If you read a book like The Millionaire Next Door, you hopefully get the message of the importance of being future oriented. You give up a little today for the prospect of having more in the future.
I generally advise that people live below their means. This is important for many reasons. It is a way to save for retirement. It is responsible, as it prepares you for an unexpected expense down the road. It can give you more options in life. And if you experience a reduction in income, it will make for an easier adjustment.
However, it isn’t a hard and fast rule. Like many things in life, there are exceptions.
I can think up many scenarios where it is not necessarily advisable to live below your means.
For one example, imagine someone who is 50 years old and has already saved up one million dollars, not including primary residence equity. This person can keep his one million dollars working and growing for him and spend all of the money from his regular job. That certainly wouldn’t seem irresponsible at that point.
For a second example, imagine someone who is 22 years old and living with his parents. He has a relatively low income at this stage, but has managed to save a little money. He has the opportunity to work overseas for a year, but his income will barely cover his expenses. Given that he will likely start a family in the future and will get a more permanent job with a higher income, this is probably his one chance, at least for the next few decades, to do something like this. I wouldn’t fault him for wanting this experience.
For a third example, imagine a family that has saved up some money. The wife/ mother wants to be home with her kids while they are really young. If the wife/ mother quits her job, they will not be saving any additional money at that point. It would be hard to blame the family for deciding on taking a few years of no saving while the kids stay home with their mother.
Intentionality
In these examples, maybe it would be ideal if these people continued to live below their means and save money. But who am I to judge? It really is a personal decision. It is about prioritizing.
The key here is intentionality. I have come to believe that this is really the most important factor in the financial independence movement.
I have seen examples where, say, someone buys a new car and talks about it in a financial independence group. I will see comments such as, “That is not very FI (financial independence) of you.”
But seeking financial independence isn’t necessarily about depriving yourself and only buying the essentials. It is about thinking through your choices. There is nothing wrong with buying a luxury item as long as you have thought it through.
The trouble with our society today is that many people buy junk that they don’t really need and really isn’t that high on their priority list. They say they want it, and I am sure they do. But is the instant gratification really worth not saving the money?
There is a large percentage of the population who don’t have much intentionality when it comes to their finances. They get their paycheck (usually a direct deposit), they pay their bills, and they feel free to spend what is left. This is not intentionality, or it is very bad intentionality in most cases.
If you have thought it through and decide that you really would value the latest new gadget to such a high degree that it is not worth saving that amount of money, then there is nothing wrong with that. It would be even better to forego something that you usually have in order to obtain that gadget. You could say that you aren’t going to eat out at all over the next two weeks and buy cheap dinners. That will pay for the new gadget.
And so it is with the decision not to live below your means for a certain period of time. I gave three examples above where someone or a family might decide that it is worth it to not save any money over a certain timeframe. But it isn’t necessarily a permanent situation, and it is one that is thought through.
If you can be intentional about your choices with money, then you are a step ahead of most other people.
There are so many claims out there that we are losing our freedom of speech. It is one of those things though that, because there are so many people cautioning about suppressed speech, I don’t think it is going to be a serious issue.
I know many conservatives and libertarians are up in arms over Google and Facebook censoring certain content, especially if it tends to go against the left and/ or the establishment.
By the way, the left and the establishment are not the same thing, although there is overlap. There are hardcore leftists that are quite critical of the establishment in certain areas, especially when it comes to foreign policy. Google and Facebook will censor leftists too if they are opposing the establishment line too much.
I don’t mind that social media companies are called out for their biased actions, but I cringe when I hear people – libertarians in particular – suggesting government action to correct the situation. This is wrong and naïve.
If you are a libertarian, and you think that social media companies are in bed with the government, then the solution isn’t to call for that same exact government to more heavily regulate the social media companies. The solution is to remove the partnership between government and business. And the best way to do this is to defund agencies and thus remove their power.
When I hear complaints about how our 1stAmendment rights are being taken away, I want to laugh and cry at the same time. I usually hate the term “rights” anyway because rights are only as good as what people around you are willing to respect.
Anyway, the 1stAmendment isn’t really a right. I know it is part of the Bill of Rights, but it is really a prohibition against the federal government. It says that Congress shall make no law abridging the freedom of speech.
To say that our freedom of speech is going away is ridiculous though. I know there are threats of it all around us, but it is nothing new. If anything, we just hear about it more. I know there is this fight against leftists for free speech on college campuses, but I think it is overblown. The issue is one of property rights. The problem, as is so often the case, is that colleges and universities are often owned or funded by government.
I would actually make the case that freedom of speech today in the United States of America is perhaps the greatest in history.
If you think about, we are free to say almost anything, as long as it isn’t threatening violence. This isn’t the case in much of Europe and even Canada, but in the U.S., almost anything goes. Sure, if the federal government really wants to target you for something, then you are in trouble. They can make up crimes. But they can only do that to a very select few people. When there are millions of us talking (and writing), they aren’t going to shut us up.
Those Revolutionary Founders
If you read/ listen to conservatives and libertarians, it is common to hear that the Founding Fathers of the United States would be rolling over in their graves if they saw what has happened here. I think this is correct in some respects. It would be true with foreign policy. It would be true with federal government spending and taxation.
I don’t think the same case can be made in regards to free speech. The ink was barely dry on the Bill of Rights when John Adams signed the Alien and Sedition Acts into law in 1798.
Could you imagine if Barack Obama or Donald Trump proposed something like this? The outcry would be unbelievable, and justifiably so.
The Sedition Act of 1798 essentially outlawed freedom of speech. Sure, you could still speak, as long as you weren’t critical of the government. It was really supposed to criminalize false and malicious statements that were critical of the federal government, but the part about false statements is meaningless when it is the federal government itself making the determination. See, fake news was an issue then, too.
What if we had the Sedition Act in effect today? If you don’t believe in man-made global warming (excuse me, climate change), then you are a denier. If you speak out about this issue, you could be fined and sent to prison because you are supposedly spreading fake news and criticizing politicians.
This is such an egregious thing that happened in 1798, it is hard to talk about the liberty-minded revolutionaries with a straight face. They could be more openly critical of the British crown 25 years ago than they could be of John Adams in 1798. Is that what the Revolutionary War was fought for?
We live in an incredible world today. I know there is tyranny and injustice. I know there are certain groups trying to suppress speech. But overall, our ability to speak without retribution is as great today as it likely ever has been. And with the internet, our means of communication is better than ever.
I know people tend to hate the divisiveness of our politics. Trump and his critics have brought this out to a great degree. But I think it is actually reason to celebrate. When everything is quiet around you with little criticism, that is when you should worry. Think of the most totalitarian societies in history. If you walked in to one of those countries without knowing anything, you might think it is a really peaceful place where nobody argues. But nobody argues because nobody wants to get shot.
Trump will take to Twitter and call out fake news and bash the latest celebrity who has bashed him. Millions of people post things on Facebook and Twitter calling Trump every name in the book. Yet, for the most part, it is done peacefully. You can call the president whatever you want, and there is virtually no fear of retaliation in the sense of getting in trouble with the law.
So when you see people arguing on Facebook or see stories about the division of the American people, just look on the bright side and realize that there is plenty of free speech to go around. If you had criticized the president in 1798, you would have risked being thrown in jail.
Sometimes the little things add up in life. They are not so little when you compound them over decades.
I see so many people trying to eke out another 0.1% from their money market fund or looking for ways to reduce their taxable income. Meanwhile, sometimes this one thing is mostly ignored or not taken full advantage of. That thing is a Health Savings Account (HSA).
In order to have an HSA, you must be enrolled in a high-deductible health insurance plan. For 2019, the limit for contributions is $3,500 for individuals and $7,000 for families. There is also a catch-up contribution up to $1,000 if you are age 55 or older.
The money you contribute to an HSA is pre-tax money. You will not pay federal income taxes on these contributions.
You may or may not choose to invest the money in your HSA, depending on your plan and your risk tolerance.
You do not pay taxes on this money when you spend it, as long as you are spending it on a qualified medical expense. Unfortunately, you can no longer use it to buy over-the-counter medicine. Obamacare destroyed that one.
This is quite astounding if you think about it. You don’t pay federal income taxes on the earnings that are contributed to the HSA. And if you use it to pay for medical expenses that qualify, then you won’t pay any income tax on the withdrawal. It is almost as if you get the benefits of both an IRA (or 401k) and a Roth IRA.
If you withdraw the money before age 65, or you just spend it on something that doesn’t qualify as a medical expense, then you will owe taxes and penalty. The penalty is rather steep at 20%, so this probably isn’t something you want to do unless absolutely necessary.
Still, since some employers will make a matching contribution, you could still be conceivably better off taking the match and withdrawing all of the money and paying the taxes and penalty rather than not having an HSA at all.
For people close to retirement, this vehicle is particularly beneficial. Once you are over age 65, you won’t owe any penalty. If you use the money to buy a new car (not a medical expense), then you will owe taxes on it. But this is really the same as if you took money out of your 401k plan. So, once you are 65, an HSA is at least as good as a 401k. And if you need it for medical expenses, then you won’t pay any income taxes on it. (Check your state tax laws to make sure this also applies to your state.)
There is a long list of things that qualify as medical expenses for your HSA. You can find the list for 2018 here. When you consider that it includes eye exams, eyeglasses for medical reasons, dental expenses, and a whole host of other things, you probably won’t have much trouble spending the money.
The Downsides
As with almost everything, there are downsides. This is a government creation, which means it is subject to change. Obamacare already eliminated a lot of items that previously qualified, and there is nothing to stop another change except perhaps voter outrage.
The government could even technically change other rules for the accounts. The politicians could decide to impose a tax on some of the money, even if it is used for medical expenses. They could change the age (or eliminate the age) for withdrawal without a penalty.
This is the same reason I caution people about a 401k plan. It is probably not a good idea to stake your whole retirement on the idea that the government is not going to change the rules.
When it comes to an HSA, I don’t think there will be radical changes, but there could be some changes as was seen with Obamacare. They mostly got away with that without a riot from the populace. If they completely changed the tax-free status of money already contributed to HSAs, then you might actually have a riot on your hands.
Please note, I am not a CPA, and I am not an expert in this subject. Please do your own research to verify my claims above. Also, beware that the contribution limits typically change each calendar year.
U.S. stock indexes are hitting all-time highs. The S&P 500 just closed above the 3,000 mark for the first time ever. The Dow surpassed 27,000 for the first time ever this past week. The Nasdaq surpassed 8,200.
We need a little reference here. The Nasdaq peaked in early 2000 just above the 5,000 mark, and this was the top of the tech bubble of the late 1990s/ early 2000. We are over 3,000 points above the top of the tech bubble nearly 2 decades ago.
Now, let’s compare to the lows in March 2009 after the financial crisis hit. The S&P 500 hit an intra-day low of 666. (Yes, it really was that number.) We are well over 4 times the amount seen just over a decade ago. We aren’t that far away from being 5 times that low.
To be sure, the market likely oversold due to the fear of that time. We have also had a lot of monetary inflation since that time. But when things go up that far and that fast, something significant is going to happen. 10 years may seem like a long time, but it isn’t a long time for an entire stock index to go up over four times what it was.
Also, consider the extreme bear markets in history. During the Great Depression, the S&P 500 went down about 86% in a three-year period. If stocks went down by 90% now, then the Dow would go down to about 2,700 and the S&P would go down to about 300.
If you invested in early September 1929, you would have waited until 1954 to get back to even again.
Would You Be Devastated?
Having a crash in stocks is not the end of the world. The Japanese market peaked in 1989. 30 years later it is just above half of what it was at its peak. I hope there aren’t a lot of buy-and-hold investors still holding on.
Most Americans do not have a significant amount of net worth in stocks. Most Americans don’t have that significant of a net worth when you take away the equity in their primary residence.
The wealthy own the great share of stocks, but that is mostly the Pareto principle talking. Middle class America does own some share of the wealth in stocks, but it is largely in retirement plans such as 401k plans. This is important to note.
If we see a massive drop in stocks, I don’t think that by itself is going to dramatically alter the daily lives of most Americans. The problem will be elsewhere. If there is a dramatic fall in stocks, this likely means that there will be much higher unemployment. It also likely means that housing prices will fall significantly. This will be helpful for those wanting to buy a house, but it will hurt those who already own a house with a mortgage and are living on the edge.
For most middle class Americans, employment is the number one thing. You want that steady income. Maybe wages will drop. In a corporate environment, you probably won’t see an actual reduction in your paycheck if you keep your job. You may not see an annual raise for a couple of years. You may be given more work, which means your per hour wage may go down if your hours go up.
The good thing about a recession is that prices generally come down. This was not the case in the 1970s, but we are not in that type of environment right now.
It isn’t called a correction for nothing. We actually need a significant drop in prices. The reason middle class America is hurting right now is because life is so expensive. It would help if tariffs were reduced too, but we especially need a recession to cure this.
Going back to stocks, I think this will be one of the least significant things for most working Americans. Stocks are more symbolic of the state of the economy. A crash in stocks will not cause other problems. It will be in tandem with the other problems.
Really, our problems are already here. The problems are just not fully exposed. The misallocation of resources will be more exposed when stocks fall and unemployment goes up.
A drastic fall in stocks may ruin the retirement plans for some people, but these people shouldn’t have so high a percentage of their wealth in stocks if they are anywhere close to retirement.
I think some in the FIRE community (financial independence, retire early) will suffer because there are many who follow the advice to buy U.S. index funds and hold them to get a long-term return in the neighborhood of 8% annually. Someone who followed this formula in Japan in 1989 is still waiting for that 8% return. Actually, they are still waiting for a zero percent return.
Life in Japan has gone on for the last 3 decades. Life will go on in the U.S. too, even if stocks fall by 80%. It isn’t the end of the world for most people.
You shouldn’t bet on a decline of 80% in stocks. Instead, just ask yourself if you are prepared if such an event were to happen. You wouldn’t be happy about it, but would life go on as usual? Would it significantly impact your retirement plans?
If thinking about a decline in stocks of 80% causes you significant anxiety, then do something about it. The time is now to rebalance your portfolio and to lighten your percentage in stocks.
The Fed chair was in front of Congress on Wednesday where he said that many FOMC members see the case to be more accommodative. The S&P 500 hit an intra-day high above 3,000.
In questioning, when asked about going back to a gold standard, Powell said, “There have been plenty of times in fairly recent history where the price of gold has sent signals that would be quite negative for either of those goals.” Here, he is talking about the Fed’s supposed dual mandate of maximum employment and stable prices.
On the question of stable prices, it is true that a gold standard would hamper the Fed’s ability to control prices. But if anything, gold would give us more stable prices. The dollar has depreciated by about 95% since 1933 according to the government’s own statistics. Under a true gold standard, prices would most likely go down as productivity increases. Imagine all consumer products being like electronics, where the price gets cheaper every year and the quality goes up.
Powell is correct that his job would become far less meaningful under a gold standard. That is the point. A small group of central bankers shouldn’t be controlling the interest rates and money supply for 325 million people, or more if you consider the dollar’s status as the world’s reserve currency.
The true libertarian position is not even to have a gold standard. It is to let the market determine the money to be used. Of course, the market chose gold as a form of money for thousands of years.
As Alan Greenspan wrote in 1966, “This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”
This is why any form of a gold standard is anathema to most politicians and bureaucrats. It is a limitation of their spending, which is a limitation on their power.
The topic of the gold standard is getting a little bit of attention now because Trump nominated Judy Shelton for the Fed. She has been somewhat sympathetic to the idea of a gold standard, at least with her rhetoric.
It is rather odd that Trump has been criticizing Powell for keeping interest rates too high, while he nominates Shelton for a position at the Fed. If Trump thinks interest rates are too restrictive now, imagine what a gold standard would do.
The Insanity Continues
We are in this world again where bad news is good news. Stock investors actually cheer bad economic news because it means that the Fed is more likely to lower its target interest rate. So when we hear bad economic news, stocks go higher.
Stocks are at or near all-time highs. Interest rates are still historically low. Official unemployment is near all-time lows. Looking at these key pieces of data, the economy is booming. Unfortunately, talking to middle class Americans paints a different picture. They have jobs (sometimes plural), but the wages can barely keep up with the rising expenses.
The yield curve also paints a different picture from this idea of a booming economy. The 10-year yield is lower than short-term yields such as the 3-month. The mostly inverted yield curve is signaling trouble ahead, but stock investors keep enjoying the boom.
I believe that Powell and company are going to lower the federal funds rate because of the inverted yield curve. It doesn’t have much to do with what Trump is saying. The Fed is not going to come right out and say that they are lowering rates because the yield curve is telling them that a recession is imminent.
Rates are already low. I don’t know what will happen when the recession finally hits. Will the Fed copy Europe and Japan and go negative? Or will they just count on quantitative easing (digital money printing) to save the day?
The Fed is still reducing its balance sheet, but I expect this to end very soon. Once stocks start to crash and it is evident that we are in a recession, I expect the Fed to announce QE4.
Gold has finally turned bullish after many years of being mostly flat. It is over $1,400 per ounce as I write this. It may drop with all other commodities during the initial phase of the recession. But with the Fed’s only answer being more monetary inflation, I expect gold to roar ahead rather quickly. I don’t necessarily expect the same for Bitcoin, but you never know.
“Democracy is the theory that the common people know what they want, and deserve to get it good and hard.” ~ H. L. Mencken
After I became a full-fledged libertarian, but prior to 2007, I thought: If only we could get someone in front of the American people to present a good case for libertarianism. I thought if enough people heard the message articulated, that it could change our society significantly.
I thought about this from my own experience. We are often presented with just two choices: Republican or Democrat. Even if you aren’t a hardcore libertarian, shouldn’t you at least be able to be against war and against government-run healthcare at the same time?
I remember Harry Browne talking about how it is important to present yourself well and to be able to explain the benefits of liberty. Even if you are not able to change a lot of people, you may be the first real libertarian someone encounters. You may be able to change someone else’s mind. And you never know whom that person might eventually reach. Maybe someone with a lot of fame or money will hear the message and then help to spread it far and wide.
I would think about rich and famous people who were possibly open minded enough that maybe they could be converted to libertarianism. If some rich person became a libertarian and decided to spend their money on a presidential campaign, you never know what might happen after that.
Then, 2007 came. Ron Paul entered the presidential race on the Republican ticket, even though he had a mostly libertarian philosophy for a long time. I was ecstatic when I heard he would be in the debates. I thought, “Finally, the message will reach the people.”
I was not altogether wrong. In retrospect, I don’t know that I could have asked for anything better during this time period. There are multiple times the number of libertarians today as there were prior to 2007.
I find it amusing when I hear libertarians despair about how few of us there are. They think that liberty is lost because our numbers are so few. They somehow fail to realize that the message of liberty is far greater today than perhaps ever before. The sentiment for statism is strong as well, but at least there is an alternative to statism for those looking.
There must be something in the DNA of human beings that attracts certain people to liberty and others to statism. The interesting thing about the Ron Paul campaigns (2007/ 2008 and 2011/ 2012) is that it just seemed to better draw the lines.
If anything, I thought maybe he would get many millions of people to lean towards libertarianism. Maybe he did that to a certain extent, but not as much as I would have thought. I do consider the possibility that Ron Paul’s message made it possible for Donald Trump to get the Republican nomination with a softer (better) position on foreign policy. Trump certainly didn’t have anything close to the message of Paul, but he did say that Bush lied us into war in Iraq. If any candidate had said that in 2008, or even 2012, I don’t think the Republican nomination would have been possible.
The most interesting aspect of the Ron Paul campaigns is that he identified (and created) hardcore libertarians. It’s not just that there was a slight shift towards liberty. The million or so people who dedicated themselves to the Ron Paul cause became mostly hardcore. In fact, there are many libertarians who say they got started by hearing Ron Paul in the debates, yet they now consider themselves more hardcore than Ron Paul himself.
People Enslave Themselves
I frequently say that the only way to get a more libertarian society in the long run is to change the hearts and minds of the people. The state relies on the consent of the people.
You can hate certain politicians and complain about certain policies, but it doesn’t matter if you are still consenting to the corrupt system of the state ruling over us. Since there are enough people who believe we need big government to rule over us for our own protection, we get big government. We are all enslaved to a certain extent by the large majority of people who grant their consent, whether it is explicitly or implicitly.
I consider myself compassionate towards other human beings. I don’t want to see innocent people suffer. I think about the people in foreign countries who suffer at the hands of U.S. government bombs. I acknowledge the innocent people who die or have people close to them die. I acknowledge the suffering. I didn’t always do this when I was younger. I had to think about this suffering to become staunchly anti war.
In the United States, I am also compassionate towards innocent people who suffer. I am even somewhat sympathetic towards innocent people who suffer, even though they are suffering from policies that they helped promote. There are people who cheer on bigger government and suffer from the very policies that they advocated, but they don’t even know it. Worse, they continue to advocate for these harmful policies.
You can try to point this out to people, but they will typically just get defensive. If anything, they will just double-down on promoting the bad policies. Most people don’t want to admit they have been duped by others. They would rather deny it and just keep getting duped.
It’s not even to say that these people are stupid. They may just be stupid in this one aspect of life. I have met many intelligent people who promote statism. They may even be brilliant in virtually every area of life except for this one. They may be so intelligent that they think they know how to run other people’s lives better than the people themselves.
There are some people that just don’t know better. I am sympathetic because they just don’t realize it. I see them as suckers in this one particular area of life, but I have nothing against them other than this. I am sympathetic even though they are helping to make my life harder. I am sympathetic because I give them the benefit of the doubt that they are just ignorant in this one area.
The only problem is, times have changed. Communication is cheaper and better today than ever before. If you really want to know the truth, it is out there. You just need a little bit of effort and a little bit of reason.
Ron Paul spelled out the message in 2007/ 2008, and again in 2011/ 2012. That same message is available all over the web. It is hard to plead ignorance in today’s world. You can be apathetic. You can deny reality. But you can’t just plead ignorance without taking any responsibility, especially if you are an older adult.
In this respect, I have a little less sympathy than before for those suffering from their own delusions. The message is out there, but a large majority of people still want to take the word of their slave masters over those of us trying to warn them that they are being duped. They can’t take a little bit of effort to research different sides of a story.
While Mencken’s quote is funny, I did not believe that people deserve to get “good and hard” what they vote for or support. People don’t deserve pain and suffering just because they were duped. They are the victims.
I still don’t want to see innocent people suffer, but I am struggling with who is actually innocent. If all of this information is out there, and you refuse to open your eyes to the truth, maybe you do deserve to get it good and hard at some point.
The term fascism is overused, but it has relevance in today’s society when it comes to the economic aspect of things. Economic fascism means that the government (i.e., the state) controls businesses without actually owning them. Socialism is the state ownership of the means of production.
A lot of what the so-called democratic socialists (such as Bernie Sanders) advocate is not outright socialism. It is more economic fascism than socialism. They don’t necessarily want the government to own everything. They want a bigger welfare state, and they want government to have even more control over business.
I recently wrote about targeted tax cuts and cronyism. Some libertarians take the position that a tax cut is good no matter what, even if it involves favoritism. They believe that any reduction of taxes, including special exemptions for favored corporations, is positive.
I don’t fully agree with this position. I think a libertarian’s position should be more nuanced. The universal position for a libertarian should be tax rate reductions and spending reductions across the board. When it comes to targeted tax cuts and tax exemptions, it really does depend on the situation.
If there is a tax cut for people only named Hillary Clinton, I will oppose it.
And what about retroactive tax cuts? Elizabeth Warren just said that there should be reparations (tax rebates) for same-sex married couples who previously paid a higher tax because they couldn’t file as a married couple. Do the “tax-cuts under any circumstance libertarians” support this, since it is really just a tax refund?
Should they support the bailout of GM and Chrysler in 2008/ 2009 if we just call it a tax refund for previous years?
This is why our position should really be nuanced, and there may not always be a clear-cut answer. This week, this position was confirmed for me in seeing what happened with Nike in Arizona.
The State Sells Sneakers
Nike was going to sell sneakers with an old design of the American flag. Colin Kaepernick protested the move because America had slavery at that time, and we should not celebrate this symbol according to him. Nike capitulated and withdrew the sneakers from the market.
So now we have a situation where the governor of Arizona is dictating to a private company what products they should sell (or else face higher taxes). This is cronyism in reverse. It is economic fascism.
When Kaepernick protested, Nike could have gone ahead with selling the shoes anyway. The risk is that they faced backlash (lower sales) from those taking Kaepernick’s side. I am not judging Nike one way or another for its decision. The executives probably just didn’t want the controversy, but they got it anyway.
If Arizona hadn’t been playing favorites in the first place with special tax breaks, then this threat from the governor wouldn’t have happened. It would have been difficult for the Arizona governor to just say he was raising taxes on Nike above and beyond every other corporation.
It is my understanding that the tax incentives for Nike were a combination of tax breaks and outright corporate welfare. Of course, the corporate welfare should be revoked and never should have been there in the first place.
It is curious why these state and local governments offer incentives to large corporations to set up business in their jurisdiction. They want to be able to say they created 1,500 jobs, or whatever the number is. They could offer the same incentives to 100 companies that add up to the same size and get the same result, but that is harder to do, politically speaking.
I don’t feel bad for Nike here. When you take the government (taxpayer) money, then you take the government commands.
This is a good example of one reason why libertarians should oppose school vouchers (aside from the fact that it is still theft). When a “private” school accepts government money, they accept all of the dictates that go along with that money. They are now under the control of the state, and it is hard to complain when receiving taxpayer money. They can eventually be told what to teach and what not to teach.
I am sympathetic to the sentiment of libertarians cheering for tax loopholes, but look at what it got us in Arizona. Nike tried to take something like a tax loophole, and they ended up being told what shoes they should sell. It is hard to cheer for economic fascism.
I struggled through most of the 4 hours of debates spread across 2 nights. As expected, it was mostly a competition between 20 people on how best they can rule over others.
And in order to rule, they must pander, and pander they did. There were continual promises of free stuff and executive orders to make things right in the world.
I watched the debates so that I could write about them here. It is also a form of self-defense. I want to know what to be prepared for in the future. I also enjoy the political theater, despite the fact that I despise political power.
While the candidates were supposedly randomly chosen for each night, the heavy hitters (at least according to the polls) appeared on the second night. This featured Joe Biden, Bernie Sanders, Kamala Harris, and Pete Buttigieg. They were the most notable.
The first night had Elizabeth Warren. She was the top-polling candidate for that night. Tulsi Gabbard also participated on the first night, and I will have more on her in a bit.
It is hard to get into the mind of a leftist, but I can still somewhat detect who might come across as genuine to the typical Democrat voter. I can detect who comes across as confident and “presidential”.
I think there are a couple of groups within the party itself. It is like there are primaries inside the primaries. It is not unlike what happened with the Republicans in 2015/ 2016.
There is a faction of establishment candidates. Joe Biden is at the top of this list. But I think Kamala Harris will take on Biden as the establishment favorite. While I thought her positions were scary, she was impressive and articulate, or at least I could see others viewing her that way.
Now, she is a leftist to be sure. When Harris was asked whether the candidates should have to explain how they would pay for every item they proposed (which is a lot) she didn’t really answer the question directly. But she did present in her answer a proposal for a $500 per month tax credit for any family making under $100,000 per year.
I’m not sure what happens if you make $100,001 in a year. Are you out your 6 grand then?
I don’t look at a tax cut as a government expense as many do. But her answer just added to the list of free stuff instead of answering how the “free” stuff would actually be paid for. A tax credit is not the same as a tax deduction. This means that many people who pay little or no federal income tax would still get the $500 per month. She is not proposing any cuts in the budget anywhere else, so this would just add to the already-large deficit. It is a populist move to be sure, but it just added to the idea of there being a free lunch.
Harris took aim at Joe Biden on the issue of race. She knows she is in competition with Biden for the establishment wing of the Democratic Party. She attacked him for his vote a long time ago on school busing.
The crazy thing is that Biden actually took a decentralist position in defending his vote on busing at a federal level. He told Harris that she should blame her local city council. His vote was just not to involve the federal government. If only he would take this position on other issues.
The other main group is the so-called progressives. It is the hard left. Some of them are self-identified socialists. I don’t think they are pure socialists. They just want a much bigger welfare state. I don’t think they literally want the government to own everything. Maybe they want the government to control everything, but that is more fascism than socialism. That word is not as popular.
Bernie Sanders is vying for the top spot in the progressive wing. His main challenger is Elizabeth Warren.
I just find it hard to believe that Elizabeth Warren has a chance. She comes across as such a phony to me. She is not charismatic. If she got the nomination, the show between her and Trump would be something between a comedy and a circus. I can just imagine Trump continually calling her Senator Pocahontas.
Not every candidate fits perfectly between these two groups. Biden and Harris still try to appeal to the far left, or at least make themselves acceptable. Sanders and Warren still try to make themselves acceptable to the establishment, and I think they mostly are acceptable to the establishment at this point.
Some of the other candidates try to play both sides. If you look back at the Republican debates, you can see this with certain candidates. Marco Rubio was an establishment candidate, but he had some rhetoric that was there to appeal to the conservative wing of the party.
I am not going to go through every candidate. There were just a few notable things from my point of view.
Beto O’Rourke was asked if he favored a top marginal income tax rate of 70%. He proceeded to speak in Spanish and avoided the question. When asked again if he wanted to answer the question, he still couldn’t manage to do it.
He tried his pandering to Latino voters by speaking Spanish. He wasn’t the only one. I don’t think Beto is going anywhere unless he comes up with something brilliant for the next debate.
Aside from Tulsi Gabbard, I think Andrew Yang is the most genuine person. He believes in his universal basic income. He wants the government to pay every American adult $1,000 per month. The wealth redistribution and the implications of inflation are just a little too direct for many of the leftists to feel comfortable with it. Most of them want their welfare programs to go through layers of bureaucracy first.
As far as Bernie Sanders, there wasn’t much new there. We already know his agenda from four years ago.
There wasn’t a lot in the debates about foreign policy. Bernie was actually pretty good on foreign policy when asked about it. He actually mentioned the crisis in Yemen.
There are a couple of problems though. He barely spends any time talking about foreign policy unless directly asked. It isn’t on his priority list.
Second, he campaigned for the bloodthirsty Hillary Clinton in 2016. Anyone who would do this (especially after the DNC rigged the primaries against him) can be counted on to not buck the establishment trend too much. If Sanders became president, he would quickly be taken over by the establishment war hawks, not all that dissimilar to what has happened to Trump.
The Tulsi Train
By far the most interesting candidate to me (and should be for any libertarian) is Tulsi Gabbard. She is mostly bad on the issues except for foreign policy, which is her signature issue.
She was noticed. Reports are that she was the most searched candidate after the first debate night. She was easily winning most of the online polls. I saw her over 40% at one point on Drudge Report’s online poll.
She is carving out a niche of her own. She is becoming the Ron Paul of the Democrats. She could learn some lessons from the 2008 Ron Paul campaign. She could learn some economics from Ron Paul too, but that is another matter.
Tulsi avoided her first question on gender wage gap, but for the better. She went straight to foreign policy. I think she got traction too.
Tulsi is young. She is attractive. She is pleasant. She doesn’t sound nagging or annoying. And while I think her “service” in Iraq was a mistake, it gives her credentials to a certain degree. It is hard to call her weak.
Tulsi was good at hammering away at foreign policy, but I found her ending statement weak. I don’t care about clean air and access to healthcare for all. (Well, I do care about those things, but not anything any of these candidates would do about them.)
She needs to focus continually on her signature issue, which is taking a stance against war and empire. Whenever she is asked about economic issues, she needs to pull a Ron Paul and immediately tie it to foreign policy. We can only improve significantly domestically if we dramatically scale back the empire and the many hundreds of billions of dollars per year that go with it. She did mention a couple of times about the waste of money on the wars, but she can stress this issue even more.
She can also stress the morality of the issue of war. She mentions the dead Americans from war, but what about the many more dead innocents of the countries that the U.S. government has attacked?
I know we are supposed to appeal to people’s self-interest when it comes to politics. But most Americans have some sense of morality. The only way the government can get the American people behind war is by appealing to their morality on false grounds. They say we need to help the people of another country. They say it is a humanitarian crisis, so we need to bomb them for their own good.
Ron Paul gained notoriety when he had his exchange with Rudy Giuliani. Tulsi had a similar moment when she was debating Afghanistan with one of the lesser-known candidates. It wasn’t quite as good as Ron Paul’s moment, but it was still pretty good. I think it put her on the map.
I know the establishment is going to smear Tulsi. They wouldn’t know what to do if it was her versus Trump. I have no idea if she would be able to stand firm and end the wars if she became president, but at least we are talking about it. She will change the narrative to a certain degree. The other candidates are going to be forced to contend with her positions at some point.
Bernie Sanders is better than most of them on foreign policy, but we shouldn’t trust him. He will not stand firm. It isn’t his signature issue. Tulsi should point this out. She should point out that Bernie was quick to support Hillary the war hawk in 2016, but I think this can come at a later time.
Conclusions
There has been a lot of “free” stuff proposed. There is free college, free healthcare, and the wiping out of student debt. Most of these proposals will never have a chance of actually passing Congress, let alone the court of public opinion.
Kamala Harris may be the scariest candidate of all. She is authoritarian. She is a war hawk. She is in favor of much bigger government on the home front. She is similar to Hillary Clinton, although I don’t know if she is as criminal.
Tulsi Gabbard is easily the most interesting candidate. Libertarians should support her quest for a more peaceful foreign policy. You can support this aspect without supporting her whole agenda.
At least with Tulsi, she does understand that there is a cost to all of these government programs. She is the only one who has any kind of proposal on how to pay for a greater welfare state. She wants to bring the troops home and stop spending money on war and empire.
This alone won’t balance the budget, even if nothing new is added. But it is a lot closer to anything anyone else has.
The one issue where the president can make a major difference is foreign policy. Tulsi should stress this. If she could win the presidency and resist the establishment (which is not easy for many reasons), we could actually see greater peace and a move towards liberty in spite of her other positions.
I recently saw someone in a forum ask about paying off debt. She was coming into some money and had multiple forms of debt including a car loan, a student loan, and a loan against her 401k. She also owed some money to her mom. She wondered what to pay first.
I was surprised to see some people give the advice that the she should pay off her 401k loan first. Some didn’t give any reasoning, but a few said that she would miss out on the gains of compounding returns. I will get back to that point in a moment.
There was a comment saying that she should pay back the 401k loan first because she would have to pay back the money if she lost her job, or something to that effect.
That isn’t really true though. First, you may be able to negotiate and allow your regular payments to continue if you lose your job. Second, if the company did want you to pay it back all at once, you can simply default.
So what are the consequences of “defaulting” on a 401k loan? It is essentially the same as taking a withdrawal. If you have a balance of $10,000 and you default on it (or take a withdrawal), then you just aren’t paying it back to yourself in your account. You would owe taxes on that money, plus a 10% penalty if you are below the age of 59 and a half.
Put that way, it isn’t really all that bad. If you lose your job, then your income may be lower for that year that you are essentially taking a distribution. This would likely mean a lower marginal tax bracket.
I’m not saying it’s the ideal situation, but it usually isn’t when anyone loses their job involuntarily. You might actually be in a worse situation if you had other debt and you lost your job. I would rather have to pay taxes and penalty on $10,000 than having to keep making payments on a $10,000 loan if I lost my job.
My advice to the woman was to pay back her mom first. This obviously has nothing to do with a mathematical calculation. It isn’t even really financial advice, or at least not directly. It is relationship advice. If she owes her mother money, she should pay her when she has the money. She has a place to live and is putting food on the table. She should pay back her mother first before paying back the banks and her own 401k account.
Without knowing the exact interest rates, I suggested paying off the student loan debt second. This is debt that cannot typically be discharged in bankruptcy. You also don’t have collateral for it other than the supposed wisdom gained from attending college. Really, it is the degree that is collateral that is supposed to help you get a better job.
I suggested the car loan after that and the 401k last.
Paying Interest to Yourself
When you take a loan against your 401k plan, you typically have to pay an interest rate. There may also be maintenance fees, but they may not be that significant if the loan is of a decent size. You don’t want to pay a $25 per quarter maintenance fee on a $1,000 loan, as that would be 10% of the loan in a year. If you pay $100 per year for a $20,000 loan, then that would be half of a percent, which is obviously a much lower percentage.
The interest rate can vary depending on your plan and current interest rates. Right now, you might expect to pay something in the neighborhood of 6%.
This is interest that you are paying back to yourself in your 401k account. It doesn’t mean that it is irrelevant though. You should consider this interest rate when taking out a loan because it will affect your cash flow. When you start paying back your loan almost right away, your paycheck (assuming your employer automatically deducts it from your net pay) will go lower. The higher the interest rate on the loan, the higher the amount that will be taken out from your net pay.
As I mentioned near the beginning of this article, a few people objected to having a 401k loan because you will miss out on the compounding returns. But why are they assuming this is the case?
If you are paying yourself back the interest, then this is essentially the same thing. It’s just that your return is fixed. If your interest rate is 6%, then you are essentially getting a return from your own payments of 6% on the borrowed money.
If I could find an investment right now that paid a guaranteed 6% return, I would probably have most of my money in it. This might not always be true if I thought there was a significant threat of price inflation in the near future.
I think the few people with this mindset believe that you can get better returns by investing, which would impact your compounding returns. They have the conventional mindset that you should invest in broad-based index funds that will return at least 8% annually over a long time horizon.
The problem, of course, is that there is no guarantee that you will get 8% annual returns. Past performance does not indicate future results.
If there were a way to get guaranteed returns above the interest rate you are paying on your 401k loan, then they would have a good argument. But in the real world, this is not the case.
I don’t love the idea of taking out a loan against a 401k. Again, you still have to make the payments unless you can somehow default on it, which would make it even less ideal.
But if you have to borrow money, then you may be better off paying the interest to your retirement account instead of paying it to a bank.
I don’t want to say that I am an advocate of taking out a 401k loan. In many cases, people are better off not taking out any debt at all. If you are going to borrow, it should be for a good reason and not for luxury purposes.
One final thought I have is related to a mortgage. You can take a 401k loan to use as a down payment on a house. Again, while I would prefer having the money saved up for a down payment, a 401k loan for this purpose can allow some people to avoid private mortgage insurance and to also get a better rate on the mortgage. This should only be done knowing that you are quite comfortable with the mortgage payments and the 401k loan payments, along with all of the other expenses that come with home ownership.
The one other interesting idea in regards to a mortgage is to use a 401k loan to pay off a mortgage. I wonder if many people have used this strategy.
Let’s say that you have $40,000 left to pay on your mortgage. You have a sizeable 401k plan well into six figures and you can borrow up to $40,000 from your plan.
Maybe it makes sense to take out a $40,000 loan against your 401k and wipe out the mortgage. Then you have your 401k loan payments instead of your mortgage payments. But the interest would be going towards your retirement account instead of to the mortgage company.
I am not saying this is a good strategy for everyone. It depends on your situation. It depends on the maintenance fees for the 401k loan and other fine details. But it may be something for you to consider if you are in this situation.
The price of gold briefly surpassed the $1,400 per ounce mark on Friday for the first time in a long while. Gold has been stuck in a somewhat narrow range for quite a while.
Every time the price shot above $1,300 and it seemed a new rally was coming, it would pull back again.
I don’t know if this time we will actually see a continued surge or if we will just see another pullback. While gold has been a great investment if you bought it at the turn of the century, it has been rather lackluster at best for the last 6 years or so. Mining stocks have been absolutely terrible to own for the last 6 or 7 years.
Of course, I don’t look at gold purely as an investment. Its number one goal is something of an insurance policy against disaster and especially terrible government policies.
When I do look at gold as an investment, I look at it in context with a bigger portfolio. I recommend a permanent portfolio, which includes 25% in gold assets. It is a form of diversification. It is a hedge against significant price inflation.
I have no problem with the idea of speculating in gold and gold-related investments, but it should be looked at as a speculation. You could make money or lose money. Mining stocks in particular are incredibly volatile. When a new bull market in gold finally emerges, I expect mining stocks to give incredible returns.
Two Events This Week
There were two major events this past week that coincided with the explosion in the dollar price of gold. One was Iran. The other was the Fed.
Regarding Iran, Trump and his war hawk advisors have been threatening Iran and making unproven accusations against it. They were quick to blame Iran when two oil tankers were attacked. They were also quick to blame Iran when an unmanned drone was shot down off the shores of Iran.
In regards to the oil tankers, we don’t really know what happened. It is possible that the Iranian government was responsible, but I doubt it. It is more likely a false flag. If it actually was a false flag attack, I have my doubts whether Trump actually knew about it. I am not sure just how much is kept a secret from him.
Still, I do not excuse Trump. He hired the horrible human beings that are Mike Pompeo and John Bolton. He pulled out of the Iran deal. He imposed sanctions on Iran. He has been making verbal threats.
In regards to the shooting down of the giant drone, the contention by the U.S. government is that it was in international air space. Iran says otherwise.
What would the narrative be if an Iranian drone were flying 20 miles offshore of Miami Beach? What if the U.S. government shot it down? Americans would be calling for an all-out war against Iran for daring to threaten the U.S. by flying a drone near our shores. Would anyone contend otherwise that this would be the reaction?
Although the U.S. may have come close this past week to starting an outright war with Iran, I don’t know if that contributed to the increase in the gold price. It certainly must have contributed to the increase in the price of oil.
If the U.S. had just dropped a few bombs on Iran, I don’t know what the response would have been (or will be). I don’t know if the Iranian government will just sit back and take it and hope that it stops. Or maybe they will fight back with their backs against the wall. They will certainly try to disrupt the oil market.
The market does not seem to be betting on a massive war with Iran. I think gold and oil would both be even higher at this point. Then again, sometimes the market is wrong. We can’t predict what Trump and his warmongering advisors will do.
The rise of gold also coincided with the latest Fed meeting. The Fed announced that it would keep its target interest rate the same for now. With that, you would think gold might go down.
But Jerome Powell said in a press conference that the Fed is willing to accommodate if necessary. Investors are betting on a rate decrease the next time around. This is in spite of the fact that the Fed is still reducing its balance sheet.
Still, the rise in gold really took off after the press conference by the Fed chair. I think this had a bigger pull on gold than did the news about Iran. Both stories probably contributed to the rise, but I think it was more the Fed.
The Gamechanger
The biggest short-term factor will be a recession. The inverted yield curve, at least as comparing the 10-year yield to the 3-month yield, is indicating a recession ahead. This will most likely occur in 2020.
A recession is typically not good for gold, especially if consumer price inflation is relatively low and expected to stay low. We may see a temporary pullback in consumer prices, which is actually what the American middle class desperately needs.
I believe the Fed will turn again to loose money. It won’t just be lower interest rates and possibly even moving towards negative interest rates as we’ve seen in Europe and Japan. There will be more quantitative easing (QE). In other words, the Fed will return to creating money out of thin air.
There will be a time to get further into gold and possibly gold-mining stocks. I am not going to say that we should go all-in. I never want to go all-in on anything.
I recommend a core holding of gold assets all the time. Maybe we’ll see gold prices run higher a bit before the recession hits. When the recession does hit, maybe the pullback will be less than normal. Cash is king in a recession. People want liquidity. It is also an opportunity to buy assets that are on sale.
Gold may see a sale price, but I don’t think it will last long. It certainly won’t last long if the Fed is as aggressive as it was the last time a deep recession hit.