Tuesday, July 31, 2012

The Permanent Portfolio and Government Bonds

I am a big proponent of the permanent portfolio as described by Harry Browne in his book Fail-Safe Investing.  I believe you should have a majority of your investments in a setup like the permanent portfolio.  For more conservative investors, it should be closer to 100% of your investments (not counting any investment real estate).

The one thing that scares many people, particularly libertarians, is the bond portion.  You are supposed to invest 25% in long-term government bonds.  Many libertarians (and others) are convinced that rates will be going up.  This would drive down the value of the bonds.  Ironically, I have heard this for many years now, even about 7 or 8 years ago when Harry Browne was alive.  Yet, bonds have done quite well over this period of time.

I understand the fear that people have of government bonds.  You shouldn't be afraid of an outright default, as we see coming in Europe.  I'm not saying it isn't possible, but I think we still have quite a bit of time before the U.S. government considers an outright default.  The main threat is rising interest rates.  If we hit a period of higher price inflation and the Fed is forced to stop buying government debt, then higher interest rates will probably occur.

The problem here is that the future is unpredictable.  Japan has really high debt and yet interest rates have stayed very low there for decades.  The bond portion of the permanent portfolio is designed to keep the portfolio performing well in the face of a deflation/ depression.  It actually kept the portfolio from falling too dramatically in the fall of 2008 when stocks and gold tumbled down.

So I have come up with a compromise for those interested in the permanent portfolio, yet too scared to put such a big portion in bonds.

Earlier this year, I wrote a special report titled, "Should You Pay Down Your Mortgage?".  It is available on kindle for just 99 cents and can be read in less than an hour.  I have mixed opinions on this subject and I laid out the pros and cons of paying down or paying off your home mortgage.

One thing I mention is that paying down your mortgage is somewhat of a hedge against deflation.  While actually selling your house might be a better hedge, that isn't a realistic option for many people.  Some people don't want to rent.  Plus, it wouldn't make much sense to sell your house in anticipation of deflation when you can't be certain of the future.  If the deflation doesn't come, then it was a bad decision to sell.

So here is my proposal, assuming you have a mortgage and assuming you have money to invest.

Instead of investing 25% in bonds, take half of that portion and make a payment towards the principal balance on your home mortgage.  In other words, let's say that you have $20,000 to invest.  You will take $5,000 and buy gold or gold investments.  You will take $5,000 and buy a broad stock market index.  You will take $5,000 and put it in some kind of a money market fund.  For the remaining $5,000, you will take $2,500 of it and put it in long-term government bonds and you will take the other $2,500 and pay down the principal on your mortgage.

Assuming you have an interest rate of 4% on your home loan, you will get the equivalent of a 4% return on this money.  You will essentially be locking in that return with compounding interest, so it will benefit you if interest rates go lower. In other words, it is somewhat of a hedge against deflation.  If you have trouble thinking of it this way, just think that having a big mortgage is a hedge against inflation.  You can pay off your mortgage in depreciating money as time goes on.

With that said, I wouldn't recommend taking the full 25% and paying down your mortgage.  You have more leverage with the bonds.  In addition, paying down your mortgage makes that money illiquid.  If there is a deflationary depression, you need to be able to rebalance your portfolio.  That's why you should still leave a portion in bonds in your permanent portfolio, even if it is a smaller amount.

This is not an exact science, but neither is the permanent portfolio.  It is just a suggestion for those of you who are really scared of buying bonds with rates so low.  If you have a mortgage, then you can hedge against deflation by paying that down.

Monday, July 30, 2012

Federal Reserve Policy and Elections

There seems to be an assumption that is held by a large number of people that the Federal Reserve tampers with its monetary policy prior to an election in order to juice the economy.  I have heard people say that they don't expect a crash until after the election because the Fed won't let it happen.

While I can't say for certain that this hasn't happened in the past, I don't believe it is necessarily true.  Making this assumption could really guide someone the wrong way.

The Federal Reserve is a political organization.  Its website ends in ".gov".  While the Fed is certainly there to benefit the big banks, it is also there to benefit big government and deficit spending.  It has a monopoly on the production of dollars, which we must use in many cases because of the legal tender laws.  In addition to all of this, the Fed chairman is nominated by the President and confirmed by the Senate.

While the Fed is a political organization, I'm not sure why people would think that it has to favor the incumbent.  The Fed is in bed with the establishment, not any one particular party or incumbent.  Why would Bernanke and the Fed care about saving Obama for re-election when the alternative is Romney? Does is really make any difference?  If anything, the establishment might actually prefer Romney at this point.  Obama seems to be overplaying his hand lately with comments about businessmen not really building their own business.  Obama is so philosophically wedded to big government, he is giving it a bad reputation.  The establishment might prefer someone like Romney who talks about capitalism and entrepreneurship, because they know his policies will still favor the establishment.

Now, if Ron Paul were the Republican nominee, then certainly Bernanke and company would be doing everything in their power to get Obama re-elected.  If they had to triple the money supply again just to get things looking good before the election, they would do it.  But since that is not the scenario, the Fed and the banking establishment don't really care about Obama.

The current Fed policy proves that they don't care about Obama winning again.  The adjusted monetary base has been flat for over a year now, since QE2 ended in June 2011.  If the Fed really wanted to cause an artificial boom prior to the election, they aren't doing a very good job of it now.

I think another interesting point in all of this is to look at the past.  Paul Volcker came in as Fed chairman in 1979 and threw the hammer down.  He stopped the printing presses and let interest rates rise well into the double digits.  This sealed the deal for Jimmy Carter.  Volcker's policy brought about a deep recession.  He was not concerned about Carter winning his re-election.  He was concerned about saving the dollar.  This was in spite of the fact that Carter nominated Volcker to his position.  It just shows that not even the president is really running the show.

I would not time your investments based on the election.  If you think there will be a stock market crash, I wouldn't wait until after the November election to sell.  There is a lot of concern building that higher taxes will really hurt the economy in 2013.  These are expiring tax cuts and new ones from Obamacare.  When you couple this with the flat monetary base, there is certainly reason to be concerned about trouble in the short term.  Regardless, I wouldn't count on the Fed going to QE3 just because Obama needs a boost.  They might do it for other reasons, but it won't be for Obama.

Saturday, July 28, 2012

What To Do For A Market Crash

I received this comment/ question recently:

"Any chance you could write a post about what a person could do if they see a collapse coming.  For instance, what would I do with my 401k if the market started tanking or if I felt like it was about to crash?  What has been the smart thing to do in past recessions?  Those are questions I'm sure a lot of people right now are worried about."

That last statement is probably quite accurate, so I am addressing this question as a post, because I do think it is on a lot of people's minds.

First, it is important to remember that we cannot predict the future.  The market is made up of millions of buyers and sellers and it is impossible to predict the actions of these people.  It is also quite difficult to predict the actions that will be taken by the government and the Federal Reserve.

While a lot of people may be worrying about such a scenario, it doesn't mean it will happen.  The day after this comment was written, the Dow surged past 13,000.  We must not forget that the Fed tripled the monetary base after the fall of 2008.  Some of this may be leaking out now and it could easily cause a boom in asset prices such as stocks.  Again, it is impossible to predict with certainty.

For that reason, I continue to advocate the permanent portfolio as described by Harry Browne in his book Fail-Safe Investing.  It is designed to protect your investments in any economic environment.  While it probably has its poorest performance during recessions, we have to remember that recessions are usually short-lived.  They will turn into depressions or rebounds.  In addition, price inflation tends to be low during recessions, so you are not losing much to inflation.  In an inflationary recession like we saw in the 1970's, then gold will probably do well.

But what if you are a good speculator and you really strongly believe that the market is about to tank?  What can you do with the speculative portion of your investment portfolio?

If you are really brave and you think you can time the market crash, then you should be playing the futures/ options market.  If you buy put options on the stock market, then you are betting on it to go down.  But it would have to hit a certain strike price before the option expires, otherwise it will be worthless.  (You could technically make money if the market goes down and it doesn't reach your strike price, if you sell it early enough before expiration.)

Again, the problem with options is timing.  If your prediction of a market crash is a little early, then it will probably cost you the full premium that you paid for the option.  However, if you are correct, then the leverage can be very powerful and you can make a lot of money in a short period of time.

If you believe a market crash is coming but aren't certain about the timing, then you have a number of choices.  You obviously want to be out of stocks completely.  Bonds will most likely do well if interest rates go down.  I understand that this is a scary investment to some people right now because rates are already so low.

Another choice is to buy ETFs that short the market.  You can even leverage your money and buy double or triple inverse funds.  SDS is twice the inverse of the S&P 500.  DXD is twice the inverse of the Dow.  You can even buy something like SPXU that is three times the inverse of the S&P 500.  These funds will all go up in a down market.

One warning I have about these funds is that they have management/ expense fees and they also don't always correlate perfectly with the index in question.  For that reason, I would try to avoid holding these for a long period of time.

Another option in anticipation of a market crash is to buy the VIX.  There are different ETFs you can buy, including leveraged ones.  This is a measure of the volatility index.  It tends to spike up during a market crash.  You can make big gains in a short period of time with this if you guess correctly.  Just be aware that the reverse is true and that you can lose quickly too.

One of the specific things mentioned in this comment was about what to do in a 401k plan.  This is hard to say because these plans vary so much.  Aside from the above suggestions, there are mutual funds you can invest in that benefit from a down market.  However, if your options are really limited in your 401k plan, then the best thing to do might just be to move it to a money market fund, if you anticipate a coming recession.

The most important thing in investing is capital preservation.  You don't want any really big losses that will make it hard to recover.  That is why I recommend the permanent portfolio.  But if you are really anticipating a stock market crash, then the most important thing is to sell your stocks before everyone else starts selling.  Any profit you can make in such an environment is really just icing on the cake.

Thursday, July 26, 2012

Who Invented the Internet?

The Wall Street Journal ran an article earlier this week about who invented the internet.  The author says it is an urban legend that the government launched it.  The article describes a brief history of some of the individuals and companies (like Xerox) that helped bring about what we have today.

I have always thought it was a ridiculous claim by statists to point out the internet as an example of something in which the government created or helped innovate.  The internet itself would be nothing if not for all of the contributing individuals and companies in the free marketplace.  How could anyone seriously ever compare the government to Google, Apple, Amazon, Ebay, or Yahoo when it comes to innovation?

The other thing that has always annoyed me about this claim that the government invented the internet is that it completely ignores what Bastiat taught.  A good economist should not just look at the things we can see, but consider all of the unseen things that never came about.  Government at all levels in the U.S. takes almost half of our income.  With that much money, it is actually surprising that the government can't innovate more and invent more, especially with help from private companies.

If I had a trillion dollars per year at my disposal, I would think that I could hire enough people that I could at least cure a few diseases each year and invent some great new gadgets.  You could do a lot with even just 1% of that.  With 10 billion dollars per year, you could probably come up with some great things.

If the government hadn't been taking all of this wealth out of society and misallocating it for the last several decades, it is hard to imagine what luxuries we would enjoy now.  Twenty, or even ten, years ago, nobody could have imagined an iPad because there was no such thing at that time.

The other interesting thing to note about this article is a fact that is missed on most people.  It was hard for the author of the article to pinpoint who exactly invented the internet.  It is hard to get it down to one company and even harder to get it down to one name.  That is because most things are not really invented by one person.

Most of the great things we have in our lives today were not invented by one person or even one company.  People are constantly building off of the works of others.  Chip speed and storage are getting better exponentially.  Yet, how many people could explain why?  How many techies do you know who could actually give you a coherent explanation as to why this is occurring?  A few might be able to tell you something, but they will probably just be blowing smoke.

There is nobody who knows how to make a car from scratch.  There is nobody who knows how to make a computer from scratch.  As Leonard Read told us in I Pencil, nobody even knows how to make a pencil.

This is the way civilization works.  We are constantly building off of the ideas and works of others.  This is how society can progress at such a rapid rate.  Most people specialize in one small thing.  They cannot tell you how all of the other parts work in the process.  They don't need to.  It somehow all comes together.

In truth, nobody invented the internet.  It was millions of people who contributed.  Some people were more important than others, but it still would have happened if any one person had not existed.  It is rare that you have someone like Steve Jobs who makes such big contributions.  But even if Jobs had never existed, we would still have many great gadgets today.  It is hard to say if we would have iPads, but I'm guessing we would have other things similar.

Just imagine if the government ever got out of the way and all of the bright minds in this world were allowed to flourish.  Technology could grow even faster than it is today.  We can only imagine what might exist in another ten years.

Wednesday, July 25, 2012

Mitt Romney and the 10th Amendment

There are two human beings in the history of America to have signed legislation mandating that individuals buy health insurance.  It just so happens that those two individuals are the two major candidates in the presidential election this year.

Mitt Romney and many of his conservative defenders like to point out that Romneycare was just done in Massachusetts.  They point out that it is a state issue and that while Romney passed such a plan for the state while governor, he would not support such a thing for the entire country.  In other words, there are many Republicans who are actually claiming that Romney is a states' rights kind of guy.

Of course Romney only signed legislation affecting Massachusetts.  He was a governor.  There was no way he could pass something for the whole country.  And of course Romney is against Obamacare.  The hatred of Obamacare is the one thing that most unites Republicans and Mitt Romney is running on the Republican ticket.  Do you think he would have gotten the nomination if he said he supported Obamacare?

So the one major difference between Obamacare and Romneycare is that Romneycare only applies to one state and not the whole country.  But does this make Romney in favor of states' rights?  Is he a big supporter of the 10th Amendment.

The 10th Amendment reads, "The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people."

If Romney really supported the 10th Amendment, then he would not support 90% or more of what the federal government actually does.  In fact, he would be calling for the elimination of entire departments like Education, Housing, and Agriculture.  Unfortunately, Romney is not calling for the elimination of any departments or really any specific cuts at all.  He didn't even do this while campaigning in the Republican primary, so you know he is certainly not going to cut anything if he is actually elected.

Romney can't even get it right with another medical related issue.  He implies he is against Obamacare because he is in favor of states' rights, but he doesn't even respect the right of states to determine their own laws regarding medical marijuana.  He says he would fight against medical marijuana tooth and nail.  Watch the video below (thanks to Lew Rockwell):




Romney has no interest in smaller government.  He talks about it a little bit to pander to his base.  Anyone who is going to vote for Romney thinking they might get smaller government is simply naive.

The only way anything will be cut under a Romney presidency is if the Federal Reserve makes the decision to stop buying any more government debt and let interest rates rise.  That may force the government to cut back, or at least slow down.  Government spending will not be cut because of any philosophical principles that Mitt Romney holds.

Tuesday, July 24, 2012

The Case Against School Vouchers, Part II

Yesterday, I made a case against school vouchers using a moral argument.  Today, I will continue to make a case against school vouchers, but this time will use pragmatic arguments.  There could be a lot of unintended consequences (as with so many government programs) and these possibilities need to be explored.

Let's say that in a particular school district or in a particular county, the average spending per student is $12,000.  Conservatives (and unfortunately, some libertarians) see the failing schools and unaccountable teachers and propose to institute school vouchers.  This means that every parent of a school-aged child would receive a voucher worth $12,000, to be used for the school of their choice.  Let's explore some of the problems that could arise.

First, let's say that you already send your child to a private (slang for non-government) school.  As a parent, you realize this is a rip-off because you already pay property taxes and other taxes that fund government education, which you choose not to use but are still forced to pay for.  Now that every parent/ child has a voucher, you will save money.  However, you weren't part of that $12,000 per student before.  So if every child is given a voucher, the education costs will go up quite significantly, depending on the percentage of kids who go to private school.  There will now be more children to spend $12,000 per year on because the number will now include those not attending government schools.

It would be completely unjust to not offer a voucher to those already in private schools.  These parents would be really mad if that happened.  But either way, there would come a point where every child would receive a voucher.  In other words, government spending just went up and taxes will have to go up too.

Second, there are several reasons why parents might choose to send their children to a private school, even though they are double-paying (once through taxes and once to the private school).  They probably think the education is superior.  However, if vouchers are instituted, then that means any child could attend their school.  Now, I'm not against poor kids going to a good private school if the parent/ child really cares about getting a good education.  However, it is not hard to imagine that your school would all of a sudden be interrupted by troublemakers.  The parents who didn't care before, probably still don't care.  The same goes for the child.  Perhaps the school could kick out big troublemakers, but we can't even be sure of that (see reason three next).

Third, if virtually all schools are receiving their revenue from vouchers, then politicians will start to exercise control over these schools.  It is not hard to imagine a politician saying that since these schools are receiving government funding, then they should have to meet certain criteria.  Perhaps they can only teach a certain curriculum.  Perhaps they can no longer teach anything about religion.  Perhaps they cannot kick kids out of their school for misbehavior (see reason above).  Perhaps they will have to give certain tests to make sure the children are learning the "right things".  When the government has control, there are endless possibilities.  The really bad thing is that virtually all schools will be under government control in a voucher system, whereas at least now private schools do not have as many government rules and regulations to follow as government schools in most places.

Fourth, if every parent now has $12,000 per year to spend on each child for education, why wouldn't education prices go way up?  It would be hard to imagine a school charging anything less than this amount.  Isn't this the reverse of what libertarians want?  It isn't complicated that when government subsidizes something, prices usually go up.  We can see this with medical costs and higher education.

These are just a few of the major reasons that libertarians should be against school vouchers.  Not only are they not ideal for libertarians, they are not even a step in the right direction.  They may actually be a step in the wrong direction, leading to government control over all schools and completely out-of-control government spending on education.

In conclusion, libertarians (and even conservatives) who advocate school vouchers should be careful what they wish for.  It could be a dream come true for the advocates of big government.

Monday, July 23, 2012

The Case Against School Vouchers, Part I

The issue of school vouchers is a highly divisive one.  It is even controversial within the libertarian community.  The libertarian argument in favor of school vouchers is similar to that of conservatives.  They see the government-funded school system as wasteful and in the hands of the teachers unions.  They see the lack of accountability and want some kind of a change.  They figure they can just hand a big check to parents each year to determine the school of their choice and that it couldn't be any worse than what we have now.

There is a strong case to be made against school vouchers from a libertarian standpoint.  This is the position that I take.  It is completely different from those on the left who oppose school vouchers because they want the status quo.  I do not like the status quo at all.  I don't believe in government education.  As I have written before, government education is a form of welfare.

As with most issues, there are two arguments to be made against school vouchers from a libertarian standpoint.  There is the moral argument and there is the pragmatic argument.  Today, I will focus on the moral argument against vouchers.

Libertarians generally believe that force or the threat of force should not be used for political or social change.  While I kind of stole that from the Libertarian Party pledge, it applies to all libertarians, whether or not they are a member of the actual party.

School vouchers does not change the fact that people are being threatened with force to obtain their money.  In fact, school vouchers don't even reduce the amount being confiscated in most cases.  Most advocates of vouchers are not proposing a dramatic decrease in education funding.  They are just changing the direction of the funding.  Instead of the money going directly into the school systems, the money will first go to the parents, who will then decide on where the child and money go.

School vouchers are still welfare.  It is still a redistribution of wealth.  There is no way around it.  There are many people who never have kids, yet they are forced to pay for other people's kids.  For those who have kids, the numbers vary.  Some have just one child, while others may have 4 or more.  Yet, when people pay their property taxes, it is based on the rate of the tax and the value of the property.  It has nothing to do with how many kids you have.  If anything, the money coming from Washington DC for education comes disproportionately from those with fewer kids or no kids, because they do not get the extra tax credits and deductions.

School vouchers would not reduce government in any significant way.  They would not eliminate or even reduce the amount being confiscated, so it is hard to make a libertarian argument in favor of them.

As we will see in Part II, there are also pragmatic reasons to be against vouchers for libertarians.  They may not necessarily improve education and they could make things worse.  Stay tuned.

Saturday, July 21, 2012

Typical Investment Advice

I received a comment recently from an anonymous person.

This person sounds like a fairly typical example of a somewhat average American.  Perhaps you could say this person is somewhat of a typical example of an average American who reads my blog, since the person has some gold investments.

It is hard to comment precisely, not knowing details about family, location, income, total savings amount, and risk tolerance.  But I can make some comments that might be helpful.  Since others may find them helpful, I decided to write a separate post, instead of just a response in the comments.

First, I think this person is on the right track.  He (I will assume this is a "he") has a good portion invested in gold and silver (hopefully more gold than silver).  He has some of his savings in cash or cash equivalents, which is actually a good position to be in right now.

It is good that he is only contributing to his 401k plan up to the company match.  You should never go beyond this.  I have written about the risks involved with 401k type plans before.  If your contributions are hurting your other savings to a large degree, then you might even consider not contributing to the 401k.  Yes, I know every financial advisor out there is screaming.  But 401k money is the most illiquid savings you can have, especially when your employer won't let you withdraw your own money.  It is more important to have an emergency fund that you can actually access, than a 401k.

He did not say what his investments are in his 401k plan.  Hopefully it is well diversified.  Some plans allow you to opt in to a special brokerage link account where you can buy any mutual fund that you want.  You would probably have to fill out a special application for this.  If your company allows this, then you should do it and you can then put the majority of your 401k money into PRPFX.

I would not start a regular IRA.  If you are going to start an IRA, then go with a Roth.  At least you can withdraw your principal money (not any gains) before hitting retirement age without getting hit with a penalty.

For the brokerage account, this person can set up something similar to the permanent portfolio using ETFs.  I have written about this strategy before.  He is already doing one portion with a gold ETF, probably GLD.

I'm not sure the total net worth of this individual.  He says that he has some of his savings in cash though.  If he is in a decent location, he might want to consider investment real estate.  If he could just buy one three-bedroom house and put 20% down, it might be a good payoff in the long run.  Mortgage rates are historically low and housing prices are low, depending on where you live.  This should generate positive cash flow for the average month.  If it doesn't, then it shouldn't be done.

Of course, there is also the option of paying down your mortgage if you own a home and have a mortgage.  This is a guaranteed rate of return equivalent to the interest rate on your mortgage.  It is a good compliment to gold holdings that hedge against inflation.  Paying down your mortgage is more of a hedge against deflation.

Overall, I encourage everyone to set up the majority of their investments (outside of real estate) into something similar to the permanent portfolio.  You will probably sleep better at night.

Thursday, July 19, 2012

Will Gold Stocks Keep Going Down?

While the price of gold in terms of U.S. dollars has been fairly steady over the last several months, that hasn't been the case for gold stocks.  Most gold mining companies have been hammered, particularly in the last year.

Fidelity's gold mutual fund (FSAGX) is down over 30% over the last year.
GDX, a gold mining ETF, is down about 30% over the last year.
GDXJ, a junior gold mining ETF, is down a whopping 49%.

This is why gold stocks should not be part of your permanent portfolio.  They should be left for your speculative investments.  It is obvious why by looking at the recent performance.

So where do gold stocks go from here?  It is a tough question to answer and I think it will all depend on the direction the economy takes.  If we fall back into a recession (not that it seems like we ever got out of one), then gold stocks are likely to continue their poor performance.  If a recession is averted, at least for a little while, then we could see gold stocks resume an uptrend like we saw years ago.

Much of this will depend on the Federal Reserve.  The adjusted monetary base has been flat since QE2 ended just over a year ago.  The Fed is on hold, waiting to see what happens.  It is possible that it is waiting for another crisis like we saw in 2008 where it bailed out the big banks and financial institutions.  It is possible that the Fed will give in to pressure to boost the economy if the stock market turns down significantly or even if unemployment stays high.

If the Fed starts creating new money out of thin air again on a regular basis, then I would expect gold to start another run up.  I would also expect that gold stocks would then reverse the downtrend and go up. If that happens, then now might be the deal of the decade with how much of a beating the gold stocks have taken.

If the Fed stays tight and the economy falls into recession, then gold stocks will likely continue their fall, especially with a fall in the broader stock market.

Owning investments that reflect the price of gold are still much safer than owning gold mining companies.  If you try to speculate on some gold stocks, or funds that invest in gold stocks, just be sure that it is money you can afford to lose.

Wednesday, July 18, 2012

Canadians Now Richer Than Americans

The top headline on Drudge Report today is, "Canadians Now Richer Than Americans".  It links to an article by U.S. News that says the average Canadian household is worth about $40,000 more than the average American household.  The article claims that this is the first time in recent history.

The article states, "The net worth of the average Canadian household in 2011 was $363,202, compared to around $320,000 for Americans.  It goes on to point out that the Canadian dollar has caught up to the U.S. dollar and the two currencies are at about par.

The U.S. and Canada have been somewhat similar for a long time now, although there is certainly a perception that the U.S. is still somewhat better in terms of economic growth.  There was probably a certain element of truth to this in the past, as Canada does have a little more of a welfare state.

There are several reasons contributing to the average net worth being higher for Canadians.  Some of them are good and some are bad.

As the article points out, "real estate held by Canadians is worth more than $140,000 more on average and they have almost four times as much equity in their real estate investments."  The last part is good.  More equity means that Canadians have saved more, at least in a sense.  It means that more Canadians will reach the point of paying off their mortgage and freeing up their incomes for other things.

The fact that Canadian real estate is worth more than real estate in the U.S. is not necessarily a good thing for Canadians.  The Canadians may be richer on paper in this respect, but it doesn't necessarily translate into wealth.  We should all know that from the peak in the housing bubble, approximately 6 years ago.

It is likely that parts of Canada are having a real estate bubble of their own now.  Have you seen the prices of houses in Toronto?  It looks like parts of California and Florida did 6 or 7 years ago.  If the real estate pops in Canada as it did in much of the U.S., then it will show that some of this wealth was illusory and there probably isn't much of a difference between the two countries in terms of wealth.

As far as government policies go, there are also differences that are good and bad between the two countries.  As mentioned, Canada is a bigger welfare state.  Canada has higher taxes.  There is a national sales tax there.  These are all negatives.

On the other hand, Canada is not as entrenched in the warfare state.  While Canada has symbolically supported the U.S. in its wars abroad, the expenditures do not come close to matching the U.S., even on a per capita basis.

Another difference is that the central bank of Canada has been a little better than the Fed in the recent past.  Of course, if Canada experiences a real estate bust, maybe the central bank there will be stupid enough to follow in Bernanke's footsteps and create new money out of thin air like crazy.

Overall, despite some differences, Canada and the U.S. are very similar.  I don't really see Canadians as being wealthier than Americans.  It's not to say this couldn't happen in the future, but that will depend on government and monetary policies.

Tuesday, July 17, 2012

PRPFX and Silver

I have written about the recent performance of PRPFX.  Yesterday I wrote about the stock holdings in PRPFX.  Today, I will discuss the silver portion.

One of the main reasons to invest in the permanent portfolio as described by Harry Browne is that it provides diversification in almost any economic environment.  It tends to do the poorest during a recession, but these are usually short-lived and there is also a tendency for stable or even declining prices during those times.

The primary protection for the permanent portfolio in an inflationary environment is the 25% devoted to gold and gold related investments (but preferably not gold stocks).  There is some additional protection with stocks, but even stocks did not hold up too well in the 1970's when there was high price inflation in the U.S.

The mutual fund PRPFX does things a little different.  It holds approximately 20% in gold and 5% in silver.  While the overall percentage in metals is the same as the regular permanent portfolio, the mutual fund deviates with silver.  The regular permanent portfolio does not have silver at all.

This is a fairly small percentage (five percent), so a major drop in silver isn't going to completely crush the mutual fund.  However, it can make a little bit of a difference, and it can be good or bad.

Silver is far more volatile than gold.  In a boom of precious metals, silver is likely to outperform gold.  In a bust period of precious metals, silver is likely to fall much further than gold.

Another difference is that silver is used more as an industrial metal.  While silver has some history of being used as money and gold has some uses outside of being money, gold is heavily favored over silver when being used as a form of money.  In a recession, silver is more likely to go down due to its uses as an industrial metal.

Another interesting aspect is that central banks and governments hold gold.  They don't usually hold silver.  In the past, this could have actually been a reason to prefer investing in silver over gold because central banks had more of a tendency to sell gold, thus driving down its price.  Today, I would say the opposite.  Central banks all over the world are actually increasing their gold reserves, probably because of the shaky financial system and the growing mistrust of fiat currencies.  This has seemed to put a floor on the price of gold.

As far as PRPFX, what does this mean?  It means that it will tend to be more volatile.  One of the great attractions about the permanent portfolio setup is that it tends not to move in wild swings.  You don't feel like you are on a roller coaster the way pure stock market investors have felt over the last 4 years.  By adding a little silver to its fund, PRPFX can potentially be a little bit more volatile than the regular setup.  In a high inflationary environment, it will probably pay off.  In a recession or depression, it will probably mean bigger losses, or at least less gains, assuming that precious metals take a big hit.

In conclusion, while it would seem that having 5% in silver would add diversification, it actually makes the fund more volatile.  This may not be a bad thing for younger and more aggressive investors, but you should at least know that there is a slight amount of increased risk due to this allocation.

Monday, July 16, 2012

PRPFX and Stock Holdings

For those who follow me, you know I am a big advocate of setting up your own permanent portfolio as described by Harry Browne in the book Fail-Safe Investing.  Since investments are dependent on human action, nobody can predict with absolute accuracy what stocks and other investments are going to do in the future.  It is even harder in trying to time such investments.  Therefore, I suggest that you put at least half (for risk takers) or closer to all (for conservative investors) of your investments into a setup like the permanent portfolio.  This would not count investment real estate.

I recently wrote a piece about the mutual fund PRPFX and its performance.  I said that it did not do a near perfect job of emulating the actual permanent portfolio, particularly because of the holdings in Swiss francs.

There is another aspect of PRPFX that differs from the permanent portfolio as described by Harry Browne.  The fund invests in individual stocks instead of the broad stock market.  For example, PRPFX holds BHP Billiton, FedEx, and Wynn Resorts, among others.  To be fair, none of these holdings make up over 1% of the fund.  However, it should be noted that according to the regular permanent portfolio setup, only 25% should be in stocks.  Therefore, if a stock had only a 0.5% weighting in PRPFX, it would actually be about 2% of the stock portion.

If any one company were to go bankrupt overnight, then it would not hurt PRPFX by any more than 1%.  This is really the purpose of mutual funds.  It diversifies risk, particularly with individual companies.

The main reason I point this out is because I want people aware that PRPFX is not the same as the permanent portfolio as described by Harry Browne.  The fund is actually speculating in stocks, even if it is in small amounts.  If it were true to the permanent portfolio, then the stock portion of the fund would just invest in the overall S&P 500 or even a broader stock market fund.  It would not be trying to pick individual winners.

I'm sure the managers at the PRPFX fund have done their research and found these individual holdings to be solid companies.  You may benefit with a higher return if you are invested in PRPFX.  However, I just want to reiterate that it is a form of speculation, even if much less so than the average mutual fund.

I still believe PRPFX is a simple and easy way to put at least some of your money into a setup that is at least close to the actual permanent portfolio.  It is just important to know what you are buying when you do so.

Saturday, July 14, 2012

Being Humble

James Altucher has written an article on his past.  He calls it a resume, but I certainly wouldn't say half of the things he's done on my resume, even if it were true.  For those of you who read LewRockwell.com, there are often links to Altucher's articles there.

I would not imitate Altucher.  There are certain things to admire about the guy, but overall his life has been a disaster, even with all of his successes.  He writes a great blog and I would encourage people to read it.  You can learn some things of what not to do.

With that said, Altucher does offer some great motivational advice too.  He seems to be quite honest in his writings and it serves him well.

For someone who wants to imitate Altucher, I really say, "don't do it".  There are certain qualities to imitate (particularly the honesty thing), but some of his better characteristics are part of his personality.  If you are capable of imitating his good characteristics and staying away from the bad, then go for it.

One thing in particular that you can learn from reading Altucher, especially about his past, is that it is important to remain humble in life.  This goes for your investments, your money, your business, your job, your relationships, and virtually everything else.  I have seen it too many times where someone thinks he is on top of the world and then comes crashing down.  It is often the result of not remaining humble.  If that wasn't the cause, then being humble would have at least made it easier on the person when they fell down.

There is a difference between being humble and not being confident.  You can be confident in yourself and your abilities while still remaining humble.  It is important not to cross that barrier of becoming over-confident when you think you are indestructible and that nothing can go wrong in your life.

Stepping over that line costs people their jobs, their money, and even their relationships.

You can see that with Altucher's resume.  He did not remain humble.  It seems like he has learned from his past and is more humble now, but who knows?

The funniest part of Altucher's piece is when he tells of a job he had for about a week.  He writes, "One day, in the middle of a meeting I had set up I said, 'excuse me for just one minute, I have to go to the bathroom' and I walked out of the meeting, walked out of the building with my coat, walked to the subway, went to Grand Central, and never came back to the office.  Never returned their calls afterwards."

This is funny on the one hand and also creates some jealousy on the other.  There are a lot of people who would love to do that.  They would love to be able to just get up and leave their job because they don't like it.  The problem is that most people don't have the financial freedom to do it.  If they did, they probably wouldn't be in the job in the first place.  For the few that might have the gall to do this, they probably shouldn't because they need the income to support themselves and their family.

If I were an employer looking at Altucher's resume, there is no way I would hire the guy.  He is the epitome of irresponsibility.  He made millions and lost it all.  He didn't take his work seriously.  It seems that his blog is the first job in his life that he actually takes seriously.  While I wouldn't hire the guy, I might consider him as a consultant.  He is full of ideas and some of them are actually pretty good.

We can all learn from people like Altucher.  He was not humble and he got crushed.  But I like his writing and his creativity.  Some of his writings can be uplifting.  I will continue to read his blog posts that interest me and I would encourage others to do the same.  I just wouldn't imitate his past life.  If you do, just imitate the good parts.

Thursday, July 12, 2012

July 12, 2012 Adjusted Monetary Base

I occasionally like to review the chart of the adjusted monetary base.  You can view the shorter-term chart here.  For a better look at what has happened in the last several years, you can view the chart here.

While there has been some zig-zagging over the last year, it is interesting to note that the monetary base is almost at the same exact level as it was just over a year ago when QE2 ended.  So after the major explosion in the monetary base since the fall of 2008 through June 2011, the Federal Reserve has actually been in a tight monetary mode.

We constantly hear in the mainstream financial media about the possibility of QE3, we hear about Operation Twist, and we hear about the federal funds rate.  But this stuff really doesn't mean much right now.  What does matter is the money supply that the Fed is controlling right now.

I like to use the adjusted monetary base because it seems to be the best indicator of what the Fed is actually doing.  Right now, the Fed has stabilized the money supply and this could be a strong indicator for another recession.

Most of us who paid attention to the monetary base back in 2008 and 2009 would have expected significant price inflation to follow.  But it hasn't happened, or at least not yet.  Something unique happened then that was not common at that time.  The commercial banks actually increased their excess reserves way beyond the reserve requirements.  Instead of loaning out all of this new money, they decided to park it at the Fed and earn a quarter of a percent of interest.  This, along with the recessionary fears, helped to keep price inflation way down.

I don't think the Fed is going to start QE3 (more money creation) for a slight downturn in the economy or stock market.  The Fed has bigger fish to fry.  They have to hold back right now in case there is something more serious that comes along, particularly another banking crisis.

If the Fed started QE3 now and then there was a banking crisis, then it would have to move to QE4 with the possibility of massive price inflation.  The Fed officials would rather keep their powder dry for now and save their money creation for when it is really needed.  They will bail out the banks before they bail out the whole economy.

If the Fed keeps its current monetary policy in place, I expect we will see another recession.  The recession from 4 years ago was never allowed to fully happen.  Since then, there has been a lot more misallocation of resources that needs to be corrected and flushed out.  I suppose the big question at that point will be whether the Fed starts another round of digital money printing or if it allows a deep recession to occur.  Hopefully it will be the latter, but I wouldn't bet your gold on it.

Wednesday, July 11, 2012

The Republicans Can Repeal Obamacare

I have been hammering away at the Republican politicians for the last couple of weeks, particularly those found in Washington DC.  It is not that I favor the Democrats in any way, but I find they are slightly less dishonest.  At least the Democratic politicians don't usually pretend to be in favor of smaller government.  They play their class warfare and lie in other ways, but that is a subject for another day.

The main reason I hammer away at the Republican politicians is because I know there are many Republicans, conservatives, independents, and even libertarians who get duped into thinking that the Republicans are much better than the Democrats, particularly on fiscal issues.

Most Republicans will say they are against Obamacare.  The problem is that many of these same Republicans supported Bushcare.  That was the massive expansion of Medicare that added a huge prescription drug benefit at the expense of the American taxpayer.  It was a massive corporate giveaway to the pharmaceutical industry.  It grew the government's unfunded liabilities by trillions of dollars over the next several decades.

Another major problem is that the Republican nominee is the founder of Obamacare.  Romneycare was invented in Massachusetts and was practically a blueprint for Obamacare.  This is one of the main issues in the 2012 election and this is who the Republicans have put up?

There are two people in the history of America to have signed legislation into law that requires individuals to purchase health insurance or else face fines.  It just so happens that those two people are the two main candidates in the 2012 presidential election.

Romney is now going around saying "repeal and replace".  He wants to repeal Obamacare.  I'm not sure what he wants to replace it with.

If the Republicans really wanted to repeal Obamacare, they can do it without relying on the presidency.  The Republicans control the majority in the House of Representatives.  All spending is supposed to be approved by the House.  The Republicans in the House can simply refuse to fund Obamacare.  They can just refuse to pass a budget and shut down the government if they want.  They can just cut off funds to the agencies that would implement Obamacare.  There are a number of options on how to de-fund it.

The problem is that the Republicans in DC will never do that.  They like big government.  They just like to tell their constituents that they don't like big government.  As long as the suckers out there keep voting for them, then why should they change anything significant and actually do anything to reduce the size of government?

Monday, July 9, 2012

The Importance of Interest Rates

I have discussed before (here and here) the Federal Reserve's policy of "Operation Twist".  This is the Fed's policy to buy long-term government debt in favor of short-term debt.  Its main purpose is to lower long-term interest rates.

I already discussed some of the reasons that the Fed might want to do this, as well as some of the possible unintended bad consequences.  For today's post, I want to discuss another bad side effect of this policy of setting interest rates below where the market would set them.

Interest rates tell us the price of money.  Almost everyone would prefer to have one dollar in their pocket today than have it a year from now, even if their intention is to save it.  If someone is going to defer getting paid a dollar today and instead get paid a dollar one year from now, then this person would expect some additional reward.  This extra amount is the interest rate.

The interest rate serves as a price.  Since it is essentially a price, it also serves as a signal to the market.  If interest rates are really high, then that means the market is signaling that savings are too low.  People are consuming too much and not saving enough for the future.  The high interest rate provides an incentive.  It is an incentive for people to save more, as they will get rewarded with a higher interest rate for their savings.  It is also an incentive for people to borrow less, since their borrowing costs will be so high.

There is a saying that the solution to high prices is high prices.  The same goes for interest rates.  The solution to high interest rates is high interest rates.

The same goes for low interest rates.  This is a signal that savings are high.  It actually gives incentive for people to borrow more due to the low rates.

It should be mentioned that interest rates also reflect expected inflation and risk.  If there is a big risk that the lender won't be able to pay off the loan or if there is an expectation that there will be high inflation, then the interest rate will reflect these things.  But it is important to know that these are only two factors and we should not forget that interest rates are also an indication of the time value of money as discussed above.

If the federal government manipulates the price of oil or tampers with the production of corn, it mostly just affects these things and the other products that rely on them.  However, when the government/ Fed tampers with the interest rate, they are tampering with the price of money.  Money is used on one side of a trade in almost all transactions, unless you count barter (which is not much in a high division of labor economy).  So when the Fed tampers with the interest rates, it is really distorting the entire marketplace.

While it is impossible to say what interest rates would be exactly in a free market economy, there can be little doubt that they are artificially low right now, if anything.  This is a problem because it distorts the need for savings.  It is telling the market that interest rates are really low because savings are so high.  The problem is that this may not be the case.

Fortunately, despite the government's profligate spending, many Americans are actually trying to save more, spend less, and pay down debt.  Unfortunately, it is still not enough to offset all of the bad that the government is doing.  If the Fed would stop buying government debt, then interest rates would eventually rise and Washington DC would be forced to cut back.  It would raise the rates on long-term bonds and it would also send a signal to people to save more.

Interest rates are low because of the bad economy and the fear that goes with it.  But the Fed is not helping in continuing to buy government debt with all of its schemes.  Of course, the Fed and the governments are also the cause of the bad economy in the first place.

In some ways, it might be better if the Fed were to create money out of thin air by directly handing it over to the government to spend, instead of buying its debt.  It would still be counterfeiting, but at least it would be more transparent.  It would also have less of an effect on interest rates.

We should demand an end to price controls, starting with the controlling of interest rates.  The free market should determine rates, which would allocate capital in the most efficient way.  This would mean more prosperity and a higher standard of living in the long run.

Saturday, July 7, 2012

Republican Politicians in DC

There is this ongoing myth that the Republican Party is in favor of capitalism and smaller government.  In comparison to the Democrats, maybe this is right.  But if you compare the policies and actual results, there really isn't much of a difference at all.

Brushing aside foreign policy (where the Republicans are huge advocates of bigger government), the Republican politicians in DC are horrendous, even in comparison to Democrats.  The only major difference is in their rhetoric.  When it comes to economics, Republican voters are probably quite a bit better than Democrats in advocating capitalism and less government.  This is why the Republican politicians talk about smaller government.  They are fooling their constituency.

The Republicans took over the majority in the House of Representatives in January 2011.  They have had control there for about a year and a half and yet the deficits persist.  Sean Hannity will refer to them as the Obama deficits, yet he somehow manages to ignore the fact that Republicans control the House where all spending bills are supposed to originate.

As I mentioned in my last post, the Republicans in the House can try to pass any budget they want.  If Obama vetoes it, they don't have to pass anything.  They could say that they will only fund Medicare, Social Security, and vital national security projects.  Let the rest of the government shut down.  Or they can pass a more moderate budget that has many other things, but is balanced.

They had an opportunity to refuse to raise the debt ceiling, but they gave in.

I keep harping on this subject because I know so many Republicans who keep thinking there is some hope with electing Republicans to office.  They at least think they are the lesser of the evils, which I'm not even sure is true.

The Bush legacy is a complete disaster.  Under Bush, we got No Child Left Behind, a massive Medicare prescription drug bill (that rivals Obamacare), tariffs, the Patriot Act, Sarbanes-Oxley, two major wars, bank bailouts, car company bailouts, and massive debt, just to name some big things.

If Bush had continued as president, don't think that the deficits right now would be much lower, if at all.  Other than the ridiculous stimulus plan at the start of his presidency, Obama has not increased government spending (in percentage terms) any more than Bush did.  Obama supporters are right in saying that Obama inherited a mess.  It really is true.  It's just that Obama has continued the problem and made it even worse.

With Ron Paul basically out of the running, the best thing I can recommend is to stay away from politics.  The whole system is a disaster.  You should spend your time instead reading, writing, speaking, and trying to convince others on the benefits of liberty, without being too pushy or annoying. Stay away from the divisive political stuff.  Instead, focus on philosophy.  Focus on the moral and pragmatic benefits that come with a more libertarian society.

The whole big empire is actually more fragile right now than most people realize.  The Republicans are not going to save us.  They are part of the problem.  We just have to be prepared to pick up the pieces when things really fall apart.  This does not mean ruling over others.  It means convincing others that nobody needs to be ruled.

Thursday, July 5, 2012

Republican Politicians are not the Answer

There are a lot of libertarian-leaning conservatives who think that the Republican Party is the answer to smaller government.  They think we just need to elect the right Republicans in the primaries and then win the general elections.  They think that if we get enough of them, that they will shrink the size and scope of government.  There are even some who just think we need any group of Republicans to win a majority in the House and Senate.  There are even some really naive people who think that the government will get smaller if we can just elect Mitt Romney to the presidency.

With the exception of Ron Paul, and maybe a few others to a lesser degree, the Republican politicians in Washington DC are lovers of big government.  They are defenders of the state.  It isn't that they can't shrink the government because there are too many Democrats blocking them.  It isn't that they can't shrink the government because they will lose their next election (although there might be an element of truth to that one).  It isn't that they want to shrink the government but just can't quite get the votes to do so.  The truth is that the Republican politicians love big government just as much as the Democrats.

The Republican Party has had the majority control of the House of Representatives since January 2011.  It has been a year and a half.  The only thing good they can legitimately claim is that the government has grown at a slower pace since they took control.  Even with that, some things are debatable.

The Republicans could have refused to raise the debt ceiling.  If that was too drastic, they could have raised it, let's say, $50 billion per month and refused to raise it any more than that.  $50 billion per month is still $600 billion per year.  But at least they could have claimed that they cut the annual deficit in half.  Instead, they raised it over a trillion dollars and promised "spending cuts" in the future, which are really just cuts in the projected growth.

If the Republicans really wanted to be radical, they could have refused to pass a budget at all.  All spending bills are supposed to originate in the House.  Anyway, there is no way that a president can sign a budget bill that isn't first approved by the House.  Since the Republicans have a majority in the House, they could simply approve a budget of $3 trillion (annual) or less.  They could refuse to go higher than that and there is not much anyone could do about it.  Obama and the Democrats could kick and scream and tell everyone that Republicans want to kick old people out on the street, but isn't that what they do anyway?  Perhaps the electorate would turn on them in the next election, but we will never know because the Republicans will never willingly cut the government.

It isn't that Republicans are spineless and lack the political will to cut government.  It is simply that they have little interest in cutting government.  Maybe a few of them genuinely did want to do that when they were running for office, but things change when you get a prestigious position and lobbyists start knocking on your door.

There are few Ron Pauls in this world, particularly when you narrow it down to those running for political office.  Most politicians run for office because they want power and they want to control other people.  We are not going to achieve liberty by infiltrating the Republican Party or by electing the "right" people into office.  We are only going to achieve liberty by changing the hearts and minds of the American people.

Wednesday, July 4, 2012

Secession Day

July 4 is called Independence Day in America.  It could be called Secession Day.  Not only was it a declaration of independence from the British crown, it was an act of defiance.  It was an act of secession.

Most Americans do not favor secession.  There was a recent poll that showed 24% of Americans now favor the right of a state to secede from the U.S. (the "union").  This is considerably higher than it was just a couple of years ago.

Yet, for the other 76% of Americans who do not approve of state secession, most of them would probably endorse the Revolutionary War on the side of the American colonists.  But why was it ok for the colonists to secede but not a state today?  Is it simply because the colonists were ruled by a king whereas today we are ruled by politicians who we get to pretend to vote for every few years.  (By the way, I'm not saying all elections are fraudulent, but just that elections don't ever change much because of the rigged game that has been set up.)

These 76% of Americans, I hate to say it, are being hypocritical.  I suppose, giving them the benefit of the doubt, they are just being lazy in their thinking.  They don't realize that they support the secession of the American colonists, yet don't think people in a given state (or any other jurisdiction) should have that right today.

The ironic thing about this is that a state wanting to secede today would be much more justified in doing so.  In the 1770's, the American colonists were paying minimal taxes to the British king.  Perhaps it was 1 or 2 percent.  Today, Americans get the privilege of paying almost half of their income towards government at all levels.  The American colonists were a free people (not counting the slaves) compared to Americans of today.

On July 4, try not to get into any major political arguments with friends and family.  But you can certainly remind them that July 4 is the date that American colonists declared that they were seceding from government rule.  Unfortunately, it just got us another government, which eventually got a lot bigger.

Tuesday, July 3, 2012

Obamacare and Panarchy

I have discussed the ruling on Obamacare, the hope we have with technology, and the taxes associated with Obamacare.  In this post, I will discuss the subject of panarchy and its relation to Obamacare.

I have written about panarchy before.  I believe people should be free to choose their own government and it should not be borders that necessarily determine the jurisdiction of governments.  I believe that one mistake that free market anarchists make is that they are trying to push their agenda down other's throats just as much as statists try to push their agenda.  It doesn't have to be this way.

Obamacare is a perfect example.  There are just over 300 million people living in the U.S.  When there is a poll done on Obamacare, it is a virtual split.  I can tell this from my own informal polling or just looking on Facebook.  I am friends with a lot of people who are in favor of Obamacare (or at least think they are).  It is amazing that people can disagree so vehemently with friends, neighbors, co-workers, family, and even spouses.  Americans do business with each other on a daily basis, yet there is this huge divide.

My solution isn't to repeal Obamacare.  My solution is that people should be allowed to opt out of Obamacare.  They should be able to opt out of the U.S. federal government if that is their choice.

If someone is trying to tell you that Obamacare is a good thing and you strongly disagree, you don't have to start arguing about all of the details.  You can just say: "I understand that you like the new healthcare law.  I just happen to respectfully disagree.  But am I allowed to disagree with you without having violence enacted upon me?"

The person will probably answer "no" or they won't answer at all because they will have no idea what you are talking about.  This is your opportunity to explain that if you don't follow Obamacare and the taxes associated with it, then armed men will eventually show up at your door and threaten you with violence.

You can ask the person again if you should be able to disagree with Obamacare without having someone threaten to shoot you.  They probably won't want to answer the question at that point.  They will start going into their theories of government and how we all have to contribute, blah, blah, blah.

But it may turn on a lightbulb for some people.  If two people disagree so vehemently on an issue, or more likely several issues, why should they subject each other to their own desires?  Why can't they go their separate ways on the things they disagree?  Likewise, I have friends that I can talk to about politics, but I would almost never talk to them about sports, or music, or the television shows I watch.  But these other things don't matter because we are not forcing the other person to participate in any way.  If you don't like a particular sport or a particular type of music, you can choose not to watch it or listen to it.  You are not forced to participate and you are not forced to pay for it (unless the government is involved).

Panarchy offers us a solution.  We shouldn't all have to live under the same government if we expect our government to do very different things.  As long as we respect each other's lives and properties, then I don't care what kind of government my friends and neighbors choose, so long as I am not threatened with force to participate.

Panarchy actually makes it quite simple to defend your position on any point.  You don't really need to know much history or economics or any details about a particular piece of legislation.  You can just say that you respectfully disagree and that you hope nobody will threaten you with violence if you want to disagree and not participate.  It puts other people in a moral bind.  It shows the immorality of any government that goes beyond simply protecting lives and property and enforcing contracts.

Panarchy will give you the moral high ground.  Take it.  Everyone who wants their Obamacare should be free to have it, as long as they are not forcing others to participate.

Monday, July 2, 2012

Obamacare is a Tax

I have already discussed the Supreme Court's ruling on Obamacare.  I have also discussed how it might be overcome in the future.  For this post, I want to discuss some of the taxes associated with Obamacare.

Of course, the big part of the legislation that most everyone is focused on is the individual mandate.  John Roberts ruled that this was a tax and was therefore constitutional.  Whether it is a tax or isn't doesn't really matter about its constitutionality.  By Roberts' logic, the government can now just tax anything, even if it is one dollar, and then it will be constitutional.

Aside from the penalty (or tax) associated with the individual mandate, there are many other taxes associated with Obamacare, many of which have already taken effect.  Here is a good list to look at.

Apparently Obama has something against white people or those who serve white people as customers.  Since 2010, there has been an additional 10% tax on indoor tanning salons.  While some people think these are unhealthy, they can actually a be a good source of vitamin D, which can be very beneficial to your body.  Aside from this, even if people just want to look better with a tan, why is this the federal government's business?

There is a tax that I have been paying for the last year and a half.  Every time I buy over-the-counter medication, I cannot use my HSA account.  In the past, you could use pre-tax dollars for things like tylenol and sinus medication, even if you didn't have a prescription.  Thanks to Obamacare, you now have to use after-tax money.  By eliminating this deduction, it is a tax increase.

In 2013, there will be a new 3.8 percent tax on investment income for higher earners.  This may end up being on top of the massive tax hike coming with the expiration of the previous tax cuts.  You could have some people paying capital gains taxes of well over 40%, just on federal taxes.  Is this a potential reason to short the stock market in the near future?  This cannot be very appealing to investors.

Aside from these and many other taxes from Obamacare, it is also a nightmare for both big and small businesses.  It is more regulation and more expense.  This has already happened, particularly with health insurance companies.  It is simply more rules and more bureaucracy.  It also makes it more expensive to hire people.  It is just another reason to add to the list of reasons why unemployment is so high due to overbearing government.

Obamacare is probably not the worst thing to ever happen to America, but it is another big government piece of legislation that adds a few more straws to the camel's back.  It is bad for business and it is bad for Americans, whether they know it or not.