April 2, 2010
Panama City, Panama

It’s been a great week so far in Panama. Each time I come back to this country I become even more sure in my conviction that Panama has a bright future.

For the next few days, though, I am going to set aside market forecasts and expatriation strategies… you see, my friends from the Atlas 400 club are starting to arrive, and I’m looking forward to a few days off at the very exclusive Tropic Star fishing lodge in Panama’s Darien province.

The cast of characters attending this event is really impressive– and I’m excited that several members of our own community will be there.

I’ll tell you more about it when I return on Wednesday. For now, though, let’s move on to this week’s questions.

First off, Jeff in Ohio asks: “Simon, thank you for the clarification about the new H.I.R.E. Act, I was really confused and concerned.  Why do so many people continue saying that this new law is the same as capital controls?”

It’s easy to overreact and say that the sky is falling.  To be fair, a layman’s reading of the bill makes it seem like the government is imposing a 30% tax on foreign bank transfers… but that’s exactly why I had my team of tax attorneys and CPAs analyze it– I wanted to know the truth.

The truth is, the H.I.R.E Act is an administrative enforcement of tax reporting; it’s bad news, but it’s no more capital controls than the qualified intermediary rules or withholding requirement for some payments to foreign companies.

The big problem is that this new law provides a disincentive for foreign banks to work with US customers… more and more, Americans are simply not worth the hassle for foreign banks.

There are still solutions, though. Americans who want to open a foreign bank account (as everyone should) ought to consider larger multinationals that already have a US presence. They’re accustomed to the paperwork already and are less likely to turn you away.

There are, of course, other jurisdictions that frankly don’t care much about the H.I.R.E. Act, and we can discuss those more in the future.

Steve writes, “Mr. Black, is Panama still self-reliant and independently wealthy if income from the Panama Canal drops off?”

This is a good question. Panama is heavily dependent on the Panama Canal, just as Saudi Arabia is heavily dependent on its oil supplies.

Fortunately, Panama has been able to diversify its economy away from transportation and trade– banking services, real estate, tourism, customer service, and others… but the Canal still generates the preponderance of external economic activity.

If global trade were to take a major hit (as it did in 2008/2009), Canal revenues would certainly decline and Panama would suffer economically… but bear in mind that Panama still posted positive economic growth last year.

I suspect that major economic pain would come only with a cataclysmic reduction in Canal usage, either due to another economically viable transportation route in the western hemisphere (unlikely) or a total collapse in global trade.

Mark writes, “Simon: I am a 65 year old disabled retiree.  Later this year I will have about $30,000 per year to reside on. Can you give me several ultra low-cost living places to consider that have SOME civilization?”

Everyone has different personal tastes and circumstances, but here are some ultra cheap countries that are safe and reasonably civilized: Malaysia, Ecuador, Thailand, Sri Lanka, the Philippines, Egypt, India, Paraguay.

There are more, but this should be a good start.

Anonymous asks, “Simon, if I have a civil judgement ruled against me, would that disqualify me from a second passport?”

No, not in most cases. Most countries require a medical exam and a criminal background check. If you have a felony conviction, that’s a red flag. Civil judgments are usually not problematic… you’d undergo more scrutiny testing positive for syphilis.

That’s it for this week. Remember, I will be at the closed-door Atlas 400 event for the next few days in the middle of the jungle, so you will more than likely not be hearing from me until next Wednesday.

March 26, 2010
Vancouver, BC

I’m headed to Panama shortly where I look forward to meeting up with my friends and colleagues in the Atlas 400 group. We’re going to an exclusive deep-sea fishing resort for a few days, and afterwards I plan on taking up some unfinished business in Panama.

One of the things on my agenda is to revisit the sustainable community concept that I began discussing a few months ago. This is something that I really want to do, for personal reasons… I’ve always wanted a place that doesn’t rely on ‘the system’ for food, water, power, and security.

In my travels around the world, though, I’ve not yet found a community that provides this, at least up to my own standards… it’s possible that one exists, I just haven’t seen it yet.

I have a detailed plan in mind that will start small and allow the community to grow as the market dictates; my biggest challenge is time. At the moment, I have several other business and investment obligations on my plate, and I’m hesitant to commit to another major undertaking.

As I said, though, for personal reasons I would really like to develop this community, and I’ll be making a final decision once I meet with my team of architects and engineers in Panama over the next 2-weeks. Stay tuned.

On to this week’s questions:

First of all, Tom asks– “I’m exploring Hong Kong at the moment and am wondering if there are any subscribers in HK who would be willing to talk with me about the residency process. I’ll be here until April 3, then off to Singapore where I will be conducting similar due diligence.”

If anyone is in the area and willing to meet with Tom, please drop us a line and my assistant will forward your contact information to him.

William asks– “I live in the US and so does my business partner. We have a start up internet business hosted in the Netherlands. We have been trying to find a way to incorporate and get a bank account offshore. I have had many problems while researching this. Any suggestions?”

First of all, it’s a fantastic idea to plant a flag overseas when you incorporate a business, particularly one that’s internet-based. A properly-structured foreign corporation provides a way to legally defer tax payments (similar to an IRA) plus you have substantially reduced liability.

There is no “one size fits all” solution though. The most important thing you can do is talk to a qualified tax attorney in your home country– that means someone who understands international tax law, as well as the benefits of individual offshore tax jurisdictions. (this is a rare species)

It’s absolutely critical that you do this because no one in an offshore jurisdiction really understands the tax and structural implications that affect you.

Get the right advice and it will pay huge dividends in the future. If you need a referral, drop us a line. I have tax attorney contacts in the US and the UK.

Jack asks, “Simon, do you have any suggestions for an American who would like to open a bank account in Thailand?”

Yes. Don’t open a bank account in Thailand. It’s a beautiful country, but not a place with a trustworthy financial system. Thailand is highly corrupt and immature as a banking center… and there are too many solid options in the region– Hong Kong, Singapore, and Labuan are great alternatives.

If you want to have a bank account in denominated in Thai Baht, you can easily do this at a number of other banks in Asia, such as HSBC in Hong Kong.

Finally, Mark asks, “Simon, you said the price of housing in Malaysia is $1400 per square meter– if I did my math right, this works out to $128 per sq ft. This is the low end of new housing in the States. So, from that perspective it doesn’t seem that inexpensive. Your thoughts?”

First of all, just to clear things up, when I said the price of housing in Malaysia is $1400 per square meter, I’m referring to the average cost of high quality, expat-level housing (not raw land) in tier-1 neighborhoods.

With few exceptions, this is lower than comparable costs in the US, Canada, and Europe. To be honest, Detroit is probably one of the cheapest places on earth to buy property right now… probably cheaper than Malaysia. A speculator may be able to make a fortune in Detroit– but with tremendous risk.

“Low prices” don’t always mean “great value.” And despite the low prices, there are a few things that really scare me about US real estate.

First, continued government intervention makes me want to run away like a scalded dog. The government is unable to ‘fix’ anything other than elections, and their continued intervention in the housing and mortgage markets will only lengthen the pain in the sector.

Second, state and local governments are broke, and as a source of revenue, I’m convinced they’ll be looking to increase property taxes. In the hardest hit areas, I expect tax rates to more than triple.

Third, in the medium-term, I also expect prices to keep falling… stagnate at best. If you consider the supply/demand fundamentals, there is still way too much supply on the market, and not enough households or available credit to fill the void. In my assessment, this is not the bottom.

To me, while there are some bubbles forming on the continent, parts of Asia demonstrate significant value as long-term property investments, currency diversification, and residency flags. I don’t see those benefits in the US at the moment, particularly given the risks.

That’s it for this week; have a great weekend and we’ll talk again on Monday.

March 22, 2010
Hong Kong, SAR

If you have been considering planting a flag somewhere in Asia, I think you should really consider Malaysia. I briefly discussed the country in Friday’s Q&A updates, but I wanted to dedicate a full letter on the subject because I really think the country is worthy of your attention.

1) Malaysia is cheap… it’s one of the cheapest countries in the world, actually, on par with the costs in Thailand or the Philippines. Property prices are among the most undervalued in Asia. In fact, at roughly $1,400 per square meter, property in Malaysia is cheaper than just about everywhere else in Asia with the exception of Indonesia.

Rental prices are also quite low, as are standard living costs– Malaysia is rich in agricultural resources, so high quality food is cheap and plentiful; additionally, the government subsidizes gasoline with its oil revenues, so petrol only runs around $2/gallon.

2) Despite the low prices, Malaysia is full of modern conveniences, including top quality medical care and foreign luxury products.  This is not a place where you have to learn how to do without most of the creature comforts of your home country.

3) Malaysia is safe. It’s one of the most multicultural countries in the world where Islam, Buddhism, Christianity, and Hinduism all coexist peacefully and respectfully. Crime is extremely low, and violent crime is virtually unheard of, especially involving foreigners.

4) Rights for foreign asset ownership are quite strong in Malaysia, unlike much of the region. In Thailand and Vietnam, for example, it’s quite tricky for foreigners to own property.  In Malaysia, there is only a minimum pricing threshold set by each state, above which foreigners can own property.

5) It’s very easy to move to Malaysia. The government’s “Malaysia- My second home” program (MM2H) is a streamlined, online process to grant an extendable 10-year visa for foreigners of all ages and nationalities.  They require a small investment to qualify– less than $100,000– which can go towards the purchase of a property.

It’s one of the most welcoming residency visas in the world, rivaling even Panama’s pensionado program.

Furthermore, for PTs, the government automatically grants a 90-day tourist visa (which can be extended quite easily) upon entry for North American and European nationalities. This is another major advantage over Thailand which only allows 15-30 days, or Vietnam which requires a visa for entry.

6) Malaysia is a transportation hub with loads of cheap flights to and from many of Asia’s capitals, as well as several transpacific flights.  To give you an example, I have purchased airfare from Kuala Lumpur to Singapore for the bargain price of $0 (plus a few bucks in taxes) and to Hong Kong for less than $100.

If you need to travel anywhere in Asia on business, Malaysia is a great place to be traveling from… you’re just a few hours flight at most from anywhere in the region except Japan or South Korea.

7) Malaysia is a great place to do business; it has a strong and stable economy– the country sidestepped a chaotic breakdown in 2008/2009 and has quite reasonable debt to GDP levels and government spending habits.

There is a growing international finance industry in Labuan, Malaysia’s economically autonomous region.  Labuan, which effectively charges no tax, has distinct banking and incorporation advantages because it relies on Malaysia’s vast array of tax treaties while still setting its own tax policy.

Furthermore, because Malaysia is a stable, well-developed Muslim nation, the country is also attracting a great deal of Islamic capital, further bolstering the banking sector and creating demand for Shariah-compliant products.

Overall, if you’re interested in planting a flag in Asia, I think you should strongly consider Malaysia. Remember my basic rule of thumb– will the country continue to be a nicer place to live over the next 10-years? Absolutely. Malaysia’s trend is upward.

To explore the country, I’d suggest starting off in Kuala Lumpur, the nation’s capital, and then moving on to second tier cities like George Town.

March 19, 2010
Pattaya, Thailand

My time here in Thailand is finally coming to an end, at least for now. On Monday morning, after I stop by the US embassy to pick up my renewed passport, I’ll be headed to Hong Kong.

I should briefly mention something about passports. Starting in 2007, the US government began manufacturing all new passports with RFID chips– small devices which record and transmit data.

Malaysia was actually the first country to issue RFID passports back in 1998; since then, most of the developed word has adopted them. The data which is collected/transmitted varies by country but generally includes some personal information as well as some travel data.

The RFID chips have a range of up to 10 meters, and many countries do not have encryption devices.

I’ve spent the last year searching around the world for an embassy in some remote country that hasn’t moved to RFID yet. Unfortunately, I was unsuccessful, so from now on I’ll be walking around with a passport that transmits my personal information.

My understanding is that there are passport ’shields’ available which absorb most of the transmissions, and I will definitely be looking into this more closely.

On to this week’s questions…

William says, “Simon, thank you for the IRA information this week. I know that Congress has changed the law– do you think that now is a good time to consider the new IRA structure? Can I use it to move my retirement funds overseas?”

Great question. First of all, I must apologize because this only applies to US citizens.

32 million Americans will need to make a decision this year; it’s a unique situation because, this year alone, there are several things coming together: first, the IRS has changed the rules, making it a smooth process to switch from a traditional to Roth IRA.

If you combine that with the devaluing rules, and the concept of an Open Opportunity IRA, you’re looking at a potentially enormous tax savings… but only for a limited time while the IRS keeps this window of opportunity open.

Also, once the structure is established, it’s really a fantastic vehicle for moving cash overseas, or even buying foreign property in many instances.

If you want to plant a flag overseas with your retirement savings, this is really the best way to do it, and the time to do it is now while you can still save on the taxes.

Sarah asks, “Simon- you stated that you would report on Malaysia. I’m more interested in establishing a non-US flag there than in Singapore.”

Malaysia is really a wonderful place… it’s Singapore without the costs, and Thailand without the chaos. I’ll dedicate a whole missive to it, but briefly here’s what you should know:

Malaysia is an easy place to plant a residency flag. You can stay in the country for 90-days without a visa, easily renewable for another 90-days. If you want to stay longer, the “My Second Home (MM2H)” program is one of the best economic residency programs in the world.

MM2H provides a 10-year visa for foreigners who meet basic qualifications– people under 50 have to deposit roughly $90,000 in a local bank, half of which can be withdrawn after 1-year for the purchase of a home. People over 50 need to deposit about $45,000 or prove a $3,000 monthly pension.

Like the Panama pensionado program, the MM2H visa entitles you to a variety of discounts and benefits with things like vehicle purchase and education.

The program is also very streamlined. Like Singapore, you can begin the application process online and check the status of your application on the government’s website, www.mm2h.gov.my

Ralph asks, “Dear Simon, Could you give us your opinion on the best country/countries to incorporate a business in? Thanks for your informative E-letters. Looking forward to the next.”

This is a tough one because it really depends on many factors– your home tax country, what do plan on doing with the new business, where you plan on living, etc.

In fact, the most important thing you should understand about offshore planning is that there is no “one size fits all” solution.

For example, a manufacturing company owned by a US citizen may want to look into Ireland because of the comprehensive tax treaty with the United States.

An IP holding company owned by an expat Australian, Brit or Canadian, on the other hand, may want to strongly consider Labuan, Malaysia. Malaysia has a tax treaty with Australia, Canada and the UK, but not the US.

In the Western hemisphere, a lot of people tend to look into Panamanian structures. For a passive holding company, this might make sense… but for an operating business, I would stay away from Panama because it’s not a common law country.

The bottom line is– always seek the right advice from a tax professional in your home country who understands proper overseas structures. I have contacts in the US and UK if you need.

Lastly, Libero asks, “Simon, you mentioned not so long ago about a special clause for Italian citizens somehow being able to obtain Panamanian citizenship. Can you provide more details?”

The governments of Italy and Panama signed a bilateral treaty several years ago that entitles citizens of one country to obtain RESIDENCE in the other… so an Italian citizen can obtain Panamanian residency, and vice versa.

This treaty only grants residency, not citizenship. To be clear, there is no fast track Panamanian citizenship program, at least not a legitimate one.

Panamanian naturalization is a long, difficult, and muddy process… I know some people who have been living in Panama and married to a local for 20-years, and they have been denied citizenship.

If you’re looking for second citizenship, I would suggest somewhere other than Panama. Try the southern cone countries that I wrote about a few weeks ago.

Have a great weekend.

March 5, 2010
Kuala Lumpur, Malaysia

Greetings from Malaysia, where I’m spending an extended weekend before heading briefly to Singapore on business.  I’ll tell you more about the country next week… but if you’re interested in Asia, it should definitely be on your radar.

Before turning to this week’s questions, I wanted to give you a quick update on the job posting from a few weeks ago.  Ordinarily, Matt and I would have made a decision by now, but the applications keep rolling in… I lost count after a few hundred.

To expedite our decision, we’re going close the posting at 11:59pm EST, Monday night March 8. No other applicants will be considered after that time.

Please remember, since there have been so many applications, my staff and I will not be able to respond in order to confirm receipt. Rest assured, if you sent us an email, we received it.

On to this week’s questions:

Tom writes, rather emphatically “Simon, I left the US over a year ago. I now need a 2nd passport as I am almost out of pages on my current one. Problem is, I can’t go to the embassy due to some legal problems back home, and I don’t have $50k to spend on a new passport. What can you recommend?”

Tom has an interesting and unfortunately all-too-common case. I don’t know what he’s done or if he’s guilty of any wrongdoing, but a last-minute second passport is no panacea for criminal troubles.

(to be clear, I don’t equate ‘law’ with morality, but this is a different subject altogether)

Why? Because even if you’re completely innocent of some trumped-up charge, any new country that would consider accepting you for citizenship would first do a background check, and if you’re in hot water, they probably won’t take you.

Conversely, if you actually have done something immoral, you should probably just face the music. After all, the cosmic forces of the universe have a way of working these things out.

Regardless, I think this underscores the importance of taking action. If you have the means, going through a second citizenship process NOW, before it becomes a critical need, is a smart thing to do.

I discussed a few cost effective second passport options last week, and I will continue to do so in future letters.

Speaking of second passports, I made a mistake when I mentioned something about Polish citizenship last week– my thanks to “anonymous” for sending along this correction:

“Simon, you said that a Polish citizen could establish permanent residence in another European country like France or Italy and  become eligible for citizenship there after 7-10 years.  The EU rule is that local citizenship can be applied for after 4 yrs residence, though it’s much faster with marriage.”

She is absolutely correct, my apologies for the oversight.

Stephanie in New York writes, “Simon, thanks for the great information on opening a foreign bank account this week. As a US citizen I understand that I need to file a form to the Treasury Department each year– what are the details on that?”

First- standard disclaimer: check with your tax advisor for any updates. But the current rule is that US taxpayers must report foreign bank and financial accounts on form TDF 90-22.1 each year by June 30.

According to the IRS, A “financial account” includes any bank, securities, securities derivatives or other financial instruments accounts, including any savings, demand, checking, deposit, or any other account maintained with a financial institution.

As of now, you do not have to file the form if the aggregate value of all of your foreign accounts was less than $10,000 for an entire calendar year. If the aggregate value of foreign accounts exceeded $10,000 at any time during the year, you are obliged to file the form by the following June 30th.

James asks- “Simon- you’ve been in Thailand for a month but you haven’t said anything about the nightlife or social scene!”

That’s because you can read about Thai nightlife anywhere. I figured you’d be more interested in the hydroponics plantations where I buy organic vegetables than a review of the Go-Go bars…

… but to put it briefly, you can find whatever you want in Thailand. Sex, drugs, and rock n’ roll are as pervasive as Buddhist monks and the works of Shakespeare. If there’s interest, I’ll write a dedicated post about this, just let me know.

Lastly, Pat asks: “OK Simon- I owe $136k on a house that I bought 4 years ago; it’s now “worth” about $70k, tops.  I make plenty of money, but the payment is slowing me down.  Would it be immoral to jump ship and go rent somewhere else?”

Personally, I have an immensely open mind to not judge people for the way that they live. I only broadly repudiate things based on very few moral absolutes– for example, genocide and pedophilia are clearly ‘wrong’ in my book.

Walking away from your mortgage does not make my list.

If you do decide to walk away (and I’m not encouraging you either way), just bear in mind the single universal law of causality… there will be consequences from your actions, and you must be prepared to accept them.

That’s all for this week; enjoy your weekend, and we’ll talk again on Monday.

March 3, 2010
Pattaya, Thailand

One of reasons that a lot of people are hesitant about making a move overseas is because they’re concerned about being isolated. The world can be a cruel place, especially to newbies.

Sure there are the nomads out there who want to be left alone with their little slice of paradise in the middle of nowhere… but most people crave some human interaction from time to time, especially from like-minded souls.

I’m one of those people. I enjoy the company of interesting, like-minded, and well-rounded individuals.  This is the chief reason that I’ve encouraged kindred readers to join us in the private Atlas 400 group, whose next gathering is coming up next month in Panama. I’ll be there.

On the subject of social interaction, I think Panama is one of the easier places in the world to meet people, both foreign and local. Despite Panama being a Spanish speaking country, the English language is absolutely pervasive, particularly in Panama City and Boquete.

It’s easy to meet anyone, and with the exception of a handful of elitist gringos who think too highly of themselves for having lived in the country for so long, most people are actually quite friendly and welcoming.

As a rule of thumb, the more ‘international’ a city is on a per-capita basis, the easier it will be to meet like-minded, English-speaking expats who are at your level.  Panama City has about 50,000 expats and roughly 1 million locals.  Boquete has a population of about 20,000 with at least 5,000 expats.

By contrast, as city like Shanghai has 300,000 expats and 17 million Chinese people, most of whom do not speak English.  You get the idea.

I’ve honestly found both Phuket and Pattaya, Thailand, which are fairly small cities of about 100,000 each, to be among the most international cities in the world on a per-capita basis.

Here in Pattaya, for example, I have gotten to know people from 6-continents– a Russian movie producer, a French investment banker, a Norwegian surgeon, Canadian entrepreneurs, a retired Australian footballer, an Indonesian factory owner, Yemeni medical tourists, Sudanese vagabonds, and a lovely topless sunbather from Peru.

In fact, Pattaya is the only place in the world that I have been to where on a single block you can see a dry cleaner’s sign in Arabic, a restaurant shingle in German, a real estate billboard in Russian, a newspaper kiosk in Thai, a travel agency in Mandarin Chinese, and a Go-Go bar promotion in English. It’s really amazing.

Just recently I was having lunch in an Arabic restaurant owned and operated by former Iraqi soldiers of the elite Republican Guard. When I looked around and saw Russians, Europeans, Africans, Arabs, and a handful of Jewish tourists eating large meze plates, I thought that I must have stumbled upon the center of the universe… or some strange version of MLK’s dream.

In these sorts of ultra-international locales, breaking the ice is as simple as asking the question, “where are you from?” Be prepared for long answers.

Other places that you may want to consider are Singapore, Hong Kong, Qatar, Capetown, Dubai (though it’s a bit pretentious), Georgetown (Malaysia), Punta del Este (Uruguay), Hanoi (Vietnam), Colima (Mexico), Medellin (Colombia), Cuenca (Ecuador), and just about any mid-sized city in Brazil (Natal, Florianópolis).

So much for BMW’s run-flat tires. Believe it or not, I’m actually sitting on the side of the A3 motorway in central Germany, about halfway between Frankfurt and Munich, waiting for the tow-truck to arrive. 

Apparently you’re supposed to be able to drive on these tires even when they’re flat… and with such confidence in their country’s manufacturing capabilities, the German rental car company didn’t bother providing me with a spare.  Call me old-fashioned, but I’ll take a spare and a jack over run-flat tires any day.

Given what we put this car through, though, it has performed admirably– about 2,500 miles of hard driving in just 4 days at speeds usually exceeding 200 km/h.  You see a lot of interesting things when you spend that kind of time on the road, and one of my observations leads me to believe that we are in for a major shift world finance.

For starters, customs agents across Western Europe are visibly out in force, patrolling the highways and major travel hubs.  Their mission? Generate revenue, coercively if necessary.

In just a single 12-hour period, we were stopped twice in France by government thugs.  Similar to my treatment that I described last week at Helsinki airport, the encounter felt more like an inquisition– where were we driving from, what were we doing there, what do we do for a living, and most importantly, how much money were we carrying…?

They seemed disappointed and skeptical when we said “uh, about 250 euro…” as if two well-dressed gentlemen in a nice sports car were cosmically obliged to be carrying more than 10,000 euro.

They didn’t take our word for it and continued the snooping and inquisition.  If this had happened only one time, I would have written it off as an anomaly. But multiple times within a short period of time is suggestive of a broader agenda.

My business partner Matt had a similar experience before his flight from Chicago to Frankfurt just last week; as he was strolling down the jet bridge to board the plane from the business class entrance, he ran into a squad of customs agents waiting to randomly inspect passengers.

Once again, their chief concern was monetary instruments– How much cash was he carrying?

Customs officials are like feudal lords; they wield supreme power in their little border fiefdoms and have the authority to confiscate whatever they like, for any reason, and then stick you with the onus of proving your innocence.

This is exactly why the government has its people patrolling the airports and highways… low on ‘hope’ and short on ‘real change’, the government has tasked its border enforcement with grabbing as much cash as possible.  It’s sort of like setting up a speed trap in a small town with no economic prospects.

If customs officials believe the amount of money that you are carrying is for suspicious purposes, they have the authority to relieve you of your cash, Constitution be damned. The same standards apply in Europe. In a very literal sense, this amounts to highway robbery.

The standard generally applied is “presumed guilty until proven innocent,” and I think it’s safe to assume that these types of searches and seizures specific to monetary instruments will increase.  More importantly, though, these measures are likely an overture to the eventual implementation of capital controls.

Governments rely on capital controls to regulate the flow of capital through their borders.  In times of crisis begotten by political stupidity, they have an even greater need to keep money on shore to ensure that you’re paying your fair share of somebody else’s mortgage.

The first step in capital controls is to go after cash; it raises money through confiscation and makes people rely more on the banking system out of fear.  The next step is to re-regulate the banking system to make cash transactions more cumbersome and dealing with foreign financial institutions more controlled.

This is already in the works with the recently passed US House of Representatives bill H.R. 4213.

I discussed this trend towards capital controls three-months ago, but frankly I am surprised at how fast things are moving. The time to plant a financial flag overseas is now, and there are a couple of ways to do that.

First, foreign bank and brokerage accounts are a reasonable solution. I’ve mentioned this numerous times in the past, most recently with a discussion about Islamic Banking. I think that Panama, Singapore, Hong Kong, UAE, Malaysia, and Canada are all reasonable places to bank.  There are many more that I will be discussing in the future.

While there are some annual disclosures to file in some countries (like the US), it is completely legal to have a foreign bank account, and I doubt governments will ever change that… they’ll just make it next to impossible to move money.

That’s why the window of opportunity is now.

Second, buying foreign property makes a lot of sense. At present, there are no reporting requirements for foreign real estate, and as we have discussed in the past, you can even move individual retirement savings into foreign land.

More to follow on all of this. Stay tuned.

I’m sitting in a comfortable, overstuffed leather chair this morning typing away at this letter while a team of local women give me a traditional Thai foot massage.  30 minutes in the chair will set me back about $4, and I can’t think of a better way to part with my money.

It is with great hesitation that I’m even sitting in this chair– not because I don’t like massage, but because this particular chair happens to be at the airport.  You see, I’m waiting for my departure to Europe, and if it weren’t for an important meeting in Spain that I’m looking forward to, I would be staying right here in Asia.

It’s not that I don’t like Europe– I love it, actually… the scenery, the people, the history, the architecture. It’s hard to not feel alive on a summer day in Krakow, racing down a ski slope in the Italian Alps, or driving a Porsche down the Croatian coastline.

In terms of value for the money, however, Asia has Europe beat hands down.

Take this simple, $4 massage; it would be difficult, and entirely cost prohibitive, to find a team of European professionals who would be willing to provide this level of attention; Europeans feel that ’serving’ another human being is elitist, which is part of their egalitarian socialist dogma. The session would be courteous, at best.

Many cultures in Southeast Asia, on the other hand, are happy to go the extra mile, especially when there is a gratuity attached.  The ladies who staff this airport location, for example, wouldn’t even let me remove my own shoes and socks– they did it for me.

Having another person do that honestly makes me feel a bit uncomfortable… but providing this level of service is what they are accustomed to, if nothing else than for the gratuity at the end.

The motivation to earn more by providing excellent service is clearly more prevalent in the Orient than in Europe.  Neither mentality is right or wrong, just different. Naturally, though, as a consumer, I prefer a greater level of service.

Price is also a major factor. In Asia, with few exceptions like Singapore, Japan, and South Korea, you have to put up with some level of squalor– trash in the streets, gratuitous displays of poverty, etc. While these indications are not completely lost on Europe, it’s safe to say that cityscapes in the west, in general, are cleaner.

That being said, however, the price difference is enormous. The cost of living very well in Europe is easily five times the cost of living very well in Asia.  Is Europe five times as nice? Depending on what you are looking for, most likely not.

As I look around the world and price compare, I wholeheartedly believe that Asia and Latin America still provide the most value for the money.  My top picks for those regions are:

- Latin America -

1) Chile: Strong economy, beautiful landscape, modern and developed infrastructure. Living costs are low, and the cleanliness makes it feel like you are in Europe. The biggest concern with Chile is that it is growing too quickly; the Chilean peso is one of the best performing currencies in the world, so costs for foreigners are going up.

2) Panama: Also a strong economy with developing infrastructure and increasing local standard of living; costs in Panama City are going up, but if you get out of the city, you’ll find that you can still live incredibly well for very little.

3) Colombia: Clean, modern, and home to some of the best weather on the planet (especially in Medellin). You have to be willing to look past the “Colombia stigma,” but I guarantee it’s well worth the exercise in intellectual independence.

- Asia -

1) Malaysia: Home to a growing influx of Islamic funding, the country is on solid economic footing while maintaining very low living costs. Medical care is strong, and the “My Second Home” program provides an easy route to permanent residency.

2) Philippines: Stable economy, cheap real estate, and excellent English proficiency. Manila and Quezon can be tough, but just outside of the cities you can find inexpensive, pristine coastal property. I know many expats who are happily living out their years being fed grapes on a hammock with just a meager retirement pension.

3) China: Lack of English proficiency can be very frustrating… but China is becoming nicer and more livable by the day. In terms of its modernity, it will be the first developing nation in Asia to match the west, and it will happen in the next 5 to 10 years.

Naturally, I will provide more about these locations in future letters, but I wanted to give you a quick overview today; if you have any specific questions or your own additions, please let me know.

Long ago, physical commodities were used as a mediums of exchange… gold and silver were quite popular because they were scarce, divisible, durable, and hard to replicate.

If you had a few extra ounces laying around and wanted to store it securely, you would seek out the people who dealt with precious metals all the time and had the right equipment and staff to keep it safe.  At the time, those were goldsmiths.

In exchange for keeping your wealth safe, goldsmiths would charge a fee… and for that fee, you could drop by any time and withdraw some of your gold on demand.

In other cases, if you wouldn’t be needing your gold for a while, you could leave it with him for a fixed period, say 1-year. In this case, the goldsmith would pay you interest on the deposit, knowing that he could loan out the gold to someone in need of capital at a higher rate for the same duration.

It was a simple, admirable system. When you wanted your money, it was there; if you didn’t need it, you could earn a return.

Over time, the system changed. Goldsmiths (turned bankers) began issuing paper notes which were redeemable for the gold that was secured in their vaults. The paper notes circulating around town were ‘as good as gold,’ depending on the bank’s reputation.

Occasionally, a greedy banker would circulate too many notes around town– $100,000 worth of gold in the vault, $110,000 worth of notes circulating around town. The banker got rich, and no one really noticed… until $110,000 became $150,000 became $200,000.

Then suddenly, noticing the spike in money supply, the townspeople would lose confidence in the note and descend on the bank to demand their gold. The banks collapsed and depositors took it on the chin.

Naturally, governments eventually became involved.  They standardized a single paper currency for the country and took charge of securing the nation’s gold reserves.  In the United States, perhaps the greatest change took place in 1913.

After intense Congressional deliberation, Woodrow Wilson signed the Federal Reserve Act into law in December of that year. Aside from creating the United States Federal Reserve, the Act created a regulatory structure for a nationwide fractional reserve banking system.  And from that day forward, every bank in the country became effectively insolvent.

Fractional reserve banking is the practice of loaning out more money than is on deposit. Someone deposits $10 in a bank; the banker keeps $1 in the vault and loans out the other $9. That $9 makes its way through the economy and is eventually deposited in the bank. The banker keeps $0.90 and loans out the other $8.10.

This scheme is repeated over and over again until there is $100 floating around the economy based on a single deposit of $10.  An additional $90 was conjured out of thin air by the bank.

Suppose you went to a storage facility and paid them to secure your furniture… if the facility owners went behind your back and loaned out your kitchen table, this would constitute fraud.  Yet in banking, this is standard practice thanks to the Federal Reserve Act.

The Fed governs the ‘reserve ratio,’ which is the amount of deposits that banks actually have to keep on hand. Depending on the type of deposit, it ranges from 0% to 10%.

The system works when everyone has confidence. When they don’t, banks go under– and that is exactly what is happening right now.  Between balance sheet deterioration and loss of depositor confidence, banks are dropping like flies… but hey, don’t worry, the taxpayers have you covered.

Personally, I want to put my money in a place where the bank will actually hang on to it and no one has to rely on a taxpayer bailout.

One solution that you won’t hear too many people talk about is Islamic Banking.  Based on the ‘Shariah’ principles of Islamic law, Islamic banks in theory must hold 100% of their demand deposits in reserve.

In practice, thanks to creative deals and a bit of leniency from Muslim scholars, the reserve ratio is a bit less than 100% for Islamic banks… but as a whole, their reserves and financial strength are extraordinarily higher than western banks that are on the fractional reserve system.

If you are concerned about what another financial meltdown will do to your bank account, consider opening an account at an Islamic bank. Abu Dhabi Islamic Bank in the UAE is one example– they work with US citizens and even have safety deposit boxes for rent.  ADIB has branches across the country, including in Dubai.

Outside of the Gulf region, Singapore and Malaysia are two up-and-coming Islamic Banking centers that have interesting tax advantages. Malaysia is particularly interesting because of its tax-free Labuan region.  I’ll be discussing this in future letters.

As a final note this afternoon– I know Turkey day is tomorrow in the United States even though it will just be Thursday here in Asia, but I will likely refrain from email for the next two days and talk with you again on Monday.

And don’t forget that next Tuesday will be the 2nd release of the Panama Black Paper– only 25 copies will be sold, so if you want a copy, make sure you sign up to be on our pre-notification list. 12/1/2009 update: We received a lot of feedback from subscribers around the world in ‘inconvenient’ time zones that would be unavailable for the pre-notification launch… I understand this more than most people– 12pm on the east coast is the middle of the night in Sydney. Consequently, we are sending out a public notification on December 1st will keep it open for 24-hours.