On April 25, 2022, I posted an article saying that “Elon Musk May Regret Buying Twitter”.

I noted that I was skeptical whether the deal would go through.  I was skeptical whether Musk could afford to buy Twitter or if he wanted to afford to buy Twitter.  There are a lot of leftist flakes who work at Twitter who would try to sabotage things from the inside.

I also warned that Musk might not know what’s coming his way.  The establishment would be gunning for him, and we saw how ruthless they were (and still are) with Donald Trump.

Now it is being reported that Musk is backing out of the deal.  Musk’s lawyer claims that Twitter failed to comply with the merger agreement.  It’s hard to say if this is the real reason.  Maybe Musk sees the recession coming (as he has said) and doesn’t want to overpay.  Maybe he sees the shots being fired his way by the establishment and doesn’t want to deal with it.

After I posted my article in April, someone commented as follows:

“This article did not age well and sounds retarded now that Musk did in fact buy Twitter.”

Aside from the commenter’s lack of eloquence and elegance, it was completely wrong.  I’m not sure that the person actually read my article carefully, as I had in fact written it after the two parties had tentatively agreed.

The commenter said my article did not age well when in fact it was this comment that didn’t age well.  I clearly said that it was not a done deal at that point.

Some people now think that Elon Musk was bluffing the whole time.  Maybe he was just calling attention to the ridiculous censorship of Twitter.  I think the ridiculous part is that they care much more about promoting their worldview than they do about actually making a profit for shareholders.

It’s fine if a company wants to discriminate against certain people.  It may not be fine with regard to the law, but it should be fine.  But it’s not as if Twitter advertised from the beginning that you weren’t allowed to express conservative, libertarian, or anti-establishment views.  The company still doesn’t say this.  It just says that they try to prevent the spread of misinformation (or is it disinformation?).

Alex Berenson was recently reinstated on Twitter because of a settlement from a lawsuit.  I don’t really agree with the lawsuit as a libertarian, but it is still something you can smile about in a sense.  Berenson was censored for spreading disinformation on COVID and vaccines, yet it was his comments that were pointing out the disinformation promoted by Fauci, Biden, the establishment media, and company.

Anyway, I can’t say for sure that Musk wasn’t bluffing from the start.  I had thought from the start that he might have been bluffing.  Then when they reached a preliminary deal, I figured he wasn’t bluffing after all.

If he had been bluffing completely, I don’t think he would have signed the original deal that has apparently now fallen through.  I do think he reconsidered because he realized what he was getting himself into.

Whether it was the money, the headache, or both, I don’t know for sure.  I think it is wise for Elon to back out.  Just like Trump, he has helped to expose the villains for what they are.  That’s really all that needs to be done.

If people want a platform that has relative free speech, they can find one.  And some people will continue to stay on Twitter and tiptoe around in order to reach more people.

As much as the oligarchs want to censor speech, I don’t think it is working very well.  I am surprised how much companies are willing to sacrifice customers and profits in order to promote a particular political agenda, but it will catch up with them.  And there are still plenty of places on the internet where you can speak and be heard.

In 2013, I wrote about the dollar store miracle.

In November 2019, I wrote the following:

“I have said that we will know that price inflation has gotten really bad when dollar stores no longer exist.  The same stores may still exist, but they will no longer be able to sell everything for a dollar.  Maybe we’ll see two-dollar stores with the same products.”

I recently had to go to the pet store, and there is a dollar store next to it.  I believe it is a Dollar Tree.  I needed a couple of things, so I went in and bought two items.  I found out quickly that they are no longer a dollar.

My two items cost $2.50 plus tax.  If I had bought those same two things in that same store a year ago, they would have been $2.00 plus tax.

So who cares about 25 cents or 50 cents (plus tax)?  I think every American who isn’t very wealthy should care.

That is 25 cents (plus tax) added to most products in the store.  If you had to pay 25 cents more for one product and that was it, it wouldn’t be a big deal.

That 25 cents is an additional 25 percent (plus the additional sales tax to the government) on nearly everything.

The woman in front of me had a cart full of stuff.  I was actually impressed with how much shopping she had done in such a small store.  But it wasn’t junk in her cart.  A lot of it was food and household necessities.  And the food wasn’t all junk food either.

Her total came to $107.  If you take out the tax, she spent $100.  If she had paid that amount a year ago, it would have been 100 items purchased (or around that, as there are a few things that are less expensive than a dollar).

In 2022 America, she only got 80 products instead of 100.  That is a major difference, especially given the short timeframe.

This shows how insidious inflation is for consumers.  And we are all consumers.

Just in case some leftist is reading this who has no clue about economics, I am not at all blaming the dollar store.  In fact, I find it incredible that they are able to sell some of these products for such a low price.

After watching the woman in front of me, I am thinking that I should buy more things at the dollar store when it makes sense.  It wouldn’t be my main grocery shopping, but there are things there that the kids will eat, especially in the way of snacks and desserts.

As a side note, the woman in front of me at the checkout was emptying her cart and offered that I go ahead of her since I only had a couple of things in my hand.  I wasn’t in a rush, so I declined and told her to go ahead.  I wasn’t planning to write a blog post about it, but I’m glad I waited.  Again, I was actually impressed by how much she was able to buy there.

I have written several times about the phenomenon of the dollar store.  I guess this means that consumer price inflation really has gotten bad.  It is still called a dollar store, but you can no longer walk in knowing that everything will cost a dollar.

When I wrote about it in November 2019, I didn’t necessarily imagine that it would happen in just a couple of years.  But a lot has happened since that time including many trillions of dollars having been created out of thin air.

To all of the dollar stores out there, I know it is not your fault that you couldn’t hold the dollar standard.  It is the fault of the central bankers, the politicians, and those who endorse their wicked policies.

Dollar stores are a great benefit to struggling Americans.  They actually help improve our lives while the central bankers and politicians are working hard to destroy our lives.

Hopefully it will still be a while before the products in the dollar store are priced at two dollars.

Happy 4^th of July!  You can also call it Independence Day or Secession Day.  For some reason, it is socially acceptable to celebrate independence, but not so much secession.

But that’s what independence was for the American colonies.  They declared their independence from the British crown. They declared their secession.

It was also the decentralization of government.  The British Empire got a little bit smaller, and it proceeded to get smaller over the following two centuries.

Unfortunately, centralization grew after that in America.  The first major step was abolishing the Articles of Confederation and replacing them with the Constitution.  The U.S. Constitution gave far more power to the national government.  But to be sure, we would be much better off today if we actually followed the Constitution as compared to what we’ve got.

Ultimately, our only way back to liberty is through decentralization.  We can’t try to impose our views on others except to be left alone.  If New Yorkers want strict gun control, maybe we have to let that happen.  If California wants socialist healthcare, they can have it as long as it isn’t imposed on the rest of us.

I think more people are realizing that this is the only way forward.  We have an extremely divided country.  With the internet and the decentralization of information, that divide has only grown.  You can see that with abortion.  You can see that with COVID.  You can see that in the culture.

The only peaceful way forward is some form of separation.  It doesn’t necessarily have to be full-blown secession.

Just as Roe v. Wade was recently overturned by the Supreme Court, we need this separation with everything.  Unfortunately, many people didn’t see that decision for what it was.  It decentralized government and gave greater control to state governments and the people.

We don’t need a national policy on abortion, just as we don’t need a national policy on drugs, or healthcare, or a minimum wage, or even taxes.  It would even be great if we didn’t have a national policy on foreign policy.

I believe libertarians need to start advocating more for this separation.  Instead of fighting to change national policies that are mostly bad, we need to fight to not have a national policy at all.  If we aren’t ready for state secession, we at least need policy secession.

Despite the chaos and totalitarianism we have seen within our shores in the last few years, I believe great progress has been made in exposing the establishment and their lies.

I think some form of separation is the next step.  We don’t need Trump to make America great again.  We need to make America free again.  And in order to do that, we need to make America decentralized again.

We can learn from July 4^th as a day of secession and decentralization.

At the start of June 2022, the 10-year yield was 2.85%.  It proceeded to go as high as 3.49% on June 14, 2022.  But then it fell again and closed at 2.88% on July 1, 2022.

This is quite a bit of volatility.  It isn’t Bitcoin volatility.  But for something that is seen as about the safest investment on earth if you don’t count the inflationary effects, it is quite volatile.

The 10-year yield was well below 2% at the start of the year.  So it has gone up a lot since then, at least in percentage terms.  This is a main reason why mortgage rates have also gone up significantly.  Mortgage rates have a high correlation with the 10-year yield, even though most mortgages are for a longer time period than 10 years.

If you look at the 3-month yield, it started the year at 0.08%.  That’s almost zero.  It is now up to 1.73%.  Short-term rates have gone up by a greater degree than long-term rates.  The big picture is that the yield curve has flattened a bit.  We already see the 2-year yield close to the 10-year yield, and this has in fact already inverted at times this year.

With the government reporting consumer price inflation above 8%, the Fed has been raising its target rate for overnight bank lending.  This helps to drive rates higher, but especially short-term rates as we have seen.

It seems to be an almost unanimous consensus that yields are going higher, including longer-term yields.  I can hear that opinion from Austro-libertarians, and I can hear that from a conventional analyst on CNBC.

There are exceptions, of course.

While I am not predicting that long-term yields won’t go higher, I will point out that this certainly doesn’t have to be the case.  In fact, there are just as strong reasons to argue that long-term yields may fall again, at least in the short run.

I am not talking about what rates will look like 5 or 10 years from now.  But over the course of this year and into next year, I think there is a good case that long-term yields may fall back down.

If we get a hard recession, I fully expect this to happen.  The wildcard in this is price inflation.

If the price inflation keeps coming in high and the Fed keeps tightening and raising its target rate, then long-term yields probably won’t come down much in the near term.  We may end up in a stagflation situation similar to the 1970s when interest rates were in the double digits.

But I can’t discount that the Fed will be “successful” in bringing down the CPI number to somewhere around 3%.  While there are a lot of distortions in the economy right now, I do think that many households are starting to cut back.  They almost have no choice, as wages have not kept up with prices.

It is quite reasonable to think that the rate of price increases will go down.  This will most certainly be true when it comes to asset prices (stocks and real estate).  But if the Fed keeps following through on tightening, we could see consumer prices slow down.  It doesn’t mean that these prices will fall, but the rate of increase will fall.

In a recessionary environment, investors look for safety.  Long-term government bonds are considered really safe to own, unless you are the Russian government.

The only problem with long-term bonds is that they are bad during price inflation (i.e., a depreciating currency).  You don’t want to get a yield of 3% while your money is depreciating at 8%.

But even here, it isn’t a question of whether your return beats inflation.  It is a question of whether you can get a better return elsewhere.  It is better to take a 5% loss in inflation-adjusted terms than to put money in stocks and lose 25%.

I have been a long-time advocate of putting a portion of your investments in the permanent portfolio for wealth protection.  This is why the portfolio is made up of 25% long-term government bonds.  If long-term rates fall from here, the value of the bonds will go up.  And if long-term rates fall from here, it probably means we are in a recession and stocks will not be doing well.

This is all guesswork.  This is why the permanent portfolio is there.  It doesn’t take away all of the uncertainty, but it is a hedge against disaster.

I see some people who have poured money into crypto who are taking a major hit.

But even the index fund investors in the stock market are taking a hit right now.  Some of them are buying more.  They reason that stocks are on sale, so to speak, as they have already declined quite a bit this year.  But just because you’ve lost 20 to 25 percent on your stock portfolio doesn’t mean you won’t lose another 20 to 25 percent in the next 6 months as well.

At some point, I will actually look at buying and holding some stocks aside from the permanent portfolio.  This is not that point.  I want them to be truly on sale.  I still think there is a lot of air in that bubble.

The U.S. Supreme Court released some major decisions recently.  The one that got the most attention was the overturning of Roe v. Wade.  As I have written previously, the Supreme Court’s overturning of Roe v. Wade does not make abortion illegal.  It does not mean that the Supreme Court is legislating from the bench.  That is what the original Roe decision did.

The overturning of Roe simply returns the issue of abortion to the states.  Some states will make abortion illegal, and some won’t.  In most cases, it will be somewhere in between where there are nuances.

This was the proper constitutional decision, as abortion does not fall under the jurisdiction of the federal government.  In fact, most crimes and most issues do not fall under federal law, or at least aren’t supposed to according to the Constitution.  If it isn’t delegated to Congress under Article 1, Section 8, then it is left to individuals or states to decide, just like it says in the 10^th Amendment.

The Supreme Court also released a decision overturning a New York law that restricted carrying concealed firearms in public.

So in these two cases, there were two very different issues.  One dealt with guns, and the other dealt with abortion.  Yet, they are somewhat contradictory decisions, and I don’t think many people are going to point them out.

The case of abortion and overturning Roe v. Wade is decentralizing government.  It is removing the federal government from the issue almost entirely.

The case of a New York gun law is centralizing government.  The federal government is getting involved in the gun issue that was previously just an issue for New Yorkers or those visiting the state.

Most people are either in favor of both decisions (Republicans/ conservatives) or against both decisions (Democrats).  And those who are in favor of one and against the other are mostly just judging the decisions based on their opinion of the issues.

In other words, those who favor gun rights are happy that the Supreme Court struck down the New York law.  Those who favor more gun control are mad at the Supreme Court decision.  The same goes with abortion and the overturning of Roe v. Wade.

But I would like to take a broader view of these issues and the possibility of long run success for liberty.

I am in favor of gun rights.  I don’t like the New York law.  But I also don’t like the gun laws in Canada, and I don’t think the U.S. Supreme Court should be ruling on what the Canadian government does.

I understand that conservatives (and many libertarians as well) will argue that we have a 2^nd Amendment that guarantees the right to bear arms.

I don’t think this is exactly correct.  It is supposed to explicitly prohibit the federal government from interfering with the right to bear arms.  It is a redundancy because there is no power given to Congress in the first place to interfere with the right to bear arms.

Then we go into the incorporation doctrine and interpreting the 14^th Amendment.  Some will claim that this does give individuals a federal right to bear arms.  Personally, I think this is a major stretch of an interpretation, and it does us far more harm than good in the cause of liberty.

I think we have to stop using federal power when it is convenient.  We have to stop cheering on centralization, even when it is seemingly good for liberty in the short run.

The only way to win the war is to concede certain battles that allow states like New York and California to have bad policies.  That is the only way to justify having them leave us alone.

If we are going to have greater liberty, we need more decentralization.  Some states will make bad policies.  Some cities and towns will make bad policies.  But bad policies are easier to change at a state or local level as compared to the federal level.  And it allows choices for people.  If gun rights is your number one issue, I’m going to assume that you left New York a long time ago.

The dissenting votes on the Supreme Court did not dissent for the reasons I am laying out here.  They just want strict gun control, so they dissented and voted to uphold the New York law.

I would probably agree with much of the reasoning from the majority of the Supreme Court justices who struck down the law.  But at the heart of the matter, I don’t think the U.S. Supreme Court should have decided it.  It should have been left at the state level.  It should not be a federal issue.

Until we get more people on board with this attitude, I think it will be tough to make positive and permanent changes in the direction of liberty.  We need more decentralization.  We didn’t get it with the New York gun law, even though it was a bad law.  We did get decentralization with the overturning of Roe, as the issue will now reside at the state level.

With Biden’s approval ratings in the toilet, he is finally doing something that might be mildly popular.  He is proposing a three-month “holiday” for federal gas taxes.

It seems that Biden and his handlers want to do anything that is destructive to civilization.  It is really beyond comprehension.  With the mid-term elections coming, apparently Biden and his handlers think it’s finally time to do something that might not be completely destructive.

While the idea of a gas tax holiday isn’t the worst idea in the world, it isn’t near the top either.

From a libertarian standpoint, it seems that we should support any tax reduction.  It means that the government will take less money from us.  The only problem is, that isn’t really the reality.

There is no proposed cut in spending to go along with the tax reduction.  If anything, the federal government just continues to spend as recklessly as ever, as tens of billions of dollars are being sent to Ukraine (or to weapons makers to send weapons to Ukraine).  It’s not clear how much of that money will be returned into a Biden bank account somewhere.

Some libertarians think we should support any tax cut no matter what.  I, personally, do not go that far.  If there were a tax proposal to give an extra deduction to anyone named Hillary Clinton, I wouldn’t support that.

Can you see how absolutes can sometimes get you in trouble?

If the federal gas tax is eliminated for a little while, it will have no immediate impact on federal spending.  They will just continue to borrow more.  This will continue until it isn’t possible any longer, and who knows how long that will be.  The Fed has apparently stopped buying government debt for now, so it will be up to foreign central banks or investors to buy the debt.  Without the Fed’s support, it will likely mean higher rates, unless there is a major fear of recession.

In this situation, I would probably rather have the small tax relief and just see a bigger deficit.  I try to think of whether I would support eliminating all federal taxes and just having the government run massive deficits, which will go hand-in-hand with monetary inflation over time.

Even though monetary inflation is very damaging to the economy and our living standards, I think I would still prefer not having any federal taxes.  The massive deficit couldn’t be sustained, as the Fed would be forced to stop buying debt to save the dollar, just as it is doing now.  It would eventually force Congress to reduce spending.

With this specific proposal, we would see just over 18 cents per gallon come off the price of gasoline.  It is likely it would reduce the price by this much, at least at the start.  The problem is that the price is constantly fluctuating.  So the price of gas might be lower than it otherwise would have been, but it could still go higher even without the federal tax.

The Lesser Evil of Taxes

I don’t like any taxes.  I think it would be possible to live in a society without any forced taxation.  If you had very minimal government, it could be funded entirely just by a few rich people.  There could be voluntary taxation, where maybe you only get the benefit of the court system if you pay in a small amount.

Aside from that, some taxes are better than others.  Some are more invasive than others.  Some are more burdensome than others.  Some are more fair than others.

In the case of a gasoline tax, it makes some sense as long as the government is in the business of road building.  The electric vehicles ruin this a little bit, but anyone using a vehicle powered by gas is paying an approximate equivalent in gas taxes to how much they are using the roads.

And let’s face it; you don’t really have to do anything with the gas taxes except pay them as part of the price of your gas.  It is an extra burden for those collecting the tax, which in this case applies to those selling gasoline to consumers.  But compared to the income tax, the gas tax is not complicated or particularly burdensome to comply with.

And while every tax distorts economic activity in some way, a relatively low gas tax probably doesn’t cause major distortions, especially when the amount generally stays the same.

So I would rather see Biden “give” an income tax holiday.  The income tax is far more burdensome in many ways than the federal gas tax.

Supply and Demand

There is another downside to this temporary tax cut proposal.  The gas prices have skyrocketed, which is obviously the reason for doing this tax holiday.  It is probably a combination of Federal Reserve monetary inflation and a bad energy policy coming out of Washington DC.

If Biden wanted to do something helpful that wouldn’t increase the deficit even more, he could relax regulations and stop saying that we are trying to move away from oil and coal and things that the greenies don’t like.

Aside from that, sometimes there isn’t much to do except to stay out of the way.  Unless Biden is going to shut down the Federal Reserve or allow competing currencies, then there isn’t a whole lot to do to bring down gas prices without making us worse off in other ways.

Economists say that the best solution for high prices is high prices.  In other words, when the price is high, it gives incentive to suppliers to supply more, and it gives incentive to consumers to consume less.

If you eliminate the gas tax, it may initially reduce prices.  This shouldn’t really impact the supply side of things, but it could impact consumption on the margin.  Maybe some people will use a little more gas than they otherwise would have, thus driving the price up more.

In other words, we may not even get the full benefit of the 18-cent reduction per gallon.  We will never know for sure because we don’t know what it would have been like if there had been no tax holiday (or vice versa).  That is the conundrum of economics.  We can’t experiment in a vacuum.

Anyway, 18 cents per gallon isn’t all that much compared to how much prices have risen over the last several months.  If you put 10 to 11 gallons in your tank, you will save about 2 bucks.  Instead of 50 dollars, you may pay 48.

For people who were forced out of their job due to Biden’s vaccine mandates, I don’t think an extra 2 bucks in their pocket when filling their car is going to change their view of him.

Even though I often read and write about things that are political in nature, I search out bubbles of non-politics.  It is unfortunate when I tune into a sporting event and politics and political correctness somehow invade.

My wife and I went to a concert featuring the Backstreet Boys, and it was a haven from the madness of our world.

The arena was packed.  I have no idea, but there were probably 10,000 people in attendance.  I saw a few masks, but 95% or more were not wearing masks, and there certainly wasn’t any anti-social distancing.  Being in Florida, there were no vaccine passports involved or any testing.  It was pretty close to 2019 again.

A large portion of the audience was made up of people in their 30s and 40s.  They are people who grew up with the Backstreet Boys.  But there certainly were a few young people in the crowd, some of whom hadn’t been born when the Backstreet Boys first started.

The five of them were up on stage for almost 2 hours.  They joked around and talked a little bit, but it was mostly singing and some dancing.  They thanked the crowd for waiting 2 years, as the concert was originally scheduled for 2020.

There was no talk of politics.  There were no “woke” statements.  There was no attempt at promoting the latest cause.  They talked about how they loved Florida, as it was where they originally started.  That was it.  They sang and entertained, and they did it well.  The crowd was happy and energetic.

For all of the athletes, musicians, actors, and other entertainers, perhaps there is a lesson.  Most people aren’t watching you for your latest take on politics or how you support the latest cause.  Most people actually want to escape that.  They want to be entertained.

I wouldn’t even have wanted them to start talking about libertarianism or something I support.  I was at a concert to listen to music, as I’m sure most everyone else was.

If I want to hear about politics or what is happening in the world, I will read what I want to read, or I will listen to a podcast or video that gives me what I want.  When I go to a concert, or sporting event, or even a movie, I want to be entertained.  I don’t want to be preached to.  I think this is a good lesson for the entertainers out there.

If you are someone like Bill Maher, and you are going on tour, then obviously people should expect to hear about politics.  But for entertainers who did not get famous because of their political statements, they should stick with their entertaining.  It is, of course, they’re right to talk politics if that is their preference, but I think they will pay the price with fewer fans.

There was no Republican, Democrat, libertarian, conservative, liberal, left, or right take on things at the Backstreet Boys concert.  It was great entertainment, and I think the many thousands of people there appreciated that.

The FOMC met this week and released its latest statement on monetary policy on Wednesday, June 15, 2022.  The Federal Reserve is hiking the federal funds target rate by 75 basis points, which is 0.75%.  The Fed had not hiked this much since 1994.

The FOMC statement, much like Biden, tries to pass the blame.  The statement reads, “The invasion of Ukraine by Russia is causing tremendous human and economic hardship.”  Of course, the U.S. government doesn’t have to sanction Russia and refuse to buy its energy.

The FOMC statement also blames “supply and demand imbalances related to the pandemic.”  Maybe I should be happy that it says “related” to the pandemic instead of “due” to the pandemic.  But let’s be clear that it was governments everywhere and those who supported their actions that would be to blame here.  It wasn’t a virus that caused supply and demand imbalances.  It was the hysteria and the lockdowns and the ongoing rules and regulations that have caused imbalances.

Anyway, regardless of war in Ukraine or supply imbalances, the Federal Reserve is primarily responsible for the high price inflation and the situation we are in.  This is what happens when the Fed more than doubles the balance sheet in less than 2 years time, while the government hands out massive stimulus checks to individuals and businesses through deficit spending.

Even though the Fed has typically used another measure, it was admitted that the recent CPI showing of 8.6% had a direct impact on the decision to raise the rate by 75 basis points.  If the CPI numbers for May had come in below 8%, I don’t think we would have seen anything more than a 50 basis point hike.

Almost all of the focus is on rates.  This is important, as it somewhat serves as a price for money.  It is obvious that it will have a direct impact on mortgage rates.  It has already had an impact, as most mortgage rates are now well above 5%. This will likely have a major impact on housing prices.

The higher yields might encourage people to save their money a little more, even though rates are still well below the rate of price inflation.  Still, you might actually be able to buy a Treasury or bond that yields more than a tiny percentage.

The Money Supply

For some reason, the actual supply of money gets less attention.  From the FOMC statement, here is the key sentence:

“In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in May.”

The Fed has a plan to slowly reduce its ultra-bloated balance sheet.  But it will be at the same pace as laid out in early May.  So the Fed isn’t actually tightening any more than expected at this point.

Prior to 2008, the Fed’s target federal funds rate would go hand-in-hand with the base money supply.  If the Fed wanted to raise the federal funds rate, it would typically sell off assets or not roll over maturing debt.  In other words, it would shrink its balance sheet if they wanted to raise the overnight lending rate for banks, which is the federal funds rate.

Now, the Fed controls the federal funds rate by paying interest on bank reserves.  You can see in the Implementation Note issued June 15, 2022 that it raised “the interest rate paid on reserve balances to 1.65 percent”.

The Fed could technically raise its target rate without decreasing the money supply now.  In fact, after the first rate hike in March 2022, the Fed was still slightly adding to its balance sheet.

This means that the Fed could technically get away with monetary inflation while still acting like it is fighting inflation by raising rates.

The reason I bring this up is because it is not so obvious that this 75 basis point hike will do that much to combat consumer price inflation.  Real rates are still deep into negative territory, and the balance sheet just recently peaked near $9 trillion.

The asset bubbles that have relied on this loose money are certainly seeing some of the air come out.  But just because your stock portfolio is going down, it doesn’t mean the prices at the grocery store are going down.

Recession Looms

Meanwhile, there is news today warning that the second quarter GDP may be flat.  The first quarter was already negative.  So by the government’s own measure, we may be in a recession right now.  Even if we aren’t in a technical recession, there is no question it is a period of slow growth to say the least.

This puts the Fed in quite a predicament.  It is a predicament that it hasn’t really experienced since the late 1970s and early 1980s.  We may be in a recession while price inflation is roaring.

With every recession of the last 20 or more years, the Fed has reacted with an aggressive monetary policy (i.e., digital money printing).  What happens if we are officially in a recession while asset prices are plummeting?  Will the Fed reverse course, or will it continue to “fight” inflation?

I don’t know the answer to this.  They will be stuck.  My hope is that they continue to tighten and allow a deep recession to happen.  It is painful in the short run, but it tends to be better for the long run.  It is called a correction for a reason.  It serves to correct all of the misallocated resources.

My fear is that the Fed will try to appear to be fighting inflation by continuing to raise its target federal funds rate (or at least not lower it again), while at the same time allowing its balance sheet to expand.  It may actually be able to get away with it for a while.

But it will only make things worse and partially delay the inevitable.  All of the malinvestments are a result of the prior loose monetary policy from the Fed.  We need a major correction to flush out the bad stuff.

If the Fed does get spooked by a recession and a major fall in asset prices, and the Fed officials decide to stop tightening, then I will have to reconsider some of my investments.  The Fed has had a way in the 21^st century of quickly reigniting asset bubbles.

For now, the Fed is in a more tight money mode.  The yield curve is flattening.  I see a recession ahead, if it isn’t already happening now.  I think asset prices will continue to go down, but it obviously won’t be straight down.

If the Fed reverses course, then we can reconsider our options.  For now, I don’t like the general stock market.

For anyone who doesn’t live as a hermit and has a thinking brain, it is quite obvious that the COVID vaccines have come up short, to say the least.  It may be a stretch to call them vaccines, especially considering how well they have performed.

I think I know more people who have caught COVID who were vaccinated than those who were not vaccinated for COVID.  I admit there may be a bit of bias in this.  People who are vaccinated are more likely to get tested when they come down with the sniffles.

Still, there is no question that the so-called vaccines do not stop infection or transmission.  I have my doubts whether they do anything beneficial.  But even if you think the vaccines do a good job of reducing symptoms if you do get sick, that is a terrible basis for mandates.  I think all mandates are immoral, but it is especially ridiculous when people are punished for not protecting themselves enough.

If that is the case, why don’t we tell people that they have to eat more vegetables as a condition of employment?  Maybe people shouldn’t be allowed to eat Twinkies if they want a job.  Certainly, all smokers would be banned from working.

The head of the CDC admitted last year that the vaccines do not stop infection or transmission.  So the only basis for mandates is that the government is doing it for your own good.  So Biden and company would rather you not be able to work and put food on the table for your family than have a fraction of a percent higher risk of getting sicker if you actually contract COVID.

This is a sick man with some sick and evil handlers.

Never Forget

I don’t want people to forget the hell that tens of millions of Americans have been put through.  Some of them are still going through it.

While the worst mandate (all companies with 100 or more employees) was struck down by the Supreme Court, there are still major mandates being imposed by the federal government on employees, contractors, and healthcare workers.  Some of them are still in court.

So anyone who says that the vaccine mandates are effectively over are not seeing the continued hell that many people are still going through.  And there are many people – probably in the hundreds of thousands or millions – who had their lives overturned last year.  They thought they would be fired.  Many of them were fired or were forced to quit in order to preserve a pension or something else.

Think of all the people who had to change careers.  Think of the pilots, the nurses, the doctors, and the many other occupations where people felt compelled to take the shot in order to preserve their job.  And think of all of the people who did not give in and instead gave up their career.

Let’s also not forget the discrimination against foreigners that is still taking place in the United States.  You can read “Requirement for Proof of COVID-19 Vaccination for Air Passengers” at the CDC website.

Novak Djokovic already missed a tennis tournament in Miami due to his non vaccinated status.  He couldn’t enter the country.  Ironically (or not), many players withdrew from that tournament due to health reasons.  Djokovic could miss the US Open if nothing changes in the next couple of months.

I have heard stories of other people and the toll this has taken.  There was a woman who lived in Europe with her husband.  She is American.  Her husband is not.  She wanted to visit family in the United States, but her husband is not able to go to see his wife’s family.

If you are not a U.S. citizen and you don’t live in the U.S., and you don’t want to get vaccinated, your only hope is to go to Mexico and walk across the border.  That seems to be the only way.

Maybe the vaccine mandates are over in the minds of most Americans, but they are still having a very real effect on individual lives everywhere.  These must be repealed.  They are unconstitutional.  They are immoral.  They are wrong.  They are illogical.

If the Republicans take Congress starting in January 2023, they could do something about these mandates.  They could refuse to fund the CDC, the FDA, OSHA, etc.  Any agency involved in enacting or enforcing vaccine mandates should be defunded completely.  The Republicans “could” do this, but they probably won’t.

This is why we need people to speak out about this.  We need pressure on Congress and everywhere else.  The Republican cowards in Congress need to be pressured on this.  If they threaten to defund some of these agencies, then the employees of the CDC, FDA, etc. will all of a sudden become our allies.  Many of them would be demanding that mandates be repealed because they don’t want to lose their jobs due to a lack of funding.

There are a lot of things that should be defunded in the U.S. government.  But any agency trying to enforce vaccine mandates should be defunded until the mandates are repealed.  This should be the pressure campaign against the Republicans.  The Democrats (the pro choice party, haha) are hopeless.  They have shown themselves to be totalitarian thugs.

The Consumer Price Index (CPI) numbers came in for May 2022 hotter than expected.  The year-over-year rate now stands at 8.6%.  The expectations (by the “experts”?) estimated a number of 8.3%.

For the month of May alone, the price level jumped 1.0%.  If you annualize this number, we are at 12% annual price inflation.  In other words, price inflation is getting worse, and it was already bad.

The more stable median CPI rose 0.6% for the month of May, and it now stands at a year-over-year rate of 5.5%.

Stocks took a dive on the news, probably in anticipation of more aggressive tightening from the Fed.  Yields across the board also rose.  Interestingly, the price of gold finished higher for the day, indicating an increased fear that the higher price inflation might be here for a little while.

It is now expected that the Fed will raise its target rate by at least 0.5% (50 basis points) in its upcoming meeting, but it may go even farther with a 75 basis point hike.

After the announced CPI numbers, I heard Jim Cramer on CNBC saying that Jerome Powell and the Fed should just do an immediate hike of 1%, or 100 basis points.  He said Powell is too incrementalist and doesn’t want to shock the market.

I don’t have much respect for Cramer, especially these days, but it is interesting that he is advocating this.  He is known for being a stock bull.  If he thinks a 1% immediate hike in the federal funds rate is appropriate, it means that the powers-that-be are concerned about what is happening.

Of course, rates are just one piece of the story.  It is ridiculous that the yield on a 3-month Treasury is still less than 1.5% while price inflation is nearing double digits annually.  Real interest rates are deep into negative territory.  The Fed would have to hike a lot more than 1% to cure this problem any time soon.

Another piece of the story that gets far less attention is the Fed’s balance sheet.  This essentially represents the base money supply.  It may have just peaked for this cycle.  The Fed just recently started to very slowly decrease the balance sheet.  Why it didn’t do this last year is a big question that doesn’t get asked a lot.

There is no question that Jerome (Jay) Powell got it completely wrong by saying that inflation was transitory.  Janet Yellen (former Fed chair and current Treasury secretary) also got it completely wrong and recently admitted so.  These are our “experts” who think they are in charge of the economy.

The FOMC will release its next monetary policy statement next week.  I think it will have a hike in the federal funds rate of at least 50 basis points (0.5%).  Maybe it will be 75 basis points.  But the more the Fed tries to solve the inflation problem, the bigger risk it is for the Everything Bubble.

The massive bubbles we see in stocks, cryptos, real estate, etc. are built on loose money and low interest rates.  When that is pulled away, it won’t hold up for long.  We have already started to see the air come out of some of these bubbles in 2022.

The Fed Can Stop the High Price Inflation

Some people will contend that the Fed has lost control and won’t be able to tame price inflation.  I contend that it is a question of will.

Every money relies on the faith of its users to some extent, even when it is a money imposed by the government.  The people using the money have to have faith that others will accept it.

As long as we don’t have runaway inflation, I don’ think people are going to stop using U.S. dollars any time soon.  With that said, the Fed can stop the price inflation if it chooses to do so.  But the Fed officials have to be willing to risk a major economic downturn.

As Ben Bernanke once said in a speech, the Fed has a printing press or its digital equivalent.  As long as the Fed is willing to create a lot of new money or credibly threaten to do so, it can create higher price inflation.  And he has been proven correct on this one point, especially over the last year.

But I would say that the inverse holds too.  As long as the Fed stops creating new money and credibly says that it will stop, at least for a while, then it can essentially kill the price inflation.  We may get a hard recession, but it can stop the price inflation as long as they don’t get to a point of runaway inflation.

The only problem is that the Fed isn’t that credible these days.  I think some people, and maybe rightly so, believe the Fed will just return to printing money (digitally speaking) at the sight of any major downturn.

My bet on this is that the Fed will bring price inflation down.  And with it, they will bring down the Everything Bubble.  They may return to inflationary policies after that.  But in the short run, I expect the yield curve to flatten and for a major economic downturn, which will include declining asset prices.