The Net Tightens Truth and Consequences

by | Aug 8, 2002 | Archives

Here is another reason why an international business can be vital in protecting your wealth. Currently non U.S. persons who bank in the U.S. do not pay tax on interest they earn. Plus their accounts are quite private. A message from eClub advisor Leslie Share ( – see – shows that now the IRS is about to force U.S. banks to report income paid to non U.S. residents in many countries. (See the message from Leslie)

We must ask why and what will the consequences be.

First the truth about why? The IRS wants this information so it can trade data with tax authorities abroad. U.S. banks already have to report income paid to Canadian residents so the U.S. can swap names with Canada Revenue. The swap makes sure that Americans don't hide money in Canada and Canadians don't keep a stash down south.

The second truth is that down the road the U.S. may be crazy enough to start taxing accounts of non U.S. residents.

Now the consequences. The U.S. dollar is already under extreme pressure (as it should be). The U.S. has a huge and growing federal budget and trade deficit. Until a couple of years ago this did not matter because foreign investors held huge amounts of U.S. dollars. The greenback was strong, interests rate were high and Wall Street was rising. Why not invest in the buck?

Today the U.S. dollar is falling, interest rates are low and Wall Street has collapsed. Why would a foreign investor keep money in the U.S.?

There are only three logical reasons. One he needs dollars to spend. Two, he feels that U.S. banks are safe or three, he is hiding money from tax authorities in his own country. This is America's dirty little secret. While U.S. authorities have been putting more and more pressure on overseas banks, the U.S. is one of the best tax havens for those who do not live in the U.S.

A new tax could force foreign investors out of the U.S. banking system and if they flee the greenback, expect the U.S. dollar to drop far and fast.

So what, you might ask? This is bad because you can expect everything you buy from abroad (and this is a lot) to rise. A recent message examined how expensive it already is to live in other countries – see

This is why having your own international business makes so much sense and why. If you have the ability to earn in other currencies, you reduce the volatility of your purchasing power in whatever country you live.

For example a recent review of our own portfolio showed that it has risen 11.25% in the last 6 months. This is no great thing until you look at how most portfolios performed in this period. Why did the portfolio rise when so many fell? One reason was because I hold a substantial portion in Euros and British pounds which have risen versus the U.S. dollar (and pay higher interest as well).

So whether you have or want a business or are just going to invest, think about spreading your investments in more than one currency. This can help you protect your wealth.

Until next message, may all your business be good!