I saw Atlas Shrugged 2 over the weekend.  It is the second part (out of three) of the movie based on the book by Ayn Rand.  I wrote my review of the first Atlas Shrugged movie last year.

Despite some negative reviews, even by libertarians, I still enjoyed the movie.  You definitely should see the first one before seeing the second.  I would also recommend reading the book before seeing the movie, but I’m sure that is not the case for everyone.  The book is over 1,000 pages long and it isn’t an easy read.  I’m curious what the movie looks like to someone who hasn’t read the book, but I suppose those people are curious about the differences of the book and movie.

It has been 12 years since I read the book from start to finish, but I still remember it fairly well.  I remember the book being a bit more of a mystery.  It seems that you know what is going on a little more with the movie.  That is the way it seems to me, but again, I’m not sure if that is just because I have read the book and I know what happens.

The second movie starts off with the end of the movie.  Dagny is flying a plane in the mountains.  I thought they were playing the wrong movie at first.  I knew it was the end of part 2 or the beginning of part 3.  After showing that clip, the movie then goes back in time 9 months to tell the story leading up to her flying the airplane.

I still remember when I read that part of the book 12 years ago.  It was in the summer and I was actually excited to get home from work every evening so that I could read for a couple of hours.  I was a rather slow reader (I like to absorb everything).  I read almost every night and it took me about a month to finish the book.  But I remember that part about her flying the plane in the mountains and what happens next.  It was really exciting to read and anticipate what would happen next.

The book starts off rather slow, but I found that things built up more and more.  The third part of the book is by far the best.  As far as the movies go, I found the first one a little better than the second.  The acting was just ok and the storyline stayed mostly with the book, although the movie takes place in the future.  Obviously, because the book is so long and has to be fit into three movies, there is a lot that is cut out.  For example, Francisco’s speech is a very condensed version.  I’m sure Galt’s speech will be much the same way in part 3.

I have to say that I am quite excited for part 3, which will hopefully come out next year.  It was my favorite part of the book and I fully expect it to be my favorite movie.  Hopefully I won’t be disappointed.  In the meantime, if you haven’t read this great pro-liberty book, you probably have about a year to do so before the third movie comes out.

I watched the third party presidential debate on C-Span on Tuesday night.  It was either a low budget debate, or else they spent their big budget on hiring Larry King as the moderator.  While it is referred to as a third party debate, I think a better term would be a non-establishment debate.

(debate starts around 1 hour and 3 minutes)

It wasn’t that well run and the questions weren’t all that great (although good in comparison to the debates between Romney and Obama).  However, it was refreshing to watch as the candidates did talk about issues that you wouldn’t hear from Romney/ Obama.

The four candidates in the debate were as follows:

Jill Stein of the Green Party
Rocky Anderson of the Justice Party
Virgil Goode of the Constitution Party
Gary Johnson of the Libertarian Party

Jill Stein and Rocky Anderson were good on foreign policy and civil liberties.  Unfortunately, these two wouldn’t recognize a rational economic thought if it hit them on the head.  They have no concept of how a free market works and they can’t understand that “free” stuff by the government is not really free.

Virgil Goode is an interesting character to watch.  Let’s just say that the Constitution Party took a major step backwards from the last election when they had Chuck Baldwin as their nominee.

Gary Johnson was the most well-spoken of the candidates and he even somewhat impressed me a couple of times.  However, most of the time, he seems to come up a little short.  He just doesn’t have that radical edge that Ron Paul has.  He concentrates on pragmatism and not on morality.

The federal war on drugs was discussed a few times.  It was refreshing to hear it even talked about.  Virgil Goode makes no sense on this.  Isn’t the federal war on drugs illegal under the Constitution unless you pass an amendment like what was done for alcohol prohibition?

Unfortunately, Gary Johnson fell short on this too.  He keeps talking about marijuana.  But what about the other drugs?

The logical position for any libertarian running for president should be that the federal drug war is unconstitutional and should be ended.  It is not even a question of legalization.  It should be up to the states to decide that, although I think a wiser policy and a libertarian policy for the states would be to legalize drugs.  And yes Gary Johnson, that includes all drugs and not just marijuana.

I like that Johnson says he would balance the budget immediately.  This is actually somewhat radical, proposing to cut well over 1 trillion dollars from the federal budget.  And by his vetoing record in New Mexico as governor, he might actually follow through.

My biggest frustration with Johnson came at the end with the last question.  They were asked, if they could get one constitutional amendment passed, what would it be.  Johnson said an amendment for term limits.  I’m sorry, but this is lame for a libertarian.  Term limits would probably do little to stop the growth of big government.  Presidents are term limited and it doesn’t stop them from spending trillions of dollars and making war.

There are so many answers he could have given that would have been acceptable to most libertarians.  He could have said an amendment to end central banking and fiat money, an amendment to end the income tax, an amendment to require a direct vote of the American people before sending any military personnel overseas, an amendment to end the federal war on drugs, an amendment to end federal spending on education of any kind, an amendment to cap federal spending at 5% of GDP, etc.  The point is, I could think of a hundred constitutional amendments that would be better for liberty than an amendment for term limits.

I should mention, there was also a question about the National Defense Authorization Act (NDAA) and the provisions to allow the military to arrest and detain American citizens without trial.  It is interesting that this question was never asked in three debates to the actual president who signed the legislation.

In conclusion, while I have my criticisms of the debate and some of the positions taken by the candidates, it was a refreshing change from the two establishment candidates.  Unfortunately, none of them have a chance of winning.  It is doubtful that any of them will break 1%.  If any one of them does, it will be Gary Johnson.

I struggled through the last debate between Romney and Obama, and it certainly was a struggle.  I only watched it so that I could comment on it on my blog here.

It was really boring and filled with political rhetoric designed not to say anything inoffensive to the small percentage of voters who are undecided.  At this point, most people have made up their minds.  Some people are firmly with Obama and some are firmly with Romney.  There are also people like me who are firmly with neither one.

So there is a small percentage of the voting populace who plan to vote but don’t know who they are going to cast their vote for in the presidential race.  These are the so-called independents.  I’m not really sure how someone can get to this point without having made a decision, unless they simply don’t like either one.  I wish these people would resolve to themselves that it is not their patriotic duty to vote for one of the two big party candidates.

The last debate was on foreign policy.  Romney sounded like less of a war hawk than he has in the past.  Again, he is trying to pander to the small percentage of undecided voters.  Obama tried to act a little tougher, although he still manages to come out as the anti-war candidate, or at least the less pro-war candidate.  Of course, Obama’s words do not match his actions, especially when it comes to foreign policy.  He has continued the Bush wars and started some new ones, although smaller in nature.  He claims to have ended the Iraq War, yet there are still tens of thousands of American contractors there.  I guess if the government subcontracts the work out, then it isn’t considered a war.

Romney is an unknown.  It is known that he will continue the pursuit of empire building, but it is hard to say how much of a war hawk he will be in office.  He panders so much on the campaign trail, it is difficult to know what he will do with anything.

If the Federal Reserve weren’t there to create fiat money out of thin air to pay for the wars, these wars would probably never happen, or at least not on the same scale with the occupations.  If Americans had to pay direct taxes to fund the wars each year, then most would rebel.  The government is only able to wage large-scale wars through deficit spending and money creation.  Of course, the Fed was not mentioned again, just as it wasn’t mentioned in any of the other debates.

In conclusion, I thought Romney was mostly incoherent with the things he said.  He was trying to please the independent voters, while trying to be pro-war enough so as not to upset his base.  Obama sounded a little better and he will probably get away with his words because the voters that count now are not paying much attention to his foreign policy record of war and intervention.

This election is really a nightmare for a libertarian.  I miss watching the Republican debates with Ron Paul.

In my last post, I discussed how Romney’s proposed cutting of funding for NPR is a drop in the bucket.  You could eliminate all federal funding for NPR for a year, and it wouldn’t balance the budget for one day.  I also wrote about my surprise that, in a poll last year, only 27% of Americans knew that federal funding for public broadcasting was less than 1% of the total federal budget.

In poll after poll, one of the issues that concerns Americans the most is the federal debt.  It keeps increasing each year by leaps and bounds.  For the last several years, the yearly deficit has exceeded $1 trillion.  This means that the government is spending over $1 trillion more each year than it takes in from tax collections.

So Americans say they want a balanced budget.  But unfortunately, most Americans do not really understand what that would entail.  Most Americans do not really know what makes up the federal budget.  It makes it easy for people like Romney and Obama to demagogue the issue (Romney probably more so).

Here is a pie chart of a breakdown of federal spending for FY 2011.  The numbers can vary slightly depending on the source you use.  There are some items in the budget that can get grouped in different categories.  Also, as any libertarian in his right mind knows, the amount listed for defense is really military spending.  It has little to do with defense, as a large portion of military spending is spent on making war and empire building.  But although there are slight variations between sources, the following is a reasonable summary of the breakdown.

Medicare and Medicaid made up 23% of the budget.  Social Security was 20%.  So-called defense spending was 19%.  Interest was 6%.  So between just these things, that is about two-thirds of the entire federal budget.  If none of these things are touched, then you would basically have to eliminate the rest of the entire budget to get somewhere close to a balanced budget.

One of the hot topics in the presidential race is Big Bird and the federal funding that goes to NPR (public broadcasting).  Romney said in the first debate that he would eliminate federal funding for NPR when he was responding to a question about government spending.  As I wrote in my libertarian commentaries about the first and second debates, NPR funding is a drop in the bucket, or perhaps more like a drop in a swimming pool.  Obama actually asked the best question of the entire second debate when he pointed out that Romney’s math doesn’t add up.

Art Carden of the Independent Institute wrote an article about the same topic, pointing out that PBS funding only accounts for 0.014 percent of federal spending.  Again, it is a small fraction of one percent.

There was something that actually shocked me in his article though, and that is the knowledge (or lack of knowledge) of the American people on the federal budget.

Carden writes: “A CNN poll shows just how badly American voters understand how much of the federal budget goes to PBS.”  He continued, “7 percent of respondents to the 2011 CNN poll thought the Corporation for Public Broadcasting accounted for over half of government spending.  Forty percent of respondents thought it accounted for 1 to 5 percent of the federal budget, 8 percent thought it accounted for 6 to 10 percent of the budget, 6 percent thought it accounted for 11 to 20 percent of the budget, 5 percent thought it was 21 to 30 percent, and 4 percent thought public broadcasting consumed 31 to 50 percent of the federal budget.”

Carden then writes, “The good news is that 27 percent of poll respondents correctly believed that the CPB accounted for less than 1 percent of the federal budget, but this is cold comfort when the other 70 percent of those polled overestimated CPB funding by a factor of at least 71, with a median answer – 5 percent – that was off by at least a factor of 357.”

I really had no idea that Americans were this ignorant about government spending.  According to this poll, 16 percent actually thought that federal spending on public broadcasting exceeds 20 percent of the entire budget.  This is borderline moronic.

The plurality (40%) thought it was between 1 to 5 percent.  While they were way off, perhaps we can give them a pass for at least knowing that it wasn’t a huge percentage.

I’m not sure whether this is good news or bad news.  I wish even more now that these statistics about what percent goes to NPR were made known during the presidential debates.  It is bad news that there are so many ignorant Americans on the subject of federal spending.

I suppose the good news in all of this is that, perhaps with just a little bit of education, the American people might be able to wake up to what is going on.  If they found out that eliminating funding for PBS couldn’t balance the budget for one day, then maybe they would start to wake up to the reality that is coming.

I think the whole issue of funding for public broadcasting is somewhat of a symbolic issue of what the role of government should be.  However, we should not let politicians like Romney pretend like he is in favor of a balanced budget when he can’t offer a specific spending cut that adds up to more than a fraction of a percent of total government spending.

In a future post, I will go over what the percentages are for different categories in the federal budget.  It will show that the budget can’t be balanced without cuts that will hit the American people over the head like nothing they’ve seen before.

I have discussed the miracle of compounding interest before in regards to individuals and to whole civilizations.  It is an important concept to learn when you are young.  You can benefit a great deal from understanding the power of compounding interest.  Those who don’t grasp the concept are bound to make bad decisions in life.

Compounding interest applies to other things aside from your individual investments.  While there may not be any numbers associated with this, compounding interest often occurs with learning.  It can also occur with starting a business or with taking up a hobby.

The whole concept could apply, at least in a sense, to someone learning how to surf.  The person might be really bad the first time he goes out in the ocean with a board.  It may take many times going out there before he ever catches his first wave.  But as he practices and puts his time in, he slowly gets better and better.  It is no coincidence that many of the great athletes in this world started when they were young.

Back to the idea of investing, is compounding interest still beneficial in an environment of low interest rates?  Currently, putting money in a cd or a savings account in the bank will barely make any interest.  In fact, if you factor in price inflation, you are probably losing money.

But I ask, what is the alternative?  Are you better off going into debt?  Are you better off having little or no savings?

Another thing to consider is that interest rates will not always remain low.  If and when rates go up, you don’t want to be in a position where you are heavily indebted, especially if the rate is not fixed.  Imagine having credit card debt or some other variable rate loan.

On the other hand, if and when rates go up, having money set aside will be beneficial.  You can start earning those higher rates of return instead of paying them to creditors.

Of course, an important point is that you don’t have to put your money in the bank.  You can put it in a setup like the permanent portfolio as described in Harry Browne’s book Fail-Safe Investing.

I am also a big fan of real estate, especially in the post-bubble world.  Mortgage rates are incredibly low and you can find some real bargains in many parts of the U.S.  Many people are finding they can buy a place and get a return of 10% or more from the rent.  In addition, they are getting their mortgage amount paid down each month.  This in itself is a form of compounding interest.

In conclusion, just because we are currently in a low interest rate environment, it doesn’t mean that you shouldn’t save money.  While it is harder to get ahead, it is not impossible.  And you are better off saving a little than nothing at all.  When rates do go up, you will be better off with savings.  If it is in a highly inflationary environment, you can buy hard assets to protect yourself.  So while compounding interest may not seem to be beneficial right now, it can still work miracles for us over time, whether it is with your money or learning a new skill.

There was recently an article on LewRockwell.com by Jeff Clark, who is an editor at Casey Research.  His short articles’s main theme is that there is a high correlation between the gold price and the adjusted monetary base.  He uses the time period of 2008 to the present.

Clark says that based on that correlation and on what the Fed says it is going to do with QE3, that we will see $2,300 gold by January 2014.

While it is certainly an interesting correlation to note, I just want to warn readers that it will probably not stay this way.

The time period of less than 5 years is a short one.  In his article, he references January 2008.  But the chart that is shown actually appears to start in October 2008, which is right around the time of the major crash.  Gold went way down from its highs during that time.  This was also the beginning of what would end up being a tripling of the monetary base over the next 4 years.

However, it is important to note that there are many times in history where there was not a strong correlation between the monetary base and the gold price.  During the mania of the late 1970’s and early 1980’s, gold was going up much faster than the monetary base.  Meanwhile, during the later 1980’s and the 1990’s, gold prices stayed low while there was a continuing increase in the monetary base (although nothing like what we’ve seen recently).

From 2001 to 2008, gold prices approximately tripled, depending on the specific dates you use to measure.  The monetary base also went up during this time, but at a much slower pace.

The point is that this direct correlation will probably not hold and it should not really be used as a major predictor of the gold price.  It is a major factor, but it is just one factor.

Ironically, gold prices have probably been held back, despite the huge increases in the monetary base.  Bank lending has been slow as excess reserves have piled up.  In addition, people’s fear of a bad economy has kept consumer spending down.  This means a lower velocity with a higher demand for money.  This actually somewhat counteracts the inflationary policies of the Fed.

So if banks start lending more and if velocity picks up, then I would actually expect gold prices to increase faster than the monetary base.  So if Helicopter Ben does as he promised, then a gold price of $2,300 by January 2014 may actually be a rather conservative estimate.  It will mostly depend on future inflation expectations and the mood of the people.  Of course, Congress can just exacerbate the situation at this point by continuing to spend recklessly and racking up more debt.

I struggled through watching another round between dumb and dumber, although I’m still not sure which is which.  It was over an hour and a half and it was filled with typical political slogans and a lack of insightful questions.  I’m sure the questions were screened.

I was surprised by how little time was spent on foreign policy.  Overall, I thought Obama came out ahead in the little time they did spend on foreign policy, although Obama avoided answering the question directly about the security in Libya.

For most of the domestic issues, Obama’s answer was to tax the rich.  He puts it in a more politically correct way.  He says he is asking those at the top to contribute a little more.  In reality, he is not asking anything and it has nothing to do with a contribution.  When the government sticks a gun at your head, there is no asking or contributing.

Mr. free market Romney (note the sarcasm) repeated several times that he was going to crack down on China for “cheating”.  In this debate, he finally came out and said what the punishment will be.  He mentioned the word “tariff”, which is a tax on imports.  In other words, he wants to make consumer goods coming from China more expensive for Americans.  He wants the average American to spend more and get less.  It could almost be an anti Walmart slogan.

Of course, there was still no discussion about the Federal Reserve.  One man asked about the high cost of living.  Both candidates were talking about energy and high gas prices and both were talking about helping the middle class.  And there is the elephant in the living room, the Federal Reserve, not even worth a mention.  Does it ever occur to anyone that a tripling of the adjusted monetary base over the last 4 years might have something to do with higher prices?  No, if you are a debate moderator or a candidate, let’s just pretend that topic doesn’t exist.

There was one good question in the debate and it didn’t come from the audience or the debate moderator.  It came from Obama.  He wondered how Romney was going to work towards a balanced budget when the only specific cuts he had mentioned were NPR and Planned Parenthood.  He said the math didn’t add up.

Obama had a great point there, but unfortunately, nobody followed up.  Romney didn’t have a response, or at least one that actually answered the question.

NPR and Planned Parenthood both make up a small fraction of a percent of the total federal budget.  It is like trying to drain a swimming pool with an eye dropper.  To this point, Romney still has not made any specific proposals for any significant cuts, unless you count Obamacare.  There is no possible way that Romney and/or Congress can balance the budget without drastically cutting spending, including spending on so-called entitlements and spending on military.  For this reason, part of me wants to see Romney win, just so I can laugh in the face of all of the conservatives who are supporting him.  Trillion dollar deficits will continue under a Romney presidency, unless we hit massive price inflation quickly and Congress is forced to make drastic cuts.

Overall, it was more political slogans.  No libertarian in his right mind should ever consider voting for either candidate.  It is impossible to say which one is worse, but there is no doubt that they are both bad for the cause of liberty.

Last week, I wrote a somewhat critical review of an article by Richard Russell.  For today’s post, I am going to comment on what Russell said near the beginning of his article on selling your gold.

In his piece, Russell wrote this:

“Let’s be honest.  What would we do with our gold if it rallied to 1800 — and then above 2,000?  Actually, I wouldn’t do anything with my physical gold, any more than I’d do something with my house if the real estate market got hot and my house was suddenly worth more.

“What would I sell my gold for?  Sell it for dollars, for euros, or for renminbi?  Or trade it for a Ferrari? No thanks, if you have physical gold, don’t touch it, sit on it, and save it for a rainy day.  When the economy starts raining, and the dollar collapses, you’ll be glad you have something of value.  ‘Patience, patience’ is the right stance.”

Russell is saying not to sell your gold.  I’m not sure if this means forever or if he just means in what he sees as the next big run-up.

I know there are a lot of hard money people out there who would have similar sentiments.  There are even some who think you should have nearly all of your investments in gold or some kind of precious metal.

I do not agree with this strategy.  I understand that a lot of hard money guys and even some libertarians believe that gold is the one true money.  While they might be correct if we lived in a world with a free market, that is simply not the reality.  If you live in the U.S., then the American dollar is your money, whether you like it or not.  Gold certainly has the great characteristics that money should have and it has a great history of being used as money, but that is not the current state of our society.

If you doubt what I say, go to your nearest gas station or grocery store and try paying in gold.  I can just imagine someone going through the checkout line at a Walmart and handing the cashier gold or silver coins to pay.  They would be calling their manager rather quickly.

So the problem here is that you buy stuff with dollars (or whatever fiat currency you use if you live in another country).  You don’t buy things with gold.  You have to convert your gold into dollars and then buy your gas, groceries, etc.  And while the price of gold (in terms of dollars) has gone up over the last 12 years, there is no guarantee that it will continue to do so.  And even if it does trend up, there will be swings in the price.  Much of these swings are due to the instability of the dollar, but regardless, prices vary from day to day.

While I agree with Russell that I think the gold price will likely go higher over the next several years, I am not against taking some “dollar profits” along the way.  Just as bubbles happen in stocks or real estate, the same thing can happen with your gold holdings, whether it is physical gold, ETFs, certificates, or stocks.  If you never sell your gold, then you will never make any dollar profits (which you use to buy things).  And you will never sell near the top and instead will be stuck with the option of selling after the bubble has already burst.

Think about the 1970’s and early 1980’s.  Gold went on a huge run and was briefly above $800 per ounce.  But it quickly took a nose dive and settled around $300 per ounce.  It was no higher about 20 years later.

This was a time when there was a gold bubble.  The price had risen substantially and much of it was due to legitimate concerns.  But for people who had a substantial piece of their net worth in gold investments in 1980, it was the ones who sold at least some of their holdings, prior to the collapse in price, who made out well.

I don’t think we are in a gold bubble yet, but I do think it will happen again.  Once the mania hits, you can find every reason in the world why it will keep on going up.  That is why it is good to think through it in your head now.  You should be disciplined and realize that gold won’t go up in a straight line.  It also won’t go up forever, unless there is hyperinflation.  So if you think as I do that there won’t be hyperinflation, then you should sell small amounts of your gold investments as the price rises.

This is not an all-or-nothing deal.  Let’s say you have a net worth of $100,000 and you have $20,000 in gold and gold related investments.  If the price of gold doubles while the rest of your investments stay the same, then your percentage of gold investments will have gone from 20% to 33%.  So at that point, why not take a little off the table?  Sell off $10,000 in gold investments and spread around the “profit” to your other investments, including cash equivalents.

In conclusion, I don’t think you should never sell your gold.  I also don’t think you should ever sell all of your gold, unless you are starving.  Investing shouldn’t be an all-or-nothing scenario.  If we enter into a gold bubble as I believe we will, then it will be a good idea to sell a small percentage of your gold investments as the price continues up.  If you don’t think you own enough now, then don’t wait.  I recommend a minimum of 20% in your portfolio.

“2 Debates and No Mention of the Fed: How Is that Possible?”

That was the headline that I read yesterday on Yahoo Finance.  In my analysis of the first presidential debate and the vice presidential debate, I noted this point.  The Federal Reserve was not mentioned once either by the moderator or by any of the candidates.

This is not a coincidence.  What Ron Paul has worked so hard on to bring to the forefront, the establishment is attempting to hide.

There has been some talk of the huge debt and deficits (although neither Romney or Obama have any plan to solve it) and yet the Fed isn’t mentioned.  If the central bank didn’t exist, then there is no way that a huge national debt could exist.  It would still be possible for the government to borrow money, but interest rates and buying would be dictated by the market.  Without a central bank to create new money out of thin air to buy government debt, the amount of debt would be somewhat limited.

We can see this by looking at state and local governments.  They have, for the most part, been forced to tighten their belts.  If they continue to spend money they don’t have, then interest rates will eventually go up.  Eventually, these governments have to either find more money, cut spending significantly, or else file for bankruptcy.  They can’t rely on a printing press.

The U.S. government is different, not because of its size, but because of the central bank.  The Federal Reserve can keep the game going much longer through the use of monetary inflation.  It simply monetizes government debt, keeping interest rates artificially low and bond prices up.

Without the Fed, there probably would not have been a war in Iraq.  There may or may not have been a war in Afghanistan, but it probably wouldn’t have been an ongoing occupation.  Without the Fed, there wouldn’t have been a big housing bubble.  There wouldn’t be a lot of the welfare programs that currently exist.  We probably wouldn’t have Obamacare.

The Fed is what allows Congress to spend recklessly.  It is the main cause of the boom and bust cycles that we have.  It is partially responsible for the high unemployment.  It is almost completely responsible for overall higher prices.

Aside from the fact that Congress could end the Fed’s monopoly over money, the Fed is, at least in some ways, more powerful than either Congress or the president when it comes to controlling the economy.  Yet, with all of the talk about the economy, there has not been one mention of the Fed in these debates so far.

This is why the internet is so important.  We can see issues discussed that get little play by the establishment media.

Remember, when they get you asking the wrong question, they don’t have to worry about the answer.  This is why we have heard nothing about the Fed so far.  But the good news is that we can find the right questions through other media sources now.  We don’t have to get all of our news from television and newspapers.  In fact, I would recommend that you get as little as possible from these sources.