Monty Pelerin: It’s the numbers, stupid

Monty Pelerin shared some comments and a video which explains why the United States government is going to collapse economically. This is why the new Obama ad, in which President Obama says that he will tax the wealthy to “pay down our debt” is utter mendacity. This video shows that the United States Federal budget cannot be balanced. It is mathematically not possible without some maturity. Going after US expats around the world will not solve the problem. But we can be sure that as long as the USA cannot get its fiscal house in order, the government will continue to demagogue against expats.

It’s the numbers, stupid, by Monty Pelerin

Most people have no idea of the unsustainability of government spending. The path which the government blindly follows ensures a complete and total collapse of the US. What has happened in Greece (and things will get much worse there) is exactly what will occur in the US. A complete and total economic collapse is inevitable.

The reasons for this ending and its inevitability are explained in this short (5 minute) presentation by Hal Mason in an email that has been circulating. The simplicity of his presentation allows understanding for even the economically illiterate. Simple arithmetic is sufficient to understand the impossibility of our current path and our inevitable ending.

This short video should be watched by everyone, including those not yet old enough to vote. It should be shown in every high school and college classroom. Anyone that cannot understand this presentation should not be allowed out without a guardian.

It’s the numbers, Stupid and the people who elect the corrupt, self-serving politicians in Washington who continue down this road to destruction.

Monty Pelerin article used with permission.  Cross posted at Isaac Brock Society.
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Caymanians persecuted by IRS

The fun never stops.  The IRS is reaching out to Caymanians who were born in the US. This message came into Monty Pelerin regarding citizens of the Cayman Islands:

I just read your article on the American Thinker web site regarding FATCA. I “googled” it because this past weekend we celebrated the marriage of an American girl to a Caymanian boy (who was born in Miami, FL and holds dual citizenship) and I met one of the groom’s many relatives who are affected by this new drive to collect taxes from dual citizens. I am so disgusted with the government reaching into the pockets of these people. There is a large contingency of Cayman citizens whose only “tie” to the US in that they were born in Miami. For health and safety reasons their parents chose to have their children born in a hospital in Miami.

They paid their bill and went home. They never lived here. Never worked here. And now the government has sent these people threatening letters demanding they pay taxes on money earned in Cayman. These “dual” citizens have no representation in the US government and no one to advocate on their behalf. Shame on the U S government to hound and threaten these people.

I write to you because this is another category of folks who are impacted by FATCA. I asked if they planned to renounce their US citizenship and they admitted they are giving serious consideration. How much does that cost? According to my now distant relative, $12,000…and I forgot to ask if that was US dollars or CI. How about going after the illegals on our soil who are actually benefiting from the goodies the FEDS pass out on the taxpayer dime instead of harassing good people who are NOT MOOCHERS.

Thanks for your analysis. I am writing my congressman and senators this week.

So I wrote Monty the following comments:

I will be sure to share this on the ex-pat forum, where I’ve been participating. The problem it as I see it is that the IRS can make victims of us one at a time unless we voice our protest as one. Therefore, I come out in the open concerning my opposition to FBAR, and you and your readers can learn it about it here: https://righteousinvestor.com/2011/11/15/pillaging-one-person-at-a-time-why-im-coming-out-in-the-open-with-my-fight-against-the-irs/

I can’t thank you enough for getting “When government turns predator” to the press at the prestigious and well-read American Thinker.

The attempt on the part of the IRS to attack Caymanian citizens is pitiful. The vast majority of Caymanian citizens are not wealthy, though they are like many in North America, middle class. But despite the island having a reputation for wealth, the citizens themselves are normal hard-working people. It is shameful for the US government to harass them. But shame doesn’t work on them. I have come to wish for the economic meltdown to happen quickly so that the US government will run out of resources to pursue such unprofitable avenues. Yesterday I read that 5400 IRS employees will be sacked. I can’t help but feel Schadenfreude.

Oh, and I should say also that those who are being harassed in this manner are probably not citizen depending on when they were born and when they became Caymanian citizens. At most, they need to simply relinquish citizenship. I would be happy to discuss what I know with this person, if you want to send him my e-mail address. If a lawyer told them it costs $12,000 he’s not telling the truth. That’s his fee. The most it should cost is $450. But they are probably not citizens, if they do not chose to be.

When government turns predator

The following article appeared first at the American Thinker on April 5, 2011, then at Monty Pelerin’s World.  Monty Pelerin is a retired economist who writes under a pen name.  In March, I approached Monty asking if he would publish under his pen name an article on FBAR.  He agreed and then we co-wrote the article and he kindly gave me no credit because I feared the long arm of the IRS.  Then, Monty submitted it to the American Thinker.  Now that I am out in the open with my IRS concerns, I’ve decided I can reproduce it here.  So I want to thank Monty for his extraordinary help when nearly no one in the mainstream media or even conservative blogs were talking about this injustice which the IRS has afflicted upon millions of Americans.

When government turns predator, by Monty Pelerin

Honest US citizens are being turned into prey by the IRS, the victims a hunt for tax evaders. It is the natural, if lamentable, product of the urge to power our Founders warned us against.

More than two centuries ago, George Washington stated:

Government is not reason; it is not eloquent; it is force. Like fire, it is a dangerous servant and a fearful master.

Over the years, General Washington’s prescience has been demonstrated as government usurped and abused power. The myth that government serves the people should be shattered by now. Increasingly, government behaves as the master, not as the intended servant.

Oppression abounds, but nowhere is the raw abuse of power and coercion more possible and evident than in the Internal Revenue Service. They are the most dangerous member of the government gang. Now they have another tool to bully and expropriate wealth from innocents — US citizens living abroad.

Early in his presidency, Barack Obama pledged to add 800 new IRS agents to punish tax evaders with overseas accounts. In an effort, presumably designed to curtail and punish tax evasion on the part of wealthy Americans, legislation aimed at criminals now threatens the income and savings of the law-abiding.

Background

The Bank Secrecy Act became law in 1970 and implemented the Foreign Bank Accounts Report (FBAR) to monitor money laundering. The FBAR law required that US persons owning or having signing authority over foreign bank accounts report this information to the US Treasury Department. It was not much enforced for the obvious reason that a criminal does not willingly divulge incriminating information. During the first three decades of FBAR, there was widespread ignorance and disregard for the law.

In 2003, the Treasury Department handed over enforcement to the IRS. In 2004 non-willful non-compliance increased to a $10,000 fine per account per annum. Willful non-compliance allows criminal charges, a prison sentence, and fines of $100,000 or 50% of bank account’s contents, whichever is more (see Shepherd, p. 10).

The IRS has implemented two Voluntary Disclosure Programs I (2009) and II (2011), in which they waive criminal charges provided that all back taxes and penalties have been paid, along with an FBAR penalty of 20% (in 2009) or 25% (in 2011) of the account’s highest balance over the last six years. The penalty is lower (12.5%) for balances under $75,000. Persons who were unknowingly US citizens face a 5% penalty (see FAQ 52).

In 2010, Congress passed FATCA (Foreign Account Tax Compliance Act) which forces foreign banks to report on American clients, even if doing so would violate the banking and privacy laws of their country. Implementation of FACTA will be coerced by withholding 30% of US income from banks not in compliance.

The arrogance and brutality of the legislation is apparent. The penalties are severe and disproportionate. Economic blackmail of foreign banks is disgraceful. All of these actions will have repercussions, probably not intended.

US Citizens Abroad

US citizens living abroad must open a foreign bank account because commerce is done in the local currency. All who do are potentially in violation of the FBAR law. Most were unaware of the FBAR requirements; but now that the IRS has rattled its FBAR saber, taxpayers abroad are in a quandary.

Wealthier citizens spend thousands of dollars on accountants and tax lawyers to try to put themselves into compliance with the least financial damage. The average citizen not in compliance has limited options. His choices include:

  1. Do Nothing The IRS doesn’t know about you, so continuing to keep a low profile and ignore the law might be the best route. This option may become impossible once FACTA comes into force.
  2. File FBAR Forms IRS FAQ 17 of the 2011 Voluntary Disclosure Program states that filers who have complied with all taxes and filing requirements except FBAR should not enter the program but simply file the delinquent forms by August 31, 2011 with a letter of explanation. They promise that no penalties will apply to such persons.  But given the severe threats of punishment issued to anyone failing to comply, many wonder whether the IRS will accept the excuse of ignorance of the FBAR requirement.
  3. Enter 2011 Voluntary Disclosure Program:  Some US citizens who entered the 2009 Voluntary Disclosure Program and were otherwise in compliance with US tax laws, found that the IRS intended to apply to them the full 20% penalty (see, e.g., hereand here).
  4. Renounce Citizenship Many US citizens living overseas have lives fully integrated into their new country. They comply with the local tax laws and often possess dual citizenship.  Compliance with US tax laws and FBAR are a nuisance and liability that they may be able to live without.

Renunciation of citizenship is not riskless. Such a decision will set citizens free from future liability, but may subject them to IRS penalties for prior non-compliance. In addition, for covered expatriates, those having two million in assets or $145,000 in average annual tax liability over the last five years, an exit tax is also required.

To appreciate the uncertainty and duress faced by US citizens living abroad, a couple of hypothetical situations are useful. International tax lawyer Phil Hodgen partly inspired the following hypothetical cases:

Hypothetical Case 1:  Jim lives in a foreign country and has dutifully filed a US income tax return each year, but was unaware of FBAR filing retirements. Jim operates eight accounts:  four retirement accounts (which he reported on his annual tax returns), two trading accounts, a checking account and a high interest savings account.  The highest balance in these accounts is $1,000,000 over the last six years. His current balance is $800,000 after the market dip.

Jim doesn’t know what to do. After great worry, he enters the Voluntary Disclosure Program. The IRS assesses Jim a $250,000 FBAR penalty. In order to pay the penalty, Jim must withdraw funds from his retirement accounts forcing an additional tax liability of $100,000 on the income. Jim is no longer able to retire because his $800,000 has been reduced to $450,000, solely as a result of IRS capriciousness.

Hypothetical case 2:  Nancy is a teacher and mother of three, married to a citizen of the foreign country where she has lived for fifteen years.  She dutifully filed her taxes in the US, but never knew about FBAR. A friend entered the Voluntary Disclosure Program and was assessed $14,000. She contemplates the renunciation of American citizen, because her foreign husband owns a successful business and Nancy is a signer on business accounts. She fears exposing her husband’s business to the IRS and also fears that upon her death, the IRS will seek its pound of flesh from her estate. She renounces citizenship, though it breaks her heart.

Abuse Of  the Law

FBAR was initially a harmless and little known embarrassment for the United States. It began as an ineffective attempt to stop money laundering. Like so many other laws (RICO, Homeland Security, etc.), it began with what some believed noble purposes, only to morph into a tyranny imposed upon law-abiding citizens. It is now a tool capable of arbitrary and oppressive expropriation of the wealth of millions of US citizens living abroad.

An insolvent government is a dangerous government. It is akin to a wounded and cornered animal. When conditions become really difficult, it is likely to do anything to survive. Arbitrariness in the interpretation of any law is dangerous to freedom, but especially so when government’s primary concern is survival rather than justice.

There are many reasons to be critical of FBAR. The following two will illustrate:

  1. Excessive fines: Ayn Rand said “The severity of the punishment must match the gravity of the crime.” This basic principle of human rights, enshrined in the Eighth Amendment, forbids excessive fines. It is immoral for the IRS to intimidate innocent citizens. Any law so uncertain that it could result in a loss of 50% of your wealth, depending upon the whims of the IRS, is not a law. It is government-sanctioned extortion.
  2. Guilt Presumed:  The Fourth Amendment protects (or was supposed to) citizens against arbitrary fishing expeditions by government. Probable cause is required. The FBAR requirements circumvent this Fourth Amendment right, in effect saying: “You will volunteer to open the door to your house and let us look inside.  If you don’t, we will fine and/or imprison you.” The IRS demands bank information based on a presumption of guilt even though holding funds in a foreign bank account is no crime.

Unintended Consequences

The term unintended consequences, a convenient euphemism for stupid policy or law, is appropriate. Some of the foreseeable outcomes are the following:

  1. An avalanche of US persons will renounce their citizenship. In July 2010, the State Department implemented a $450 fee for making a renunciation before a consular officer, presumably to exact additional income and possibly (highly unlikely) deter some from making the decision.
  2. Foreign banks and investors may decide doing business with the US is not worth the trouble of compliance with FACTA, particularly as the US economy collapses and the global economy shifts to the East.
  3. US Citizens abroad already find it challenging to open bank accounts both in US and in their countries of residence. This annoyance makes it more difficult for American companies and their employees to engage in foreign missions, business and trade.
  4. US citizens are already shunned from positions in foreign companies which do not want their banking details revealed to the United States Treasury Department.

Conclusion

The Bank Secrecy Act, passed in 1970, is an example of law designed for one purpose being expanded to be used against innocent citizens. Regardless of its good intentions, it is now a tyranny used to extort wealth from otherwise legal, law-abiding US citizens living abroad.

It represents a classic case of how government usurps freedom. What level of morality must government have to think they are entitled to shake-down hard-working citizens?

Monty Pelerin has never lived abroad or had a foreign bank account. He has friends who do and hopes that exposing this State plunder will cause it to cease in this and other parts of our lives.

Gold at $56,000 per ounce?

There is a story going around that the London Bullion Market Association has sold as much as 45-100 times the amount of gold futures as there is physical gold underlying the notes.  I first heard about this story from Monty Pelerin’s blog which featured a Max Keiser interview with Jim Willie (see videos below).  Then, on the Peter Schiff Radio Show, Adrian Douglas claims that gold should be selling at $56,000 per ounce. Even Peter Schiff was incredulous about it (see http://www.schiffradio.com/pg/jsp/charts/audioMaster.jsp?dispid=301&pid=51169 ).

Now, thanks again to Monty Pelerin, I’ve read Vincent Bressler’s “Empire of Fraud“, saying:

The futures markets are fractional reserve systems running at very low reserve ratios, something like 45 to 100 ounces of electronic gold and silver obligations for every unencumbered ounce of physical gold or silver. The day is coming when the physical price of gold and silver disconnect from the electronic price and they can not be brought back together again except through a massive devaluation of the dollar in terms of gold and silver. On this day the future’s markets in gold and silver will be stopped. There will be secret meetings. Those holding electronic gold tickets will be paid in be paid in dollars at the price of gold before the disconnect. And then I believe that there will be an explicit devaluation of the dollar with respect to gold on the order of 20 to 40 times.

Once this happens, the dollar will be further devalued against a large number of other commodities and will probably actually collapse altogether as the world’s reserve currency.  Few believed the warnings about fraud which was going on in the real estate market and yet that bubble collapsed.  Lying, manipulation and greed is the common story in our times.  I’m preparing for this one.  I am long on Barrick ABX, New Gold NGD, Lakeshore Gold LSG, and Detour Lake Gold DGC; and I’ve now also taken a long position on Sprott Physical Gold PHY.U, which claims to keep actual physical gold in the Canadian Royal Mint.  I’ve sold puts on ABX, GG, DGC and NGD.

Here is Max Keisar interview Jim Willie in three parts:

Part One:

Part Two:

Part Three: