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

W.I.L. Offshore News Digest :: September 2009, Part 2

This Week’s Entries :


Going offshore is still legal ... in the abstract ... more or less. The question is how does one stay in compliance with all the legal requirements accompanying such a move. Helping people with that is a key element of what we at W.I.L. offer. The proverbial devil is in the details, and general thought pieces averring that “going offshore” is a great idea without warning about the legwork required do not always strike us as useful.

That said, this background offshore piece from author, “former judge, and retired trial litigator” David Tanzer is more than a little interesting. Many thought provoking and illuminating insights are tucked among the more typical elements.

How many times have you thought about investing or creating a new life “offshore?” What do you need to know before you move your money, or your family, or both, away from the perceived safety of mother homeland? Is it a realistic option? Is it complicated? Is it legal?

First, let us define “offshore.”

Offshore is anything that is not “onshore” within the boundaries of where you presently live. In other words, any place outside your homeland is considered “offshore.” Every country is offshore to every other place. And each jurisdiction has its own ever-changing laws and political aspirations.

With over 190 countries worldwide, and over 6 billion people globally, there is a huge world outside the boundaries of where you call home. How many of those countries, capitals, and leaders can you name or locate on a map right now? To how many have you traveled? And how many cultures do you understand?

Here are some interesting global facts that affect your assets every day.

If the world was reduced to a village of only 100 people, proportionately, the village would consist of 60 Asians, 14 Africans, 12 Europeans, 5 U.S. and Canadians, 8 Latin Americans and 1 from the South Pacific. 49 would be female and 51 would be male, with 82 non-whites and 18 whites. 89 would be heterosexual and 11 homosexual.

Amazingly, 5 of the villagers would control 32% of the entire world’s wealth, and all of them would be U.S. citizens. What is more, 80 would live in substandard housing, 24 would not have any electricity, 67 would be unable to read, 50 would be malnourished and 1 dying of starvation. 33 of our 100 inhabitants would be without access to safe water and 1 would have H.I.V. One would be near death, 2 near birth, 7 would have access to the internet, and 1 (only one) would have a college education.

If you look at our village of 100 from this point of view, the world takes on a whole new meaning.

And if you have never experienced a war, the cage of imprisonment, the agony of torture, or a famine, you are better off than 500 million persons in this world. If you can attend a church, synagogue or mosque without any fear or threats of the consequences, you are better situated than almost 3 billion people worldwide.

If there is a meal in your refrigerator, you are dressed in clothes and shoes, live with a roof over your head, you are better off than 75% of the world population. And if you have a bank account with money in your pocket you belong to 8% of the well-provided people in the world – yes, 8%. Since you can read this newsletter, you do not belong to the 2 billion people who can not read.

Asset protection and offshore living and investing should take on a whole new meaning when you look at the world as a village of 100 people and consider their make up.

It is true the world is a varied and different place, and offers much to discover and learn. Maybe this is why moving capital and people offshore is so “foreign” to so many people. It should not be, but I hear the same question repeatedly by those I consider educated and well-reasoned people:

Is it legal to go “offshore?”

The answer is “yes” it is perfectly legal for most of the western civilized world to move family and property outside of their homeland. And the reasons for going offshore are many. In most cases, even when you continue to live at home, you can legally open up an offshore bank account for increased financial privacy and enhanced asset protection.

Plus, when going offshore you have the opportunity for increased investment protection and diversification from fluctuating currencies, since you have many currency choices rather than limiting yourself to your local currency. You can freely hold U.S. dollars, or euros, Swiss francs, British Sterling, Japanese yen, or Canadian, Australian or New Zealand dollars, and most other currencies from around the world.

And owning alternative currencies or other global investments can be held right at home, or offshore. International investments make sense because they are in tune with the deepest aspects of reality. Nations and borders are “illusions” defined by contemporary local political agendas. Too frequently those agendas are the flavor of the month determined by the political party in control at the moment. Economics and human nature pass beyond these artificial barriers ... as they should. We call our global actions free trade, but they are more.

International investments, global living and multinational trade are nature’s expression of how people should be ... human beings trading with one another, not Americans, Canadians, Chinese, Australians, British and so forth using past ideals to separate themselves. If you are thinking of going offshore – your person or your property – you are not only “legally” in the right, you are a lot wiser individual if you take advantage of global opportunities. Your right to go offshore is one of the most fundamental requirements of freedom ... and you do not need a law to give you that right!

Over the long run, nations, politics and borders are illusions, and social and political change is inevitable. It is important to recognize the changes happening before us right now so we can learn to adapt to borders controls and regulatory regimes that interfere with the free movement of people and capital.

And unfortunately, the future appears even more restrictive as more draconian laws and tighter controls are constantly being implemented interfering with the basic right of free movement of persons and property. What is important is that you recognize in advance the pitfalls and traps before going “offshore” to avoid bureaucratic nightmares.

Offshore Risk Management

If you are concerned about “going offshore” for asset protection, investment diversification, full or part-time living, or for just doing business, it may be helpful to remember that risk is always relative. Jumping out of a second story window is certainly high on the risk scale, but if the building is on fire and you cannot get out any other way, the 2-story jump is a lot less risky than staying put.

In addition to U.S. dollar concerns, we are only left to speculate on the provisions of future regulations, border controls, and laws on currency controls that may be imposed. However, we can look to recent examples of what might happen to our savings if this occurs.

South Africa and Russia are the best (or worst) examples of recent currency controls restricting citizens from leaving their country with local currency. These currency controls are only as recent as the 1990s. And even today in China, its citizens and foreign investors looking to move money offshore are hindered by strict currency prohibitions. How this might change with the Yuan going global is unknown. But these governments have held a heavy hand over foreign exchange mechanisms and exchange rate controls.

Worse yet, we are familiar with the horror stories from the 1930s and 1940s as Jews fled Nazi Germany, and Eastern Europeans desperately attempted to save themselves and their money from tyrants. As a student of history, I take the issue of currency controls very seriously and as a realistic event that could occur anywhere, at any time, including in the U.S. Therefore, having at least a portion of your assets offshore is a good starting point for risk management.

In the above examples, individuals who looked to flee with their money with a pre-planned exit strategy and assets titled in an international structure – such as an international trust – did not have the same financial concerns of those who did not plan proactively. With history as our teacher, I can see no better way to protect assets than titling them in an international trust structure and hold at least some of your assets outside your home country.

If you suddenly needed to move assets across borders and were prohibited, how would you live? Those with money are always more welcome in a host country than the indigent will be. Even if you do not have a good reason to leave your homeland today, there is always peace of mind in knowing that you could, if it ever becomes necessary.

Putting all of your eggs in one basket potentially poses great risk.

Many of the major international banks and insurance companies operating offshore are far more conservative in managing their portfolios – and far less susceptible to failure – than U.S. financial institutions. Many banks located “offshore” are highly rated investment quality, some with AA and higher ratings than even the best U.S. banks could ever achieve.

It may surprise you that deposits to $1 million in AA rated banks are government backed in Australia and New Zealand; both Western cultures being at the crossroads to Asia. This is similar elsewhere, and is because many offshore banks must conduct their banking affairs with fiscal responsibility.

An important reason in the past for placing some funds outside of your home country was due to the ongoing litigation epidemic. As a former U.S. litigation attorney myself, and a former judge, I can attest to the ridiculous claims and results that too frequently arise from the U.S. judicial system.

Today, however – more than ever before – holding assets globally in a changing world order is essential. Protection from U.S. dollar currency devaluation, threats of more regulations and currency controls, government deficits, social problems, and more, can be achieved from global diversification. International planning should be an important part of your planning strategy, if it is not already. And hopefully you too will discover that offshore living and investing is not so foreign after all.

Those who mind their own business – with their nose to the grindstone – and are thrifty, too often find themselves unsuspectedly on the short end of the deal. The hard-working individuals who have accumulated some assets, or who have become financially independent, need to start with setting aside at least a small nest egg offshore, where it will be safe from the vultures in our society.

Keeping options open is smart forward thinking.

Is the U.S. dollar Becoming Irrelevant?

Numerous readers of our free newsletter service have asked for more details about the new global currency which China, Russia, Brazil, India and other countries are suggesting to replace the U.S. dollar. What China proposes is an expansion of the use of something called special drawing rights (SDRS), which was introduced by the International Monetary Fund back in 1969.

These drawing rights were issued to support the 1945 Bretton Woods fixed currency exchange rate regime which collapsed in 1971 (when President Nixon removed the U.S. dollar from the gold standard). The value of these SDRs are currently based on a basket of four currencies, the US$, Yen, Euro, and Sterling.

China has proposed expanding this basket to include the currencies of all major economies. Countries would entrust a portion of their SDR reserves to the IMF. The value of these SDRs would “float” with the broad basket of these currencies, and the SDRs would eventually replace the existing reserve currency, the U.S. dollar.

Obviously, the introduction of this new global currency would be devastating for the U.S. dollar. Countries, who are now obliged to invest a majority of their currency reserves into the US$ to settle international trade (think oil and gold, for starters), would no longer have to buy them. And the U.S. treasury market, where much of these reserves are parked, would also suffer.

Personally I do not think this poses an immediate danger to the US$, as the proposal would require significant cooperation among global trading partners and the U.S. will likely rally support to fight it. But it is something to keep a close eye on, particularly as it was met with surprising support from U.S. Treasury Secretary Timothy Geithner.

During the past decade China and Japan stockpiled huge reserves on the back of the U.S. consumers, who eagerly bought goods produced in Asia. China holds a surplus $1.9 trillion, and Japan a surplus of $1 trillion (both with a “T”), as of Q1 2009. But U.S. consumers are cutting back, and global trade has slowed dramatically as a result. Both Japan and China will therefore have smaller trade surpluses in 2009 and 2010, and therefore less money to invest back into the U.S. treasury market. Nonetheless, these surpluses are staggering compared to the growing U.S. deficits.

In the meantime, the Chinese are also planning on launching its currency, the Yuan, as an international currency next month. Its intentions are to find a substitute for the US$ for international trade settlement. Unfortunately, this fall in global reserves and the Chinese Yuan going international, coincides with a big increase in funding needs by the U.S. Treasury to pay for bailouts, stimulus packages, and ever increasing pay-as-you-go social programs.

And the beginning of the baby boomers’ retirement is not well-timed.

Avoiding lawsuits, identifying the best and worst jurisdictions for offshore trusts, international banking, wealth preservation and privacy, living offshore with tax free income, border and currency controls and trends, dual citizenship and second passports, new global tax burdens, denouncing U.S. citizenship, avoiding common asset protection problems, and much, much more, are just a few of the topics covered in our free newsletters.


This article provides some macro reasons why Uruguay is a suitable place to live. Most would agree that the reasons given are good ones. Of course the on-the-ground reality may not provide the experience you are looking for, which is why one should test out a candidate location by living there for a while first. Acquaintances have reported back to us, e.g., that Montevideo was very noisy, and they found themselves making the trip over to Buenos Aires in search of cultural and intellectual stimulation. Your mileage may vary.

Foreigners have traditionally come to Uruguay for vacation, to invest real estate, and to use Uruguay’s secure banking services. However, for many approaching retirement during uncertain times, Uruguay is attracting attention as a great place to retire. Here are 10 reasons why:

1. Uruguay is safe

Safety is the number one reason people from other South American countries relocate their families to Uruguay. Uruguay is known for having the lowest rate of crime in Latin America. (For safety’s sake, keep in mind that having the lowest crime rate in Latin America is a relative term. While rates of assault are low, incidents of purse snatching, camera grabbing, and robberies are not uncommon in some areas.)

2. Uruguay is stable

In 2008 Uruguay’s economy had a greater percentage increase of economic growth than any other country in Latin America. In the first quarter of 2009, Uruguay [was] the only economy in Latin America still experiencing some economic growth. A recent JP Morgan’s emerging market report states that Uruguay’s fiscal discipline and adaptability of policies is likely to minimize the negative impacts of the global economic crisis.

Uruguayan banks are trusted because they have never resorted to expropriating, freezing, or forcing a currency exchange of deposits due to tough economic times. Over 40% of all deposits into Uruguayan banks in 2008 were by foreigners. Banks and financial institutions are adding more safe deposit boxes to keep up with demand.

Uruguayan banks have three types of currency accounts to choose from: Uruguayan pesos, U.S. dollars, or euros, which allow the depositor to choose the currency which gives him or her the greatest confidence.

The IMF has determined that Uruguay’s exposure to “regional spillover risk” (meaning fallout in the event Uruguay’s neighbor and historically largest trading partner, Argentina, were to have an economic crisis) will be half of what it was during the regional financial crisis of 2002. This is because Uruguay has greatly diversified its trading partners.

3. Uruguay does not tax foreign source income

Uruguay does not tax foreign source income, meaning that your pension, social security, and all money that is generated outside of Uruguay is not taxed in Uruguay and does not need to be reported to the Uruguayan tax authorities.

4. Good medical care is available in Uruguay

Uruguay has private hospitals that provide excellent patient care at affordable rates. Some expat retirees pay out of pocket for the care they need, and others purchase health plans with a fixed monthly fee. A health plan is different than health insurance. With a health plan, the hospital you contract with provides the health care you receive.

Some plans have options and insurances that can be added to your health plan for an additional monthly fee. These include ambulance service, travel insurance, and the option to have surgery in the U.S.

(Hospitals may refuse to accept a new plan member based on age or a pre-existing condition.)

5. Uruguay has a comfortable climate

Uruguay is located in the temperate zone of the Southern Hemisphere and has four seasons. When it is winter in North America and Europe, it is summer in Uruguay. Temperatures average 70°F to 80°F (21°C to 27°C) in summer and 50°F to 60°F (10°C and 16°C) in winter. There are periods of “cold” (relative term) weather, but freezing temperatures are almost unknown.

6. Uruguay offers a variety of lifestyle settings

6.1 City Life: Montevideo is Uruguay’s capital and home to 40% of Uruguay’s population. The City is made up of many interconnected but distinct communities with tree lined streets, neighborhood shops, and outdoor cafes. Montevideo’s Centro and historic district (Ciudad Vieja) are known for period architecture and picturesque plazas. Montevideo has a wide seaside walk, great restaurants, theater, and several tango clubs.

6.2 Beach life: Uruguay has 200 miles of beautiful coastline that turns into a vacationland during the summer. The coast is dotted with resorts and communities including the continents premier beach resort, Punta del Este. Punta del Este offers a 24-hour menu of recreation, events, and entertainment. Daytime sports include surfing, tennis, and golf. Punta hosts a long list of tournaments and competitions that include a major running event, polo, seven-a-side rugby, and yacht racing. The entertainment menu includes fashion shows on the beach, concerts, casinos, and dancing until the sun comes up. In addition to being a vacation resort, Punta del Este has a growing year-round international community.

6.3 Country life: Once you leave the coast, most of Uruguay is green rolling prairies. The country has large estates (called chacras), ranches (called estancias), and several agricultural supported communities, most with a town square (plaza) where people come in the evening to socialize. The vast prairies have scattered palm trees, small green parrots, and groups of large flightless birds (similar to an ostrich) called nandu. The country still has gauchos (South American cowboys) who lead lives of rugged simplicity. The nights are quiet, and the stars can be amazing.

(Some people in Uruguay enjoy more than one lifestyle by having two or three homes in different settings.)

7. Uruguay does not have hurricanes or earthquakes

Uruguay has never had an earthquakes or a hurricane.

8. Uruguay has first world infrastructure

Uruguay has good roads, safe drinking water, good public transportation, broad cell phone coverage, and widespread availability of high-speed internet. It has several airports and ports, which are being updated and expanded to keep up with Uruguay’s economic growth.

9. The people of Uruguay are well educated and friendly

Uruguay has a social climate that many people from North America and Western Europe find favorable. Uruguay has the most highly educated population and the largest middle class in Latin America. The people of Uruguay are generally friendly and tolerant with a strongly European culture.

10. Uruguay has a reasonable residency procedure

Applying for residency in Uruguay includes a criminal background check, a health check up, and a verification of a regular source of income, such as social security or a pension. The current income requirement is just US$500 per month (considered the minimum amount a person can live on). New residents are allowed to bring in their household goods without duties or taxes.

Uruguay provides the opportunity to live a quiet life. It is a free country out of the spotlight of major world controversy.
About the Author: David Hammond is the author of Buying Real Estate in Uruguay, an ebook available to purchase and download now.

For more information about living, investing or retiring in Uruguay visit his website or contact him by email: David@ParadiseUruguay.com.


More tales from Belize.

Rev. Macarena Rose follows up her article last month sharing her experience of expatriating to Belize. She moved there 6 years ago after raising 8 children in Florida, and is the founder of Rainforest Realty, provider of trustworthy real estate brokerage services for Belize. She invites people with questions about moving to Belize to contact her.

Resting Easy

Belize is easy – one can rest, swim, hike, sleep, dive or go exploring ruins and caves. The natural beauty of Belize, all the scenic mountains and beaches and rainforest, are very conducive to a more restful state of mind as you walk about to take it all in. You ill not be satisfied with just sitting around. You will be just as eager as the rest of us to be outside at every chance, savoring your new surroundings.

Much is written about Americans and their problems with sleep deprivation. Belize offers a slower pace, healthy diet, lots of fresh air and exercise in the beautiful, irresistible outdoors. Need I say more?

Upholding Tradition

A story I enjoy sharing has to do with burial customs in Belize. I know this may sound morbid, but I ask your indulgence – please hang in there with me. It is a bit lengthy but I think worthwhile because this will tell you much about what I find to be so uniquely human, close, warm and fulfilling about Belize.

When I first came here, I was invited to a wake for a local doctor’s mother, held at her home. I went to the wake to show my respect and then was blown away when the good doctor took me by the hand to go to the next door neighbor’s home. There, working away in the night were about 12 men – hammering, sawing, sanding and varnishing – the casket for this beloved lady.

These were men who could easily afford to pay for this service – instead of taking the time to make the Mother’s casket with their own hands.

It turns out they were relatives and friends of the family. Then I observed about 15 women behind them – measuring, cutting and sewing lace onto a gorgeous crushed velvet material to line the casket. The doctor explained to me that in Belize, part of the way they honor their dearly departed ones is to have family members and friends work together to build the casket and adorn it with material. In this way, their own personal touch and love are placed into the casket itself.

I was astounded by these gestures and so touched at all the love and community here.

Love and Respect

Then we walked over to the Mother’s home where I met many friends and family. All were engaged in praying, cooking and telling stories. Finally, the Doctor’s Mother rested peacefully in her finished casket in the living room, where everyone could pay their respects during the wake.

Families used to mourn like this “in the good old days” in America, but I thought that was a custom long gone.

Furthermore, in honoring the passing of a member of the community in Belize, no one ever leaves the family alone. For 24 hours a day, food, drinks, prayers and companionship are there at all times for the family.

Expat Inclusion

The Doctor then asked if I “would come to the graveyard at sunrise to help them.” He said he wanted me there “to paint the tomb.” Again, I had to ask what this was all about. He explained that at sunrise on the day of the actual funeral, selected friends and family members gather at the gravesite to paint the tomb with fresh bright white paint to ready it for the departed’s final resting place.

By then, my knees were feeling weak and my heart very humbled at this most respectful wake and funeral. I replied I was profoundly touched and honored to help paint his Mother’s tomb. At the sunrise ritual of painting, I was overcome with the amount of warmth and sincere care of everyone there. All showed the highest regard for the task at hand.

Painting Preparations

We proceeded to paint the tomb. There were smiles and pride in what everyone was doing. It was as though we were preparing for a new baby to come home to its nursery. When we completed this traditional task, we all headed to the Church to ready it for the service.

Here too were so many folks placing flowers on the sides of the pews and lavishing them throughout the church. This warm day in Belize is forever embedded in my senses, from the smells of the fresh paint in the early morning to the sweet smells and visuals of the most gorgeous wild flowers adorning and perfuming the church.

Once the funeral began, the Priest said his mass. Many had come to pay their respects and to speak words of wisdom for the family. Afterward, everyone stood up as the Father walked down the aisle behind the doctor’s mother’s casket being carried out by family.

Then the whole church, pew by pew, folded out and down the church’s front steps. I followed also. I was going to head to my car to drive to the graveyard – when I realized, NO ONE ELSE was doing that. What was this all about, I wondered?

Stately Procession

I stepped aside and watched as droves of people walked down the church steps and kept on walking right behind the casket which had been placed in the back bed of a truck piled high with flowers and gifts.

I joined the crowd and walked and walked. We proceeded through the downtown of San Ignacio. As we passed by businesses, all stopped working. Employees and customers came out of the buildings and stood there as we all passed by. They did not move till everyone from the funeral party had passed by them.

Everyone Participates

The same thing happened as we passed people’s homes. Everyone stopped, took off their hats, held their hands together in prayer. Literally, everything just stopped for that moment in time as we all walked through the streets of downtown. No traffic, no business, no TV, no radios – there was respectful silence but for the sound of feet walking and the click of the truck’s tires going 2 mph.

We then arrived at the graveyard where another mass was held. Everyone was gathered about the mother’s tomb with prayers and support. Then the family lowered their mother/sister/aunt into the tomb itself, in the casket many of them had helped to make.

Heart of the Matter

Truthfully, after all of this, I felt so included and connected; it was as though I had just lain to rest my own family member! After this experience, I can tell you I have found what community, family and love is all about. In Belize, truly it is like living your life fully present and intimately with others here.

Dive Right In

Belize is famed for its fabulous recreational opportunities. With all that gorgeous H2O there is every kind of water activity you could ever want. You name it – fishing, swimming, kayaking, boating, diving, etc. – it is all there and available to you.

The sport that draws the most tourists annually takes place offshore.

If you are a diving or snorkeling enthusiast, you just went to heaven – and probably already know about the world class diving.

It is the best! The coral barrier reef of Belize is second in size only to that of Australia’s and The Great Blue Hole is a famed World Heritage Site that is geographically unique and renowned for its deep sea diving. This is as good as it gets!

You Can Cave In Here

The exciting sport of caving is well served in the endless limestone caves of Belize. Interestingly enough, the Mayans liked these caves too and used them for numerous purposes in their culture. Who knows what you may find – many artifacts have turned up there. No matter, the caving adventure is a treasure in itself!

But you will not be thinking of anything but fun if you decide to go cave tubing. You will be in an inner tube with your piggy’s dangling over – and laughing and shrieking your way through darkened caves as the current carries you along! Exciting and thrilling and you must give it a try!

The Place Is In Ruins!

And they are mighty spectacular indeed. The Mayans flourished in Belize, this is their ancestral homeland. There is a fabulous treat awaiting all you amateur anthropologists and archeologists and those who are just curious. Bring your cameras! You have read about those magnificent temples rising out of the jungle. It is true! Now come climb up one you and admire the mysteries of these amazing structures, imagine the past, and then luxuriate in the surrounding views.

By the way, professional anthropologists maintain ongoing dig sites in Belize and are constantly exploring for more ruins and clues to the Mayan way of life. Knowledge of Mayan culture is being discovered as I write.

Subtropical Ambiance

For those of you who love to paint, sculpt, compose, write or photograph ... I think the ethereal pull of the variety of environments in Belize is compelling and brings out some of our hidden depths. You are exposed to constant visual and sensory experiences that play upon your inner self and may inspire you to greater artistic expression!

Perhaps you have arranged vacations to isolated spots in past years so you can feel free to let loose and drum on the beach under a full moon ... and you chant to the heavens. Go right ahead – and don’t be surprised if you are joined by other like minded friends!

Even Confederate Expats!

I was amazed to learn about this aspect of history in Belize and feel I can say with conviction – there is something here for everyone! Even a Civil War history buff will be fascinated to learn how Indians and war veterans from Louisiana and other southern states immigrated to Belize in the 1860s to establish Confederate settlements.

Belize It

I have presented just a tiny sampling of the outdoor fun that Belize has to offer. And I am not forgetting those who want to just sit on their porch staring out! Whatever your heart’s desire, it is waiting there for you in Belize.

For those who are interested in perhaps pursuing the expat experience, Belize awaits your pleasure! Don’t be shy – you can take the first step to your adventure, and perhaps that new life, by contacting us at Rainforest Realty, Belize. We are here to inform and support you every way we can!

My New Reality in Belize

My reality became my new business – Rainforest Realty.

And in Belize, my chief vocation is now bidding you and others like you, a hearty welcome to the delightful, subtropical world of Belize. If you are contemplating becoming an expat, please remember that in Belize, you already have friends! My staff at Rainforest Realty and I will take the greatest pleasure in answering all of your questions. Email, call or visit – we want to hear from you! You are the reason we do what we do. We love potential expats!

We bring great energy and enthusiasm to our work and take care to carefully answer your queries.

You can ask us anything! We pride ourselves on striving to bring you the most honest, ethical real estate business practices in this part of the hemisphere. Rainforest Realty has been named the top real estate agency in Belize and is also noted for its outstanding expertise in relocation matters.

So if and when you consider Belize, be sure to contact us – we are waiting for you!


Be Prepared” – in mind and body – is the motto of the worldwide Scout Movement. The idea certainly applies to the major decision to pick up stakes and move away from the home country. Here are some situations distilled from experience that any expat on wanna-be expat should be prepared for.

Most Common Reasons Why Expats Fail to Make a Go of a New Life Abroad

Escaping from the dull drudgery of our everyday lives is a dream increasingly shared by individuals from across the world. It seems we all believe to some degree that the grass probably could be greener elsewhere! New horizons beckon and suggest adventure and excitement, and so for many people the dream of moving abroad slowly but surely becomes a reality.

The chance to change our lives is a thrilling challenge, and the act of making a go of it abroad can lead to all sorts of new opportunities; however, for some people becoming an expatriate and an international citizen is not all it is cracked up to be.

You definitely need a certain something to embrace the expatriate lifestyle in all its glory, but why do some people love living abroad whilst others return home with their tail between their legs? Is it a case of integration issues or culture shock? Is expat flu a reality rather than a myth, or are the problems that force expatriates to repatriate purely money orientated?

In this report we are going to take a look at the most common reasons why expats fail to make a go of a new life abroad – so that you can protect against the same issues and mistakes.

Money Does Make the World Go Round

With banks having collapsed and economies having shrunk, fiscal stress is affecting us all to a lesser or greater extent. As a result many people long to escape abroad and find a more affordable way of life where they can just work a little to live a lot, rather than having to live every day of their lives to work just to meet the bills. However, moving abroad is usually a relatively expensive undertaking, especially if you decide to ship elements of your old life with you!

Getting a home set up abroad, buying a car, shipping furniture and finding a good school to put your children through international education costs money. Or for those who prefer to not even pack up before they ship out, the physical relocation alone from one nation to another costs a plane flight, a train ride or a car journey. And this is just the start of money matters.

Financial failure is the number one reason why expatriates return home – fact. Those who fail to effectively plan for their relocation, who do not take into account their new cost of living in relation to their earning power abroad, or who over extend themselves with a home purchase and a fantastic lifestyle are all at risk of falling foul of this fact. Therefore, if you are moving abroad you need to be on top of your finances before you even pick the nation you are moving to. Failure to get your finances in good order could well see you struggle or fail to fulfil the expatriate dream lifestyle abroad.

Learn to Adapt, Don’t Seek to Change

Those who move abroad and expect everything to be the same as it was back home fail spectacularly – and I am sure you will agree that is no bad thing! If the world was all the same what would be the point in travel and adventure! Most of us move abroad to experience challenges and opportunities, for excitement and edification – but the reality of moving to a new culture and settling in can be quite a long way away from the dream of how easy it will be.

Even the most open-minded expatriates will be challenged sometimes when they come into contact with strange local behaviour, complex red tape or seemingly mindless bureaucracy. But the secret to success at this point is adapt yourself, your own mind and your own expectations, do not ever think you will be able to change those around you!

Another very common reason for expatriates repatriating is because they find the challenges of adapting to everyday life in their new country are just too much, too daunting and too hard. Go with an open mind, remain patient and know that no, not everything does make sense in any nation in the world, but you can change your own mind and your own tolerances only, you cannot alter the psyche of a nation.

Language Can Be a Barrier to Effective Communication

Humans tend to need social interaction to thrive, we are generally a community-orientated animal that needs contact and stimulation through conversation and communication. Expatriates who move abroad alone or perhaps as part of a couple only, can struggle if they cannot effectively communicate in the local tongue. Whilst some may meet other expats or locals who speak English, some expatriates can find the language barrier to be an incredibly isolating experience.

Not everyone finds it easy or even possible to learn a foreign language well enough to communicate effectively – this can lead to isolation and this can lead to loneliness and a deep homesickness that will drive expatriates home.

Expatriate Flu is a Reality

Expat flu is a myth to those who have yet to make the move abroad, and yet after between three months and three years all expatriates will experience it. It is a physical manifestation of the stresses, concerns, negative feelings and worries that all expatriates have at one time or another.

When you will come down with it will depend on how hard you fight your negative feelings ... but when you do come down with it you will feel ill, you will also doubt that you have made the right decision to move and live abroad and you will miss home! Most expatriates experience expat flu after about the first six months or so. The initial euphoria dies down when you realize that living abroad has much in common with living at home and you face up to a certain level of stress associated with settling in and settling down in a new environment.

When we are ill we all feel vulnerable, and for expatriates the first time they really go down with a bug, virus, cold or flu it can really test their mettle and their commitment to remain living abroad. If you can get over this inevitable period when you feel physically ill and emotionally down, you will thrive and you will survive abroad. It is all about adjusting your expectations and accepting the reality of your new life abroad. It is unlikely to be perfect, but it can be a dream come true if you accept it for what it is.

Homesick or Lovesick

Some of us live for adventure and some of us just think we do! You are probably not going to know which camp you fall into until you have given life abroad a real go. If you find that after a few months or a few years you really do miss too much about home to ignore it, there is nothing wrong with throwing in the towel and returning to where you feel happier and more comfortable.

A period of homesickness is inevitable for almost everyone, see the above point about expatriate flu, but if you are still feeling homesick when everything is actually going your way abroad, you have friends and have established a new life, there may well be nothing for it but to pack up and ship back home. And there is no shame in that at all – if more people were more honest with themselves in life they would be much happier.

The other reason that some people cannot remain living abroad is because they miss friends, family or a particular loved one too much. Again, no shame in admitting your feelings and going with your heart. If you have tried to make a go of it abroad but you just miss the company and support network offered by certain people, you will probably only be happy when you are back in their fold.

We’ve Got High Hopes

There is nothing wrong with having high hopes and expectations – as long as they are tempered by reality! Living abroad is not an easy ride at every step of the way, just as remaining back home is not perfect all the time. You may “dream” of your new life abroad, and positive visualisation is a powerful tool, but make sure you keep your feet on the ground in terms of your ultimate expectations.

When you move abroad you take yourself with you – you do not leave your personality, your worries, fears, passions and problems back home. There really is only so much you can run away from in other words, so remember that by moving abroad you may not solve your life’s issues, you may just relocate them. But if you want to move abroad for a real life opportunity, to learn, develop and experience new challenges, you should thrive. However, if you are trying to escape from your old life and your old worries and mistakes, chances are you will just replicate them when you move abroad – the only thing that will have changed will be the scenery!

Having high hopes of your new life abroad is not bad, just make sure they are realistically achievable otherwise you may suffer deep disappointment that the streets are not paved with gold, that the sun does not shine every single day, and you may return home disillusioned and depressed.

In Conclusion

Moving to live abroad, settling into a new life in a new nation, meeting new faces, making new friends and even learning another language are all positive yet realistic challenges that expatriates have to face head on. Sometimes the challenges of making a good life abroad are just too much and some people return home. As stated, there is nothing wrong with repatriating if you are ready for it and it is the best thing for you, but do not be forced into making a move back home by failing to make a new life abroad. Know what you are really letting yourself in for, love the thought of the challenges and the opportunities before you make the commitment to move overseas in the first place.


Agreeing to exchange tax information with the OECD members does not mark the end of Panama’s status as a financial center.

Panama was just about the last jurisdiction to cave into OECD pressure to exchange tax information, but cave it did. It had no choice if it wanted to remain a signficant international financial center.

As Simon Black dramatically phrases it: “The unfortunate reality of the global financial system is that traditional tax havens like Panama, Hong Kong, BVI were specifically designed to hide money; this veil of secrecy has now been ripped to shreds by the OECD, and privacy is no longer a reason to hold money offshore.”

But other reasons for banking offshore definitely are still in place: stronger financial institutions, ease of holding deposits in foreign currencies, and freedom from capital controls. We just wonder whether, when push comes to shove, forced repatriation of deposits is a possibility. We would not put it past any government. The only true way to defend against that event is to expatriate.

We are very concerned with what’s happening in Panama, or to put it another way, what’s not happening.” ~~ Jeffrey Owens, director of the OECD Centre for Tax Policy and Administration

Earlier this month, a group of tax commissioners, finance ministers, and NGO representatives descended upon Los Cabos, Mexico for the 5th annual “Global Forum on Transparency and Exchange of Information” sponsored by our friends at the OECD.

You will likely recall that the OECD published its weblack list” and wegray list” of non-compliant financial centers, coinciding with the G20 summit in London this past April. Offending nations ranging from Uruguay to Switzerland immediately scrambled to have their names stricken from the list.

The OECD called this month’s forum in Mexico to make sure that remaining tax havens have either already stepped into line, or are breaking their necks to get there.

The primary regulation in question is the OECD’s controversial standard for information exchange, known as “Article 26.” This is the standard which requires countries to exchange information with other nations for the purposes of tax reporting, regardless of domestic bank secrecy laws.

Austria, Belgium, Luxembourg, and Switzerland were the last of the OECD members to hold out on Article 26, but each has recently caved to pressure and acquiesced to violating their own laws for the sake of international tax information exchange.

With a united OECD standing against them, smaller countries who were holding out against Article 26 compliance have no remaining support, and you can be sure that each of them will fall into line: This is evidenced by the spate of “Tax Information Exchange Agreements” signed by smaller countries in the last month.

29 exchange agreements have been minted this month alone by countries like Gibraltar, San Marino, Andorra, Liechtenstein, Monaco, Aruba, Anguilla, and Nevis. Conspicuously missing from the list?


In the introduction to this missive, I quote the venerable Mr. Owens as he responded to a reporter’s question in Mexico – why does Panama attract such little scrutiny since it has not signed any tax information exchange agreements?

Panama was placed on the OECD’s “gray list” in April as a “jurisdiction that has committed but not yet substantially implemented the internationally agreed tax standard.” In order to be taken off the list, gray list jurisdictions must sign exchange agreements with at least 12 other jurisdictions.

Apparently Mr. Owens’ remarks lit a fire under the Martinelli administration in Panama; the country recently announced that it would begin sharing tax information and is close to inking deals with Spain and Mexico already.

You can expect deals with the United Kingdom, United States and Canada to be close behind.

So does this spell the end of Panama as a financial center? No. Likely it means the survival of Panama as a financial center because noncompliance will threaten its financial infrastructure.

BNP Paribas, for example, which is one of France’s largest banks, recently announced that it would close all branches in non-compliant countries, including Panama. Similar announcements by other banks will likely be forthcoming.

Consequently, if Panama does not want to lose the integrity of its financial center, compliance is a must.

Privacy is no longer a reason to hold money offshore. But there are plenty of other reasons.

The unfortunate reality of the global financial system is that traditional tax havens like Panama, Hong Kong, BVI were specifically designed to hide money; this veil of secrecy has now been ripped to shreds by the OECD, and privacy is no longer a reason to hold money offshore.

Governments are scrambling to become compliant, and sooner or later every bank in every jurisdiction will be coughing up depositor information to foreign tax authorities.

That is the bad news.

The good news is that banking offshore still provides substantial benefits for consumers and their after-tax income, namely: Despite the OECD’s actions, I still believe that banking overseas is a smart move for everyone ... just be sure that you personally comply with your reporting obligations. U.S. citizens, for instance, must report overseas bank accounts to Uncle Sam every year, and if you received a penny of interest, it must be reported on your tax return


World War II got the economy out of the Great Depression, but not in the manner described by the orthodox story.

With the 60th anniversary of the official start of World War II upon us it is a good time to look at the patently nonsensical but widely-held and persistent myth that the War “got us out of the Depression.” Conscipting a substantial percentage of the material, energy and labor available and then blowing it up overseas does not increase prosperity. Any child could tell you that, although an academic might be able to talk him- or herself out of it.

In this elegantly comprehensive investigation of the issue, Robert Higgs, Senior Fellow in Political Economy for The Independent Institute and Editor of the Institute’s quarterly journal The Independent Review, both puts to rest the myth and explains its persistence – which, in part, is due to there being a grain of emotional truth at its center. To wit: A la Keynes’s “animal spirits” or Robert Prechtor’s “social mood” swings: “The performance of the war economy, despite its command-and-control character, broke the back of the pessimistic expectations almost everybody had come to hold during the seemingly endless Depression.” And when the war ended, real prosperity returned.

ABSTRACT: Relying on standard measures of macroeconomic performance, historians and economists believe that “war prosperit”q prevailed in the United States during World War II. This belief is ill-founded, because it does not recognize that the United States had a command economy during the war. From 1942 to 1946 some macroeconomic performance measures are statistically inaccurate; others are conceptually inappropriate. A better grounded interpretation is that during the war the economy was a huge arsenal in which the well-being of consumers deteriorated. After the war genuine prosperity returned for the first time since 1929.

War prosperity is like the prosperity that an earthquake or a plague brings.” ~~ Ludwig von Mises
For nearly half a century historians and economists, almost without exception, have misinterpreted the performance of the U.S. economy in the 1940s. The reigning view has two aspects: one pertaining to the conceptualization and measurement of the economy’s performance; the other pertaining to the explanation of that performance in macroeconomic theory. The two are encapsulated in the title of a chapter in a leading textbook: “War Prosperity: The Keynesian Message Illustrated.”

I shall challenge the consensus view. The accepted profile of the economy’s performance during the 1940s – peak prosperity from 1943 to 1945, followed by much worse performance from 1946 to 1949 – is indefensible as a description of economic well-being. Further, the most widely accepted explanation of the events of the war years cannot withstand critical scrutiny. The prevailing misinterpretations of economic performance during the 1940s have arisen because historians and economists have failed to appreciate that the wartime economy, a command economy, cannot be readily compared with either the prewar or the postwar economy.

The Consensus

According to the orthodox account, the war got the economy out of the Depression. Evidence for the claim usually includes the great decline in the standard measure of the unemployment rate, the large increase in the standard measure of real GNP, and the slight increase in the standard measure of real personal consumption. The entire episode of apparent business-cycle expansion during the war years is understood by most writers as an obvious validation of the simple Keynesian model: enormous government spending, with huge budget deficits, spurred the military economy and produced multiplier effects on the civilian economy, the upshot being increased employment, real output, and consumption and decreased unemployment. Some analysts, recognizing the rapid increase of the money stock during the war, have blended Keynesian and monetarist explanations, treating them as complements. This consensus account, occasionally with minor qualifications or caveats, appears in the works of historians, economists, and other writers.

Employment and Unemployment

The standard measure of the unemployment rate (persons officially unemployed as a percent of civilian labor force) fell between 1940 and 1944 from 14.6% to 1.2%. Michael Darby’s measure, which does not count those in “emergency government employment” as unemployed, fell from 9.5% to 1.2%. Either measure signals a virtual disappearance of unemployment during the war, but in the circumstances neither measure means what it is commonly taken to mean.

The buildup of the armed forces to more than 12 million persons by 1945 made an enormous decline of the unemployment rate inevitable. But the welfare significance of the decline is hardly the usual one. Of the 16 million persons who served in the armed forces at some time during the war, 10 million were conscripted, and many of those who volunteered did so only to avoid the draft and the consequent likelihood of assignment to the infantry. The civilian labor force between 1940 and 1945 ranged from 54 to 56 million. Therefore, the 12 million serving in the armed forces during the last year of the war, most of them under duress, constituted about 18% of the total (civilian plus military) labor force, itself much enlarged during the war.

Whether the government ran deficits or not, whether the money stock increased or not, massive military conscription was sure to decrease dramatically the rate of unemployment.

What actually happened is no mystery. In 1940, before the military mobilization, the unemployment rate (Darby concept) was 9.5%. During the war the government pulled the equivalent of 22% of the prewar labor force into the armed forces. Voilà, the unemployment rate dropped to a very low level. No one needs a macroeconomic model to understand this event. Given the facts of the draft, no plausible view of the economy is incompatible with the observed decline of the unemployment rate. Whether the government ran deficits or not, whether the money stock increased or not, massive military conscription was sure to decrease dramatically the rate of unemployment.

Between 1940 and 1944 unemployment fell by either 7.45 million (official measure) or by 4.62 million (Darby measure), while the armed forces increased by 10.87 million. Even if one views eliminating civilian unemployment as tantamount to producing prosperity, one must recognize that placing either 146 or 235 persons (depending on the unemployment concept used) in the armed forces to gain a reduction of 100 persons in civilian unemployment was a grotesque way to achieve prosperity, even if a job were a job.

To treat military jobs as commensurable with civilian jobs, as economists do in computing the tradeoffs between them, betrays a monumental obtuseness to their realities.

But military “jobs” differed categorically. Often they entailed substantial risks of death, dismemberment, and other physical and psychological injuries. Military service yielded little pay under harsh conditions and, like it or not, lasted for the duration of the war. Sustained involvement in combat drove many men insane. Physical casualties included 405,399 dead and 670,846 wounded. To treat military jobs as commensurable with civilian jobs, as economists do in computing the tradeoffs between them, betrays a monumental obtuseness to their realities. ...

To see more clearly what happened to the labor force, one can examine the percentage of the total (civilian plus military) labor force occupied in what I call the labor force “residuum.” This includes unemployed civilians, members of the armed forces, civilian employees of the armed forces, and employees in the military supply industries. (See Table 1. [See source article.]) This measure rose from 17.6%, almost all of it being unemployment, in fiscal year 1940 to more than 40%, almost all of it being war-related employment, during the fiscal years from 1943 to 1945, then dropped abruptly to about 10% during the fiscal years from 1946 to 1949. The extraordinarily high level of the labor force residuum during the war indicates that the “prosperous” condition of the labor force was spurious: official unemployment was virtually nonexistent, but 4/10 of the total labor force was not being used to produce consumer goods or capital capable of yielding consumer goods in the future. The sharp drop of the labor force residuum between fiscal years 1945 and 1946 marks the return of genuine prosperity.

Real Output

To find out what happened to real output during World War II, historians usually reach for Historical Statistics, economists for the most recent issue of the Council of Economic Advisers’ Annual Report. As Table 2 [see source article] shows, which source one chooses makes a big difference. Although the two series show roughly the same profile of real GNP during the 1940s, the latest Commerce Department version indicates, in index number form (1939 equals 100), a peak value of 192.7 in 1944, versus a peak value of 172.5 in 1944 in the series taken from Historical Statistics. Both series show a large drop in real GNP from 1945 to 1946: 12% in the older series, 19% in the newer. Another series, constructed by John Kendrick, moves similarly with the first two in the table but displays some discrepancies. Notably, from 1945 to 1946 Kendrick’s estimate drops by just 9%. Analysts who employ these standard series, besides ignoring the discrepancies, seem generally unaware that the figures may be conceptually problematic. ...

By contrast, Simon Kuznets, a pioneer in national income accounting, expressed many concerns. In National Product in Wartime Kuznets noted that national income accountants must make definite assumptions about “the purpose, value, and scope of economic activity.” He observed that “a major war magnifies these conceptual difficulties, raising questions concerning the ends economic activity is made to pursue; and “the distinction between intermediate and final products.” Moreover, “war and peace type products ... cannot be added into a national product total until the differences in the valuation due to differences in the institutional mechanisms that determine their respective market prices are corrected for.” During the war Kuznets constructed several alternative series, one of which appears in Table 2, column 4. Its values for 1942 and 1943 are substantially lower than those in columns 1, 2, and 3, in part because Kuznets used preliminary nominal data as well as different deflators for expenditure on munitions.

After the war Kuznets refined his estimates, producing a series (Table 2, column 5) that differs substantially from the standard series “partly because of the allowance for overpricing of certain types of war production, partly because of the exclusion of nondurable war output (essentially pay and subsistence of armed forces).” Contrasting his estimate and that of the Commerce Department, he found the latter “difficult to accept” because it made too little correction for actual inflation during the war years and did not deal satisfactorily with the decline in the relative prices of munitions during the war. Kuznets’s refined estimates follow a completely different profile for the 1940s. Most notable is that whereas the Commerce Department’s latest estimate of real GNP drops precipitously in 1946 and remains at that low level for the rest of the decade, Kuznets’s estimate increases in 1946 by about 8%, then rises slightly higher during the next three years.

The crucial question: Does war spending purchase a final good and hence belong in GNP, or an intermediate good and hence not belong?

Kuznets might have made an even greater adjustment, deleting all war outlays. Although computing GNP in this way now seems highly unorthodox, a strong argument can be offered for it, and Kuznets considered it seriously. The crucial question: Does war spending purchase a final good and hence belong in GNP, or an intermediate good and hence not belong?

In his studies of long-term economic growth, Kuznets always insisted on a “peacetime concept” of GNP. In this, government spending counts only if it pays for a flow of goods to consumers or a flow to capital formation. Military spending enters only to the extent that it finances additions to the military capital stock, the justification being that even though military durables and construction are used for military purposes, they represent capital that could be employed for nonmilitary purposes – a justification that seems far-fetched with regard to many forms of military capital.

Application of this approach in estimating real GNP during the 1940s yields the series that Kuznets designated Variant III (Table 2, column 6). This estimate reached a peak in 1941, stalled throughout the war period, then surged with the demobilization and reconversion. It jumped by nearly 17% between 1945 and 1946 and remained at the higher level for the rest of the decade. No wartime prosperity here.

Kuznets himself did not accept the Variant III concept as applicable to the war years. Beginning with National Product in Wartime and continuing through elaborations in his contributions of the early 1950s, he maintained that although ordinarily one ought to count as part of national product only goods that either contribute immediately to consumer satisfaction or add to the stock of capital from which future flows of consumer goods can be derived, the situation changes during the “life and death struggle” of a great war. Then, one must temporarily recognize “success in war and preservation of a country’s social framework as a purpose at least equal in importance to welfare of individuals.” Kuznets insisted that this approach was justified only “during these extraordinary and necessarily brief intervals in the life of a body social. One must particularly beware of extending this viewpoint, justified by the necessarily temporary crises in the life of a nation, to the common run of public activities.” But when the Cold War developed and persisted, most economists took the position that military expenditures always perform the function that Kuznets viewed them as performing only during a war for national survival.

Not everyone accepted the dominant view. Among the dissenters were William Nordhaus and James Tobin, who made numerous adjustments to the standard GNP concept to transform it into what they called a measure of economic welfare. They aimed to eliminate from GNP all “activities that are evidently not direct sources of utility themselves but are regrettably necessary inputs to activities that may yield utility” – in other words, “only instrumental.” Accordingly they deleted, among other things, all national defense spending. They did not consider military spending wasteful; they merely insisted that it purchases an intermediate good. It is a “necessary regrettable” expense.

Earlier Kuznets had come close to adopting this position. He regarded warfare as “the central difficulty in distinguishing between final and intermediate output of government.” He found it “difficult to understand why the net product of the economy should include not only the flow of goods to the ultimate comsumers, but also the increased cost of government activities necessary to maintain the social fabric within which the flow is realized.” Still, Kuznets did not disavow his insistence on recognizing “two end purposes” in estimating real output during World War II.

Kuznets’s own logic, however, required that he go all the way: maintenance expense remains maintenance expense, even though much more maintenance is required when the weather is stormy than when it is placid. As Kuznets himself said, “there is little sense in talking of protection of life and limb [against external enemies] as an economic service to individuals – it is a pre-condition of such service, not a service in itself.”

When one deducts all military outlays from GNP, one arrives at a starkly different understanding of economic performance in the 1940s.

When one adopts this position on the treatment of military outlays, that is, when one deducts all of them from GNP on the grounds that they purchase (at best) intermediate rather than final goods, one arrives at a starkly different understanding of economic performance in the 1940s. Constructing an index purged of all military spending, one obtains the measure designated here as GNP* (Table 2, column 7). Like Variant III, GNP* shows a peak in 1941 followed by a U-shaped profile during the war years with a trough in 1943. However, the U is much deeper in GNP*, with real output in 1943 more than 14% below its value in 1941. Moreover, while Variant III exceeded its 1941 value by 1945, GNP* did not. Between 1945 and 1946 GNP* surged upward by almost 27%, versus less than 17% for Variant III. From 1946 to 1949, with military spending at a much lower level, the two indexes were virtually identical.

In a command and control economy the use of prices as weights in an aggregation of physical quantities loses its essential theoretical justification.

Finally, one can make an even more unorthodox – which is not to say incorrect – argument for rejecting the conventional wisdom. One can simply argue that outside a more or less competitive equilibrium framework, the use of prices as weights in an aggregation of physical quantities loses its essential theoretical justification. All presumption that price equals marginal cost vanishes, and therefore no meaningful estimate of real national product is possible.

In fact, price was “never a factor” in the allocation of resources for war purposes. The authorities did not permit “the price-cost relationship ... to determine either the level of output or the distribution of the final product to individual uses.” Clearly, all presumption of equalities between prevailing prices, consumers’ marginal rates of substitution, and producers’ marginal rates of technical substitution vanished. Absent those equalities, at least as approximations, national income accounting loses its moorings; it necessarily becomes more or less arbitrary.

Some economists appreciated the perils at the time. Noting that the government had displaced the price system, Wesley Mitchell observed that comparisons of the war and prewar economies, even comparisons between successive years, had become “highly dubious.” Index number problems lurked around every corner. Much output during the war, especially the weapons, consisted of goods that did not exist before the war. Even for physically comparable goods, price structures and output mixes changed radically. Production of many important consumer goods was outlawed. Surrounding everything were the “obvious uncertainties concerning [price] quotations in a land of price controls and evasions.” Kuznets declared that the “bases of valuation for the war and nonwar sectors of the economy are inherently noncomparable . ... It is impossible to construct directly a price index of war products that would span both prewar and war years.” Kuznets’s own efforts to overcome these problems never escaped from arbitrariness, as he himself admitted.

Economics is not a science of hammers and nails, or of production or consumption in the raw; it is a science of choice, and therefore of values.

It will not do to maintain, as some economists have, that although the standard indexes of real GNP are deficient from a welfare standpoint, they can serve as indexes of production or resource consumption. Economics is not a science of hammers and nails, or of production or consumption in the raw; it is a science of choice, and therefore of values. Valuation is inherent in all national income accounting. In a command economy the fundamental accounting difficulty is that the authorities suppress and replace the only genuinely meaningful manifestation of people’s valuations, namely, free market prices.

Real Consumption

Most writers insist that real personal consumption increased during the war. In Seymour Melman’s flamboyant but otherwise representative portrayal, “the economy [was] producing more guns and more butter ... Americans had never had it so good.”

This belief rests on a weak foundation. It fails to take sufficiently into account the understatement of actual wartime inflation by the official price indexes, the deterioration of quality and disappearance from the market of many consumer goods, the full effect of the nonprice rationing of many widely consumed items, and the additional transactions costs borne and other sacrifices made by consumers to get the goods that were available. When one corrects the data to provide a more defensible measure of what happened to real consumer well-being during the war, one finds that it declined. ...

Table 3 [see source article] shows the standard series on real personal consumption expenditure during the 1940s. They do not differ much. The similarity is hardly surprising, as all rest on nearly the same conceptual and statistical bases. These figures have led historians and economist to conclude that the well-being of consumers improved, though not by much, during the war.

Even if one stays within the confines of the standard series, the conclusion is shaky. Notice, for example, that the data indicate that consumption in 1943 hardly differed from consumption in 1941. The change between 1941 and 1944 varies from 3.7% to 5%, depending on the series considered. But the population was growing at a rate of more than 1 percent per year, so the official data imply that real personal consumption per capita remained essentially unchanged between 1941 and 1944. Merely to maintain the level of 1941, a year in which the economy had yet to recover fully from the Depression, hardly signified “wartime prosperity.”

Price indices used to measure wartime and postwar inflation are deeply flawed.

The more serious problem, however, is that the standard real consumption series are quotients fatally flawed by their deflators. Everyone who has looked closely at the official price indexes recognizes that they underestimate the actual inflation during the war and – an important point usually overlooked – overstate the actual inflation during the immediate postwar period. But investigators have not agreed on exactly how the actual price level moved or the proper technique for finding out.

During the war a committee headed by Wesley Mitchell investigated how far the official consumer price index had fallen short of the true price level, but the committee neither attempted to adjust nor succeeded in correcting for all the factors creating the discrepancy. In 1978 Hugh Rockoff made additional adjustments, concluding that the official consumer price index understated the true price level by 4.8 to 7.3% in June 1946, just before the price controls lapsed. Rockoff’s adjustments remained incomplete, as he recognized. He commented that “if anything, the errors were larger than” the estimates indicated. Moreover, “evasion and black markets were probably more severe outside the group of commodities that were covered by the consumer price index.”

More recently, Rockoff and Geofrey Mills, using a different (macroeconomic) approach, have estimated an alternative deflator for NNP during the war. This shows that the official deflator understated the price level by 2.3% in 1943 (the first year that the price controls had a significant effect), 4.9% in 1944, 4.8% in 1945, and 1.6% in 1946.31 These discrepancies seem too small to be credible. By comparison, Kuznets’s alternative (GNP) deflator, published in 1952, differed from the official deflator for the corresponding years by 11.1%, 13.4%, 11.4%, and 2.2%, respectively.

Perhaps the most credible alternative deflator has been produced by Milton Friedman and Anna Schwartz. They found the official deflator for NNP to be understated by 3.7% in 1943, 7.7% in 1944, 8.9% in 1945, and 3.3% in 1946. Their deflator is for NNP, not for just the consumption component of NNP. In using it as a deflator for consumption alone, one is taking a risk. It definitely moves in the right direction, however, as it implies larger adjustments than Rockoff’s admittedly incomplete adjustments of the official consumer price index. Moreover, it is well established that munitions prices rose much less than the prices of civilian goods; hence, a deflator for official NNP, which includes munitions, most likely still understates the extent to which the prices of consumer goods rose during the war.

Wartime declines in real consumption.

If one uses the Friedman-Schwartz price index to deflate personal consumption spending per capita, the results are shown in table 4 [see source article], column 3. The pattern shown there diverges markedly from that shown by the standard data. According to the alternative estimate, real consumption per capita reached a prewar peak in 1941, nearly 9% above the 1939 level; it declined by more than 6% during 1941-1943 and rose during 1943-1945; still, even in 1945 it had not recovered to the level of 1941. In 1946, however, the index jumped by 18%, and it remained at about the same level for the rest of the decade. ...

In fact, conditions were much worse than the data suggest for consumers during the war. Even if the price index corrections considered above are sufficient, which is doubtful, one must recognize that consumers had to contend with other extraordinary welfare-diminishing changes during the war. To get the available goods, millions of people had to move, many of them long distances, to centers of war production. (Of course, costly movements to areas of greater opportunity always occur; but the rate of migration during the war was exceptional because of the abrupt changes in the location of employment opportunities.) After bearing substantial costs of relocation, the migrants often found themselves crowded into poorer housing. Because of the disincentives created by rent controls, the housing got worse each ear, as landlords reduced or eliminated maintenance and repairs. Transportation, even commuting to work, became difficult for many workers. No new cars were being produced; used cars were hard to come by because of rationing and were sold on the black market at elevated prices; gasoline and tires were rationed; public transportation was crowded and inconvenient for many, as well as frequently pre-empted by the military authorities. Shoppers bore substantial costs of searching for sellers willing to sell goods, including rationed goods, at controlled prices; they spent much valuable time arranging (illegal) trades of ration coupons or standing in queues. The government exhorted the public to “use it up, wear it out, make it do, or do without.” In thousands of ways, consumers lost their freedom of choice.

It is difficult to understand how working harder, longer, more inconveniently and dangerously in return for a diminished flow of consumer goods comports with the description that “economically speaking, Americans had never had it so good.”

People were also working harder, longer, more inconveniently, and at greater physical risk in order to get the available goods. The ratio of civilian employment to population (aged 14 and over) increased from 47.6% in 1940 to 57.9% in 1944, as many teenagers left school, women left their homes, and older people left retirement to work. The average work week in manufacturing, where most of the new jobs were, increased from 38.1 hours in 1940 to 45.2 hours in 1944; and the average work week increased in most other industries, too – in bituminous coal mining, it increased by more than 50%. Night shifts occupied a much larger proportion of the work force. The rate of disabling injuries per hour worked in manufacturing rose by more than 30% between 1940 and its wartime peak in 1943.

It is difficult to understand how working harder, longer, more inconveniently and dangerously in return for a diminished flow of consumer goods comports with the description that “economically speaking, Americans had never had it so good.”

Irrelevant Macro Models

None of the standard macroeconomic theories employed to account for the wartime experience provides an acceptable explanation. The models cannot do the job because they do not pertain to a command economy, and the United States between 1942 and 1945 had a command economy. Regardless of the peculiarities of their assumptions, all standard macro models presume the existence of functioning markets for commodities, factor services, and bonds.

The assumption fails even to approximate the conditions that prevailed during the war. Commodity markets were pervasively subject to controls: price controls, rationing, and in some cases outright prohibition in the consumer goods markets; and price controls, prohibitions, priorities, conservation and limitation orders, quotas, set-asides, scheduling, allocations, and other restrictions in the market for raw materials, components, and capital equipment.40 While taxes were raised enormously, many forms of production received subsidies so the price controls would not drive suppliers from the market. Factor markets were no freer, and in some respects (such as conscription) were much less free. Credit markets came under total control, as the Federal Reserve undertook to reduce and allocate consumer credit and pegged the nominal interest rate on government bonds at a barely positive level. Two-thirds of the investment in manufacturing plants and equipment from July 1940 through June 1945 was financed by the government, and most of the remainder came forth in response to tax concessions and other de facto subsidies authorized in 1940 to stimulate the rearmament.

In sum, the economy during the war was the exact opposite of a free market system. Every part of it was either directly controlled by the authorities or subject to drastic distortion by virtue of its relations with suppliers and customers who were tightly controlled. To suppose that the economy allocated resources in response to prices set by the unhampered interplay of demands and supplies in the markets for commodities, factor services, and loanable funds is to suppose a complete fiction. Clearly, the assumptions that undergird standard macro models do not correspond with the empirical reality of the wartime economy.

So What Did Happen?

As the 1940s began, the economy, although substantially affected by various government intrusions, remained one in which resource allocation for the most part reflected the operation of the price system. It was far from classic capitalism but also far from a command economy. Beginning in the fall of 1940, proceeding slowly until the attack on Pearl Harbor and then very rapidly, the government imposed such pervasive and sufficiently effective controls that, by the beginning of 1943, the economy became a thoroughgoing command system. This regime persisted until the fall of 1945, when the controls began to come off rapidly. Although some persisted, the overwhelming mass of them had been removed by 1947. In the late 1940s the economy was once again broadly market-oriented, albeit far from pure capitalism. So, within a single decade the economy had moved from being mainly market-directed to being nearly under the complete control of central planners to being mainly market-directed again. When one views any economic measure spanning the decade, one must keep this full revolution of the institutional framework in mind, because the meaning of such measures as the unemployment rate, GNP, and the consumer price index depends on the institutional setting to which they relate.

In 1940 and 1941 the economy was recovering smartly from the Depression, but in the latter year the recovery was becoming ambiguous, as substantial resources were diverted to war production. From 1942 to 1944 war production increased rapidly. Although there is no defensible way to place a value on the outpouring of munitions, its physical dimensions are awesome. From mid-1940 to mid-1945 munitions makers produced 86,338 tanks; 297,000 airplanes; 17,400,000 rifles, carbines, and sidearms; 315,000 pieces of field artillery and mortars; 4,200,000 tons of artillery shells; 41,400,000,000 rounds of small arms ammunition; 64,500 landing vessels; 6,500 other navy ships; 5,400 cargo ships and transports; and vast amounts of other munitions. Despite countless administrative mistakes, frustrations, and turf battles, the command economy worked. But, as always, a command economy can be said to work only in the sense that it turns out what the authorities demand. The U.S. economy did so in quantities sufficient to overwhelm enemy forces.

The mobilization became a classic case of guns displacing both butter and churns. So why did people – evidently almost everyone – think that prosperity had returned during the war?

Meanwhile, as shown above, real personal consumption declined. So did real private investment. From 1941 to 1943 real gross private domestic investment plunged by 64%; during the four years of the war it never rose above 55% of its 1941 level; only in 1946 did it reach a new high. Notwithstanding the initial availability of much unemployed labor and capital, the mobilization became a classic case of guns displacing both butter and churns. So why, apart from historians and economists misled by inappropriate and inaccurate statistical constructs, did people – evidently almost everyone – think that prosperity had returned during the war?

The question has several answers. First, everybody with a desire to work was working. After more than 10 years of persistently high unemployment and the associated insecurities (even for those who were working), full employment relieved a lot of anxieties. Although economic well-being deteriorated after 1941, civilians were probably better off on the average during the war than they had been during the 1930s. Second, the national solidarity of the war effort, though decaying after the initial upsurge of December 7, 1941, helped to sustain the spirits of many who otherwise would have been angry about the shortages and other inconveniences. For some people the wartime experience was exhilarating even though, like many adventures, it entailed hardships. Third, some individuals (for instance, many of the black migrants form the rural South who found employment in northern and western industry) were better off, although the average person was not. Wartime reduction of the variance in personal income – and hence in personal consumption – along with rationing and price controls, meant that many people at the bottom of the consumption distribution could improve their absolute position despite a reduction of the mean. Fourth, even if people could not buy many of the things they wanted at the time, they were earning unprecedented amounts of money. Perhaps money illusion, fostered by price controls, made the earnings look bigger than they really were. In any event, people were building up bank accounts and bond holdings; while actually living worse than before, they were feeling wealthier.

The performance of the war economy, despite its command-and-control character, broke the back of the pessimistic expectations almost everybody had come to hold during the seemingly endless Depression.

Which brings us to what may be the most important factor of all: the performance of the war economy, despite its command-and-control character, broke the back of the pessimistic expectations almost everybody had come to hold during the seemingly endless Depression. In the long decade of the 1930s, especially its latter half, many people had come to believe that the economic machine was irreparably broken. The frenetic activity of war production – never mind that it was just a lot of guns and ammunition – dispelled the hopelessness. People began to think: if we can produce all these planes, ships, and bombs, we can also turn out prodigious quantities of cars and refrigerators. ...

When the controls began to come off and the war ended more quickly than anticipated in 1945, consumers and producers launched eagerly into carrying out plans based on rosy forecasts and, by so doing, made their expectations a reality. Of course, the ability to draw on the accumulations of financial assets built up by “forced saving” during the war was important, especially in conjunction with the Federal Reserve’s continued support of bond prices. But the liquidation of those assets alone could not have turned the trick – if such tricks were possible, a government could produce prosperity simply by cranking the money presses.

Probably the most solid evidence of expectations comes from the stock markets, where thousands of transactors risk their own wealth on the basis of their beliefs about future economic conditions. (See Table 5 [see source article].) Evidently investors took a dim view of the prospect of a war economy. After 1939, stock values dropped steadily and substantially; U.S. entry into the war in December 1941 did not arrest the decline. By 1942 the Standard & Poor’s index had fallen by 28%, and the market value of all stocks on registered exchanges had plunged by 62% in nominal terms. (Adjustments for price level changes would make the declines even greater.) The declines occurred even though current corporate profits were rising steadily and substantially. In 1943, as the tide of war turned in favor of the Allies, the stock market rallied and small additional advances took place in 1944. Still, in 1944, with the war economy operating at its peak, the stock market’s real value had yet to recover to its 1939 level.

By early 1945, almost everyone expected the war to end soon. The prospect of a peacetime economy electrified investors. Stock prices surged in 1945 and again in 1946. In just two years the Standard & Poor’s index increased by 37% and the value of all shares on registered exchanges by 92%, despite a decline of current-dollar after-tax corporate profits from their peak in 1944. Did people expect the end of “wartime prosperity” to be economically deleterious? Obviously not.

To sum up, World War II got the economy out of the Great Depression, but not in the manner described by the orthodox story. The war itself did not get the economy out of the Depression. The economy produced neither a “carnival of consumption” nor an investment boom, however successfully it overwhelmed the nation’s enemies with bombs, shells, and bullets. But certain events of the war years – the buildup of financial wealth and especially the transformation of expectations – justify an interpretation that views the war as an event that recreated the possibility of genuine economic recovery. As the war ended, real prosperity returned.


Antigua Names New Regulator after Stanford Scandal

Antigua and Barbuda has appointed an experienced banker to head the tiny Caribbean nation’s financial regulatory body, replacing Leroy King, who faces U.S. charges of abetting accused swindler Allen Stanford.

A government statement released ... said John Benjamin, a banker with more than 40 years of experience, was named administrator and chief executive officer of Antigua and Barbuda’s Financial Services Regulatory Commission. He replaces King, who is under house arrest and awaiting U.S. extradition proceedings for his role in the alleged $7 billion fraud that U.S. prosecutors say was operated by Texas billionaire Stanford and his associates using certificates of deposit issued by Stanford International Bank in Antigua.

U.S. prosecutors say King received regular bribes from Stanford over several years to keep U.S. Securities and Exchange Commission investigators from probing the operations of the Antigua-based bank. Stanford, 59, has denied any wrongdoing and was taken to the hospital with a racing pulse last week hours before he was due to appear in a federal court in Houston for a hearing. His lawyer says he will undergo heart tests.

In a plea agreement filed in the Houston court last week, Stanford’s former top aide, James M. Davis, alleged that King performed a “blood oath” brotherhood ceremony with Stanford in 2003, in which in exchange for cash bribes he was to ensure that Antiguan regulators did not “kill the business” of the Stanford bank on the island.

Stanford, a flamboyant sports entrepreneur who backed Caribbean cricket tournaments, was granted a knighthood by Antigua and Barbuda and was once its biggest investor. Former Stanford clients from the United States, Mexico, Colombia and Peru are suing the tiny Caribbean state for up to $24 billion in damages, alleging it was a “partner in crime” with Stanford.

Antigua and Barbuda’s government denies this. It says the Stanford scandal badly hurt the economy of the small state of around 85,000 people, causing losses and layoffs and damaging the nation’s image as an offshore finance destination.

The Antiguan government statement said Benjamin, the new Financial Services Regulatory Commission chief, had previously worked with Barclays Bank Plc and the Antigua Commercial Bank and more recently had been managing director at TCI Bank Ltd of the Turks and Caicos Islands.

His appointment will run for a period of six months.