to page loading times in your browser. Each page that accesses the service has to go grab a script file from Google's servers. The extra time adds up when aggregated over all the pages. And the privacy loss from the tracking may be minimal currently, but Google is not overly trustworthy in this department. Here is a simple trick to neutralize Analytics (with extreme prejudice):
Not all website visitors like to reveal their details to the website owner. If you are one of these visitors, you can block Google Analytics from tracking your visits by adding the following line to your Windows Hosts file. [For example: C:\Windows\Hosts (no file type extension for Hosts).]
# [Google Inc]
Google Analytics (also known as Urchin) is a service from Google that helps website owners analyze how users use their sites. Information about your use of a certain website (including your IP address) can automatically be transmitted to and stored by Google using cookies.
The above Hosts file line short-circuits the process by telling your browser that the Internet Protocol address for the google-analytics.com domain is a dummy address local to your machine. When your browser looks there, no javascipt file is found, no file can be incorporated into the webpage at hand, and no time is wasted finding or loading the code.
Note that the Urchin scripts are not cookies per se. Cookies are small text files placed directly on your machine that website owners can later read from -- if you allow them to. The security risks of and blocking techniques for cookies is a different subject.
Postscript: The fix works like a charm.
HOW LOW CAN YOU GO AND STILL RUN LINUX?
Once you discard Windows along with its cost and bloat, the ground is the limit.
When you shed Windows in favor of Linux, you shed cost and bloat. Minus that bloat, without loss of functionality you can now lower costs further by using a lower powered machine. How low? You might be surprised ...
I remember when getting a decent PC would set you back at least a grand. Then it was $500. Now, it is $150!? That is the story that small vendor LinFX wants you to buy along with its PC with pre-installed Linux.
How does LinFX manage to sell a fully operational computer with a 15-inch display for $150? Well, while the Linux distribution, PCLinuxOS 2007, is a state-of-the-art 21st century desktop Linux, the hardware, an IBM NetVista desktop with a 900MHz Intel Pentium III and 256MB of RAM, is right out of the year 2000.
Back in its day, this system ran either Windows ME or Windows 2000. Today, if you are a Windows user, it is a doorstop. For a Linux user, though, this refugee from the junkyard is actually still a useful computer.
It is not, let's be real, a good computer, but it is a decent Linux desktop PC for a user who wants no more than basic home or office applications and Internet access. It comes with a 20GB IDE hard drive, a 40x CD-ROM drive, a 100M-bps Ethernet port, keyboard, mouse and a PCLinuxOS 2007 LiveCD. For an additional $15, you can get it with 512MB of RAM. ...
[S]ince IBM got out of the PC-building business in 2005, I do not expect this deal to last for long. Still, it does make two points. The first is one I think anyone who pays attention to Linux desktop computing knows: New, inexpensive PCs that could never run Vista do great at running Linux. ...
The other point, though, is that old PCs do just fine as Linux desktops as well. ... I am talking about computers that can run a modern graphical desktop Linux. In my own home office, I have several 1GHz systems with 256MB of RAM running OpenSUSE 10.3.
Linux manages this because even a full-blown desktop Linux, like OpenSUSE or PCLinuxOS 2007, requires far less from a PC than Vista or XP. You can push even farther into computing's past if you use a lightweight desktop Linux distribution. So, if you have a computer based on a 486, a 60Mhz Pentium or the like sitting in the attic and you would like to give it a new lease on life, I recommend checking out one of the following Linux desktop distros.
I have always liked MEPIS for its stability, helpful user community and the way it stays current while never going over the bleeding edge of innovation, so it should come as no surprise that I also like MEPIS AntiX 7.01. This is the lightweight version of SimplyMEPIS 7.0.
It is designed to run on Intel-based PCs equipped with as little as Pentium II processors and 64MB of RAM. It does not, however, work and play well with systems using AMD K5/K6 processors. It uses the Fluxbox desktop instead of SimplyMEPIS's KDE interface. AntiX also uses lighter-weight applications than MEPIS. For example, it defaults to AbiWord for word processing instead of OpenOffice Writer 2.3. ...
The best known of the minimalist but everything-you-need Linuxes has to be Damn Small Linux. Or, as I like to call it, Damn Good Small Linux. The entire distribution comes out to a mere 50MB. Tiny size and all, it still uses the Fluxbox GUI for its desktop. That said, with this distribution you are still going to find yourself using CLI (command-line interface) applications a lot of the time. On the other hand, you can run it on slow 486 systems with 16MB of RAM. It also makes an excellent system repair operating system since you can boot it from almost anything. ... I always keep a current copy around for system fix-ups.
Zenwalk 4.8 ... deserves more attention. This Xfce-based distribution is not quite as light as the others. Its creators recommend that you use it with a Pentium III or better system ... One thing I like about Zenwalk for new Linux users is that, unlike many "kitchen sink" distributions, Zenwalk comes with a single application for each use. ... You might disagree with their choices, but making things simple for new users makes good sense to me.
Finally, I would be remiss if I did not mention that the PCLinuxOS community has just come out with its own lightweight distribution, MiniMe 2008. This is a KDE-based Linux desktop and essentially it is a stripped-down version of PCLinuxOS 2007.
SIMPLYMEPIS 7.0 IS A KEEPER
Previous versions of SimplyMEPIS have received favorable reviews. Now version 7 is out, and the reviewer from Linux.com is favorably impressed.
The long awaited SimplyMEPIS 7.0 was finally released just before Christmas, and it was worth the wait. In this mature and sometimes underrated operating system, everything looks good and works well.
Because I was familiar with previous MEPIS versions, the first thing I noticed in 7.0 was the lovely new artwork. ... It shows attention to detail and indicates that an enjoyable user experience is one of the main priorities. ...
SimplyMEPIS has found the balance between user-friendly and advanced options with its hard drive installer. It is basically a configuration wizard that requires users to select options from drop-down boxes or input data in text areas. It includes all the basic steps usually required, such as choosing the disk, partitioning the disk with GParted if necessary, and choosing the target partitions and filesystem types. There is no package selection; the KDE desktop and the same set of applications is installed on all systems. After the installation, you can choose whether and where to install GRUB (GRand Unified Bootloader), whether to built an initrd, and which common services to enable. You can also input the computer name, hostname, and Samba workgroup name, set locale and keyboard, and set up the user accounts and root password. It is all easy and straighforward.
I was pleased with MEPIS's hardware detection and configuration. My display was correctly configured to use the desired 1280x800 resolution, a welcome sound greeted my first login, the volume controls worked on my keyboard, and my wireless Ethernet adapter was ready for the input of my Wi-Fi Protected Access passkey. ...
SimplyMEPIS has one of the widest selections of help methods in the Linux community. It begins on the desktop with the MEPIS Users' Manual, one of the most comprehensive and thoughtful guides I've reviewed. It contains sections for most of the common areas of desktop computing with explanations suitable for new users as well as enough depth for anyone more experienced. An online wiki offers more information, guides, and how-tos. ...
SimplyMEPIS has always been and remains one of my favorite Linux distributions because of its no-nonsense approach to the user desktop. It contains virtually all the things I desire in a desktop and does so in a logical and easy-to-use manner. Its selection of included software is well-rounded and intuitive without a lot of overlap. It is one of the rare systems that is equally appropriate for new users and the experienced. I always keep a version of SimplyMEPIS installed so that no matter what else I do to my laptop, I will always have at least one system that will work when I need it.
SimplyMEPIS continues to be at the top of the short list of systems I recommend when asked which Linux distro to try. It is one of the best distributions available today. It is SimplyWONDERFUL.
RON PAUL VS. THE EMPIRE
Several months ago, Steven LaTulippe wrote a column describing the strategy the establishment would use to attack Ron Paul's candidacy. Trying to ignore him has failed. So has ridicule and fear mongering. The next strategy element was scandal -- real or fabricated -- which we now have seen in the form of a shameful article in The New Republic. In that harangue, James Kirchick accused Rep. Paul of authoring a series of articles that insulted blacks, gays, and a myriad of other "groups".
Ron responded quickly, in a Reason interview, saying that he did not write the articles in question and did not edit them. To his credit, he did take moral responsibility for inadequately policing the content of a newsletter associated with his name. LaTulippe goes on to dissect the blatant hypocrisy behind the hit-piece:
As has been exhaustively documented, [the Iraq] war was launched in a fog of lies, propaganda, and fabricated intelligence. So now, five years into the war, we are forced to endure an attack by these same neocons, who are accusing the one viable antiwar candidate of ... what?
Even if Ron Paul wrote every word in every one of those articles, how does that compare to the death and destruction the neocons have rained down on Iraq? It takes unimaginable chutzpah, nearly pathological gall, to stand amid mounds of smoking corpses and accuse Rep. Paul of cultural insensitivity.
Has America become so politically egocentric, so utterly consumed with its own cultural fetishes, that we could tolerate watching those who perpetrated the Iraq atrocity (or who supported it) smear a decent man for inadequately supervising a newsletter?
If Ron Paul's candidacy is now tainted for (allegedly) slandering people of color, what should be the political punishment for Giuliani, McCain, Romney, and others who supported mass death and dismemberment of a third world country? ... Are we to be spared nothing?
Certainly pathetic. Now, putting that faux campaign issue behind us, where it belongs, and examining what is really up in this election:
In a very fundamental way, there are really only two candidates running for president this year: Ron Paul, and all the others. This is because there are really only two issues at stake.
The first issue is our out-of-control foreign policy. America is embroiled in shooting wars in Iraq and Afghanistan. We spend more on our military than nearly the rest of the world combined. We have troops stationed in over a hundred foreign countries. Manic interventionism has stretched our military to the breaking point, and has ruined our nation's reputation.
The second issue is our impending economic implosion. Our government, which has shed the last vestiges of constitutional restraint, has made a myriad of promises that it cannot keep. Our outstanding obligations to fund social security, government health care programs, and everything else under the sun are rapidly bankrupting our nation. To maintain these Ponzi schemes, the Fed is debasing our currency and igniting an ugly bout of hyperinflation.
Our predicament is severe and profound. We must immediately begin to shed our overseas obligations and put our domestic house in order. Otherwise, we will find ourselves reenacting the collapse of the Soviet Union right here at home.
Ron Paul is the only candidate who is willing to address these issues. He is the only one who is willing to speak frankly with the American people about our predicament and the painful actions which must be taken to prevent a real catastrophe.
And rather than offering solutions, Obama, McCain, Clinton and Romney, (and the other political hacks running for president) are not even willing to talk honestly about the problems.
... [T]he reason for this is simple: The establishment benefits from the status quo and would be disempowered by Ron Paul's proposed solutions. ... Ron Paul is running on three ideas:
This is not a political agenda. This is not a party platform. It is a revolution. The entire ruling oligarchy would be swept away if these ideas were ever implemented. Every sentence, every word, every jot and tittle of this agenda is unacceptable, repellent and hateful to America's ruling elite.
- The federal government must function within the strict guidelines of the Constitution.
- America should deconstruct its empire, withdraw our troops from around the world and reestablish a foreign policy based on noninterventionism.
- America should abolish the Federal Reserve Bank, eliminate fiat currency and return to hard money.
So let us all be forewarned. If Ron Paul's candidacy should rise to serious contention, that New Republic hit piece will be mild compared to whatever comes next.
The rulers of the universe will not go quietly.
A reenactment of the collapse of the Soviet Union is a reasonable assessment of the threat involved if the U.S. does not get its act together. And in some paradoxical ways the Russians were far better prepared for their collapse than Americans are for anything remotely similar.
HIGH PRIESTS OF POMPOSITY PAN RON PAUL
The estimable Ilana Mercer weighs in on the Ron Paul political incorrectness imbroglio, giving the Beltway Libertarian sellouts a well-deserved verbal thrashing.
If you have missed the item about the politically incorrect newsletters published under Ron Paul's name during the 1980s and 1990s, and unearthed strategically by The New Republic, it is because Beltway libertarians are just about the only ones still "spilling pixels" over the affair. Spilling pixels and beating breasts.
Especially inconsolable over the unsavory newsletters, none of which bore Ron Paul's byline, are the Reason magazine and Cato Institute claque -- excrescences on the D.C. establishment both.
Ron Paul's supporters are certainly not reaching for the smelling salts. They remain focused on the Paul platform. They understand that in Paul his opponents have found a man who has led an exemplary life -- has served his country and community, stayed married to his childhood sweetheart for 50 odd years, and is as devout a Christian as he is a constitutionalist. It is not easy to impugn this impish, good-natured man, so mudslinging becomes a must.
Because the Beltway characters believe they are at the center of the universe, they imagine that: (1) The Paul Revolution revolves around them and their "ideas," and (2) In the unlikely event the Revolution was started without them, it has to be insignificant. As usual, they are wrong.
Ron Paul is not running as a Libertarian, but as a Republican with a strong libertarian sensibility. Ron's Revolution is revved, for the most, by independents, defecting Democrats, and disgruntled Republicans for whom his message is fresh and intuitive.
What are the odds that Rep. Paul's followers have come to the philosophy of freedom through Reason magazine? Is it remotely possible that the passionate soldiers of the Paul Army enlisted after chancing upon a dispassionate, desiccated, dry-as-dust disquisition on a free market in kidneys (I am all for it)? I think not. ...
Ron's Revolutionaries have coalesced around the illegal, immoral and unconstitutional invasion of Iraq, against America's hegemonic overreach, and for a sovereign, less "cosmopolitan" America.
Beltway libertarians, conversely, are moved in mysterious ways by gaping borders, gay marriage, multiculturalism, cloning and all else "cool and cosmopolitan."
Contra Paulites, Beltway libertarians have generally supported the Iraq war, although they have cooled to it since the war lost some of its Cool Quotient. In fact, I suspect the Reason crowd supported Paul before opposing him because the Paul Revolution is so groovy. Reason is all about the groove; gravitas, not so much. ...
[W]hile I have endorsed Ron Paul, aspects of his philosophy and strategy have not escaped my scrutiny. ... I have endorsed Ron Paul because, unlike most of Paul's pampered detractors, I happen to know what living without freedom is like: I left South Africa with the proceeds from the sale of my apartment stashed in the soles of my shoes. Had I been apprehended smuggling my property out of that country, I would have been jailed together with my husband; we both stood taller on that trip. Moreover, I have seen firsthand the same oppression sneak-up on unsuspecting Americans. For instance, the South-African model of detention-without-trial is slowly becoming a fixture of the American legal landscape.
So, when the prospects of liberty loom, carpe diem. Loving liberty viscerally means that when one encounters a man whose understanding of freedom and individual rights approximates -- if not parallels -- your own, you seize the day. Those who stand on the sidelines are slaves to abstractions -- and worse: They are mollycoddled milksops.
Paul's vision is as close to The Good Life as we could hope to come in the current ideological climate. Only tinny ideologues encased in worthless ideological armor -- worthless because it exists in the arid arena of their minds, not on earth -- would turn their noses up at the prospect of Paul.
IMF Article IV Consultation with the Bahamas Concluded
The [IMF] study observed that helped by prudent economic management over the past 30 years, The Bahamas now enjoys the third highest per capita GDP among Western Hemisphere countries, and social development indicators that compare favorably with other countries in the region.
Tourism and related activities account for roughly one-third of Bahamian GDP, and the financial sector, including a dynamic offshore center, account for over 20% of GDP.
Macroeconomic performance has been solid, the IMF went on to reveal. ... Inflation remains low at around 2.5%. The current account deficit increased sharply to 25.5% in 2006, reflecting imports related to the resort investments and higher oil imports. The rise in imports has been largely financed by foreign direct investment, but because of a decline in tourist arrivals, there has also been some draw down in international reserves. ...
The authorities' see the maintenance of macroeconomic stability and a positive investment climate as the best way to encourage private investment and ensure continued growth in employment and standards of living. ...
"Directors observed that The Bahamas' financial system remains sound and well regulated."
"They commended the authorities' efforts to further strengthen the regulatory and supervisory framework and bring it to international standards, including by modernizing the regime to combat money laundering and terrorism financing and introducing a risk-based approach to supervision."
Barbadians Vote for Change
Voters in Barbados rang in the changes in a general election ... voting out former Prime Minister Owen Arthur's Barbados Labour Party, and replacing it with a Democratic Labour Party (DLP) government led by David Thomspon, who has pledged reforms to make Barbados a more attractive place for private investment and asset management. ...
While the phrase "fiscal prudence" is a recurring theme in the section of the DLP's manifesto focused on economic policy, the Party has proposed some important changes to monetary policy that will further relax exchange controls and encourage more investment, particularly from non-residents.
U.S. to Issue Passport Cards for Trips to Caribbean, Canada and Mexico
Beginning in the spring of 2008, the Department of State will begin issuing the passport card to meet the needs of American land border resident communities for a less expensive and more portable alternative to the traditional passport book. The passport card will facilitate entry and expedite document processing at U.S. land and sea ports-of-entry when arriving from Canada, Mexico, the Caribbean, and Bermuda. The card may not be used to travel by air, but it will otherwise carry the rights and privileges of the U.S. passport book, and will be adjudicated to the exact same standards.
U.S. citizens may begin applying in advance for the new Passport Card beginning February 1, 2008, in anticipation of land border travel document requirements.
U.S. Senate Questions Wall Street Firms in Offshore Tax Probe
U.S. Senators are reportedly investigating whether a number of high-profile Wall Street investment firms have improperly structured certain transactions to help offshore investors avoid hundreds of millions of dollars in U.S. dividend withholding taxes.
According to a recent report by the Wall Street Journal, the Senate Permanent Subcommittee on Investigations has subpoenaed at least four major banking groups ... on the use of derivative transactions by offshore investors, some of which may include large hedge funds.
Senate investigators are examining whether securities firms and banks acted improperly by failing to withhold U.S. dividend taxes on the transactions, the Journal reported, citing individuals familiar with the matter. Specifically, they are focusing on 21-day swap trades. Using these trades, clients would sell the bank stock for a short term when a dividend payment was scheduled. The bank would then pay the client the returns from the trade, including dividends. However, because the fund did not hold the stock at the time of the dividend payment, it could potentially avoid paying 30% in taxes on that payment.
It is understood that the potential loss to the US Treasury in dividend tax revenues could run to more than $1 billion.
21 U.S. States Facing Budget Shortfalls
At least 21 states -- including several of the nation’s largest -- face budget shortfalls in 2009, according to a new report. In the 14 of the 21 states that have already made specific estimates, the deficits are expected to total at least $29 billion for fiscal 2009 ... while another 5 states anticipate budget problems in fiscal year 2010, the Center on Budget and Policy Priorities stated in a report examining the short-term outlook for the states' public finances.
The report's authors, Elizabeth C. McNichol, a Senior Fellow specializing in state fiscal issues, and Iris Lav, Deputy Director of the Center, attribute much of the blame for the looming state fiscal crises to the bursting of the housing bubble, which has depressed state property tax revenues, as well as state sales tax revenues, as demand for household goods such as furniture, appliances and building materials declines.
The authors also warn that the situation could be exacerbated if unemployment rises, as states will collect less income tax, consequently depressing sales tax revenues further as consumption falls.
IRS Publishes Fiscal 2007 Enforcement and Services Results
The IRS ... published details of its progress in a number of key enforcement areas in fiscal 2007. According to its report, the IRS has continued to make strong progress in a number of these areas, and is showing "consistent improvements in areas critical to maintaining a fair, efficient tax system while bringing billions of additional dollars into the Treasury".
It stated that: "The IRS enforcement efforts increased again in fiscal year 2007. For instance, during 2007 the IRS audited 84% more returns of individuals with incomes of $1 million or more than during 2006. Overall, enforcement revenue reached $59.2 billion, up from $48.7 billion in 2006 and nearly $34.1 billion in 2002."
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