The Federal Open Market Committee (FOMC) released its latest monetary policy statement.  It was widely expected that the Federal Reserve would cut rates, but there was a question of how much.  I thought the Fed would cut by 25 basis points.

The Fed issued a 50 basis point cut to its targeted federal funds rate.  This will drive down short-term market interest rates.

Some are going to call this the Kamala rate cut.

The annual price inflation rate according to the government statistics is 2.5%.  The Fed’s statement said, “Inflation has made further progress toward the Committee’s 2 percent objective but remains somewhat elevated.”

The statement also reads, “The Committee seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run.”

A few years ago, the Fed was talking about averaging 2% inflation, but didn’t really specify a time period.  With the high price inflation we have seen over the last several years, it seems the Fed should be trying to get price inflation under 2% for several years to make up for what we have recently had.

Is the Economy Strong?

Yet, the Fed is cutting its target rate by 50 basis points (0.5% interest).  This does not seem consistent.  What seems logical is that we are right before an election, and a cut in rates would seem to benefit the incumbent party by boosting the stock market and economic activity, even if it may lead to higher prices in consumer goods down the road.

The reason I thought the Fed would only cut 25 basis points is because the Fed likes to be predictable.  In addition, a cut of 50 points could backfire, as it could end up signaling panic to the market.  Stocks zoomed higher after the Fed announcement, but the rally was short lived.  If anything, this could be a signal that the Fed officials think the economy is far weaker than what they are publicly saying.

This will also help de-invert the yield curve, which is what we are likely to see before we see a recession.  The 10-year yield is now higher than the 2-year yield, and the short-term yields are moving lower faster as compared to the long yields.  In other words, the yield curve is flattening out.

Still Deflation

There is an even bigger inconsistency with this whole thing.  The Fed is lowering rates, which indicates a looser monetary policy.  Yet, the Fed is still engaging in monetary deflation.

According to the Implementation Note, the Fed will continue to not roll over some maturing debt.  In total, it will continue to allow $60 billion per month to expire ($25 billion in Treasury securities and $35 billion in agency debt and mortgage-backed securities).

This is a total disconnect from how the Fed operated before the fall of 2008.  In the old days, the Fed would generally get lower interest rates by issuing new debt (i.e., expanding the money supply).

Now, the Fed controls the federal funds rate by changing the interest rate paid on reserve balances.  In other words, the Fed pays banks money to keep funds parked with the Fed.  This controls the overnight lending rate between banks, which is the federal funds rate.  This is what everyone is talking about when they talk about the Fed cutting “rates”.  It is really the federal funds rate, which again, is controlled by the Fed’s rate paid to banks for their reserves.

So, we have a conflicting policy of the Fed lowering rates while simultaneously deflating its balance sheet.  I’m not sure that this has ever been done before over any significant time period.

Of course, when the economic downturn comes, you can expect a reversal of the Fed’s monetary deflation. Not only will the deflation stop, but we are likely to see monetary inflation.  You can call it QE, accommodation, or whatever you want, but the Fed will eventually return to creating new money out of thin air.

The latest CPI report came out showing the price inflation numbers for August 2024.  The CPI was up 0.2% in August, and the year-over-year CPI now stands at 2.5%.  The year-over-year median CPI stands at 4.2%.

The 2.5% annual price inflation number is the best we have seen in several years.  But let’s realize that overall prices, according to the metrics used in the CPI calculation, are still 2.5% higher than this time last year.

Prices were already astronomically high last year, and we just added another 2.5% on top of that.  In other words, the average American is not seeing an improvement in overall living standards.

Since insurance (health, home, and car) takes up such a big chunk of the average American’s budget, the picture is probably even worse.  You can provide any statistic there is, but the real picture is when someone sits down to pay the bills each month and there is less money in the checking account than there was the previous month.

Gold Shines

The yellow metal is hitting new all-time highs in U.S. dollars, now crossing the $2,600 mark for the first time.  The mining stocks are not hitting new all-time highs for the most part, but they are still doing well with the rising price of gold.

Even though the rate of price inflation is supposedly going down, that has not seemed to impact the gold market in a negative way.

I still maintain that the gold price will likely drop in a recession, but that it won’t drop nearly as much as stocks and other assets.  It will also be quicker to recover when the Fed starts creating new money out of thin air again.

Silver has also risen, now surpassing $31 per ounce.  This is still well off the all-time high, which means the potential for silver is perhaps better than gold.  But it also has the potential to fall more in a recession.

A Fed Rate Cut?

Even though price inflation is still above the Fed’s supposed target of 2%, and even though gold is hitting new all-time highs, and even though stocks are still near all-time highs, the Fed is going to cut its target rate at the next meeting on September 18.

The big question now is whether it will cut 25 basis points or 50 basis points.  My guess is that it will be 25 basis points (a quarter of one percent) because they don’t want to give the impression that they think the economy is that weak.

The FOMC’s next meeting after September will start on the day after Election Day, and the policy statement will be released on November 7, two days after the election.  That is interesting timing.

Still, regardless of the election outcome, the Fed will still have two more opportunities this year to cut rates more after this September meeting.

Some will say that the Fed is cutting rates now for political reasons.  Of course, the Fed is always political in a sense.  But even if there were no election, I think the Fed would still be doing the same thing.  Even though asset prices are high, they see the inverted yield curve, and they see the slowdown in the economy coming.  All they know how to do with this problem is drop rates and create more money.  The creating of new money will come later.

The Election

It looks like the Democrats may get away with having an election without an economic meltdown.  It has already been a meltdown with middle-class America, but they can point to positive GDP and a booming stock market.

Things could change in the next 7 weeks, but we are running out of time.  It looks like the recession won’t become evident until after the voting happens.

It is still surprising that Donald Trump did not talk even more about the economy than he did at the debate.  Harris couldn’t answer the question about whether Americans are better off today than four years ago.

Trump went off on immigration, which is certainly important to some people, but he failed to show sufficient empathy towards those who are just struggling to pay their bills.  From his standpoint, that should have been his focus at the debate.  It should be the focus of his campaign.

And the answer is certainly not more tariffs.  That will just raise prices that much more.  The answer is to dramatically reduce government spending, but that tends to not be a winning message.

No matter who wins the election, the yield curve is still somewhat inverted, and there is no preventing the coming recession.  No matter what happens, there will be economic turmoil and there will be political turmoil.  That is to put it mildly.

The big debate finally happened between Donald Trump and Kamala Harris.  This was Trump’s second presidential debate this year.

You could say that this debate went better than the last one for the Democrats, but maybe the debate with Biden in June is exactly how they wanted it to go down.  Biden demonstrated to the world that he has dementia or some kind of severe cognitive issue.  This led the way for a replacement who might have a chance to beat Trump.

While Trump did make fun of Biden a few times, he missed the opportunity to ask Harris how long she has known that Biden has dementia.  He also missed the opportunity to ask who exactly is running the country right now, because it obviously isn’t Biden.

The “Moderators”

The debate was hosted by ABC.  The two so-called moderators of the debate were anything but moderators.  They were prepared to “fact check” Trump and did so frequently.

Trump made a point about some Democrats even supporting abortion after birth (infanticide).  He referred to the former governor of West Virginia, but I believe it was the former governor of Virginia (not West).  But this isn’t what they fact checked him on.  One of the “moderators” said that there are no state laws on the books allowing for abortion after birth.  But this wasn’t Trump’s point.  His point was that there are some who advocate it, and most Democrats won’t state whether they support a ban on late-term abortions.

I was surprised that Trump did not go after the media at all.  It was obviously his plan all along.  It might have been a good plan so that he didn’t come across as combative.  Still, it reaches a point of absurdity when the two “moderators” are obviously trying to argue with Trump on behalf of Harris.

I don’t think it would have been in poor taste for Trump to say to the “moderators” something like, “Would you like to come up here on stage and join Ms. Harris at the podium so that you can debate by her side?”

Even though the “moderators” were heavily biased, I don’t think it hurt Trump much, if at all.  If anything, it was so blatant that it just showed they were on her side.  Anyone who liked what they said were already against Trump anyway.

Cultural Issues

The cultural issues play into Kamala Harris’s hands, or at least they seemingly should.  When it came to abortion, I actually think Trump won that piece.  He didn’t really answer the question about whether he would sign a national ban on abortion, but he did rightly say that it would never happen.

Maybe this is my bias, but Trump got this issue almost completely correct.  He said that he and the Supreme Court finally overturned Roe v. Wade.  He said it tore our country apart for over 50 years, and now the issue is back with the states where it belongs.  I only wish Trump were so in favor of states’ rights when it comes to other issues.

Predictably, Harris brought up Trump’s remarks on Charlottesville.  They keep going with this lie that Trump referred to white supremacists as “very fine people”.  There were people in Charlottesville that day who aren’t leftists and aren’t white supremacists, but they want to pretend otherwise.

Harris also started fake crying talking about January 6^th and how it was the biggest threat to our democracy since the Civil War.  She laid it on a bit too thick on that one.  She tried to be so dramatic about it, but I just don’t think most people care about January 6^th other than those who want to say that Trump supported an insurrection.

Of course, there are those of us who care about January 6^th because of the weaponization of the “Justice” Department against those who don’t support the establishment.  Trump rightly pointed out that nobody died at the Capitol except for his supporters.  And despite what Harris said at the convention, it wasn’t an armed mob at the Capitol.  The only armed mob was the Capitol police who killed at least two people.

Trump was asked about saying that Kamala Harris used to not say that she was black.  He said she can call herself whatever she wants and that he doesn’t care.  I actually thought this was a decent response.  When it was Harris’s turn, she was salivating.  She was just eating the whole thing up.  She probably wishes the whole debate could have been on personal attacks and cultural issues, along with Trump talking about the election results from 2020.

Economic Issues

The debate started off with the economy.  Harris never answered the question on whether Americans are better off today than they were 4 years ago.  I thought she could have had a better answer prepared.  She probably should have at least acknowledged that many Americans are suffering with the high cost of living.

Trump was mostly a disaster on this, as he talked about imposing more tariffs.  He also talked about immigration ruining our country.  This was a theme of his for the night.  I think it is a bit of an over-exaggeration to blame our economic woes on illegal immigration.  It might be one factor, but government spending and regulation are the big culprits, along with the Federal Reserve.

Trump said that Harris was adopting many of his policies and that he was tempted to send her a Make America Great Again hat.

Harris said that she favored tax cuts for the middle class, including an expansion of the child tax credit.  Where has she been for the last 3 and a half years?  Why doesn’t she tell Biden to do it right now?  Trump pointed this out at a later time, but I thought he could have pointed this out even more.

In fact, I thought Trump should have hammered home more points on the economy.  That is the number one issue for most people.  They are struggling to pay for high insurance costs and high food prices at the grocery store.  Trump did not focus on this enough, even though his solutions aren’t really the right ones for the most part.

Foreign Policy

There wasn’t a lot of talk about foreign policy, but it did come up.  Harris tried to play both sides of the fence with Israel and Gaza.  The glaring contradiction, which Trump won’t point out, is that the Biden administration keeps funding Israel and sending weapons there that are used to bomb Gaza and kill innocent people.  How can Harris be against the loss of innocent life in Gaza when she and Biden are funding it and continue to do so?

Of course, Trump is also bad on the issue of Israel.  He says he will work out a peace negotiation, but he doesn’t say how.  He ridiculously claims that the October 7^th attacks in Israel never would have happened if he had been president at the time.

When Trump makes the claim that Putin wouldn’t have invaded Ukraine if he was president, this might be closer to the truth.  But it isn’t because Trump is feared and respected as he says.  It is because there is a possibility that Trump would not have ignored Putin’s concerns about Ukraine joining NATO and the U.S. putting missiles on the Russian border.

Both candidates are bad on foreign policy, but Trump seems to be less bad.  When asked whether he wants Ukraine to win, Trump correctly said that he wants people to stop dying.  I don’t know what a victory means for Ukraine if a quarter of the population ends up dead.  With a victory like that, I think I would rather “lose” and live under Russian rule.

On Ukraine, Trump is definitely better than Harris, but we can never know for sure what he will do in office.

Conclusion

I doubt that many minds were changed from the debate.  It wasn’t a complete disaster for either side, and neither side did great.

The debate wouldn’t cause a person to switch from one candidate to the other.  Maybe that is the case for a tiny fraction of one percent.  It matters for those who may or may not vote for the preferred candidate.

I am a libertarian who would never support Harris.  I disagree with Trump on many issues, but I see the possibility of at least a few good things happening if he is president.  I would consider voting for Trump for defensive purposes, but I may vote third party or write in a name.  The debate did not bring me any closer to a decision.

There is a small but still substantial percentage of people who supported Kennedy.  Kennedy has effectively endorsed Trump.  Now the Kennedy supporters are grappling with whether to vote for Trump as the lesser of two evils.  I’m not sure that Trump said anything in the debate to reach out and get some of these people.

I give the slight edge to Trump in the general election, but a lot can still happen.  No matter what happens, I maintain that it will not be good in the short run.

If Harris wins, then we get an authoritarian president with more war and more spending.  If Trump wins, we will get more spending and still some war but possibly not as much.  But we also get the reaction and hysteria if Trump wins.  Will we get another virus?  Will we get riots in the streets again?

The election will be interesting, but times won’t be fun in America no matter what, at least in the short term.

How do so many bad people get in positions of high power?  As Hayek said, the worst get on top.  That is very true in the United States, and it has been this way for a long time.

It isn’t just the president.  It is Congress.  It is the head of agencies.  It is the powerful people in the FBI, the CIA, the NSA, and even the military.  It is judges and prosecutors.  It is also top people in corporations, the media, and many people with influence.

The system has almost made it impossible for good and decent people to get into positions of power.  Part of it is always the fact that good people tend to not seek out positions of power, especially political power.  And when they do, they are excluded from the game because they won’t play along.

Still, the American people vote for some of these people.  Sometimes they aren’t given much of a choice, but it is still somewhat of a reflection of their character.  There are occasionally people like Ron Paul who come along and the large majority of people won’t support him because they are told so by others.  They just believe whatever their masters tell them, thinking that they are thinking for themselves.

By the way, this isn’t just Americans.  This happens everywhere, and often it is worse in other places.

Naïve or Evil?

I look at the people who are enthusiastically supporting Kamala Harris for president and wonder how it is possible.  To be sure, different people have their different reasons.  Many of her supporters just hate Trump and will vote for the person with the best chance to beat him in the election.  It is hard to imagine that so many people just love her policies, especially when her stance on many issues seems to be fluid.

This is one of those cases where there is no black and white.  It isn’t just a question of whether someone is evil or stupid.  They might be both.  They might be a little bit evil and naïve when it comes to politics.

The problem is that we can’t say that someone is just completely naïve and that is it, unless they are so naïve that they can’t recognize at all that they are supporting immoral things.  Every single person supporting Kamala Harris is acting immorally to some degree.  They are supporting her authoritarianism.  Even if they just want free tuition for college (or whatever she is promising today), it is still immoral.

I have never heard a Harris supporter or any Democrat justify voting for a Democrat just because they already pay a lot of taxes and want to get back a portion of the money that was stolen from them.  They don’t see it in these terms.  Maybe there is some Democrat somewhere who believes this, but I haven’t heard about them.

Democrats believe in the power of the state.  They believe it is just fine and dandy for the government to take your money to use it for “public goods”.  In fact, many of them wouldn’t even refer to it as “your money”.  They think it all belongs to the government and the government allows you to keep some of it.

To be sure, the Republicans aren’t much better.  At least there are some who have some understanding of the immorality of taking from some to give to others.  They don’t always apply it consistently, but there is some realization.  There are also more legitimate excuses for supporting someone like Trump over Harris because he is the lesser of two evils.  I have heard Republicans and libertarians (large and small “L”) who think the whole system is corrupt but that they support one candidate over the other because it might at least move us in the right direction.

The Ruling Elite Rely on Propaganda

Even though there is much immorality, I still believe that the majority of Americans are generally good people.  Outside of political realms, they wouldn’t dream of hurting another person on purpose other than in self-defense.  They wouldn’t rob their neighbor either, even if it was in the name of charity for others.

In a just system, most people are good people.  The ruling elite rely on the naïveté of the people for their own power.  This is why they use propaganda.

I can’t think of a single brutal dictator or elected official who came to power by announcing that they would rule with an iron fist over his people.  They might talk about ruling over a small minority of the population, but even here it is usually wrapped in propaganda.  Hitler didn’t come to power announcing that he would slaughter the Jews.  Stalin didn’t rise to the top by telling his people that he would starve them and ship any dissenters to concentration camps.

Some people rise to power by threatening other countries outside of their domain.  This is even happening now in the U.S. presidential race.  It seems that the two major parties always have some bogeyman like Iraq, Russia, China, etc.  But these are not the people voting for them.  The one exception, although he is no longer running, is Joe Biden talking about MAGA.

The point here is that no authoritarian is going to explicitly announce that he will act as an authoritarian towards his subjects.  He will want more of your tax money to help the poor.  He will want more war to spread democracy and freedom abroad.  He will want to confiscate guns for the safety of the children.  He will want to spy on you to keep you safe from terrorists.

They play on the goodness of people.

The ruling elite rely on the people to eat up their lies and propaganda.  They have to trick you into supporting them.  If they told you the whole truth, then most people wouldn’t support them because they would see it as evil.  They would also see it as being against their own interests.

The ruling elite generally hate your guts.  At best, they don’t care one way or another about you.  They care about their own power, their own wealth, and their own safety.

If only people understood that these authoritarians are not their friends.  Unfortunately, they just eat up whatever they are told by the media and then discount anyone who is actually trying to tell them the truth.

There should be fewer naïve people (politically speaking) in the world today because of alternative media. That probably is the case, but there are still way too many people who just believe whatever their media masters tell them.

We just need for these people to be a little open-minded and listen to those who are actually trying to tell them the truth.  It wouldn’t hurt if they learned a little economics too.

When Robert Kennedy Jr. picked Nicole Shanahan as his running mate, I didn’t know anything about her other than what I could immediately look up.  I knew that Kennedy offered Dave Smith his VP slot right after debating each other on Dave’s podcast about Israel.  Perhaps anything after that would be a disappointment.

My initial assessment of Nicole Shanahan was that she is a leftwing attorney who was married to one of the founders of Google.  This was probably a correct assessment at one time, but it wasn’t fair in 2024.  She definitely comes from the left, and she will admit that, but she is not like anything leftwing by today’s standards.

I was wrong on my initial assessment.  When someone is running for political office and I get something wrong about them, it is usually because I wasn’t harsh enough.  In this case, I can finally say I was wrong because I was too harsh and not generous enough.

To be sure, Nicole Shanahan isn’t a libertarian.  There are certainly elements of political leftism that come out at times, just as with Kennedy.  For example, they like to use the word “democracy” with a little too fondness.  And maybe they are just referring to democratic mechanisms within the rule of law.

Although libertarians don’t praise democracy, it is understandable why Kennedy and Shanahan are upset and using the word, considering the so-called Democrats have done everything possible to undermine their participation in the election.  They were rigging the whole primary process against Kennedy, which is why he changed to running as an Independent.  They certainly weren’t going to include him in any debates.  The so-called Democrats also did everything they could to keep him off of state ballots.  Now that Kennedy wants to drop his name from the swing states, the Democrats are trying to keep his name on there.  You couldn’t make this stuff up.

With that said, Nicole Shanahan has been really great for the most part when I have heard her in interviews.  It seems like she is learning on the job at times.  It’s probably not something a vice presidential candidate should be doing, but it is better than not being open minded and getting things wrong.

Libertarian Tendencies

RFK Jr. spoke in front of the Libertarian National Convention in May.  His speech was very libertarian.  I was quite surprised by the depth of it.  Even if he was pandering to his audience, most politicians wouldn’t have been capable of delivering such a speech.

RFK Jr. also gave a great speech when he announced the suspension of his campaign and his support for Trump in the swing states.  It wasn’t great because of his endorsement of Trump.  It was great when he talked about censorship, American health issues, and Ukraine.  He got it all correct.

I have disagreed vehemently with Kennedy when it comes to Israel.  He has been so good on issues of foreign policy and war, yet he seemed to completely revert to the establishment position with Israel.  If he had just taken a more neutral stance since October 7, 2023, I think his campaign would have done better, and a lot more libertarians would have supported him.

With that said, Kennedy must have seen something appealing about Nicole Shanahan, besides the fact that she has a lot of money.

I have learned a lot more about her, especially with her interviews with Ron Paul and Dave Smith.  These were more like conversations, as she wasn’t just giving scripted answers and was also learning from these two libertarian giants.

She has been great on health issues, which I fully expected from the beginning.  She understands that the government has vastly interfered with pharmaceuticals and agriculture to make us sicker.  There is nothing wrong with “big pharma” and “big agriculture” by itself.  The problem is that they are big because the government is helping them and, in the process, making us less healthy.

Beyond health issues, Shanahan has been great with Kennedy on issues of censorship.  She understands that the government is trying to shut up people who want to tell the truth or just want to express an alternative opinion.  She understands the problems with trying to censor misinformation, regardless of whether it is true or not.

Surprisingly, Shanahan has said some great things about the gold standard.  This is better than you would get from most Republicans.  I believe she has actually become somewhat of a fiscal conservative, even if she doesn’t want to completely tear down the welfare state.  You can tell that Ron Paul has had influence on her and that she is quite appreciative of it.

Like Kennedy, she has also been good on most foreign policy.  She understands the nature of the military-industrial complex and the war machine.  It was interesting that on her last podcast with Dave Smith, she even said some slightly encouraging comments on Israel that seemed to express that she didn’t back the mass slaughter of the Palestinians.  If only RFK Jr. had taken this stance from the beginning.

This only touches the surface of the things she has said.  Overall, she is an opponent of the establishment.  I was also completely wrong for criticizing her for likely being out of touch with the average American.  She said in her podcast interview that anyone with over $15 million is basically untouched by inflation, but it is really hurting everybody else.  She may have a lot of money, but she is showing empathy and understanding for those who don’t.  She understands that average Americans are struggling today.

Conclusion

I got this one completely wrong at the beginning.  Nicole Shanahan gets a high-grade mark for liberty in 2024.  She is more libertarian than some self-identified libertarians.  I am happy I was wrong on this one.  She is a great person to have on our side.  She has changed positions on political issues a lot from just 4 years ago.

I hope she continues to use her resources to spread the message of liberty.  I hope she continues to consult those who are already strong libertarians.  If she runs for president one day, I will consider supporting her.