There is a lot of talk on the internet, and even by the Ron Paul campaign, that the media is not reporting what is actually happening in the race for the Republican nomination.  It has been pointed out, even by Ron Paul himself, that many of these primaries are basically just straw polls and that many of the delegates have not even been decided yet in states where voting has already taken place.  This article published a couple of weeks ago is fairly representative of some of the things I have been reading and hearing.

I hate to be the bearer of bad news on this one.  I really don’t want to rain on anyone’s parade.  Please don’t take this as being negative.  Please don’t think that I’m telling you to give up.  Please don’t think I am telling you not to vote or voice your opinion.  But I am going to be a realist here and tell you that the chances of a Ron Paul presidential Republican nomination are extremely slim.

Does anyone really believe that Ron Paul can win this, even if it did go all the way to the convention?  The Ron Paul camp is trying to win this on the technicalities of the Republican Party rules.  If anyone is going to win based on technicalities, it sure isn’t going to be Ron Paul.  If anything, if Ron Paul were actually the front runner, I would be waiting for dirty tricks by the insiders to try to snatch it away.

Even if it did go to convention, I don’t see how Ron Paul could have a majority of the delegates, even after the delegates are no longer “committed”.  If anything, it would be Santorum, Gingrich, and Romney teaming up to make sure that the nomination does not fall into Ron Paul’s hands.

Based on my outlook, I have no reason to be disappointed at this point.  A lot of libertarians thought this was our last chance.  They thought that the whole point of the Ron Paul campaign was to win and that nothing else mattered.  I had no delusions about this.  I knew his chances would still be slim.  I am positive about the whole thing from an education standpoint.  There are hundreds of thousands of new libertarians now because of the Ron Paul campaign.

As far as the Republican race goes, Mitt Romney will be the nominee.  As I write, he is projected to win Wisconsin, Maryland, and Washington DC.  Romney has been the front runner ever since Rick Perry took a nose dive.  Perry was really the only person capable of beating Romney.  But Perry was a horrible debater and had some really bad advice.  Santorum and Gingrich never really had a chance.  Santorum wants to shove his religion down the throats of others.  He would have been destroyed by Obama.  And Gingrich has too much personal baggage, along with an unlikeable personality.

You are going to see more and more politicians line up behind Romney now.  We have seen those great conservatives (that’s sarcasm) like Paul Ryan and Marco Rubio line up behind Romney.  The rest will soon follow, with certain exceptions like Ron Paul.

I think Ron Paul should continue his campaign for educational purposes, assuming he doesn’t run on a third party ticket.  However, I don’t think the Ron Paul campaign or Ron Paul supporters should go around pretending that he can still win the Republican nomination.

There has been a lot of news lately on the lottery.  There was a jackpot worth $640 million, although not really when you take the lump sum and you take away all of the taxes.  There were three tickets that won.  The ticket sales for this one drawing were reportedly near $1.5 billion.

I consider the lottery like a tax on the poor.  Maybe a tax on the lower class is a better description.  Sure, there are middle class people who buy tickets and there are even people with good incomes and high net worths who buy tickets.

There is a difference between poor and lower class.  I have seen a description of class as your outlook for the future or your time preference.  If you have a low time preference and can look far into the future, then you are not lower class, even if you don’t have much money.  People who live for today and who have a high time preference are lower class.  It doesn’t mean you can’t have fun today.  But you do need some planning in life to get out of that lower class mentality.

The lottery is a joke.  For this particular one, the odds of winning were about 1 in 176 million.  I’m not looking down on you if you bought a ticket.  Perhaps you wanted to be part of the mania.  But if you were banking on your retirement plan coming through with 6 winning numbers, then you better have a plan B.

The lottery makes most people poorer.  When I say “most”, I mean probably 99.999% of people who play.  It is like a tax.  The government takes a good cut of the money to pour into the state indoctrination systems, otherwise known as schools.  Governments also use the money for other things like buying votes, paying lobbyists, and making more people dependent on government.

If I am going to give up my money gambling, I would rather send it to a casino which is a legitimate business.  Lotteries are a government monopoly.  And the governments take a much bigger cut than the house in a game of blackjack, or even playing the slots.

I could never figure out why people all of a sudden get so excited when the jackpots grow to huge amounts.  There are some people who drive long distances to other states just to buy lottery tickets for that one drawing.  Some people spend twenty dollars, forty dollars, a hundred dollars, or even more at the chance to win.  Why weren’t these people doing this when the jackpot was smaller.  Is three million dollars or ten million dollars not enough for you?  You get “serious” about it when it gets up into the hundreds of millions?

The ironic thing is that the odds are much better in the other games.  For this last huge jackpot, you have to pick the Mega Ball number exactly.  In other lotteries, you can pick any six numbers in any order.  Your odds are much better, even if still remote.  So again, three million dollars isn’t good enough for you?  You will only make a big effort if the jackpot is in the hundreds of millions?

Of course, we have all heard the stories of lottery winners who go broke.  Worse, they end up ruining their lives or the lives of others with drugs, depression, greed, etc.  These are the lower class people.  They probably make up a majority of the people playing the lottery.  They don’t know how to handle getting this large sum of money all at once.  It is overwhelming to them.  In contrast, there are stories about lottery winners who stay grounded and make good decisions, although there seem to be few of these.

If you took everybody in America and took all of the money and divided it up equally amongst everyone, my bet is that 80% of the people would be back near where they started within five years.  The other 20% were probably headed up or down anyway, regardless of the redistribution.

It is not about the money.  It is about mentality.  Some people can see into the future and plan and others will live for today.

In conclusion, libertarians should not worry about fractional reserve banking.  It will be used by the Federal Reserve to inflate the currency as long as there is a Federal Reserve.  In a free society, fractional reserve banking will not take place anywhere close to the extent that it currently does, if at all.  We already have laws that allow people to use the courts to sue for fraud.  We don’t need any more laws.  Our main goal should be to eliminate the Fed by repealing legal tender laws and to get back to sound money.

2012 is potentially a real opportunity for the Libertarian Party.  Will they repeat the mistake of 2008?  Or will they put up a principled libertarian like some previous nominees.  Harry Browne was the nominee in 1996 and 2000.  Ron Paul was the nominee in 1988.  There have also been other principled nominees.  Let’s hope that if Ron Paul is not on the ballot in November, that there will at least be one pro-liberty candidate on there.

Real estate has been in a major downtrend for the last 5 years.  While all real estate is local, it is safe to say that there was a real estate bubble that burst for the large majority of Americans.  The downtrend may continue for a little while longer, depending on how long it takes for the malinvestment to clear.  Mortgage rates are even harder to predict, as it depends on what happens with interest rates in general, which depends on the Federal Reserve’s monetary policy and the overall state of the economy.

I have read and heard people say that now is a terrible time to invest in real estate.  Perhaps that means that we are beginning to see a bottom.  Perhaps not.  But now is not a terrible time to invest in real estate.  It was a terrible time 5 years ago.  In many places, housing prices are half of what they were back in 2006 or 2007.  With the loose monetary policy by the Fed and the potential for it to continue, it is easy to see a scenario where housing prices go up quite a bit from here, at least in nominal terms.

If you are in the right situation and you live in an area where housing prices are a good deal, I think now is an excellent time to start investing in real estate.  If you have some money in the bank and you plan to stay in your current area, then you may have a great opportunity.

So how do you know if you can get a good deal?  One easy way is to calculate the monthly expenses of a place (including mortgage, taxes, insurance, and potential repairs) and compare that to the potential rent.  If you can have a positive cash flow with the rent, then it is probably a good deal.

You should look for a place in a decent neighborhood.  You should look at 3 bedroom – 2 bathroom houses, and not more.  Condos and townhouses may be ok, but keep in mind that they will not appreciate as much and you will also have to include the association fees as a significant cost.

There are different ways to calculate your potential return on investment (ROI).  Here is how I like to do it.  Forget taking a mortgage (even if you may have to).  Let’s say you can buy a place for $100,000.  Let’s say that the taxes will be $100 per month.  Let’s say there are association fees for $100 per month.  Let’s say you can estimate repairs of $50 per month (just as an average estimate).  Let’s say the insurance will be about $50 per month.  Your total expense are $300 per month.  Let’s say you can rent the place out for $1,000 per month.  This will mean a net of $700 per month.  Again, this is without a mortgage.

In that scenario, you take the $700 and multiply it by 12 months.  You get $8,400 per year.  Take that number and divide it by the purchase price of $100,000.  You get 8.4%.  That is your ROI.  Your $100,000 investment will get you a return of 8.4% if your estimates are correct and you keep it rented.

To me, that seems like a decent return.  When you are considering an investment property, don’t worry too much about appreciation.  That will be icing on the cake.  Just make sure to buy in a decent neighborhood where it is unlikely to lose nominal value over the long run.  Worry the most about your ROI.  If you are taking out a mortgage, you want to have positive cash flow.

Many Americans have been financially devastated from the housing bubble crash.  Many feel defeated.  Now is a great time for investors to take advantage of great deals.  You can be choosy and take your time.  If you see something you like and the numbers look good, you can build real wealth over time.

Most of the Republicans have it wrong on Obamacare.  In fact, they are probably more inconsistent with their proposals than Obama.  Since I am a libertarian, I am obviously in favor of a complete repeal of Obamacare, but I think the Republican plan may be worse.  Since the Supreme Court is hearing arguments about the new health care legislation (also known as Obamacare), I figured now would be a good time to discuss the merits of the Republican “plan”.

First, a few side notes on this whole thing.  On Monday, the court heard arguments about whether they could even hear the case based on some 19th century law that says a tax hike cannot be challenged in court until the tax actually takes effect.  I find this strange because some taxes from the legislation have already taken effect.  The tanning tax (is Obama against white people getting a tan and getting some vitamin D?) has already taken effect.  In addition, you can no longer use money from a health savings account to buy over-the-counter medicine without a prescription.  This is basically a tax hike.

I suppose this whole tax debate is centered around the mandate to buy health insurance.  The tax penalty for not buying insurance has not yet taken effect, but there certainly have been new taxes that have already taken effect from Obamacare.

Next, from a constitutional standpoint, this whole piece of legislation is unconstitutional.  The 10th Amendment clearly says that those powers not delegated by the Consitution are to be left to the states or the people.  Since managing health care is not mentioned in Article I, Section 8, the federal government has no constitutional authority to pass legislation regarding health insurance or health care.  Of course, this would also mean that the federal government should not be doing anything like Medicare, Medicaid, HMOs, and the thousands of other things it does in health care.

The ironic thing is that if there is one thing the federal government does have the power to do based on the Constitution, it is regulating interstate commerce.  That means the federal government could strike down state laws which prohibit people from buying health insurance from another state.  This would actually create more competition and reduce costs.  Therefore, the one constitutional thing that could be done by the federal government is not done and it is one of the few things that would make health care and health insurance cheaper (aside from repealing all of the federal laws).

So why are the Republicans actually worse than Obama and the Democrats on this?  Most Republicans that I listen to say they support certain aspects of Obamacare, but they don’t support the insurance mandate.  Of course, this does not include Ron Paul and a few others.  But most of the Republicans I hear, even the supposedly conservative ones, say they support a law that requires insurance companies to not discriminate based on pre-existing conditions.

This is completely ridiculous.  Not discriminating based on pre-existing conditions defeats the whole point of insurance.  It would no longer be insurance.  If I can just buy insurance after my house burns down or after I get in a car accident, why would I ever get it in the first place?  If the Republicans have their way, people would wait until they get sick before they buy insurance.  That means that the healthy people would be less likely to get insurance and insurance companies would get stuck covering mostly sick people.  This would drive insurance rates sky high.

The ultimate result of the Republican plan would drive health insurance companies out of business or make insurance completely unaffordable.  It would be a sure path to fully nationalized healthcare.  So based on the plan being spouted by many Republicans, we would surely have socialized medicine.

Obamacare, while fascist and a boom to insurance companies, actually makes more sense.  People would be required to buy health insurance or face a penalty (tax).  Therefore, people would not be allowed to just wait until they get sick and then buy health insurance, unless they chose to pay the penalty.  Obamacare is actually less of a disaster than the plan being proposed by many Republicans.

The Republicans are saying that nobody should be forced by the government to buy anything.  I agree.  But most of the people saying this are completely hypocritical.  We are forced to buy nearly 4 trillion dollars worth of things every year by the federal government, along with an almost equal amount by state and local governments.  For every tax that I pay, I am being forced to buy something I don’t want to.  I am being forced to buy wars, food stamps for others, education for other people’s children, etc.  At least with Obamacare I am being forced to buy something that I can actually use for myself and my family.

This is not a defense of Obamacare.  I just wanted to point out the absurdity of the Republican “plan” and the absurdity of the arguments being made by many Republicans.

In conclusion, I hope that Obamacare is repealed.  However, if the Supreme Court strikes down the insurance mandate while leaving the rest of the legislation in place, it could be a total disaster for health care in the future.

There was an article on LewRockwell.com, by Robert Wenzel of the Economic Policy Journal, discussing a gold bar that had been filled with tungsten.  Tungsten can be used to make fraudulent gold bars.  Gold is a very dense metal and tungsten is the only substance that comes close to gold in density.  Since tungsten is much cheaper than gold, a gold bar filled partially with tungsten would be worth a lot less than what is supposedly being sold.

One of the points of this article was to point out the potential fraud in Fort Knox.  Perhaps the U.S. government owns a lot less gold than what is thought.  If this was discovered, it wouldn’t mean all that much to you as an individual.  It would be interesting to know.  It would make people realize that their government is dishonest (as if you need anything else to realize that).  It would mean that the government is a few days closer to bankruptcy than we thought.

As an individual investor, I think it is good to own a small amount of actual gold and silver.  You should not get carried away with buying the actual metal due to the risk of theft or fire or some other accidental loss.  Even keeping it in a bank safe deposit box is not a guarantee.  Even there it could be subject to an accidental loss or a government seizure.  At some point, you should put a little bit of faith in the whole system and buy gold and gold related investments in other forms, even if it is through a warehouse.

But to start out, it is a good idea to own some actual physical gold and silver.  In regards to the referenced article, I would not worry too much about being defrauded.  First, I would stay away from any large quantities of gold (or silver) in one piece.  The largest piece of gold you should buy is one ounce.  The article referenced a 1 kilo bar, which is over 32 troy ounces.  It is much harder to fill a one ounce gold piece with tungsten.

Second, I would stay away from bars.  It is better to stick with common coins such as the American Gold Eagle.  This coin is easily recognized and hard to counterfeit.  The eagle comes in four sizes: one ounce, half ounce, quarter ounce, and one-tenth ounce.

Third and finally, I would buy from a reputable company or dealer, especially if you are unsure.  You can shop around and find the best prices from companies that are established.  You can also try to find a local gold dealer who you trust and who has decent prices.

So remember, stay small and stay in coins.  Then you don’t have to worry about being defrauded.  If there are gold bars in Fort Knox filled with tungsten, then that is someone else’s problem.  The U.S. government is almost insolvent anyway, unless it resorts to mass inflation.

Taxation, regulation, spending, and monetary policy all have a big impact on a nation’s economy.  But what matters most?  Of course, it depends on the degree of each one.  If there were a regulation that said you are not permitted to start a business unless you first hire 100 employees, then this would almost completely stifle a nation’s economy if enforced.  If you have a lot of regulations and yet they do not really impose any significant cost to businesses and individuals, then it will not harm the economy much.

The same goes for all of these.  And really, all of these things are inter-related in different ways.  Taxation can affect spending and spending can affect taxation.  The same can be said with monetary policy.  The size of government affects all of these areas.

But if you could fix one thing first, what would it be?  It is difficult to say.  If you didn’t have a central bank and the government did not have a monopoly on the money supply, then it would not be able to spend as much.  It would also not be able to run up massive debt.  The federal government would be more like state governments are today.  It could still spend quite a bit and do a lot of damage, but it would be forced to scale back in hard times.

On the other hand, if you dramatically cut spending, then it would not be necessary for the central bank to create money out of thin air.  The debt monetization would not be needed.  You don’t need a central bank to buy government debt if there is no government debt to begin with.

Regulations are quite difficult to measure.  Just by being aware of the many thousands of pages of regulations put out by Washington DC, you have to know that they are a significant cost to Americans.  Even here, if there were very low spending and taxation, many of these regulations would not be enforceable.

I used to think that taxation was the biggest issue in driving an economy.  While I still think it is very important, I’m not sure that it is the number one thing to look at.  The 1950’s in America were a relatively prosperous time.  Think of Leave It To Beaver.  The husband went to work.  The wife stayed home.  Times were pretty good for most Americans.  Medicine was cheap.  That part we can thank the low regulations in healthcare at the time.

However, the 1950’s also had one of the highest marginal tax rates in history.  You can see the history here.  The top tax rate was over 90% at some points in the 50’s.  This was draconian.  Luckily, taxes for the average American were much lower.  Overall spending was much lower.  Deficits were low.  Monetary inflation was relatively low.

I think the biggest drivers of a nation’s economy are monetary policy and overall spending.  They are related.  If the government didn’t spend so much, we would have lower taxes and more stable money due to less debt.  But again, the government wouldn’t spend so much without the Fed there to create new money out of thin air.

Monetary policy is huge.  Debasing the money is really degrading to a civilization.  It redistributes wealth.  It misallocates resources.  It rewards debtors at the expense of savers.  It causes bubbles, booms, and busts.  It allows government to continue to grow.  It allows government to run up the debt.  It allows government to start wars without new taxation.  It allows banks to take bigger risks.

In conclusion, all four of these areas are important to an economy.  While tax reform and tax relief are important,  I believe the government and central bank’s control over the money supply is the biggest factor, along with the overall spending.

Yesterday, I discussed the wonders of compounding interest and the benefits to an individual investor.  For this post, I want to talk about compounding interest applied to an entire society or civilization.

Just as an individual can accumulate great wealth over time with compounding interest, a society can also accumulate great wealth.  It is the same concept.  If the economic growth of a particular area averages around 4% per year, then that area will be twice as wealthy about every 18 years.  But you have to realize that after another doubling after the next 18 years, then the people will actually be 4 times better off than 36 years ago.  After another doubling, they will be 8 times better off.

Despite the economic growth of the 20th century, the 19th century was actually more prosperous for America, in a sense.  There was great economic growth through most of the 1800’s.  We saw the great results in the 1900’s, even though growth was lower (as an average) during that time.  The 1900’s were so great (at least some of the time) because the wealth was being built off of what was already accomplished in the 1800’s.

While technology certainly plays a big role, it is actually capital investment that is the main thing that makes this happen.  People save money and invest their excess capital.  This enables people to be more productive.  This allows them to save even more and invest even more, which leads to even more production with less labor necessary.

If America had the massive government spending, regulation, and bureaucracy in the 19th century that we have today, the people then would have been really poor.  The people of the 20th century also would have been really poor.  And we would be far worse off today.

We are a quite wealthy society now, especially compared to anything a hundred years ago.  This is in spite of the massive government we have.  If we didn’t have the massive government, then we would be that much more prosperous.  But most of what we have today is due to the previous capital investment that took place previously over hundreds of years, or more.

It has been said that the American Founders would have had more in common with the people living in the era of Jesus than with us today.  In other words, there was not that much advancement for a couple of thousand years.  Something happened in the late 1700’s and early 1800’s where the economy got going.  Much of this is due to freedom in Britain and America (at least economically speaking).  The economy was like a car that needed an initial push to get it going.  Once it got going, then it could accelerate.

Even a small 2% growth can add up significantly over time.  People don’t notice it unless they look back several years and compare the living standards.

With the tough economic times (due to the massive government and central bank), it is still important to have some economic growth.  It can give us hope that we can get beyond the government interference enough to continue to prosper.  If we ever did get government off of our backs, we could see real growth at 5%, 10%, or more.  Our standard of living would increase at a staggering pace.

It is often surprising how few people understand the power of compounding interest.  It is a powerful thing.  A lot of investment companies will sell their products by giving you examples of compounding interest.  For example, if you invest $10,000, just one time, at the age of 20 and earn a return of 6% every year, you will have over $137,000 by the time you reach age 65.

It is called compounding interest, but “interest” just refers to the rate of return.  You can make your return by earning dividends or capital gains and it doesn’t have to be with stocks.

While it is a lot harder these days to get a decent and consistent return on your money, compounding interest is still important, especially if you are relatively young.  You don’t need a lot of money to start building a portfolio.  It may seem small at the start, but if you stay with your plan and you keep contributing money, even in small amounts, it can add up to a big sum later on in life.

I think one of the best things to look at right now is real estate.  In many places in the U.S., houses have fallen 50% or more in price.  In many places, you can buy a house with 20% down and actually get positive cash flow.  You will get a return on your money every month (assuming no major repairs).  Plus, you will be slowly paying down the mortgage.  Plus, you might even get capital gains one day on the price if the housing market recovers.  While houses may or may not go up in real terms, monetary inflation is likely to eventually drive the nominal prices higher.  Meanwhile, you can pay off (or your tenants can pay off) your fixed-rate mortgage with depreciating money.

Outside of real estate, I advocate that you invest in something like the permanent portfolio as described in Harry Browne’s book Fail Safe Investing.  It is the best thing I know of that will allow you to sleep at night.  It has been quite consistent in providing good solid returns above the inflation rate.

Tomorrow, I am going to continue on this subject of compounding interest, but instead of applying it to individual investors, I am going to apply it to civilizations.