People define middle class in different ways.  As with many things, it is all relative.  Most would rather be a poor person in the United States than middle class in Ethiopia, if there even is such a thing as middle class in Ethiopia.

Many will define middle class in terms of income or wealth.  Personally, I like the definition of defining classes by their time perspective.  The more future oriented someone is, the more towards the upper class he is.

But for today, let’s discuss the middle class in terms of living a relatively comfortable lifestyle in the United States.  Someone in the middle class should be able to have a decent place to live, a car, and other basic needs.  But we also expect certain luxuries such as televisions and smartphones.

These luxuries, which are now considered common, should be expected.  As a society advances and technology gets better, we should expect greater wealth and more choices.

The problem in today’s world is that while we enjoy these extra luxuries – some of which didn’t even exist just a few years ago – many Americans are struggling with their day-to-day expenses.  It is hard to pay the expenses for basic needs with anything close to the median family income, which is a little over $50,000 per year.

I know some will say that people should give up their cable tv and their cell phones if they are having trouble paying their electric bill and rent (or mortgage).  But I really don’t accept that because we should be able to have these extra luxuries without struggling.

I believe there is a silent majority out there who are struggling, but don’t speak openly about it.  This is part of the reason that some of the unexpected presidential candidates – particularly, Donald Trump and Bernie Sanders – are doing unexpectedly well in the polls.  They may have the wrong solutions, but at least they are recognizing there is a problem.

The problem is burdensome government and Federal Reserve policy.  The massive deficits hurt our standard of living.  While everyone talks about the next generation being burdened with debt, they should be looking at right now.  The massive spending coming out of Washington DC is misallocating and wasting resources on a massive scale.

Charles Hugh Smith recently wrote an article on the shrinking middle class.  He lists ten requirements on what it takes to be middle class.  I don’t necessarily agree with the list, but his overall point is well taken.  Really, his list is a reflection of future orientation, which I mentioned above.

He estimates that to have a chance at a middle class lifestyle, a family would have to earn about $100,000, or $130,000 for those who are self-employed.  He acknowledges that there is a wide range of living expenses across the country.  Obviously $100,000 isn’t going to get you very far in San Francisco or New York City.

I think he is on track with this.  A family earning $100,000 is not really all that well off any more.  A family earning this much will barely get by even in a less expensive city when you factor in a mortgage payment, a couple of cars, health insurance, food, and the other basic necessities.  It gets even more expensive if you factor in daycare or private school.

Of course, the biggest expense any family faces is taxes.  You pay your payroll taxes, your income taxes, your property taxes, your sales taxes (which really add up), excise taxes that are typically hidden, and various other hidden taxes.  This also includes corporate taxes that can make things more expensive.  It also includes the inflation tax, where your money loses its value.

I think the biggest setback for most families over the last few years is health insurance and medical costs.  Not only have premiums skyrocketed, but the plans themselves cover far less.  You can fork out thousands and thousands of dollars in premiums for a policy that doesn’t even cover anything for the first several thousand dollars.  This is not weighted high enough in the CPI numbers, something that Smith alludes to in his article as well.

Basically, if you are a family of four making less than six figures, you are probably struggling. I don’t mean that you can’t put food on the table or a roof over your head.  But if you have your kids in activities and you have your basic luxuries of cable tv and cell phones, then you are going to have trouble taking a nice vacation once a year and still saving some money for a rainy day.

When you get to a family of four making around the median income, it is on the verge of poverty, at least in relative terms in the U.S.  Good luck saving anything at all.

I believe this is generally unsustainable.  Either Americans are going to have to cut back significantly or the government is going to have to be cut back significantly.  That is why there is likely to be a severe correction.

Hopefully a “correction” will be exactly that.  It should downsize the government and make some prices look affordable again.  If the government and Fed respond to a correction with even more spending and inflation, then it will just make things worse.  Something is going to change.

We face many challenges in moving towards a more libertarian society.  We can certainly move in that in direction, and despite the advances of the state over the years, there is a lot to be optimistic about.  There are more libertarians today than there have been in a long time, or maybe ever.

Still, while we don’t need a majority to make significant changes, we do need a substantial minority.  This can only be done through outreach and education, which is easier today with modern technology.

There are specific things in which people need to change their world view.  Here is my list of 10 things that a far greater percentage of Americans need to understand if we are going to achieve something even close to a libertarian society.

1. The U.S. is an empire.  While most people are aware that the U.S. government is heavily involved in disputes around the world, many simply do not understand the depth and history of the American empire.  The U.S. government has been secretly (or not so secretly) overthrowing presidents, dictators, and leaders all over the world for many decades.
2. The U.S. government has killed millions of people, either directly or indirectly.  The war in Iraq since 2003 has resulted in the deaths of hundreds of thousands of people, or perhaps over a million.  The U.S. government is continually making “mistakes” in bombing hospitals, wedding parties, funerals, and people’s houses.  These are mostly innocent people dying, who never had a trial.  And people wonder why some of these people turn to terrorism after their family and friends gets blown up.
3. Public education is welfare.  Some middle class Americans will criticize people on welfare or spending food stamps at the grocery store.  But government schools are just as much welfare.  It is welfare for all classes.  This isn’t a criticism of you if you send your children to a government school.  But it is important to recognize that government schools are welfare.  Food is more of a necessity than schooling, so if anything should be cut first, it should be the government schools.
4. Freedom of association is necessary for liberty.  This is also an issue of property rights.  If a baker wants to refuse to bake a wedding cake for a gay couple’s wedding, that should be the baker’s choice, just as it is the choice of the gay couple to choose any baker willing to transact with them.  This isn’t an issue of religious freedom.  It is an issue of property rights.  Whether or not you think it is in good taste, the baker should have the right in a free society to voluntarily transact or not transact with anyone of his choice.  He should not suffer any consequences in terms of government force.  He can suffer the consequences of people refusing to do business with him.
5. Medicare and Social Security are welfare.  Again, this isn’t a criticism of people collecting Medicare and Social Security.  But they should be considered welfare.
6. Spending does not drive the economy.  There is nothing wrong with consumer spending, but we must not confuse cause and effect.  We can only spend money on things that have first been produced.  Production takes savings and capital investment.  Spending is a result of production.  In the same context, consumer demand does not drive the economy.  There is always consumer demand.  People can demand all they want, but they can only get what is actually produced.
7. Price deflation is not bad.  Since there was deflation during the Great Depression, there is this widespread myth that deflation is bad for an economy.  But the deflation of the Great Depression was a result of the prior monetary inflation and the reversal of the fractional reserve lending process, as banks went under.  In a system of free market money, where the money supply is likely relatively stable, we should expect gradual price deflation.  Your money gradually gains purchasing power.  This is positive for living standards.
8. We don’t need the government to legislate morality.  Many people falsely believe that others would act immorally if not for the government’s laws.  For example, they think if there were no drug laws, everyone would be walking around high on drugs.  They think if there were no laws against prostitution, then everywhere you go would look like a brothel.  Of course, if you ask someone if they would engage in such behavior if the laws didn’t exist, they would deny doing any of it, but that we need the laws for everyone else.
9. There is a deep state.  In other words, one person is not running the show.  The president is not really that powerful.  There is an establishment.  It is not a Democrat or Republican thing.  While party leaders will bicker in public, there is strong agreement within the overall establishment.  One person inside the system is virtually powerless.  The John F. Kennedy assassination established this fact.  The only way to change the corrupt system is to change public opinion.  There has to be strong support for a major downsizing of the state at all levels.
10. The central bank helps enable big government.  While state and local governments are extremely bloated and corrupt, the damage they do tends to be less than the federal government.  The federal government has the Federal Reserve, which enables it to do far greater damage in manipulating the money supply and interest rates, bailing out corporations, and most importantly, funding the deficits.  Congress would not be able to continually run huge deficits every year without the help of the Federal Reserve.

This is not a full list, but these are the issues that I view as most important in changing minds.  I did not include guns on this list.  Although it is an important issue, the American populace, at least in general, actually has a somewhat favorable view on the issue in favor of liberty.

We will probably never achieve a fully libertarian society, but one can still hope.  But if a majority of people learn these 10 things, then we will be a lot closer to a libertarian society.

On Christmas day, the Mises Institute ran an excerpt from John Denson’s book called A Century of War: Lincoln, Wilson and Roosevelt.  This particular excerpt details the “Christmas Truce” that happened in December 1914 during World War I.

Many people do not know this story, where opposing “enemies” came out of the trenches during Christmas time.  Some peace briefly broke out during a horrifically bloody war.

Soldiers who had been fighting each other came out to rescue their wounded and bury their dead.  Some of the soldiers ended up talking to each other, and even played soccer games and exchanged items.  The British and German soldiers found out they had more in common with each other than they did with their commanders.

There is a movie called Joyeux Noel that is based on this true story.  There are subtitles (just as a warning), but you really don’t even think about them much, as the movie is captivating.

It really shows the absurdity of war.  It is just silly games that result in pain, suffering, and a massive loss of life.  There really are no winners in war, except perhaps for a few that aren’t actually fighting in them.

I haven’t always been fervently anti-war as I am now, but even as a child I thought it was silly how soldiers would stand in lines and shoot at each other in the old days.  (Could they just play paintball and agree that the winner gets to take the land, or whatever is at stake?)

It is too bad that the Christmas spirit were not alive during the entire year, without all of the stresses related to the holiday season.  This is far from universally true, but many people seem more patient and friendly during Christmas.  There was obviously some spirit that took over in 1914 in parts of Europe where soldiers refused to fight over a short period of time.

There was one thing that struck me reading this excerpt.  In particular, it was Denson quoting a section from Stanley Weintraub’s book entitled Silent Night: The Story of the World War I Christmas Truce.  Weintraub quotes a British Cabinet Minister in 1930 who had fought during World War I.  He stated the following:

“The fact is that we did it, and I then came to the conclusion that I have held very firmly ever since, that if we had been left to ourselves there would never have been another shot fired.  For a fortnight the truce went on.  We were on the most friendly terms, and it was only the fact that we were being controlled by others that made it necessary for us to start trying to shoot one another again.”

It is likely true that the war never would have continued if the soldiers had been left to themselves.  In fact, you could say that the war never would have started.  It is both ridiculous and sad to think that tens of millions of people died, and it was all triggered over one assassination.  Perhaps this is an overly simplistic version of the story, but it does put it into perspective.

The one part of the above quote that I believe is most relevant is when he said, “it was only the fact that we were being controlled by others that made it necessary for us to start trying to shoot one another again.”  This is true and false at the same time.

It is the fact that the soldiers allowed themselves to be controlled that the war continued.  You can’t say that they were actually being controlled though.  They were all out there with guns, and the soldiers far outnumbered the commanding officers and the politicians at home.

I don’t like to advocate violence in any form, but if the soldiers were going to shoot anybody, why didn’t they just shoot their commanding officers?  Actually, they didn’t even have to do that.  If the numbers had been large enough, they could have just refused to fight.

It makes me wonder how these soldiers could come out and talk to each other and realize they were all regular human beings, yet go on fighting.  Soldiers on all sides were simply obeying orders.

Was it public pressure?  Is it because they did not want to be seen as a coward by their families and hometown?  Is it because they had some sense of allegiance to the state?

In reality, it is the overall populace that is really controlled.  If the people at home had been hoping for the soldiers to turn on their own commanding officers, then I think most of them would have done it.  Most of them really did not want to fight.  But for some reason, most of them followed orders.

When libertarians talk about the state relying on the consent of the people, this is the perfect example.  These wars could only be fought by the soldiers actually firing the rifles.  The politicians don’t fight the wars.  They are absolutely powerless without the consent of the people.

This holds true today.  Wars can only be fought by the people doing the firing.  Unfortunately, today that includes pressing buttons from thousands of miles away for missiles or drones.  Still, it takes somebody to press the button.  Would the person be as likely to press the button if he knew he would be met with hatred and ridicule in society?  “Hey Joe.  Have you killed any little kids in Pakistan today?  You are oh so brave for sitting in your office and firing drone bombs over people.”

War really is absurd.  It only goes on because people are controlled.  But they are only controlled because they allow it to happen.  They are granting their consent, even if it is not explicit.

As expected, the Fed announced a hike for its key interest rate on December 16, 2015.  The rate has been near zero for 7 years.

I have been harping on the fact that the only way the Fed could raise the federal funds rate is by paying a higher interest rate on bank reserves.  This is exactly what happened, as the Fed will now pay banks 0.5% (instead of the previous 0.25%) for their reserves.

I go into further depth on this subject in this article.  It basically amounts to more bank welfare.

The base money supply, as shown by the adjusted monetary base, has been steady for just over a year.  The Fed has been in tight monetary mode since it ended QE3 in October 2014.  The recent hike in its key rate will not do much, except perhaps curtail bank lending a bit more.

We are at a high risk for a recession.  The Fed may get blamed for this.  It should get blamed, but not for the reasons it will get blamed by most people.

It isn’t the Fed’s tightening that will cause the recession.  This will just speed it up.  It was the extremely loose monetary policy from 2008 to 2014 that is the cause.  This has severely misallocated resources and caused an unsustainable boom – even if it is a weak boom at that.

Some critics of the Fed like to say that the Fed does the bidding of the executive branch.  But this isn’t really true at all.  The Fed does the bidding of the bankers, as it has shown again and again.  Secondarily, it helps Congress (and the president) run deficits at lower rates.  Without the Fed or a central bank, there is no way the Congress could spend as much as it does, especially without being funded with taxes.

Yellen and company are in tight monetary mode.  They are handing essentially free money to the banks, but they are obviously not concerned about Obama.  Even more so, they are not concerned about Hillary Clinton.

The Fed’s current policies make a recession more likely in the first 9 months of 2016.  I am not saying that it will surely happen, but just that it is more likely.  If there is a recession before the general election in November, this will hurt Hillary Clinton more than anybody, assuming that she is the Democratic Party’s nominee.

Since Obama is in the White House now, he will take a large share of the blame for a recession, even though it has more to do with the Fed and monetary policy than anything else.  But that is the way politics works.  Since Obama is a Democrat and Hillary is a Democrat, voters – on the margin – will vote for the other party if the economy is really bad.

I think Obama would have beaten John McCain anyway in 2008, but the huge downturn in the economy just prior to the general election solidified this.

Even though Yellen was appointed by Obama, her primary concern is not helping Obama politically.  Again, her primary concern is the big banks.  After that, if she is doing anyone’s bidding, it is more the general establishment than Obama himself.

The Fed is dealing with a balancing act of trying to prevent price inflation and a busted economy.  It has the price inflation part under control right now, but it is going to get more difficult, as the balance beam gets continually smaller.  The Fed is not too worried about Obama’s poll numbers or whether or not Hillary Clinton gets elected president.

If Fed officials are worried about anyone’s poll numbers, it is their own.  The Fed takes more criticism now than ever before, thanks to Ron Paul and social media.

This recent rate hike may not mean a lot, but a recession is becoming a good possibility for 2016.  This will hurt Hillary if it happens soon enough.  It will hurt Janet Yellen.

The Fed will start QE4, or whatever it is called.  It will be in panic mode to save the economy.  Fed officials will be concerned about their reputation, not the reputations of Hillary Clinton or Barack Obama.

I have suffered through another Republican debate. This debate in Nevada is the last one for the year. As usual, I will offer my libertarian perspective.

Considering it was hosted by CNN, some of the questions were decent, or at least as good as I could have hoped for coming from the so-called mainstream media. Of course, there was nothing crazy, such as a question about the Federal Reserve.

It started out with Rand Paul attacking Marco Rubio and Donald Trump in his opening. That didn’t work out too well for Rand Paul in the very first debate when he attacked Trump. At least his criticisms had merit this time.

It was also a battle of senators. Rubio and Ted Cruz were exchanging blows and Rand Paul was also facing off against Rubio. Cruz, despite being a war hawk, was taking a position of respecting privacy (or one could say respecting the Constitution), at least to a degree.

Trump and Jeb Bush went at it because Bush was trying to take down Trump. It mostly backfired on Bush, as Trump is just a better speaker and debater.

I don’t have a lot to say about John Kasich, Carly Fiorina, or Chris Christie. It was their typical styles and they mostly take establishment positions.

Ben Carson was his typical boring self. He seems like a nice enough guy until he says he has no problem killing children when bombing ISIS.

Jeb Bush is just pathetic, but he is still the establishment choice. He has no chance of getting the Republican nomination unless there is a brokered convention and there are a lot of dirty tricks by the Republican insiders – which isn’t out of the question.

Marco Rubio is the backup choice right now for the Republican establishment. He is a good talker. He is pro war, although perhaps not as much as some of the others.

Ted Cruz is all over the place. He is decent on some economic issues (which weren’t discussed). He was decent in the debate with some civil liberty issues. But then he is one of the biggest war hawks.

Rand Paul was by far the best candidate from a libertarian perspective. That isn’t saying much. His entire campaign is a tragedy though. He has received some terrible advice, starting with separating himself from his father. He could have done a lot of good. He could have been a contender.

Last but not least is Donald Trump. He is all over the place, especially with foreign policy. He sounds very rational compared to the others when it comes to some things. Then he sounds like a total dictator. He has absolutely no respect for the Constitution or for the separation of powers.

He has gone down a lot in my eyes over the last few weeks. Last week was a reality check, as I wrote about Trump a lot last week – first on banning Muslims, second on banning guns. Now Trump says he wants to bomb family members of ISIS. He says he is ok with shutting down parts of the internet. I don’t even know what that means. He could potentially be the best president or the worst (from a libertarian perspective) out of all of the candidates. I fear he could be a complete dictator, especially while being a populist.

There is one final point about this debate and all of the questions about terrorism. While foreign policy is the biggest and most important issue, it is only that way because the U.S. government is so interventionist and involved in wars and occupations all over the place. It is statistically insane how much time is spent talking about terrorism though.

Aside from the fact that the U.S. government creates most of the terrorism, it is insane to spend so much time and energy talking about something that is so rare. It is insane to spend so much money (trillions of dollars?) and waste so many lives overseas.

There are over 300 million people living in the U.S. People die every day for a variety of reasons. When 14 people die in a shooting that is labeled terrorism, there are more people that died on that same day from car accidents, heart disease, and inner city shootings. 14 people dying would be considered a good month in some inner cities.

Unfortunately, due to the irrational fear of people and the power hungry politicians, it leads to trillions of dollars being wasted and tens of thousands of innocent lives overseas. There is little rational perspective on this issue from most sides.

Back to the debate, I don’t think too much is going to change. There are going to be one or two candidates that emerge as the main challengers to Trump. Right now, it appears to be Rubio and Cruz. Cruz is positioning himself to take the Trump supporters in case Trump says something stupid that actually hurts him.

On Friday, December 11, 2015, stocks took a tumble.  The Dow was down over 300 points on the day.  The S&P 500 was down nearly 2%.  Gold ticked up slightly.

The most interesting thing of note is what happened to bonds.  The yield on the 10-year Treasury fell to 2.12%.  It had been at almost 2.3% at the beginning of the week and even as high as 2.24% in the previous 24 hours.

We can never count on one day as a microcosm of what will happen, but this trend has been fairly consistent.  When stocks drop big, government bonds tend to do well.

The Fed is widely expected to raise interest rates this week, although it has found excuses up until now.  But when we say “interest rates”, the Fed would really just be raising its federal funds rate.  The only way to do this is to increase the interest paid on bank reserves.

Here is the problem though.  If the Fed raises its key rate, it will curtail further lending by banks, at least on the margin.  This could be slightly deflationary, even though the Fed’s balance sheet is staying the same.  Less bank lending will mean a slight reversal in the fractional reserve lending process.

The Fed has already been in tight money mode for a year.  The end of QE3 was announced at the end of October of 2014.  If we believe the Austrian Business Cycle Theory – and we should – then we are likely to see something of a bust if there are no other drastic changes from here.

The longer we move away from QE3 without any additional monetary inflation, the closer we move to a recession.  If the Fed hikes its key rate, which results in even less bank lending, this should just speed up the process.

Many analysts are worried about a higher federal funds rate because it will lead to higher market rates.  This would mean a higher cost of borrowing, including higher mortgage rates.

But the real threat is that the previous artificial boom gets exposed and it leads to a bust.  The lack of monetary inflation will inevitably expose the misallocated resources.  Even continued monetary inflation would eventually result in a bust, but it can be dragged out longer.

If we hit a recession though, then yields – at least on U.S. government debt – are likely to go down.  In other words, a hike by the Fed may actually result in lower market interest rates.

Most libertarians are not big fans of buying U.S. government debt, often for more than one reason.  When you buy U.S. government debt, it is not a good hedge against inflation.  It is quite the opposite.

In addition, some libertarians don’t like to buy U.S. bonds just because they don’t like investing in anything having to do with the U.S. government.  This is understandable, but I don’t think we should let it cloud our logic.

It is ultimately a personal decision, but I don’t think it is immoral to buy U.S. government debt.  Congress is going to spend its money regardless of what you do.  They already force you to pay taxes that you cannot avoid without the threat of going to jail.

In terms of investing, many libertarians understandably do not trust the U.S. government and therefore do not view government bonds as a trustworthy investment.  But even though we don’t see it as a safe investment, it really only matters what others think.  If every other investor is running to bonds for safety, then the early buyers will make money.

So while owning U.S. government debt makes me nervous, not owning some makes me even more nervous.  The permanent portfolio recommends 25% in government bonds.  If there is anything to tweak, that would be it for me.  But given the current conditions and the higher probability of a recession hitting in 2016, long-term government bonds are an important piece to your investment portfolio.

There will come a day when interest rates finally go up significantly, but we are still not there yet.  There will be a time when shorting bonds will be highly profitable.  Now is not that time.

Just two days ago, I wrote a post on Donald Trump and his proposals to spy on mosques and to prohibit Muslims from entering the country.

I also compared these proposals to similar measures taken by the Nazis in Germany in the 1930s, before the concentration camps.

Perhaps the Nazi comparisons are overused, but it still makes a point.  I don’t think Trump wants to march Muslims off to concentration camps to be slaughtered, but he is still entering dangerous territory.

I understand why some libertarians like him and some hate him.  I have had some favorable things to say about him, especially in terms of upsetting the Republican establishment.  But he is playing politics with immigration, and Muslims in particular.

Actually, playing politics is the best case scenario.  If he really is that anti-Muslim, then maybe we should worry about concentration camps.  I think it is just politics though.

But every presidential administration sets a precedent for the next one.  If he whips the American people into even more of an anti-Muslim frenzy, who knows who will come along next and who knows what he or she will do.

I am surprised that some libertarians are actually seeming to defend Trump on his proposals to ban new Muslims from entering.  Sure, his proposals are less evil than someone who wants to nuke the Middle East or start another war, but they still shouldn’t be excused.

When I wrote my last post, I mentioned that Jews were disarmed in Nazi Germany.  I said, “Will Trump suggest that Muslims be disarmed?”  But I later found out that Trump is advocating something similar.  It isn’t specifically directed at Muslims, but it may as well be.

Trump said that he would look at the possibility of disarming people who appear on the government’s no-fly list.  We can probably guess that many of these people are Muslims.  We can be certain that most of them are innocent.

It took Marco Rubio of all people to point out that the no-fly list is filled with mistakes that often confuses people with the same name.

The government’s no-fly list is basically a secret.  When someone gets put on there, there is no trial in front of a jury.  There is no conviction of a crime.  It is a bunch of bureaucrats deciding who they want to put on there.  Maybe some of these people have agendas (doesn’t everyone?), and maybe some use it for revenge or to hamper political enemies.

What if Donald Trump ends up on a no-fly list?  Under his proposal, he would have to give up his guns.  Would his bodyguards have to do the same?

This is just another example of where Trump has dictator syndrome. He is not thinking about or concerning himself with the actual law or with justice.

I really liked Trump when he first entered the race because he shook things up a bit.  But he is quickly wearing on me.  He is getting more scary by the minute.

I understand that most of his opponents are really bad too.  They want to start wars and they have little regard for human life.  But that doesn’t excuse what Trump is saying now.  He is no friend of liberty.

As a side note to end, if Muslims are banned from entering the United States from the Middle East, can the Muslims in the Middle East ban the U.S. military and their drones from entering the Middle East?

Donald Trump is a different kind of candidate, which is why I have spent more time than usual in writing about him. I have had good things and bad things to say about him. That is significant because I don’t usually have much good to say about anyone running for political office.

There are occasional exceptions, such as Ron Paul. Actually, he is about the only exception for someone belonging to one of the two major parties.

As I’ve pointed out in the past, Trump is very far from libertarian, but there are some things for libertarians to like about him. He seems less belligerent when it comes to foreign policy. He is not afraid to be different and say different things. He is not politically correct. He can’t easily be bought by the establishment, which is bugging the big players. It is just fun to watch the establishment people so worried because they have someone on their hands who they can’t fully control.

With that said, Trump has really stepped over the line recently for me. There is a fine line between political incorrectness and collectivist and authoritarian thinking.

With the recent mass shootings/ bombings in Paris, and more recently in the U.S., Trump has been increasing his rhetoric against Muslims. I believe Trump is playing to a silent majority – or at least a large minority – but he is really treading in dangerous territory.

First he suggested that the U.S. government should target mosques for surveillance. Of course, with the NSA, they may already be doing that, unless they are just focusing on all of the anti-government types who might expose the lies and crimes of bureaucrats and politicians in high places.

Now, Trump is saying that Muslims should be prevented from entering the United States. He is playing off of the fears against terrorism that have been built up by the media.

To target Muslims is absolutely ridiculous, in more ways than one. The U.S. government has killed literally hundreds of thousands of Muslims over the last decade alone. The number may be in the millions. The wars in the Middle East alone have certainly upended the lives of several millions of people, including Muslims, Christians, and others.

But when 14 people die in a shooting in the U.S. by two Muslims, then a large percentage of the American people are really angry and want revenge against an entire country or an entire religion. Just because two evil people committed murder, does that justify assuming everyone of that same religion is evil? Does it justify the mass murder of innocent people overseas because they look similar or they pray to the same God?

For most Americans, I really hope it is just a matter of ignorance of history and politics. I hope there aren’t that many evil Americans out there. I don’t think that is the case.

Meanwhile, I have to hear the likes of Sean Hannity and his followers say things like, “Obama is afraid to use the words ‘Islamic terrorism’ or ‘radical Islam’. How are we supposed to confront something he won’t even identify?” This is just such stupid rhetoric, I can’t even begin to explain how much it bugs me.

How about we talk about “radical Christians” who continually advocate more war and don’t seem to care at all about millions of innocent people dying at the hands of the wars that they push for?

Back to this whole deal about fighting terrorism, the whole thing is actually silly if it weren’t so serious. Statistically speaking, there should be almost no money spent on fighting terrorism because of the astronomically low probabilities. If the U.S. government stopped bombing and occupying other countries, the odds would just drop that much more.

Almost 100 people a day die on average on the U.S. roads. If you are going to spend a trillion dollars fighting terrorism, wouldn’t it be better spent on roll cages for all cars? I’m not saying it is the best use of resources, but at least it would make us safer.

And if you want to talk about political incorrectness, why is Trump just going after Muslims? There are murders ever day in the inner cities of the U.S. The black population commits a hugely disproportionate number of violent crimes, including murder, as compared to the rest of the population as a percentage. In fact, the black population commits far more murders than the Muslim population in the United States as a percentage.

Is Trump going to suggest that we increase surveillance on the black community? Or is he going to suggest that we put them in internment camps? We know the answer to that. He is not that politically incorrect. That might actually cost him votes, and rightly so.

To be clear, I don’t believe the government should do anything to the black community to solve the problem of violent crime. If the government is going to do anything, it should be to get out of the way – just like terrorism. The government should stop the drug war, get rid of minimum wage laws, and stop incentivizing a culture of welfare.

The point is that it is absolutely wrong to punish a group of people for individual behavior, whether it is Muslims, blacks, or any other group. This is collectivist thinking and that is what Trump is doing.

There was a story discussing Trump and his channeling of Franklin Roosevelt. Trump actually cited F.D.R. as an excuse for his proposed ban on Muslims entering the country. He said that F.D.R. set up internment camps for Japanese-Americans.

In other words, he is excusing his own policies based on an argument from authority. “Just because F.D.R. did it, then it must be ok.” If any state ever tries to secede from the union, then the president can just kill 600,000 people and say that it is ok because that is what Abe Lincoln did.

The internment of Japanese-Americans during World War II was an atrocity. It is amazing how many Republicans and Democrats revere F.D.R. I try to remind “progressives” of what Roosevelt actually did. You can’t get much worse than that on civil liberties.

I hate to invoke the Nazi-Germany argument here, as we know it is too frequently used. Still, I think it is worth consideration.

The Jews weren’t just marched off to concentration camps one day by Hitler and his henchmen. It was a long build up. They were disarmed. (Will Trump suggest that Muslims be disarmed?) They were tracked. (Does that sound familiar?) There was a lot of anti-Jewish rhetoric by politicians.

This all eventually led to them being marched off to concentration camps – for their own safety of course. This was a process. Hitler never stood up and said he was going to kill millions of Jews.

I am not accusing Trump of wanting to send Muslims to concentration camps to kill them. I am accusing him of engaging in similar tactics and rhetoric as the Nazis used in Germany, just on a different group of people.

Maybe Trump is just playing to the crowd to get the Republican nomination. It is still disgraceful to me. It is also a shame that so many people buy into his rhetoric on this subject. There are things to admire about Trump, but his collectivist thinking here is not one of them.

I am starting to sound like an old broken record in talking about the American middle class. I am sensing big problems that most others are not willing to talk about.

The problem is that the average American family is struggling financially. The bigger problem is that they aren’t quite sure why they are struggling financially.

They listen to reports about how unemployment is down and the economy is improving, even if it isn’t as fast as what was hoped for. I really think that many American families are wondering why they are struggling. But they are not openly talking about it because they don’t recognize that this problem is so widespread.

The economic numbers don’t give us that great of a big picture unless we really know how to interpret them. In fact, not only are they misleading, but they often indicate the opposite of what we are led to believe.

Think back to around 2005 or 2006. It was boom time in the United States. We were near the peak of the housing bubble, but not many people called it a housing bubble. They called it a housing boom, which didn’t imply a popping as is the case with a bubble.

There were some renters who stayed on the sidelines. They probably questioned their own wisdom. They probably wondered how all of these other people were affording nice new homes. The answer is that they weren’t “affording” them.

What wasn’t reported in the headlines back then was the grinding day-to-day struggles of many of those who had recently purchased a house. They could barely keep up with their bills. They saw a large portion of their income go towards their mortgage and the high property taxes that went along with the high housing “values”. Meanwhile, their other bills didn’t go away.

So you had the minority renters sitting there quietly thinking, “why am I such an idiot?” “Why did I miss the boat on this one?”

Then you also had the homeowners boasting of their great savvy in buying a house (or multiple properties). Meanwhile, they sat there quietly wondering where all of their money was going. They probably wondered how everyone else was affording to pay their mortgage.

Once the whole thing imploded, particularly in the fall of 2008, the picture became clearer. The other homeowners were not able to afford their lifestyle either with housing prices so high. It also became clear to those who had stayed renters that perhaps they weren’t idiots after all. It turns out that more people should have remained as renters and been proud of it.

Our Situation Today

There might be a slight bit more openness today, but I still don’t think the extent of the problems are being openly discussed. And as I said above, most middle class families can’t really articulate what the problem is.

I believe this is why Donald Trump and Bernie Sanders have done unexpectedly well in the polls, regardless of what the votes ultimately show. They are tapping into the discontent of the American middle class. Their solutions may be terrible (Sanders more so than Trump), but at least they are acknowledging a major problem.

I think most of the politicians really are just out of touch with the American people. That is why they are not tapping into their feelings. Most of these politicians are well off, financially speaking, and they do not understand the setbacks of an unexpected repair bill that costs $500.

Ironically, aside from Sanders, the only other politicians who has been in this race that could possibly relate is Scott Walker. He is supposedly in debt, and we aren’t just talking about his campaign. He was (probably still is) paying credit card debt and student loan debt for his kids. But Walker did not understand this issue of the struggling middle class and he failed to tap into it. His campaign was a disaster and he went down in flames. He was the first major candidate to drop out.

We hear statistics about the unemployment rate improving, and I have no doubt that it has. I think it is somewhat misleading because we don’t know how many people stopped looking for work just because the options weren’t what they wanted.

But I am not even really talking about the unemployed here. I am talking about families where there is at least one person working. However, even families with two working parents are struggling a lot in many cases. There are families making six-figure incomes (before taxes of course) who are still finding it a struggle. I’m not saying they can’t put food on the table or fulfill their basic needs, but I am saying that beyond this is a struggle.

How is a family with two kids, making a median income of just over $50,000 per year, getting by? I think the answer is – barely.

Real wages (meaning wages adjusted for inflation) have been relatively flat for decades. Supposedly, real wages have been increasing a little lately, but I don’t believe it at all.

I think the consumer price inflation numbers are highly misleading. The two biggest areas where we are misled are taxes and healthcare. When we talk of taxes, it isn’t just income taxes. It is everything, including payroll taxes, corporate taxes, capital gains taxes, sales taxes, excise taxes, tariffs, and so much more. There are hidden taxes in almost everything. We even have to take into account the debt that is promised to be paid for by future taxes. It misallocates capital today and makes us poorer today.

The other factor, healthcare, is certainly getting some headlines, but still probably not enough. Is the CPI data really taking into account all of the increases that the average family is seeing?

While premiums are going up at 20% or 30% or more for many people, their health insurance plans are also changing. Many more people are going into plans that cover less or are high deductible plans. Now don’t get me wrong here, because I don’t mind the high deductible plans. They actually more closely resemble what insurance is supposed to be about. They also help in keeping costs and usage in check, as consumers actually have to think about whether it is worth it to go to the doctor or to buy some expensive medication.

Still, the point is that these plans are covering less and less, while the premiums go higher and higher. I don’t believe the consumer price index is fully taking into account the extent of healthcare costs being imposed on families (and “imposed” is the right word here). I also don’t believe it is accounting for the extent to which these plans have decreased in quality, which means higher out-of-pocket costs.

Also, it is important to recognize that if health insurance premiums are going up at 20% per year, there is a compounding effect. Over a ten year timeframe, at 20% per year, premiums would be three times as much.

To sum it all up, Americans are taking it on the chin financially. Sure, it is better in the U.S. than most other places, but that doesn’t mean we should expect or accept this struggle.

The ones who are struggling don’t want to openly admit it because they don’t understand that most everyone else is feeling the same way. They don’t understand how they can be making just as much money as before – or perhaps even more – yet finding it a struggle to keep up.

Meanwhile, the politicians are too oblivious to tap into this sentiment.

This is why there is going to be a correction. When things are unsustainable, as the housing bubble was a decade ago, then they come to a stop and reverse. We are currently in unsustainable times. It shouldn’t be this hard.

The solution is a correction in the economy and a significant decrease in taxes, government spending, and government regulation. This is what the average American middle class family needs, whether they realize it or not.

Thursday, December 3, 2015 was a rocky day in the financial markets. Things just keep getting more bizarre.

The euro skyrocketed upwards on news that the ECB cut its deposit rate down .1%. It now stands at -0.3%. In case you are wondering, that is a negative sign. But in our crazy world of negative interest rates, investors were actually expecting a bigger cut. They were also hoping for more money creation.

The euro was up a lot, the dollar was down, stocks were down, and interest rates were up. The yield on the 10-year Treasury rose substantially to 2.33%, which was about a 7% increase over the previous day’s close.

Meanwhile, Janet Yellen was testifying in front of Congress, as investors prepare for a likely rate hike in a couple of weeks.

It will be a token rate hike of no more than 0.25%. It is also not that big of a deal because it is not dictating monetary policy. The Fed could start another round of QE while raising rates at the same time.

The only rate the Fed can directly control at this point is the rate it pays banks for their reserves. This rate has been set at 0.25% for the last 7 years. If the Fed hikes this rate as expected, the banks can get some more “free” money. It will matter in one sense. Banks will curtail lending on the margin even more.

The Fed is likely going to trigger a recession. Fed officials may know this and they don’t want to take the blame for it. But it is also hard for them to back out of their promise to raise rates at this point.

Every time the Fed is supposed to raise rates, an excuse is made up to delay it. Falling stock markets, trouble in China, etc. are always there for an excuse.

Maybe the Fed will surprise everyone and come up with another excuse to delay raising its key rate. With the 10-year yield spiking up, maybe the Fed will not raise rates by using the excuse that market rates are going up. Would this make any sense? In today’s world, it might make enough sense for them to try it.

I am not convinced that a Fed rate hike will lead to higher market rates down the road. It has already been priced in to a large degree.

We must remember that the Fed had three big rounds of so-called quantitative easing. It ended its biggest round – QE3 – just over a year ago. The monetary base has been relatively flat since then. And now the Fed is supposed to raise the rate it pays on bank reserves, thus reducing loans on the margin.

If you follow the Austrian Business Cycle Theory – or just common sense and general logic – then it is not hard to imagine that we may see a significant economic downturn. The Fed and the government have misallocated resources on a grand scale over the last 7 years. They never let the previous misallocations fully adjust. These misallocations are going to be exposed and we will be in for another correction.

If that happens as I expect, then market interest rates will likely go down as investors seek safety (in their eyes).

If you are not prepared for a recession, you should get prepared. The timing is virtually impossible to predict, but there are a lot of signs pointing in that direction right now.

Cash will be king. When the Fed starts inflating again, that status will move to gold.