The third neocon debate for president was hosted by NBC News.  All of the candidates had great ideas to stop China, defend Israel, and involve America in the entire world.  For a second there, I thought it was a debate to be president of Israel

It makes it rather easy for someone like Donald Trump to step forward and say, “I care about Americans and what is happening in America.”  It’s not that Donald Trump is great, but he looks good when compared to these slithering war hawks.

Ron DeSantis

Ron DeSantis has gone full neocon now that Israel takes center stage.  He lacks charisma, but I don’t think that’s a reason to be against him other than strategy reasons.  But if DeSantis actually became president, I am now of the opinion that he would be bad news.  He wouldn’t be a fiscal conservative at all because he would be too busy sending troops and war planes all over the world.

Tim Scott

Tim Scott is also a war hawk.  Unfortunately for him, he is also a bore.  He speaks, and people fall asleep.  I’m not sure if he is in this race because he wants the VP slot, or if he actually thinks another voice for the American empire can win in this crowded field.  If Trump picks Scott as his running mate, I will definitely not vote for Trump.

Chris Christie

Chris Christie just falls flat on nearly everything.  It’s almost surprising that he was able to qualify for this debate.

Nikki Haley

Nikki Haley is the most evil of the candidates.  Her lust for blood comes out in virtually every issue and every response to a question.  It is actually possible that someone could be worse than Biden, and she is that possibility.

Vivek Ramaswamy

Vivek Ramaswamy wasn’t great, but he was far less bad than all of the other candidates on stage.  The so-called moderators showed their bias with him.  They were quick to shut him down whenever he challenged anyone.  Perhaps they didn’t like it near the beginning of the debate when Vivek said that NBC shared blame in promoting false stories such as the Russian collusion hoax.

(The shills at NBC assured us after the debate that it was a strong night for Nikki Haley and Ron DeSantis and had everything negative to say about Vivek.)

Vivek had what was likely a rehearsed line that was funny, but I’m not sure if it landed.  He referred to two people on the stage wearing three-inch heals.  Nikki Haley shot back at that, even though it was a far bigger shot at DeSantis.  This was based on a story last week that talked about DeSantis wearing high-heeled boots in order to appear taller.

Vivek also had to show his Israeli credentials, but he was definitely the least bad.  He called out the neoconservatives, even though, at times, he is borderline one himself.  I think Vivek reads the mood of the electorate better than the others, so he at least knows he has to sell a message of America first.

Summary

Once again, Donald Trump was the winner of the debate.  He made the right decision to not participate in these clown shows.  The only person Trump should consider as a running mate from the presidential race is Vivek.

Trump’s biggest flaw from his presidency is putting people in his administration who hate his guts.  If he puts any one of these candidates, besides Vivek, on the ticket, it will tell me right away that Trump learned nothing from his first term.

Trump will say some things about being friends with Israel and supporting their revenge against Hamas.  But I do think Trump will also make it clear that his number one priority is America.  It isn’t Israel.  It isn’t Ukraine.

The candidates on the debate stage all could have been wearing a “Make Israel Great Again” hat.  Most of the people watching the debate are worried about violence in their own community and the cost of eggs at the grocery store.  They may be sympathetic towards the innocent people in Israel, but they want someone who will represent the American people and their needs.

With the major boom in housing over the last decade, many long-term homeowners find themselves with significant home equity.  For many, it makes up the highest category of their net worth.

If you bought a house 10 years ago in 2013, you might have $200,000 or more in equity with an average house.  If you haven’t taken out any money already through refinancing and you bought the house with a significant down payment (say, 20%), then you may even have more than this in equity.

It would be realistic to have bought a house for $200,000 ten years ago with $40,000 down.  Now that house is worth over $400,000.  With the paydown of principal on the mortgage, you might have $300,000 in equity.

Some people see this as a waste because of opportunity costs.  The problem is: Compared to what?

Maybe there was arbitrage opportunity when mortgage rates were 3%, although it is still a significant risk.  Mortgage rates are now 7 to 8 percent.  In order to put this money to “work”, you would have to take out a loan for almost 8 percent.

You could also take a loan from your credit card company and invest the money in the stock market (or Bitcoin, or whatever).  You could make a return higher than the interest paid to your credit card company.  But you could also lose a lot of money.

Home Equity is Not Wasteful

Your home equity is not just money sitting there.  It is money that you are not borrowing to have an asset that you hopefully want to own.  With your home equity, it is money that is there to keep you from paying interest to a bank or some other financial institution.

It is easier to see that this money is working for you when you pay off your mortgage.  Your principal and interest will go to zero.  You will still have to pay insurance and property taxes if that is part of your monthly mortgage payment.

Let’s say that principal and interest is $1,000 per month.  When your mortgage is paid off, you will increase your monthly cash flow by $1,000.

If you never fully pay off your home loan because you sell the house, then you will get access to that money at that time, unless you opt to use it towards another house.

Your home equity is not a waste because it is “just sitting there”.  It is helping to reduce your monthly expenses now and in the future.

The Bubble Economy

There is more talk of these kinds of schemes in a bubble economy.  Of course, it is more possible in a bubble economy because more people tend to have significant home equity.

But even in rough times, there are people with significant home equity.  But it doesn’t cross their mind to take out a loan to invest the money because they see that most things have a negative return at that time.

When stocks and real estate are going higher, that’s when people become clever and think about taking out equity to invest.  Perhaps it’s better than using equity to take a vacation, but it is better to not tap into that equity unless you have some kind of very special opportunity cost.

If you are borrowing money to own the business of your dreams, then maybe you will have a case for taking on the risk.  But if you are taking out an additional loan to buy penny stocks, or even index funds, then you are probably going to get burned.

The bubble economy gets people to make irrational decisions because they think the good times are going to last.  They don’t think a prolonged bear market is going to happen.

When the bubble economy bursts, you don’t want to be in debt.  Any debt you do have, you want it to be at a relatively low interest rate, and you want it to be affordable compared to your monthly income and your other expenses.

It is never a good idea to borrow money out of your home equity, but it is especially bad to do in a bubble economy with higher interest rates.

The Federal Open Market Committee (FOMC) met this week and released its latest monetary policy statement.  The Federal Reserve’s target range for the federal funds rate will stay between 5.25% and 5.5%.  This is the second meeting in a row where the FOMC did not change its target rate.

While the Fed is hoping this is a Goldilocks scenario (not too hot, not too cold), this isn’t the case.  On the one hand, the Fed fears losing control of the dollar through higher price inflation.  This could ultimately also mean a loss of control over interest rates.

On the other hand, the Fed fears a major financial crisis.  The Fed doesn’t want a recession, but the people at the central bank probably wouldn’t mind an ordinary recession as long as the major banks stay solvent and the bond market doesn’t blow up.

If the Fed had hiked rates more, this would have been more tightening in the face of an inverted yield curve.  If the Fed had lowered rates – which nobody expected to happen – this would have risked much higher price inflation and a bigger blowup of asset markets.

Therefore, the Fed just kept things the same.  It will let the economy come to the Fed instead of bringing the Fed to the economy.  In other words, the Fed will just react to economic news.  It is always reacting to what is in the rearview mirror.

The Inevitable Recession

I think Fed officials understand that a recession is coming.  Even those in the financial media are talking about the possibility, and they almost never predict a recession.  But if you want to be a contrarian, don’t think that there won’t be a recession just because the financial media is talking about a recession.  The contrarian take is that the recession will be far worse than what they are talking about.

The yield curve has been mostly inverted for all of 2023.  It has recently started to somewhat flatten, although the long yields are still less than the short yields.  It just isn’t as much.  But the recession doesn’t typically happen until after the yield curve normalizes after being inverted.

I don’t think most people understand the potential of how bad this could be.  The government is spending over $6 trillion per year with massive annual deficits well over a trillion dollars.  This will continue to get worse with higher interest rates on the debt that is rolled over.  It will continue to get worse as the Fed is paying higher interest rates to banks for their reserves.

The stock market is still a massive bubble.  Housing prices are still astronomical, with mortgage rates near 8%.  This whole thing has the potential to blow wide open.  Throw in some insolvent banks due to the higher rates, and we could be looking at a financial crisis that is even worse than 2008.

Protect Wealth First

I am still an advocate of the permanent portfolio, or something similar.  If we hit a bad recession, rates may fall back to near zero and bonds may actually do well.

If the Fed is essentially forced to go back to easy money to save the banking system, then gold may finally skyrocket with more money creation.  There is always the possibility too that stocks may do well again in such an environment.

Of course, it is also important to have some cash or cash equivalents on the sidelines, as sometimes that is the only thing that holds up in the short run in a recession.  Plus, right now, you can actually earn a decent rate of return on short-term Treasury bills and cds.

If we do get a deep recession and the major asset bubbles pop, it will actually be an opportunity for some people with cash on the sidelines.  It will be an opportunity to buy assets at a steep discount when everyone else is fearful.  This is always easier said than done, but it is good to know going into it.

Warren Buffett said to be fearful when others are greedy and to be greedy only when others are fearful.  On this, I believe Buffett was correct.  But you have to believe this and think about this before the fear hits.

The U.S. federal government spent about $6.1 trillion in fiscal year 2023.  There are about 340 million people in the United States.  There are about 131 million households.

That means that each household, on average, paid about $46,500 towards federal spending just in the last year.  This doesn’t include state and local government spending, which accounts for most of the spending when it comes to roads, police, firefighters, and schools.  Even though these don’t have to be funded by any government, these are things that actually matter to people.

Are you and your family getting $46,500 per year in benefits out of the federal government?

Sure, some of this money does go back into our pockets.  For some people, it might be directly, such as with Social Security.  For others, maybe they consider the small amount the federal government “contributes” to the government schools as important.

Harry Browne liked to ask the question: Would you be willing to give up your favorite government programs in exchange for never having to pay income taxes again?

We are in a situation now where the majority of the money spent by the federal government isn’t even coming from income taxes.  There are payroll taxes, which are really just a different bucket of income taxes.  There are corporate taxes.  There are capital gains taxes.  There are many different types of excise taxes.

Worst of all is the debt/ inflation tax.  The government “only” collected about $4.4 trillion in “revenue” in the fiscal year.  So, nearly $1.7 trillion was just borrowed.  But this isn’t free money.  This money has to come from somewhere.  It is $1.7 trillion that is drained from the private sector and spent by the government.

Would You Give Up Your Favorite Government Program?

I’d like to rephrase Harry Browne’s original question.  Are you getting $46,000 in benefits for you and your family from Washington DC?  Would you be willing to give up your favorite government programs for that amount?  Would you be willing to give them up for just half that amount?

Some people will scream national security.  Some people will scream about Social Security and healthcare.  If the government just spent half as much, say $3 trillion, that would still get you a lot of Medicare, Social Security, and defense.  But you wouldn’t be able to fund Ukraine and run an empire overseas.  You wouldn’t be able to have millions of bureaucrats like Dr. Fauci doing virus research and climate change research and handing out electric vehicle credits.

We could scale back the so-called entitlement programs and just have an actual defensive military.  If that cost $3 trillion, then you could at least save about $23,000 for you and your family every year.

Status Quo Bias

This is a situation where people adjust their thinking and behavior to the new status quo.  The federal budget just goes up nearly every year from the previous year.  We think it is just normal for the government to have its hand in everything.

If you compare 2023 America to the America before 1913 and the income tax and Federal Reserve, the difference is stark.  While the U.S. government had its overseas interventions then, it wasn’t running an empire overseas.  It wasn’t involved in a massive welfare state at home.  Most taxes were paid at a local level, and the overall burden of taxation was a fraction of what it is now.

If the U.S. budget were cut in half overnight, there would be a period of adjustment, especially for those who are so dependent on federal spending.  But after the initial shock, we would see a prosperity that is unimaginable.

Imagine

Somehow, we still see increases in production and great increases in technology in spite of massive government taxation and interference.  Imagine what would be if the federal government were drastically scaled back.  People would be wealthy beyond their wildest dreams in a relatively short amount of time.

Just imagine if you had an extra $20,000 (tax free) in your pocket this year.  Would you pay down some debt?  Would you donate to charity?  Would you save it for a nice vacation?  Would you help fund your retirement account?  Would you upgrade your house?  Maybe it would be a combination of several of these things.

Now imagine that you have that extra $20,000 every single year after this.  Just think of the possibilities.

The American people are getting the short end of the stick from their government.  If the American people free themselves from the chains of Washington DC, they would be far wealthier than they could imagine.

Aside from the prospects of a new world war, there has been much political drama lately.  Even though we are getting close to primary season for the next presidential election, the drama recently has been in the House of Representatives.

When then Speaker of the House, Kevin McCarthy, cut a deal for the budget, Matt Gaetz and a handful of other representatives rebelled and forced McCarthy out of his position.  We went several weeks without a Speaker of the House, yet the American people somehow survived.

Thomas Massie, the most libertarian member of Congress, did not vote to remove McCarthy as speaker, questioning whether it was really worth it.  He also worried that things could actually be worse with someone different, which is always a reality in politics.

Still, while I have much respect for Massie, I disagreed with his take on this issue at the time.  The system is already so broken and corrupt that we shouldn’t worry too much about disturbing it.  McCarthy was, and still is, an establishment guy.  The only reason he ever did anything that seemed to oppose the establishment was because of pressure from people like Gaetz.  There is also much pressure from the Republican electorate, in general, outside of Washington DC.

After going through many candidates and votes, the Republicans in DC have finally settled on Mike Johnson.  It is someone that I was not familiar with, and most people outside of Congress and his district probably didn’t know much about him, if they had even heard of him.

Speaker Mike Johnson

From the little I have learned about Mike Johnson in the last couple of days, he is evidently a conservative.  From a libertarian standpoint, this can be both good and bad.  Johnson’s home district is in Louisiana, and he is quite religious.

I have no problem with Johnson being a devout Christian who wears his religion on his sleeve.  The problem is that most politicians who do this end up being a disaster.  Ron Paul is a Christian, but he never wore his religion on his sleeve.  It is deeply personal to him, but he generally didn’t bring it into his political statements.

The other major issue as it relates to religion is that, unfortunately, most politicians who claim to be deeply Christian are the biggest warmongers in existence.  The politicians who constantly express their Christianity have no issue with the mass bombing of innocent civilians, as long as the “good guys” are doing it in the name of self-defense and democracy.

So it is no surprise that one of Johnson’s first acts as speaker was to support the U.S. government’s involvement in supporting the state of Israel.  In Washington speak, supporting Israel doesn’t mean praying for the Israelis or just issuing statements in moral support.  It means providing money and weapons to the Israeli government.  It means justifying the mass bombing of Palestinians.  It could even possibly mean American troops in the region.

Of course, Johnson’s support for Israel (meaning the bombing campaign by the Israeli government) is supported by most members of Congress.  Thomas Massie is the only one questioning U.S. involvement from a libertarian perspective.

The Good News

There are positive aspects about Mike Johnson taking the position that is second in line for the presidency behind the illustrious Kamala Harris.

When Johnson isn’t helping to send money to fight overseas wars, he is somewhat of a fiscal conservative, at least compared to other politicians in DC.  He initially supported funding for Ukraine, but then voted against every subsequent round of funding.

Johnson supported not certifying the presidential election in 2020.  You might see that as good or bad, but it is significant in the sense that he isn’t just going along with the deep state.  He isn’t going to help the establishment by spreading phony stories about Russian interference.

Maybe every move Johnson makes is for political reasons, but that is actually good news.  Even if he isn’t genuine in his rhetoric, he feels the need to say the things he says because of public opinion, or at least public opinion within the Republican Party and his home district.

Public Opinion – Making a Difference

Some libertarians just blow off all news out of Washington DC saying that all of the politicians are the same.  In this case, there are some people who say that having a new speaker means nothing and it is just politics.

And they may be right in the sense that Mike Johnson is probably just another politician who cares more about his own power than he does about the American people.

But we shouldn’t confuse this with a lack of progress and assume that nothing is changing.  Some libertarians, including myself, say that you can’t gain long-term liberty by electing the “right people”.  It requires changing the hearts and minds of the American people.

But if Mike Johnson changed his position on funding Ukraine to satisfy public opinion, then that means we are making progress.  Even if Johnson is lying about every position he takes, we should celebrate when he takes the pro liberty position on an issue.  It means that public opinion has shifted towards greater liberty and is having an impact.

In conclusion, even though Mike Johnson is probably not much better than Kevin McCarthy or any other previous speaker, he is at least more rhetorically on the side of liberty with many issues compared to previous people.  It means that public opinion does matter.

And if Johnson ends up being really terrible, especially on budget issues, there is no preventing Matt Gaetz and others in Congress from removing him as speaker.  This pressure alone should make a difference and provide us some hope that greater liberty in the future is possible.

When I report on the consumer price index (CPI), I often say that it is likely understated.  It is impossible to get an accurate number when it comes to consumer price inflation because there are so many variables.

Products and services change constantly, and the supply and demand for those goods and services also changes constantly.  The size and quality can change.  The amount used by consumers changes, and not just because of price.  There are also government regulations and taxes that can impact prices.  Also, different people consume different things.

If one person makes a living driving around, then the price of gas will impact this person disproportionately.  For someone who works at home and doesn’t drive much, then the price of gas doesn’t matter much, at least not directly.

There are also issues of weighting.  One of my criticisms of the CPI is that it doesn’t seem to capture the importance of certain goods and services.  For example, insurance costs have risen quite a bit.  One of the few things that has actually gone down in price is certain electronics.

Let’s say the price of car insurance has gone up 10% over the last year.  Meanwhile, the price of televisions has gone down by 10%.  But I haven’t purchased a big new television in 13 years.  And if I do purchase one, it will be for under $1,000 and will probably last me another 13 years.

I have to pay for car insurance every 6 months.  For some people, maybe their policy renews once per year.  The car insurance is more expensive than a television, and it is an ongoing expense.  So to compare these two items is impossible.  You can see the problem with the index.

It is still useful to attempt to measure price inflation.  The government statistics are useful to look at the trend.  Even if they are understated, the trend tells us a lot as long as nothing drastic changes in the makeup of the calculation.

Overestimating Price Inflation

Some Austrian school economists and libertarians like to cite Shadow Government Statistics (shadowstats.com), which estimates consumer price inflation supposedly using the same methodology as what the government used in the past.

I believe there is little basis to rely on these numbers, and they seem wildly high.

If you look at a chart posted at the website of the consumer price inflation using a 1980-based alternate, you can see that price inflation using the ShadowStats method was around 10% since 2008.  There are some years higher and some years lower, but most years are near the 10% line with the exception of the last couple of years, which are much higher.

To say that we have had roughly 10% price inflation annually for the last 15 years is to make a statement that seems wildly contradictory to what most people see in their daily lives.

The Rule of 72

The Rule of 72 is used for investing.  You can take the number 72 and divide it by the interest rate (or investment return).  The result is the approximate time in years it takes to double your money.  So if you have an investment rate of return of 8%, then it would take about 9 years for your investment to double at that rate, assuming all returns are reinvested.

The same formula can work for price inflation.  If prices are going up at about 10% per year, then prices will double after about 7.2 years.  If prices double again in another 7.2 years, then that means they have more than quadrupled in 15 years.

You can also do this with a calculator or and Excel spreadsheet.  Start with $100 and multiply it by 1.1.  Do that 15 times.  After 15 years, $100 becomes $417.

Compounding interest works well for wealth building.  It unfortunately also applies to price inflation.  Your price inflation this year is on top of the price inflation from last year.

Have Your Prices Quadrupled Since 2008?

There are some major areas in life that have definitely more than doubled in price.  Car insurance and homeowners insurance are two areas where some people have seen a more than doubling in the last 15 years.  Medical care costs for some people have more than doubled.  There are certain food items that have probably doubled in the last 15 years.

I can’t think of much, if anything, that has quadrupled.  Housing prices haven’t quadrupled in most areas.  Rent hasn’t quadrupled.  I buy eggs a lot, and they have gone up a lot in price.  But they are not four times as much as they were in 2008.

Therefore, I can safely conclude that we should ignore the ShadowStats website.  Maybe it is an interesting website and has some good insights about protecting against inflation.  But for any claims it makes against government inflation statistics, it is also wildly unrealistic.  Prices are not four times higher for most things than they were 15 years ago.  Most things are nowhere near that.

It is good to question government statistics, but we have to be careful in the alternatives as well.