Thursday, May 02, 2013
For the day when the Greenback goes "Pop"!
In an interview below, Doug Casey has some hints for when all those greenbacks Obama has printed begin to make their presence felt -- with a drastic loss in buying power for all greenbacks, including your savings.
L: Doug, we talked previously about getting assets out of your home country, especially the US, where to take them, and what to do with them. In so doing, you touched on the inevitability of currency controls just ahead, especially for Americans. Can you tell us more about that?
Doug: Yes. I'm quite serious about what I said about "the grim reality of impending currency controls." As the global economy continues to deteriorate, governments will have to appear to be "doing something." It's going to become very fashionable to institute some sort of foreign exchange control.
Why might that be? Because obviously, people who are taking their money out of the country are unpatriotic…
L: Those bastards.
Doug: That's right. Jingoistic Americans naturally, but stupidly, see taking money out of the country as being unpatriotic. They don't understand that it's mainly those prudent people who will be able to supply the capital to rebuild a devastated economy later. Besides, getting money abroad is obviously something that only rich people would do… and of course, it's time to eat the rich, as well. For those two reasons, there won't be much resistance to controls. And the state gets to appear to be "doing something."
And when they do, more people – at least those with any sense – will get scared and really try to get their money out, which will exacerbate the run to the exits. The bottom line is that if you want to get your money out, the time to do it is now. Beat the last-minute rush.
I don't know what form the exchange controls are going to take, but there are two general possibilities: regulation and taxation.
The regulations might take the form of a rule prohibiting you from taking more than X thousands of dollars abroad per year without special permission. No expensive vacations, no foreign asset purchases without state approval.
As for the taxation, if you want to, say, buy foreign stocks or real estate, you might have to pay an "Interest Equalization Tax" or some such. So you could do it, but it'd cost you a lot of money to do it.
Something like either of these, or both, is definitely in the cards.
L: But aren't FX controls something from the past? I mean, where do they exist today?
Doug: Well, FX controls have been used since the days of the Roman Empire. A country debases its currency, raises taxes beyond a certain level, and makes regulations too onerous – and productive people naturally react by getting their capital, and then themselves, out of Dodge. But the government can't have that, so it puts on FX controls. They're almost inevitable at this point.
Almost every country – except for the US, Canada, Switzerland, and a few others – had them until at least the '70s. I remember leaving Britain once in the '60s, and a border guy searched me to see if I had more than 50 pounds on me. In those days, currency violations in the Soviet bloc countries could get you the death penalty. Things liberalized around the world with Reagan and Thatcher, and then the collapse of the USSR. But you have to remember that that was in the context of the Long Boom. Now, during the Greater Depression, things will become much stricter again.
Right now, the US just has reporting requirements. But some places, like South Africa, make it very expensive and inconvenient to get money out. South Africa, perversely, may serve as a model for the US.
L: Okay, so we talked previously about Americans at least setting up a Canadian bank account and safe deposit box, and better yet going in person to Panama, Uruguay, Malaysia, or a similar place to do the same. And once there, you advised getting with a lawyer, either referred by someone you trust or found through an interview process, to set up a corporation that can handle your assets and investments for you. This all needs to be reported, but it's wise to do it in advance of the higher costs or other limitations to come.
Doug: Yes. While US persons must report foreign bank and brokerage accounts, safe deposit boxes are not – at least not yet – reportable. This leads me to the biggest and best "loophole" when it comes to potential foreign exchange controls, and that's foreign real estate.
I'm of the opinion that, broadly speaking, real estate as an asset class is going to be a poor performer for a long time to come – but that won't be equally true across all countries. Real estate in countries that rely on mortgage debt to buy and sell will continue to be the worst hit.
People don't understand that buying property with a mortgage is just the same as buying stocks on margin. It's caused speculative bubbles and malinvestment. Until the malinvestment in those countries is entirely liquidated, you don't want to invest in real estate in them. But a lot of countries, especially in the Third World, have no mortgage debt whatsoever. Zero mortgage debt. You want a piece of property, you pay for it in cash. That keeps prices down and the market much more stable. And it makes for more interesting speculations, because if a mortgage market develops in the future, it could light a fire under prices.
But, from the viewpoint of FX controls, the nice thing about real estate is that there is no way they can make you repatriate it. Other than owning a business abroad, real estate is the only sure way to legally keep your capital offshore.
L: I suppose it would be difficult for even Uncle Sam to seize your estancia in Argentina… not without starting a war.
Doug: Yes. Although I don't doubt he'll be starting more wars as well… [Laughs]
L: So, part of your thinking here isn't just speculative. You're talking about strategies for wealth preservation, not just in the face of foreign exchange controls, but more aggressive, predatory taxation and confiscation by the state – they can seize your assets, even real estate, in the US, but not abroad.
Doug: Exactly. Argentina is excellent from that point of view; rights to real property are, if anything, better than those in the US. In many ways, Argentina is culturally and demographically more like Europe than Europe. Uruguay is also excellent, although culturally it's like a backward province of Argentina. Paraguay is quite secure – but a bit weird as a place to live.
“Food for Peace” Hurts Foreign Farmers
The United States government is the world’s largest food donor but its aid consistently wreaks havoc abroad. The Obama administration is pushing reforms that could slightly reduce the number of Third World farmers bushwhacked by American food dumped into their marketplaces. But there is scant enthusiasm in Washington for any fix of a program that is beloved by many special interests.
The U.S. launched the Food for Peace program in 1954 during the Eisenhower administration, largely to dispose of embarrassing crop surpluses that had been encouraged by federal farm programs. To carry out Food for Peace, the U.S. Department of Agriculture buys crops grown by American farmers, has the food processed or bagged by U.S. companies, and then pays to send them overseas in U.S.-flagged ships. The annual cost to taxpayers? Last year, it was roughly $1.5 billion.
At least 25% of all U.S. food aid must be shipped from Great Lakes ports, per congressional mandate. This provides a steady stream of (taxpayer) revenue for American port towns and merchant seamen. Once the goods arrive at their destination, the U.S. Agency for International Development often takes charge or bestows the food on private relief organizations.
Because Food for Peace is structured to focus primarily on U.S. interests, it has long been notorious for putting some of the world’s poorest farmers out of business. Sen. Harry Bellmon (R., Okla.) crafted a legislative amendment in 1977 that required USAID and the Department of Agriculture to certify that food aid would not devastate farmers or destabilize markets in recipient countries. But whom does Uncle Sam entrust to assure that donations won’t pummel local farmers? In most cases, a foreign government or private-relief organization hoping to gain a tremendous free-food windfall from Washington.
To USAID’s credit, in 2008 it began tapping an independent consulting firm, Fintrac Inc., to recommend prudent donation levels. Nevertheless, in 2010 USAID approved sending almost three times as much rice to Liberia as Fintrac recommended. That same year the agency approved massive wheat shipments for Burundi and Sierra Leone, even though Fintrac recommended against it.
The Department of Agriculture is even more reckless. In 2008, it approved sending 30 times more soybean meal to Armenia than the agency’s own staff experts recommended.
Since 1985, USAID has permitted recipients to “monetize” U.S. food aid—selling all or part of it in local markets and using the proceeds to bankroll their preferred projects. U.S.-donated food is routinely sold in local markets for much less than prevailing prices. In 2002-03, a deluge of food aid in Malawi caused local corn prices to plunge by 60%. Mozambique wheat prices nose-dived in 2002 after USAID and the Department of Agriculture simultaneously “flooded the market,” according to the U.S. Government Accountability Office. Haitian farmers were similarly whipsawed after the U.S. and other nations bombarded the island with free food after the 2010 earthquake there.
In a speech this month at the Washington-based Center for Strategic and International Studies, Rajiv Shah, head of USAID since Dec. 31, 2009, called the monetization of food aid “inefficient and sometimes counterproductive,” saying that in some cases “evidence has indicated that this practice actually hurts the communities we seek to help.” Meanwhile, the United Nations Food and Agriculture Organization cautions that monetization often results in “destroying local farm prices” and CARE, one of the world’s largest relief organizations, boycotts all monetization projects.
The Obama administration is proposing to end monetization and instead give more cash to foreign governments and private-relief organizations to buy and distribute food locally and finance preferred projects. The administration also advocates trimming the percentage of the Food for Peace program’s budget spent purchasing and transporting U.S. food to 55% from the current 75%.
Not surprisingly, the administration’s proposals are facing staunch opposition from the farm lobby, relief organizations addicted to manna from USAID, and the merchant-marine lobby.
Yet Mr. Shah says USAID estimates that the proposed reforms would allow U.S. aid to feed up to four million more people per year. The agency is also touting a new program to distribute debit cards to allow refugees and others to shop for meals at local stores—similar to how the food-stamp program operates domestically.
The resistance that the Obama administration’s modest reforms are facing epitomizes how Congress and special interests don’t care how much harm food aid does abroad. Unfortunately, gross negligence has long been Food for Peace’s trademark.
America's two economies
by L. Neil Smith
There are two Americas. People who live in other countries and don't know this, need to understand it. People who live in this country are even less likely to be aware of the difference, although, if there is to be a tolerable future—or any future at all—they're going to have to deal with it. And soon.
One of the two Americas everybody has to live with today is a politico-corporate structure, and a kind of wildly metastasizing societal cancer, the United States government and the mercantilist—not capitalist—companies whose operators have come to believe, quite mistakenly, that they own everything and everybody within their gaze.
If you are reading these words, likely you're part of a different America. If you aren't, there are things here you need desperately to know.
This other America we live with has fed, housed, and clothed more human beings, achieved greater progress, generated more prosperity, than any similar entity in history. It, not the government nor any of its parasitic corporate attendants, is that bright, shining beacon in the West that has inspired people to come here, or to remake their own countries, for two centuries. In many ways, the poorest person today lives a healthier, longer life than the Pharaohs in their day, because of this second America, consisting of the individuals of this nation and the civilization they built, one painful, expensive brick at a time.
We call the driving energy of this America capitalism.
There is a difference—a big difference—between mercantilism and capitalism. Under the latter, individuals put away some portion of their income instead of spending it immediately, invest whatever they may have accumulated that way in some private undertaking, and strive to improve their fortunes—and compete with others—by offering customers the best possible goods and services at the lowest possible prices.
Invariably, as a part of this constant striving between private enterprises, prices steadily fall, while the quality of goods and services—many of them entirely new inventions—constantly rises. This is the process by which America grew to be the most prosperous and progressive nation in human history and on the face of the planet. The fact that peace and freedom didn't always follow is not due to capitalism.
Mercantilism, rather than being born of individual effort and aspirations, is the bastard offspring of business and the State. It is the system against which Adam Smith railed in his 1776 bestseller Wealth of Nations, when commercial lash-ups like the British East India Company were granted a monopoly in some foreign territory by the King, and had their own armies and navies to enforce it. Our Founding Fathers were fighting mercantilism as much as they were the British crown. The tea that they dumped in Boston Harbor may have been taxed by the King, but it was imposed on the colonists by some royally approved monopolist.
Today, it may be as simple as a company bribing a congressman in order to obtain a government contract. It may even be less direct than that, with the company promising to build the new factory that the contract will necessitate within the congressman's district, creating jobs the congressman can then brag about the next time he runs for re-election.
As the company and the congressman become mutually dependent on each other—symbiotic—they grow wealthier and more powerful, joining what Ayn Rand called "the Aristocracy of Pull". Note that this relationship has nothing to do with satisfying purchasers, the price or quality of whatever goods are involved, nor does it matter whether the product is actually wanted. Money—stolen at implicit gunpoint from unwilling "customers"—and raw political power are all that count.
In fact, should anybody happen to come along, offering a better or cheaper product, instead of rising to the occasion and competing with the innovator—a process by which technical and social progress are achieved—the entrenched mercantilist company will "encourage" its symbiotic congressman to pass a new law or promulgate some regulation that will cripple its competition, preserving the status quo. Progress and potential are lost in the process, but nobody cares.
For more blog postings from me, see TONGUE-TIED, EDUCATION WATCH INTERNATIONAL, GREENIE WATCH, POLITICAL CORRECTNESS WATCH, FOOD & HEALTH SKEPTIC, AUSTRALIAN POLITICS, IMMIGRATION WATCH INTERNATIONAL, EYE ON BRITAIN and Paralipomena (Occasionally updated) and Coral reef compendium. (Updated as news items come in). GUN WATCH is now mainly put together by Dean Weingarten.
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Posted by JR at 12:49 AM