Bitcoin $10,000 – Where Next?

The price of Bitcoin has reached a new milestone.  One bitcoin is now worth about $10,000, at least as of right now.  It will likely change significantly one way or the other by the time you are reading this.

For the cryptocurrency fans who don’t like the government currencies, they sure are celebrating a lot because of measuring Bitcoin in U.S. dollars.  Of course, I have to admit that I would probably be bragging about gold – or more so the bad U.S. dollar – if an ounce of gold were to hit, say, $5,000.

In Bitcoin’s run toward $10,000, I have even read comments by Bitcoin enthusiasts attacking gold bugs.  They say that they have been vindicated and that gold bugs have been all wrong.  This is somewhat curious, given that gold bugs and Bitcoin enthusiasts can overlap.  You don’t have to be one or the other, although most will have a preference for one or the other.

If you invested in Bitcoin early, then you have done really well.  But it isn’t because Bitcoin is money.  It is because you can trade your bitcoins for more money.  Your purchasing power in dollars has gone up.

Bitcoin enthusiasts seem to be declaring victory.  But there isn’t a defined finish line here.  There were people predicting a housing bust in 2004.  Think of the person in 2006 making fun of this prediction.  “Ha, ha – You predicted a housing bust two years ago and prices have gone up another 30% since then.”

Bitcoin is a major bubble.  We just don’t know when it is going to pop.  It could go to $20,000 or $100,000 first.  Nobody knows.  There is little historical basis for any of this, other than previous bubbles and busts.

A bitcoin is only worth something because some people are deeming it worth something.  It is subjective.  Unfortunately, other than serving its current role as a speculation, a bitcoin is not useful at all.  It is basically a digit somewhere, similar to the majority of dollars in circulation.  Dollars are mostly digital.  But at least with dollars, it is imposed by the government, which means it would take a lot to remove it as a form of money.

What makes Bitcoin so special?  There is technology that has gone into it, but this doesn’t mean anything in terms of why a bitcoin is valuable.  This is why there are now thousands of digital currencies that were made up out of nothing.  You too can start a cryptocurrency.  Just create your own digital coins and tell the world how many are available and just how great they will be.

This whole thing reminds me of Tulip mania.  There is a difference though.  At least if you paid a lot for a tulip bulb, you could at least get a nice looking flower out of the deal.

I know this is harsh.  As I’ve said before, I am sympathetic to those who promote cryptocurrencies because at least they are opposing the fiat government money that is forced on us.  Still, I don’t want to see people get burned by this speculation.  Therefore, if you do “invest” in Bitcoin, know that your investment could quickly go to zero.  You are not trading one form of money for another.  You are speculating.

There is a story about Joseph Kennedy knowing a stock market crash was imminent in 1929 when a shoeshine boy was giving him stock advice.  This was a sign that the bubble was near its peak.  Whether or not this story is true, the idea of it rings true.

I have read several comments in different forums over the last couple of weeks with people asking about Bitcoin.  They say they have never bought Bitcoin and wonder the best way to go about doing it.  They wonder whether now is a good time to get in, even though they missed the initial run.

I am not saying that a crash is imminent.  Bubbles can go on for a while.  They can last longer than some short sellers can remain solvent (to paraphrase Keynes).

If you are going to buy Bitcoin with your U.S. dollars or some other government currency, then please understand that Bitcoin is not money.  It is hard to even call it an investment.  It is a speculation.  There is nothing wrong with speculating, just as there is nothing wrong with going to the casino.  Just understand what you are getting into and that you could lose all of your money.

The Morality of People vs. the Government

Libertarians accurately point out the problems caused by government with great frequency.  It isn’t to say that we would live in a perfect world without the state, but things would be a whole lot better and more peaceful if state power were drastically reduced.  Our living standards would also be far higher, perhaps beyond our imagination.

While the government should be blamed for a lot of the ills in our society, we also shouldn’t forget that the government is often a reflection of the people.

Frederick Douglas said, “Find out just what any people will quietly submit to and you have the exact measure of the injustice and wrong which will be imposed on them.”

It was Etienne de la Boetie, over 4 centuries ago, who said that state power relies on the consent of the governed.  It was Murray Rothbard who later emphasized this point.  The government ultimately relies on the consent of the governed, even if that consent is not explicit.

Even with a dictatorship, there has to be a certain degree of consent, even if the population is scared to speak out.  If you have a country of a million people, it is impossible for one person to dominate all of the others without at least some tacit consent from the general population.  Even if the dictator has a group of loyal people around him, they still rely on a certain degree of consent.  A group of a thousand people ruling a country cannot last long if there are a million people who are angry and ready to overthrow them.

In the United States, the federal government is very much a reflection of the people.  This can be seen from both sides of the spectrum.  Politicians would love to raise taxes, but the people will only tolerate so much.  But we also don’t see government drastically reduced because most people aren’t clamoring for it.

The American people, to a large degree, continually contradict themselves in opinion polls.  They will say they don’t want deficits and a growing national debt, but then when it comes to specific spending cuts, there is little the majority favors.  Most say they would cut foreign aid, but this is a drop in the bucket.  Conservatives will say they favor cutting things like Planned Parenthood, but this is a drop in the ocean in terms of the overall budget.  The left might criticize some programs initiated by conservatives, but they are mostly complaining about control of the programs.

There are many other issues where these contradictions exist.

The only way to have a significant reduction in the size and scope of government that is a sustainable is to change public opinion.  We need for more people to understand the benefits of liberty.

We must also not overlook the issue of morality.  Most hardcore libertarians understand that morality plays an issue.  It is why they oppose the initiation of force for political or social means.  From an economics standpoint, nearly everyone would be better off if they applied this principle.  But for most libertarians, it really comes down to a moral issue that you should not force your views on others.  This includes not forcing others to pay for things they don’t want to pay for.

The recent events in Zimbabwe serve as a good reminder that the rulers depend on the consent of the people.  Robert Mugabe has been thrown out of power after decades of running (or ruining) the country.  But it wasn’t so much his brutal totalitarianism that did him in.  That had been going on for a while.  The people did not revolt when Mugabe was killing people and getting rid of the white farmers, thus causing a shortage of food.  The people weren’t protesting for violations of property rights, or interference of trade, or central bank hyperinflation.

The event that caused the downfall was when video appeared of one of Mugabe’s sons washing his expensive watch with expensive champaign.  It was a display of ridiculous wealth.  And most people who work hard to earn their money don’t treat their wealth with such disrespect.

It was easy to see that Mugabe’s son was wealthy because of funding from daddy.  But his antics did his daddy in.  He didn’t understand the danger in flaunting his undeserved wealth.  The poor people of Zimbabwe did not seem to be amused.  They knew this guy was living it up at the expense of them.  That was enough to upend the regime.

Unfortunately, probably not much will change there.  They will get another tyrant in power.  The reason it won’t change is because the mentality of the people there hasn’t changed.  They do not respect property rights to a high degree.  They generally do not have a high regard for liberty.

Most Americans certainly don’t adhere to the non-aggression principle or anything close.  They will adhere to it in their daily lives in dealing with others, but they don’t apply the same principle to the government.  Still, at least most Americans have some respect for the idea of property rights and liberty.  This is why the United States has more liberty than Zimbabwe.

In conclusion, this is why elections don’t matter that much.  They can serve as a measure of public opinion in some cases.  But the key to gaining liberty is to change public opinion in a more libertarian direction.  A libertarian president might do some good in the short run, but there would only be lasting change if the public endorsed the libertarian agenda.

If you want to help move the world in a more libertarian direction, then the focus should be on changing hearts and minds.  The best reason to elect libertarians to office is so that they can use the platform for education purposes.  Otherwise, it will mostly be a waste.  It is far better to help others see the benefits of liberty, as well as the morality of liberty.

The Biggest Middle Class Welfare Program

There are many conservatives who will criticize government welfare, yet not blink an eye at a $700 billion defense budget.  Unfortunately, most of it isn’t for defense, and the actual amounts on military spending and foreign adventurism goes beyond this amount when you figure in interest on the debt and spending on veterans from previous wars.

Many conservatives and most libertarians will rightly criticize domestic government welfare programs such as food subsidies (formerly food stamps) and housing subsidies.  It can be especially infuriating when you see someone pay for groceries with a government-issued card and then pay separately for beer and cigarettes.  Most competent adults understand that money is fungible and that the money used to buy the alcohol and cigarettes could have been used to buy the food.

But leaving aside welfare involving the military-industrial complex, there is also domestic government welfare that is rarely criticized by conservatives.  The biggest are called entitlements: Medicare and Social Security.

I know some conservatives will say that this isn’t really welfare because people paid into it.  This is why we have payroll taxes deducted from our paychecks.  There are several problems with this argument.

First, the money being paid out for these programs is funded through current taxation (or deficit financing).  The so-called trust funds are just filled with IOUs.  If it weren’t for current workers, the programs would be completely bankrupt.

Second, these are still forced programs.  It is not like contributing to a 401k or pension plan that is voluntary or sponsored by an employer.

Third, we all know that the “premiums” paid in the form of payroll taxes are not proportional in what is returned.  It might be closer than most other tax and spend government programs, but it is still not equitable.

Now what about domestic welfare that doesn’t include senior citizens?  What is the biggest middle class welfare program?

The answer is education.

Most people don’t want to admit this.  It may even be hard for a few libertarians to admit this.  If you are sending your children to public (i.e. government) schools, then you are accepting welfare.  And for the amount that is being spent on children (oftentimes more than $10,000 per student per year), it is a massive form of welfare.  If you throw in subsidies for college, the amounts are even bigger.

While many middle class Americans will look down on the person using a government-issued food card at the grocery store, they won’t think twice about waiting in a car line to pick up their kid at school.  And if anything, food is more of a need than education.  You can’t live without food.

This isn’t a criticism of people accepting welfare by sending their kids to a government school.  It is more a point that people are being hypocritical to a certain extent.

There have been many discussions between libertarians on whether it is appropriate to accept government welfare or subsidies.  I certainly do not think it is hypocritical for libertarians to accept government subsidies, especially to the point of what they are paying towards government.

The key for libertarians is to never defend these subsidies.  You can use the government schools, but you shouldn’t be voting to increase the school budget just because you currently have a kid in the system.

Of course, I am not advocating that libertarians or anyone else use the school system simply because they have to pay into it.  That is a sunk cost.  But if I recommend private school or homeschooling over government schools, it isn’t because it is welfare.  It is because I don’t want kids indoctrinated and taught to be obedient little citizens.

The education welfare system is especially bad for many reasons.  First, it does impact the upbringing and thinking of children in our society.  Second, it is very disproportionate, as those without kids and those who elect not to put their kids in the public schools are still forced to pay for everyone else.

Third, and perhaps the worst, is that it isn’t thought of as welfare at all.  It is a given in our society.

And while the federal government does have involvement in the education system, it is still mostly funded at the state and local level. It speaks to the popularity of government-funded education that no county (and certainly no state) in the United States has abolished government education.  Unfortunately, it is required by law in most states to provide education.

The education system is a disaster.  It is more of a disaster in some places than others, but it is generally bad everywhere.  I am not so concerned about what kids don’t learn as what they do learn. They are taught uniformity, obedience, and dependency.  And this is just in the “good” schools.

For this reason, I am actually glad to see the failing system.  Many kids rightly see it as a joke, and they don’t respect the system.  This is actually good in my book, as long as they aren’t getting into serious trouble.

In addition, the number of homeschoolers has increased vastly.  It is very common in many areas now.  This is helping to undermine the system.  What does it say about the system when a family is forced to pay thousands of dollars a year in property taxes to fund the school system, and they still choose not to use it?

The hope is that more middle class Americans will want to get out of the system because of the reputation associated with it.  There almost needs to be somewhat of an elitist attitude that goes with it.

If you homeschooled your kids 20 years ago, it was almost something of a stigma.  You didn’t exactly go out of your way to tell everyone.  But it is so common today, most homeschooling parents are proud, or at least not ashamed, of saying that they homeschool.  The tides are turning, where homeschooling is seen as a positive thing.

When the majority of middle class America is striving to homeschool or find private school alternatives, then there will be an overall shift in attitudes.  When government schools are seen as a welfare program for the poor, then we will know that things are in pretty good shape.

10 Reasons Hyperinflation is Unlikely in the U.S.

Most people don’t understand much about inflation, other than knowing that prices tend to rise over time.  They tend to give little thought about the reasons that the general price level rises.  Some will blame it on greedy corporations and capitalism, while there is a minority that will correctly link rising prices to monetary policy.

The definition of inflation has changed over time, and we can credit the statists for this trick.  Inflation, which once meant an increase in the money supply, is now defined by one of the consequences of inflation, which is rising prices.

Aside from the central bankers themselves and a few of the elites who benefit from having a central bank, most people don’t understand the process of creating money out of thin air and the consequences.  It is actually the critics of central banking who tend to have the greatest understanding.  This is why they are the critics.

With that said, there are some who travel in libertarian circles who are predicting hyperinflation at some point down the road.  I certainly don’t think this is impossible, even in the United States, but I do think it is unlikely.

For the purposes of this post, I’ll define hyperinflation as an increase in the general level of consumer prices of at least 50% per month.  For consumer price inflation to rise at this level, you would almost have to have a massive increase in the money supply (much bigger than QE1, QE2, and QE3), and there would have to be a severe lack of trust from the general public.

Here are 10 reasons that I think hyperinflation is unlikely in the United States.

  1. The central bankers and politicians have their savings and pensions denominated in U.S. dollars.  Unless they are secretly buying massive amounts of gold for themselves, they are not going to want to wreck their own retirement plans.
  2. The central bankers would lose much of their power if we had hyperinflation.  They depend on their control over others by controlling the currency.
  3. While we speak negatively of lobbyists in the U.S. (as we should), they do serve a purpose of keeping things from getting out of control, at least in some aspects.  The central bankers and politicians aren’t going to ruin the dollar at the expense of all of the lobbyists who line their pockets.
  4. While inflation can mitigate the debt in a sense, it does nothing to solve the biggest fiscal problem, which is the unfunded liabilities.  The government could reduce Social Security benefits by understating the cost-of-living increase for benefits, but it probably already does that.  And for Medicare, all of the medical costs would rise uncontrollably in a hyperinflation scenario.  Inflation doesn’t solve these unfunded liabilities.  It can only change the nature of the default.
  5. The U.S. dollar is still considered the world’s reserve currency.  While this won’t last forever, there are no other major currencies that are in good shape.  If you think we will see hyperinflation because of the national debt and a bubble economy, take a look at China, Japan, and much of Western Europe.  All of these places are in even worse shape than the U.S., economically speaking.
  6. The U.S. government and the U.S. consumer are subsidized by foreign central banks buying U.S. government debt.  And while this may not last forever, there is little indication that things are changing any time soon.  The U.S. government enjoys this subsidy, and the mercantilist foreign central bankers keep providing it.
  7. Since Ron Paul ran for president in 2007/ 2008, there are more critics today of the Federal Reserve than at any other time in the Fed’s existence.  These critics help keep a check on the Fed.
  8. To go along with number 7, today we have Facebook, Twitter, and many other forms of social media.  While your friends probably aren’t posting about the Federal Reserve (unless you have some libertarian friends), things would change quickly if price inflation ticked up into the double digits.  You would start seeing more links about inflation and how the Fed creates money out of thin air.  More Americans would become aware of the Fed and its damage if inflation really started to impact them in an apparent way.
  9. In U.S. history, except during wars on U.S. soil, consumer price inflation was at its worst in the late 1970s.  Jimmy Carter got Paul Volcker in at the Fed to severely tighten monetary policy.  This was approved by the establishment.  The people in power will not willingly allow hyperinflation and a total loss of the dollar.  At some point – maybe a 20% CPI – even Paul Krugman might say “enough”.
  10. Hyperinflation would mean a drastic reduction in the division of labor and a possible implosion of the banking system.  It would put most Americans into severe poverty.  Politicians and central bankers like to eat out at nice restaurants.  They enjoy their smartphones too.  They are probably not stupid enough to risk all of that, let alone their livelihood.

Again, hyperinflation is not impossible in the United States, but it is highly unlikely.  A more realistic possibility is that we have something similar to the 1970s again, where consumer prices are rising in the double digits on an annual basis.  This is something that you can more realistically prepare for, and something you should prepare for.

Your Top Two Expenses, If You Are American

When you think about budgeting your expenses, what are your biggest line items?  People think about mortgage payments, car loans, possibly student loan payments, and food.  If I look at my own credit card bill, groceries top the list for most months.

But these items are likely not your biggest expenses.  If you are an American living in the United States, then there are two expenses that are likely bigger than all of the items already mentioned.

Those two expenses are taxes and medical care (including insurance).

Both of these major expenses are because of government.  Taxes are obvious, as it is government that forces (or threatens to force) you to pay them.  Medical care and insurance are a little less obvious, but anyone who is somewhat competent and takes an honest look at the situation will conclude that it is government policies that have caused the dramatic rise in medical care costs.

These two expenses are not the highest line item for all Americans in the United States.  There are usually exceptions for everything.  But realize that these are the top two expenses for even many relatively poor people.

For taxes, I know we hear statistics about how the bottom 47% don’t pay taxes and that the top 10% pay the large majority.  But these statistics are for income taxes only.  The biggest tax that hits wage earners is payroll taxes: 7.65% for employees and 7.65% for employers.

But most people fail to realize that they are essentially paying over 15% on their wages because the employer portion is resulting in reduced wages for employees.

Of course, there are thousands of different taxes out there, many of which are hidden.  There are excise taxes, tariffs, corporate taxes, investment taxes, and the ultimate hidden tax of inflation.  All of these taxes serve to reduce wages, or make products more expensive, or to reduce our choices.

All government spending is a form of taxation, as it consumes resources that would have been otherwise used in the marketplace in accordance with consumer demand.

Therefore, even though many poor people don’t pay income taxes, they pay for the cost of government in many other ways.  Life is more expensive for them as a result.

Health insurance and medical care costs are a bit trickier, but even here I don’t think people realize that poor people still pay.  As related to the discussion about taxes above, all subsidies are being paid by somebody.  Subsidies for health insurance and medical care don’t just appear out of nowhere.  The cost is spread wide, and even the very people who are being subsidized are paying for part of it.

For those who buy health insurance, or who work for an employer that provides health insurance (usually at a price), the numbers are really unbelievable.  It is common for a family to be paying $1,000 per month in premiums, and sometimes it isn’t even for that great of a plan.

Also consider that your employer is probably paying a good portion of the cost as a benefit.  Therefore, the total cost of the health insurance plan for a family may be somewhere around $20,000 per year.  As discussed above with payroll taxes, this company benefit is coming at the expense of a reduced salary.  Therefore, your health insurance plan may be costing you and your family upwards of $20,000 per year or more.

This is simply ridiculous.  It is also unsustainable.  If we were getting wonderful healthcare, then maybe it would be a little more acceptable, but that is not even the case.  Diseases and ailments are running rampant in America, and the solution from many doctors is to just throw more pills at the problems.  Worse still is that many doctors, in hand with the pharmaceutical industry, get people on pills for things they didn’t even see the doctor for, such as depression or cholesterol.

It is becoming easy for the so-called socialists to promote single-payer healthcare (i.e. socialist healthcare).  When they point to other countries with socialized healthcare, they have a point that costs are lower.

The U.S. has a lot of money to burn because we are a relatively rich country.  In addition, we don’t have anything resembling a free market when it comes to medical care or insurance.  It is not 1950’s American anymore, which was not completely free market, but far closer than what we have today.

Today’s system in the U.S. is a total mess.  It is a result of a century of laws and regulations that have piled problem upon problem.  One intervention has created a problem that leads to another intervention.  Each “solution” creates a new problem, which calls for more solutions, and so on.  It is a giant bureaucratic mess.

While there are still a few elements of a marketplace in medical care, it isn’t much.  I can’t imagine that socialized healthcare would really be that much worse at this point.  If the wait times are as bad as some people claim, it might actually help some people.  They will be less likely to go to a doctor and will be less likely to be prescribed a statin drug or anti-depressant when going in for a fever.

If you require trauma care, there is still no better place to be than in a major city in the United States.  But aside from that, I really don’t see how things could get much worse with socialized healthcare.  I used to fear it, but there isn’t much to lose at this point now.

Of course, the true solution is to get the government out of the healthcare business, but I don’t see how this is possible at this point.  I think our only hope in the near future is technology and innovation.  I can envision a cruise line in international waters that shuttles people out in a boat.  You can pay for your medical care out-of-pocket and avoid the bureaucracy of the United States.

It is astounding that some people are actually paying more for health insurance than they are for shelter and food combined.  And to top it off, many of these are high deductible plans that barely cover anything until you spend thousands of dollars in medical expenses.  With this, there are some families easily paying $2,000 or more per month in health insurance and medical care costs.

Again, this is unsustainable.  Either the government will completely take over, or we will have to see some kind of turn back towards the free market.

This is why middle class America is struggling so much.  It isn’t cell phones or Starbucks that is causing budget problems for Americans. You could buy a $5 cup of coffee every day for a year and it probably wouldn’t add up to one month of health insurance premiums and medical care costs.  It certainly wouldn’t add up to one month worth of taxes.

If we want a dramatic improvement in living standards, we need to see a drastic reduction in regulations and a drastic reduction in government spending.  Until Americans realize this and expect it from their so-called representatives, then we will only see marginal gains at best.

My Experience With a Bed and the Economy

I am trying to get rid of a bed.  I was informed that some charities do not accept beds because apparently bed bugs can be a problem.  I contacted Salvation Army, and they do take beds, at least in my area. I scheduled a pickup, but the problem is that it wouldn’t be for another week and a half.

I don’t have a pickup truck.  My wife has an SUV, but it isn’t that easy to tie up a queen-sized box spring and mattress to the top and drive it.  I kept my appointment with Salvation Army, knowing that I can cancel it up until the day before.  But I wanted to get rid of the bed, so I posted an ad on Craigslist.

I put one picture on there and said it was in good condition.  I stated in the ad that I preferred if someone could pick it up on Thursday because I would be available most of the day.  I posted it on Wednesday morning.

I am selling the bed for $25.  My wife asked why I didn’t just give it away for free.  The reason is because I went to the free section on Craigslist and most of the stuff is junk.  This bed isn’t junk for someone who needs a bed.  I think putting a price on it actually gave me a better chance of getting rid of it, and it also eliminates too many strange inquiries.

I have received a lot of inquiries about the bed.  It is amazing how many people need a bed who don’t want to buy a new one.  I think a couple of the inquiries may have been scammers, but most of them I believe were legitimate.  The problem is that most people were not clear in their correspondence.  Some were incoherent sentences, or at least on the verge of incoherence.  Some inquiries were too vague.

I replied to a few of the inquiries and they either didn’t respond or took a long time to respond.  You can communicate through a hidden email system that Craigslist has, but at some point information has to be exchanged.  The problem is that I had trouble getting committals.

But there were two responses to the ad that really caught my attention.  One was an email from someone who claims to have lost everything in the hurricane.  She eventually responded again, but it took a day.  She asked if I could hold it until Friday because that is the day that she gets paid.

I had another inquiry from someone who actually left her phone number in the message.  I called her and talked to her.  She sounded nice enough.  She said she had to talk to her boyfriend, and I think she was realizing that her car (not truck or SUV) might not be able to handle the trip.  But before all of that, she said the same thing as the other woman.  She asked if I could wait until Friday or the weekend because she gets paid on Friday.

I believe these two women were being sincere.  I can’t be certain, but I don’t believe they were lying about their situation.  I wasn’t selling the bed for $300.  It is $25, and they both asked if I could wait until their payday.  Did they really not have the ability to scrounge together $25?

I actually would have given it away to the hurricane lady if she had gotten back to me sooner and if I thought her story were true.  I ended up arranging something with a guy that inquired who actually has a truck.  Hopefully, the small transaction will go smoothly because I want to get rid of the bed.

It is just amazing though how poor so many people are.  It is amazing just how close to the margin that so many people are living.  Any stresses that I have about money were put into perspective by this.

I told a friend about what happened, and he said that he saw a young lady put 3 dollars worth of gas into her car the other day.  This is an indication that she has almost no money.  Why would someone stop for gas to put less than 2 gallons in the car?

Middle class America is being ignored.  This is why Donald Trump won the election last year, despite the almost-universal negative press.  It is also why Bernie Sanders did so much better than people thought he would do.

To be sure, I don’t agree with almost anything that Sanders has to say economically, and I don’t agree with very much Trump has to say. But they both tapped into something.  They at least recognized that there is a struggling middle class.

Of course, the biggest problem is the government, particularly the federal government.  The federal government is spending $4 trillion per year.  It is consuming these resources, meaning that these resources are being misallocated.  State and local governments consume another couple of trillion dollars per year.  The total spending per American family ends up matching close to the median family income.  Is your family getting $50,000 or so worth of government?

Meanwhile, the regulations imposed on us are strangling as well.  I believe that medical care and medical insurance are the tipping point that has put so many people on the margin of near poverty.  Some people are paying insurance premiums that are equivalent to their rent or mortgage payment.  This is simply unsustainable.

The worst thing is that it is enrollment time for many people across the country right now.  For most, premiums are continuing to go up.  There is going to be a breaking point.

The breaking point is going to be a severe recession.  I like the term correction too.  It is a correction of an overbearing government.  The problem is that the Federal Reserve can shield the federal government from the correction, at least up to a point.  In 2008/ 2009, many state and local governments were forced to tighten up or even cut back.  Unfortunately, because of the Fed’s massive digital printing spree, the federal government ramped up its spending by running greater deficits.

We need a severe correction, even though it will be painful.  But the thing is, things are painful now, especially when people can’t by a bed for 25 dollars.

While a severe correction will likely bring higher unemployment, it will also reduce prices.  The Keynesians in DC worry about deflation, but price deflation is exactly what we need.  Right now, life is simply too expensive.

I don’t know when the correction will happen, but I know it is baked into the cake.  I usually analyze things through statistics like the Fed’s balance sheet and government spending.  But I don’t think there is any better evidence of economic problems than witnessing people who can’t afford 25 dollars for a bed because they are waiting for their next paycheck.

Relieve Anxiety Today, Even if it Means No 401k

I am a big proponent of being future oriented.  It is unclear how much this can be taught versus how much is in your DNA.  But there is no question that it is something that can be taught to a certain degree.  Kids that grow up in an upper class or upper middle class household are more likely to be future oriented, particularly if the parents did not spoil them too much.

In fact, future orientation is really what determines your class.  It isn’t so much how much money you make or how much wealth you have accumulated; it is a matter of your outlook for the future.  This is why some lottery winners end up losing it all and end up being poor again.  These people were never in the upper class because their mentality stayed in the lower class.

I also really like the concept of compounding interest.  It is a great concept to teach to your kids, which really goes hand-in-hand with future orientation.  You shouldn’t just live for today.  You should plan for tomorrow.

With all of that said, I think some people get carried away with looking too far into the future at the expense of today.  Sure, in order to save money, we have to defer gratification to a certain degree.  But it also doesn’t mean you should be miserable.

In the present day, I say that, at least for Americans, we have never had it so good in some respects, yet life is actually harder than previous generations in other respects.  Communication and technology are far better than ever before.  But some basic living expenses such as medical care are more expensive than they were a couple of generations ago.

Middle class America is struggling to a large degree.  This is a reflection of taxation and regulation.  When the government at all levels consumes about 40% of our production, it makes it hard to get ahead.  Then they also pile on regulations, which makes our lives even costlier.  This is especially evident (or should be) in medical care and insurance for medical care.

I find that there is more anxiety today than there was in the past.  Maybe it is an illusion, but it is my perception.  I also see the statistics about the number of Americans on anti-depressants.  I don’t know if this is because doctors are just pushing drugs, or if it is because Americans are more depressed than ever before.  I suspect it is a combination of these two things.

We see statistics about how little wealth the average American has.  Perhaps more accurately stated, we see how little the median American has.  The rich people bring up and distort the average.

We hear various statistics such as: 57% of Americans have less than $1,000 in their savings account.  These statistics have to be taken with a grain of salt to a certain extent.  There are some people with considerable wealth who don’t have a traditional savings account.  They may have their wealth tied up in other things and figure they can always use their credit card if they need some extra money in a pinch.

I do believe that lack of money is a major stressor in people’s lives.  We hear the saying that money won’t buy you happiness.  This is true.  But a lack of money can cause you misery.

Americans are frequently told that the way to obtain wealth and eventually retire is to buy a house and contribute to a retirement plan, such as a 401k.  While this isn’t always bad advice, it can also steer people the wrong way, and it often makes people unnecessarily miserable.

Think about someone who has virtually all of their net worth tied up in housing and a 401k plan.  If you are still working for the employer that holds the 401k plan, then it is basically illiquid.  And your house is basically illiquid too, unless you plan to move.  But even there, most people just move into another house and use the equity from the last house to buy the new house.

While it may seem good for the future to have a couple of hundred thousand dollars in net worth on paper, it is important to ask yourself, “At what price?”

For many, the price is not having any liquid money in a checking or savings account.  Therefore, every little or not-so-little expense in life becomes a major stress point.

Now, it is true that some people are just bad with money.  They could rent an apartment and not contribute to a retirement account and they would still end up with no money after each year.  For these people, they probably are better off putting money into a house and a retirement plan rather than buying more junk that they don’t need.

However, there are many people disciplined enough that they could pay less for a mortgage (or rent) and contribute less to a retirement account (or none at all) and save some liquid money.

There is something to be said to have $25,000 just sitting in a checking account.  You can pick your own number.  Take your monthly living expenses and multiply it by at least four, if not six.  You should strive to have liquid funds in this amount.  If you spend $4,000 per month on average, try to get $24,000 in the bank.

Many people call this an emergency fund.  But really, it is just an anti-anxiety fund.  If your car needs a repair, then you don’t have to lose sleep over it.  If you need a new appliance in your home, then it becomes less of a big deal.

The key here is stress reduction.  It is great that you are planning for your retirement in 30 years, or whatever it may be for you.  But it shouldn’t be at the expense of your health.  You shouldn’t add significant stress to your life.

Even if you are retired and tight on money, is this stress weighing on you?  For me, I would rather go out and work part-time, even if it is just for a year, in order to build up a cushion.  I would rather be working than sitting at home and “relaxing” while stressing constantly about money.  If you are in this position, you can always find something relatively fun to do.

While I will continue to preach about saving and future orientation, I think more people should also work on stress reduction.  And one way to reduce stress for a lot of people is to have money that is freely available for when it is needed.

Your health should really be your number one investment, and stress reduction is a major part of maintaining good health.  You will always have little stresses in your life that are unavoidable.  But if you have a significant sum of money in the bank, it will help reduce your stress in a lot of situations.

The Best Tax System Without Eliminating Them

Tax reform is in the news again, and while it will certainly have an impact on people, it is mostly tinkering around the edges as usual.  When the federal government is spending about $4 trillion per year, it almost becomes a moot point to argue about little changes in rates and tax brackets.  Either way, the federal government is going to continue to spend $4 trillion per year.

As a libertarian, I am generally opposed to taxation, at least in its current form.  I am not opposed to voluntary taxation, but some would argue that it would cease to be taxation at that point if it is all voluntary.  For the number of rich businessmen and Hollywood stars who promote big government, they could fund the federal government all by themselves if they so chose.  But that would require a substantially smaller federal government, and many of these people really just want to see other people forced to pay more.

Warren Buffett wants higher taxes, but when asked why he doesn’t contribute more voluntarily, he says that his money is better spent going to charity.  In other words, he thinks of himself as wise enough to donate money to the “right” charities, but he deems it necessary to force others to contribute to the charity that is government.

Given that we are a long way off from voluntary associations and voluntary taxation, there is a much better way for the federal government to collect taxes, at least for the general population.  To be sure, it wouldn’t be better for the politicians and bureaucrats in Washington DC who seek to control us.

I have, at times, been critical of the U.S. Constitution.  I think we would have been better off with the Articles of Confederation.  The Constitution was a centralization of power.  But with that said, it wasn’t exactly drafted overnight with little thought given.  There is some cleverness to the whole document, even somewhat in defense of liberty.

We have to remember that the United States was not originally considered to be one entity.  It was originally formed by the 13 colonies, which were really like their own countries.  But since the 13 colonies had similarities and wanted open trade, they formed a confederation.  Even though the Constitution centralized power, it was still largely respectful of the states as distinct and separate.

The United States was originally thought of as a plural term (as opposed to singular).  Today, you would say, “The United States is a great place to live.”  Back in the late 18th century, you would say, “The United States are a great place to live.”

In terms of taxation, the Constitution did not allow direct taxes.  There were excise taxes allowed.  There were tariffs allowed, which are taxes on imports.  In fact, the issue of tariffs was one of the major problems in the United States in the early days, with the other being slavery.  It was really these two issues which led to the improperly named Civil War.

Article 1, Section 2 of the Constitution addresses taxation.  It actually gets more attention from its reference to slaves as three-fifths of a person.  But a lot of people who reference this do not fully understand that it was for purposes of the census, which dictated two things primarily: the amount of representation for each state, and a state’s share of taxes if there were any imposed.

Article 1, Section 2 states: “Representatives and direct Taxes shall be apportioned among the several States which may be included within this Union, according to their respective Numbers, which shall be determined…”

In other words, if the U.S. government wanted to impose direct taxes on the people, it had to be done via the states.  The U.S. government could not impose an income tax (legally speaking), which is why it was necessary for the 16th Amendment in 1913.

It was up to each state to collect any taxes imposed.  If the government wants to spend $100 billion and New York has one-tenth of the total population of the states, then New York would pay its share of $10 billion.  But it would be up to the state legislature (or whatever is decided in that state) on how the $10 billion would be collected.  It could impose its own income tax or collect the money through some other method.

This not only was supposed to prevent direct taxation from the federal government, but it also was a mechanism in place that helped keep taxes down.  It shows what a joke it is today to hear politicians arguing about class warfare and how to best tax 325 million people.  If the original Constitution had stayed intact, then no such arguments would be necessary.  It would fall to the state level, if anywhere at all.

This ties into the whole idea of federalism.  It ties into the idea of independent states and the fact that each state had equal representation in one house (the Senate) and according to population in the other house (the House of Representatives).

The incredible brilliance of Article 1, Section 2 is that, within the same sentence, it says that representatives and direct taxes will be apportioned according to population.  They are offsetting to a large degree.  A state wants more representatives, but it also wants less taxation.  Therefore, there was less incentive for a state to lie about its census.  They wanted a higher population reported for representatives, but they wanted a lower population reported if they were going to be taxed based on it.

It makes it easier to see the difficulty in counting or not counting slaves in the census.  While people will say today that slaves only counted as three-fifths of a person, it was actually the northern states with little or no slavery that tended to prefer to not count slaves at all in the census.  It would have been the southern slave-holding states that tended to prefer that slaves count the same as any other person, especially if taxation remained low.  In other words, this could have been a difficult issue even for abolitionists back then.

While we can be thankful for change in many ways, particularly in the recognition of the immorality of slavery, it is unfortunate that some of the good parts of the Constitution have been changed or ignored.  One of those things is taxation.

The Constitution set up a good framework for tax collection.  It was far from perfect, but it would be much preferable to the disastrous tax code we have today.

This would actually be a good incremental step for libertarians to support in favor of smaller government and decentralization.  If the federal government wants to take our money, make them do so through each individual state.

FOMC Statement, New Fed Chair

The FOMC released its latest statement on monetary policy.  As expected, there were no major announcements.

The Fed will maintain the target of the federal funds rate between 1% and 1.25%.  It will achieve this by continuing to pay 1.25% on bank reserves.  It is nice work for the bankers that they can hold other people’s money and “earn” 1.25% interest from the Fed.

The Fed has finished up its first month of “balance sheet normalization”.  It is the first month of many, unless it abandons its plan entirely.  At its current pace and plan, the Fed won’t be back to its original levels of 2008 for about another decade.  In other words, it will never happen.

The Fed is allowing $10 billion per month to expire of maturing government debt.  That is only $120 billion per year.  If it eventually ramps it up to $50 billion per month as planned, that is still only $600 billion per year.  While that is a big sum in comparison to the $800 billion monetary base of 2008, consider that the Fed created well over $3 trillion from 2008 to 2014.  And chances are, the Fed will never get to the point of rolling off $50 billion per month.

The next FOMC meeting is in mid-December, where it is expected that the target for the federal funds rate will move up by another one quarter percent.

Meanwhile, Donald Trump is getting ready to announce his appointment for the next Fed chair.  According to sources, it is going to be Jerome Powell.  By the time you read this, it will probably have been announced already.

The bottom line is that Powell is another establishment guy.  He may be marginally different from Janet Yellen or other considerations for the position.  But if the last year has told us anything, Trump is not draining the swamp.  He is merging with the swamp.  He has been taking some of the credit for the boom in stocks, which is stupid because then he is going to own the crash.  At this point though, there was no way that Trump was going to appoint someone outside of the mainstream.

The Fed chair is sort of like the president.  It is something of a figurehead position.  The Fed chair is expected to fall in line with establishment opinion.  Even Greenspan, who was supposed to be a disciple of Ayn Rand, mostly fell in line.

Looking back on Janet Yellen’s term, she has actually been one of the better Fed chairs, rhetoric aside.  There is no doubt she is a Keynesian and a shill for the establishment, but her actual policies as Fed chair have been tight by comparison.  Of course, this is similar to saying that government spending stayed relatively stagnant under Obama.  He was starting out just as the budget had exploded.

It is the same with Yellen.  The balance sheet had already exploded prior to her coming in.  Therefore, it wasn’t as challenging for her to keep a relatively tight monetary policy.  She oversaw the wind down of QE3, and it is has been a tight policy since October 2014.  To be sure, Yellen would have been quick to ramp up monetary inflation again if the economy had hit another recession.

Good luck to the next Fed chair.  The last major recession started almost a decade ago.  Since then, we have had unprecedented monetary inflation and government debt.  There are major asset bubbles, especially in stocks.  Surprisingly, even housing seems to be getting into bubble territory again, at least in some regions.

We have no idea when the next economic downturn will happen, but it looks like it will be a doozy when it does.  Stocks keep hitting new all-time highs.  The Dow has gone from a low of below 6,500 in March 2009 to its current level above 23,000.  What could possibly go wrong for the next Fed chair?