LIBERTARIAN INVESTMENTS

Republican Debate in Jacksonville, FL

2012-01-26T22:20:00.000-05:00

The last debate has finished up before the Florida primary voting. It may be the last debate we see for almost another month.

First, I thought Wolf Blitzer did a decent job. Of course, it is all relatively speaking. There could still be much better questions, but at least he was reasonably fair in giving time to all of the candidates.

Second, I have a little factoid to present to Mitt Romney. English is not the official language of the United States. There is no official language. Obviously, English is the most widely spoken. There is no need to have an official language, unless there is just something that states that all federal legislation will be written in English, but there is really no need for that even. Just like everything else, the free market has a way of handling these things. If English is that important for someone in getting a job, then they will have motivation to learn it. It won't be because a bunch of politicians got together and declared English to be the official language.

Third, I thought Ron Paul had a great debate. He was more relaxed and had a few funny lines that the audience appreciated. He made many strong points and was quite clear that he is the candidate who believes that the role of government should be severely limited. This particularly came through when he talked about the space program and saying that government has no role except possibly for national defense reasons.

Fourth, I thought it was interesting that Newt Gingrich was echoing Paul so much. I think part of that was because Paul was making so much sense and resonating with the audience. I think another part of that is that Gingrich did not want to pick a fight with him. He is hoping that if he becomes the nominee that he can get at least a few Paul supporters to vote for him.

Fifth, I liked Rick Santorum's presence in the debate. I don't particularly like Santorum and what he stands for. In fact, he probably scares me more than anyone, including Obama. However, he did a great job of exposing Gingrich and Santorum on their support of government-run healthcare. The ironic thing in all of that though, is that Santorum supported the massive Medicare prescription drug program started under Bush. That program is the epitome of top-down government-run healthcare.

In conclusion, I thought it was a good night for Ron Paul. Gingrich and Romney beat up on each other. While they focus on Florida, Paul is focusing on Maine and other caucus states where he can win and pick up delegates. The longer he stays competitive in this whole thing, the more of a chance that people will have to see the light.

Fed to Keep Rates Near Zero Until Late 2014

2012-01-25T21:01:00.000-05:00

The Federal Open Market Committee (FOMC) released its statement today saying that it is likely to leave rates near zero until late 2014. If this ends up happening, that means that the overnight rate for borrowing will have been near zero for 6 years. The Fed dropped the rate below .25% after the economic fall of 2008.

As I have said before, the Federal Reserve is not really controlling this rate right now. This is the rate that banks are charged to borrow money overnight in order to meet reserve requirements. However, since the Fed has more than tripled the adjusted monetary base, the excess reserves held by commercial banks have skyrocketed with the monetary base. Since banks have huge excess reserves, they don't need to borrow from the overnight window because they are not falling below the reserve requirements.

These low interest rates are not without a cost. Overall low interest rates hurt savers. This discourages saving, which is required for capital investment, which is required for future economic growth. People who are saving money in a bank account right now are losing in a major way. They are earning a fraction of a percent in interest. They are not even keeping up with inflation.

In Bernanke's press conference this afternoon, he suggested that QE3 (more money creation) is possible if economic conditions warrant it. This should come as no surprise. He did not earn the nickname Helicopter Ben for nothing.

In the FOMC statement, it was also stated that the Fed would continue its program of extending the average maturity of its holdings. This means that it will be swapping shorter-term bonds for longer-term bonds. I suspect this is an attempt to keep mortgage rates down, along with borrowing costs for Congress.

As Gary North has said, the Fed is in Goldilocks mode right now: not too hot, not too cold. It does not want to tip the scales to recession or high price inflation. If and when the Fed faces a situation of high price inflation, it will be in major trouble.

The stock market, the bond market, and gold, all reacted positively to this news today. The dollar fell. This is not surprising. Stock market investors like to hear news of low interest rates and the possibility of more money creation.

Bernanke and his cohorts really don't know what they are doing. They are playing politics and they are hurting the economy. There will be a day of reckoning. We can't know when that day will be. There will be a day when the Fed has to make a big decision. It will have to stop creating money and let interest rates rise and severe recession hit, or it will keep creating money and go to hyperinflation. Let's hope they choose the former and not that latter.

Iran and Your Investments

2012-01-24T21:00:00.000-05:00

I haven't discussed foreign policy in a while (aside from the Republican candidates). I have stated that my economic outlook for 2012 is more uncertainty, with a fight between inflationary forces and recessionary forces.

If there is war with Iran, everything changes. It would be quite catastrophic. It would be horrible for the people of Iran. There would be many needless deaths and major destruction. Lives would be ruined.

There would also be effects felt throughout the planet. It would be devastating to the U.S. economy, along with most other inhabited places that rely on the global economy.

One thing that is easy to predict is that the price of oil would go to the sky. The Iranian government would attempt to close the Straight of Hormuz. It could be quite "successful" in doing this for a period of time. Even if it closed for just a few days, it would spook the oil market like never before. Many people are predicting that oil would hit $200. I think this is very conservative. I think we could see a temporary spike go over $300 easily.

As I have said before, a rise oil prices does not cause inflation. If there is no change in the money supply, people will have to budget differently. They will either have to cut back on the use of oil (mostly driving) or they will have to cut back somewhere else in their budget. Most people will do both. This means less money to eat out, to buy electronics, to take vacations, etc. Prices will fall in other areas.

However, if there is war with Iran, then the Fed will most likely start another round of quantitative easing (money creation). It will cost the government even more money to fight a war with Iran, which means that the deficit/ debt will get even worse. It means that the Fed will have to monetize this debt.

The fact that the U.S. government is in such a hole financially might just save us from another major war. There is a lot of talking going on, but hopefully Obama is not that stupid. He has to realize that the U.S. would suffer financially in a major way. If Obama does not start a war with Iran, maybe I can give his presidency a "D minus" instead of an "F". McCain would have been more likely to start another major war. So perhaps we could have done worse than Obama.

There is a possibility that the Israeli government might start a war. But I find this unlikely if they do not have the support from the Obama administration.

The U.S. has really already committed an act of war by placing these embargoes on Iran. Hopefully it will end there and there will be no major conflicts.

I give the chances of an all-out war with Iran to be less than 50%. Those odds would continue with a Romney presidency. They would go up with Gingrich or Santorum. They would be near zero with Ron Paul.

Hopefully there will be no war. If there is, be prepared for an even more wild ride financially. Expect oil to go out of control. You can also expect gold to skyrocket with it.

Republican Debate in Tampa, Florida

2012-01-23T23:07:00.000-05:00

The Republican debate in Tampa, Florida has just finished up. It was hosted by NBC and Brian Williams and the questions were just horrible. As similar to other debates, some of the questions are just about meaningless.

I would like to see more substance on where the candidates stand philosophically. I would like to see some questions such as:

How much should the federal government spend each year?
What specific government programs and/ or departments would you eliminate or reduce?
Do you favor tariffs on sugar (did Newt answer that?)?
What areas do you think the government should stay out of completely?
What does Article I, Section 8 of the Constitution mean to you?
Does the Constitution limit the power of the federal government?
Who are the best and worst presidents in American history?
Are there any amendments to the Constitution that you disagree with?

Of course, the media doesn't want to ask questions like these because it would show the insincerity of three of the candidates. It would show that Ron Paul is the only principled candidate.

Mitt Romney is so full of it, it is just ridiculous. However, he is a little less scary because of it. Rick Santorum does have some principles and I would be scared if he ever had the power to try to carry them out. He probably wouldn't back down in shoving his religion down other people's throats. He probably wouldn't back down on annihilating Iran. At least with Romney, there might be some hope that he could be manipulated into a somewhat coherent policy.

I don't think the Florida vote will mean all that much. It will probably determine the front runner status of Gingrich or Romney, but both candidates are staying in the race.

Ron Paul is not campaigning actively in Florida and is spending minimal, if any, resources there. This is a wise move as he will focus on smaller states with caucuses where he has a better chance to win or to pick up delegates.

I think Ron Paul needs to start challenging the other candidates. If the moderators of these debates are not going to ask the right questions, then Ron Paul needs to do it for them. He should state that he wants to cut one trillion dollars in the first year (which he has said repeatedly) and then ask if there are any specific departments the other candidates would eliminate. He should ask them how they plan to balance the budget and point out that simply growing the economy will not be enough. Be insistent that they offer significant specific spending cuts.

One thing I noticed tonight is that Newt Gingrich was far more cordial towards Ron Paul. I think he is realizing that he may need some Paul supporters if he were to win the nomination. While the two acknowledged that their foreign policies are radically different, I think Paul needs to make sure everyone is aware that their fiscal policies are radically different too. Gingrich is not for small government in any way and people need to be made aware of this fact.

Results from South Carolina

2012-01-21T22:28:00.000-05:00

Most of the results are in from South Carolina as I write this. Gingrich won overwhelmingly (although still without a majority). Romney took second and Santorum took third. Paul took fourth with about 13% of the vote.

This might be seen as somewhat of a disappointment to Ron Paul fans out there. However, you should consider that the vote totals out of South Carolina are considerably better than 4 years ago when he received less than 4%.

South Carolina is a southern conservative state. For some reason, many southern conservative Christians who stress morality don't seem to be bothered when foreigners are killed. Perhaps they don't think in these terms, but for some reason, they are unable to see the incredibly immoral wars that the U.S. government starts for what they are. Surprisingly, it looks like many of the self-identified Christian conservatives in South Carolina were not bothered by Gingrich's past of infidelity and divorce.

The trend continues (by looking at the exit polls) that older voters tend to support Mitt Romney. The middle-aged voters go more for Gingrich and Santorum. The younger voters go overwhelmingly for Ron Paul. This is highly encouraging for the future.

Another interesting thing from the exit polls is that those making over $200,000 are far less likely to support Ron Paul than those who are low or middle income. While Ron Paul says he would like to eventually have a zero percent rate for income taxes (which would directly benefit the high income earners), he obviously gains support from young people because they understand it is in their own self interest and also because they understand the morality of allowing people to be free.

Ron Paul is unlikely to do well in Florida. He is not campaigning much there and the population is tilted towards older people. But then will come Nevada (where he could win) and some other caucus states. He will continue to try to collect as many delegates as possible.

While Rick Santorum will probably stay in the race, it looks like his chances are very low at this point. This is really a three-way race between Romney, Gingrich, and Paul. I am not delusional. Romney is still the heavy favorite to be the Republican nominee. But you never know what might happen. Perhaps there will be a major stock market crash or some other big financial event that draws people to pay more attention to Ron Paul.

Regardless of what happens, libertarians should stay positive. These results are extraordinarily better than 4 years ago. The young people are moving in our direction, which is very important. While anyone can change their mind, I would venture to guess that most young people who are dedicated Ron Paul supporters today are not going to become less libertarian as time goes on.

Monetary Inflation vs. Price Inflation

2012-01-19T22:55:00.000-05:00

When most people use the term inflation, they are referring to prices. The definition has changed over the years. In the distant past, inflation meant an increase in the supply of money. Rising prices was just the result of inflation (an increase in the money supply). When I use the term inflation, I generally try to distinguish the two when it is necessary.

The big question these days is why there is such a big difference between monetary inflation and price inflation. Since the fall of 2008, the adjusted monetary base has more than tripled. Yet, consumer prices have only been going up a couple of percentage points per year. Price inflation has been relatively mild, particularly when it is measured against monetary inflation.

I believe there are two main reasons for the big disparity. First, most of the new money that has been created since 2008 has gone into the commercial banks and is being held as excess reserves. This new money is not being loaned out (probably due to major problems and fears that the banks have). This has prevented prices from multiplying due to fractional reserve lending.

The second reason is the velocity of money. It actually amazes me how little attention this subject gets. Even most Austrian school economists do not discuss this topic, even though it is a major player. While I'm sure there are many people out there who discuss it, the only person I know of who discusses this topic frequently is Richard Maybury.

Velocity is the speed at which money changes hands. Since the fall of 2008, there are a lot of fearful Americans. Unemployment is high and the economy has been weak. People are uncertain about the future. A lot of people have stopped spending as much as they previously did. More people are paying down debt and saving some extra money for a rainy day. There is a higher demand for money. In other words, money is changing hands less frequently. Velocity is low compared to what it was.

This low velocity means that people are not bidding up prices as much. This has a counter effect on monetary inflation. The low velocity of money acts as a deflationary force on prices.

Velocity is psychological and is therefore very difficult to measure and to predict. Velocity is dependent on the mood of people. If people are frightened and uncertain, they are more likely to have a higher demand for cash. The one exception to this is if people perceive that monetary inflation and debt are getting out of control. If people have a perception that prices are going to go up fast in the near future, they are more likely to buy things so that their money is not devalued. This money would have a tendency to go into hard assets and bid up those prices faster.

In conclusion, just because there is high monetary inflation, it does not necessarily translate into high price inflation. There is a time lag and there is the issue of excess reserves. However, the biggest issue is velocity. If you can read the general mood of the people, then you will have a better chance of predicting where prices will go.

The Presidential Election and Your Investments

2012-01-18T22:13:00.000-05:00

I have been writing about the Republican presidential race quite a bit, particularly since Ron Paul is making big waves and drawing a lot of attention. This blog is "Libertarian Investments" and I have been paying a little less attention to the economy and investments due to my extra attention on politics. Today, I am going to try to tie together the issues.

So what does the presidential race mean for the economy and your investments?

First, let's talk probability. Even though Ron Paul is doing really well, his chances are still relatively low for actually winning the presidency. Right now, I would give Obama an almost 50% chance of being re-elected. Since Romney has the best chance of being the Republican nominee, I would give him about a 40% chance of being elected president. The remaining 10% goes to Ron Paul, Newt Gingrich, or some wild card in the case of an unexpected event or late entrant.

If Obama, Romney, Gingrich, or anyone else other than Ron Paul wins the election, I don't see much short-term change. (I am assuming that a third-party candidate does not win.) There really won't be much of a difference between Romney and Obama. Romney will, of course, pander to his Republican base more, but the policies won't be much different.

Gingrich or Santorum might actually be worse if they are crazy enough to start a major war with Iran. But then again, Romney or Obama might be just as crazy. Who would have thought in 2000 that George W. Bush would start 2 major wars and be a huge spender? It is hard to imagine now that Al Gore would have been any worse. If Gore had been elected (or had won a recount), it might have been better with more opposition to big government policies coming from the Republican side.

If Ron Paul somehow manages to get the Republican nomination and go on to win the presidency, then that would be the one scenario that changes everything. It would mean an end to the wars. It would probably mean a drastic cut in spending. While the Congress has to pass the spending bills, a President Paul could veto anything and force a super majority to pass spending bills. In addition, just by him being elected, it would mean a major shift in the attitude of the country. It would mean there would be massive pressure on Congress to drastically scale back government.

So what would a President Paul mean for your investments? It would probably mean a quick and deep recession to start off. This would be the cleansing needed. It would mean a return to prosperity. Ironically, the one investment that would probably do really poorly would be gold, along with other commodities. The Fed would be in hiding mode and would hopefully stop the high monetary inflation. The initial deep recession would drive down asset prices. Oil would also likely go down, depending on what happens in the Middle East when U.S. troops head home.

There could be some analogies with the 1980's when Reagan became president. But interest rates and price inflation were really high when Reagan was inaugurated and the Fed had already started tightening. Of course, Ron Paul would be a completely different president than Reagan because his policies would match his words. Reagan talked a good game about small government, but did not actually implement much to reflect this.

If Ron Paul is not elected, then it would be wise to continue defensive positions with an emphasis on inflation hedges such as gold and oil. We can count on more war, more big spending, and more monetary inflation.

I am a long-term optimist, particularly now with all of the support pouring out for Ron Paul from young people. But regardless of who is elected next November, there will be short-term pain. It is almost unavoidable due to the huge spending and huge monetary inflation that has already taken place. The best we can hope for at this point is for the attitude of the overall population to continue to head in the direction of liberty. We can deal with some short-term pain if we have something to look forward to in the future.

Republicans in South Carolina

2012-01-17T20:45:00.000-05:00

The Republican race has moved to South Carolina. There was a debate last night (Monday) and there will be another one on Thursday. The voting will be on Saturday.

The Monday night debate was bizarre. There were definitely a lot of attacks on Mitt Romney. With there only being five candidates left on stage, you would think that the candidates would get a lot of time and a lot could be revealed in two hours. But we are talking about Fox News. While perhaps not as bad as CBS and PBS, they still only managed to ask one question to Ron Paul in the first 35 minutes of the debate.

The crowd was also rowdy with a lot of cheers and boos. It was mostly annoying.

It was also annoying when Ron Paul was asked about the killing of Osama bin Laden. He was trying to answer, but he kept getting interrupted. But the interruptions were not from the other candidates. They were coming from the Fox News moderators of the debate. Paul made a comparison to Saddam Hussein, saying that he was captured and at least had some kind of a trial. Paul was interrupted by Bret Baier (with his smugness) telling Paul that he didn't support the Iraq War. Hey Baier, you moron, that wasn't his point. That is a different subject. You can't understand that Paul was just saying that bin Laden could have been captured without being killed (if that is what actually happened)?

Then there was the topic of the National Defense Authorization Act (NDAA) which has provisions which suggest that American citizens on American soil can be detained for terrorist activity by the military and be detained indefinitely without trial. While I find it just as outrageous that it is done to foreigners, this is obviously a horrible law.

Romney said that he supported the NDAA and that he expects Obama will not abuse it and he said that he will not abuse it as president. Romney basically said that the legislation is ok because Americans can trust him and Obama not to abuse any power. Hey Romney, if that is the case, then why not just advocate repealing it? Even the crazy Santorum couldn't defend this thing.

One of the things that Harry Browne liked to point out was a quote by Michael Cloud. He said that the abuse of power is not the problem. The problem is the power to abuse. This goes to the whole point here. The NDAA may not be used for any bad purposes for the next decade, but it is putting in place a power that will eventually be used by bad politicians for bad purposes.

Should we just give Romney power because he says that we can trust him? Romney's answer to that one question completely disqualifies him for being president (in case you had any doubt). If he thinks that is the way government should operate, then it shows that he himself is a total thug who should never be trusted with any power at all (not that I would really trust anyone with power over others).

There was some entertaining back-and-forth between Paul and Santorum. When Paul was asked about running negative ads, it was funny to hear him say that he wished he could have had longer than a minute in his commercial to expose all of the big government policies that Santorum had supported.

Then there was a bizarre exchange on gun control. Santorum said that he supported federal gun control legislation as a "compromise". Yeah, that's exactly what we need in the White House.

Then Santorum accused Ron Paul of being anti-2nd amendment because he did not support a law protecting manufacturers from lawsuits. Paul explained that it was a jurisdiction issue. He explained that tort law like this should be handled at a state level. So Santorum ignored everything he said and repeated his claim that Paul is against the 2nd amendment. Santorum was either demagoguing the issue or he is simply too dumb to understand Paul's position on this.

Overall, I don't think many minds were changed on Monday night. People who love Paul will still love him. Most of those who don't like him will probably continue to not like him after last night.

While I think Gingrich is full of it, I think he had a stronger appeal than Santorum in the debate. For that, I think Gingrich will emerge as the third candidate. I had been leaving the door open for Perry because it is harder to criticize his record and because he has had significant financial backing. However, it turns out that Perry is a complete moron who debates about as well as the last president from Texas.

My prediction for South Carolina is that Perry finishes last and drops out of the race. Santorum will not be far behind. Then we will have a three-way race between Romney, Paul and Gingrich. Stay tuned.

More on the Debt and Future Generations

2012-01-16T12:13:00.000-05:00

Last week, I wrote a post on Robert Murphy (who I regard highly) and his discussions on the national debt. I may have a rare disagreement with Murphy on this topic and I wanted to add a few points to this.

Murphy gave an example of consuming apples. He was trying to show that future generations pay for the excesses of current generations. But the last person on the chart was really just paying at the expense of the person right before.

The interesting thing about the example is that you could not save any apples for the future. If you could, that may have actually given a better argument for Murphy to use. If there is only a given amount of wealth at one particular time and it doesn't even have the potential to increase over time, how can one generation benefit at the expense of another generation unless it is two generations that live during the same time?

If you can't carry any wealth into the future, then how can someone living in the year 1900 consume something at the expense of someone living in the year 2000?

Murphy's example is like a Ponzi scheme. You will only enter into it if you think you can sucker the next group of people behind you into it. If someone (in this case a whole generation) says "no", then the scheme is over and the last people to buy into it are the losers.

What would happen if the U.S. government just defaulted on the whole national debt right now? Would we still say that future generations would have to pay for the debt? If there is a default, then no future person has to pay anything. It is the people currently holding the bonds who have to pay. They were the last suckers to pay up who couldn't get another buyer behind them. It is like people who bought real estate in 2006 in a hot market. It came to a point where they could not find one more person after them to buy the house at a still higher price.

As I said in the last post, Murphy's original instincts were correct. The national debt does place a burden on future generations, but not because they necessarily have to pay for anything. The burden is placed on them because there is less development in technology and capital investment than if there had been no national debt.

The real problem with the huge national debt is the massive government spending. If the government could not borrow all of this money (or create it out of thin air with the Fed), then it would be forced to cut back spending. Government spending automatically misallocates resources. This misallocation leads to less growth and less advancement, and that is where future generations "pay".

The national debt hurts us right here and right now. The massive government spending is one of the reasons for the high unemployment and weak economy. It misallocates resources and it is preventing a proper correction of the previously misallocated resources. It is taking capital away from the free market economy.

We should worry about the national debt and government spending. We should not just worry about it because of our future grandchildren, we should worry about it because of everyone living right now.

Rick Perry and His Campaign Are Not That Bright

2012-01-14T12:28:00.000-05:00

When Rick Perry entered the presidential race, he was instantly the front runner. Then he had to show up at the debates. He stumbled a bit and the other candidates beat up on him and his record (and rightly so in most cases). Some of his not-so-conservative record from Texas was exposed. He also has the problem of a Texas swagger and a Texas accent that remind people of George W. Bush. Bush is not all that popular these days, even in the Republican Party.

Even though he fell dramatically in the polls, I still thought he had a chance to recover. He raised a lot of money and still had a significant backing.

He should have hired me as his campaign manager (or someone like me because I wouldn't have worked for the man because he is horrible and I am a Ron Paul supporter). Nobody can turn him into a great debater, but if he had been given some good advice and taken it, he could have made a comeback.

This is what Perry should have said in the last couple of debates in New Hampshire. It is also what he should say in the upcoming debates, but probably won't. He should say something like the following:

"If you like Ron Paul on domestic issues, then I am with you. I agree with Ron Paul that we need to start eliminating departments and making big budget cuts. As far as economic issues go, I am the closest one here to Ron Paul. But I know some of you disagree with Ron Paul on foreign policy. I don't agree with him either. I believe we need a military presence in the world to defend our vital interests. If you are looking for the anti-Romney candidate, I am your man. I agree with Romney to a great extent on foreign policy. I do not agree with his economic agenda of Romneycare and keeping the status quo in Washington DC. I am the best parts of Romney and Paul put together. For all of you Tea Party conservatives out there who want a real fiscal conservative who is strong on national defense, please consider supporting my campaign."

Some of this would be a lie. He really isn't close to Ron Paul on domestic issues. But saying all of that would attract a lot of people in the Republican Party who are not Ron Paul supporters and who are uncomfortable with Romney (which is almost half the party).

Instead, Perry used the last couple of debates to say he would march back into Iraq and that we shouldn't support Romney because he broke apart companies. He also said that everyone else was an insider, including Ron Paul. Have you ever heard such a ridiculous claim in your life?

Perry has continually messed up. He coulda' been a contender.

I am glad that Perry and much of his campaign staff are a bunch of fools. He would have been a horrible president and he would have given fiscal conservatism a bad name. At least with Obama messing things up, nobody can seriously claim that it is the fault of his capitalist policies.

U.S. Economic Outlook for 2012

2012-01-12T20:58:00.000-05:00

Today, I am going to sum up my economic outlook for 2012 (from a libertarian perspective of course). While I don't like to make specific predictions, I do want to lay out some possibilities.

Nobody really knows what will happen with Europe. Can the bureaucrats keep kicking the can down the road for a while longer? Will Greece break apart from the European Union? Will Greece decide to default on all of their debt? Will any major European banks go under? Will the European Central Bank bail out the major banks? Will the Federal Reserve bail out major European banks?

These are all questions that are impossible to answer right now. But even if there is a big event, the U.S. economy has seemed fairly immune. There might be blips in the stock market. There might be some fleeing from the Euro (which has actually helped the U.S. dollar). But until something major happens there, it seems that the U.S. is on its own clock.

I still see a major fight right now between the forces of inflation and recession (or depression). The Federal Reserve has tripled the adjusted monetary base since late 2008. While prices are certainly going up at the grocery store, it is mild compared to what it could be. Price inflation has been quite tame considering the massive monetary inflation.

I see two major reasons that price inflation has remained in check. First, most of the new money created by the Fed has gone into banks and held as excess reserves. The banks have not used fractional reserve banking for this new money. Second, the depressed economy has led to a high demand for money. Another way of saying this is that velocity is low. The speed at which money changes hands has been slow. People are uncertain about the economy and have cut back on their spending. They are trying to pay down debt and build up cash balances. This has had the equivalent effect of keeping prices down.

Regardless of the two points above, the monetary base has still tripled and it is almost impossible to keep prices down at this point. Perhaps they could stay down in the electronic industry where technology is increasing at an exponential rate. Perhaps housing prices will stay down due to the previous bubble. But in most sectors, that money is going to leak out and cause price inflation.

In 2012, it would not surprise me to see a mini-boom occur. This would be an artificial boom. We have already seen stocks do well, with the Dow around 12,500. This could very well be because of hot money. Perhaps this is the first sign of money leaking into the system from QE2.

On the other hand, the Fed has been tight with new money since QE2 ended over 6 months ago. With the adjusted monetary base being basically flat since then, we could see the economy tip the other way and head into another recession. At that point, we would probably just see more money creation.

While I am bullish on gold for the longer term (5 or more years), I am more uncertain in the short term. If we see a mini-boom cycle, then gold will most likely go much higher. If we see the return of a recession, then I expect gold to go lower, at least until more money printing is announced.

Either way, there is more pain to come with the economy. Even if we have a mini-boom cycle, it will eventually turn into severe price inflation or it will turn into a market crash.

There has been severe malinvestment in the economy. The interference of the Fed and the federal government has caused huge distortions. These were not allowed to correct in 2008 and after. It has been made worse. The market economy is trying to sort things out and properly reallocate resources, but the crazy laws and crazy monetary policy are not allowing it to happen.

Prepare for a continued roller coaster.

Judge Napolitano on the 14th Amendment

2012-01-11T20:46:00.000-05:00

Judge Andrew Napolitano, the host of Freedom Watch, was a guest on Jon Stewart's show (link is via LewRockwell.com). I am a fan of Judge Napolitano, but I occasionally have my disagreements with him.

At about 3:25 into the video, Jon Stewart asks Napolitano about states' rights. Stewart says, "The federal government cannot infringe on your freedoms. But apparently if the states do it, yeah, it's ok." Napolitano answers Stewart by citing the 14th amendment, saying that it made the Bill of Rights apply to the states.

I'm not sure why, but Napolitano kept talking about how Republicans stand on the issue. He should have been talking about libertarians, especially when Stewart framed the question that way.

I am not sure where to start on this, but I strongly disagree with Napolitano (and Stewart) in many ways.

First, I think the 14th amendment is a terrible amendment overall. It was another thing done by the federal government to centralize power. Perhaps there were good intentions with it, just as there were with the Civil Rights Act of 1964. Perhaps portions of it were good. But overall, it centralized power, regardless of the intentions (although I'm sure not all intentions were pure).

Napolitano says that the 14th amendment made the Bill of Rights apply to the states. But that is just the way it has been interpreted by many courts, mostly to centralize power. It is open to interpretation. Many of the people who supported the 14th amendment did not intend for that to be its purpose.

Second, even if Judge Napolitano were completely correct about the amendment applying the Bill of Rights to the states, that still doesn't answer the question. Romneycare in Massachusetts has nothing to do with the Bill of Rights. Go through the first 10 amendments. There is nothing about healthcare. It doesn't say "Congress shall make no law regarding healthcare." Just on that alone, his argument fails.

Third, he really doesn't answer the question in regards to jurisdiction. Just because you don't think the federal government has the authority to do something, it doesn't mean that you have to agree or disagree with it. I don't think the federal government or U.S. Supreme Court should strike down Romneycare in Massachusetts, but that doesn't mean that I think it is good policy. I also don't like it when the Chinese government infringes on property rights and freedom of speech in China, but that doesn't mean I want the U.S. government to tell the Chinese government what to do.

It is hard to believe that a libertarian judge could not address the issue of jurisdiction (as well as decentralization) in regards to this question. There are a lot of things that state and city governments do that I don't agree with, but it doesn't mean that I think the federal government should do anything about it, even if it were seemingly good.

In conclusion, I am still a fan of Freedom Watch and Judge Napolitano, but I am disappointed with his answer on states' rights.

New Hampshire Results and Ron Paul

2012-01-10T22:33:00.000-05:00

As I write this, the results are not final, but it is evident that Mitt Romney will win the New Hampshire primary. Ron Paul will easily take second. Jon Huntsman is third. Gingrich and Santorum are essentially tied for fourth. Perry gets last.

The two winners tonight are clearly Romney and Paul. Huntsman certainly had a good showing, but it is hard to imagine him surging at this point, particularly with South Carolina being next.

The voters have somewhat soured on Gingrich and Santorum. Everyone is talking about who the anti-Romney will be, but it doesn't look like either one of them at this point. Ron Paul is truly the anti-Romney, both in principle and in politics. Gingrich and Santorum are just as much pro big government as Romney and the voters are starting to figure this out. They just have some small government rhetoric that Romney doesn't have.

Ron Paul is clearly the most likely person to challenge Romney at this point. South Carolina will determine a lot. Santorum, Gingrich, and Perry will be fighting it out just to stay alive.

The Paul campaign has basically said that they do not plan on spending a lot of money in Florida. I think this is a wise move. It lowers expectations there. Paul is not likely to win Florida and the size of the state does not make it worth it. He will focus on the smaller caucus states where he can win and also win significant numbers of delegates. He certainly has a great chance at taking Nevada and some of the midwestern states.

Everyone is wondering why Paul has not gone on the attack against Romney the way he has against many of the other candidates. I think one reason is, just as mentioned above, some of the other candidates pretend that they are these great fiscal conservatives and many people buy it. Paul is simply exposing them for what they are. When Romney talks about fiscal conservatism, nobody really believes him. He has the backing of the establishment and Paul probably figures that he can more easily persuade people who are falling for Gingrich or Santorum.

To put this in context, Ron Paul received less than 8% in New Hampshire 4 years ago. Paul and the entire libertarian movement have made great progress in such a short time span. We should continue to be optimistic about the long-term future for liberty in America.

Robert Murphy on Krugman and the Debt

2012-01-09T18:46:00.000-05:00

If you read Robert Murphy's blog, he has had several posts on this one particular topic. Paul Krugman originally made a claim that, essentially, the national debt does not matter because we owe it to ourselves. Krugman does not think that increasing the national debt leaves a burden to our children. Murphy was ready to defend Krugman in the sense that future generations do not actually pay off the national debt in terms of real wealth. But then Murphy listened to a couple of people and had a revelation. He now believes that future generations do pay for the debts being run up now.

In one of his latest posts (last time I checked), Murphy uses an example of consuming apples. He assumes that, on average, a person can only consume 100 apples when they are young and 100 apples when they are old. People can not save apples and use them in the future for their old age. The number of apples don't grow. If someone consumes more than his share of 100 apples, then this is at the expense of someone else.

Murphy comes to the conclusion that future generations do pay for debts run up now.

I am not sure I completely agree with his assessment on this, unless I am misunderstanding something (which is possible because I have a high regard for Murphy as an economist).

I think a better analogy for the apples is the Social Security program. If someone does not consume their full total of 100 apples in their young age, they expect to get more than 100 in their old age. But this is a Ponzi scheme. The first participants in the Social Security program received more than they originally put in. At some point, somebody is going to have to get less than what they originally put in.

The last person in Murphy's chart is the loser (Iris). That person did not get to consume 100 apples while younger, but did not gain anything in old age.

But that person is not really paying off a national debt. That young person was paying for someone else's excesses. Basically, every generation depends on the next generation to keep the system going. Once a generation says "no" or is simply unable to pay, then the generation before them will take the greatest loss.

The last person (both young and old) in Murphy's chart (Iris) could have said "no" and not paid in her younger years. This would have stiffed the second-to-last person on the chart (Hank). If the second to last person on the chart had said "no" during his younger years, then it would have been the person just above him who would have taken a loss. You can backtrack all the way up the chart.

The people who are getting stiffed the most right now from the national debt are the people who are working and paying taxes (or those holding money and having it devalued through inflation), but not receiving the benefits now or in the future. They are giving up extra capital right now to pay for the national debt, but they will not receive that same amount of capital in return (not even including interest).

Now there is one way that future generations pay and Murphy already identified this in a previous book he had written. With a higher national debt, the government is spending more and thus misallocating resources more. This causes less savings, less investment, and less capital accumulation over time. It leads to less technology being developed. This all hurts future generations.

If the U.S., along with the rest of the world, had been socialist over the last couple hundred years, then we probably wouldn't have many great things that we take for granted today. We wouldn't have big televisions and cell phones. We certainly wouldn't have iPads and digital cameras. If things were really bad, we might not have air conditioning or even electricity.

In a society with strong property rights and relative free markets, there is economic growth that compounds over time. Future generations benefit enormously from this. In that sense, our future grandchildren are paying for the current national debt because of our lack of savings and capital investment today.

In conclusion, I'm not sure if I have a disagreement here with Murphy or not. The last person on his chart certainly did pay at the expense of others. But it was done in the younger years. With Social Security, at some point the younger generation is going to say "no" to the older generation. They will decide that they do not want to participate in the Ponzi scheme. They will not be the ones paying.

At any given time, there is a certain amount of wealth. Some of it can be saved and some of it cannot be saved (like milk) for the future. We cannot consume wealth that hasn't been produced yet. We cannot consume the vegetables that will be grown thirty years from now. What we can do is save less and invest less. This might mean that there is less good machinery in the future and that they might not be able to grow as many vegetables in the future or that it will require more labor to grow vegetables than if there had been more capital investment.

I think Murphy's original instinct was right.

New Hampshire Debates and Primary

2012-01-07T13:49:00.001-05:00

There are two New Hampshire debates for the remaining Republican candidates. One is tonight and one is tomorrow morning on Meet the Press. If you are reading this, they may have already happened. Then the big primary will happen on Tuesday.

I usually provide commentary after a debate. I am doing it in reverse this time. Personally, I will be flipping back and forth between the debate and football tonight. I suspect there will be millions of others doing the same. The Sunday morning debate may end up with higher ratings. I will watch all of the Ron Paul clips on Youtube, just to make sure I didn't miss anything.

If there is anything significant or game-changing in either debates, I will post an update on this post. I expect that things will be similar to past debates.

I expect Romney will easily win the New Hampshire vote. Ron Paul will probably take second, but it is possible that Jon Huntsman may slip in there. It will actually be more significant to see how Gingrich, Santorum, and Perry finish compared to each other.

Do you know who the biggest loser in the Republican primaries is right now? The answer is Tim Pawlenty. Does anyone remember him? He was the governor of Minnesota. He was in the early debates. He dropped out after finishing third in the Iowa straw poll back in August. Bachmann was first and Paul was second. It obviously meant very little, since Bachmann plummeted right after that. Just about every candidate has had their day in the sun now. Pawlenty may have gone up in the polls just by default at this point.

Perry made a good choice in not following in Pawlenty's footsteps and not dropping out too early. Michele Bachmann was done after Iowa (that was supposed to be her state) and she made a good choice dropping out. Perry gave a head fake that he might quit, but he has decided to press on. I think Perry still has a good chance of doing well. If I were betting on Intrade, I would put my money on him, given the odds. I think Romney is the favorite to win, but Perry is being written off by too many. Let me explain further.

The Tea Party people, who do not agree with Ron Paul on foreign policy, are still looking for their anti-Romney candidate. They have given an opportunity to Bachmann, Perry, Cain, and Gingrich. The more they found out about these candidates, the less they liked them. Now Santorum is the flavor of the month.

They are going to like Santorum even less. He cannot beat Obama. He wants to shove his religion down other people's throats. He has a horrible record of supporting big-government Bush policies. He supported raising the debt ceiling numerous times. He supported expanding federal education. He supported the Medicare prescription drug plan. He also supported Arlen Specter (an outspoken supporter of big government). I can promise that Santorum will not be the Republican nominee. If for some reason I'm wrong, Obama will have a walk in the park.

So where are Tea Party people going to turn? Some will go to Ron Paul if they can accept his anti-war views. A few will go to Romney, only because they think he can beat Obama. But a lot of people who call themselves conservatives are still looking for an anti-Romney candidate. They should support Paul, but they are too militaristic.

This leaves Perry. His record is not as bad. Santorum and Gingrich have many years of votes in Washington DC. Perry's record is all around state politics. Perry also has money. While he has not been good in debates, he seems to be more likable than Santorum and Gingrich, at least for independents. I think he could still emerge as the anti-Romney and anti-Paul candidate, if he stays in it long enough.

I still believe this is a three-person race. I'm just not sure who the third person is yet. Romney and Paul are going to the end. I think Perry may emerge as the third person. If not, it will be a toss up between Santorum and Gingrich for the third slot.

UPDATE: Ron Paul took Gingrich and Santorum to school, particularly in the Saturday night debate. Where will the pro-war tea party people (a bit of a contradiction) turn to now?

James Altucher on the Economy

2012-01-05T20:27:00.000-05:00

James Altucher is bullish on the economy in 2012, according to one of his recent posts. If you haven't read him yet, I would certainly recommend reading some of Altucher's material. I sometimes don't agree with him (and I'm sure most others feel the same), but he is good at stimulating the mind. If you feel stuck in life or if you are feeling depressed, reading some of Altucher's material might help you get out of your funk.

So Altucher is bullish on the economy for this year. I am not as optimistic. The Fed has tripled the monetary base in just over the last three years and the federal government has accumulated almost $5 trillion in new debt over that same time. Things were really bad under Bush and (at least economically) they are actually worse now. The Fed and the governments have not allowed a correction to take place from the previous bubbles they created. Instead, they have delayed the correction by continuing and adding to the malinvestment.

While I'm not bullish on the economy, there is a possibility that we go through a mini boom cycle this year, due to the loose monetary policy of the Fed, along with the low interest rates and big government spending. While I think things could tip either way, it wouldn't surprise me to see the stock market continue to do well for a while longer. A mini boom might make things appear like they are better than they really are.

While I'm not bullish on the economy as a whole right now, there are some positive things. Altucher does a good job of pointing out some of these positives. I will discuss some of his points.

On housing, I'm not sure how much inventories are really down because there are still a lot of houses owned by banks. However, new housing has slowed down considerably and this is actually good news. This will allow the remaining inventory to clear and it is necessary to set the stage for a rational housing market. Prices went up way too fast in the early to mid 2000's and they have gone down way too fast in the last 5 years. We need a normal housing market where prices are somewhat stable and just going up with the inflation rate (although that isn't always that stable).

On corporate profits, I wouldn't get too excited. Things can change quite quickly. We saw that in 2008.

On corporate cash, I think you can look at this two ways. The reason that businesses have so much cash sitting around is because they are still scared about the economic environment and they don't want to grow and take risk right now. On the other hand, it is good because it is a form of savings and it means that businesses are not going into debt as much.

Consumer spending can be good or bad. It may be a good sign that people are feeling more comfortable with their financial situation and feel like they can spend a little more now. It may be bad in the sense that people are being duped into thinking their financial situation is better than it really is because of the low interest rates and loose money. People felt good and were spending money like crazy back in 2005.

Household debt is down and that is a good thing. Households manage their debt much better than government. Less debt and increased savings are necessary for economic growth.

On Europe, it is a mess and it will have its effects in the U.S. We should also pay attention to what is happening in Europe as it could be a sign of what is to come here.

Altucher mentions bank cash and says that the Fed never should have done QE2. But this is a reason to be bearish. If the bank releases all of those reserves, it might be good news for a few of the people who see the money first. For most people, it will mean much higher prices at the grocery store and gas pump.

On his last item, he mentions technology. I completely agree that this a reason for optimism. I don't think it will be enough to overcome the huge barriers put in place by the government. But the major advances in technology have made our lives better and it will continue to be that way. Technology will help us overcome many obstacles in the near future.

In conclusion, I am not bullish on the economy like James Altucher. I am somewhat pessimistic because of all of the distortions caused by the government and Fed. However, there are reasons for optimism and I think he got some of these right. Altucher needs to learn some Austrian economics. However, Austrians should also listen to Altucher, as not everything is doom and gloom.

Is Thomas Sowell a Libertarian?

2012-01-04T21:39:00.000-05:00

According to Thomas Sowell's latest article that I read, he is certainly not a libertarian. He is far from it. I never really thought that he was a libertarian, but some people classify him this way. He is certainly good on some economic issues and he is a great writer when he is thinking straight. Unfortunately, he does not always think straight as shown by this article from December 29, 2011.

Sowell talks about the Republican candidates. He is not all that satisfied with the current crop.

Sowell says, "Some voters, whether Democrats, Republicans or independents, treat elections as occasions to vent their emotions, rather than as a process to pick someone into whose hands to place the fate of the nation."

He continues, "People who think this way tend to vote for someone they just happen to like, whether for personal or ideological reasons, and regardless of whether that candidate has any realistic chance of being elected."

Then he goes after Ron Paul and his supporters. He says, "The surprising support in the polls for Congressman Ron Paul seems to be of this sort. But does anyone seriously want to put the fate of this nation in the hands of a man who can casually brush aside the danger of nuclear weapons in the hands of Iran, the world's leading sponsor of international terrorism?"

Sowell goes on to give his support for Newt Gingrich. He concludes, "With all his shortcomings, his record shows that he knows how to get the job done in Washington."

Sometimes I try to be sympathetic towards people. Most people are not libertarians when they are kids. They usually have to go through a learning process. Sowell is certainly a bright guy on some things and even has some libertarian leanings on some things. But the guy is now 81 years old and has spent much of his life in the political arena. If he hasn't figured things out by now, I'm not counting on it happening at all.

I have always had this feeling about the man, whether listening to him or reading him, that he has a high opinion of himself. He accuses the liberals of being elitists, but he completely comes across as an elitist himself. He is full of himself.

So he first attacks Ron Paul supporters by saying that they vote for him because they just happen to like him. He criticizes them for supporting him "regardless of whether that candidate has any realistic chance of being elected." Then why are you supporting Gingrich, you moron? Ron Paul has a better chance against Obama than Gingrich. He also probably has a better chance at getting the Republican nomination. If we should just support whoever is electable as Sowell suggests, why don't we all just bow down to Romney?

Then Sowell goes after Paul directly saying that he "can casually brush aside the danger of nuclear weapons in the hands of Iran, the world's leading sponsor of international terrorism". Meanwhile, Sowell can casually brush aside the danger of putting Newt Gingrich in office who might be crazy enough to start a major war with a country of 70 million people and which controls a large supply of the planet's oil.

Sowell is 81 years old and he has understood for a long time that the government cannot centrally plan an economy (although I'm having my doubts with his support of big-government Gingrich), yet he thinks the U.S. government is great and perfect when it comes to foreign policy. No Sowell, the government couldn't possibly lie about anything to do with foreign policy.

And where does he come up with this part about Iran being the world's leading sponsor of international terrorism? Is he still getting his talking points from the Bush administration? I guess Iran has taken the place of Iraq and Afghanistan.

Sowell is an elitist and a moron. He is 81 and he thinks Newt Gingrich is our best choice. Sowell was an apologist for Bush for 8 years. He does not care or does not consider the lives of foreigners. It does not matter to him if innocent Iranians die. It did not matter to him that hundreds of thousands of Iraqis died.

If Sowell is so pumped up for another war, maybe he should go to the battlefield. Oh wait, he is part of the elite club. The wise-one must stay in safety so that he can write his wonderful articles and play with chess pieces that are human lives.

Thomas Sowell is not a libertarian.

Analysis of the Results of the 2012 Iowa Caucuses

2012-01-03T23:35:00.000-05:00

It looks like Ron Paul will be in third place in the Iowa Caucuses. It is a strong third place, just a few percentage points behind Romney and Santorum, who finished in a virtual dead heat.

I have to take back one thing I said in one of my recent commentaries. I said that Ron Paul really needed to finish first or a strong second. However, the one surprise in Iowa for almost everyone is Rick Santorum. He came out of nowhere. If Gingrich or Perry had finished ahead of Paul, it would have hugely diminished Paul's chances. But for Santorum to finish ahead of him is a different story.

Iowa has a disproportionately higher percentage of evangelical Christians. This favors Santorum. It is why Mike Huckabee won Iowa four years ago. I believe Huckabee was a more viable candidate than Santorum is, and Huckabee didn't win the nomination. I don't think Santorum is going anywhere. He will quickly be exposed in the next few weeks. He was a Bush man. He voted for "No Child Left Behind". He voted to raise the debt ceiling many times. He voted for the Medicare prescription drug plan that added trillions of dollars to the unfunded liabilities. He supported the big-government politician Arlen Specter.

Santorum also does not appeal to the average independent. Obama could only be so lucky to face someone like Santorum. I would be shocked if Santorum won the Republican nomination.

Gingrich is almost done, although we can't quite eliminate him yet.

Perry did not have a good showing, but I still can't completely eliminate him yet. He has money and backing and if people turn sour on Santorum, they may move to Perry.

Bachmann can thankfully call it quits. Iowa is supposed to be one of her stronger states and she had a horrible showing. I am glad that the woman who has no doubts that Iran would use a nuclear weapon against Israel and the U.S. will not be the next president.

Huntsman is done unless Romney is caught in a major scandal.

This could end up being a two-person race with Paul and Romney. I was expecting a third person like Perry to emerge. The only person to emerge has been Santorum, who will be quickly taken down.

We will wait to see what happens in New Hampshire and beyond.

For Ron Paul supporters out there, don't be disappointed that he didn't win Iowa. He finished above 20%, which is far better than most people would have expected just a couple of months ago. Four years ago, it would have been unheard of.

The libertarian message is spreading, particularly to young people. There is reason for optimism.

Is the Laffer Curve Useful to Libertarians?

2012-01-02T14:18:00.000-05:00

The Laffer Curve is named after Arthur Laffer, who worked for the Reagan administration. I am not a huge fan of Art Laffer, especially after his embarrassing (afterwards) exchange with Peter Schiff. Laffer was calling Schiff crazy for saying that there was a bubble that would burst. While Laffer was certainly proven wrong on that one, he is not a dumb guy. He understands some economics and the graph named after him is an interesting topic.

So should libertarians/ followers of Austrian economics pay any attention to the Laffer Curve? I think it is useful in some ways, but not as the typical Republican uses it.

The Laffer Curve basically says that, at some point, if you raise taxes, it will actually lead to less tax collections by the government. The Laffer Curve does not claim to know where this point lies. It could be a 20% marginal tax rate or a 70% marginal tax rate or really almost anything else. Just by common sense, we can realize that it probably would not be a really low tax rate like 1% or a really high tax rate like 99%.

It is kind of ironic that Art Laffer is most famous for the Laffer Curve. It really isn't any great revelation. Unless you are a dedicated Democrat/ socialist who isn't willing to think with an open mind for one minute, then the Laffer Curve is mostly common sense. If you have a tax rate of 0%, then the government will not collect any money from that tax. If you have a tax rate of 100%, then the government will not collect much money from that tax either. There might be a moron or two who will actually work just so that every single dollar made can be handed over to the government, but it wouldn't be much. Most people are not going to work for free, especially if the government is the charity involved. Therefore, at a 100% tax rate, the government will barely collect anything at all. It will be almost zero.

Somewhere between 0% and 100% there will be a tax rate where tax collections will be maximized. If the rate goes higher than that point, then it will actually lead to less in the way of government tax collections even with the higher rate. This is because of human action. There is less incentive to work and the higher tax rates cause a slower economy and less growth.

Unfortunately, many Republicans have used the Laffer Curve to justify higher spending. They actually want to maximize the amount collected by government. They say that we need to grow our way out of debt and they imply that we can simply cut taxes and resolve the debt issues without addressing spending.

As a libertarian, I don't want the government to maximize tax collections. I want less taxes and less spending. The less of both, the better. I would ultimately like to see zero taxes, or at least zero involuntary taxes.

So while many of the Democratic politicians are stupid (or they think their constituents are stupid) for thinking that raising taxes will solve a debt and spending problem, the Republican politicians are just as stupid for implying that we can simply lower taxes without addressing spending.

Income tax rates were lowered during the Reagan administration. There were also other taxes that were raised. But after the recession ended, government tax collections went up quite a bit. The problem is that government spending went up even more and the debt grew during the 1980's. Lowering the highest tax rate from 70% to 28% did not lower the amount collected by government. This was the correct thing to do. In fact, it should have gone much further. But there was a major spending problem and there still is, of course.

In conclusion, I think the Laffer Curve is useful to libertarians in pointing out human action. It is a useful argument against Democrats who always seem to want to raise taxes. However, the Laffer Curve should never be used to deflect a spending problem. Spending is ultimately more important that the tax rates. Almost everything that is spent by the government is first obtained by taxes, inflation, or more debt. I want less spending, followed by lower taxes.

A Resolution for 2012

2011-12-31T08:50:00.001-05:00

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

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

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

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

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

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

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

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

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

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

Happy 2012!

The Republican Race is Down to Three

2011-12-29T15:07:00.000-05:00

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

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

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

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

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

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

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

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

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

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

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

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

Is Groupon a Good Stock to Own?

2011-12-28T14:52:00.000-05:00

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

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

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

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

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

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

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

Libertarian Thoughts on the Liberty Dollar

2011-12-27T18:20:00.001-05:00

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

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

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

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

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

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

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

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

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

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

Technology and the Advancement of Freedom

2011-12-26T19:54:00.001-05:00

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

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

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

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

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

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

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

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

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

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

Have Yourself a Merry and Free Christmas

2011-12-24T12:56:00.000-05:00

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

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

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

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

Some Libertarian Thoughts on Iowa and the Republican Candidates

2011-12-22T19:37:00.000-05:00

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

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

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

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

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

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

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

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

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

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

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

Is 2012 Finally the Year to Short Bonds?

2011-12-21T18:38:00.000-05:00

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

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

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

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

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

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

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

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

The Payroll Tax Cut Extension

2011-12-20T20:27:00.000-05:00

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

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

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

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

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

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

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

Kim Jong Il is Gone and the State is Not

2011-12-19T19:20:00.000-05:00

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

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

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

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

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

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

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

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

Christmas Shopping and the Economy

2011-12-17T16:29:00.000-05:00

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

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

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

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

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

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

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

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

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

Fox News Republican Debate in Iowa

2011-12-15T23:23:00.000-05:00

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

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

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

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

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

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

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

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

Major Gold Correction to End 2011

2011-12-14T21:39:00.000-05:00

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

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

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

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

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

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

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

Is Capitalism Dog Eat Dog?

2011-12-13T20:50:00.000-05:00

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

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

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

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

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

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

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

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

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

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

Associated Press Has Some Interesting "Facts"

2011-12-12T21:03:00.000-05:00

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

RON PAUL: "We have dumped the debt on the American people through TARP funding as well as the Federal Reserve. So the debt is dumped onto people. And what did we do? We bailed out the people that were benefiting during the formation of the bubble. So as long as we do that, we're not going to have economic growth."

THE FACTS: The $700 billion Troubled Asset Relief Program was proposed by President George W. Bush and passed by Congress in 2008 to help rescue banks and other imperiled financial institutions. Nearly all of the money has been paid back, with interest.

Most economists credit the program with keeping the financial system from freezing up and helping to prevent the worst recession in 30 years from becoming another Great Depression. The Federal Reserve does not operate on taxpayer money and does not receive any operating funds from the Treasury. In fact, it makes money every year from its banking operations, and turns over profits to the Treasury.

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

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

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

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

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

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

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

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

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

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

Iowa Republican Debate on ABC

2011-12-10T23:07:00.000-05:00

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

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

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

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

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

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

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

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

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

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

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

Monetary Base Indicates Recession

2011-12-08T21:25:00.000-05:00

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

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

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

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

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

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

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

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

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

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

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

Merkel and Sarkozy Come Up With a Plan

2011-12-07T18:11:00.000-05:00

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

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

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

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

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

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

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

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

It's the Spending Stupid

2011-12-06T21:26:00.000-05:00

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

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

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

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

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

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

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

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

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

Ron Paul vs. Donald Trump

2011-12-05T21:18:00.000-05:00

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

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

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

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

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

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

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

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

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

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

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

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

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

Collecting Pennies

2011-12-03T14:34:00.000-05:00

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

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

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

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

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

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

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

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

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

Payroll Tax Cut Extension and Jobs

2011-12-01T20:53:00.000-05:00

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

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

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

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

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

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

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

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

Bernanke and the Fed Hate Americans

2011-11-30T21:26:00.000-05:00

American taxpayers and holders of American dollars got the news today that they are getting ripped off again. Not that many people pay attention, but the Fed announced today that it will be providing liquidity for the European financial institutions. The stock market loved the news and soared.

It wasn't enough that the Fed bailed out American financial institutions in 2008. It wasn't enough that they subsidized foreign banks and foreign governments. Now they are doing it again. The Fed is acting as a lender to European banks. Americans and holders of American dollars (are you paying attention China?) are subsidizing European banks. In a sense, Americans are actually subsidizing the irresponsible European governments and their welfare recipients.

The main reason that the European banks are in so much trouble is because they stupidly bought government debt from countries like Greece and Italy. Now that these countries are on the verge of default, the banks in Europe are in major trouble. Here comes Helicopter Ben and the Fed to the rescue.

The Fed teamed up with the central banks of Europe, Canada, England, Switzerland, and Japan, although it is likely that it will be the American central bank that does most of the subsidizing. I guess Germany could not serve as the host any more. The parasites have to keep sucking the hosts dry before moving on to someone else.

While this might temporarily save the European banks, it kicks the can down the road again. It props up the profligate spending of countries like Greece. These countries should declare bankruptcy and they should be forced to dramatically cut back on their welfare states.

With the Fed essentially subsidizing loans to European institutions, it will once again harm the American economy. It is another misallocation of resources. The voluntary free market economy in the U.S. (at least what's left of it) is starving for capital and investment. With the Fed doing this move and others like it, it is hurting the overall savings pool. This hurts economic growth. In order for the economy to grow sustainably, there must be savings and the government/ Fed are not allowing this to happen.

Nothing should be a surprise any more. If there is one lesson from today, it is that the future is unpredictable. I continue to say that we can't predict the economy and investments with any absolute certainty because the economy is made up of millions of people acting. In this case, the human action is just coming from a few elitist individuals who are affecting virtually the entire world economy.

As Ron Paul would say, "End the Fed."

November 29, 2011 Republican Presidential Update

2011-11-29T20:51:00.000-05:00

Since it is political season and a great libertarian happens to be running for president, I am spending a little more time than usual on here discussing politics, rather than purely economic and investment issues. With that said, here is a little report card on what is happening.

Herman Cain is just about done. A woman has come out saying that Cain had an affair with her for 13 years. While Cain originally denied it, his lawyer was a little less convincing with his statement. The latest report is that Cain is reassessing his run for the presidency. By the time you read this post, perhaps he will be done.

As I have said several times before, Cain is a jerk and he is a moron. People could not see the first part about him before. They were starting to see that he wasn't that bright. Just watch this video on his discussion about abortion with John Stossel.

Rick Santorum has no chance, and for good reason.

Jon Huntsman has almost no chance. If Romney weren't in this race, he might have a shot as the establishment favorite. But I just don't see Huntsman going anywhere right now. I am not 100% writing him off, but I am 99% writing him off at this point.

The same can be said for Michele Bachmann. I am mostly writing her off at this point. While I despise her foreign policy, I understand that many Republicans do not. She can also be quite articulate on economic matters. The problem for her is that people don't think she can beat Obama. She doesn't have as much money as the other top candidates and she can't seem to get people excited the way she did 6 months ago.

That leaves four people: Mitt Romney, Newt Gingrich, Rick Perry, and Ron Paul.

Perry keeps sticking his foot in his mouth over and over again. He also sounds too much like Bush (the accent). I think people want to like him, but they don't think anyone else will. While I think Perry is a fraud and he was exposed early on in the debates for his big government policies on several things, he is still going to have an appeal to many Republicans. He still has a lot of money. While he is down, I am not counting him out yet. If Newt implodes, we may see Perry surge again.

I still think there is a good chance Newt will implode. He is a good debater. He is good at fooling people. But with the internet, there are certain things he can't hide. He is also questioned by conservatives for his past personal history. He is also divisive, much like Hillary on the other side.

Romney is the establishment candidate. He is a pure politician. He will say whatever it takes to get elected. He does not have the personal problems that some of the other candidates have. He is a Mormon, but that will only bother a small number of religious conservatives in the primaries. He has not been able to break above 25%. So-called conservatives like Sean Hannity are hedging their bets. They are not coming out against Romney. They are being nice to him in anticipation that they will have to support him if he becomes the nominee.

Then there is Ron Paul. He is polling quite well in Iowa. He has to get at least second place (or within a percentage point of second place) to still have a shot at the Republican nomination. Actually, he really almost needs to win Iowa to get the momentum and the recognition. He needs to keep talking about foreign policy. As Tom Woods has said, nobody is going to be tricked into voting for Ron Paul. He needs to articulate his position the best he can and hope that he changes enough minds to give himself a chance. The good news is that he has quite a bit of money and his supporters are very dedicated. His poll numbers may or may not go up, but they will not likely go down.

Paul is not running for re-election in Congress. He can focus most of his attention on this race. He can stay in it until the end. I still don't know if he can win, but he is sure making things interesting.

Trouble in Pakistan

2011-11-28T21:23:00.000-05:00

Over the weekend, there were 24 Pakistani troops killed as the result of NATO bombings. It is not all that well known that the U.S. government is at war with Pakistan, at least in a sense. While the governments get along to a certain extent, the U.S. government has been bombing Pakistan and killing innocent people for a while now. While it isn't an outright occupation like we see in Afghanistan, it does tend to irritate the people living there.

Many of the facts of what happened over the weekend are still up in the air. Regardless of what happened, the incidence has angered a lot of Pakistanis. The government of Pakistan closed off supply routes that the U.S. military relies on to transport supplies into Afghanistan.

This whole situation is quite important as it relates to U.S. foreign policy. This can have a big effect on the economy, which can have a big effect on your investments.

While I don't claim to be an expert on foreign policy, I do know that these supply routes between Pakistan and Afghanistan are quite important to the U.S. military in its efforts in Afghanistan. If Pakistan keeps all routes closed, it will make it even more difficult to fight the war.

I see one of three scenarios happening from all of this.

The first scenario is that Pakistan takes a hard stand and does not let any American supplies cross borders. This makes it too difficult for the U.S. to fight a war in Afghanistan and the U.S. military pulls out.

The second scenario is that Pakistan takes a hard stand and the U.S. government retaliates by escalating the war in Pakistan. This scenario could be very dangerous.

The third scenario (and probably most likely) is that the Pakistani government talks tough against the U.S. and maybe even symbolically makes the war effort a little tougher for Americans. However, the Pakistani government, while talking tough, still does Washington DC's bidding (in secret) as the U.S. government continues to use bribes in an attempt to get what they want.

I am not making any big predictions on what will happen with Pakistan, but it is something to keep an eye on. It will have major effects on the overall foreign policy of the U.S. and it will eventually have economic effects one way or the other.

An Appeal to Morality

2011-11-26T13:09:00.001-05:00

Martin Luther King Jr. did not say, “I have a dream that one day we can join hands so that we can have greater economic growth.”

Rosa Parks did not take a seat in the front of the bus and say that others should be happy because the back of the bus is actually quieter and more enjoyable.

Thomas Jefferson did not start out the Declaration of Independence saying that the King of England should let American colonists have more freedom as it would be more beneficial for free trade.

Gandhi did not live his life preaching utilitarianism.

All of these people advocated their cause by appealing to the moralities of others.

Libertarians have two main ways of advocating liberty. There is an argument based on pragmatism and there is an argument based on morality. Luckily, for libertarians, the two things rarely conflict.

While it is important to argue the benefits of liberty from a utilitarian/ pragmatic point of view, it seems that the morality argument often gets overlooked. And while it is certainly important for libertarians to understand and to be able to articulate the major issues, we also cannot win this fight for freedom without appealing to the morality of others.

Whether it involves domestic issues or foreign policy issues, it seems that the opposing sides always try to win the moral argument.

On foreign policy, it is common to hear conservatives say that we need to fight this war or intervene in this country because we need to stop a madman dictator or we need to help spread democracy. They ask questions such as, “do you support having a madman running that country?”

On economic issues, it is common to hear those on the left say that we need certain government programs to help the poor and less fortunate. They ask rhetorical questions such as, “so you just want to see poor people starve?”

Now, libertarians can certainly go into common sense arguments saying that we don’t have the money to fight wars overseas and that we will be bogged down in an unwinnable war. We can also argue economic issues saying that the best way to help the poor is by having less government and more capital investment, which will eventually lead to more economic growth, which will then trickle down to the poor. All of these arguments may be true, but are they really going to convince someone to consider the libertarian viewpoint in most cases?

Instead of trying to use only common sense arguments, appealing to someone’s morality can oftentimes have a more powerful effect.

When someone talks about foreign policy, libertarians should immediately talk about the human death toll of wars, and not just on one side. When that same conservative is boldly talking about disposing of some madman overseas, we can ask if little children deserve to die because our government wants to start a war. We should be quick to point out that two wrongs do not make a right, particularly when an innocent person will be the one to suffer.

On domestic issues, it is important to point out the government guns. For the leftist who wants to tax and redistribute wealth, he should always be asked why he wants to point a gun at someone and use the threat of violence to takes other people’s money.

Ask someone if he thinks it is acceptable to go to a neighbor’s house and demand money at the point of a gun. When he says “no”, tell him that it would be for a good cause like providing homes for homeless people or feeding the hungry. If he thinks that is acceptable, then leave him alone. If he does not think that is acceptable, then help him understand that using the force of government is essentially doing the same thing.

The majority of Americans and the majority of people around the world are basically good people. They would never think of using initiated violence against others. If they can understand that virtually all of government involves the initiation of force, this will change minds and people will start to withdraw their consent.

It is not to say that utilitarian arguments should be abandoned. They are very important. But different people have different journeys towards libertarianism and we should not underestimate the moral arguments to be made.

When more people understand the moral arguments for libertarianism, their minds will open up to the other benefits of liberty. The detailed understanding of the issues will eventually follow.

Libertarians have morality on their side and they should not be afraid to use it.

Happy Thanksgiving

2011-11-23T19:13:00.001-05:00

Happy Thanksgiving!

I don't have any rants about economics or politics today. I don't have any investment advice. I know it sounds cliche, but truly give a little bit of thought about what you are thankful for.

If you are living a middle class lifestyle in America, you really do have a lot to be thankful for. In the past, life was brutal. The people that lived here 200 years ago, or even 100 years ago, had a tough life. We have a lot of stress in our lives today, but at least most of us don't have to worry about having enough food to eat for the week or having to worry about being able to stay warm.

Even today, there are a lot of people suffering in the world. If you are living a middle class lifestyle in America, you are in the top 20% of the world. You may even be in the top 10%. We hear the Occupy Wall Street protesters talk about the top 1%, but many of these people would fall into the top 10% of the world.

So be thankful for the good things in your life and try to improve on the things that aren't as good. And enjoy some turkey or whatever your favorite food happens to be.

CNN Republican Debate on Foreign Policy

2011-11-22T22:29:00.000-05:00

There was a Republican presidential debate this evening that was hosted by CNN. The main topic was foreign policy. Wolf Blitzer was the moderator. I think he actually does a reasonably fair job when you compare him to most of the rest of the mainstream media.

The participants of the debate consisted of 7 pro-war candidates and one peace candidate.

Jon Huntsman, while no peace candidate, is a little less awful on foreign policy than the rest of the other pro-war candidates.
Rick Perry is still a horrible debater.
Mitt Romney is still an establishment stiff.
Rick Santorum is still irrelevant.
Michele Bachmann is still far worse on foreign policy than she is good on economic issues.
Newt Gingrich is still a snake.
Herman Cain is still dumb as a rock. If you don't think so, just ask Cain if he is dumb as a rock and he will answer that he has to check with his expert advisors first before he makes any judgement.

Then there is Ron Paul. He is the peace candidate. He was absolutely brilliant tonight. He may not be perfect in his delivery, but he was driving every point home. His words were accurate and well put. His analogies were great.

Gingrich was talking about how we have to distinguish terrorism from criminal acts. Who will decide this? Gingrich? The word terrorism is thrown around by Republicans as much as the word racism is thrown around by Democrats.

There was a report that came out of Missouri in 2009 from the Department of Homeland Security that was labeling people as potential terrorists who were "right-wing extremists", veterans, and those who supported third-party candidates. If they are terrorists, then according to Gingrich, you can just go ahead and execute them without any proof or any trial.

I loved Ron Paul's response to Gingrich's comment about Timothy McVeigh. Paul said that the government can install video cameras in the homes of every American in an attempt to prevent wife beatings and child abuse, but then the American people are the victims. This was a great analogy that he made. He was pointing out that Gingrich's policies would turn us into a police state (if we aren't there already).

While many pro-war Republicans will despise Ron Paul after the debate, his performance probably changed a few more minds and opened a few more eyes. He is chipping away. Also, I'm sure there were probably a few Democrats out there that liked what he was saying and will perhaps start paying more attention to what he is saying on economic issues.

I still don't know if Ron Paul has a chance to win the nomination. He is doing well in polls in Iowa. He is in this thing for the long haul. He will continue to change minds and influence the debates. This is very encouraging for libertarians.

The Super Joke Super Committee

2011-11-21T21:00:00.000-05:00

The big news today is that the so-called super committee could not come up with $1.2 trillion in "cuts" (see articles here and here). The stock market went down significantly today and many are blaming its poor performance on the news. This is a tough sell though, given the major volatility of the market lately.

This whole super committee was a joke. It was put in place when the Republicans sold out on raising the national debt ceiling. It was kicking the can down the road. They just kicked it again today. Now, automatic cuts are supposed to happen. Whether they will or not, we shall see.

The super committee was supposed to come up with $1.2 trillion in cuts. This was a joke to begin with. This is over a 10 year period. The government could cut $1.2 trillion from this year's projected budget and the budget still wouldn't be balanced. Spread out over 10 years, it would only be $120 billion per year. And these aren't even really cuts. They are just cuts in the projected spending, which is of course projected to increase.

Now here is the biggest joke of all. The reason the super committee supposedly failed was because they couldn't agree on the right amount of new "revenue enhancements". This is lingo for tax increases. The Republicans were already willing to agree to some tax increases. The Tea Party should be so proud.

The Republican hacks in DC were not labeling these tax increases. They were saying they wanted to eliminate some loopholes and deductions. One example is the deduction for the interest on your home mortgage. It doesn't really matter whether you call it a loophole or a deduction because the bottom line is that it is a tax increase. By eliminating certain deductions, it will mean more people will pay more in taxes. That is a tax increase.

The best part about this whole thing is that they consider raising taxes a spending cut. We are truly living in a bizarre world. So I guess the politicians in DC could just double all tax rates and claim that they have cut spending by $2 trillion. This is what we are dealing with.

Anyone who favors small government who is still supporting and voting for Republicans on a wide scale is simply delusional. They never learn. They are Einstein's definition of insanity, doing the same thing over and over again and expecting different results.

I am not talking about people who support Ron Paul. I am talking about people supporting most of the other politicians in DC. The Republicans in DC do not want small government any more than Obama wants to restore peace and civil liberties.

The politicians in DC will continue to spend until there is some kind of a major revolt or until the laws of economics forces the situation (like what is happening in Greece). For now, they can still rely on the Fed and the Chinese to buy U.S. government debt. When the dollar sinks more and eventually faces the threat of hyperinflation, the Fed will have to make a choice. If and when it chooses not to buy any more government debt, then Congress will have to massively cut spending. Be prepared.

How Do We Fix the Banking Problems and the FDIC?

2011-11-19T13:34:00.000-05:00

Usually when I ask a question as the title of my blog post, I go on to answer the question. With this post today, I am actually struggling to answer this question with a solution that is consistent with my strong libertarian beliefs.

On Monday, November 14, I wrote a post on the problem of the FDIC. I am completely against having an FDIC that is run by government. I would not be against the idea of having banking insurance if it took place through the voluntary marketplace. As I previously said, I am in favor of abolishing most government programs and departments almost immediately. However, I see major problems with eliminating the FDIC immediately as it would probably cause bank runs almost instantly and really would threaten to take down our whole financial system.

I am certainly in favor of dismantling the current financial system, as it is bogged down with bureaucracy and major government interference. But I don't want to see it happen with total chaos as millions of people lose the money that is in their checking accounts.

So how do we end the FDIC in an orderly fashion? We definitely need some kind of a market solution. We need to somehow phase it out. The post office is being phased out. Email and the internet are helping to do this. The loosening of previous regulations and allowing companies like FedEx and UPS to compete was a big step. We need to continue to free up competition. In the case of the post office, the last step is to end the monopoly on delivering first class mail. Private enterprise will eventually close the government post office.

It is a little harder with banking. Banks should be allowed to start up without having to abide by government regulations, other than those that strictly relate to force or fraud. Even here, these laws should come from the state and local levels. They should not come from Washington DC. These banks would not have the backing of the FDIC. The problem here is that it would be difficult for these new banks to thrive. The FDIC acts as a subsidy to the current banks. It allows them to take excessive risk and not being held accountable by their customers. Customers don't really care who they bank with from a safety perspective as they know the FDIC will bail them out.

If legal tender laws were also repealed (a very important thing), then more people might start using gold, silver, or other currencies. Banks could then operate the way they should in a free market environment, acting as a storage house. Banks would probably not pay depositors interest on their money, unless the depositor was in agreement that their money was being lent out and that it might not be available upon request.

The amount the FDIC insures was increased three years ago, during the financial crisis, from $100,000 to $250,000. This needs to stop. If the FDIC would just stop raising the amount, it would eventually be phased out by the Federal Reserve's inflation.

So I am still not sure how to answer my question of how we fix the whole situation. It is quite astounding because for all of the things I read on LewRockwell.com, Mises.org, and other libertarian sites, I have not really seen this addressed. The only idea I remember seeing was that of George Reisman. He advocated that the Fed increase the monetary base and capitalize the banks, but then force the banks into having 100% reserves (no fractional reserve lending). I don't like this idea for the long term, but I do give him credit for being one of the few people to offer a solution, at least for the short term.

One thing I do know is that the free voluntary market has a way of solving problems. We need to repeal as many government laws as possible, particularly those in DC. Laws should exist to protect people and their property from force or fraud. From a constitutional standpoint, most of these should be coming from the state and local level. Once these regulations are repealed, the free market will find a way of providing honest banking services.

Libertarian Investments and Government Interference

2011-11-17T20:05:00.001-05:00

As long as governments tax, spend and regulate and the Fed controls the money supply and manipulates interest rates, there will continue to be misallocations in the economy. As long as this is going on, I can keep writing about the things I write about.

Most investment advisors will focus on individual stocks and make them fit into their clients' portfolios. I don't spend a lot of time analyzing individual companies. There is certainly nothing wrong with this and some money can be made with this strategy (look at Warren Buffett), but I prefer to look at the overall economy and the investment implications. In order to understand the economy in our world today, it is impossible to avoid politics.

Government policies and central bank manipulation of money (which is granted this power by government) drive the performance of the economy as a whole. The central bank causes boom and bust cycles by creating money out of thin air and by artificially influencing interest rates. Government spending also distorts the economy by redistributing wealth and by misallocating resources that do not satisfy consumer demand. If a product were desired by the public enough for them to spend money on, then the government should not need to subsidize it or protect it from competition or to favor it in some other way.

Since the government plays such a significant role in our everyday lives with its taxing, spending, and regulating, it has a huge negative effect on the economy. This has a huge effect on investments. This is why it is important to understand the consequences of these government policies as it can and will determine how your various investments perform.

Virtually all government spending and regulation causes some kind of a misallocation of resources. The challenge is to figure out the most likely possibility of how humans will react to these policies and how it will direct money and resources.

As long as these dislocations are taking place, I will always have something to write about. If we ever achieve a fully libertarian society, then I can write about the brutal history of government and all of the unnecessary misery that it caused people in the past. This will be to make sure that it never happens again, so that free human beings can prosper.

The Consequences of Cutting Government Spending Immediately

2011-11-16T22:24:00.000-05:00

Back in September, I wrote about Gary Johnson and his proposals for a Fair Tax and a balanced budget. I said that I am not a fan of the so-called Fair Tax, but that I do like his idea of immediately balancing the budget by cutting spending by 43%.

I recently received a comment regarding that post. I will not quote the whole thing here. It has bad language at the end, but you can read the whole thing here if you wish. The commenter says to me, "So you want to cut fed spending almost in half? Sure. Go for it. Just don't cry about the depression from hell that would follow."

While the comments were strong and more rude than your typical person, they do reflect a certain mentality that permeates our society. It is Keynesianism. While I think Keynesianism has been somewhat damaged in the recent years with the economic troubles and with the internet replacing the mainstream media, there is still a large faction that believes this stuff. Some people think that if we cut government spending drastically, that major chaos would follow.

The comment about having a depression is not completely wrong. If the government were to drastically cut spending all of a sudden, we would have a sharp downturn in the economy. It would be quite painful for the American people. But at least it would be temporary pain and we could look forward to a real recovery.

The big question is, what are the other options? The other options involve more spending, more inflation, higher taxes or some combination of the three. They will all lead to things far worse than the above scenario and they will all end in a far greater depression. The voluntary economy is starving for savings and capital investment. It is being sucked up by governments at all levels, but particularly the federal government in DC.

Most people don't know there was a severe economic downturn in 1920/ 1921. The government did not come up with any grand stimulus plans. It cut taxes and spending. Most people don't know about it because there was a quick recovery.

On the other hand, people know about the Great Depression. It dragged on and on as the government continued to spend money like crazy and prop up the bad investments.

We could eliminate the Department of Education tomorrow and the effects would be minimal. Sure, the government school workers would be screaming like crazy. But the education system is a complete disaster anyway. Federal funding represents less than 10% of funding for most schools. It would not be the end of the world. While I'm against having to pay for government schools at any level, ending federal funding is quite modest.

Education is just one small example of the overall budget. One easy cut would be to end the wars and bring troops home from all over the world. This would save hundreds of billions of dollars almost immediately, without even firing people from their jobs.

After World War 2, there was a massive influx of soldiers returning home to America. The economy was a mess. The Great Depression didn't end with the start of the war. The war brought rationing and misery to millions of people. It was a continued depression. The men got jobs, but it is hard to imagine they were any happier. The depression ended with the end of the war.

The troops came home and, while there was clamoring to do something, the government didn't really do much of anything in the way of stimulus plans or a jobs bill. Government spending decreased dramatically in 1946 and we basically saw an economic miracle. Japan and Germany had their own miracles too. This so-called miracle is called the free market. When the government gets out of the way, prosperity happens.

We will not see a true and sustainable economic recovery until the government gets off of our back. This means repealing taxes and regulations. It means stopping the money printing machines. Most of all, it means a drastic cut in government spending. When government spending is cut dramatically, we can look forward to a quick and sustainable recovery and a return to the American dream.

Ron Paul - A Top Tier Candidate

2011-11-15T21:53:00.000-05:00

A new poll was released showing a virtual 4-way tie in Iowa. The poll showed Cain at 20%, Paul at 19%, Romney at 18%, and Gingrich at 17%. CBS News released a story saying that Ron Paul has moved into the top tier. Both articles were featured on Drudge Report.

Just the fact that both of these stories appeared on Drudge, help the Ron Paul campaign. It makes people realize that he is a serious candidate with a legitimate chance of getting the nomination. It also makes it difficult for the media to portray Ron Paul and his supporters as a bunch of wackos. Are they going to keep saying that if he starts polling at 50%?

If you look at the 5th paragraph of the CBS News article, it says that Paul is the leader, with 32 percent support, from likely caucus-goers who say they've made up their minds.

If you look at the 4th paragraph of the Bloomberg article, it says that Paul's support is more solidified than his rivals.

This is quite significant. A lot of the potential Republican voters are switching with whichever way the wind is blowing. They either don't like the candidates, don't know enough yet, or are just afraid to make up their minds without being part of a big crowd.

Ron Paul's supporters tend to be quite devoted. The majority of his supporters will not change their minds. This means that Ron Paul's poll numbers will not plummet like we have seen with Bachmann or Perry.

Romney is still the favorite to get the nomination, particularly since he is the establishment's choice and he has the most money. But Romney has his problems. He is still the founder of Obamacare and there is nothing he can do to change that. He is still not that well liked with Tea Party people and other fiscal conservatives.

Gingrich has the same problem that Bachmann has. He does not poll well against Obama in a head-to-head match up. Republicans are concerned that he can't win the general election and rightly so. We will see if it turns out for him the same as it turned out for Howard Dean in 2004.

Cain, as I continue to say, just isn't that bright. His latest gaffe was about Libya. He is practically incoherent on foreign policy. His 9-9-9 plan is a massive tax hike on the middle class. And if you have any doubts on what I'm saying about his lack of intelligence, just watch this video.

Because of all of these flaws of the candidates and because a lot of Republicans can't support Ron Paul's foreign policy views, I am not counting Rick Perry out yet. He has been horrible in debates, but he still has a lot of money and may still make another run by default.

We will see what happens, but today was good news for libertarians. Ron Paul's message is getting out there and is being received well by many people now. It really gives me great hope for the future of this country.

The Problem of the FDIC

2011-11-14T21:50:00.000-05:00

The Federal Deposit Insurance Corporation (FDIC) was created in 1933 during the Great Depression. It is not really a corporation as the name says. It is a government agency which guarantees people's deposits in banks. The amount of insurance has increased over time. Just a few years ago, it insured up to $100,000 per depositor per bank. That amount was increased to $250,000 during the fall of 2008.

The agency was created due to the large number of bank runs taking place in the 1930's. This caused the equivalent of monetary deflation, as bank runs reversed the fractional reserve process. This was one of the reasons that prices fell during the Great Depression, even though the central bank was engaging in monetary inflation (although not nearly enough according to Helicopter Ben Bernanke).

As a libertarian, I am completely opposed to the FDIC. Only the government could run such an agency. No private firm would find it profitable to insure banks in the current system of huge risk taking and massive fractional reserve lending. I don't think it is inconceivable that there could be insurance companies for depositors in a free market environment, but it would look a lot different than it looks today. There would be no central bank, far less (if any) fractional lending, and we can also assume that most banks would be far more careful with their lending standards.

With the current system we have now with fiat money, central banking, and government granted privileges, only the government can really run a deposit insurance agency. That is because only the government and the Fed have a legal monopoly over the money supply and can always create new money out of thin air if necessary. No private insurance company could do this.

I am a hard-core libertarian and I am in favor of abolishing most government programs and departments immediately. However, the FDIC might be one exception where I can envision major problems if the FDIC were abolished overnight. There would be massive bank runs immediately, and the last ones to arrive would be stiffed out of all of their money that was in a bank.

I hated the bank bailouts that happened in 2008. The politicians in DC really demagogued the issue. With that said, there may have been one relevant point when they were saying that we would see Armageddon if we didn't pass the bailouts. For some reason, most politicians were afraid to come out and say the obvious, which was that they feared massive bank runs. They threw all of these threats at the American people (including martial law), but I didn't hear many say that we needed to pass the bailouts so that you could still access your checking account and withdraw money out of the ATM on Monday morning.

The American people would have actually supported the bailouts if they were told this and thought it was their only choice.

However, it really wasn't the only choice. The government could have actually let the banks go into bankruptcy and just refunded depositors their money. The bank executives would have lost their jobs and their pensions. The government/ central bank would have had to use the printing press to do this, but it probably would have been less than what was handed out with TARP. Then the banks and all of their assets (for the ones that had to go into bankruptcy) could have been sold to the highest bidders. Any money collected by the government could have been immediately used to pay off the new bonds held by the Fed, thus reversing the previous monetary inflation.

This whole FDIC thing is a major problem that we need to get rid of. It is the ultimate moral hazard. Depositors do not really care what bank they use in terms of safety. Banks use excessive risk with this backstop. The only regulation on the banks is occurring by government. It should be done by the marketplace. Private insurance companies could play a big role in keeping banks sound.

I am not sure about how to end the FDIC in an orderly fashion. But as long as there is an FDIC, there will continue to be bailouts.

CBS Republican Debate on Foreign Policy

2011-11-12T22:31:00.000-05:00

I like to make some comments after each Republican debate, especially with Ron Paul being involved. After tonight's debate on CBS, it is hard to call it a debate and it is hard to say that Ron Paul was actually involved. If he had actually been asked more than two questions, maybe I would be able to comment on his performance better.

This "debate" was only nationally televised for the first hour. After that, it was only aired in certain regions, unless you wanted to watch it via the internet.

CBS did a hideous job of hosting the debate and the candidates (with the exception of Ron Paul) did a hideous job. Perhaps Jon Huntsman was a little less hideous and Rick Santorum is the worst of the worst, but overall, they are all bad. Ron Paul is the only candidate on that stage who has anything near a rational foreign policy.

All of the others think the world revolves around the United States government and that the U.S. government should be calling all of the shots.

I found it interesting that some of the candidates think we need to be careful with Pakistan because Pakistan has nuclear weapons. In other words, they don't want to go to war with them. Meanwhile, they want to go to war with Iran (some more than others) because Iran might possibly be developing nuclear technology. So basically, that says to every country out there that if you don't want to be invaded and blown to smithereens by the U.S. government, then you should acquire a nuclear weapon. Now that is incentive. It is also the law of unintended consequences.

Now I'm not saying the U.S. should go to war with Pakistan. It is quite the opposite. The U.S. should not worry about Iran and the U.S. should stop getting involved everywhere. There should be no intervention in the world. Perhaps there could be exceptions if two parties both agree to a mediator, but even this could be done privately without the involvement of the U.S. government. The only thing that the U.S. government should do is to keep trade open so that Americans are free to do business with anyone in the world, so long as they are not directly inflicting violence on us. If someone does inflict violence, then that person alone should be held liable and not a whole country or group of people.

These Republican hacks may sound decent on some economic issues, but they are awful on foreign policy. Herman Cain is even dumber when it comes to foreign policy as he is on economic and social issues. Bachmann is horrible with just about everything she says regarding foreign policy. It seems that Santorum, the so-called Christian, is in competition to kill as many Muslims as possible. Newt is also pro-war and could potentially be worse than both Bush and Obama.

Mitt Romney and Rick Perry are both bad too, although maybe there would be a slight glimmer of hope that they would not be quite as bad as the others on the issue of war. Meanwhile, as I wrote earlier, Huntsman is probably the least bad out of the seven of them. Ron Paul, of course, is by far the best, even though he barely spoke for two minutes in the first hour of the debate, which was the only hour that was nationally broadcast.

Not much changed after tonight's debate, except that it solidified my opinion that I have no use for CBS other than for watching football, Survivor, and Amazing Race. It certainly does not qualify as a news organization.

Market Volatility and Italian Bonds

2011-11-10T21:20:00.000-05:00

The volatility in the stock market has continued this week. The market was down big on Wednesday as there was increased concern about Italian debt, as rates on Italian bonds rose. The stock market gained back some today (Thursday).

Gold, after showing a lot of strength and getting back near the $1,800 level, pulled back significantly today.

There is a continuing tug-of-war between the bears and the bulls. I expect this to continue. There is a tug-of-war between another artificial boom and a recession. For a while, it looked as though the recession was going to win out in the short term. But the stock market has done well in the last month and it points to the possibility of a short-term boom. A short-term boom would not necessarily drive down unemployment significantly, but it might give people some false hope with rising asset prices, particularly in the stock market.

I thought that Wednesday sent an interesting signal with the concerns about Italian debt. We have been hearing about Greece a lot, but I think the big fear all along has been that other countries would follow right behind Greece. We have heard about the PIIGS (Portugal, Italy, Ireland, Greece, Spain), but now we are actually seeing the markets react negatively to all of the big government debt. Before it was just Greece, which is a small and relatively poor country. Italy is another story.

Wednesday was interesting because the U.S. stock market tanked. It shows that major trouble in Europe will affect U.S. markets to a large degree. While I still see a mini-boom cycle as possible in the near term, the situation in Europe makes it a little less likely. A partial or full default by a country the size of Italy will send shock waves around the world. It will be bearish for U.S. markets. It will be bullish for the U.S. dollar, at least in the short term. It is harder to say how gold will react.

The Republican candidates in the debate last night were saying that what happens in Italy is their business and that the Fed should not bail out anyone. The candidates say that, but they are simply pandering to their audience (with the exception of Ron Paul of course). If a default on Italian debt or any other debt jeopardizes banks in the U.S., you can count on a bailout. Several of the Republican candidates, including Mitt Romney and Herman Cain, were big supporters of TARP (the bank bailouts) in 2008. Of course, it may not matter because this may all blow up in the next year while Obama is still in office and we know that he will not stop a Fed bailout.

I expect continued market volatility. I continue to recommend the permanent portfolio, as described by Harry Browne. The name of the game right now is asset protection. You have to keep what you have. Any investment growth should be icing on the cake.

Republican Economic Debate on CNBC

2011-11-09T22:42:00.000-05:00

There was a Republican presidential debate on CNBC featuring the 8 major candidates (no Gary Johnson). The debate focused specifically on economic issues. I am biased on who did the best, based on my libertarian beliefs. With that said, I will first try to give a quick rundown of who I thought performed well, even if I didn't agree with them.

Aside from Ron Paul, I though Romney and Gingrich had the best performance. I disagree with Romney on many issues and I believe he is a phony when it comes to the things that he says in which I agree. However, he did hold his own tonight. Libertarians don't like him and most Tea Party people don't like him. He is a mercantilist as he showed when he advocated slapping tariffs (those are taxes) on Chinese products. But I don't think he hurt himself as far as his supporters go, who tend to be less fiscally conservative.

Newt Gingrich has had a brilliant strategy and it has worked in getting his poll numbers up. He is very careful not to criticize the other candidates. The few times he has done so in past debates, he has done it respectfully. But he doesn't just make Obama the target. He goes after the media, including the moderators of the debate. He basically tells them that they are asking dumb questions, without being quite that blunt. He is calling out the so-called liberal media, even if he doesn't use that term. Maria Bartiromo was about to blow a gasket at one point in the debate and I think that is what Gingrich wanted. Conservatives like it and that is why he is doing it.

I think Gingrich is a fraud, but he is a smart man. I don't think he will get the nomination. He is the Howard Dean of 2004. The Republicans would like to nominate Gingrich (just as the Democrats wanted to nominate Dean in 2004), but they sense that he could not win the general election. I think the Democrats were wrong in 2004 and made a blunder in putting up John Kerry. I think the Republicans are right though, in that Gingrich probably cannot beat Obama. The Republicans are not going to nominate someone who most likely cannot beat Obama.

I thought Michele Bachmann was a little stronger as compared to previous debates. She is much better on economic issues than foreign policy. She also didn't use any stupid lines tonight about making Obama "a one-term president". Maybe her advisors finally told her how dumb she sounded whenever she said that line. Bachmann has the same problem as Gingrich in that people question whether she could beat Obama.

Some people will say that Herman Cain did well tonight. He deflected the questions about his personal past. When it comes to the issues, I will continue to say that the man is just not that bright. He has absolutely no grasp of foreign policy, little grasp of economic issues, and has no plan to cut one dime in spending. The Republican voters need to wake up and start seeing through this man. He is absolutely horrible on all of the issues and he might even be worse than Obama, if that is possible.

Rick Perry had another poor performance. He actually listed some specific departments that he would get rid of, even though he couldn't think of one of them at the time. He isn't a good debater, but I'm not sure who people will turn to when Cain falls. Perry has a lot of money and backing and I would not count him out yet.

I thought Ron Paul did a good job overall in the debate. I wish he would have been more bold when he was talking about healthcare. Michele Bachmann may have actually done a better job on that topic. But Ron Paul is forcing the other candidates to take positions that I don't think they would have taken otherwise. He is talking about his plan to cut one trillion dollars in his first year and he hit the nail right on the head when he said that taxation is just a symptom of the spending. Everything revolves around spending. It is pointless to talk about tax reform if you don't address the out-of-control spending. The only other thing I wish he would have done is to challenge Herman Cain specifically. He should have pointed out that Cain has not identified one specific spending cut of any significance.

In conclusion, it looks like things still have a way to go before they play out. I believe that Cain will slip, as people realize that he is full of slogans, but short on specifics. It will become a race between Romney, Paul, and probably one other person. I'm not sure if that other person will be Perry, Gingrich, or Bachmann. Right now, I am still betting on Perry, despite his poor debate performances. He has a lot of money.

We will see if Ron Paul can get any pro-war Republicans to defect to his camp. He will not really lose supporters as other candidates do. His current supporters are strongly on his side and not going anywhere. If he gains some more momentum, he could actually make things very interesting.

Energy Independence

2011-11-08T20:58:00.000-05:00

I have to return to this topic every now and then, just to say how crazy it is. In bipartisan fashion, you will hear both Republicans and Democrats talking about how we need energy independence in our country.

This is an absurd idea to push. Why is there this great focus on oil? If we want energy independence, do we also want car independence? How about computer independence? What about independence for gold and diamonds? What about food independence? Surely that has to be important enough that we not depend on other countries.

The only difference I can see with oil/ energy is that there seems to be a finite amount of it, whereas with food, you can continue to grow more. But even here, there is a massive amount of oil contained in this planet. It just so happens that the stuff that is the easiest to get to and use is mostly in the Middle East. If there begins to be a shortage in oil, then the price will go up. If the price goes up, then it becomes profitable to start extracting oil from the tar sands and other places that are more costly. In addition, if the market is left free, then there will be replacements so that we don't have to use as much oil. Perhaps we will see electric cars become profitable and cost effective. Of course, if we had a true free market, we might already have something better and safer to use than gas guzzling cars.

Sometimes I think that the people living in the Middle East would be much better off if there was no oil there. The dictators running Saudi Arabia wouldn't be better off, but most of the people would be. It would keep the American empire away from them and allow them to prosper more naturally.

This whole idea of energy independence though is just ridiculous. All we need is free trade. Even if the pro-war Republicans were correct that Iran is run by a madman, there is still no reason not to buy oil there. The dictators in the Middle East can't drink the stuff. It does them no good unless they use it themselves or sell it. And with free trade, there is far less of a chance for conflict or war.

If Americans could produce enough oil and gas so that there is no need to buy from people in other countries, that is fine. But that should be left to the market to decide.

I am all for opening up ANWR for oil drilling. In fact, I think the U.S. government should sell it to the highest bidder (maybe a company like Exxon Mobil would bid on it) and the proceeds can be used to pay off Social Security recipients so that the program can be ended. Meanwhile, we will also get cheaper gas.

In conclusion, there is nothing wrong with buying oil from other countries. Just as Americans buy lots of different food items and electronic gadgets from other countries, it is also beneficial to buy energy from other countries. It is called free trade and it allows us to have a higher standard of living. Americans should tell these politicians in DC to get a new job and to stop telling us what to buy and who to buy it from.

Herman Cain and the Allegations

2011-11-07T21:54:00.000-05:00

It seems that the top political story in the U.S. for the last week has been Herman Cain and accusations by several women that he made unwanted sexual advances on them back in the late 1990's.

I have mixed opinions on this story. It does seem kind of ridiculous that the media would spend so much time on this story when America has troops fighting all around the world, the national debt is $15 trillion, and the official unemployment rate is at 9% and showing little signs of improvement.

On the other hand, Herman Cain is now one of the supposed front-runners for the Republican nomination to become president. If these allegations are true (and my guess is that they are), then it does speak to his character. Of course, I already thought Cain was a jerk before these allegations came out. A lot of people seem to be suckered into his seemingly pleasant personality, but I can see right through him and I do not see much good about him.

Some polls are showing that Cain and Romney are each at about 25%. That means that half of Republicans are supporting a candidate who founded Obamacare (Romney) or a candidate who supported the bank bailouts (Cain and Romney both).

Herman Cain is a statist. He headed up the Federal Reserve of Kansas City. He is not an outsider. He is an outsider only in the fact that his campaign team is unorganized.

I think when it comes down to it, Cain will not get the nomination. The man is a moron, and I mean that sincerely. His views on foreign policy are horrendous. Read this article that was linked via LewRockwell.com today.

If you haven't seen this video of Cain talking to John Stossel about abortion, watch it. Like I said, the man is a complete moron. It is possible to be against abortion, but not think it should be illegal. The first time I saw the beginning of this clip, I thought maybe that was what he was saying. But no. The man is a moron. How could he possibly get the nomination? He actually makes George W. Bush sound somewhat coherent.

Cain is fooling a lot of people right now who are fed up with the status quo. He is offering them garbage. His 9-9-9 plan is terrible, as I have written about before. He offers no specific spending cuts. He is a demagogue. He is a liar. He is also a moron and he will be exposed sooner or later.

I would rather have Obama as president. At least there is a chance we won't have war with Iran with Obama in office. Obama's foreign policy has been horrible, but it could actually get worse with Cain.

Survivalist Mode

2011-11-05T22:31:00.000-04:00

I run this blog on libertarian investments. I talk politics, economics, money, and investment strategies. Occasionally I get challenged on my commentary and I even get challenged on the investment strategies. One particular challenge is that if I am giving suggestions from a libertarian point of view, that the number one goal should be survivalism.

The interest in survivalism is immense. With the economic troubles starting in 2008 and the election of Obama, combined with the internet, the interest in this topic is enormous. There are literally tens of thousands of people who believe that there is going to be a complete breakdown in our civilization.

I do believe there is major economic trouble ahead. There could be massive rioting, particularly in big cities. There could be a significant increase in crime. There could be higher unemployment, more poverty, and an increase in homelessness. However, I think the chances of seeing a complete breakdown in civilization are very low.

One investment strategy I have recommended that the survivalists out there should like is one of my hedges against inflation. I recommend storing up on extra food and other necessities when they are on sale. You can't buy extra milk and other things with near-term expiration dates, but there are a lot of things you can store up on. You can buy extra soda, bottled water, canned foods, frozen foods (although they wouldn't last without power), cereals, rice, etc. You can also buy extra toilet paper, paper towels, deodorant, shaving cream, shampoo, soap, etc. As long as they are things that you will eventually use, then I figure you can't really lose anything with this strategy. The prices of these things will most likely not be any lower one year from now.

I give this strategy as primarily an inflation hedge. But it is also a good idea in a survivalist sense. If there is a hurricane, snowstorm, or some other natural disaster, then having extra food will be important. You should always have enough extra food to last you at least one week, at a minimum.

The survivalists will not like this. They will tell me I have to get a second house in the country and raise my own food and prepare for the worst. While I can't be one hundred percent sure that something won't happen, I am not going to turn my life upside down to prepare for something that will most likely never happen.

I only see two things that could realistically happen to cause a breakdown in civilization. One is hyperinflation and the other is some kind of a terror attack.

I have said before that I think hyperinflation is unlikely. While I can definitely see high price inflation happening, I don't see the Fed and the rest of the bankers promoting a policy that would destroy themselves.

As to a terror attack, this is a little more likely, although it would have to be really bad to disrupt society that much. It would have to be something major, like an airborne illness. Unless, there was a major pandemic, society would find a way to continue on.

I don't think many of the survivalists understand what they are saying. If there was a complete breakdown in the division of labor in our society, then most of the survivalists would perish too. Maybe they could hold on for a little while longer, but not by much. How would they protect their gardens or farms? How will they get any medical care? What happens when their shoes are worn out? Can they survive the heat and cold of the seasons? How will they protect their property?

These questions could go on and on. We take so many things for granted, we don't even think about them. We are talking about a society where you can't go anywhere (there would be no gas and it wouldn't be safe). We are talking about all stores being shut down. We are talking about staying in your house for the rest of your life or until most of the population dies off. We are talking about the need to have several people bonded together. They would have to take shifts in order to guard their property 24 hours a day.

If you believe there is going to be a breakdown in civilization like this, then you must turn your life upside down to prepare for it. Tinkering around the edges will not get you far. Tinkering around the edges will allow you to survive a hurricane or a short-term breakdown. This is why I will not go to full-fledged survivalist mode. It is not worth the costs. It won't be much of a life to live anyway if it ever did happen.

All-or-Nothing Money Strategies

2011-11-03T20:32:00.000-04:00

I have seen and heard this so many times, it is something I feel like I need to write about every so often, just so that others don't make this mistake.

So what is this mistake? It is an all-or-nothing attitude when it comes to money and investing. It actually amazes me how often I see it.

Let's say someone has $10,000 and they don't know what to do with it. They inevitably say something like, "maybe I should put it all in stocks or maybe I should put it towards my mortgage or maybe I should buy some gold." My response is, "why not do all three?"

It is even worse when it gets to larger sums of money. If someone stumbles into, say, $200,000, then all of a sudden they have to do something with it. They say, "I could buy a restaurant or I could use it as a down payment for 5 investment properties or I could put it all in a Swiss bank account or buy an annuity." My response is, "slow down."

If you have some money burning a hole in your pocket, you don't have to put it all in one place. It is called diversification. For the above example of coming into $200,000, why not take a quarter of it and buy one investment property, take another quarter and open a Swiss bank account, take another quarter and invest it, and take the last quarter and keep it as an emergency fund? Again, it is called diversification.

If you come into some money (a situation everyone would like to have) and you already have an emergency fund, one suggestion I have is to put half of it into a mortgage and the other half into gold. Paying down your mortgage on a primary residence is a hedge against deflation. You are locking in a return of whatever your interest rate is. Buying gold is a hedge against inflation. Why not balance the two out and split your money down the middle?

In conclusion, if you have money, spread it around. Don't put all of your eggs in one basket. I like the permanent portfolio for investing. I also like the idea of buying residential real estate and renting it out, especially with the current housing market. But do it slowly and don't dump all of your money into one area at one time.

The Permanent Portfolio with a Twist

2011-11-02T21:39:00.000-04:00

These are crazy times right now. The stock market is a roller coaster. The gold market is trending up, but then we have to put up with steep drops of 10 to 20 percent every few months. And who knows what is going to happen with interest rates and the price of bonds?

There are major troubles in Europe. There are major troubles in the U.S. The banks still have a lot of bad debt on their books, whether they admit it or not. The Fed has tripled the monetary base in the last 3 years, while most of this money has been stashed away as excess reserves by the commercial banks.

Will we see huge price inflation in the near future? Or will we see massive deleveraging and a bigger slowdown in velocity, leading to something resembling a depression?

These are hard questions to answer, even for someone well versed in Austrian economics. It is impossible to know exactly how the politicians and central bankers will act in the future. It is also impossible to know how other people will react. Economics is all about human action.

The number one goal of investors right now should be the preservation of capital. Safety should be your top priority. That is why I recommend setting up a permanent portfolio as described in Harry Browne's book, Fail Safe Investing.

For those looking for a little more risk without having to manage your investments too much and without having to play too many guessing games, I will offer a suggestion to you. Try setting up the permanent portfolio with a twist.

The regular permanent portfolio goes like this:

25% stocks
25% gold
25% long-term government bonds
25% cash or cash equivalents

If you want to increase your risk/reward while staying relatively safe, change your cash portion. Keep the stocks, gold, and government bonds all equal, but put less in cash for a little more risk. For example, you could put 30% in stocks, 30% in gold, 30% in bonds, and 10% in cash.

With this setup, there will be greater swings, particularly in a recessionary environment. I would not try this strategy if you will need to tap into your investments in 5 years or less. Also, I would not go lower than 10% in cash. If we do go into a deep recession, you need some cash on the sidelines to buy the things that are "cheap".

If you are looking for something even safer than the permanent portfolio, it is going to be hard to do. If you need to tap into your investments in one year or less, then you should have most of it in cash. If you will need to tap into your investments in, say, 3 or 4 years, you could use the permanent portfolio and lighten up in stocks.

If you are a really conservative investor, you will have a hard time in this market. Unfortunately, because the government and the Fed create inflation, even having your investments in cash is not safe in the long term, as it is vulnerable to losing its purchasing power.

If you are a really conservative investor, here is the best allocation I can think of for you:

15% stocks
20% bonds
30% gold
35% cash

You will not get as high of a return, particularly during prosperous times. But you will be less likely to see huge swings, particularly in a recession.

Bottom line though, if you are investing for the long run and you want to keep your money relatively safe, I would just go with the regular permanent portfolio. To paraphrase what Richard Maybury says, the permanent portfolio is not perfect, but it is the best thing I know of right now to keep your investments safe.

More News From Greece

2011-11-01T20:54:00.000-04:00

Today was another day that was not exactly dull for the world financial markets. Stocks tumbled again today after news that there may be a public vote held in Greece on the "deal" that was recently reached. It looks like the market has its doubts that the welfare statists of Greece will accept it. These people have had a near free lunch for too long and they don't intend to go down without a fight for one last free lunch.

Meanwhile, I am having second thoughts on my second thoughts. On Saturday, I stated that I began to change my mind about an imminent recession and was wondering if we weren't in for some major price inflation instead. That was after a big week for the American stock market. Since then, the market has plummeted for two days straight.

This continues to be a fight between the market trying to liquidate all of the malinvestment and the Fed trying to prevent it through inflation. I believe this is why we are seeing these roller coaster swings. We can expect more of this.

I thought it was kind of a joke that the market reacted so positively last week on the news of a deal reached to cut the Greek bonds by 50%. That is why I am wondering if stock market investors are just looking for any old excuse to buy stocks. There is a lot of excess money out there somewhere and it is not with the average Joe who, not only doesn't trade stocks, but barely has two nickels to rub together.

As for Greece, it doesn't really matter whether there is a public vote. The only thing it affects is timing. It is a matter of when investors realize that the Greek government is going to default on a full scale. They can give bondholders a 50% haircut now, but the other 50% will not be far behind.

As I explained the other day, cutting the Greek government's interest payments in half does little to solve its problem. You could relieve the Greek government of all of its interest payments, but it will still be in the hole.

Think of the United States as an example. The government is running a deficit close to $1.5 trillion per year right now. The actual interest payments on the debt are "only" a couple of hundred billion dollars. Even if you relieved the U.S. government of all of its interest payments on bonds, it would still be running a deficit of $1 trillion or more due to the vast spending and all of the previous promises that were made (think Medicare and Social Security).

The Greek government is in the same position with all of its government employees and all of its pensions that have been promised. The "problem" for the Greek government is that it does not control its own currency. In the U.S., there is the Federal Reserve, which can always buy government debt. In Greece, they have to depend on the European Central Bank to create money (which it isn't supposed to do) or they have to rely on investors to buy their debt.

If and when Greece fully defaults, who is going to buy their bonds? Nobody is. Then they will be forced to balance their budget, which will mean a massive lifestyle change for many of the Greek people. This may mean a major revolution (and not in a good way).

I think the only solution they will find in Greece is to withdraw from the European Union and to stop using the euro. Greece can go back to having its own central bank, which can be used to buy the Greek government debt.

The big question after that is, will Italy, Portugal, and others follow? It would not surprise me to see a total breakdown of the European Union in the next couple of years.

Japanese Yen Weakens on Announcement

2011-10-31T21:51:00.000-04:00

The Japanese yen had been doing quite well in relation to the other major currencies of the world. Now, the Japanese Ministry of Finance has announced a currency intervention to weaken the yen. This sent the U.S. dollar higher and sent stocks and gold down today, after doing quite well last week.

Back in September, I had discussed the intervention of the Swiss central bank and its effects on the Swiss franc. I also predicted the Japanese might follow suit. While the decision from the Japanese government is not quite the same, it is still an attempt to weaken their own currency. This shows that all of the major governments and central banks of the world are mercantilist and Keynesian to their core.

This move is just another dumb move by politicians because they fear having a strong currency. While this may help their exporting industry in the short term, it is a net loss for the citizens of the country in the long run. What is so bad about having a strong currency? It makes things more affordable for the people of that country. And that is supposed to be a bad thing?

It actually amazes me that the Japanese yen was as strong as it was. The Japanese central bank had done a decent job of resisting too much inflation until now. The government debt-to-GDP ratio in Japan is over 200%. This makes Greece look highly solvent in comparison. The suckers buying Japanese debt have enabled their Keynesian policies to go on far longer than they ever should have. At some point in the future, it would have been inevitable anyway for the Japanese central bank to start creating lots of new money out of thin air. That would be the only way out of their mess, unless they were to default outright (unlikely with their culture) or severely cut back spending (unlikely with their culture of Keynesianism).

This is just another example of why we should invest in gold and avoid all of the fiat currencies (other than a portion of the currency you actually use in day-to-day life). Gold went down a little today due to the strength of the dollar. But the dollar only strengthened in relation to the other currencies because the others are so bad. They are all going down in value. It is just that some go down faster than others. This is why gold, gold related investments, and other hard assets are still a great investment.

This Week Began to Change My Mind

2011-10-29T13:31:00.001-04:00

This week has shifted my mind. I am a big advocate of the permanent portfolio as described by Harry Browne. My mind has not changed on that. We live in an uncertain world, especially now, and we should invest our money in a way that hedges against that uncertainty. As Richard Maybury says, the permanent portfolio is not perfect, but it is the best strategy I know of.

With that said, my opinion shifted this week as to what the near-term future holds. In the last couple of months, I saw more signs that the U.S. economy was heading back into recession. It's hard to say that we ever came out of a recession, since the government never allowed the necessary correction to take place. However, it looked as though the second wave was coming with more bad news.

I still think there is major trouble ahead in the economy, but I see it potentially playing out in a different way in the short term. Last Thursday, the European bigwigs announced that they had a plan to deal with Greece. They said it would involve a 50% haircut to bondholders. I wrote about it here.

But what I saw as big news was what happened with the stock market. The Dow was up over 400 points at one time during that day. It finished up over 300 points and is now above the 12,000 mark. Meanwhile, gold has come back to life and is now above $1,700 per ounce.

This is the story that began to change my mind. It is like stock buyers were looking for an excuse to buy. Investors do not like the small returns in the bond market. These returns will not even keep up with price inflation.

We have to remember that the Fed has tripled the money supply in the last 3 years. While the commercial banks have kept most of this new money as excess reserves with the Fed, it still has its repercussions. I am wondering if this new money is finding its way into the stock market. I never would have expected the next bubble to show up in the stock market, but I can't be absolutely sure at this point. I still think there is a greater likelihood of seeing a bubble in the gold price or in gold stocks.

If there is new money finding its way through the economy, this might delay the effects of the next recession. We may start to see rising prices come sooner that I thought. If this new money holds off another recession for now and we start to see a mini-boom, then we could see higher stock prices as well as higher gold prices.

I previously said that I recommend the majority of your money be put into a setup like the permanent portfolio. That has not changed. I also said that a speculation strategy could be to take a small portion of your additional investment money and split it between shorting stocks and buying gold/ gold related investments. I figured that either stocks would go down or gold would go up. I now see a greater probability that both could go up together.

If you have any short positions in stocks, I would sell some of them if we see a brief pullback in stocks this week. I would be a little heavier in cash and gold right now rather than having a strong short position in stocks. I am still not betting that stocks will continue to go up (although there is that exposure in the permanent portfolio), but I am not betting as much that they will go down either. I am less bearish on the stock market and I see a greater chance that we will see price inflation show its ugly head soon. If that is the case, gold and gold stocks will do well.

Agreement Reached on Greek Bonds

2011-10-27T20:58:00.000-04:00

The European Union has supposedly reached a deal on Greek government bonds. The announcement sent stocks soaring in the United States. The "leaders" of France and Germany, along with the rich bankers, have reached this deal and come to the rescue again. I'm guessing the rich bankers agreed to this deal because a 50% haircut looked better than a 100% haircut.

This will be done at the expense of German taxpayers. It will eventually be at the expense of anyone who holds euros. It looks like even China will be getting involved. The stupidity of the Chinese government astounds me. I guess it isn't good enough that they keep buying U.S. government debt. They figured they would find another place even more insolvent and buy there too. Of course, we also don't know if the Federal Reserve is playing any role, although there is a lot of speculation on the internet that QE2's main purpose earlier this year was to capitalize the European banks.

This whole so-called agreement just kicks the can down the road. Not only that, but it ultimately makes the problem worse as it takes more money out of the hands of productive individuals and it throws it away for more Greek spending. It is a giant misallocation of resources.

This agreement to cut the Greek bond values by 50% will not solve anything in the long run. The interest on debt is only one expenditure of the Greek government. The problem is that the government there has created a massive welfare state and has made promises that cannot ultimately be delivered.

Imagine an individual with $50,000 in credit card debt. You bail him out and pay off half of his debt for him, which reduces it to $25,000. That would be fine if the individual were working to pay off the rest of the debt. But what if the individual kept spending more than he takes in every month. Paying off half of his credit card debt would ease the burden on him temporarily by reducing his credit card payments. But if he is still running a deficit, even without paying any interest on debt, then he will end up being back where he was before. The individual will end up back in debt with $50,000 in credit card balances. Meanwhile, you will have wasted $25,000 with your original bailout.

Greece has a spending problem. To be more specific, the Greek government has a spending problem. It has made big promises that cannot be fulfilled. There are a high percentage of Greek citizens who are living off the government dole. They work for the government. They retire early with big government pensions. Their game is coming to an end. They are going to get one last bailout, coming mostly from Germany. They will keep asking for the impossible. The government there has created a massive welfare state and a welfare mentality.

While I don't have any specific numbers, I have heard that some rich people are getting out of Greece. This would make sense. There is no future there. The parasites will keep trying to suck blood out of their hosts until there is none left. I would recommend for anyone living in Greece to get out. There is no future there, unless there is a dramatic turnaround in the mentality of the general population.

The U.S. is in trouble too, along with a whole bunch of other places. The one good thing about the U.S. is that the welfare mentality is not as strong. There is a welfare/ warfare state in the U.S. In Greece, it is just a welfare state. The U.S. can cut its warfare state. The welfare state is not as far advanced, even with Social Security and Medicare.

It's possible there will be another bailout of Greece down the road. I think it would involve money creation by the European Central Bank. But there is a limit to all of this. Eventually, I think they will let Greece go. The citizens of Germany and other countries will revolt. Greece will probably drop out of the EU. Perhaps the whole European Union will break apart.

The Greek welfare recipients can keep asking for a free lunch, but the laws of economics will eventually end it. The German taxpayers will get tired of buying lunch for others. And the Chinese will run out of money when their own problems become more obvious.

Ron Paul on Social Security

2011-10-26T21:31:00.000-04:00

Ron Paul has released his proposed plan to cut $1 trillion from the federal budget in the first year, if he were to win the presidency. His plan claims to balance the budget within 3 years.

There are a lot of cuts in Paul's proposed budget, including ending the wars and mostly eliminating 5 departments. One thing that Paul's plan does not change is so-called entitlement spending. It does not address Social Security and Medicare, in the sense that it keeps the status quo with these programs.

For any senior citizen who cares deeply about receiving his Social Security checks, Ron Paul should be his man. While Ron Paul has said that these entitlement programs are unconstitutional and should never have been started, he has also explicitly said that he does not plan to eliminate them and pull the rug out from senior citizens who have been promised these benefits.

Ron Paul is the only major candidate (if you don't count Gary Johnson) who has proposed significant spending cuts that are specific. He is the only one (besides Gary Johnson) who comes anywhere close to a balanced budget. Because of this, he is the only one who could actually save Social Security in a sense. If we get any of the other candidates, then not much will change and the fiscal situation of the U.S. government will continue over a cliff. Senior citizens will eventually be devastated when there is no money to pay out Social Security.

Of course, the Fed can always create new money out of thin air so that the Social Security checks can keep going out. But then there will be more tampering with the CPI figures so that the checks do not reflect the actual inflation. If the government uses the Fed to create new money to pay for Social Security, then this will be a hidden default. The Social Security checks will be worth less in real terms. That is already what is happening now. So, in a sense, Ron Paul is really the only one who will save senior citizens from having a big and sudden downgrade in their standard of living.

Ron Paul has been questioned about so-called entitlement spending. He says that he favors reform, but that his near-term spending plan does not address that. He says that he would like to give the option to anyone under the age of 25 to opt out. He acknowledges that he gets objections from people who are over 25 who say they would like to opt out.

I have a great deal of admiration for Ron Paul and support him. But there is a "but" on this one. I don't agree with him on this opting out for those under 25. Just as he acknowledged, why not let those over 25 opt out? Fiscally speaking, it actually makes more sense to do this.

If Paul's plan is to make good on the promises made to those who are currently retired or soon to be of retirement age, then money has to come from somewhere to pay those people. The Social Security trust fund is made up of IOUs. There is no actual money in there. If you let people who are under 25 opt out, then that will be less money collected to pay for the current recipients. Those under 25 will still be paying for current recipients, although maybe not as much. There would be more dipping into the general fund, which would spread it around to everyone. Those over 25 and working would actually be getting taxed more to pay current recipients.

If you let those under 25 opt out, you don't get the financial benefit until over 40 years from now when they don't get to collect anything. Meanwhile, tax collections will be less as people opt out. Wouldn't it be better to let someone opt out who is 50 years old? That person has already paid into the system for about 30 years and he might be willing to give up all of his so-called benefits if he doesn't have to pay that payroll tax anymore. You'd be surprised at how many people would take that deal. If I were 50, I'd rather keep my money now than get some promise for 15 or 20 years in the future.

I am all for letting people opt out of Social Security, but it should be offered to everyone. But that does not help solve the fiscal mess that we are in now. The money paid to current recipients still has to come from somewhere.

There is no easy way out of this. The best plan I know of is what was presented by Harry Browne when he was running for president. He said we should sell off government assets and pay off the Social Security recipients. The federal government owns a lot of land (some with oil) and a lot of buildings. I think the federal government needs to go through a bankruptcy much the same way a corporation would. Let's sell off all of the good assets and pay the creditors what we can. In this case, let's not reorganize this bankrupt entity. Let's keep it out of business for good.

Rick Perry's Flat Tax Plan and Spending Plan

2011-10-25T21:01:00.000-04:00

Rick Perry has come out with his own tax plan proposal. He wants to have a 20% flat income tax with deductions. Deductions would include $12,500 for each individual in the family. That would mean that a family of four would pay no income tax on the first $50,000 of earnings.

Perry has also said that you can stick with the current tax plan in place and pay taxes that way if it is more beneficial to you. As a libertarian, I like choice. I would rather the choices be much better, but I suppose that two choices are better than one. Without knowing the details, because you would have a choice of the current tax system and his flat tax proposal, I would vote "yes" on this plan if I were in Congress, although not with a lot of excitement.

Now let's get to Rick Perry's plan to drastically cut spending. Oh wait, there is none? Like so many politicians, he wants to balance the budget in about 10 years. Except Perry wants to do it by 2020, which would make it 9 years. I guess that might make him 10% better than the average politician. Or maybe he is lying 10% more than the average politician, if that is possible.

That is the problem here. We can shuffle around the tax code all day long here with a 20% flat tax or some 9-9-9 plan that raises taxes on the middle class. But our situation will not be vastly improved until something is done about spending.

The federal government is spending nearly $4 trillion per year. About 40% of this spending is from borrowed money, whether it is from the Fed, China, Japan, or individual investors.

If we are going to have a healthy economy that has sustainable growth, the government has to drastically cut spending. Aside from Gary Johnson who is polling at 1% or less, Ron Paul is the only Republican presidential candidate who has a plan to cut spending significantly. He is proposing a cut of $1 trillion in the first year.

As long as the government keeps spending nearly $4 trillion a year, it won't matter much what the tax code looks like. If the government were to cut spending to less than $2.5 trillion to equal tax collections, the economy would benefit quite significantly. That would mean that the government would not have to borrow any further money (not counting debt rollovers). That would mean an additional $1.5 trillion in the free market economy. That would mean a great deal for businesses and individuals trying to save and invest.

It is easy for these candidates to propose tax plans. I could propose a plan to eliminate all taxes and we could just borrow $4 trillion a year. The hard part is to identify real spending cuts. These candidates are trying to play both sides. They don't want to upset anyone with real proposed spending cuts. I have heard Michele Bachmann say in the past that she would like to get rid of the Department of Education. That is a small start, but it isn't all that significant with the overall budget. Plus, I'm not really sure if she means it.

Except for Ron Paul, none of the major candidates can get anywhere close to a balanced budget. So they will keep proposing their tax plans that take your money out of a different pocket.

It is not the way the government is taxing me that disturbs me. It is how much they are taking and how much they are spending.

Permanent Portfolio vs. PRPFX

2011-10-24T21:28:00.002-04:00

I am a huge advocate of investing in the permanent portfolio plan as outlined by Harry Browne in his small book called Fail Safe Investing. While I would encourage people to pick up a copy of the book if you haven't read it, I'll give a quick summary of the portfolio.

The permanent portfolio is an investment strategy where you allocate your funds as follows:
25% in stocks
25% in long-term government bonds
25% in gold
25% in cash or cash equivalents

The allocation does not have to be exactly 25% each, but it should stay fairly close. If one of the investments goes up or down quite a bit and starts to get away from the 25% target, then the portfolio should be rebalanced. For instance, if stocks go up quite a bit and the stock portion of your permanent portfolio is now 35%, you should sell some off to get back to the 25% allocation. The 10% you have from selling off the stocks should be used to buy the other assets that fell below 25%.

This strategy is designed to perform well (or at least not too badly) in any economic environment. During a time of prosperity, stocks should do well. During an inflationary environment, gold should do well (and perhaps stocks to a lesser extent). During deflation, bonds should do well (along with cash). In a recession, it is possible that nothing does well except for cash. However, recessions are usually short-lived and will turn into inflation, deflation, or prosperity.

I recommend putting at least half of your investment money into a setup like the permanent portfolio. It really should be much more than half unless you are a big risk taker. While the permanent portfolio is far from perfect, I really don't know of any other buy and hold strategy that is as safe. Even holding cash is not safe because of the risk of inflation and a depreciating currency.

There is an alternative to setting up your own permanent portfolio. There is a mutual fund that somewhat mimics it. The symbol is PRPFX.

I still prefer Harry Browne's permanent portfolio to PRPFX. The mutual fund takes some extra chances, in my view unnecessarily. There is a small portion in silver, which is more volatile than gold. The fund also invests in individual stocks. Even though the stocks make up a very small percentage, I think it should just buy a broad market index fund and stop picking stocks.

The other thing I don't like about PRPFX is that it invests approximately 10% in Swiss francs. This makes no sense for someone not living in Switzerland. The Swiss franc has been thought of as a strong currency, but to me it is playing unnecessary games.

The permanent portfolio invests in 25% gold to protect against a falling dollar. If you are an American, living in the U.S., then this 25% gold allocation is there to protect you against dollar devaluation. You don't need another currency, particularly a fiat currency.

In early September of this year, the Swiss central bank announced a cap on their currency in relation to the euro. It has essentially pegged the franc to the euro. On that day, the Swiss franc fell almost 10%. That means that PRPFX would have lost 1% on that day alone, just from the Swiss franc portion of its holdings.

I still think that PRPFX is the best mutual fund you can buy for safety and growth. If you can set up your own permanent portfolio, do it. However, some people have limitations. If you have a 401k, you may be able to get a brokerage link account that allows you to invest in mutual funds. If you can do this, I would suggest you use it and put most of your money in PRPFX. While I have my criticisms of the fund, it beats the alternatives in most cases.

State Nullification

2011-10-22T21:08:00.000-04:00

I attended a seminar today called Nullify Now. There were a lot of great speakers. The last two and most notable speakers were Jack Hunter (the Southern Avenger) and Tom Woods. They are both relatively young and very accomplished.

One thing that stood out to me was their incredible ability to speak, along with some of the other speakers. Like so many things in life, I think the ability to speak in front of a crowd is a combination of natural talent, training, and practicing. It helps that both Hunter and Woods are brilliant and well-versed in what they speak about.

There were many different issues discussed, but the main theme of the day was state nullification. The tenth amendment (part of the Bill of Rights) states that those powers not specifically delegated to the federal government in the Constitution are to be left to the states or the people. Instead of relying on the Supreme Court and other courts which are a part of the federal government (why would they rule against themselves?), state nullification consists of the states telling the federal government that their law is unconstitutional and thus null and void. This could be for anything from Obamacare to medical marijuana.

There was a significant crowd there and it was made up of mostly libertarians and conservatives with libertarian leanings. While there were certainly some radical libertarians in the crowd, I would say overall that the speakers tended to be more radical than many in their audience. However, most of them were still well received.

One of the things that Tom Woods brought up was about preaching to the choir. He noted that preaching to the choir is important. There were a lot of people in that room that needed to hear the message. If we can get all of the people who call themselves libertarians or claim to have libertarian leanings to actually educate themselves enough to be highly principled libertarians, then the government would be at least half the size as it is now. These are all people who talk to friends and families about politics. They tend to be on the right track, but they don't have the complete package and they don't always have the most principled answers.

While there was a lot of pessimism in the room (one-world government, collapse of the dollar, etc.), I have reason to be optimistic. Just the fact that there were well over 100 people attending an all-day seminar on a Saturday about state nullification is enough to be optimistic.

While I think America would be many times better off if the federal government followed the Constitution, I am not one who goes around boasting about the Constitution. I am more of an Articles of Confederation guy, but that is a topic for another day. With that said, I like the idea of state nullification. I like decentralization. We need to use different tactics to gain liberty and reduce government, and state nullification is one of those methods.

If you ever get the chance to see Tom Woods or Jack Hunter speak, don't miss it.

Debt in an Inflationary Environment

2011-10-20T21:27:00.001-04:00

I have previously written about the benefits of buying a house right now, if you are in the right situation. One of the reasons I give is that you can take a fixed rate loan for 30 years and pay it back with depreciating money. Your last payment in 30 years might be the equivalent of a nice dinner (if we are lucky).

With that said, I don't want anyone to take that as a green light to run up debt. First, the future is very uncertain and, while I am predicting that we will see some high price inflation (10% or more), this is no guarantee. It is impossible to predict exactly how the Fed will operate and how the politicians in DC will operate. It is also impossible to predict how over 300 million Americans will act.

Even if we do get somewhat significant price inflation, this does not justify running up debt, particularly if it doesn't involve a house or a reasonable investment/ business.

Student loan debt and credit card debt are the worst. You can not clear away student loan debt with bankruptcy. Some might consider this an investment, but that is a big leap of faith right now, especially with college graduates having difficulty finding good jobs.

Credit card debt is horrible debt to have, unless you got there because of an emergency situation. Sometimes you can get low teaser rates, but the rates end up being high. If we end up with 10% price inflation and you have credit card debt with an interest rate of 18%, tell me how that is beneficial.

Cars are a little tougher. Most people need a car, particularly to get to work. Unless you live somewhere like Manhattan, then a car is probably a necessity. In this case, it is obviously important to have one, even if it means taking out a loan. However, if you have to take out a loan, it should be based on need and not want. You don't need a $40,000 Acura to get to your job.

Debt is usually a horrible burden on people. It does not give you financial freedom. Instead, it puts you in financial handcuffs. Even if we end up getting high price inflation, it is unlikely to end up in hyperinflation. This means there will eventually be a severe correction. This will mean deleveraging. It means that anyone with a big debt burden will be in trouble.

Even as far as houses go, whether it is your primary residence or an investment property, it should be a goal to pay it off. You can take advantage of the low interest rates now, but it doesn't mean you should always have a loan.

Stay out of as much debt as possible. You will be happier for it.

October 2011 - Gold and Stocks

2011-10-19T23:16:00.000-04:00

Both the price of gold and stocks have been trading in a fairly narrow range lately. Gold has been in the $1,600 to $1,700 range since its big fall from the all-time highs above $1,900. Meanwhile, just as it looks like stocks are headed way up or way down, they reverse and go the other way.

The Dow has been between 10,000 and 12,000 for a while now. But the remarkable thing is that this range has been maintained with huge volatility. That is a big range for sure, but it isn't when you consider that a 300 or 400 point move in one day is not really considered big news anymore because it is happening so frequently.

The other interesting thing right now is the relationship between gold and stocks. They seem to be somewhat correlated right now. We have seen this in the past, but then the correlation broke off for a while. The correlation will probably break again, but it is hard to say if it will be in weeks or in months.

The biggest threat to the gold price right now is the fear of another recession. I am still bullish on gold in the longer term because of the economic mess that DC has created, but the near term is very hard to predict at this time.

I am in safety mode and I suggest the same to everyone else. You should have at least half, but probably most, of your investments in a setup like the permanent portfolio as described by Harry Browne. For speculation, I would add a little bit in the way of gold related investments and a very small short position in stocks. Also, it wouldn't hurt to increase your cash position slightly above the recommended 25%.

Again, we should be in safety mode. We just need to protect the money we have right now and wait for the opportunities. If you feel your position in gold and gold related investments is low right now, this is a good time to buy. The price may go lower, but why wait? You would be better off buying now in the $1,600 range than you would have been buying a month ago above $1,900.

Republican Debate in Las Vegas

2011-10-18T22:23:00.000-04:00

The Republican debate in Las Vegas just wrapped up. It was held at the Venetian hotel. As a side note, for anyone visiting Vegas, the Venetian is a great place to stay.

This debate was hosted by CNN. The moderator was Anderson Cooper. I never thought I'd say this, but watching CNN was great compared to the disaster that Bloomberg did last week. At least Cooper made an attempt to be somewhat fair with the time and he did not show his bias like the questioners at the last debate.

The audience seemed to favor Mitt Romney and disliked Rick Perry. I don't know if this was rigged at all, but it almost seemed that way. When the two were battling it out and talking over each other, the crowd clearly favored Romney and even booed Perry a few times.

The issue of illegal immigration came up and there is this strong opinion by most of the candidates that illegal immigration is such a horrible thing. They characterize these people as criminals (as if every law is just), when a lot of these immigrants are just trying to find work and provide for their families.

Perry attacked Romney for hiring illegal immigrants. This is absolutely ridiculous. Romney paid a lawn service company to work on his lawn and that company had illegal immigrants. Does this mean we are now responsible for knowing who the employees are for every company we do business with, according to Perry? If I go and buy an iPod at Best Buy, do I have to make sure the person selling it to me is here legally? If we find out that Perry did business with a firm that hired a child molester, then I guess we can say that Perry hires child molesters.

There was one funny thing in that exchange though. Romney had a slip of the tongue where he accidentally told the truth. He said he went to the lawn company and said they can't have illegal immigrants because he was planning on running for political office. So, in other words, he was taking what he saw as the morally correct stand because he was running for political office. If he hadn't been running for office, I guess he wouldn't have cared.

I enjoyed Rick Santorum again tonight. He is horrendous on foreign policy, civil liberties, social issues, and even some economic issues. However, he attacked some of the other candidates right where it hurt. He attacked Romney for Romneycare. He attacked Romney, Cain, and Perry for the bank bailouts. He was effective in taking them down a notch.

Michele Bachmann was ok in some areas and weak in others. Hey Michele, most people don't really care about you wanting to make English the official language. I am getting along just fine with others in my communications without a government law. I wonder if anybody out there thinks, "oh, if Michele Bachmann would only make English the official language in this country, then maybe more people would read my blog."

Perhaps I am biased here, but I thought Ron Paul did an excellent job tonight. He was quite effective on all of the questions and he is starting to hammer away on the fact that the other candidates do not have specific plans to significantly cut the federal budget. Romney made an attempt to offer a few specifics. I only wish that Paul had said that even if Romney's proposed cuts were enacted, it would not amount to much.

Overall, I think Rick Perry was the big loser tonight. I am still not counting him out because he has a lot of money. I think one of his problems is that he reminds people of George W. Bush with his Texas accent and his mannerisms.

Ron Paul keeps chipping away with his pro-liberty message. He isn't going to have a dramatic rise in the polls like Cain did. But he will gain a few more converts each day. We will see if he can get his national poll numbers up to about 15% in the next few weeks. Paul has a lot of money and there may be a lot more coming on October 19 (hours away as I write this) as there is a big money bomb happening.

Political Update for October 2011

2011-10-17T19:43:00.000-04:00

I usually wouldn't spend half as much time focusing on the presidential election, but having a candidate like Ron Paul makes it far more interesting for libertarians to watch.

A few months ago, I was predicting that the Republican nomination was down to 4 players: Romney, Perry, Bachmann, and Paul. With that said, I must have sensed that Herman Cain still had some hope because I was attacking him before he became the talk of the town. I have also attacked his 9-9-9 plan more recently.

While Cain's chances have certainly improved, I still don't see a high probability of Cain being the Republican nominee, despite his current status as a front runner.

Ever since Michele Bachmann barely beat out Ron Paul in the Iowa straw poll, she has taken a beating in the polls. She is in the single digits in most national polls now. She is down, but I am not counting her out yet. She seems to be a bit better than most of the other candidates on economics, but she still does not offer much in the way of specifics. My biggest fear about Bachmann is that she turns out to be like Reagan where she speaks libertarian rhetoric on economic issues, but her policies don't reflect it.

Newt Gingrich has had a bump in the polls. He is certainly a good performer in the debates and a lot of conservatives like him, even though they should know better after his record as Speaker of the House. I still think it is highly unlikely that Gingrich will get the nomination because most people, even Republicans, sense that he could not beat Obama in the general election. I think this is one thing where most everyone is right in that he wouldn't beat Obama.

I don't see Huntsman, Santorum, or Gary Johnson being major players at this point.

That leaves us with Romney, Perry, and Paul. Romney is the establishment's choice. He is pro big government across the board, but he will say what he needs to in order to appease the conservative base, or at least not anger them too much. Romney is the founder of Obamacare. If there is one thing that virtually all Republicans agree on, it is their hatred of Obamacare. And yet the nominee for the party is going to be the inventor of Obamacare?

I am not saying that Romney can't get the nomination. He is not being attacked by Sean Hannity or any of the other popular conservatives with big influence. These people might be afraid to attack him in case he does get the nomination. Another good possibility is that they really don't mind his message too much. Regardless, most Tea Party people are not Romney supporters. They see this as a fight for the Republican Party and a Romney nomination would mean a loss for the Tea Party.

A lot of people are starting to write off Rick Perry. I am not. The fundraising numbers are coming out for the third quarter and Romney and Perry have the biggest numbers by far. Ron Paul is in a distant third. While Romney is the choice of the establishment, Perry is probably the next choice (not counting Herman Cain). Perry has some big backers and I would not be surprised to see him make another surge in the polls. Regardless, don't count him out. I actually would put him as the favorite to win the nomination right now, despite his poor showings in the last month.

If there is one thing to say about Ron Paul, it is that he does not lose many supporters. His support stays steady. Nationally, he is polling in the low double digits. It varies from poll to poll, but I would put him at about 12% right now. Remember that you don't have to win over a majority.

I still put Paul's chances fairly low at getting the nomination, only because the Republicans are too in love with war. Paul has definitely changed some minds on this issue and others, but it is hard to say if it is enough at this point. The educational outreach from his campaign has been phenomenal and it will make a major difference in years to come.

I think the only way for Ron Paul to get the Republican nomination is for a major event to happen in the near future. If there is another major economic crisis (which isn't far fetched at this point), then perhaps we could see a change in the tides. Again, the good news is that he will continue to have a solid 10% that will back him no matter what. This means he can really only go up in the polls.

There are more debates coming and the primaries are moving up. There should be a lot of action in the next few months. Libertarians should enjoy the moment, regardless of the outcome. Did you ever think you would hear Austrian economics mentioned so much on national television?

Possibilities for the American Economy in the Near Future

2011-10-15T13:30:00.000-04:00

One thing that Austrian economics can teach us is that the future is uncertain. In order to understand economics at all, you have to understand the importance of human action. Human beings have free will. They will act according to their personality, their needs and wants, and their environment. It is impossible to predict exactly how billions of people on this planet will act.

Based on economics, history, and our understanding of what generally motivates people, we can take some good guesses at what the future will look like, at least in an approximate way.

The future of the American economy will depend on the actions of Obama, Bernanke, their advisors, and the federal government in general. It will also depend on foreign governments. It will also depend on the American people and popular opinion.

With all of that said, let's look at some of the possibilities that America is facing economically.

The Federal Reserve has tripled the money supply in the last 3 years. Most of this new money is with commercial banks, most of which is parked at the Fed as excess reserves earning the banks .25% interest. The government is involved in military conflicts all over the place. The national debt is about as high as the yearly GDP and the annual deficits are well over one trillion dollars. There was a big correction that showed up in 2008, but the government has prevented this correction from fully taking place.

The previous artificial boom led to a misallocation of resources. For example, there were too many resources (labor and material) going towards new housing. This became obvious in the last few years and this is why unemployment tends to be higher in the housing and construction business.

I see only two ways of returning to real and significant growth. One way is that the government could get out of the way and we could allow the correction to happen. The second way is that we could see great technological advances, even in the face of massive government spending and regulations.

While I am optimistic for the future in the long run, I am less optimistic that the government will shrink in the next few years. The government will eventually be forced to cut back when it faces the threat of hyperinflation or bankruptcy.

I think one likely scenario is that we keep bouncing in and out of recessions. It is looking likely that the economy is turning down again. If this happens, we could see another round of "stimulus" from the government and/or the Fed. It would not surprise me to see high price inflation at some point, although, as I have said before, I don't expect hyperinflation. Eventually, the Fed would have to pull back as it did in the late 1970's and early 1980's. This would cause a huge correction.

I think another scenario that is possible and even more likely than I originally thought, is that the economy muddles along in stagnant mode. Due to the internet and the Ron Paul revolution, the Fed cannot get away with things like they did in the past. This makes severe price inflation a little less likely. Perhaps we will see something in America that resembles Japan of the last 20 years. This would be a scenario where the government will not allow the correction to happen all at once. It is the equivalent of pulling a band-aid off slowly.

Another possible scenario, but one that I see as unlikely right now, is that we have another recession (or a continuation of the recession, depending on your point of view) and the government actually does little to stop it. The only problem I see with this is that the politicians in DC are still spending massive amounts of money. Most of the spending is on the military and entitlements. I just don't see this spending coming under control unless the politicians are forced to, either by voter opinion or by the laws of economics.

There is one thing we can be certain about. As long as the government keeps running huge deficits and keeps interfering with the economy, then a genuine recovery will be difficult. The government is sucking up resources from the free market economy and it is misallocating these resources at best or destroying these resources at worst.

Barring any revolutionary technology that bursts on to the scene, the government is going to have to loosen its grip for the American economy to get back to significant growth. People are feeling squeezed right now and it all comes down to government spending and regulation.

Consumer Prices and Asset Prices

2011-10-13T22:29:00.000-04:00

Monetary inflation causes several things to happen. First, it redistributes wealth. The government benefits at the expense of the average citizen. Debtors benefit at the expense of the savers. The list could go on, but it rearranges the wealth based on debts and based on who receives the new money early on.

Second, monetary inflation can cause a boom/bust cycle, particularly when the interest rates are distorted. There is a misallocation of resources and times seem especially good during the boom phase. When the misallocations are revealed and the lack of real savings is revealed, then the boom turns to a bust.

One thing monetary inflation doesn't do is change the amount of wealth. However, it does cause future wealth to be less than it would have been due to the misallocation of resources.

Monetary inflation eventually translates into higher prices. This does not happen immediately. The Fed could create a trillion dollars out of thin air and release it into the economy tomorrow morning. This is not to say that your lunch will be more expensive than the day before, particularly if the Fed move were not publicly announced. It would take a little time for the money to circulate through and increase prices.

There are other factors in prices. There is the demand for money (or velocity). This is how quickly money changes hands. If there is a high demand for money (lower spending), then the lower velocity will keep prices lower than they would have been. In addition, even in an environment with a stable money supply, individual prices will always fluctuate based on the supply and demand of the good.

One thing that is not well understood by many is that price inflation is not uniform. If the central bank inflates the money supply and the overall price level goes up, certain prices will go up more than others. The false boom that occurs from monetary inflation will find hot spots and drive some prices up higher than others. We can see this by looking at past bubbles, such as the tech stock bubble and the housing bubble.

When we talk about price inflation, we often talk about consumer goods such as food and clothing. But it is actually asset prices that tend to go up higher in an inflationary environment. For the sake of this discussion, when I say assets, I am referring to things that are commonly bought and sold and are often sold for a higher price. For example, asset prices that go up might be stocks, real estate, or gold.

We can see this in China now. Consumer prices are up. However, real estate prices are flying high. Real estate prices have gone up more than food and clothing. Real estate is a bubble in China and it will pop like all other bubbles in history.

So while I am bearish on the American stock market in many respects, I also see the potential for higher stock prices. There has been a lot of monetary inflation in the last 3 years and it has not shown up much in consumer prices. Real estate is not looking like a hot spot right now. There is definitely potential for stocks to make a run if there is not a recession in the near future. There is also a lot of potential for gold and oil.

While I expect food prices to go up, I expect some other prices to rise at a greater rate.

One thing I don't expect to rise any time soon is wages.

Limbaugh on Cain and 9-9-9

2011-10-12T22:11:00.000-04:00

I can't get away from this political stuff for now, but I promise I will comment on any major news in the economic/ investment world if and when it comes.

I heard a small part of Rush Limbaugh's radio show today. I don't usually listen. He mostly drives me nuts. He is wrong on many topics including foreign policy, civil liberties, and Ron Paul. However, he has usually seemed to be decent on economic issues.

Well, today, all of that went out the window. I didn't realize he was so ignorant on economic issues as well. I don't have an exact transcript of what was said (I'm sure it's on the internet somewhere), but I can pretty well paraphrase what he said.

Limbaugh was talking about Cain's 9-9-9 plan. This plan, which I have criticized more than once in the past, was a big topic in the debate on Tuesday night. Cain's plan is to institute a 9% corporate tax, a 9% income tax, and a 9% national sales tax.

Cain and his plan were criticized during the debate, particularly by Bachmann and Santorum, although I'm sure Ron Paul would have been highly critical too had he been given more of an opportunity to speak. But one of the criticisms of his plan is that politicians in the future could raise the 9% income tax rate.

So Limbaugh brings up this subject on his radio show and he basically says that it is ridiculous to criticize Cain's plan in this way because you could say that about any plan to cut taxes. He said something to the effect of, "forget the sales tax portion for a minute." Then he said that you could never support a plan for a flat tax or lower rate with this logic because there is always a chance that it could be raised again in the future.

Do you see where the problem is here? The problem is his statement to forget about the sales tax portion of the 9-9-9 plan for a minute. This is a joke. Excuse me Rush, but that is part of the package plan, so let's not forget about it for a minute.

If Cain's plan were simply to reduce the corporate tax rate to 9% and make the income tax a flat 9% and get rid of all of the other taxes with no national sales tax, then I would fully support this plan. As a radical libertarian, I would rather these rates go to zero, but I recognize that a 9-9 plan without the national sales tax would be a vast improvement over what we have now.

But Limbaugh is either ignorant or he thinks his listeners are ignorant (which might be partially true). He pretends that the massive national sales tax is not a part of the plan and analyzes the other part in a vacuum. Bachmann and Santorum were absolutely correct in their criticisms of Cain's plan. If Cain's plan passed, future politicians could raise the rates. They could make the income tax rate progressive again. They could make the income tax rates back to where they are today. But here is the problem el rushbo: WE WOULD HAVE A NATIONAL SALES TAX TOO.

I have absolutely no use for Rush Limbaugh any more. He was an apologist for George W. Bush and I'm sure he would be the same way if Romney, Cain, or Perry were president. The only reason I will listen to him at all in the future is just to know what kind of ignorant things millions of people are hearing out there.

Republican Debate on Bloomberg

2011-10-11T22:25:00.000-04:00

There was a Republican presidential debate on Bloomberg and its main focus was on economic issues. I'm guessing it was not as highly watched as other debates, particularly because not as many households get the channel on cable.

I thought the people asking the questions were a bunch of Keynesians. Some of their initial questions were decent, but you could get a sense of their attitude on the follow-up questions and they didn't do a good job of hiding their bias in favor of big government.

Ron Paul did not get much time to speak, but I am still happy with how the debate turned out. It really exposed some of the candidates and showed that a majority at that table are in favor of big government.

From a libertarian perspective, Michele Bachmann was decent as usual. I hate her foreign policy (which was not discussed) and I don't really trust her, but she definitely speaks in favor of a free market and smaller government on economic issues. However, she is still short on specifics of where she would cut government spending and I think someone needs to challenge her on that.

Rick Santorum was bearable in the debate, probably because most of the discussion was on the economy and not on foreign policy or social issues. I was happy to hear Santorum point out that four people at the table supported the bank bailouts in 2008. The four people were Huntsman, Perry, Romney, and Cain.

Cain and Romney both talked about how they supported the bailouts but don't agree with the way it was implemented. That exposes both of them right there. It basically shows that they are either naive or they are lying.

When the candidates were allowed to ask someone else a question, I thought Ron Paul should have asked Cain what specific cuts in spending he recommends. With that said, Paul's question about the Federal Reserve was very good, if only to expose the fact that Cain worked for the Federal Reserve and is not some political outsider as he claims to be.

I was also happy to hear Santorum attack Cain's 9-9-9 plan. Santorum pointed out that it opens up another avenue to raise taxes. Cain tried to argue that it won't happen and one of his reasons was because he will be president. But isn't this always one of the problems that we face? One administration implements these new programs and these new powers and then the next administration ups the ante and takes advantage of the new power. Does Cain not understand that there will be more presidents in the future and that the 9% income tax could easily get raised while leaving in place the national sales tax?

As I've discussed before, Cain's 9-9-9 plan is a massive tax hike on the middle class and it does nothing to cut the size and scope of government. Cain is nothing close to a libertarian and all genuine libertarians should run away from this man.

Romney was questioned about his calls to challenge China on its "currency manipulation". Legislation on this topic just passed the Senate and it would cause a trade war. One of the moronic interviewers asked a question about this and said that it would lower the price of goods going into the U.S., as if this were a horrible thing. Does it ever occur to these people that lower prices might actually be a benefit to Americans?

Overall, the debate was fairly tame. It probably won't change a lot of minds, but on the margin it might make a difference. There should be a few more people aware now that Romney and Cain are both lovers of big government and any liberty minded person should hope that they are soundly defeated. Of course, the only consistent and pro-liberty candidate continues to be Ron Paul.

Greek Debt

2011-10-10T20:46:00.000-04:00

Last month, I wrote a piece on interest rates on Greek bonds. I wrote that Greece will likely default on its government debt. It was a popular piece. People are paying attention to this. Even Americans realize that there are ramifications elsewhere.

As of today, the interest rate on a one-year Greek bond is over 150%. This means almost certain default, unless there is a massive bailout. But even a massive bailout will only buy time.

This means if the government of Greece issued a one-year bond today for, say, one million euros, then it would end up paying back 2.5 million euros over the course of the next year.

Let's use an analogy for this. Let's say there is a family with huge credit card debt. The family makes $50,000 per year after taxes and makes the minimum monthly payments on its credit card debt, which amounts to $1,000 per month. The problem is, after the family pays for its monthly expenses of housing, food, clothing, and other things, they only have $800 left to pay the credit card bill. So the family uses even more credit card debt, just to pay the minimum monthly payments. The family's debt is getting larger and larger and the interest rates keep going higher and higher.

Eventually, the credit card companies would stop lending money to this family and the family would end up in bankruptcy unless it could drastically cut its regular monthly expenses.

In the case of Greece, there is minimal cutting right now, although I'm guessing many of those on the welfare train there would disagree with me that it has been minimal up to this point.

Instead, the Greek government is trying to raise taxes and this will only result in more productive people leaving the country.

The Greek government is like the family in credit card debt. It can barely make its minimum payment each month. It has to borrow more just to pay the interest. I can see no other reason why the government would be issuing debt that pays 150% interest.

Perhaps there will be another bailout, but this will only delay the day of reckoning. The default is coming. This is significant and yet Greece is small compared to others. Italy's debt-to-GDP ratio is almost as bad as Greece. Of course, Japan is far worse than both with a ratio of over 200%, yet that country is still going without default.

Greece cannot print money. It needs the European Central Bank to do that. But if the ECB does too much money creation, then countries like Germany will revolt. The people will revolt, not the German government.

Greece will default. Others may follow. The euro may break up.

For American investors, it leaves a question of what to do. If these events unfold quickly, the U.S. dollar may strengthen in the short term. It is difficult to say what will happen with gold in the short term. It depends on what people view as a safe haven. Gold may struggle because of a strengthening U.S. dollar or it may do well as people buy it as a crisis hedge.

Jury Nullification

2011-10-08T13:24:00.000-04:00

I tend to be against politics for advancing liberty. I am happy that Ron Paul is running for president, but not because I expect him to win. He is using his platform to spread the message of liberty to millions of people. So while he is using a political forum to do this, it is his educational influence that is most important, as thousands of more libertarians sprout up every week.

The only way to bring about lasting change in favor of liberty is by changing the hearts and minds of the people. If a majority or strong minority of the American people withdraw their consent from the government, then the government will weaken and may eventually even collapse if the sentiment is strong enough.

One way that Americans can impose an almost immediate effect is by using the power of the jury. In any court case that involves a jury, it is up to the people on the jury to decide the verdict. It is basically out of the control of the judge and the government in general at that point. While you will not be told this as a juror, it is not only your responsibility to judge the facts of the case and determine if the person violated the law, but it is also your responsibility to judge the fairness of the law in question.

If you, as a juror, believe that a law is unjust, it is your right to use jury nullification. You can essentially nullify the law, or at least in regards to the person on trial.

Some libertarians will point out that jury duty itself is anti-liberty, because you are essentially being forced to serve on the jury. This is a valid point, but in a libertarian society, I believe most people would be willing to serve on a jury, if in fact juries existed. Even more so, I believe most people would be willing to serve as witnesses. If someone declined to serve as a witness to either convict or absolve someone from a crime, then that person could be blacklisted by the private sector. If a crime were committed against someone refusing to be a witness, then maybe that person would not have the same redress as others because they had previously refused to serve as a witness. Regardless, this is a subject for another day.

Regardless of whether you think jury duty should be mandatory, libertarians should take advantage of being called for jury duty, particularly for cases that involve a victimless crime.

Imagine a world where 20% of the population is made up of principled libertarians. If you get a couple of people on each jury that is willing to use nullification, convictions for victimless crimes will become really difficult. Some "crimes" to be nullified could include drug use, tax evasion, insider trading, prostitution, and selling raw milk. I'm sure you can think of many others if you are a libertarian.

Right now, most people would be terrified to go in front of a jury on a tax evasion charge. They end up doing a plea bargain so that they can serve less time in prison or pay a smaller penalty. But what if public sentiment changed so much that there would be a good chance of an acquittal? Imagine if juries started acquitting for the majority of tax evasion cases or drug cases that didn't involve violence on the part of the accused.

Even if juries were hung, it would still be a blow to the prosecution and the law in general. If enough people started being acquitted of drug use and tax evasion, then more people would start to openly defy these laws. Eventually, the government would see these laws as unenforceable and these laws would, in effect, be nullified.

If you have the opportunity to serve on a jury, you should take it. You could make the difference in someone's life and you could send a message. You will be asked questions before being picked for a jury. You should not lie, but you can try your best to avoid answering questions or volunteering too much information. If you do get picked for a case that happens to involve a victimless crime, you will have to stay strong against the other jury members. You do not have to change their minds. You do not have to give a reason for voting to acquit. You can simply say that that is how you will be voting.

Jury nullification can be a powerful tool for libertarians. We don't need to elect the right politicians to change the law. We just need to stop locking people up for violating laws that shouldn't exist in the first place.

Steve Jobs and Occupy Wall Street

2011-10-06T21:02:00.000-04:00

There are some noteworthy news items and I would like to tie them together.

First, Steve Jobs passed away yesterday. May he rest in peace. Jobs was a brilliant thinker and a brilliant entrepreneur. I don't know what kind of a person he was, but he certainly made the world a better place.

There will always be comparisons between Jobs and Bill Gates. I think Steve Jobs was more intelligent than Gates is, but that is just my opinion. While Gates may have been less original, he was a more successful businessman to start. Just about the whole computer world used Microsoft. It took more time for Apple to gain its footing.

Overall, I am bigger fan of Apple than Microsoft when it comes to computers. The operating system on a Mac is superior. But again, Gates was successful as a marketer and businessman with Microsoft. Apple may win out at the end, but Microsoft certainly had its day in the sun.

It is reported that Steve Jobs was a liberal (in today's language). While this might be the case, there are many libertarians who admire the work he did. While his opinions may have been leftist, his actions were not. He is one of the greatest examples of capitalism that we have. He was a major player in the internet and technological revolution.

Meanwhile, there have been protests against Wall Street. This new group is being called the Tea Party of the left. If you look at their list of unofficial demands, it is horrific. They want a "living wage", even for those unemployed. Their ideas are anti-capitalist. They are contradictory in many ways. They are a dream that is impossible.

Just like the Tea Party, I'm sure that different people in this group have different ideas. Some are worse than others. Generally speaking though, they are a group of anti-capitalists.

I have sympathy for those who are speaking against government bailouts. I could not agree more that these big businesses should not be handed favors by the government. The problem is that most of these protesters go way beyond this. The other problem is that they should be protesting big government, not big business.

While I think many Americans are upset about government bailouts, and rightly so, I don't think they are anti-capitalism like these protesters. Bailing out corporations is not capitalism. You can call it corporatism or anything else, but it is not free market capitalism. In a truly capitalist society, there would be no government bailouts. So the protesters are against the bailouts (I think) and yet they are anti-capitalist. Their own thoughts are contradictory.

Overall, I don't see this mentality as a major threat. Going back to Steve Jobs, he is a hero to most people. Businessmen are often vilified, yet Jobs is not. Jeff Tucker wrote a piece on this and speculates that it is because "he made his products elegant and made our lives more beautiful." While I agree with this, I am hopeful that it goes beyond this.

Speaking in generalities, one thing that still makes Americans different from many others around the world is that Americans like success. With the exception of a few on the far left, most Americans do not want to kill entrepreneurism. Some might be a little envious of those with more money, but most Americans think it is ok to be rich, especially when it is done by creating wealth and pleasing consumers.

I think the one thing where Americans need to learn a little more is that there are millions of people working every day to help consumers. Most people are nowhere near as savvy as Steve Jobs was. But there are millions of people in their own little way who work behind the scenes to fulfill human wants and needs.

The things that Steve Jobs helped produce were obvious and they were obviously beneficial. You don't see the entrepreneurs and workers who manufactured and delivered all of the little things that go into an iPad or iPhone.

I am still hopeful for the future. Americans still want to see successful people. As long as that attitude remains, there is hope in regaining liberty.

Congress, The Fed, Inflation, and Hyperinflation

2011-10-05T22:03:00.000-04:00

With a push to have a full audit of the Federal Reserve, critics of this move (such as those with the Fed) say that a full audit could jeopardize the Fed's independence. Of course, Fed officials and other government elitists who benefit from having a secretive central bank do not want an audit because they want to keep the party going at the expense of others.

With that said, perhaps those pushing for an audit should be careful what they ask for. If there were a full audit and there were enough things found to cause major outrage, there is a chance that Congress could strip power from the Fed and take over the monetary controls. In fact, Dennis Kucinich is advocating that Congress reclaim its authority (his view, not mine) and take over monetary policy.

As Gary North has pointed out, having Congress in direct control of the money supply would increase the chances of hyperinflation. In contrast to many other libertarians, I do not believe there is a high probability that we will see hyperinflation. I think high price inflation is possible, like what the U.S. saw in the 1970's, but I think the chances of hyperinflation (for example, prices doubling every year) are slim. If Congress directly controlled monetary policy, I would raise the chances.

Assuming that the Fed keeps control of the money supply, I would not be surprised to see double digit price inflation in the somewhat near future. However, I have given this whole issue some more thought and I also wouldn't be surprised if price inflation does not get as bad as we saw in the 1970's.

I have some reasons for this view. One reason in particular is Facebook. We live in a different world now. While I have many "friends" on Facebook who are libertarians, the majority are not. I have other libertarian friends who are in the same situation.

If price inflation reaches 10% or more, we just need for someone to produce a good 2 or 3 minute video that explains in simple terms how the only way there can be a sustained increase in the general price of goods and services is by having an increase in the money supply. Then the video can explain that only the Federal Reserve can directly control the money supply (and maybe the banks with fractional reserve lending).

For every one person who posts a video like this, a hundred people or more will view it. We live in the age of the internet. It is harder to get by with ignorance these days. The Fed can't hide behind the media any more. Ron Paul has brought this issue to the public's attention and the internet users have spread the word. With the communication lines wide open as never before, I am hoping that is enough to prevent massive price inflation.

As far as promoting policy, I think the best thing we can do as libertarians is to advocate the repeal of legal tender laws. We should be free to use the money of our choice. Who can object to this on moral grounds? You can ask your non-libertarian friends if people should be allowed to do business with other forms of money without going to jail. I'm guessing most won't object when you put it in these terms.

If we can repeal legal tender laws, then it will either force the Fed to stop inflating and buying government debt or else other money will become more popular. We can do to the Fed what the internet and Fed Ex are doing to the post office.

Also, if legal tender laws are repealed and other forms of money begin to sprout up, then hyperinflation becomes less risky to our civilization. If the dollar became worthless, then there would already be other forms of money to take its place to do business. The trucks could keep delivering food to stock the shelves of our grocery stores, which is really the most important thing.

U.S. Government Trying to Blame China

2011-10-04T20:56:00.000-04:00

The subject of China and its currency has been building for the last several years and now more and more government officials are pointing the finger at China for manipulating its currency and not allowing the yuan to rise. There is legislation currently being debated in the Senate that would compel the Obama administration to make a determination if other countries are not aligning their currencies in the manner that the U.S. government deems acceptable. Eventually, this could lead to tariffs on imports.

Several Chinese officials spoke out against this action today and said that it would start a trade war, which they (the Chinese) do not want. House Speaker John Boehner has come out against the legislation. Even if it did get through the House, it is unknown if Obama would sign it.

This rhetoric has been heating up more and more. I heard it from Romney in the last Republican debate, which tells us enough right there about that man.

The latest and most interesting person to join in the party of blaming China is Ben Bernanke. Good old Helicopter Ben is now instructing other countries on how to manipulate their currencies. Bernanke said, "Right now, our concern is that the Chinese currency policy is blocking what might be a more normal recovery process in the global economy."

So there you have it. Bernanke has chimed in. Since unemployment is still over 9% and the economy shows no signs of getting better with all of the massive deficit spending, the idiot Keynesians are now going to blame China for the horrible policies of the U.S. government and Federal Reserve. Bernanke's Keynesian policies have failed and he knows it and he refuses to take any blame. It doesn't take a libertarian to see that he and the others blaming China are simply trying to escape responsibility for their own failed policies.

If the U.S. government were actually stupid enough to pass this legislation, China would be stupid to get into a trade war. Instead, Chinese officials should just immediately start to sell U.S. treasuries. If they really wanted retaliation, they should make an announcement that if the tariffs are not repealed within 60 days, then they will dump approximately one trillion dollars of government debt onto the open market. This would send interest rates soaring in the U.S. and would immediately trigger a massive recession.

As to the actual merits of China affecting the U.S. economy, these idiots and/or liars have it completely backwards. If anything, China is subsidizing the U.S. in a couple of ways. The Chinese are buying U.S. government debt and doing a favor to the U.S. government. In addition, the Chinese are subsidizing U.S. consumers with inexpensive products.

I think China should have a stronger currency and let their currency rise against the dollar. But this has little to do with the U.S. economy, at least directly. Chinese officials should do this for the benefit of the Chinese citizens who would benefit with cheaper goods and a higher standard of living. It would hurt some exporters in the short term, but overall it would be highly beneficial for the average person living in China.

It seems that every major central bank on this planet is inflating extensively right now. They are all shooting themselves in their respective feet. Even the Swiss and Japanese are doing it. This is mercantilism and it is bad policy. It helps subsidize the exporters at the expense of everyone else using that currency.

This is why gold and gold related investments will continue to do well in the future.

Don LaPre

2011-10-03T20:52:00.000-04:00

Don LaPre, an entrepreneur known for his television infomercials, was found dead on Sunday of an apparent suicide. You can read the story here. He was in jail, awaiting a trial.

This news is quite sad to me for various reasons. LaPre is best known for his infomercials in the early 1990's when he sold his money making strategy. While some may call it a scam, it was like many other money making kits that are sold today. It doesn't matter if it is trading stocks or buying real estate. Most people understand what they are getting when they buy these things.

These money-making strategies are not a guarantee for success. None of them are. However, they can give you great tips and provide motivation to take action. LaPre's money-making system was no different. In fact, his might have been better in the fact that it gave some sound marketing advice and also provided good tips and motivation for budding entrepreneurs.

The reason he was in jail was because of his latest money-making venture selling vitamins. The FDA (of course) went after him because he was making claims about these vitamins and he did not pay the appropriate bribe of about one billion dollars to the FDA to get it approved as a drug. The FDA already has plenty of blood on its hands from withholding life saving drugs off the market, not to mention the drugs that never come into existence due to the major barrier of the FDA. I suppose we could add one more death to its resume as it ruined LaPre's life and most likely pushed the man into committing suicide.

It is ironic that the federal government put this man in jail because his vitamins were not performing what was being claimed. Yet we have the giant pharmaceutical industry, in hand with the government, pushing vaccines, cholesterol medication, blood pressure medication, depression medication, ADHD medication, and everything else you can think of. Not only do these vaccines and drugs not always do what they claim, but they oftentimes cause more harm than good. At least if you take a vitamin that doesn't do anything, there is no harm done.

This is just the latest example of the government being completely out of control. Just look at all of the different counts that LaPre faced. He was charged with mail fraud, wire fraud, money laundering and a host of other charges. This is a joke as all of these charges stem from one thing: selling a vitamin that made certain claims that had not been approved by the FDA.

This is Martha Stewart all over again. Luckily for Martha Stewart, it was a happier ending.

I have no idea what kind of a guy Don LaPre was, but he was not a criminal based on anything that I've read. He was a successful entrepreneur, but he was not approved by the bureaucrats in Washington DC. May he rest in peace.

Adjusted Monetary Base - October 1, 2011

2011-10-01T14:03:00.000-04:00

I try to give updates and comments on the adjusted monetary base so that we can keep up with what the Fed is actually doing and not just saying. I haven't commented on this subject in detail for a while, mostly because there hasn't been much change. However, that in itself is a story in which we should pay attention.

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

You can view a longer-term chart here and see the dramatic rise in the last 3 years:
http://research.stlouisfed.org/fred2/series/BASE

Now, here is a chart of the excess reserves held by banks:
http://research.stlouisfed.org/fred2/series/EXCRESNS

So what's the story here? Basically, the Fed has followed through on what it is saying. QE2 ended in June, and since then we can see that the monetary base has been flat or even down slightly. Meanwhile, the excess reserves being held by banks has an almost exact correlation with the monetary base. This has been the case since the fall of 2008. It does not seem that anything is changing here.

The Austrian Business Cycle Theory teaches us that loose money and artificially low interest rates will cause an unsustainable boom. This boom will go bust when tighter money appears. However, one thing that is important to note is that we do not have to see a contraction in the money supply to see a bust. Just a slowdown in the growth of money can be enough to induce the inevitable bust.

The huge increase in the money supply over the last 3 years has been tempered by the huge excess reserves and a high demand for money. This has kept a lid on price inflation. However, it has still caused distortions in the market. While we may not see a huge bubble like we previously saw in real estate or technology stocks, there are still certain sectors that have benefited from the monetary inflation.

Now that the Fed has been keeping the money supply fairly constant over the last 3 months, it will not be surprising to see a further downturn in the economy. We are already seeing a flattening of the yield curve, which is an indication of recession. It is unlikely we will see an inverted yield curve, but that is only because the short-term interest rates are already near zero.

This "bust" may show up in different ways. We could see another increase in unemployment. We could see the stock market crash. We could see gold and oil go down further. We could see housing prices go down further. It is hard to say at this point what sectors will suffer the most, but we should not be surprised to see trouble ahead.

It is anyone's guess what the Fed will do next. However, if things get really nasty, it seems likely that the Fed will take further action and try to prevent the correction. If the Fed starts a heavy dose of QE3, then we should expect a huge run in the price of gold at that point. Stocks are a little harder to predict.

We will keep watching the adjusted monetary base and the excess reserves. So far, the Fed's actions have reflected its rhetoric. The Fed is not creating new money out of thin air right now, so we should not be surprised by the lower prices in many asset classes.

Paul Up, Obama Down

2011-09-29T21:11:00.000-04:00

Yesterday, there was a report of a new poll that showed Ron Paul beating Barack Obama in a head-to-head matchup, 51% to 49%. Today, there is a report of a poll showing Ron Paul in virtually a statistical dead heat with Obama in the state of Florida. Florida tends to be a good cross-section of the country, except that it has a higher percentage of seniors. This just shows that the Medicare/ Social Security issue is not scaring a lot of seniors to turn away from Paul.

This is quite significant. While I think Paul could conceivably win the Republican nomination, I wouldn't bet even money on it right now. While there has certainly been a shift in public opinion, the Republican Party is still too pro-war and that will make it difficult for him to get the nomination. However, if Paul did get the nomination, I think his chances would be quite good against Obama. I think there would be a lot more independents and Democrats receptive to his anti-war message.

So while I'm not exactly banking on a Ron Paul presidency at this point, I still think these polls are very significant and should give us great reason for optimism. This shows that there has been a dramatic shift in public opinion. With Paul running as a Republican and getting into the debates, it has helped spread his message and reach people that have never heard this message. And of course the internet has been absolutely wonderful for the advancement of liberty as it has opened up the lines of communication. We can now circumvent the mainstream media. We are now at a point where a majority of people do not trust the mainstream media and more people are getting their news from alternative sources like the internet.

The best news in all of this is that Ron Paul draws a large portion of his support from young people. While he has a diverse group of followers, the largest demographic seems to be people in their twenties. Many of these people will be libertarians for life, which should really give us great hope for a few decades down the road.

There is still a lot of work to do for libertarians in trying to convince others of the benefits and morality of liberty. But this just shows that progress has been made. Ten years ago, most people didn't know who Ron Paul was. Not only do people know him now, but he is polling about even with the sitting president. I think we will eventually win this battle of ideas.

We don't need to elect Ron Paul to become free. We just need to change the hearts and minds of the people and that is starting to happen.

Gold and Velocity

2011-09-28T20:40:00.000-04:00

After the price of gold fell off a cliff last week, the metal continues to look weak for the short term. It was down significantly again today after bouncing up yesterday. Silver has taken an even bigger beating than gold, showing us all why it is better to have the majority of your core holdings in gold.

I would not be surprised to see the metals fall a little further still. We have to look at it all in context though. The price of gold has been up every year for the last 10 years. It is still up significantly for this calendar year. It was hitting new all-time nominal highs and it should not be surprising that there has been a big pullback.

The current environment looks ripe for another recession, or a continuation of the recession depending on how you look at it. The Fed has pumped in all of this money in the last 3 years and we still see relatively small price inflation. The banks have piled up this money as excess reserves and the American people remain fearful (and rightly so).

Since the American people have been more conservative with their money, it has kept velocity low. There is no actual way to measure velocity, but it seems that there is a high demand for dollars due to fear and uncertainty. Since money is changing hands less frequently, it counteracts a large portion of the Fed's loose monetary policy. In other words, the low velocity keeps a lid on price inflation, along with the massive excess reserves.

When there is fear and a looming threat of recession, people tend to flock to the American dollar. For a while there, people were flocking to gold. I expect people will return to gold, but the short term is more questionable.

As far as your investments go, you should maintain a buy and hold strategy of gold and gold related investments for your permanent portfolio. If your investment portfolio does not include at least 20% in gold and gold related investments, then this is a great time to accumulate more. If you are a short-term speculator with gold, then good luck because I have no idea what you should do right now.

Don't let the latest fall in the precious metals scare you. It is going to be a roller coaster ride. Nothing goes straight up. There will continue to be run-ups and corrections. The low velocity of money may keep things down for a while, but I expect the Fed to start QE3 if things start to look too gloomy.

Gary Johnson, The Fair Tax, and a Balanced Budget

2011-09-27T21:23:00.000-04:00

Since Gary Johnson was allowed to participate in the last debate that was hosted by Fox News, I figured I would comment on a few things he said, since he has gained a little bit of attention.

Johnson's best line and the funniest line of the debate was when he said his neighbor's dogs have created more shovel-ready jobs than Obama. He obviously had this line ready to go before the debate, but it got a good laugh and that can sometimes draw attention.

While I personally like Ron Paul's version of libertarianism far better than Johnson's, it is still good for libertarianism when he is in the debates. Sometimes his comments can enhance the message being sent by Paul. If Paul weren't in this race, Gary Johnson would be by far the best candidate on foreign policy, social policy, and fiscal issues.

One thing that Johnson said several times during the debate was that he had a plan to balance the budget and he wanted to institute the Fair Tax. As a libertarian, I am against the Fair Tax and I am against a lot of the versions out there for a balanced budget amendment. However, when you combine the two ideas into one, then they are not as bad.

The worst thing about the Fair Tax is that it is "revenue neutral". In order to be revenue neutral, we would need a national sales tax of around 30%. While I don't like the complications of filling out income tax forms, that is not the really bad part of having an income tax and all of the other taxes we pay. The really bad part is that it takes way too much money from us and the Fair Tax doesn't help this situation at all if you don't address spending with it.

If we had a balanced budget by cutting spending in the neighborhood of $1.5 trillion per year, then we still might need a national sales tax of 30% to pay the bills. But at least it would neutralize the Fed as there would be no need for the Fed to buy any more government debt. This would help the economy tremendously.

The reason I get skeptical of a balanced budget amendment is because a lot of people want to balance the budget with tax increases. To paraphrase Ron Paul, I would rather see an unbalanced budget of $2 trillion than a balanced budget of $4 trillion. But I am certainly in favor a balanced budget if it means getting there by dramatically cutting spending and not raising any taxes.

I am still hesitant on the Fair Tax, even with a big cut of 43% as Johnson is suggesting. I might be more prone to liking it if it meant a national sales tax of 10% or less. That would only be acceptable with the repeal of the 16th Amendment.

I think Johnson should stick with his cheerleading of a balanced budget through a 43% reduction in spending. He should drop the Fair Tax. Ron Paul should take a lesson from this and come out with his own plan to balance the budget. In fact, he should one-up Johnson and get the federal budget below $2 trillion and advocate tax cuts along with a balanced budget. He should start being more specific.

Next, the two of them should team up on the other candidates. Michele Bachmann says she wants a balanced budget, but I have no idea how she is going to get there without cuts in military spending. She should be challenged. Herman Cain and Rick Perry should be challenged too. Ask them how, specifically, they would balance the budget. How would you cut $1.5 trillion out of the budget this year? Not next year or ten years from now, but right now.

If the moderators of these debates and the mainstream media won't ask these tough questions, then Ron Paul and Gary Johnson should start asking them. Unless you cut military spending significantly, which means ending the wars, then it is almost impossible to balance the federal budget, unless you want to start cutting Social Security payments. Bachmann, Perry, and Cain should be pinned down. We shouldn't bother with Romney as he is out in left field.

Herman Cain and His 9-9-9 Plan

2011-09-26T20:47:00.000-04:00

I was planning on writing a post this week on Herman Cain. Now that he won the Florida straw poll by a substantial margin, it makes it that much more important. While the Florida straw poll tends to be tilted towards the more establishment figures (I knew Ron Paul had little chance of doing well) because of the way it is run, it is still significant for Cain because he is getting a little more attention now.

I wrote a post about Cain a few months ago. He is a statist. He claims to be a political outsider and yet he was chairman of the Federal Reserve Bank of Kansas City. He has some libertarian rhetoric and that is why I focus some attention on him. Romney is a statist too, but it is more apparent to those with libertarian leanings.

While Cain has previously supported the so-called Fair Tax, he is now advocating a plan that he calls "999". It is a proposal to have a flat tax rate of 9% for businesses, 9% for individual income taxes, and 9% for a national sales tax. He claims it is revenue neutral, just like the Fair Tax.

I am against the Fair Tax for various reasons, particularly because it is revenue neutral. (I really don't like the term revenue, since government is not a business and this money is obtained through the threat of force and not through providing goods and services.)

However, Cain's 999 plan is much worse than the Fair Tax. At least the Fair Tax is supposed to repeal the 16th Amendment and abolish the federal income tax. With Cain's plan, we would have both a national sales tax and an income tax. What is to stop the next congress and president from raising the income tax rates on high-income earners, while leaving the sales tax in place?

In addition, this 999 plan would be horrible for the middle class. It would be a massive tax hike on the poor and middle class. Many lower to middle income families pay very little or nothing at all in the way of income taxes. They just pay the payroll taxes. Now they would also have to pay an additional 9% on everything they buy?

Cain's income tax plan also doesn't allow for any deductions, except for charitable donations. His website says it would be "gross income less charitable deductions". Then it says "Empowerment Zones will offer additional deductions for those living and/or working in the zone", whatever that means. This sounds like more central planning from a former Fed official.

This 999 plan would be an absolute disaster. It would raise taxes on the poor and middle class and it would leave higher income earners more vulnerable in the future. It would not cut anything out of the budget. It would leave us with the IRS and it would have to create another IRS or another division of the IRS just to collect the sales tax.

It doesn't matter how abysmal Cain is on all of the other issues. This 999 plan alone should tell every libertarian to run in the opposite direction. If Cain were at all a libertarian, he would be advocating at least some spending cuts. I am no fan of Michele Bachmann, but she is far better than Cain on fiscal issues. And Gary Johnson is far better than Bachmann. And Ron Paul is far better than Johnson.

Gold Plummets This Week

2011-09-24T13:48:00.000-04:00

On Wednesday, I wrote a short piece on the Fed's announcement that it would buy longer-term government debt. In the comments of that post, I received a question asking, "Can you provide some insight as to why this would have caused gold to lose value?"

I was going to defer this question until later in the week, but gold had a huge down day again on Friday, this time dropping about one hundred dollars in one day. This was mild compared to silver in percentage terms, which has basically crashed this past week.

First, I should point out that in a somewhat free market, all prices are determined by buyers and sellers. This is no different for gold and silver. There were obviously more anxious sellers of gold this past week than there were buyers.

With that said, I can speculate on some of the reasons that gold had such a terrible week.

On Friday, there were stories about an increase in the margin requirements in the gold market. Many believe that this caused the sell-off and there is probably something to that. In addition, this happened after it had already had a fairly big sell-off during the week.

As to the drop in the price of gold on Wednesday, there was apparently something that did not please gold owners about the Fed's statement. I think one possibility is that the market expected more from the Fed. Many investors were hoping, or at least expecting, that the Fed would announce some mild form of QE3. But the Fed's announcement to rearrange its portfolio does not add any base money. For the longer-term government bonds that are bought, an equal number of short-term bonds will be sold (or retired). We should not see any significant increase in the adjusted monetary base based on these actions. In other words, gold investors were counting on more loose money from the Fed and they didn't get it with that announcement.

Another possibility in contributing to the gold price decline this week is that the economic outlook is gloomy. This was confirmed by the Fed's statement. If we enter into another recession (even though I'm not sure we ever left the first one), this may be very bad for gold in the short run.

For some reason, investors still flock to the U.S. dollar during recessions. I'm not saying they should flock to the euro or some other fiat currency, but it is fairly obvious that the U.S. dollar is in a long-term decline. But economics and investing is based on human action, and a lot of individuals still like to park their money in U.S. dollars during down times.

This means that the velocity of money may slow down even more. There is a higher demand for dollars (more liquidity and perceived safety), so dollars are not changing hands quickly. Banks are not loaning money like they used to and consumers are not spending money the way they were 5 or 10 years ago. This puts a downward pressure on prices and this will include gold and silver.

Although the gold market suffered greatly this week, I am still bullish on the metal right now. In the not-so-distant future, we will start to see days where the metal is also going up one hundred dollars or more in a day. It won't just be on the down days when we see these big moves. That is when you will know that we are getting close to bubble territory. But even when we get into a gold bubble, we can expect it to last for a while and see prices go to the moon. There will be a time to sell some gold (not all) and take some dollar profits.

If this crazy week in the markets confirmed one thing for me, it is the wisdom of the permanent portfolio. It showed us that it is better to put more in gold than silver. It also showed us it is important to have some exposure to bonds, as that was the only thing (besides cash) that didn't get hammered this week.

Libertarian Thoughts on the Republican Debate in Orlando

2011-09-22T23:04:00.000-04:00

I normally would not care about these debates as much, but it is rare that someone like Ron Paul is running for president and getting some attention. Here are a few random thoughts on the debate in Orlando, Florida.

The first notable thing is that Gary Johnson, former governor of New Mexico, was permitted to participate in the debate. He is no Ron Paul, but he does have a lot of libertarian leanings and it is nice to see someone else on the stage who is at least decent and makes some sense.

It is interesting to compare the debates from this year to the debates from 4 years ago. The candidates of this election cycle sound much more fiscally conservative and anti-big government. I don't believe most of them, but it is still notable. I think one difference is who is occupying the White House. The candidates in 2007/ 2008, with the exception of Ron Paul, felt compelled to defend Bush's abysmal record.

On the last question about choosing a running mate on the stage, it was nice of Gary Johnson to pick Ron Paul. I like Paul's answer to the question too, but I thought he should have acknowledged Johnson as at least being the closest one to his views. Another addition to Paul's answer could have been him stepping outside of the box and naming a few potential running mates not on the stage. If he had mentioned Lew Rockwell, Tom Woods, Robert Murphy, Judge Napolitano, etc., I'm sure a few people out there would have "googled" those names out of interest.

It was a little disappointing to see such a short discussion on foreign policy. I always enjoy seeing the contrast of Ron Paul against the other candidates and we didn't get to see that in this debate. It is important for Paul to keep making this distinction.

Overall, a lot of the debate was more of the same. But I am going to enjoy it because we are not likely to see another Ron Paul running for president as a major party candidate any time soon. I can only hope that if Ron Paul does not get the Republican nomination that the Libertarian Party puts up someone good this time.

The Fed to Buy Longer-Term Government Bonds

2011-09-21T20:55:00.000-04:00

The Fed had one of its regular meetings on Tuesday and Wednesday and the FOMC announced today that the Fed would be buying long-term treasuries, while selling an equal amount of short-term treasuries. This should have no effect on the monetary base. It is simply an exchange for longer-term government debt.

This move by the Fed is meant to lower the long-term interest rates. By buying longer-term government bonds, this drives down the long-term rates. The announcement today caused the yield on the 10-year treasuries to drop below 1.90%. The mortgage rates are highly correlated with this interest rate, which means that mortgage rates are at or near all-time lows.

If you have procrastinated on refinancing your mortgage, you still have a chance to do so now. If someone will lend you money for 4% interest over 30 years, why not take it? With the massive debt and quantitative easing programs, we can expect for the dollar to be devalued. Why not pay off your loan in depreciating dollars?

Today's action reinforces the power of the permanent portfolio as described in Harry Browne's book Fail Safe Investing. The stock market tanked today and gold also fell substantially. Bonds did well, which caused less of a down day for anyone investing to imitate the permanent portfolio.

There will come a day to speculate in the bond market (on the short side). I have held off on recommending this speculation, and it is a good thing. If the economy falls back into recession (if we ever left recession) and the velocity of money stays low to keep price inflation in check, then we could continue to see bonds do well as interest rates drop. There are ways to short the government bond market (symbol: TBT), but we need to be patient.

This move by the Fed today just shows more desperation. I didn't expect an announcement of QE3. Perhaps the stock market did, since it dropped heavily this afternoon after the announcement.

The Fed will continue to support the banks (as it will also be buying mortgage-backed securities). It will continue in its attempts to prop up housing prices and the economy in general. It will do this in stages. The free market is trying to liquidate the bad investments, but the Fed and the government are not letting this process take place. We will continue to see this tampering by the Fed until it faces a scenario of massive price inflation.

Obama's Millionaire Tax

2011-09-20T21:07:00.000-04:00

Obama is proposing a new tax as part of a proposal to cut $1.5 trillion from the long-term deficit. From a libertarian standpoint, there are a lot of points that need to be cleared up about this subject.

First, most of the politicians and mainstream media pundits, and even most Americans, start with the wrong assumption. They assume that it is morally acceptable to take people's money with the threat of force, as long as it is done through the government. This is the sham that is democracy. As Gary North says, "thou shalt not steal, except by majority rule".

Second, why is this being called a millionaire's tax? It is not a tax on wealth. It is a tax on income. If someone makes a million dollars in one year, he is not necessarily a millionaire. First, he has to pay all of the taxes that already exist. Then he has to spend at least part of this money on sustaining his life and lifestyle. If someone is working in a sales job and has one big year or if someone happens to win the lottery or if someone happens to have one extremely valuable asset that is sold, then these people might have one big year with a high income, but it doesn't necessarily make them rich.

Third, one thing that some Republicans and supply-siders get right is the Laffer Curve, named after Art Laffer. It basically says that at some point, if you keep raising taxes, that it will actually lead to less tax collections by the government. This is the same as all socialist and big government policies. More taxes lead to a worse economy (relatively speaking) and to less incentive to work, especially when the marginal tax rates get really high. So even if Obama were to get his proposal passed (which it won't), it might not even cut the future deficits by one dollar.

Fourth, as Laurence Vance recently pointed out, Obama's proposal is supposed to cut $1.5 trillion over ten years, which is equal to $150 billion per year. Obama could just end the wars and bring the troops home and this would cut the deficit by that amount without having to raise taxes.

Democrats want to play class warfare and tax the rich (more accurately, high income). Many Republicans actually want to tax the poor because almost half of Americans pay no federal income tax. I am in agreement with Ron Paul that we are almost halfway there. We should not want to tax the rich or poor more. We should want to reduce taxes for everyone. Even poor people pay many taxes. Inflation is probably the worst thing that hurts the poor.

The only way to solve the economic mess we are in is to get the government out of our lives. Taxes should be reduced drastically and government spending should be reduced even more drastically. Regulations should be reduced drastically, instead of continually adding them. We need to end the empire. We need to end federal involvement in education, healthcare, energy, and every other aspect of our lives. We need to end the federal monopoly on money. We need for Americans to stop relying on government and to stop seeking government to solve our problems. As Reagan said, "government is not the solution; it is the problem".

Obama's so-called millionaire tax will not pass. If it did, it would only make things worse. He does not understand economics at all. He is also a demagogue. If he wins re-election, it is only because the Republican nominee is just as bad.

Once In A Lifetime

2011-09-19T18:06:00.000-04:00

Many people in the libertarian community do not realize just how lucky we are. Although government continues to grow at great speed, we are in the midst of a turning. Ron Paul has played a huge role in this process. As libertarians, we should be thankful for having such a great representative.

From a libertarian standpoint, Ron Paul is easily the greatest congressman of the last hundred years and perhaps ever. We have this man running for president and we couldn’t really ask for a better scenario.

Politics, ultimately, is not a solution in moving our society towards greater liberty. But most people think politics and voting are the mechanisms we need to roll back government. Go talk to an average guy on the street and tell him that if he becomes more educated about liberty and some others do the same, then that in itself will achieve greater liberty. He will think you are nuts. He is under the assumption that you have to vote in the “right” people.

If you tell the average guy on the street that withdrawing consent from the government will ultimately cause it to collapse, he will not understand the concept. In fact, many libertarians do not understand this, so how can we hope for non-libertarians to understand this?

This is why Ron Paul is so important. He has a platform right now to reach millions of people. The grassroots from his 2008 campaign are all over the internet spreading his message. Meanwhile, it almost seems as if a day doesn’t go by that Congressman Paul is not making an appearance on television or radio.

There are some issues in which there will always be disagreements between libertarians, such as immigration and abortion. There will also be disagreements about just how small government should be. But could libertarians ask for a better person to represent their viewpoint that Ron Paul? He is consistent, honest, and principled, and he takes the libertarian position on all of the major issues.

This is especially important. If you get into a discussion with someone about politics, or specifically about Ron Paul, you don’t have to make any excuses for him. You don’t have to say, “well, he is good on this particular issue, but don’t pay attention to him when he talks about this other thing.” Again, libertarians can disagree, but on all of the major issues, you can count on Ron Paul to take a principled and consistent position. It is helpful when you don’t have to be apologetic for someone you are trying to defend. You don’t have to make any excuses for Congressman Paul.

Although politics is not the ultimate solution, Ron Paul and his devoted followers will continue to chip away at people’s beliefs. It is impossible to say if he has a good chance of getting the Republican nomination, but it is a testament to the libertarian community that it is even possible. Remember that most people, outside of libertarians and those in his district, did not even know who Ron Paul was just 5 years ago.

Libertarians now have a great opportunity with the internet and social networking to spread the message of liberty and we have a great spokesperson to represent us and our ideas.

Regardless of what happens in this election, there will be far more libertarians than there were before it started. This will slowly have its effects. It may not be noticeable to many, particularly when the government is getting bigger and more intrusive. But the pedestal of the American empire is being chipped away. It may not be noticeable, but the foundation is starting to give way.

If enough people begin to withdraw their consent, then the empire can come crashing down quickly. Very few people expected the Berlin Wall and the Soviet Union to fall apart like they did.

Libertarians will often complain about the times we live in due to an uneducated populace and a huge national government. But there is one freedom that we mostly still have and that is freedom of speech. As long as we are mostly free to communicate with each other and spread ideas, then government can be stopped. Ideas are a powerful thing.

It is interesting that many libertarians like to point to the Founding Fathers of the United States and their wisdom, but today’s libertarian leaders are far more wise and radical than the Founding Fathers. Libertarians of today have the benefit of more history and more open communication. But regardless of the reasons, I will take Tom Woods over Thomas Paine. I will take Gary North or Anthony Gregory or Robert Murphy over Adam Smith or Patrick Henry. I will take a President Ron Paul over a President Thomas Jefferson.

In conclusion, libertarians should be thankful for the time period we live in and we should be thankful that we have a wonderful spokesperson for liberty in Ron Paul. While his chances of winning the presidency might still be small, we are making huge progress. When hearts and minds are changed, liberty will eventually follow.

Investing in Foreign Currencies

2011-09-17T12:44:00.001-04:00

While I'm not against investing in foreign currencies, it is not something that I advocate on a long term basis. If you are going to buy foreign currencies, it should be for speculative purposes and for the short term. It seems that a buy and hold is not the best strategy for holding foreign currencies, especially since there are none that are backed by gold or any other commodity.

I am an advocate of the permanent portfolio as described in Harry Browne's book Fail Safe Investing. Part of that portfolio consists of gold. There is no place for foreign currencies.

There is a mutual fund (symbol: PRPFX) that is supposed to somewhat mimic the permanent portfolio. However, the mutual fund changes the formula a little and puts a small percentage in silver and Swiss francs. I think the big difference is that the mutual fund is actively managed. If the Swiss central bank started creating new money like crazy, the mutual fund could change its position.

The permanent portfolio (not the mutual fund) is supposed to be an "investing for dummies" portfolio for those who don't have the time, interest, or knowledge to actively manage their investments. However, the permanent portfolio is also there for active traders who just want to keep a portion of their money safe and sound from the uncertainties in the world.

There are a couple of reasons that I suspect on why Harry Browne did not include any foreign currencies in the permanent portfolio setup. First, as just mentioned, what if a particular central bank changed policy? It would be easy to say that the yen and Swiss franc have been the best currencies due to a tighter monetary policy by their central banks. But things can change over time and this would mean that the permanent portfolio would not be very permanent.

Second, all major currencies are fiat currencies. They are not backed by gold or silver or anything else. This means that there is virtually no limitation on central banks in creating more new money. If you buy yen and the Japanese central bank is devaluing at a rate of 5% per year while the U.S. central bank is devaluing at a rate of 10% per year, you will still be losing money in yen. You just won't be losing as much as those who hold U.S. dollars.

Gold makes up 25% of the permanent portfolio. This is your protection against inflation. It makes it unnecessary to invest in foreign currencies.

There could be a few possible exceptions to this. If you live in the U.S. and your income is all in U.S. dollars, then it would seem unnecessary to invest in foreign currencies as long as you have gold as an inflation hedge. However, let's say you do business in another country and buy a lot of goods from there. Or let's say that you are retired and you spend 4 months a year in another country. In these special scenarios, it might be beneficial to hold a portion of your cash/ cash equivalents in the currency of this other country.

In conclusion, other than certain special situations, I see no need to own foreign currencies. With that said, I am not against the idea for speculation for short-term gains. Just remember that, at least as of right now, all of the major currencies in the world are fiat currencies. That makes gold a better hedge against a depreciating currency, rather than another depreciating currency.