Vera Verba

Remember this story, it could be crucial in a few years.

First, let me give you the facts:

Just a few days ago, Internet law expert Larry Lessig revealed the details of a conversation he had with Richard A. Clarke, a long-time (and very high-level) counter terrorism official.

Lessig relates that the conversation began with some background about the Patriot Act; in specific, that it had been sitting in a drawer at the US Justice Department for twenty years before an event came along that allowed them to get it into law. It was pulled-out after 911, and signed into law a mere twenty days later. (None of the legislators actually read it, of course.)

Then Lessig asked Clarke if there was such a plan ready to be implemented upon the Internet, following some sort of cyber-attack. “Of course there is,” said Clarke.

So, there you have it, folks. The gang in Washington (and their friends elsewhere) have a plan to take full control of the Internet.

By the way, you can read the story here, and watch Lessig talk about the conversation here.

The next question is this: CAN these control freaks really take over the Internet? Well, maybe not completely, but in the Internet’s current form, they could probably do a fairly good job of it. Take a look at this map:

Can you see how powerful a position the US holds? And not only that, but the Patriot Act gives US enforcers power to grab the citizens of other countries (and certainly their own) all over the world.

New Internet links are desperately needed. Some are being built (ironically, a major one is being built by two of the worlds greatest evil thugs: Hugo Chavez and Castro, Jr.) but many more are necessary. If I-911 happens before then, we have a problem on our hands.

Sure, excellent privacy technologies exist, but the only permanent fix is millions of human beings deciding not to take it. And, following a disaster, they are likely to be just as cowardly as they were in 2001. Courage is more essential than fiber, and it is just as lacking.

This a serious threat, folks. The Internet is hyper-important, and for a lot more than chatting and email.

I wrote this piece for Digital Gold Currency Magazine. A comment to one of our blog entries inspires me to repost it here. This article was adapted from material I am assembling into a new book, entitled The 21st Century: What Will Happen And Why Hopefully I’ll have it ready some time in 2009.

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Government never furthered any enterprise but by the alacrity with which it got out of its way.
– Henry David Thoreau

The battle between government and commerce has been raging since the beginning of the agricultural revolution. It is a marathon struggle of Politics versus Market. Some happy day the market will win, but that day, alas, may be a long way off.

It in is the crossfire of this battle that the digital gold business finds itself. If we succeed, the market gains important territory from the state.

No, most of us didn’t particularly choose to be in this battle, we were merely trying to improve our lives. But, by reason of being at the forefront of commerce, we find ourselves at the forefront of this battle. God help us.

UNDERSTANDING THE BATTLE

The most basic reason for commerce-state animosity, of course, is that Politics and Market have completely different operating principles. Markets operate on the principle of choice: People are convinced to trade. States operate by coercion: People are forced to pay and to obey.

Of course, there are traders who bring coercion into the marketplace, and there are politicians who wish to minimize it. It is quite possible to have an individual market player who loves coercion or a politician who hates it. Nonetheless, there is no real argument to be made regarding the basic operating principles – they are what they are. And they are most definitely at odds.

The more interesting question is this: What goes on in the minds of individuals, to make them sanctify either market or state?

Politicians are programmed by both psychology and experience to believe in the need for control. Even when they privatize and deregulate, politicians want to be sure that the ability to “reign it back in” remains.

Small business people are just the opposite. They have learned to believe in spontaneous order. It works. It has always worked… and it always scares the hell out of control-biased people.

But try, for a moment, to see it the politician’s way: Statist types see commerce as an essentially amoral activity, and they see politics as a Heaven-ordained forge of morality. To them, markets are purely a trading center for quasi-thieves; necessary, perhaps, but morally inferior. Politics is, to them, the temple of higher morality; where Chosen Ones make decisions based upon the principles of righteousness: Equality, Sacrifice, and Unity.

Realize that we in the digital gold arena are the few who believe in the morality of the marketplace. For reasons too long to explain in this article, the virtuous image of commerce died in the popular mind a hundred years ago, and was replaced by statist images.

Never forget that the popular mind – currently committed to finding “the good” in politics – is a powerful enforcer. You’ve doubtless noticed this when discussing the digital gold business. The price of agreement – leaving the majority – is too high for people who seek comfort in normalcy. This precludes them from considering your arguments. They may nod their head and ask questions, but they’ve already decided that they will not agree with you.

COMMERCE VERSUS WAR

War is the health of the State.

– Randolph Bourne

The quote above is widely known, but is commonly taken to mean that evil government bosses purposefully stir up wars in order to have more power. This is true far less often than people suppose.

Most political leaders are no less confused than other people. They struggle to attain a place at the forefront of the masses, but once there, they soon realize that the office does not come with any magic wisdom. They look out upon a supremely complicated world and know that it is beyond their understanding. Why do you think so many of them act aloof? It’s a defense mechanism. And why else would so many of them run to fortune-tellers of various sorts? They know they are out of their depth. Politicians are overrun by great events far more often than willing them into existence.

So, what should Bourne’s statement mean? It means this: War is the health of the state because it makes the state necessary.

(I know that the above statement is not absolutely true: mankind could defend itself effectively without states. But, until men develop the courage to take responsibility for their own safety, the statement more or less stands.)

In times of peace, the state is commonly resented; after all, they do forcibly remove money from the people in their control, and that does engender bad feelings. In time of war, however, people are willing to forget about such matters: It is better to be a serf than to be a corpse.

In times of war, or of serious threat, the state will gain on commerce, often dramatically. But, even here, things have improved somewhat. Modern states have learned not to intrude too deeply upon commerce, since war materiel must be produced in abundance, and the state alone fails miserably in such attempts.

War economies are strange, mixed-up things, with twisted moralities. Commerce is challenged and abused at such times, but it is never extinguished.

RECENT MARKET SUCCESSES

As I’ve noted previously, the past few decades have been a wonderful time for economic education. Even ex-commies are buying in to the free-market philosophy! Keynes is dead and Hayek rules the roost… at least for now. Here are a few good signs (and this will be US-centric):

It used to be that offshore drugs were strictly forbidden by US law. I’m not sure if jail time was ever imposed, but it could easily have been. With the Internet as a catalyst, however, Americans began to see that the same drugs were available in Canada at a much reduced price.

A critical feature in this was that Canada is not a scary place. Less expensive drugs were also available from places like India, but Joe American was afraid of those places. Canada, on the other hand, is held to be almost the same as the US.

People without an understanding of markets can certainly understand cheaper prices, but they are also easy to intimidate. This time, contrary to what would have happened twenty or thirty years earlier, those who understood economics gave a boost of confidence to the others, and the market trumped the FDA.

A second good sign has been the lack of regulation for new utilities. The older utilities, such as electricity and gas, are all government-protected and government-regulated monopolies. Regulatory bodies are the size of small armies and require similar budgets.

The next utility to come along was cable TV, which is partly regulated. Cable TV monopolies are small, and are being broken by satellite television and Internet delivery anyway.

The newest utility, Internet access, is definitely not monopolistic and is lightly regulated, and as an after-thought at that.

WHERE TO NOW?

War and threats are now on the march and the gains of commerce are under threat. GW Bush and other Western leaders are endeavoring to build a Protector-State in response. “We’ll see everything and protect you from everything.” This may not long endure, but how much damage will be done along the way is anyone’s guess.

The next major battle between commerce and state could be currency. It’s still a bit early to tell, but with many fiat currencies headed toward what may be a terminus, it is a distinct possibility.

It seems that the digital gold market has absorbed the most serious blows of the Bush Protector-State. There has been pain aplenty and serious damage, but the market yet stands. Now that the G7’s currency and debt schemes are unraveling, it is likely that control types will have better things to do than harass us. That may give our industry some space to mature and grow in something that resembles a natural, healthy manner.

And, frighteningly enough, it is at times like these that the proud predators of the world see opportunities to grab territory here and there. The other nations being busy with internal troubles much reduces the chance of violent response to a quick, contained aggression.

The next few years look scary, but the more legitimate threats appear, the less attention is likely to be directed at us. (At our small size, however, we do remain vulnerable.)

So, the worst may be over for the digital gold marketplace. However, it will never really be over until we win the memetic war: We must make the case that honest money is both morally and practically superior to fiat, and we must make it widely and benevolently.

© Copyright 2008 by Paul A. Rosenberg

This article made the rounds recently, and has a lot of people worked-up.

First, please read the article, then I’ll tell you why I’m not ringing alarm bells:

New Law Makes Escape
Tougher For Tax Exiles
By M. A. VAUGHAN

It’s been called “the ultimate estate plan”: Moving to a foreign locale to escape the clutches of the Internal Revenue Service. Indeed, hundreds of Americans do formally renounce their U.S. citizenship every year, many in order to protect their wealth from income, estate and gift taxes. But last week, Congress made life less rewarding for tax exiles.

Some exiles were born and raised in the U.S., such as John Dorrance III — grandson of the inventor and entrepreneur who helped found Campbell Soup Co. — He renounced his citizenship in 1994 and emigrated to Ireland, which has significantly lower tax rates.

Others have long lived outside the U.S. , always seeking to avoid the unique consequences of its unique tax system, which taxes USA citizens no matter where in the world they live and earn.

In 2007, 470 Americans “officially” renounced their citizenship to move abroad, according to a Wall Street Journal review of Federal Register notices. The list of those who relinquished U.S. citizenship in the past 12 months includes a London-based office-supplies magnate and the daughter of an Iraqi private-equity billionaire.

Now, after years of threatening to do so, Congress has passed a law that will tax the assets of those who leave for good on their way out the door, as if they were selling those assets. But tax experts say the more significant change may be a provision that taxes U.S. heirs on amounts given or left to them by ex-U.S. citizens. Taxing the recipient instead of the donor will make it harder to get around the tax rules.

The new rules say, “if you leave any of your property to a U.S. person, it will be taxed at the rates for U.S. gift tax,” which are currently 45%, says Henry Alden, a certified public accountant at Everest International Group, a Baltimore-based financial-planning firm.
The new taxes are included in legislation providing tax benefits for soldiers and military veterans and will apply only to those who renounce their citizenship after President Bush signs the bill into law, as he is widely expected to do.

Some of those permanently leaving the U.S. for tax reasons are private-equity deal makers, hedge-fund managers or entrepreneurs who have made fortunes here, whether born in the U.S. or elsewhere. Others are foreign-born, often academics, who have gained citizenship but are repatriating to their native countries after an extended stay.

One former citizen is Serra Nemir Kirdar, an advocate for Arab women in business and daughter of the Iraqi-born billionaire Nemir Kirdar, founder of private-equity powerhouse Investcorp. While born in the U.S., Serra Kirdar was educated at Oxford and now resides in the United Arab Emirates.

“I very much believe that it is the responsibility of people who hold citizenship where they reside to pay their taxes,” Ms. Kirdar said in a telephone interview. “In the event that someone doesn’t live there or make use of the protections that come from citizenship, they should not be liable for paying taxes to a country they just hold a passport from.”
Another former U.S. citizen is George Karibian, founder and chairman of U.K.-based online office supplier Euroffice. Through a spokeswoman, Mr. Karibian declined to comment for this article. His biography posted on a trade-group Web site indicates that since graduating from the University of Pennsylvania’s Wharton School in 1993, he has lived and done business in various European locales.

Lawmakers have been struggling for years to change a tax system for expatriates that was cumbersome yet easy to circumvent. “The old law was very easy to manage, with the right advice,” says Evelyn Capassakis, an estate planner at PricewaterhouseCoopers in New York.

Under the old system, tax exiles were required to file annual U.S. returns for 10 years after they renounced their citizenship. For that time period, income tax was owed on all U.S.-source income. Estate and gift taxes also applied to U.S. assets transferred during that period.

The system encouraged people to hold onto their U.S. assets until after the 10-year period expired and then unload them. And while estate taxes still applied to intangible assets such as stock in U.S. companies, gifts of U.S.-based stock were not taxed after the 10-year period. “Patience was rewarded under the old regime,” says Mr. Alden.

Under the new law, the 10-year transition rule is abolished. U.S. citizens and long-term residents who are terminating their status will be taxed once on their unrealized gains, at current market rates. Stock portfolios, real estate, art and most other types of assets will be captured by this new “mark to market” tax. Some experts say the new law could deter some citizens or residents from leaving the U.S., since the benefits of doing so will be reduced. Yet the simplicity of the new one-time tax may appeal to others.

One aspect of the new law that has practitioners concerned is that it applies not only to U.S. citizens but long-term residents. That means it will capture foreign executives who have been permanent residents of the U.S. for more than eight years. “There are a bunch of green-card holders who may fall prey,” says Mr. Alden. They may now owe taxes to both their native country and the U.S., he says.

As in the old system, the new rules are triggered only for individuals with a net worth of $2 million or more, or who owed more than $124,000 in income taxes on average over the past five years, indexed for inflation. Even if one of those conditions is met, the first $600,000 in gains are not subject to the tax.

* * *

THE NUMBER of high-income taxpayers who owed no income tax more than doubled from 2004 to 2005, according to IRS data released last week.

Of the 3.6 million taxpayers with adjusted gross income of $200,000 or more in 2005, 7,389 did not owe U.S. income tax. That compares with 2,833 with no income tax liability in 2004. The IRS attributed the jump to two tax-law changes: a temporary window in 2005 in which charitable contribution caps did not apply to donations to help victims of Hurricane Katrina and an increase in the amount of foreign tax credits that can be applied to an alternative minimum tax liability.

Taxpayers may now offset 100% of their AMT liability with foreign tax credits, up from 90%.

NOW… From Grandpa, official release date: 1 July 2008:

I have been following these laws and this type of article for 30 years.

“Too late. Door shut.”

Door shut? No way!

For the time being, the easy way out is for a gringo resident in BB land to simply liquidate all his gringo based assets. Then he transfers all assets abroad. This is legal and triggers no immediate tax consequences. [Yes, there could be some capital gains taxes due the following year.] The assets once moved abroad, can then be placed into any form: Gold bars, diamonds, stamp collections, bank accounts, cash, foreign securities, yachts, condos. Commercial property like shopping malls can be held in bearer share corporations, foundations, or re-titled in many other ways — free of local taxes and any records of income in places like Monaco, Bermuda, Central America, etc.

OK, Our hero moves his assets abroad and then follows them with his physical corpus.Where to Go? . See PT Book or Bye Bye Big Brother for recommendations on best [tax haven] legal residences, playgrounds, places to invest, etc. [The 6 Flags]… Probably best if the expat gets a legal residence & a new 1^st class legal passport for travel and banking– as soon as possible. This is easily do-able. But not even necessary.

The BB land PP is not the worst for travel, and it can be renewed if the person involved has filed annual tax returns from abroad. Of course, much better PPs are available. Renouncing an earlier citizenship may be a bad idea because too often it calls attention to the person and his tax situation. Simply doing nothing, departing quietly, & leaving things as they are is IMO the better solution. If the gringo wishes to keep his original gringo PP forever (till he dies), or to go back for visits or otherwise, he keeps his PP & should file annual gringo tax returnswith the help of a good accountant who is based outside the home country.

Note: getting foreign spending money tax free, no matter how substantial the assets are, & for BB Land tax purposes, getting “income” down to zero taxable is do-able. How? Using Trusts, charitable foundations, companies, and above all generating the right kind of non-taxable spending money is no big trick.

For instance? There are infinite possibilities, but Mr X with 1 trillion in BB land assets buys 1 trillion in gold and other rare coins that he keeps in a safe deposit box in his new home town. He spends a few coins to cover living expenses, etc.. If done right, no theoretical income tax is generated because he is living on & spending capital, not income.

With no physical body in BB Land and no assets there, whether he renounces or not doesn’t matter. He is beyond the power of BB land to collect anything or to do anything nasty to him. Many places, like Switzerland, Monaco, for example, have protective policies: They will not extradite any resident for tax related avoidance activities because such activity is legal in their own country.

All these new BB laws presume that anyone who was ever a citizen or resident can’t bear the thought of never returning. The truth is that many expats who have substantial assets actually do enjoy spending their time and money in the infinite number of nicer, BB-free places to be found abroad. They have no desire to return, ever. There are millions of expats who feel this way. This goes for Germans, Russians, Swedes, and of course, Gringos. Besides that, investments are less regulated, and bureaucratic reporting requirements are infinitely less burdensome “offshore.” Besides this, thousands of innocent activities have been defined as “crimes” in BB Land, and these same things are permissible abroad. Bottom line is that most people who have experienced the freedom of living outside of BB Land are quite content to remain abroad. Not only that, it is easier to earn & keep money earned abroad when taxes are nil. As to proposed legislation taxing the estates of or inheritances going to heirs of deceased people who have renounced for tax purposes,

1) there is no point in considering all the “proposed ” stuff - 99% of which never becomes law. And if it does become law, it may be ruled unconstitutional discrimination.

2) For the sake of academic discussion, this proposed tax is easily beaten if the heirs simply leave BB land and collect & use their “inheritance” abroad. To be technically in compliance they may have to establish a legal residence abroad for a while — which is no great trick, but the fact is that transactions [such as inheritance matters] that take place abroad and are denominated in local currency, makes them beyond the capacity of BB to discover or track. Not to mention that collection is impossible for any creditor (governmental or private) if the whereabouts of the person’s ass & assets are unknown.

If an heir is dumb enough to want to live in very high-profile, headline grabbing style, this is always going to be risky. It is better that high profile living be abroad in places like Monaco where flaunting wealth is common. “Don’t stand out!” is a good rule. Envy & Jealousy have cause the downfall of many As a PT, low profile keeps one out of the cross hairs of any government. Of course any half-a-brain multi-millionaire will not allow his assets to go thru probate or inheritance procedures. Long before death assets are already in joint tenancy. Or, the transition is provided for by other generation-transfer arrangements like Liechtenstein or Panama Foundations. These can providing for automatic & informal transfer of assets without any public record thereof. Any persons who have lived [intelligently] abroad knows all about & can arrange these things . Foundations, for instance, cost only a few thousand a year to set up and run.

Alternatively there are a lot of ways to accomplish the same result spending nothing. So. the door to expatriation is certainly not shut.—& unless Soviet Style restrictions on Ass & Asset movements are instigated by BB, they won’t be shut for a while. As this sad event is a possibility, making some arrangements to move ass & assets now or in the near future would IMO be prudent.

from Grandpa - 16 June 2008

While many in the world are either worrying about the impending collapse, or gloating about the “US Housing Crisis” here’s a new perspective (mostly the observations of a bright friend) who is doing what I suggest in the last paragraph.

There are about 75,000,000 single-family houses in the US today. A third of these are fully paid and free and clear. That leaves 50,000,000 mortgaged homes. Over half of these properties were been bought pre-2000 at a much lower cost that their current book values. The vast majorities of these owners have either not dipped into their ‘home equity’, or did so early in the housing boom. The vast majority have serviced their mortgages ever since. That Leaves 20,000,000 mortgages. About three quarters of these are owner-occupier mortgages in the heartland and small town America. The loans are being serviced just fine.

In other words, 5,000,000 houses MIGHT be the sub-prime crisis generators. Of these at least half are investment properties, or vacant properties that were to be “flipped” They will be foreclosed and resold at below market prices resulting in losses for the investors & lenders, but will not result anyone being homeless. That leaves a maximum of 2 million owner occupied homes purchased at grossly inflated prices and with little or nothing down. The buyers knew or should have known that if interest rates went up, or if they lost their jobs, they would have difficulties & would have to go back to where ever they were before they bought a home they couldn’t afford.

The vast majority of these troubled properties are in the areas where the housing market was the hottest. States like California, Nevada, Florida as well as a few cities that stood out in other states, such as Houston, Denver, Hot Springs, etc. Prices in many other cities (Redmont, Boston, New York, Washington, Dallas) are stable… Prices in many smaller cities in the Midwest are actually still rising.

In other words, the ‘banks are writing off’ bad loans to poor risks that should never have been made. The loans were based upon inflated values. They were NOT traditional “75% loan to value” on conservatively appraised properties. Further, the buyers were not qualified to buy. “Sub-prime” always really meant ” highly likely to default.”

So, whatever is really going on, a very small percentage [if any] qualified home buyers are involved. There is NO housing or mortgage crisis. Not any more than has happened in previous cyclical property market downturns. These happen with boring regularity every decade or two. Some “hotshot” banks are using the “crisis” as an excuse to write off nonsense securities & senseless loans that they have used for years to inflate their imaginary profits & share prices.

Some stockbrokers, insurers & other firms who securitized & sold these loans to the public & guaranteed them against losses [these are the derivatives people talk about but don’t understand!], are of course going bust. They should have known better! But of course anyone who bought or guaranteed “sub-prime” loans was always dealing in “junk” with a high risk of default. Why did they do it? Mostly in return for fabulous fees, commissions or if stupid “investors”, a very suspect, unsustainable, high rate of return. The people involved (on the profit making end) always operate through corporations and thus are immune from any personal liability.

In virtually all the USA foreclosures, the sub-prime home buyer was really stretching to get into a deal. They were people who bought grossly overpriced property, had no savings to cover a year or 2 or payments if things went sour; they were usually paying more than the 25% of income that should be allotted to rent or loan payments. Above all, they were in deals where unless interest rates stayed the same [which they were unlikely to do] and property values went up forever [also unlikely] they would be facing payments & charges they could not afford, i.e. foreclosures.

HOW TO PROFIT FROM THE SITUATION?

Cherry pick among the debris. Surely you’ll find a few a choice location properties at super bargain prices. If you [or your investment corporation] qualifies, you can even get a good fixed rate loan and rent the properties at more than enough to cover your payments. It probably takes sifting through 100+ deals to find one gem. You will need a bit of dough for a down-payment, & more for cosmetic refurbishment. In the background, a business or secure job giving you the income to qualify for any loan you might need. A friend of mine, Doug Casey, once told me that in Chinese, the printed character for “Crisis” was the same as for “Opportunity.” That’s the way to think! Of course, it’s always best to start a corporation to own your properties and thus, keep your name off the public records for privacy & insulate yourself from any personal liability. For PTs their corporation will probably be “Offshore.”

Yes, Grandpa has been doing this kind of thing for many years.

I just deleted dozens of spam comments to one of my posts. (And some of it was pretty sick stuff.)

Our apologies. We’ll try to get rid of it faster next time, and to train our spam filter better.

What bastards.