The latest CPI numbers came out showing that price inflation was 0.1% for March 2023. The year-over-year rate came down to 5%.

The median CPI came in at 0.4% for March, while the year-over-year now stands at 7.1%.

This was generally seen as good news by investors, although stocks couldn’t hold on to gains for the day.

It’s interesting that the market is still expecting another rate hike from the Fed, or at least it is slightly leaning that way. But the market is also expecting the federal funds rate to be lower next year than it is now.

So the market is expecting the Fed to hike, probably one more time, and then start lowering rates again later in the year. In other words, a recession is being anticipated.

The Fed Minutes and Blame

The latest FOMC minutes were released, and it wasn’t really good news, although it also isn’t unsurprising.

The meeting summary stated: “Given their assessment of the potential effects of the recent banking-sector developments, the staff’s projection at the time of the March meeting included a mild recession starting later this year, with a recovery over the subsequent two years.”

But let’s be clear on this. It isn’t fallout from the banking crisis that will throw the economy into a recession. The banking crisis is part of the recession.

Some of the same things that led to a banking crisis are setting the economy up for a recession.

There has been a heavily inverted yield curve for several months. We didn’t need a banking crisis to start to tell us that there is trouble ahead.

As with so many things, there is a confusion of cause and effect. Maybe the Fed is purposely inserting this confusion in order to blame the banking crisis and other outside forces on an economic recession instead of their own policies.

Playing Contrarian

The incredible thing is that the Fed is actually admitting there will be a mild recession. So if you are a contrarian, does that mean we should believe that no recession is coming?

I believe it’s the other way. The Fed is saying there might be a mild recession.

In this case, I don’t think the contrarian view is that there won’t a recession at all. It is that there won’t be a mild recession, but a massive recession.

The Everything Bubble is on the verge of implosion. The banking troubles that recently started are just the beginning.

It is not surprising that the CPI has come down a little bit. The Fed has been hiking its federal funds rate aggressively after being near zero. The Fed is popping the bubble in order to get some control of the price inflation that it caused.

To me, it’s clear there is a recession ahead. The banking crisis was just the beginning, and it isn’t the cause of what is to come.

As a libertarian, there are a lot of things I despise about Donald Trump. He surrounded himself by people who hate him. We got an administration of war hawks with Mike Pompeo, John Bolton, and Nikki Haley, just to name a few.

Trump got completely suckered by the COVID narrative. He kept Fauci on for his entire term in office, and Trump allowed Fauci to dictate COVID policy and hysteria. Trump also boasted about his Operation Warp Speed that later led to vaccine mandates.

Trump was better on foreign policy than any other president of the last 40 years, but that isn’t saying much. Trump tore up the agreement with Iran (one of the few decent things Obama did), and the Trump administration ordered the assassination of an Iranian official. He also continued the horrible wars that started before he entered office.

On economic policy, Trump was mostly a disaster. He did cut corporate tax rates, which was good, but he oversaw increased spending and massive deficits.

So I have a long list of criticisms of Trump and his 4 years in office. It’s hard to believe that Biden has been so much worse, but he has.

I will probably vote for Dave Smith in 2024 for president, but I can’t completely discount voting for Trump, and there’s really only one reason why, aside from stopping Biden or some other horrible Democrat.

Taking on the Deep State

Trump has taken on the establishment in many ways, even if his policies haven’t necessarily reflected that. And the establishment has taken on Trump with Russiagate, two impeachments, one indictment (so far), and non-stop hysteria and media coverage about how bad Trump is.

With all that has happened to Trump, you would think that he would be better on the issues. He won’t be better on economics, but he should have an even greater realization of the evils of the deep state than he did in 2020, and certainly compared to 2016.

Trump has been speaking out against the deep state, especially since his indictment. He has been speaking out against the FBI and other intelligence agencies.

A Slim Hope

Chances are, if Trump were to get elected in 2024 and take office in 2025, there wouldn’t be a great deal of difference, policy wise, as compared to his first term. He probably isn’t going to defund the CIA or dismantle the FBI. He probably won’t even surround himself with a bunch of “America-firsters” on foreign policy.

I’d say that the chance of a radical change against the deep state and in favor of liberty would be less than 10%. But with Biden or some other Democrat (aside from RFK, Jr.), the chance is zero percent. Even with some other Republican, the chances of significantly taking on the deep state are almost zero.

So even though Trump probably won’t be any good, there is a small sliver of hope.

To channel Dumb and Dumber, “So you’re telling me there’s a chance.”

Changing Hearts and Minds

Ultimately, we still need to change hearts and minds. It isn’t so much about electing the “right” politicians. But electing some people can help to change hearts and minds, and it can help to get the ball rolling.

Trump has already helped in some ways. The Republican Party as a whole is far less hawkish than it used to be. Ron Paul told Republicans it was ok to be a Republican and be anti war. Most of them weren’t ready for his message yet.

Trump comes along and had the right tone at the right time. He was able to call the Iraq War a disaster, and he really has helped expose the deep state in many ways. The deep state itself has exposed itself by overplaying their hand against Trump.

We have made progress, but more needs to be made. Many Americans have little trust in politicians and the establishment media. They just need to get a deeper understanding of economics, foreign policy, and the nature of the state.

And then it would help to have a little push from the top. If Donald Trump somehow gets elected and takes office again, we can only hope that he will be better and less naive than the first time.

I don’t have much hope in Trump, but at least there’s a chance that he could do something good.

This isn’t the first time I have addressed this topic, and it probably won’t be the last. But it is important to review given recent developments.

The U.S. government continues to act as ruler of the world, and this has only gotten worse since the war in Ukraine. The U.S. government has heavily sanctioned Russia, while expecting the rest of the world to go along with it.

Now we have the presidents of Russia and China getting together and making nice with each other. They are mapping out a future of trade that doesn’t involve the United States, and more importantly, doesn’t involve the United States dollar.

There are also other major countries like Brazil that are heading in this direction. But the biggest surprise may be Saudi Arabia. This country has reliably sold oil in the world market using U.S. dollars for the last half century.

It’s not that Saudi Arabia is abandoning the dollar, but it is telling that there will be oil trades in currencies other than the dollar.

The Dollar is Far From Dead

To be sure, the dollar is still considered to be the world’s reserve currency. It is still the big player in town.

The U.S. is the wealthiest country in the world in spite of the wasteful and destructive spending and high inflation. The U.S. is the economic powerhouse of the world, but it doesn’t mean it has to stay this way forever.

There is a reason that other countries want to do business using U.S. dollars. It has been a relatively reliable and safe currency, and others know it is always in demand.

But it was a terrible play by the ruling elite in the U.S. to sanction Russia and effectively default on certain “obligations”. Russia had smartly dumped most of its U.S. Treasury holdings years ago.

When all of this happened in early 2022, China held over $1 trillion in U.S. Treasury securities. According to the latest report on major foreign holders of U.S. debt, China’s holdings are down to about $860 billion.

So the Chinese are not abandoning the dollar. They aren’t panic selling U.S. Treasury holdings. But it seems they are slowly stepping away from the dollar and at least diversifying more.

All Fiat Currencies are Bad

Sometimes it isn’t a question of which currencies are good. It is more a question of which ones are the least bad.

We live in an inflationary world. Prices on consumer goods go up almost every year. This is true of almost every country on earth.

There is a reason for the existence of central banks. They aren’t there for price stability. They are there for economic control. They are there to help governments spend more money without resorting to direct taxation as much.

So it’s not that the U.S. dollar has been so great over the last hundred years. It has just been less bad than all of the other major currencies.

Perhaps one could argue that the Swiss franc has been less bad, but this is a very small fish in a big pond.

This is why I don’t think any other currency in existence is going to replace the U.S. dollar as the reserve currency.

Europe has as many problems or more as the U.S. when it comes to debt and a fragile banking system. And Europe’s economy is not as strong in general.

The same goes for Japan. The government debt in that country makes the U.S. Congress look conservative with money.

China is certainly an economic powerhouse, but there are still many restrictions, and the yuan is not a freely-floating currency. That right there eliminates it from being the world’s reserve currency.

Those are the big players. The euro, yen, and yuan all have their problems, and it is unlikely any of them will replace the dollar as the world’s reserve currency.

Why Do We Need a Reserve Currency?

Just because the U.S. dollar has had this status since the 1940s, it doesn’t mean that the world needs one reserve currency.

The most likely outcome is for the dollar to just slowly lose its dominance and for countries to trade with their own currencies.

If Saudi Arabia sells oil to China, there is no need to use the dollar. They can trade in yuan.

It is easy to convert into other currencies these days. Everything is electronic. As long as there is convertibility, there is no reason that other countries need to use the dollar as a middleman.

The Golden Possibility

If anything takes the place of the U.S. dollar as the world’s reserve currency, it isn’t going to be another fiat currency.

I believe the only possibility is gold.

In fact, it already serves as something like a reserve currency. There is a reason that central banks hold gold. They don’t hold other commodities that I know of.

Gold has served as a form of money for thousands of years. And even though there are no currencies backed by gold at this time, the gold holdings of central banks help to give some kind of implicit backing to their currencies.

It is a very real possibility that some countries may start to use gold more for international trade. It is also possible that they may start to partially back their currencies.

And if this happens with a country like Russia or China, it’s not as if the U.S. government can just invade militarily and put a stop to it.

I hesitate to say that some kind of an international gold system is inevitable at this point, but it is a real possibility in the coming years.

Either way, it is important for individuals to protect themselves from government and central bank inflation, and gold will become a more attractive investment again for this reason alone.

Do you remember Tommy Thompson? There aren’t many people who do. He ran for president in 2007/ 2008. He boldly promised to use America’s vast resources toward eliminating breast cancer by 2015.

If only Tommy Thompson had won the nomination and the presidency in 2008. We would have had a cure for breast cancer 8 years ago. Does anyone honestly believe that? Apparently the Republican electorate didn’t believe it too much in 2007.

He isn’t the first politician to promise a cure for cancer, and he won’t be the last. You’d think with the government’s vast resources, they actually could come up with a cure. Trillions of dollars a year is a lot of money, but we have to take care of Ukraine first.

Cancer has been around a long time, and government promises to find cures have been going on for many decades. The government funds a lot of research to supposedly cure diseases, yet I am hard pressed to think of a cure for a disease that happened because of government. You would think they would at least get lucky once in a while and find something that works on some kind of disease.

The government or private research has been unable to find a cure for the common cold. There are things you can do and take to perhaps lessen the severity of a cold or prevent it from happening in the first place, but even these claims are hard to prove.

And the things that actually do seem to be a little bit effective at helping to get rid of a cold are healthy foods, healthy habits, and supplements. They aren’t things that are made in a lab, with or without government funding.

COVID “Vaccines”

This is an illustration on why it is so preposterous to think that the government funded research that came up with a “safe and effective” vaccine for COVID in the matter of months.

The COVID vaccines were conveniently declared a success right after the election had been decided (or called by the media) against Trump in November 2020. But the world was shut down for COVID in March 2020.

Are we supposed to believe that the pharmaceutical companies, with funding from government, came up with an effective vaccine against a coronavirus in the matter of 8 months?

Of course, anyone paying attention now knows that the so-called vaccines are not safe and they definitely aren’t effective. If anything, the sick people in our society seem to come more from the vaccinated population.

But if anyone had just thought about all of the promises to cure diseases over the years, they should have realized that a magical quick cure for stopping COVID was a dream at best.

It was certainly a fantasy for anyone to believe that COVID vaccines stopped transmission.

How Did We Know?

There are some public figures who are now admitting that the vaccines were not what we were sold. It is like trying to still defend the Iraq War and saying that Iraq really did have weapons of mass destruction. Some people see the writing on the wall and don’t want to look ridiculous fighting a losing battle.

But some of these people say that we just couldn’t know at that time. The problem is that some people did know. Or they at least knew that the vaccines and the propaganda used to sell them shouldn’t be trusted.

I could never guarantee at the beginning that the vaccines wouldn’t be effective. I also couldn’t guarantee that they wouldn’t be safe (i.e, there wouldn’t be significant adverse effects).

I knew that I couldn’t trust the establishment media, and I couldn’t trust anyone in a position of power in the federal government. I also couldn’t trust the so-called experts who get their funding from the government.

So maybe nobody really knew that the vaccines would be unsafe and ineffective, but many of us did know not to trust the people telling us they were safe and effective. Many of us knew that politicians and government bureaucrats have made many promises before that were untrue.

Some of us also realized that it was far too short of a timeframe to properly test these shots, and I can remember some people pointing out that there has never been a successful vaccine for a coronavirus before.

Advocating Force

The other major problem with the excuse makers now is that they advocated for the use of force against others. At the very least, when they were talking about how wonderful the vaccines were at the time, they weren’t saying that it should be a person’s choice whether to take them.

There were a few people who said that, but most of the enthusiastic promoters of the COVID jabs were people who seemed to have little problem with forcing people to take it.

Now they’ll just use the excuse, “But how could we have known?”

Well, first, you could have stopped censoring people who had a different viewpoint. You could have paid attention to people who were warning about the dangers of the COVID jabs.

But beyond that, why was the burden of proof ever on us to show that the jabs weren’t safe or effective? We aren’t the ones who were trying to use force.

It was Biden and company who tried to force about 100 million Americans to get jabbed or not be allowed to work. It is still stunning to this day to think about this. But half the country went along with it. The vaccine enthusiasts, for the most part, weren’t sticking up for the rights of the minority.

Perhaps the only reason the non-vaccinated make up the minority is because so many people were compelled to get the shots or were propagandized with fear and didn’t want to be shut out from society.

No Excuses

There is no excuse for advocating force. If these were moral people, they wouldn’t have been ok with the government forcing these shots on people. Even if you were stupid or ignorant and thought the COVID shots were great, it was immoral to force that on others.

If the COVID shots worked so well, then why do you need to force it on people? People would voluntarily line up to get it. Plus, if it stops infection and transmission, then it shouldn’t matter to you if others don’t get it. That would be their problem.

So while ignorance and stupidity played a big role in pushing the COVID shots, the biggest issue is one of morality. In a moral society, nobody would have been trying to force these injections on others.

There are still many people who just love their COVID shots and will defend how wonderful they are until the day they die. Some people have started to admit that they aren’t that wonderful after all, but it is because they are changing their opinions with the shifting wind. They still won’t offer a sincere apology for spreading misinformation while degrading those of us who were spreading the correct information.

I don’t want any excuses on why someone got it wrong. They have to admit they were wrong and not make up excuses for it, and they need to offer a sincere apology. They also need to admit that they were morally wrong if they did not defend the right of people to not take the shots.

For the people at the top who tried to force these shots on people, they should be held criminally liable. They killed people and ruined many lives, and there is no excuse.

Although the latest banking crisis seems to have some similarities with the financial crisis in 2008, there are some notable differences as well.

One big difference is that we have high consumer price inflation right now that wasn’t the case in 2008. This is probably the big story because the Fed is in a position that makes it more difficult to give unlimited bailouts.

The Fed has already reignited QE, or whatever you want to call it. The balance sheet expanded by hundreds of billions of dollars in March despite its policy of not rolling over $95 billion per month in maturing debt.

We’ll see if the Fed’s balance sheet starts declining again, but it just shows that things can change very quickly. Even if it does start declining again, we could get hit with another bank failure and another Fed bailout at any time.

So while the Fed seemed committed to fighting price inflation (that it created), it seems to be more committed to bailing out bank depositors.

The Fed Takes Away the High

While there is much responsibility to go around, it is hard not to blame the Fed as the primary culprit of the shaky banking system. The Fed’s boom/ bust policies, with wild swings in interest rates, has caused this problem.

The real problem is having any central bank or central authority with a monopoly over the supply of money. But stepping into our statist world of central banking, the Fed has still done far more damage than what could have been. If the Fed hadn’t been so crazy lowering interest rates to near zero and massively creating new money out of thin air, then we wouldn’t be where we are now.

There are many consequences to the loose money. It distorts the economy in many ways. It misallocates resources, and it encourages spending over saving. The consequence that is noticeable – rising consumer prices – finally showed up in 2022. Now the Fed is forced to deal with it.

So now we have gone from near-zero interest rates to interest rates at 3% or 4% or higher.

Why SVB Failed

In 2008, banks and other financial institutions started failing largely because of an implosion of the housing bubble. The financial institutions had stupidly made loans to many people that would not be able to meet the monthly payment obligations.

In addition, they made many loans with very low down payments, so house buyers had very little equity going into the deal.

Of course, this was all fueled by the Fed’s easy money policy before that, but the financial institutions are still partially to blame.

When housing prices started falling, many homeowners were underwater in their mortgage. The house they owned was worth less than the mortgage. So they decided to make a smart financial decision and not pay the mortgage. You can argue whether or not this is the moral thing to do, but it did make financial sense.

The banks were stuck with loans where people were defaulting. This was a large part of the bank failures.

In the case of Silicon Valley Bank (SVB), they weren’t giving out crazy loans to homeowners. They were giving out crazy loans to the government.

Yes, that’s right. The big risky asset that sunk SVB was buying government bonds.

Someone looking at SVB’s financial statements could have easily determined that the bank was being rather conservative with depositor money.

In fact, according to this article by Simon Black, SVB had $173 billion in customer deposits but only had $74 billion in (non-government) loans as of December 31 of last year.

In our world of fractional-reserve lending, this is actually quite conservative.

A majority of depositor money at SVB was put in U.S. government bonds. And that is what sunk the bank.

The Risky Asset

We don’t normally think of government bonds as risky. One of the big risks with any asset like this is inflation. You lend out money and then get paid back in depreciating dollars.

But that’s not the problem with what happened here with SVB.

If you need to sell a government bond, then the value will depend on the current interest rate as compared to the interest rate on the bond.

SVB likely bought most of these bonds when rates were near zero. When interest rates rise, the value of the bond goes down if you need to sell it before maturity.

It makes me think that the people running the show at SVB were more stupid than reckless. They didn’t match up their time horizons.

They were buying longer-term government bonds, like 10-year bonds. But the depositors didn’t have to wait for 10 years to get their money back. They could demand their money at any time. So there was a mismatch.

If SVB had just purchased 1-month or 3-month securities instead of 10-year securities, the bank probably would have been fine. Even if there had been a good mix, it might have been fine.

If you buy a 1-month Treasury bill, you get the whole balance back in one month. If rates have gone up during that time, you can buy another one at a higher rate. If SVB had done this, it likely would have been fine even if there was an unexpected increase in the number of depositors demanding their money.

A Lesson for the Individual Investor

This is why it is so important to be diversified. Even for individuals with a longer time horizon, you can’t predict the future and should have some diversification.

If you buy a longer-term bond, it may lose value if you sell it early, especially if interest rates go higher.

You could hold the bond until maturity, and this seems risk free. But then you have the risk of inflation. When you get your principal amount back at maturity, how much purchasing power will be lost?

If you hold it for 10 years and price inflation is at 7% per year, then your initial investment will have about half the purchasing power from 10 years ago.

Bonds are useful as a hedge against deflation and a depression. They can serve a purpose in a portfolio like the permanent portfolio.

But as we have seen with SVB, U.S. government bonds can be a highly risky asset on their own.

The upcoming presidential primaries will be nothing short of interesting. Some libertarians will say that they are all the same and that it doesn’t really matter who is elected president because they are all controlled by the deep state.

In the past, this was mostly true. As Gary North used to write, it is CFR Team A vs. CFR Team B. That is the Council on Foreign Relations. You could also say Establishment Candidate A vs. Establishment Candidate B.

In 2004, we had George W. Bush against John Kerry in the general election. They are both part of Skull and Bones, a small elitist group out of Yale. It doesn’t get more establishment than that.

Maybe Donald Trump really is controlled by the establishment. He didn’t seem to overturn any major deep state policies while in office for four years. Trump couldn’t even wind down some wars that he seemed to want to end. His own administration got in his way. When Trump tried to pull troops out of Syria, the people he hired stepped in and assured us that we weren’t really pulling out of Syria.

Still, Trump’s rhetoric is one that doesn’t show signs of him being embedded with the establishment. He may hire the wrong people and take the wrong position on some issues, but it is easy to recognize that there is at least something different about Trump.

A Different Slate of Candidates

Following politics can be depressing for a libertarian. It seems as though the worst person wins more often than not. And most times, it really doesn’t matter that much, as the only choices are really bad choices.

Now maybe it’s just the rhetoric, but there is something different this time around. There is definitely an anti government or anti establishment wave of public opinion.

Even if the candidates are completely lying to us, which I don’t think is the case, they at least feel the need to use rhetoric that is anti establishment.

There are a lot of interesting people who are running or possibly running for president beyond Donald Trump and Ron DeSantis.

Dave Smith is likely running for the Libertarian Party nomination, which in itself will make a general election far more interesting. He will find ways to get exposure through alternative media, and he will bring up issues like war and the Fed in a way that Trump would not.

On the Democratic Party side, there is talk of Robert F. Kennedy Jr. running. Sure, he would be smeared as “anti-vax”, but it would be great if he were able to get into a debate with Biden or whoever the establishment favorite is. I highly doubt Kennedy has any chance of getting the nomination from this pitiful and evil party. Much of the party just dutifully obey the orders of their masters.

There are certainly issues where liberty-minded people may not agree with Kennedy, but at least he is honest and courageous. Those are the two most important traits in taking on the establishment.

On the Republican side, there are establishment candidates or possible candidates like Nikki Haley and Mike Pence. Luckily, these evil people are likely going nowhere.

We, of course, have Trump and possibly DeSantis running, who are the favorites. But another interesting person is Vivek Ramaswamy. It’s hard to know where he stands on foreign policy, but he has been attacking the Federal Reserve and saying we need to abolish the Department of Education (music to a libertarian’s ear).

Restoring My Faith in Mankind

If Dave Smith is the LP nominee, and Vivek Ramaswamy is the Republican nominee, and Robert Kennedy Jr. is the Democratic nominee, my optimism for the future will rise to nearly 100%. This would really restore my faith in mankind.

Even if two out of three are the nominees and the other one gets good traction, I will consider it a win.

Out of the three, Dave Smith has the best chance of being the nominee because the party is so small and it is the hardcore people who really get to decide. The LP nomination happens at the national convention as opposed to state primaries.

So right off the bat, this is great news because Dave Smith is a hardcore and principled libertarian who knows how to present the message well. (He will reach even more people when he cleans up his mouth for a general audience).

Ramaswamy may be looking for a VP slot under Trump, but his message is still important. He will force a conversation, at least to a certain degree, about the Fed and other issues. While he isn’t as great as Ron Paul, his presence will likely be similar to that of Ron Paul in the 2007/2008 and 2011/2012 elections.

I have far less optimism with Kennedy running as a Democrat. It’s not because he doesn’t have a lot of valuable things to say. It is because the party and their obedient media will attempt to censor him. They will just try to pretend that he doesn’t exist. And when they feel compelled to acknowledge his existence, they will smear him. It’s hard to say if they will be successful in keeping him off the debate stage.

Vivek’s Take on DeSantis

The big wildcard for me is Ron DeSantis. I voted for him in the last governor race because he was one of the least bad governors on COVID.

DeSantis did lock down Florida in April 2020. Luckily, he got smart and got some courage and quickly reversed course while most of the rest of the country was still in isolation (i.e., under totalitarian orders).

I have a concern that DeSantis is too politically brilliant. So I don’t always know if I’m being played. It’s nice that DeSantis takes on the “woke” crowd, but this doesn’t really do much for me or anyone else if he is president.

Just because you can speak boldly against the “woke” crowd, it doesn’t really mean you are taking on the establishment. It doesn’t mean you are taking on the military-industrial complex. It doesn’t mean that you are taking on the so-called intelligence agencies. It doesn’t mean you are taking on the Fed or the Department of Education.

I don’t want DeSantis – if he were president – to stop transgender story hour for kindergarteners. I want him to abolish the Department of Education.

Vivek Ramaswamy did an interview with Candace Owens, and she asked him about his thoughts on Trump and DeSantis. Vivek is somewhat complimentary of both of them, but he doesn’t have faith that they can get the job done as president. He is actually a bit harsher towards DeSantis.

Now, again, Vivek may be setting himself as a possible Trump running mate, but I think his criticism of DeSantis is fair, and Candace Owens agreed with him.

Vivek said that DeSantis actually doesn’t have enough courage and implies he is too scripted and rehearsed. When DeSantis addressed the news that Trump may be arrested, DeSantis cleverly kept referring to the “Soros-backed District Attorney (DA)”. He repeated it several times.

But it was a bit too clever for me. It was a brilliant political statement, which is exactly the problem. I don’t know if he is just telling conservatives what they want to hear.

Conclusion

There are things I like and hate about Trump. This has been the case for a while now.

I generally like Kennedy and Ramaswamy. I don’t exactly know where they stand on foreign policy, but I like that they will bring up issues that the establishment does not want to talk about.

I am unclear on DeSantis and how good or bad he would be as president. We need to hear more of what a DeSantis foreign policy would look like, and then we’ll have to judge if we can take him seriously.

Dave Smith will be a great LP candidate and help spread the message of liberty far and wide. He just needs to start making videos that I can send to my mother.

Overall, despite the depressing state of the world in many areas, it is encouraging that we have different voices that will help to change the conversation in America. It isn’t simply CFR Team A against CFR Team B anymore.

The FOMC released its latest monetary policy statement. The Fed is hiking its target rate by 25 basis points. It was not completely certain this time around with the new banking crisis. It was possible that the Fed could have paused its rate hikes.

In the second paragraph of the statement, it states: “The U.S. banking system is sound and resilient.”

That is the howler of the year right there. If you ever want to understand the term gaslighting, that is it right there.

The Fed might just as well say: “It’s ok, citizens. We just hit a minor bump in the road. Never mind the inverted yield curve. Never mind price inflation. Never mind the failing banks. Unemployment is low and the economy is looking good. We just need to tweak a few things.”

In Jerome Powell’s press conference, he assured us that the balance sheet expansion was just temporary.

Monetary Inflation – Two Steps Forward, One Tiny Step Back

If you look at the Implementation Note from the statement, there are a couple of key bullet points that stayed the same.

The Fed will continue to roll over Treasury securities exceeding $60 billion per month and mortgage-backed securities exceeding $35 billion per month.

This means that the Fed will not roll over $95 billion per month. So the maturing debt will come off the balance sheet. The balance sheet – the base money supply – should be going down by about $95 billion per month.

But in the previous two weeks in the midst of a banking crisis, the Fed added about $300 billion to its balance sheet. So it negated over three months worth of balance sheet reduction in a matter of a couple of weeks.

So it’s real nice of the Fed to fight price inflation by draining its balance sheet by not rolling over some maturing debt, but they are adding new debt to the balance sheet in some other form.

What kind of a game is this? Does it make a difference if you don’t roll over $95 billion in maturing debt but then just add $300 billion in new debt? It would be the same thing as rolling over all of the maturing debt and just adding an additional $205 billion this month.

But don’t worry, the U.S. banking system is sound and resilient.

Resiliency with a Money Making Machine

Maybe it’s not wrong to refer to the banking system as sound and resilient. Anything can be sound and resilient with nearly unlimited funds.

The primary goal of the Federal Reserve isn’t low unemployment and price stability. The primary goal is to act as a lender of last resort to the major banks. March 2023 has demonstrated that well. (Its other main goal is to fund the deficits from Congress.)

The Fed is not exactly bailing out the banks that are failing in this case. They seem to be letting the people running the banks off the hook, but the banks will likely technically go bankrupt. But the Fed is bailing out the depositors.

They are also implicitly bailing out the entire banking system by giving assurance that they will do anything necessary to stop major bank runs.

So if a bank looks shaky, depositors are far less likely to make a run on the bank, knowing that the Fed is there. The “Fed put” isn’t on the stock market. The “Fed put” is on the banking system. It encourages bad banking practices to continue.

Tight Money or Loose Money?

While the Fed has expanded its balance sheet in recent weeks, it just hiked its target federal funds rate by 25 basis points.

There is a major disconnect there. Prior to 2008, the Fed generally controlled its balance sheet by raising or lowering its target rate. A higher rate generally correlates with a stable or declining money supply.

It’s not likely that the Fed can continue this practice easily. This may have been the last rate hike for a long while. Maybe we’ll see one more 25 basis point hike at the next meeting if things stay relatively calm.

Regardless of the Fed’s rate hike, the balance sheet has expanded again. It is difficult to fight price inflation when you are expanding the money supply.

We could go in either direction at this point. It could be a major recession, or it could be higher price inflation. It’s possible that we will get both.

I believe we are in a new financial crisis. It may or may not be similar to 2008. As with most events in history, you will find similar characteristics with past events.

I have been a long-time proponent of having a permanent portfolio. This is designed to protect your wealth in any economic environment. There are no guarantees in life, but this is the closest thing I’ve found to protecting wealth in virtually any environment.

If there is an all-out nuclear war, then no investment strategy is going to do you any good unless you have a bunker and a lot of food. I am talking about the common economic environments of inflation, deflation, prosperity, and recession.

While a permanent portfolio is generally conservative, it doesn’t mean you can’t have risky investments. But these should be outside of your permanent portfolio. Your permanent portfolio is for the money you can’t afford to easily lose.

So the big question is: Will the permanent portfolio hold up with what is coming in 2023?

A Financial Crisis or a Monetary Crisis

One problem is that we don’t even know how this will play out. It looks like a financial crisis with banks failing, but we know that the Federal Reserve and other central banks have the capability of bailing out banks (or bailing out depositors) by creating new money out of thin air.

If the Fed chooses to continue bailing out depositors, then it might lose its grip on its supposed fight against inflation. In other words, if the Fed has to create new money to “solve” a banking crisis, it creates a new crisis.

It then becomes a monetary crisis where you start to worry more about the purchasing power of your dollars. Your dollars are safe in the bank in terms of their quantity, but their value quickly diminishes.

Will we see something resembling more of a depression with failing banks and depositors losing money (in excess of what is covered by the FDIC)? Or will we see massive price inflation or even something closer to hyperinflation?

The Point of the Permanent Portfolio

The whole point of the permanent portfolio is that we can’t predict the future with any certainty. It is designed to protect your wealth no matter what crazy decision a bunch of Fed officials make.

If the next bank failure comes and the Fed decides not to come to the rescue, maybe we will see a financial crisis greater than 2008. We may see a depression with price inflation coming down. In fact, even if there are bailouts, there still may be some kind of depression.

In late 2008, stocks fell hard. This could easily happen again. It could happen to an even greater degree.

Maybe the Fed’s bailout of Silicon Valley Bank is the new norm. Maybe all quantitative tightening is over and we will see price inflation go higher than it was last year. Stocks still may fall, or they may start an upward trajectory as happened in the spring of 2009.

We just don’t know. All four investments in the permanent portfolio – stocks, bonds, gold and cash – are at the whims of central bankers and the billions of people that make up the world economy. They could go in any direction. But there is a good chance that at least one of them will do well in the coming year or so.

What About Interest Rates?

Since the permanent portfolio is somewhat conservative, then why not just invest in Treasury bills that are paying close to 5%?

In some cases, this may make sense. If you are saving to buy a house in one year, then it probably makes sense to put your savings in a Treasury bill. But even here, we have to be a little bit careful.

The permanent portfolio is wonderfully designed, especially with its gold portion, to protect your wealth against inflation.

If you are saving for the longer run, then you want to get returns above inflation. In the short run, you really just need to concern yourself with hyperinflation, which hopefully never comes.

If you invest in shorter-term Treasury bills right now, you are still lagging behind inflation. Again, this may be a good strategy if you have a shorter-term purpose for the money.

But for the long run, you are going to lose purchasing power. Even with higher interest rates today, they are lagging behind price inflation. If price inflation goes to 10% from here, it is going to take a little while for interest rates to catch up.

Also, since the start of the banking issues becoming apparent, interest rates have gone down. This has been good for bond holders. But if you have all of your money in Treasury bills, the rates will be lower when it is time to roll them over.

So I generally don’t think Treasury bills are a good substitute for the permanent portfolio, even at this stage.

Buy Low, Sell High

One of the features of the permanent portfolio is that when you rebalance, you are selling assets that have risen in price, and you are buying assets that have fallen in price (or not gone up as much as the others).

Sometimes this can seem to hurt you in the short run because you miss out on the big runs in certain assets. But you will still have 25% exposure while taking the gains off the table. So you don’t have to think about when to buy and sell, as long as you stay disciplined and rebalance according to your own schedule.

(The mutual fund PRPFX, while not an exact replica, is a good substitute for setting up your own permanent portfolio. The great thing about PRPFX is that it takes away any temptation from you in terms of rebalancing or not rebalancing your portfolio.)

Personally, I tend to think stocks are the biggest risk category right now. I would actually prefer bonds at this point with the threat of a major recession coming (if it’s not already here).

However, in terms of the permanent portfolio, I don’t need to speculate. I can just follow the formula. I can speculate outside of the permanent portfolio by not owning stocks or even by shorting stocks.

Sleep at Night

Sometimes I call it the sleep-at-night portfolio. I don’t want to constantly be worried about my investments. I take interest in the financial markets because it is interesting to me, but I’m not panicked about a stock market crash, or Bitcoin falling, or interest rates spiking, or whatever.

I am well diversified, so I know that I am not going to have wild swings like some other people do.

Just because we are on the verge of another financial crisis, I am not worried about changing my general investment strategy. In other words, I can sleep at night, at least in terms of not worrying about my investment portfolio.