The price of gold, at least in terms of dollars, has been in a rut.  As of this writing, it is down to around $1,540 per ounce.  After 11 straight years of gains, many are wondering if this is the end of the gold bull market.

Of course, some of the weakness is due to the U.S. dollar.  It’s not that the dollar is that great, but with all of the problems in Greece and Europe in general, the euro has been down quite a bit.  Therefore, for Europeans, the price of gold is not down as much.

I think these retracements in the price are always a good test for people who own gold or gold related investments.  The true believers stay in the game.  The ones who don’t really understand why it is important to own some gold are the ones who are scared off.

Sometimes I am asked if I think gold will continue to go lower.  To be honest, if I knew the answer with any precision, I would be incredibly rich.  I would be trading futures every day and raking in money like Warren Buffett.  But there is no way that I can predict the short-term price movements of gold or anything else.

If there is one thing that Austrian school economics teaches us, it is that economics depends on human action.  I cannot predict how billions of people in the world are going to act tomorrow and I therefore cannot predict what the price of gold will be.  Maybe some futures trader in Singapore decides to get into a huge position tomorrow.  Maybe a whole bunch of Indians decide to buy gold for their daughters.  Maybe Ben Bernanke makes a special announcement that the Fed is changing its policies.

Because of all of the variables, it is impossible to predict the short-term price movements.  But we can make some predictions with a certain degree of accuracy.  We can predict that the U.S. federal government will continue to run up debt and spend money like crazy in the short term.  We can predict that the Fed will continue to monetize debt in the future if it feels it is necessary to keep interest rates down or to keep a major crash from occurring.  We can predict that an increase in the money supply will likely lead to an increase in prices, especially in things like gold.

I can’t even be certain that the Fed will continue to inflate.  Strange things can happen in this world.  Maybe Bernanke will resign and someone new will come in and stop monetizing debt.

While I can’t be certain that gold will go up in terms of U.S. dollars, I think it is highly likely to happen over the next few years, given the circumstances.  With that said, if you have been a procrastinator in buying gold and gold related investments, now seems to present a good opportunity.  Again, it may go down more in the next few weeks or months, but if I could call the exact bottom, I would be really wealthy.

I have often heard people talking about politics and they refer to others as being dumb, out of touch, or apathetic.  Then they say something like, “some Americans just want to watch American Idol while they let their nation get destroyed.”  You can substitute “American Idol” for other activities like reading celebrity gossip, watching football, playing video games, etc.

I use American Idol here because I happen to watch American Idol.  I am not at all ashamed to admit it and I don’t think there is anything wrong with that.  I don’t really care for people who like to pass judgement on others in such a way.  Just because someone likes to watch American Idol or do some other activity, doesn’t mean they necessarily don’t care about the political system or the world we live in.

Of course, some people who watch American Idol may not take any interest in politics or anything related.  They may be apathetic when it comes to discussing the latest legislation or the latest scandal with a politician.  In some ways, who can blame them?

But here is the most ironic thing.  Oftentimes, when I hear someone talk about our “American Idol nation of people who don’t care” (or something like that), it is usually the accuser who is way off base.  This person, instead of watching American Idol, listens to Sean Hannity or Rush Limbaugh and is mostly backwards in their thinking.  They may understand a few things and know current events better than the average American Idol watcher, yet I think I would prefer the American Idol watcher.

The American Idol watcher is oftentimes less brainwashed than the accuser of others being ignorant.  The American Idol watcher does less damage, in at least not explicitly consenting to big government and empire.  It is often the accuser who is more ignorant in many ways.

I have also heard libertarians make comments like this and I don’t really like to hear it.  They are perhaps correct that people should not be so apathetic.  Yet, from an economist’s point of view, the person watching American Idol may actually be making a rational decision.  He may derive more benefit from that than spending his time trying to get the “right” people elected, which never seems to matter anyway.

People are always going to have their hobbies and their interests.  If reading celebrity gossip or watching certain television shows is part of that, then it is no big deal.  You can watch American Idol and still understand the political process and current events.  For those listening to Sean Hannity, I would actually say that you are better of watching American Idol.  At least you won’t get brainwashed into promoting big government policies.

I have hit on this theme several times in the past.  I wrote about it last fall.  I wrote about it a few months ago.  It is inevitable that Greece will withdraw from the euro zone.  The country will no longer be part of the European Union.

The media and the establishment (that is partially repetitive) are finally admitting this fact.  Some of the people in the media may be dumb, but I can’t imagine they all are.  The elitist politicians, lobbyists, bankers, etc. are not that dumb.  Some of them may be, but most of them are more evil than dumb.

The headlines for the last couple of days in the financial markets is screaming that Greece may depart from the grand experiment that is called the European Union.  It was another step forward for the one-world government promoters.  Now they are seeing their dreams shattered.  The ironic thing is that their own socialist/ fascist policies have helped lead to the break up.  I assume that since the establishment is admitting that Greece may leave, that it will happen quite soon, maybe in the matter of days.

Look at what the interest rates were on one-year and two-year bonds from the Greek government.  The yield on the one-year went over 1,000%.  It is no longer tracked, presumably because it went into default.

All of those bailouts from Germany and others and where did it get them?  They basically just propped up the Greek system for a little longer than it needed to be.  It was wasted resources.

If and when Greece leaves, one of two things will happen.  The government has made promises in the past that simply cannot be kept.  It can deal with these by directly defaulting on them (just as they will do with their official government debt, also known as bonds).  It can also default on them by printing money.

Greece does not control a printing press right now.  It is much like the state of California.  That is why their day of reckoning has arrived sooner than others (like Washington DC).  When Greece leaves the euro zone, it will go back to its own currency.  It will have its own central bank again.  It will be free to use money creation as a tool to pay off some of its promises.

I hope that Greece does not do this second option.  It will lead to severe price inflation and will only continue the great malinvestment.  Greece needs to start with a clean slate, or at least as clean as possible.  Maybe they won’t cut off the welfare checks for people in their 80’s.  But anyone with government pensions, early retirements, and other government handouts should be cut off, almost immediately.  It is harsh, but the alternatives are worse.  I understand that many of these people worked hard in previous years to “earn” these pensions.  But it was the government that made these promises and current residents should not be forced to pay.

If Greece drastically cuts back spending, regulation, and taxation and has a reasonably stable monetary policy, then growth can return there.  On the other hand, if Greece continues in its ways and continues its big government policies and central planning, then we can expect massive price inflation and an economy that continues to deteriorate.  It will mean a lot of poverty for a lot of people.  Let’s hope the people decide on the first option.

One of the themes I have been hammering away at lately is that of government debt and the burden it imposes on us.  It is common to hear people say that we should not keep running up government debt because it is harming future generations.  But my position is that it is not future generations who are paying for it.  The harm government debt brings to future generations is because of the lack of savings and capital investment in the present.

Future generations can simply decide not to pay the debt that was previously run up.  In that scenario, it will be the bond holders who are left holding the bag.  But regardless of how resources are redistributed in the future, government debt is harmful to people in the present day.

For round numbers, the U.S. federal government is currently collecting about $2.5 trillion per year, while spending about $4 trillion.  This leaves a deficit of $1.5 trillion.  (I am just using these as approximate figures, as the yearly deficit is a little lower.)

If the federal government weren’t spending that additional $1.5 trillion in deficit spending, then it would instead be left in the hands of people and businesses who would choose to save it, invest it, or spend it.  When the government spends this money, it is being misallocated.  It is not necessarily all going to waste, or even destruction in the case of war.  Some of the money could be going to useful things like roads and bridges.  However, politicians (or anyone else) do not know the preferences of hundreds of millions of people.  So even if you had a group of really smart and really honest politicians, they would not know how to properly allocate trillions of dollars based on the wants and needs of hundreds of millions of people.

Since resources are misallocated, we are all poorer.  Our standard of living is less than it should be.  The government debt and overall government spending is hurting the current generation.

The U.S. government can cover this up for longer because of the Federal Reserve and its ability to create money out of thin air.  But even in the U.S., families are struggling more than ever and it is mostly because of the high levels of government spending and government debt.

A good example to look at right now is Greece.  It is a real world example of how massive government debt hurts right now.  The people living in Greece right now are not worried about future generations having to pay down the debt.  The debt will be gone anyway when the Greek government defaults in full.

The Greek people are suffering right now because of the massive debt and massive government spending.  The standard of living for the average Greek resident has fallen substantially.  Some people are just struggling to put food on the table.  The government has made so many promises (that can’t be kept) and has spent so much money (misallocated resources), that it has actually led to a decline in real wealth.  They are paying the price right now, in the form of poverty.

As the U.S. government continues to spend like crazy and accumulate more debt, it is not our unborn grandchildren that we should worry about most.  It is the people suffering right here and right now from a massive overdose of big government.  If the government drastically cuts spending as it did after World War II, then we will see a big improvement in living standards in a short period of time.

The Dow is below 13,000.  Gold is below 1,600.  Oil is below 100.  The 10-year yield is just above 1.8%.  The roller coaster ride is continuing.

It looked like we were in the midst of a mini-inflationary boom.  While the Fed’s tripling of the monetary base in the last three and a half years has not produced massive price inflation, some of it has gone into certain sectors.

If you are an investor in the stock market, times have seemed somewhat decent lately.  If you are a middle-class consumer, then your trips to the gas station and grocery store have not been all that pleasant, as you see rising prices.  Rising prices affect different people in different ways, but overall it is a negative thing in the long run.

I don’t know where things go from here.  A few down days don’t necessarily make a trend.  With all of the massive malinvestment that has taken place, particularly in the last 4 years, we are going to experience pain in the future.  If the market turns back up from here and we continue a little inflationary boom period, it will just mean more pain later on.

However, it worries me the other way too.  We need a liquidation of the bad investment and a proper reallocation of resources determined by the marketplace.  In that sense, a downturn would be a good thing.  What worries me is different though.  If we go through a somewhat severe downturn, then I am afraid of what the Fed might do.  If the Fed goes into QE3 and creates a new round of massive monetary inflation, we might be in for some real trouble.  I’m not sure if Bernanke and company really understand the egg shells they are walking on.

It continues to be a fight between an artificial boom and a recession or depression.  The two sides are tugging back and forth.  If one side tugs too hard, everyone might go over a cliff.  I would rather go off the depression cliff, but I’m afraid that the Fed might yank us over the inflationary cliff, which would actually do more damage in the long run.

I expect the roller coaster ride to continue.

For anyone in doubt about where Mitt Romney stands on economic issues, he has made it quite clear that he is a Keynesian.  Of course, anyone already paying attention should know this, but his latest comments at a town hall event in Cleveland leaves no doubts.

Charlie Munger, vice-chairman of Berkshire Hathaway, has chimed in on gold.  He said, “Gold is a great thing to sew into your garments if you’re a Jewish family in Vienna in 1939, but I think civilized people don’t buy gold.  They invest in productive businesses.”

This seems to echo his partner/ boss, Warren Buffett, who is not a big fan of gold either.  While these two men are businessmen, they are also partially thugs, dressed in ties.  They have no problem pushing for bigger government and they have no problem in using the power of government to benefit their own businesses.

Munger is 88 years old and Buffett is 81 years old, but I have little tolerance for them.  I can be somewhat sympathetic to the man on the street who is naive about economics, politics, and monetary matters.  The average man on the street simply doesn’t know better.  However, with these two, it is hard for them to use that excuse.

Ironically, Warren Buffett, who is a statist and an Obama supporter, really has no excuse.  His father, Howard Buffett, was one of the great congressmen of the 20th century.  He probably ranks second behind Ron Paul as the most libertarian politician in Washington DC.  He was a strong advocate for peace and free markets.  This included his support for a sound monetary system.

Munger says that civilized people don’t buy gold, but he is the one who is not civilized.  He wants to use the monopoly power of government to threaten violence on others who don’t share his world vision.  He uses the power of the government to stifle competition and give Berkshire an edge using statist means.

If it weren’t for statists like Munger and Buffett out there, then people might be more likely to invest in productive businesses.  But when the government makes it extremely difficult to start businesses and then makes it even more difficult to succeed and compete with behemoths like Berkshire, it is hard for the little guy.  Since he can’t make it big like these two, the little guy might try to protect what little wealth he has by buying gold.  Who can blame him with people like Buffett who supports more taxation and more big government policies under Obama?  This all leads to more money creation by the Fed and a depreciating dollar.  Yet Munger has the gall to say that civilized people don’t buy gold.

I have no use for these two men.  They are not at all the embodiment of American capitalism.  They are what is wrong with the system today.  They are protectionists who hurt the little guy by advocating big government.  And now they are telling the little guy that he is not civilized if he tries to protect what little wealth he has.

The national convention for the Libertarian Party (LP) is wrapping up in Las Vegas.  The LP has nominated Gary Johnson, former New Mexico governor, as its presidential nominee.  Johnson won on the first ballot easily with about 70% of the vote.  The only other person who had any kind of a chance was Lee Wrights, who received about 25% of the vote.  Jim Gray was chosen as the vice-presidential nominee.

It is a little disappointing for me.  It is a disappointment to see the LP continue in this direction, it is disappointing for the country, and it is disappointing for the cause of freedom.  I don’t think it is a major setback for liberty, but I think having Wrights as the nominee would have been much more positive in the short run.  I wrote a piece on this back in late March, basically saying that Wrights should be the nominee.

I have nothing personal against Gary Johnson.  He seems like a decent guy.  I just don’t believe he is a principled enough libertarian.  Of course, he is leaps and bounds better than Romney or Obama, but that is not saying much.

There is a reason that Gary Johnson could not even get 1% support in most polls in the Republican race.  Meanwhile, Ron Paul was (or is) polling in double digits in many of the same polls.  If someone is going to put themselves out there as being completely different (in other words, libertarian), then why would they choose someone like Johnson?  He parses his words.  He said that he wants to end the war on drugs at the LP convention, but he was preaching to the choir.  During the time he was running on the Republican ticket, he would just say that he wants to decriminalize marijuana.

Taxes are another good example.  Ron Paul and Lee Wrights both want to end the income tax and replace it with nothing.  Gary Johnson wants the “Fair Tax”, which would be a massive national sales tax.  If you are going to promote such a bold idea as getting rid of the federal income tax, why would you advocate replacing it with a massive sales tax?  That position is not going to be attractive to that many people.  The Fair Tax is seen as too radical by many people.  If you are going to get labeled as “too radical”, then it should at least be for something significant that would progress us towards liberty.

Foreign policy is another example.  Paul and Wrights are anti-war and are not afraid to make it known.  Johnson, while again much better than Romney or Obama, parses his words.  If Johnson were to become president (which he won’t), we can’t be sure if he would bring the troops home right away.

Even Johnson’s time as governor of New Mexico is highly questionable for libertarians.  While he vetoed a huge number of bills, state spending still went up on his watch.  He even brags about having kept public education spending up so that he could push for school vouchers.  Again, this is not much of a libertarian position.

I think Johnson is more honest and principled than Bob Barr, who was the LP nominee in 2008, but that isn’t saying much again.  Barr was a total disaster for the LP, and apparently many people did not learn that lesson.

My guess is that there are about 2 million enthusiastic Ron Paul supporters in the country right now.  Assuming Paul doesn’t get the Republican nomination, where will they go?  Lee Wrights would have been an easy choice.  Gary Johnson is a more difficult pill to swallow.

I hope that the LP can get back to nominating principled candidates like Harry Browne and Ron Paul.  The 25% who voted for Lee Wrights are the highly principled libertarians.  If just a tiny percentage of the Ron Paul crowd switched over to the LP, it might tip the scales back to the Libertarian Party nominating highly principled candidates once again.

There are a lot of competent people in the world, particularly in their niche.  They are considered very smart in their field of work.  Many people don’t realize how smart Michael Jordan was on the basketball court.  People think of him as a great basketball player.  They think of him soaring through the air and dunking.  I thought Michael Jordan was actually at his best during his last couple of years with the Bulls.  He was an incredibly intelligent player who knew how to manipulate his opponent’s weaknesses.

Michael Jordan was an incredibly talented basketball player and very smart on the court.  He is probably quite intelligent in other areas of life too.  It does not necessarily mean that I would take investment advice from him.

Warren Buffett has had incredible success in investing, yet he doesn’t understand free market economics.  If he does understand, then he is basically evil for promoting what he does.  He is the opposite of his father.  Howard Buffett was a great libertarian congressman who understood the benefits of free markets and less government.

It actually astounds me how many brilliant people there are, particularly in their field of work, who seem to have the mentality of a 5 year old when it comes to understanding free market economics.

My main word of advice here is to be careful about listening to experts.  The more intelligent the person is, the more of a risk there is that you may be guided down a bad path.

I even see bad investment advice in the libertarian/ Austrian school arena.  Peter Schiff was great in calling the housing bubble.  He has been great in advocating gold.  Yet, he had his clients in international stocks that went tumbling down in 2008.

Robert Murphy is another great free market economist.  I consider him to be brilliant on many levels.  Yet, he has been admittedly wrong in some of his predictions.  He did not call the housing bust like Schiff did. He also predicted high price inflation.  While his prediction may still come true, his timing was at least bad.

There are other free market economists who have made some bad calls.  While they understand that economics is all about human action, they don’t necessarily do a good job in predicting how humans will act.

If Austrian school economists get things wrong, how do you think others are going to do when they don’t even have a sound and correct basis for their thinking in economics?

You may know someone who you consider really brilliant.  Yet, they are most likely not that brilliant when it comes to understanding free market economics.  If that is the case, then think of this person whenever you hear some talking head on television giving out investment advice.  If you understand Austrian economics, you may know more than the person on television.

In today’s world of fiat money, it is hard to know how much you need to retire.  Life expectancy is a guess and health costs are skyrocketing.  There are a lot of other variables.  Of course, the biggest variable and the biggest threat to your retirement is the debasement of money.

If you lived in the late 1800’s in America, you could save your money without investing it and you could be reasonably certain that it would hold its value.  When money is backed by gold, the only inflation you have to worry about is from gold miners.

So what is the best way to determine a good retirement target amount?  You can’t say that you need a million dollars, because the target is moving.  By the time you reach that goal, one million dollars may not buy you that much.

There is the option of measuring it in gold.  You could say that you need 500 or 1,000 ounces of gold to be wealthy enough to retire.  The problem here is that gold is not the everyday money that we use in today’s society.  In the year 2000, 1,000 ounces of gold would have been worth just $300,000 at 300 dollars per ounce.  Today, with gold near 1,700 dollars per ounce, 1,000 ounces would be worth 1.7 million dollars.  While prices have risen in the last 12 years, they have not gone up by a factor of 5 or 6.  This illustrates that measuring your wealth just in weight of gold is not a good measurement.

You could set your target in dollars and then adjust it each year according to the CPI, but then you would be relying on government statistics, which may understate the actual inflation rate.

As I have written before, I think using real estate may be the best measure for wealth accumulation and for a target retirement number.  If you own 10 properties free and clear (no mortgage) and each one is worth $100,000, then your net worth in properties is a million dollars.  But let’s estimate rental income, instead of worrying about the value of each property.  Let’s say that you could rent out each place for $1,000 per month.  But you still have expenses for HOA fees, property taxes, insurance, repairs, and other administrative costs.  Let’s say these add up to $500 per month (which is probably on the high side in most areas).  You net $500 per property per month, times ten properties.  That is $5,000 per month or $60,000 per year.  If you can live on $60,000 per year right now, then this is a good target number.

So why do I like using real estate?  The reason is because rents don’t fluctuate much.  It is not like the price of gold where futures markets are driving prices up and down on a daily basis.  Rents are more stable.  However, rents do tend to keep up with inflation over time, so it relieves some of the anxiety over central banks creating money out of thin air.

This is not a perfect measurement, but I don’t think you can come up with anything perfect in today’s world.  Perhaps it could be some combination of dollars and gold.  If anyone else has any suggestions on this topic, I would be glad to hear them.