I had the enjoyment last night of seeing the movie Atlas Shrugged.  It was the first part of three.  I had heard a mix of reviews of the movie, so I didn’t have my hopes real high.

I read the book almost 11 years ago and have not read it from start to finish since then.  Like many people, it was a highly influential book for me.  I don’t think the book is very realistic.  It paints a world of black and white.  It seems that most of the businessmen are either good or evil and there isn’t much in between.  The reality of the world we live in is that there are smart and productive businessmen who aren’t necessarily strong advocates of liberty.  Also, while businessmen and entrepreneurs are vital to our economy, we should not forget that the middle class is just as important and the middle class are often better advocates of liberty.

Overall, I enjoyed the movie.  It is hard to do the book justice, but considering the time and money limits of the film, I thought it was reasonably well done.  The actress who played Dagny Taggart was just how I imagined she would be when reading the book.

Unlike the book, the movie takes place in the year 2016.  They mention headlines such as the Dow Jones being below 4,000.  Railroad use for travel and shipping is popular once again.  Other than the time period, the movie seemed to stay close to the script of the book.  It is hard to say, but for someone seeing the movie without having read the book, it seems that there is less of a mystery, although you still don’t know where all of the productive people are disappearing to.

For anyone who has not read the book or seen the movie, I really would recommend reading the book first if that is possible for you.  I am not a big fan of Ayn Rand’s writing style, but the story itself is incredible once you get into it.  Of course, people who are not sympathetic to liberty will not enjoy it, unless it happens to convert them.  The book is over 1,000 pages long and it is not an easy read, but it is certainly worth it if you can find the time.

I am not sure whether Ayn Rand would have been happy with the movie or not.  Regardless, it does draw attention to the book and that is a good thing.  I am not an Objectivist and I have my disagreements with Ayn Rand and her followers.  But she is an important part of the libertarian movement and Atlas Shrugged is one of the best libertarian books ever written.  If you have already read the book, watch the movie when you have an opportunity.  I hope you enjoy it as much as I did.

Yesterday, I severely criticized Obama and his ridiculous “plan” to “cut” the future deficits.  Today, it is time to pick on the Republicans, so let’s have a brief discussion about Paul Ryan, a congressman from Wisconsin.

Paul Ryan has a so-called roadmap.  But just like with Obama’s plan, it doesn’t actually cut the size of government.  All it does is reduce the rate at which government is increasing.  It takes the already proposed budgets and reduces them, but the government will continue to get bigger.

If Paul Ryan wants to reduce spending, don’t give me a 10 year plan (just as Obama gave a 12 year plan).  Instead, reduce government spending right now.  The current budget does nothing to reduce government spending.  It increases spending.  Let’s stop with these future plans and do it now.

I have one other suggestion for Paul Ryan.  Instead of giving us your roadmap, how about you start repealing all of the hideous things that you helped pass while Bush was president.  Paul Ryan supported TARP (the bailouts), he supported the Medicare prescription drug plan (socialized medicine), and he supported “No Child Left Behind” (the centralization of government education).  These are just a few of the big things that he did to support big government.

If Paul Ryan is serious, he should repudiate all of these horrible votes from his past.  But he won’t, because he is a politician and he isn’t serious about cutting government.  He is a fraud.

Don’t believe any of these Republicans in DC.  The only person who is at all serious about cutting government is Ron Paul.  His son, Rand Paul, comes in a distant second.  There might be a few other tea party people in the House who are half-decent.  After that, the Republican politicians are a bunch of frauds.

Again, the national debt will continue to grow no matter which party is in power.  It will take a severe fiscal crisis to stop the spending.  It will be done the hard way.

Obama gave a speech today laying out his plan to cut $4 trillion from the deficit.  First, let’s distinguish between the debt and the deficit.  The debt is the total amount that the federal government owes.  It is currently over $14 trillion.  This is not getting cut.  The deficit is the yearly amount that is added to the total debt.  This year it is projected to be over $1.5 trillion.

When Obama says he plans to reduce the deficit, this means that he plans to reduce the rate at which the national debt is increasing.  But it will still be increasing.  Imagine if you have $50,000 in credit card debt and you keep adding another $5,000 to this debt each year.  Then you say, “I have a plan to reduce my deficit by $2,500.  I will cut my deficit in half.”  The problem is, you will still be adding $2,500 a year to the credit card debt that already exists.  You will be doing nothing to pay it down and you will keep spending beyond your means.  What kind of a plan is this?

This so-called $4 trillion is over 12 years (long after Obama will be out of office).  That is just over $300 million a year when deficits are projected to be over $1 trillion per year.  Seriously, this has to be some kind of a joke.  So Obama’s plan consists of continuing to add over $700 million to the national debt every single year and we are supposed to cheer this?

It gets even worse when you look at the details that we have so far.  Of the $4 trillion in so-called cuts (which they really aren’t), one trillion is coming from tax increases.  This alone is a farce because higher tax rates don’t necessarily mean the government will collect more money.  Another one trillion will supposedly come from lower interest payments on the national debt.  I didn’t know that Obama had the ability to predict lower interest rates in the future.  He should really get into trading futures if he is that brilliant.

The remaining 2 trillion will be from reductions in spending.  This really means reductions in what is projected for the future.  No real spending cuts will actually take place.  Even part of this consists of $480 billion that will be “saved” from Medicare and Medicaid.  But I thought that was already part of Obama’s healthcare plan.  If saving money from Medicare is that easy without affecting healthcare, why don’t they do it now?  You’re telling me that the government was just going to throw away $480 billion that wasn’t really helping anyone important with healthcare expenses?

This guy is a real joke.  He must think that the American people are really stupid.  Let’s see if he is right. I hope the majority of people see right through this garbage.  This just tells you how out of control the politicians are in Washington DC.  The national debt will only stop growing when the Fed refuses to buy any more government debt or the people stop electing these clowns.

Tomorrow I will discuss the phony plan laid out by Paul Ryan.

While still trying to get through this phony show on the budget, Congress and the president will soon be arguing about the national debt.  Obama says that he regrets his vote against raising the national debt limit while he was a senator.  Of course he does, because it makes him look like a hypocrite.  He voted against it while Bush was president, but now he is president, so things change.

You can view the national debt in several places.  You can try here or here.  They will vary a little bit as they are estimates.  The current debt ceiling is just under $14.3 trillion.  It is projected that it will be hit sometime in May.

If the government doesn’t raise the debt limit before the ceiling is reached, then maybe we really will have a government shutdown.  It would be even better if we saw some kind of a default, although that is not likely.  In fact, it is unlikely that Congress will fail to raise the debt ceiling.  Despite the bickering between the two major parties, they really are in cahoots with each other.  The Republicans will pretend like they want cuts.  Obama and some of the Democrats will say that children and elderly people will be starving in the streets.  The two sides will come to an agreement, just in time to save the world.

The two parties even count votes.  If there is a Republican who was elected on a tea party platform, he may be permitted to vote against raising the debt limit.  If the vote is too close, the establishment may require that he vote in favor of it.  If that happens, he will say that this is just a start and that they won because of the “cuts” in government spending that were achieved.

For any politician who really wants a balanced budget, then they should simply vote against raising the debt limit.  It really is that simple.  We hear that it is just not possible, but that’s not true.  It’s just not politically possible for most of these people (Ron Paul is usually the lone exception).

If the government brought all troops home, ended the Department of Education, ended all farm subsidies, ended all foreign aid, ended the Department of Energy, ended the FDA, and ended all corporate welfare, then the budget would close to balanced.  This is just a beginning and we haven’t even touched Medicare and Social Security yet.  But, of course, this is impossible in the eyes of the typical politician and even many Americans.  This is why it continues.

These continual votes on raising the debt ceiling are a joke.  It really isn’t a debt ceiling if it keeps getting raised.  The true debt limit is the limit imposed by the U.S. dollar.  The Fed will keep buying debt until it faces the threat of massive inflation or hyperinflation.  At that point, we will hope that the Fed quits buying government debt in order to save the dollar.  Then it won’t matter what the debt limit is.  Congress will not be able to deficit spend any longer.  They will be forced to cut back and it will be much more painful then.

I received a question recently regarding investments beyond a 401k.  I think this advice might be helpful to others, so I will respond with a post.  The question was as follows:

The price of crude oil passed $113 per barrel today.  It has been climbing steadily for the last few months.  If you are looking for a good mutual fund with energy stocks, there is an energy fund by Fidelity with the symbol FSESX.  I have no opinion in trying to time it.  You really should have bought this fund a couple of years ago, but if you think oil is going higher still, then this may be a good mutual fund to own.  If you want to own it, just buy it and don’t try to time the market.  If you fear a pull back in the short-term, then dollar cost average your way into it, but don’t wait.

The price of oil had already been climbing, but it really started to take off when the protests in the Middle East and Africa began.  When Libya started to erupt, then the price really took off and has continued.  It is easy to blame the situation in Libya for our current oil price, but it really misses the big picture.

The Fed’s program of QE2 (money creation) is the elephant in the living room that many don’t want to talk about.  The Federal Reserve has almost tripled the monetary base since 2008.  Although most of this new money has gone into excess reserves with the banks, the new money is still having an effect on prices.  We are starting to see that now.

When new money is created, it is not evenly distributed throughout the economy all at once.  It can go to certain hot spots.  It causes bubble (and later busts).  Right now, it seems to be going into oil, precious metals, and other commodities.  It is also going into stocks to a certain degree.

When something happens in Libya or there are reports of things happening in other oil producing countries, the hot money starts bidding up the price of oil.  It is almost as if the market is looking for a reason to bid up certain prices.

So although the supply and demand (and the perceived supply and demand in the future) of oil affect its price, the supply and demand for money also affect its price.  The supply of money is going up.  Expect prices to go up.  Oil and precious metals are going higher right now.  Food prices will probably not be too far behind.  Be prepared for higher prices.

The adjusted monetary base is on fire.  You can view it here:
http://research.stlouisfed.org/publications/usfd/page3.pdf

Sometimes it is important to take a step back and get some context.  The longer term chart is here:
http://research.stlouisfed.org/fred2/series/BASE

The money supply has approximately tripled in the last 2 and a half years.  Nothing like this has ever happened in modern day America.  It really is unprecedented.  Oftentimes, I think libertarians get carried away with their predictions of doom and gloom.  People that believe strongly in the free market do not give enough credit to the free market’s ability to overcome government obstacles.  But this explosion in the money supply really is something to worry about.

Quantitative easing is the new term that refers to money creation.  QE1 happened after the fall of 2008.  We are now in QE2 mode which is supposed to continue until June.  You will hear some say that the economy is bad because banks aren’t lending.  What these people don’t realize is that the lack of bank lending is what is keeping this economy from completely falling apart.  If the banks were lending out all of this new money being created, we would be facing the possibility of hyperinflation.

I am not sure if the Federal Reserve has any idea as to what it is doing.  This crazy money creation is causing great damage that we will see in the future.  It is misallocating resources on a grand scale.  It is preventing previous malinvestment from correcting.  It is setting the stage for what could be the Greatest Depression, even worse than what we saw in the 1930’s.  I hope I am wrong and that the Fed slowly starts to pull this new money out of the system.  I hope we go through a recession like we did in the early 1980’s.  Bernanke and the Fed are playing with fire right now.

Expect for price inflation to slowly pick up throughout the year.  I don’t expect QE3 any time soon, but you never can tell with the morons that are running the Fed.  If you haven’t already done so, prepare yourself for price inflation like we saw in the 1970’s or worse.  Buy essentials that you need.  Buy extra and don’t wait.  You obviously can’t buy extra gasoline and most food now, but there is a lot you can stock up on.

For your investments, you should have at least 25% of your portfolio in investments that do well during times of high inflation.  This is the minimum.  You should invest in things like gold and gold related investments, silver and silver related investments, oil stocks, oil mutual funds, oil ETFs, other commodities, etc.  You should prepare for interest rates to go much higher, but I wouldn’t necessarily speculate on it right now.

I have a lot of faith in the free market, but the Fed and the government are doing too much damage right now for us not to feel some major pain in the near future.  Prepare yourself and don’t wait.

Since the national debt is in the national news, now is a good time to review it.  The national debt is over $14 trillion and growing.  It is slightly less than the GDP.  The debt-to-GDP ratio will be over 100% soon enough.  So what are the consequences of this?

We hear so often that we are putting a burden on our children and grandchildren because they will have to pay this back.  There is an element of truth to this, but let’s examine it closer.  Our children and grandchildren technically don’t have to pay back anything.  They can stiff all of the bondholders.  If there are enough people who understand the issue and take a stand, then it will be the bondholders that will suffer.  That will include foreign governments like China and Japan, foreign investors, American investors, and I suppose the Federal Reserve.

The national debt has real consequences and they are happening right now.  When the government spends money, it is misallocating resources.  It is draining resources from the free market economy.  There is less capital investment on the so-called private side.  It is wasting resources.  This diminishes our standard of living.  By not completely reforming our system – that is, by not withdrawing our consent to be governed – Americans are hurting themselves by allowing this debt to continue to grow.  It really comes down to Bastiat’s philosophy of what makes a good economist.  We can clearly see the so-called benefits that the government hands out.  What we don’t see is all of the products and services that would have been invented, improved, and more affordable.

The reason that the national debt is hurting our children, grandchildren, and future generations isn’t because they will have to pay it back.  The reason is because of the lack of capital investment that is taking place because of the national debt and out-of-control government spending.  The government is misallocating resources on a massive scale.  It means that there will be less to consume in the future.  It means that there won’t be as much growth in technology and production.  With less capital investment, the standard of living will not be as high as it should be for future generations.

The national debt will probably never be paid off.  It certainly won’t be paid off in dollars that are worth as much as today.  The national debt has very real consequences though in making our standard of living far lower than what it should be.

There probably won’t be a government shutdown (unfortunately).  If there is, it probably won’t last long.  If there is, it doesn’t mean that all troops will be coming home and that Social Security checks will stop.  It means that some government employees won’t be reporting for work for a short while.

This whole debate is for show.  The Republicans have to show a little bit of allegiance to the tea party people and the Republican politicians need to pretend that they care about cutting spending and reducing government.

The Republicans originally proposed about $100 billion in cuts.  Much of this turned out to be decreases in proposed spending.  The real cuts amounted to about $62 billion.  This didn’t pass the Senate.  Now they are talking about cutting $33 billion below current spending.

This whole thing is a joke.  This is a debate about nothing.  The national debt is over $14 trillion.  The annual deficit is over $1.5 trillion.  The DC politicians are arguing over amounts that total less than 1% of the total federal budget.

This whole thing is symbolic.  What it is really symbolic of is the coming fiscal collapse because the spending in DC is out of control.  The Fed will continue to print money to fund the bad habit.  We will have to wait for high price inflation and higher interest rates before the Fed will consider putting on the monetary brakes.

We will see fiscal discipline forced on the DC politicians, much like we are seeing in many states.  The DC politicians can keep their game going longer because of the central bank.  When the dollar is on the verge of collapse and the Fed has to stop creating new money, then we will finally get to see the show.  Then we might see a true government shutdown where the troops really do come home.  If it is really bad, we might even see Social Security checks stop.

I am a strong advocate of the permanent portfolio, as recommended by Harry Browne in his little book Fail Safe Investing.  For those not familiar, I recommend reading it and implementing it.  To give a very brief summary of the permanent portfolio, it is a portfolio in which you divide up your investments as follows:

25% stocks
25% long-term government bonds
25% gold
25% cash (or cash equivalents)

The idea of this portfolio is asset protection with some growth.  It is highly diversified so that it will be protected (and possibly grow) in any economic environment.  There are variations of the portfolio such as the permanent portfolio mutual fund (symbol: PRPFX), but the idea is still the same.  The portfolio has done remarkably well over time with very few down years and significant growth.

One thing about the permanent portfolio (including the mutual fund) is that it has an inflationary bias.  In other words, the portfolio performs much stronger in a highly inflationary environment.  This is because of the 25% weighting in gold.  The mutual fund is similar, with a small portion in silver.  This is much higher than the typical investment advisor would recommend.  It is surprising when you get an investment advisor recommending as much as 10% in gold  or gold related investments.

This inflationary bias with the permanent portfolio is just as it should be.  If you are in a period of deflation and falling prices, you don’t need your portfolio to do really well.  You just need it to stay the same and your purchasing power would be increasing due to falling prices.  But in an inflationary environment with rising prices, you want your portfolio to be going up more than the price inflation rate.

If prices are going up at 10% per year, then you want your portfolio returning 15 or 20%.  If prices are flat, then a return of 5% on your investments is reasonable.  When looking at it this way, the permanent portfolio is even stronger than just looking at the charts (which is impressive anyway).  The returns, when factoring in price inflation, are even more steady for the permanent portfolio.

I recommend having your core holdings in something that is set up similar to the permanent portfolio.  I am not against speculating, but I think that should be done with “play money”.  There is nothing that is guaranteed in this world, but the permanent portfolio is the closest thing to safety as you will find and you may even get some decent returns with it.