James Altucher, a writer and entrepreneur, has been saying for quite a while that you should forgo contributing to your company’s 401k plan.  He says they are a scam and has his various reasons.

I have written about James Altucher before.  He is a great motivator and a brilliant mind.  He has also made some terrible mistakes in his life by making a lot of money and then blowing it all.  I think people should listen to him.  You can learn from him in what to do and what not to do.

He likes to go against the grain on many things.  He says you shouldn’t buy a house.  He says you shouldn’t go to college.

He recently was in a video making his case on why 401k plans are a scam.  He received a lot of flack, as several major outlets published articles criticizing him, such as this one.  Altucher responded in another podcast.

While I am no moderate when it comes to my political views, I am something of a moderate on this topic.  I think there are advantages and disadvantages of contributing to a 401k plan.

In a sense, they are a bit of a scam.  It is a government invention.  If there were no income tax, then a 401k plan would not be necessary.  You wouldn’t need to defer taxes because there would be no taxes.  You could just save your money how you want.

The advantages of contributing are obvious and they are ingrained in our heads.  Most people can get a company match.  You can defer your income taxes.  I don’t need to go over these in detail because they are well-known.  Instead, I will discuss the disadvantages.

One major problem is that the government is in control of your 401k plan.  The government could change the rules at any time.  It could make it even harder to withdraw by raising the age and making early withdrawal penalties stiffer.

There is also the issue of taxes.  You are supposed to contribute because you can defer your taxes.  Unless you are talking about a Roth 401k, then you really don’t know if your plan will benefit you.  What if taxes are much higher when you retire?

But my biggest case against contributing to a 401k plan is that you are locking up “your” money and there are potential opportunity costs to it.

If you contribute $5,000 in a year to your 401k plan, then that is $5,000 that you don’t have access to right now (maybe a little less because of taxes).  You can’t touch that money, except in certain circumstances, and even then you will probably have to pay a penalty on top of income taxes.

What if someone comes to you with a business offer that you think is great but you need $5,000 to get it started?  What if you don’t have the money because you put all of your savings in a 401k plan?

What if you took that money and put it in investment real estate?  Would you rather have a debt-free investment property in 30 years or a mutual fund that may or may not go up in value?

In the case of James Altucher, he would be much better off with the money today than locking it up in some retirement plan.  As long as he doesn’t return to his reckless ways, he would find a way to put it to good use in investing in himself and his many business ventures.

In this sense, 401k plans are good for people who have no other plan. If it is between saving for retirement or spending it in Vegas, then you should probably go with retirement.  But even here I can’t say for sure because you may derive a lot of pleasure in Vegas.

So overall, I think the decision of contributing to a 401k plan should really depend on your own circumstances.  It is the same with buying a house.  What are your opportunity costs?  What would you do with the money if you didn’t contribute?

If you own a side business, perhaps it would make more sense to take that extra money and put it into advertising or product development. If your side business takes off, that will probably give you a far better return than any mutual fund.

In conclusion, I wouldn’t dismiss several of Altucher’s arguments against 401k plans.  I think it depends on each person, but just be sure to consider the opportunity costs.  Once you lock up that money, it may be a while before you can get your hands on it again.

I have readers on this blog from all over the world, but the majority are Americans.  Unfortunately, most Americans, even those interested in the financial markets, tend not to hear a lot of news about overseas.

Sure, if you tune into CNBC, you will hear that Greece is on the edge of default again.  But then they will quickly shift gears and devote most of the discussion to American companies and their new products and their profitability.

So if you don’t search for some of your financial news, you may not be aware that foreign markets were rattled on Tuesday.  The Asian and European stock markets were mostly down.  The Shanghai index in China was the most significant story in stocks, as it lost over 4% in one day.

I am not saying this is the beginning of a major downturn in China, but it may be a signal that the beginning is not far off.  I don’t like to make big predictions in financial markets, but I am as convinced as I can be that China is in a major bubble.  The Chinese have themselves a real estate bubble and a stock bubble at the same time.  It isn’t going to end well.  I believe the only question at this point is “When?”.

Perhaps the even more significant news came in the bond market.  The U.S. 10-year yield closed just shy of 2.20%.  This is significant because it was under 2% for a while.

But the European bond market is the biggest story.  The German 10-year yield jumped by 32% in one day.  It closed at 0.52%, which is still incredibly low, but not as low as it was just a few weeks ago at 0.10% and lower.  It was close to zero percent at one point.

The Italian and Spanish 10-year yields also both jumped over 20% in one day.  They are getting close to U.S. levels now.  Even Japanese bonds took a hit, with the Japanese yield jumping higher.

The Swiss 10-year yield also rose out of negative territory, which is another story all its own.

Perhaps some of this is because of the situation in Greece.  Perhaps the markets are finally building in a slight expectation of inflation.  Perhaps people are realizing that government bonds are not always completely safe.

Just like China, I am not calling an end to a worldwide bond bubble.  At the same time though,  I can’t discount the possibility.  These were big moves in one day, already following previous big moves.

This is going to be a story to watch, so stay tuned.  The American press may not be giving a lot of coverage to foreign markets, but if these big moves continue, it is going to affect almost everyone, including American investors.

The bond bubble is going to pop at some point.  I am not ready to start shorting bonds, but this could get interesting if we see a few more days with big spikes in interest rates.

The issue of intellectual property rights has been more hotly debated in recent times in libertarian circles.  There are certainly two distinct sides in the debate, although there are surprisingly many without a strong opinion.

I say it is surprising because most libertarians are quite passionate about their beliefs.  So it is obviously a subject that doesn’t get a lot of attention because even many libertarians do not have a strong stand one way or another.

I like to watch the show Shark Tank on Friday nights.  One of the questions frequently asked by the sharks is if something has a patent.  They are more likely to invest in something that does.

I am not at all critical of people who get patents and copyrights.  In fact, in many cases, I think you should.  It is simply living within the rules set by the society you live in.  I don’t think you should do something highly immoral just because it is legal, but this does not fit that category here.

Even if you are 100% against the idea of intellectual property rights, you still might want to patent a new product you come up with for the simple reason that someone else could do it if you don’t.  You don’t want to invent something new and then have someone else take the idea and patent it and then prevent you from selling it.

The idea behind intellectual property is not an easy one to grasp.  The problem is that you are talking about assigning property rights to words and ideas.  It is not a scarce good such as a house or a pencil.

Taken to its logical conclusion, intellectual property is kind of silly.  If you come up with a new word, are you the only one entitled to use it unless someone else seeks permission?

This is one issue where many libertarians will agree that intellectual property rights should not really exist when looking at it from a moral standpoint.  But they get hung up with the utilitarian arguments.  They think there wouldn’t be progress without IP rights.

I always say that one of the good things about being a libertarian is that, at least for me, there are no conflicts between morality and pragmatism.  By advocating lower taxes or ending wars, I am taking a stance that I see as both moral and productive for the general welfare of society.

I see no reason why this should cease to exist with IP rights.  You don’t have to have patents for things to progress.  In fact, it is mostly the opposite.  Patents actually hold up progress.  Most products are not just invented and then that is the end of the story.  It is usually someone (or a group of people) coming up with an idea.  The first product produced is usually pretty bad.

Then someone else takes it and makes a slight improvement.  Then another person takes it and fixes a bug or adds a new feature.  This is usually the real story of how things improve.

Without patents, there are still plenty of incentives to come up with something new.  You will have the first shot at marketing it and selling it.  You have the advantage of being the first one.  But it shouldn’t grant you some right to continue selling the same product forever without any competition.

We also have to remember that just because something isn’t illegal, it doesn’t mean that society won’t put negative sanctions on certain actions.

For instance, if government copyright laws didn’t exist, it doesn’t mean that everyone will just go and start republishing books and claiming it is their own work.  You may have private companies that do some form of copyrighting so that people know who should get credit as the original author.  Most customers would want to buy the product from the true author anyway and would probably even be willing to pay a little more just for the justice.

It is also interesting that many authors write books to promote other products or ideas they have.  Buying a book will lead a customer to other facets of the author’s life and ideas.

It is the same with musicians.  It isn’t just about selling albums.  The albums lead to people wanting to go to concerts.  I can release someone else’s album, trying to pretend it’s my own, but good luck to me in getting anyone to come to my concert.  And again, society will find other ways to put negative sanctions on imposters.

It is understandable that this is a more recent issue tackled by libertarians.  Ayn Rand defended IP rights.  Many libertarians in prior times defended IP rights.  But we have much more research on this issue available now.  We also have the Internet, which shows that people will put out free content all day long and that you don’t always need a profit incentive.

Intellectual property rights are not really property rights at all.  As time goes on, I believe this will become more evident in our society.

Mark Thornton of the Mises Institute wrote an article on the many failures of the CPI.  His article is worth a read, but I am going to add a few things that were not directly mentioned.

First off, I will often do a short commentary on the latest CPI numbers for my readers.  I fully acknowledge that the CPI statistics are government-issued numbers and are far from reliable in actually telling us the true inflation picture.

I use the CPI though for a couple of reasons.  First, the Fed and financial analysts look at this data, so it is important just from that standpoint.  For example, if the CPI comes in low, then the Fed is more likely to pursue a looser monetary policy.

A second reason I use the CPI is for trends.  It doesn’t give us a good picture of asset bubbles, such as in stocks or bonds, but it can help us with trends for daily consumer goods.  While the CPI has its many flaws, it can still give us a decent picture of what prices look like.  I can also look at my grocery bill, but it is too small of a sample with too many variables.

Near the end of his piece, Thornton quotes someone writing about what prices would look like today if the money supply had not changed since 1959.  For example, a hamburger would only cost 12 cents today.  But this short excerpt is open to criticism because he does not address the fact that nominal wages are also far higher today.

The bigger point that needs to be made is that central bank monetary inflation distorts markets and misallocates resources.  This will tend to cause bubbles.  It will also cause certain prices to rise before others, and wages typically lag behind.  It also harms savings and production.

I think many libertarians and Austrian School economists make a mistake sometimes in obsessing over price inflation.  I hear many say that price inflation is severely understated right now.  That may or may not be the case, but that is not the main point.

Rising price inflation is not the only bad consequence of the Fed’s monetary inflation.  It is not even the biggest consequence in most cases.

As stated above, the Fed’s monetary policy misallocates resources.  This is the main problem.  It doesn’t matter if the CPI is at 1% or 10%. If the Fed is creating money out of thin air, then it is misallocating resources and distorting savings.  It redistributes wealth and it makes our overall standard of living lower than it otherwise would have been.

When the Fed started increasing the money supply like crazy in the fall of 2008, many libertarians were predicting runaway price inflation.  Some were even saying we would get hyperinflation.  Some are still saying that.

But Austrian economics isn’t supposed to predict that for us.  What Austrian economics does is tell us this monetary inflation is bad for the economy.  It tells us that resources are not being put to their proper uses and we are poorer for it.  A rising CPI is just one possible consequence of an increasing money supply.

Price inflation has stayed relatively low because most of the new money created by the Fed went into bank reserves.  We have not seen the fractional reserve lending process multiply the money.  In addition, money demand has stayed high because some fear remains from the last major recession.

We may still see high price inflation in the future.  That is what I am betting on.  But it doesn’t make Austrian school economics wrong if we don’t get high price inflation, regardless of how you measure it.  Austrian economics tells us that we would be better off if the Fed doesn’t engage in massive monetary inflation.  It can’t predict the future though, and it can’t give us the exact consequences of such a policy.

In conclusion, the CPI is useful in giving us trends.  It is also useful in helping us guess Fed policy going forward.  The CPI is useless – at least these days – in telling us the damage that the Fed has done.  The next major recession will give us a better indication of just how much damage the Fed has done.

The FOMC has released its latest statement on monetary policy.  It is not really showing its hand in regards to interest rates.  The bigger news of the day was the first quarter GDP coming in at a measly 0.2%.

As I have said before, the obsession with the Fed raising rates is overblown.  It really doesn’t mean as much as the financial media is making it out to be.

Since 2009, as the Fed has dramatically increased the monetary base, the new money has gone into excess reserves in banks.  Therefore, the banks easily meet their reserve requirements and have no need for overnight loans.  This is what the federal funds rate reflects.  It has been under a quarter of a percent because banks don’t need the overnight loans.

The Fed can raise the federal funds rate, but it has no impact on the money supply at this point.  The Fed can inflate, deflate, or keep a stable money policy, as it is doing right now.

In addition, the Fed’s threat of raising the federal funds rate has done nothing to raise market interest rates.  If anything, rates have gone down, despite markets factoring in future Fed rate hikes.

The GDP is the bigger story here.  If the economy is headed into a recession, then new talk will come up about another round of quantitative easing.  That is the real significance.

Until we hear talk about a new QE program, we will watch the stories about Fed interest rates with mild interest.

I haven’t been weighing in much on presidential politics, but I’m sure I will get into it more as the year goes on.  I don’t know that it is going to make much difference in who ends up in the White House, but it is still a good idea to pay attention.

Rand Paul is now in full swing and his comments are being recorded.  He came out and said that ousting Saddam was a mistake.  I’m not sure that it takes that much courage or wisdom to say that in 2015, but there are still a lot of Bush apologists in the Republican ranks, including a Bush that is running.

On the other hand, Rand Paul also stated that he stands by Obama in his use of drone attacks that “accidentally” killed two hostages, including an American.  I put the word “accidentally” in quotes because what does anyone expect when people are dropping bombs from thousands of miles away?

Rand Paul is the most pro-liberty candidate in the field right now for either major party.  Perhaps it would be more accurate to say that he is the least statist.

Rand Paul is also probably the best senator out of a hundred, but we can only judge that based on what he says.  It also isn’t saying much with that group of people.

With that said, I hope that libertarians are not counting on Rand Paul to be anything like a good president, if elected.  Maybe we could hope that he would be slightly better than Ronald Reagan, who grew the federal budget by two-thirds while in office.

On foreign policy, I don’t trust Rand Paul at all.  He will fold in favor of the establishment.  He probably won’t be a war hawk to the extent of George W. Bush, but he could still be bad.  Don’t confuse Rand for his father, Ron.

If Rand Paul is already sucking up to the establishment by taking these wishy-washy positions on foreign policy, then it will be even worse when he is president.

I really don’t like to pick on Rand Paul, but there is little choice at this point.  I think his dad is great and he has been the single biggest promoter of liberty in the last hundred years or more.  And I’m sure Rand Paul is a nice guy.

I don’t like being so critical of Ron’s son, but he has given us no choice.  He is a sitting U.S. senator.  He is running for the presidency.  He wants to have power over our lives.  Therefore, I have no choice but to criticize him where he ought to be criticized.

I am not against Rand Paul any more than any of the other candidates.  But if I spend more time criticizing him, it is only because many libertarians support Rand Paul and I don’t think they should.  They can support him when he says something that is actually pro liberty.  But overall, he does not deserve to get the same supporters who supported his father.

We’ll see how his ever-changing positions develop as the campaign goes on.

The late, great libertarian Harry Browne was an original founder of the American Liberty Foundation.  This ended up becoming the Downsize DC Foundation.  For tax purposes, this split into the Downsize DC Foundation and DownsizeDC.org.

You can sign up at DownsizeDC.org and there are campaigns to email your so-called representatives in Congress on various issues.  They all seek to downsize DC.  The system makes it easy to do, as you can enter in your initial information and then it is easy to send a message to all three of your representatives with basically the push of a button.

Now the Downsize DC Foundation is initiating a project called the Zero Aggression Project.  At its core, it promotes the idea of the Zero Aggression Principle, or ZAP.

The ZAP promotes the idea that you should not initiate force or the threat of force against others.  Most people follow this in their daily lives, but they fail to apply the same principle to what we call government.

Harry Browne was a big advocate of getting rid of the federal income tax.  He said that if you persuade someone on a single issue such as gun laws or the drug war, then you will just convert that person on one issue and they can’t generalize it to a universal principle.

“But”, Browne said, “when you’ve persuaded someone that we need to repeal the income tax and reduce government accordingly, you’ve gained a new libertarian.”

Harry Browne certainly knew what he was talking about, but perhaps he did not go far enough with this idea of persuading on a universal principle.

The Zero Aggression Project and its core principle of the ZAP are there to persuade people based on purely moral arguments.  It’s primary purpose is not to try to persuade people based on their self-interest.  And interestingly, this seems to work better than utilitarian arguments.  And once you have gained agreement on the ZAP, you have gained a hardcore libertarian.

As the Downsize DC Foundation put it, “This contradicted everything we ‘knew’ about marketing [and] the entire structure of the libertarian movement”.

I believe this is the way going forward to achieve a more libertarian society.  We can argue all day long about this or that detail of each law.  But the way to gain new and principled libertarians on a consistent basis is by hitting people with the moral arguments.

The moral arguments should come first.  After some acceptance is gained, then you can start answering some of the details, or perhaps those interested will just do all of the research themselves.

The Zero Aggression Principle is the way forward.  We have to put a priority on using moral arguments first.

It was reported that an American and Italian, who had been held hostage by al-Qaeda, were killed in January.  The Obama administration has admitted that they were killed in the border region of Afghanistan and Pakistan due to U.S. counterterrorism operations.

Obama says that he takes “full responsibility for these operations”.  Does that mean he is going to jail?  Does it mean he is stepping down as president?

It is not clear why Obama came clean with this admission, but we can assume that this story was going to come to light at some point anyway.  I know that Obama promised an open and transparent administration when he first campaigned in 2008, but the actions of the administration have been quite the opposite up until this point.

Obama also says that an independent review will be conducted to find out what happened.  However, he assures everyone that the operations were lawful.

This just shows that the law is a joke.  I don’t really care if it was lawful.  This is what separates libertarians from others.  Libertarians don’t really care what is printed on a piece of paper and signed into law.  The issue is whether it was moral.

Since it was an American that was killed, Obama had to address the country, and the media will give it some attention.  But why is Obama all of a sudden sorry for this happening?  I guess that means he isn’t sorry about the tens of thousands of innocent people who have been killed either directly or indirectly from U.S. military presence overseas.

If these two people were killed inadvertently by American operations, then how many innocent people are killed who aren’t Americans?  Do the people of Afghanistan, Iraq, Pakistan, and elsewhere not count?  I guess they don’t count to Obama or a large portion of the U.S. media. They don’t seem to count with many Americans in general.

Murder is murder.  It doesn’t matter if it is an American or a little Pakistani child walking home from school.  U.S. drones are almost infamous for blowing up wedding parties and funerals.  These are innocent lives being taken out on an almost constant basis.

There are a lot of people responsible for this, but Obama could stop it all, or at least try to stop it all.  He is a responsible party, just as Bush before him is a responsible party.  If he is allowing drone bombings in foreign countries, then he is part of the murdering regime.

If you are an American, imagine how you would feel if a foreign country came in and started bombing your neighborhood.  Imagine that they cut off the water supplies.  Imagine that foreign troops are seen walking around your neighborhood.  Imagine that your family is blown to pieces by a drone in the sky that you know comes from the invading foreign government.  Who are the savages?

Most Americans are very peaceful and loving people, but we should not turn a blind eye to the atrocities that go on in our name overseas. The actions of the U.S. military in the Middle East are the opposite of peaceful and loving.  Thousands of people die, but many Americans only seem to take note when an American is accidentally killed.

I finished writing a short piece yesterday on Greece running out of time and then looked at Drudge Report and saw a couple of stories on Greece.

In particular, shares in Greek banks are hitting all-time lows and the rumors are picking up that the European Union may let Greece sink.  Perhaps they are finally going to stop throwing away good money.

I checked the 10-year yield for Greek government bonds and, as of this writing, the yield is over 13%.  It is about double what it was a year ago.

Interest rates had spiked back in 2011 and 2012 to really high levels (above 30%) with fear of a default.  Then Germany and the rest of the EU came to the rescue and bailed out the Greek government.  Things calmed down and interest rates went back down.

Germany’s 10-year yield is nearing zero and Switzerland’s 10-year yield is in negative territory.  Even Italy and Spain have low yields.

Since Greece is still tied to the euro, at least for now, we can assume the high interest rates are not an inflation premium.  Instead, they are a default premium.  The market sees virtually no risk of default for German bonds.  But the risk premium for Greek debt is going higher quickly, as it should.

We may see the Greek 10-year yield spike even more over the coming days as more people anticipate a default.  I’m guessing no readers here are invested in Greek debt (hopefully), but it is still an interesting story to watch.

When the EU finally quits bailing out Greece and Greece leaves the EU, it will be interesting to see the ramifications.  Will other countries follow close behind?  Will the euro strengthen or weaken?  What will Greece look like and will it see some kind of hyperinflation eventually with its own currency?

As shaky as the American economy is, Americans should be thankful to not live in Western Europe or Japan.  The U.S. is still far less of a welfare state than most other places in the world.

We can’t forget that Greece is still a major news item in the financial world.  It may not be getting a lot of attention at this moment, but it will be back in the spotlight shortly.

It is looking as though the Greek government will run out of money sometime in mid-May.  It won’t be able to pay the interest on its debts.

The European Union can continue to kick the can by lending even more money to Greece, but it will just be flushing more money down the drain.

There was an article on Yahoo Finance titled “It’s time to stop worrying about Greece defaulting”.  Perhaps this is the financial press coming to grips with the inevitable.

The article states: “Greece will be better off if it rebuffs the tough austerity measures demanded as a condition of two bailouts by European authorities.”

This is what is not understood, or is being purposely portrayed incorrectly.  If Greece defaults on its debts, then the EU so-called austerity for Greece will look like nothing.  If Greece defaults on its debts and nobody is willing to lend the government any money for a while, then they will see some true austerity.

The government won’t just be defaulting on its debt, but also many of the promises it has made to Greeks.  It will mean busted pensions and massive layoffs.  It is the only long-term solution, unless the EU (mostly Germany) wants to bail out Greeks indefinitely.

Be ready for more fireworks in the next few weeks.  We will see if the proverbial can gets kicked again or if this is the end of the line.

The price of gold has been hanging around the $1,200 mark for a while now.  Perhaps a Greek default will finally put some movement into the price of the yellow metal.