November 29, 2011 Republican Presidential Update

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

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

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

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

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

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?

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,, 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

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

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

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.