The Other US Border Fence - To Keep Your Wealth In

This is a special guest blog from a US ex-pat acquaintance who currently resides in central Europe. It represents the author's personal research and experience.

The Other US Border Fence

What most Americans don't realize is that construction of a legal fence to prevent US taxpayers from escaping from the IRS's controlled pastures is progressing on schedule. Congress has been expanding and strengthening this fence for decades, and the Heart Heroes Earning and Assistance Relief Act was only the latest nail in the soon to be tightly sealed coffin.

The US is the only country besides Libya that taxes the world wide income of it's non-resident citizens, and the HEART act has made expatriation much more difficult, and much more expensive.

Since the passage of HEART in June 17, 2008, any person seeking a green card, long term visa, or US citizenship should carefully consider whether they want to open their entire world wide finances to the IRS's thereafter eternally prying eyes, because of the Hotel California Problem.

Meanwhile, the IRS has been busy revising the 2001 Qualified Intermediary (QI) Agreement. A QI is a foreign financial institution that has agreed with the IRS to undertake certain U.S. withholding and reporting responsibilities and has agreed to audits by an external auditor. This is the agreement with the IRS that all international banks that allow accounts from US citizens have to sign.

The QI noose (er, agreement) will be tightened on December 31, 2009 in the following ways:

1) It forces the QI to identify parties responsible for QI enforcement to the auditors, and would open these parties to prosecution (a la Raoul Weil from UBS).

2) Allow the auditor to probe non-US bank accounts to see if they have characteristics of a US citizen controlled account. This would surely violate Swiss bank secrecy laws.

3) Requires Audit oversight and review by a US auditor.

These three points dramatically increase the costs for smaller banks to have US account holders and maintain status as a QI. This new QI agreement is forcing numerous Swiss banks to refuse to open new bank accounts for US citizens, and it is also forcing these banks to chase away their current US constomers. As we know UBS has left 19,000 US customers in a pinch and is forcing them to find new banks. No bank in Switzerland will accept these accused "tax fugatives" any more. It has long been impossible for a US citizen to legally open an account with any of Europe's discount brokers like Swissquotes or Internaxx, and now US citizens are having to search for financial services in a rapidy drying up pool of international offerers.

On January 15, the Taskforce on Financial Integrity and Economic Development met in Washington. Under the guise of chasing tax evaders and cracking down on tax havens, we will soon see new measures that will further restrict your financial freedom. Americans just don't understand the benefits of financial privacy, and the IRS and Congress have been working for years to convince citizens that this right to privacy is trivial compared to the necessity of taxing all wealth of people holding US citizenship papers wherever it may be held.

Some think that "high net worth individuals" will be the low hanging fruit for the tax collectors in the looming budgetary crisis. These not-sufficiently-rich-to-bribe-a-congressman-or-hire-a-team-of-lawyers type people have been corralled by the IRS, and when the time comes they will be easy picking.

United Kingdom and the British Pound Are in Serious Trouble

The United Kingdom has been in trouble for some time, and a great deal of it is due to the actions of self-serving financiers and elites which are leading the much photographed general populace into debt peonage, a modern day form of serfdom.

There are several ways out of this dilemma, if the Brits have the political will, but it will not be easy as they do not have the world's reserve currency at their disposal. Gordon Brown is not the type of leader that they will require, as he is inherently part of the problem.

It is an interesting speculation to consider that the bravehearts of Scotland may choose once again to go their own way, and to repair the carnage caused them by the Royal Bank of Scotland among others.

(Postscript: It is not clear that the UK GDP situation is all that dissimilar from the US situation based on the numbers, and we will know more about this at the end of the upcoming week when the US reports 4Q GDP. The point of this essay is that the UK is in a poorer position to deal with the problem and this blogger tends to agree, for some slightly different reasons.)


UK Telegraph
Britain on the brink of an economic depression, say experts
By Edmund Conway, Economics Editor
8:22AM GMT 24 Jan 2009

Britain is heading for economic depression for the first time since the 1930s, economists have warned.

Families must brace themselves for a slump of far greater severity and longevity than the recessions of the 1980s and 1990s, they warned. They said the current crisis will be of a scale to rival the biggest peace-time crisis in modern history — the Great Depression.

The warning was delivered by economists and politicians after the Office for National Statistics revealed that the economy shrank by 1.5 per cent in the final three months of 2008 alone.

The contraction follows a 0.6 per cent fall in gross domestic product (GDP) — the most comprehensive measure of Britain’s wealth generation — during the previous three months. This means Britain fulfils the criteria for a technical recession — two successive quarters of negative output.

The news sent the pound sliding to its lowest level since 1985. Sterling dropped more than three quarters of a cent to $1.3688 as investors speculated that the Bank of England may be forced to cut interest rates towards zero in response to the recession.

John McFall, the Labour chairman of the Treasury select committee, sounded a more optimistic note. He said: "We know that 2009 is going to be really tough for many people. There is a determination in Britain and across Europe to keep people in work, to avoid unemployment, so people’s contribution will not be lost."

Confirmation that the economy has entered recession capped a week in which Gordon Brown was forced to announce a new £350 billion bank rescue plan. Unemployment has almost reached two million. President Barack Obama discussed the financial crisis with the Prime Minister on the telephone yesterday, his first call to a European leader.

The fall in GDP is the sharpest since 1980, when Britain was mired in its most severe post-war recession. The news is an embarrassment for Mr Brown, who pledged as Chancellor not to return Britain to "boom and bust".

Britain is likely to suffer more than other economies due to its heavy reliance on the financial services sector, which has all but imploded in the wake of the economic crisis, experts said.

Others raised the spectre of an outright economic depression, often defined by experts as a peak-to-trough economic contraction of 10 per cent. Aside from the demobilisation periods following the First and Second World Wars, this kind of contraction has never taken place — not even in the 1930s’ Great Depression.

Roger Bootle, the managing director of Capital Economics, said: "I think there’s a very good chance this recession will be the worst since the 1930s. I suspect the economy could shrink by 6 per cent from last year to the end of next year — and that might not be the end.

The plight facing Britain is uncannily similar to the 1930s, since prices of many assets —from shares to house prices — are falling at record rates, but the value of the debt against which they are held remains unchanged.

This “debt deflation” is among the most painful of all economic phenomena, since it means the amount families owe increases each year even if they borrow no more.

Albert Edwards, a strategist at Société Générale, likened the British economy to a Ponzi scheme — a fraudulent debt mountain like that allegedly used by the New York hedge fund manager Bernard Madoff.

“What I find amazing is that people aren’t really nailing Gordon Brown and [Bank of England Governor] Mervyn King for this,” he said. “At least in the US they had the excuse of the arrival of sub-prime — a new sector of the market. We didn’t really have anything similar but we ended up with a bigger national Ponzi scheme than the US.”

Tension on the Tape

There is a link to the McClellan Oscillator from StockCharts among the daily charts presented in the Chart Updates section on the sidebar to the left.

It is worth looking at more closely, as we are now at a key juncture according to several measures, and are obviously winding up for a sharp move.

The bias in the odds is to the downside, but a wise trader remains open to possibilities of a trend change here, as support is building around 800 on the SP. A breakdown could move quickly if optimism turns to ashes.

The January Barometer to Date