Right after we rang in the new year, Congress rang in the new year with more disastrous legislation.  Of course, it isn’t disastrous for them.  It is disastrous for the average American.  Most of the tax rates on income were kept in place and not allowed to go up.  This did not include tax rates on high income earners (single filers with an income over $400,000 and married filers over $450,000).  We often hear them referred to as the “wealthy”, but high income earners is a far more accurate term.  You could have someone win Survivor (the reality show) or have a lottery winner and that person may only be a high income earner for one year.  It does not mean the person is necessarily “wealthy”.

I’d say the biggest thing that will affect most Americans in the short run is that the payroll tax cut did not get extended.  The Social Security portion paid by employees will go back up from 4.2% to 6.2%.  So any low or middle income American will see 2% of their take home pay disappear.  This affects any person working in the U.S. who is reporting income.  This hurts the low and middle income brackets disproportionately.  (And it is not a “premium” for Social Security because it isn’t going into your own account.  There is no actual money for Social Security.  It has all been spent.)

Having Congress agree to allow the payroll tax cut to expire should tell us something.  It means that they are even a little scared of the massive deficits.  The Laffer Curve does not apply much to the Social Security payroll tax.  While it could hurt economic growth and employment eventually, it will not do much to change the behavior of workers.  It is not like someone earning $40,000 per year is going to work less because he is paying an extra $800 per year to the government.  So, at least in the short run, the higher payroll tax will probably lead to more “revenue” to the government.

It is no surprise that the Congress is also kicking the can again on spending.  This was easily predictable.  It is the opposite of what we need.

From everything I’ve read, it looks like no actual cuts will be made.  Anything referred to as budget cuts is actually just a smaller increase in future budget projections.  There are no cuts.  This will just make the day of reckoning that much worse.  As the days go on and things are looked at closer, we will see more pork and more items to favor those who are the most well-connected to the government.

By the way, if the Republican Party really were the party of smaller government, then it would still hold  an ace in the deck.  The Republicans have a majority in the House, which controls spending.  An easy way to balance the budget would be to refuse to raise the debt ceiling.  For right now, Geithner and the Treasury are coming up with tricks (accounting fraud for anyone else) to prevent default, even though the government debt has already passed the debt limit.

But don’t worry.  The Republicans will capitulate on the debt ceiling too.  I’m sure they will raise it by another couple of trillion dollars.  They don’t want to actually cut any spending.  They just want to continue to trick and deceive their constituency into thinking that they really want to cut spending.

At this point, my only advice is to not pay too much attention to all of this garbage.  We are still going off the fiscal cliff and the monetary cliff and the debt cliff.  It is unavoidable.  I would suggest that you prepare for it in any way you can.  And since there is not much you can do to stop the hacks in Washington DC, try to focus on things in your own personal life to help you and your family.  It looks like the economy will have to get worse before things can get better.

Harry Browne wrote a piece 14 years ago entitled “A Libertarian’s New Year’s Resolutions“.  He wrote 14 resolutions on helping the cause of liberty.  There were a few points in particular that stuck out to me.  While I have known they are good resolutions, it is not always easy to keep them.  It is good to remind yourself every now and then.

For number 2, he said, “I resolve to keep from being drawn into arguments or debates.  My purpose is to inspire people to want liberty – not to prove that they’re wrong.”

I recently read something similar by Doug Casey.  He said he doesn’t like to get into debates with people.  He doesn’t mind discussions where people can think about things and learn things.

I admit that I get sucked into this more often than I’d like.  I don’t think I can ever completely stop because sometimes I feel it is necessary to defend myself and my ideas.  But I do need to remind myself that there is no point in arguing with someone, particularly friends and family, especially when it will not change the person’s mind.  I resolve that I will try to take these discussions and instead of having arguments and debates, that I will try to pose thought-provoking questions that places the burden on the other person.

You can lead a horse to water, but you can’t make him drink.  It is important to realize that sometimes you have to introduce the water to the horse slowly and gently.

I do make certain exceptions with this though.  If you are on the radio with Sean Hannity or in some other public forum where you have a large audience, then I think it is acceptable to debate the person and be strong.  Just don’t be rude, or you and your position will look bad.  In this scenario, you are not trying to convince the person you are debating.  You are trying to convince the audience.

Another point made by Harry Browne that stuck out at me was number 7.  He said, “I resolve to acknowledge my good fortune in having been born an American.  Any plan for improvement must begin with a recognition of the good things we have.  To speak only of America’s defects will make me a tiresome crank.”

I know this is a problem for a lot of libertarians.  They always talk about the bad things.  They don’t offer the benefits of liberty enough (other points that Harry Browne made).  They complain about America, when they really mean the U.S. government.  They don’t acknowledge the benefits of living in America, even today.

If you are having trouble finding positives, I will offer a few quick ones.  America is still the best, or one of the best, places in the world when it comes to free speech, freedom of religion, free press, gun ownership, and individuality.  In particular, that last item is important.  While this may have faded somewhat, there is still a big streak of rugged individualism in the average American.  There is also no shame in being an entrepreneur and being successful in America.  A lot of Americans take these things for granted because they haven’t seen enough of the rest of the world.

I would add one more resolution for libertarians to Harry Browne’s list.  While it is important for libertarians to educate others on the benefits of liberty, don’t forget about yourself.  If you are going to be a spokesman for the cause of liberty, you should never stop learning.  You should be continually reading, writing, watching videos, or just sitting there and thinking about liberty and various issues.  Read more on issues that you aren’t as comfortable or familiar with.  Try to learn something new every day, even if it is not directly related to the cause of liberty.

I hope everyone has a happy, prosperous, and free 2013.

There is a particular point that I have been hammering home in the last few months.  It is that total government spending is what ultimately matters the most, whereas tax rates or total taxes are not nearly as significant.  This is especially important to know right now, with all of the talk about the so-called fiscal cliff.

The fiscal cliff is a combination of increasing tax rates and “forced” spending cuts.  While the cuts are almost insignificant, I think any cuts in government spending are a positive thing.  But most of the focus on the fiscal cliff right now is on the tax rates.

The federal government is spending over 3 and a half trillion dollars per year right now.  Regardless of where this money is coming from, it is being spent.  While it is not all a complete waste of resources, it is a big misallocation of resources.  The government is spending your money on things that you probably wouldn’t have chosen if you had been able to keep the money you earned.

There are three main ways that the government can get money.  It can get it through taxes, borrowing, or inflation.  I do not count “revenues” from things like the Post Office, because the revenues aren’t even enough to cover the expenses.  And even if they were, it is only because the government is using the threat of force to keep away competition.  There is also the possibility of the government selling land or buildings or other assets, but this is not common and will be disregarded for this discussion.

If the government is getting most or all of its money from taxes, borrowing, and inflation, then that capital is being drawn away from someone else.  It means that some individual or business cannot use that money.  It doesn’t really matter how it is obtained.  In one way or another, it is money (which represents resources) that is being drawn in to the government and spent.  We pay for it in some way or another.

We frequently hear that running up the national debt will burden our grandchildren and future generations.  But it is really burdening us now.  We are paying for it now.  Future generations are only paying for it in the sense that there is less savings, less capital investment, and less advances in technology than would have otherwise occurred.

Even if a private investor is buying a government bond, he is still handing resources over to the government.  I suppose the only case where the total spending scenario does not hold completely true is when a foreign central government (like China) buys government debt.  The Chinese government is subsidizing the U.S. in a sense.

I know everyone wants to focus on the taxes, because that is what you see on your paycheck.  While it might matter in the very short term, it really doesn’t matter much ultimately.  Perhaps it will matter a little in how wealth is distributed, but it means very little to the overall health of the U.S. economy.

The government could cut all taxes to zero and keep spending what it spends now.  Do you not think that you would pay for this?  If it had to resort to inflation to spend over 3 and a half trillion dollars per year, you would see massive price increases in a short period of time, with most wages lagging far behind.  So your bigger paycheck wouldn’t really get you any more.

This is why the focus must be on total government spending.  If you are going to waste time writing to your congressman, at least focus on the right thing.  Don’t tell him to keep taxes low.  Tell him to dramatically cut spending.  That is really what ultimately matters.  If spending is cut enough, then taxes can eventually follow.  Just cutting spending enough to stop the Fed from monetizing any government debt would be a big accomplishment at this point.  At least we wouldn’t be paying the hidden tax of inflation.

This whole issue of total government spending vs. total taxes is what has allowed the Republican politicians to get away with having a label as the party of smaller government.  It is easy for them to advocate lower taxes.  But lower taxes don’t matter if they keep increasing spending.  We are paying for it one way or another.

We are not burdening future generations like we think.  We are burdening ourselves now.  We are not going to see a really strong economy again until government loosens its grip.  That means that government spending must be cut drastically.  Until that happens, it doesn’t matter much in the long term what the tax rates are.

Robert Higgs has written extensively on “regime uncertainty”, particularly as it relates to the Great Depression.  In a nutshell, he says that uncertainty regarding future policy helped contribute to the lack of investment during the Great Depression.  When individuals and businesses don’t know what the laws will be in the near future, it serves as a deterrent to starting or growing businesses, along with investing in them.

We have major economic problems for a variety of reasons, but they all somehow revolve around the government (or governments if you include state and local) and the central bank (the Federal Reserve).  Spending, debt, inflation, taxes, and regulations all contribute to our problems.  With that, you can add regime uncertainty, which is the lack of predictability with all of these factors.

I am writing this post on December 27.  We go over the so-called fiscal cliff on January 1.  I don’t really include any spending cuts as part of this, as I view this as a positive thing, even if small.  But there are a bunch of different taxes that are scheduled to go up.  While the president and Congress are supposedly trying to work something out, we have no idea if any agreement will be reached, and if so, what it will entail.

As an individual, assuming you are working or making money, you don’t know what your tax rate will be in less than 5 days.  If you are a small business owner, you don’t know what your taxes will be in less than 5 days.  If you are an investor, you don’t know what your taxes will be in less than 5 days.  If this isn’t regime uncertainty, I don’t know what is.

This distorts the market in many ways.  It affects investors on their decisions to buy and sell stocks (or other investments).  It affects business owners on whether to expand their business or hire new people or even to replace someone who has left.  It affects individual workers on their decisions to save, or buy a house, or buy a car, or plan a vacation.  Even if the tax changes mean “only” $200 per month to a family, this could affect their decision making if they are on the margin.

Obamacare was bad enough.  It created regime uncertainty.  As Nancy Pelosi said, we will find out what is in the law, now that it has passed.  But for people and businesses to not know what the tax rates will be (in many different categories) in just a few days from now, it is hard to imagine that this isn’t affecting human behavior on a grand scale.  It may even encourage some people to die early.

While I still believe that overall government spending is far more important than the tax rates, the looming fiscal cliff is just another example of how the government makes us poorer.  This regime uncertainty is preventing individuals and businesses from engaging in activity that could make our lives better.  We will never get to see the new products and services that we could have had if only the government had made our laws more predictable, along with being less tyrannical.

In conclusion, it doesn’t matter at this point if we go over the so-called fiscal cliff or not.  It has already damaged and distorted our economy.

I recently wrote a post stating that I would not be shocked if we end up having another real estate bubble.  The government and the Fed are engaging in policies that distort the market and it is quite likely that some of this capital is being directed (or misdirected) into housing.

I received a comment from that post that said the following:

“You’ve recommended buying real estate as an investment, and I’m curious why that is?  What makes a single family home or a duplex a suitable investment rather than a depreciating good like a car, other than the hope that inflation might outpace the depreciation?  Just wondering what your thoughts are.  Thanks.”

As stated above, I have recommended buying investment real estate several times.  I have said this without thinking that there will necessarily be another real estate bubble.  I have multiple reasons for liking the prospects of investment real estate.  It helps that prices are much lower than they were 5 years ago.  Housing would not have been a good investment in most places 5 years ago when you can now buy in some places for almost half the price.

I also like investment real estate because of Federal Reserve policy.  With huge deficit spending and other problems still to come (like the massive unfunded liabilities), I think the Fed will continue to pursue monetary inflation, at least until price inflation gets out of control.  Since houses are hard assets, they can benefit from inflation, or at least provide some wealth protection.

It also helps that you can get a 30-year fixed-rate mortgage for under 4 percent right now.  You get to borrow money at a low and fixed rate and have your renters pay it off.  If inflation continues, then you will pay off your loan with depreciating money.

In response to the question about buying housing versus buying a depreciating good like a car, the question already has the answer.  A car is a depreciating asset.  The more you drive a car (and even if you don’t drive it) the less it is worth.  The engine wears down fast.  While both cars and houses are consumer goods, houses hold their values better.  There are repairs involved with housing too, but there are many houses that are decades old and still in good shape.  That is rare for cars.

If price inflation is bad enough, then perhaps the nominal price of a car could go up.  But the real (inflation adjusted) price will almost always go down, unless you foresee a huge shortage in cars.

The other major difference between houses and cars is that you can continue to rent out a house.  I don’t really know anyone who rents out cars, other than car companies and rental companies.  Rents are another hedge against inflation.  Rental prices for housing are likely to go up in an inflationary environment.  Even if rents do not go up as much as price inflation, you don’t need to worry as a landlord.  You may have some variabilities with taxes, repairs, and insurance, but your biggest cost is fixed.  It is even better once you pay off your loan.  So your revenue should go up more than your expenses, at least over time.

If you personally need a car to drive, it may be a good time to make a purchase if you can get good terms on a loan.  But it is only an investment in that it can get you to work and to the store.  It is more of a necessity than an investment.  But I do not see it making sense as an investment in the sense that you would buy investment real estate.

One other thing to note is that housing has an advantage even against other hard assets like gold.  As stated above, you can rent out your investment housing.  It is much easier to buy gold.  It is much easier to hold your gold.  And gold is a good hedge against inflation.  But you aren’t going to rent out your gold.  You will rent out your investment housing, which will help you pay for it and will provide a nice stream of income if you accumulate enough and start to pay off loans.  It is more work, but most things aren’t free and easy in this world.  If you get any appreciation on the price of your housing, that will be like icing on the cake.

I hope everyone out there has a merry Christmas and is able to enjoy spending some time with friends and/or family.  It is easy for Americans and others in first-world countries to take for granted that we live our daily lives with plenty of food and adequate shelter.  The good news is that there is probably less poverty today (at least percentage wise) than at any other time in history.  We can thank the flourishing of liberty, along with the advancement of technology.

Regardless of your religious beliefs, I think Christ sets a good example of how we can live our lives, at least in terms of morality.  All of the major religions are grounded in common law.  You should treat others how you wish to be treated.  You should not harm other people or their property.

It really amazes me how many people there are who call themselves Christians, yet are some of the people most clamorous for war.  To this day, many Christians will defend the U.S. government and its starting of war in Iraq.  While some of these people are complete phonies, I really believe that many of these Christians have just not thought through their position.  How can you possibly be a follower of Christ and yet be supportive of dropping bombs that kill many thousands of innocent people?

When it comes to arguing in favor of libertarian principles, I believe it is important to use both moral and pragmatic (or utilitarian) arguments.  However, when it comes to the issue of war, I believe that the moral arguments have to be placed front and center.  I want Christians, and all other war supporters, to become fully aware of what they are supporting.  The evil ones can keep supporting it.  The good guys need to see the illogic and immorality of their position.  You cannot be a follower of Christ and advocate the killing of innocent people without being inconsistent.

Merry Christmas to everyone, whatever your beliefs are.  May Santa bring a new found peace in the new year, so that everyone around the world can enjoy some peace and tranquility, and hopefully some presents too.

Ron Paul has now spoken out in opposition to the latest National Defense Authorization Act (NDAA).  He criticizes the legislation way beyond the most controversial portion that allows the president and military to detain people.

Ironically, I was recently critical of Rand Paul (Ron’s son) for supporting the initial version that was passed unanimously by the Senate.  Rand tried to justify his vote, but it was all empty political rhetoric to me.  In fact, if I did enough research on the legislation, I could probably write a long term paper on the corruption and anti-liberty elements of the latest NDAA (the 2013 version that Rand has initially supported).  At this point, I don’t care what Rand’s vote is on the final NDAA bill.  He has already shown his true colors.

While Ron didn’t specifically mention his son (as he shouldn’t), there is no doubt that they are in opposite positions from each other.  Ron is anti-establishment.  Rand goes along to get along.

In fact, I would venture to say that Ron and Rand are virtually complete opposites; perhaps as much, or even more so, than Ron is with many Democrats.  At least some Democrats vote at least part of the time on principle.  You may not like everything they stand for, but at least they are somewhat consistent.  (I do understand that most Democrats in DC will go with whichever way the wind is blowing also).

I really don’t like being so hard on Rand.  I’m sure Ron and Rand love each other very much.  And I have no idea what is going on in Rand’s head.  But I feel the need to criticize Rand because I fear he will do great damage to the cause of liberty.  There are many Ron Paul supporters who are looking for someone else to take the torch, so to speak, especially since Ron is retiring from Congress.

Real leaders, like Ron Paul, do not jump into a parade when it is already moving.  They lead the parade.  They don’t vote a certain way because they are scared of the backlash and public opinion.  They help mold public opinion by articulately explaining their position.

Meanwhile, Rand is showing that he is not a real leader and he is not a good representative of the liberty movement.  Even if he votes against the final version of the NDAA, it will be because of people like me inflicting political pain on him.  He will jump into the already moving parade and act like he was a part of it the whole time.  In other words, he is a typical politician.  Even Bill Clinton could be convinced to support somewhat pro-liberty legislation if public opinion were strong enough.  Rand Paul and Bill Clinton; what’s the difference?

This is another reason that the liberty movement should not rely on electing the “right” people into office.  The better goal is to educate others on the benefits and morality of a more libertarian society.  We cannot count on a conservative (and a pretty bad one at that) like Rand Paul.  He is leading us in the wrong direction.  He is representing everything that is bad about politics and Washington DC.  His votes, just in the matter of a couple of years, has shown that he cannot be trusted by libertarians.

At the risk of sounding similar to a vice-presidential debate a long time ago: I’ve met Ron Paul.  Rand Paul is no Ron Paul.

Ron Paul is closing his congressional career the same way he started it.  He is standing on principle and on the side of liberty.

After the bursting of the U.S. real estate bubble, I was convinced that it would not happen again, or at least not any time soon.  It is fresh in people’s minds.  It is so fresh that there are still tens of millions of people who own houses that they could not sell for at least what they paid.  And many of these people are underwater, with their mortgages exceeding the assessed value of their house.  This is a consequence of  not only the sharp downturn in prices since 2006 or 2007, but also because of the low down payments that were being required by the banks and government agencies.

Since so many people were hurt by the bursting of the housing bubble, it would be hard to imagine that it would happen again.  As long as the Federal Reserve keeps inflating the money supply and causing boom-bust cycles, then bubbles will happen.  But they don’t have to happen with housing.

In addition, there are still a lot of foreclosures out there being held off the market by banks (probably at the direction of the government).  This is another factor that would make it difficult to see another housing bubble that is anywhere near the last one.

With all of that said, I am no longer completely convinced that another housing/ real estate bubble is not possible.  As long as the Fed keeps up with its quantitative easing (money creation) programs to prop up the economy, then almost anything is possible.

All of this monetary inflation has to go somewhere eventually.  The adjusted monetary base will rise to over 4 times what it was in early 2008, assuming the Fed follows through in 2013 with its latest plan to buy $85 billion per month in assets.

In addition to this explosive growth in the monetary base, the Fed is also directing its actions toward the housing market.  40 billion dollars of its monthly purchases are supposed to be in mortgage-backed securities.  And its other purchases are geared towards longer-term government debt.  This is all setting up the possibility of even lower mortgage rates on top of the already historically low rates.

It would not surprise me now if a good portion of this new money flows into real estate.  There are cheap rates, low prices compared to 5 years ago, and it is a hard asset.  If the money supply keeps going up at high rates and velocity starts to pick up, then people will be turning to hard assets.  This could be gold, silver, oil, other commodities, baseball cards, antiques, or stocks.  It could be some combination of these things.  Of course, real estate is also a hard asset and a good rental property can also pay a fairly consistent “dividend” in the form of rent.

So whether or not we see another real estate bubble will be determined by the Fed, just as the last one was.  If people start to sense that there will be no end to the new money creation, then we could see people flocking into hard assets.  It would no longer surprise me if real estate is one of those things.  The only question will be if it gets as bad as it did just a few short years ago.

It really amazes me how many people are out there who talk and write about a subject, yet have little clue about how wrong they are.  There are people like Paul Krugman, who I find hard to believe are stupid.  In his case, I think he is a fraud, but I’m not positive.  But I do know there are a lot of people out there who really just don’t understand what they are talking about.  There are also some who have some understanding, but have no idea how to articulate what they want to say.

I received this comment recently in response to a blog post I wrote 5 months ago:

“The purchase by the Fed of Treasury debt obligations on securities, could be inflationary only if the economy were at full production and full-employment. Inflation does not occur automatically if new money is created and introduced into the economy. If the additional dollars are able to match up with available materials, productive capacity and wages to newly hired employees at current prices, there will be no inflation.
Since creation of new money is the result of deficit spending, it would be the responsibility of the Congress and the President to determine that deficit spending is not likely to be inflationary. In a deep depression or recession, deficit spending is not going to be inflationary.”

With the recent tragedy that took place at an elementary school in Connecticut, it seems that nearly everyone is clamoring for some kind of a solution.  Some people want armed guards in all schools across America.  Some want teachers to carry guns.  Others want more gun control.  Some on the left go so far as to wanting all guns banned.

While it is a great tragedy, it doesn’t mean there is necessarily a grand solution in preventing something similar from happening again.  There are crazy people out there and we live in an uncertain world.  As long as we live in a somewhat free society, it is impossible to achieve total safety.

From a cost/ benefit analysis, the answer is to do nothing.  It is hard for people to do a cost analysis when you are dealing with human life, but it is happening all the time, whether you like it or not.  On an average day, there are about 4 times as many deaths in America from car accidents as the number of deaths from the school shooting in Connecticut.  That is in one day.  If you are going to put armed security guards in every school across the country, wouldn’t it make much more sense to put roll cages on every single car?  It would save hundreds of times more lives.

Of course, this whole incident is being used as an excuse for more gun control.  However, you can’t get any more gun control than at a typical school, where guns are banned.  Unfortunately, the bad guys don’t seem to want to follow the rules.  The same thing would happen if all guns were banned.  Many of the good guys would give them up, while the guns would remain in the black market.

One other obvious point to libertarians is that the government doesn’t impose gun control on itself.  Having an armed citizenry is not only important for self defense against street criminals.  It is just as important, or perhaps more so, to have a last line of defense against your own government.  There was strict gun control enforced upon the Jewish people who lived in Germany in the 1930’s and we all know how that ended.

Regardless of what you think about guns and what the laws should be, I will tell you this.  GUNS WILL NOT BE BANNED IN AMERICA.

It doesn’t matter what Obama says.  It doesn’t matter what Diane Feinstein says.  It doesn’t matter what people at the United Nations say.  Guns will not be banned in America.

It is estimated that almost half of American households own a gun.  I’m sure it is much less than this in the big cities, particularly in the northeast and west coast.  I’m sure the numbers are much greater in rural areas and in the south.  But a lot of Americans own guns.  Americans own more guns, even on a per capita basis, than any other country.

There will be no gun ban.  A lot of people are worried about Obama right now.  This is the opposite of a self-fulfilling prophecy.  Because there are so many worried people, it won’t happen.  What police unit or military unit is going to go door to door in the south to collect guns?  They would be safer in Iraq.

If we see anything, it will be tinkering around the edges.  It will be mostly symbolic.  There may be a ban on certain “assault weapons”.  There may be a change in the so-called gun show loophole.  The worst I can imagine is an additional tax on guns or bullets, but even that I would find hard to believe.

So if you are worried about Obama taking your guns, you don’t need to be.  But then again, I don’t want to tell you that.  Keep worrying.  Then I will know for sure that it won’t happen.