Wednesday, April 25, 2012


In response to comments from last week :

Deguello - thanks for your comments but there is a difference between reading and comprehending what you read.

Bob - you are smarter than you take credit for.

Jim - Thanks for the compliment, you really do know, don't you?

Steve - I am familiar with the woman in Singapore who uses the pseudonym " Simon Black " using regurgitated scare tactics to sell nonexistant services.

This week, the road between Cuenca and LaPaz was the worst I have ever seen it. Road repair delays, a land slide on the south side of Cumbe and a deceptive mud slide north of Nabon. Looks like the rainy season has taken its toll on the Pan American South Highway.

I got the window and the door in on half of the addition. Barb will be moving to LaPaz in 3 weeks so I better have a place for her to sleep. I will lose the square door when the second part of the addition is done in a few months.

The shower floor has been poured and the pedestal for the toilet is in.

The water pump and holding tank are installed.

All that hardware and piping for a hot little water heater to give me my half hour hot showers. The gas regulator is sitting on top of the heater box in the picture but will go outside to the gas tanks, I just had to test it with everything within sight and smell. It all works great.

Water pump, holding tank and pressure regulator about $100.
Water heater, exhaust pipe, gas regulator another $100.
Glass for the window $6.

Behind schedule but under budget.

Wednesday, April 18, 2012

Last Call.

I would like to take this opportunity to address the questions being asked about my last post, to hopefully put the issues to rest, so I can move on to progress reports on my project here in Ecuador and a new project coming up in November this year.

I am not the guy, who if you fill out the form on the inside flap of a match book, will let you in on the secrets of success. Anyone who professes to know how to beat inflation or has the secrets of success is an out and out liar. If they knew they wouldn't tell anyone.  I own the copy rights to several of those kinds of books and they are worth exactly nothing. I own them so I can use the contents in unintended ways and not get sued - I have done a certain amount of motivational speaking in my day. I know what I am going to do but for me to suggest what you should do has a 80% chance of sending you straight into bankruptcy. I didn't help you make what you have so why would you listen to me or  anyone about how to invest it, your smart enough to figure it out. This is not about doom and gloom ( although I did say that in a previous post ) if you do nothing you won't go broke, you'll just have less than you do now.

The numbers and facts I cite in what I write are absolutely accurate, the forcast I derive from those numbers and facts could be wrong by a little or a lot but I risk everything I own on what I perceive to be the way things will unfold. I am better off than most but not as well off as some. I am the most hard headed person I know - just ask my wife - and I refuse to let things I have no control of control me. A gambler with high internal locus of control is the diagnosis - I asked my wife.

Now on to the H.I.R.E. act. Back a few years ago ( March 18th, 2010 ) the H.I.R.E. act was passed which gives employers some kick backs on hiring certain groups of people but tucked into the act was a piece of pork called F.A.T.C.A.. Foreign account tax compliance act. This was a big deal for us when we decided to move here back in 2010. We were planning to be here for several years and the enactment date for F.A.T.C.A. is June 2013. None of the U.S. banks could tell us anything about it and in Ecuador no one knows anything about it. From 2010 to today the amount of information is the same, some opinions but no facts about how any of this is going to work. Here is what the law says : Any foreign bank that has U.S. account holders is required to report to the U.S. Internal Revenue Service and disclose their balances, receipts and withdrawals or be subject to a 30% withholding
tax on U.S. financial assets held by the foreign banks. All U.S. citizens with a foreign bank account and assets in that foreign country have to report the value of the assets if it's over $50,000.00 or be subject to a 30% penalty on their foreign or U.S. account balance. In addition, any transfers of money to the foreign country from U.S. sources will have a 30% withholding.

Here is how I see it. Ecuador has to agree to do this and I don't think they will, a bunch of European banks have already refused. This will just give Ecuador a reason to sever the remaining few ties it has to the U.S. since the U.S. will be threatening Ecuador with a 30% withholding on any U.S. assets they hold. There are about 6 million Americans living in foreign countries, so there will be a stink about this but in the mean time the I.R.S. will start withholding 30% of any money leaving the U.S. from individual accounts - Social Security, IRA's, 401K's, retirement accounts, union pensions, checking accounts and savings accounts. Electronic transmissions, direct deposits and ATM transfers. I have been trying to keep an eye on this situation for the last 2 years, hoping some kind of agreement can be reached between Ecuador and the U.S. but so far neither side wants to talk about it. The enactment of this law won't take effect until June, 2013 so there is hope that something can be done about it. I personally don't see how the U.S. thinks they can get away with telling other countries what to do. Maybe that is the intent, to give the IRS more power to seize your assets with assumption, heck they are making you buy health insurance you don't want and will never use.

What this means to us living in Ecuador is that we are supposed to claim our assets in Ecuador because they are over $50,000 on our U.S. tax return. There is a special form for this and they will assess a new tax. Since Ecuador won't comply the government in the U.S. will withhold 30% of our transfers to Ecuador which is about $520 a month into a holding account until our tax liability can be determined but ofcourse it will be more to make up for the withholding. There is nothing ambiguous about the 30% withholding figure, that is the tax we will have to pay. So it will cost us an extra $600 a month to live in Ecuador just from transfers, who knows how they will manipulate foreign assets.

It ain't looking good. Even if it never happens the harm will have been done and the economic impact on Americans living in Ecuador will make it a less inviting place to live. Isn't that how life works, just about the time you figure you got a good thing going someone does something stupid and messes it all up.

Guy's this is the end of the series, there are lots of folks who know a lot more than I do. I have to make decisions on what I do to stay ahead of the curve just like you do. This stuff is just how I see things, right or wrong. In reality it's just one opinion in a world full of opinions.

Monday, April 16, 2012

Here we go again - for the last time on economics.

Thanks to Steve for his comment - I think you may be fooled, I'm not that smart.

Nancy, thank you for defending me but you give me way too much credit.

Scott and Deguello - thank you for your comments, I'll try to address the issues in this post.

Last week I wrote a blog on the economy of the U.S. and Ecuador without much detail, kind of a heads up type thing. An opportunity has arisen in the western part of North Carolina in the last 30 days and has forced me to run the numbers through my forecasting model. Sounds real educated but the truth of the matter is my forecasting model is putting things in its simplest terms so I can understand them and using some fundimental formulas to gauge where the economy is going - mostly common sense. I'll admit that I have been a little slack in tracking the economy for the last year and a half because I am not confronted by the rising food prices and gas prices and high utility bills in the U.S. every day but I am aware of the devaluation of the dollar and feel it here in Ecuador.

Something you need to understand is that I don't talk (write) to hear my head rattle. I stake my future on my forecasts, I don't regurgitate what other people think and because no one but me pays my way, I could care less about opinions. I've been wrong before and had to pay the price, I just can't remember when.

By the comments that were made on that blog you folks have restored my faith in humanity, I was convinced that most people have their head buried so deep you can't see the other end. So here we go, the world according to some old fart who probably doesn't know his butt from a hole in the ground.

Ecuador has a fixed exchange rate to the U.S.. This means as the dollar is devalued they follow the devaluation as a rate of inflation. They can not use monetary policy to stabilize their economy because the dollar is not in their control. The inflation rate in Ecuador is running at 10% because of the dollar and price inflation at about a 50/50 split. The only thing they can do is stop using the dollar as their currency. I don't know how the exchange rate will pan out but in combination with the H.I.R.E. acts 30% witholding from money leaving the U.S. it might not be so good.

There are 2 types of inflation, price inflation ( you know, supply and demand ) and there is monetary inflation ( the killer ). When you go buy gas for your car and the price has gone up since the last time you bought gas, that's price inflation. Lots of demand on the world market and supply is being slowed by O.P.E.C. to raise the price to account for the devalued dollar and euro. There is a bunch of other stuff in there too but the fact is supply is being manipulated in this instance and that causes the price of oil to go up, there isn't a darn thing any one can do about that in the short run. Monetary inflation is caused by ecessive growth of the money supply, you know the funny money the Federal Reserve prints so the politicians can institute a policy of quantitative easing because the Central Bank ( Federal Reserve ) has lowered the intrest rates and the rediscount rates so low that they are in a liquidity trap. The idea behind quantitative easing is to increase the money supply by buying bank assets so banks will lend more money, business will increase production, hire more people, who will pay more taxes, buy more products, increase business revenue..................... The problem is the banks are holding the money so the only thing quantitative easing has done is to increase the money supply by upwards of 5% while the rate of growth of the economy (GDP) is at best 3%. This is the definition of hyper inflation, when money supply grows faster than economic growth. There is no real way to track the money supply because like the CPI the government doesn't track the money supply anymore - I wonder why ?   The end result is a endless cycle of ever decreasing value in the money supply.

So where do we go from here ?  I don't think it can be fixed, not for a long time. If you stop quantitative easing that constricts the money supply, so how do you pay for this new health care thing, how are you ever going to get people to drive these new coal fired cars ? The Federal Reserve has committed to a policy not to raise intrest rates until it reassesses in 2014, so that ain't going to happen. What good are low intrest rates when the bank doesn't lend money or business is so unsure of the future they don't want to borrow money? The government is reporting low inflation numbers - remember these numbers are the new CORE inflation rates, it  doesn't include the costs for energy or food. Gas alone will account for a 3.3% inflation rate if your consumption is only 10% of your budget. What about food ? How about some of the other costs stripped out of the CPI, add that to what the CORE inflation rate is and you are approaching 10%. My own personal inflation rate living in Ecuador would be 18% if I didn't make 30% following the market here. Don't ask, I'm not telling.

I've done my best to keep my friends and family from being blind sided by misinformation. What you do is up to you, just remember this - if you don't keep up with the rate of inflation,whatever that rate is, is the exact amount you will lose in your standard of living. A 3% raise in a 10% economy is a loss of 7% in your standard of life, the first year, it's 17% the second year.................................I hear Alpo makes a pretty good stew.

Wednesday, April 11, 2012

Economic forecasting.

Thanks to Sarah for your kind words - I wish I were all that you think I am. There really is nothing to building but a strong back and a weak mind are helpful. I think you may like my next project. Starting next spring I will be building a spec house in the Ashville, NC area.

To Mike - there is no recovery time on the water filter, the flow rate is high enough that water will run in perpetuity. I hope you caught your limit.

I have been pontificating lately about the economic outlook for Ecuador and the U.S.. We have a vested intrest in both countries and it seems they both share the same fate because they both use the same currency. There is no doubt the economy in the U.S. is the worst it has ever been in my lifetime and that Ecuador is being dragged into the frey by the devaluation of the dollar. The fact is that following an economic downturn there is a certain amount of inflation, which has a direct relationship to the length and depth of the economic downturn. Since the recession in the U.S. has lasted so long and has affected everything the rate of inflation will reach the "hyper" range as the market and politics self correct in the next year or two. Ecuador has already started trading in the sucre and out of economic necessity will have to move away from the dollar if they don't want to share the same fate as the U.S.. They will also need to distance themselves from trading with the U.S. and depend more on the Bolivarian Alliance for the economic needs of the country. The U.S. is just heading for more doom and gloom and it will take years to harness run away inflation and develope an energy independence policy and re-invent the manufacturing sector that is necessary for economic stability.

I originally started to write this blog to keep friends and family entertained by my shenanigans and the stuff I do to keep myself busy but I have found that a lot more folks read this blog than family. I can tell you folks this without reservation, I may seem to be an old fool but I can forcast the economy a lot better than most. That's why we are in Ecuador, to buy time until the future becomes clear and it don't look good. If you don't do something that follows the economy your going to take a hit in your standard of life, especially if you are on a fixed income - South America, Europe, Asia or the U.S. makes no difference. If your income stream is in dollars you need to do something to keep up with the rate of inflation.

Tuesday, April 3, 2012

Slow sand water filter.

Thanks to Scott for the comment last week. I think it would be a great idea to take progress pictures from the same location. I think from the front might be better. I can assure you it won't be a good as your kitchen remodel, you did a great job on that one.

Camille - I don't know what to say. Your one of those people with so much wit that no matter what I say you will trump me. I think I will keep my mouth shut and just thank you for reading my blog.

Mike - This post is for you.

Even though the water from the top of the mountain seems clean and I have used it for cooking, cleaning and drinking, I don't want to take any chances.
I started with a 55 gallon plastic drum, put in an inlet fitting and an overflow fitting.

I made an outlet pipe and drilled a bunch of 1/16th holes in the sides and bottom of the pipes. I installed it 3 inches from the bottom of the barrel and put some gravel in to support the pipes.
Next I put about a foot of gravel on top of the pipes.
Then a layer of course sand from reverse screening regular sand.
Finally 4 cubic feet of fine sand.
Topped with a diffuser made from the top of the barrel with a bunch of hole drilled in it.

This rig will form a bio matt on top of the sand in a couple of days that will filter out all biologicals and 97% of everything else. It won't filter out nitrates or heavy metals like mercury.
I added an extra barrel down hill from the filter as a holding tank so if something changes in the water supply I can chlorinate the water and it will have some contact time with the water before it is used in the house. In addition to that it will allow for constant flow for high demand water use like my half hour showers. The filter will need to be backwashed from time to time to keep it from getting clogged up but that is a lot easier than changing a cartridge filter.