Saturday, December 31, 2011

A Resolution for 2012

Happy New Year!  For all of my dedicated readers and fellow libertarians, I wish you a happy, healthy, and prosperous new year.  I am hoping that 2012 starts off with a thumb into the eye of the Republican establishment with a Ron Paul win in Iowa.

I am not a big fan of resolutions.  If there is something that you need to improve in your life, why wait until the new year?  However, I understand that a new calendar year is a symbolic new beginning for many people.

If you are going to come up with a new resolution for yourself, make it something that will get you closer to a goal and make it something achievable.

If you are trying to be healthier or you are trying to lose weight, don't set some unrealistic goal of going to the gym every day when you currently don't go at all.  Don't make a resolution that you are going to eat vegetables every day when the only vegetable you currently eat in a week is in the form of french fries.  Instead, take one actionable and achievable step.  For instance, perhaps you currently drink too much soda (pop for some of you northerners).  Make a resolution that you will only drink one soda per day (with an exception made for special occasions).  Instead of drinking coke for lunch and dinner, maybe you can drink water for one meal and have a soda for the other.

This is an achievable step and it is a small step towards improving your health.  You may even drop a couple of pounds doing this.  It is something that you can change that you might actually be able to sustain.

If you have a financial goal, take a small actionable step that will seem insignificant at first, but will add up to being significant over time.  For example, maybe you can put an extra 20 dollars per week into savings.  Maybe you can eat out one less time per week.  Maybe you can skip your morning Starbucks and just treat yourself on certain days of the week.

Many people have many different goals, but many never take an actionable and realistic step to come closer to achieving their goals.  If you have wanted to start a blog, then (to steal from Nike) just do it.  You don't have to start writing 5 or 6 days a week.  This will be hard if you are currently not writing at all.  Instead, start posting something twice a week and see if you can get up to three or four times a week.

Perhaps you are unhappy in your current job but haven't done anything about it.  Update your resume and look to see if there is anything better out there.  Maybe there won't be anything better, but shouldn't you at least look to see?

There are so many small things that we can do to improve our lives, but we never seem to get to them.  Just spending 15 minutes a day on something can go a long way to actually achieving a long-term goal.

Do yourself a favor in 2012 and take one small actionable step that gets you closer to achieving something.

Happy 2012!

Thursday, December 29, 2011

The Republican Race is Down to Three

Although this blog tends to be more about economics, investments, monetary policy, etc. (from a libertarian point of view), I do spend some time on politics.  Unfortunately, the various governments, particularly the behemoth in DC, are so involved in our every day lives, we have to pay attention to what is going on as it affects our money and our lives in many ways.  Since this is now political season with the Republican primaries coming and with a libertarian making waves in the race, I will continue to devote a decent amount of space to the Republican primaries and Ron Paul.

Ron Paul has the establishment frightened.  He is gaining traction and has a good chance at winning the Iowa caucuses.  I have learned of three celebrity endorsements just in the last few weeks that I was previously unaware of.  Peyton Hillis, running back for the Cleveland Browns, is a big Paul supporter.  Joe Rogan, host of the show Fear Factor, is a big Paul fan, as I learned during their appearance together on the Tonight Show with Jay Leno.  The latest celebrity to show support for Paul is Kelly Clarkson, who is the first winner of American Idol.

The polls in Iowa show that it is a toss up right now between Romney and Paul.  I think Ron Paul really needs to win Iowa.  He then needs a strong second in New Hampshire.

There is going to be one more candidate who emerges.  If Gingrich does poorly in Iowa, he is just about done.  He has been slipping fast as more people learn about his pro-big government positions he has taken in the past (some very recently).

Santorum may do well in Iowa, but I don't see him doing anything after that.

I still don't think Huntsman will do anything unless something dramatic happens to Romney.  If Romney does not have any major skeletons in his closet and he doesn't slip up in any major way, then the establishment will continue to back Romney over Huntsman.

So we are left with Michele Bachmann and Rick Perry.  Their showing in Iowa will position one over the other.  My guess is that Perry will win the battle and emerge as the third candidate.  He will be an alternative to Romney for the fiscal conservatives who can't support Paul because of his anti-war message.  Perry has money and he still has a decent backing.

Tuesday will tell us a lot.  I think we will see this come down to a three-way race.  It will be Romney, Paul, and one other.  That one other will likely be Perry, but maybe Bachmann will give us a surprise.

Because Ron Paul is doing so well, the knives are coming out.  We will continue to hear all of these false allegations that he is a racist, homophobe, etc.  All we have to do is point out his positions.  He is against the drug war which disproportionately hurts minorities.  He wants to get the government out of marriage.  He is in favor of individual liberty and he doesn't pick and choose winners and losers.

The next few months will be interesting.  With many of the states not being "winner take all", this could last a while.  If it ends up being a brokered convention with no clear winner, there is always the possibility of a late entrant.  There is also a high probability that Paul will not win in that case as the establishment will do everything to keep him out.

For Ron Paul's sake, I hope he doesn't win the nomination.  He and his family do not need that kind of abuse and stress.  Regardless of what happens, the mood of the country is shifting.  Ron Paul has huge support from young people and I think most of these people will be supporters of liberty for the rest of their lives.  I want to see Paul do well just to expose more people to his message of liberty.

While the short-term may seem bleak, there is good reason to be optimistic for the future.

Wednesday, December 28, 2011

Is Groupon a Good Stock to Own?

I am not a big fan of owning stocks right now, although I do advocate the permanent portfolio, which contains 25% stocks.

One stock that is intriguing to me is Groupon.  The symbol is GRPN.  The stock began publicly trading back in early November.  The IPO price was $20 per share.  The stock price has varied quite a bit since then, but it is above $22 per share as of this writing.

For those who are not familiar with Groupon.com (like a coupon for a group), it is a website that offers great deals on different things.  Oftentimes, local businesses will offer a deal through groupon as it draws awareness to its business.  It may not even make any profit on the people who buy a groupon and use it, but they may get repeat business.  Groupon offers many deals on things like restaurants, massages, spas, nail salons, golf lessons, boat rentals, etc.  You can even buy vacation deals now.

When Groupon began being publicly traded, I read quite a few criticisms of it.  I read that it was just a fad and that it was like many of the tech stocks in the late 1990's that had a lot of buzz, but didn't actually make any money.  I also read several people saying that Groupon would fade away due to heavy competition from other sites offering similar deals.

While I am not necessarily giving a recommendation to buy the stock, I believe a lot of the criticisms are unfounded. Groupon is not at all like many of the dot com stocks of the late 90's, as many of these companies really did make almost nothing in revenue, let alone profit.  Groupon does make a lot of money.  Although it has not been highly profitable yet, it is a relatively new company and I believe there is a good chance that it will become highly profitable.  I personally use Groupon a lot and I know of several other people who use it.  Every time someone makes a purchase for a groupon, the company makes money.

While there might be some threat of competition, Groupon has the advantage of being the first one with its foot in the door.  I get emails every day from Groupon on the latest offer.  I am not signed up for anything with any competitors.  While I know that competitors exist, I am not even aware of most of them and I'm sure that most other people are in the same shoes.

While I'm not really into recommending individual stocks, if you are looking for a speculation, I think you could do a lot worse than something like Groupon.  It is not something that you should be looking to buy and sell quickly.  It is something that you should consider holding for a couple of years to see if the company can make some big money.  I believe the potential is there and I don't see any major competition yet.

Tuesday, December 27, 2011

Libertarian Thoughts on the Liberty Dollar

There was a piece on LewRockwell.com discussing the Liberty Dollar.  It contains an interview with Bernard von NotHaus, who is the creator of the Liberty Dollar, which is supposed to be a private currency that is backed by a commodity.  In this case, the commodity is silver. Bernard von NotHaus has been convicted and even labeled a "terrorist".  He will most likely spend quite a few years in prison.

From a libertarian perspective, von NotHaus should not go to jail.  It would be hard to mistake his currency for the bills that we regularly use for money.  For that, he is not engaging in fraud and he is certainly not forcing anyone to use his currency.  Therefore, if I were on the jury, I would have voted not to convict him.  Regardless of whether he broke a law on the books, I still would not have convicted him based on the power of jury nullification.

I have a certain admiration for people like von NotHaus.  It seems like he is fearless, although I'm sure he is not.  He is basically taking one for the team, so to speak.  However, I wouldn't advocate that anyone do something like this.  It is just like not paying your income taxes.  You can come up with all of the reasons, legally and morally, for not doing it, but there is still a good chance you will go to jail.  You are better off fighting for liberty outside of prison in most cases.

I also have one major criticism of von NotHaus and it may have prevented him from going to jail.  One of the major reasons for his prosecution (and yes, I know it is all political) and his conviction is that he put a dollar denomination on his currency.  His certificates that were backed by silver said "5 dollars" or some other denomination on them.

The problem here is that the certificates labeled "5 dollars" were not really worth 5 American dollars.  The U.S. dollar is not fixed to the price of silver.  It is a floating price.  The certificate labeled "5 dollars" was really worth a certain weight of silver, which could be more or less than 5 dollars as most people know it.  It would depend on the price of silver.

The ironic thing is that von NotHaus talks about this about halfway through the story linked above.  When they are talking about a Mexican citizen named Hugo Price, von NotHaus criticizes his plan because "he doesn't have a denomination on it".  But shouldn't that be the whole point?

If non NotHaus is so against the current monetary system, why is he trying to link up to it by putting dollar denominations on his currency?

If he had simply put the weight of the silver on his currency, then there is a good chance he could have avoided conviction, or even prosecution in the first place.  In addition, it would be more accurate and it would be beneficial in teaching people that it is the weight of the metal that should matter, not the denomination.

If his currency had simply said that it was worth so many ounces of silver, then it would have been a tougher case for the prosecution.  Instead, it is easy to convince a jury that his currency could easily be misleading as a 5 dollar bill was not really worth 5 dollars.  Although most holders of the Liberty Dollars probably realized that a 5 dollar bill was not really worth 5 dollars, one could still see how it could be highly misleading.

So while von NotHaus should not go to jail, he was not very smart in how he ran his operation.  He should not have competed directly with the government.  He should not have used the term "dollar".  He should have just issued certificates for a certain weight in silver.

Monday, December 26, 2011

Technology and the Advancement of Freedom

When I talk about the deep economic troubles facing America and when I talk about the inevitable bust/ recession that is coming due to the Austrian business cycle theory, I often add one caveat.  I say that we will inevitably have a deep recession unless there is some kind of major technological innovation.

While massive government bureaucracy and massive government spending impede the free market economy, technology continues to advance, albeit at a slower pace than if the government were removed.

Technology can often grow at exponential rates.  Witness the incredible technological revolution that is occurring right now.  Many people do not even realize how special of a time we currently live in.  The world today is vastly different from the world just 20 years ago.  The internet and technological advances have changed our world.  The lines of communication are wide open now.  There is a free flow of information that never could have been imagined just a couple of decades ago.

It is hard to believe that the iPad has only been in existence for a couple of years.  It is hard to believe that accessing the internet via a cell phone is a new thing within the last decade.  It is hard to believe that most people did not even have an email address just 2 decades ago.

Technology and growth can overcome a lot of human suffering.  While the iPhone is more of a luxury than a need, technology helps human life and vastly improves living standards in a short time frame.  Think of these devices that take filthy water and make it clean, drinkable water within minutes.  This can save millions of lives in third world countries.

Imagine if technology starts to take off with healthcare.  Imagine devices that can cleanse the human body of diseases.  Imagine sitting in a special chair that cures you of your ailments.  Something like this would make healthcare and health insurance a non-issue, at least politically speaking.  We wouldn't have to worry about Obamacare or about Medicare going broke because we would all of a sudden have most of our healthcare needs met with cheap technology.

The internet is already revolutionizing education.  A young kid can learn far more from Google and Wikipedia in a day than he could learn going to a traditional government school.  If you really want to learn about a particular topic, search for it on Youtube and there may already be an instructor available for you to watch.  If not, you can surely learn about it by reading one of the billions of websites that now exists.

The U.S. Post Office is going out of business.  Regular mail is used less and less now.  We can just use email or text messaging.  We can post comments on Facebook.  If the government were to take away the Post Office's monopoly on the delivery of first class mail, I'm sure Fed Ex and others would quickly fill the void.

The growth in technology can be endless.  The Industrial Revolution began to change the world in the 19th century.  Many people did not realize it at the time.  Their lives were improving, but they did not notice on a day-to-day basis.  But if you have growth every year, your living standard will go up significantly over time.

The same is true of technology today.  It is growing at an exponential rate.  Some years will be better than others, but it is reasonable to predict that it will continue.  This new technology can defeat the state. It can make the government irrelevant.  This is why you should not give up hope on human freedom.  While the current situation may look bleak, I believe that freedom is almost inevitable at this point.

Saturday, December 24, 2011

Have Yourself a Merry and Free Christmas

Merry Christmas!  I hope you enjoy your holidays.  Do something for those you dearly love and do something nice for yourself.  Be thankful for the things you have and strive to do something new in 2012 that will make your life more pleasurable and more free.

I am hoping that my big Christmas present will come 9 days after Christmas when Ron Paul wins the Iowa caucuses.  While I am not banking on a Ron Paul nomination (yet), I am excited that his libertarian message is resonating with millions of Americans.

So whether you are religious or not, whether you celebrate Christmas for Christ, for Santa Claus, for giving gifts, or maybe all of the above, I hope you can find joy and celebrate the good things and good people in your life.

Thank you to all of you out there who read my blog.  Merry Christmas!

Thursday, December 22, 2011

Some Libertarian Thoughts on Iowa and the Republican Candidates

The Iowa Caucuses are only 12 days away as I write this.  I will share my thoughts on where things stand, how Ron Paul is doing, and how things could play out.

First, while Rick Santorum may do moderately well in Iowa, he has no shot at getting the nomination.

Second, unless Mitt Romney is caught in a serious crime or having an affair, then Jon Huntsman has no shot at getting the nomination.  Huntsman is an establishment candidate and right now the establishment is behind Mitt Romney.

The top three candidates right now are Mitt Romney, Newt Gingrich, and Ron Paul.  However, I do not completely discount Michele Bachmann or Rick Perry at this point.  I think Iowa will likely eliminate one of them from the race, although not necessarily officially.  Whichever one of them pulls off fourth place (or maybe fifth if Santorum finishes ahead of them), then that person will still have a chance.  Right now, I think Perry is more likely.  He has a lot of money and still has quite a bit of support.  Bachmann has been better organized in Iowa and if she finishes behind Perry, she should just quit.

While Gingrich was in the lead in a lot of polls for Iowa, his support has been slipping quite a bit in the last couple of weeks.  The other candidates have been going after his record and rightly so.  I think many Tea Party conservatives are finding out that Newt Gingrich is not all that conservative.  He has supported big government in many ways in the past, along with a global warming agenda with Nancy Pelosi.

Romney is obviously the favorite to win the nomination right now.  He has the backing of the establishment and even many Tea Party people are hedging their bets and starting to support him.  Of course, that just shows that some of the Tea Party people are worthless.  If there is one thing that unites the entire Republican Party, it is their opposition to Obamacare.  So the Republicans are going to nominate the guy who is the founder of Obamacare in Massachusetts?  Romney invented Obamacare before it existed.

And now, I've saved the best for last.  Ron Paul has continued to move up slowly and steadily.  His supporters (me included) are loyal and enthusiastic.  His supporters will make sure they go to the caucuses and the polls to vote for him.

Ron Paul has a good chance to win Iowa.  He is ahead in some polls and second in some others.  He absolutely has to win Iowa or come in a close second.  If he comes in a distant third, I'm not sure that he will be able to overcome that.

Eventually, he is going to have to break through that pro-war and pro-establishment mentality that grips so many Republicans.  If Paul can win Iowa, he all of a sudden becomes acceptable.  It is hard to believe so many voters think this way, but right now a lot of people like certain things about him, but don't think it is socially acceptable to support him.  If they see that a large chunk of other people are supporting him, it might persuade them to take a closer look.

If the weather is bad on January 3rd in Iowa and the turnout is low, then that will favor Ron Paul.  His supporters will brave the weather.  The same goes for New Hampshire on January 10th.  The next few weeks are quite important as momentum can play a big role as we have seen over the last several months.

Ron Paul is breaking through and many people are listening to his message.  It is driving the establishment nuts, and for that, this campaign is a win no matter what the voting results turn out to be.

Wednesday, December 21, 2011

Is 2012 Finally the Year to Short Bonds?

I can't tell you how long I have been hearing people say that bonds just can't go any lower.  I remember people telling that to Harry Browne on his radio show when he was discussing his permanent portfolio plan.  Just for a time frame, Harry Browne passed away over 5 years ago.

The 10-year yield is currently just under 2% as of this writing.  It was down to almost 1.8% just a few days ago.  Needless to say, mortgage rates are near all-time lows right now.

I am an advocate of the permanent portfolio plan, which consists of 25% long-term government bonds.  While bonds may seem like a terrible investment idea, they seemed like that 5 or more years ago too.  Yet bonds have performed quite well for the permanent portfolio.  They have also helped lessen the volatility of the plan.  In the fall of 2008, stocks and gold both did terrible and the bond portion helped keep the short-term losses down.

While I advocate the permanent portfolio, I do say that it is reasonable to speculate with a certain portion of your money, as long as it is money that you are willing to risk and willing to lose.  So the question remains, is it finally time to bet against bonds?

Bonds go up in value when interest rates go down.  In a recessionary/ deflationary environment, interest rates will probably go down as we saw three years ago during the major economic turmoil.  Of course, interest rates can also go up if there is a risk of default (see Greece and the other PIIGS) or if there is high price inflation (see the 1970's).

While I think that higher price inflation is almost inevitable, I don't discount the possibility of another deep recession.  It continues to be a tug-of-war between the two.  We may end up with an inflationary depression eventually, but I think one side will probably shine in the short run.

At this point, I am still not ready to short the bond market.  I think it is a good speculative play for day traders who get in and out quickly and play the swings, but I am not confident that interest rates will be going up significantly in 2012.  Aside from the threat of a recession, there is also the threat of the Federal Reserve.  The Fed can buy U.S. treasuries any time it wants.  The Fed literally has an unlimited amount of money.  I'm not sure that I want to bet on something going down in value that the Fed can buy at will, especially when the Fed keeps coming up with more tricks.

I think interest rates will go up eventually.  When they do, it will be a reflection of the Fed's money creation.  It will be a response to price inflation.  It will be a response to a lower demand for money.  I doubt it will be like Greece where people fear a default.  Perhaps that day will come, but not in 2012.  It is amazing how long the Fed and the government can kick the can down the road.

Tuesday, December 20, 2011

The Payroll Tax Cut Extension

The politicians in DC are supposedly arguing over an extension to the payroll tax cut.  The payroll tax cut is a reduction of the employee's Social Security tax from 6.2% to 4.2%.  When the legislation was signed last year, it was effective for 2011 only.  The two major parties in DC (both for big government) were supposed to have an agreement to extend it by two months and now the Republicans won't agree to that because they want it extended for a year.  There is also a dispute about how to pay for it, as though letting Americans keep more of their money has to be "paid" for.

If both sides were serious about helping the unemployment situation, they would be cutting the payroll tax for the employer portion, so that labor would be cheaper and businesses would be more likely to hire people.  I have discussed this before.

So what about paying for this?  The Republicans were originally pushing to build an oil pipeline as part of the extension of the payroll tax cut, as if one should have anything to do with the other.  Of course, the Democrats always want to tax the rich or tax something in order to "pay" for it.

If the Republicans really wanted smaller government, why couldn't they put together a proposal with specific budget cuts to go along with the tax cut?  They could claim that the tax cut extension would then not increase the debt.  Some will say that the Senate won't pass it or Obama will veto it.  But let that happen.  If the Republicans put out a bill that cut foreign aid to Saudi Arabia and African dictators and cut farm subsidies to farmers, wouldn't that be rather embarrassing for the Senate Democrats to vote it down or for Obama to veto it?  The reason that the Republicans in DC won't do this is because they are not really in favor of smaller government.

There is one more thing to mention about this payroll tax cut extension.  As of right now (December 20), there is no agreement.  People don't know what their tax rate will be in just 12 days.  This is 2% of the paychecks of most workers.  This can mean over $100 per month for some families.

Robert Higgs talks about the Great Depression and that one of the factors was "regime uncertainty".  While I believe that spending, regulations, and monetary policy play the biggest role in determining the strength of the economy, there is an argument to be made that regime uncertainty is playing a role too in our current economy.  People do not know what to expect.  How can people properly plan when they don't even know what their paycheck will look like in a few weeks?

Personally, I hope the tax cut is extended.  The U.S. government is going over a cliff anyway.  I will take what I can get now.  We will have major trouble ahead with or without a payroll tax cut extension.

Monday, December 19, 2011

Kim Jong Il is Gone and the State is Not

North Korea's supreme "leader", Kim Jong Il, has died.  There are scenes on television of people in North Korea breaking down in tears over the news.  It is hard to know for sure if these scenes are staged, but it is not difficult to believe that people would be that brainwashed.

Kim Jong Il ruled with an iron fist, but don't think for a minute that that is the sole reason for the misery in North Korea.  A dictator can rule over people with brutality, but this is only possible by having the consent of the people being ruled.

This is not supposed to be a collectivist statement and paint everyone the same.  For sure, I'm sure there are a few people living in North Korea who want actual freedom and cannot speak up for fear of being punished or even killed.  However, for someone to be able to oppress a group of people like that, there is no question that the majority of the people there are giving their consent to be ruled.

The same situation exists in the U.S. and everywhere else in the world.  It is not hard to imagine Americans weeping if something happened to a politician in America.

While most Americans say they value freedom, they still consent to being governed.  Most people think we absolutely have to have government for certain things.  I am not just talking about the few minarchists who believe we need government for courts and police.  I am talking about the large majority who think the government should provide education, healthcare, business regulations (aside from those simply to protect against force and fraud), retirement, libraries, etc.

A government can only rule with the consent of the people.  If enough people change their opinion and believe that big government is completely unnecessary, then the government will eventually shrink or collapse.

The Berlin Wall fell in 1989 and the Soviet Union completely fell apart a couple of years after that.  Don't think that Gorbachev was the reason.  I can credit Gorbachev for not using violence in the collapse, but I don't credit him with breaking up the Soviet Union.  Gorbachev was a communist and I'm sure he would have been more that happy to continue the communist system.  But the system fell apart because of the vast number of people who no longer believed in the system.  People living in the Soviet Union realized that communism was a horrible way of life and they could see this by catching a glimpse of the relatively capitalist western countries.

It is hard to know what will happen next in North Korea.  Kim Jong Il's son is supposed to be taking over.  If he is less oppressive than his father, then he can certainly make things better.  But ultimately, it is up to the people of North Korea.  They have to open their eyes and see that their neighbors to the south are rich and prosperous compared to them.  They have to realize that freedom is the answer to many of their problems, not another thug dictator.

Saturday, December 17, 2011

Christmas Shopping and the Economy

It is the Christmas season and a lot of Americans are out doing their Christmas shopping.  Of course, on CNBC and other newscasts dealing with the state of the economy, we will hear reports about how strong or weak Christmas sales are.  The strength of sales will be used by the pundits to determine the strength of the economy.

This is really one of the great economic myths.  There is confusion about cause and effect.  Consumer spending does not help or improve the economy.  It is just about the opposite.  A strong economy is what allows people to spend.

So while there may be some correlation between spending and the economy in the long run, spending should not be used as a marker about how the economy is doing or how it will be doing in the near future.

You can take a family budget as an analogy.  Someone making a million dollars a year is most likely going to spend more than someone making $40,000 a year.  But you don't use just their spending habits to judge how someone is doing.  If the person making $40,000 ups his spending from $35,000 per year to $45,000 per year, but is still making the same amount of money each year, this person is actually worse off because of the increase in spending.

The consumer can only consume what has already been produced.  But for there to be future production, there has to be savings and investment to fund it.  Just because there is a desire to spend money, it does not make products appear.  There has to be prior savings.

I'm sure the people of Ethiopia would all love to go out and buy a big house and a 55 inch big screen for their living room.  I'm sure they would love to eat gourmet meals every night.  The bottom line is that most people in Ethiopia cannot do this because they simply don't have the wealth.  To ever get to this point, the country would have to adopt a system of strong property rights and the economy would have to grow to this stage through heavy savings and investment.

If you go Christmas shopping, you are not really helping the economy.  You may be helping one particular person or business, but you are actually consuming goods and services away from others.  There is nothing wrong with consumption if you are using money that you obtained through trade or labor.  You contributed something to society and you are using your receipt of contribution to get something in return.

The person who saves his money and barely spends beyond basic necessities is actually helping the economy more.  He has contributed something to society and now has a receipt for his contributions.  However, he is not cashing in on it.  He is leaving more for others to consume (which will mean lower prices on the margin).  He has contributed more to society than he is consuming.

Again, there is nothing wrong with consumption if it is backed by prior savings.  There is nothing wrong with shopping for the holidays and enjoying gifts.  But if you really want to help the economy, increase your savings and stop spending as much money.

Thursday, December 15, 2011

Fox News Republican Debate in Iowa

The last Republican presidential debate before the Iowa caucuses has just wrapped up.  While there was nothing shocking that happened and there was no major game-changer, I still have some comments about a few things from the debate.

Ron Paul had another strong performance.  I thought his answer about congressional earmarks was strong, although I'm not sure if the average American will understand what he was saying.  Basically, Ron Paul votes "no" on all of these spending bills, but he tries to get funds earmarked for his district even though he is against the overall legislation.  As he pointed out, if the funds are not earmarked by Congress, then the executive branch will decide where to spend the money.  Paul's actions in no way increases spending.  He is simply trying to get back some of the stolen loot for his district.

The best part of the debate was on foreign policy.  Ron Paul could not really be more different than the other Republican clowns (sorry, no disrespect to clowns).  He advocates a foreign policy of peace.  The others advocate a foreign policy of war and massive intervention.  They think America is the best country in the world and therefore Americans are morally permitted to run the world and dictate orders to other countries.

Michele Bachmann gets scarier every time I listen to her.  I used to have a little bit of respect for her, only because her economic views seem to be half decent.  However, I'm not even sure if she is all that good on economic matters.  Of course, how can she be a fiscal conservative when she will have to spend many trillions of dollars more if she wants to fight all of the wars she is promoting?

Bachmann has actually become one of the more frightening figures in my eyes.  She was saying that she was 100% certain that Iran would use a nuke if it obtained one.  That in itself is an absurd statement.  Iran is not run by a bunch of madmen any more than the U.S.  The Iranian politicians may be Keynesians and egomaniacs, but so are most U.S. politicians.  The Iranian politicians are not going to be foolish enough to casually use nuclear weapons as they know that it would quickly lead to their own demise.

Newt Gingrich is a good talker and I try not to underestimate his skills.  He is a good debater.  With that said, he is still a snake and he can't be trusted.  When he was being questioned about Fannie Mae and Freddie Mac, he contradicted himself within the matter of 20 seconds.  He said that these government sponsored enterprises (GSEs) help people on the margin buy homes.  In another breath he said that we need to dismantle them.  So which is it Newt?  Do you want to get rid of these government agencies or don't you?  I'm pretty sure I know where he would come down on this if he were elected.

Iowa will be interesting.  Ron Paul needs to win it or come very close.  The whole race is down to Romney, Gingrich, Paul, and one other candidate.  I think that one other candidate that has a chance to emerge is Rick Perry.  He is a poor debater, but he has a lot of money.  If Newt stumbles, the pro-war conservatives will have to turn to someone else, and that might be Perry.

Meanwhile, Ron Paul continues to deliver his libertarian message to millions of people.  Let's hope the pro-liberty enthusiasm stays around for a long time after his campaign is over, regardless of the outcome.

Wednesday, December 14, 2011

Major Gold Correction to End 2011

Unless there is a major catastrophic event in the next couple of weeks, gold will not hit $2,000 per ounce before the end of 2011.  In fact, the price may will probably be below $1,600 at the end of the calendar year.

Gold had a major correction today (December 14).  It was down over $75 per ounce.  It is currently below the $1,600 mark.  This is quite bearish for the yellow metal in the short run.  The good news is that if you have been late to the game and are looking to buy some gold, there is some opportunity to do so.

It is hard to say where the bottom will be this time.  There are a lot of uncertainties out there, which can be good or bad for gold.  Today, it happened to be bad.  The euro has been extremely weak this week, which has meant a strengthening of the dollar.  This has led to a big decline in the price of gold in terms of U.S. dollars.  People wanted to get out of euros this week and they are turning to the U.S. dollar this time, instead of gold.

There continues to be a tug-of-war going on with the economy.  The monetary base has tripled in the last 3 years and most of this newly created money has gone into banks as excess reserves.  There is a tug-of-war between inflationary forces and a deep recession.  Both sides might end up pulling each other into the mud pit and we may end up with both eventually.

For a little while, it looked like we might see a little mini-boom, courtesy of low interest rates and easy money.  Today, it went the other way and it looks like we might be headed for a deep recession.  The 10-year treasury yield went down today and is pointing to continuing fear.

This roller coaster will continue until one side wins out (either way we lose) or until there is a big shift in Fed policy.  The Fed has been tight (monetarily speaking) since QE2 ended in June.  We will have to see how bad the economy will have to get before they entertain QE3.  While the best thing would be for the Fed to do nothing and the government to dramatically cut spending (which would trigger a recession), I don't see that as a likely outcome right now.

I don't like making predictions, but I'll do it anyway this time.  I think there is an 85% chance that gold will be higher (in terms of U.S. dollars) one year from today than it is now.  If the price of gold is lower in one year than it is today, then I think there is a 99% chance that we will be in a deep recession at that point.

Tuesday, December 13, 2011

Is Capitalism Dog Eat Dog?

It is not hard to find these accusations, particularly from those on the left.  We hear that capitalism is dog eat dog.  We hear that capitalism is a system where only the strongest survive.  We hear that the weak and poor suffer the most under capitalism.

In a sense, it may be true that the weakest are the worst off in a capitalist system, if by weakest we mean those who are the least hardworking, the least intelligent, and the least connected, or some combination of those things.  But in a capitalist system, even the poorer people will be far better off than the poor people of a less capitalist system.

There is a certain amount of dog eat dog competition in a capitalist system, but that competition is simply trying to please consumers.  If you are not doing a good job of pleasing consumers, then another person or business is going to do better.  Those who are the most innovative and who know how to please customers the best are the ones who will likely be rewarded the most.

The ironic thing is that in a capitalist system, the weak can survive better than in any other system.  Whether we are talking about being physically weak or intellectually weak, these people can still live a decent life in a relatively free society (just think of all of the rich dumb people in America).

In a system where brute force is used, then the weak will not survive, unless they can develop their own weapons to defend themselves.  But who would want to live in such a society?  There would be little or no division of labor and everyone would be living as savages, if living at all.

In a system that is heavily centrally planned by a government, those with the most political connections and those who are the most corrupt are the ones who are the most likely to benefit.  Perhaps some highly intelligent people, who are not necessarily corrupt, will do reasonably well in comparison to others, but they will still be worse off than they otherwise would have been.

If you live in a relatively rich country with a decent system of law and property rights, then you can flourish, even if you are just average.  Even opportunities arise for the poor and uneducated, even if they won't be equal to others in terms of wealth.  In addition, a rich country has the means to provide charity for those who are really down on their luck or who are severely handicapped.

Capitalism is a system where everyone benefits, except maybe the politicians and the politically connected.  But even the politicians would benefit financially in the long run as everyone shares in the benefits of economic growth and increasing technology.

If certain poor countries were isolated from the rest of the planet, the dictators/ politicians there would be living far worse than the average American.  It is safe to say that the wealthiest people on this planet just twenty years ago did not have ipads, iphones, or high definition broadcasts for their cable channels.

In conclusion, capitalism benefits nearly everyone over time.  A rising tide really does lift all boats.  There is inequality in poor countries and rich countries.  If there is going to be an inequality of wealth, wouldn't it be better for everyone to have more?

Monday, December 12, 2011

Associated Press Has Some Interesting "Facts"

The associated press released a story yesterday in which they did a "fact check" on things that were said in the recent Republican presidential debate.  While the story went after several of the candidates, I want to analyze just the portion that was devoted to Ron Paul.  The story from the AP said this:


RON PAUL: "We have dumped the debt on the American people through TARP funding as well as the Federal Reserve. So the debt is dumped onto people. And what did we do? We bailed out the people that were benefiting during the formation of the bubble. So as long as we do that, we're not going to have economic growth."
THE FACTS: The $700 billion Troubled Asset Relief Program was proposed by President George W. Bush and passed by Congress in 2008 to help rescue banks and other imperiled financial institutions. Nearly all of the money has been paid back, with interest.
Most economists credit the program with keeping the financial system from freezing up and helping to prevent the worst recession in 30 years from becoming another Great Depression. The Federal Reserve does not operate on taxpayer money and does not receive any operating funds from the Treasury. In fact, it makes money every year from its banking operations, and turns over profits to the Treasury.


There are so many things wrong with these two paragraphs labeled "THE FACTS", that it is hard to know where to begin.

First, the AP is saying that nearly all of the money has been paid back with interest.  But it is hard to know all of the facts because the Federal Reserve system and the bailouts are so secretive.  However, it is fairly well known that the Fed exchanged U.S. treasuries for a bunch of junk assets in the form of mortgage-backed securities.  So the government bought these bad assets at full price from the financial institutions.  Were all of these bad assets sold back to the institutions?  I don't think so.

Let's say I bought a bunch of shares of a stock for $50 per share and the price of the stock then fell to just $10 per share.  Then the Fed comes along and buys those shares from me and pretends they are still worth $50 per share.  So I get my $50 per share.  Meanwhile, I also take a loan from the Fed and pay it back with interest (at a very low rate).  Should we all boast about how the Fed was brilliant and how it didn't cost taxpayers anything?

These banks got bailed out.  It wasn't just loans, although that would have been bad enough.  Without the backing of the Fed, these banks and other institutions would have gone bust.

One thing that the writers of this story fail to understand is that even if the Fed had just loaned out money and all of the money had been paid back, it would still be harmful to the economy.  First, it is propping up the bad companies and the bad debt.  If every company in America is bailed out that is on the verge of bankruptcy, then we will soon be a very poor country.  There is no incentive to perform well and please customers.  Money is constantly being allocated to inefficient firms.

Another thing that the writers don't understand is that by diverting funds to these failing businesses, it is preventing other individuals and companies from using this capital in a better way.  This is what Bastiat and Hazlitt taught.  You have to look at the unseen consequences.  By diverting hundreds of billions of dollars in capital, there are many businesses and products that would have been developed but which we will never know about.

In the last part of the AP's story on Ron Paul, it says that the Fed does not operate on taxpayer money and does not receive any operating funds from the Treasury.  Yeah, no kidding Einsteins.  The Fed has a legal monopoly to create new money out of thin air.  Why would it need to collect directly from the taxpayers when it can just create whatever it needs?

Give me a legal monopoly to print money and I will be very profitable too.  I will fund my own operations and remit money back to the Treasury each year.  These writers are absolute geniuses.

In conclusion, the biggest part of the Fed bailout was buying up all of the toxic assets and paying the original full values.  This is highly inflationary in the long run because the Fed cannot sell them on the open market for anywhere close to what was paid for them.

It may be technically correct to say that the bailouts didn't actually cost taxpayers.  It cost everyone who holds dollars (which is most taxpayers).  The TARP bailouts were inflationary and we will continue to see the effects, even if they can't be seen directly.

Saturday, December 10, 2011

Iowa Republican Debate on ABC

I am continuing my commentary following Republican presidential debates.  It is important because it will shape our future and this is a rare race in that people actually have a choice.  If Ron Paul were not in this race, I would not be devoting even one quarter of the time that I have.

This debate had a slightly different feel, as there was no Jon Huntsman and Herman Cain.  With only six candidates on stage, it allowed them to have more time to answer questions.  It was also a little different with Newt Gingrich being one of the current front runners.  He was attacked a lot more (and rightly so) and it forced him to start being critical of the other candidates, instead of him just being critical of the media and Obama as he has done in the past.

Early on in the debate, Romney was pointing out some of his differences with Gingrich.  One of those things had to do with the space program.  Gingrich said he thinks America needs a place in space.  But doesn't this just go to the heart of Gingrich's philosophy?  I love space and the idea of exploration, but I don't think it is the role of government to explore space or fund it.  Gingrich is equating America with government.  He thinks the bureaucracy in Washington DC is America.  He thinks that the only way Americans will be in space is if it is run and funded by government.

Rick Perry continued to stumble with his words, but I still can't count him out.  He has a lot of money and he may still be an alternative to some people if Gingrich self destructs.

I don't think there is much to add about Romney, Bachmann, or Santorum.  There was nothing significant that stood out to me from the things they have said in the past.

As for Ron Paul, I thought he did an excellent job in the debate.  It is always tough for me to judge on how a non-libertarian might view some of his answers.  But I got the feeling that many non-libertarians would have liked many of his answers.

I liked Paul pointing out that he is the candidate that has remained consistent.  Just about everyone who has been paying attention understands that this is the case, whether they agree with him or not on the issues.

I also liked that Paul pointed out that government is force.  He was responding to a question related to healthcare and Obamacare.  He pointed out an obvious but rarely mentioned fact that having to pay Medicare taxes is a mandate as you are essentially forced to do it.  I don't know if that will win a lot of new votes, but it may convert a few more people towards libertarianism.

It was interesting that in the last round of questioning, both Romney and Perry gave compliments to Ron Paul.  I think Perry's comment about thanking Ron Paul for hammering away on the Fed and leading him to studying it more shows a lot.  It shows that Paul has been quite successful in his quest to educate people about the Federal Reserve.  This is an issue that most people did not care about or even know about five years ago.  Now it gets a lot of attention and the other candidates are realizing that the Fed is an issue that appeals to some voters.

Overall, I think this debate will benefit Ron Paul.  His poll numbers have been rising slowly and steadily.  Most of his supporters are not going anywhere, so I would be surprised to see his poll numbers drop (except for variances in the type of poll and the statistical sampling).

Ron Paul needs to win Iowa or come in a very strong second.  His chances are better than I would have imagined just a few months ago.

Thursday, December 8, 2011

Monetary Base Indicates Recession

You can view the short-term adjusted monetary base here:
http://research.stlouisfed.org/publications/usfd/page3.pdf

You can view a longer term chart of the monetary base here:
http://research.stlouisfed.org/fred2/series/BASE

You can view the excess reserves held by commercial banks here:
http://research.stlouisfed.org/fred2/series/EXCRESNS

The adjusted monetary base is indicating that a recession is ahead.  The Austrian Business Cycle Theory tells us that an artificial boom will turn into a bust when the there is a deceleration in the money supply.  There does not have to be a contraction in the money supply.  It just has to be a reduction in the rate of increase.  If the money supply is growing at 10% per year and then it slows down to 5% per year, this could be enough to cause a bust.

In our current situation, there is actually a slight decrease in the adjusted monetary base since the end of QE2 back in June of this year.  Although we have not really seen a boom, the large increase in the money supply in the last 3 years indicates that things may have seemed better that they otherwise would have been without the large monetary increase.  Regardless, the monetary inflation of the last 3 years has misallocated resources and this will need to adjust at some point.  The bigger problem is that the original large misallocation that took place prior to 2008 was never allowed to correct.

So in just looking at the chart of the monetary base, it looks like we should see a recession coming.  However, there is a big "but" here.  Starting in late 2008, we saw something that we had never really seen before.  The excess reserves held by commercial banks increased dramatically as shown in the link above.

Typically, banks will lend almost all of their money and keep just enough to stay within the reserve requirements.  If they fall below the reserve requirements, then they can borrow money from the Fed on an overnight basis, which is the Fed funds rate that the Fed controls directly (except now because banks don't need overnight borrowing, which is why the Fed funds rate is so low).

In 2008, the Fed started paying banks interest to keep their excess reserves with the Fed.  However, I have never really believed that this is the reason that banks have dramatically increased their reserves.  The Fed is only paying a quarter of a percent interest.  I think the reason the banks have increased their reserves as never before is because of their bad financial positions and their fear of what is still looming in the economy.

Regardless of the reasoning, the increase in the excess reserves has just about imitated the dramatic increase in the monetary base since the fall of 2008.  This has kept price inflation in check.

So while the monetary base is indicating a recession, the excess reserves are not.  If we see a drop in the monetary base with an increase of reserves (or at least no change), then a recession is more likely.  On the other hand, if the Fed keeps the monetary base steady and we see a big drop in excess reserves by the banks, then you should prepare for severe price inflation.

Right now, it is still a tug-of-war.  I would not be surprised to a see a mini-boom cycle with the stock market and commodities continuing to go up in price.  I also would not be surprised to see a recession.  There are a lot of factors out there.  Right now, we should be in asset protection mode and we should keep watching the charts above.  If there is any big change, I will be sure to let you know.

Wednesday, December 7, 2011

Merkel and Sarkozy Come Up With a Plan

German Chancellor Angela Merkel and French President Nicolas Sarkozy have come up with a proposal to save the euro.  This plan could actually work, if only it had been implemented 5 or 10 years ago.

To quote this summary article, "It says governments that allow their deficits to exceed 3 percent of their GDP should be automatically sanctioned and asked to lay out a plan for reducing spending.  It also says that countries that continue to flout spending rules will face a series of increasingly strict sanctions."

First, this proposal is too little and way too late.  The problems are already here.  Greece is basically in default.  Italy is now on the brink.  The other PIIGS, Portugal, Ireland, and Spain, are still in major trouble.  All of these countries could come up with a plan to reduce their deficits to 3 percent of their GDPs right now and it would not be nearly enough to get them out of the woods.

Second, there were already conditions in joining the European Union for countries to limit their deficits and overall debt.  They were unenforceable words.  Why would this proposal by Merkel and Sarkozy change any of this?  Just because they write out specific penalties?  But what happens when a country like Greece just ignores the sanctions?

I am not sure if this whole thing is just for show or if they are serious.  Can they really believe that this proposal will save the euro?

The problem with Greece and others is that they are welfare states.  Their governments have made these grand promises that cannot be kept.  It is much the same way as the U.S.  The difference is that the U.S. controls their own money supply and relies on the Federal Reserve to create new money out of thin air to fund its debts.  It also doesn't hurt that the U.S. dollar is still considered the world's reserve currency.

Greece does not control the European Central Bank.  However, the bankers probably do and the bankers are owed a lot of money from Greek debt, Italian debt, and so on.

Eventually, I think the European Union will break apart.  The big banks will get bailed out.  Greece will officially default along with others.  Then the welfare statists will be in for a shock as they will be unable to sell government bonds to anyone to fund their welfare.  So they will separate and form their own currency and central bank.  Hopefully some people will learn a lesson from this.

Tuesday, December 6, 2011

It's the Spending Stupid

In Bill Clinton's first campaign, "it's the economy stupid" was a favorite phrase by Clinton and his team.  In some ways, they were right on because Americans tend to vote for their own self interest, and the economy is something that directly affects them.  There was a recession during the Bush presidency, although a recovery had already begun when Clinton was elected (with just 43% of the vote).

Now, it's really the spending stupid.  You can add the debt to that, but that is really just a result of the spending.  In order to control the debt, the spending has to be controlled.

Virtually every time the government spends money, it misallocates resources.  Even if the politicians had all the best intentions in the world, there is still no possible way they could allocate money exactly according to how each individual would.

Now that the government in DC alone is spending nearly 4 trillion dollars per year, that is 4 trillion dollars that is being misallocated.  It is not to say that it is necessarily being completely wasted (although some of it is), but it is not being used in its best way according to consumers.

If you included state and local government spending, government at all levels in the free U.S.A. is spending half the GDP.  This means that, on average, Americans are paying half of their income to the government, and this is before we even factor in regulations.

The only way this economy will improve significantly and sustainably in the near future is for a dramatic decline in spending.  While the immediate impact might be tough on some, it would allow resources to properly reallocate and would set the stage for a sustainable boom in the economy.

The problem right now is that the American people are not knowledgeable enough or desperate enough to demand a massive cut in government spending.  This would mean an end to the American empire.  It would mean scaling back so-called entitlements.  It would mean other things like ending the war on drugs, ending federal education funding (and hopefully state and local eventually too), ending subsidized college loans, ending farm subsidies, ending bailouts, and ending government charity.

While I am encouraged by the strength of the Ron Paul campaign, it is still not enough yet.  As long as there is not a big voice in America demanding these cuts, then the politicians are going to keep spending as long as the laws of economics allow them.

It is not too late for us.  There is still a lot of wealth, combined with great new technologies.  If Hong Kong could build itself up as one of the richest countries in the world when it started near the ground, then America can really boom.  We just need a change in the mentality of the people.  Once there are big enough numbers to demand a full-scale retreat by big government, then things will get better.  If the size and scope of government were cut in half within one year, then you would see an economic miracle take place.

Monday, December 5, 2011

Ron Paul vs. Donald Trump

The political scene continues to heat up.  Herman Cain is out of the race (I think his wife got tired of lying) and now Ron Paul and Donald Trump are going at it.

Trump is planning to moderate a Republican debate and Paul declined the invitation, with some rather scathing words.  He called Trump a reality television personality and he said that such a debate would have a "circus-like atmosphere".

Trump fired back and said that Paul has no chance of winning and said that his own poll numbers were higher when he was "running".  It is not surprising that Trump came back with something, as he is never one to back down from a fight.

Actually, I think that was Trump's appeal to some people when they thought he might be running.  He was very blunt with his criticism of Obama and some people like that.  Sometimes he just tells it like it is and people find that refreshing.  With that said, Trump is full of himself.

I wasn't sure that Paul should have picked this fight.  It's not that I necessarily disagree with the statement that was put out.  But sometimes you are just better off going along with it for the time.  He would have received more media exposure from the debate and he could have embarrassed Trump there if any stupid questions were asked.

It is hard to decline the invitation just because Trump is a bit of a clown.  If that is the case, then Paul should not have participated in that awful PBS debate where the moderators were a bunch of left-wing hacks.  Or even worse, how about that CBS debate where he only had 89 seconds to talk during the first hour?

However, I have been having second doubts about my own opinion in the last few hours.  There is no guarantee that this debate is going to happen and it may not even be available for most people to watch.  If this whole debate blows up, then Ron Paul will come out looking even better.

I actually agreed with something Mike Huckabee said this morning.  Although he was touting his own candidate forum that he ran the other night, it was still a good point.  He said that it was inappropriate for Trump to be moderating a debate when he is still considering a candidacy for himself.

That is absolutely true.  Trump said he can't do anything until his show's contract ends in May, but he is not ruling out a third party run.  Hey, maybe we can get one of the current candidates from the Libertarian Party to moderate a debate too.

I remember over a decade ago when Trump was talking about running for the presidency.  He floated some ridiculous idea that he would pay off the national debt by doing a one-time wealth tax of 14.25% on everyone with over 10 million dollars in net worth.  You can read one current story here.

In 1999, when he came out with this ridiculous proposal, I was not a radical libertarian yet.  I was fairly libertarian on economic issues and I thought Trump's proposal was horrible then (and I still do).  Not only would this be highly immoral and unfair, the economic consequences would be disastrous as well.  It probably would have crashed the stock markets and real estate markets.  Some billionaire who all of a sudden had to fork over hundreds of millions or billions of dollars to Washington DC, does not just have that money sitting in a bank account.  It is usually tied up in a business or in stock or in real estate or some other productive asset.  These assets would have to be sold off in massive amounts in a short period of time.

Of course, Trump was just spouting off at the time, just as he does now.  I recall Jesse Ventura supporting him then, and I thought less of Jesse after that.  Luckily, Ventura has come to his senses and he is basically a Ron Paul supporter now.  He has been really good on social liberties and civil liberties.  He still might need some work on economic issues.

In conclusion, we'll see what happens with the whole Ron Paul vs. Donald Trump thing.  The best thing would be for Ron Paul to prove Trump wrong by going ahead and winning the Republican nomination. Maybe that would finally shut Trump up, but I doubt it.

Saturday, December 3, 2011

Collecting Pennies

One of the most popular blog posts I have written was on "Collecting Nickels".  I can see the statistics and this particular post has been read a lot compared to other posts on my blog.  That means that either it is not a widely discussed topic on the internet or a lot of people are searching it.  If you type "collecting nickels" into google, my post is on the second page of ten.

In the post, I say that it is the one investment you can make that is a hedge against inflation and deflation at the same time.  It is a hedge against deflation because it is the same as holding cash.  Your purchasing power grows with deflation.  With short-term interest rates right now at a fraction of a percent, the interest you would lose from not having it in a bank is negligible.

It is a hedge against inflation because of the metal content of the coin.  If there is massive price inflation ahead, then metal prices will most likely go much higher.  The metal content of the coins will increase and the coins will be worth far more than five cents.

So what about pennies?  Pennies are actually quite similar.  However, I see less attraction trying to collect pennies because it is even more bulky than trying to collect nickels.

There is a story on "Penny Hoarders" by ABC News.  They ran a full story on it on "Nightline".  This story covers some serious collectors.  This is a business to these people.

The story says to collect those that are dated 1982 or before.  The reason is because of the metal content of the pennies.  Pennies dated from 1982 and earlier are made with 95 percent copper.

This story also says, " In what could be the biggest legislation to hit the U.S. Mint in 50 years, officials are now looking at the composition of pennies and nickels and considering an overhaul.  If the laws change and the mint decides to abolish the penny, people would be free to melt them down for the copper."

Regardless of whether the law is changed, we will see Gresham's law take over and we will see older pennies and all nickels slowly go out of circulation.  This is a very similar situation to pre-1965 dimes and quarters, which are made out of silver.  They are held by people investing in silver.  Holders of these silver coins would rather not melt them anyway, because they are easily identifiable as silver and they are in small denominations.  I have written before on this subject too.  I could see melting pennies as more attractive because of the low value of the metal content as compared to silver.

I am not sure that it will matter if the law is changed.  Either way, if you have the time and patience (and space), go ahead and start collecting pennies along with your nickels.  Pennies are more difficult, not just because of the space required, but also because you have to sort out the pre-1983 ones.  However, it is practically a no-lose investment.

Thursday, December 1, 2011

Payroll Tax Cut Extension and Jobs

The Republicans and Democrats in DC are bickering over the extension of the payroll tax cut that was enacted for this current year.  While both sides say they want to extend the tax cuts, the Democrats want to expand it further and "pay" for it by putting a "surcharge" of 3.25% on people making over a million dollars.

Most of the Republicans are full of it, but they are refusing to blatantly raise taxes as they know what happened to George H. W. Bush in 1992 after he broke his pledge of "no new taxes".  Meanwhile, the Democrats do not hide their socialism and class warfare as they want to increase income taxes on high-income earners.

As the article linked to above says, Harry Reid said that Republican opponents "insist on helping the very wealthy while turning their back on the middle class."  Ok, if Reid were talking about Republicans bailing out banks or giving big contracts to military companies, then he might have a point.  But Reid is talking about not raising taxes on high income earners.  So Harry, for anyone who does not believe that the already high income taxes on high-income earners should be raised, you consider that helping the wealthy at the expense of the poor?

Of course, never in a million years could the Democrats advocate something without "raising taxes on the rich".  Never could they actually come up with something to cut out of the budget.  They really are a bunch of socialists, but that in no way should imply that the Republicans are any good (with the exception of a very few like Ron Paul).

If I were in Congress, I would vote to extend the payroll tax cut.  However, I would vote "no" if it meant raising any other taxes (unless those taxes were specifically for members of Congress).  While spending should be cut dramatically, I think that any tax cut we can get, we should take.  It is just allowing us to keep a little bit more of our earnings.

As far as helping unemployment, this won't really do much.  As I have said before, if they really wanted to help create jobs and lower unemployment, then the tax cut would be for the employer portion of the payroll tax.  By cutting taxes for employees, it gives a raise to people who are currently employed.  It will only marginally help those unemployed if it doesn't actually hurt them.  If taxes were cut for employers, it would decrease the cost of hiring labor and there would be some net improvement in employment on the margin.

If the Democrats got what they are advocating, it would just hurt the economy more.  It would mean less money on the margin for high-income earners, who are often the employers.

All of this talk is more class warfare by the Democrats and more posturing by the Republicans.  Neither side is advocating any significant cuts in spending, which is really what we need.  This economy will not have a sustainable recovery until government spending is cut dramatically.