I will be writing a series of articles on the ramifications of the business shutdowns related to the coronavirus, and, more importantly, the response of the federal government and the Federal Reserve.

Even if the virus disappears within the next month and everything is declared open for business, we are not going back to normal.  There is already talk about unemployment in excess of 30%. This would exceed the highest reported unemployment from the Great Depression.

Even if things are reopened, how many businesses will be able to just open their doors as if nothing had happened?  And for those that do open their doors again, will they be hiring back the people that were let go during the shutdown?

In this article, I am going to discuss one portion of the $2 trillion bailout legislation that sailed through Congress.  It is called the CARES Act, which reminds me of the naming of the Patriot Act.  If you “care”, then surely you must support this legislation.

The portion I will discuss today is the checks that will be sent out to most adult Americans. If you are single and make under $75,000, then you will receive a check for $1,200.  For a married couple who make under $150,000, they will receive a check for $2,400.  You can add in $500 for each dependent child.  Therefore, a typical family of four (married couple with two kids) will receive a total of $3,400.

First, it is important to realize that the checks being sent to individuals are actually a small portion of the bill, relatively speaking.  This makes up about $300 billion of the legislation.  In other words, Congress could have spent the same money ($2 trillion) and sent checks to nearly everyone totaling almost seven times what they are sending.

In this scenario, a typical family of four, instead of receiving $3,400, would receive over $22,000.  Of course, that would have meant no corporate bailouts, no extended unemployment benefits, and no allocations to all of the pet projects pushed by the lobbyists.

If a small business owner received a check for $22,00, that might go somewhere.  It might be enough to cover the shortfall for a couple of months.  But we know that wasn’t going to happen.

As Thomas Massie stated on Twitter: “The stimulus package that just passed is the biggest wealth transfer from common folks to the super-rich (Wall Street and bankers) in the history of mankind. Done in the name of a virus with $1200 checks as the cheese in the trap.  This will be obvious in short order.”

Many Americans cheer that they will get “free” money from the government.  Some are rightly skeptical.  The truth is that this is going to be a major disaster.

This will ultimately make most people poorer than they otherwise would have been.  This money is being extracted out of the private sector in the form of debt and monetary inflation.

Your Situation

Everyone’s personal situation is different, so it is hard to give blanket advice on what to do with the “free” money, if in fact you are receiving some of it.

First, I think it is important to continue paying your bills (your obligations) as long as you are able to do so.  If you still have your regular income coming in, then this should not be a problem for now. If you are unfortunate enough to have lost all or some of your income, then you should still try to pay your bills if possible.  But if it is a choice between feeding your kids and paying your credit card bill, then feed your kids.  You should even feed your kids (inexpensively) before paying your rent.

The next thing to consider is whether you have any debt that should be paid down.  If you can eliminate credit card debt with your coronavirus check, then it may be a good idea to do so.  For bigger things, like a mortgage, and possibly car loans and student loans, you probably shouldn’t pay down that debt unless it will pay it off entirely.  It is better to keep some emergency funds on hand.

If you have anything that needs to be done, such as new tires for your car, then you should certainly take care of important things like that.  But hopefully you had budgeted for such an expense before and this new money is not needed for that.

It may be tempting for some of you to invest the money.  There is plenty of volatility in the stock market.  There is money to be made there, but there is also money to lose there.

I think at this point in time, it is best to be conservative with your money.  We face a very uncertain future at this point. Again, even if the scare of the coronavirus goes away shortly, we are going to be left with economic devastation.

I was already convinced that we had major economic troubles ahead, and that was before I had ever heard of the coronavirus.

There is a bit of a conflict between what should be done in the short term and what should be done in the long term.  For the short term, I think it is important to have emergency money. Most of this should be in an FDIC-insured bank with a little bit of physical cash at home.

For the longer term, I think we should fear the destruction of the dollar.  There is a great degree of uncertainty how this will play out.  With the U.S. dollar, there is going to be a tug-of-war between a high demand for cash and the Fed’s money creation.

There is great fear, and we are almost certainly in a deep recession.  The demand for money goes up.  Most people will be cutting back their spending on non-essential things.  This should be mostly deflationary for consumer prices.

But then you have the Fed on a wild digital money printing spree.  If the Fed keeps going at its current pace of something like $600 billion per week, or even anything close to it, then I can’t discount the possibility of hyperinflation.  I still give hyperinflation a low chance, but the chances are a lot more significant than they were a month ago.

I don’t know who will win the tug-of-war.  I fear it will be the Fed in the sense that they will exceed their 2% price inflation target.  Regardless, there is going to be great damage done to the economy.  There will be a massive misallocation of resources.  Capital investment will be severely hampered.

If we end up with price inflation in the double digits, I think the Fed will be forced to pull back.  We just have to hope that it’s not too late.  I would love to see the end of the Fed, but not as a result of hyperinflation that destroys the division of labor and our civilization.

I can’t predict anything in the financial markets with certainty.  But I am as certain as can be that gold is going to ultimately go up significantly in terms of U.S. dollars.  Regardless, it is important to have gold as a form of insurance, and it is more important now than ever before in our lifetimes in the United States.

If you already have an emergency fund, then my best suggestion is to take your “free” government money and split it between cash and gold.  The cash portion can bulk up your emergency fund a little more.  The gold can give you a little bit of insurance against a currency crisis.

That is the best I’ve got for you right now.  I will continue to stay up to date on what the Fed is doing.  I think the unsustainable spending from Congress will continue until the Fed has to refuse to buy more new debt. Unfortunately, the Fed will only take this stance once it is forced to do so because of high price inflation. In the meantime, most everyone will get poorer, but some will get poorer than others.

While most everyone seems to be concerned with flattening the curve with regard to the number of people infected with the coronavirus, there is another issue that hangs over us.  It is an issue that will have a longer lasting impact on most people, whether they know it or not.

The Federal Reserve’s balance sheet zoomed past the $5 trillion mark this past week.  It is an unprecedented spike in new money in such a short period, even surpassing what happened in late 2008.

For context, the total balance sheet was under $900 billion in 2008.  The Fed is now creating over $600 billion per week.  So in a period of about 10 days, the Fed is creating more money (in terms of U.S. dollars) than what was in existence just 12 years ago.

With regard to the balance sheet, someone needs to tell the Fed to flatten the curve.

With regard to the U.S. government’s national debt, someone needs to tell Congress to flatten the curve.

Before this month, I had been emphasizing that we were in a giant bubble, particularly with regard to the stock market.  I have been trying to prepare my readers for a major change in the economy.

I have been warning about an impending crash in stocks, especially since the yield curve inverted last year.  I have been warning to prepare for a hard recession.  I never could have imagined it would come this hard and this fast.

I have been saying that bonds would initially do well, as investors seek safety in U.S. government debt. So far, this has been correct. I have been saying that gold would be a good longer-term play when the Fed ramps up the digital printing press. This has happened much harder and faster than I could have imagined.

Ben Bernanke (once known as Helicopter Ben for suggesting direct handouts of money) is saying that we will have a short recession followed by a quick recovery.  This is the same man who denied there was a housing bubble in 2006.

Here is the problem. The yield curve had already mostly inverted.  Long-term rates were already falling.  Stocks were already in a giant bubble.  A major recession was baked into the cake.  But now the almost certain recession is being blamed on the coronavirus.  The virus, and the reactions to the virus, may have been a trigger event for the recession, but we were already on shaky ground.

Don’t be fooled. This is going to be a deep and hard recession.  It will likely be long too.

What scares me more is the unprecedented actions that are currently being taken.  It is bad enough that state and local governments have shut down many businesses, thus forcing many people into unemployment and forcing many small businesses on the edge of extinction.  What’s even more dangerous are the interventions coming through Congress and the Federal Reserve.

Debt and Inflation, The Only Answers

Other than radical libertarians and Austrian school economists (mostly the same people), most people are accepting the unprecedented actions coming from the federal government and the Fed.

The Fed has lowered its target rate to near zero.  Some of the short-term yields have been reported as negative.

The Fed has eliminated reserve requirements for banks, which means that banks don’t even have to have a measly 10% of deposits (as before) in reserve.  This is especially curious given that excess reserves are still high.  It tells me that there is at least one major bank, but probably more, that is in major trouble.

The Fed has said it will expand its buying of assets beyond Treasury securities and mortgage-backed securities.  The Fed will be buying municipal bonds (to bail out irresponsible state and local governments) and corporate bonds (to bail out irresponsible corporations).  The Fed will likely be buying stocks too, if it hasn’t been already.  This is why I am hesitant to short the market too much at this point.

The Fed has also indicated that it will expand its balance sheet as much as it takes.  I don’t know if this includes sending us into a situation of massive price inflation.  But at this point, it is open-ended QE.  I thought the Fed was in high gear pushing the pedal to the metal in 2008 through 2014, but apparently there is a higher gear still.

This is going to have horrible consequences for the economy.  It is going to massively distort the allocation of resources. It is going to dry up capital investments.  It may end up ruining savers who conservatively invest their money in what they think are non-risky assets.  But holding cash and cash equivalents may turn out to be one of the riskiest investments of all.

Meanwhile, Congress is also making a mockery of economics.  A “stimulus” bill of over $2 trillion just sailed through. A few hundred billion was allocated to directly paying off the American people (helicopter money).  A portion is for extended unemployment benefits.  An even larger portion is for corporate bailouts and what most would see as pork (if it were looked at closely).

For $2 trillion, Congress could have eliminated all federal taxes (income taxes, corporate taxes, payroll taxes, excise taxes, etc.) for the rest of the year, but of course they wouldn’t do that.

There was almost no opposition to this bill.  Rand Paul may have at least questioned parts of it, but he is out of commission right now after supposedly testing positive for the coronavirus.

Thomas Massie of Kentucky tried to get a recorded vote on the bill only to be cursed at by John Kerry and called out by Trump that Massie should be thrown out of the Republican Party.  Massie is the closest thing that libertarians have to Ron Paul in Congress.  He is a small light of good and hope in a dark tunnel of evil.

As Massie said of the legislation and the government’s other spending, “If getting us into $6 trillion more debt doesn’t matter, then why are we not getting $350 trillion more in debt so that we can give a check of $1 million to every person in the country?”

That’s about all that needs to be said.  So many people are cheering that they will be getting “free” money.  A typical family of four will receive $3,400.  But if this is so good, why not send everyone a million dollars?

I thought the stimulus under Obama in 2009 that was near $1 trillion was crazy.  I thought the run up of the national debt has been crazy for nearly two decades.  I thought it was crazy that the government was running a trillion-dollar deficit before this virus hit, and during a time of relatively low unemployment.

The government was already set to run a trillion-dollar deficit this year without a recession. Now tax collections will go way down, especially with unemployment jumping so high.  And now the government is adding another $2 trillion on top of all of this.  I think the deficit will hit $3 trillion this year alone.  It was already unsustainable.

It may seem that this can just go on forever because the powers-that-be have seemingly gotten away with it for so long.  But I can assure you that this is unsustainable, and something has to give.

Maybe it will be negative growth for a while.  Maybe it will be shortages in consumer goods (especially if there are price controls).  Maybe it will be massive unemployment for an extended period.  Maybe it will be massive consumer price inflation.  It may be all of these things combined.

There ain’t no such thing as a free lunch.  There ain’t no such thing as free money from the government.  The government is throwing a bone to the dog to distract him from the real threat.  We are the dog.

I will continue to explore how this whole thing may play out in 2020 and beyond.  I can tell you with certainty that when the hype of the virus dies down, things are not going back to normal.  That is impossible now.

If the government and Fed weren’t doing these extraordinary measures, we might have a chance of somewhat returning to normal.  But everything has changed now in just the last few weeks.  There will be massive defaults.  There will be massive bailouts.  There will be massive monetary inflation.

A recession like this would typically mean a reduction in overall consumer prices as the demand for money increases.  When people are fearful, they tend to spend less money.  Some people have no choice but to spend less money.

Unfortunately, the lower prices may not last long.  The Fed is trying its best for the monetary inflation to translate into consumer price inflation.  Unfortunately, it may be more successful this time.

Owning Assets

Commodities typically fall in a recession.  As we can see with oil, this time is no different.

The one exception in all of this may be gold.  It has been volatile.  I have heard that there has been a high demand for physical gold, but I don’t know if that’s true.  It hasn’t translated over to the paper market yet.

People typically seek liquidity in a deep recession.  Gold will usually go down in price unless there is fear of significant price inflation in the future.

I have no idea if gold will fall from where it is, but I don’t think it will last long.  The Fed’s unprecedented increasing of its balance sheet and the uncertainties of the whole economy will increase demand for gold in the long run.

In a couple of years, I expect the gold price in dollars to be multiples of what it is today. As I said, the debt is unsustainable, and the Fed is going to do massive damage with its monetary inflation. The only things that can put a stop to this are interest rates and price inflation.  If we see double-digit interest rates and price inflation similar to the 1970s, then maybe we’ll finally see the Fed pull back, and Congress may actually be forced to examine its budget.

I am uncertain about interest rates and if they will spike and when it will happen.  I am more certain about the prospects for gold. I believe that liquid money and gold are the two most important financial assets to have right now. In dollar terms, I expect gold to go wild.  It will be volatile, but I expect more ups than downs.

I have little interest in stocks right now.  I have some gold funds for speculative purposes, and I have some stocks in PRPFX, which is the mutual fund that somewhat mimics the permanent portfolio that I advocate.

I have a small short position in stocks, but nothing that would be devastating if I am completely wrong.  But I do expect stocks to go down more from here, even with the bailouts and monetary inflation. Maybe I will start dollar-cost averaging small amounts into an index fund, but they need to get beaten down further from here.  I will seriously consider starting to go into stock index funds when the Dow goes below 10,000.  If it doesn’t ever do this, then I am fine with that.

This is going to be a wild ride.  The short-term impact of the virus will be nothing for most people compared to what they are about to experience financially.  If you are getting helicopter money from the government, I suggest that you use it to pay down debt or buy gold.

“The bad economist sees only the direct consequences of a proposed course; the good economist looks also at the longer and indirect consequences.  The bad economist sees only what the effect of a given policy has been or will be on one particular group; the good economist inquires also what the effect of the policy will be on all groups.” ~Henry Hazlitt

“In the department of economy, an act, a habit, an institution, a law, gives birth not only to an effect, but to a series of effects.  Of these effects, the first only is immediate; it manifests itself simultaneously with its cause — it is seen.  The others unfold in succession — they are not seen: it is well for us, if they are foreseen.  Between a good and a bad economist this constitutes the whole difference — the one takes account of the visible effect; the other takes account both of the effects which are seen, and also of those which it is necessary to foresee.” ~Frederic Bastiat

As I write this, most of the United States has been shut down for the last week or so due to fear of the coronavirus spreading.  Admittedly, it is even worse in many other places, particularly parts of Western Europe, where people are forced to stay inside their homes while needing papers to go anywhere.

In the U.S., just over 700 people have died where the coronavirus was attributed to the death.  It is hard to get accurate statistics, but it seems that most of the people who have died were elderly people who already had other significant health problems.  It is hard to know if some of these people would have died within a matter of weeks or days without the coronavirus.

There are about 327 million people in the United States.  About 100 people die every day on the roads, yet the roads don’t close down.  On average, according to the CDC, over 1,700 people die every single day of heart disease, yet you don’t see a ticker on your local news with the annual death count.

It should be acceptable to point this out without others calling you heartless.  Personally, I think it is heartless with what is being allowed to happen to the economy.

Everyone has a story.  It is tragic for anyone and their families who dies of the coronavirus, just like it is tragic for those who die of a heart attack.

Do you know what else is tragic?  When you see someone lose their job while living on the brink of poverty.  When you see someone who doesn’t know how they are going to feed their family this weekend. When you talk to someone who has spent years and countless money trying to build up a sustainable business only to see it shut down by the government.  There are millions of these stories right now.

I guess one person’s story is a tragedy, while one million is a statistic.

To say that the cure (shutting down most of society) is worse than the disease (the coronavirus) is to put it mildly.  Up to this point, it has been socially unacceptable to utter such words, but I think things are finally starting to shift.

A Cost/ Benefit Analysis

I hear that we should listen to the experts.  In this case, the experts are the epidemiologists.

I hear this a lot.  We are told we have to listen to the experts when it comes to vaccination. We have to listen to the experts when it comes to climate change.  We have to listen to the experts when it comes to Iraq having weapons of mass destruction.  I guess there are experts in pointing out who the acceptable experts are.

One problem here is that not all of the “experts” agree.  I’ve been told I don’t know what I am talking about with a legal issue because the Supreme Court ruled contrary to my own thoughts on a particular case.  Yet, the Supreme Court decision wasn’t unanimous, so there were obviously Supreme Court justices (experts?) who did not agree with the consensus.

You can almost always find people in a particular field who disagree on certain things.  It is no different with the coronavirus.  We shouldn’t assume that the experts are just the ones who get the most airtime on the mainstream (establishment) media.

For the sake of argument, let’s say that we could completely trust the epidemiologists who say that we should really be worried about the coronavirus and that it could potentially kill tens of thousands of people in the United States.

Even if that were the case, it shouldn’t be up to the epidemiologists to decide whether or not to shut down society.  Just because they are experts in viruses, it doesn’t make them experts in economics or cost/ benefit analysis.

When you largely shut down society as has been done by governments at all levels, there are consequences.  There are the unseen impacts.

You may hear, “it is worth it if we can save just one life.”  But this is a ridiculous statement, especially when we are talking about an economy of 327 million people.  We could save 100 lives per day by closing roads, yet nobody I know suggests that.

There will be no ticker on the news for the number of people who die because of the economic depression that is upon us.  Yet, these are real lives.  These are real people.

There are people losing their jobs and experiencing severe anxiety. There are children watching their parents panic about how they will pay rent.  There are people losing their business and not sure if they will ever be able to reopen.  There are people not going to the doctor with health problems other than the coronavirus.  There are factories that have been shut down.  There are interruptions in the development of new technologies, which could include delays in life-saving equipment and life-saving medicine.

How many suicides will occur just because of the economic disruption that has taken place?  Do those lives count?  Do those people get a ticker?

Greater wealth in general means longer lives.  Socialism kills.  Socialism doesn’t just kill in the sense of Stalin setting up death camps in the Soviet Union.  The economics of socialism kills, as people are deprived of proper nutrition, medical care, and a lack of life-saving technology.

Our only hope is that the fear of economic devastation will start to outweigh the fear of the coronavirus.  But even if everything is allowed to open back up for business within a couple of weeks, the devastation will not easily be undone, especially with the massive interference of the government and the central bank.

We can only hope that people will come to their senses quickly and not succumb to the fearmongering that has taken place over a virus that little is known about.  I don’t know that anything is ever going back to the way it was, but if we can reopen society, hopefully the disastrous unseen consequences can be minimized.

You can fear the virus, but you shouldn’t ignore the lessons of Bastiat and Hazlitt.

“Find out just what any people will quietly submit to and you have the exact measure of the injustice and wrong which will be imposed on them…”  ~ Frederick Douglass

I want to expand on a couple of things from my last post.

I have no expertise in the coronavirus other than what I have digested from articles and television stories.  However, I do have expertise in recognizing power grabbing and people control.

Many people who are hyping the coronavirus and telling us we need to submit to government orders are the same people who told us Iraq had weapons of mass destruction.  They told us that Assad gassed his own people. They told us we need the Patriot Act to keep us safe in the wake of 9/11.  They told us that Russia hacked the U.S. presidential election.

Even when it comes to so-called experts, I often believe the opposite of what they say when it comes to a national agenda.  It’s one thing to listen to your car mechanic about needing new brakes, or to trust a plumber about your leaky toilet.  But I am talking about a widespread agenda to get people to change their behavior.

We are told that almost all of the so-called experts believe in significant man-made climate change. This in itself isn’t true, and the “experts” usually have an incentive behind them in the form of government money.

Even when it comes to doctors, there has been a lot of bad information pushed.  We were told for a long time to eat carbohydrates while avoiding fat (not just trans fat).  Now this is being completely turned on its head.  In many cases, it would have been better to do the exact opposite of what “mainstream” doctors were recommending.

I know vaccines are a controversial topic, but there are many doctors who won’t even admit that there can be severe adverse side effects from vaccines, especially for certain vulnerable individuals.

What I am trying to say is that we are surrounded by fake news.  I don’t trust anything that CNN or NBC or any of the other major networks tell me when it comes to anything remotely political.  I am almost at a point of assuming the opposite until I can verify it.

Statistics

The statistics with the coronavirus are a joke.  Entire countries are being shut down from a few hundred deaths.

In many ways, it reminds me of the reaction to 9/11.  Almost 3,000 people died in the terror attacks that day, but it is still out of a country of more than 300 million people.  About that many people die every month on the roads in the U.S. More than that die every month from a heart attack.  But the people got behind a war in Afghanistan and many other wars that were tied to the fear of terrorism.  There are thousands of Americans dead from these wars with many more suffering mental and physical issues.  There are hundreds of thousands, or perhaps millions, dead in foreign countries from these wars.

Even from a financial standpoint, the U.S. has spent probably a couple of trillion dollars because almost 3,000 people died on September 11, 2001.  This is so incredibly irrational.

There have barely been over 100 people who have died from the coronavirus in the U.S., or at least those are the documented cases.  Some of these people were elderly who were probably on their last legs anyway. But we are going to shut down a country of 330 million people.

I know people make the argument that we have to shut almost everything down so that we keep the numbers low.  Some people have said that if we don’t take action, there could be over a million people dying. But I also heard that if we don’t go to war in Iraq, it could end with a nuclear cloud over a major city in the United States.  In other words, there is no basis to this claim.

The flu supposedly kills tens of thousands of people every year, yet we don’t shut down our society. The mortality rate is determined by projecting the number of people who had the flu.  It is based on statistics.  They don’t actually know how many people had the flu.

With the coronavirus, they are taking the number of people who tested positive for the virus against the number of people who have died from it.  Therefore, the mortality rate seems higher, but it isn’t a valid comparison.  They are largely testing people who are the worst off.  There will be many people who had the coronavirus who never got tested.

It’s always possible that this is a situation of the boy who cried wolf.  Maybe there really is a wolf this time.  But it isn’t because the establishment media and the politicians actually see a wolf.  They are lying like they always do.

Even a blind squirrel gets a nut every now and then.  Even a broken clock (not digital) is right twice a day.  But these people aren’t broken or just wrong. They are liars who seek power.

Totalitarianism and Public Opinion

I don’t think it is any coincidence that there is almost a direct correlation between the level of government controls coming down amid the virus with the authoritarian nature of the politics.

Look at the places that have been locked down with tight government controls on the people. You can start with China. You can look at Italy and France. But I think the best case for this is just looking within the United States.

Look at the places that have shut almost everything down and prohibited people from freely traveling. There is New York City, California, Illinois, and many of the states in the northeast.  These are the places I wouldn’t want to live, and I would have said this before any of the lockdowns.

I have been using the Frederick Douglass quote to illustrate the situation.  Here it is again to digest.

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

I know the governor of California is a totalitarian.  The same could be said for the mayor of New York City and the mayor of San Francisco.  But they are in that position because the people put them there.  The people who praise Fidel Castro and socialism put them in power.

There are certainly controls by government going on throughout the country, but the worst of the controls are happening in places where the populations tolerate and seek big government.  They fall right in line and say, “Whatever you need to do to keep us safe.”

Most politicians are authoritarians.  Politicians are politicians because they love power.  They want to control people.  I’m sure that governors and mayors in many southern and midwestern states would enact these same controls, but they know they can’t get away with that much. 

The governor of California can lock down the entire state because there aren’t enough people willing to stand up and say “no”.

This is why I am 99% confident that this virus hype is a hoax.  I am not saying the virus itself is a hoax.  I am saying the hype is a hoax.

• “Find out just what any people will quietly submit to and you have the exact measure of the injustice and wrong which will be imposed on them…”  ~ Frederick Douglass

• On the coronavirus, I am listening to my doctor.

• My initial line weeks ago was that I am not paranoid about the virus.  I am paranoid about the paranoia.

• Politicians love power.  When people are fearful and dependent, politicians will be more than happy to exert their power over their subjects.

• It is not surprising that the most totalitarian crackdowns are coming from mostly leftist cities and states.  Illinois, San Francisco, and New York City are good examples.  These are places where you have people who worship the likes of Fidel Castro.  The politicians aren’t enslaving the people.  The people are enslaving themselves.

• According to the White House, we are looking at some kind of student loan deferment program, company bailouts, and direct cash payments to Americans.  Who needs Bernie Sanders?

• The government will spend more money while collecting less in taxes due to the major slowdown in economic activity.  It won’t surprise me if the deficit exceeds $2 trillion this year.

• If the government wants to hand out money to everyone, why stop at $1,000?  Why not one million dollars for each person if it will help so much?

• If the government hands out “free” money, then maybe it is best to just instantly buy gold with it.

• This whole thing gives some vindication to the prepper community.  I think we’re all in trouble if there is ever a major breakdown in the division of labor, but there is something to be said for having a couple of weeks extra in supplies.

• The government and Federal Reserve will blame the bad economy on the virus. Unfortunately, many people will accept this explanation without realizing that the economy would have been in trouble anyway without the virus.

• If the Dow ever goes below the 10,000 mark, maybe I will buy a stock index fund.

The FOMC had another surprise meeting today (March 15, 2020) after just having a surprise meeting less than two weeks ago.

The Federal Reserve is lowering its federal funds target rate to a range of 0% to 0.25%.  It slashed its target rate by 50 basis points less than two weeks ago, and it just cut another 100 basis points to go up against the zero mark.  In order to achieve this, it reduced the amount paid on bank reserves to 0.10%.

The Fed will also purchase $700 billion in new assets, with a breakdown of $500 billion in Treasury securities and $200 billion in mortgage-backed securities.  It didn’t give a specific timeframe except to say in “coming months”.

It is not surprising to see an official return to quantitative easing (QE).  It is not completely surprising to see a return to a zero-interest rate policy (ZIRP).  The speed of it is a bit surprising.

It is also surprising that the Fed is including mortgage-backed securities (MBS) in its asset purchases.  This was more easily explained in the fall of 2008 when the housing bust was already well underway.

I don’t know if the Fed is going to purchase MBS as an attempt to prevent a big fall in housing, or if it is much worse than this.  It makes you wonder if some of the major banks are in a lot more trouble than we are being told.

The loose monetary policy from the Fed is no surprise given the events that have unfolded in the last few weeks.  Again, the speed and degree of the reaction from the Fed is a bit surprising.

The other interesting thing is that the Fed is supposedly dropping its reserve requirements for banks, which was typically 10%.  I am not sure what to make of this at this point, and also whether it will have any impact in the near term.

It is hard to know how this will ultimately play out.  The Fed nearly quintupled its balance sheet from 2008 to 2014, yet we saw relatively tame consumer price inflation.  This is largely due to the fact that the commercial banks massively increased their excess reserves.

As I write this now, the stock futures are down big, but it is hard to say how much of this is due to the FOMC surprise meeting.  Volatility has been high, to put it mildly.  I expect stock prices to fall much more before this is all over. We were already in a massive bubble without fear of a virus.

Investors will continue to flee to long-term government bonds.  This means yields will go down to near zero.  Maybe we will see negative yields just as we have seen in Japan and parts of Europe.

Bitcoin has shown that it is a speculative bubble.  People are not buying Bitcoin for safety.  We’ll see if this bust is the end of cryptocurrencies.

I am still bullish on gold in the long term.  With a bad recession, it may go down more, as people look for liquidity and safety.  But if the Fed keeps printing digital money – and there is no reason to think it will stop any time soon – then gold will likely do well in the long run.

If we eventually have a return of significant price inflation, then I believe silver will boom as well.  But silver is going to be far more volatile and less certain in the short run.

I have been waiting for the bust.  I just didn’t think it would happen so dramatically and so quickly.  This is just the beginning.  Even if the virus goes away, this bear market is not going away any time soon.

Harry Browne passed away in 2006.  It is 14 years later that we are dealing with the coronavirus, along with the economic and financial impacts.

Obviously, Harry Browne had nothing to say on the coronavirus, as it is a relatively new thing today.  But when you are making financial decisions, it is best to have a firm base of principles in place that do not change with the current events.

Personally, I think the reactions to the virus are way over-blown.  But it doesn’t matter whether you think the virus is a great threat or not.  What matters is everyone else’s reaction.

I keep saying that I am not paranoid about the virus itself.  I am paranoid about the reactions to the virus.

I already thought the stock market in the U.S. was one giant bubble.  I have been strongly warning about that.  But even I am surprised at just how fast and furious the drop in stock prices has been.  It would have been hard for anyone to predict this virus and the major changes that have taken place in such a short period of time.

But let’s look at this situation (from a financial aspect) with a firm set of principles.  The main principle is that this planet is made up of billions of people, and people act.  We cannot predict how each individual human will act, and we can’t predict the cumulative effects of these actions.

This is why Harry Browne devised his permanent portfolio concept.  It is designed to weather any storm.  Of course, if the planet gets struck with a giant asteroid and blows up the planet, your portfolio won’t survive, but neither will anything else.

The permanent portfolio takes into account something like the coronavirus.  It doesn’t make toilet paper appear at the store, but it serves to protect your financial investments.

Even the permanent portfolio has been down the last few weeks.  The 25% stock portion has done really poorly.  The 25% bond portion has done well.  The 25% gold portion has been extremely volatile. The 25% cash portion has added some stability, which is what it is designed to do.

You might be down 5 or 6 percent over the last few weeks if you are following something similar to the permanent portfolio.  But it is better than being down 25% like those who were “all-in” on stocks.

Building a Bulletproof Portfolio for Protection

In his book, Fail-Safe Investing, Browne lays out several rules for financial safety.  For Rule #11, he explains the permanent portfolio and its importance for protecting your investments.

He states, “The portfolio should assure that your wealth will survive any event – including events that would be devastating to any one investment.  In other words, this portfolio should protect you no matter what the future brings.”

He lists three requirements for building a bulletproof portfolio.  They are safety, stability, and simplicity.

He goes on to cover the four investments that cover all the possibilities.  You should invest to protect your investments from four economic categories: prosperity, inflation, tight money or recession, and deflation.

As I’ve explained before, his phrase of “tight money or recession” should really just be looked at as recession in today’s world.  The Fed can be loose with its money while we have a recession.  The tight money is really more with consumer spending.  As we have learned from the last decade, you can have minimal consumer price inflation while the Fed is expanding its balance sheet.

In order to protect against any of the economic categories, he recommended four investments split up equally (25% each).  They are stocks, long-term government bonds, gold, and cash (or cash equivalents).

At the conclusion of this rule, he states, “The test of a Permanent Portfolio is whether it provides peace of mind.  A Permanent Portfolio should let you watch the evening news or read investment publications in total serenity.  No actual or threatened event should trouble you, because you’ll know that your portfolio is protected against it.”

Are you watching news of the coronavirus and wondering what you should do with your financial investments?  Should you buy on the dips?  Should you sell on the up days because the market will fall much farther?  Should you be buying gold because the Fed will start creating money out of thin air like crazy?  Is it too late to rush into government bonds?

This is what the permanent portfolio is for.  If you want to speculate, then take the money you want to use for speculation and set it aside for this purpose.  Speculation money should be done with money that you can afford to lose.

Your home base should be the permanent portfolio.  This should be called the sleep-at-night portfolio.  It can’t guarantee you happiness in life. It can’t even guarantee you financial success.  But it can give you a high degree of assurance that your investment portfolio can survive no matter what the current economic environment brings.  That includes the coronavirus.

I believe the recession is here.  You can blame the coronavirus, oil, or anything else, but the asset bubble is deflating.  I have said that my theme for 2020 would be the great stock bubble.  Now the stock bubble is slightly less big than it was a few weeks ago.

I have been warning about troubled times ahead for a while, so it almost doesn’t seem real now that it is happening.

My portfolio has taken a hit over the last couple of weeks, but nothing compared to what most people are experiencing.  My retirement account is down maybe 5%.

I had been planning to buy into at least one bear market mutual fund or something similar. I wasn’t going to bet the farm on it, but I thought it would be a good idea to throw a little money at what I saw as a massive bubble.

I hesitated because I actually thought the Dow had a decent chance of hitting 30,000.  That didn’t come to fruition, as it came just short.  I don’t think the Dow will be seeing 30,000 for quite a while.

I am still debating whether to get into a bear market fund.  Maybe I will lightly dip my toe into something.  That may sound crazy to some people.  I have been hearing many people say that they are buying on the dip (or dips).  I saw one person compare this to trying to catch a falling knife.

I still think stocks are a bubble.  If they fall another 50% over the next year, then a bear market fund would serve me well. Of course, I can’t be certain this will happen.  Maybe if things start to turnaround with the coronavirus hysteria, then stocks will get another pop up.

As I’ve stated before, I think the coronavirus is only a small piece of this puzzle.  It was just the last straw that broke the camel’s back.  It is obviously going to impact economic activity, especially with our global economy. But this is on top of an economic slowdown that I was predicting anyway.  The yield curve didn’t invert in 2019 because of expectations of a virus.  The Fed wasn’t already lowering its target rate last year in anticipation of a virus.

Speaking of the Fed, it already had an emergency meeting to lower its target rate by 50 basis points. It may lower it again by its next meeting.  It may lower it another 50 basis points, or even 75 basis points.  We will be near zero interest rates before we even know that we are officially in a recession.

I also expect a lot more quantitative easing (QE), also known as digital money printing. For this reason, I am still bullish on gold in the long term.

The Political Angle

The stock market is tanking and the world is in panic.  Meanwhile, the Democrats are about to nominate someone who is losing his marbles.

I don’t say this to be mean.  It’s just that it is kind of a relevant issue if the next president isn’t all there.  It will make it quite convenient for the establishment to dictate policy.  Or they may just eventually admit he is not all there and replace him with someone else.  Queen Hillary anyone?

Trump would absolutely destroy Biden in a debate.  I don’t know if it will be really fun or if I’ll actually just start feeling bad for the guy.  But Trump has his own problems.  He took ownership of this economy, particularly the boom in stocks. He can now blame the virus or the Fed or whoever, but he will ultimately take the blame.  He is right to blame the Fed, but he does so for all the wrong reasons.

Trump tweeted the other day that the lower oil prices are good for consumers.  I actually agree with him on this economic point. But where was that rationale when he was slapping tariffs on China?  If lower prices are good for consumers, then he should have eliminated tariffs on China and everyone else.

Now Trump is talking about a payroll tax cut.  There was even a suggestion that the payroll tax be eliminated until after the election.  I am all for this. The federal government is headed into bankruptcy or default anyway, so I might as well take the extra, mostly useless, money now.  The government (i.e., politicians) has made more promises than can be kept. A payroll tax cut may just move up the day of reckoning.

No matter who is president in 2021, it will be a dangerous time.  The government is going to further encroach on our liberty. It is important for libertarians to point out that this is not the result of the free market.  It is government spending, regulation, and central bank manipulation that caused these problems.

With Trump on the defensive about the economy, and with Biden being incoherent, I hope that Jacob Hornberger or some other libertarian is prepared to teach America some economics.  While war is the most important issue, I think this is a great time for a libertarian to sell a populist message of more economic freedom.  I hope Hornberger doesn’t waste his time on an issue like immigration while largely ignoring this major opportunity when middle class America is struggling.

Be Prepared

You should be prepared for a hard recession that may last for a while.  The most important thing is to do your best to keep your income source secure.  For most people, this is a job.

If you have investments, now is not the time to go fishing for bargains in the stock market. I still recommend a permanent portfolio.  If anything, I am lighter than 25% stocks right now.

It is important to pay down any debt outside of your mortgage.  You don’t want debt disrupting your cash flow every month.

And speaking of mortgages, mortgage rates are down.  I have no idea if they will go down more.  If you can refinance into a better situation, you should take advantage.  It has to make sense though.  You have to factor in closing costs, the amount left on your mortgage, the length of the loan, and how much lower of an interest rate you can get.

Aside from defensive strategies, I like to remind people that recessions can also be opportunities.  As Warren Buffett said, you should be fearful when others are greedy and greedy when others are fearful.  Sometimes there are unique opportunities in a recession where other people are afraid to spend/ invest any money.  This is another reason that cash is king in a recession.

I would like to discuss the similarities between Rand Paul and Tulsi Gabbard.  They go beyond just running for president.

First, I’d like to preface this by saying that I like both of them.  Rand Paul has been quite good on many issues since folding up his presidential campaign in 2016.  I obviously much prefer the policies advocated by Ron Paul (his father), but Rand is definitely the best senator there is right now.  I know I’m not setting the bar high with that, but he really has been pretty good on most issues.

Tulsi Gabbard brought some extra enjoyment to the Democratic debates that she was able to participate in.  She focused heavily on U.S. foreign policy, which has largely been ignored.  And her discussions of foreign policy were mostly good in criticizing U.S. wars and interventions.

Even though the rest of this post will largely be criticisms of these two, I do respect them and hold out hope that they can do even better in the future.

Rand is a Republican, and Tulsi is a Democrat.  But they both are different from the typical politician in their respective parties.  They both attempted a run at the presidency, and both of them failed quite miserably.  They failed in getting any significant support, and they failed in inspiring any kind of movement.

This is where Ron Paul differs.  Ron Paul did inspire a movement.  More than twelve years later (from his 2007/ 2008 campaign), there are hundreds of thousands of principled libertarians in existence largely because of Ron Paul’s presidential campaign.

Aside from this, Ron Paul even did much better electorally.  He received a significant number of votes in the primaries, along with many delegates.  It wasn’t his place and time to win the nomination (or presidency), but he did quite well considering he staked out a radical position as compared to the other major candidates.  Actually, this is the reason he did quite well.  It wasn’t because of his speaking ability or his charm, although his genuineness did help.

Rand and Tulsi failed because they were afraid to go too radical.  This is hard to believe because they were already being ostracized by the establishments of their own party.  Tulsi was slightly more bold and radical than Rand, but she still fell far short.

Going All In

The problem is that they hold back because they want to be respected.  But as soon as they gain any traction, there will be no respect coming from the corporate media and the swamp that is Washington DC.

Tulsi was called a Russian asset by none other than Hillary Clinton.  The establishment media was calling her an Assad apologist.

At least Tulsi had the guts to stand against her party when it came to the impeachment of Trump. She didn’t really defend Trump, but she didn’t vote in favor of his impeachment.  I think she saw it as a deep state coup, but she didn’t come out and directly say that.

Anyone who gains any traction who advocates a more peaceful foreign policy is now labeled as some kind of Russian asset.  Now there are accusations (made up stories) about the Russians trying to help Bernie Sanders.  But Bernie is extremely weak.  He doesn’t want to call it a hoax because this would imply that it was also a hoax against Trump.  Tulsi could have been stronger on this issue, but she wasn’t as weak as Bernie.

Tulsi was fairly consistent in speaking against U.S. regime change wars.  She wasn’t as consistent as Ron Paul.  Even when she was on Ron Paul’s show (The Liberty Report) recently, she was not as hardcore as I would have liked. And this was speaking to Ron Paul’s audience.  When she talked about the draft, she did not sound principled at all.  It took Ron Paul to point out the moral flaws (to put it mildly) with the military draft.

Tulsi should have hammered on the foreign policy issue at every moment.  Instead, she tried to sound too politically correct. She tried to say slogans that may have sounded nice but were mostly ineffective.  Whenever she was asked about another issue, she should have responded quickly and then used the rest of her time on foreign policy. When asked about domestic issues, she should have said that we can save money by stopping all the wars. She should have been a one hit wonder.

Rand Paul was even weaker in his presidential campaign.  The first question on the first debate was about supporting the eventual nominee.  When Trump was the only one who didn’t raise his hand to promise supporting the eventual nominee, Rand chimed in right away going after Trump for this.  It is somewhat ironic given that his father never supported the eventual nominee after his campaigns in 2008 and 2012.

Rand was an instant loser.  His father’s supporters didn’t see the same thing in Rand as they saw in Ron, and rightly so.  I don’t even think Rand had to be completely hardcore on foreign policy, although that would have been nice.  He really should have adopted a populist position similar to Trump.  He should have hammered away at how the middle class is getting a bad deal in America.  Differing from Trump, he should have said that the answer is to drastically reduce the size and scope of government so that the living standards of middle class America will go up to where they should be.

When I watched Ron Paul in the Republican debates, I never got really frustrated.  There were a few times I wished he had responded in a different way to a question.  But overall, he answered questions with a pro liberty response.  He also hammered away at his key issues, particularly foreign policy and monetary policy.

Rand and Tulsi should learn a lesson from Ron Paul.  The establishment is going to hate you no matter what.  You might as well go down telling the truth and not being shy about it.

The establishment has rallied around Joe Biden.  But don’t be fooled.  It isn’t because he has the best chance of beating Donald Trump.  It is because he has the best chance of getting rid of Bernie Sanders.

That is why Buttigieg and Klobuchar dropped out before Super Tuesday.  Elizabeth Warren stayed in so that votes did not go to Bernie.

I think it actually got to a point where the establishment preferred Trump to Sanders.  They both occasionally tell the truth about foreign policy.  But at least they know Trump at this point.  If Bernie becomes president, they can probably control him, but they don’t know for sure.

I was surprised that Biden did as well as he did on Tuesday.  It isn’t out of the question that he could get a majority of delegates going into the convention.  But if Biden has just one more delegate over Bernie, that will be enough of an excuse to deny Bernie the nomination.

I was starting to look forward to watching the establishment squirm with the prospects of a Trump vs. Sanders race.  Instead, we may get a different form of entertainment.  I was watching a montage video of stupid things Biden has said over the years and it made me laugh hard.

Up until now, Biden has been on stage with at least 6 other candidates.  He typically doesn’t have to talk for more than 15 minutes in a debate.  When he has to go head to head with Trump in a two-hour debate where Biden has to speak for close to an hour, the bloopers will just be flowing out.

You’d think the establishment could have found someone a little less senile.  They also could have found someone a little less creepy.  Trump can just run campaign ads showing Biden massaging women in public and sniffing their hair.

Trump is a master marketer, but I think he should drop the nickname of Sleepy Joe.  He should just go with Creepy Joe.  For all his faults, Trump doesn’t really come across as creepy.  He can stick this label on Biden.

And let’s also not forget that Biden is one of the key players in the Ukraine situation that was used as an excuse for impeaching Trump.  Biden is on video saying that he threatened to withhold money from Ukraine unless the prosecutor investigating his son’s employer was fired.

This race isn’t over yet.  Bernie could still make a run.  It is also possible that they may get rid of Biden at the convention.  Maybe Hillary will step in to save the day.

There are still a lot of possibilities at this point.  Stay tuned.