Wednesday, February 29, 2012

Bernanke Talks and Gold Tumbles

Ben Bernanke spoke today and markets reacted.  As this article notes, "Bernanke's comments suggest that the Fed has made no decisions about another round of quantitative easing - sure to be nicknamed QE3."  The price of gold tumbled.  The gold ETF (symbol: GLD) fell $9.20, which translates to about a $92 decline in the metal.  Gold is now around $1,700 per ounce after several weeks of steady gains.

The most amazing thing about this is how sensitive the price of gold is (in terms of the dollar) when Bernanke speaks.  It just shows the power of one person (or one committee).  There is no reason it should be this way.

This also shows that the price of gold in terms of dollars is not only a reflection of past monetary policy, but also a reflection of expectations for future monetary policy.

This is where gold is really different from consumer prices.  Consumer prices such as food and clothing are more likely to rise because of past increases in the money supply.  Gold on the other hand is more likely to rise because of expectations of a coming increase in the money supply.  It is not to say that food and clothing do not take the future into account, but just that it does not seem to be as great of a factor as it is for gold.

These roller coaster rides in the price of gold will likely continue.  I still think that as long as the economy does not drop off a cliff, then the gold price will likely go higher.

The federal government is in major trouble.  The debt-to-GDP ratio is now over the 100% mark.  The yearly deficits are over one trillion dollars and it is only going to get worse with the unfunded liabilities of Medicare and Social Security.  The government is going to try to default through inflation first.

I just don't see the Fed saying "no" to the government right now.  If the U.S. government needs someone to buy its debt, then the Fed will buy.  If the Fed doesn't buy, then interest rates will rise and the government will be forced to severely cut spending.  That is why the Fed will say "yes".

There will eventually come a time when the Fed says "no".  It will be when the dollar is threatened.  It will be when we see double digit price inflation as we did in the 1970's.  At that point, I expect the Fed to stop buying U.S. government debt for a while.  That is when you will see a severe cut in spending.  That is when you will see a depression.  That is when you want to sell some of your gold investments and take your profits.

Tuesday, February 28, 2012

Romney Takes Arizona and Michigan

It looks like Mitt Romney will win Arizona and Michigan.  Just a couple of weeks ago, Santorum had taken a lead in the national polls and had a substantial lead in the polls for Michigan.

Romney can thank Ron Paul for his victory in Michigan.  The last debate, that took place in Arizona, may have been a game changer for Rick Santorum.  Ron Paul took him to school.  He pointed out many of his inconsistencies and exposed Santorum as a hypocrite.  He pointed out that Santorum campaigns like he wants smaller government, but his actions as a senator were completely different.

While there are still headlines to be made, I think Mitt Romney is the heavy favorite to win the nomination at this point.  It is hard to believe that the Republicans will put, as their nominee, the founder of Obamacare.  Romneycare was instituted in Massachusetts and is very similar to Obamacare.  While Romneycare may be constitutional, it still does not make it good policy.

The one issue that the entire Republican Party agrees on is that Obamacare is a bad thing.  So the party nominee will be the unofficial founder of Obamacare.  Makes sense to me.

Romney is really going to get the nomination out of default.  He has the money and backing to win it and the other candidates all have their major flaws.  Of course, Ron Paul doesn't, but the majority of the country isn't quite ready for him yet.

Rick Perry should have stayed in the race.  Conservatives are hungry for someone decent who matches their views.  Perry was horrible in the debates, but he should have stuck it out.  He actually could have come back and challenged Romney.

As for Ron Paul and his libertarian message, he will have over 100,000 votes coming out of Michigan.  If he stays in the race (which I expect him to), then he will likely amass a couple of million votes when it is all over.  While not all of the people who vote for him are hard-core, he definitely has the most loyal and passionate following.  This was shown by about 4,000 people attending a Ron Paul event in Michigan.

I think it is fairly safe to say now that there are about one million Americans who would consider themselves solid libertarians and several million more who lean libertarian.  To put this in perspective, no Libertarian Party presidential candidate has ever received a million votes in one election.

Although the percentage of libertarians still seems small, we don't need a majority to gain liberty.  We need a tireless minority.  We need a solid 10%.  We are getting closer and closer.  I really believe that there is good reason to be optimistic for the long-term future.  More Americans are waking up and embracing the idea of liberty.  I think the libertarian revolution is really rolling now and I expect it to continue.

Monday, February 27, 2012

Iran and the Price of Oil

The price of oil has risen quite a bit recently.  Crude oil is now around $108.  The general consensus is that the price has risen due to the tensions in the Middle East, particularly the threat of war in Iran.

One thing that makes economics difficult is that you can't look at real life in a vacuum.  It is impossible to know for sure if the rise in the price of oil is because of the possibility of an Israeli or American strike on Iran.  It is quite possible that the price of oil has gone up in dollar terms because of the previous monetary inflation that took place.

My guess is that it is a combination of the two things.  There has been a lot of new money created by the Fed since the fall of 2008.  While the bad economy and a lack of bank lending have helped to keep a lid on prices, it is hard to imagine that it wouldn't have had some effects on prices at this point.

When there is monetary inflation, the new money does not spread out across the economy evenly.  Some things may not go up much in price, while other things may go up a lot.  The new money finds hot spots.  This can be in the stock market, gold, real estate, are any number of other things.  It can also go into oil, particularly when there are concerns of a supply interruption.

Even if most of the rise in the price of oil is due to the threat of a war in Iran, the oil market is still telling us that there is a decent chance that there won't be any significant violence there.  While oil has risen in price quite a bit in the last month, it is still just under $110.  If the consensus in the market were that a war with Iran were likely, then I think we would see a much higher price.

Many analysts are saying that oil will go to $150 or $200 per barrel if war breaks out.  I think this is a very conservative estimate.  If Iran is successful in closing the Strait of Hormuz for just a few days, we could easily see the price spike to over $300.

If oil is going up strictly because of the threats of war and an interruption in supply, then other prices should go down.  The only way that oil will go up in price along with most other consumer goods is because of monetary inflation.  As I have written before, higher oil prices do not cause price inflation.

Time will tell if the oil prices are going up because of the threat of war in Iran or because of monetary inflation.  Either way, the higher prices are hurting the average American who is already feeling squeezed.

The ironic thing is that the higher oil prices we see now might reduce the risk of a war with Iran.  Obama is starting to feel some heat for the higher gas prices.  He has to know that a war with Iran will make gas prices skyrocket.  This would be bad for his re-election chances.  Therefore, maybe he will hold off on another war and maybe he will encourage the Israeli government to do the same.

Saturday, February 25, 2012

The One Candidate for Economic Freedom

Throughout the Republican primary process, Ron Paul has been identified as being different than the other candidates, particularly on foreign policy.  His libertarian philosophy differentiates him on civil liberties and social issues too, but most Republicans who do not support him feel that his foreign policy views make him the most different.

Sean Hannity, the conservative radio talk show host, has said numerous times that he can’t support Ron Paul because of his views on foreign policy.  But Hannity has pointed out several times in this election cycle that he agrees with Paul on economic issues.

It is hard to believe that Hannity agrees with Paul on economic issues.  If that were the case, how could Hannity support any of the other Republican candidates?  How could he have been an apologist for George W. Bush for 8 years?

Hannity was mildly critical of Bush for some of his legislation and his spending, but nothing compared to his words for Obama.  If Obama had presided over the Medicare prescription drug law that Bush supported and signed into law, then Hannity would have gone nuts.  He would have been calling it socialized medicine.

Ron Paul is not just different than Bush when it comes to fiscal policy; he is virtually the opposite.  Paul is not just different than the other remaining Republican candidates; they have completely conflicting goals, even on economic issues.

In one of the previous debates, Rick Santorum did a good job of exposing Mitt Romney and Newt Gingrich for their support of health insurance mandates.  He accused them both of wanting top-down government-run healthcare.  He was right.  The problem is that Santorum supported the Medicare prescription drug program that increased unfunded liabilities by trillions of dollars.  Santorum also did a number of things that Ron Paul completely opposed such as voting to raise the national debt and supporting the “No Child Left Behind” legislation that further centralized government education.

There was another time in a past debate where Santorum said that Ron Paul could carry out his agenda in regards to foreign policy, but would not be able to carry through on his economic policies because he would have to go through Congress.  He was partially right on this.  He was actually making a good case for the anti-war left to support Ron Paul.

It is true that Ron Paul could carry out his foreign policy views easier.  As president, he could simply order the troops home and stop the wars.  On fiscal issues, things would not be as easy.  However, he could veto all spending bills that came to his desk, particularly if they did not cut at least a trillion dollars out of the budget in the first year as he has proposed.  Also, if Paul were elected, then there would obviously have been a major shift in the attitudes of the American people and Congress would feel more compelled to actually cut spending.

The ironic thing about Santorum’s statement is that he actually made a good case against himself and the other two candidates for fiscal conservatives.  Santorum was basically admitting that he would have trouble cutting spending and following through on some of his rhetoric of smaller government.  But Santorum has continually advocated going to war in Iran.  This would vastly expand the budget.  Since Congress has basically shirked its duty to declare wars, Santorum could easily follow through with his agenda to bomb Iran, but he would admittedly have trouble getting Congress to cut spending.  So spending would vastly increase if Santorum were elected.  The same would probably hold true for Gingrich and Romney.

Ron Paul is the only candidate amongst the four who actually wants smaller government.  He has offered specific proposals to cut one trillion dollars in his first year in office.  The only other candidate who was actively proposing to eliminate any departments was Rick Perry and he dropped out of the race.  While Perry’s proposal would barely have made a dent in the federal budget, at least he was offering something specific.  The three remaining candidates besides Paul are not offering any significant spending cuts that are specific.

In 1994, Newt Gingrich talked about eliminating the Department of Education.  This, of course, did not get done.  He does not actively talk about this any more.  You can safely assume that he does not want to eliminate this department.  If someone wants more war and more military spending and yet cannot even advocate the elimination of the Department of Education, then you can be fairly certain that that person has no intention of cutting government spending.

Everyone is right that Ron Paul is different when it comes to his views on foreign policy.  However, he is also different when it comes to economic issues.  In fact, he is not just different from the other candidates on economic issues; he is virtually the opposite.  The other candidates are far closer to Obama on economic issues than they are to Ron Paul.  Their rhetoric means nothing.

Thursday, February 23, 2012

What Percentage of Your Portfolio Should be in Gold?

Jeff Berwick of The Dollar Vigilante has an article that was posted via LewRockwell.com.  He says he was at a conference where he said, "I have no problem with someone having 100% of their portfolio in gold."  He said that many in the crowd laughed at the comment, but he didn't find it so funny.

The whole article is short and worth a read.  He makes many good points.  He ends the article by backtracking a bit and saying that his organization actually recommends 30% in gold and silver.  They also recommend 20% in gold mining juniors and 15% in gold mining major stocks.  If you add all of that up, it is 65% in gold or gold related investments.  The 35% in gold stocks is highly volatile.

I completely disagree with the sentiment of having 100% of your portfolio in gold.  I don't even like the 65% allocation.  It is too high and too risky.  What would happen if the economy falls into another deep recession as it did in the fall of 2008?  Having 35% in gold stocks and another 30% in gold and silver would devastate your portfolio.  Of course, having 100% in gold would also hurt a lot if gold were to drop like it did in late 2008.

I am an advocate of the permanent portfolio as described by Harry Browne in his book Fail Safe Investing.  This would put you in gold for 25% of your portfolio.  Of course, I see nothing wrong with some speculation money that is for riskier plays.  For this money, I would certainly favor some more gold, some silver, some platinum and maybe some gold stock ETFs like GDX and GDXJ.  These speculation plays are just because of the economic environment we are currently in and the potential for a big reward.  However, anything beyond the 25% in the permanent portfolio has some substantial risk to it.

Here is the mistake that Berwick is making with his comment about being ok to have 100% in gold.  He, like many other libertarians, are mistaking gold for money.  Gold has a history of being money.  If we had a free market in money, it is likely that gold would be used as money.  However, that is not the reality we live in.  In America, the U.S. dollar is money right at this moment, whether we like it or not.

To prove this point, try this as a test.  Walk into a grocery store and load up your shopping cart with food.  Or you can even just pick out a few items.  Then go to the cash register and try to pay for it with a gold coin.  The cashier is going to look at you like you are nuts.  In fact, you could have 100 U.S. dollars worth of groceries and offer to pay for it with a one ounce American gold eagle.  The value on the coin says $50, even though the actual value is over $1,700 as of this writing.  My bet is that nine out of ten cashiers would not accept the coin.  Most would probably have to call a manager to come over.

The point is that gold does not serve as money in our society right now.  It has all of the qualities for a good form of money, but the government has essentially forced us to use the U.S. dollar.  That is why you don't want 100% of your portfolio in gold.  If the dollar price of gold goes down significantly, then you cannot buy as many groceries with it or just about any other consumer item.

In conclusion, my guess is that gold will continue to rise against the U.S. dollar.  However, I would not put all of your eggs in one basket.  If the price of gold in terms of dollars goes down, then you need some dollars to buy more.

Wednesday, February 22, 2012

Republican Debate in Arizona

Another Republican presidential debate occurred, this time in Arizona, ahead of primaries in Arizona and Michigan.  After that will be "Super Tuesday".  This was perhaps the last Republican debate, depending on what happens in the next couple of weeks.

First, Mitt Romney did get a couple of brownie points with me at the very beginning.  He was not done with his opening statement, but received applause, so he decided to stop.  He said he would take a lesson from George Costanza (a Seinfeld reference for anyone unfamiliar) and stop with the audience applause.  This was in reference to a Seinfeld episode where George learned that after he told a joke and got a good reaction from the crowd, it was just better to exit on a high note.  I don't know if this was planned by Romney, but it at least made him a little bit human and his line was probably well appreciated by Seinfeld fans.

Aside from that, Romney had an average night.  He took some heat as usual, but he was fairly steady.  He didn't say anything that will make any dramatic headlines.  He didn't pull any Rick Perry moments of major blundering.

The same can be said for Gingrich.  He had a decent night.  He was better than he was in the Florida debates, but worse than the South Carolina debate.  However, he may gain some traction at the expense of Rick Santorum.

While there was no clear winner (even though Ron Paul is far superior with his ideas, I am trying to be somewhat objective here), Santorum was clearly the big loser.  He took heat from all sides.

Ron Paul took Santorum to school.  Near the beginning, Paul pointed out that Santorum is like the typical politician who campaigns on something in particular, but then does something different while in office.  He used the example of "No Child Left Behind", which Santorum voted for while in Congress, but now says he regrets.  Paul pointed out that Santorum is inconsistent.  He was very effective in exposing Santorum's record of supporting big government.

I was actually getting excited about Santorum's momentum.  It was slowing down Romney.  I was also wondering if it was possible if Santorum could somehow snag the nomination.  I would like to witness the biggest landslide in American history.  If the economy doesn't fall off a cliff in the next 9 months, Obama might be able to win every single state in the general election against Santorum.

There was not much new on foreign policy.  All of the candidates are pro-war, except for Ron Paul.  There was one interesting part where Paul said that he had already tried the moral argument and constitutional argument, so now he would make an economic argument.  He is certainly correct that there is a strong economic argument to be made against war.  However, I'm not sure that he has exhausted the moral arguments as much as he can.  I will have more to say about this, probably in a couple of weeks.

In conclusion, I think Santorum was the loser tonight.  We'll see if others agree.  I actually hope I am wrong.  I want to see this thing drag out.  The longer it drags out, the longer we get to hear a message of liberty and peace from Ron Paul.

Tuesday, February 21, 2012

Greece Will Secede from the European Union

Greece is going to secede and break away from the European Union and the euro currency.  This is not a current headline.  It is a prediction.  I am not one to make a lot of predictions, but this really seems inevitable to me.

Greece basically has a couple of choices.  The Greek government can balance its budget and remain a part of the European Union or it can separate.  What do you think the chances are that the Greek government is going to balance its budget with a declining economy and riots in the street?

Greece will break away from the European Union so that it can form its own central bank.  Using its own currency, it can default through inflation.  This makes it easier for politicians to make big promises and avoid actual cuts.

Greece is being bailed out again.  The Greek Finance Minister said, "It is maybe the most important (deal) in Greece's post-war history."  This is a joke.  It is another waste of 130 billion euros worth of capital.  It is prolonging the agony.

The other European "leaders" say they are going to keep a tight grip on Greece and its spending.  So what?  They've been saying this all along and it hasn't changed anything.  The Greek government will continue to spend money until the rest of Europe finally says "no more".  That is when Greece will break away.  It may threaten the entire European Union.  That is fine with me.

If you think an announcement by Greece to break away will cause a huge drop in the American stock market indexes, then you better take your money out or short the market.

I can't stress enough that a Greece departure is virtually inevitable at this point.  They are not going to cut spending enough to balance their budget.  The U.S. government would be just as incapable of doing this right now.  The U.S. government can get away with deficit spending for longer because of the Federal Reserve.  That's why Greece will break away and form their own central bank.

The bailouts for Greece will eventually stop.  The day of reckoning is coming.  It would not surprise me if it happens in the next few months, but these things often drag out for longer than expected.  The rest of Europe has to be growing tired of paying for the recklessness of the Greek government and its citizens.

I don't know how much this will affect the American economy.  If and when Greece separates, it will be interesting if other countries quickly follow.  I hope they do.

Monday, February 20, 2012

The Five Worst Presidents for Liberty

I am going to name the five worst presidents of all time, from a libertarian perspective.  Of course, this is highly subjective and you can use different criteria.  I am going to name the worst for liberty at the time they were president and also the lasting effect they had against liberty.

While many people will name the current or last president as the worst (Republicans will name Obama and Democrats will name Bush), they really aren't in the top five (although Obama still has time to make it there) when you consider some of the disasters of the past.  Obama and Bush certainly deserve a spot in the top 20 worst of all time, but not the top five.

I would like to do a list of the top five sometime, but it would actually be the five who were the least bad.  The list would be unlikely to include anyone from the 20th century and certainly not from the 21st century. The top five would probably all come from the 19th century.

So here is my list of the worst five:

1) Abraham Lincoln - While Lincoln is revered by so many, he did great damage to the country.  He supposedly ended slavery, but that was just an effect of his war.  Slavery would have come to an end anyway, and it could have been done peacefully.  Lincoln waged a massive war, which killed over half a million people.  That is when the country was much smaller.  It was easily the deadliest war in American history, at least for Americans.  It severely diminished states' rights and centralized the national government.  His policies definitely had a lasting effect that we are still paying for today.  He was really a brutal dictator in many ways.  He killed and imprisoned those who disagreed with him.  I am glad to say that it is highly unlikely that any president today could get away with the things that Lincoln did to his fellow Americans.

2) Woodrow Wilson - He presided over the Federal Reserve Act, the 16th Amendment, and the 17th Amendment.  These three things all happened in his first year of office.  In 1913, we got the Federal Reserve, the federal income tax, and the direct election of senators (another killer of states' rights).  This alone would have been enough to put him in the top five.  On top of it, he put America into World War I and instituted a draft, much like Lincoln.  With American entry into World War I, it set the stage for the spread of fascism, World War II, and eventually the cold war.  Wilson was awful on all accounts, foreign and domestic.

3) Franklin Roosevelt - Roosevelt was horrible on economics.  He instituted his "New Deal", which gave us Social Security.  He continued the Great Depression by not allowing the free market to work.  He really began the massive welfare state in America.  While Roosevelt is looked on highly by many for his leadership in World War II, I beg to differ.  He provoked the Japanese into attacking America by imposing oil embargoes and other restrictions.  There is even a good chance that he knew the attack was going to happen at Pearl Harbor and did not warn anyone.  This really makes him a mass murderer.  He may as well be since he loved his "Uncle Joe" Stalin so much.  As a libertarian, there is one positive thing that Roosevelt did during his reign in office.  He ended alcohol prohibition.  This was a great thing for liberty and the violent crime went way down, even in the midst of the depression.

4) Lyndon Johnson - It would not surprise me if Johnson had a hand in the assassination of JFK.  It turns out that Jackie thought that.  Johnson, of course, was a war president.  He is responsible for the deaths of millions of Vietnamese, along with many others.  While America was already involved in Vietnam when Johnson became president, he is the one who lied Americans into war and really started the violence.  On the domestic front, Johnson gave us his "Great Society" that was anything but great.  He started up Medicare and Medicaid and began his "war on poverty".  He was really a disaster in every way.

5) Harry Truman - Truman belongs on this list because he used two atomic bombs, killing hundreds of thousands of innocent Japanese civilians.  It was not necessary to end the war.  The Japanese were already willing to surrender.  For this alone, Truman belongs on this list.  He also presided over most of the Korean War.  On economic issues, Truman was also bad.  The one good thing that he did was that he didn't do anything at the end of the world war.  Due to his lack of action, the economy was finally able to recover for the first time since the 1920's.

There are certainly a whole bunch of other presidents who were horrendous.  You can go back to Washington (the Whiskey Rebellion) and Adams (the Alien and Sedition Acts).  You can include the other Roosevelt.  You can include Obama and the younger Bush.  But really, almost every president of the last hundred years was a total disaster.  It's just that some were worse than others.  For the top five worst though, they definitely all need to be war presidents.

It is no coincidence that all of these war presidents were also horrible on economic issues.  The two things are related.  A statist politician believes in big government in all arenas.  What is scary though is that most historians regard many on my worst five as the best.

Saturday, February 18, 2012

Is the Federal Reserve a Private Organization?

I hear this a lot.  There are many anti-Fed people out there who say, "did you know that the Fed is a private organization?"  I will also hear things like, "the Fed is disguised as a government organization, when it is actually private."  Unfortunately, the truth is almost the opposite.

I am always happy to hear people when they are against the Federal Reserve system.  Unfortunately, many people are misled and don't really understand what the Fed does and what purpose it really serves.  Now, it is certainly true that the Fed serves the interests of the big bankers.  However, the Fed also serves the interests of the politicians in Washington DC.

Here are four reasons that the Federal Reserve is a government organization.

1) Look at the website for the Federal Reserve.  It ends in ".gov".

2) The chairman of the Fed is chosen by the President of the United States.  The chairman is confirmed by the United States Senate.  The seven members of the Board of Governors is also appointed by the President.  Is the CEO of Apple or McDonald's chosen by the government?

3) The Federal Reserve Act of 1913 was passed by Congress and signed into law.  Why was this necessary if the Fed is a private organization?

4) This is by far the most important point.  The Federal Reserve has been granted a monopoly over the U.S. dollar, which is the legal tender for the whole country.  Any person or corporation who tried to do what the Fed does, would be considered a criminal and would most likely go to jail.  If the Fed didn't have a government-granted monopoly over the money supply, then it wouldn't be a big deal.

While I like anyone who is anti-Fed, I think it hurts our cause when people get hung up on the idea of the Fed being a private organization.  In fact, even if your definition of a private organization is different than mine, does it really matter?  The whole point is that the Fed does great harm to us by funding Congress, devaluing our money, and causing an artificial business cycle.

We don't really need to abolish the Federal Reserve.  We just need to revoke its special privileges in having a monopoly over the supply of money.  In fact, we really just need to repeal the legal tender laws, stop taxing gold and silver, and allow for private minting.  We just need to be free to use the form of money of our own choosing.

The Federal Reserve may have been formed by the bankers to help the bankers.  The Fed certainly does help the big bankers as we saw in the fall of 2008.  But the Fed is allowed to exist by Congress because it helps fund Congress.  There is no way that the government could be running trillion dollar deficits without a central bank.  This is why states have to balance their budgets and are very limited as to how much debt can be accumulated.  The federal government doesn't have these restraints, thanks to the Fed.

In conclusion, you can call the Fed a private organization all you want, but it doesn't change the fact that it has been granted a monopoly over the money supply by the government.  It also doesn't change the fact that it helps fund the government by buying government debt through money creation.

Thursday, February 16, 2012

China Can't Escape the Austrian Business Cycle Theory

China has seen an explosion in economic growth since some liberalization began to take place over 3 decades ago.  While hundreds of millions of Chinese people still live at or near the poverty level, there is no question that the standard of living has gone up quite a bit in China, particularly for those living in the cities.

Unfortunately, not all of that growth has been genuine.  Just as some of the economic growth of the last 3 decades in the U.S. was an illusion, the same is true for China.  When you have a central bank that is inflating at double digit rates per year as the Chinese central bank has been doing for a while, then there are going to be bubbles and busts.

Just as the U.S. had a real estate bubble, China also apparently has a real estate bubble.  The U.S. real estate bubble began to pop about 5 or 6 years ago.  We are still waiting for the Chinese real estate bubble to  pop.

The Austrian Business Cycle Theory can teach us something here.  When the central bank creates new money out of thin air, along with artificially low interest rates, there are distortions in the economy.  Eventually it will result in a bust.  Either the central bank will try to accelerate the monetary inflation in order to keep the bubble propped up or the central bank will not accelerate monetary inflation.  If it continues to increase the monetary inflation rate, then it will eventually lead to hyperinflation and a total destruction of the money.  If the rate of monetary inflation is not increased (it doesn't have to be a decrease in the money supply, just a slowdown in the rate of increase), then the bad investments will be revealed and a bust will occur.

The real estate in China has seen a massive boom.  This has occurred simultaneously with very high monetary inflation, sometimes above 20%.  There will be an inevitable bust.

Bill Sardi had an article at LewRockwell.com the other day.  He said that, "Chinese bankers are more conservative than the colleagues in the US and require 30-60% down payment on home loans."  While it's true that the down payments for housing have been much bigger in China than what is typically seen in the U.S., it still doesn't negate the central bank induced boom/ bust cycle.  You don't necessarily have to have massive leverage for a bubble to occur.

We have seen bubbles in gold and bubbles in the stock market in the past.  There was a massive bubble in the stock market in the late 1990's, particularly in technology stocks.  While there may have been some leverage with futures and options, there were a lot of people who simply bought shares in stocks with money that was saved.  These people were not using leverage.  Yet, it didn't prevent a collapse in prices.

The fact that there are bigger down payments in regards to Chinese real estate may result in some differences from the U.S. real estate bust.  If the bust isn't too bad (which I'm not betting on), then perhaps we won't see as many underwater properties because of the high down payments.  Because of this, we may see less trouble with banks.  But regardless, all indications show that there is going to be a big bust in real estate in China.

Since China's history has been one of mostly poverty, this will be the first big bust that China experiences.  Some people there have gotten a taste of a higher standard of living.  When the bust occurs, it will be interesting to see what happens.  Will people demand less government or more?  Will communism officially fall?  Or will they turn into more of a bureaucracy like the U.S. with more financial regulation, even though the business cycle is being fueled by the central bank?

I don't know what the outcome of all of this will be, but I am fairly certain that there will be a bust in the Chinese real estate market.

Wednesday, February 15, 2012

What if All Government Were Funded by the Fed?

One of the things making political news right now is an extension of the payroll tax cut.  The Republicans in the House were originally against extending this tax cut unless it was coupled with offsetting spending cuts.  The Republicans have backtracked now and have said they are willing to pass the tax cut extension without fighting over budget cuts.

As I have discussed this before, the payroll tax cut is not an effective way to reduce unemployment.  To help get people back to work, the tax cut should go to the employer's portion of the tax cut.  This would reduce the cost of labor and help unemployment.  Instead, cutting the payroll tax for employees is just temporarily helping people who currently have jobs.

Personally, I am happy to see a reduction in the payroll tax.  I figure that the government is going bankrupt anyway, so I may as well take what I can get now.

However, I would like to take this example and perform a reductio ad absurdum.  What if the federal government decided to eliminate all payroll taxes?  What if the federal government decided to eliminate all federal income taxes?  What if the federal government decided to eliminate all federal taxes?

Before you get excited, I am not talking about the federal government turning libertarian.  I am not suggesting that all of the federal spending be cut in this example.  I am suggesting the hypothetical question, what would happen if all federal taxes were eliminated and all government spending were funded by the Fed?

If this were to happen, it would obviously be highly inflationary.  Why would people (or foreign governments) buy U.S. government debt if the only way to pay it off were to create even more money out of thin air?  Of course, it almost sounds like the situation we have now, and yet people and foreign governments continue to buy government debt, along with the Fed.

However, perhaps the Fed could just fund the government directly by creating the new money out of thin air and handing it over to DC to spend.  Whether the Fed was the only purchaser of U.S. government bonds or if it simply created new money and handed it over directly, it would obviously threaten the validity of the U.S. dollar.  Although this example sounds ridiculous, it is ridiculous to think that the government has been running deficits well over $1 trillion for the last several years.

If the government were to operate this way with no taxes, then it would be the same situation we are in today, except that the day of reckoning would happen much quicker.  There would be a threat of hyperinflation and a total destruction of the U.S. dollar.  The only way to prevent this from happening in this scenario would be to cut government spending dramatically or to start taxing again.  If it was only scene as a temporary measure to stimulate the economy (even though it wouldn't create any economic growth without a cut in government spending), then the dollar might survive if people truly thought that the money creation would stop one day.

The Republicans were right to originally demand cuts in government spending to go along with the payroll tax cut.  However, the Republicans have the majority in the House of Representatives.  They can control spending whether it is attached to a tax cut bill or not.  The House Republicans could stop all of the deficit spending by refusing to pass an unbalanced budget.  But they won't.

Enjoy your tax cut extension if you have a job.  I would recommend taking the proceeds and buying some gold, or perhaps a passport, just in case.

Tuesday, February 14, 2012

The Federal Reserve is Worse Than You Think

Most Americans (and people throughout the world) do not have much of an understanding of the Federal Reserve, if any at all.  There is a much larger percentage who understand that the Fed does us harm than there were just 5 years ago.  This is mainly due to Ron Paul and the internet.  The economic fall of 2008 also helped, as more people became curious about the subject.

Still, not more than 10% of Americans have a good understanding of the damage that the Fed causes.  On this subject,  I would guess that even fewer people understand central banking throughout the world.  Americans can make foreigners look ignorant on this subject, but it is all relative.

For those who do have a grasp of the damage done by the Fed, even some of these people do not understand the extent of it.  Not only does the Fed (and its monopoly power over the money supply) cause prices to increase, it actually prevents prices from falling.

I know that many libertarians speak out against the CPI (consumer price index).  They see it as a manipulated government statistic.  In some ways, they are right.  I do believe that the CPI can be somewhat useful in at least determining trends.  But actually, the biggest failure of the CPI is that it hides the fact that prices would actually gradually decrease over time.  This is the way it should be.

Think about the electronics industry.  Think about computers, televisions, cell phones, cameras, etc.  All of these things are cheaper now and yet the technology is exponentially better than just a few years ago.  Compare this to the healthcare industry, which by no coincidence is heavily controlled by the government.  Healthcare gets more and more expensive each year and the quality doesn't even improve much in some areas.

If there were no central bank with a monopoly over the money supply, or even if the Fed did exist but just kept a stable money supply, then prices for electronics would be even lower.

Over 10 years ago, I bought a Sony 27" television for about $400.  The thing weighed about as much as a medium-sized 12 year old.  The quality wasn't even that good, particularly for a Sony.  I never liked the sound.  Now I can buy a television for $400 that is bigger in screen size, much better quality, flat panel, and far lighter.  But, here is the kicker.  Not only can you get a better television for the same price, price inflation has gone up over 27% in the last decade, and that is just according to government statistics.

If there had been stable money just in the last decade, a 55" big screen television might cost only $400 now, if that.

I know some people will counter this by saying that inflation also raises our wages.  But how much weight does this argument really carry now?  In the last couple of years, wages have been stagnant in nominal terms, with unemployment having gone up.  In real inflation-adjusted terms, wages have been going down.  Wages are usually the last thing to go up in an inflationary environment.

For most people, their wages and benefits have not kept up with the price of healthcare and health insurance, food, gasoline, and other essentials.  Inflation has been quite devastating, particularly to the poor and middle class.  Government spending and monetary inflation are squarely to blame for the declining living standards of the American people.

If we could get a crystal ball to show how much better our lives would be without the Fed's monetary inflation, then there would be rioting in the streets.  As more Americans learn the scam that is the central bank, we can hope that one day we will once again realize true peace and prosperity.

Monday, February 13, 2012

Debt and Investments

Although I usually write about investments and money from a libertarian perspective, it is good every once in a while to talk about debt.  Debt and investments are not mutually exclusive things.  You are making an investment decision if you have extra money and you are not using it to pay down your debt.

Of course, there are many different kinds of debt.  Mortgage debt is not necessarily bad debt, while credit card debt is bad under most circumstances.  Credit card debt should be aggressively paid down if you have it.  With mortgage debt, there are pros and cons to paying it down.

If you have credit card debt that you are not paying off each month, then it is almost foolish of you to be investing money.  It really doesn't even make sense to have an emergency fund.  If you pay down your credit card debt while leaving little money in the bank, you can at least go back to using your credit card in an emergency situation and you will be no worse off than if you had kept the money in the bank.

If you have credit card debt with an interest rate of 18%, why would you even think about investing?  How are you going to find a guaranteed return of 18%?  Even if your interest rate is 10%, how could you match that with investing?

Some will argue that the one exception is a 401k where your employer is contributing matching funds.  You might be able to get a 50% or 100% return on the money you contribute.  This is a possible exception, but even here my individual choice would be to not contribute to the 401k and use that money to pay down the credit card debt.  You can start contributing once all of your high interest debt is paid off.  Money going into a 401k plan is not liquid.

Other debt like car loans are a little trickier.  If you have a low interest rate like 2.9%, then I don't really see a problem in investing extra money, as long as you know what you are doing.  However, if you are taking all of your money and betting on one stock, I think it would be a better choice to pay down the car debt, even at 2.9%.  If you are taking your money and putting it in a money market fund that earns .1% interest, then you should definitely be paying down your car loan instead.  The only reason not to pay down the loan in this situation is if you might need that money for an immediate emergency.

I have actually heard people ask if they should take out extra student loans so that they can invest the money.  You should absolutely never borrow money for an investment, unless it is for investment real estate where you know you can generate positive cash flow.

In knowing and reading many other libertarians, I have also seen the argument that it is acceptable to take on debt because you can just pay it off in depreciated money after we have severe inflation.  While this might turn out to be correct, it also may not.  You cannot predict Federal Reserve policy in the future.  You cannot predict what hundreds of millions of people are going to do.  Perhaps unemployment will get worse and people will become so fearful that they dramatically cut back on their personal spending.  In this scenario, we could actually see prices decline.  In addition, even if there was massive inflation, it will be prices that will go up.  Your income will probably not keep pace, so don't think that it will be necessarily easier to pay off your debts.

In conclusion, when you are investing, you should consider all of your circumstances.  If you are in debt, particularly with credit card debt, then don't direct any of your money to investing.  Get out of debt first and then you can start investing your money.

Saturday, February 11, 2012

Ron Paul Takes Close Second in Maine

The results are in for the Maine caucuses.  Well, kind of.  There are still some small ones left to go.  This whole primary process is really bizarre in some states.

It looks like Mitt Romney will win, with Ron Paul taking a close second.  Without the final results yet, Mitt Romney has approximately 39% of the vote to Ron Paul's 36%.  Once again, Ron Paul has done considerably better than 4 years ago, this time about doubling his percentage.

It really is too bad that Paul could not come away with a win in Maine.  It's not that it matters that much in terms of delegates, but the headlines and the subsequent momentum would have been nice.  While it is still amazing to think how far the libertarian movement has come in the last 5 years, the mood of the country still isn't quite ready for a dramatic change in the status quo.

The status quo is war, government spending, government debt, government spying, government orders, government regulation, taxation, etc.  While many Americans say they want a balanced budget and less government, they are not prepared to support significant and specific spending cuts.  Too many people want to live at the expense of other people.

The biggest laugh is when I hear someone go off on people collecting welfare.  Then I hear that same person talk about his Social Security and Medicare.  Or perhaps they are younger and will talk about his kids attending government schools.  Look, I am not condemning people for collecting Social Security and Medicare benefits.  They are just trying to get something back from all of the taxes they paid previously and are currently paying.  But we at least have to admit to ourselves that these are welfare programs.  It is not like all of the previous payroll taxes were set aside in private accounts for people.  They can only be paid right now by collecting current taxes or by running up debt and creating new money out of thin air.

So while the libertarian movement has made great strides, much because of Ron Paul and his message, we still have a long way to go.  With the coming economic storm ahead and with the open communication of the internet, I think we will get more people looking for answers over the next few years.  I think Keynesianism will be seen less favorably.  I think many people with an open mind will start to see libertarianism as an answer.

I hope Ron Paul stays in this race all the way to the convention.  As I've said before, the longer he stays in, the more time there is for people to hear his message.

Thursday, February 9, 2012

Europe to Kick Greece's Can

European "leaders" are going to kick Greece's can down the road again.  They are working on negotiations to hand over another 130 billion euros (about $170 billion) in bailout money.  According to this article, they are giving Greece until next week to find an extra 325 million euros ($430 million) in savings.  Is that a typo?  They only have to find an additional 325 million euros, a fraction of a percent of the 130 billion in bailout money?

This whole Greece situation is a joke (although certainly not for people living there).  The European ministers are handing over more money to an insolvent government.  They are making European taxpayers and holders of the euro poorer.  They are essentially flushing this money down a toilet.

I am really tired of the word "austerity".  These politicians and media pundits over use the word and they abuse it.  For many, their idea of austerity is small cuts in government spending, coupled with large tax hikes.  Then they have the temerity to insist that austerity just isn't working.

If Greece cut government spending and balanced its budget, then no bailouts would be necessary.  The problem is that they keep spending money that they don't have.  The Greek government has made more promises than can be kept.

Greece could default on 100% of its debt tomorrow.  In fact, it should do this.  But the European "leaders" do not want this to happen, so they send more bailout money.  If Greece did a 100% default, then the government there would still be in major trouble.  It is not just the interest payments on the debt that are difficult to pay.  Again, it is all of the promises that have been made in the form of pensions and other welfare benefits.

The same situation would be true in the United States, except the U.S. government has its own central bank.  The Fed can always buy government debt, even if there are no private lenders available.  But if the U.S. government did not have the Fed and nobody wanted to lend money at low interest rates, then there would be a default on the debt and we would finally see massive cuts in spending.  The U.S. government is running yearly deficits that are close to $1.5 trillion.  If there could be no borrowing, then the government would be forced to cut spending by the amount of the yearly deficit.

The situation in Greece is horrible.  There is extremely high unemployment.  The crime has gone up.  There are people struggling to meet their basic needs.  Many rich people are fleeing the country, and who can blame them?

Greece is an extreme example of a democratic welfare state.  As Margaret Thatcher said, the problem with socialism is that eventually you run out of other people's money.  Greece has run out of money.  The many years of over consumption and underproduction has finally caught up with the people there.  All of these people who thought they could retire at 50 on a sweet government pension are now starting to realize that they will have to work again.  The people that are not accepting this fate will face much worse.  I can imagine that there is severe depression in Greece right now and I don't mean with the economy.  I mean that the mood of the people is very down.

If Greece wants to solve a lot of its problems quickly, then the government needs to default on all of its debt.  It then needs to default on all of its promises to the Greek citizens.  All pensions and welfare must end immediately.  If they want to throw a bone to those over the age of 80, perhaps that could be afforded.  Everything else must be cut dramatically and immediately.  Regulations must be repealed.  Taxes must be lowered dramatically.  The government should set up something economically that resembles Dubai, Singapore, or Hong Kong.  If this were done, the economy would be on the road to recovery within a couple of years and you would see great gains in wealth and productivity shortly after.

The government of Greece is only going to free up the economy if it is demanded by the people.  The Greek people have been majorly abused.  They should not be bailed out any longer.  They must admit that their welfare state policies have been a total failure.  They must turn to economic liberty if they ever hope to have a decent standard of living again.

Wednesday, February 8, 2012

February 8, 2012 Update of the Republican Race

There were three states that had voting on Tuesday.  They were Colorado, Missouri, and Minnesota.  Rick Santorum won all three, two of which were basically a landslide.  In Minnesota, Ron Paul took second place, pushing Romney down to third.

It was an incredibly good night for Santorum.  It was an incredibly bad night for Romney and Gingrich.  It looks like the anti-Romney people who can't support Ron Paul are turning away from Gingrich and towards Santorum.  Gingrich is almost done, unless there is some dramatic turnaround (which wouldn't be far fetched in this roller coaster race).

It was a bad night for Romney too.  He is still the favorite to win, but his odds went down a little after the Tuesday sweep by Santorum.  Romney is no longer seen as a lock.  With Ron Paul and likely Santorum in this race for the long haul, it will be hard for Romney to get a majority of the delegates by the convention.

While Santorum's philosophy disgusts me, it was still a positive thing for Ron Paul.  It slows down Romney and allows for Paul to push on with his message of liberty.  The longer that he has debates and a platform to express his views, the more libertarians there will be for the future.

Santorum really is disgusting.  He preaches religion and morality and yet he sees no problem in killing innocent people in Iraq, Iran, and elsewhere.  He is pro-life when it comes to fetuses in America.  He is anti-life when it comes to foreigners.  You can't even claim that it is just foreigners with a different religion, as there were many Christians who died in Iraq.  If Santorum has his way and bombs fly in Iran, then there will be Muslims, Jews, Christians, and others who will die as a result.

Of course, Santorum is also bad on economics.  He supported many of the big government policies of the Bush administration.  He supported more spending and more centralization of government.  He was also a big supporter of anti-liberty acts like the so-called Patriot Act.

Again, while I despise Santorum, I am happy he had his three-state sweep.  It hurts Romney and Gingrich and it allows Ron Paul to carry on with more momentum.  If Santorum somehow miraculously became the Republican nominee, Obama would wipe the floor with him, unless Obama does something really stupid in the next 9 months, which isn't out of the question.

The next round of debates, starting in a couple of weeks, will be interesting.  There will be opportunities for Ron Paul to change more hearts and minds.

Tuesday, February 7, 2012

February 2012 Update of Gold and the Economy

Gold has been quite strong lately.  As of this writing, it is close to $1,750 per ounce.  It had a big down day yesterday and then gained most of it back today.  I am quite bullish on the yellow metal right now, both in the short term and in the longer term.

My short-term bullishness for gold is tempered by the economic outlook.  If the economic outlook remains relatively good, or at least stable, as compared to the last few years, then I think gold will do quite well.  The one scenario I can see where gold would tumble is if the economy slips into another deep recession.  If that happens, then stocks will do horrible and gold will also probably do horrible, although probably not as bad as stocks.  Bonds would be the place to be if that happens, despite the already low interest rates.

I have been saying for the last several months that we might be in the midst of a mini boom cycle.  The Fed pumped in a lot of new money with QE1 and QE2.  Although most of this new money is being held by the banks as excess reserves, it can and will have its effects.  Perhaps it is starting to leak out into the economy.  Some of it may be going in to stocks and some in to gold.  While the government's measure of price inflation is still relatively low, I can personally attest that food prices at the grocery store are going up at a decent clip.  The one sector that continues to go down in price (besides electronics, which is due to technology) is housing.

If you are waiting for another dip in the gold price to buy some, I wouldn't wait any longer.  While there is certainly a threat of a deep recession and a strengthening dollar in the short run, that is not where I would put my money right now.  If your portfolio is low in its percentage of gold and other precious metals, then I would not wait.  I recommend a minimum of 15% in gold and gold related investments, just to protect yourself.  You should probably be higher than that though.  If you have about 20% in gold investments and another 5% in silver, platinum, and oil, then that should be a good hedge against inflation and uncertainty.

While I don't like making predictions, I am going out on a limb on this one.  I think gold is likely to go over $2,000 per ounce in 2012, unless we have a deep recession.

Monday, February 6, 2012

Most Financial Advisors are Keynesians

You should be responsible for your own money.  You work hard for your money and you should guard over it.  While I am not completely against the idea of financial advisors, you should be warned of their capabilities.

Most financial advisors are Keynesians.  They believe that spending drives an economy.  While some are more to the left economically than others, even many of those who say they believe in free markets do not really understand free market economics.  By far, the biggest mistake that financial advisors make is that they do not understand inflation.

Inflation is an increase in the money supply, although the definition has been changed through the years by the statists.  Now inflation means a general increase in the price level, which is really the eventual result of an increase in the money supply.  Many financial advisors do not understand how big of a threat inflation is to an investment portfolio.  They think stocks will protect against inflation.  Most do not believe in a substantial holding of gold or gold related investments.

This is why you have to look out for yourself.  Even if you have an honest financial advisor who means well, he may not understand inflation.  He might not understand the possible ramifications from the government spending and debt and the previous monetary inflation that has taken place.  He might not understand just how big of a threat this is to your investment portfolio and to the average American's standard of living.

Ron Paul has probably changed this slightly.  There are probably a few out there now who do understand this.  Unfortunately, most of these people probably work for a big financial company.  These financial advisors probably do not have much flexibility in devising their own portfolios for their clients. They are probably given formulas and certain criteria to follow.  It is actually a shame.

While most financial advisors may not understand free market economics, they are not necessarily useless either.  A lot of these people are quite intelligent and they may do a good job of analyzing individual stocks and mutual funds.  They may actually have a good track record in comparison to the broad stock market indexes.

If you are someone with a lot of money and you want a financial advisor to help you out, then you might be fine.  But be sure to take your own action in protecting against inflation.  You can be fairly certain that your financial advisor will not be buying a lot of gold investments for you.  Personally, I would just avoid financial advisors completely and manage your own money if you are knowledgeable enough to do so.

Saturday, February 4, 2012

The Consequences of Operation Twist

The Federal Reserve is engaging in what is nicknamed "operation twist".  It means that the Fed is reducing its holdings of short-term treasuries and increasing its holdings of longer-term bonds.  The Fed is not claiming to expand its balance sheet with this operation.  It is merely changing the maturity dates of some of its holdings from shorter-term to longer-term.

The primary reason given by the Fed and by analysts for this move is to keep down long-term interest rates.  This will help keep down or even lower mortgage rates, as mortgage rates are highly correlated to the 10-year yield.  The Fed sees this as a way to incentivize buying in the weak housing market.  It will also encourage more people to refinance (for the few who actually can) so that their monthly payments are reduced.

I see another potential reason for the Fed doing this.  If interest rates were to rise, then it could be less harmful for the government's debt.  Whenever a U.S. treasury reaches maturity, the Fed has to buy a new one in order to roll it over.  If its holdings are longer-term, then there will be fewer to roll over in the shorter term.  This means that the government would not have to find as many buyers for its debt, whether it is private investors, central banks (like China), or the Fed itself.

In the last FOMC meeting, it was indicated that the Fed will continue this operation twist.  I discussed the FOMC's meeting and some of Bernanke's comments here.

Here is the problem.  There ain't no such thing as a free lunch (TANSTAAFL).  Maybe Bernanke and the Fed think they are being smart here and doing things that can only help, but there are potential consequences.

The main bad consequence that I see coming from this policy is that it increases the likelihood of severe inflation.  If interest rates were to start rising, then the value of bonds would go down.  That means that the Fed's holdings would go down.

If the Fed held shorter-term treasuries and interest rates were to rise while price inflation started getting out of control, then the Fed could just simply reduce its balance sheet by not rolling over its maturing assets.  Of course, this would serve notice to Congress that government spending needed to be cut quickly as the Fed would no longer be funding the big deficits, but at least the Fed would be capable of having an "exit strategy".

If the Fed has longer-term bonds in its holdings and interest rates go up while price inflation is getting out of control, what is the Fed going to do then?  If it sells its bonds, they will be worth much less.  This will drive up interest rates even more as it is forced to sell even more.  Also, because the values will be down so much with the higher interest rates, who knows if the Fed can even sell enough to reduce its balance sheet significantly enough to stop the price inflation.

Back in 2008, the Fed bailed out the banks by buying their bad assets.  These assets can't be sold today for what the Fed bought them.  These were mortgage-backed securities and many of these mortgages have gone into default.  These securities are worth much less now than they were before the financial crisis showed up.

In conclusion, maybe Bernanke and the Fed think they are being smart with their operation twist.  But they really are just adding fuel for the fire that will be coming.  They are putting everyone at risk by increasing the likelihood that it will not be able to control price inflation when it shows up in a big way.  It will also make for a harder crash for the federal government when it can no longer rely on the Fed to fund its massive deficits.

Thursday, February 2, 2012

2012 Presidential Election and Hope for the Future

I have been particularly interested in the Republican primaries in this election cycle, just as I was 4 years ago.  The main reason is Ron Paul and his message of liberty.  It has been both really exciting and frustrating at the same time.

I am optimistic for the long-term future.  I think that a combination of technology, open communication, and a sense of individualism in America will be strong enough to overcome big government and usher in a new era of liberty.

My hopes for the near-term future are not as bright.  There are wars going on in several countries (some bigger than others), the U.S. government is trying to run an empire on the planet, the spending is out of control, and the debt is a ticking time bomb.  There is going to be some serious economic pain in the near future.

I also don't have much hope in politics, particularly in the near future.  I have been a big supporter of Ron Paul's campaign, only because he is spreading the message of liberty and turning more people into libertarians with each passing day.

Unless something big happens in the next few months, Mitt Romney will probably be the Republican nominee.  Even with third party runs, Obama or Romney is highly likely to win the general election in November.  The American people, while starting to awaken, are unlikely to awaken enough and fast enough to back Ron Paul in large numbers like Romney is getting today.

It is frustrating to watch.  Ron Paul didn't really campaign in Florida and I thought it was a good decision, but it would have been nice to see him at least get into double digits.  He received about 7% of the vote, which means that 93% of the voters on that day weren't ready for serious change.  They may vent a lot to friends and family and they may say they are fed up with the system and the politicians, but their actions didn't reflect their words.  They haven't felt enough pain or had enough self-education to really want something different than the status quo.

Let's face it - all of the candidates in the two major parties are part of the status quo, except for Ron Paul.  Their language may differ a little here and there, but their overall policies would keep the establishment in place.

Donald Trump, the media whore that he is, called a press conference for a big announcement.  People thought he was going to endorse Newt Gingrich.  Instead, Trump endorsed Romney.  I'm not saying this because it will have much of an effect, but it tells you that he could have gone either way.  He jumped on the Romney bandwagon because he can now see the writing on the wall.  But there really isn't much difference between Gingrich and Romney when it comes to their politics.

When Ron Paul ran 4 years ago, I was very active.  I was making signs, mailing letters, making calls, etc.  I have not really been active in the last year, except to write about him and talk to friends about him.  I guess you could say that Ron Paul has made me apathetic.  4 years ago, I thought it was important to get his name out there and expose people to the man and his philosophy.  If there is someone out there today who doesn't know who Ron Paul is, then they just aren't paying attention at all and don't really care and will probably never care.  Everyone else should know Ron Paul and at least be vaguely familiar with his message.  There is not much of a point for me to hold signs.  I will be more than willing to talk to people and explain his philosophy for those who are interested.

It is really up to the American people now.  It is their choice.  The libertarians have done their job in exposing the message of liberty.  It is now our job to explain it as well as we can when people ask.  It is important for us to write and speak so that people who want to learn more have a place to turn.  But there is no sign waving for me now.  We have led the horse to water.  We can't force the horse to drink it.

The American people are going to regret not getting behind Ron Paul, although some will always be too oblivious even when the problems become more evident.  The ones who supported Paul, or at least didn't support any of the others, can hold their heads high.  We have done what we can.  We will continue to work hard in spreading liberty, but it is ultimately up to the American people to decide.  It is not too late, even after the elections are over.  Americans must withdraw their consent.  They must realize that more liberty and less government are the answers to so many of our problems.  They must drink the water or suffer the consequences.

Wednesday, February 1, 2012

Is Ron Paul Affecting the Price of Gold?

Ron Paul is most likely having an effect on the price of gold.  This doesn't mean that Ron Paul is driving the price up or down by buying or selling.  It means that, because of his message that has reached millions of people, it has probably affected their decision of whether to buy gold, even if it is just a fraction of his supporters.

It is impossible to prove the answer to this question and it is impossible to know exactly how much of an effect that Ron Paul has had on the price of gold.  However, with his warnings about the Federal Reserve and the debt and his discussions about gold, it is hard to imagine that this hasn't had at least some kind of influence on some of his supporters.

If there are a million people who would consider themselves Ron Paul supporters and 10% of these people have bought gold or are considering buying gold because of their recent exposure to Paul's message, then that is potentially 100,000 people who could drive up the price of gold.  This isn't a lot of people, except that buying actual physical gold is a fairly thin market.  It doesn't trade like Google or Apple stock.  On the margin, this could have a slight impact on the price of the metal.

Ron Paul supporters tend to be younger and they tend to have lower incomes (partially because of their age).  Most rich people are not Paul supporters (although they should be).  There are certainly some older people who are Paul supporters, but many of them were already libertarians before 2007 (Paul's first run for president as a Republican).  These people probably already bought gold if they wanted it.

So the demographics of the Paul supporters do not point to a lot of people that would be able to buy several ounces of gold.  Most wouldn't be able to afford one ounce in this economy.  But again, it doesn't take that much to move a market like gold, particularly if people buy the actual metal (instead of an ETF or mutual fund).

There are millions of people who now have a decent understanding of the Federal Reserve.  Five years ago, most of these people couldn't have told you what the Fed was or what it did.  These people understand that the economy is in trouble and they understand that the Fed is going to try to inflate its way out of it.  A good portion of these people may start buying a little gold, if they haven't already.  They may only buy half ounce coins or one-tenth ounce coins.  Perhaps they will buy silver, which is the poor man's gold.  The point is, because there are so many people aware of the Fed and what it does and what the potential harmful effects are, a lot of these people are going to be looking to protect themselves.

If you took all of the gold above the ground and distributed it evenly to every human inhabitant on the earth, everyone would have less than a troy ounce of gold each.  That is not very much gold to go around.  All of that gold above the ground includes the gold used for jewelry.  In addition, a good portion is held by various central banks.  It doesn't leave a lot left for investors.

This indicates that there is a potential for a real spike in the price of gold, particularly if the Fed goes into QE3 (more money creation).  As more people become aware of the situation, the more there will be demand for gold.  Do you at least have your individual share of the world's gold?  It seems expensive now, but it may seem really cheap in five years.