Medical Costs and Patents

The whole American medical care system has become a major bureaucratic mess.  It ends up costing lives and a lot of money.

But unlike a lot of people, I don’t wish for the American medical system to be like other countries, which are typically even more socialist.  I believe we need a return to the free market in every area.

There was an article on the Mises Institute’s website that discussed the nature of insurance and how medical insurance today barely resembles what actual insurance is supposed to be.

I am not going to talk about all of the aspects of government-paid healthcare, the FDA, licensing laws, health insurance mandates (state and federal), the tax code, and the many other factors that make our medical care system more expensive and less effective.  Instead, I am just going to focus on one aspect.

My wife just had sinus surgery.  It was balloon sinuplasty.  They basically take a balloon, insert it into your sinus cavity, and blow it up.  It is less invasive than removing tissue and fully packing the nose, as was commonly done in the past.

The total cost of the surgery may run as high as $8,000.  I don’t know what insurance will allow yet, but that is the approximate estimation. She had it done to four areas – below the eyes and above the eyes, on both sides.

Between us and our insurer, the doctor will be paid approximately $8,000.  This is horrendous.  I understand that we voluntarily agreed to this, but it doesn’t mean I can’t complain.  For a while there, I was thinking I should have become an ear, nose, throat (ENT) doctor.  You can do one surgery per day, five days a week, and make $2 million per year before expenses.  The surgery itself, after the numbing is done, typically takes less than a half an hour and there was no anesthesia.

The problem is, my figure of $2 million is before expenses.  The doctor said that the balloon device, which can only be used on one patient, costs $3,000.  I really have no idea if this is accurate, but I don’t have any reason to doubt it.

These devices are sold by Johnson and Johnson.  Immediately a major red flag goes up.  How can a device cost so much money?

The answer has to be our patent laws.  There is no other explanation.  Otherwise, other companies would join the market and eventually drive the price down.

I am not necessarily blaming Johnson and Johnson for this, as they are participating in the system that is there.  But this suggests that patent laws drive up medical costs far more than we may expect.  I know this is a big factor in drug costs, but I hadn’t really considered the expense of medical equipment.

Patents are a debated topic in libertarian circles.  I have been convinced that we would be better off without patent laws, or less strict patent laws.

Some libertarians view patents as property rights.  The problem is that it is not legitimate to assign property rights to an idea or a thought.  It is not a scarce resource like a piece of land or a piece of furniture.

I know all of the objections and I won’t go through them here.  The main objection for this is that Johnson and Johnson never would have developed the product if a patent weren’t available.

I don’t think this is the case though.  The internet has proved this idea wrong, where many people put their ideas out there for free.  And there is still profitability in creating something new just from the fact that you get to be the first to market it and sell it.

If you are interested in this topic, I certainly encourage you to explore the libertarian literature that has been written about this.  It is an issue that has really only developed recently within the broad libertarian community.

In conclusion, don’t underestimate just how much patents drive up costs, particularly in the medical care sector.

Bernie Sanders Won’t Get the Democratic Nomination

The presidential race is more entertaining, if nothing else, because of Donald Trump and Bernie Sanders.  But while Sanders should offer some nice pressure on Hillary Clinton in the debates, you don’t have to worry about him winning the nomination.

Sanders is already listed as an Independent in the U.S. Senate.  Maybe this won’t matter to the Democrats who support him though.

Sanders is definitely staking out his positions on the far left.  He believes the state is the answer to almost everything.  He is a self-identified socialist.

Compared to all of the other major candidates, including on the Republican side, Sanders is the least interventionist when it comes to foreign policy.  This wouldn’t have been true if he had been running previously when Ron Paul was in the race.

Sanders’ leftist credentials are not very good when it comes to the federal war on drugs.  He would continue this horrific war that dramatically increases violent crime and locks away hundreds of thousands of people who did no harm to anyone else.

When it comes down to it, Bernie Sanders will not get the Democratic nomination.  Why?  I just need to remind you of one person.

Howard Dean

Do you remember Howard Dean?  At one time in late 2003 and early 2004, Dean was the frontrunner for the Democratic nomination.  The Republicans were all over him, saying they hoped they would get the gift of having Dean as the Democratic nominee.

At that time, the Iraq War was already highly unpopular.  Most establishment Republicans were defending it, as many still do, unbelievably enough.  But outside of the Republican Party, the country was already getting tired of war.

The problem is that the Democratic voters got cold feet.  They were afraid that the Republican talking mouths were right and that Bush would defeat Howard Dean.  He was not as anti-war as Bernie Sanders, but he could certainly stake out the anti-war position at the time, especially compared to Bush.

So what did the Democrats do?  They made sure to put someone in there who was “electable”.  In other words, they picked one of the biggest bumbling idiots they could find.  John Kerry turned out to be the one candidate that could go down in flames to an unpopular George W. Bush.  I still believe to this day that Howard Dean would have defeated Bush in 2004 in a general election.

If the Democrats couldn’t stomach Howard Dean, there is no way they will stomach Bernie Sanders.  Sanders is far to the left of Dean.  For this reason, they will be right not to put him up in the general election.  Americans at large will not vote for a socialist.  Americans like welfare and handouts, but they typically don’t like full-blown socialism.  And they associate the word with the failures of the Soviet Union.

This isn’t to say that the nomination is a sure thing for Hillary Clinton.  She has a lot of baggage.  She is very much disliked by about half the voting population.  And if she has any major scandals that the establishment fears could come out, then they may try to get rid of her.

Right now, there are basically five major candidates for the Democratic nomination.  Did you even know it was that many?  They are as follows:

  • Hillary Clinton
  • Bernie Sanders
  • Lincoln Chafee
  • Jim Webb
  • Martin O’Malley

I don’t think Lincoln Chafee has much of a chance.  I already explained why Sanders won’t win it.  That leaves Jim Webb and Martin O’Malley, unless someone else enters at the last minute.

I believe that either Webb or O’Malley will challenge Clinton.  Things will become more clear in the next 6 months.

CPI and Monetary Base Update – July 2015

The adjusted monetary base has been relatively flat, just as it should be.  There are always fluctuations, but the Fed is basically doing what it says it is doing.  Since it ended its so-called quantitative easing late last year, it has just been rolling over maturing debt.

As of this writing, the monetary base is just over 4 trillion dollars.  It is a quintupling from 2008.  But since much of this new money has gone into excess reserves, we haven’t seen huge price inflation.

Most everyone in the world of finance  is making a big deal of the Fed’s intention to raise interest rates later this year.  But the federal funds rate controlled by the Fed does not matter much right now because it isn’t dictating monetary policy.  The overnight borrowing rate is near zero because banks don’t need overnight borrowing due to easily meeting reserve requirements.

The only conceivable way for the Fed to raise the federal funds rate is by increasing the interest paid on bank reserves.  In other words, if the Fed finally decides to raise rates, it will just be another bank bailout.

Meanwhile, the consumer price index (CPI) was up 0.3% for June from the previous month.  The median CPI ticked up to 2.3% for June from the previous year.

Price inflation may have ticked up slightly, but it is still relatively low.  If the Fed is using this number, then it shouldn’t have much concern over price inflation.

Many people think that the Fed’s monetary inflation is bad mainly because price inflation is the consequence.  I have even seen many Austrian school followers make this mistake.  But price inflation is just one possible consequence.

The main issues with monetary inflation are that it redistributes wealth and it misallocates resources.  This happens regardless of whether higher consumer prices are showing up.

The relatively low CPI is somewhat accurate.  It at least shows us the trend.  It obviously does not carry health insurance as a big weight.

Still, most consumer prices are not going up by a lot.  Even if the government’s numbers are off, they aren’t off by that much at this point.

The low CPI numbers are consistent with what is happening with gold.  They are also consistent with the relatively strong dollar.

I am concerned about price inflation in the future because of what the Fed might do in reaction to the next economic slump.  In the short term, I am more worried about an economic downturn/ recession/ depression than I am worried about price inflation.

I hate to put it like this, but we need a correction.  This is why it isn’t fun being an advocate of Austrian economics sometimes.  We are seen as pessimists.  But really, we are just being realists.

While a correction will be painful, it is inevitable at this point.  We also need it in order to clear out the bad investment.  All of the misallocated resources need to be reallocated to reflect actual consumer demand.

Unfortunately, if we do have a big correction, the Fed and the government will likely react to just make things worse.  In this sense, we may ultimately need higher price inflation just to tame the Fed, similar to what happened in the late 1970s and early 1980s.

If we hit another downturn, the Fed will probably just give us more monetary inflation because prices are not rising much.  The only time we can realistically depend on the Fed to not inflate in the face of bad economic times is when there is high price inflation to go along with it.

My immediate concern is an economic downturn.  It is already happening in China.  Still, you should always have some gold and gold related investments as part of your financial portfolio.  You don’t know when the next surprise may hit.

Gold is not likely to go sky high until the Fed starts up its digital money printing again.  Until then, watch out for another recession.  Cash may be king in the short run.

Are the Gold Bulls Wrong

There was an article on MarketWatch titled “An open letter to investors who are bullish on gold”.

The article was written by Howard Gold.  Gold was writing on gold.  This reminds me of a Seinfeld episode where the librarian’s name was Mr. Bookman.  In the case of Howard Gold, he is definitely not pro gold.  He is just writing on gold.

It is basically a hit piece on anyone who thinks it is a good idea to hedge against inflation and the state apparatus, including the central bank.  Fortunately, the comments below the article are more encouraging.

Howard Gold says that the people bullish on gold are being driven by their political beliefs.  Meanwhile, Gold is obviously an apologist for the state (along with the Fed), so it is not surprising he is trying to make gold bulls look bad.  He is letting his political beliefs drain all logic from his brain.

There were a few things that stuck out to me in his article.

First, he says that after four years of lower prices, we are now in a secular bear market in gold.

After he states that, Gold writes the following: “The last secular bull market in gold lasted from August 1971, when President Nixon cut the last ties between gold and the dollar, and January 1980, when it peaked at $850 an ounce.”

Did he write this on purpose or did he just make a mistake in the way he wrote it.  The last secular bull market did not end in 1980.  If we are now in a bear market as he stated, then the last bull market just ended in  late 2011.

Gold went from under $300 to over $1,900.  Its year-end closing was higher for 12 consecutive years.  If that is not a secular bull market, I really don’t know what is.

He goes on to criticize Peter Schiff and say that he is completely detached from reality and that it would make him an ideal vice-presidential running mate for Donald Trump.

Incidentally, Schiff and Trump have very different views on economic policy, so Howard Gold managed to insult a wide range of people with this swipe.

He then says, with a stronger dollar and a bear market in commodities, “what’s the point of owning gold?”  He immediately follows this in brackets with the following: “Disclosure: I have a very small position in GLD.”

So he is basically calling gold investors idiots, and he is telling anyone that still owns gold to sell it so that we can get to its bottom.  But then he slips in this little detail about owning a “very small position” in a gold ETF.  I’m glad he could make himself look like a hypocrite all within the same paragraph.

For his information, you don’t even have to be a gold bull to own gold.  It’s called diversification.  Maybe that is why he originally bought his GLD position and he still hangs on to it, despite his fierce opposition to the metal.

Gold (the metal) is as much of an insurance policy as it is an investment.  People buy gold to protect their assets because there are statists like Howard Gold running the government and the Fed.

If you have an insurance policy and you don’t have to file a claim, it doesn’t make you an idiot for having the insurance policy.

And even for those bullish on gold, does the last couple of weeks automatically make everyone wrong?  What happens if gold starts going up again?  Is Howard Gold going to retract his article and apologize?  Was Howard Gold praising the gold bulls when the price went from under $300 to $1,900?

This guy is basking in the glory of gold going down because he is a shill for the state.  He is calling victory for himself just because of the latest downturn in the price.

I am not a gold perma-bull.  I recognize that it doesn’t always go up.  But I believe it is smart to always have it as part of a well-diversified portfolio.

I hope Howard Gold sells his “very small position” in GLD and goes all in into the stock market.  Maybe he should also change his name to Howard Stocks or Howard Statist.


Rand Paul, Iran, and Political Games

Tom Woods recently interviewed Scott Horton on his podcast.  The topic was the Iran deal and Rand Paul’s reaction to it.  You can listen here:

Scott Horton first does an excellent job of summarizing the situation with Iran.  Most of the Iranian people actually like Americans, or at least want to get along with them.  They don’t like the U.S. government.

The politicians in Iran are not much different from politicians you find everywhere else.  Actually, for all of the accusations about the leaders there being nuts, they are probably a little more sane than most U.S. presidents of the last 100 years.

Woods and Horton then discussed Rand Paul’s reaction to the Iran deal and his lame reasons for opposing it.  They both agree he is taking a stance that is just plain wrong, especially from a moral standpoint.  But Woods also points out that it isn’t even that smart politically.

Rand Paul is not the opposite of his father politically speaking.  I mean, someone like Lindsey Graham or Hillary Clinton is the opposite of Ron Paul.

But Rand Paul is just about the opposite of his father when it comes to playing politics.  He has basically shown to have little principle.  It seems that every move is calculated.  He is trying to walk a tightrope right now.  He is trying to keep the libertarian camp on his side while also not alienating the establishment.  It is an impossible tightrope to walk and he is going to fall off.

Tom Woods interviewed Brian Doherty just a few weeks ago, and they also discussed Rand Paul and foreign policy.  You can listen to that here:

I found it odd that Doherty was basically complimenting Rand Paul on the fact that he would receive emails from the Rand Paul camp taking a fairly hardline libertarian position on certain issues.  Doherty found it encouraging that Paul at least realized he needed to act a bit more radical in front of his father’s followers.

Doherty also had his criticisms of Rand’s flip flopping, so I don’t want to make it sound as if he was really bad in the interview.  But what Doherty admired about Rand Paul, I find disgusting.

When Rand Paul is on national television, he tends to be far less radical, at least in a libertarian direction.  He will typically sound similar to Ted Cruz or Marco Rubio.  He doesn’t usually sound like a libertarian in any meaningful way.

Then, when he is talking to a libertarian crowd, or his camp is sending out emails to names from his dad’s email list, then all of a sudden he sounds more libertarian.  He sounds like he is taking principled stands.

This is a sign of dishonesty and a lack of principle.  His lack of principle  really is the opposite of Ron Paul.  What would we get from him if he somehow did make into the White House?

He would obviously still be better than Hillary Clinton and probably most of the other candidates, but I am not going to waste any time and energy supporting him.  And if he did win and took these stances of basically maintaining the status quo, then the establishment will be quick to blame libertarianism for the continued problems, even though he won’t be enacting a libertarian agenda.

I am always quick to remind people also that it is extremely rare for someone to act more libertarian once in office than what was shown in the campaign.  It is usually the opposite.

I think Rand Paul is taking his father’s supporters for granted.  In fact, I would almost say that he is taking them for fools.  He thinks he can just occasionally throw in some “libertarianish” (his word) language and his father’s supporters will have to support him as the best choice.

I know I speak for many libertarians when I say that I don’t have to support anyone.  There will be a Libertarian Party candidate and if I don’t like that person, I probably won’t vote.  Or maybe I’ll write in “Ron Paul”.

It is kind of silly of Rand Paul to not use his dad’s name more often.  If he were Rand Smith or Rand Jones, he wouldn’t be a senator right now.  But he thought his strategy for getting elected in Kentucky will work to get in the White House.

I noticed in the past that Tom Woods, many contributors to Lew Rockwell’s site, and other hardcore Ron Paul supporters did not talk about Rand Paul a lot.  Many of them are friends with Ron Paul and, of course, they don’t want to insult his son.

I have seen that change in the last couple of months.  People like Tom Woods and Lew Rockwell are generally very respectful anyway, except when going after the worst characters in government.  But they have been less shy in criticizing Rand Paul lately, while still remaining somewhat polite about it.

I have a great amount of respect for Ron Paul and what he has done and what he is continuing to do.  He is about to turn 80 years old and he is still working as hard as ever to educate people on the benefits of liberty.

Unfortunately, his son opted to go into politics and he is not doing it to educate others, or at least his actions speak otherwise.  He is seeking political power.  Therefore, he is open to criticism like everyone else.  He will draw more criticism from me because there are still many libertarians supporting him, and I want to make sure they know what they are supporting.

This means no disrespect to Ron Paul.  His son is seeking major power and he is open to criticism because of that.  I would rather not have to criticize a close member of Ron Paul’s family, but that is just the way it is now and I have to tell things how they are.

Rand Paul is opposing the Iran deal for political purposes and he isn’t even doing a good job of playing politics.  It looks like we are going to avert war with Iran.  But if something does end up happening, then Rand Paul can live with that on his conscience in opposing peace with Iran as a sitting U.S. senator.  For that reason alone, I cannot support Rand Paul.  He should know better based on his roots.  Unfortunately, he probably does know better and he is choosing politics over peace.

Trump and Sanders

Probably the two most interesting characters so far in the presidential race are Donald Trump and Bernie Sanders.

I don’t like the political positions of either one, but I am glad they are in the race, at least for the most part.  I will qualify that statement in that I don’t expect either of them to win.

Bernie Sanders is a self-indentified socialist.  He is absolutely abysmal when it comes to economics.  He either sounds like a totalitarian or a 6-year old.  Sometimes he sounds like both at the same time.

His economic positions are incoherent.  Yet, scarily, he has an audience.  I understand that people are fed up with the rich getting richer.  If it is because of government handouts, or government regulation, or central banking, then I too oppose the rich getting richer.  They should be getting richer in a free market by serving customers what they want.

But Bernie Sanders doesn’t emphasize the corporate welfare and government favoritism.  He emphasizes his plans to redistribute wealth.  He is anti-capitalist to the bone.  He will tell you that you don’t need a choice of 23 different deodorants or 18 different pairs of sneakers.

Sanders thinks that by limiting your choice of deodorants or shoes that it will somehow feed the hungry people.

Sanders is on the far left, supposedly.  He is certainly better on foreign policy than all of the other current candidates.  Since that tends to be the issue that the president has the most control over, maybe a President Sanders wouldn’t be that bad, particularly if the Congress could block his economic agenda.

Sanders is very disappointing for a supposed leftist on the federal drug war.  He basically says it isn’t that big of an issue.  He should tell that to the hundreds of thousands of “criminals” who have not hurt anybody or threatened to hurt anybody.

Sanders will be fun in the primaries because he can challenge Hillary Clinton, who is a war promoter.  She won’t be quite as enthusiastic about war in the Democratic primaries, but I think her record speaks for itself.  Remember that she originally supported the Iraq war in 2002/ 2003 before it became unpopular.

I hope that Sanders gives Hillary a really hard time on foreign policy.

In the Republican primaries, the number of major candidates is ridiculous.  I guess there are that many people who seek power to rule over others.

I thought Rand Paul would be the most interesting candidate.  He is the closest thing to a libertarian, but still really far away.  He has very little in common with his father, politically speaking.  Rand Paul continues to promote his interventionist positions.  They may be slightly less harsh than the other candidates, but they are still bad.

Then Donald Trump stepped in.  He has stolen the spotlight from everyone else – for better or for worse.  He continues to get in trouble for his controversial statements.  Most of the Republican candidates are ganging up on him.  It seems that only Rand Paul and Ted Cruz are taking a more quiet position on him.

Trump is disrupting the Republican establishment.  For this, I am glad he is in the race.  I hope he too challenges the other candidates in the debates.

One fear I have is that he will be driven out of the Republican Party and he will run as an independent.  It may hand a golden ticket to the White House for Hillary Clinton, much the same way her husband got in via Ross Perot.  About half the country really dislikes Hillary Clinton.  Her only good chance at getting elected is having a third-party candidate in the race who siphons off votes from the Republicans.

Of course, many of the Republican candidates are just as scary as Hillary.  We don’t really know what we are going to get until they actually have the power to do damage.

The other fear I have with Trump is that he actually gets elected.  He is arrogant and quite totalitarian.  He enjoyed saying “You’re fired!” on his show The Apprentice.

I really don’t know how Trump would be as president, but there is something unsettling about him.  I could see him basically trying to act as a dictator.

It’s too bad, because there are things I like and admire about Trump.  He is a very successful businessman, despite his terrible economics.  He probably should have stayed in the so-called private sector, continuing to please customers and making more money.

All of the candidates are a disaster at this point, at least from a libertarian perspective.  I don’t know who the Libertarian Party will put up as a presidential candidate.  I think the only person who could make this race more interesting at this point is Jesse Ventura.

Because of Trump and Sanders, I may actually watch some of the debates.  If anything, they should add entertainment value.

The Tiny House Movement

There is a show on HGTV called Tiny House Hunters.  It is very similar to House Hunters, except the people are looking for a tiny house.

They have been running new episodes and I’ve been able to catch some of them.  Despite not wanting a tiny house myself, there is something fascinating about watching it and trying to figure out some of the thinking behind the people looking for tiny houses.

(I wonder if some people view libertarians this way.  I can just imagine someone saying, “I am not a libertarian, but I am fascinated by them and what is going on inside their heads.”)

I don’t know if there is an exact definition for making something a tiny house.  I’d say it is typically under 600 square feet, but usually even smaller than this.  You could rent a studio apartment in New York City for a couple of thousand dollars per month, but that probably wouldn’t be considered a tiny house because it is in a big building with no yard.

I have a family, so a tiny house wouldn’t work for us.  If I were single and living alone, I’m still not sure it would be for me.  But I do understand the attraction of it for some.

You don’t have to be a libertarian to understand that the middle class is suffering in America (and elsewhere).  You may have to be a libertarian to understand the reason why people are struggling, which is mostly due to massive government spending, central bank inflation, and government regulation.  Government at all levels spends more per household than the median household income.

In many ways, we are much better off than ever before, especially in terms of technology.  We have our smartphones, which are handheld computers that we get to carry everywhere with us.  But in terms of food, shelter, medical care (especially medical care), and a few other basic needs, it is in many ways more difficult today than it was 30 years ago.

I hear one of the main motivations for people buying a tiny house is to not have a mortgage payment.  They say they will be more free to travel around and still save a little money.

I believe having a tiny house also forces you to declutter.  It means you are forced to not accumulate junk.  Americans know how to accumulate a lot of stuff, so a tiny house forces some simplicity on you.

I have also seen some who want a house on wheels that can be moved.  Even this you could relate to today’s economy because it allows you to have a house but be flexible in finding work anywhere in the country (not including Hawaii).

The tiny house movement is still only being explored by a tiny percentage of the population.  Most Americans want their space.

Still, I think it may be the start of a trend for at least some Americans in trying to simplify life and live debt free, or at least close to debt free.  I think there are ways to do this without buying a tiny house, but it is still encouraging.

The only thing that really doesn’t make sense to me is that, in some episodes, I have seen people buying tiny houses for $60,000, or $80,000, or even $100,000.  For me, this basically defeats the purpose.

Even in some big cities in the U.S., you can buy a one or two-bedroom condo for less than $100,000 and you will get more indoor space.  That also includes the price of the land, which some tiny house buyers have to pay for if they don’t already have an arrangement set up.

If you haven’t seen the show, watch a few episodes of Tiny House Hunters if you get the opportunity.  The lifestyle isn’t for me, but I can see the appeal for others.  I just wonder if the excitement wears off quickly or if the people actually stay in these tiny houses for several years.  Maybe the show will do a follow-up at a later time.

The Greek Welfare Continues

I would have titled this post “Another Greek Bailout”, but I’m pretty sure I have already used that in the past.

Another “deal” has been reached to again avoid a Greek exit from the euro and the European Union.  It is more of the same.  It is like the movie Groundhog’s Day.

After Greece already missed a major payment to the IMF (i.e. defaulted), the European bureaucrats did not want to see Greece miss its next payment to the European Central Bank.

So Greece will get a bailout of about $95 billion over the next three years.  They call it loans, but why will Greece be able to pay back these future loans if it can’t already pay back the ones it has?

The Greek government cannot even afford to make the payments on its loans, so the ECB is going to go ahead and give out more loans.  The Greek government can use these loans to fund its banking system and pay the interest payments on the other loans.  Do you have all of that?

If a family has $50,000 in credit card debt, you don’t help them out by loaning them another $10,000.

Greece is supposed to enact reforms, which basically goes against the vote that took place last week.  It is probably worse for Tsipras and the Greek government that there ever was a vote.  Now he is just going against the will of the people.

Greece’s reforms include increasing the VAT (tax), which is a terrible idea.  It will just stifle the economy more and hurt business and consumers more.  Reforms also include simplifying the pension system.  The pension system desperately needs reform.  The payouts need to be reduced dramatically.

Greece is also supposed to run a surplus over the next several years, but how can this be enforced?  What if the economy is so bad that the tax collections just don’t add up?

But the Greek parliament is supposed to approve all of this.  What happens if it doesn’t approve?  In other words, this story may not be over yet.

We can call these loans, but it is simply a bailout.  The reason is because the loans will never be paid back.  Any system can be sustained if there are others outside the system willing to continually fund it.

Greece is a massive welfare state.  Now it depends on outside welfare from the ECB, the IMF, and the various European governments.  As with any forced welfare, it ends up being bad for both parties in the end.  The only ones who may benefit are the bankers and politicians.

The welfare recipients (the Greeks) may get temporary relief, but it is just temporary.  It just creates more dependency and it will be that much harder down the road.  The welfare payers, particularly the Germans, end up resentful.  They are being forced to throw money down a hole right now.

This is just another attempt to delay the day of reckoning.  It will only make things worse in the long run as wealth is depleted.  Maybe the Greek parliament will reject the measures and the deal will fall through.  Stay tuned.

The Chinese Stock Market Bust

The Chinese stock market is on a roller coaster ride, and it just started its major descent a few weeks ago.  I have written an article on this for Wealth Daily.

I have been warning about a massive China bubble for a while now.  First it was in real estate, and then a stock bubble grew on top of that.

On June 5, 2015, I wrote a post about China when the market topped the 5,000 mark.  I specifically said in the first paragraph, “…the Chinese stock market is in a major bubble.”

How did I know?  It’s because it had gone parabolic at that point.  It was not sustainable, and the only thing justifying the major rise was easy money by the Chinese central bank.

The Austrian Business Cycle Theory applies here.  When there is an artificial boom due to easy money and low-interest rates, along with government policies that encourage the bubble, then a bust becomes virtually inevitable.

The hard thing about the Austrian theory is timing.  You can’t predict when the bust is going to occur.  This sometimes gives a bad name to the Austrian school because predictions do not always turn out to be true right away.  This is why, if you are an Austrian school follower making a prediction, you should make it clear that the timing of your prediction is not Austrian based.  You have to make sure your prediction itself is Austrian based too.

The reason I was able to call the Chinese bubble so easily was because the stock market was up 150% in less than a year with an explosion upward toward the end.  It was fairly evident that it was in its final stages.

Now the government has instituted major controls.  Almost half the companies in the exchange have basically delisted, prohibiting trading of shares.  What kind of exchange would allow that?

The government is prohibiting executives and major shareholders from selling.  Meanwhile, it is encouraging the big players to help support the market and buy.

It is a completely rigged market at this point.  The Chinese government is making America look pretty good right now.  The Chinese stock market is now resembling that of a third-world country.  What is the point of owning stocks if you can’t sell them?  The majority of money in stocks now is basically prohibited from selling.  At this time, most shares are essentially worthless if you are not able to sell them.

I don’t know where the Chinese stock market goes from here, but it doesn’t really matter at this point.  The Chinese central planners have shown that they have little respect for property rights and that it is a corrupt and rigged market.  Stocks may go up now because most people are unable to sell.  The share prices no longer reflect any sort of market price.

I am still expecting a bigger crash in Chinese real estate.  It is going to get bad there.  This is going to affect the American economy.  We just don’t know to what extent at this time.

We’ll keep paying attention to China, but the stock prices have become almost meaningless now.  If they go down further with all of the restrictions, that is going to look really bad.

Debt Hurts Now

In a recent post about Greece, I said that the debt is not so much hurting future generations as it is hurting people right now.  I have discussed this before, and I think it is important enough to reiterate again.

The U.S. government has been racking up debt like crazy, particularly since 2008.  Of course, it was bad before then too, but not a trillion dollars per year bad.

Even the so-called surpluses in the last few years of the Clinton administration were just mostly surpluses in payroll taxes.  The Social Security taxes coming in were greater than the Social Security payments going out.  The difference was used in the general fund and to give us the supposed surpluses.  There is no doubt though that the much smaller deficits of the late 1990s were far preferable to anything since then.

When I hear people in the U.S. criticize the national debt, they will typically say that we are burdening future generations.  But this is only mildly true, and for different reasons than what is realized.

It hurts future generations only in the sense that it means less savings and private capital investment today.  We can thank our ancestors going back thousands of years for our current standard of living.  You can go back as far as forming a language, writing, and building simple shelters.

And if the Industrial Revolution had never taken place, or even taken place later than it had, then our standard of living would be far lower today than what it is.

So debt hurts future generations because there is less advancement in technology and less advancement in building capital goods than there otherwise would have been.

In terms of paying back the debt, we must consider an example.  First, the debt could end up like the way Greece’s debt is going: into default.  If the government defaults on the debt in the future, then it isn’t really burdening anybody.  It is bad for those holding the worthless “investments”, but that is money that was spent in the past on the government bonds.

What if the debt is never defaulted on?  Let’s say that Joe lends the government a million dollars for 30 years.  Now the bond has matured 30 years later and it is time for the government to pay him back his principal amount.  That money is coming from taxpayers.

This is a case of wealth redistribution, but the overall wealth of society hasn’t really changed.  The money is going from private hands (the taxpayers) to private hands (Joe).  Perhaps there is an argument to be made that it is a disincentive for production, but that would be about it.

Even if you count the debt from the Federal Reserve, the interest payments get remitted back to the Treasury.  And if debt matures and is not rolled over, then it means a contraction of the money supply, which is actually beneficial for anyone holding dollars.  Again, there is redistribution when there are interest payments or the paying back of maturing debt, but the money ends up back in private hands if the government doesn’t spend it.

The problem here is that Joe lent the government a million dollars 30 years ago.  That money could have gone into capital investment and put to good use.  Instead, it was used by the government to misallocate resources.

This is not to say that all of the money was completely wasted by the government.  It may have been or it may not have been.  It could have been used to build a road that is now used.  You can have a misallocation of resources without the resources being completely wasted.

This is the reason that debt hurts us in the present.  If the government runs a trillion-dollar surplus, it means the government is spending an extra trillion dollars that is not in private hands.  It is misallocating these resources to things that consumers mostly did not want or need.  If they did, they could have just bought it without having to go through the government.  It can also serve to discourage production, investment, and savings.

Are the Greek people worried about future generations right now?  The probably are not for the most part.  They are worried about now.  They are worried about paying the rent and putting food on the table.

This is not just due to debt, but the entire government apparatus.  It is a massive welfare state that cannot be sustained without outside handouts.

The debt is a burden now.  The Greeks should default on all of it.  From a libertarian standpoint, it is not a valid contract because it depends on the use of force on people to pay it back and these people did not sign the contract.

If the Greeks default on all of the debt, it will mean no more interest payments. It will also mean that few people/ governments will be willing to lend any more money for a while.  This is seen as a bad thing, but it would actually be a good thing.

Assuming Greece doesn’t turn to hyperinflation with its own currency (which is a big assumption), then the government will be forced to dramatically cut spending.  That is what is desperately needed there more than anything else.

To help the current generation, get rid of the debt now and stop accumulating any more.