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“Freedom is never more than one generation away from extinction. We didn't pass it on to our children in the bloodstream. It must be fought for, protected, and handed on for them to do the same.” Ronald Reagan
Avoiding the Obvious
What a week. Now you have it. Whether you want it or not, it’s yours. It makes no difference you didn’t want it……you have it for better or for worse.
Just because we didn’t see the obvious doesn’t mean it’s not there. Sometimes it pays to avoid the obvious. What is “it?”
But before we go there, I like to share with you that in January I was named a Top 100 Trial Lawyer by the American Trial Lawyers Association (ATLA). According to ATLA, “membership is obtained through special invitation and is extended only to those attorneys who exemplify superior qualifications.” ATLA is the top, national trial lawyer’s organization in America, and it’s an honor to be recognized for a lifetime of trial achievements.
Ironically, today, my practice is mostly limited to international planning designed to help mitigate against litigation risks. Amongst other planning objectives, this includes asset protection, global asset diversification, pre-migration planning, and offshore investing, to name but a few.
But thank you to my peers and colleagues, and I remain humbled. Several have offered the suggestion that maybe I’ve been giving away too many asset protection secrets and the litigation lawyers are just looking to butter me up….you think?
Back to avoiding the obvious.
How you would tell someone that..…well...…they just don’t look good in that new outfit? I guess it depends on the person you’re speaking to.
If it’s your best mate, you simply tell him as it is: “Get rid of it bro, it’s really a dumb idea” usually works. If it’s a colleague at work, then the approach may be a bit more diplomatic. But if it’s your wife and even if she asks you if she looks fat in her new outfit, you just lie….unless of course you’re looking to start a five day war, or worse yet, to be reminded about everything you’ve done wrong for the last 25 years….no offense ladies, it’s just how we blokes see it.
That’s how I felt traveling throughout the USA during January and February visiting long time friends, family and business associates. I generally spend much of my time these days traveling outside of the US, so when I returned back home the experience was akin to looking at a series of snapshots in the progression of something happening. For some of what I witnessed it was more like a slow motion train wreck.
So…...how do you share a global perspective of the USA with American’s you know and care about when they ask you “what does rest of the world think about the mess the US has gotten itself into?”
We all know that most Americans are pretty fed up with the US system of government today. Ask the Tea Party for one. The Tea Party argues for stripping the federal government of many of its roles, and that if government has to be involved, it should be mostly state governments.
Or the newly formed Coffee Party. Their slogan is “Wake Up and Stand Up.” Their mission statement declares that the federal government is “not the enemy of the people, but the expression of our collective will, and that we must participate in the democratic process in order to address the challenges we face as Americans.”
Or ask Fox TV host Glenn Beck who seems to have really tapped a nerve, in more ways than one. If nothing else, Beck is tireless, self-deprecating, a recovering alcoholic, a convert to Mormonism, a libertarian and living with ADHD. But he is a gifted storyteller with a knack for stitching seemingly unrelated data into possible conspiracies. In happier times Beck was a talk show host of “Morning-Zoo” TV FM radio. But these aren't happy times in America. For many these are times of economic uncertainty and political weakness, and Beck has emerged as a virtuoso on the strings of discontent.
President Obama said on the campaign trail in October 2008 that he wanted to “spread the wealth around.” With sweeping health-care overhaul legislation and new taxes on the “rich”, he’s about to do just that.
Whether you are for or against Obama Care, most people agree that health care in America needs a fix. But most sensible people would argue that the new health care law isn’t the answer. It would generate $409.2 billion in additional taxes by 2019, according to an analysis by the Congressional Joint Committee on Taxation, a nonpartisan agency. The law also imposes about $69 billion more in penalties for individuals and businesses who don’t meet mandates to buy insurance, according to the Congressional Budget Office, another nonpartisan agency.
It is obvious that taxes will be levied more and more against those with higher incomes and greater assets to help spread the wealth in America’s new social distribution plan.
Take from the rich and give to the poor. A modern day Robin Hood.
Where to Next?
In looking for hints where America is heading I anxiously waited for former US Treasury Secretary and former Goldman Sachs CEO Henry Paulson’s new book On the Brink, looking to discover some good behind the scenes past insight into the financial meltdown. I am a good student of history, and there was hope to find some wisdom and reasoned analytical thought in the crisis resolution process. Admittedly, I set my sights low for any juicy bits of insider information that might be divulged. Curious minds just need to know.
The former US Secretary’s autobiography is a disturbing insight into the man and his role in the financial meltdown. He admits that the day after the most expensive government spending act in history had passed in October 2008, he went fishing. “Just being Hank Paulson, out fishing” he says.
The self portrait is a rambling exercise in self gratification of how Hank believes he saved the world. He describes how he repeatedly had dry heaves in front of an American flag, in the men’s room stall during Congressional hearings, in front of Senator Judd Gregg, and more. There is no reasoned analysis or details for the ground breaking historical steps the men in charge were taking. Our dear Hank admits they were flying by the seat of their pants “and making it up as we went along.”
History is obviously made up of small groups who were improvising, and admittedly not very good at it.
I did learn his wife calls him “Pea”; he rushes through children's bedtime stories that he doesn’t do a very good job of telling; and his father used to pencil in bald spots on his head after botching up his haircuts. That’s deep Hank…thanks for that.
Paulson claims that Citigroup CEO Chuck Prince said he couldn’t resist making money the easy way, and begged to be stopped. Please, I can’t take it any more.
Of course Hank hands out praise to his close cronies - and George W. Bush - but doesn’t think much of either Nancy Pelosi or John McCain. And Andrew Sorkin’s book Too Big to Fail is an even more troubling tail from behind the scenes. I think this week I’ll stick to reading Everything Is Tickety-Boo recorded by Danny Kaye for the film Merry Andrew…..at least I’ll know everything’s all right.
Today, Obama, Geithner, Dodd and comrades are seeking nothing less than to re-write the rules of capitalism and the free markets. And for that to be truly effective, the rules will have to be rewritten not just for the United States, but for the rest of the global financial community too.
Unfortunately, Reganomics and Thatcherism free market policies reinstated in the early 1980s, had a short life the past three decades. It was a fair run. And not unlike a scene from the movie Back to the Future, it’s as though we have all been zapped back to 1931 with new social programs coming at us faster than we can keep score.
But what we think is so obvious, sometime really isn’t. In reality the government is only a part of the bigger problem. And the US started traveling down the path of socialism three or four decades ago, if not before.
In our last newsletter Socialism USA Style, we contrasted government controlled economics and socialism (based upon Keynesian Economics) against Free Market Capitalism (Austrian/Chicago Economics and Nobel Economist Winner Frederick Von Hayek). We explained how the world went down this path before, and it didn’t end very well. Remember the social programs that lead to the ills of Germany, Italy, Spain and Russia, to name but a few, and what lead up to WWII, and a new world order.
So when answering the question “what does the rest of the world really think” during recent travels crisscrossing the USA, the candid, best mate approach was too harsh for most people to accept. I wasn’t looking to start an argument or learn about everything I’ve done wrong for the past two decades, so I opted out of that approach.
That left the diplomatic approach of trying to delicately tell friends and family what they already know anyway – but they really didn’t want to hear – and that’s that the world thinks that America looks pretty buggered up, and worse than they really understand.
And I’m not alone on this, mind you.
It seems that Warren Buffett’s partner Charlie Munger, recently figured out a diplomatic way to get his message across to fellow Americans about the sorry state of the US by writing a parable for Slate Magazine. "Basically, it's over..." says Charlie Munger.
Charlie uses the parable to demonstrate that the glory days of the US economy / empire are behind it. His position is completely opposite to all those high-priced economists, bankers, politicians and pundits who think they know better than the free markets.
The US problem is not just a liquidity problem. Nor is it just a banking problem. It's not even just a debt problem. The bigger problem is that the US economy is too expensive, too rigid and too full of dead people walking.
And Charlie Munger’s story is right on. He's right that things have gone way too far for much too long. The financial industry turned the country into a gambling casino….and too many people lost at the crap table. And he’s right that the same government that encouraged the problem by providing too much cheap money is now here to fix it.
Too many Americans want endless free entitlements. Roosevelt started it in the 1930s with his New Deal. Social entitlements increased during the ensuing decades. Obama just continues with more of the same that has only gotten worse during the past several decades. Like rot on the vine.
Oh no, what’s that I hear again.... “I’m from the government and here to help you.”
The government’s response in the US is to continue giving drug addicts another shot of cheap drugs to avoid the withdrawal systems. The US nationalizes key industry and borrows heavily. Growth is shifted from the private sector to the government. Everything from home finance, banking, insurance, automobiles, employment, food, and today health care, are now owned, provided or subsidized by the US government. The US has become a planned society. That’s socialism by any other definition, and all this debt is not good for America or the world.
Brother Can you Spare A Dime?
So what do the markets think of all of the debt America is accumulating? Apparently not as much as they think of Berkshire Hathaway.
Yields on two year notes issued by Warren Buffett's company are yielding 3.5 basis points less than US treasuries of the same maturity, according to Bloomberg. US Treasuries are traditionally seen as the safest of all investments, and form the base of the yield curve.
But today bonds issued by quality corporations are trading at lower yields than US Treasuries. Investors apparently feel that Warren Buffett, and Procter & Gamble Co, Johnson & Johnson, and Lowe's Co. are all better credit risks than the full faith and credit of the US Government.
Comrade Ben Bernanke was on Capitol Hill this week and told lawmakers that the US government's budget outlook is “somewhat dark” and that Congress needs to agree on a plan to reduce the deficit. Talk about stating the obvious!! He was trying to warn Congress that something had to be done about the deficits.
It is very obvious that we have a deficit problem, but none of our elected officials want to do anything about it. There are really only three ways to deal with the deficits: 1) Increase revenue with more taxes, 2) Decrease spending, or 3) Pay down the debt by devaluing the US dollar. I don’t see Door No. 2 as a real alternative since no one in government has the guts to deal with spending reductions, and believe a realistic outcome will be a forced combination of more taxes and a cheaper US dollar. And neither of these are very desirable choices.
US the Safe Haven?
The US dollar's position as the global reserve currency is in real jeopardy if something isn’t done, and fast.
Moody’s Investors Service predicts the US will spend more on debt service as a percentage of revenue this year than any other top-rated country except the U.K. America will use about 7 percent of taxes for debt payments in 2010 and almost 11 percent in 2013, moving “substantially” closer to losing its AAA rating, Moody’s said last week.
And most concerning is that Bloomberg reports international demand for long-term US financial assets continues to weaken as China and Japan, the two biggest holders of US Treasuries, reduce their positions. China has been a net seller of Treasuries for three straight months, the longest such stretch since the end of 2007. Chinese officials have questioned the dollar’s role as a reserve currency and recently sought assurances about the safety of US government debt, as the budget deficit widens to a projected record $1.6 trillion this year.
But most people don’t want to hear that today the US is on the wrong side of history. That’s obvious too. Of course, the new outfit is a little tight, but it still looks good honey.
Like the great empires before it that tried to impose its will, by force, it has too many expenses and not enough income. And like those before it that tried to impose its will on the domestic economy too – like central planning – it’s doomed to fail. Someone please invite Freddie Von Hayek back to the party, and send home Mr. Keynes.
What of the Great American Spirit?
But worse yet, as I crisscrossed America these past couple of months, I was gobsmacked by the wilted American spirit. One city after another, the defeated attitude was prevalent everywhere. People weren’t just miserable, it was the total acceptance of their destiny to the dust bin that shocked me. The good ole “can do” American spirit was hard to find.
And I’m not the only one that has taken notice of the obvious.
British professor Patrick Allitt, from Emory University, was recently interviewed by CNN for an article he authored titled America the Miserable. He compared the former America he once knew as cheerful, peppy and purposeful, and insanely upbeat. The America of past was supercharged and exhilarating, and its people were radiant with goodwill everywhere. A can do spirit to get things done, and optimism almost as a fatal flaw.
“But where has America gone?” asks the Professor.
Today, jitters are everywhere as everyone knows someone out of a job. Failed mortgages across entire counties in the Sunbelt, and foreclosures, evictions, and houses worth less for those lucky enough to stay put. “The lack of confidence isn’t just a temporary blip on the radar screen” says Allitt, “but it has become characteristic of even the wealthiest and mostly highly educated to be pessimistic about their country.” Fear of foreigners and terrorism prevails across America as it continues to tighten its borders at every entry point, and “they” are told to stay away.
Unfortunately I have to agree with the observations of the Professor, as I too was overwhelmed with the doom and gloom everywhere I traveled. Lowbrow self-contempt seemed a common theme, and the television channels and advertising media seemed to be promoting it.
“Where will it all end?” Maybe in a runaway Toyota.
There are still some signs of the old buoyancy, and likely the return of the good times may give everyone a bit of a lift in due time. Or not. The American habits of optimism don’t die out easily, but the US has experienced a prolonged dose of unpleasant reality since September 11th. And the ageing baby boomers are feeling remorse for not having lived up to their potentials.
The rest of the world has caught up with America stripping it of the complacent sense of superiority it experienced during the past three or four decades. Ironically, some of America’s cheeriest people I ran across were first generation immigrants who were acutely aware of what a good thing they encountered crossing the borders.
Admittedly, there are good reasons to be dissatisfied with the current sad state of things. But the Keynesian game of borrowing more money to prop up the economy cannot possibly go on forever. The politicians will never admit this because it is in their interests to borrow against your future to make themselves look like heroes today, and so they can act like they are doing “something” to help us. But people, by and large, aren't stupid. They know what's going on.
And the really clever ones are taking steps to protect themselves before stuff happens.
Where to Next?
Today, many smart, forward thinking people are taking steps to protect their assets. Some are starting small, and many are thinking beyond the shores of home. But they are all taking steps today before the exits get crowded.
You too should begin to learn more about what international planning means today, whether “offshore” is a risk management tool, how to manage assets in an international trust, and what an international trust can do for you. Asset protection and offshore living and investing are popular themes we cover, and include answers to Is offshore legal?, How Border Controls Affect You?, and what is America’s Exit Tax?
Best of all, these and more are free under the Past Articles posted on our site.
Many of our long time readers know how to use an international trust for investing and why offshore risk management is a valuable tool for protecting and preserving assets in a litigation gone crazy society.
Enjoy reading about offshore banking jurisdictions, and a fresh perspective about the crisis of capitalism. And when looking offshore be aware of the offshore mutual funds trap for US citizens, and act wisely in protecting assets in a changing world. These are all topics covered in our past newsletters and posted on our site.
Remember, there are really two financial battles in life: the first is creating wealth, and the second is keeping it. Many are learning today that the second battle is much more difficult than the first.
“The hardest thing to explain is the glaringly evident which everybody had decided not to see,” Ayn Rand, Atlas Shrugged.
Now you have it……
Until next time.
David
David A Tanzer, Esq.
JD, BSc, Ph.D (Hon)
David A Tanzer & Assoc., PC.
Datlegal@aol.com
DAT@DavidTanzer.com
www.DavidTanzer.com
Vail, CO USA:
Tel. (970) 476-6100
Fax (720) 293-2272
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Tel. (64) 9 353-1328
Fax (64) 9 353-1328
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Tel. (61) 7 3319 6999
Fax (61) 7 3319 6999
(Licensed to Practice Law in U.S. States & Federal Courts;
Assoc. Member Auckland, N.Z. District Law Society - Foreign Lawyer; &
Assoc. Member Queensland Law Society, AU - Foreign Lawyer)
The comments herein are not intended to constitute a legal or tax opinion regarding any specific legal or tax issue as additional issues may exist; does not reach a conclusion with respect to any specific legal or tax issue addressed herein or any additional issues not included; and cannot be used for the purpose of avoiding legal or tax obligations or penalties with respect to issues in or outside the scope of matters discussed herein.
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