Wealth International, Limited (trustprofessionals.com) : Where There's W.I.L., There's A Way

W.I.L. Offshore News Digest :: March 2009, Part 4

This Week’s Entries :


We are long past the point where doing nothing is an option.

Here at Casey Research, we are trying not to be overly pessimistic, but there is no denying the mass of bad news coming to us from all fronts: The forces of collectivism are using the cover of the crisis they largely created, aided and abetted by capitalism's quislings, to roll over the individual.

Even so, contained within the dire reportage is also some very good news for you personally.

The Bad News

As fully anticipated, with its first budget plan, the Obama administration has fired a salvo into the side of the productive classes. (For those of you who are not U.S. citizens, feel free to use Team Obama as a proxy for what is likely to occur where you reside.)

Yes, we expected the $1.75 trillion budget deficit, which will, by the time all is said and done, come in a lot closer to the $2.5 trillion number anticipated some months ago by our Chief Economist Bud Conrad.

Yes, we expected the government to begin raising taxes, which they are proposing to do with vigor -- starting with an increase of $1.4 trillion on the people who earn in excess of $250,000 a year. "Right on!" shouts the mob, on the way out the door to burn Porsches (which, Bloomberg reports, is now becoming something of a trend in Germany's capital, Berlin).

For no other purpose than to keep the record straight, it is worth noting that thanks to the government's steady dose of inflation, $250,000 today will only buy you 77% of what it would have in 1998 ... and 56% of what it would have in 1988.

A decade from now, given the inflation rate we expect, the dollar's purchasing power will erode by another 50%, and probably a lot more than that. In fact, at the current rate of money creation, by the time the dust settles, $250,000 might be the annual wage commanded by burger flippers.

But, hey, look at the bright side, at that point everyone will be rich!

The further details of Obama's budget plan are a hodgepodge of this and that, some of which we even agree with (like cutting business subsidies). On the whole, however, the overarching mandate appears to be to thrust the hand of government, like some motion picture kung fu villain, deep into the heart of American enterprise.

And government's expansion is far from over. The news continues to pour in ... There is more, so much more, including a $638 billion reserve fund for healthcare reform in the president's budget that loudly broadcasts that, "Yes, we are going there." There being nationalized health care.

However, there's also some good news to be found in the way things will be.

The Good News

My fellow citizens of planet Earth, it is now abundantly clear that the trend toward socialism in all its many disguises is about to, once again, shift into high gear.

We have been here before, encouraged by the words of Karl Marx, a distinctly unsuccessful individual (to read his life story is to read of almost unending misery, poverty, and discontent) but a decidedly successful phrase-coiner, knocking the world off its axis with his "From each according to his ability, to each according to his need."

While no one with any real sense of history, not to mention economics, can take any overt joy at the prospect of the dark clouds of collectivism looming high in the sky above us, there is, if you pay close attention, a very big opportunity in all of this.

Namely, we are now presented with a relatively rare chance to see with some clarity into the future.

Imagine if eight years from now you could step into a time machine and zip right back to this very moment. How much money do you think you could make?

Well, just because the chattering masses have the blinders on as they march forward to their collective penury does not mean we need to join them. And, if we are even a little bit careful, we won't.

So, what is it about the future we can now see? Some broad strokes ... ... Provided you keep your personal wealth profile low (there was a reason Sam Walton, founder of Walmart, drove a beat-up pickup truck), your financial powder dry, and, maybe most important of all, retain your sense of humor, the opportunities in the unfolding crisis will be abundant.

Whatever you do, do not be complacent about what is coming.

We are long past the point where doing nothing is an option. Review your personal finances, cut out unnecessary expenses, talk to your accountant about tax planning, and, if you are a U.S. citizen, consider moving at least some of your wealth out of the country while you still can (but please, do not try to hide it ... that is a fool's errand). If you own gold, only you and your spouse, if you have one, should be aware of it.

Ask yourself, "If I just dropped in from eight years in the future, what measures would I take?"

Now, take them.


Why America’s currency – and government – is headed for total collapse.

Author, "natural health researcher" and entrepreneur Mike Adams offers his vision about how the great experiment known as the United States of America will wind down. Not necessarily a bang, nor a whimper, but a sudden collapse. The emperor's clothes will be revealed for what they are: nothing.

It sounds similar in many ways to the collapse of the Soviet Union ca. 1991-92. Adams recently moved to Ecuador, seeking more freedom and stability, and evidently a place to watch the collapse from other than in the center of it.

I recently moved to Ecuador. Not for a vacation. Not for a month or two. I moved to Ecuador for good, as a permanent resident. Upon hearing my plans for living in South America, many people who knew me in the States asked things like, "Well what about the stability of Ecuador as a nation?" To which I would respond, "Oh, you mean the stability of banks that do not make loans and do not invest in derivatives? You mean the stability of a nation where the population still has the courage to march in the streets and throw corrupt officials out of its capitol?"

These questions make Americans pause. Most tend to think of public demonstrations as signs of a political instability. But in fact, public demonstrations are a sign of a healthy Democratic process. And Democracy is alive and well in Ecuador (with the usual level of corruption you find in any democracy).

It is in America, where the sheeple have been terrorized into staying inside the boundaries of their little "protest zones," that you find a fragile, unstable nation.

Through complacency and fear-mongering, most Americans have become cowards when it comes to political activism. They think emailing their Senator a few times a year is all that is required to defend freedom and preserve a nation. Marching in the streets is seen as uncivilized ... or even unpatriotic! The government agrees with this, too, now labeling anyone who protests in public a "potential terrorist" and targeting them for FBI investigations.

The multi-trillion-dollar theft scheme.

In the mean time, while the sheeple of America are caught up in their hypnotic dreams of world domination, white-collar hoodlums in Washington D.C. and Wall Street are stealing everything!

The oft-repeated creation of $1 trillion in new money out of thin air by the Federal Reserve has made the U.S. dollar the laughing stock of the world. The leaders of the G20 nations have already decided to ditch the dollar and shift to other world reserve currencies, and China is now blatantly and publicly asking the U.S. put up some kind of collateral to back up future debt purchases, to which the U.S. says "Don't worry about the debt. We are good for it!"

And when $165 million in bonus money got paid to AIG employees, the tyrants in Washington demonstrated the true reach of their confiscatory punishment by enacting, within mere days, a 90% income tax rate on those bonuses. Sure, I agree those AIG executives deserve no bonus money, but the fact that the legislative branch of the U.S. government can reach out and hammer a targeted group of U.S. citizens with a retroactive 90% income tax rate should send shivers through any American that earns any income at all.

It has all taken on the caricature of a political circus. The perception around the world now is that America is not merely a land of the incompetent and the bankrupt; it's also a land of fiscal buffoons and political puppets who have no real ability to save the crashing economy.

The Fed’s plan to increase the money supply 15-fold.

But the real story starts to unfold when you realize the Federal Reserve is now hell bent on multiplying the U.S. money supply by a whopping 15 times in 2009! This excellent article explains how this number is derived.

Now think about this: If the Federal Reserve increases the U.S. money supply by a factor of 15, that means your dollars will be worth only 1/15th the value they represent right now. So a loaf of bread that costs a dollar right now could cost $15 when all this extra money ripples through the system. (Which will obviously take a couple of years, but 2009 will be the beginning of it.)

This is called "hyperinflation." We are talking about a loss of over 93% of the purchasing power of the dollar. That, my friends, is called a collapse of the currency.

And once it starts, the floodgates will be opened and the tsunami of investors and nations offloading dollars will be catastrophic and irreversible. By the time it is all done, the dollar might end up losing 99.9% of its value, and you can use greenbacks to light a fire or wipe your back side, as they will be useless for anything else.

Why America’s currency – and government – is headed for total collapse.

That is why I say America's days are numbered. The America as we know it, at least. This repeated creation of trillions of dollars in new money by the Federal Reserve is the last great looting of the U.S. economy by the wealthy elite. The Titanic is sinking, and high officials have monopolized the life rafts, leaving everyone else to drown with the ship. And while they are rowing away from the doomed vessel that is taking on water, they shout back to the low-income workers clinging to the rails, “Don’t worry! The ship isn’t really sinking. It is just ‘correcting!’”

The truth is that America IS sinking -- and it is not just the currency I am talking about here: America's criminal health care system has sickened the population and outlawed any real healing practices, too. Meanwhile, the FDA and FTC have attempted to destroy all knowledge of natural remedies that can prevent and cure disease, further compromising the future of the American People.

On the dollars-and-cents side, America's economy is a fictitious mish-mash of corporations selling poisons to the people, and people buying junk they do not need, and everybody paying through the nose for disease care services that ultimately provide no net benefit to the population.

America's infrastructure is crumbling, its industries are already gutted, and its exports resemble Third World agricultural nations more than First World developed nations. Its political leadership is, with very few exceptions, a band of diseased, ignorant influence peddlers who sell out their constituents at every opportunity.

Perhaps more importantly, America has abandoned the principle of law. Laws no longer matter in America because they are selectively enforced only against those who threaten powerful institutions or corporations. America is no longer a nation of freedom and justice for all. Rather, it is a nation of greed and profit for the few, followed by oppression and bankruptcy for everybody else.

What is coming soon for America.

Given these circumstances, it is not difficult to predict the demise of America as we know it. The U.S. dollar will eventually collapse or be abandoned. This could happen literally overnight, or it could take years, but make no mistake: The American people will not be forewarned of the collapse of the dollar. It will be a sudden, surprise announcement, and all the politicians and banking elitists who engineered the whole thing will pronounce their "shock" that such a thing could happen! "We could never have predicted this," they will insist, even while the whole thing was actually engineered by the very same people.

One day, Americans will wake up and discover that all banks are on "bank holidays" (which means that someone in Washington is taking a holiday with your money while YOU cannot access it).

Within hours, the National Guard will roll into the cities of the United States, and Americans will find themselves penniless prisoners in their own country. Anyone who protests will be arrested or shot. Law will be dispensed at the end of military rifles, and the President will get on television and explain how this is all being done for YOUR benefit! It is for your own safety and protection, didn't you know?

From here, it is difficult to say exactly what will unfold. We could see UN troops on U.S. soil, the IMF taking over the U.S. banking system, and the forced transition to a global currency. Other possibilities include the Balkanization of the formerly-united States of America, with regional nation-states declaring their own independence from Washington.

During this chaos, just-in-time delivery of food and products will grind to a halt. Store shelves will be emptied. A healthy economy of barter will immediately spring up to fill the void. Those who have things to trade (toilet paper, butter, salt, sugar, matches, gold, silver, food, fuel, etc.) will eat. Those who do not will starve. Health will plummet and infectious disease will become a very real threat in many cities. The conventional medical system will, of course, be utterly useless and will run out of medicine within days or weeks.

This economic transition chaos will be short-lived, however, and from the ashes of economic turmoil will spring a new nation (or nations) of People who have finally awakened from their complacency. New governments will be forged, and the fields of economic ruin will be ripe for the planting and sprouting of new ideas from a new generation of visionary leaders.

In my related article called "How to Create A Healthy, Wealthy, Abundant Nation from the Ashes of America's Demise," I discuss some advanced ideas of how new nation states might structure themselves in a way that creates lasting health, wealth and abundance for its citizens. Read that story on the other network I write for.


The national movement for U.S. state sovereignty.

A nascent U.S. “states’ rights” movement has surfaced in response to the now crushingly overbearing federal government. So far 15 state “sovereignty” resolutions have been introduced, mostly by Republican legislators. This looks suspiciously like a case of the outs reacting to the fact that they are no longer in (due to Obama replacing Bush) rather than on principle, but some sponsors are Democrats and some Republicans introduced similar resolutions when Bush was still President. Moreover, the Obama “stimulus” bills have been a major catalyst for the movement, as opposed to Obama’s assumption of the presidency per se.

Tellingly, and not the least surprisingly, this movement has been either ignored or sneered at by the mainstream media and by mainstream "conservatives," who are more interested in reassuming power than undermining the current holders of it. Neither can seriously acknowledge the movement for fear of granting legitimacy to the idea that the state is not omnipotent. So far we are lacking a sufficient number of truly dissatisfied citizens and a Martin Luther-like ringleader.

Summarizing the state of the state sovereignty movement, Jack Hunter writes: “For now, states' rights legislation promises to remain symbolic, unless actions by the Obama administration pushes state legislatures toward more radical methods of circumventing federal power -- or high profile, mainstream conservatives finally rally the troops by promoting what could potentially be the most serious right-wing resistance against the state in recent memory. Given Conservatism Inc.'s current track record, we are likely to see much worse from Obama before we ever get anything useful out of them.”

Sounds about right to us.

If there is one thing worse than urban elites at the New York Times, LA Times or the Washington Post who sneer at the mere hint of grassroots conservatism or populism, it is Midwestern and Southern "fly over country" journalists who strive to emulate them. In a column entitled "New states' rights fight emerges," Brian Hicks of Charleston, South Carolina's the Post & Courier wrote:
For a bunch of guys obsessed with 19th century history, our esteemed state lawmakers sure have not learned much from it.

Because the last time they got all uppity and started mouthing off about states' rights, we got our butts kicked.

Right now, the General Assembly is considering a resolution to warn the federal government not to overstep its bounds by imposing too many laws on the state. They quote the U.S. Constitution and their new favorite amendment, the 10th [Amendment], to remind President Barack Obama that “powers not delegated to the United States by the Constitution, nor prohibited to it by the States, are reserved to the States respectively, or to the people.”

Here we go again. Next thing you know, they will be shooting at the Park Service guys out at Fort Sumter.
Ah yes. How silly.

Pace Hicks, after our most recent Republican president took unprecedented liberties with the executive branch, and after the current Democratic president has promised something close to central planning, some state lawmakers have decided to take their stand. And their critics bray, "How dare any silly second or third-tier bureaucrats champion the Constitution!"

The South Carolina sovereignty resolution is but one of 15 similar state resolutions, mostly the product of Republican legislators fearful of, or looking for creative ways to circumvent, Obama's agenda. While everything from immigration enforcement to gun laws, healthcare mandates to abortion laws are mentioned in the various resolutions, the Democrats' recent stimulus is unquestionably the primary inspiration for this renewed interest in states' rights. Reports the Associated Press: "For small-government die-hards, the $787 billion economic stimulus bill recently passed by Congress is not a life saver. It is the last straw."

While these recent challenges to federal power are mostly symbolic, (only New Hampshire's resolution had teeth -- a "secession" provision -- which was ultimately defeated, 216-150) there are two interesting aspects common in each state's efforts.

(1) The sovereignty resolution resistance is coming almost entirely from the Right.
(2) They have virtually nothing to do with -- and seems entirely divorced from -- the national GOP establishment and mainstream conservative movement.

Consider the most ambitious challenge in New Hampshire, where resolution sponsor, Republican state representative Daniel Itse, took his cues from the libertarian Right. Reports the AP, “New Hampshire's Itse has ties to the Free State Project, which urges small government activists to move to New Hampshire. Many project members also belong to the New Hampshire Liberty Alliance, a states' rights group listing Itse as its political director.” “The New Hampshire Liberty Forum” sponsored by the Free State Project, was held at the beginning of March just a few weeks shy of the resolution vote, included multiple libertarian, decentralist speakers -- everyone from Itse himself, to Antiwar.com's Angela Keaton and even Lewrockwell.com contributors William Norman Grigg and Glenn Jacobs (aka World Wrestling Entertainment Superstar "Kane"). The NHLF's 2008 conference featured Sen. John E. Sununu as a keynote speaker -- who was joined by Ron Paul. Not exactly the typical Heritage Foundation or American Enterprise Institute gathering.

Oklahoma State Rep. Charles Key, sponsor of the "Tenth Amendment Resolution" told colleagues of his legislation, "It's a notice, like an eviction note from a landlord given to a tenant." Keys made his case on popular, yet still under-the-radar, national radio programs like Coast to Coast AM with George Noory (broadcast from Oklahoma City) and The Alex Jones Show, as well as popular local program Radio Free Oklahoma ... While such programs are often ridiculed for their focus on conspiracy theories, or in the case of Coast to Coast -- the supernatural -- their audiences are full of Right-leaning or libertarian-minded folks concerned about the loss of civil liberties, many of whom are especially fearful of George H.W. Bush's now-famous phrase, the “New World Order.” “What amazes me is how so few people can bring a nation of over 300 million under submission” Keys told Jones. The Tenth Amendment Resolution passed in the Oklahoma state legislature in February, 83-13.

Social conservatives in Idaho, including organizations like the "Idaho Values Alliance" and "Idaho Chooses Life," have been promoting 10th amendment legislation as a means of accomplishing what the Republican Party has been promising pro-lifers for the last three decades -- to overturn Roe vs. Wade, leaving abortion laws up the states -- or in this case, at least up to Idaho. Gun activists have played a major role in supporting sovereignty legislation, and Idaho representative Russ Matthews introduced legislation in February designed to protect firearms through states' rights measures. Combine pro-life and pro-gun with Obama, and you get reactions like that of state representative Dick Harwood who wrote in The Idaho Statesman:
It might seem strange that the Legislature is considering action to declare Idaho's sovereignty under the 10th Amendment to the U.S. Constitution. State sovereignty should be a given.

That is why I am sponsoring a joint memorial before the Legislature. Idaho must send a strong message to the president and Congress reminding our national leaders that the federal government was created by the states specifically to be an agent of the states. Unfortunately, over the years the states have become agents of the federal government.
Targeting Obama specifically Harwood writes:
As legislators, we need to keep fundamental states' rights in mind as we consider the federal stimulus package that recently was approved by Congress and signed by the president. Here are two big problems I have:
Not surprisingly, Harwood's economic language is similar to that of a few Republican governors currently resisting Obama's stimulus, particularly when it comes to excessive spending, "extended credit" and the strings attached to federal financial aid. In outright rejecting $700 million in stimulus, South Carolina Gov. Mark Sanford has essentially made the same argument as the various states' rights legislators -- in dictating the terms of stimulus dollars, the federal government is violating the 10th amendment.

While even sympathetic observers will admit that the current 10th amendment revival is a reaction to the new Democratic president, resolution sponsors are making special efforts to point out the constitutional, not partisan, intention of their efforts. Says Republican Michigan state Rep. Paul Opsommer, "Some Democrats feel it is an attack on Obama until I explain I also introduced it last year. ... This is about the rights of the states and the people, not anything to do with Republicans or Democrats." Primary sponsor of the pending Kentucky state sovereignty resolution, Rep. John Will Stacy, is a Democrat.

And they are making no bones about their dissatisfaction with aspects of the Bush legacy. Reports the Charleston City Paper of South Carolina bill author, Rep. Michael Pitts, "Pitts notes he first designed his bill in response to mandates that the state provide education and emergency medical treatment to illegal aliens. And it goes beyond that to other concerns, like the threat of stricter gun control laws under the new Democratic administration, Pitts says, as well as Bush-era policies, like No Child Left Behind and the Patriot Act." While a number of state resolutions mention the Patriot Act, virtually all of them include No Child Left Behind in their critique of overbearing federal power.

That the rise in state sovereignty challenges has been mostly ignored by the national news media is not surprising. That it has been ignored by the mainstream conservative movement is not surprising either, and speaks volumes about the "official" Right's tolerance for populist uprisings not of their own making. Heritage and National Review equate red-meat conservatism with Sarah Palin, who has already shown her willingness to be whatever her Republican handlers wish. His own man, Sanford continues to make headlines in spite of -- not because of -- GOP officials, and when speculating about future Republican leadership, the South Carolina governor's name is always listed after that of Palin, Bobby Jindal or Mitt Romney for a reason.

And the states' rights movement is not mentioned at all for the same reason. With the lone exception of Glenn Beck, conservative talk radio has ignored this new Obama-resistance -- an opposition with a constitutional framework that could bear teeth if state legislators felt they had enough support -- instead concentrating on opposing the president in the abstract. Talk radio bitches all day about Democrats Obama, Nancy Pelosi and Harry Reid, but offers no serious avenues of opposition outside of their hope that Palin, Jindal or Romney might save us by running for president in 2012. Nationally syndicated talk hosts, like their liberal, alleged enemies, concentrate on the Washington, D.C., power structure, because they, too, view it as the place where all power resides. And states rights' are not on the mainstream conservative movement's map because individual state efforts are considered too weak, not worth the effort -- and do not include the mainstream conservative movement.

For now, states' rights legislation promises to remain symbolic, unless actions by the Obama administration pushes state legislatures toward more radical methods of circumventing federal power -- or high profile, mainstream conservatives finally rally the troops by promoting what could potentially be the most serious right-wing resistance against the state in recent memory. Given Conservatism Inc.'s current track record, we are likely to see much worse from Obama before we ever get anything useful out of them. And states' rights-minded legislators, with no support from their national party or allegedly sympathetic "conservative" media, will be left to defend themselves and their constituents as little more than hyperbolic Confederate retreads, two steps from "shooting at the Park Service guys out at Fort Sumter" and one step from the loony bin -- for even daring to question the legitimacy of the omnipotent modern state.


But the denial continues.

Byron King looks at a host of symptoms manifesting in the financial and real worlds, and finds that very few are dealing with the reality of the situation.

Can you believe that winter is officially over? Wow, it was a cold couple of months. Makes you want to say, "So much for global warming."

Except it is not global warming anymore. Now it is called "climate change." Y'see, the cold winter was not a sign of warming. It was a sign of global climate change. Got that? Mankind is burning too much fossil fuel, goes the thesis. So the cold gets colder. The hot gets hotter. The wet gets wetter. The dry gets dryer. And the confusion gets what? More confusing?

So is this game rigged? No matter what the evidence is, goes the argument, just pay no attention to the man behind the curtain. It is all climate change. And that, of course, means that the government knows best. Especially when a certain class of people -- with the right policy credentials -- are running the government. As in the expression, "Trust us. We are experts from the government. We are going to help you." Or as the narrator used to say at the beginning of the show The Outer Limits, "There is nothing wrong with your television set." Or as the cops say as you drive past a crash scene today, "Move along, folks. There's nothing to see here." Yep. No looky-loo. Just climb aboard the Climate Change Railway Express. No peeking while we raise your taxes.

Decades of Malinvestment Become Apparent

Meanwhile, over the past winter, the economy was in the tank. The deep troubles got deeper. It makes me recall many of those hard times stories I used to hear from family and friends about the Great Depression. It makes me glad I listened.

This past winter, it seemed like all those decades of what the Austrian economists call malinvestment finally found a place in the light of day. But it is not as if the whole tale were some sort of state secret, like the Venona files at the National Security Agency or something. Really, the nation's industrial and productive decline was fairly clear all along if you knew what you were seeing. The problem has been hiding in plain sight since August 1971, when President Nixon killed any semblance of a gold-backed dollar.

Or it is kind of like Peak Oil. M. King Hubbert drew the fundamental Peak Oil graph back in the 1950s. Heck, I heard Hubbert give his speech in fall 1977. I saw Peak Oil in action back when I was working at Gulf Oil Co. in the late 1970s. It was no shock to me, at least, when the world's crude oil output curve finally maxed out in 2006.

What? Nobody told you that the crude curve maxed out? Hey, the world's marginal oil output is now mostly natural gas liquids. It means that we are blowing down the gas caps.

It is why I like resource and energy companies, companies that bring real stuff to the surface. It is why I will keep writing about energy and resources in a publication like Energy and Scarcity Investor.

Obama’s Economic Policy

I try to avoid getting too "political" in these pages, aside from my rants about issues affecting energy policy, resource policy and the like. So today I am just going to quote my friend James Howard Kunstler, a longtime Democrat and supporter of Barack Obama in the recent election.

Kunstler just published his comments on the Obama appearance on the CBS News show 60 Minutes on Sunday, March 22. According to Kunstler, Obama "may perfectly represent the majority who elected him ... because he also appears to be in full-commanding denial of the realities overtaking our American experience. Those realities include the fact that we cannot possibly return to the easy-credit and no-money-down 'consumer' economy, no matter how many nominal dollars get shoveled into the fiery furnaces of banks too big to fail."

After describing the economic policies coming out of Congress and the new presidential administration, Kunstler continues: "Lending on the scale that became normal over the last decade is, for sure, the one thing that we will not recover. We turn around in 2009 to find ourselves a much poorer nation than we thought we were a year ago, especially among that broad range of formerly middle-class wage-earners who lived so luxuriously until yesterday. The public cannot process this reality, and the president, for all his relaxed charm, is either not ready to articulate it, or cannot process it himself."

Kunstler describes the process of the Fed releasing new currency -- created out of thin air -- to buy up Treasury debt. He comments: "It would be sententious to explain how this destroys currencies, but wherever 'monetizing debt' has been tried before in history, that is the outcome. The result would be ruinous at every level and would lead straight to the second terrible force: social upheaval brought on by the conversion of economic problems into political turbulence."

In my view, Jim Kunstler is exactly on target with his comments. I am watching the shenanigans in Washington with something approaching utter fear. It is why I am recommending investments in gold and energy plays.

Spend, Borrow, Tax, Inflate

I am truly worried about our future. The things that are going on in the U.S. economy are not sustainable, and I do not just mean "happy motoring" into the Peak Oil future. The whole economy is on the edge. I do not see anything on the political or policy horizon that offers any semblance of hope. Nothing. It is just spend, spend, spend. Borrow, borrow, borrow. And tax, tax, tax.

What is in all of this for you? What is in it for me? A lot of inflation, most likely. That is why you need to buy gold with 5-10% of your portfolio. And have more of your portfolio in good, solid mining firms.

Building on Kunstler's comments just a bit more, the Obama economic policy assumes that someone out there will still buy U.S. Treasury paper. But will that happen? The best customers for U.S. debt are distinctly unenthusiastic about adding to their holdings.

The Chinese already own a trillion dollars or so in Treasury bills that are depreciating in value. Besides, China needs a continent full of new infrastructure, plus social spending for 1.3 billion people. And do not forget the new navy China is planning, with which to police its interests from Africa to the central Pacific Ocean and onto South America. All of this will sop up funds China once used to buy U.S. securities.

Another large traditional customer for U.S. debt is Japan. But Japan is running a current account deficit. It lacks the large numbers of dollars to recycle.

In the Middle East, the petro states are no longer receiving a flood of dollars from high-priced oil ($147 per barrel last July). Do not count on them to buy up U.S. Treasuries.

The bottom line is I don't know -- and I do not know anyone else who knows -- where the buyers will come from to absorb all the new debt that the Obama and congressional spending plans are going to generate. Something has to give. It is going to be the long-term value of the dollar. I expect to see a lot of fuel poured onto the fires of inflation.

That is all for today. Thanks for reading.


“Doing nothing” and letting failing companies fail would have been much better than sinking valuable money and resources into them.

Ron Paul, clear and succinct as usual, explains how and why all the bailouts and other efforts to preserve the status quo are counterproductive. Like very. Of course who backs the politicians who vote on this junk? The status quo beneficiaries.

The distraction on Capitol Hill this week has to do with the jackpot bonuses that executives at AIG recently received. The argument is over a relative drop in the bucket. The total amount of bonuses given out was $165 million. The government has put $170 billion into AIG so far. Many now are demanding we get this money back. We ought to be spending our time and effort doing something more worthwhile, like figuring out how the Federal Reserve is handling the trillions of dollars they are creating and pumping into the economy, and how that is affecting the purchasing power of dollars in your pocket.

The big mistake was appropriating the TARP funds in the first place. A Johnny-come-lately bill of attainder will not stop the spending epidemic. This whole situation is a perfect demonstration of why "doing nothing" and letting failing companies fail would have been much better than sinking valuable money and resources into them.

When a company makes a profit, it is a signal that it is taking resources and increasing their value while controlling costs. When a company operates at a loss, it is a signal that it is decreasing the value of its resources or letting out-of-control costs outstrip any value it has created. A company operating at a loss is therefore an engine of wealth destruction. Bankruptcies are a net positive for the economy because more productive competitors are rewarded by opportunities to buy up remaining assets at bargain prices to strengthen their operations. In an economy that allows this kind of growth and change, any jobs lost by bankruptcy are soon replaced by new ones as the most efficiently managed businesses gain access to more assets and expand.

Bankruptcy was the stimulus that we needed in the case of AIG. More bankruptcies would clean out malinvested resources and enable economic growth again.

AIG, by losing money and maneuvering their operations to the brink of bankruptcy, was telling us that they were inefficient. So what did we do? We forced the taxpayer to assume the losses, and now we are supposed to be shocked that it is not working out. Had AIG gone bankrupt, it would have been impossible to hand out these bonuses. The taxpayer would have been fleeced for $170 billion less last year. Had they gone bankrupt, the world would not have come to an end, it would just continue on with one less engine of wealth destruction.

We should have learned from Japan. The 1990s is referred to as Japan's "lost decade" because of the zombie banks kept on life support by the Japanese government. Any productivity was redirected through these engines of wealth destruction, resulting in long-term stagnation. We should and can avoid this outcome if we come to our senses.

A recession should be a time of strengthening and regrouping for an economy. But as long as the government insists on maintaining the status quo by propping up failed institutions, we will continue to dig a bigger hole for ourselves.

Ron Paul Predicts 15-Year Depression

Everyone has an opinion on the causes of and cures for today's economic crisis. What differentiates Ron Paul, as this article points out, is that he has been warning of the dangers to the world economy for nearly 40 years. Stopped clock that is finally right, or farsighted thinker? You decide. He sees no refuge from the crisis save gold.

Pension trustees and insurance company portfolio managers look away now. Your increased commitment to government bond holdings in recent times is about to blow up spectacularly. At least, that is the view of Ron Paul, the U.S. congressman who ran against John McCain in last year's Republican Party presidential nomination.

His is a minority view. ... But the credibility of both western governments and their currencies is waning, and has been ever since the gold standard was abandoned in 1971, says Mr Paul. And that means even "safe" investments are far from safe, he claims.

"People will start to abandon the dollar as current and past economic policies create a steep rise in interest rates," Mr. Paul says. "If you are in Treasuries, you will need to be watchful and nimble to time your escape."

Unfortunately, cashing out will not protect the value of investments, he insists, because "fiat" currencies will all decline over the coming years as measures to try to haul the world economy out of recession fail. "The current stimulus measures are making things a lot worse," says Mr Paul.

"The U.S. government just will not allow the correction the economy needs." He cites the mini-depression of 1921, which lasted just a year largely because insolvent companies were allowed to fail. "No one remembers that one. They will remember this one, because it will last 15 years."

U.S. dollar will implode between 1 and 4 years from now.

At some stage -- Mr Paul estimates it will be between 1 and 4 years -- the dollar will implode. "The dollar as a reserve standard is done," he says. He sees little hope for other currencies where central banks have also created too much liquidity dating right back to the early 1970s.

"Europe and the U.S. will both have to fundamentally change their money systems," he adds.

And do not even mention shares to Mr Paul: "The last place you want to be is in the stock market," he says. "It may not bottom out for 10 years -- just look at Japan."

Of course, everyone has a view on the credit crisis, its causes and putative solutions. What differentiates Mr. Paul is that he has been warning of the dangers to the world economy for nearly 40 years. "The breakdown of Bretton Woods was my motivation for running for Congress. I have been talking about the dangers ever since and warning that the control by central banks over the money supply would create an enormous bubble."

A deep recession had only been avoided up until now because of the efforts of successive governments to reflate the economy. But there are no more policy levers left, says Mr. Paul. "This is the big one."

Unsurprisingly, Mr Paul has been viewed as a crank in Washington, dismissed as a doomsayer and a party-pooper. His bill early this year to abolish the Federal Reserve was largely ignored. And his adherence to the Austrian School of economics, which predicted that fiat currencies would destabilise the world economy, has won him few friends.

"People do not like the Austrians because they are against big government, against armies and against the welfare state. To accept Austrian economics, you have to accept limitations of credit expansion and that is what has kept the government and financial firms in business for so long."

However, his views are, for the first time, being taken seriously in Washington. Like another politician who recently aimed for high office, Al Gore, Mr Paul's uncomfortable truths are starting to be deliberated at elevated political levels. "Before last summer, in meetings nobody really knew I was there. Now they often defer to me on economic matters. But you will not catch any of them admitting that publicly -- not yet at least."

He believes that markets will fall much further and inflation rise much higher before his fellow politicians recognize that the system has failed. "We are likely to see an inflation depression," Mr. Paul says. "In the 1970s, we had stagflation, but not depression. Inflation depression is what you see in Zimbabwe." ...

The investment options arising from the analysis are no more palatable. In fact, according to Mr. Paul, there is only one: gold. Such an unproductive asset (unless you are a jeweler) appears unattractive even with the gold price having risen 3-fold during the Bush administration. But Mr. Paul argues that the current price of about $900/ounce could look cheap in a few years.

"It is not so much that gold will go up but that fiat currencies will go down," he says. ... Mr. Paul, it should be noted, first invested in gold nearly 40 years ago when it was worth $35/ounce and holds a part of his wealth in the metal. But he is not alone: gold exchange traded commodities have seen record inflows in the past six months, most wealth managers now recommend a core holding and central banks are loath to sell their quotas. Indeed, Russia has even announced it is buying gold.

Nevertheless, most large institutions, including pension funds, have little or no gold holdings. Mr. Paul argues this is a mistake and decries the widely held view that gold is an anachronism.

"Gold is natural money and has been for 6,000 years," he says. "You just cannot repeal those laws. A scrap of paper, which the government can just add a nought to, will not do." He does not, though, expect the mainstream investment industry and its advisers to rush to the bullion vaults.


Once hailed as the economic superpower of the Middle East, Las Vegas on steroids now looks like a ghost town.

Dubai is one of the seven members of the United Arab Emirates federation. Unlike big brother Abu Dhabi, Dubai does not have large petroleum reserves, which only made a 6% contribution to its GDP in 2006. Dubai's rulers hoped to boost the economy by making the emirate a center for financial services, real estate and construction, and tourism. From today's perspective this looks like a formula, when combined with its proximity to so much oil wealth, for a super-bubble boom -- and now Dubai is suffering through a super-bubble-pop crash. Some who bought into the boom story are facing more dire consequences than just financial losses.

The Dubai government is striving to keep the extent of the crash under wraps, but real estate prices had fallen 30% in the 2-3 months prior to the publication of this article in February. Luxury car prices are off by as much as 40%. Once choked roads are mostly free of traffic.

Foreigners, who make up 90% of the emirate's population, must leave within a month if they do not find a replacement job. This is a desirable outcome compared to the alternative some foreigners are facing: In the flush of the boom some took on mortage and other debts to buy real estate, a car, etc. Now faced with debts they cannot pay off, they risk being thrown into debtor's prison. The lessons about being careful when assuming obligations in unfamiliar territory are clear. Bankruptcy is not always the worst possible consequence.

Sofia, a 34-year-old Frenchwoman, moved here a year ago to take a job in advertising, so confident about Dubai's fast-growing economy that she bought an apartment for almost $300,000 with a 15-year mortgage.

Now, like many of the foreign workers who make up 90% of the population here, she has been laid off and faces the prospect of being forced to leave this Persian Gulf city -- or worse.

"I am really scared of what could happen, because I bought property here," said Sofia, who asked that her last name be withheld because she is still hunting for a new job. "If I cannot pay it off, I was told I could end up in debtors' prison."

With Dubai's economy in free fall, newspapers have reported that more than 3,000 cars sit abandoned in the parking lot at the Dubai Airport, left by fleeing, debt-ridden foreigners (who could in fact be imprisoned if they failed to pay their bills). Some are said to have maxed-out credit cards inside and notes of apology taped to the windshield.

The government says the real number is much lower. But the stories contain at least a grain of truth: Jobless people here lose their work visas and then must leave the country within a month. That in turn reduces spending, creates housing vacancies and lowers real estate prices, in a downward spiral that has left parts of Dubai -- once hailed as the economic superpower of the Middle East -- looking like a ghost town.

No one knows how bad things have become, though it is clear that tens of thousands have left, real estate prices have crashed and scores of Dubai's major construction projects have been suspended or canceled. But with the government unwilling to provide data, rumors are bound to flourish, damaging confidence and further undermining the economy.

Instead of moving toward greater transparency, the emirates seem to be moving in the other direction. A new draft media law would make it a crime to damage the country's reputation or economy, punishable by fines of up to 1 million dirhams (about $272,000). Some say it is already having a chilling effect on reporting about the crisis.

Last month, local newspapers reported that Dubai was canceling 1,500 work visas every day, citing unnamed government officials. Asked about the number, Humaid bin Dimas, a spokesman for Dubai's Labor Ministry, said he would not confirm or deny it and refused to comment further. Some say the true figure is much higher.

"At the moment there is a readiness to believe the worst," said Simon Williams, HSBC bank's chief economist in Dubai. "And the limits on data make it difficult to counter the rumors."

Some things are clear: Real estate prices, which rose dramatically during Dubai's 6-year boom, have dropped 30% or more over the past two or three months in some parts of the city. Last week [in early February], Moody's Investor's Service announced that it might downgrade its ratings on six of Dubai's most prominent state-owned companies, citing a deterioration in the economic outlook. So many used luxury cars are for sale, they are sometimes sold for 40% less than the asking price two months ago, car dealers say. Dubai's roads, usually thick with traffic at this time of year, are now mostly clear.

Some analysts say the crisis is likely to have long-lasting effects on the 7-member emirates federation, where Dubai has long played rebellious younger brother to oil-rich and more conservative Abu Dhabi. Dubai officials, swallowing their pride, have made clear that they would be open to a bailout, but so far Abu Dhabi has offered assistance only to its own banks.

For many foreigners, Dubai had seemed at first to be a refuge, relatively insulated from the panic that began hitting the rest of the world last autumn. The Persian Gulf is cushioned by vast oil and gas wealth, and some who lost jobs in New York and London began applying here.

But Dubai, unlike Abu Dhabi or nearby Qatar and Saudi Arabia, does not have its own oil, and had built its reputation on real estate, finance and tourism. Now, many expatriates here talk about Dubai as though it were a con game all along. Lurid rumors spread quickly: The Palm Jumeira, an artificial island that is one of this city's trademark developments, is said to be sinking, and when you turn the faucets in the hotels built atop it, only cockroaches come out.

Hamza Thiab, a 27-year-old Iraqi who moved here from Baghdad in 2005, lost his job with an engineering firm six weeks ago. He has until the end of February to find a job, or he must leave. "I have been looking for a new job for three months, and I have only had two interviews," he said. "Before, you used to open up the papers here and see dozens of jobs. The minimum for a civil engineer with four years' experience used to be 15,000 dirhams a month. Now, the maximum you will get is 8,000," or about $2,000.

Mr. Thiab was sitting in a Costa Coffee Shop in the Ibn Battuta mall, where most of the customers seemed to be single men sitting alone, dolefully drinking coffee at midday. If he fails to find a job, he will have to go to Jordan, where he has family members -- Iraq is still too dangerous, he says -- though the situation is no better there. Before that, he will have to borrow money from his father to pay off the more than $12,000 he still owes on a bank loan for his Honda Civic. Iraqi friends bought fancier cars and are now, with no job, struggling to sell them.

"Before, so many of us were living a good life here," Mr. Thiab said. "Now we cannot pay our loans. We are all just sleeping, smoking, drinking coffee and having headaches because of the situation."


After you subtract out the forfeitures sought by prosecutors.

The claims about the value of assets Bernard Madoff would be able to preserve for his family despite the massive fraud he perpetrated are probably exagerated.

First off Madoff's own assessment of the value of his brokerage firm is a little rich -- it is not as though the Madoff name is one with a lot of goodwill value. Second, prosecutors are using their usual forfeiture tricks to grab everything in sight before the trial even starts. No tricky legal maneuvers during trial can defend against those losses. Third the sheer weight of the potential claims by all those he defrauded should overwhelm the assets still around.

The real puzzlement to us is where all the money really went. Madoff lived the high life all right, but plowing through billions of dollars in consumption per year without spending anything on durable, expropriateable, assets is difficult. Investors gave around $65 billion to Madoff's firm. The revised value of Madoff's remaining assets is only $136 million. Even if the fraud started as long as 25 years ago, that would imply annual spending of almost $3 billion. Only governments can absord that kind of money without leaving a trace.

Incidentally, one asset which might escape is Ruth Madoff's $9.4 million Palm Beach estate. She declared it her primary residence, thus bringing it under Florida's homestead protections. The Florida constitution protects homeowners who have obtained the exemption and seizing the property may be difficult, said a law professor at the University of Florida.

A claim to a net worth of $826 million by convicted fraud mastermind Bernard Madoff may have been overstated, according to an analyst who estimated the value of the money manager's business, after subtracting the claims against him, to be about zero.

The valuation of Bernard and Ruth Madoff's net worth in a December 31 court filing included $700 million for his ownership of Bernard L. Madoff Investment Securities LLC, according to court papers. Larry Tabb, founder of TABB Group, a financial-market research and advisory firm, said the businesses may bring $10 million or less in a sale, leaving Madoff's assets to total only $136 million. Given that prosecutors are seeking $170 billion in forfeitures from Madoff for a scheme they said stretches back to the 1980s, he may effectively be broke.

"No doubt he is insolvent," said Mark Bane, a lawyer with Ropes & Gray LLP in New York who represents Madoff creditors. "He is currently vulnerable to contingent liabilities in the form of claims that could be asserted against him by all he defrauded."

Madoff, who before his December arrest was able to take private flights on his 50%-owned charter plane and cruises on his Leopard yacht, listed liabilities of $265,000 in his December filing, including $151,000 of accrued real estate taxes; credit card debt of $100,000; $10,000 owed on a car lease; and a still-to-be-determined tax lien on a boat in Montauk, a town on the wealthy east end of New York's Long Island.

Currently, there is only about $1 billion available to pay Madoff's victims, according to the trustee for his firm. The trustee, Irving Picard, said February 4 that he had recovered about $946 million in cash and securities for customers of the bankrupt company. Picard said March 16 that he hired a law firm to pursue recovery of Madoff assets in Gibraltar.

"You never know what assets will turn up in an offshore account," lawyer Bane said.

Madoff, 70, pleaded guilty March 12 in Manhattan federal court to defrauding investors of as much as $65 billion in both real and phony assets. He faces a 150-year sentence for using money from new investors to pay off old ones in a global fraud that snared investors as varied as filmmaker Steven Spielberg and New York University.

The $65 billion figure includes money taken in from investors, as well as fake profit allotted to them over the years of the fraud. The larger amount of $170 billion the government is seeking refers to funds that passed through Madoff's firm during the 20 years the fraud took place.

Three days after the conviction, the government said in a court filing it will seek to take the Madoffs' personal assets, valued by the couple at more than $100 million, including their homes in Manhattan, Montauk, Palm Beach, Florida and France.

The brokerage was valued at no more than $10 million by Tabb, the analyst. The firm's money management unit probably cannot be sold, analysts said.

"The $700 million number is probably a figment of Madoff's imagination," said Stephen Harbeck, president of the Securities Investors Protection Corp., which is overseeing the liquidation of Madoff's New York-based brokerage. "He put that value on the business while he was still conducting the fraud."

The Madoff brokerage, which is being marketed to potential bidders, had earnings of just $1.12 million last year from its market-making and proprietary trading businesses, according to documents drawn up by investment bank Lazard Ltd.

"The brand has no value because no one in his right mind would want to open a brokerage named Madoff," Tabb said. "You are buying trading desks, computers, back office software and routing systems -- and every day the business is not sold the value goes down and down."

As for Madoff's money management business, "it is highly unlikely there will be anything of consequence to sell," said Daniel Seivert, chief executive officer of ECHELON Partners, an investment bank for money management firms in Manhattan Beach, California.

"Investment management firms primarily sell off of the recurring fee revenue they generate and the track record of the investment professionals managing the money," Seivert said. "Given the gravity of the surrounding events, it is highly unlikely that any of the assets will stay with the organization and the track record of the investment professionals is likely unverifiable."

In addition, Madoff ran a trading operation in London that invested his family's money, Madoff Securities International Ltd., and set up a second London company, Madoff Ltd., that never operated, according to court filings.

Madoff Securities International in London, which is being liquidated by the accounting firm Grant Thornton LLP, received more than $250 million in Madoff investors' money for trading and for the family's personal use, according to court filings. In November, it made two transfers totaling about $164 million back to Bernard L. Madoff Investment Securities in New York and may have no other "potentially significant assets," according to filings.

The SIPC's Harbeck said March 16 he didn't know if any of the money funneled between London and New York was included in Picard's tally of $946 million in liquid assets. Picard's spokesman Kevin McCue didn't answer an e-mail seeking comment. A Grant Thornton spokesman, Simon Rothschild, declined to comment. Madoff's lawyer Ira Sorkin also declined to comment.

Yesterday, federal prosecutors said in a court filing in New York that they will seek the surrender of the Madoffs' interests in more than a dozen businesses and partnerships.

The government listed new assets they seek to seize, including the couple's business interests, more than $30 million in loans owed to them by their children, jewelry and watches.

Separately, Ruth Madoff declared her Palm Beach estate as her primary residence, a move that may shield the $9.4 million home from taxes and creditors.

In January, Ruth Madoff received a homestead exemption for property taxes, said Dorothy Jacks, assistant property appraiser for Palm Beach County. The Florida constitution protects homeowners who have obtained the exemption and seizing the property may be difficult, said Danaya Wright, a law professor at the University of Florida in Gainesville.

The case is U.S. v. Madoff, 08-mag-2735, U.S. District Court, Southern District of New York (Manhattan).


A utopian project part-funded by a dot-com tycoon aims to build a giant platform off the coast of San Francisco where people can live free of government regulation.

The latest in a line of start-a-country-from-scratch projects is being funded by the co-founder of PayPal, and features a grandson of Milton Friedman's as the intellectual force behind the project. Of course it sounds farfetched, because it is. But these idea/projects are always interesting.

It sounds like the plot of a pre-Daniel Craig Bond film: an internet tycoon invests part of his vast fortune to fund a fiefdom afloat in international waters. He is joined by the libertarian grandson of one the world's most famous economic thinkers and advertises for like-minded citizens "who are dissatisfied with our current civilisation" to join him aboard his brave new world.

However, this is not fiction. It is happening now and the group, called the Seasteading Institute, has just released the first detailed plans of what its utopian water world will look like. The first architectural stage is being financed by a $500,000 (£362,000) donation from Peter Thiel, billionaire co-founder of PayPal, the online payments system that was sold to eBay for $1.5 billion in 2002. More funding will follow, and the group hopes to start building a small-scale version off the coast of San Francisco this year.

The computer renderings of this new ocean dwelling, called ClubStead, show a colossal structure similar to an oil rig that weighs 12,000 tons and is supported on four pillars each with a diameter of 30 feet. On board will be room for about 270 people to live, including 70 staff, complete with shops, offices and transport. There will also be a hotel and spa facilities.

Although it looks like a fixed structure, the facility will be movable. It will have thrusters powered by four diesel engines capable of moving the whole structure at a top speed of two knots and providing utility power on the platform itself.

The brains behind the project is Patri Friedman, grandson of Milton Friedman, the Nobel prize-winning economist. "If we can open up the ocean as a new frontier where different groups of people can go and set up their own countries and try different systems," he says, "then the whole world can look at that, see what works and what does not, and everyone can benefit. America was founded by pioneers who wanted to have a different society to reflect their political and religious values."

The Seasteading Institute -- the name derives from homestead -- hopes eventually to create a new nation operating under its own laws with minimal government interference. However, first it needs to build the structure to house the community. So far it is still in the design phase and the plan is to build a series of seasteads, of gradually increasing size, as proof of the concept before the construction of the full-sized structure starts in earnest.

Friedman calculates that the extra construction cost of living on a platform in the ocean is about $200 per square foot compared with the average price of land in the U.S. "These costs are in line with property prices in Silicon Valley, Manhattan or London," says Friedman. "It is not accessible to a lot of people right now but it could be worse." In the longer term, the institute hopes to see a flotilla of seasteads all established within 200 miles of a country that has legally agreed for them to be there and has yielded up quasi-sovereign status.

How do you build your own micro-nation? The initial premise is not simply to hoist a flag over the structure and demand recognition from the United Nations as a nascent nation. "In the short term, we would like to qualify as ships," says Friedman. "It is only over a much longer period of time that we will be trying to get sovereignty of our own."

Under international law, ships are technically under the jurisdiction of the country whose flag they fly until they are within 12 nautical miles of another nation state.

Some countries, notably Panama or Liberia, offer their flag to pretty much anyone who pays them a fee. These are known in shipping circles as flag-of-convenience states. Even though each seastead would in principle be under, for instance, the Liberian rule of law, it is hard to imagine the authorities in the impoverished west African country taking much interest in what happens aboard a vessel sitting pretty off the Pacific coast of America.

The idea of creating your own society at sea has been tried before. The best-known recent example is the Freedom Ship, described as the world's first mobile floating city by Norman Nixon, the Floridian impresario behind the scheme who bills himself as a "registered professional engineer".

In the late 1990s his company promised to build a 4,500 foot vessel -- about four times the length of the Queen Mary 2, the world's longest passenger ship -- consisting of hundreds of steel cells bolted together to form a sturdy base. The Freedom Ship would, it was claimed, house a "community continually moving around the world."

Several people were said to have paid deposits that were supposedly kept in an escrow fund, held in trust by lawyers. The scheme hit a "bump in the road," according to Nixon's latest message on the firm's website, posted in July. The group's unnamed president apparently "turned over our entire bank account [which, Nixon says, contained $400,000] to a man who promised him a Peruvian gold certificate". Construction is yet to begin.

The most realistic proposition for eager long-term sea dwellers is to clamber aboard the World, a cruise ship owned by its residents. The ship has 165 "living units" and has circumnavigated the globe continuously since 2003, with short stops, living large under the flag of the Bahamas.

Perhaps the best-known micro-nation is the "principality of Sealand", built on the remains of a second world war sea fort, six miles off the Suffolk coast [see below].

While Sealand has been inhabited by a motley collection of refuseniks, Friedman reveals some unexpected pragmatism. "Initially a good place to go is 12 miles off a major city such as Los Angeles. This gets you into international waters like a ship but lets you operate businesses that draw from that economy. We are looking at medical tourism -- people already fly to Costa Rica and Thailand. Why not fly 12 nautical miles from LA instead?"

Leaving aside the earthquake risks inherent to the Californian coast, the creation of a floating facility where movie stars can drop in for a facelift too radical for the scrupulous plastic surgeons of Beverly Hills seems a far cry from building an offshore utopia.

Not everyone buys the idea. "The idea that we can take humanity, scoop it up and place it on an artificial island that would be self-sustaining is deeply unrealistic," says Ben Stewart of Greenpeace. "Perhaps it would be possible for a small elite proportion of humanity but the coming century is not going to look like an HG Wells novel where we all move to another planet or to the ocean."

And will Friedman be part of this crew of intellectual elites roughing it aboard ClubStead? "Unfortunately not," he says with a smile. "I have got married and had a kid. I don't think it will be suitable for family life for a while, but my wife is willing to go and live there once it is big enough to be civilized and interesting." ...

In a World of Their Own

Principality of Sealand
From a second world war-era sea fort six miles off the coast of Suffolk, HRH Prince Roy of Sealand once issued stamps, coins and passports, and entered competitors in mini-golf championships. His Highness, aka Paddy Roy Bates, first decamped to HM Fort Roughs ... in 1967 to set up a pirate radio station. He named it Sealand and declared it an independent sovereign state. Bates has since retired to Spain, but his son Michael continues to lay claim to the bare concrete platform, installing caretakers in residence.

Grand Duchy of Avram
The Australian John Charlton Rudge established Avram in George Town, Tasmania, in the early 1980s. He issued his own currency and set up his own bank -- or "b_nk", in an effort to sidestep financial regulations. The Australian government spent A$22 million (about £10 million at today's rates) in legal fees in an attempt to close his unlicensed enterprise, with no success. The publicity helped Rudge win election to the Tasmanian parliament.

Free State Bottleneck A mapping error by the allies as they occupied Germany after the first world war left an 18 1/2-mile gap in the shape of a bottleneck between two zones. The 8,000 people affected declared themselves a microstate in 1919, elected a president, and issued stamps and currency. Bottleneck was dissolved when the French expanded their zone in 1923 after Germany's failure to pay reparations for the war.

Other World Kingdom In 1997 a chateau near Cerna in the Czech Republic declared itself an independent "bondage holiday" resort, dedicated to female domination. Ruled by Queen Patricia I, it boasts a swimming pool, stables ... and a torture chamber and prison, complete with cells for rent.


Ruling raises serious concerns about self-incrimination in an electronic age.

The issue of whether being forced to unencrypt a computer file constitutes compelled self-incrimination has been brewing for a long time. Looking purely at court case precedent one, as is usual, finds material for both sides of the debate.

Now a federal court has ordered a defendant to decrypt his PC's hard drive so prosecutors can view files which a border guard previous claims to have viewed unencrypted. He claims the files contained illegal content. This prior viewing muddies the waters a bit in our non-lawyerly view, as the prosecutors have a specific piece of evidence in mind. As this article points out, the border guard can testify he saw child child porn on the defendant's machine, at which point the defendant will have to decrypt the file to directly contest the allegation. Nevertheless, prosecutors are looking to set a precedent by pressing for forced-decryption. An appeal to the ruling was filed almost immediately.

To us the most jarring background fact to the case is that Homeland Security claims the right to seize laptops taken across the U.S. border for an indefinite period -- see post immediately below. The prospect of having one's laptop sequestered indefinitely, whether it contains sensitive material or not, should give one pause. If you have to carry a laptop in and out of the country have a backup plan.

A federal judge has ordered a criminal defendant to decrypt his hard drive by typing in his PGP passphrase so prosecutors can view the unencrypted files, a ruling that raises serious concerns about self-incrimination in an electronic age.

In an abrupt reversal, U.S. District Judge William Sessions in Vermont ruled that Sebastien Boucher, who a border guard claims had child porn on his Alienware laptop, does not have a Fifth Amendment right to keep the files encrypted.

"Boucher is directed to provide an unencrypted version of the Z drive viewed by the ICE agent," Sessions wrote in an opinion last week, referring to Homeland Security's Immigration and Customs Enforcement bureau. Police claim to have viewed illegal images on the laptop at the border, but say they could not access the Z: drive when they tried again 9 days after Boucher was arrested.

Boucher's attorney, Jim Budreau, already has filed an appeal to the Second Circuit. That makes it likely to turn into a precedent-setting case that creates new ground rules for electronic privacy, especially since Homeland Security claims the right to seize laptops at the border for an indefinite period. ...

The Fifth Amendment says nobody can be "compelled in any criminal case to be a witness against himself," which Magistrate Judge Jerome Niedermeier ruled in November 2007 prevented Boucher from being forced to divulge his passphrase to prosecutors.

Originally, the U.S. Department of Justice asked the magistrate judge to enforce a subpoena requiring Boucher to turn over "passwords used or associated with" the computer. In their appeal to Sessions, prosecutors narrowed their request and said they only want Boucher to decrypt the contents of his hard drive before the grand jury, apparently by typing in his passphrase in front of them.

At issue in this case is whether forcing Boucher to type in that PGP passphrase -- which would be shielded from and remain unknown to the government -- is "testimonial," meaning that it triggers Fifth Amendment protections. The counterargument is that since defendants can be compelled to turn over a key to a safe filled with incriminating documents, or provide fingerprints, blood samples, or voice recordings, unlocking a partially-encrypted hard drive is no different.

Barry Steinhardt, director of the ACLU's technology and liberty program, said ... that the opinion reached the wrong conclusion and that Boucher "should have been able to assert his Fifth Amendment rights. It is not the same thing as asking him to turn over the Xeroxed copy of a document."

"There is no distinction" between requiring a defendant to turn over the passphrase or type it in himself in front of a grand jury, Steinhardt said. "Either of those things results in an encrypted set of files being brought into plain view."

Judge Sessions reached his conclusion by citing a Second Circuit case, U.S. v. Fox, that said the act of producing documents in response to a subpoena may communicate incriminating facts in two ways: first, if the government does not know where the incriminating files are, or second, if turning them over would "implicitly authenticate" them.

Because the Justice Department believes it can link Boucher with the files through another method, it is agreed not to formally use the fact of his typing in the passphrase against him. (The other method appears to be having the ICE agent testify that certain images were on the laptop when viewed at the border.)

Sessions wrote: "Boucher's act of producing an unencrypted version of the Z drive likewise is not necessary to authenticate it. He has already admitted to possession of the computer, and provided the government with access to the Z: drive. The government has submitted that it can link Boucher with the files on his computer without making use of his production of an unencrypted version of the Z: drive, and that it will not use his act of production as evidence of authentication."

The defendant is a Canadian citizen who is a lawful permanent resident in the United States and lived with his father in Derry, N.H.

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, or Pretty Good Privacy. (PGP sells software, including whole disk encryption and drive-specific encryption, which can be configured to forget the passphrase after a certain time. That would effectively re-encrypt the Z: drive.)

Homeland Security: We Can Seize Laptops for an Indefinite Period

The DHS has arrogated the capacity to routinely -- no reasonable or unreasonable suspicion required -- seize, make copies of, and "analyze the information transported by any individual attempting to enter, re-enter, depart, pass through, or reside in the United States." Among the information the DHS would be looking for is evidence of the violation of "copyright or trademark laws." So in theory if your MP3 player has an illegally downloaded song on it, you could be charged with some crime.

The U.S. Department of Homeland Security has concocted a remarkable new policy: It reserves the right to seize for an indefinite period of time laptops taken across the border.

A pair of DHS policies from last month say that customs agents can routinely -- as a matter of course -- seize, make copies of, and "analyze the information transported by any individual attempting to enter, re-enter, depart, pass through, or reside in the United States." (See policy No. 1 and No. 2.)

DHS claims the border search of electronic information is useful to detect terrorists, drug smugglers, and people violating "copyright or trademark laws." (Readers: Are you sure your iPod and laptop have absolutely no illicitly downloaded songs? You might be guilty of a felony.)

This is a disturbing new policy, and should convince anyone taking a laptop across a border to use encryption to thwart DHS snoops. Encrypt your laptop, with full disk encryption if possible, and power it down before you go through customs.

Here is a guide to customs-proofing your laptop that we published in March (2008).

It is true that any reasonable person would probably agree that Customs agents should be able to inspect travelers' bags for contraband. But seizing a laptop and copying its hard drive is uniquely invasive -- and should only be done if there is a good reason.

Sen. Russell Feingold, a Wisconsin Democrat, called the DHS policies "truly alarming" and told the Washington Post that he plans to introduce a bill that would require reasonable suspicion for border searches.

But unless Congress changes the law, DHS may be able to get away with its new rules. A U.S. federal appeals court has ruled that an in-depth analysis of a laptop's hard drive using the EnCase forensics software "was permissible without probable cause or a warrant under the border search doctrine."

At a Senate hearing in June, Larry Cunningham, a New York prosecutor who is now a law professor, defended laptop searches -- but not necessarily seizures -- as perfectly permissible. Preventing customs agents from searching laptops "would open a vulnerability in our border by providing criminals and terrorists with a means to smuggle child pornography or other dangerous and illegal computer files into the country," Cunningham said.

The new DHS policies say that customs agents can, "absent individualized suspicion," seize electronic gear: "Documents and electronic media, or copies thereof, may be detained for further review, either on-site at the place of detention or at an off-site location, including a location associated with a demand for assistance from an outside agency or entity."

Outside entity presumably refers to government contractors, the FBI, and National Security Agency, which can also be asked to provide "decryption assistance." Seized information will supposedly be destroyed unless customs claims there is a good reason to keep it.

An electronic device is defined as "any device capable of storing information in digital or analog form" including hard drives, compact discs, DVDs, flash drives, portable music players, cell phones, pagers, beepers, and videotapes.


Organizations can adopt Linux for many users, and save the high upgrade costs of Vista or Windows 7.

Another "Linux is ready for the desktop" article, this one from the perspective of a business. The conclusion is that those dependent on specialty applications may have to stick with Windows or Mac, while Linux is just fine for the average office worker -- that is, "those who do common work in Office and Web apps." Which in practice is a lot of people. Moreover, Linux has many deployment as well as, of course, cost advantages.

It has been a decade since Linux proponents first argued their OS was ready for mainstream adoption. Yet for all intents and purposes, Linux remains nonexistent on "regular" people's desks. Sure, developers and other tech experts use Linux, but that is about it.

So when my colleague Neil McAllister, author of InfoWorld's Fatal Exception blog, made the case for desktop Linux, I snorted, "Give me a break! Desktop Linux is nowhere." He challenged me to try it myself. He had a point: It had been a decade since I fired up any desktop Linux distro. So I accepted his challenge.

[ View the desktop Linux slideshow. | See who wins in InfoWorld's OS shoot-out. | The InfoWorld Test Center compares Microsoft Office alternatives for Linux. ]

My verdict: Desktop Linux is a great choice for many regular Joes with basic computer needs. And not just on netbooks.

In fact, I found that it makes a lot of sense to standardize office workers on desktop Linux. I now understand why governments in Asia and Europe say they want to get off the Microsoft train and shift to Linux. I thought these were empty threats meant to get better licensing deals or to blunt some of Microsoft's monopolistic power, but as it turns out, desktop Linux is a worthwhile option for both public organizations and private companies. Those who standardize on Linux would save serious money on the new equipment needed for Vista or Windows 7, not to mention OS and Office upgrades as well. Your business could, too.

Moreover, Linux-based shops would require significantly less training than they would to teach staff Vista or Windows 7 and Microsoft Office 2007.

Let's face reality: Most people use just Microsoft Office, e-mail, and the Web at work. For that, you do not need an expensive, resource-hogging suite like Office or a piggy operating system like Windows Vista or Windows 7. You do not even need my favorite OS, Mac OS X 10.5 Leopard. Plus, adopting Linux will solve some of IT's headaches when it comes to PC management.

Let me explain.

An easier transition from XP than going to Vista.

I set up a virtual machine on my Mac and loaded Ubuntu 8.1. (Why Ubuntu? Reviewers single it out as the best desktop Linux. Many folks like Novell's Suse as well. And there are other Linux choices.) It booted like a real OS, with the familiar GUI of Windows XP and its predecessors and of the Mac OS: icons for disks and folders, a standard menu structure, and built-in support for common hardware such as networks, printers, and DVD burners.

Yes, I know that a Parallels Desktop or EMC VMware Fusion virtual machine is not a real PC, with all the variables per PC model that can make Linux not work on some models. But that is beside the point. Dell and others offer Linux-equipped PCs if you want that assurance. If you have a standard desktop configuration in your business, you will find out quickly if it is Linux-compatible. And yes, you may discover that Linux does not work on your laptops, as InfoWorld Enterprise Desktop blogger Randall C. Kennedy learned when he tried Ubuntu 8.04 a year ago.

Ubuntu is strikingly XP-like.

I was struck by how XP-like Ubuntu is. And that is a good thing. It took me very little time to find where standard functions are, given the similarities. In fact, it is a much easier transition. The menu structure is clear and not hidden. There is none of the "I'm so complex I must hide myself in gewgaws" nonsense that Microsoft has convinced itself, in Vista and Windows 7, makes a good UI but in fact further complicates an already hodgepodge user interface. (Gluing feathers on a platypus will not make it fly.) Users can get to work without guessing what Microsoft thinks they ought to do.

Adding Hewlett-Packard and Brother network printers was trivial -- easier than in Windows and about the same as on the Mac. But I did have to install drivers for the Brother's fax and scanner capabilities, and these required command-line installation via the Terminal. Using an external USB media card drive was also no biggie; Ubuntu detected both the drive and the SD card I inserted, saw it contained photos, and asked to launch a photo management app. You can expect to come across compatibility issues with more exotic hardware, but most business PCs do not typically include that class of consumer-oriented gear.

Well-suited for office workers, but not specialty users.

After basic compatibility with PC hardware, the big criticism of desktop Linux is the state of its apps. There is good news and bad news here. Ubuntu comes with the Mozilla Firefox Web browser and the Evolution Mail client pre-installed, as well as OpenOffice.org's office productivity suite.

Firefox is my preferred browser, but if you depend on ActiveX controls for your company's Web apps (which you should not in this multibrowser, multiplatform world), the lack of Internet Explorer could be a deal killer. The Evolution Mail client is fantastic. It easily connects to Exchange Server for mail, calendar, and contacts, using LDAP and Outlook Web Access. The UI is similar to Outlook's but simpler. And in a move that should shame Microsoft, the Evolution Mail client is more compatible with Exchange than is Microsoft's Mac client, Entourage. (One example: I could set an away notice, which I cannot do with Entourage.) You can also run Mozilla Thunderbird if you are POP-oriented, though Evolution Mail also supports POP and IMAP.

OpenOffice is a sound alternative to Microsoft Office, but I spent most of my time with the free IBM Lotus Symphony, which is a slightly better productivity suite than OpenOffice, in the InfoWorld Test Center's evaluation. It is simply more refined and will be easier for Office users to adapt to, even though it lacks the database and drawing applications that OpenOffice has. I am sure there are features in Word, Excel, and PowerPoint that Symphony and OpenOffice cannot match, but you can bet that for 80% or more of your "knowledge workers," sales staff, and so on that Symphony or OpenOffice will do the job.

Adobe has made its Reader, AIR, and Flash Player apps available as well, so you can work with PDF files, AIR apps, and Flash media just as Windows and Mac users can. In addition to Symphony, IBM offers a Linux version of Lotus Notes.

All these apps work very much like they do in XP, so your users will need just an hour or two to adjust to accessing them on desktop Linux. Seriously.

Ubuntu has a handy utility to add and remove a broad selection of free Linux apps, from FTP clients to graphics editors, so you do not have to hunt for them. (But the Adobe and IBM apps are not in it, so it is not complete.) These apps self-install, so you do not have to switch to the Terminal and use sudo privileges and other arcane commands to install them. Sure, IT techs can manage this, but not your users.

I am disappointed that Cisco's VPN client, which my company uses, has the kind of install that gives desktop Linux a bad rep. You have to know basic Linux commands to navigate to the files in the Terminal, use sudo to get admin privileges, and follow the convoluted install script. As is common with these Terminal-installed apps, there is little documentation, and the Web is full of contradictory and inaccurate instructions on how to install them. Cisco dissuades end-users from getting information at its site, so even after I procured a copy of its VPN client software, I could not find reliable instructions for installing it, so I gave up after 40 minutes. I had similar problems installing Parallels Desktop's UI tools into Linux. VMware Fusion uses a Terminal script, but the program runs it for you when you first install Linux, so that is less of an issue. (Note that neither product supports cut and paste between Linux and the Mac, as they do with Windows.)

Let's face it: The app selection for desktop Linux -- especially those designed for regular folks -- is very thin. You will not find BI tools, database apps, media creation apps, and so on, as you would for Windows or the Mac. If you think the Mac has too few apps to be used in business, you will downright dismiss desktop Linux.

There is the beta Wine application that runs many Windows apps, giving desktop Linux wider reach, as well as the commercial CrossOver version from CodeWeavers. But the list of supported Windows apps is not huge. Moreover, supported versions are often one or more iterations behind what is currently available. But Microsoft Office, Project, and Visio 2003 are all on the list, as are Internet Explorer 6 and Intuit QuickBooks. I tried to install three unsupported apps -- Adobe Acrobat Pro 9, Adobe Photoshop CS4, and H&R Block TaxCut 2008 -- but had poor results. Acrobat 9 managed to install, but the license confirmation dialog box would not close, so I could never use the software. CrossOver claimed to install Photoshop, but it did not. And it could not install TaxCut. So do not count on Wine or CrossOver for more than Microsoft Office and supported apps.

Also, though synchronization for Palm devices (as if they matter anymore) is included in Ubuntu, you cannot sync to an iPhone, Windows Mobile device, or other handheld -- even though these are increasingly commonplace in business. But Ubuntu can access an iPod's or iPhone's photos as if it were a digital camera. (There are hacks out there to support some of these devices for data and music syncing, but IT does not want to rely on hacks.)

Essentially, desktop Linux makes sense as the desktop OS only for those employees who do common work in Office and Web apps. But that is a lot of people.

Solving some of IT’s control issues.

Desktop Linux's app limitations mean that you will still need Windows PC or Macs for users who require specialty apps. But they also provide an easy way to assert control over the desktops you manage.

Think about it: Most of your malware worries go away, as does the constant effort to stay up with the latest anti-malware patches. You do not need to worry about users installing games, iTunes, or spyware -- those are designed for Windows (and sometimes the Mac) -- so the need to monitor rogue apps is greatly reduced.

Of course, you will not have the same kind of central system management options that you do for Windows PCs. So you will need to rely on your Linux distribution's update manager, as well as your apps'. This automated, client-level approach is also standard on Windows and Mac OS, even though many IT organizations do not like it and instead want to validate and apply such patches centrally. The more control you want, the less you will like desktop Linux (just as you probably do not like the Mac).

But desktop Linux does support basic Active Directory authentication for user access management.

I am not suggesting every organization chuck its Windows or Mac OSes for desktop Linux. But many companies, government agencies, and educational institutions can chuck at least some of them. Those based on XP -- or Windows 2000, which still has a huge installed base in government agencies -- can look to big savings on licensing, hardware, and training costs.

Desktop Linux and its core productivity apps are solid and worth serious consideration for many of your users' PCs. Try it yourself.

The UK's Linux Format magazine is kindly offering their 130-page Linux Starter Pack as a free download. And, the PDF edition of the 166-page Ubuntu Pocket Guide and Reference is also freely downloadable, starting on this page. Hard to argue with those prices.


Weak British Pound Sends Expats Packing

The weak pound has left British retirees who have moved abroad, wondering whether their UK Pensions will be enough to live on. Pensioners who moved to Spain a few years ago for a life in the sun are finding it increasingly difficult to make ends meet. Those who have their pensions paid in sterling were living comfortably when you could get €1.3 for £1. But the pound is now almost one to one with the Euro, and, as everywhere, costs have gone up. If you were renting a house, it is easy to pack up and go home, but if you have to sell, in a global real estate downturn, you may just have to stick it out.

In Argentina, a year ago £1 was worth over 6 pesos; now the rate is down to 5 pesos and sometime less. If you are living on dollars, the outlook is better ... a year ago the rate was 3 pesos to the USD, now it is hovering around the 3.6 peso mark.