In the 1930s. The Great Depression kept taking its toll. The U.S. economy kept limping along, like a wounded foot soldier graveling through the mud and blood-soaked barbed wire, inching his way home to the trenches along the Western Front under the ill-fated cover of a cold, blustery February night.
The world's newest empire kept clinking and clanking. Americans were broke, and they didn't know why. They wanted answers…they wanted a solution. These were desperate times. They called for desperate measures.
Like the Lord to Moses, Lord John Maynard Keynes caught the frequency of Grandpa Franklin's ear. The oracle of modern economics believed the policy prescription destined to save the modern market economy lay in the provident hand of government - more specifically, monetary policy (increasing the money supply) and/or fiscal policy (increasing government spending). Emphasis on the word "and."
FDR quickly swallowed the pill. He then passed the bottle down Pennsylvania Avenue. The distinguished gentlemen of Capitol Hill caught wind of the cure. However, Roosevelt (and just about everyone else) forgot to digest the second (crucial) part to Keynes' magic prescription. Governments fully embraced the idea of running deficits during economic down times…They just conveniently neglected to run surpluses (pay back the debt) in good times.
But who can blame them? What elected official in his right mind stands up before his Washington brethren and demands we turn off the spigot? Who in their right mind does not want to encourage more business expansion - and a greater illusion of fiat prosperity - than would otherwise be justified? And who knows or cares that a 1940s dollar is only worth roughly 5 cents today?
As Bill Bonner points out, "The goal here - as with all government programs - is to produce the desired benefits while pushing the costs onto someone else. That's how politics works. You promise something…and you force someone else to pay for it. You rob one Peter voter…and spread the loot among the Pauls."
Rene A. Wormser once wrote, "No government can operate with a monetary system consisting only of fiat money without sustaining gross economic turmoil and eventually facing a tragic day of reckoning. A fiat money system prompts legislative profligacy and, inevitably, produces inflation."
Wormser had a point. He had a very good point. Deficit financing and government intervention have taken their tolls. Less we forget, 50 or 60 years, which in a man's life means a good bit of existence, are only the blink of an eye in the life of a nation. Fifty or 60 years is even less so in the life of an empire…at least a successful one.
So here we are 60-odd years later with our sweat-soaked American wages, adjusted for inflation, tangibly lower than they were in 1970. We not only make less, but we spend more…much, much, more. From 1999-2007, household debt went up more than all the debt that households had previously accumulated in the 220-year history of the United States.
If that wasn't enough, by the end of 2005 the most recent Bush administration had borrowed more from foreign governments and banks than the previous 42 U.S. presidents combined.

The Government's broke… It's citizens are broke.
It's a sad fact, but today, approximately one-third of all Americans have no savings at all. The typical baby boomer holds a total of $60,000 in net worth. At a 5% after-tax fixed-income return, Johnny baby boomer will earn $3,000 a year, or $250 a month, or $8.33 a day. McDonald's must have seen this coming. The dollar menu may be all he has. So goes the true "McDonaldization" of America.
But wait! There's always Social Security. Whoa, Johnny gasps…Thank goodness Washington took care of that.
It's no wonder we find ourselves here. Americans' total spending last year alone exceeded their earnings by a mere $41.6 billion dollars. And that's not the most difficult task when one considers that the average number of credit cards per U.S. household is now 12.7.

The Real "American Dream"
It didn't used to be this way. Some 60-odd years ago, keeping your head above water meant saving a dollar.
In the 1940s, when my grandfather bought shares of companies such as General Electric and Alcoa Aluminum, his main goal never involved generating a fortune overnight - only making sure he had enough income for tomorrow.
You see, my grandfather was the child of a dying generation… A group of people for whom the Great Depression was much more than a chapter or two in the 13th edition of some unmarked high school history book.
Today, most kids in America will learn the basic facts of the Great Depression, but the most valuable piece of knowledge - a realization that's essential to all Americans today - won't appearin their textbooks, not even as a footnote.
My grandfather emerged from the Great Depression humbled…his "American Dream" intact, but tempered by the precious wisdom that nothing material in this world is infinite. For every "dream," there also exists the opposite, equally possible, scenario.
That's what we're facing today, dear reader. With each passing day, we add $2.43 billion to our record-high national debt, and the dollar continues to fall in value, further eroding our already insufficient retirement savings…
What are most Americans doing about it?
They're consuming even more, even if that means dipping into their savings or taking on debt they'll never be able to repay.
Why?
Because it has to do with an economic struggle… an innate and uniquely American fear of being left behind (or, even worse, completely left out)…It has to do with an individual's fight for their particular piece of the proverbial American pie.
Our political icons constantly remind us of achieving the "American Dream" and becoming an "ownership society," as if to say you can do better, achieve more and, thus, find happiness.
Its roots go back to the great bull market that followed World War II. That glorious economic expansion gave birth to America's first legitimate middle class…a group of people whose last names were scribbled onto university rosters for the very first time.
Every American family could now have a house with a yard, a new Oldsmobile or even a Cadillac Coupe de Ville…The "American Dream" was reborn and recast, unfettered by the cautionary tale not even one generation old.
If you couldn't keep up with your neighbors, then new companies such as Visa and MasterCard could help you out.
Madison Avenue hit its stride and showed the "Joneses" where to use their new plastic…And here we find ourselves today, back where my grandfather and his peers found themselves 60 years ago…blindly teetering on the precipice of another American nightmare.

Paying Uncle Sam's Tab
But there are a select few in the current generation…a handful of Americans with plenty of money for Washington to get its hands on. They're an elite group…They're the top 1%. They hold membership in the club of Americans who control 90% of the nation's total wealth.
So it's no wonder that the proposal to rescind America's "estate tax" fell three votes short on the Senate floor last summer.
It's true that the estate tax generates a little more than 1% of all tax revenue. Furthermore,the tax only affects 0.5% of Americans. Most Americans probably never think of Uncle Sam's majority stake in Granddaddy's estate.
But those affected care a great deal. They potentially face a 55% levy on transferable assets. And a majority of this money has already been taxed in one form or another.
Think of it this way… Warren Buffett, whose net worth is estimated at $52 billion, faces a $28.6 billion dollar bill from the IRS at some point in the not-so-distant future (we note Buffett plans to donate the bulk of his fortune to charitable organizations sans tax). Now, it's pretty well known that Buffett frowns upon the practice of passing great fortunes from one generation to the next. Steel magnate Andrew Carnegie also supported the notion.
President Theodore Roosevelt, cousin to FDR, instigated the whole idea. He argued that the transmission of vast fortunes between generations threatened to create a permanent aristocracy and, moreover, ruined the characters of the undeserving heirs.
He may have a point.
But many of the world's wealthiest families fail to share this sentiment. In fact, they spend great sums of money avoiding "the bill." According to the Joint Economic Committee, "The $23 billion in revenue it raises is illusory, since estate tax avoidance activities likely generate equally large revenue losses under the income tax."
Say what you want. I sometimes tend to wonder if those Americans who ardently support the tax would feel the same way if they were the ones about to cut the $20 million check. Most Americans wince having to cut the $2,000 dollar interest-only mortgage check.
Anyhow…While the 20th century history books exalt the purveyors of active government intervention…names like Atlee, Wilson, Monnet, Roosevelt and Lord John Maynard Keynes, I'm offering you this: the legacy of the other Sir John…Sir John James Cowperthwaite.
Thanks to our Sir John, not all governments profess the noble virtues of massive wealth redistribution. Some governments simply can't afford to. They lack the abundant natural resources to effectively pull off the stunt…they lack the proverbial amber waves of grain that support inefficient, activist government agendas.
Ducking the Estate Tax
Money will always flow where's it's treated best. And I think you'll be hard-pressed to find any other place in the world that treats money better than Hong Kong.
The highest tax bracket doesn't surpass 17%. Individuals are assessed on only annual employment income. Dividends and capital gains are not taxed. And like many progressive tax systems, Hong Kong grants allowances for certain deductions like charitable contributions.
When you consider Hong Kong provides arguably the world's greatest municipal services in a relatively crime-free environment, you'll be challenged to find a more favorable tax policy anywhere in the world.
And in a similar fashion to low personal tax rates, Hong Kong's estate tax holds a maximum rate of 15% on assets exceeding US$1,350,000. So when Li Ka-shing, the world's 10th richest man, looks to pass his $18.8 billion and growing, he'll do so under very favorable circumstances.
And here's the kicker.
Hong Kong recently repealed its inheritance tax on property. Consequently, many Hong Kong property owners (unfortunately, U.S. citizens who own Hong Kong property are still taxed under inheritance laws) are now able to pass down real estate assets without any tax liability whatsoever.
Let me say that again.
Real estate assets may be passed down generations without any tax liability whatsoever.
It's no wonder 21 billionaires call Hong Kong home. And I would venture to guess that it won't be long before many more do the same.
Hong Kong is the land of the rich. And I'm not just talking a few scattered billionaires. One in seven adults living on Hong Kong Island can claim the exclusive title of being a HKD millionaire. In fact, according to a Citibank-commissioned survey reported in the South China Morning Post, Hong Kong millionaires have roughly $4 million ($512,821 USD) in liquid assets, on average. And of those assets, one-third of that amount sits in common low-yielding bank accounts.

Hong Kong will become a tax haven for the new class of super rich. Its skyline competes with Manhattan, its weather is comparable with Miami's, public safety and infrastructure outclass anything you'll see here in the United States. Disney has just moved in across the harbor on Lantau Island, and Macau, the Las Vegas of Asia, is just a 45-minute boat ride away. What's not to love?

Prime locations in Central, Admiralty and Causeway Bay, the heart of Hong Kong, will only continue to command premium prices for years to come.

It's Time to Buy

As we stated in the Aug. 24 weekly alert, Beijing just announced that it would permit mainland Chinese citizens to invest in the Hong Kong stock market. The proposal allows Chinese citizens to open accounts at the Tianjin branch of the Bank of China and then sell renminbi (RMB) and buy Hong Kong dollars without limit for the purpose of buying shares in Hong Kong.
This is probably the most important financial development in China since its entry into the World Trade Organization in 2001.
This policy will release roughly $2.2 trillion in Chinese household savings from the depths of mattresses and low-yielding savings accounts ona path to find better returns. And that path goes in one direction only: Hong Kong.
As we said before, talk about a windfall for the Hong Kong market. As Zhao Xiao, a professor of Beijing's University of Science and Technology, said, "Remember, if all Chinese money can go to Hong Kong, then many global firms will favor listing in Hong Kong."
Countries have no friends, only interests

Beijing's decision to restrict mainland savings to the Hong Kong market should not come as too much of a surprise. This should go a long way in easing speculative pressure on the Shanghai A-share market while simultaneously keeping Chinese wealth with Chinese companies. This is the natural step as Beijing gradually begins releasing capital account control toward the eventual full convertibility of the renminbi.

Some of the world's greatest stocks call the Hong Kong stock exchange home. These multibillion-dollar companies have offices all over the world. Their names may be foreign, but their products and services certainly aren't. These are the companies that bring the "Made in China" label to a Wal-Mart near you. These are the companies that own some of the world's greatest real estate. These are the companies that plan to build the infrastructure that will service more than one-third of the world's population.
And if that weren't enough, most of these stocks currently trade at bargain basement prices. The reasons vary…In many respects, Southeast Asia still carries the "emerging market" risk label. Remember, the region has been forced to hurdle one major setback after another. In addition to Japan's prolonged economic recession, Southeast Asia has faced a crippling financial crisis as well as the 2003 outbreak of severe acute respiratory syndrome (SARS). Each event has been a major drag on Asian economies.

Feeding the World's Next Real Estate Boom

Right now, Asia is building…It's orchestrating a building boom like none other. It's building the essential roads, bridges, tunnels and skyscrapers its economies will require to prosper.
Buying commercial real estate in Asia today is a lot like investing in American real estate at the end of World War II.
You may (should) remember the Levittowns that shot up across the United States over 50 years ago. These carefully planned neighborhoods provided affordable housing for the thousands of young soldiers returning home from the war. But more importantly, these planned neighborhoods served as the new model for America's booming middle-class suburban lifestyle.

The expanding Asian middle class continues creating a similar demand. Except Asian countries aren't peppering the landscape with tree-lined streets and two-and-a-half bedroom, one-and-a half story ranch houses. High-rise apartment complexes are the new Levittowns of Asia.
Asian developers are utilizing this high-rise housing model for one specific reason: Land is scarce. It's very scarce.
Most Asian economies lack the expansive terra firma we in the West find so readily abundant.
Take Singapore, for example…It's roughly 3.5 times the size of Washington, D.C., with an economy greater than New Zealand's and a growth rate double that of the United States.
Land is and always will be the most valuable asset in places like Kuala Lumpur, Shanghai, Tokyo, Taipei, Hong Kong and Singapore. These Asian cities lack the land for urban sprawl we in the U.S. see in places like Chicago, Washington, Houston, Los Angeles, Charlotte and Atlanta.

So when you can't build out, you build up. And that's exactly how these Asian economies are making their magnificent growth possible. And the property development groups will be the ones turning this necessity into a reality.