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The Daily Reckoning | Tuesday, June 22, 2010 Eric Fry on the gradually eroding ideal of what it means to be American, More of your own thoughts on "Getting outta Dodge," Plus, Bill Bonner with thoughts on China's "floating" yuan and the ongoing, unstoppable Great Correction... Redefining Expatriation And how life in the US "ain’t what she used to be" Eric Fry Reporting from Laguna Beach, California... As a child growing up in sunny Southern California during the 1960s, life was pretty darn sunny most of the time (at least when the sun was not obscured by the dense smog that would choke the Los Angeles basin all summer long). I made "mudpies" in the backyard, picked roses for my mom, rode my bicycle all over town, watched Flipper on a black and white TV, idolized the Marlboro Man, "camped" overnight on the back patio, played Marco Polo in the neighbor's pool, collected baseball cards (and would have sooner cut off a finger than trade away my 1965 Sandy Koufax card) and attended schools I did not hate. This comfy childhood unfolded in an extremely pro-America household. My mother and father were "Goldwater Republicans" - vehemently opposed to Big Government, but sympathetic to military efforts that would "contain communism." Every male in my immediate and extended family had served in some branch of the military. One grandfather joined the cavalry in World War I; the other grandfather joined the Army Medical Corps for both World Wars, and retired as a colonel. My father served in the Army Air Corps during WWII and in the Air Force during the Korean War, retiring as a captain. I was proud of these résumés...and proud of America. It was the greatest country on the planet, no question about it. America was good and moral. Her enemies - past and present - were simply bad. I loved being on the winning team; the "good team." And so I loved "playing army" with my friends in the neighborhood...and watching Combat on TV or movies like Sands of Iwo Jima and The Longest Day. I used to sit by my parent's big wooden stereo console and listen to the LP of Sgt. Barry Sadler's, "Ballad of the Green Berets"... Remember the lyrics? "Fighting soldiers from the sky; Fearless men who jump and die; Men who mean just what they say; The brave men of the Green Beret..." But as I grew older - and American history progressed - the clear-cut impressions of my youth yielded to shades of gray. The Vietnam War did not enhance my romanticized childhood pride in America. When the teenage boys who lived next door returned from Vietnam, they returned with purple hearts, gruesome stories and grisly photos of some of the Viet Cong their platoons had killed...and subsequently used for bayonet practice. I was ten. This war was nothing like Sands of Iwo Jima. Meanwhile, closer to home, the assassinations of John Kennedy, Robert Kennedy and Martin Luther King seemed to assassinate much of America's neo-idealism as well. There would be no more "civil disobedience," only disobedience. There would be no more, "Ask what you can do for your country," only asking "what your country can do for you." The American Dream was not dead, but it had suffered some life-threatening wounds. Nevertheless, life in the States was still pretty wonderful relative to the rest of the world. My summer vacation of 1970 was a little different than most. Mom and Dad took all of us kids behind the Iron Curtain. After spending ten grim days in Soviet-era Ljubljana, Budapest and Prague, I had never been happier to live in America. I had never been more proud to be an American.  Gradually, however, America began compounding her errors more rapidly than she compounded her successes. Little-by-little, the forces influencing America's economy and standard of living conspired to corrode the American Dream. Throughout the last forty years, America's fundamental civil liberties and legendary capitalistic dynamism have faced continuous assault from agencies and policies that purported to "help" or "protect." Meanwhile, the government's extreme (and growing) indebtedness accelerated the corrosion of the American Dream. Because these enormous debts increased the appetite for tax revenues, for example, they also decreased any appetite for establishing entrepreneur-friendly tax policies. America is still a great nation; but she is working hard at becoming less great. As a result, Americans seem to be using the "E-word" more often than ever before. "Expatriation" used to be synonymous with "Commie" or "Benedict Arnold." But a growing number of US citizens are beginning to think about the unthinkable: Leaving the US. Last week, The Daily Reckoning aired a two-part essay entitled: "Ten Benefits of Expatriation." In the preface to the essay, we asked our dear Daily Reckoning readers to share their insights and impressions on the topic. Specifically, we requested testimonials - good or bad - about life in America. "Tell us about the personal successes America has nurtured," we wrote, "or about the potential successes the American system may have impeded. At the same time, feel free to share first- hand experiences - good or bad - from any other economy around the globe. "This exercise is designed to elicit helpful insights from our unique group of readers. So please refrain from hyperbole or gratuitous America-bashing. Instead, please offer first-hand accounts that may shed valuable light on the American economy past, present and future." We received a torrent of excellent emails. We cannot publish them all, but we will publish many of them. Which means that today's edition of The Daily Reckoning will be considerably longer than usual. Sorry in advance for "running over." But don't blame us; blame your fellow readers for submitting so many fascinating insights and first-hand accounts. The Daily Reckoning Presents The American Dream, Revisited Guest Editor Edited by Eric Fry and Joel Bowman I have a cousin and two very personal friends who decided to leave America permanently to reside in France. They sold everything they owned and moved to France with just one suitcase. Within two years, all three returned to America. Summing it up, they said, "You just don't have any idea what it is like to live in another country until you actually do it. If you think politics are bad in the US, you should try living somewhere else. You just can't believe the nonsense that goes on in France regarding jobs, politics, and social programs." -------------------------------- I became a free man on Nov. 17, 2007 when I renounced my US citizenship at the Consulate in Panama at the ripe age of 65. I figured that after a lifetime of obeying the law and paying the tax, I could at least spend my remaining days as a free man - both politically and financially. Since that day, I have seen absolutely nothing at all to make me regret my decision. In fact, the course of the US over the past 2 1/2 years leaves me with the smug feeling that not only did I do the "right" thing for me (and by extension, my wife, 5 children and 11 grandchildren), I also struck a tiny blow by denying the failing American experience my financial support. Ayn Rand had the right idea - if you stay, you prop up the system. If you withdraw, you have hastened the day when the final collapse will come, and a serious effort can be made to return the nation to its roots.  -------------------------------- Your article on Expatriation is right on... I have recently taken my family and moved to Bolivia. Yes... Bolivia... The second poorest country in the world next to Haiti. Why move to such a poor country? In the States we were rats in a maze; the dead ends were getting more common and the cheese was getting far more scarce. Here we live like royalty... Do you need a better reason? Actually, we moved here just over three years ago when I foresaw the inevitable crash that was coming. We sold our home just before the bottom fell out and used that money to re-establish ourselves comfortably here. We were fortunate. -------------------------------- In 2008, my husband started looking at Costa Rica. I got rather excited and started researching whether I could take my pistol there! (I can, but a few hoops must be jumped through...which is, unfortunately, pretty much the same here in the good ol' USA.) I don't think the already-retired hubby's really serious about getting out of dodge, but as I am more than a decade his junior, I very well may consider it down the road (if it's not too late!). I am still working and wish to work for a bit longer. Truthfully, the jury's still out.  I must say, though, I am extremely concerned about the future of this country. I have three kids and one granddaughter whose occupational and financial futures are very uncertain. Not only that, the rotting social fabric of America scares me. These "kids" growing up today have no respect for property, individual liberty, or personal responsibility. They don't even respect themselves! I'm only 50 years old and hardly a prude, but as a college professor I occasionally see firsthand the absolute failure of the family and the public school system. I do not want these people responsible for running the country when I'm in my declining years. I DO still believe in American Exceptionalism because there is still no greater economic and social foundation than the one dreamed of by our Founders. The foundation has termites (or worse), yes indeed, but I truly wish to continue believing that there are true patriots who will bring us back to some semblance of past greatness. -------------------------------- Long time reader, first time mailer I had to write you in response to the top ten reasons to expatriate. I just repatriated back to the US from three years in Bermuda - a legendary low tax jurisdiction. While your list of 10 are true about the hassles of living in the US, you neglect the hassles of living outside the US. I'm a CPA so I think I know my taxes well, and I paid more in taxes while in Bermuda than I did in the US. I should mention I am unfortunately not one of your millionaire readers, so I was able to shelter most of my foreign income from US taxes through the Foreign Earned Income Exclusion. That plus the Foreign Housing Exclusion meant that I paid ZERO US taxes over the three years I was in Bermuda, again probably because I wasn't a millionaire.  However, the point you miss is that foreign countries like Bermuda also tax their citizens. They might not call it an income tax, but I paid over 5% of my income in a "payroll tax", plus 30%+ in duties on anything I purchased. Net-net the tax situation was a wash for a low six figure income between the US and (supposedly) tax-friendly Bermuda. This aside leaves you with the hassle of being a foreigner with limited rights in a populace that isn't always welcoming. Want to buy property in Bermuda - nope...not if you're a foreigner. Want to vote for those who spend your taxes - nope...not if you're a foreigner. Want to speak your mind freely - nope...not if your a foreigner and need a work visa. Want to protect your property/life with a handgun - nope. -------------------------------- How could something so insignificant have pushed me over the edge? After 20 agonizing years of owning and operating a mid-sized construction company in Los Angeles, my wife and I moved (along with our two small kids) to a 15-acre farm in southwestern Argentina, intent on discovering the joys of the 'simple life.' Five long years with no phone and no electricity sent us back to the States 'permanently.'  Naturally enough, we blamed our failure on geography. We would continue the pursuit of our dream of a small, self-sufficient farm back home in the good ol' USA. Chelsea, Vermont to be exact...good and far from the maddening crowds of California, but not so far that I had to buy hardware in metric units. Chelsea is small...a population of about 500. And very rural...small farms everywhere. Live and let live attitude. Perfect spot, it seemed. We bought 40 acres at the end of a dirt road well out of town and began planning our little homestead. A small clearing in the woods pretty much in the center of the property seemed a likely site for our little house-to-be. But, rather than rush right into building, we figured it would be smart to put up a temporary roof and test the spot for weather exposure (sun, wind, snow, etc). A 9' by 12' canvas tent was purchased for the purpose. I then built a wood deck to keep it up off the ground, assembled the tent, and stuck a couple of beds in it so we could spend the night occasionally.  Well, about a month later I get a visit from the county tax assessor's office...they'd come to inquire about my recent property improvements. Naturally I didn't have any idea what they were talking about. But the fellow was kind enough to explain that it had been reported to his office that I had completed a new structure on the property and that it was his job to assess it for the tax rolls. I told him I had nothing on the property but a tent, but that he was welcome to walk the place and see for himself.  So we started off through the woods and after about 10 minutes came to the clearing where the tent stood. After studying it for a moment he gets out his tape measure and begins to calculate the square footage! I asked what he was doing and he tells me that any structure with a permanent floor (in my case the wood deck) is considered a real property improvement and that I'd be getting a supplemental tax bill...not only that...I'd have to go to the planning office in town and get a permit and pay fines for having built without having permits in place before beginning work.  Within 6 months of the assessor's visit we sold the property, packed all of our worldly goods into a 40 ft. container and moved back to Argentina. That was 8 years ago. But this time we have electricity (a small hydroelectric turbine beside the stream), phone and Internet (satellite), and The Daily Reckoning every evening! -------------------------------- Two of the best moves of my life were made on 11 January. On that date in 1975 I married Janet. Exactly thirty years later, we renounced US citizenship at the consulate in Auckland. I have been delighted by both moves. We have been in New Zealand for eleven years. Our only child lives around the corner from us with her kiwi husband and two sons. In the early '90s, we began to be uneasy about the political direction of the US. The Clinton, Bush and Obama administrations have strongly confirmed that unease. I feel that living in the US today would probably be like living in Germany in the early '30s. As the fiat currencies continue to degenerate, stresses will be induced in American society that I expect will make it more and more like post-Weimar Germany. It will not be pretty. In my youth, I was a nationalistic little turkey that volunteered to be an artillery lieutenant in Vietnam. I have since gradually awakened. One of the beauties of living in a nation of only four million people is that we cannot succumb to the delusion that we can rule the world, or that our paradigm must be inflicted on everyone on the planet. Our taxes are too high, and we are too socialized, but the rule of law is strong and I feel free here. NZ has recently been assessed as the most peaceful and least corrupt country on earth. It has been rated as the third most business friendly. My great-great-grandfather was killed at Gettysburg trying to get rid of Washington. I have accomplished his objective and had a good time doing it. -------------------------------- I live in Rochester, MI, which is a suburb of Metro Detroit. Things here are bad and getting worse. I've lived in this area for 25 years and I've never seen so many empty storefronts, especially in downtown Rochester. Malls in neighboring Rochester Hills that have lost big stores are unable to fill the buildings. And at least 13% of the people in Metro Detroit don't know where their next meal is coming from. On the other hand, people are trying to help each other out. Churches and community organizations are opening food banks, individuals are making donations of money and time and stuff (including handmade stuff), and my local library (which is terrific) has been offering services and classes for people in financial trouble. Since the 1980s, Detroit has been ground zero for the new economy, so if you want to see America's "Christmas Future," this is the place to watch. I'm not attached to this area (I grew up around Chicago), but I am attached to the US. America took my parents in when they were running from the Nazis, and my father always considered it a privilege to pay his taxes. I think we're moving towards a new kind of economic life, whether we want to or not. Any government that refuses to take care of its own ends up paying a very steep price, and Americans are already starting to step back from our government and start doing more for ourselves. The steps are small and mainly unnoticeable, but I have always had great faith in the ability of (most) people to behave well under adversity. And our adverse times are just beginning. The Daily Reckoning Readership,  for The Daily Reckoning Joel's Note: Thanks again to all our fellow reckoners who were kind enough to share their thoughts and experiences with the rest of us. Your efforts are greatly appreciated. We'll have the final installment of our little "to expatriate or not to expatriate" series in tomorrow's issue. In the meantime, if you're staying in the US and planning to grab your share of the Social Security scam, you might be interested in this report from our income investor, Jim Nelson. "Starting September 30 this year," writes Jim, "America's Social Security 'safety net' will officially begin to shrink." Economists have long known that this day would come...but they didn't forecast it happening for another 5-6 years. Thanks to plummeting tax receipts (a function, largely, of "higher-than-expected unemployment rates"), the fund will begin disappearing much quicker than first estimated.  In his report, Jim shows us how to take advantage of another, little- known "pension program" - one that lets you collect thousands of dollars per year. His full write-up can be found here. Bill Bonner Correction Turns "Great" Thanks to Government Intervention Bill Bonner Reckoning from Baltimore, Maryland... The surprise at the beginning of the day yesterday was China's announcement that it would end the dollar peg. The surprise at the end of the day was that it didn't make any difference. The news got investors all antsy...they spent the day preparing to drive prices higher. But at the end of the day the Dow finished lower - by 8 points. It didn't make any difference to the stock market. Even the currency market yawned.Bloomberg: The currency advanced 0.36 percent to 6.802 per dollar as of 1:45 p.m. in Hong Kong, the biggest gain since Oct. 7, 2008, according to the China Foreign Exchange Trading System. The 12- month non-deliverable yuan forward rose 1.4 percent to 6.6209, implying traders are betting on a 2.7 percent appreciation. What, not even a 1% move?  Our guess is that China has just stolen a march on its US critics. The currency move didn't make any real difference. And by agreeing to end the peg, the fickle finger of blame now turns from the East to the West.  The complaint against China was that it was under-pricing its output, by keeping the yuan tied to the dollar. America was China's number one customer. It made sense to keep the two currencies in line. But since China is a more efficient producer, it also caused US companies to lose market share to Chinese competitors or to shift their own production to Chinese subcontractors. The best solution to that problem was just to ignore it. But US lawmakers needed a scapegoat and China was the best they could do. But what are they going to do now? Who to blame? They could try "bourgeoisie parasites," like Hugo Chavez, (more below.) But Marxist mumbo jumbo n ever caught on in the US. Too many voters wanted to be bourgeois! While China might have under-priced its output, the US certainly overpriced its ability to consume all that Made-In-China stuff. "It's just bad economics to pretend we can fix the lives of middle class American workers by getting the Chinese to revalue its currency vis-a-vis the dollar - it's a horrible misconception," Stephen Roach, chairman of Morgan Stanley Asia Ltd. said in a June 15 radio interview from Hong Kong with Tom Keene on Bloomberg Surveillance. But don't worry, dear reader. This is a problem that takes care of itself. "Bill, you've been talking about a Great Correction for months. I don't disbelieve you, but what the hell is a Great Correction?" Well.... A Great Correction is what you get when a great many things need to be corrected at the same time. When the crisis of '07-'09 came, economists immediately began talking about a 'recovery.' But there was no way the economy could go back to being what it had been. What it had been was excessive, over-the-top and unsustainable. It couldn't go back. It had to go forward. Specifically, it had to correct the many mistakes made by Americans who spent too much...and Chinese who made too much stuff for them to buy. On the Chinese side, that correction will take time. But it's not a major change of direction. There is now more consuming going on in the emerging markets than there is in the US. GM sells more cars in China than it does in North America. And Coke says its profits went up in the first quarter, even though its North American sales went down.  China will have to adjust its product mix and its marketing/distribution system. But there is no theoretical reason it can't continue doing what it does best - making things. China's economy can recover (it just needs something to recover from!) The bigger problem is on the US side, where no recovery is possible. Many people have houses they can't afford - even after the price of housing was cut by around 20%. Many banks have more debt than credit, even after dozens of them have been knocked out of business. The big banks have still not been corrected. Their mistakes went into the Federal Reserve's vault. So that is another thing that remains to be corrected.  At the household level, people have generally spent too much money. They had no savings...even as they were getting closer and closer to retirement. That situation has begun - but only begun - to correct itself. Savings rates are rising, while a good deal of debt has been cancelled, written off, or restructured. Of course, there were many, many more mistakes - from private equity deals to commodity prices to over-employment in the retail sector. Most of them are being corrected.  If that were all there were to it, it would be an important correction, but not a Great Correction. As we keep saying, private industry and private initiative can make mistakes. But if you really want to make a mess of things you need taxpayers support. Of course, the taxpayers were in on this from the get-go. The feds largely created the bubble in the housing market. And then, when the bubble blew up, they took over Fannie and Freddie...stuck the taxpayers with trillions more in liabilities...and generally made things worse. But there are a couple of things, specifically, that make us think this correction will be worthy of the Great modifier.  First, it appears to mark the end of a 60-year credit expansion. That alone ought to make for an interesting correction. Second, it also appears to signal the high water market for the USA. America may be on top of the world for a while longer; but other countries are growing much faster so that, relatively, the US will never be in such a superior position again. The third thing to be corrected is the most interesting of all. The US- dollar based money system, created in '71, is surely building up for some kind of correction.  While the private sector generally tries to correct its problems, the public sector adds to its own. It is living beyond its means. Sooner or later, it will need to be corrected too.  When will it happen? When the bond market is ready.  Already, in Europe, bond buyers forced the issue. Governments have begun to address the problem of excess public deficits. At least people are talking about it...and governments are promising cutbacks. "We're all austerians now," says Martin Wolf, reprising the language that got us into the mess in the first place. (Richard Nixon once famously remarked that "we're all Keynesians now," referring to the widespread belief that government needs to meet downturns with counter- cyclical stimulus spending.) Yes, dear reader, austerity is in style in Europe this summer. But not in the US. Which makes us think that investors are making a big mistake by buying dollar bonds. Dollar bonds are the investor's choice because the US, and only the US, is ready, willing and able to print as many dollars as it needs. Which is what worries us... And more thoughts... A bad zombie movie... Anyone who wants to vote probably shouldn't be allowed to vote. Voting is the first step towards zombification - trying to get something without actually working for it. People who can't get what they want by honest trade or innocent persuasion turn to the ballet box. The next thing you know they're voting for Hugo Chavez.  And look what happens! Want to see what zombies do to an economy? Look at Venezuela.Reuters reports: Mountains of rotting food found at a government warehouse, soaring prices and soldiers raiding wholesalers accused of hoarding: Food supply is the latest battle in President Hugo Chavez's socialist revolution.  Venezuelan army soldiers swept through the working class, pro-Chavez neighborhood of Catia in Caracas last week, seizing 120 tons of rice along with coffee and powdered milk that officials said was to be sold above regulated prices.  "The battle for food is a matter of national security," said a red- shirted official from the Food Ministry, resting his arm on a pallet laden with bags of coffee.  It is also the latest issue to divide the Latin American country where Chavez has nationalized a wide swathe of the economy, he says to reverse years of exploitation of the poor.  Chavez supporters are grateful for a network of ch eap state-run supermarkets and they say the raids will slow massive inflation.  "They are not going to stop us in the plan, which is to give the people what is their right," Chavez said Friday during the inauguration of a supermarket chain the government bought this year from French retailer Casino.  Food prices are up 41 percent in the last 12 months during a deep recession, government figures show, despite the government's growing network of state-run supermarkets that sell at discounts of up to 40 percent and are popular with his poor supporters.  South America's top oil exporter, Venezuela imports about 70 percent of its food and analysts say the economic hardships could give the opposition a boost at the ballot box - although most expect Chavez to retain a reduced parliamentary majority.  Fighting back, Chavez says he is in an economic war against the "parasitic bourgeoisie" that tries to convince Venezuelans that socialism does not work by twisting facts and taking advantage of honest mistakes. This is typical zombie talk. The bourgeoisie is, of course, the most productive part of a society. These are people who work...who make things...who run shops and industries. So Chavez calls them "parasitic"...as he takes away their food! Regards, Bill Bonner,  for The Daily Reckoning ------------------------------------------------------- Here at The Daily Reckoning, we value your questions and comments. If you would like to send us a few thoughts of your own, please address them to your managing editor atjoel@dailyreckoning.com Tony Hayward Before Congress: No Sympathy for the Oil Man Poor Tony Hayward. The man was devoured by zombies last week. Now that we’ve figured out how history works, we’re begging to see the forces of history at work all around us – an eternal fight between the zombies and the producers. We’re surrounded by zombies. They are all around us. Tort lawyers. Bureaucrats. Politicians. Welfare slaves. Chiselers. Layabouts. Whiners. Yankees Seek Tax Refuge in the Deep South The Slow Decay of a Healthy Economy Euro Declines on a Sea of Bankruptcy and Paper Promises Do you ever get the feeling that you are in some kind of weird dream, where someone is holding a pillow over your face so that you can’t breathe, and you can dimly hear your children asking, “Is he dead yet, mom?” and I am thrashing around and yelling out, “No, I’m not dead, you morons!” but nobody is paying attention? Me, too! The Correlation Between Morons and Government Debt Insufficient Silver to Supply China’s Growing Demand Finding Gold in the Mainstream The New York Times dedicated a chunk of last Sunday’s paper to gold as a mainstream investment. In other words, gold is now legit — no longer can it be dismissed as the asset of choice for fringe types with a cellar full of canned goods and a stash of bullion buried in the backyard. Saudi Arabia’s “Restated” Reserves Double its Gold Fannie and Freddie in the Financial System