November 2007 Selected Offshore News Clips

(Especially noteworthy articles’ headings highlighted in gold.)

THE ERUPTING VOLCANO OF CREDIT CONTRACTION

“New car sales fall as buyers shun debt,” says a Wall Street Journal headline. Just what we expected, but so long coming we had begun to wonder. Americans represent nearly 20% of the world’s consumption. And the U.S. economy, too, is more dependent on consumption spending than any economy ever has been. If American consumers do not spend more, the whole shebang falls apart.

We are witness to something that does not happen very often – like the eruption of a volcano, or the collapse of a bridge – the first stage of a credit contraction. So far, the effects have made the headlines, but it has not yet affected most people. So far ... Only at the top and the bottom of the credit structure are people getting pinched, squeezed and punished.

At the bottom, of course, are the ordinary homeowners. “I have got a tiny little house on the edge of London,” explained a colleague. “I’ve got to sell it, because I put a contract in on another place. But it has been on the market for three months now, and only four people have even looked at it. I’m getting very nervous. ... The problem is that it is a starter home. And the banks don’t want to lend to people who are buying starting homes. They are the worst credit risks, because they don’t earn much money and don’t have much in assets. ... But this is completely different from a couple of years ago, when the banks would lend to anyone ...”

The people at the bottom are beginning to feel anxious. Many have never, ever seen a time when house prices were not rising and mortgage credit was not readily available. Many loaded up with debt when the going was good. Now that the going ain’t so good, they regret it.

House mortgage debt in the U.S. grew by $10 trillion since 1999. As a percentage of disposable income, it rose from 64% to 100% – with more new debt added than in the previous 45 years combined. Add in consumer installment debt and the ratio rises to 131%.

Of course, when you add that much financing to a society, the financing industry is bound to make money. As a percentage of profits, more and more of America’s profits have come from “financing” as opposed to manufacturing. Wall Street got rich, handed out billions of bonuses, built mansions in the Hamptons and in Greenwich, Connecticut, bought huge collections of monstrous art ... and generally made itself obnoxious.

But now, at the upper end of the credit structure, Wall Street firms are getting sold off. After billions in losses, shareholders are giving CEOs the old heave-ho. First, Warren Spector of Bear Stearns got axed. Then, it was Peter Wuffli at UBS. He was followed by Stan O’Neal of Merrill Lynch. O’Neal made the headlines for generating two big numbers – the largest losses, at an estimated $18 billion, and the largest “golden parachute”, at $180 million. What are compensation boards thinking? Why not give the guy a kick in the pants instead? They must think shareholders are idiots; and they are probably right!

After the O’Neal story died down, along came Chuck Prince of Citigroup – America’s largest bank. The firm is expected to write down $5 billion this quarter. Chuck was chucked out. And today’s news brings a new victim – H&R Block finance chief Trubeck.

Between the honchos at the top and the householders at the bottom are thousands of deals, and millions of ordinary people. The deals are feeling the pressure. “Bond issuance plunges,” reports Bloomberg. And “default swaps” – a form of insurance against bad loans – are rising to record prices, indicating a level of fearfulness not seen on Wall Street for many, many years.

The people in the middle must be getting a little sour, too. When the financing for deals slows, so do the new projects ... the new companies ... and the new jobs. And so does the financing for new houses ... and new cars ... and all the other new things that make an economy grow ...

Let’s return to the numbers above. $10 trillion in new mortgage debt was added in the U.S. over the last seven years. That debt is another potential source of deflation. Yesterday, we looked at the bull market in gold. We wondered how and why it might come to an end. If the credit contraction were to worsen, we concluded, the price of gold – in dollars – might go down.

When credit expands, more money enters the system, and prices rise. But then, there comes a time when the debts must be paid. Then, people have to take money out of the system. They have to cut back on their expenses in order to put aside the money to pay back the loans. The credit contraction phase is typically a phase of falling prices. As more and more currency is withdrawn in order to pay debts (and, incidentally, build up savings), less and less currency is available to buy things.

But wouldn’t the financial authorities simply emit more paper money? Ah, yes, they would try. But what we learned from Japan is that once a credit contraction begins, it is very difficult to reverse. The Japanese tried monetary policy – with a central bank lending rate of “effectively zero”. They tried fiscal policy, with the largest government deficits in the developed world. Still, prices fell.

Ben Bernanke has spent years studying the Japanese example. If we ever got in that sort of jamb, he says, he would drop money from helicopters in order to break the contraction cycle. We are a long way from there. So far, we seem to be only at the beginning of a credit contraction.

The average person does not even feel it. When the squeeze begins, only the outer edges feel it first – the top and bottom of the credit structure. But will it eventually involve everyone ... and will the Bernanke Fed need to drop money from helicopters in order to get the economy moving again? Maybe ... but then we would really see the price of gold soar!

SINKING CURRENCY, SINKING COUNTRY

The euro, worth 83 cents in the early George W. Bush years, is at $1.45. The British pound is back up over $2, the highest level since the Carter era. The Canadian dollar, which used to be worth 65 cents, is worth more than the U.S. dollar for the first time in half a century. Oil is over $90 a barrel. Gold, down to $260 an ounce not so long ago, has hit $800.

Have gold, silver, oil, the euro, the pound and the Canadian dollar all suddenly soared in value in just a few years? Nope. The dollar has plummeted in value, more so in Bush’s term than during any comparable period of U.S. history. Indeed, Bush is presiding over a worldwide abandonment of the American dollar.

Is it all Bush’s fault? Nope. The dollar is plunging because America has been living beyond her means, borrowing $2 billion a day from foreign nations to maintain her standard of living and to sustain the American Imperium.

The prime suspect in the death of the dollar is the massive trade deficits America has run up. In 2006, that U.S. trade deficit hit $764 billion. The current account deficit, which includes the trade deficit, plus the net outflow of interest, dividends, capital gains and foreign aid, hit $857 billion, 6.5% of GDP. As some of us have been writing for years, such deficits are unsustainable and must lead to a decline of the dollar. A sinking dollar means a poorer nation, and a sinking currency has historically been the mark of a sinking country. And a superpower with a sinking currency is a contradiction in terms.

What does this mean for America and Americans? As nations realize that the dollars they are being paid for their products cannot buy in the world markets what they once did, they will demand more dollars for those goods. This will mean rising prices for the imports on which America has become more dependent than we have been since before the Civil War. U.S. tourists traveling to the countries whence their ancestors came will find that the money they saved up does not go as far as they thought.

U.S. soldiers stationed overseas will find the cost of rent, gasoline, food, clothing and dining out takes larger and larger bites out of their paychecks. The people those U.S. soldiers defend will be demanding more and more of their money. U.S. diplomats stationed overseas, students and businessmen are already facing tougher times.

U.S. foreign aid does not go as far as it did. And there is an element of comedy in seeing the U.S. going to Beijing to borrow dollars, thus putting our children deeper in debt, to send still more foreign aid to African despots who routinely vote the Chinese line at the United Nations. The Chinese, whose currency is tied to the dollar, and Japan will continue, as long as they can, to keep their currencies low against the dollar. For the Asians think long term, and their goals are strategic.

China – growing at 10% a year for two decades and now growing at close to 12% – is willing to take losses in the value of the dollars it holds to keep the U.S. technology, factories and jobs pouring in, as their exports capture America’s markets from U.S. producers. The Japanese will take some loss in the value of their dollar hoard to take down Chrysler, Ford and GM, and capture the U.S. auto market as they captured our TV, camera and computer chip markets. Asians understand that what is important is not who consumes the apples, but who owns the orchard.

Other nations that have kept cash reserves in U.S. Treasury bonds and T-bills are watching the value of these assets sink. Not fools, they will begin, as many already have, to divest and diversify, taking in fewer dollars and more euros and yen. As more nations abandon the dollar, its decline will continue.

The oil-producing and exporting nations, with trade surpluses, like China, have also begun to take the stash of dollars they have and stuff them into sovereign wealth funds, and use these immense and growing funds to buy up real assets in the United States – investment banks and American companies.

Nor is there any end in sight to the sinking of the dollar. For, as foreigners demand more dollars for the oil and goods they sell us, the trade deficit will not fall. And as the U.S. government prints more and more dollars to cover the budget deficits that stretch out – with the coming retirement of the baby boomers – all the way to the horizon, the value of the dollar will fall. And as Ben Bernanke at the Fed tries to keep interest rates low, to keep the U.S. economy from sputtering out in the credit crunch, the value of the dollar will fall.

The chickens of free trade are coming home to roost.

WHAT TAX HAVENS TEACH US ABOUT THE BENEFITS OF LOW-TAX ECONOMIES

What are the three richest countries in the world? You might be tempted to answer America, maybe Switzerland, or perhaps even Ireland. The right answer, however, is Luxembourg, Bermuda and Jersey in that order.

The CIA, which as well as spying on people collects economic data, recently published its annual ranking of global wealth, measured by gross domestic product per capita, adjusted for the purchasing powers of different currencies. What is striking about the list is not only that none of the big economic powers are that near the top, but that so many of the leading places are taken up by tax havens or low-tax countries. Of the 20 wealthiest nations, 13 of them are low-tax territories. Luxembourg, Bermuda and Jersey might lead the way, but the top 20 also includes Equatorial Guinea, Guernsey, Ireland, the Cayman Islands, Andorra, Hong Kong, the British Virgin Islands, the Isle of Man, San Marino and Switzerland.

The wealth of some of those territories is striking. Luxembourg and Bermuda have a GDP per capita of $71,400 and $69,000 respectively. By contrast, America, the wealthiest of the mainstream industrial economies, has a GDP per capita of $44,000. Even the worst-off low-tax nation, Switzerland, has a GDP per capita of $33,000. And Britain, despite the endless boasting from Gordon Brown about the brilliance of its economic record, ranks only 28th in the world, on $31,800, slightly below Germany, and just a tiny bit above France. (London would belong to the top 20 if it declared independence and with 112,000 non-domiciled residents paying virtually no tax, it is a bigger haven than Monaco and Andorra combined.)

In the past few years, politicians from the developed world have led a determined assault on tax havens. Norway has just launched an investigation into their role in sheltering development aid stolen by corrupt dictators. The OECD has led a series of attacks on the world’s tax havens, accusing them of complicity in money laundering and of lacking transparency. At one point the French government advocated an international boycott of tax havens, arguing that EU banks should refuse to deal with them. As U.K. Chancellor, Gordon Brown led constant campaigns against tax havens, looking for new ways to raise revenue out of them.

Even the Vatican has joined the campaign. Pope Benedict XVI was reported last month to be working on a doctrinal pronouncement that will condemn tax evasion as socially unjust, while the planned encyclical – the most authoritative statement a pope can issue – will denounce the use of tax havens and offshore bank accounts by wealthy individuals, on the grounds that they reduce the tax revenues raised for the benefit of society as a whole. (Although curiously the Vatican has not reacted so well to proposals by the Italian government to curb the Catholic church s own tax break.)

But instead of attacking tax havens, other countries should be trying to learn from them. The way they lead the global wealth rankings is testament to the power of lower taxes to raise overall living standards. The Bahamas manages to be far richer than any of its neighboring Caribbean islands, Luxembourg is wealthier than France or Belgium, while Jersey has pulled well ahead of near-by Britain.

Of course, you can object that these are all tiny places, with minuscule populations floating on top of an ocean of tax accountants and brass-plate companies. There is some truth in that. But the list also includes low-tax nations such as Ireland, Hong Kong and Switzerland – all mid-sized trading territories which levy significantly lower taxes than most of their rivals.

You might say, as well, that the tax havens are rich because they are corrupt – they are refuges for corrupt dictators and drug dealers and tax evaders, who are allowed to launder their illicit gains through their banks and trust companies. But though money laundering through the Cayman Islands may be a staple of popular fiction, there isn t much evidence for it in the real world. Most criminals launder the proceeds of the crimes domestically, since they are well aware that moving their money across borders only increases the chances of detection. Terrorists use traditional networks of money changers, not banks in Jersey.

Governments should spend more time worrying about why it is that so much development aid ends up lining the pockets of a corrupt elite than where the money ends up. There is always going to be a bank somewhere that will take their money. Even if there was not, they would stash it away in gold or diamonds.

Low-tax territories provide an alternative to the high-tax world. They impose some discipline on governments elsewhere, restricting the amount they can raise in taxes by providing an escape route. But more importantly, they demonstrate the ability of lower taxes to consistently raise living standards, even in the most unpromising locations. Maybe it is time to stop hammering the tax havens and start trying to learn from them instead.

HONDURAN LIVING – ANATOMY OF A TRANS-PAT

If you give up your citizenship to replace it with another, maybe “ex-pat” might be appropriate, but when you retain your citizenship and have legal residency in another country, “trans-pat”, or trans-patriot might be more appropriate.

Try telling your friends and family that you are considering moving to a Caribbean island and see what the responses are! This will certainly separate the risk-takers from the conservatives, the adventurous from the timid, the global-thinkers from the local-thinkers, and – perhaps – the weak from the strong. When my husband and I made the announcement to our friends, you would think we had just parted the Red Sea. On one side were the cheerleaders, encouraging us at every stage. On the other side were the pessimists, those who were convinced everything would go wrong and we would never be seen again!

As it turned out, everyone was right – to a degree. We had a few disasters, but we overcame them and are still here on Roatan, a 49 square mile island off the north coast of Honduras, after 9 years ... and happy to be in such a beautiful and friendly country. So do not think you are crazy for even entertaining an idea like this. It can be done, and it can be the best move you ever made. Or not.

Certainly, if you are looking at relocation as an opportunity to make a real estate investment and return on that investment, you are not crazy. But what kind of person actually does this?

One such “trans-pat” is a young, attractive, single woman from England. Louise started thinking about relocating at age 21. The cost of living, the weather, the opportunities ... these were all fuel for the fire. When she was 21, Louise spent 6 months in Australia, and determined that yes, she was inspired to relocate to a more relaxed way of life, and Australia certainly was a good choice. But Australia has a daunting points system to satisfy for anyone wanting to live there. Ironic, really, when you consider Australia was originally colonized with the criminals and outcasts that England considered undesirable.

Once back in Jolly Old England, Louise started working on a career. At 29, Louise started to wonder – where was that excitement, that passion and desire she had in Australia? She started to focus back on Australia and found she was bitterly disappointed that she had not pursued the dream, that she had joined the rat race. The dream seemed just out of reach because now she felt responsible to her family. She had commitments to fulfill, but the pull of relocation was strong.

Louise had a close circle of friends, all with like interests, all of whom were global travelers. They found their social conversations revolved around escape. All were in an upper wage bracket with homes and responsibilities. Together, they started going to travel expos. Their focus was still on Australia, but the difficult application system and the length of time it took to wade through the process and qualify to apply took the continent off the radar screen. One Sunday, at a weekly gathering, they all brought their laptops and searched “islands of the world”. Although all of the friends had visited Asia, Australia, India and extensively in Europe, none had been to Central or South America.

Finally, someone landed on a web site offering tours to Roatan. They called and booked a tour. What was the down side? The worst case scenario was that they had a great holiday! In June 2003, 6 of the friends got on a plane for Roatan. Between January, when the plan was hatched, until June, they became voracious researchers and read everything they could find on Roatan. On the plane, Louise picked up a Roatan island publication, Bay Islands Voice, and read an article about an unfortunate event which had occurred to an American couple on Roatan.

They panicked. “Were we heading for a barbaric island, never to see our families again?”, Louise remembers thinking. They gathered in the rear of the plane and formulated an exit strategy, in case they hated it or felt frightened when they got off the plane. That strategy was to immediately go to Costa Rica. As soon as they landed, their fears melted away. The property manager they had contacted to rent a house was there to meet them. A rental car was produced and the friendliness of everyone made them immediately feel at home. The group spent 2 weeks exploring, one week with the tour provider, and another on their own. They looked at business opportunities, land and houses.

By now you know that this is a savvy group, so it will not surprise you that they went home to regroup and make a decision. In the end, 2 of them decided that Roatan was not for them (one is now in Australia and one in India), and the other 4 bought a home under construction on the west end of the island. Louise and Max moved to Roatan full time in 2003, the other two bought for investment and holidays. Last year they sold the house and Louise and Max bought a lot in a different development, Lawson Rock, and then started building another house. The 2 investors who took their money out of the sale doubled their investment.

Last month, Louise and Max went to Portugal to scope out the lifestyle there. They love their adopted home on Roatan and will probably keep an investment here. But they are ready for another adventure and may make another change in the near future. Being single in a tourist region is not conducive to lasting personal relationships. Most of the young population is transient, so the appeal of a more stable population is pulling them elsewhere.

Louise embodies the term “trans-pat”. She is willing to reinvent herself many times over. You should consider this story as you contemplate whether relocating is for you. Just remember you can always return to your roots, or you can change again.

NATIONAL GEOGRAPHIC’S 2007 SUSTAINABLE DESTINATIONS SCORES RELEASED

National Geographic released its 2007 Sustainable Destinations report. Published online in the November/December magazine, the report sets out “To see how the integrity of islands around the world is holding up, Traveler and National Geographic Center for Sustainable Destinations conducted a fourth annual Destination Scorecard survey, aided by George Washington University. A panel of 522 experts in sustainable tourism and destination stewardship donated time to review conditions in these 111 selected islands and archipelagos. The scores that follow reflect the experts’ opinions.”

Guide to the Scores:

• 0-25: Catastrophic: all criteria very negative, outlook grim.
• 26-49: In serious trouble.
• 50-65: In moderate trouble: all criteria medium-negative or a mix of negatives and positives.
• 66-85: Minor difficulties.
• 86-95: Authentic, unspoiled, and likely to remain so.
• 96-100: Enhanced.

Selected Caribbean island scores and comments:

NEW LAW TO BOOST PANAMA’S REAL ESTATE SECTOR

Panama’s real estate sector will benefit as a result of a new law recently passed by the country’s National Assembly giving multinational companies performing certain tasks a significant tax break, according to company specializing in investment property in Panama.

The Knightsbridge Investment Group says that the new rules, known as “Law 41”, are designed to encourage the establishment of multinational companies in Panama, and give exemption to multinationals from the payment of income tax in the Republic of Panama for all services provided to any entity domiciled outside Panama. In addition, the legislstion allows licensed corporations to hire trusted foreign employees to fill management positions in the company, authorizing them to work and reside in Panama, which could spell an influx of international professionals moving to the jurisdiction.

While years of economic and political stability, a healthy tourist industry, and the expansion of the country’s greatest economic asset, the Panama Canal, have underpinned the country’s real estate market, Knightsbridge Investment Group has suggested that Law 41 will give the country’s real estate sector an “unprecedented boost”.

HP and Caterpillar are just two of the first to announce new offices in Panama City, with Proctor and Gamble also rumored to be relocating a significant part of its Latin American business to Panama, Knightsbridge claims.

Residential sales prices have been increasing, particularly in prime locations, but Knightsbridge says that another interesting trend has been those related to Class A office space. Vacancy rates for Class A office space are already down from 30% last year to 3%, i.e., today there is virtually no available Class A space in Panama City. Class A office space lease rates have increased by approximately 20% over the past year, the company stated.

“Average lease rates for Class A are $16-$20 per squre meter per month with total occupancy costs at $22.74 per squre meter per month – below other areas in the region, including Costa Rica, Dominican Republic, Bahamas, Uruguay, Caracas, Bogota, Mexico City, Buenos Aires, Sao Paulo, and Rio de Janeiro – giving ample space for growth and also allowing for multinationals moving to Panama,” announced Alan Morrison, Vice President of Knightsbridge Investment Group, Panama City.

“In addition, current sales prices are favorable, with the average sale price at $2,200 per squre meter. With these prices and Law 41 providing the final impetus for Multinational Corporations to relocate to Panama, the time is right for those looking to make an investment in real estate in Panama,” Morrison concluded.

NEW YORK BANKS ARE ABUSING THE POWER TO SEIZE MONEY

New York banks have a very bad habit – one that they have been getting away with for years – of instantly freezing customers’ accounts when collection agencies come looking for assets to grab. Seizing that money amounts to a financial death sentence for thousands of working people, who instantly lose access to their paycheck, their retirement income and their savings – cash that may be needed for transportation, medicine, rent and other necessities.

That happens whether they have really dug themselves into debt or whether there has just been a terrible mistake. One day, an account may have a few hundred dollars. The next, it can be frozen with a negative balance in the thousands. In many cases, it is not even legal.

When someone gets into debt and loses in court, state law gives the city marshals and other debt collectors a powerful tool called a restraining notice. It amounts to a court order requiring a bank to seize the account of a person with a judgement against them. But a host of other state and federal laws specify that banks are not supposed to just freeze every last penny in an account. Certain kinds of funds are exempt.

Federal safety-net benefits like Social Security, SSI and welfare payments cannot be taken. Neither can 90% of a customer’s salary for the last 60 days. Pension and retirement funds cannot be seized. Child support dollars are protected, too. But there is mounting evidence that most banks are simply ignoring the law and freezing 100% of a customer’s account upon receipt of a restraining notice – even when it should be obvious that certain electronic transfers, like Social Security and payroll deduction, are legally off limits.

According to the Urban Justice Center, which provides legal services to low-income New Yorkers, that is what happened to “DM”, a single mother working full time for $1,600 a month. Identity thieves ran up an $800 debt without her knowledge, leading to a court judgment she never had wind of. In July of 2006, DM’s bank account was restrained – and the burden was on her to prove the debt and seizure were in error.

A judge eventually lifted the account freeze and threw out the bogus judgment, but it took six weeks and help from a lawyer to straighten out the mess. During those six weeks, DM fell behind on her rent, credit cards, phone bills, insurance premiums and other basic expenses. That did lasting damage to her credit, creating a whole separate mess to dig out of.

According to the Neighborhood Economic Development Advocacy Project, a community nonprofit group, a typical New York bank handles more than 500,000 restraining notices a year. That is a 30% jump since 2001. Use of the freezes exploded after 2000, when collection agencies won the right to send out restraining notices by e-mail, allowing creditors to hit every bank in the state with the push of a button – making it all the more important for banks to do their homework before seizing accounts.

If you think your bank has improperly frozen federal benefits, pension money, child support or a recent paycheck, show this article to the customer service people – and invite them to take a peek at Chapter 38, Section 5301 of the United States Code, which specifies which benefits “shall not be liable to attachment, levy, or seizure by or under any legal or equitable process whatever.”

THE END (OF THE EMPIRE) IS NEAR – GISELE DUMPS DOLLAR

The U.S. dollar is still officially the world’s reserve currency, but it cannot purchase the services of Brazilian supermodel Gisele Bundchen. Gisele required the $30 million she earned during the first half of this year to be paid in euros.

Gisele is not alone in her forecast of the dollar’s fate. The First Post (UK) reports that Jim Rogers, a former partner of billionaire George Soros, is selling his home and all possessions in order to convert all his wealth into Chinese yuan.

Meanwhile, American economists continue to preach that offshoring is good for the U.S. economy and that Bush’s war spending is keeping the economy going. The practitioners of supply and demand have yet to figure out that the dollar’s supply is sinking the dollar’s price and along with it American power. The macho super patriots who support the Bush regime still have not caught on that U.S. superpower status rests on the dollar being the reserve currency, not on a military unable to occupy Baghdad.

If the dollar were not the world currency, the U.S. would have to earn enough foreign currencies to pay for its 737 oversees bases – an impossibility considering America’s $800 billion trade deficit. When the dollar ceases to be the reserve currency, foreigners will cease to finance the U.S. trade and budget deficits, and the American Empire along with its wars will disappear overnight. Perhaps Bush will be able to get a World Bank loan, or maybe one from the “Chavez bank”, to bring the troops home from Iraq and Afghanistan.

Foreign leaders, observing that offshoring and war are accelerating America’s relative economic decline, no longer treat the U.S. with the deference to which Washington is accustomed. Even America’s British allies regard President Bush as a threat to world peace and the second most dangerous man alive – edged out in polls only by Osama bin Laden, but behind Iran’s demonized president and North Korea’s Kim Jong-il.

There is no possibility of the U.S. remaining the Middle East for a half century. The dollar and U.S. power are already on their last legs, unbeknownst to Democratic leaders who are preparing yet another blank check for Bush’s latest request for $200 billion in supplementary war funding. There is no money with which to fund Bush’s lost war. It will have to be borrowed from China.

The Romans brought on their own demise, but it took them centuries. Bush has finished America in a mere 7 years. Even as Gisele throws off the dollar’s hegemony, Brazil, Venezuela, Ecuador, Bolivia, Argentina, Uruguay, Paraguay, and Columbia are declaring independence of the IMF and World Bank, instruments of U.S. financial hegemony, by creating their own development bank. An empire that has lost its backyard is finished.

THE WORLD IS COMING TO AN END!

A day of reckoning so long delayed, so many times interrupted, is at hand.

[Ed: This commentary is courtesy of Alan Abelson, former editor of Barron’s and writer of that publication’s “Up and Down Wall Street” since 1966.]

And if by some chance we are mistaken and it is only giving a great imitation, we would just as soon be enjoying some pleasant distraction, like a visit to our drill-happy dentist, when the real thing comes along.

Pat Robertson’s embrace of Rudy Giuliani to lead the GOP’s charge in next year’s battle for the presidency and Rudy’s enthusiastic response would be enough to make us fear the end is nigh. Since Pat is willing to overlook Rudy’s mundane heresies, he clearly believes it is time to lay aside earthly quibbles, to forgive and forget, because something very big is brewing.

We must confess that we have not checked this out with Pat or even Rudy, let alone a still-higher authority, but, in any case, there are less celestial reasons for our existential concerns, and you need not look beyond the global trading pits to spot them. The stock market is suffering one deep bout of vertigo after another. Crude has serious designs on $100 a barrel. Gold has roared through $800 an ounce as if the metal were going out of style. The dollar is changing with breakneck speed from the world’s reserve currency into the world’s disaster currency.

And those mammoth marvels of imprudence – otherwise known as banks (and brokerage houses playing at being banks) – are in a frantic scramble to see which gets the tin medal for the biggest write-down (that is bankers’ euphemism for “loss”) on loans gone sour. Friday’s resumption of the long, bumpy ride down in the stock market got fresh impetus from the disclosure that Wachovia will take a $1.1 billion whack to its loan portfolio just to cover the damage in October, and rumors of kindred woes at Barclays.

But whether these are the end-days or merely the beginning-of-the-end days, don’t anyone tell Mr. Bernanke; it might disturb him. For he convincingly demonstrated in his testimony last week before Congress that it is possible to be chairman of the most important central bank on the planet and seemingly not have a clue about what is happening to the economy, let alone what, if anything, to do about it. At one point or another, he ventured that the economy would soldier on, if somewhat slowly for the next few quarters, unless, he cautioned at another point, it did not. Inflation was a threat, but not a reality, at least not yet. And the economy was perking along, nicely negotiating the shocks of the housing collapse, even as evidence to the contrary – plunging consumer confidence, weak retail sales, dragging auto demand and all the grisly et ceteras – mounted as he spoke.

Understand, if you will, we do not expect the Fed chairman to be omniscient or clairvoyant. But we do expect him, even if he does not know what is going to happen, at the very least to know what is going on. Nor are we demanding a foolish consistency. Stuff happens, things change. All we ask is that if your opinions are firm, as Mr. Bernanke obviously feels they are, that they be fast as well, at least for as long as it takes to befuddle a bunch of slack-jawed congressmen.

All things considered, a Clueless Ben, we suppose, is preferable to an Easy Al, but incorrigible optimist that we are, we had hoped for something better. It is always possible, to be sure, that Mr. Bernanke knows more than he lets on. Certainly, the way the Fed has been opening the monetary spigot suggests that he may entertain greater anxiety than he is willing to exhibit publicly. Which may be effective in keeping the natives from getting restive, but it does not exactly enhance his credibility.

For sure, this is not the time for bromides. One need not conjure up a doomsday scenario to realize that the economy and the stock market are on very thin ice. The Fed has plenty of company, both in Washington and Wall Street, in not fully grasping what a precarious condition we are in. A generation of living dangerously, often way beyond our means, as individuals and collectively, confusing credit with cash and leverage with assets, has brought us to this most unpretty pass.

The great boom in credit, a heck a lot of it shaky, has finally gone bust, and many of the remarkable creations it engendered, such as monster global bull markets in equities and housing, are suddenly on shifting sands. It is becoming apparent that a day of reckoning so long delayed, so many times interrupted, is at hand.

Obviously, we do not think, even in a figurative sense and except possibly for the financial elite who run hedge funds and private-equity money, the world is coming to an end. But our conviction is strong that we are entering a New Era. And not, regrettably, the kind of New Era that sent investors’ pulses racing and fed their gaudiest dreams of avarice when that phrase was last a byword – and, even more, a buy word – on Wall Street. Ah, those were the days.

Gisele Bundchen is a much-in-demand Brazilian who commands a king’s ransom to do her modeling thing. We admit that Gisele was completely unknown to us until her highly publicized pronouncement that henceforth the king would have to pay his ransom in euros, not dollars, for her services.

This prompted a number of observers, including MacroMavens’ Stephanie Pomboy, to speculate as to whether Gisele’s disdain for the dollar meant that the greenback’s plight was so widely recognized as to signal a bottom. Stephanie, in her usual deft fashion, dismissed this possibility (as did Peter Schiff in a recent commentary, noting “the only notable bottom here belongs to Gisele herself”).

We have never really bought the condescending notion that when Main Street knows it, it is no longer worth knowing. And in the case of the dollar, we doubt if there is a sentient being anywhere who is unaware of its horribly reduced status. And since the decline and fall of the dollar apes the woes besetting the economy at large and the financial system in particular and we see no immediate relief in sight for either. Gisele, we submit, is right on the money.

A recent analysis by Bob Janjuah, the Royal Bank of Scotland’s chief credit strategist, powerfully supports our forebodings for the credit markets and, by extension, the economy, the stock market and the not-so-almighty dollar. Before the dust clears (and the bodies are all carried out), he reckons that credit losses will run between $250 billion and as high as $500 billion. More specifically, Janjuah predicts that U.S. banks and securities firms are looking at perhaps $100 billion of write-downs on so-called Level 3 assets, as the new Financial Accounting Standards Board rule 157, slated to go into effect this week, takes it inevitable toll.

FASB dicta call for Level 1 assets to be marked to market. No big deal, since these are instruments that are traded in a familiar market and consequently are easy to get a quote on. Level 2 assets are not very actively traded, and hence it is not a cinch to get a reliable price. However, they consist of parts for which pricing information is available and which permit a reasonably reliable estimate of the asset’s value. An interest-rate swap has been cited as an example.

That brings us to the tens of billions of Level 3 assets. Typically, these are packages of stuff like mortgages, credit-card receivables, leveraged loans and various and sundry other things – a bit of the lending kitchen sink, in other words. Market pricing is pretty much nonexistent, and such assets are valued at more or less what management says they are worth. In Janjuah’s sardonic phrase, Level 3 assets are “marked to make-believe.”

The new rule mandating far more stringent means of figuring their value, or else. And the or-else could translate into writing them down. Reason enough why no one seems in a particular rush to buy such assets.

According to Janjuah’s calculations, Morgan Stanley has 251% of its equity in Level 3 assets. At Goldman Sachs, the Level 3 commitments run 185% of equity. At Lehman, such assets are the equivalent of 159% of equity. At Bear Stearns, 154%. Citigroup, which owns up to something like an $11 billion hit from subprime and other bum loans, a dismal total that occasioned the exit of its top man, has Level 3 assets equal to 105% of its equity.

Rather ironically, Merrill Lynch, which is upward of $8 billion poorer after taking its bitter medicine to purge itself of overvalued subprime and assorted other loans, and whose CEO also was shown the door, has Level 3 loans equal to 38% of its equity. That makes it the least vulnerable of the major lenders.

We are not suggesting, need we say, that every Level 3 security on a bank’s books is at risk or will have to be written down. But in total, they represent one massive pile of uncertainty, of which the lenders and the credit markets already have more than a surfeit, thank you.

BOOKS AND BABES IN BUENOS AIRES

I am writing from my coveted spot at a sidewalk café in the city’s fashionable Recoleta district. I was not planning to stop and whip out my laptop but (a), there are a lot of really elegant women in summer dresses walking by. Pretending to pensively look above the screen of my MacBook while deep in thought is good cover for what really is just unabashed gawking. And (b), I wanted to jot down notes from a very interesting conversation I just had with the proprietor of Distal Libros, the international bookstore tucked into a busy corner of the Recoleta.

I went into Distal Libros to buy an English language copy of Louis Romero’s seminal book A History of Argentina in the Twentieth Century. Imagine my surprise, therefore, when I saw the staff stocking six shelves full of Robert Kiyosaki’s Rich Dad, Poor Dad series in both English and Spanish.

Normally, I am not a fan of self-help books or personal finance books dumbed down for mass consumption. Even so, while I will not go so far as to say I am a fan of the Rich Dad series, I will happily endorse Kiyosaki’s premise that wealth is created by starting and running businesses, by actively investing in operating companies and productive real estate. That, as opposed to being an employee and trying to build wealth by saving or by eventually selling your personal residence at a profit. Whatever you might think of them, Kiyosaki’s books undoubtedly champion self-reliance and entrepreneurship. But six shelves full? I had to ask.

The proprietor approached and asked, “Senor, may I help you with anything?”

“Yes,” I replied, “do you have a copy of Romero’s A History ... no wait, are these books really that popular?” I stammered, pointing to the purple paperbacks.

He smiled. “Yes Senor. We sold out in August and it took us until now to get them in again.” To underscore the point, he retrieved a clipboard from behind the counter. “This is the order list for the Spanish version,” he said, pointing to a list of about 40 names. “And this is for the English version,” he added, leafing through an even longer list. Warming to the topic, he added, “Interestingly, many on the English list have the book in Spanish but also want to read it in English because they don’t trust the translation.”

“Why is it so popular?” I asked.

He gave a little chuckle before responding with a question of his own. “Have you read it, Senor? You should. It is about being responsible for yourself, not relying on the government or anyone else for your well-being. It also teaches you about building a business. But you are born with that, because you are from the U.S. Yes?”

Okay, so he recognized me for the gringo I am. But there is a certain truth to what he said. In the U.S., we are raised with certain expectations. Sure, more fail to meet those expectations, but most Yanks have, at one point or another, at least dreamed about starting their own business. That is a big advantage over the populations of the Earth who are raised with an almost serf-like attitude about their future.

Anyhow, I found this unexpected and entirely unscientific survey of one to be quite encouraging because we have been bullish on Argentina for some time now. We have liked it for its lifestyle, reasonably priced real estate and the underlying strength of the country’s commodity-based economy. But this was an unexpected surprise because the fly in the ointment for Argentina in modern times has always been a distinct tendency to shift toward destructive socialist policies, given the slightest opening to do so. Quick sell-outs of do-it-yourself books on capitalism are a definite step in the right direction.

One of the points my Without Borders co-editor Simon Black and I like to stress – and the reason for our constant travels – is that, in order to get a visceral sense of a country and its future, you need to get into the street. With a little encouragement, my new bookseller friend went on to talk about last week’s elections the result of which is that the First Lady and current Argentine Senator, Cristina Kirchner, was elected as the next president of Argentina.

This victory by the center/left Peronist party candidate is seen locally as an endorsement of her husband’s policies which were credited – right or wrong – with helping the country recover from the crisis of 2001 when Argentina defaulted on over $80 billion in loans. According to my new bibliophile buddy, the election bodes well for the economy and opportunities for entrepreneurs and, more specifically, women entrepreneurs. He also thinks it will bode well for the Buenos Aires Stock Exchange. “Just watch, people are just now ready to start investing in our own markets,” he said. “In fact, investing books are some of my best sellers, at least to locals.”

For those looking to diversify their money and their lives, the bookseller may be right. Based on our many visits to the country, we think there are still abundant opportunities to earn above-market returns in Argentina. While Cristina Kirchner’s impact on the economy is yet to be determined (her hubby had odd ideas like capping energy prices, causing an energy shortage ... surprise, surprise), the elections are important in that they give the country another four – and maybe eight – years of some form of political consistency.

While there are a number of interesting Argentine conglomerates that trade via ADRs on U.S. exchanges, there is a closed-end fund that we are now doing our due diligence on that looks to be an excellent proxy play on Argentina. Taking a broader-basket approach such as that may be the best approach. Even real estate, which we were buying for pennies on the dollar a few years ago, and which has appreciated measurably since, still offers an excellent value when compared to the bubble-like prices on offer in most of the world.

Another way to play it may be by looking to invest in neighboring Uruguay. The country is also known for its friendly business climate and a private banking sector that does good business helping Argentines find a home away from home for their money. With all the commodity wealth being created in Argentina, as well as in other parts of South America, we think Uruguay is destined to do very, very well for the foreseeable future.

I am thinking of devising a new economic indicator that the global-minded should have in the top right-hand corner of their computer screen. It is to be called the Elegance Quotient. Very simply, the EQ will be calculated by taking the elegance factor of the place (somewhat subjective, to be sure) and dividing it by a weighted average basket of the goods and services that you most enjoy.

London, Paris, Barcelona, Singapore, Shanghai, San Tropez and Hong Kong will all have impressive numerators, but they will also have depressing denominators ... namely the high cost of pretty much everything.

My basket will include a bottle of good wine, a custom suit, a steak dinner, a gym membership, a cross-town taxi ride, a night in a 5-star hotel, a hand-rolled cigar and a maid’s monthly salary. Based on those inputs, Buenos Aires and Punta del Este, Uruguay will rank right at the top of the index.

U.A.E. TOPS EXPAT TAX LEAGUE

The United Arab Emirates, Russia and Hong Kong are amongst the world’s most benign personal tax environments while Belgium, Denmark and Hungary are the least attractive, according to a survey of expatriate hot spots by Mercer, the global consulting firm. The data also shows that, in general, married employees are better off than single employees, while married employees with two children fare the best.

Mercer’s 2007 Worldwide Individual Tax Comparator Report analyzed the tax and benefits systems across 32 countries, focusing on personal tax structures, average salaries and marital status. This data is used by multinational companies to structure pay packages for their expatriate and local market employees.

For single managers, the UAE is the most attractive tax environment according to percentage of net income available. The UAE does not assess any income tax, and the country’s social security contributions amount to only 5% of an employee’s gross salary. Russia, ranked #2, applies a flat tax of 13% across all income levels, while Hong Kong was placed 3rd, with taxes and social security contributions at 14.2% of gross base salary.

Excluding Russia, in general, European countries have less attractive tax environments and dominate the bottom of the rankings. The UK ranks joint 14th, followed by Ireland (18), Spain (19), and Switzerland (21). France and Germany are ranked 22 and 29 respectively. At the bottom of the rankings, single managers in Hungary (30), Denmark (31) and Belgium (32) pay, respectively, 48.5%, 48.6% and 50.5% of their gross income in taxes and social security contributions.

Markus Wiesner, Mercer’s head of operations in Dubai, said, “We often find that the UAE’s zero taxation is a strong draw for expatriates on short-term assignments. For three to five years, young professionals can fast-track their savings to afford a mortgage when they return home, while senior executives can maximize their savings potential ahead of retirement. It is in these particular groups that we get a really good mix of expatriate talent in Dubai.”

Asian markets dominate the top end of the rankings with Hong Kong, Taiwan, Singapore, South Korea and China (Beijing) ranked 3, 4, 5, 6 and 7. The lowest ranked Asian market is India at 14 (sharing this position with the UK, Australia, and the U.S.). In the Americas, Mexico (8), Brazil (9) and Argentina (10) outrank the U.S. (14) and Canada (20).

U.S. TOURISM STRUGGLING; TRAVELERS CITE INTENSE SECURITY, POLITICS AS DETERRENTS

For the British and other Europeans, there has rarely been a better time to visit America. The weak dollar makes the U.S. bargain basement for nearly everything. That, and coast to coast tourist attractions should mean this is the destination of choice. But for many it is not anymore.

Official figures show a half a million fewer Brits traveled to the U.S. last year than in 2000, down 11%, while their visits to Turkey, the Caribbean, India and New Zealand are all considerably higher. Because more than four million Britons still come to the U.S., it is tempting to dismiss the downturn, until you consider the hard figures.

The U.S. business group, Discover America Partnership, says, “The overall 17% decline in overseas travel to the U.S. since 9-11 has cost America $94 billion in lost visitor spending, nearly 200,000 jobs, and $16 billion in lost taxes.” Some areas feel it worse than others. Foreign visitors are down in Boston by 25%, Miami 33%, Chicago 21% and L.A. 29%. How much worse would it be were it not for the weak dollar?

Fewer foreigners experiencing the good of America has another detrimental effect – there are fewer travelers to counter anti-U.S. feelings and propaganda when they get back home. Jonathan Tisch, owner of the New York Giants and chief advisor to the Commerce Department’s Tourism Board, told London’s Daily Telegraph that too little has been done to promote the U.S. and ensure visitors feel welcome.

The Telegraph story was posted on the paper’s Web site, and readers offered their views about why they are reluctant to visit America in the comments section. Perhaps, it is worth citing some of them.

One commented, “There is no way I will travel to the States anymore and put up with the rudeness and incivility of the immigration staff there.”

Another says, “The entry formalities into the U.S. are demeaning. They have the right to impose whatever security checks they want, we have the right to holiday elsewhere.”

This seemed to be the theme picked up by many. “I refuse to visit a country that fingerprints me on entry.” Another echoed that, saying, “The U.S. is the only country in the world where tourism is regarded as a criminal activity.”

A professor who went to New York to present a paper at a conference says, “I was treated so badly. I expect because I am brown and have a Muslim name. The immigration officer was aggressive, rude and I left in a state of shock, unable to sleep I was so scared. I will never go back.”

And once through the airport, is it any better? Not for some. One said, “California police act as highwaymen. Hiding, ready to jump out and catch a misfortunate tourist. There are plenty more welcoming places on Earth.”

Some report being treated with respect, that they understand why security is tight and are willing to live with it to have a great time.

While it may be easy to dismiss the feelings of a bunch of foreigners, it is not so easy to dismiss the hit the U.S. is taking. 200,000 and counting are a lot of U.S. jobs to lose. However, the greater danger is that first impressions are lasting impressions. As one person lamented, “U.S. fears have turned to paranoia, with the culture of a once welcoming nation tossed out the window.”

SWITZERLAND DROPS, LUXEMBOURG AND IRELAND RISE IN OECD GDP RANKINGS

The OECD has released new GDP and household consumption comparisons based on purchasing power parities showing that Switzerland’s GDP per head slipped from 30% to 20% above the OECD average between 2002 and 2005, while Ireland and Luxembourg are two of the only four major countries with GDPs more than 25% above the average – in Luxembourg’s case a stunning 146% above.

The new comparisons show the level of GDP per head has risen closer to the OECD average in a number of countries including Turkey, Mexico, the Slovak Republic, Hungary, Poland and the Czech Republic. Italy’s GDP per head fell from a level that was 5% above the OECD average to a level 5% below between 2002 and 2005. Meanwhile, the rising value of Norway’s oil exports helped its GDP per head jump from 45% to 65% above the OECD average.

The latest PPP calculations also show that the share of GDP represented by household consumption of goods and services can vary considerably from country to country. Britain’s GDP per head is about 7% above the OECD average but its actual individual consumption is 20% above the average, due to low levels of investment, according to the OECD. The situation is the opposite in the Netherlands and Australia where the relative ranking of GDP per head is higher than for consumption per head.

The comparison tables cover the 30 member countries of the OECD, the 27 member states of the E.U., ten CIS countries, six Western Balkan countries and Israel.

Countries scoring between 100% and 124% of average include Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Iceland, Japan, Netherlands, Sweden, Switzerland and the U.K. Coming in between 75% and 99% are Cyprus, Greece, Israel, Italy, New Zealand, Slovenia and Spain. Those in the 50% to 74% range are the Czech Republic, Estonia, Hungary, Korea, Malta, Portugal and the Slovak Republic.

The OECD points out that GDP per capita makes no allowance for international transfer payments such as profits received from abroad or remittances sent abroad. Gross national income (GNI) takes such flows into account. For some countries, in particular Switzerland, Ireland and Luxembourg, moving from GDP to GNI can markedly change the picture, putting the GDP per capita figure into perspective. For example, Swiss GNI per capita is estimated to be at more than 30% over the OECD average, significantly higher than GDP per capita (index of 122), signaling net transfer payments into Switzerland. The opposite holds for Ireland and Luxembourg. Measured in terms of GNI per capita, their index relative to the OECD average falls from 131 to around 110 for Ireland, and from 246 to around 200 for Luxembourg, signaling the presence of significant net transfers out of these countries. For most other OECD countries, GNI and GDP rankings are very similar.

The OECD also cautions that, while GDP and household consumption are indicators of economic and consumer activity, they should not be mistaken for direct measures of the well-being of citizens. This encompasses many elements, such as the health status of the population, the environment or the level of security. GDP is an important milestone in the measurement of citizens’ well-being, but only one.

WORLD BANK URGED TO BE HONEST IN “TAX HAVEN” STUDY

Concern is well-founded, given the study was launched under pressure from leftist, pro-big government organizations.

The Center for Freedom and Prosperity Foundation, the free market think tank, has sent a letter to World Bank’s President Robert B. Zoellick expressing concern about an upcoming study on the “development impact of off-shore financial centers.”

The CF&P Foundation wants to ensure that the study’s results are not influenced by an ideological bias against tax competition and fiscal sovereignty, and it argued that the World Bank should consider compelling evidence pointing to the positive effects that low-tax jurisdictions have had on global prosperity.

In his letter to Zoellick, Andrew F. Quinlan, President of the CF&P Foundation, suggested that, “Tax rates have been dramatically reduced in recent decades as tax competition has encouraged nations to adopt pro-growth policy in an effort to attract and retain capital. These lower rates have helped boost global economic growth – a result that is helping to lift tens of millions of people out of poverty.”

Quinlan went on to argue that offshore financial centers “are a key part of this process” as their tax-neutral platforms encourage global investment and finance activity and because their fiscal regimes increase tax competition, thus pressuring uncompetitive nations to lower tax rates and reform tax systems. “The World Bank should not undermine tax competition,” Quinlan’s letter continued. “Instead, the World Bank should embrace tax competition for its ability to stimulate pro-growth policies that encourage investment and innovation.”

According to the CF&P, the World Bank has launched the study on offshore financial centers under pressure from the government of Norway and the Tax Justice Network (TJN), which the Center describes as “openly hostile to tax competition” and “unambiguously” in favor of higher tax rates and bigger government. “The World Bank has been widely criticized for failing in its core mission of promoting economic development, so it is unclear why resources should be misallocated to appease Norway’s leftist government,” the CF&P has stated.

“There’s a clear risk that the study will be used as a launching pad for the tax harmonization schemes long sought by the [OECD], United Nations, European Commission and other international bureaucracies hostile to fiscal sovereignty and economic freedom,” it warned.

A CRISIS TO SHATTER THE WHOLE WORLD

“He that diggeth a pit shall fall into it.” ~~ Ecclesiastes 10:8

The French president, Nicolas Sarkozy, was in Washington earlier this month, speaking to Congress en Français and telling the U.S. to stop dumping dollars and risking a global financial crisis. Ooh la la! Sounds just like old times.

“The dollar cannot remain solely the problem of others,” said Sarkozy before a joint session of Congress on November 7, riffing on the (infamous) joke made by John Connally, treasury secretary to Richard Nixon in the early ‘70s. Connally said the dollar was America’s currency, “but your problem.”

Au contraire, replied monsieur le president this week. “If we are not careful,” he went on – apparently using “we” to mean both himself and the U.S. Congress – “monetary disarray could morph into economic war. We would all be its victims.” Ooh la la again! Did Sarkozy need to take liquid courage before speaking his mind?

“What the U.S. owes to foreign countries it pays – at least in part – with dollars that it can simply issue if it chooses to,” barked French president Charles de Gaulle in a landmark press conference in February 1965. “This unilateral facility contributes to the gradual disappearance of the idea that the dollar is an impartial and international trade medium, whereas it is, in fact, a credit instrument reserved for one state only.”

De Gaulle did more than simply grumble and gripe, however. Unlike Nicolas Sarkozy, he still had the chance to exchange his dollars for a real, tangible asset – physical gold bullion. Gold “does not change in nature,” de Gaulle announced in that 1965 speech, as if he were telling the world something it did not already know. “[Gold] ... has no nationality [and] is considered, in all places and at all times, the immutable and fiduciary value par excellence.”

How to collect this paragon of assets? Back in the 1950s and 1960s, world governments could simply tip up at the Fed, tap on the “gold window”, and swap their unwanted dollars for gold. So that is what de Gaulle did. Starting in 1958, he ordered the Banque de France to increase the rate at which it converted new dollar reserves into bullion. In 1965 alone, he sent the French navy across the Atlantic to pick up $150 million worth of gold. Come 1967, the proportion of French national reserves held in gold had risen from 71.4% to 91.9%. The European average stood at a mere 78.1% at the time.

“The international monetary system is functioning poorly,” said Georges Pompidou, the French prime minister, that year, “because it gives advantages to countries with a reserve currency. These countries can afford inflation without paying for it.”

By 1968, de Gaulle pulled out of the London “gold pool” – the government-run cartel that actively worked to suppress the gold price, capping it in line with the official $35 per ounce ordained by the U.S. government. Three years later, and with gold being air-lifted from Fort Knox to New York to meet foreign demands for payment in gold, Richard Nixon put a stop to de Gaulle’s game. He stopped paying gold altogether.

De Gaulle called the dollar “America’s exorbitant privilege.” This privilege gave the U.S. exclusive rights to print the dollar, the world’s “reserve currency” and force it on everyone else in payment of debt. Under the Bretton Woods agreement of 1944, the dollar could not be refused. Indeed, alongside gold – with which the dollar was utterly interchangeable until 1971 – the U.S. currency was real money, ready cash, the very thing itself. Everything else paled next to the imperial dollar. Everything except gold.

And today?

“Printing a $100 bill is almost costless to the U.S. government,” as Thomas Palley, a Washington-based economist wrote last year, “but foreigners must give more than $100 of resources to get the bill. That’s a tidy profit for U.S. taxpayers.”

This profit – paid in oil from Arabia, children’s toys from China, and vacations in Europe’s crumbling capital cities – has surged since the U.S. closed that “gold window” at the Fed and ceased paying anything in return for its dollars.

Now the world must accept the dollar and nothing else. So far, so good, but the scam will work only up until the moment that it no longer does.

“The U.S. trade deficit unexpectedly narrowed in September,” reported Bloomberg on November 9, as “Customers abroad snapped up American products from cotton to semiconductors, offsetting the deepening housing recession that is eroding consumer confidence.” But Bloomberg missed the surge in U.S. import prices right alongside. They rose 9.2% year-on-year in October, up from the 5.2% rate of import inflation seen a month earlier.

Yes, the surge in oil price must account for a big chunk of that rise – and the surge in world oil prices may do more than reflect dollar weakness alone. The Peak Oil theory is starting to make headlines here in London. Not since the Club of Rome forecast a crisis in the global economy in 1972 have fears of an energy crunch become so widespread.

“At the end of 2006, China’s foreign exchange reserves were $1,066 billion, or 40% of China’s GDP,” notes Edwin Truman in a new paper for the Peterson Institute. “In 1992, reserves were $19.4 billion, 4% of GDP. They crossed the $100 billion line in 1996, the $200 billion line in 2001, and the $500 billion line in 2004.”

What to do with all those dollars? “If all countries holding dollars came to request, sooner or later, conversion into gold,” warned Charles de Gaulle in 1965, “even though such a widespread move may never come to pass...[it] would probably shatter the whole world. We have every reason to wish that every step be taken in due time to avoid it.” But the step chosen by Washington – rescinding the right of all other nation-states to exchange their dollars for gold – only allowed the flood of dollars to push higher.

Nixon’s quick-fix brought such a crisis of confidence by the end of the 1970s, gold prices shot above $800 per ounce – and it took double-digit interest rates to prop up the greenback and restore the world’s faith in America’s paper promises. The real crisis, however, the crisis built into the very system that allows the U.S. to print money that no one else can refuse in payment – was it merely delayed and deferred? Are we now facing the final endgame in America’s postwar monetary dominance?

If these sovereign wealth funds – owned by national governments, remember – cannot tip up at the Fed and swap their greenbacks for gold, they can still exchange them for other assets. BCA Research in Montreal thinks that “sovereign wealth funds” owned by Asian and Arabian governments will control some $13 trillion by 2017 – “An amount equivalent to the current market value of the S&P 500 companies.”

And if China does not want to buy the S&P 500 – and if Congress will not allow Arab companies to buy up domestic U.S. assets, such as port facilities – then the sovereign wealth funds will simply swap their dollars for African copper mines, Latin American oil supplies, Australian wheat – anything with real intrinsic value. They might just choose to buy gold as well. After all, it is “in all places and at all times ... the immutable and fiduciary value par excellence,” as a French president once put it.

Charles de Gaulle also warned that the crisis brought about by a rush for the exits – out of the dollar – might just “shatter the world.” It came close in January 1980. Are we getting even closer today?

DOOMSAYERS ARE BECOMING HARDER TO IGNORE

Peter Schiff and David Tice do not do what they do for the love it gets them. They are two of the most bearish investment professionals in America. Their outlook for the U.S. economy and stock market is beyond grim.

Schiff, who heads brokerage Euro Pacific Capital in Darien, Connecticut, sees the dollar and stock market collapsing and the value of American per-capita economic output falling below that of Greece. Tice, who manages the Prudent Bear mutual fund in Dallas, likewise predicts that U.S. markets will crumble and says the economy could face something akin to the Great Depression.

Forecasts like these are not the way to make a lot of friends in this country, let alone on Wall Street. Some would call being bearish on America unpatriotic, even treasonous. And that means many investors long have automatically tuned out the likes of Schiff and Tice. Besides, the doomsayers have been wrong forever, right?

Yet this year, with the debacle in housing and its toxic fallout in markets and in the financial system, the bear’q warnings about the future may no longer seem quite so far-fetched. The risks to U.S. prosperity have risen markedly – even many stock market bulls will admit that much today.

Schiff, 44, and Tice, 53, have no connection except for their outspoken pessimism about where the U.S. is headed. They share the same basic thesis: America is facing its comeuppance for 25 years of borrowing and spending, saving little and relying increasingly on foreign capital to support its standard of living. Now, the bursting of the housing market bubble, the surge in mortgage defaults and the plunge in the dollar have exposed what Schiff and Tice believe are serious structural weaknesses in the U.S. economy.

Schiff’s tactic for preserving his clients’ wealth, he says, is to send it all abroad. He hunts for dividend-paying stocks of large foreign companies that are focused on their home markets – such as Swiss telecom giant Swisscom and the parent firm of Hong Kong utility China Light & Power Co. In theory, Schiff’s strategy will protect the purchasing power of the money if the dollar follows his script and continues to melt down.

Schiff concedes he was too early with his overseas-only stock strategy in the late 1990s. With the dollar’s slide since 2002, however, foreign stocks have been spectacular performers for U.S. investors. Schiff says his firm’s client base has grown to more than 8,000 individuals with a total of $1 billion in assets. He and his brokers make money off the commission income from the trades they make.

The idea of global portfolio diversification is one that many people have taken to heart in the last few years. Month after month, the lion’s share of Americans’ net new investment in stock mutual funds goes to foreign portfolios, not domestic. Even so, most U.S. investors are not abandoning their domestic holdings. That is where Schiff’s acerbic views diverge from the mainstream. The common perception is that the rest of the world needs the U.S. economy as a growth engine. Schiff says that is outdated thinking, given the rise of emerging-market economies such as China, India, Russia and Brazil. Because of America’s heavy borrowing needs, “We’re a burden on the rest of the world,” he asserts. “China is not export-dependent. They are exporting because Americans are consuming.” Ultimately, “the Chinese are going to buy more of their own products.” As their consumption rises and their savings rate falls, “they are not going to lend to us anymore.”

One potential flaw in his strategy, however, is that a U.S. market and economic crash could drag the entire planet into recession or depression. Schiff thinks the rest of the world can overcome an American economic decline, though he says that, initially, foreign stock markets probably would fall along with Wall Street.

Tice’s survival scheme for the U.S. economic and stock market downturn he foresees is to go short: borrowing stock and selling it, betting the price will fall. If a short bet is correct, the seller eventually can repurchase the stock for less than the sale price and pocket the difference.

Tice has been a well-known short seller since the mid-1990s via his Prudent Bear fund. He earned hefty returns in the bear market of 2000 to 2002. But the bull market since 2002 has made life tough for short sellers. They can lose big if the stocks they are targeting rise instead of fall. This year, Tice’s $800-million fund is raking it in again. The portfolio is up about 15% year to date, compared with a 4.2% rise for the average U.S. stock fund. Tice has shorted stocks such as Starbucks and Harley-Davidson, as well as many banking issues, he says.

He believes the American consumer is tapped out. He expects that to lead the economy into a morass that will feed on itself. “This is the big one,” he says.

Wishful thinking on the part of someone who stands to lose a lot if the stock market zooms anew? Maybe.

Tice has two daughters, ages 18 and 21. He admits they do not share his dismal view of the future. “They say, ‘It can’t be that bad,’” he says. “They think we will muddle through.”

The majority of Americans probably share that sentiment. The U.S. economy is, after all, very dynamic. We may well look back on this period in a few years and marvel at how well it all worked out.

And if the bears’ darkest predictions come true, the performance of your investment portfolio may be the least of your worries. The more important question may be whether you have stored enough canned food and ammo.

“PANIC OF 2008” WILL BE WORSE THAN THE GREAT DEPRESSION, SAYS ANALYST

Gerald Celente is not your garden variety doom-and-gloom crackpot. Celente, director of Trends Research Institute, forecasted the subprime mortgage financial crisis and the decline of the dollar a year ago and gold’s current rise in May. He also predicted the 1997 Asian Currency Crisis and the fall of the Soviet Union. “We are going to see economic times the likes of which no living person has seen,” he told United Press International.

Wait a minute. That includes people who lived through the so-called “Great Depression”. Does Celente think the “Panic of 2008” will be worse than the Depression? It would appear so. “The Panic of 2008 will lead to a lower U.S. standard of living,” he said.

“I have no crystal ball, nor do I claim to have well-developed psychic powers, but I would be willing to bet almost anything that next Thanksgiving season will be dramatically different from this one,” writes Carolyn Baker. We are confronting “dollar plummeting hysteria, monumental levels of debt, foreclosure, bankruptcy, unemployment, energy depletion, skyrocketing gas and food prices, illnesses treated without health insurance coverage – or just not treated, unprecedented levels of homelessness, and by all indications, within a few months into 2008, America will be well on the road to a rerun of 1929 – or something inconceivably worse,” Baker frets. “These are the good ole days, my friend, and these are also the dark new days. Happy Thanksgiving; savor every bite.”

“Derivative dealers, hedge funds, buyout firms and other market players will also unravel,” Celente predicts. Massive corporate losses, such as those recently posted by Citigroup and General Motors, will also be fairly common “for some time to come.” He would not “be surprised if giants tumble to their deaths ...”

Some giants, however, stand to gain, especially when it comes to real estate. “There is going to be a grab on this property by people who have cash, and that is not going to be the middle class. People will lose their homes if they have large mortgages that they cannot comfortably sustain or pay off,” Jerome Corsi, economic expert and foe to the emerging North American Union told Alex Jones last August. “There’s going to be a grab where the institutions and the people already wealthy will only gain, it is not going to be an opportunity for the average person to gain.”

Call it the “New Feudalism”.

A NATION OF SPECULATORS

How long does a condition last before people generally consider it permanent and adjust their behavior to accommodate it? Credit inflation created by Federal Reserve Bank policy has been uninterrupted since prior to World War II. How permanent is that, and what kinds of perverse behaviors does such an assumption of permanence foster?

For one, people no longer save. Permanent inflation destroys the value of any savings held in dollars so people rapidly adopt actions that avoid this invisible tax. People immediately spend whatever money they have, before the cost of what they want inevitably rises (actually, before the value of their dollars declines in the sea of fresh dollar credits).

What, then, do we all do with the excess productivity our division-of-labor economy yields? We speculate. To me, saving is setting aside something with no expectation of gain, simply holding onto what I have. Speculation is involves risking something of value in order to gain more than that risked.

Holding Federal Reserve Notes under the mattress in an environment of inflation is to accept a guaranteed loss, year in and year out. Not such a great deal. Instead, we have mutual funds. We have hedge funds. People can invest in precious metals, mining stocks, and for those willing to take even more risk of loss, options contracts and futures contracts that allow the control of large blocks of value but require only a small margin. We even have options on futures contracts to satisfy the gambler’s gambler. But what about those who do not wish to gamble?

I hear people all the time say they are saving in their 401(k) plan at work. They tell me they do not invest in stocks. They have mutual funds. Huh? They are speculating, and they do not even know it.

Do you know any real estate speculators? I am not referring to the neighbors who bought five Florida condos planning to flip them. I mean anyone who put 20% or less down on a house and is paying off the mortgage over 15, 20, or even 30 years. I was a real estate speculator. Chances are, you are too. Lots of folks never plan to pay off their homes. The speculator’s rule is that once capital appreciation has raised your equity in your investment enough you use that to leverage up to a higher priced asset. In this case you buy a bigger house, often restarting the term of the loan.

Why not? Homes have experienced almost uninterrupted price inflation, and inflation is the speculator’s friend. You “invest” a small amount but enjoy capital price gain on the value of the entire property, even the part you do not actually own. Magic! The joys of leveraged speculation without feeling the fear of loss that usually comes with speculation. What is to fear when price inflation is guaranteed by our friends at the Fed?

We are a nation of speculators. The Fed provides the whip to drive the herd into speculation, and decades of experience lull us all into a sense of comfortably complacency. The process invisibly impoverishes people and keeps them hanging on political promises from Washington, D.C. and the local state legislature, so politicians absolutely love it.

All these behaviors have gone on for a long, long time. But there is no way that our times are in any way normal. Credit cards and home loans have been around for decades, but recently people became so complacent that both were practically thrown at persons with little capacity to manage and no history of servicing the payments on their debts.

This zenith in wild speculation coincided with governments at all levels going on their own spending sprees – paying for global wars and nation-building, promising public employee unions king-sized retirement packages ... nothing was too extravagant.

While the length of a trend tells us nothing about its remaining lifespan, it has been said that things that cannot go on forever, don’t. One day, perhaps soon, we will experience a phase change and what was deemed permanent simply ... ends.

I know lots of people think this stable inflation will end in hyper-acceleration, but what if that is wrong? What would it look like if the seemingly permanent trend of inflation reversed?

First and foremost we should see a widely owned asset class convincingly reverse from wildly overpriced amid a speculative mania to decline amid evidence of a contraction in credit availability. The dominant belief is that significant or protracted contraction is impossible, yet how else should events in the real estate market be described? It remains to be seen if the contagion of credit contraction spreads and grows. I suspect it will, but have no proof.

Prices for things are high because of a deluge of credit-based liquidity, but clearly that flood is draining out from under home prices. Switching metaphors, visualize that prices for myriad goods and services are supported on the back of a dirigible of Hindenburg proportion – the hydrogen being analogous to a vast balloon of credit and debt. What might an economy so supported look like if the fire spreads?

If no one remembers what the absence of inflation is like, consider how unprepared is a nation of speculators for a conflagration of its opposite.

BETTING THE FARM

China’s last emperor, Pu Yi, loved his soybeans. they were a staple of the Manchurian diet in Northern China. In the 1930s, a forward-thinking Brazilian friend asked Pu Yi if he could take some soybeans back to Brazil. Pu Yi, only a nominal regent by this point, complied. The beans eventually made their way to bustling Rio de Janeiro.

Of course, neither Pu Yi nor his friend could foretell the momentous role soybeans would play in Brazil’s future. Nor could he predict that investors one day would pine to own acreage in the sun-filled green lands of South America. Up until that time, soybeans were unknown to Brazil. But in Brazil’s fertile soils, soybeans found a welcome new home. Over the ensuing decades, they would become one of Brazil’s most important crops. Today, soybeans are Brazil’s largest export.

Vignettes such as this, little odds and ends, make up so much of history’s important turning points. (I picked up the Pu Yi story from Robyn Meredith’s interesting new book, The Elephant and the Dragon: The Rise of India and China and What It Means for All of Us.) Perhaps soybeans would have eventually made it to Brazil anyway. But the world would surely look different depending on when and how.

So there are historical roots for the boom in trade between China and South America. Trade between the countries has really surged in recent years. Argentina sells nearly 10% of its exports to China. Chile supplies nearly 20% of China’s imported copper. And China gets about 1/3 of its food supply from South America – with a good chunk of that from Brazil’s vast farmlands.

In Brazil and Argentina, you have one of the few places left in the world where you can acquire large tracts of land in temperate climates with plenty of rainfall to support large-scale agriculture. Already, the two countries produce about 1/3 of the world’s agricultural commodities. As China is the world’s workshop and India its back office, so has South America become its breadbasket.

Brazil is already the world’s largest producer of coffee, sugar cane, ethanol and fruit juice. It is also near the top in soybeans, beef, poultry and tobacco. Agriculture represents about 8% of the economy, employs 1/4 of its work force and supports some eight million enterprises. Argentina is also a leader in beef and grains. In beef production, Argentina is behind only Brazil and Australia. Argentina is big on soybeans, wheat, sorghum, rice and barley. Argentina also produces an abundance of fruits – lemons, apples, peaches, pears and more.

There is the potential for so much more. The rise in the living standards of hundreds of millions of people in China and India, the resulting shift in dietary habits and the global push for alternative fuels derived from agricultural products put South America in the catbird seat.

The agricultural markets are abuzz these days. The prices of corn, barley, soybeans, coffee and cocoa are all well above their averages over the past five years. Meat and poultry prices are also on the upswing. You can see it, too, in the behavior of the companies involved. Dannon recently announced it would boost prices for its dairy products. That follows on the heels of similar announcements by Nestlé, Unilever and Cadbury Schweppes, Kellogg’s, General Mills and others.

As an investor, I would like to own companies that make the stuff that everybody else wants to pay more for. So it is not hard to see why I should gaze at those lush farmlands in South America. Historically, the productive capacity of this region is underdeveloped – despite its chart-topping production. Some 90% of Brazil’s fertile and productive land has not yet been cultivated. Similarly, the UN’s Food and Agriculture Organization estimates that farmers have cultivated only 3% of Argentina’s fertile land. So there is lots of land to accumulate and turn into a top-notch farming operation.

Only in the last decade or so have producers in these countries applied cutting-edge technologies in managing their farms. The result has been a great expansion in crop yields. In today’s markets, farmers in Argentina and Brazil are highly competitive in the global market for corn, wheat, soybean, sugar and other products. Some of the success in Argentina and Brazil has come at the expense of American farmers – especially in the area of soybeans, for example.

Brazil and Argentina have something else of great value – water. This chart shows that South America has about 26% of the world’s water supply. Asia, by contrast, has many more people to support with its water supply. And this chart makes things look better than they are. Most of China’s water supply is in the south, while most of its people live in the north. In any case, Brazil alone holds 14% of the world’s supply of fresh water. I visited a ranch in Argentina, and the owner proudly showed me how water generously bubbles out of the ground from underground streams and then waters acres of crops. Quite a natural advantage.

Perhaps it goes without saying that the biggest risk down here is the populist and interventionist policies of governments. That is a risk one takes everywhere these days – even in America, and even in Canada (remember the income trust fiasco?). Political risk seems to be on the rise the globe over – something we should expect after a long period of fat years. People get complacent and take economic growth for granted.

While the political risks of South America bear watching, I believe the investment merits of owning farmland down here outweigh the risks.

MONOPOLY “MONEY”

Let’s get straight on who is perpetrating the fraud.

Bernard von NotHaus, the creator of the Liberty Dollar, is optimistic that he and his associates will have the benefit of “a spectacular trial” for the supposed crime of providing customers with something of value – platinum, gold, silver, and copper coins – in exchange for something innately value-less – the decorated ragpaper and junk metal slugs the Regime insists we treat as money. Speaking with the New York Sun – the quasi-official publication of the Warfare/Homeland Security State – von NotHaus anticipated the opportunity to “put this country’s monetary system on trial.”

He said this as if he truly believes the Regime would permit such a thing to happen. And even if von NotHaus were permitted the luxury of a trial – as opposed to having his company’s wealth simply stolen through “asset forfeiture”, which appears to be the case at present – it is entirely possible that our monetary system will effectively collapse before the case against the Liberty Dollar is aired in a courtroom.

Should that collapse occur, von NotHaus – who, like most intelligent observers, has warned that the fiat money system eventually must destroy itself – will not be allowed to argue that truth is a perfect defense. The FBI’s investigation – which took two years and employed the services of “confidential informants” and other covert means to collect evidence of peaceful, mutually beneficial commercial exchanges – is designed to set up a political trial, if a trial is even permitted.

According to the affidavit (PDF) filed by FBI Special Agent Romagnuolo, the political objective of von NotHaus’s organization, The National Organization for the Repeal of the Federal Reserve and Internal Revenue Codes (NORFED) makes it a subversive criminal conspiracy. “As the organization’s name implies,” writes Romagnuolo, “the goal of NORFED is to undermine the United States government’s financial systems by the issuance of a non-governmental competing currency for the purpose of repealing the Federal Reserve and the Internal Revenue Code.”

As we should expect of someone good enough for government work, Romagnuolo is dishonestly amalgamating two issues here – the first being NORFED’s creation of a currency intended to compete with the “dollar” (the quotation marks are apt here, since the fiat scrip known by that name is not a dollar as defined in law), the second being the effort to repeal the measures that created the Federal Reserve and Income Tax systems. The latter is a far broader movement than the former, and it includes many millions of people who had nothing to do with NORFED or the Liberty Dollar. It is difficult to figure out to what extent conscious dishonesty, rather than mere ineptitude, is in play here. But his description of the “criminal activity” NORFED and its associates supposedly engaged in leaves the impression that anyone who seeks the same objectives is likewise engaged in criminal conduct, albeit through other means.

What are the elements of this supposed crime? The allegation is not that von NotHaus and his associates sought to commit robbery or fraud, but rather that they sought to bring about the repeal of existing laws, and changes in present institutions, through peaceful, consensual means.

Where “undermining” the nation’s financial system is concerned, nobody does it better than the Fed. The greenback’s relentless decline is driving economically marginal Americans toward starvation, while buoying the spirits of foreign detractors. Yet we are supposed to believe that NORFED’s largely unsuccessful efforts imperil whatever remains of our national prosperity.

Now that Chavez and Ahmadinejad have made explicit public mention of the innate worthlessness of the fiat dollar, it would not surprise me to see the Regime make an attempt to describe NORFED, the Liberty Dollar (and perhaps even the Ron Paul presidential campaign) as “ideational co-conspirators” with our foreign enemies du jour. Implausible as such a charge would be, it would still make as much sense as the “crime” alleged in the FBI affidavit. The “offense” here, in fact, is to find a creative and peaceful way to challenge the Regime’s fraudulent financial system, which is upheld by lethal force.

Nobody involved in the Liberty Dollar movement ever compelled anyone to accept the private currency, or deliberately defrauded people into accepting it. That is the government’s racket. Nor did the movement circulate counterfeit U.S. currency – that is, non-official counterfeit currency. As the FBI affidavit concedes, the Liberty Dollar was exactly what it was advertised – privately minted coins made out of precious metals, or warehouse receipts backed by the same.

Critics of the Liberty Dollar – the kind of people who mistake snarkiness for substance – sometimes describe it as the equivalent of Monopoly money, because it is not backed by the “full faith and credit” of the Regime. The inescapable truth, however, is that the dollar is an instrument of force and fraud, and since the Regime claims a monopoly on the same, it is the federal “dollar” that is best described as monopoly “money”.