The best indicator for a recession is an inverted yield curve.  This is when yields (interest rates) on longer-term debt go below the yield for shorter-term debt.

I have seen different people use different benchmarks.  For example, one person may use the 30-year yield up against the 1-year yield.  If the 30-year rate falls below the 1-year rate, then this is a recession indicator.

Personally, I like to use the 10-year yield on U.S. Treasuries against the 3-month yield.  The 10-year yield has a high correlation with 30-year fixed mortgage rates in the United States.  If the 3-month yield goes above the 10-year, then this is a clear recession indicator, and you should hold on tight.

I would like to point out just how fast the yield curve can flatten at this point.  For me, a flat yield curve is practically as good as an inverted one.  A flat yield curve would indicate long-term yields and short-term yields being approximately equal.

On May 29, 2018, stocks tumbled (and the U.S. dollar rose) on news of political happenings in Italy.  There is growing fear that Italy could default on its debt and/ or break away from the European Union.  There is also possible major trouble in terms of the banking and financial system.

Take a look at the yields on 05/29/18 as compared to 05/25/18 (05/28/18 was a holiday).  The 1-month yield jumped from 1.70 percent to 1.77 percent.  The 3-month yield went from 1.90 to 1.93.  Meanwhile, the 10-year yield plummeted from 2.93 to 2.77.  This was just over a week after the 10-year had hit 3.11.

On 05/30/18, stocks recovered and had a big day.  The 10-year yield rose to 2.84, so it did not go back to the level seen from 05/25/18.  But the 1-month yield stayed the same from the day before, which meant it was still considerably higher from 05/25/18.  The 3-month yield went up slightly again on 05/30/18 to  1.94.

In other words, the longer-term yields went down over this period (2 business days), while the shorter-term yields went up.

(If you click on the Treasury site after May 31, 2018, you will have to select the 2018 time period to view May.)

As of this writing, the 10-year yield is only about 90 basis points higher than the 3-month yield (2.84 vs. 1.94).  In other words, the yield curve has flattened a bit, and it happened rather quickly.

There aren’t many things in life that are this useful in making predictions, especially when it comes to the world of economics and finance.  But an inverted yield curve is almost a sure thing that a recession is coming.  In some cases, the recession may already be there, but people just don’t know it yet.

It is telling that we really would just need a few weeks of this kind of turmoil before seeing a flat yield curve.  I am not saying this will happen in the near future, but just that it is looking more and more feasible.

When short-term rates were near zero, I wasn’t sure what to make of it.  I said that perhaps a recession was still possible without an inverted yield curve because short-term rates were near zero.  It would be impossible to invert unless long-term rates went to zero or negative.

But now, short-term yields are considerably higher than they were.  The 1-month and 3-month yields are the only ones that haven’t hit the 2% mark, but they are really close.  All of a sudden, an inverted yield curve looks a lot more likely.

This is something I will continue to watch closely, as all other economic analysis combined probably can’t match the power of this one indicator.  When a recession is about to hit, it helps to know the approximate timing.

This may sound a bit odd coming from a libertarian, but I think there is a good case to be made with investing in U.S. government debt.  Yes, I know that the government is in debt to the tune of $21 trillion, and the unfunded liabilities are likely hundreds of trillions of dollars. I know that the Federal Reserve will resume its digital money printing as soon as the next major economic downturn comes.

I am an advocate of a permanent portfolio, which recommends putting approximately 25% into long-term government bonds.  However, there is a case to be made to invest in Treasuries even outside of the permanent portfolio, or to invest in short-term Treasuries with part of your cash portion (which is also 25% in the permanent portfolio).

This recent article says that buying Treasuries can yield up to 30 times more than your average bank savings account.  I can personally vouch for this, as my bank pays a tiny fraction of one percent, even if you have significant savings.

Using the TreasuryDirect website, you can purchase Treasury securities through your bank account.  I haven’t personally used it (yet), but I have heard from others that it is surprisingly easy.  Since short-term yields have gone up (from near zero), at least for U.S. government debt, you can even buy, let’s say, 4-week Treasury bills and just keep rolling them over until you are ready to stop.

In the context of a permanent portfolio, you can buy these short-term Treasuries with part of your cash portion.

Just as an example, let’s say that you have $100,000 in investable assets that you put in a permanent portfolio type setup.  You buy $25,000 in stocks, $25,000 in long-term bonds, and $25,000 in gold or gold-related assets.

For your cash portion, you also have $25,000.  But instead of putting it all in a checking account, or savings account, or money market fund, you can use a portion of it to buy short-term Treasuries.  As long as you know you don’t need the cash imminently, you could take $15,000 or $20,000 and buy 4-week Treasuries, or something similar.  I would still recommend leaving $5,000 to $10,000 in your checking/ savings account for emergencies or unforeseen opportunities.

You have to consider your own personal circumstances, but I just want people to be aware of this option.  Banks are paying close to nothing on savings, so you may as well take advantage of the government’s willingness to pay you something, even if it is relatively low by historical standards.

While dollar depreciation is always a threat, that is why you should own some gold.  It is also good to have some cash, and it is better to have it earning a little something as compared to virtually nothing.

At least for right now, there is nothing safer in terms of investments than U.S. Treasury securities.  You can be confident that you will get back your money, at least in nominal terms.

Last month, I splurged and took my family on a 4-night Disney cruise.  It was indeed a magical experience.

Before gushing over Disney, I will acknowledge that I have my disagreements with The Walt Disney Company.  I don’t always appreciate the Disney channel and how the kids often talk back to their parents in the shows.

Disney owns ABC and ESPN, among other things.  These channels tend to be mouthpieces for big government.  It is particularly disappointing with ESPN.  I still like ESPN because I like sports, but some of their shows are filled with politically correct nonsense.

My guess is that a majority of men who watch ESPN do not want to hear this politically correct garbage.  They don’t want to hear touchy feely stories very often.  They certainly don’t want to hear about political issues.  One of the whole points of watching and following sports is that it is an escape from the real world, particularly politics.

With all of that said, our Disney cruise was incredible.  The staff there went the extra mile for the customers in almost everything.

When you had to board the ship, the process was rather easy.  And going through security was nothing like going through the TSA at an airport.  They get you through quickly and without trying to humiliate the customers.  That is because the cruise passengers are customers.  The people flying at an airport are customers to the airlines and not the TSA.

I don’t know what kind of training the Disney cruise staff receives, but they are obviously taught to treat the customers well.  They want people to come back.  They want people to tell others how well they were treated, just as I am doing here.  This is the way the free market works.

We paid a premium to go on a Disney cruise as compared to another cruise line.  Therefore, we expected to be treated really well, and we were treated really well.  When we got off the ship at one of the ports and later returned, they had cold refreshments and cold wet cloths for the returning passengers.  It was all of these little things that made it extra special.

The food was great, and there was plenty of it.  They would usually accommodate any special requests, particularly at dinner.  Our state-room attendant was especially friendly and would usually check with us each morning to find out our plans for the day.

Even the lifeguards at the pool and water slide were really friendly.  I saw one boy ask for a towel.  Not only did the Disney worker hand him a towel, but he actually wrapped the towel around the boy because he knew he was cold.

I could go on and on.  The point is that the staff on the cruise line made it a point to treat the customers really well.

As I’ve gotten older, I tend to appreciate experiences over things.  Sure, I want a nice place to live, and I certainly want certain things such as televisions and a smartphone.  But beyond the few things that I use on a regular basis, I don’t want to accumulate more clutter. If I am going to spend money, I would rather it be on experiences that create memories.

I certainly try to be future-oriented, and I encourage others to be the same.  It is good to save money for a rainy day, and it is good to save money in order to have more freedom and choices in your life.  At the same time, you want to enjoy life in the present, so it shouldn’t be all about deprivation for the sake of saving.  It really is important to find that right balance.

Even though the Disney cruise was rather expensive, it was worth it. In today’s world, it seems that there is often a shortage of good customer service.  It was nice to get an experience where we were treated like royalty for four days.

I am not one to closely follow celebrity gossip, but I do know that the royal wedding is high up on the news feed.  While a recent poll indicated a somewhat lackluster interest in the wedding by the British people, it will still be watched by many millions of people.

I have wondered for a long time about why the British people put up with subsidizing the royal family.  The royal family is largely symbolic, as the Queen isn’t enacting or enforcing legislation.  The British taxpayers fork over multiple millions of dollars every year to fund the lavish lifestyle of the royal family.  Some estimates put the cost of running the monarchy at well over $300 million per year.

It doesn’t make much sense why someone struggling to pay rent and put food on the table continues to consent (even if tacitly) to funding the royal family.  I know that some will argue that the royal family actually brings in significant tax revenue to the government to help offset their cost.  This tax revenue comes from visitors and tourists.  But if that is the case, why can’t the royal family be funded through charity and business?  The family could set up their own for-profit museums, tours, meet and greets, etc.

While a majority of those surveyed say that the royal family should be responsible for the full cost of the wedding, public opinion obviously isn’t strong enough to actually stop it from happening.

When Chevy Chase’s character in European Vacation is asked what the Queen does, he responded that “She queens, and vacuums.”

But what really does the Queen do?  She makes public appearances and acts as something of a diplomat.  The problem is that the number one thing she does is suck up taxpayer money.  I guess that is part of the vacuuming.

Now we have this royal wedding with Prince Harry and Meghan Markle.  It is estimated to cost $2.7 million for the actual wedding, but the security costs could run around $40 million.  That will largely be borne by the British taxpayer.

It is bad enough that the British people are forced to pay for this lavish lifestyle of the royal family.  Now they have to fork over millions more to an American.

The American colonists seceded from the British Crown when taxes in the colonies were around 1%.  Now Americans fork over about 25% (based on spending) to their own national government, and at least another 15% to state and local governments.  The British people are even worse off for the most part, but now they are forced to subsidize an American woman, probably for the rest of her life.

From the little I’ve seen of her, Meghan Markle seems to enjoy the spotlight.  I hope the British people enjoy funding her new celebrity role.  If this isn’t the straw that breaks the camel’s back, then I don’t think there are any straws big enough to do it.  Maybe the middle class there just doesn’t feel enough pain yet.  Then again, there are many third-world countries where the large majority of the population lives in dire poverty while the rulers live it up.  But even in those cases, the rulers have to be careful not to show off their wealth too much.

This wedding is a royal ripoff for British taxpayers.  Sure, there are many other government programs that are far more costly and far more damaging.  But those costs are often well hidden.  In this case, the wedding is being broadcast wide and far for all to celebrate.  The British people can celebrate at home eating ramen noodles.

On Tuesday, May 15, 2018, the 10-year yield on U.S. Treasuries jumped above the 3% mark.  It settled the day just above 3.07%, which is the highest it has been since 2011.

The rest of the financial markets were spooked a bit, as stocks plunged, although not horribly.  After the last few months of extreme volatility, any day where the losses are less than 1% doesn’t seem like much.

Stocks and bonds weren’t the only assets to sell off.  Gold took a major hit, as the U.S. dollar rallied.  Gold had been trading in a fairly narrow range for a while between $1,300 and about $1,350.  Well, with the spike in the 10-year yield, gold plunged hard below the $1,300 barrier.

This was one of those days where all of the major asset classes were down.  A permanent portfolio did not save you on this one particular day.  The mutual fund PRPFX, which somewhat mimics the permanent portfolio setup, was down nearly 1% on the day.  There aren’t many days where the losses are bigger than that.

I find that when the permanent portfolio or PRPFX has a really bad day, there is usually a rally shortly thereafter.  All three asset classes are not likely to continue downward together.  At least one of the asset classes will bounce.

And that is really the main benefit of the permanent portfolio.  All of the asset classes are not highly correlated.  There are certain periods where there may be correlations, but typically at least one of them will do well.

The only time that the permanent portfolio struggles all the way around is in an environment of relatively low price inflation and slow economic growth (or outright recession).  But if we get a recession, then the long-term rates will likely reverse course and head downward again, thus driving bond prices higher.  This didn’t happen in the 1970s, but there was high price inflation at that time and gold did really well.

With the volatile stock market of the last few months, I thought the chances for an upcoming recession were increasing.  But if you look at the rates on May 15, 2018, it was just the longer-term rates that spiked higher.  The one-month and three-month yields actually dropped by .01 percent.  In other words, the yield curve steepened a little.  This does not indicate a recession.  We are looking for a flattening yield curve for a recession.

One day certainly does not make a trend, but you can still learn some lessons.  The financial markets are getting spooked easily with the prospect of higher rates.  The 10-year yield is closely correlated with mortgage rates in the U.S.  This means that there won’t be much refinancing in the near future.  It may or may not slow down the housing market.

The next FOMC meeting will be held June 12 and June 13.  It will be interesting to see if they try to calm things down by suggesting that they could slow down with hiking their target federal funds rate.

Meanwhile, the Fed keeps draining its balance sheet, even if slowly.  We have to believe that this is going to have an impact at some point and unwind any malinvestment that took place from the ultra-easy money that flowed from 2008 to 2014.

I am sticking with my permanent portfolio for a good portion of my financial assets.  There are so many variables pulling in different directions, it is really hard to know what we are going to get in the next year or two.  The returns haven’t been that great with the permanent portfolio in this environment of low interest rates and relatively low price inflation.  But you have to ask yourself whether the prospect for higher returns is worth the risk, especially when it comes to stocks.  Are you going to try to get another 10% out of the bull market with the risk of stocks dropping by 50%?

In regards to bonds, I still don’t think interest rates are going to spike significantly higher unless we start to see signs of significantly higher price inflation, which we haven’t so far.  Sure, the 10-year yield could easily go to 3.5% or even 4%, but I don’t see it getting to 6% or higher any time soon without much higher price inflation.

They say that high prices are the remedy for high prices.  Well, in this case, we could say that higher yields will ultimately be the remedy to higher yields.  If it spooks markets too much and a recession starts to loom, then rates will likely go back down as investors seek safety.

Regardless of what you think of the U.S. dollar and the solvency of the U.S. government, U.S. Treasuries are still considered one of the safest investments on the planet.

Barack Obama was a disastrous president.  On this vague statement alone, we can agree with Donald Trump.  But even a blind squirrel finds a nut once in a while, and Obama did find a few during his 8 year presidency.

For libertarians, there is not much to praise about Obama or any of his policies.  In terms of anything significant, I can only name a few good things that came out of Obama, and there are criticisms I have within these few things.  Unfortunately, with those few things, Trump has largely opposed the policies of those few good things.

One thing Obama did that was a step in the right direction was to loosen sanctions on Cuba and somewhat open up travel.  Of course, it would have been nice if he had completely repealed all sanctions and travel restrictions, but he adopted a policy that was better than any other president of the last 5 decades.  Trump scaled back this Obama policy.

For some reason, even though Trump thinks it can be economically beneficial to impose tariffs and reduce trade with foreign nations, he somehow thinks it is a punishment to impose sanctions, which means a reduction in trade.  This alone shows Trump’s inconsistency on the issue of free trade.

A second thing Obama did (or maybe didn’t do) was to mostly allow states to adopt their own laws and policies with regards to marijuana.  Maybe Obama just threw in the towel, knowing that he couldn’t (politically speaking) send in the troops to knock down doors over marijuana.  His administration’s policies were not as hands-off as we have been led to believe, especially when it comes to making it difficult for marijuana dispensaries to open a bank account.  But Obama certainly could have been a lot worse on the issue of marijuana and states’ rights.

Meanwhile, Trump’s disgusting attorney general, Jeff Sessions, wants to go out of his way to bust down doors and ramp up the drug war, even in places where marijuana has been deemed mostly legal.  Sessions is a drug warrior who has no sympathies for the U.S. Constitution when it stands in his way.  For any good attributes Sessions may have had (which are few to a libertarian), he has mostly focused on all of his worst attributes.

The third, and final, good thing that Obama did was to negotiate with Iran and to be become a signatory to the Joint Comprehensive Plan of Action (JCPOA).  The main points of this agreement is that Iran would not pursue nuclear weapons in exchange for sanctions being lifted.  Trump recently said that the U.S. would withdraw from the agreement.

Trump has said since his campaign that it was a bad deal.  Some others have said that it wasn’t a perfect deal, but that the U.S. should not withdraw.  I don’t really understand what these statements mean.  They are short on specifics.  What exactly was bad about the agreement?

My only criticism of Obama here is that I don’t really think such an agreement was even necessary.  The only reason Iran would want to pursue nuclear weapons would be as a deterrent from being blown up and occupied (Iraqi style).  The U.S. and Israeli governments continually threaten Iran, while misleading people to believe that it is Iran doing the threatening.

The whole world should be able to see what is taking place.  Iraq was overthrown.  The war in Afghanistan is still going on almost 17 years later.  Libya was overthrown.  The U.S. helped with the coup in Ukraine.  And for years, the U.S. government has been trying to overthrow Assad in Syria.  Then consider all of the small wars and covert actions in other countries, particularly in the Middle East and Africa.  Meanwhile, there is continually tough talk about Iran, North Korea, and others.

Iran has not tried to invade or overthrow any other countries.

I don’t believe the North Koreans have nuclear weapons.  If they do, there is no means to deliver them very far outside of its own borders.  Kim Jong-un was purposely flinging bottle rockets into the sky as a deterrent, and it may have worked for now.  If he hadn’t claimed capabilities of long-range missiles, maybe the U.S. wouldn’t be considering any negotiations right now.  The country may have already been taken over if not for those displays.

The whole world can see what happened to Saddam Hussein and Gaddafi.  They did not show off nuclear weapons, and they were deposed.  If you are being threatened by the U.S. government, it only makes sense at this point for any country to acquire nuclear weapons, or to at least claim to have them.

Therefore, the JCPOA was unnecessary.  Obama should have just lifted the sanctions.  There was no need to enter any agreement over nuclear weapons and enriched uranium.  Politically, I’m sure Obama felt the need for such an agreement or else he would have taken a worse beating from the right on his so-called weakness.

I don’t know what will ultimately happen with Iran.  Maybe Trump just wants to make a better “deal”, but it is hard to call it a deal when it is being done at the point of a gun.  Or in this case, it is at the point of a lot of guns and missiles.

Ron Paul recently said that Trump is sometimes the opposite of Teddy Roosevelt.  Roosevelt said that we should speak softly and carry a big stick.  Sometimes Trump is the other way around.  This is certainly true in regards to the first part.  He does anything but speak softly.  Of course, this is preferable to speaking boldly and always acting that way.  When he ordered missile strikes on Syria, things certainly could have been a lot worse.

Regarding Obama, aside from the things mentioned above, his presidency was mostly a disaster.  The only good thing that can be said about him is that he could have been worse.  I’m not sure if that is any kind of praise.  He was mostly horrible on foreign policy.  He had his hands in Yemen, Syria, Ukraine, and Libya.  He continued the wars that were already happening in other places.  He can only be praised on the grounds that he could have invaded even more countries than what he did.

For the few decent things Obama did, he basically did them on his own authority.  They are not like Obamacare, which had to be pushed through Congress.  Therefore, even his somewhat good accomplishments were easily repealed.

Trump, for his part, has done a few good things.  He has helped reduce federal regulations a bit, but he has a long way to go.  Trump has helped expose the deep state, whether he has intended to or not.

Like Obama, most of the good things one can say about Trump is that he could have been more disastrous that he has been so far.  He hasn’t started any major new wars yet, but he continues the interventionist foreign policy.  Meanwhile, the few decent things that were done by Obama have largely been undone under Trump.

The self-identified socialist, Bernie Sanders, recently backed a plan that would guarantee a job to every American that would pay at least $15 per hour.  The idea is also being backed by other Democrats in the U.S. Senate.

While Sanders is very far to the political left, he is not technically a full-blown socialist.  When it comes down to it, he does not believe that the government should own all of the means of production.  He perhaps believes this in certain sectors, such as medical care, but I don’t think he literally wants the government to own everything.  Most of his schemes revolve around higher taxation, higher government spending, and more government regulation.

Libertarians can find some areas of agreement with Sanders on certain civil liberty issues and foreign policy.  But even here, Sanders is woefully inconsistent.  If he had actually become president, it is doubtful that the current wars and occupations would have ended with him bringing the troops home.  Anyone who endorses Hillary Clinton cannot be relied upon to be anti-war in any sense.

In terms of economics though, Sanders is just a complete disaster.  It wouldn’t matter much except that there are millions of people who actually listen to him and think he is on the right track with his policy proposals.

So what about this idea of a government job guarantee?

I don’t know if the Sanders plan would permit people to still work below the $15 per hour rate, or if that would be the new minimum wage.  Either way, most people wouldn’t work for less than that unless they had a job they really liked.  If you are making $12 per hour and you can automatically get a job making $15, then most people will make the switch unless their current employer is willing to at least match it.

Therefore, not only would the plan be expensive to pay millions (tens of millions?) to get a job, but there would be millions more who currently have a job but would leave it in order to make the higher amount.  And if $15 per hour is the new minimum wage, then you would likely see employers cutting their labor force which would drive the newly unemployed into the government jobs.

If such a plan were to go in effect, would Sanders support a massive curtailment of the government welfare state?  Would he support an end to direct subsidies in food, housing, and medical care?  Or would he say that everyone still needs these “benefits” because that wage still isn’t adequate to live on?

If there were no significant cuts in welfare benefits, then how many additional hundreds of billions of dollars would the government (i.e., the taxpayer) have to pay each year just to support this program?  It would mean significantly higher taxes for everyone and probably even higher deficits.  It would be a massive misallocation of resources that would only serve to make nearly everyone poorer in the long run.

Since it is basically a socialist scheme that would seek to avoid the price system, the bureaucrats in charge would only be guessing at what kinds of jobs to create.  There would be no profit and loss system to tell them whether the jobs are actually fulfilling consumer demand in any way.

Another question about this plan is what will happen to the millions of people working these government jobs.  Is there any room for promotions?  And what happens when some people just don’t work hard?  That couldn’t possibly happen; could it?

Is the government allowed to fire employees who do not perform their given job functions?  What if somebody calls in sick all of the time?  What if someone shows up to “work” and just literally sits there all day and just refuses to actually do anything?  Will they still get paid $15 per hour for being there?

When anyone with any sense actually sits down and starts to think about some of the details, a lot of questions arise.  If you sit there and think about it long enough, you could probably come up with 100 good questions about how things will operate.  Of course, those who came up with the plan and those who are enthusiastically supporting it are not using any sense.  If they are, it is only to act as a demagogue and to swindle others.

For libertarians, this is an easy thing to oppose just on moral grounds alone.  Since this plan would involve violating the property rights of others by using force or the threat of force, then libertarians can easily oppose it.

But aside from the moral argument, anyone with some sense and an open mind should be able to see just what a disaster a plan like this would be.  It would disincentivize productivity and massively misallocate resources.  We would all suffer greatly in our living standards if such a proposal were enacted.

It shouldn’t surprise me, but I do find it interesting that so many people are concerned (in a few cases, obsessed) about their credit report and credit score.  They will analyze different tricks on getting a higher rating from the credit agencies.

Some people claim that it can actually benefit your credit score by holding a small amount of credit card debt while still paying at least the minimum due on time each month.  I don’t think there is much, if any, truth to this claim.  I have almost always paid my credit card balances off in full each month, and it has not seemed to impact my credit score.  Maybe if I had carried a balance, my credit score could have been higher by a few points, but I really don’t know that.

The most important factor is to pay your bills on time.  The second most important factor is to not get into too much debt, even if you are managing to keep up with the payments.

If you get those two things right, then that will mostly take care of the rest.  As long as you are not living a life off the grid and you are using our modern-day banking system, then your credit score will likely be good.  If you are young, say early 20s, then you will probably need to gain some history.  Once you have an established bank account and a credit card or two (even with low credit limits), then your credit score will naturally rise over time.

The main point I would like to get across here though is that you don’t really have to have a strong credit report.  As similar with many things in life, the ones who need the good credit score are often the ones who don’t have a good credit score.

If you are good with your personal finances, then your credit score will likely be high.  But if you are really good with your personal finances, then a high credit score probably won’t matter that much to you.

Sometimes employers will check credit reports of prospective employees, but not the actual scores.  An employer will probably not make this a deciding factor unless your credit report shows something particularly bad.

Your credit score may matter when looking to lease housing.  Again, it will probably only matter if your credit score is bad.  If it is mediocre, then it may not matter much.

Aside from these circumstances, the only reason a good credit score matters is so that you can take on debt at a competitive interest rate.  But if your personal finances are really good, then you really shouldn’t be dependent on debt anyway.  And if your personal finances are in bad shape, and hence have a bad credit score, then you probably shouldn’t be taking on any more debt, including a home mortgage.

If you had problems in the past, and your credit score is low now, then all you can do is make the right choices going forward.  This means staying out of debt, unless you have no other options.  It means saving a lot of money.

If you have a lot of money saved, then your credit score becomes less and less relevant.  Even if you need to rent an apartment, you can always offer to just pay the full year up front.  If you offer this, you might even be able to get a small discount.  If the place you’re renting is going for $1,000 per month, you can offer to pay $11,000 up front at the beginning of a one-year lease.  Even if you have excellent credit, you may want to explore this option in order to save money.  Just make sure you can trust the landlord, and get a receipt for your payment.

If you have a lot saved, then you should even be able to buy a car without needing financing.  It would admittedly be a lot harder to buy a house, but there are people who actually do pay cash (not literal cash) for a house without the need for a mortgage.  It makes it easier in the buying process, and you can also get better deals when buying.

There are middle class families (and even upper class families) that get into trouble with high debt.  It is easy to imagine a typical American family earning $100,000 per year (before taxes) that has a mortgage, two car payments, and some credit card debt.  Since they already have a house and cars, they really shouldn’t care about their credit score, or at least not directly.  They should care about debt reduction and saving money.  But this, in itself, will correct any credit rating problems.

For anyone reading articles about how to improve a credit score, they should focus instead on debt reduction and savings (unless such articles just interest them).

When it comes to personal finance, credit scores are just a reflection of your past decisions.  There is a correlation between bad credit ratings and bad financial decisions.  But the bad credit score is not a cause of the bad financial decisions.  It is a symptom.  So in this case, don’t treat the symptoms but the root of the problem.

In personal finance, the best thing to do is to have little or minimal debt and to save money.  If you have money in the bank, then it makes a lot of other issues become irrelevant, such as a credit score.

The Federal Open Market Committee (FOMC) just issued its latest statement on monetary policy.  The federal funds target rate will remain the same for now.  The Fed will also continue to roll off $30 billion per month in assets by allowing them to mature without reinvestment.

The biggest news out of the statement is a slight word change from the previous statement.  The current (May 2, 2018) statement said that “both overall inflation and inflation for items other than food and energy have moved close to 2 percent.”  In the previous statement in March, it said that “both overall inflation and inflation for items other than food and energy have continued to run below 2 percent.”

In other words, the Committee’s statement is showing expectations of slightly higher consumer price inflation.  As long as the economy keeps humming along, this will justify the Fed further hiking its target rate in the future, as well as staying on the path of reducing its balance sheet.

It is interesting that price inflation is picking up, albeit very slightly.  This is in the face of monetary deflation.  If the Fed’s balance sheet is being reduced by $30 billion per month, and it is only supposed to increase this reduction in future months, then why are consumer prices rising at an increasing rate?

The first thing to consider is that prices take time to adjust throughout the economy.  When new money is issued, or money is withdrawn, as is being done now, it is mostly through the banking system.  It is not as if your checking account is going up or down in any immediate way based on the Fed’s monetary policy.  It takes time for money to change hands and to ultimately bid up prices (with inflation) or bring down prices (with deflation).  It can take many months, or even years, before new money makes its way into the economy and settles in place.

The second thing to consider is that the Fed is generally looking at consumer prices and not so much asset prices.  Asset prices have already been roaring, especially when it comes to housing and stocks.  Since stocks are not accounted for in their price inflation measurements, we don’t always know if there is a shifting of resources.

A third thing to consider is that the money supply is just one factor in determining prices.  The loans issued by banks play a major role in whether the adjusted monetary base is multiplied through the fractional reserve lending process.  This was one of the main reasons that price inflation stayed relatively tame during the Fed’s great monetary expansion from 2008 to 2014.  Much of the new money that was created ended up as excess reserves held by banks.  In other words, the banks did not lend out this money.  With the Fed having increased the interest it pays banks on their reserves, you would think that this would just curtail bank lending that much more, but we can’t be certain of this.

We must also factor in the demand for money.  If the demand for money is high, then this will be the equivalent of a deflationary force.  Another way of saying this is that the velocity of money is low.  This means that money changes hands less frequently, and therefore does not bid up prices as fast.  The high demand for money can offset some of the monetary inflation trying to push prices higher.

It could be that people are finally getting over the financial crisis from nearly 10 years ago and have more confidence in spending money.  Therefore, we could be seeing a slight pickup in velocity (a reduced demand for money), despite the current monetary deflation.

The productivity of an economy can also impact prices, but I don’t think that is playing a big factor either way today.  If the money supply were held constant over a long period of time, we would expect to see prices fall very gradually over time as productivity increases.  You would have the same number of dollars (or whatever kind of money) chasing a larger portion of goods and services.

Since there are so many factors going into consumer prices, it should not be surprising that there is currently a slight disconnect between consumer prices and the Fed’s balance sheet (the base money supply).

Still, we should not expect this to continue for a really long period of time.  While some gains in the last decade in productivity are real and sustainable, I do believe that part of it is also unsustainable.  The Fed’s easy money policy from 2008 to 2014 misallocated resources that still need to be corrected.

As the monetary deflation takes its effects, these malinvestments will be exposed.  I expect stock prices to be hit hard at some point, and I expect a major correction.  When this happens, it will not be surprising to see price inflation expectations fall, at least until the Fed comes in with another round of massive money creation to start the whole cycle over again.