Hillary 2016

Unsurprisingly, there is already talk of Hillary Clinton running for president in 2016.  She has been planning to get back to the White House since before she left there.  Her time as senator in New York was a stepping stone to the presidency.  When Barack Obama derailed her plans in 2008, she took the job of Secretary of State so that she wouldn’t burn her bridges.
2016 could end up being a very interesting presidential election year.  Personally, I think the presidency is overrated in regards to who wins.  The rhetoric differs between candidates, but the policies are continuous.  Republicans and Democrats don’t like to hear this, but there is not much difference between Obama and his predecessor Bush.
And if you look at the 2012 election, it was a contest of Obamacare and Romneycare.  Romney didn’t want to admit it, but Obamacare was essentially modeled after Romney’s plan in Massachusetts.
I think 2016 does matter though, if only as a reflection of public opinion.  Ironically, Hillary’s biggest threat right now is Obamacare.  This healthcare debacle has become quite unpopular, especially as people get kicked off their insurance plans and they see the huge premiums for new plans.  It is tied to the Democrats and Hillary is a Democrat.
I almost wonder if Hillary will start to distance herself from Obamacare.  Her job in Obama’s cabinet was related to foreign policy and had little or nothing to do with medical care.  I am just not sure if Hillary will push for her fully socialized healthcare agenda or if she will just try to change the subject.
I can envision Hillary getting into the White House, even though she is disliked by many.  Some people are enthusiastic about Hillary, but about half the country doesn’t like her.  It might be more accurate to say that half the country dislikes or hates Hillary.
But I can still see a path to the White House for her, similar to her husband.  Many people forget that Bill Clinton never won a majority of the popular vote.  Of those who actually voted, he only received 43% of the vote in 1992 and 49% of the vote in 1996.  Remember Ross Perot?
I would not be surprised to see Jesse Ventura run for president in 2016 as an independent candidate.  And don’t discount his chances.  He is very anti-establishment at a time when people are not fond of the government.  Ventura is mostly anti-war and pro civil liberties.  As a libertarian, I think he is lacking in economic understanding, but I do give him credit for having some principles, having honesty, and having a backbone.
I can also envision Rand Paul getting the Republican nomination.  He is far more political than his father and he will play ball with the establishment Republicans.  (I am not saying this as a good thing.)
If there is an election in 2016 between Hillary Clinton, Rand Paul, and Jesse Ventura, I can see Hillary getting in with 40% of the popular vote, or maybe even a little less.  If Ventura and Paul both get around 30%, then Hillary gets in.
This would make sense, as many independents and left-leaning libertarians (if that isn’t a contradictory label) would likely support Ventura.  Many right-leaning libertarians (again, if it isn’t a contradictory label) and most Republicans would support Paul.  Most Democrats and a few independents would support Hillary.
Even if the Republicans nominated someone else, I could still envision something similar to happen.  There are a lot of possible candidates, although Chris Christie looks far less likely now.
I don’t necessarily think this country is doomed if Hillary gets in as president.  She is extremely corrupt and power-hungry, but even tyrants are limited in their abilities by public opinion.
It will be interesting to see if Jesse Ventura runs.  In my opinion, I think it would be a good thing, even if he didn’t win.  I think he would attempt to expose a lot of government secrets and lies.  He would bring up issues that we otherwise wouldn’t hear about and he would challenge his opponents.
2016 may be a really interesting year for politics.  It may be even more interesting if the economy is falling off a cliff at that point.  If anything, the results will likely give us an indication if there has been a shift in public opinion towards more liberty and less government.

Excess Reserves Are Not a Free Lunch

Since 2008, the Federal Reserve has more than quadrupled the adjusted monetary base.  But this new money has not resulted in massive consumer price inflation.  There has certainly been significant asset price inflation, particularly in stocks, but overall prices have not exploded in correlation with the monetary base.
I see two main reasons that prices have stayed relatively tame.  The first reason is that the velocity of money has been low.  Another way of saying this is that the demand for money has been high.  Money is changing hands less frequently, thus keeping prices from being bid up.
The second main reason for tame price inflation is bank reserves.  The majority of the new money created by the Fed has gone into excess reserves in the commercial banks.  So instead of loaning out these new deposits, banks have been keeping them as excess reserves with the Fed and earning a small .25% interest rate on the money.
I recently received the following comments and questions regarding bank reserves:
“If one accepts the premise that most of the so-called stimulus money is simply sitting as excess reserves propping up the so-called ‘too big to fail’ banks, what’s the harm if it stays there?  If that money doesn’t get velocity, we won’t see massive, commensurate price inflation.”
These are good questions.  If the newly created money by the Fed simply goes into excess reserves, does it matter?
The answer is “yes”; it still matters.  While I think we are better off with the high excess reserves as opposed to all of the new money being loaned out, we would be much better off if the new money had not been created in the first place.
I think one mistake I have seen is people assuming that there is no inflation if the new money goes into excess reserves.  The fact that the new money is not being loaned out simply means that the money is not multiplying.  However, it is still new money.
That money sitting as excess reserves is money that has been deposited in the banks and is available for people and businesses to spend.  Perhaps you don’t feel like your checking account has gotten bigger over the last five years, but someone’s checking account has gotten bigger.  All of the money sitting as excess reserves is not owned by the banks.  It is money that represents real deposits.
So while having the new money go into excess reserves is far less inflationary than if it had been lent out, it is still inflationary, even if to a much lesser extent.
The other factor to consider is that, even though new money has gone into excess reserves at banks, it is still misallocating resources.  This is what inflation does.  It misdirects resources, including savings.  The low interest rates themselves send false signals to the market indicating that people should save less.
The Fed is having a free lunch right now because it is creating monetary inflation and not getting blamed too much for the bad consequences.  If we saw really high consumer price inflation, then the Fed would likely take a lot of blame.  But if resources are being misallocated and unemployment is staying higher because of the Fed’s actions, most people do not perceive this.  Therefore, the Fed is doing great damage and getting away with it to a large degree.
As of right now, we are better off if the excess reserves stay high.  Otherwise, we would likely see massive price inflation.  But we should not think that the Fed’s massive monetary inflation is not inflicting great damage just because much of the new money is going into bank reserves.  It is still making us poorer, even if more subtly.

Extending Unemployment Payments

There is a debate going on in Washington DC about extending unemployment benefits.  I don’t really like the word “benefits”, but I suppose it is appropriate in the sense that some are benefiting at the expense of others.
In a speech, Obama said, “I can’t name a time where I met an American who would rather have an unemployment check than the pride of having a job.”
This is a ridiculous statement.  I’m sure the people that Obama meets are not going to admit to him in a short conversation that they sure are happy they have unemployment benefits so that they don’t have to get a job.
The reality is that paying people to be unemployed does encourage unemployment.  How can it be otherwise?  Meanwhile, Obama is saying that we will lose jobs if the unemployment benefits aren’t extended.  Let’s just say that economics is not one of Obama’s strong areas.
Even if someone collecting unemployment could find a job that pays more than the unemployment, it may not be worth it to him to take the job, especially if the difference is not that great.  I have personally met people who admit they don’t want a job or a higher paying job because it would mean drastic cuts to their welfare.
I’m sure there are also many people collecting unemployment who are officially unemployed yet working in an unofficial job.  There are plenty of black market jobs where you can work and get paid under the table.
With all of that said, I don’t let the Republicans in Washington DC off the hook.  Those opposing an extension of unemployment benefits may or may not be doing it for the right reasons.  But we shouldn’t forget that it was under Bush when unemployment benefits were extended in the first place.
In addition, if we are going to cut welfare, I can think of a lot of places to start ahead of unemployment payments.  Restoring extended unemployment benefits for 2014 would cost less than $20 billion.  This is a large amount, but not large in comparison to an almost $4 trillion federal budget.
I agree in cutting welfare, but let’s start with some easy stuff.  Let’s stop funding the NSA to spy on us.  Let’s stop funding drones to go overseas and drop bombs on wedding parties.  Let’s stop funding the bank accounts of foreign dictators.  Let’s stop funding rich farmers through agricultural subsidies.  Let’s stop funding the big banks on Wall Street.  Let’s stop occupying virtually the entire world with the military.  Let’s stop funding the FDA that keeps potentially life-saving drugs off the market.
I could go on, but the point is that an argument over unemployment benefits is a drop in the bucket in terms of the budget.  It does affect real people.  Some people are scamming the system and some people probably really do depend on that money.
However, there are so many easier places to cut first.  Unfortunately, these are the things that have what is considered bipartisan agreement.  These are destructive things.
Aside from the money being redistributed, the only destructive thing about unemployment payments is that it encourages people not to work.  But at least it isn’t killing people and destroying things directly.

Tax Cuts in New York?

The governor of New York, Andrew Cuomo, is backing a proposal to provide tax relief in the state of New York to the tune of more than $2 billion.
When people these days are in a New York state of mind, it seems to be less about Billy Joel and more about having to pay exorbitant taxes just for the right to exist.
There are several things to take away from this news of Cuomo backing tax relief.  The first thing to realize is that even if this proposal passes, New York will still be one of the highest tax states in the U.S.  On top of that, New York City has a new mayor who wants to raise taxes even more on the so-called wealthy.
There are taxes at all different levels in New York and they are quite burdensome.
It is interesting that the governor is a hardcore Democrat.  He is the son of Mario Cuomo, a three-term governor of New York who was in office from 1983 until the end of 1994.
It is also interesting that some of the tax relief is actually business friendly and isn’t all slanted towards the poor.  While there is some typical Democratic stuff such as a tax credit for renters, there is also a lot to like.  There is a freeze on property taxes, a big increase in the exemption for estate taxes, and several changes that are helpful for businesses.
I think this just shows that there are some limits as to how much taxes can be collected at the state level, even if the limits are high.  It has gotten to a point where New York taxes and regulations are so bad that it is driving business away and it is driving some wealthy people and high-income earners away.  In the long run, Cuomo probably realizes that it will only hurt the government if too many tax victims leave for another state.
Unfortunately, the rules that apply to state governments do not apply the same way to Washington DC.  The federal government is borrowing a good chunk of what it spends.  It can do this because of the Federal Reserve and its ability to create money out of thin air.  The Fed simply buys the federal government’s debt to keep interest rates low and allow the game to go on.
Washington DC may be limited in how much it can raise taxes due to popular opinion, but it does not seem nearly as limited in how much it can spend.  Unfortunately, people don’t perceive that inflation is a hidden tax that hurts the middle class.
State governments do not have the ability to create money out of thin air, so they are essentially forced to maintain something close to a balanced budget.
With this news out of New York, I wouldn’t be jumping at the chance to live there.  It is still an extremely high-tax state and it is especially high-tax if you live in the city.
But it is still good news that a big-government guy like Cuomo still feels the need to support some tax relief.  I am not sure if this is due to losing too many tax victims or if it is because of public pressure.  Either way though, it is slightly encouraging.
There is a limit to government at some point, even in a place like New York where it seems that people are clamoring for big government.  At some point, markets have to be allowed to work.

Are Experts Always Right?

I enjoy reading about health issues and natural ways to stay healthy.  A lot of the reading I do comes from people who are going against what the medical establishment says.
Inevitably, I will read opposing comments by people who say such things as: “Anyone who believes this is foolish.  This is quack science.  Are you a doctor and what are your qualifications?”
These are the kinds of harsh comments I see and I have heard similar arguments in person too.  The defender of the medical establishment will likely pull out the “Are you a doctor?” card.  In other words, if you haven’t been licensed by the government, then your thoughts and opinions mean nothing.
This is using an argument from authority.  It is a methodology people use to debate, but it doesn’t make them right.  Their sole argument rests on the authority of someone else.  Because someone else said something, that automatically makes it so.
The ironic thing is that some of the reading I do about natural health issues comes from licensed physicians.  I am not saying that this makes what I am reading automatically correct, but it refutes the other argument.
How can you have two “experts” who completely disagree on something?  It means that one of them has to be wrong.  It means that one of them is not as much of an expert as we think.
(As a side note, I think it is important to keep this in mind when looking at investments and economic forecasts.  You can certainly have two knowledgeable people who have differing opinions about the economic outlook if only because there are so many variables and it is impossible to predict each one.  But you should keep in mind that just because someone is labeled an “expert”, it doesn’t mean he will always be right or that you should automatically listen to him.)
I think too many people make the mistake of putting all of their trust in experts, especially when it comes to medicine.  I have met some really dumb doctors before.  I have seen many doctors who will just throw antibiotics at patients who have a virus and don’t need them.  I have seen many doctors who will prescribe drugs frequently and almost never recommend anything natural to a patient such as dietary changes or supplements.
You have to realize that most medical doctors go through the same curriculum and take the same tests.  They don’t contain some special powers that others do not have.
I am not saying that you should never trust doctors and to avoid them entirely.  There are some great doctors out there and some of the specialties are simply amazing.  It is incredible what heart surgeons and brain surgeons can do and this really is a technical skill that others do not possess.
The main point is that you should do your own research where you can and you should be strong enough to form your own opinions, even if outside of the establishment.  Just because someone has a government-issued license, it does not validate everything they say.

An Investment to Consider

There is a simple and easy investment that is available to many people that they do not give much consideration.  They probably don’t even view it as an investment.
It will give you a guaranteed return and will not generate any capital gains taxes.
The investment I am referring to is paying down the principal balance on your home mortgage.  While this is not an option for those who rent or those who own their home outright, I find a majority of investors are in a situation of owning a home and also owing on a mortgage.
I don’t think this is a good option for everyone.  It depends on your situation.
But I have seen people who have hundreds of thousands of dollars in investments, with extra liquid money on top of it, and they are trying to figure out what to do with it.  Yet I find out that they have a house in which they owe $200,000 or more on the mortgage.
By paying down the principal balance (any payment above the monthly minimum), you are essentially locking in a return equivalent to the interest rate on your loan.  If you have a mortgage rate fixed at 4.5%, then any payments toward principal would earn the equivalent of 4.5% (by saving your that interest) and that would be with compounding interest.
This strategy is often overlooked where it might serve as a nice complement to an investment portfolio.
I would not recommend this strategy to someone who is short on liquid funds.  If you don’t have an emergency fund or easy access to other money, then you should not use all of your money to pay down your mortgage.  You are locking in this money.
The only time you will see this money again is when you either sell your house or refinance.  Of course, once you pay off the loan entirely, you will quickly see the benefit in increased cash flow without having to make a mortgage payment each month.
If you decide to make paying down your home loan part of your overall financial strategy, then it is important to realize that it is a hedge against deflation.  By locking in a guaranteed rate of return and by reducing your debt, you are protecting yourself against deflation.  Therefore, the rest of your portfolio may want to lean in favor of hedging against inflation.
I think paying down your home loan and ultimately paying it off will give most people a powerful feeling.  It is nice to own your home outright, knowing that you just have to pay your property taxes and nobody can kick you out.
Again, this strategy isn’t for everyone, particularly those low on liquid funds.  But if you have extra money just sitting in the bank, you may want to consider this “investment”, even if it sounds boring.  It can add up to real savings over time.
If you own a house with a mortgage, consider diversifying with this simple strategy of paying a little extra on your mortgage each month or possibly making a big one time extra payment
You can’t find a guaranteed rate of return this high anywhere else.

A Small Resolution for the New Year

It is that time of year when people decide to make their resolution for the new year.  Eating healthier and exercising is a popular one.  For students, a resolution might include studying more.  Some people have financial goals, such as getting out of debt or saving more money.
If you belong to a gym, you will probably see an increase in the crowd during January.  This will likely taper off in February and you will start to see the “regulars” again, perhaps with a few new regulars.
It is said that it takes doing something every day for three weeks for it to become a habit.  This doesn’t always hold true, but it is a decent guideline for making sure you get past that three-week mark and into a new habit.
I think many people go wrong with their New Year’s resolution because it is too drastic of a change in lifestyle.  Unless they are really motivated, it will be hard to stick with it.
If you are used to eating junk food most of the time and you all of a sudden try eating everything healthy, it will be a difficult transition.  This may not be true for someone who just suffered a heart attack or someone who was just diagnosed with a disease.  There is strong motivation there.  But for someone who just wants to lose a few pounds, it may not be enough motivation to change everything.
So here is my suggestion when making a New Year’s resolution.  Unless you are really highly motivated, take small steps.  You can do something small every day to move in the right direction.
If you are trying to eat healthier, perhaps it is best not to give up all junk food at once and deny yourself.  Instead, make small changes.  Maybe you can cut back from two sodas per day to one soda per day and replace it with water.  Maybe you can avoid snacking on potato chips in the afternoon and instead choose some carrots or an avocado.
The key is to do something that you can stick with.  If you are still allowed to have dessert after dinner, maybe it won’t be as hard giving it up after your lunch.  Or maybe you can cut the dessert portions into smaller sizes than what you would have typically consumed in the past.
I think the same strategy can apply to your finances or almost anything else you want to improve.
If you want to spend less and save more, maybe it is best not to eliminate cable television, your cell phone, and your daily trips to Starbucks all at the same time.  Unless you are in dire financial circumstances, perhaps you can eliminate one thing, or cut back on it.
Perhaps you could pack a lunch for yourself a few times a week instead of buying from a restaurant or cafeteria.  Perhaps you could stop your daily trips to Starbucks and just limit it to twice per week starting off.
This strategy isn’t for everyone.  Some people are better going cold turkey.  For most people though, it is quite difficult to make drastic lifestyle changes all at once.  Eliminating Starbucks every day may not seem like a drastic lifestyle change, but habits can be hard to break, especially when you are getting instant gratification.
In 2014, do something small for yourself every day that is achievable and will help you towards bigger things down the road.