Panamania 23: Do not flee to Panama, come for the positive

This is a message to the many people who have written me on a collective theme. Chicken Little and the falling sky. If the sky falls, the pieces will land on your head where ever you are, including Panama.

The theme I keep hearing is that Barak Obama is destroying the US. That there will be hyper inflation, that the government is going to take everything I own, that Obamacare is evil, that fiat currencies are worthless only gold and silver have value and on and on. This fear is being reinforced by several companies that profit from selling seminars and real estate tours of Panama.

I confess as always up front I am not an economist, I do not and never have worked for the US Federal Government.  I was a instructor in an Arizona Community College and at times for the University of Arizona, but since the topics were not related to politics or economics, that bit of history is irrelevant. What I do is observe, read and try to stay educated.

About the decline and fall of the US dollar, a fiat currency. According to Wikipedia the term fiat money has been defined variously as:

• any money declared by a government to be legal tender.
• state-issued money which is neither convertible by law to any other thing, nor fixed in value in terms of any objective standard.
• money without intrinsic value.

People say the presses are wearing out because they are printing dollars so fast, probably true; but the real money is inside the computers not on paper. There is little question the amount of currency and inflation are increasing. Inflation is planned, it is deflation and hyper inflation that are feared.  Inflation is important to you and to banks. If anyone lends money for anything and it is soon worth less than the loan made  the borrower might not pay. This happened as housing prices fell in the US and people walked away from debt, not good for lenders and therefore not good for the economy.

Hyper inflation makes the asset more valuable and the currency less so. Hyper inflation also hurts the same lenders, they lend money and it becomes worth less over time. With hyperinflation the notes and interest become less than profitable in real terms.  Good planners try to balance lending and inflation with interest rates ahead of the rate of inflation. Consumers with money try to place it where it will grow faster than the rate of inflation.

“During the Revolutionary War, when the Continental Congress authorized the printing of paper currency called continental currency, the monthly inflation rate reached a peak of 47 percent in November 1779 (Bernholz 2003: 48). These notes depreciated rapidly, giving rise to the expression “not worth a continental.”

A second close encounter with hyper inflation occurred during the U.S. Civil War, between January 1861 and April 1865, the Lerner Commodity Price Index of leading cities in the eastern Confederacy states increased from 100 to over 9,000.  As the Civil War dragged on, the Confederate dollar had less and less value, until it was almost worthless by the last few months of the war. Similarly, the Union government inflated its greenbacks, with the monthly rate peaking at 40 percent in March 1864 (Bernholz 2003: 107). ”

Wikipedia

When I moved to Panama my lawyer said if you are coming to Panama to run away from anything in the US,  find another country. To quote him, Panama is a tail wagged by the big dog up north. I will add that the world banking industry is the tail wagging the world economy. They wag the US government, they run the Federal Reserve,  but sometimes, somethings happen they cannot control.

Wars and panic mess with the best laid plans of governments and bankers. Those who control the economy want a balance, inflation, but slow and easy. The Federal Reserve which is run by bankers makes every effort to control inflation. It is true that a dollar today buys far less than a dollar in 1900 but then again earnings today are far higher than in 1900; part of the plan.

If your paycheck or retirement is in US dollars then any increase in inflation adversely effects your buying power. It is so in the US, in Panama where the Balboa is the dollar, or anyplace else where you will need to exchange your dollars for the local fiat currency.

What then is an alternative? Some people say gold, silver or other metals are a hedge on inflation. There is certainly some truth to the fact that precious metals have increased in value relative to fiat currencies, surprisingly the rapid increase has only been in the past ten years.

This is a long term graph or the value of gold in US dollars since 1973, source http://www.goldprice.org/spot-gold.html.

Note the cost of gold in dollars started it’s current ascent, 2002. This phenomenon has not just affect US currency. This chart is the Euro from 1999.

Many people view gold as a good long term investment, it was a low return investment until 2001-2002 and is not looking so good this month either.

Oil, black gold has a interesting parallel chart.

Compare it to gold and note the date September 11 2001. Gold and black gold started there current ascent in the same time frame. What started the rise:  fear, uncertainty and doubt. The legacy of 9/11 has been to change everything about the world.

The current world economy is tied to a consumable product, oil, not gold. The economy can survive without gold.  The dependency on oil is world wide with those countries that import it going through inflation caused by the cost of the commodity. Panama imports all it’s oil. Our economy consumes it at world market rates and when oil goes up so does everything in the economy except wages.

Wages are the one thing lower in Panama than the US. Everything produced locally is less expensive because the current minimum wages paid in Panama start at $1.43 an hour for agricultural workers, higher for others. If the cost of labor in Panama was equal to the US most everything would be more expensive here. In my six years here I have seen two government mandated increases in minimum wages and each time the prices of everything, including healthcare has increased.

If you are too young for Medicare,  Obamacare mandates that US insurance companies need to sell you insurance regardless of preexisting conditions; not so in Panama. If you are not covered by Panama’s Social Security system, and have a preexisting condition, you cannot purchase medical insurance in Panama. You can buy into some limited programs offered by some hospitals, but in this system you are on your own. Medicare does not work in Panama. Tricare provides civilian health benefits for military personnel, military retirees, and their dependents and it does work in Panama.

My message is that if you are fleeing the US because of the the dollar, we have it here. If you are fleeing because of the cost of living, it might not be that much lower here for the same lifestyle you have. If you are fleeing because of inflation, it’s here too. If you cannot stand government in your life, this is just another government and they make changes much faster with less thought to the long term consequences.

If however, you want to have a whole new life experience, learn a new culture, learn a new language, live on a tropical beach or in temperate mountains close to a tropical beach, this might be a good place to consider. Just do it as an affirmative action, not in fear. Many of those who fled to Panama came, saw and left. Those who elected to be here for positive reason have reasons to be positive.

I love it here, I enjoy the mountains where I live. I reluctantly confess to enjoying the beaches, as long there is shade and no expat targeted development. I love the people, the culture and I am and suspect I will always be learning the language. I haven’t mastered English yet so why should I think I could ever master Spanish. I also confess I cannot stand Panama City, I rather be in Buenos Aires, Argentina or Valpariso, Chile for urban life. Latin America is a delightful contrast in living from my native North America.