Gold Stocks Break Out

For gold (and silver) investors, it has been a tough few years.  The metals have been in a bear market since around 2011.  This was after a historic run up.

We have to remember that silver topped out close to $50 per ounce and gold near $1,900 per ounce.  But around the turn of the century, gold was around $300, and silver was around $5.

Silver briefly went parabolic in 2011, so a pullback was inevitable at the time.  We just didn’t know how long it would last.

I don’t know what makes a bear market.  Maybe the last 5 years have been a small bear market within a larger bull market.  Still, 5 years is a lot of time, and investors have gotten hammered, especially if they bought anywhere near the top.

Overall, gold has still fared reasonably well.  That is why it is my top choice for holding a precious metal.  It is more stable than silver.  Silver is far more volatile.  It makes owning silver fun in a bull market, but quite devastating in a bear market.

Nothing has compared to owning mining stocks though.  They have been beat down so hard over the last several years, one could easily be down 80% or more.

They say that when there is blood in the streets, that is the time to buy.  Well, mining stocks have been a disaster over the last several years, so perhaps it was time to buy.

With gold and silver prices inching up in 2016, mining stocks have done well.  If the rising metal prices continue, we should expect continuing price increases in the mining sector.

Just as silver is more volatile than gold, mining stocks are more volatile than gold as well.  Mining stocks are usually more volatile than silver.

I recommend a permanent portfolio that includes gold holdings.  This does not include gold stocks.  Gold and other mining stocks should be left for your speculative portfolio.

I don’t know if there will be another major pullback in mining stocks. If we hit a recession, it could happen.  Ultimately, I am bullish on mining stocks because even if we hit a recession, the Fed won’t be far behind with another round of quantitative easing.

My strategy right now is to own a small percentage in mining stocks. If the Fed hints at more monetary inflation, maybe I will go higher.  Although I say I favor a “small percentage”, it should still be significant enough that it is worth it to you.

Just for example, if your financial net worth is $100,000, I don’t see much point in putting just $1,000 in mining stocks.  First, you will probably need a few percentage points in gains just to offset your trading fees.  And even if your stock or fund triples in price – which is an incredible success as an investor – it is hard to get excited about a $2,000 gain.

So for speculation, I am comfortable recommending 5% towards this speculation, as long as you are comfortable risking this amount.

You don’t have to buy individual stocks.  There are mutual funds and ETFs available.  I don’t see a problem with GDX, GDXJ, or TGLDX.

GDXJ is made up of junior miners, so they are even riskier, but they also offer a bigger potential reward if just a few of the stocks in the fund were to break out.

Again, don’t be surprised if a recession puts a damper on the mining stocks.  But even here, I am encouraged that gold prices have held up, or even gone up, in the face of a falling stock market.  We saw this take place in January.

If you want some risk, dip your toe in the mining sector.  I will buy more when I think the time is right.

Should Libertarians Hope for a Contested GOP Convention?

As I write this, it looks as though Donald Trump and Hillary Clinton will sweep a bunch of states.  This essentially locks up the nomination for Clinton, barring an FBI indictment.  Even then, it may not stop her.

On the other hand, Trump has earned the venom of the establishment, so his fate is yet to be determined.  If he ends up with a majority of delegates heading into the convention, it is going to be tough for the Republican establishment to stop him.  If they do try to deny him the nomination, we will get to see the reactions of tens of millions of angry people.  Even some people who don’t fully support him will be mad.

If Trump does have a majority heading into the convention, then I think the Republican establishment will give up, at least on denying him the nomination.  They will put all of their hope behind Hillary.  Some will outright endorse her, and others will work behind the scenes in continuing to try to sabotage the Trump campaign.

The big question is what will happen if Trump falls just short of a majority of delegates.  I think the establishment will definitely try to deny him the nomination.  I don’t know if it will be Cruz and Kasich teaming up, or if some other outside person will come into play.

For libertarians, they are obviously all bad, but some are perhaps worse than others.  Trump is the only one who holds out any hope for some real change.  Of course, change can be bad too.

The best a libertarian can hope for is that Trump is elected and he actually starts withdrawing troops from around the world.  It would be the best deficit reduction plan there is.  It would obviously be a big step towards more peace in the world as well.

I recently listened to an interview of Lew Rockwell by Alex Jones.  They were talking about Trump, and Alex Jones said that Trump has become familiar with the issues over the years and that he is essentially a libertarian.  This I don’t believe.

Maybe Trump is just saying some things in order to be popular and to get votes.  But it would be very difficult for any libertarian, or even a libertarian-leaning person, to look at a crowd or into a camera and talk about tariffs on China and raising taxes on the rich.

I think Trump is a lot like Pat Buchanan in his philosophy.  He is level-headed, but not all that good on free trade and some other economic issues.  Still, I will take Trump’s honesty over the sneakiness of Ted Cruz and the corruption of Hillary Clinton.

I wonder though, would a contested GOP convention be good for the cause of liberty?

There are arguments to be made either way.  I just laid out some good possibilities of a Trump presidency, but of course there are no guarantees.

Maybe it would be a benefit to see the nomination stolen away from Trump.  It would probably hand the election over to Hillary, but at least there would remain a Republican-controlled Congress in all likelihood.

If Trump has the nomination snatched away, I think a lot more people are going to realize just how rigged the system is.  That is why so many people are supporting Trump to begin with.  I don’t think they love Trump.  Their support for Trump is a middle finger to the establishment and the whole rigged system.

If Trump loses the nomination at the hands of the Republican establishment, it will be a good opportunity for libertarians to attract some of the more level-headed Trump supporters.  Libertarians can point to the fact that we have been calling it a rigged game for a long time now.

There is hope.  It seems that more and more people are waking up to the fact that something is very wrong.  That is the first step for many towards becoming a libertarian.

What if the Saudis Funded 9/11?

I recently wrote an article for Wealth Daily on the threat of the Saudi government to dump U.S. assets if legislation is passed that would enable Saudi officials to be held liable for the 9/11 attacks.

This article focused on the fact that the House of Saud has far more to lose than does the U.S.  While I think the U.S. dollar will slowly lose its status as the world’s reserve currency, it isn’t the Saudis who will do it.

If any foreign governments can take down the dollar, it is the Chinese and Japanese, but it isn’t really in their perceived best interest to do so right now.  If anything, it will be the market participants in global trade slowly realizing that they don’t need to use the U.S. dollar as a middleman.

Now I want to get a little deeper into the political ramifications of possible Saudi funding of the 9/11 attackers.  This is already an interesting story in which the Saudis are being implicated.  It is an interesting story just because it is a story.

This has actually received coverage on 60 Minutes, as well as some cable news.  Of all people, Rudy Giuliani has been discussing it, and he isn’t dismissing it as a crazy conspiracy.

But if the Saudi government (or any other Saudis) really were involved in the 9/11 attacks, it all of a sudden calls Bush and Obama and others at high levels in the U.S. government into question.

The 28 pages from the 9/11 Commission Report have been hidden this whole time.  Obviously Bush (and subsequently Obama) knew what was in there.  If the 28 pages directly implicate the Saudi government in helping to fund or plan the 9/11 attacks, then why didn’t they allow this information to be released?  And even better, why have they continued to fund and support the Saudis?

The absolute best-case scenario is that they didn’t want to damage relations with the Saudis in order to maintain their support for the U.S. government’s ongoing interactions in the Middle East.  And that best-case scenario is pretty bad.

The main justification for starting wars and occupations in the Middle East is terrorism, and the 9/11 attacks in particular.  So why is the government going after Afghanistan and Iraq (and others) when the Saudis actually did help commit the atrocities of 9/11?

It would be bad enough that the families of the 9/11 victims don’t get justice by having the perpetrators who are still alive be held responsible.  It becomes even worse knowing that the White House knew the Saudis were partially responsible and then used this to start wars in other countries.

All of a sudden, the 9/11 conspiracy theorists aren’t looking so crazy after all.  If the White House knew that the Saudis helped fund (and possibly plan) 9/11, and then actually helped them evade being held liable, then it isn’t much of a step further to think that elements within the U.S. government knew the attacks were going to happen.  Then it isn’t much of a step further to think that elements within the U.S. government helped with the attacks.

We can’t conclude anything with certainty at this time, but you can see where this is going.  If those 28 missing pages from the report implicate the Saudi government (or others) in helping with the 9/11 attacks, it leads to a lot of other obvious questions.  I don’t know if these questions will eventually be asked outside of websites and social media.

If the U.S. government is ever implicated in the 9/11 attacks and it is widely believed by the American people, this should really change public opinion.  There will still be militarists who believe that we need to run the world, but a lot of people who are more ambiguous will turn against the government, at least on foreign policy.

Americans will still trust the government for their Medicare and their Social Security checks, but overseas wars and occupations will lose legitimacy quickly.

This gives us several reasons to hope that the full truth comes out in this matter.

Are Stock Bulls About to get Burned?

The U.S. stock market has generally been a good investment since March 2009.  At that time, they had just been hammered by the recession and almost nobody wanted to touch stocks.

Since late 2008, the Federal Reserve quintupled the adjusted monetary base.  And while much of this new money went into bank reserves, thus not multiplying through fractional reserve lending, it is still monetary inflation nonetheless.

If this newly created money had been lent out to borrowers, then the monetary base never would have grown as much as it did because we would have already faced massive price inflation.

Still, despite the big buildup of excess reserves, the new money does represent spendable money in people’s (and business’) checking accounts.  And while consumer price inflation has stayed relatively tame in most areas, asset price inflation is a different story.

Real estate has been bid back up in some areas, but many areas are still far short from the peak of the last bubble.  The one big area where we have seen major asset price inflation is in stocks.

I am not a perma-bear when it comes to stocks, but stocks have not been a favorite of mine over the last decade or more.  I understand that there is money to be made in stocks, especially when the Fed is on a digital printing spree.

I also know that stocks are fragile because they have been bid up as a result of the monetary inflation.  When you live by the monetary inflation, you die by the tight money.

The Fed – despite low interest rates – has had a tight money policy since October 2014 when QE3 ended.  Tight money is not good for stocks when they have already boomed because of loose money.

January 2016 was a really tough one for stock investors.  It looked like it could be the beginning of something more devastating.  Since then, stocks have gone back up and recovered what was lost at the beginning of the calendar year.

While some will say that the pullback in January was a fake-out, how do we know that the current upswing is not a fake-out?

Unless the banks start getting rid of their excess reserves in a significant way, then we are in tight money mode.  And the Fed is not going to start adding to its balance sheet again until there is a major economic downturn, which would include a crash in stocks.

So regardless of whether the Fed raises its key interest rate again, we are in tight money mode, which will not be good for stocks.  But these things take some time to work out and filter through a massive economy.  There is a lag effect.

I do not recommend being heavy in stocks right now.  There may be more profits to come in the short term, but it is not worth the risk right now.

Owning stocks in the context of having a permanent portfolio (which I recommend) is fine.  It will only be 25%, and your other investments will likely offset any losses in a stock market crash.

Aside from the permanent portfolio, the only thing I like right now is gold stocks.  But even there, I am not too heavy.  If we hit a recession with a major downturn in stocks, gold mining stocks will likely take a hit too, unless gold goes completely the opposite way.

It was nice to see the gold price rise in January in the face of falling stocks.  I think there is so much uncertainty out there that gold could actually hold up decently well in a recession.

It is an interesting time to consider a short position in stocks for speculative purposes only.  It is a tough thing to do right now.  I don’t recommend a big short position, but if you are ever going to do it, a year and a half of tight money with near all-time highs in stocks is about as good of a time as any.

It took a lot of courage for the people who bought stocks in March 2009.  There is going to be a particular time that we look back at to say it would have been a good time to short stocks.  I don’t know if now is that time, but it seems plausible to me.

Libertarians for Trump?

In some ways, Donald Trump is tearing apart the country.  It seems most people love him or hate him, but there is definitely a middle ground too.

Trump is even dividing many libertarians.  Some hate him.  Some are supporting him.  I am in the middle on this one.  I am not voting for Trump, but I am cheering him on in some aspects.

There is a group that formed called “Libertarians for Trump”.  They are supporting his bid for the Republican nomination because they consider him to be least bad.  Tom Woods had a debate about this subject on his podcast.

I understand the reasons for rooting for Trump.  He seems to be less interventionist in terms of foreign policy.  He does not bow down to political correctness.  He does not seem to take marching orders from the establishment.  Best of all, he is driving the establishment crazy.

Still, I think “Libertarians for Trump” is a bad idea as a formal group.  We already have to work hard enough in defending the libertarian name.  We don’t need people assuming that Trump somehow represents a form of libertarianism.  He is not even close.

On the other side, I don’t think libertarians should dismiss everything Trump says.  I listened to a video of Ron Paul the other day (that’s right, I listened to a video).  He was talking about the 2016 presidential election.  (Note – the audio quality is poor.)

It is funny because Ron Paul will often avoid saying Donald Trump’s name for some reason, but it is easy to know exactly when he is talking about him.  He cannot stand Trump.  Maybe it is a personality thing.  Maybe it is because Trump stole Rand Paul’s thunder in the campaign as the outsider candidate.  But that is Rand Paul’s fault for trying to play all sides and running such a terrible campaign.

My position is that we should praise Trump for the good things he says and criticize him for the bad things he says.

Trump seems like a decent guy.  Everything I have read from people that actually know him is generally positive.  His employees and former employees say he treated them well.

If Trump is generally honest and decent, that puts him way ahead of everyone else right away.  Maybe Bernie Sanders is decent, but even there I have my doubts.  I could be completely wrong on Trump, but at least there is a chance of decency with him.

Trump is a lot like Pat Buchanan in terms of the policies he promotes.  He is somewhat isolationist in the sense of foreign policy and economics.  I don’t agree with Buchanan or Trump when it comes to certain economic policies, particularly free trade.  Promoting or threatening tariffs is bad economically and morally.

But Pat Buchanan seems like a gentleman as well.  And at least they are somewhat sensible when it comes to issues of war.  Trump is certainly inconsistent, but inconsistency is better than being consistently belligerent.  Again, we don’t know what Trump would do as president, but at least there would be a chance for some peace.

Trump is also exposing the corruptness of the whole system.  Colorado handed all of the delegates to Cruz.  When I say Colorado, I  mean the Republican Party insiders.  The general populace registered Republican did not actually get to vote.

If Trump is denied the nomination, maybe this will be good in the sense that it wakes people up.  Maybe they will realize that the system is rigged against them.  But until they stop asking the government to do things for them, not a lot is going to change.

In conclusion, libertarians can cheer on Trump without endorsing him.

Median CPI Flat in March

The latest consumer price index (CPI) numbers are out for March.  The CPI rose 0.1% in March 2016.

That is the number that gets the headline news.  The median CPI, which is far more stable (and probably reliable) was up 0.2% in March.  Year over year, the median CPI is up 2.4%.  It has been at 2.4% or 2.3% for at least the last 6 months.

The bottom line is that consumer price inflation is low, at least according to government statistics.  If we lived in a free market world without central banks and fiat currencies, then there would likely be no price inflation, or there would even be mild deflation.  This would reflect increased productivity.

But compared to the last 100 years with the existence of the Fed, the price inflation is relatively low.  I don’t think it properly accounts for the steep rise in health insurance and medical care costs.  And that is what most families are struggling with in terms of increasing expenses.  But that is as much or more a reflection of government policies than it is of monetary policy alone.

The Fed has been in tight money mode for a year and a half since QE3 ended in October 2014.  Interest rates have stayed low, but that is a market response to the fear in the economy and the Fed’s previous loose policy.  The massive excess reserves built up by the commercial banks mean they don’t have to borrow overnight funds to meet reserve requirements.  This keeps the federal funds rate low.

There is continued debate about whether interest rates will go up or down.  In the short run, I still see a greater probability of interest rates staying flat or going down further.  This is a reflection of a weakening economy.

I think interest rates will only spike significantly when price inflation becomes a problem, or at least a perceived problem.  It is not a perceived problem by most people right now.

Therefore, I continue to conclude that interest rates will not spike higher until we see higher price inflation.  I know the government statistics should be taken with a grain of salt.  But they are useful for a trend.  And right now, there is no sign of price inflation picking up with any significance.

At some point in the future, there will be a time where it will be very profitable to bet against bonds, or in other words, bet on higher interest rates.  It will be one of those great opportunities that does not come around very often for investors.  But that time is not now.  We are still not close to it.

We will probably have to see more so-called quantitative easing from the Fed before we see a significant increase in price inflation.

Therefore, I would bet on gold before I would bet on higher interest rates.  Rising interest rates will lag behind rising gold.  I can’t be certain of any of this, but that is how I see it playing out.

The likely order is: recession, then Fed money creation, then rising gold, and finally rising interest rates.

We can’t be sure of any of this because it all revolves around human decision making.  But the safest bet is on the Fed going back to money creation when times get tough.  You never know what could happen, but it is usually a safe bet when dealing with central planners at the Fed.

Will Mortgage Rates Stay Low?

Mortgage rates recently hit a low for the year and they are near historic lows.  Right now, you can get a 30-year fixed rate mortgage for a rate of about 3.65%.  A 15-year fixed will only cost you a rate of about 2.75%, assuming good credit.

If you are buying a house or refinancing your house, then I generally recommend a fixed-rate loan, assuming you are planning to stay there a while.

(As an aside, if you aren’t planning to live somewhere for long, then you probably shouldn’t be refinancing or buying in the first place, unless you are planning to keep the property for investment purposes.  But if you are going to sell in the near future (within 5 years), you are going to get eaten up by closing costs, agent fees, and the other expenses of home ownership.  It is not worth it.)

If you had asked me 10 years ago, I would have said to get a fixed rate mortgage.  I would have been wrong in the sense that your payments would have been lower with a variable rate.  I wouldn’t regret recommending that though, because it is a little bit like insurance.  I don’t regret recommending that someone get insurance for something just because, looking back, nothing bad happened.

So it is not that I am betting on higher rates.  It is just more of an admission that we can’t predict the future.

Actually, if I had to guess, I think rates will probably go down in the near future.  I may be in the minority of libertarian opinion on this.  Some libertarians have been predicting much higher rates for many years and it has failed to come to fruition.  Rates will eventually go higher, but what if it is another decade or more?  I don’t think it will be this long, but it isn’t useful to say that rates will go higher without any time reference at all.

If you are taking out a 30-year mortgage, it is basically impossible to predict what rates will be in 20 or more years.  We could be like Japan for the last couple of decades where there have been really low (now negative in some cases) interest rates.  We could also be like the U.S. of the 1970s with double-digit interest rates.

So if you are buying or refinancing and plan to hold the mortgage for a long period of time, it just generally makes sense to go with a fixed rate mortgage.

There are still times when it makes sense to get a variable rate.  The rate will start out lower than a fixed rate because you are absorbing some of the risk.

But if you are getting a 15-year mortgage and the principal balance to start isn’t all that high, it might make sense to take a little extra risk and go with a variable rate, especially if you are in a good financial position.

Let’s say you only have a mortgage balance of $80,000 left on your house with about 15 years to go on the loan.  You can refinance with relatively low closing costs.  You can refinance to a 15-year loan, which is what you have left anyway.  You can get a lower rate with a fixed rate or a variable rate, but the variable rate will be lower to start.  There is no guarantee after that.

Since the balance is so low, there is not nearly as much risk in getting a variable rate.  As the balance is paid down, the risk gets less and less.  If rates spike in 5 years, you can always make the decision to pay down the principal balance more aggressively if you have the extra funds to do so.

When deciding on a mortgage, or really almost any financial decision, you really have to consider all of the factors in your life that will be unique from anyone else.  The key is to know what the important factors are and how much weight they carry.

This is why it is hard to make blanket statements such as “You should always get a fixed rate mortgage.”  There are some people who really should get a variable rate mortgage.  Even your personality may affect your decision.

I expect rates will stay low for a while longer because of recession fears.  But if you are buying a house for the long term, then it typically makes sense to get a fixed rate so that you can sleep at night and not worry about what your monthly payments will be next year.

Trump’s Mistake on Abortion Tells All

The media are always going after Donald Trump these days, but one of the latest topics is an interesting one because it actually goes way beyond what is being discussed.

When Trump was being interviewed by Chris Matthews, he was pressed on what he would do to make abortion illegal.  Trump initially tried to dodge the question, but Matthews was relentless.

I don’t think abortion is on Trump’s agenda at all.  He is probably just playing the pro-life position so that he can somewhat fit in with the Republicans, even though he has deviated on other issues.  We can doubt whether anything would change with regards to abortion even if a hardcore social conservative (Cruz?) were to win the presidency.  With Trump, there is almost no chance that anything would change.

Still, Matthews kept pressing Trump to respond on what penalties there would be.  Trump finally said that a woman who gets an abortion would be punished in some way.  That is what Matthews wanted him to say.  It was his “gotcha” moment.

Trump was unprepared.  He should have been prepared for such a question.  He later backtracked after the interview and said that it would just be the doctors who would be penalized.

I don’t mind the “hardball” questions from Matthews except that he is a total hypocrite.  He wouldn’t ask these questions of Hillary Clinton, or anything remotely as hard.  Actually, Hillary Clinton probably doesn’t do any interviews where she doesn’t already know the questions, or at least where she doesn’t feel comfortable with the person interviewing.  You won’t ever catch Hillary Clinton in an interview on Fox News.

Trump is essentially forced to do many interviews.  The media is constantly lambasting him.  He has no other choice but to take his message directly to the people.  If he didn’t do interviews often, he would be a sitting duck.

With that said, Matthews’ question and Trump’s response really go way beyond abortion.  It actually reveals the total nature of the state.

Why doesn’t Chris Matthews ask Trump or any other candidate what they would do to punish someone who doesn’t pay their required taxes?  Why not ask what the penalty should be for not paying a parking ticket or a late fee for a library book?

For someone who doesn’t pay their taxes, they will eventually receive something telling them to pay, probably along with a penalty and interest.  If the person refuses to pay, then they will eventually get a notice to appear in court.  If the person doesn’t show up for court, then armed men with guns will go to the person’s house and break down the door.  They will take him to jail.  If he refuses to go to jail, he will likely be shot.

This could even happen with an unpaid parking ticket or a late fee for a library book.  That is the nature of the state.  It ultimately rests on the use of violence.

If Trump or anyone else is going to make abortion illegal, then force would have to be used at some point if the illegality of it meant anything.  This isn’t an argument for or against the legalization of abortion.  It is just the simple truth.  I understand that some people view abortion as the taking of a human life, therefore they believe it would be justified to use some kind of force as a form of defensive force.

At least with abortion, an argument can be made for defensive force, if you consider it defending the unborn fetus.  But with most other government laws, it is not defensive force.  Really, anything that requires forced taxation is the initiation of force by the state.

I wish Chris Matthews, or any other so-called journalist, would ask these candidates what they would do to punish someone who doesn’t pay their income tax, or who refuses to abide by Obamacare, or who quits their job with the military, or who buys certain drugs without a prescription.  I would like to see follow-up questions leading up to the ultimate conclusion, which is the use of guns.  At some point, the state will use guns to enforce the laws, or else the laws are meaningless.

Most people probably didn’t think through Trump’s comments on abortion this much.  But if you look deep enough, it is a great lesson on libertarianism.

Don’t Fear Deflation

There is an irrational fear of deflation that exists in our world.  Perhaps it is because of the Great Depression, where there was a deflationary effect due to bank failures.  It was a reversal of the fractional reserve lending process.

There is an association of deflation with a bad economy, but that is only because the so-called deflations we get now are associated with the central bank and the artificial business cycle.  If the Fed didn’t inflate in the first place, there would be no correction to deal with.

In much of the 19th century – ignoring the era of war in the 1860s – there was mild price deflation.  This was due to a relatively stable money supply with an increase in productivity.  It was a major benefit to people, as their earnings and savings had greater purchasing power.  It meant an increasing standard of living.

Although we do not currently have deflation in prices, or monetarily speaking, the Fed and other central bankers around the world are desperately trying to get higher price inflation.  The Fed has this ridiculous target of 2%, as if we are better off losing 2% of our purchasing power every year.

The main reason price inflation has stayed relatively low in Europe and Japan, despite easy money and low (even negative) interest rates, is because of fear.  People are holding on to some of their money due to a bad economy and perhaps expectations of continued trouble ahead.  People wisely don’t want to go into major debt or buy things they don’t need.

The U.S. is a little different.  The Fed has actually had a tight monetary policy over the last year and a half, despite the low interest rates.  So low price inflation right now actually makes sense in regards to the business cycle.  But price inflation was relatively low even during the several rounds of so-called quantitative easing.  Again, fear is a big reason.  It keeps velocity low.  Money changes hands less frequently.

There are some people who think that deflation is inevitable at this point.  We hear phrases such as “pushing on a string”.  And this isn’t a bad description of what is happening now.  But it is important to realize that the Fed (or any central bank) can create positive price inflation at any time, as long as it has a monopoly over the money supply.

Ben Bernanke said in 2002, prior to becoming Fed chair, the following:

” But the U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the prices in dollars of those goods and services. We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation .”

Bernanke has been wrong on many things, but on this point he is precisely correct.  The Fed could announce tomorrow that it will add $10,000 to every checking account per individual in the United States within the next month.  And if this didn’t do the trick, the Fed could say that it would continue this practice every month until it decides to stop.

This would ultimately bid up prices.  Upon such an announcement, certain commodities would likely jump dramatically almost instantaneously.  Gold would probably double in price in a short time frame, if not more.  Prices all over would be extremely volatile as the marketplace tries to figure things out.  But the general trend would definitely be up for prices.  Just the anticipation of massive price inflation would be enough to bid up prices.

The point here isn’t that the Fed would do something so dramatic.  It would probably lose a lot of credibility in an instant if it did such a thing.  Ironically, it might be less of a ripoff with this monetary inflation as compared to its past schemes of bailing out companies and funding government deficits.  Still, such a scheme of handing out money to everyone would redistribute wealth in a different way, and it would severely distort economic activity.

The main point here is that the Fed can produce positive price inflation at any time if it is really determined.  The Fed is not desperate right now.  It is content as long as the economy seems to be humming along.

The key is to figure out what the Fed will do if we hit a major economic downturn.  We can’t read minds, but we can look at incentives and past performances.  All indicators point to another round of money creation if things get bad enough.

And that is the number one case for owning some gold.

Wisconsin Keeps the Presidential Race Alive

As I write this, the Wisconsin votes are still being counted.  But the big winners are Bernie Sanders and Ted Cruz, both of whom are projected to win.

Actually, Ted Cruz isn’t really the big winner, despite what the headlines may read.  Paul Ryan and the Republican establishment are the big winners.

Mathematically speaking, it is almost impossible for Ted Cruz to get a majority of the delegates secured going into the convention.  He is a tool of the establishment right now.  It is a long shot that he could overtake Trump in the delegate count too.

The reason Cruz is still in the race is because he is the only hope for the Republican establishment to prevent Trump from reaching a majority of delegates going into the convention.  And if Trump is just one delegate short, then we can be reasonably sure that the establishment will take the nomination away from him.

The favorite right now in a brokered convention is Paul Ryan, the current Speaker of the House.  Ryan was also part of the failed ticket with Mitt Romney in the last election.

Even though presidential elections are overrated in the sense that not much usually changes from one to the next, this race is particularly interesting.

The Republican primaries in 2012 were interesting only because of the presence of Ron Paul.  He was a major thorn in the side of the establishment, but they correctly believed at the time that he was a long shot to actually win the nomination.  He was just a threat in exposing some of their lies and bringing forth issues that otherwise wouldn’t have been discussed.

Trump on the other hand is a major threat to the establishment.  He has questioned some of the main establishment beliefs and he can’t easily be bought.  Trump has questioned U.S. foreign policy and its vast empire.  To be sure, Trump is inconsistent.  But the fact that he is the leader in the race up to this point while maintaining some of these positions is a major reversal of public opinion.

That is the main reason to be interested in presidential politics.  It can give us an indication of how public opinion is changing.  And the race itself can change public opinion as new ideas are accepted.

And if the entertainment on the Republican side weren’t enough, the Democratic race is still providing some entertainment.

I thought Hillary Clinton had it all wrapped up against Bernie Sanders.  But Sanders is like a bug in her ear that won’t go away.

The establishment doesn’t want Sanders either, although he would be more acceptable than Trump.  But I continue to say that Sanders is Clinton’s third biggest threat.  The top two threats against Clinton are the FBI and the economy.

I think Sanders is staying in the race for a few reasons.  He doesn’t have a lot to lose at this point.  Plus, if there is an indictment against Clinton for her email scandal, then Sanders would pretty much walk into the nomination at this point.  Then again, you still can’t count out the Clintons, even with an indictment by the FBI.

The delegate race between Clinton and Sanders would be close except most of the so-called super delegates are locked into Clinton at this point.

If the race does end up between Trump and Clinton, you have to wonder how many Sanders supporters will stay at home on Election Day, or maybe even vote for Trump.

Most people I know, even those who would vote for Trump, do not support everything he says or everything he stands for.  There probably are some people who believe everything he says, but I don’t think that is the majority of his supporters.  It probably isn’t any one issue in many cases either.  Many of Trump’s supporters are with him because it is a vote against the establishment and the status quo.  They know they are getting ripped off, so it is the voters extending their middle fingers in the direction of the establishment.

If Trump has the nomination taken away from him, it will just infuriate his supporters that much more.  That is actually good news for libertarians.  It will mean less consent for the federal government.