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Monetary Deflation, Here We Come

The Federal Open Market Committee (FOMC) released its latest statement on monetary policy on September 20, 2017. Whereas everyone was talking about interest rates before, now we have a second issue.

For interest rates, which is the target federal funds rate, the target will remain the same for now, which is between 1% and 1.25%. The Fed has been controlling this rate by paying interest to banks on required and excess reserves. Even though the target rate will remain the same for now, there is an expectation that this rate will go up another one-quarter percent in December.

The bigger news is the Fed’s balance sheet. Starting in October, the Fed will begin what is referred to as a “balance sheet normalization program”.

In the FOMC’s implementation notes, the details are spelled out. The Fed will only roll over maturing debt after it exceeds a certain amount. Starting in October, it will be $6 billion for Treasury debt and $4 billion for mortgage-backed securities. In total, the Fed will stop rolling over $10 billion in debt each month. In other words, the Fed’s balance sheet will be reduced by approximately $10 billion each month.

This reduction should increase if the Fed sticks by the description from the June 2017 statement. If it continues on course, it will eventually be draining its balance sheet by a total of $50 billion per month. When this ends, nobody knows.

Of course, if economic conditions change significantly, it could easily impact this whole process of balance sheet normalization.

Despite Janet Yellen’s reputation as a Keynesian, she has been far better than Bernanke up to this point. This isn’t saying much though, because Bernanke didn’t do much until the financial crisis hit. That is when he turned up the digital printing presses.

QE3 ended in October 2014, shortly after Yellen took office. We have seen very little monetary inflation from Yellen’s Fed. Still, this is after a period of unprecedented monetary inflation (2008 to 2014).

It is important to realize though that we are about to see actual monetary deflation, assuming the Fed follows through with what the FOMC statement says. While the Fed will not actually have to sell off its assets, it is essentially doing the same thing by not rolling over maturing debt. It is not clear how the Fed will get rid of its mortgage-backed securities, since so much of this was bad debt to begin with.

Based on this policy, we should see the monetary base and corresponding balance sheet go down. This is monetary deflation. It does not mean we have to see consumer price deflation.

You have to wonder how long all of this will last though. It has been 9 years since the worst of the financial crisis became apparent. There has been huge monetary inflation, but not huge consumer price inflation. We have seen asset price inflation, especially when it comes to stocks.

The Fed handed stock investors a gift. For people who bought in March 2009, they really got a gift. They would be wise not to be too greedy.

The Fed will also take it all away. If the big rise in U.S. stocks is primarily due to the Fed’s loose monetary policy, then we should not be surprised when a deflationary policy takes it all away.

Things take time to play out. Investors have been expecting this announcement for a while now. Investors also know that the Fed still stands as the lender of last resort in any kind of crisis.

The stock rally may last longer before heading down. It is hard to bet against a rising market. At the same time, the Fed’s new policy of monetary deflation should send warning signals to those who own stocks. What the Fed has “given” us, it will also take away.

How the Government Subverts the Will of the People

While I am not a big fan of democracy when it comes to the state, I often find myself wishing that we actually were more democratic.

Democracy is somewhat of an anti-libertarian idea.  Much of the Bill of Rights is anti-democratic in nature.  The government shall not prohibit your speech, even if it is unpopular.  There is no need to protect popular speech, as that will naturally be allowed.  The key is to protect unpopular speech, as long as the speech is not threatening violence.

Democracy can be thought of as two wolves and a sheep voting on what’s for dinner.  Taken to its extreme, democracy will naturally violate property rights and individual liberty.

With that said, certain democratic processes can help protect individual liberty from an overreaching government.  Also, it is important to note that democracy is only dangerous when we are talking about violence or encroaching on property.  In other words, democracy is dangerous when it comes to dealing with the state because the state uses force or the threat of force to make people comply.

If you and your friends have a vote on where to go for dinner, there is no harm done.  Sure, you may not like the choice of restaurant that a majority of your friends picked, but you are not forced to go out to dinner with them.  If you don’t like their choice, you are not compelled to go to that restaurant.

It seems in today’s world that we would often be better off if the politicians in Washington DC were to actually listen to their constituents.  The powers-that-be often ignore public opinion.

I want to illustrate this with two examples.

First, there is the bailing out of banks.  This was opposed by a large majority of Americans in 2008, but it happened anyway.  I think opinions would have changed if it had been a choice between bailing out the banks versus the bankruptcy of the FDIC.  In other words, people would only accept the bailouts if the alternative were seeing their checking and savings accounts gone because their bank had failed.

The government could have bailed out the banks just enough to make depositors whole, but of course, the bailouts went way beyond this.  The stock and bond holders of these companies should have essentially gone to zero.  This is one of the few industries where a libertarian could actually make a case for nationalization.  This is only because of the government’s explicit guarantees and interference in the industry in the first place.  If there were no central bank and FDIC, then this would not be acceptable from a libertarian standpoint.

The Federal Reserve (which is essentially a branch of the federal government) has figured out a way to bail out banks without any fuss.  The Fed pays interest on bank reserves.  Every time you hear an announcement of the Fed raising rates, this means that the Fed is paying more to the banks for their reserves.  The Fed is paying the banks not to lend.  Every time you hear about the Fed raising rates, think “bank bailout”.

This is barely reported in the establishment media.  Even for those paying attention to the likes of CNBC, it is not widely understood.  Most Americans don’t know this is happening.  The Fed gets to bail out banks (or subsidize them) without the American people even knowing.  It makes everything a lot cleaner from their end.

The second example of the federal government subverting the will of the people is in foreign policy.  There are secret operations all over the place, while most Americans remain in a state of ignorance.

One of the best examples is Syria.  To be sure, there are many other places we could use as examples.

The interesting thing about Syria is that Obama tried to go to war several years ago.  He was trying to get the American people on board with the idea of going after Syria in 2013, but Americans largely rejected the idea.  When John Kerry smugly stated that we could only avoid war if Assad were to give up his weapons, Putin pounced on the statement and said that Russia would ensure the removal of Assad’s chemical weapons.  War seemed to be averted.

Since that time, Obama, and then Trump, have waged war on Syria.  We hear of some stories about troops on the ground and bombings, but most of it is rhetoric.  We don’t hear that the U.S. government has essentially waged an all-out war against Assad, the person who is actually trying to get rid of ISIS.

Again, the will of the people is ignored.  The government relies on the establishment media to cover up these things.  The problem with the establishment media isn’t just that they lie, it is that they choose not to report certain things.

I do want to clarify that even though the politicians are ignoring public opinion, the American people could still put a stop to this stuff.  It is easy for someone to say they are against war with Syria in a survey.  But they may also say that we should be trying to eliminate ISIS.  And some people just don’t care that much, even if they have an opinion that leans one way.

If a large segment of the American population understood that these covert operations were taking place, and if they were strongly anti-war, then things would change.  Politicians can only go against public opinion up to a point.  If the public gets educated and demands certain things, then things will change.

The American people often hold contradictory opinions on things. Most people will say that they are against running up the national debt, but then in the next breath they will not be in favor of any major cuts in government spending.  Many people hold similar contradictory views on foreign policy.

Still, I think it is important to educate people and make them aware of what their government is doing in their name.  It is not enough just to say that you don’t favor a war or a bank bailout in a survey.  You have to have some knowledge of the subject, and you must have a firm set of principles.  Until that happens with a greater number of people, the politicians will continue to get away with things.  They will continue to subvert the weak will of the people.

CPI Report: The Mini-Boom Continues?

Over the last few years, there have been periods where the economy seems to be in something of a mini-boom phase.  The GDP numbers have remained low (but still mostly positive), but certain sectors seem to be booming.

To be sure, it hasn’t been an overall boom for the American middle class.  The only good news is that unemployment rates have dropped, although even these numbers are sketchy.  Some Americans have just given up looking for work, or have decided it isn’t cost effective to send a spouse back to work.  If incomes are low enough, the after-tax income of a spouse could be not much more than the cost of daycare for the children.

The primary areas for the boom have been stocks and housing.  Some might say we have a boom in bonds, but interest rates were already low.  Even in stocks and housing, it depends.  Some of the big names have done well, such as Apple and Amazon.  There have been some bad ones too.  It is just that the big stocks have tended to pull up the overall market.

In housing, it all depends on the location.  Some places, particularly in California, are probably in another bubble.  In most areas, there has been significant appreciation over the last 6 years or so, but still not up to levels that were seen 10 years ago.

The boom in stocks and housing has benefitted some in the middle class, but it has also hurt some in the middle class.  If you don’t own a house or stocks, then it doesn’t do you much good.  In fact, when it comes to housing, it is a detriment to anyone who doesn’t own.  They are priced out of the market, and they are likely paying higher rents.

When it comes to stocks, most middle class Americans don’t own stocks except for the mutual funds in their retirement accounts.  Unfortunately, they are going to see a good portion of the gains wiped away when the bust finally hits.

The problem with this mini-boom – especially in these two sectors – is that it is built on the Fed’s previous loose monetary policy from 2008 to 2014.  The appreciation in asset values can quickly vanish.

I think the consumer price index (CPI) numbers are not all that accurate.  The CPI doesn’t account enough for asset prices.  And low CPI numbers can deceive us in terms of the damage that the Fed is doing.  Even if the Fed’s monetary inflation doesn’t immediately result in high consumer price inflation, it is still misallocating resources.

Still, I think the CPI is useful for trends.  It can also somewhat tell us the demand for money.  The CPI numbers had been trending down, which threw up a cautionary flag for an impending bust.  It was signaling that maybe consumers had slowed down spending.  When consumers are spending less (not bidding up prices as much), this can result in lower consumer price inflation, all else being equal.

However, the latest CPI numbers for August 2017 show a bump up in price inflation.  The August CPI was up 0.4% from the previous month.  The more stable median CPI was up 0.2% from the previous month.

The year-over-year CPI is now at 1.9%, while the year-over-year median CPI is at 2.2%.

This is a slight reversal from the previous trend.  Since the CPI has picked up again, it indicates that this mini-boom may have some more legs.  Anyway, it seems that most asset bubbles last longer than what seems likely.  Therefore, even though I am light on stocks, I would not be surprised to see stocks run higher before the bust.

We can continue to keep an eye on the Fed’s monetary policy coupled with the CPI numbers.  It is also important to pay attention to the yield curve, as a flattening yield curve could indicate a coming recession.

Meanwhile, I am in cautious mode.  I don’t want to get too sucked into the boom, but I am also not ready to massively short the market.  This is why I recommend a permanent portfolio.

Do Investors in U.S. Government Debt Misallocate Resources?

The national debt recently topped $20 trillion.  This pales in comparison to the unfunded liabilities, which, by some estimates, are over $200 trillion.

The continual deficits and accumulation of government debt is a major problem.  Unfortunately, many people mistakenly believe that we are just burdening future generations.  In a sense, this is correct.  But they fail to realize that we are burdening ourselves right now.

When the Federal Reserve monetizes the debt (creates money out of thin air to buy the U.S. government debt), then it is a little more obvious for those who are paying attention.  The central bank’s creation of money means there is more money circulating, while it has done nothing to increase the production of goods and services.  This eventually means that our dollars are worth less than they otherwise would have been.

Although interest rates are still near historic all-time lows, the Fed has essentially not been buying U.S. government debt for nearly 3 years.  It has only rolled over maturing debt.  QE3 ended in October 2014.  Since that time, the adjusted monetary base has been relatively flat, or even slightly down.

This means that investors are buying U.S. government debt at low rates.  This could also include foreign central banks, although Japan and China – the two major buyers – have not been big buyers over the last few years.

Whether or not it is smart for private investors to buy U.S. government bonds is a separate issue.  U.S. government debt is still seen as something of a safe haven.  As long as there is no significant consumer price inflation, this will probably hold true.  And although interest rates are low, they could go lower in a recession, which means that the value of the bonds will increase.

But are these investors misallocating resources?  In a sense, they are.  But it is really the government spending the money that is the misallocation.  The bond investors are just helping to fund it at lower rates.

And this is where we are still harmed today.  The government is misallocating resources.  Virtually all government spending is a misallocation of resources unless it is spending money that would have been spent that same exact way anyway.  But if people were voluntarily willing to spend money building statues in a park, then it wouldn’t be necessary for the government to compel it.  Of course, you could make the argument that some people might be willing to voluntarily contribute to building statues in a park if it weren’t already being done by the government.  But we can be sure that not everyone would choose to spend their money in this way.

To be sure, most of the money spent by government at all levels has little to do with defending property and enforcing contracts.  All other spending has to be a misallocation or, at best, moot.  This isn’t to say that some people don’t benefit at the expense of others with certain types of spending.  But on net, we are poorer when government spends money, as it is allocating resources that are not in accordance with the highest preferences of consumers.

When the government accumulates debt, it is spending extra money that it cannot get away with spending through direct taxation.  It is a hidden form of taxation.  But it isn’t just hurting future generations.  It is hurting us economically now.  It is diverting real resources to other uses than what would otherwise be freely chosen by consumers in an open market.

Debt does hurt future generations as well.  But the main way it hurts future generations is that we are reducing advances in production and technology now.  We are reducing the rate of compounding growth.

Imagine if the whole world hadn’t advanced for 2,000 years up until the year 1950.  Even if free markets were introduced at that time with substantial growth, we would be far poorer today.  People would have had to invent electricity, airplanes, automobiles, the telephone, and so many other things after this period.  We would be really poor today if this had been the case.  We build off of previous generations.

In conclusion, it doesn’t matter who is buying the U.S. government’s debt.  The problem is that the U.S. government is spending so much money and misallocating resources.  We are poorer than we otherwise would be.  This accumulation of debt hurts our living standards today.

Capitalism and Surviving a Hurricane

I live in Florida and am preparing for Hurricane Irma.  Since I am on the east coast and to the north, we expect the equivalent of a strong tropical storm or a low-grade hurricane.

As of now, it looks as though the west coast of Florida is going to get hit the hardest.  I have family that live on the west coast, and some of them have evacuated to my house.

On this Saturday night, about a day before the storm is to hit, we went out.  I made a stop at the grocery store to get a few last-minute things.  The grocery store had given notice that it would close at 6:00 PM, and it would not reopen until the hurricane passes.

After a short trip to the store, we went to a barbecue restaurant and had a delicious meal that was very filling.  There were only a couple of servers for the whole restaurant, but they were working hard to get food to the people who were there.  I don’t expect many places to be open tomorrow (Sunday) right before the storm hits.

On Friday, I was able to fill up my car with gasoline.  It was still a little over half full, but I wanted to top it off.  The first station I went to was out of gas.  The second station I went to had plenty at the time and there was no wait.

Supposedly, the governor lifted trucking restrictions in the state to enable plenty of fuel tankers to go in and out.  Gas has been in high demand, as millions of people have evacuated.  It makes you wonder why there are restrictions at all on truck deliveries.

Despite our world of government interference in virtually every aspect of our lives, people still manage to function.  The elements of the free market that exist are still very powerful in the face of government interference.

The grocery store and restaurant did not have to stay open.  They were trying to balance the needs of their employees with the needs of their customers.  I was quite pleased with the service from both places.  Just the fact that they were open about 24 hours before a hurricane was hitting was a great service to me and many others.

I have written before about price gouging laws and how they hurt people during critical times.  Higher prices tamper demand and tend to bring in new supplies more quickly.  The higher prices are a signal that there is a shortage that needs to be cured.

But despite the price gouging laws, businesses are still able to function to a high degree.   Stores would get in new shipments of water.  While the shelves were certainly empty in some spots, there was still plenty of food that did not require refrigeration.

The fuel situation is even more incredible.  The fact that fuel tankers from all over were able to deliver fuel and mostly meet the high demand is wonderful.  And with another hat tip to the free market, people were using apps on their smartphones to tell them which gas stations had gas available.

Free market economics is voluntary economics.  It means that the market is free from coercion.  It means that people function through voluntary association.  In the free market, businesses can only profit in the long run by pleasing its customers.  Whether this is through pure greed or through some sense of goodness, it doesn’t matter all that much, as long as consumer wants and needs are being met.

I have witnessed much goodwill during this time.  There are also businesses that want to make a profit, which is fine.  Many businesses have a longer-term vision of wanting to please customers now so that they will remember to come back in the future.

Whatever the motivations, the elements of the free market that exist make our lives what they are.  We take for granted everything that voluntary associations provide for us.  They sometimes are more evident during times of turmoil.

Who Says the Fed Has a Loose Monetary Policy?

Those who talk most about the Fed tend to be critics of the Fed.  If the general public understood the Fed’s real purpose (to fund deficits and act as a lender of last resort), then it would quickly be shut down.  The Fed enables hidden theft of the general public through currency depreciation.

Unfortunately, some of the strongest critics of the Fed (and central banking in general) have been making a mistake over the last few years.  They say that the Fed has a loose monetary policy.  If they were talking in generalities about the Fed’s existence over the last century, then this would certainly be true.  If they were talking about the Fed from 2008 to 2014, this would certainly be true.

However, to say that the Fed currently has a loose monetary policy is somewhat deceiving at best.  I don’t think they are intentionally trying to mislead people on this subject, but it isn’t accurate.

The Fed ended QE3 in October 2014.  From the fall of 2008 until then, the adjusted monetary base rose approximately five fold.  This was unprecedented to say the least.  Since much of the new money when into bank reserves, coupled with the higher demand for money from the deep recession, consumer price inflation has stayed relatively low.  Asset price inflation has not been as low, especially when looking at stocks.

Since QE3 ended nearly three years ago, the monetary base has essentially been flat, or even slightly down.  Therefore, you can’t really accurately say that the Fed has a loose monetary policy or that the government is currently paying for its debts through money printing.  It just isn’t the case.

On October 29, 2014, the monetary base stood at $3.976 trillion.  On August 30, 2017, the monetary base stood at $3.942 trillion.  It has slightly decreased in just under three years.  The federal government may be running deficits, but it is not the Fed buying the debt right now.  Sure, the Fed rolls over maturing debt, but it is not adding anything new in any significant way.  It is investors and foreign central banks buying this debt.

If the Fed had a press conference and announced it would no longer buy U.S. government debt ever again, then certainly the bond market would crash and interest rates would spike.  The Fed’s presence supports the bond market.  But it is misleading to say that the Fed is currently creating new money out of thin air.

Some will point to the ultra low interest rates.  Again, the Fed is not directly impacting this.  If anything, it has tried to raise rates by increasing the rate it pays on bank reserves.  This is a quiet way of continuing to bail out banks.  But the Fed’s control of the monetary base is not keeping interest rates down.  It is not controlling interest rates through the monetary base because of the huge amounts of excess reserves.  It can only control its target rate through other means, such as paying interest to banks.

The Fed’s previous loose monetary policy is still having an impact in keeping rates below normal.  But again, it is not because of its current policy.  The Fed’s current policy is that of tight money.

Janet Yellen has actually been pretty good in this respect.  Then again, Bernanke was pretty good too up until the crash in the fall of 2008.  If the economy tanks again, you can be sure that Yellen, or whoever is the Fed chair, will step in with an aggressive policy of digital money printing.

The Fed should have kept a tight money policy in the face of the deep recession in 2008/ 2009.  Even if it had just bailed out the banks enough to make depositors whole, we would have been better off than having the massive funding of deficits and the bailouts of car companies and others.  We would have far more prosperity today if the Fed had kept a tighter policy since 2008.

The damage was done from 2008 to 2014.  Even though the Fed has adopted a better policy since that time, the damage cannot be undone without some kind of pain.  The misallocations have to be corrected.  The Fed’s current policy makes it more likely that we will see a correction sooner rather than later.  It is not like China where the severe misallocations carry on for a couple of decades.

Overall, this is good.  We don’t want to be like China with ghost cities.  We want resources to be allocated to projects that fulfill the highest priorities of consumers.  Only a free market environment can properly allocate these resources in accordance with consumer demand.

In conclusion, the Fed has not had a loose monetary policy since October 2014.  The major damage in monetary terms was done prior to this.  The federal government continues to do damage all the time by spending too much and regulating too much.

The Fed has adopted the correct policy for the last three years.  But there is still a price to pay for the previous loose policy.  Unfortunately, when the correction happens to realign resources to their proper uses, the Fed will likely make the same mistake over again.  Then we can look forward to QE4.

How Will Gold End 2017?

The dollar price of gold has shot up past $1,300 per ounce, and it has held above that mark for now.  Gold has been a lackluster investment since 2011, while U.S. stocks have been in a bull market.

Is all of this about to change?  And if gold keeps going up, can it go up if stocks fall?

Gold and stocks have a rather strange correlation.  There are times they go up and down together, and there are times that they go in opposite directions.  But they aren’t completely uncorrelated either. There is news that can drive prices for both assets.  This is especially true when it comes to news of the Federal Reserve.

Over the long run, both gold and stocks benefit from a loose monetary policy from the central bank, particularly in nominal terms.  In real (inflation adjusted) terms, this is a lot harder to argue.

If there were no monetary inflation, then it is likely that neither gold nor stocks would rise with any significance over long periods of time.  It wouldn’t necessarily make them bad investments.  In a relative free market, they would both gain purchasing power.  In the case of stocks, you could still own stocks for dividends.  Of course, some individual stocks would do well in terms of capital gains on share prices, but the overall market would likely be relatively flat.  The best companies would get rewarded with higher share prices, as they would have the potential of paying out greater dividends.

In our current world of central banking, we have artificial booms and busts to deal with.  Both assets will tend to overshoot in both bull and bear markets.  Stocks are likely going way above where they should be right now, and they could still go higher yet.  But when the bust comes, they will probably over correct and fall further than they should.  This is mostly due to monetary policy though.  We wouldn’t have these huge bubbles and subsequent corrections if we didn’t have significant central bank monetary inflation in the first place.

Overall, I think gold is a decent investment right now.  And as usual, it is a great insurance policy against unforeseen events in the world.  It is a hedge against disaster.  It is a hedge against big price inflation.

I advocate a permanent portfolio, which consists of 25% gold.  And while I am highly nervous about stocks right now, the portfolio also has 25% in stocks.  If we hit a deep recession, then the other 50% in bonds and cash will hold things up.  As long as it isn’t an inflationary recession, then bonds are probably the best place to be.

Gold is something of a wildcard with a recession.  It would typically go down with other asset prices.  But since it is a hedge against disaster and uncertainty, it might hold up better this time around.  There are a lot of things to make people nervous.

Also, if there is a recession, there will be anticipation of the Fed stopping its hiking of its target interest rate.  There will also be an expectation that any talk of a reduction in the Fed’s balance sheet would cease.  In fact, there would probably be good reason to speculate on QE4, which would be another round of digital money printing (a further expansion of its balance sheet).  Ultimately, this would be bullish for gold.

Until we hit that phase of another round of monetary inflation, I don’t expect gold to spike higher.  Sure, it could easily go to $1,400 or $1,500 per ounce.  But barring a major war or some other world disaster, it probably isn’t going to $2,000 any time soon.  There just isn’t enough fear of price inflation.

If the Fed returns to an ultra-loose monetary policy because of a recession, then perhaps inflation fears will return.  But until that happens, $2,000 gold is not likely in the near future.  This doesn’t make it a bad investment, but just one that you shouldn’t count on for having really high returns.

I have some speculative investments in gold funds right now.  These are funds that invest in gold (and other metals) mining stocks.  They are more leveraged and far more volatile than the price of gold.  But when gold is going higher, as it has in the last few weeks, the mining stocks shine.  I am fully aware that these carry a high degree of risk in the event of an economic downturn.

If economic conditions stay about the same, I expect the gold price to end 2017 somewhere near its current price.  Maybe it will get to $1,400 or pull back to $1,200, but I don’t expect much more volatility than that.

The volatility will come with changing economic conditions.  If stocks fall hard and a new recession hits, then gold investors will react.  I would expect prices to go down, but in today’s crazy economic world, anything is possible.  I like the 25% gold holdings in the permanent portfolio.  It is there for a reason.

The Number One Libertarian Lesson From Harvey

Hurricane Harvey, and then Tropical Storm Harvey, did great damage to the people of Texas.  The direct impact was one thing, but the rainfall, and the flooding that came with it, is another.

There are many useful libertarian lessons with this storm, and the lessons are similar whenever a major storm hits, or really any kind of natural disaster.

Houston is similar to New Orleans in that it is almost like a bowl.  It is quite prone to flooding.  It is questionable whether a major city should have ever been built there.  But either way, there are problems (misallocations) created by the state.  The government interferes with the insurance market.

It is not to the same extent as interference in the health insurance market, but it is still significant.  Many homeowners who live in areas prone to flooding are subsidized by the government with their insurance.  There are cases out there where homes are rebuilt three or four times because of flooding.  In a true free market, these houses would be virtually uninsurable.  Or at the very least, the market prices would be much higher and would limit the demand to live in these areas.

Another area of government interference is with the existence of FEMA.  This is a federal agency that is supposed to help in such situations.  To be sure, the agency probably has helped some people who were hard hit by the storm.  But when an agency has billions of dollars to spend, that should be expected.  In the case of New Orleans, FEMA seemed to hamper the situation by actually preventing the victims from receiving help by willing parties.

Another area that gets attention in these situations is that of “price gouging”.  Businesses and people are prevented from charging higher than normal prices, even though there are shortages and higher demand.  We are told that businesses shouldn’t be trying to gouge and make an extraordinarily high profit in such situations, but it is in these situations where the laws of supply and demand are most vital.  If the government would allow sellers to raise prices for such things as bottled water, batteries, and hotel rooms, then it would ensure that only those buyers in high need would buy.  In other words, it decreases demand.

The higher prices also send a signal to suppliers to bring in more supplies.  If you can charge five dollars for a one-gallon bottle of water, then maybe you load up a truck with water that is available 100 miles away and you drive it to the hardest hit areas.  This helps relieve the shortages.

There are many other areas where government interference can hamper recoveries.  The establishment media tends to focus on the government officials who did heroic rescues, but there are many more non-government people who did this while not getting paid.

With all of that said, there is one major lesson that I think we can take away from all of this, but it is a bit harder to see.  It is something that libertarians should point out often.

Since the storm hit, there has been tens of millions of dollars given to charity to help the victims.  And when I say charity, I actually mean charity.  This isn’t government spending taken through the threat of force.

There is certainly plenty of government spending on disaster relief, and this is what gets much of the attention.  It is almost as if it is put in the face of libertarians.  “See, if you had it your way, there would be no government to help these victims.”

But let’s flip it over.  If governments at all levels (federal, state, local) didn’t take nearly half of our money, then we would be able to afford to help these people to a much greater degree, and likely in a much more efficient manner.

Actually, it is incredible that there is so much voluntary charity.  Businesses have donated huge sums of money.  Even if it is just for good public relations, who cares?  It is helping provide disaster relief.

There are many celebrities who have donated their own money and time to help.  Some of them hold fundraisers.

This all happens in spite of the fact that nearly half of our money is taken from us.  Imagine if only one-tenth of our money was taken from us instead.

Rich celebrities and big businesses can afford to donate some substantial money.  Most middle class people cannot afford big donations.  Most of their money goes toward their living expenses, and taxes of course.

If the average middle class family received a raise of 50% in the form of lower taxes and lower inflation, imagine how much more generous people would be.  They could increase their living standards, save extra money, and still afford to be extra charitable.  Plus, people wouldn’t have the excuse that they don’t really need to be charitable because they are already charitable through their tax contributions.

Imagine if the federal government spent $1 trillion per year instead of $4 trillion per year.  Yes, there would be some “benefits” lost to people.  But with an extra $3 trillion per year, that is almost $10,000 extra per American.  That is about $25,000 extra per family per year. That is a huge sum of money.

What would you do with an extra $25,000 per year for you and your family?  I think it is safe to say that you might be a little more charitable.

Whatever numbers you use, the major point is that the government consumes a lot of resources.  When it comes in for the rescue in these situations, it should not be surprising.  If you gave me $13 billion per year to spend, I could make a big impact with that too.

As any good economist knows, we should not just look at the benefits that are easily seen.  We have to look at the unseen consequences.  In this case, if the government didn’t take so much of our money, then people and charitable organizations would be able to help so much more in these situations than they already do.

Practice What the Successful Do, Not What They Preach

Warren Buffett, one of the richest people in the world, says that you should invest in low-cost index funds in U.S. stocks.  He suggests a long-term view with a buy-and-hold strategy.

Yet, what Buffett suggests is almost the exact opposite of what he actually did to become so wealthy.  Perhaps it is not the exact opposite, as that might mean doing absolutely nothing in terms of saving, which many Americans are good enough at.

Buffett became fabulously rich by value investing.  It didn’t hurt that he started off in a decent situation as the son of a congressman.  His father, Howard Buffett, was about the closest thing to a libertarian in his time.  He was the Ron Paul of his time.  We have to wonder what went wrong with Warren.

Warren Buffett invested in companies that he correctly saw as having good value and good potential growth.  He became wealthy by not diversifying too much.  This isn’t to say that diversification is not a good strategy, but just that it is not Buffett’s expertise.

I don’t know if Buffett thinks others are simply too stupid to do what he did.  Maybe he is right.  Or maybe he realizes that he probably had a little bit of luck along the way to complement his skills.

I see this so often in the world though.  Somebody is rich and successful, and they tell you to do things that are different from what actually made them rich and successful.  It can happen with other successes besides money too.

For example, you could read someone’s book on how to save money.  Maybe the book has some good advice.  But the author may be well-off financially not so much because he was really good at saving money, but because he was good at making money by teaching others to save.

Dave Ramsey and Suze Orman are really rich.  They have made their money by teaching others through seminars, books, radio, and other outlets.  I have my disagreements with them on investing strategies, but I think their overall advice on debt and living below your means is solid.  But if you really want to be rich, it is not so important to follow their advice as it is to copy what they do.

As the title of this post suggests, if you want to be successful, don’t practice what successful people preach.  Instead, practice what they do.

This isn’t to say that any of these people are hypocrites for saying what they say.  Again, some of the advice is solid.  I am just saying that if you really want to learn from successful people, it is better to be observant about what they are doing.

I subscribe to several online marketers who try to teach others to be rich.  I rarely buy any of their products.  However, I often read the emails because I know they are at least somewhat successful.  I want to see how they write their emails and how they set up their landing pages.  I want to see how they market their material.  I learn more from this than I could probably learn from actually buying their course, or whatever it is they are selling.

There are many motivational speakers today, and you have the gift of YouTube and other media to view these people for free.  I am thinking of people like Gary Vaynerchuck, Tony Robbins, Peter Voogd, Stefan Pylarinos, T. Harv Eker and Tim Ferriss.  You can also find these people on many podcasts.

Many of these people have made a lot of money just by motivating others to do the same.  To be fair, many of them have made a lot of money in other things as well.  Still, there is nothing wrong with this.  These guys are really great motivational speakers, and I think you should largely listen to their advice.  Unlike the examples of Buffett, Orman, and Ramsey, these people do preach what they practice.

Still, even with these motivational guys, you can still observe what they do and how they market themselves.  There are lessons to be learned other than just listening to what they say.  You can follow what they do, and that doesn’t mean you have to be a motivational speaker.

I recommend that you listen and observe these people.  Of course, there comes a time when you have to stop listening, at least for a while, and take action.  If all you do is listen to motivational speeches about getting rich, you aren’t going to become rich unless you actually take action.

In conclusion, look at the successful people in this world and determine if they are preaching what they are practicing.  But this should include what they practice that makes them so successful.  It wasn’t Dave Ramsey cutting up his credit cards or making a budget that ultimately made him so rich and successful.  It is because he learned to communicate what he had learned.  He also took action in doing so.

Trump Succumbs to the Establishment

On Monday, August 21, 2017, Donald Trump addressed the nation regarding the war in Afghanistan.  If you don’t include cold wars, it is the longest running war in U.S. history.  Unfortunately, based on his speech, it is going to go on for longer still.

There was one particular part of his speech that caught my attention and should be of particular interest to libertarians.  It should also be of interest to those who supported Trump because they wanted some real change and some opposition to the status quo.

Trump said the following:

“My original instinct was to pull out, and historically I like following my instincts.  But all my life, I have heard that decisions are much different when you sit behind the desk in the Oval Office.  In other words, when you are president of the United States.”

For many years, and even up until he was elected, Trump spoke out against nation building in Afghanistan and suggested that we were wasting money there and wasting lives.  Now that he is president, things have changed.

This should be no surprise.  George W. Bush campaigned on a humble foreign policy and quickly became a war president, including the occupations of Afghanistan and Iraq.  Barack Obama, the supposed peace president, spoke against war and closing down the prison in Guantanamo Bay.  He not only failed to shut down the prison in Cuba, but he started new wars in Libya and Syria, and continued the wars that were already going on.  He also intervened in other places such as Yemen and Ukraine.

While Bush and Obama both spoke of less intervention, they didn’t do so in a hardcore way.  In other words, they didn’t sound like Ron Paul.  Still, it continually happens that a candidate will say one thing, and then all of a sudden things look different when they get into office.  Voters follow the definition of insanity: doing the same things over and over again and expecting different results.

I had mild hope that things would be slightly better under Trump in terms of foreign policy.  And while I expected the left to oppose Trump, I didn’t expect what has become an unofficial alliance the left has made with the war hawks in the Republican establishment.

While Steve Bannon was problematic in may ways, he was also one of the few people Trump had in a high level that believed in Trump’s nationalist agenda.  While libertarians shouldn’t necessarily cheer nationalism, especially when it comes to protectionism and trade wars, nationalism beats globalism when it comes to foreign policy.  When Bannon exited, so too did any hope of a less interventionist foreign policy.

It is interesting that Trump explicitly stated that things look different when you sit behind the desk of the presidency.  This was his way of deflecting criticism of him flip-flopping.  But in this statement, he told the truth.  But the big question is: Why do things look different?

If anything, I would hope that it would be harder to send people (essentially mostly kids) off to war.  You are making a decision that you know will take people’s lives.  Yet when these people get into office, they almost inevitably are drawn towards more war.

Some people say it is the lobbyists that corrupt politicians.  Perhaps this is so to a certain extent.  In the case of war, you have the military-industrial complex.  But Trump won his election without owing anything to the military-industrial complex, or really any of the major lobbyists.  The only ones that Trump owes for his victory are the actual people who voted for him.  He was vastly outspent, and he raised a small amount of money from big donors in comparison.

You have to wonder if, when you are elected president, you are taken to a private room and told the dark secrets.  Maybe Trump was told what actually happened to John F. Kennedy for opposing the CIA and an escalation of war.  Maybe he was told subtly, or even not so subtly, that he better stay within certain guidelines if he wants to survive.

I really don’t know on this.  It sounds conspiratorial, and I’m sure it wouldn’t go down just like this.  But there have to be pressures that we just can’t understand.

Of course, people don’t like to be ridiculed and continually slammed on a personal basis either.  This comes with the job, but the establishment media can make anyone’s life especially bad.  Even though the Trump voters completely ignored the media (and in many ways delegitimized them), it shows that the establishment media still has a great impact, even if they can’t always decide the election.

I wish Ron Paul had been elected president, if only to see what would have happened.  Would he have been able to resist the establishment, the deep state, the elitists, or whatever you want to call them?  Would Ron Paul, if he had been allowed to take office, have actually followed through on his promise to bring home the troops?

I think he would have followed through, but I also understand that he is somebody who is rare.  You have to have a combination of intelligence, honesty, courage, and strong principles.

Trump had some good instincts, and unfortunately, even as he stated, he has abandoned them.  But Trump never had any firm principles.  That is why, when he talked about foreign policy, he was all over the place.  One minute he wanted to bring the troops home, and the next minute he wanted to bomb the terrorists back to the Stone Age.  Sometimes he had these contradictory positions within the same debate.

Trump’s election was still unique.  He is the first unvetted candidate to get into office since at least World War 2.  Even though the establishment would have preferred someone other than Reagan, they could still tolerate him.  In the case of Trump, he was simply not acceptable at all to the insiders.

If Trump can’t resist the establishment, then it almost seems as if there is no hope.  Trump is not going to drain the swamp.

But it is good to step back and appreciate the fact that Trump was even able to get elected, especially with the hostility of the so-called mainstream media.  This alone is reason to celebrate.

We also have to consider that we don’t have to elect someone good to get some good change.  Just as the Berlin Wall fell and the Soviet Union came crashing down, change can happen rather suddenly and unexpectedly.  There is obviously a lot of dissatisfaction out there.  Maybe the different sides will realize that the only way to move forward is to separate and go their separate ways.  Maybe they will realize that they don’t have to force their views onto others.  Instead of struggling for the reigns of power, it is just a matter of withdrawing and leaving each other alone.

Trump is not going to drain the swamp.  He is now part of the swamp.  But the American people still have the capability to drain the swamp through public opinion.