Daily Archives: 25 June 2012
The Tax Man wants your travel plans — US & Argentina
Imagine a day when you plan a trip abroad… and you exchange some dollars for the currency of your destination country before you depart.
At the airport, uniformed agents ask whether you have any foreign currency. You are then asked to prove you obtained the currency legally… and inform the IRS about where you’re going, how long you’ll be away and the reason for your trip.
As of seven days ago, this is the new reality in Argentina. And as of 11 days ago, an event in Washington should give pause to anyone who says, “it can’t happen here.”
The new rules in Argentina came into effect a week ago today. They are aimed squarely at holders of U.S. dollars.
The government wants to keep those dollars within the country, the better to shore up the central bank’s reserves and pay down its debts.
“Many Argentines,” reports The Associated Press, “only declare part of their wealth and income to evade taxes, and use black-market currency exchanges to convert their inflationary pesos into dollars. Travel agencies are the latest target since they manage multiple currencies and offer customers black-market rates for their money.”
A curious letter addressed to Treasury Secretary Timothy Geithner raises the specter of similar rules coming down the pike in this country.
Dated May 24, it comes from Rep. Barney Frank, the top Democrat on the House Financial Services Committee… and Rep. Sander Levin, the top Democrat on the Ways and Means Committee.
“Frank and Levin,” says a joint press release, “have long been concerned that the language in U.S. trade and investment treaties was too restrictive and did not leave adequate flexibility for governments to use controls to stem the massive flows of speculative capital that can exacerbate economic crises.”
So they’re asking Geithner to make it clear, in writing, that the United States retains “the ability to deploy capital controls on the inflow or outflow of capital without being challenged by private investors.”
“You no longer have to read between the lines when it comes to currency and capital controls,” says an email from Addison this morning. Indeed, you can just read the lines directly.
Once Geithner obliges the Congress members with a written statement — do you really expect him to do otherwise? — a new brick will be erected in the “virtual Berlin Wall” that Addison has described to readers of Apogee Advisory for nearly a year now.
“Even if you’re a person of modest means,” he wrote last July, “and you merely want to ‘spread the risk around’ by putting a portion of your wealth outside U.S. banks and the U.S. dollar… it’s becoming harder and harder to do so.”
(Read more)
letter to National Review Magazine re: The Real Cause of the Euro Debt Crisis
From Patrick Barron: Dear Sirs:
In his essay “Four Kinds of Dreadful”, John O’Sullivan discusses the possible outcomes of the Greek debt crisis (which really is a euro debt crisis). It is important that readers understand the cause of the crisis. Mr. O’Sullivan repeats some common misconceptions about that cause when he states that:
“Its original design was flawed because it sought to include too many countries with too-diverse economic characters and histories, too-different levels of unemployment, and so on.” He later states that “Above all, the euro zone did not include…transnational labor mobility; and transnational monetary transfers.” And finally, that “a single currency required a single budget, a single treasury, and a single fiscal policy.”
None of these reasons is the cause of the crisis. First of all, there is nothing to prevent people with different characters, etc. from adopting a common currency. Here in the US we have many people with different characters, different levels of productivity, etc. all using the dollar. There may indeed be cultural barriers to labor mobility, but several nations with different cultures have adopted the dollar as their national currency. Finally, all fifty states of the union use the dollar, without requiring that they meld their budgets, treasuries, and fiscal policies.
The real cause of the euro debt crisis has been explained by Dr. Philipp Bagus of King Juan Carlos University in his book, The Tragedy of the Euro. Dr. Bagus explains that the European System of Central Banks did not eliminate national central banks. These national central banks buy their respective country’s sovereign debt and use that debt as collateral for euro loans at the European Central bank. The result is predictable. All seventeen members of the European Monetary Union have the ability to monetize their government’s sovereign debt and force monetary inflation on the rest of the members. It is similar to having seventeen counterfeiters trying to outdo one another. First debt soared, and now inflation is being felt even in the more responsible nations such as Germany, because all use the euro.
There is no solution to this problem, as the euro is currently constructed. Fiscal treaties to prevent the inevitable money printing will be ignored, since there is no enforcement mechanism. Furthermore, there never will be an enforcement mechanism, because the seventeen members are sovereign nations with electorates that must be mollified. The euro was doomed from the day it was born.