Ecuadorians. They know their cement and have a good eye for laying up
stone. They also work weekends. Not more than one in fifty of these
workers are here legally. I had an interesting discussion with the mason
I use.
He is 30. Been here for six years. Works six days a week. Some years ago
he put a nest egg together of $20k. He used that money as a down
payment on a two-bedroom apartment back in Quito, that cost him $80k. He
got a dollar mortgage on the $60k balance and rented the apartment to a
government worker for $400 a month. The rental makes him net cash flow
positive on a monthly basis. A smart investment for a guy looking to go
back home someday. But he has a problem lurking. He is at risk to
contagion. I doubt that he understands that. But he does know he has a
big FX risk in front of him.
His words:
“The government will be forced to stop the dollar as the
currency. When this happens the rent money I receive will be worth much
less than the $400 I get now and my debt is in dollars.”
Some background.
Ecuador dollarized its economy in 2000. This step brings immediate
benefits to the country involved. It has the impact of reducing
inflation, it increases the countries ability to borrow from external
creditors and the predictability of a stable currency helped encourage
domestic investment/growth.
Ecuador is in that sense a bit like Greece. It tied its currency to a
horse that at first dragged it ahead, but ultimately the reality of a
weak economy tied too closely to a strong one leads to a blow up.
Ecuador is already a pariah in the international financial community.
They have defaulted on their debt twice in the last decade. Most
recently in December of 2008 when they stopped payment on $3.8 billion
of bonds. in June of 2009 they bought in most of the debt for pennies on
the dollar. At the time I was surprised, Ecuador had reserves in the
bank. There was no economic need for the default. This was about
politics:
Calling Foreign Debt 'Immoral,' Leader Allows Ecuador to DefaultWashington
Post
Saturday, December 13, 2008
So where does a country go when it is need of some money and it has been
shut out normal channels of lending? Iran and China of course. This has
not been a smooth ride either. Consider these headlines over the past
few months. It does not look like China is such a “willing” lender after
all.
Correa said that he “unilaterally ended” talks with the Chinese
Eximbank “because of the mistreatment and the rudeness”“We will not forget this.”— Rafael
Correa, Ecuadoran presidentAFP, QUITO
Monday, Mar 22, 2010
It would seem that President Correa has a short memory, or a big need
for some “fast cash”. Less than a month later the talks with the Chinese
were back on:
Ecuador Restarts Negotiations With China For Electric ProjectQUITO
-(Dow Jones)- 4/27/2010
If Ecuador can’t find the money it needs from the Chinese they can turn
to Iran. At least that’s what this headline suggests:
Iran to build power plants in Ecuadorby Peter
Ward on Mar 8, 2010
But the Iran money might be all talk.
An existing line of credit appears to be untapped. I found the following
errata on the subject from the Economist to be oddly written. More
curious is that a link to this retraction is widely featured on the web
site of the Central Bank Of Ecuador.
Correction: Ecuador's Central BankApr 15th
2010 | From The Economist print editionWe are happy to clarify that although
Ecuador's Central Bank signed an agreement in December 2008 under which
Iran's Central Bank has set up a credit line of $40m, extendable by
$80m, at the Export Development Bank of Iran for the use of Ecuadorean
importers, none of this money has been deposited in Ecuador. We
apologise for any confusion.
As near as I can tell Ecuador has few friends. They appear to be
shooting themselves in the foot. This kind of stuff gets you in the
global doghouse fast:
Ecuador Blacklisted for Money Laundering
6 Apr 2010
FATF has identified Ecuador as having strategic deficiencies.
Ecuador has not delivered a clear high-level political commitment to
address these deficiencies. Ecuador should address these deficiencies,
including by: (1) adequately criminalizing money laundering and terrorist
financing; (2) establishing and implementing adequate procedures to
identify and freeze terrorist assets.
Short-term issues are stacking up against Ecuador. They are dependant on
oil exports for cash. The annualized drop in value of the oil exports
was $1.5B in just the past two weeks. There is another deadline coming
up. This one could prove important. It is my understanding that there is
a May 31 deadline for the repatriation of dollar assets by a number of
Ecuadorian banks. We’ll see if that happens. The numbers; GDP: $108b,
Current Account 2009: deficit $1b, Budget deficit (2009): $2b. Ugh.
Does it matter if Ecuador goes turtle? No. Most of the damage has been
done. I doubt that a blow up in Ecuador would make the papers. Their
$108b annual GDP is about the same at Utah or Arkansas. But in the
unstable world that we live in the wings of this butterfly could still
cause high winds elsewhere. That is the nature of contagion.
My mason has a plan should there be a monetary change in Ecuador:
“I want to go home and get married. But I may have to
stay a few more years to pay the dollar debt.”
How does this fit into the “Big Picture”?
U.S. Department of State Background NoteEcuadorIt
is estimated that there are over two million Ecuadorians currently
residing in the U.S.
What is the cost to America for these two million people? Most of them
are not legal. The flap of the wings brings more contagion.
Some of our pals with Ecuadorian President, Rafael Correa.
re: "dollarization", the 'official' policy promulgated by Stephen Hanke, ended with the end of the Clinton Admn, after Argentina screwed the pooch, and misc country elites were getting seriously nervous. This after Ecuador, Dominican Republic, El Salvador all "officially" dollarized.
Fast-forward to 2010: just back from Cambodia, Vietnam. The ATMs I used ONLY gave dollars in Cambodia, and then gave you a choice (Dongs or Dollars) in 'Nam. Ergo: dollarization continues, but under the radar and courtesy of an entirely new networked technology: ATMs.
I'm pretty sure that the largest single source of income in Ecuador are funds sent by people working here. Last time I checked Correa was on a warpath against big American oil and displaying lots of all around anti-American sentiment. I'm guessing this money laundering pressure is just a way to squeeze the guy into compliance. Also, I'm no expert on South Am but I do believe there was quite a bit of domestic public support behind their bond default. It had to do with allegations that country's existing financial and political elite invested heavily into government bonds (it's a 3rd world country so yields were nice) and then made sure those would get paid before anything else. There's probably something to that. Anyone know of a good beach side property realtor down there for when their dictatorial-socialist thing implodes (it'll be nice to have a little tropical paradise to run to when our keynesian-socialist thing does the same)?
From http://www.internationalliving.com
http://internationalliving.com/2009/09/retirement_haven/
Correa was educated here and got a Ph.D at U of Illinois. This from Wikipedia:
In June 1991, he received a Master of Arts in Economics from the Université Catholique de Louvain in Belgium. He later studied at the University of Illinois at Urbana-Champaign, where he earned a Master of Science in Economics in May 1999, and later a PhD in Economics in October 2001. According to The Washington Post, Correa's adviser at the University of Illinois, Werner Baer, supports his former student. "He appreciates the market to a certain point, but he knows that the market left alone concentrates wealth", he said. "He is not going to do anything foolish... because he is a fairly open-minded person."[4]
I've asked Prof. Baer if he wished to update his opinion on Correa and he's never responded. Disclosure: I've done some business in Ecuador. Correa's a buddy of Chavez.
From the tone of the comments here may I suggest some remedial reading. The book is entitled "Manual del perfecto idiota latinoamericano" and written by Plinio Apuleyo Mendoza, Carlos Alberto Montaner, and Alvaro Vargas Llosa. You might actually learn that there are alternative ways of thinking beyond the tenets of Liberation Theology and 21st Century Socialism. And that one of the major reasons for the long and twisted development road of Latin America is their century long reluctance to address their own faults and problems but to blame the "other guy" up North. But the book at least demonstrates that not all of "the people" get "instantly angry" or "blam[e] the U.S. for destroying much of their economy." Ha, ha, ha! It really would be funny... if it wasn't so sad.
Yeah, imagine the citizens of any country (or state within the United States of America) to demand their own resources not be stolen by someone else.
The nerve of some people....
Spent about a month in Ecuador in 2002, and nobody seemed happy about the dollar. Most merchants couldn't break a $20, and much of the money (even coins) in circulation was counterfeit. A sick friend went to a Quito hospital and reported that there was no soap, despite signs urging everyone to wash their hands. People tended to blame their own government for the dollar-related portion of their poor economy, lamenting that the US budget is planned decades in advance, while their government might or might not plan a year in advance. However, especially in Quito and northward, people did blame the US for destroying much of their economy. In my experience, upon mention that I was American, people became instantly angry about Plan Colombia. People were upset that the US military had illegally sprayed large numbers of coca fields, killed a lot of coffee crops in the process, and never acknowledged it. Lots of anti-American graffiti on the streets related to plan Colombia, but people didn't seem to think the US government was any worse than any other (but they had Colombia's civil war to the north, and Peru's Fujimori to the south for comparison). Thanks for the article.
Having spent a little time in Ecuador, I have a
couple of comments:
Drug money has quite an influence. Again and
again, Haciendas were pointed out to me that
were owned by Colombians. They get out of the
Hot zone and built these huge spreads. There
is a multiplier effect As a result there is
a bit of a real estate bubble .
Another interesting consequence was that $100
dollar bills were almost unspendable. We had
good ones from the US. Even the banks
wouldn't take them.
OTOH, praise them for getting off the dollar-USA-world credit bandwagon...
Venezuela is in far worse shape than Ecuador. The rich in both countries keep their wealth in the US where they are sheltered from their home countries taxes. Meanwhile, Ecuadorian illegals soak up benefits in the US while paying little or no taxes, and our boys in Washington erect capital barriers to keep US wealth in the country while extorting taxes on all offshore income from her legal expats.
Marla is right, it is farcism.
My illegal alien neighbor had an (illegal alien) unemployed friend who bought a house in 2006- 2007, refinanced it, took out a $60,000 loan on the house and then moved back to Mexico. He stiffed the bank and the neighborhood!
Sounds like the bank got what they deserved.
As if. Think harder about who is getting the tab...
That's our own fault for being stupid. I'm sick and tired of the greater fool theory always ending with the US Government (tax payer). Truth is that the politicians making the decisions have as much regard for this country as that "take and run" Mexican. The difference is that that guy never promised he would do otherwise.
No you can't have your country back.
You gave it to the financial elites years ago.
When you blame people who don't look like you or sound like you you are serving the interests of the elites, who would prefer that you don't blame them.
And it ain't like white Americans aren't doing the same thing. Crooks is crooks no matter what the skin color.
Or as Chris Rock said, there are black people, and then there are niggers.
I am Chumbawamba.
Well said, Gromit, well said.....
Amen.
So they got to Ecuador by using the catspaw of anti-money laundering ("AML")? What a scam that is. AML's cover story is that it is a legitimate attempt by the state to discourage the use of funds derived from unlawful activity. The reality is that AML is a pervasive, extra-legal scheme to destroy financial privacy and enforce USD hegemony. The first element of money laundering is an unlawful predicate act: drugs, prostitution or tax evasion. (Terrorism is claimed as a cause celebre and the hate of the decade, but even 9/11 was financed with a mere $300,000, probably with hawala. Guess what? Terrorists don't use their real names in the financial system when they even use the system). In technical terms money laundering is knowingly placing, layering and integrating the funds arising from a predicate act into the "lawful" financial system. If the creation of the funds in itself constitutes unlawful activity, like say, counterfeiting, then every person knowingly using such funds would be using the proceeds of crime and thus be chargeable with money laundering. However, because the creation of US dollars out of thin air is not prosecuted as the crime against the Constitution that it is, there is only a distinction without a difference between using privately counterfeited dollars and using officially counterfeited US dollars as constituting money laundering. In principle - but not in law - everyone using US dollars is engaging in money laundering in the context of the greatest Ponzi scheme the world has ever known. Cosmic hypocrisy aside, the scam known as AML is a gargantuan self-serving boondoggle with no material metric of claimed effectiveness, beyond inserting itself into every nook, cranny and crevasse of your financial privacy. Woe to those like Ecuador - or Iraq or Iran or Venezuala - who attempt to leave the USD plantation. AML has gutted, stuffed and mounted the Fourth Amendment six ways from Sunday. In strict constructionist (ie., words have meaning) Constitutional terms, AML is the crime.
You are perspicaciously correct, good citizen!
And there is the reason for that Wolfsberg Group, not coincidentally made up of the biggest money launderers and market riggers (simply google it for a list of the usual banksters).
And the reason for the IMF, working through the Edgmont Group, to establish all those FIUs (financial intelligence units) at all the offshore finance centers to "monitor the capital flows to halt money laundering."
Hah...that's a gargantuan laugh.
Although, to be scrupulously true to forensic economics and forensic accounting, I can't agree with your assessment as to the financing behind 9/11....
Correa has done a lot of other things to make certain powerful enemies. He has attempted to force foreign business interests doing business in Ecuador to follow Ecuadorian laws. He's tried to force these same companies to honor contracts they have signed. He's done his best to keep his country out of the web of IMF/World Bank/private finance obligations that end up forcing debtor nations to pretty much turn over the keys to their lenders.
One of his predecessors went down this road and wound up dead in a very fishy airplane crash. This money-laundering apparatus is just a turn of the vise-handle. It will be interesting to see if Correa has structured Ecuador's finances to be able to withstand the mounting pressure. Or to see how long he lives.
+1
LOL
I was thinking the same thing, glad you said it.
thanks, interesting..
Oh yes.
Myanmar is close to joining the axis of evil - but from what I can figure out (vice Chindit13) their biggest crime is refusal to let our credit card bankers debauch their citizens.
Same crime the islamic banking system commited, and we've all seen what's going on there...
“I want to go home and get married. But I may have to stay a few more years to pay the dollar debt.”
Too bad he took out the loan in Ecuador. If it was an American loan, the easier way out would be to just stiff the corrupt bank rather than engage in modern day bank-slavery. If the bank tried to repossess, just ask them to produce proof of ownership. Knowing American banks, most likely it would have been securitized to smithereens and all their paperwork would be fraudulent and in shambles.
No, He bought the aprtment in Ecuador, not the US.
Yeah, that's what I said - too bad he took out the loan in Ecuador :-)
True, but plenty of people I know in a neighboring country took out no doc helocs and such to buy a home down there. Asset in 3rd world, debt in the US.
Don't get down to Mexico much myself these days but the drug money has to go somewhere. The Bolsa is up some ungodly number and real estate will get its share.
South American real estate markets (not sure about Brazil) tend to be dollarized whether local currency is pegged or not. If it is pegged - and then unpegs - the local real estate market implodes. (See Argentina.)
I have conversed with several Mexicans working in America that speak of incredible dollar price increases at home, but I have not been there recently to see for myself. Mexican Peso is down 1.62% vs USD in most recent trading, so maybe some relief is on the way.
You know, my old man used to say "Being President is OK--but don't make a Correa out of it..."
My old man fought in the Correan War.