Episode Summary
In this episode of The Expat Files, Johnny Mueller explores the unique tourism landscape of the Dominican Republic, the cultural impact of Russian and Ukrainian visitors, and the growing interest in Bitcoin as a financial tool. He also touches on the challenges of expat life, the cigar industry, and Ecuador's digital currency plan.
Johnny begins by introducing The Expat Files, a podcast that explores life in Latin America, focusing on the Dominican Republic. He explains his decision to base a few episodes there due to the increasing presence of tourism, particularly from upper-middle-class Americans and Europeans. He highlights the unique nature of tourism in the Dominican Republic, noting the absence of typical backpackers and the presence of Russian and Ukrainian tourists, which has led to the adoption of English and Cyrillic Russian in local signage and services. Johnny attributes this shift to the ease of entry for Russians into Latin America compared to the stricter visa requirements in the United States.
He then discusses the presence of Russians and Ukrainians in the Dominican Republic, highlighting their preference for the country over other destinations like the Mediterranean. He notes that these individuals are affluent, often vacationing in luxury resorts, and are generally well-behaved and cultured. Johnny also recounts a minor incident at a casino where a Russian and a Chinese man had a confrontation, which was relatively mild. He emphasizes that the Russians in the DR are not the stereotypical violent or gang-like figures often portrayed in media, but rather a cultured and well-mannered group. Johnny also mentions the ease with which Russians can travel to the DR, as it is a popular destination for them, with direct flights from major Russian cities.
In this segment, Johnny Mueller discusses the dynamics between expats, tourists, and locals in the Dominican Republic (DR). He notes that while many locals assume expats and tourists don't speak enough Spanish, this can be an advantage for expats who want to eavesdrop on conversations. However, he also highlights that in the DR, which is heavily visited by international tourists, the advantage is less about being a Gringo and more about locals taking advantage of expats who don't speak Spanish. He also touches on the economic situation in the DR, mentioning the high cost of living and low labor costs, which can be a double-edged sword for expats. Additionally, he discusses the cigar industry in the DR, noting that it's a major export and that the country has a significant market for high-end cigars, which influences the presence of smoking culture. Finally, he shifts to discussing financial privacy and recommends Bitcoin as a means of transferring money, especially for expats planning to leave the first world.
Johnny recounts a story about a friend who received four letters from BBVA Compass Bank, informing him that his accounts would be closed in 30 days. The friend discovered that the reason for the closure was his attempt to wire money to buy Bitcoin. Johnny explains that Bitcoin is considered an unregulated activity and that the federal government has taken action against banks for similar transactions, citing a $2.5 billion fine against JP Morgan Chase. He then shifts to discussing a letter he received from a friend, which details research conducted by a former Federal Reserve employee on Bitcoin and its implications for the government and financial systems.
In this segment, Johnny Mueller recounts his experience with a Bitcoin research project assigned by the Federal Reserve Board of Governors in 2014. Initially, the project was treated as routine summer work, but it quickly became a high-stakes endeavor. The Fed's urgency and the project's significance led to a major shift in how Bitcoin was modeled, with the Fed upgrading its view of Bitcoin from a developing currency to a major one. The research revealed that Bitcoin could significantly disrupt global monetary policy and the dominance of the U.S. dollar. The project's findings alarmed the Fed, leading to the disbanding of Mueller's research team and his reassignment to a smaller regional branch. Despite the negative outcome, Mueller remains optimistic about Bitcoin's potential to reshape economic modeling and policy.
Finally, Johnny discusses Ecuador's plan to launch the world's first government-issued digital currency, which is expected to start circulating in December. He highlights the country's poor financial standing, comparing it to other nations with similar issues. Johnny critiques the move, suggesting that Ecuador is adopting a financial model used in other struggling countries, which he finds ironic and humorous. He also makes sarcastic remarks about Kenya and Obama, implying that the situation is absurd and akin to a movie script.
Topics
Tourism in the Dominican Republic, Cultural and linguistic changes due to Russian and Ukrainian tourists, Visa restrictions and their impact on international tourism, Russians and Ukrainians in the Dominican Republic, Luxury resorts and tourism, Cultural and behavioral aspects of Russian tourists, Travel and migration patterns, Media portrayal vs. reality, Gringo advantage in the DR, Economic situation in the DR, Cigar industry in the DR, Smoking culture in the DR
Chapters
00:00:00 Opening 00:01:34 Shift in Dominican Republic's tourism industry 00:03:57 Russian and Ukrainian influence on Dominican tourism 00:05:47 The Russian Presence in the Dominican Republic: A Cultural and Economic Overview 00:08:36 Cultured and Well-Behaved Russians in the Dominican Republic 00:10:24 The Gringo Advantage and Eavesdropping on Locals 00:11:27 The Economic Situation in the Dominican Republic 00:12:22 The Cigar Industry and Smoking Culture in the DR 00:14:05 Financial Privacy and Bitcoin for Expats 00:14:54 Introduction to the Story of Account Closure 00:15:42 Reason for Account Closure and Government Regulation 00:15:57 Federal Government Action Against Bitcoin Transactions 00:16:48 Introduction to the Letter on Bitcoin Research 00:20:12 The Project's Significance 00:21:35 Upgrading Bitcoin's Status 00:22:26 Bitcoin's Disruptive Potential 00:23:54 Aftermath of the Research 00:24:42 The Fear of Change 00:25:15 Digital Currency on the Horizon in Ecuador 00:25:58 Ecuador's Digital Currency Plan and Its Implications 00:27:13 Critique of Ecuador's Financial Strategy
Transcript
Automatically transcribed from the original recording; names and wording may contain errors.
[00:14] Hello there all you expat wannabes, I'm Johnny Mueller and you're listening to The Expat Files, living in Latin America. The show that tells you just what it's like to live, work, play and or retire down here in Latin America. It's a mix of the good, the bad, the ugly and the great and it's all right here so let's get started. Alright if you remember last time I left off by telling you I'm in the Dominican Republic and gonna do a few shows from there. And why you might ask? Well, based on all the emails over the years I've been getting about the place, I figured it was about time to give you a boots on the ground viewpoint from my angle. That is the angle of a guy that speaks Spanish but doesn't tell anyone because you see down here in the Dominican Republic there's a lot of gringo and European tourism but almost
[01:01] none of these sun and fun foreigners speak but Spanish at all. You know they've got the usual 20 or 30 words down, how to order in a restaurant and find the bathroom and such but that's about it. Oh and you should know this, if you hear some rain in the background there's a storm going on right now and some of it might leak through the broadcast but that's life I guess. Anyway, the word around here in the DR is that the number one source of foreign income is no longer tobacco or sugar, bananas, pineapples or even mining. And they do have some big gold and silver mines here. The fact is, like Costa Rica now, tourism is their number one industry. Though from what I can see, they're not the average American or European traveler. Strangely enough they're mostly upper middle class Americans and Europeans who are in
[01:48] pretty good physical condition. Definitely not the fast food chomping ugly American crowd with their whining kids. In other words, it's not like the tourism you usually see in Costa Rica. And those first world backpacker types, well you rarely see them. However there are a lot of first world college types down here, sort of on the cheap, living California beach bum style, at least for a vacation week or two, because this is one of the windsurfing capitals of the world. So real scruffy backpacker types looking for $5 a night fleabag hotels like the kind you see in Central and South America. Well not much, but long haired college beach bum types, yeah. You see quite a few of those because there's hundreds of miles of white beach to windsurf
[02:36] on. And the one big reason you hardly see any backpackers is that it's just one island with pretty much one kind of climate, hot. And as you know backpackers like to cover a lot of ground. They'll go through six or seven countries in a month or two, or spend a half a year logging up a thousand miles or more backpacking through South America. And the DR is just a small country of 11 million people and it's not conducive to that. And believe me, no one but no one wants to go backpacking in the adjacent country of Haiti. That is truly a definition of a fourth world hellhole. However, $5 a night fleabag hotels in Haiti, you'll have your choice of those all right, but you never want to step out the front door into the streets.
[03:24] I can tell you that. Let's just say you got to be nuts to go there. And yes, some years ago I was nuts and I went there, but I'll never go back. I can assure you of that. But the DR, well that's a different case altogether. And to me, the really shocking thing that's changed in all these years since I've been down here, about 15 years actually, is that it's become kind of a tourist playground. Forget this. That's right. Surprised to hell out of me. The fact is there are so many Russians and Ukrainians down here on vacation that the menus in the restaurants and the hotel placards in the big resorts are in English, Spanish, and that funky Cyrillic Russian.
[04:13] I'm talking about signs with the rules and regs of the swimming pool on them in English, Spanish, and Russian, and sometimes only in Spanish and Russian, believe it or not, as well as the writing on the windows for the sales in retail stores. And get this, in those little currency exchange kiosks in shopping centers, they'll actually convert rubles to dollars, pesos, or euros, believe it or not. I never saw that before in Latin America. So there are notices in Russian all over the place, even in the airports. So how'd that happen? Well, you'll never guess, so I'll give you a hint. It's because rich Russians and Russian mafia types with real money can't get visas to go to the United States and spend their dough.
[05:01] Now, they all want to go to the States and Canada, et cetera, you know, Disneyland Vegas and stuff. To get a US visa, you have to jump through certain hoops that Russian foreign nationals aren't willing to jump through or can't. You have to prove where your money came from, bank accounts, and that you have a real job, et cetera. And the usual Russian oligarch or Russian with a lot of dough doesn't want to or isn't able to give that kind of information out at the US consulate in Moscow or St. Petersburg, wherever, to get a real bona fide US tourist visa. But you see, Latin America has no such restrictions on Russians coming in as tourists. They don't need to apply for a visa at all. They can come in automatically for 90 days,
[05:47] just like gringos and Canadians and Europeans can. So why'd the Russians pick on the DR? Well, that's because there are so many luxury, all-inclusive beach resorts here, you just can't believe it. They've got the money and they want to live the high life. And as one Ukraine guy told me just the other day, he too, with all his money, couldn't get a visa to take he and his wife to the US on vacation. And get this, he told me on his wish list was to someday go to Hollywood, Vegas, Disneyland, of course, Mount Rushmore, Niagara Falls, and Knott's Berry Farm. By the way, he was a tall, healthy-looking older guy with a blonde trophy wife. Believe me, with the Russian crowd, there's a lot of that going around. He had a good 25 years on her
[06:34] and she could have been playmate of the year. Like I said, there's a lot of that going on down here and you really have to see it to believe it. And note, these aren't your boisterous Russian street gang type with tech twos on their necks either. And none of those stereotypical macho man vodka-drinking marathons going down. The fact is, at one of the resorts I stayed at, a huge, fantastic place that had about 3,000 rooms. I must have seen 500 or so Russian couples like that. And nope, they weren't together in groups either. They seemed to be just there as vacationing couples on their own. Now note that there weren't any stag men around either. What I mean is everybody was with a lady. And believe me, in a country like the Dominican Republic,
[07:19] Russian men and women really stand out. It's a place where 90% or more of the population are very dark if not black. Now, the Russians did stick out like sore thumbs but from what I could see, they caused absolutely no trouble at all. Mining their business and being rather low key about it. Except one night at the casino, at the crap table, a bunch of Russians were gambling and a fight broke out. And with that, I kind of eased my way out of there, thinking that Uzis and AKs just might make an appearance. Oh, and by the way, there were about 10 Russians at the table and two Chinese guys. And guess who had the fight? Well, it was a Russian guy accusing one of the Chinese guys of doing something with the cards or the dice. The Russian guy jumped up, ran over to the Chinese guy
[08:07] and practically headbutted him. I didn't stick around to see how it ended but I don't think the Chinese guy made out very well. And speaking of Asians, I didn't see many around at all. There were a few but I'd say the Russians outnumbered them by 20 to one. And as for gringos and expats, well, the Russians vastly outnumbered English speaking gringos too. Now, aside from that casino incident, unlike what you've heard from the media and seen in Hollywood movies, these Russians seem to be quite cultured and well behaved. But it's true and I have some good verified sources on this. There were quite a few Russian mob people there. So anyway, in talking to a few Russians that spoke English and that Ukrainian guy, I found out this.
[08:53] The Mediterranean area used to be a big hangout for wealthy Russians and Ukrainians but they feel they're not very much welcome there anymore even though they've got money. Whereas like the Ukrainian guy said to me, in Latin America, specifically the DR, a place he's been to three times now, having admitted that he'd never been anywhere else in Latin America, by the way. Anyway, he said in the DR, if you're Russian or Ukrainian, nobody cares. And in fact, he used that tired old American cliche when he pointed to his wife or his girlfriend, whatever, and said, besides, blondes have more fun. And man, she was blonde as blonde can be and not out of the bottle either. Now, he told me that there are so many Russians
[09:39] coming to the DR that all the big cities in Russia have direct flights there now. From Moscow, he said, a 10 to 12 hour flight. So that was why when I first landed at the airport in the DR, I saw so many tall, first world looking people who weren't bottle blondes. They were the real thing. So naturally, at first glance, I thought they were Gringos or Scandinavian types. But nope, surprise, surprise, they were speaking Russian. Now, do note that here in the DR, tourists who pop in for a week or two to suck up some sun on the beach, unless they're coming from Spain or other Latin countries, it's logical to assume that everyone else does not speak more than 20 or 30 words of Spanish. But I do. Yet still, sometimes I'll play the clueless Gringo
[10:27] and eavesdrop on what the Spanish tourists and local Latins are saying. The fact is, most all Latins assume that us Gringos and expats and tourists don't speak enough Spanish to understand what they're talking about. Which is in our favor, of course. And that, my friends, is the only way to find out what everyone's saying behind your back. In other words, do the locals love hate, fear, or just tolerate Gringos? Or for that matter, Russian tourists or tourists from other Latin countries. Now, the question would be, as a kind of a spy listening in on Latin speaking, is there a Gringo advantage for you in the DR? And if so, how strong or weak is it compared to the other Latin countries off the Gringo tourist trail?
[11:14] Because you could say the DR is on the tourist trail now. Basically, the upscale international tourist trail, which really demonstrates the have and the have not situation in a big way. Well, for one thing, the first world businesses and franchises have all landed, so you haven't got any Gringo advantage there, which is not a good thing, really. Now, remember, for various reasons, cost of living here is basically first world. It's an island and most things have to be imported except some basic food items. But, you know, if you do start a business, your labor costs will be dirt cheap. The average salary being from 100 to 300 bucks a month. So, to generalize about the strength of the Gringo advantage here,
[12:00] I can only report that in a country like the DR that's so inundated with high end tourists, it's less what you might call the Gringo advantage and more what you'll often see as the locals taking advantage of the Gringos, especially Gringos and expats who don't speak Spanish. But more on that later. Now, remember I said a little while ago that tobacco was a huge export item for the DR? The fact is they're one of the three largest producers of high quality cigars in the world. So, remember that those three countries are Cuba, Honduras and the DR. In fact, you can find high end cigars, like for example, Romeo and Julieta, Cohiba and Monte Cristo in all three countries
[12:49] and they look exactly the same except for one thing, the small print on the box that says where they're made. So, who cares you might say, maybe only one or 2% of you listeners out there smoke cigars, right? And the other 98% of you probably did test the smell of cigarette or cigar smoke. That said, because the DR has such a huge export market in high end cigars, would it be a surprise if I told you that throughout the whole country you rarely see no smoking signs? Now, at first glance, you think you see a lot of those little symbols around, but in fact, what they are is just the opposite. There's a circle with the usual cigarette in it, but it's not x'd out at all like you normally see.
[13:38] Meaning, go ahead and smoke. Now, I'm not a smoker myself, but it's something you notice. Seems like the whole island smokes. So, if you're sensitive about that kind of stuff, there's a little heads up for you. Now, on the next show, I'm gonna go into great detail on the Dominican Republic and what you won't hear or find out unless you're down there with the boots on the ground. So, stay tuned for that. But first, today, here's some late-breaking expat news that you're gonna wanna pay attention to. Now, you know, I get plenty of emails from people asking me how to transfer their money around if they're gonna get the hell out of the first world or the states in general. I mean, let's face it, it's nobody's business but your own. How much money or capital you have and where you might have it or have it stashed. How and whom you wish to communicate with
[14:26] or do business or banking with. That said, I've always recommended Bitcoin as a means to transfer your money around. Not necessarily Bitcoin as an investment, but as a means of doing transactions and moving money around with the most amount of privacy that you can obtain in today's world anyway. Which leads me to this email that just came a day or two ago that speaks for itself. This one also comes from a new friend of mine who attended one of my expat wisdom seminars. He says, hey, Johnny, thought everyone would be interested to hear this story. I recently got in the mail four letters from BBVA Compass Bank, the bank I've been doing my personal
[15:11] and business banking for 10 years. The four letters referenced four different checking accounts, business and personal, and explained that they were closing my accounts in 30 days. There was no explanation to the letter. So thinking it was a mistake, I walked into the local branch, I talked to the manager, and this is up in the States of course, who has become somewhat of a personal friend over the years. And he explained that my accounts are being closed because I tried to wire money to buy Bitcoin. He explained that Bitcoin was an unregulated activity and that the federal government could find them for such transactions.
[15:57] Uncle Sam, in fact, just fined JP Morgan Chase $2.5 billion for similar Bitcoin transactions. Anyway, hope all is well in paradise, looking for a new bank now. Your buddy, well, I won't mention his name because that wouldn't be cool. So anyway, that's news to me. And I hope all you guys and gals up north aren't having problems like that, but I'm sure soon enough you will. So with that real life case of Bitcoin discrimination up in the States, don't you think it's about time to get your ass sets down here as quick as you can? When push comes to shove, how much more can you take? If that's not a shove or a good swift kick in the ass,
[16:44] I don't know what is. Now, related to that, let me now read you something that actually blew me away when I first looked at it. It's a link to an article that some Bitcoin holding friends of mine have sent me that came from a site called reddit.com. Pay attention to this now because it's bound to change your paradigm and the way you feel about your government and Bitcoin. This letter's entitled Game Changer. Bitcoin research at the Federal Reserve and how I lost my job there. And I'll try to paraphrase this a little bit because it's long and a bit rambling. Now, I've passed this around to some of my friends in the financial data world and nearly all of them seem to think that there's some information here being held back
[17:30] or this guy who wrote this letter would certainly end up in jail, missing or vacationing in Guantanamo. So basically the small consensus of financial people that I've spoken to about this seem to feel it's incomplete but not bogus. Though you're sure to have your own opinion and you can be the judge of that. Now remember, though I might not have told you this before, I have some friends who are in on the very beginnings of this cryptocurrency and Bitcoin thing. So what I know about Bitcoin is not from internet smoke that blows out of the south end of the elementary canal, if you know what I mean. That said, I will proceed to read this. So here goes. My background, I'm a trained economist
[18:16] with a BS in computer science, an MS in operations research and a PhD in econometrics. I interned at the New York Fed during my degree. After that, I worked at macro trading hedge funds and now work at a major southeastern federal branch doing econometrics and related modeling. Now I've had a long running interest in Bitcoin and was actually one of the very first people to publish a working paper on FPGA based Bitcoin mining at a Georgia university focused on technology. I know Bitcoin technology and economics on a theoretical and applied level.
[19:03] I'm not motivated by money, just notice my move from hedge funds to the Fed. I'm actually an applied academic with an incessant drive for research. Now, my job. I function as a briefing researcher at the Federal Reserve. My primary research interests are the statistical modeling of developing currencies and the integration of those models into our massively parallel simulations for policy projections and forecasts. In layman's terms, I do the lower level mathematical statistical research and then brief the senior management who get this are the Federal Reserve's board of governors
[19:50] at our regular meetings. In the beginning of May, 2014, my team and I were assigned to an exploratory project. Typically, summer is the off season and most of our projects are time fillers that result in a few papers and presentations and are then archived and never heard of again. This project, however, was different. We were given a direct research assignment from the board of governors of the Fed a few hours after the conclusion of their May 29th closed meeting. Now, this was our assignment. We, and as far as I know, several other research teams across the Federal Reserve system
[20:37] were tasked with creating a Bitcoin report. I assigned my team to run the typical econometrics simulations and forecasts that we do for developing currencies. Thinking this was summer doldrum busy work, we were diligent on our calculations and modeling but definitely did not go out of our way to provide extra insight. At the end of June, I presented the report to my Fed governor and was met with strong disapproval and a sense of utmost urgency. Long story short, I almost lost my job for not taking this project as seriously as I should have. So the Fed board of governors renewed the project
[21:24] and gave us explicit research directions along with weekly addendums. Now, here's the down and dirty. And he writes this part in heavy, bold lettering. He says, we were directed to upgrade our modeling of Bitcoin from a developing currency to a major currency. In addition to all of the common modeling and forecasting, that kind of task entails. We were instructed to do full simulations of money flow, interest rate, multi-currency derivative baskets, risk metrics, and their effects on global macro monetary policy and trade agreements. Now, what we found was shocking. Even with a mediocre Bitcoin adoption rate
[22:12] and a variable growth rate, Bitcoin severely disrupts how we model, forecast, and ultimately understand currency interactions to make our monetary policy decisions. This is a huge technological monetary and policy disruption, which leaves the Fed, the US government, and other entities with much less control. Now, our best case scenarios are modeled upon current Bitcoin adoption rates, which have simulated a tipping point for the year 2026 and the worst case, 2021. This timeframe projects that the Fed via the dollar will lose its dominant global monetary policymaker status.
[23:02] Then, at that point, instead of the dollar, everything will be superseded by Bitcoin. Now, know this. I presented this updated report to the Fed, along with all of our modeling work and simulation outputs, which were statistically and independently verified to the Board of Governors. The Board was highly alarmed and interrogated me and my fellow researchers in a three-day session, trying to understand every point of our research. It must be remembered that, unlike politicians, the Federal Reserve Board of Governors is a very well-educated and empirical group with an ability to conceptually grasp
[23:49] complicated research like this. So, in the end, what was the outcome? Three weeks after the report, my research team was disbanded. I was moved to a tiny regional Federal Reserve branch and given virtually no research resources. Similar fates came to my own team members and most of us are actively trying to pursue opportunities outside of the system. In other words, we're all looking for jobs. Now, note that while classified non-disclosure agreements bind me and my group in many ways. I personally will try to go back into the trading industry with a keen eye on Bitcoin as my primary research interest.
[24:35] And then he finishes off by saying, it's clear to me that Bitcoin has fundamentally changed the spectrum of how we view and model economics. The central banks are afraid, the governments are afraid, and they would rather bury the truth by firing their own dedicated researchers and archiving the reports than embrace change to build a sustainable economic future. Okay, that too is just for your information and here's more. Now, of course, cyber currencies like Bitcoin do tie in quite a bit to our discussions about Latin America because let's face it, paper fiat money is on its way out and cyber currencies on their way in. That said, what do you make of this?
[25:22] The following was sent to me by another one of our expat, Wisdom Seminar friends, John, focusing again on Ecuador. In a previous show, I mentioned that Ecuador has one of the 10 crappiest bond ratings and debt ratios of all 200 or so countries in the world. If you remember, I mentioned it was sitting right in the same financial toilet bowl as Haiti, Argentina, and Venezuela. Oh yeah, and little Belize. Anyway, this is an August 29th AP report from Keto Ecuador. So paraphrasing, Ecuador is planning to create the world's first government issued digital currency, which some analysts believe could be a first step toward abandoning the country's existing currency,
[26:09] the US dollar, which the Ecuadorian government can't control. This new Ecuadorian virtual currency, which central bank officials say they expect will start circulating in December, does not yet have a name, and officials would not disclose the technical details, though they said it would be not like Bitcoin. The amount of the new currency created would depend on demand. Now, if you recall, one of Bitcoin's strongest points is that it has a limit to the amount that can be created, something like 22 million Bitcoins, and that's it. So the article goes on to say, users initially will be able to make and receive payments at a minimal cost using their cell phones, such as mobile payment schemes are now already popular
[26:59] in African nations, including Kenya and Tanzania. Wait a minute, wait a minute. Do you get this? You got a third world country like Ecuador copying a financial scheme used by a fourth world indescribably corrupt failed African state. If I didn't see this come out of AP, I would have thought it was a script for a dumb and dumber movie, and there's more. They're gonna copy Obamaland, Kenya? Well, Obama, you still have time to write your own dumb and dumber script. Oh, I forgot, for the last six years, that's what you've been doing. South of the border, down Mexico way. You've been listening to The Expat Files, living in Latin America, coming to you twice a week from somewhere south of the border. Email me, theexpatfiles at gmail.com.
[27:47] And don't forget to check out expatwisdom.com to sign up for your free reports on Latin America. See you next time. Nos vemos.