W.I.L. Offshore News Digest :: July 2009, Part 4

THE HOT TAX HAVEN: LABUAN, MALAYSIA

Push down hard on the likes of Switzerland and the Cayman Islands, and postboxes are likely to pop up in havens like Labuan, Malaysia.

The guessing has been for a long time that the harder the U.S. and E.U. cracked down on European offshore havens like Switzerland and Liechtenstein, the more Asian havens such as Singapore and Hong Kong would benefit. It turns out one should include the Malaysian island of Labuan, a designated offshore haven outpost for the country, in the beneficiaries list. The haven is gaining fast on the world’s leaders as measured by number of locations of subsidiaries of 195 large publicly traded multinationals.

As is the case for almost every offshore haven worthy of the designation, Labuan does not tax offshore holding companies, and “it remains a struggle for nosy authorities from abroad to learn your business there.” When the OECD branded Malaysia-Labuan an “uncooperative” tax haven earlier this year, Malaysia instantly agreed to cooperate in the hunting down of criminals and tax cheats and was removed from the OECD blacklist. But not everyone is convinced that the substance of promised cooperation will match the words.

Not a good time to be a big-name tax haven. the U.S. government is squeezing Switzerland hard to get UBS to squeal on 52,000 Americans suspected of evading taxes. The Obama Administration is pushing a bill to crack down on corporations that shift profits to low-tax jurisdictions like the Cayman Islands. But all of this just might be good news for a string of Malaysian islands called Labuan.

Labuan (pop. 84,000), 5 miles off Borneo, has been in the offshore game since 1990, but it became a serious player only in 2002, when it ran road shows in China and Hong Kong. Malaysia was then taking a lead role in the issuance of sukuks (sharia-compliant bonds). Labuan went on to become a gateway for Islamic funds investing in Asia. Then it got lots of business from Western companies.

Labuan was home to 104 subsidiaries belonging to large multinationals in 2008, more than Panama (85)and the Isle of Man (94), and closing in fast on Guernsey (122) and the Bahamas (143).

Last year 6,868 offshore companies from 85 countries registered in Labuan, up from 2,211 companies a decade ago. This spring London’s Tax Justice Network, a nonprofit group trying to put tax havens out of business, analyzed the locations of subsidiaries of 195 large publicly traded companies in the U.S., the U.K., the Netherlands and France. Labuan was home to 104 subsidiaries belonging to the study’s multinationals. That meant Labuan had in a few short years leapfrogged Panama (85 subsidiaries) and the Isle of Man (94) and was closing in fast on Guernsey (122) and the Bahamas (143) as a tax-avoidance domicile. The study incorporated work done by the U.S. Government Accountability Office, which looked at firms such as Kraft and Procter & Gamble.

Labuan does not tax offshore holding companies [almost all offshore havens do not tax their IBC profits], and it remains a struggle for nosy authorities from abroad to learn your business there. In April the Organization for Economic Cooperation & Development branded Malaysia-Labuan an “uncooperative” tax haven. Malaysia instantly agreed to cooperate in the hunting down of criminals and tax cheats and was removed from the OECD bad-boy list.

Not everyone is convinced that Labuan’s willingness to “cooperate” with the OECD will make a real dent in its bank secrecy.

But not everyone is convinced the changes will make a real dent in Labuan’s bank secrecy. The OECD program requires that evidence of wrongdoing be very strong before a customer is ratted out. “The OECD is creating a structure that has no impact whatsoever for practical purposes on the way offshore is working,” says Richard Murphy, director of Tax Research and author of the Tax Justice study.

Indeed, at the same time Labuan and Malaysia signed their cooperation agreement, they also slyly bolstered Labuan’s appeal. Labuan holding companies can now be run from Kuala Lumpur; physical presence in the remote islands is no longer required. Push down hard on the likes of Switzerland and the Cayman Islands, and postboxes are likely to pop up in havens like Labuan.

An interesting article in the May 18 issue of The New Yorker, “Letter From Malaysia: Eastern Promises,” looks at the current political situation in Malaysia. Those who remember Malaysia as one of the up-and-coming Asian “tigers” in the mid-1990s would do well to check out the piece. The resentment of the dominant Malays against the minority, economically signifcant Chinese and Indian subpopulations has become encoded in a set of affirmative action laws (Where have we heard this before?) favoring the Malays. The results threaten the country’s economic vitality. Here is the article abstract:

Letter From Malaysia about opposition leader Anwar Ibrahim and the ethnic and religious problems facing the country. Anwar Ibrahim has come back from six years in prison on corruption and sodomy charges to become the best hope for a more democratic, less corrupt Malaysia. This is the same Anwar Ibrahim who had once been at the heart of the Malaysian establishment.

He was poised to succeed Prime Minister Mahathir bin Mohamad until he launched an attack on “nepotism” and “cronyism” in his own party, the United Malays National Organization. The “cronies” included members of Mahathir’s family and in 1998, Anwar was removed from the cabinet and from UMNO. He was charged with corruption and sodomy and was beaten while awaiting trial. Mentions accusations that Anwar is a Jewish agent. Released from prison in 2004, Anwar eventually returned to Parliament in a landslide. In the next general election, possibly as soon as 2010, Anwar Ibrahim may well become Prime Minister.

Writer discusses the role of race and religion in Malaysia. The country’s population is more than half Malay, defined by ethnicity and Muslim faith, but large numbers of Chinese and Indians arrived in the 19th century. Discusses Mahathir’s 1970 book The Malay Dilemma, in which he argues that the Malays could not compete with the Chinese for genetic reasons and needed to be protected with affirmative action and mandatory ownership of business enterprises lest the Chinese and Indians take over. The book was banned, but activists succeeded in distributing copies to Malay students, including Anwar, who was president of the Malaysian Muslim Students Union.

Tells how Mahathir and Anwar steadily gained influence until Mahanthir became Prime Minister. Anwar was brought into the government to help implement Mahanthir’s ethnic theories. He did so until the late 1990s, when the consequences had become too blatant to ignore.

Writer observes Mahathir (who is no longer Prime Minister) speaking at a demonstration protesting the Israeli attack on Gaza. Tells about Anwar’s daughter, Nurul Izzah, who was elected to Parliament in 2008 and who wears the Muslim headscarf. Discusses the growth of independent blogs and alternative-news Web sites in the late ‘90s in Malaysia, including Malaysiakini, which was inspired by Anwar’s call for political change. Describes the obstacles that need to be overcome before Anwar’s coalition of opposition parties is ready to rule. Briefly tells about the current Prime Minister Najib Tun Razak.

BELIZE: MORE THAN A SECOND HOME (PART 3 OF 3)

We have featured parts 1 and 2 of Philip Hahns Belize odyssey: “Belize: Last Land of Opportunity? (Part 1)” and “Belize: Mother Nature’s Best Kept Secret (Part 2)”. The first two parts focused on providing a country overview and Belize’s natural beauty, respectively. In this final part Hahn introduces us to Belizeans he has known. To what degree this sample of people reflects the overall composition of the Belize population is open to doubt; certainly the sample selection are an intrepid, independent bunch of souls who sound worth knowing.

“Welcome home my friend!” is how I am greeted every time I arrive in Belize. On my first visit to Belize in 2003 I immediately felt at home thanks to the hospitality of the people. I could not wait to get back. Well, I have certainly gotten back. One of the questions on the Belize immigration form asks the number of previous visits to Belize.

This is visit number 67 for me. So, it is definitely a second home for me. During all of those trips I have met several Belizeans and expats throughout the country. I took my family with me on one of the earlier trips so they could see what I was so excited about. My wife laughed as our three children said, “Dad you have more friends here than you do at home.” They were absolutely correct, and six years later it is still true.

Those friends have come from a variety of places and all have fascinating stories. There are adventurers with amazing stories, educators with inspirational stories, entrepreneurs with motivational stories and salt-of-the-earth folks with entertaining stories. I have been blessed to meet some great people in Belize that I now call friends and many are like family. In this third and final installment about Belize, I will introduce you to some of my friends.

Most people in Belize have two common characteristics: They are hospitable and yet fiercely independent. Since long before Independence Day on September 10, 1981 the average person would choose to live in a humble home and live off the land/sea rather than be beholding to someone. This still exists today. It is an “old school” mentality that many of the developed nations of the world have forgotten.

It all became crystal clear to me one day when I stopped in at Amigo’s, one of my favorite watering-holes. I walked in and my friend Pete was sitting at his usual spot at the end of the bar having a cold Belikin Beer. I sat down next to Pete and ordered one for myself and another for him. I noticed some new construction and asked Pete about it. He told me that Sue, the expat owner of Amigo’s, was adding a gift shop to the bar. Pete did a lot of the construction for Sue so we occasionally talk about our common interest in building.

Pete mentioned that he was working on a guest house near his home about a mile down the road. He invited me to go see it, so, we jumped in my truck and went to check it out. We walked around the jobsite for a bit then went over to his house to say hello to his wife Glenda and get a couple of mangos off of the enormous mango tree in his backyard. On the way back to Amigo’s I said to Pete, “Pete I don’t mean to pry but if you don’t mind me asking; did you get a good deal at the bank?” Pete grinned as he said, “No mon, I didn’t get a loan.” I was real curious at that point, even though I was pretty sure I knew the answers, so I asked, “Pete how about the house and truck?” He said, “No mon, no mon.” Now his home was not a McMansion and his truck did not just roll out of the showroom, but they are his, not the banks.

My last question was, “You don’t owe anybody do you Pete?” He answered, with a hint of Creole, “No Phil, I cyant lif like dat.” It was at that point that I realized why my Belizean friends do not have the same stressful lifestyle as my American friends. I told Pete, a descendant of loggers and slaves, that a lot of Americans feel like slaves to the banks and their jobs. He told me, “When you come to Amigo’s as a free man, I’ll buy you a Belikin.” That will be the best beer ever.

Amigo’s is just one place where Belizeans and ex-pats have carved out a comfortable lifestyle for themselves. Sue came to Belize in the early 1980s and started a sand, gravel and concrete company. She was dating a guy at the time who decided to check out the opportunities in Costa Rica. He and his dad were at the Miami airport waiting for the flight and after several drinks they realized they had missed the plane. So, they went to the ticket counter and told the agent to book them on the next flight heading south.

You guessed it, a couple of hours later they were in Belize. Shortly after that Sue was starting her first business in her new country and since then she has been an independent business woman. After the concrete company she ventured into agriculture then into the restaurant/hotel supply business and in 2004, with Pete’s help, built Amigo’s.

I have been so impressed by the spirit of the independent women that come to Belize. A prime example is Rev. Macarena Rose [see here and here] who moved to Belize in 2004 with her 15 year old daughter, five dogs and five cats. As an ordained minister she is a very spiritual person and was fascinated by the Mayan history in Belize.

While living in Florida she worked with the Mayan Studies program and became a Mayan Priestess in order to understand and perform Shamanistic healing. While it is a great passion of hers she is also a professional business woman who runs a successful real estate company called Rainforest Realty, in San Ignacio, Belize. With the energy that only a single mother of two who also raised six adopted children can have, Macarena stays involved in the community, continues to perform weddings and does a weekly biography show on Belize TV.

She was instrumental in attracting the National Association of Realtors (NAR) to Belize and is the immediate past president of the association. Prior to moving to Belize she owned and operated a company in Florida called the Prop Up Pillow. Macarena invented the pillow to help control acid reflux during the night which can lead to esophageal cancer.

With its English language, common law tradition, private property rights and abundant natural attractions it is easy to see why people from the U.S., Canada and the U.K. see Belize as a lateral move.

The invention was featured on American Medical Review with Walter Cronkite. She says her move to Belize from Florida was “a lateral move.” As a Floridian I feel the same way. With its English language, common law tradition, private property rights and abundant natural attractions it is easy to see why people from the U.S., Canada and the U.K. see Belize as a lateral move.

As a British Commonwealth country, Belize has always attracted visitors and expats from the U.K. One such adventurous soul is Mick Fleming, the owner of Chaa Creek, which is a spectacular rainforest resort on the banks of the Macal River. The Belize story of Mick and his wife Lucy is a fascinating tale of two eco-travelers who met picking apples in the U.K. On February 11, 1977, well before ecotourism was popular, they arrived in Belize with the clothes on their backs, two bags and $600.

In Belize City they hitched a ride in an old beat up Land Rover to the Cayo District, home of the Maya Mountains, rainforests and farm land. They fell in love with the area and rented a place in San Ignacio. The small amount of money they brought soon ran out, so they went to work at a farm picking beans for $40 a week. A short time later they met an Englishman who had retired from the R.A.F. and owned 137 acres on the outskirts of Cayo.

They agreed to rent it with an option to buy. After backpacking miles into the jungle they found the property which had a little wooden cabin, but everything else was completely overgrown. Undeterred, they unloaded all of their worldly belongings which now included the two bags, a foam mattress, a cooker, a saddle, a rake and a shovel.

They cleared an area for a small farm and began growing vegetables that they transported by canoe via the Macal River. Mick remembers feeling like a rich man one day when he sold a load of squash pumpkins for $90.

In 1981 they purchased the property and began getting visitors in increasing numbers. Their produce business only made about $30 per week, so the visitors, who were mostly family and friends, knew that they had to pitch in around the farm and pay their own way. That led to building a cabana with a thatched roof, tasiste walls (palm trunks) and a dirt floor.

That was the beginning of Chaa Creek and today they have several luxury cabanas, a restaurant/bar, a spa, a cascading pool, nature walks, camping sites, equestrian center and more. On the day I went to talk to Mick about this article. He had just come from his farm and he greeted me with a big smile and a handshake that made me realize he is still that adventurous soul that arrived in 1977.

A more recent influx of explorers to Belize is the archaeologists and their students. Excavations of Maya sites have been going on for decades; however, the majority of sites are still buried deep in the rainforest. In 2000, the Government of Belize started the Tourist Development Project (TDP) in order to excavate and consolidate several important Maya archaeological sites. Dr. Jaime Awe, a native Belizean, was called upon to spearhead this program.

Previously Dr. Awe was a professor at the University of New Hampshire and agreed to return to Belize on hiatus. Numerous exciting discoveries were made and the government asked Dr. Awe to become the Director of Archaeology. He agreed, and since then has been the guiding force behind all archaeological activity in Belize and has brought the significance of the Maya in Belize to a global audience. He has appeared on the History Channel, Discovery Channel, BBC, Australian TV and several other broadcasts around the world. Dr. Awe is a good example of a Belizean who has lived and studied abroad then returned to contribute to the development of his country.

One of the best ways to introduce the world to Belize is through education. Therefore, Dr. Awe actively promotes the BVAR (Belize Valley Archaeological Reconnaissance) Project to several universities and international programs. The project, which has attracted 1,000’s of professors and students to Belize, gives the participants an opportunity to learn about a new culture while getting real world field experience.

In 1999 an inspired student, Mat Saunders, from the University of Kentucky came to Belize for a month on an archaeological mission and has been coming back ever since. Between 2000 and 2003, Mat worked as part of the staff at a site called Pook’s Hill. For the following three years Mat continued to return each year while he began his career as a high school teacher in Palm Coast, Florida. The great experience he had under the guidance of Dr. Awe led him to establish a one of kind program for high school students that includes an accredited archaeological class and a summer trip to Belize.

When Mat first approached Dr. Awe with the idea of involving high school students, the doctor was a bit skeptical; but after the pilot program in 2006, which included four high school students, he was convinced. These summer trips are now full of energetic and bright-eyed young students. Of course, the most enthusiastic of the group is still Mat, who told me, “Phil, Belize is life-changing.” Mat continues to expand on his vision by working with other inspired archaeologists like Jim Pritchard.

Together they host an annual event in Flagler County, Florida called the Maya at the Playa which attracts some of the most renowned Maya archaeologists in the world. After spending a week with Mat, Jim and their students I have already marked my calendar for the first weekend in October so I can take my high school aged daughter to the seminars and beach parties in Palm Coast.

Last night I attended a lecture that Dr. Awe gave to the students and afterwards we sat down with Mat and Jim and talked about the success of their program and I told them how much their enthusiasm has inspired me. As a land planner and development consultant in Belize I always look for the appropriate context for my projects.

My belief has always been that for a community to be sustainable and timeless, it must be grounded in the classical nature of its surroundings.

We talked about how the Maya used the clues from nature, known as Sacred Geometry, which the Egyptians, Greeks and Romans used to create their classical architecture. When I began my project, Orchid Bay, in northern Belize it was an essential part of my vision to incorporate several Belizean influences including Mayan, Spanish Colonial and British Colonial. My belief has always been that for a community to be sustainable and timeless, it must be grounded in the classical nature of its surroundings.

My approach to development in Belize is alive and well in Orchid Bay and is embraced by all of the people involved in building this new Caribbean town. From the very beginning my good friend Brent Shumaker, a site engineer from Arizona, has been guided by that vision. He and his wife Cary are another example of the latest ex-pats to move to Belize.

The tropical lifestyle suited them from the very beginning so they shut down their company in Arizona and moved to Belize. Another great couple you will meet in northern Belize is Bill and Jenny Bellereau. They arrived four years ago and after Bill hacked his way through about two miles of bush he found a tranquil bay-front property where he pitched a tent and began building an off-the-grid ecolodge named Cerros Beach Resort. He and Jenny now live comfortably on the Bay of Chetumal and provide Orchid Bay owners and guests with what the Lonely Planet Travel Guide has proclaimed to be the best ceviche they have ever had (not to mention the decadent chocolate cake).

I have not met everyone in Belize yet, but every time I am there I meet more interesting people. My friend Dan Silva, who I have written about in previous articles, was one of the first people I met in Belize and if there is anyone that has met everyone in Belize, it would be him. His family immigrated to Belize in the late 1800s and now he owns and operates a successful resort, Cahal Pech Village Resort. Prior to that he spent over 30 years serving his country in government, including a time as Minister of Agriculture.

Before I knew about his resume we became fast friends and shared many common interests. For example, Dan went to college in Michigan, where I spent my childhood. Also, we both love a good road trip. We have driven from the States to Belize, which was great, but the best one was when we flew to Guatemala, spent a day in Antigua and then drove 10 hours back to Belize.

The architecture in Antigua is something that I have always wanted to see and it was truly inspirational. Dan still ribs me about the time I had him touching columns in the classical city. I was explaining to him that the classical Ionic and Corinthian columns were inspired by the goddess Diana and the Princess of Corinth. He agreed that the architecture was beautiful but when we touched the cold stone columns we laughed about what the Greek women of antiquity must have been like.

It was at that time that we started talking about his family farm, Carmelita and how classical references also exist in Belize and should be incorporated into a plan to develop his 400 acres on the Belize River. Carmelita is one of those soulful places that include Maya mounds and a special Belizean family history. We are now working on a master plan for the property that will be guided by the regional influences. With the agricultural history of the area, the plan will include organic gardens, small farms and greenways.

These are just a few of the planning principles behind “New-Ruralism,” which, along with archaeological references, are the major inspirations for the river front community of Carmelita.

At Carmelita, as in Orchid Bay, it is imperative to work with good people. Recently I was introduced to another Belizean expat, except this time he was not a gringo transplant. He came to Belize from Guatemala when he was eight years old in order to escape the conflict in his country. That was in 1983, and since then my friend Erix Tobar has done the unthinkable. The Guatemalan immigrant settled in Spanish Lookout, a Mennonite community, and started out as a laborer for a Canadian timber company working in the jungle, sawmill and lumberyard.

For someone that has never had a formal education, Erix has done well for himself. After 20 years of doing hard, backbreaking work, Erix started his own company to move houses. In 1999, Erix expanded his business to include building homes and now his company is a one-stop shop that includes a saw mill, lumberyard, home building, cabinet making and furniture manufacturing. Like so many Belizean stories, his includes a funny aside. Not long ago he built a home for someone who did not pay and in order to reconcile the debt the homeowner gave him a bar in San Ignacio which is now the most popular hangout in Cayo. He laughs about where he started and how his hard work has led to so many unexpected opportunities.

There are several more friends that I could write about; however, I would rather introduce you to them in person. Once you arrive in Belize be ready to make friends. Hopefully, we will meet over some ceviche and cold Belikin Beers, and you’ll share your story with me. In the mean time, “have a wonderful adventure my friend.”

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Author: Philip Hahn, International Development Consultant and co-founder and Chief Vision Officer for Great Land Holdings has served in various capacities in several real estate investment ventures and has spent 20 years in the area of designing, building and developing properties, including over 6,000 homes in the Southeastern USA. Orchid Bay, a 115 acre New Urbanism community.

At Orchid Bay, Phil combined his experience with quality coastal home design with his love of classical architecture to create an evocative new Caribbean town. He has spent much of the past six years in Belize, building relationships within the Belize business community and government. These relationships help ensure that the communities he designs have the infrastructure support and sustainability required to protect homeowner’s investment.

As witnessed in his development at Orchid Bay, Belize, he is committed to preserving the environment and culture of this unique region. Phil’s talents extend beyond those of a developer or designer; his passion and respect for people, history and lifestyle inspire him to create beautiful enduring homes and communities.

EDUCATION BRINGS HOPE, AMONG THE RUINS OF HAITI

The Haiti Education Foundation provides kindergarten through high school instruction to over 10,000 students throughout the mountain villages of southern Haiti.

In contrast to the bloated government programs which prop up the local ruling class and fail to solve the problem being nominally addressed, the Haiti Education Foundation is cheaply and effectively educating children in the poorest country in the Western Hemisphere: Haiti.

Charities in the U.S. have started to routinely offer the statistic of what percentage of a donor’s dollar goes to the cause being served, as opposed to going to fundraising and administrative overhead. The HEF number is 100%. Those who think you can do better than that should take up sales, but not mathematics, as Warren Buffett once advised in another context. A nice story.

As daylight breaks, children dressed in yellow and white gingham uniforms with book bags of every shape and size appear on roads and trails throughout the Grand Colline Mountains of southern Haiti. Some walk hand in hand, laughing and talking as they journey to school. Haitian teachers await the children’s arrival. Assignments and class information fill the chalk boards lining the walls of the classrooms. Some arrive to a six or eight room building constructed of concrete while others attend schools built of banana bark and tin. Regardless of the structure, one thing is certain; the children have come for a purpose – Education. In a country where the literacy rate is 45%, and where public education is dysfunctional, the opportunity to learn is a privilege. Today, the Haiti Education Foundation (HEF) provides kindergarten through high school instruction to over 10,000 students throughout the mountain villages of southern Haiti.

It all began thirty-two years ago, when at the age of 60, Frances Landers began traveling with her husband, the late Dr. Gardner Landers, an Ophthalmologist, to a hospital in Haiti where he performed cataract surgery on many Haitians who were needlessly blind. Frances met Father Jean Wilfrid Albert, an Episcopal Priest serving as hospital chaplain, who told her how desperately the children of Haiti needed education. He drove Frances to a small village where Voodoo was practiced and there were no schools ... and life was being lived among the ruins. The poverty stricken children, with bloated bellies and blank stares roamed around aimlessly.

After seeing the hopelessness in the children’s eyes, Frances came back to her hometown, El Dorado, Arkansas, determined to help. Armed with photographs and the goal of raising enough money for one school for 400 children, Frances asked for help from her church, family and friends. Thus, the first school and church at Mercery, Haiti was established in 1981. Upon her return to Haiti, Father Albert showed Frances the new facilities. She watched as many of the children walked miles to school. She saw the students’ smiling faces as they proudly sat in their desks with Bibles and textbooks. Frances hoped that someday, these children would be able to read their Creole Bible to their parents. Believing that her work had been done, Frances returned to the United States. However, this was only the beginning.

100 cents on the dollar goes for education, with nothing taken out for operating expenses.

The Haiti Education Foundation was established specifically to provide education to the children in the mountains of southern Haiti at the mere cost of $55 per each yearly scholarship. 100% of all donations go to Haiti as designated by the donor, with nothing taken out for operating expenses.

For over 25 years, Frances has worked tirelessly raising funds to insure that the children of Haiti would receive their education. That education brings HOPE to countless students across the region. She has also worked diligently to communicate the needs of the children and of the schools they attend. People have responded in a number of ways. Many send regular contributions to support the Haiti Education Foundation’s main focus, the scholarships, and other needs of the school children. Some churches and organizations have adopted schools or developed mission teams to provide services.

A minister from North Myrtle Beach, South Carolina, has led groups over twice a year for the past six years. The focus of his groups has been medical in nature. Recently, his teams were involved in the distribution of reading glasses and sunglasses to older members of the school community. While the villagers were lined up to be fitted, the school children were treated to a showing of the Jesus video in Creole. Following the video, the students were given cross necklaces and played outside with the members of the mission team. The villagers finished out the visit by preparing a meal of beans and rice and fresh fish in appreciation of the mission team’s visit. The team visits three to five schools on each trip to Haiti.

An Episcopal church in Macon, Georgia, has adopted the St. Marc church and school in Trouin, Haiti. The American parishioners have raised some of their funds for this project by selling Haitian coffee to their membership. They fund the feeding program at the school and provide extra teacher training for the staff. In addition, they have helped the women of the Haitian church organize the Daughters of the King program. This group encourages the women in their faith and sees to the needs of the church. The group has grown and now other congregations have requested help in implementing the program in their church. Mission groups involved with water purification, such as Living Waters of the World, and solar power have volunteered countless hours to help better the lives of the Haitians. Many have come together to work in all aspects of life in this poor and, by some accounts, forgotten country.

There is an incredible resiliency in the faces of the people of Haiti.

The affects of the 2008 hurricane season are still evident in Haiti. Mountain side streams that once only spanned a few feet are now laden with a bed of rock a quarter mile wide. Many road ways are washed out – some four feet lower than they were only months earlier. Debris from destroyed houses lines the washed out roads. But, as always, and as we have always seen, there is an incredible resiliency in the faces of the people of Haiti.

The markets are full of produce and goods. Mangos, grapefruits, papayas and other fruits fill the baskets of the vendors. Beans, corn and bags of rice also line the market streets. Women carry chickens and turkeys, bound in baskets, into the crowd to trade. Homemade lye soap, shoes and clothing are displayed in booths. As one travels through the mountainside, farmers are seen working their fields. Animals graze along the roads as well as in small pasture areas. A Haitian translator commented as a group looked in disbelief at the incredible amount of rock that had tumbled into the valley from the cliff above, “At least the people will not have to carry the rock down the mountain to reconstruct their houses. ... It has been delivered for them!” And so, one way or another, life is moving forward.

Haiti Education Foundation students are about to complete another school year. The beginning was rough ... but just as the community has moved on, so have our teachers and students. Despite damages to all of our school structures, principals and priests have worked to insure that the children have a place to attend school.

Immediately following the storms, school faculty met to dry out wet books and gather salvageable supplies. People from the school villages came together to help clean debris from the schools sites and to set the rooms back up for classes to begin. Funds donated for hurricane damages were sent over to make repairs that the people could not provide. We continue to work with our Haitian counterparts to repair the damages so that all will be ready for school to begin again in September.

In late April, I traveled to Haiti with a group of five, two from my home state of Arkansas and two from South Carolina. My Arkansas buddies had never been to Haiti, so it was wonderful to be with them as they saw the schools for the first time. We stayed at the Guest House in Cherident and were able to visit with the priests, Pere Vil and Pere Desire and also attend church with them on Sunday. New bathroom facilities are being constructed at St. Matthias (the school) and the project is looking very good.

From Cherident, we traveled to the Jacmel area on the southern coast. We visited four HEF schools in that area; St. Esprit at Marigot, Transfiguration at Duvillion, St. Thomas at Lavaneau and Christ Roi at Monchill. The children were all doing very well, as were the teachers. There is just nothing more exciting than visiting these classrooms!

The equipment and supplies are extremely simple ... no computers or white boards ... yet as long as class is in session, every eye is on the teacher! The children are like little sponges ... soaking in all that they can learn. I want to share with you an article that John Lowery, Student Ministry Director at First Presbyterian church wrote for the church newsletter.

As we look to the future, we continue to be inspired by the huge potential that education brings to the youth of Haiti. The main focus of the Haiti Education Foundation continues to be raising $55 scholarships for our 10,000 plus students. Not only do the children benefit from learning to read, write and compute math, the Haitian teachers and staff are given the means to provide for their families. An additional area of expansion to our program is in the area of nutrition. While most families are able to provide food for their children, we realize that it is a struggle. We also know that it is very hard for the students to concentrate on learning when hungry.

The Episcopal priests in charge of our HEF schools have established that for 0.25 cents per day, a Haitian child can be fed a nutritious meal. That is only $5.00 per month or $60.00 per year. We have often seen the children eat what they want and then pass the rest to a parent waiting with a younger child. The affects of this nutrition program are far reaching!

We have all asked ourselves, “How can I possibly make a difference in someone else’s life, especially in a place where the needs are so great?” This is how – Give with confidence! The Haiti Education Foundation is a 501(C)(3) organization that gives 100% of every donation as designated by the donor.

There are no overhead expenses deducted from your gift. If you give $60.00 to feed a child, a child will be fed! If $550.00 is given to educate 10 children, ten children will be educated. It is that simple. Join us in making a difference in the life of a child. EDUCATION brings HOPE.

RENEWABLE ENERGY EFFORTS IN THE CARIBBEAN

Without exception, Caribbean islands are ideally suitable for wind and solar energy. The high cost of oil in the Caribbean causes a break-even point for individual solar PV owners at around $80 to $90 per barrel; windmills have a break-even point of between $48 to $80.

The Caribbean features constant sun and wind and expensive hydrocarbon energy – a salubrious combination for sun- and wind-powered energy. The region is also not short on poverty, which means that people who cannot pay for heating oil, gasoline and electricity might not be able to pay for the electricity that would support a sun- or wind-powered electrical power plant. Potential obstacles such as real world economics and financing constraints notwithstanding, the projects keep coming.

Here is the latest on renewable energy projects in the Caribbean. Those with strong handyman/DIY talents have many small scale options for the home.

There are a variety of different types of renewable energy in the Caribbean and this article gives the status on each. After an overview, including a summary on the most promising ones, a status is given per renewable energy type as well as per island. Finally, a technology update is given per type of renewable energy including amazing developments in wind and solar energy for home use, even DIY.

Overview

Without exception, Caribbean islands are ideally suitable for wind and solar energy as the wind regime is favorable and the sun shines bright every day. While solar photo-voltaic systems require subsidies to be applied in western hemispheres, the high cost of energy in the Caribbean causes a break-even point for individual solar PV owners at around US$80 to $90 per barrel of oil. Windmills have a break-even point of between US$48 to 80 in the small/mid-range category.

In June 2008, the oil price exceeded US$140 US per barrel, while in December 2008 the oil price was below $34 per barrel. In June 2009 the price was over $70 per barrel. Once the economy recovers, is there any doubt the oil price will again surpass this level?

The oil price is no longer the big issue, but financing is now the bottleneck.

Clearly, wind energy can provide a substantial monetary and energy savings to the Caribbean. So, why did the many initiatives presented last summer not come to fruition? The answer is two-fold: the plummeting oil prices and the availability of financing. The oil price is no longer the big issue, but financing is now the bottleneck. Even in North America, with a substantially lower energy cost, the trend of home owners buying a new generation of small, super-quiet windmills is rising fast. This means higher production volumes, which in turn generates more competition.

Without net metering, windmills will not be a viable option in the Caribbean.

In 2008 a typical home windmill sold for US$3,500 – now the latest “out of the box” windmill is scheduled to go on sale for less than $2,000 through the use of wide-spread U.S.-based hardware distribution chains. For wind energy to become a widespread success in the region, Caribbean-wide legislation that enforces net metering will be required. The net metering will ensure that the electricity user is charged for the difference between used and supplied energy. Without net metering, these windmills would not be a viable option in the Caribbean. Fortunately, there are some positive exceptions in the region, such as in Grenada, where the local utility, Grenlec, has provided net metering (up to 10 kW renewable energy systems, which covers the home market) as well as rules and contracts that are easy to understand and work with.

At the low end of the market, engineers now offer DIY designs for small scale wind and solar systems. While the yield of these systems is not high, the cost of materials, thanks to the use of recycled materials, is range in the few hundred U.S. dollar bracket (base: North American conditions). For typical North American households, these systems would only provide a fraction of their energy use. In the majority of Caribbean homes, the energy demand is typically limited to lighting, a refrigerator, washing machine, iron, TV and stereo set. Practical recycling is common practice in the Caribbean. For instance, many people use ovens made of used drums and barbecues constructed from worn gas bottles – noted examples of the creativity of the Caribbean people. Add to this the fact that these DIY recycled-based designs are so affordable, even for the average Caribbean family, that they may gain rapid popularity in the Caribbean (see link to more information at the bottom of this article).

Once financing is available every utility company should provide their customer base with affordable energy prices. One way those companies can take action is to install wind parks, currently the easiest and most sure way to substantially reduce the price of electricity. If these companies do not adopt these measure, we may experience the same situation as in the Summer of 2008, when there were demonstrations, even riots, against the high cost of energy. It certainly is not in the best interest of the utility companies to be confronted with a growing number of consumers that cannot pay their bill anymore either as this causes financial losses or disconnections. Usually it is both, as many people who are in arrears cannot settle their account, and after being disconnected, they simply give up. ...

The typical lifetime of a windmill is 25 years, so the windmills from upgraded wind parks should be ready for a second term. In this respect it should be mentioned that after around 12 years a major revision is normal, whereby all parts subject to wear and tear are completely and routinely overhauled. Clearly, it makes a lot of sense to perform this prior to re-installing the windmills. However, most second hand windmills are sold “as is” and as many buyers are unaware of the need for revision; this has led to installations in third world countries, requiring excessive maintenance and reduced availability.

A company in the Netherlands has specialized in supplying and installing revised windmills and even offers full warranty and the option for all-inclusive maintenance contracts. This is clearly the safer way to go, especially since they have – and that is hardly a coincidence – experience installing windmills and wind parks in “difficult” markets. As the installed cost of a used, completely overhauled windmill is around 40% of a new windmill, one needs little imagination to understand that this is a very cost effective solution – and everybody in the renewable industry knows this.

There are two options on how the revised windmills can successfully be installed:

(1) At electricity consumers who are connected to the grid and sell their excess energy to the grid. Even when the utility companies are not prepared to pay a reasonable price for the excess energy (mandatory in most of the Western world) this is still an attractive arrangement for the power hungry electricity user. In cases where the cost of energy is a substantial percentage of total operating cost it may even mean the difference between sustainable operation and losing the competitive battle of not being able to compete in the international market.

The utility companies do not welcome this option as much, as they see it as a customer give away. When the utility companies accept the interconnection of third party utility-class windmills, and buy excess energy at substantially reduced prices, they at least make the first move to reduce the cost of electricity, which will become more and more significant when the oil price increases further.

When the companies cooperate with private initiatives to install windmills at power users, they will give a signal to the market that they are operating out of good will. Legislation seems to be the only remaining option to make this happen, like in the Western countries when this happened 20 years, or more, ago – as this was the only option when there is no cooperation. This legislation is already designed for all CARICOM countries, but Dominica seems to be the only island that implemented this properly and has a functional regulatory body.

(2) In wind parks installed on the imitative of the utility companies or by investors with a Power Purchase Agreement. In Grenada for example, where the local utility is owned by a parent company with staff experienced in wind energy, a utility company-owned wind park is the current objective. This approach also has the advantage in that the utility company has direct control over the technical integrity of the grid. Considering the worst case scenarios of highest wind and lowest electricity usage, as well as the influence on the grid due to sudden peaks caused by wind gusts (the larger the wind participation is in the total energy situation) provide sensible arguments to have experienced utilities companies the proper control over larger wind parks.

With the same justification, the effect of small wind farms is less significant. It is therefore a wise choice to start with a limited approach, i.e. by installing a wind park of 3 MW using fully reconditioned windmills from upgraded wind parks, rather than going “all the way,” i.e., 8 MW in a grid with a base load (minimum usage at all times) of 16 MW. The first solution is an off the shelf routine project compared to an engineering project requiring significant measures that will likely include stabilisation measures that are far from routine.

With the investment being far lower, and to be written off well before the end of the wind park’s lifetime, the financing is much easier. The cost per kWh (kilowatt hour, also referred to as unit cost) is competitive even with much larger, and new windmills, even considering that in wind energy “bigger is better (cheaper).” ...

Status of Wind Energy Projects in the Caribbean

Several plans for wind farms in the Caribbean are either in a preliminary stage or may exist, but are less publicly known. The following status report reflects actual, concrete situation in which wind energy is or is being installed:

A successful example of a gradual approach is the soon to be installed first two windmills in Puerto Rico, each being 250 kW. The company has a well defined strategy for gradual expansion.

In the Dutch Caribbean, Curacao leads the pack with a 9 MW wind park, consisting of 18 500 kW turbines, installed by Delta Caribbean. Plans for expansion are in execution.

In the French Caribbean, on the island of Guadeloupe, windmills have been introduced years ago and – thanks to the active involvement of and subsidies by the French government and support by the local utility company, Guadeloupe is now the undisputed wind energy pioneer in the Eastern Caribbean Centrally located in the hurricane zone, special versions of existing wind tower designs by French vendor Vergnet were developed that can be quickly taken down in case of a hurricane. For windmills of 275 kW this is certainly a primeur. It was therefore quite appropriate that a Renewable Energy Mission of June 2009 was held in Guadeloupe.

In Jamaica, 23 windmills were installed of each 900 kW, therefore totaling 21 MW, the biggest installed base in the biggest Caribbean island, supplied by NEC/Micon a former Dutch vendor. Plans for expansion are announced.

The first utility-class windmill (80 kW) in CARICOM was placed at Paradise Bay Resort in Grenada, owned by the author of this article supplied by Dutch vendor Wind Energy Solutions.

The second windmill to be installed in the CARICOM is in the final stages of installation at the Rosalie Bay Resort in Dominica, a 225 kW refurbished windmill supplied by Danish vendor Norwin.

Delta Caribbean is also in the implementation stage of a 13.5 MW wind farm in British Guyana, while plans are in the works for a 20 MW wind farm in St Croix and a 10 MW wind farm in Bonaire.

Geothermal Energy

West Indies Power, a Netherlands Antilles company is the Caribbean pioneer in geothermal energy. In Nevis, a geothermal plant is in implementation while a plant in Dominica is in preparation. Geothermal energy is one of the more ideal forms of green energy with the remark that it is claimed, there is no endless (however substantial) supply and can therefore, not be formally classified under renewable energy. The good thing about geothermal energy is that the supply is virtually constant and is therefore ideal to cover a nation’s base load (the minimum needs) and potentially neighbouring islands. Geothermal plants have a very long lifetime expectancy, however, the latest technology’s lifetimes are, understandably, not yet practically proven.

Unfortunately, geothermal energy is only possible in those countries with a relatively thin crust, and hence a close distance to hot magma. A typical geothermal plant inserts water and gets it back as steam; this also explains why the distance to the magma is of decisive importance. The cost to do test drilling is significant and are therefore only performed in countries with a high success probability. In addition, the capital investments are of a major magnitude.

Hydro Energy

The country with the best cards on hydro energy is British Guyana. Sources claim that the country could easily supply neighboring countries. But, hydro energy also involves significant investment and infrastructural measures such as flooding large areas to create reservoirs. In a lesser magnitude than geothermal energy, because of differences in rainfall, hydro energy also features a reliable and stable supply, and is therefore great to use as the supply of a base load, which is a significant asset. Besides Guyana, Cuba and the Dominican Republic have proven hydro potential, while more countries are likely to be added to the list. Dominica has a 50 year old hydro plant run by the local utility company, Domlec, on a smaller scale of 5 MW; However, plans for expansion are under way.

Solar Energy

Although the cost of solar PV has come down tremendously over the years, thanks to subsidising in Western countries, and therewith supporting lower cost by economies of scale and large R & D efforts, solar PV is not yet a mainstream renewable energy source, but has proven to be very effective in smaller scale projects, in particular where no grid power is available.

Another form of solar energy is the solar water heater, which has proven to be a highly efficient and reliable form or renewable energy. Caribbean market leader Solar Dynamics produces solar water heaters in Barbados. Other forms of renewable energy are not seen as being of importance to the Caribbean within the foreseeable future.

The Do It Yourself Renewable Energy Systems – that may well be a great option for Caribbean handymen – are accessible via http://tinyurl.com/Renewable-Energy-DIY and are certainly worth looking into.

ONLINE POKER PLAYERS FUND SEIZURE HEARING SCHEDULED

A poker pot for a set of online games held in two U.S. banks has been seized by the federal government, but no criminal or civil action, including forfeiture, has been initiated with regard to the seizure. Moreover, while the seizure allegedly occurred due to Illegal Gambling Business Act infractions, the funds escrow agent, Account Services, maintains in a motion that “Neither Account Services, the operators, nor the individuals whose funds have now been seized violated [the Act]. Thus, the Government had no legal authority to seize the funds in question ...” Not that legal technicalities such as those issues ever get in the way of a good seizure by the U.S. feds. A favorite M.O. is to wear down the aggrieved party until he/she agrees to let the feds keep a share in return for getting the rest back. Lesson: Use offshore poker sites with offshore financial accounts.

However, the bulk of the arguments that will be advanced in favor of setting the funds free will be along the lines that poker is a game of skill, not chance, and therefore that no anti-gambling statutes could have been violated. In fact a study which found that only a quarter of all games resulted in players actually showing their cards, and in only half these cases did the best hand win, appears to demonstrate exactly that. The process of betting and bluffing was instead the dominant poker motif.

We are quite sure there is a lesson about life in that. Rather than try to figure it out we will leave you with this snipet of dialog from the W.C. Fields/Mae West classic My Little Chickadee: Potential game partner: “Is this a game of chance?” W.C. Fields: “Not when I play it!”

A hearing involving the seizure of $14 million in online poker players’ funds from payment processor Account Services will take place on Friday, August 21st ... The location: the United States District Court for the Southern District of California.

The hearing for return of property, namely over $14 million in online poker funds, was originally scheduled for Friday, August 14th ... However, it has now been pushed back one week. In addition, the motion filed by the 1.2 million member strong Poker Players Alliance (PPA) to submit an amicus brief has been accepted. The Southern District’s memo reads, “The court has considered the application of third-party Poker Players Alliance to appear in this matter as amicus curiae in support of Movant Account Services Corporation.” The PPA must file its amicus brief by August 7th, one week before the hearing.

Looking forward to the Accounts Services hearing four weeks from now is PPA Executive Director John Pappas, who told Poker News Daily, “This is a very important hearing. The PPA will be submitting an amicus brief for it and will be available to testify as well. We think that the arguments outlined in Account Services’ brief are excellent and should prevail.” The PPA is fresh off holding a wildly successful National Poker Week and Fly-In event in Washington, D.C. Over 100 meetings with lawmakers and their staffs were held to push for the legalization of online poker in the United States.

Poker is a game of skill, not gambling.

The PPA’s brief will focus on why poker is a game of skill. When asked why that point was important to convey, Pappas explained, “Under most state laws, the predominance test is applied. The test would say that gambling statutes do not cover games predominantly of skill. If we can get that adopted on a national level, it would be a very significant move.”

The PPA’s brief will likely focus on a December study by Cigital and PokerStars revealing that, out of 103 million cash game hands studied on the world’s largest online poker site, 3/4 did not go to showdown. Instead, the process of betting and bluffing took down pots. Of the remaining 25% of hands, only half were ultimately won by the player holding the best five card poker hand. In other instances, players folded the best hand prior to showdown.

The funds in question were held in a Union Bank branch in San Diego and a Wells Fargo branch in Escondido. The latter funds were seized on June 2nd, while the Union Bank assets were not seized until 10 days later. The Account Services motion for return of property states, “The warrant [for Union Bank] was issued 12 days after the seizure, on the basis of an affidavit filed under seal by Dana Conte, Special Agent of the Federal Bureau of Investigation. The affidavit remains under seal. As of the date of this filing, no criminal or civil action, including forfeiture, has been initiated with regard to this seizure.”

Account Services had checks on-hand for 13,800 online poker players totaling over $14 million. The seizure allegedly occurred due to Illegal Gambling Business Act infractions. Account Services’ motion explains, “Neither Account Services, the operators, nor the individuals whose funds have now been seized violated [the Act]. Thus, the Government had no legal authority to seize the funds in question and this Court should order the seized property returned.”

Today (July 27), attorneys for Costigan Media (the parent company of Gambling911) and the Southern District Court of New York will debate whether the warrants and affidavits used for the online poker funds seizures should be unsealed.

FISCAL RUIN OF THE WESTERN WORLD BECKONS

For a glimpse of what awaits Britain, Europe, and America as budget deficits spiral to war-time levels, look at what is happening to the Irish welfare state.

“Celtic Tiger” Ireland was a poster child for the beneficial effects of deregulation and low taxes. The country also turned out to be poster child for the dangers of riding a different kind of tiger – the flows of international “hot money” whose sudden reverse-flow knocked the Far East economies for a large loop in the late 1990s.

Even more so now than a decade ago, much of this hot money was thin-air bubble credit. With the deflation of the credit bubble Ireland has been hit very hard, even absent any doubts about Ireland’s basic economic model. Ambrose Evans-Pritchard notes that two sets of emergency budget cuts, which have resulted in “the harshest assault yet seen on the public services of a modern Western state,” have failed to stop the Irish government’s budget deficit from soaring.

While Ireland is floundering about looking for a solution, Evans-Pritchard notes that the U.S. and other demographically aging OECD countries are truly in worse straights in the long run. They do not have the tailwinds of a young population as Ireland does. So what is the appropriate policy response by the senescent Western states?

Evans-Pritchard recommends tight fiscal policy – spending cuts and more spending cuts – and loose monetary policy. We certainly agree this makes a lot more sense than the current policy of very loose fiscal policy and occasionally tight monetary policy to try and keep everyone bamboozled about the inflationary consequences of the former. It reduces the deadening percentage of government spending relative to the whole economy and thus makes room for much needed investment in rebuilding the capital stock. But why (assuming the ruinous Federal Reserve is sticking around for a while) purse an inflationary monetary policy at all? Inflation is the enemy of long-run planning and thus investment. The benefits of loose money are not explained.

Events have already forced Premier Brian Cowen to carry out the harshest assault yet seen on the public services of a modern Western state. He has passed two emergency budgets to stop the deficit soaring to 15% of GDP. They have not been enough. The expert An Bord Snip report said last week that Dublin must cut deeper, or risk a disastrous debt compound trap.

A further 17,000 state jobs must go (equal to 1.25 million in the U.S.), though unemployment is already 12% and heading for 16% next year.

Education must be cut 8%. Scores of rural schools must close, and 6,900 teachers must go. “The attacks outlined in this report would represent an education disaster and light a short fuse on a social timebomb,” said the Teachers Union of Ireland.

Nobody is spared. Social welfare payments must be cut 5%, child benefit by 20%. The Garda (police), already smarting from a 7% pay cut, may have to buy their own uniforms. Hospital visits could cost £107 a day, etc, etc.

“Something has to give,” said Professor Colm McCarthy, the report’s author. “We are borrowing €400 million (£345 million) a week at a penalty interest.”

The deeper truth is that Britain, Spain, France, Germany, Italy, the U.S., and Japan are in varying states of fiscal ruin, and those tipping into demographic decline (unlike young Ireland) have an underlying cancer that is even more deadly.

No doubt Ireland has been the victim of a savagely tight monetary policy – given its specific needs. But the deeper truth is that Britain, Spain, France, Germany, Italy, the U.S., and Japan are in varying states of fiscal ruin, and those tipping into demographic decline (unlike young Ireland) have an underlying cancer that is even more deadly. The West cannot support its gold-plated state structures from an aging workforce and depleted tax base.

As the International Monetary Fund made clear last week, Britain is lucky that markets have not yet imposed a “penalty interest” on British Gilts, given the trajectory of UK national debt – now vaulting towards 100% of GDP – and the scandalous refusal of this Government to map out any path back to solvency.

“The UK has been getting the benefit of the doubt, both in the Government bond market and also the foreign exchange market. This benefit of the doubt is not going to last forever,” said the Fund.

Italy’s debt is expected to reach the danger level of 120% of GDP next year.

France and Italy have been less abject, but they began with higher borrowing needs. Italy’s debt is expected to reach the danger level of 120% next year, according to leaked Treasury documents. France’s debt will near 90% next year if President Nicolas Sarkozy goes ahead with his “Grand Emprunt,” a fiscal blitz masquerading as investment.

There was a case for an emergency boost last winter to cushion the blow as global industry crashed. That moment has passed. While I agree with Nomura’s Richard Koo that the U.S., Britain, and Europe risk a deflationary slump along the lines of Japan’s Lost Decade (two decades really), I am ever more wary of his calls for Keynesian spending a l’outrance.

Japan’s string of make-work stimulus plans – famously building bridges to nowhere in Hokkaido – has ensured that the day of reckoning will be worse, when it comes.

Such policies have crippled Japan. A string of make-work stimulus plans – famously building bridges to nowhere in Hokkaido – has ensured that the day of reckoning will be worse, when it comes. The IMF says Japan’s gross public debt will reach 240% of GDP by 2014 – beyond the point of recovery for a nation with a contracting workforce. Sooner or later, Japan’s bond market will blow up.

Error One was to permit a bubble in the 1980s. Error Two was to wait a decade before opting for monetary “shock and awe” through quantitative easing.

The U.S. Federal Reserve has moved faster but already seems to think the job is done. “Quantitative tightening” has begun. Its balance sheet has contracted by almost $200 billion (£122 billion) from the peak. The M2 money supply has stagnated since January. The Fed is talking of “exit strategies.”

Is this a replay of mid-2008 when the Fed lost its nerve, bristling over criticism that it had cut rates too low (then 2%)? Remember what happened. Fed hawks in Dallas, St Louis, and Atlanta talked of rate rises. That had consequences. Markets tightened in anticipation, and arguably triggered the collapse of Lehman Brothers, AIG, Fannie and Freddie that Autumn.

The Fed’s doctrine – New Keynesian Synthesis – has let it down time and again in this long saga, and there is scant evidence that Fed officials recognize the fact. As for the European Central Bank, it has let private loan growth contract this summer.

The imperative for the debt-bloated West is to cut spending systematically for year after year, offsetting the deflationary effect with monetary stimulus. This is the only mix that can save us.

My awful fear is that we will do exactly the opposite, incubating yet another crisis this autumn, to which we will respond with yet further spending. This is the road to ruin.

THE RETURN OF MERCANTILIST THOMAS MUN

China’s recent announcement that it would use its $2 trillion of foreign reserves to boost its companies overseas acquisitions tells us that its economic beliefs are neither those of Adam Smith, nor of Karl Marx, but of the 17th Century mercantilist Thomas Mun.

In today’s history lesson, Martin Hutchinson notes the amazing small gap between the economic advice of Thomas Mun and the actual practices of modern China. Do such practices make any more sense now than they did when the Adam Smith revolution overthrew the mercantilist ideas? Possibly, says Hutchinson. China may be premature, but if we are destined to run out of cheap oil with no imminent replacement in sight then suddenly the ideas make some sense.

It is becoming clear that in economics, unlike in “hard” sciences, old belief systems never die.

Mun (1571-1641) wrote a classic magnum opus England’s Treasure by Foreign Trade. Published only after his death in 1664, it was nevertheless very influential. Mun had been a Director of the East India Company, and, unlike earlier theorists, believed that foreign trade was beneficial. However he did not hold with any high-faluting nonsense like comparative advantage, or maximization of global economic welfare. For Mun the purpose of foreign trade was to export more than you imported and, consequently, amass a huge store of foreign “Treasure,” which you could then use to found colonies that would take control of natural resources.

To further this objective, countries should: cut back domestic consumption as far as possible; increase the use of land and other domestic resources to reduce imports; encourage the export of goods made with foreign raw materials; and export goods with price-inelastic demand because profits would be greater.

Mun’s theory made sense in the 17th Century economic jungle – and today it obviously makes sense to China. The renminbi, China’s currency, is undervalued, so exports consistently exceed imports. Domestic consumption is kept low and savings high, both of which suppress imports. In industries such as automobiles where consumer demand is inevitable, foreign manufacturers are forced into domestic joint ventures, so that domestic manufacturers can be developed to replace imports. Domestic agriculture and resource extraction efforts are intensive. China has set up free trade zones, in which foreign parts are assembled into goods that are then exported. Finally, the country has amassed a gigantic store of $2 trillion of “Treasure,” which is now to be used to assist in foreign acquisitions. Those acquisitions are not to be on Wall Street, as prime minister Wen Jiabao helpfully explained, but in natural resources, where China can assure itself of exclusive raw materials supplies for decades to come.

It is not often you see an economist’s ideas put into effect with such precision. “Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist” said Maynard Keynes, but he probably did not expect the economist to be almost 370 years defunct, nor the slavery quite so deferential. William Gladstone’s Britain never followed Adam Smith’s theories with such precision. Neither was Clement Attlee’s Britain so scrupulously faithful to the teachings of Keynes himself. Certainly Josef Stalin’s Russia played fast and loose with the teachings of Karl Marx, as did Mao Zedong’s China.

It indeed has to be doubtful whether any member of China’s current State Council has read Mun with any care. Wen himself is a geologist by training. One vice premier, Li Keqiang, has an economics Ph.D., but he got it at Beijing university in the early 1980s, so probably did not have Mun high on his reading list. Two other vice premiers, Hui Liangyu and Zhang Dejiang, have economics first degrees, but Hui got his at Jilin Party Provincial School while Zhang aced the economics syllabus at Pyongyang’s Kim Il Sung University. Neither institution is known as a haven of Mun studies.

The interesting question is not where the Chinese leadership got its exquisite understanding of Mun’s theories, but whether they are likely to work.

Still, to us practical men, the interesting question is not where the Chinese leadership got its exquisite understanding of Mun’s theories, but whether they are likely to work.

For Adam Smith, writing a century later, Mun’s nostrums were clearly inadequate. “If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage,” he wrote. China does not believe this. China preferred to force GM into a joint venture in China that even now, 12 years after the joint venture14s foundation and with Buick sales volume in China higher than in the U.S., makes China’s citizens pay $32,200 for a base model 2010 Buick LaCrosse – 16% more than its U.S. price of $27,835.

The explanation is simple: China’s exporters have government’s ear, not its consumers.

Thus in Smith’s time the ideas of Thomas Mun had come to seem hopelessly primitive. With the supply of natural resources essentially infinite, countries maximized their wealth by exploiting their comparative advantages, whether through cheap natural resources, as in British coal, through high quality agriculture, as in French wines, or through high-level mechanical ingenuity, as in German manufactures. Whether a country ran a balance of payments surplus or deficit was of little short-term consequence, and unless a country ran out of money altogether, “Treasure” was of no consequence at all. It was Smith’s economics that brought the world the Industrial Revolution and the enormous advances in global prosperity that marked the 19th and 20th centuries.

There is, however, some evidence that Smith’s economics are ceasing to work so well, and that we may be re-entering the world of Thomas Mun.

Natural resource scarcity undermining Adam Smith?

The key problem is natural resources. In Smith’s time, with a global population of only 1 billion and little industrialization, the global supply of resources was almost infinite. Today, however, when we have allowed global population to bloat to 6.8 billion, there are signs that the global resources supply may be becoming disturbingly finite. Under Smith’s economics, that is not a problem. If one resource becomes scarce its price rises, and the world switches to an alternative. If, however, we are now dependent on a few critical resources for which alternatives are not readily available, price signals alone may not prevent us from depleting those resources altogether, causing catastrophic disruption to our economic life.

China clearly believes this is about to happen. That is why it is attempting to appropriate control of oilfields, mines and so forth in emerging markets, providing itself with secure sources of supply that will allow its economy to continue to flourish in a world of scarcity. Mun would surely have approved. In the dog-eat-dog world of 17th Century mercantilism, a $2 trillion hoard of “Treasure” would find ready use in such activities, whether through formal colonies, or, as in China’s case, merely through exploitation agreements backed, if necessary, by the People’s Liberation Army.

In reality, China is probably a few decades premature. Oil, the world’s most critical natural resource, is still in ample supply if the price is high enough to bring offshore drilling, oil shale and tar sands into operation. Other natural resources may certainly find their prices driven up by the rapid industrialization of China and India, but there is no sign of their rising prices being due to any absolute global scarcity – not yet.

Nevertheless, over the coming decades we are in danger of reverting to a Thomas Mun world, in which prosperity depends on hoarding sources of natural resources and “Treasure.” That will be a world significantly poorer than our own, in which the price mechanism no longer carries much weight and innovation is stifled by the dead hand of the government bureaucracies that dominate economic life through their direction of nations’ economic policies. While initially a Mun world might survive fairly comfortably, the long-term economic prognostication for it must be truly grim.

There are two possible escapes from this future. One is the 1950s dream of space exploration, in which technology advances to the level where we can garner resources from other worlds, and if necessary dispose of surplus population in galactic colonization. However, 40 years after Apollo 11, our advance to that future seems much less certain than it did. Indeed, we are in reality no closer to it than were Jules Verne’s fantasy astronauts of 1865, who shot to the moon from the barrel of a gigantic Florida-based cannon.

The other possibility is to return to the world of Adam Smith, in which global population was around 1 billion, so that resources and environmental problems posed little constraint. In such a world, natural resources would be abundant for centuries to come, so China’s economics would be wholly foolish, and the free market would reign supreme. Government policy would no longer be relevant, and private sector companies would build new technologies and possibilities in a world of globalised free trade. Environmental constraints such as global warming would also pose little threat, since the carbon emitted into the atmosphere by the global economy would be a fraction of its current level.

Returning to a global population of 1 billion would be difficult, but it may be more practicable than a gigantic interstellar exploration program. If so, it may form the only viable exit from the inexorable approach of the world of Thomas Mun.

BILL BONNER SMELLS SEVERAL BILLION RATS

A guess: The fix is in. JPMorgan and Goldman Sachs are taking advantage of the feds’ stimulus programs ... and trading against the biggest patsy in the world, the U.S. taxpayer.

Bill Bonner looks at recent headlines reporting “soaring” profits for JPMorgan and the Chinese economy “bouncing back,” and finds them, well, incongruous. “Fraudulent,” actually, is his adjective.

As has been reported in the pages of recent Finance Digests – also see “The Coming China Meltdown” in the next Offshore Digest – China and the U.S. are both engaged in massive bubble reflation efforts which show signs of succeeding – just as Pyrrhus, King of Epirus, “succeeded” in defeating the Roman army in battle. We believe the appropriate response to the Chinese and U.S. “successes” should be that of King Pyrrhus in response to congratulations for winning one of his victories over the Romans: “One more such victory will undo me!”

Two important headlines this morning, both of them fraudulent:

“Chinese economy bounces back,” says one headline in the International Herald Tribune.

“JPMorgan profit soars despite downturn,” says another.

The average reader or TV viewer will go no further. “Ah,” he says to himself, “good news; the worst is over. China is a green shoot as big as the Amazon. And JPMorgan is a leader in the financial sector. If the financial sector is doing well, the whole world economy must be doing well.”

But we cannot help ourselves. If we see a silver lining, we look for the cloud. We see garbage ... we look for the rat. ... We begin with the JPMorgan profit announcement, because it is the most intriguing. Let us set the stage:

In the last half century, credit has expanded faster even than dress sizes. Naturally, this has made the business of hawking credit extremely profitable. Profits in the financial sector soared to 40% of the U.S. total. And every momma wanted her baby to grow up to be an investment banker.

But then, in 2007 and 2008, the bubble in the financial sector popped. Many banks and financial institutions went broke ... or had to be bailed out by the government. Instead of being the world’s highest-flying industry ... finance became the scene of its biggest crash.

And now, from all we have been able to detect, a fundamental shift has occurred. People are no longer eager to go deeper and deeper into debt. Instead, they are eager to pay off debt ... that is, to rid themselves of finance ... and to get as far away from the financial sector as possible. Savings rates, for example, have gone from zero to 7% in just the last 12 months.

But in the midst of this remarkable and historic change, we get news that at least a couple of the biggest firms in the financial sector – JPMorgan and Goldman Sachs – are making billions in profits:

“Even as it weathers the worst economic downturn in decades, JPMorgan Chase said Thursday that it had made a $2.7 billion second-quarter profit as a result of stellar trading and investment banking results.”

This was essentially the same story we got from Goldman. Neither bank made its money the old-fashioned way – by lending to worthy projects. They made their dough by “trading” and “investment banking.” In other words, they made billions from speculation.

Anyone who takes this as evidence of a recovering economy should work for the government. Only a government economist or a mental defective (excuse us for being redundant) could believe that genuine prosperity can be built on a foundation of speculating by large financial institutions. You can see why by asking a simple question: whom were they trading against?

Speculating is a zero-sum game. No matter who wins, the economy is not a bit better off; it has not a centime more in resources. Goldman and JPMorgan report earning, together, more than $6 billion. Who was on the other side of that trade?

There is also something fishy about the whole thing. Trading is not only a zero-sum game, it is a game of chance. Traders lose money about as often as they make it. Of course, normally, the traders at the big banks have an advantage; they are not idiots. They make money by taking it away from the amateur traders, who are idiots. But what amateur traders put up $6 billion?

Our guess: The fix is in. They are taking advantage of the feds’ stimulus programs ... and trading against the biggest patsy in the world, the U.S. taxpayer. How? We will find out how, later ...

Meanwhile, there is the news that China is back in business.

“Government spending pushes GDP growth to 7.9% for 2nd quarter,” reports the IHT, “... fueled by a large economic stimulus package and aggressive bank lending ... a surprisingly strong showing during the global economic downturn ... while most other major economies are contracting and suffering from the worst economic crisis in decades, China appears to have turned a corner. ...

“Growth in the second quarter was driven by strong auto and property sales, a rebound in manufacturing and huge infrastructure spending, which was propping up global commodity prices.”

Further investigation reveals that bank lending and property speculation have gone wild. ... And stocks in Shanghai are up 75% so far this year.

Now, let us try to get this straight. The world is in a slump. China sells stuff to the world. And yet, China is booming.

How could it be? Again, there is something fishy about it ... as if the government were jiving the figures ... as if the speculators had taken leave of their senses ... and as if the whole thing were just the result of the same kind of misguided “stimulus” that got us into trouble in the first place ...

The Richebächer Letter’s Rob Parenteau agrees that something is not quite right. “Ask anyone who has done business there. Keeping a double set of books in China is not just common, it is considered ‘good strategy.’ You have also got under-regulated Chinese banks hiding as much as $500 billion in bad debts – China’s own version of ‘subprime’ loans to small businesses and Asian property speculators.

“On top of that, you have got a $40 billion tab left over from the Beijing Olympics ... and a $140 billion tab for rebuilding Sichuan after their 2008 earthquake.”

Boom ... boom ... ka-booooom!

HOW TO CUT YOUR DOCTOR BILL

Hospital billing offices are starting to act like used car lots. Get yourself a deal.

Government attempts to keep healthcare costs down are, of course, a total bust. Government as usual is the cause masquerading as the cure. Instead overseas competition and the manifest arbitrariness and inefficiency of the heathcare provider system itself are providing ammunition to the afflicted to help keep things in check.

Bloated and basically out of control from years of having to adopt to federal edicts and controls, healthcare providers have a menu of prices that go well beyond volume or early payment discounts. Some hospital can charge $x for a surgical procedure to a major insurance provider while having a list price of $2x for the man off the street. Now wise to this, the man off the street with the help of an emerging set of augmenting oversight services are no longer just accepting this regime lying down, so to speak. More specific advice on how to negotiate your medical charges down follow.

Eric Remjeske, 38, was skiing in Vail this February when he made the mistake of flying off a jump too slowly. He did not clear it. Result: broken bones in both feet and the prospect of big medical bills. So Remjeske, a financial planner who returned home to Minneapolis for surgery, set out to trim his costs. Haggle with your doctor and hospital? These days you would be crazy not to.

Remjeske needed a night in the hospital plus an orthopedic surgeon to put two screws in each heel. His health insurance included a $6,000 deductible, along with a 20% share of any expense after that. He got quotes from three different surgeons at three hospitals and tried to anticipate related expenses like anesthesia and physical therapy. The estimates ranged from $14,000 to $18,000. He picked the University of Minnesota’s hospital, which had the lowest estimate.

After the successful surgery the bills came, totaling $16,000 – more than what he had expected. Remjeske fought back, objecting to specific hospital charges. The hospital agreed to strike a $500 charge for time in the recovery room, $200 for a leg-lifting device that Remjeske claims was not used and $800 for other items including physical therapy sessions that never happened. He says he missed out on the opportunity to get a deal on his sedation medicine because the anesthesiologist was not able to tell him the price ahead of time. “We think we give the best care, so it is nice to know that we are also competitive,” says Jennifer Amundson, a spokeswoman for the hospital.

The rise in health care costs, and especially in the share paid by the patient, is giving people a lot more incentive to screw up their courage to try to bargain down prices. Last year an average insured family spent $3,350 on copays, coinsurance (the percentage that is the patient’s responsibility), premiums and deductibles. That is twice the average of a decade ago. Among the many uninsured patients, the ones who are not impoverished are getting skilled at negotiating. Patients pay cash for elective procedures like stomach-stapling or laser eye surgery, so these customers get in the habit of searching for bargains.

No surprise that doctors and hospitals disdain cheapskates. “Shopping by its nature assumes you can judge the quality of the product you are getting,” says Michael Millenson, a Chicago hospital consultant. On Sermo.com, an online “virtual lounge” only open to physicians, many doctors scoff at the notion of negotiating prices with patients. “There is no negotiating,” writes one family physician. “You had better come with your credit card or cash.”

Maybe for that physician. But working out a deal in advance makes sense if you plan on paying directly. Debra Snell, who owns T&D Body Shop with her husband in Bowman, South Carolina, has Crohn’s disease and has been unable to get an insurance policy, so she has become adept at shopping for care. She cut a deal with her gastroenterologist, Dr. Narayanachar Murali, to pay $35 for an office visit, compared with $150 for a typical patient. For a scope of her lower intestines she pays $400 rather than $750 (or $1,500 at a hospital). Dr. Murali agreed to the lower fees because she pays promptly and fills out her paperwork ahead of time. “Most uninsured people who see me do this part of the work and get quality care at a very low cost,” he says.

Comparison-shopping with hospitals is tricky. One hospital might have 30 different insurance contracts and the same number of rates that it charges them, plus a list price inflated to double or even triple those rates that it charges customers who lack insurance. Out-of-network providers are the most likely to charge sky-high prices. Beware also ancillary providers, such as anesthesiologists, pathologists, radiologists and pharmacists, who might bill separately from the hospital and the surgeon. For those shopping ahead of time, it pays to compare the prices with benchmarks. Healthcare Blue Book, a Web site that launched this January, will tell you what big insurers, the ones with bargaining power, are paying in a given zip code.

Once a bill comes the strategy changes. There are companies that will negotiate a bill on your behalf for 1/3 or so of the savings. Typically they make an offer based on an estimate of what patients with in-network insurance are paying. John Gillis, president of Insnet, a bill negotiator in Scarborough, Maine, recommends that those patients confident enough to do the negotiations follow a script. First ask: “Are you authorized to give me a discount?” If yes, “What is it?” Then ask: “Who is authorized to give me a bigger discount?” Ask to speak to that person. When it comes time to discuss specifics, come armed with data on what other patients have paid for similar services. Gillis says he is successful three in four times, once knocking 55% off a $180,000 bill from a New York hospital.

Other negotiation services are geared more toward bill review. Candice Butcher, who runs Medical Billing Advocates of America in Salem, Virginia, recommends asking for an itemized statement from the hospital, which will typically run many pages. Double billing is common. Some of her tips include making sure that you are not being billed separately both for a room and for all the standard amenities in a room like sheets and a toothbrush. Similarly, if you have surgery, she says look for items like “kits” and “trays” and make sure there are not also individual charges for specific surgical instruments. Ultimately you can get a 35% discount from the inflated list price just by challenging individual items, she says.

Hospitals often prefer to chop a bill down in percentage terms rather than fight over individual charges. Todd Roscoe, a former executive at the hospital chain Tenet Healthcare, says that a 40% discount off the inflated list price is the norm for cash-paying customers.

A 61-year-old woman living in Albion, Pennsylvania got a $13,000 bill recently for an emergency hospital admission for chest pain and high blood pressure. Her “indemnity” insurance turned out to be a bust – for $320 a month it will pay at most $1,100 in room and board at the hospital but will not cover drugs or procedures. She went to the hospital billing office where a rep offered her a 50% discount because she was paying herself. Since she was unemployed, the assumption was that she would pay it off month to month. From $6,500, she asked what they would charge if she paid it all at once and she got another third off the bill. She is in the process of paying just over $4,000 by cashing in a 401(k) account.

James Muckle, who manages a 32-unit apartment building in Sebastopol, California, had a similar experience. He got hit with a $6,000 bill after a 4-hour visit to the ER that consisted of a diagnosis of kidney stones, pain pills and instructions on how to pass the stones. He called the hospital and politely noted he was surprised by the charges. He says he was offered a 40% discount if he paid within 30 days. After an hour of back and forth, asking the clerk to explain each charge, he asked if he could pay $1,000. The hospital countered with $2,300, and he eventually paid $2,000. “Maybe I should have pressed it a little more,” he says.

Medical Markdowns

These web sites publish the prices of procedures, which help when negotiating. Remember that hospital fees are different from physicians’ fees. Also, the cost of imaging, drugs, lab work and anesthesia are often billed separately.

HealthcareBlueBook.com
ChangeHealthcare.com
OutOfPocket.com
Myhealthscore.com

These companies offer bill-negotiation services for the nonconfrontational. They typically charge a contingency fee based on the percentage of savings achieved:

Myinsnet.com
MedicalCostAdvocate.com
BillAdvocates.com

SHORT TAKES

UBS Client Admits To Filing False Tax Return

A UBS AG (UBS) client pleaded guilty to filing a false tax return, admitting he concealed more than $8 million in Swiss bank accounts opened in the name of a Hong Kong corporation.

UBS and the Internal Revenue Service are in a long-running fight over potential tax fraud. The IRS wants access to 52,000 client accounts, which could breach Swiss bank secrecy laws. The company has resisted the request, and some analysts expect UBS to pay a hefty settlement to resolve the [dispute].

Monaco Adopts New Rules Against Money-Laundering

Monaco’s luxury stores will have to run checks on the super-rich and casinos will face tougher inspections.

Monaco’s luxury stores will have to run checks on the super-rich and casinos will face tougher inspections under new rules to fight money-laundering in the Riviera principality, officials said ... The microstate, a playground for the rich and famous, adopted a law on money-laundering ... as part of a drive to clean up its financial sector in line with international standards.

Under the new rules, insurers, accountants, notarial firms, high-end traders and lawyers helping with property or financial transactions will all be asked to carry out checks on their clients.

New €30,000 cap on cash payments.

The law also introduces a new €30,000 cap on cash payments, and boosts the powers of the state financial investigator, SICCFIN, to monitor casinos and financial organisations. Monaco’s Finance Minister Sophie Thevenoux told AFP the law also pulls together under a single set of rules the steps taken over the years to tackle money-laundering. It follows a series of recommendations made by the inter-governmental Financial Action Task Force and the Council of Europe’s anti-laundering body MONEYVAL, Thevenoux said.

Principality plans to launch a public relations campaign next year, promoting a new, financially transparent, image.

Removed from an OECD blacklist of financial centers in April, Monaco is also working to shed its image as an international tax haven. It remains on a Group of 20 “grey list,” but hopes to leave that too by the end of the year. The principality plans to launch a public relations campaign next year, promoting a new, financially transparent, image.

Monaco was placed in the middle of a 3-tier list categorising tax havens and financial centers by their degree of cooperation with international authorities which was endorsed by G20 leaders in April. It was listed by the OECD as a jurisdiction that had adopted OECD standards on exchanging tax information but had not substantially implemented them.

U.S. Businesses Income Set to Take Double Tax Hit

The total average tax rate on business income in the U.S. would rise by almost 6% as a result of tax plans currently under consideration by Congress and the Obama administration, according to a new report.

The Tax Foundation, a non-partisan fiscal policy think tank, has calculated that the proposed health surtaxes approved by the House Ways and Means Committee, combined with the reversion of the top federal tax rate on wages to 39.6% at the end of next year would mean “a significant tax hike” on business income in 2011.

The report said that the total average tax rate on business income would increase from 23.7% to 29.5%, assuming business income is the last dollar of income earned.

“The US business sector includes millions of ‘non-corporate’ businesses that pay their taxes on the individual income tax returns of their owners,” Tax Foundation President Scott Hodge said. “That means new tax hikes on personal income, which may soon bring total rates over 50% in most states, will be hurting small businesses. Some pundits like to cite the statistic that only 4% of the 36 million tax returns with ‘business’ income are subject to the surtax, but that 4% of tax returns earns 60% of the $882 billion in total ‘business’ income.”

The report takes into account the three-tiered health care surtax, the proposed increase in the top two tax rate on wages to 36% and 39.6% and the expiration of other tax cuts passed under President George W. Bush and concludes that: 1/3 of the $49 billion raised by the surtax in 2011 is from business income; 70.1% of returns facing a tax increase have some form of business income; and [26%] of all income earned by those returns facing a tax increase is business income.

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