There are a lot of Democrats running for president for 2020.  The list is only going to get longer.  Only one of them is going to get the chance to challenge Donald Trump, assuming Trump is still the president and is running for re-election.

Much of the focus so far has been on domestic issues.  There has been a noticeable increase in progressive (i.e., leftist or socialist) rhetoric coming from the Democratic Party, and that includes the presidential candidates.

They are almost trying to outdo each other in terms of how much they can increase spending and increase taxes on the so-called rich.  In Elizabeth Warren’s case, it really is the rich, as she is proposing a tax on wealth.  Most tax increase proposals are on income.

It was easy for Bernie Sanders to be the far left candidate in 2016 against Hillary Clinton, at least in terms of rhetoric.  The field was very limited then.

Now, Bernie has many challengers, and it is not certain that he is the most politically leftist candidate.  When one of them proposes free healthcare for all, the next one will propose the same thing and up the ante with free universal childcare.  And the way they will provide these “free” services isn’t really explained except for higher taxes on the rich.

In terms of going against Donald Trump, I am not sure how much it is going to matter who the Democrats nominate.  Trump’s re-election is going to hinge so much on his political problems with the media and the establishment in general.  It is hard to say if all of the allegations against him will stick in the court of public opinion.  The hardcore Trump supporters will mostly still support him, and the Trump haters will obviously continue to hate him.  It is more a question of how the middle-of-the-road voter will vote, or even whether they will vote at all.

I think most of the election will revolve around domestic issues, unless something unexpected happens that is significant.  In this case, it really is the economy, stupid.  It’s ironic that that slogan came from the Clinton era, because Hillary Clinton ignored it at her own peril.

If we are in a deep recession in November 2020, then Trump will likely lose.  If the economy is booming, or seemingly booming, then Trump has a good chance to win.  If it is somewhere in between, then the election is likely to be really close.

Where a President Matters

It has long been my opinion that the president doesn’t really impact the economy that much, at least in terms of a domestic agenda.  Now, if you had a radical libertarian in office, then things would likely change, but they would have already changed because of the obvious change in public opinion.

A libertarian president could use the bully pulpit to advocate a massive reduction in spending. This is really what needs to happen.  That is what would make Americans more prosperous.  Tax cuts don’t matter much in the long run if spending continues to go up.

The one area where the president has the most power, or at least should have the most power, is foreign policy.  The president could declare an end to all wars immediately and bring the troops home.  This would put a stop to the killing of innocent lives, at least by the U.S. military.  It would put a stop to the massive destruction, at least by the U.S. military.  Unfortunately, the chaos already created by these wars can’t be undone. But they would have a better chance of fixing themselves in the future without the presence of U.S. troops.

Ending all of the wars would also help Americans economically.  It would be a major reduction in spending, or at least it should be.

Trump had some good things to say in 2015 and 2016 from a non-interventionist standpoint.  He also had some bad things to say. But it was better to hear his inconsistency rather than the consistent cheerleading for war by the other candidates.

This is the main reason that the establishment hates Trump so much.  It isn’t because of his brash personality or his mean tweets. It is because they fear he will contract the empire and the military-industrial complex.

Unfortunately, Trump has been mostly bad on foreign policy, just like his predecessors.  He has surrounded himself by war hawks, some of whom are from previous administrations.  He has surrounded himself by people who actually opposed him before his election.  They probably still oppose him, but they are just not vocal about it. They would rather have a seat at the table and have some influence, which they have had.

Trump has been mostly unable to achieve anything significant in terms of foreign policy.  The best you can say about Trump at this point is that he has not started any new major wars.  It was about this time into Obama’s presidency that the conflict in Libya was underway.

The question is, what if a Democrat wins the presidency in 2020?  Will we see any significant change in foreign policy?

Tulsi Gabbard – The Only Hope?

I wrote a blog post on Tulsi Gabbard, asking if she would make a good president.  I still stand by what I said that she would be the only one I would consider voting for from the Democratic Party.

However, I am leaning a little more in not voting for her if she somehow miraculously got the Democratic nomination.  I already vehemently disagree with her other leftist positions, particularly when it comes to economics.

Gabbard was recently on The View.  One of the co-hosts is Meghan McCain, the daughter of the late Senator John McCain.

After Meghan McCain thanked Gabbard for her “service”, she went on to say, “When I hear the name Tulsi Gabbard, I think of Assad apologist.”

Gabbard tried to stand her ground, but she did say this: “There is no disputing the fact that Bashar al-Assad in Syria is a brutal dictator.  There is no disputing the fact that he has used chemical weapons and other weapons against his people.”

Actually, Tulsi, there is disputing this.  Whether Assad is a brutal dictator is somewhat subjective.  Maybe it is a repetitive term.  But relative to other dictators, Assad is probably one of the better ones.  He has allowed people of different religions to peacefully co-exist in Syria.  It was the U.S. intervention that destroyed all of this.

And there is plenty to dispute as far as Assad using chemical weapons on his own people. These are just claims of the U.S. government.  It is no different than the claim of weapons of mass destruction in Iraq.  They are completely unsubstantiated.  They are probably purposely made up for their interventionist agenda.

If I had been Gabbard responding to McCain, I would have said, “When I hear the name McCain, I think of blood-thirsty warmonger.”  Maybe that’s why I wouldn’t make it in politics.

I don’t even like Gabbard’s response when everyone thanks her for her service and her bravery in going to Iraq.  If she is so opposed to intervention, then she should say that they shouldn’t be thanking her because she never should have been in Iraq.

Forgive me for being such a cynic here, but I know how these things go.  If she is wavering at all now, she will only waver more if she ever gets into office.

Near the end of the interview, Joy Behar asked her if her position would be popular with the Democratic Party.  Behar said that Trump said something similar when he was running.  Gabbard responded that he may have, but Trump has not followed through and has broken his promises.

But the real question is: why would Gabbard be any different?  She is a little more consistent than Trump was during his campaign.  But just because she says she will follow through, it doesn’t mean she will.

If I am doubting Gabbard, you can only imagine how I feel about the rest of the field of candidates.  Bernie Sanders and Elizabeth Warren are not hawkish in their rhetoric, but they mostly try to avoid talking about foreign policy.  It is not a priority for them.

And let’s remember that Sanders ended up supporting and campaigning for Clinton in 2016, even after what she and the party did to him.  Anyone who can even pretend to support Hillary Clinton is not going to be a non-interventionist in foreign policy as president.

I am glad that Tulsi Gabbard is running for president.  At least people are having discussions that otherwise wouldn’t have occurred. But I am doubtful that she will get the Democratic Party’s nomination.  The establishment is against her for some of the same reasons they are against Trump.  They may fear her even more.

But even if Gabbard were to become president, I don’t trust that she would fully follow through on what she is saying.  When I detect just a little bit of hesitation or wavering as I detected in her appearance on The View, I fear she will not be strong enough to follow through.  I have seen what happens to people when they get into power and are surrounded by the vultures.

A change in American foreign policy will come when there is a drastic change in public opinion. A change may also come when the government can no longer afford to pay for it all.

I have been paying close attention to the yield curve.  When the 10-year yield drops below the 3-month yield, I will be ready to call a recession.  We are not there yet (as of this writing), but it is close.

The Federal Reserve went on an unprecedented digital money-printing spree from 2008 to 2014.  The adjusted monetary base nearly quintupled.  However, this did not result in exorbitant consumer price inflation as some predicted.

I generally contribute the relatively low price inflation to two things.  First, the economy has been rather lackluster since the financial crisis of 2008.  It scared a lot of people.  It’s hard to say that consumers have been hesitant to spend and take on debt, but I think the last 10 years have been a little less crazy than the previous 10 years.  There may be another housing bubble now in some areas, but it is still not to the extent of the previous housing bubble in most areas.

The other major reason that consumer price inflation has been somewhat low over the last decade, at least compared to the massive increase in the Fed’s balance sheet, is that the commercial banks have piled up excess reserves.

Up until 2008, the excess reserves were close to zero.  In our current world of central banking, the banks lent out almost all of their deposits that they were legally allowed to.  If they fell below their legal limit, they would just borrow overnight from other banks that had a little extra.  The interest rate paid was essentially the federal funds rate.

It all balanced out as long as there were no massive cash withdrawals, which wouldn’t have been allowed anyway.  As long as the money stayed within the banking system, the banking system basically stayed solvent. Or at least that was the case until the financial crisis, when banks got caught with a lot of bad loans, mostly in the form of mortgages.

In response to the 2008 financial crisis, banks piled up excess reserves, which was basically unprecedented in our world of central banking.  This coincided with the Fed’s new policy of paying interest on bank reserves, including excess reserves.  While the rate was very small (0.25%) to start, it was still something. It is better for a bank to earn a risk-free one-quarter percent than to make risky loans at slightly higher rates.

Until 2008, the total excess reserves were around $2 billion, give or take.  In our world of trillions, it was basically a rounding error.  But from 2008 to 2014, coinciding with QE1 through QE3, the banks increased excess reserves to about $2.7 trillion by 2014.  This was at about the same time that QE3 was winding down.

The Slow Wind Down

Currently, the Fed is engaging in a slow wind down of its balance sheet.  It is allowing about $50 billion per month to roll off its balance sheet, which reduces the adjusted monetary base.  The Fed is not actually selling off assets. It is just not rolling over all of its maturing assets.

Excess reserves have fallen to about $1.5 trillion.  This is quite a drop from its high in 2014.  It is somewhat corresponding to the decrease in the monetary base. This major fall is in spite of the Fed now paying a higher interest rate on bank reserves.

This is what makes it so tough to see what is coming.  The Fed went on a massive money creation spree for 6 years.  It obviously caused major misallocations, but it could have been so much worse.  The Fed has gotten away with this because of the relatively low consumer price inflation.  There has certainly been asset price inflation in housing and stocks, but people generally cheer this.

Now the Fed is tightening.  The Austrian Business Cycle Theory tells us that the malinvestments should be exposed, and we should see a correction/ recession.  But while the Fed is tightening, the excess reserves are dropping fast.  So just as the monetary inflation was not amplified on the way up, the monetary deflation is not being amplified on the way down.

According to the CPI, consumer prices are fairly stable, so this is not telling us much.

We really are in uncharted waters.  We have never seen anything like this, or even anything close to this.  It is amazing the Fed has essentially gotten away with this, at least up until now.

The major drop in excess reserves is making me more cautious in predicting that a major crash is imminent.  If banks are lending a little more right now, it may extend the boom.  It may extend the bubbles.  But the large majority of the decrease in bank excess reserves is because of the drop in the Fed’s balance sheet.

I am still leaning towards an economic downturn.  I thought almost for sure it would happen before the 2020 election, but that isn’t all that far off now.  I don’t know if the major drop in excess reserves will buy enough time to keep the artificial boom going past the 2020 election.

That is why I am mostly paying attention to the yield curve these days.  There are so many other moving parts going in different directions, but the interest rates tell the best story.

If the yield curve inverts, then a recession is coming in the near future.  But until that happens, I don’t want to bet against the U.S. economy.

I recently received an email question from a reader.  Since it may be relevant to many people, I am answering it in a blog post. The email is as follows (reprinted with permission).

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I have about $13k in credit card debt at 25% interest.I also have $12k in an auto loan at 10%.  My savings account currently has about $25k in it, mostly in a modified permanent portfolio.  

Should I just take that $25k, wipe out my savings and pay off all of my debt? My job is pretty secure at the moment.  If I had an emergency I would always have open credit cards.  And long term I would be able to save more not having to service all of that debt.  Opinion?  Financially it seems that having no debt is the smart thing.  Psychologically however, seeing money in my savings is comforting.  Seeing open credit on a credit card (that could possibly be taken away at any time by the issuer) is not as comforting.

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The question basically boils down to whether it is appropriate to sacrifice an emergency fund to pay down debt.

First, this is a personal scenario.  The details of the question are good, but I can never know everything about a person’s situation.  It isn’t just a math question.  He says it is comforting seeing money in savings, but I don’t know how much discomfort there is in carrying the debt.

I don’t like to tell someone what they should do because everyone’s situation is different with specific details.  And even if you get two people with virtually identical financial situations, they probably have different personalities.

With that said, the big thing that pops out at me is the high interest rates.  The 25% interest rate on the credit card debt is really high.  Even the car loan debt at 10% is high, especially in today’s environment of relatively low interest rates.

I am an advocate of setting up a permanent portfolio, which he follows. But I don’t like the thought of making a 5% return on investment (or something like that), yet paying 25% interest towards debt.

As I like to say, you don’t get rich by paying interest.  You get rich by collecting interest.

If I were in this situation, I would immediately pay off all of the credit card debt with the savings. Again, I can only say what I would do given what I know.

I am assuming that he has access to all of the money and that it isn’t in a retirement account. Therefore, it should be easy to access and get into his bank checking account.  I would pay off the total balance of the credit card debt as soon as possible and stop paying those enormous interest rates.  I would then vow to pay off the total balance every single month until the end of time, barring a major emergency.

The auto loan debt is a little trickier.  It is still a high interest rate, but I wouldn’t want to go down to zero savings. I have no idea what the monthly payments are, but I am guessing the principal balance is going down by $300 per month or so if it is somewhat typical.  Therefore, in another three months, the auto loan may be down to $9,000.

I don’t know how much he saves each month.  If it is zero, he needs to find a way to change that.  He needs positive cash flow, even if it is a couple of hundred dollars per month.

I would leave at least a month’s worth of expenses in savings.  Beyond that, he could pay down the auto loan at this time without completely paying it off, but it isn’t quite as clear to me with this.  If he has a decent savings rate and he feels rather secure in his job, then he could pay the whole thing off.

It does make a difference regarding someone’s personal situation.  If you are supporting a family and own a house, it is probably good to have some money in reserve.  If you are single and renting an apartment, you are less likely to have emergency expenses.  Then it comes down more to the math, which says to pay off the high interest debt.

As was said in the email, he can always access the credit card again in case of an emergency. But I would want it to be a very serious emergency to go back into credit card debt.  I doubt that the credit card companies are going to shut down the card or cards, assuming there are no stolen cards or identity thefts. Even with a stolen card, you should get a new one in less than a week.

In summary, if I were in this situation, I would immediately pay off the entire balance of the credit card debt.  I would think about paying down the auto loan while maybe keeping a month’s worth of expenses in the bank.

I like the permanent portfolio, but not at the expense of paying 25% and 10% interest rates on debt.

Once the debt is gone, then your savings rate should go up.  That is with anything.  If you pay off a home mortgage, then your cash flow should increase each month by that amount (the principal and interest).  In this situation, the money that would have gone to credit card payments and auto loan payments each month can be put back into savings.

Without any credit card debt and car loan debt, then it should be easier to save and build up that emergency fund.  Then the permanent portfolio becomes a good option.

The U.S. government’s national debt recently surpassed $22 trillion dollars.  This is greater than the entire annual GDP of the United States.

The national debt will get more attention in the coming weeks because the arbitrary debt ceiling will soon be back in effect.  The whole debate over the debt limit is a political show, but at least it draws some attention to it.

The debt isn’t the most important issue.  Personally, I think the most important issue is foreign policy because a large number of lives are stake.  But even from an economic standpoint, war is incredibly wasteful, and we (Americans) would be much better off economically if the U.S. government wasn’t constantly waging war in foreign countries.

One could argue that the Federal Reserve is the most important issue.  If you connect the dots, you quickly realize that the U.S. empire would not be able to exist without the Fed or some kind of government control over the money supply.  If you didn’t have the Fed to digitally print money and fund the massive deficits, then it would be much harder to wage war.

Even strictly staying within economic issues, the national debt is not the most important issue. Still, it is refreshing to hear some talk of the big picture as opposed to hearing about the latest scandal or culture wars.

The unfunded liabilities are far greater than the national debt.  Some estimates exceed $200 trillion.  These are government promises that will not be kept in the future.  It is impossible. The big ones are Medicare, Medicaid and Social Security.  The Fed could massively inflate, but this in itself is a default.  The biggest default will come in the form of the age at which people can collect.

When the American public is polled about issues, most Americans will say they are concerned about the national debt.  But it is like a guy saying he is concerned about being overweight while he stuffs his face with Twinkies.  Talk is cheap.

The national debt is an important issue to the American people until you start proposing massive tax hikes and/ or massive spending cuts.  (I don’t even think massive tax hikes would “solve” the national debt, but sometimes that is put out there as an option.)

Most people say they are against the debt until it is one of their favorite federal programs being cut.  When Americans are asked what to cut in order to balance the budget, they will typically say we should cut foreign aid.  Ok, so that is maybe $30 billion, at best, out of the trillion-dollar deficit. Now let’s figure out the other 97% that has to be cut.

Maybe conservatives will say we should cut funding to Planned Parenthood.  Maybe those on the political left will say that we should cut funding for any pursuit of people smoking marijuana.  Both sides would be right, but they can’t even agree enough to actually do it.  And again, it is a drop in the ocean of the federal budget.

Total Spending Matters

I really don’t care about the deficit and the accumulating debt if federal spending is not changed. I would rather have lower taxes and a higher deficit than having a balanced budget with higher taxes.

In fact, I would be in favor of funding the entire federal budget using debt because it would quickly reduce overall spending.  At some point, the debt and inflation would become bad enough that interest rates would rise and the Fed would be forced to scale back or face massive price inflation.

Sometimes we hear that government spending and deficits are unlimited because the Fed can create an unlimited amount of money.  But there are limits, assuming the Fed does not want hyperinflation, which I don’t think the Fed members want.  It would destroy their own power.

It is hard to see now, but the federal government will eventually be forced to cut overall spending.  This may or may not happen in nominal terms, but it will definitely happen in real (inflation adjusted) terms.  The annual deficit can’t just keep going higher and higher.  And what happens when we hit a recession and tax collections go down?

For fiscal year 2019, the federal government alone (not including state and local) is projected to spend at least $4.4 trillion.  Divide that by about 127 million American households.  The average family is paying about $35,000 per year for federal spending.  This is not all in direct taxes, but the government is spending these resources one way or another.  If you take total government spending including state and local, then the average household is paying nearly $60,000 per year.

If we want to increase our living standards substantially, then overall government spending needs to be reduced.

Forget Future Generations

When talking about the debt, it is common to hear the cry for future generations.  We are told that we cannot leave this debt burden to be paid by our grandchildren.  But make no mistake about this.  We are paying for the debt right here and right now.

Every dollar spent by the government, whether it is through taxation or debt, is a dollar of resources that is being consumed and misallocated.  It makes us poorer as a whole.

So whether the government spends $4.4 trillion with a balanced budget or a huge deficit, the politicians and bureaucrats are still using up $4.4 trillion of resources. It is one giant misallocation, with some being worse than others.

Future generations do end up paying in some way.  Future generations can just write off the debt and stiff the bondholders, but they are still hurt anyway because of the reduced growth in living standards.

Imagine if, in the 1800s and 1900s, there had only been 0.1% annual growth in the West instead of the 2% or more that was typically seen.  Even if we had current growth of 5%, we would be living like it was something like 1840.  There would have been very low compounding growth.  We are the beneficiaries today of high growth rates of the last two centuries.

If government spending were dramatically cut right now, then most Americans would benefit. Their children and future grandchildren would also benefit.  There would be some politically connected people who would be worse off in the short run.

Over the long run, even most people who currently get subsidized (on net) by the government would be better off.  They would be the beneficiaries of higher living standards.  It is much the same way that the middle class has smartphones that didn’t exist a couple of decades ago.  We own cars that didn’t exist 120 years ago.

Unfortunately, most people don’t understand the economics of it all.  They can only see what is right in front of them.  The government will secretly take $35,000 from a family and then pay them off with $15,000 and a bunch of future promises.  Even if they got $35,000 in services back, it would still be a misallocation.

At least with the high deficits, there is hope that the government will one day be forced to significantly cut spending.  Despite the lack of economic understanding out there, the laws of economics still exist.  At some point, the public will stop funding the deficits, and the Fed will be forced to stop funding them or else face much higher interest rates and eventually hyperinflation.It doesn’t seem possible now, but we will eventually get a reduction i

Gold prices (in U.S. dollars) have been rather tame and boring over the last several years, especially for those hoping to make money (in U.S. dollars) on gold investments.

Gold peaked in 2011 above $1,800 per ounce.  That little bubble popped while stocks continued to climb.  The price of gold did go down with the 2008/ 2009 financial crisis, but it quickly recovered.

Gold mining stocks have been especially bad over the last several years.  I warn not to use gold stocks as a substitute for gold when setting up a permanent portfolio.  Gold stocks are extremely volatile and should be used for speculation only.  When they finally do recover, the profit potential will be enormous.

Gold has recently shown some signs of hope with the price going above $1,300 per ounce.  It is hard to know if this is just a brief rally or whether it will continue.  Of course, if any of us knew this for sure, we would be extremely wealthy.

I have been warning about the flattening yield curve.  There is a very narrow spread these days between the 3-month yield and the 10-year yield.  This indicates trouble ahead.  We have already gone a decade without an official recession.  If the yield curve inverts, then a recession in the near term looks certain.

If we do get a recession, what will happen to gold?  In terms of dollars, will it go up or down?

If it follows 2008/ 2009, it will initially go down and then quickly recover.  But we know that history does not repeat exactly. The bigger certainty to me is in bonds.  If we hit a recession, I fully expect long-term bonds to rise in value.  That is the same as saying that long-term yields will fall.

In a recession, U.S. Treasury bills are seen as a safe haven.  It isn’t gold.  The only exception is when there is a high fear of significant price inflation. This happened in the 1970s when the price of gold went up in spite of recessionary years.  This changed in the early 1980s when the Fed under Paul Volcker slammed on the monetary brakes and allowed interest rates to spike.  That was the end of the biggest gold bubble in modern-day history.

The Search for Liquidity

There is a saying that cash is king.  Cash is really king in a recession.  It doesn’t mean you literally have to have cash.  It is referring to liquidity.  You need the ability to access money.  You don’t want it tied up in a house, a retirement account, stocks, an annuity, or other assets.  The only exception, as just discussed, is long-term bonds. You want easy access to money in a checking account or a savings or money market account where can get to it quickly.  You also want to avoid debt as much as possible.  This is especially true for when a recession hits.

Cash is king for several reasons.  You don’t want your wealth tied up in assets that are declining in value.  You also want cash because you will have the opportunity to buy those assets that have declined in value significantly. In a recession, prices tend to decline.  Your “cash” may actually be gaining value instead of its typically losing value to inflation.

The rush to liquidity during a recession is a problem for gold.  People are trying to pay their bills and reduce their debt. They are trying to build up a stronger cash position if possible.  If anything, people who hold gold are probably more likely to sell in order to gain cash.

The big money investors, meanwhile, are trying to avoid massive losses.  They have money tied up in stocks, real estate, businesses, etc.  They are trying to come out without taking too much of a beating.  They probably aren’t looking to buy gold except when the price gets low enough that they see it as a bargain.

In a recession without massive inflation, gold will tend not to do well.

There is something that is working in gold’s favor though during a recession, and that is the Federal Reserve.  We can be rather certain that the Fed will engage in another round of quantitative easing (digital money printing) as soon as it is evident that we are in a recession.

It will depend on how aggressive the Fed is.  It will depend on timing.  But overall, assuming the Fed does inflate again, gold will likely recover as it did in 2009.  If the Fed is crazy enough to start expanding its balance sheet again as it did from 2008 to 2014, we will ultimately likely see all-time new highs for gold, at least in nominal terms.  One good dose of monetary inflation could easily push gold to $2,000 and beyond.

Timing everything, as with all investments, is the tough part.

I think it is important to have your core holdings as part of a permanent portfolio.  This will not change.  If we hit a recession and the Fed starts pumping in new money, then it will be time for speculation.  This might be a time to look at mining stocks.

If and when we have a recession, the Fed should allow the correction to take place. Unfortunately, that is the least likely path that the Fed will take.  It will continue to hurt our prosperity by depreciating the dollar and helping Congress to fund its deficit spending.

But at least we know what the Fed is likely to do, and we can at least somewhat prepare for it. Cash will be king in a recession, but you will want to move some of that cash into gold and gold investments when the time is right.

The crazy stories from the establishment media just keep piling up.  Whenever the media is reporting on something politically related, it tends to be more lies than truth.  Sometimes the core part of a story is true with slight lies and propaganda around it.  Sometimes the core part of a story is just plain false, such as the whole thing about Russia and Trump colluding to hack the election.  In that case, it is actually almost the opposite of what happened.

For lack of a better two words, we are dealing with fake news a lot of the time.

The media also largely controls the narrative.  That is one interesting thing that Trump has been able to pull off with his Twitter account.  He can bring up subjects – for better or for worse – on topics that the media might otherwise have ignored.

There is no question though that the media will focus on certain stories to promote their agenda, while ignoring other stories that are often more important.

All I can say is, thank goodness for the internet.  At least we have some options that weren’t available in previous generations.

I often wonder whether people in political power are evil or stupid.  When a politician is proposing something, it is hard to know. This can range from an economic issue such as the minimum wage, to a foreign policy issue such as starting another war.

Now I am wondering the same about the media, most of whom are quite similar to those in political power.  Are they evil or stupid?

I don’t think there is a clear-cut answer.  I think it is a combination of the two things.  Sometimes they purposely ignore things that go against their own narrative.  Whether it is conscious or not, they are putting blinders on.

I’m sure there are false narratives that I believe right now, and I am a lot more skeptical than the average person, to say the least.  Whenever the media makes some claims, particularly dealing with foreign policy, I think “weapons of mass destruction in Iraq”.

There is a misconception that the media is liberal.  Aside from the improper use of the term, it isn’t the best description. The media of television and newspapers is largely just establishment.  They promote a line of big government, but it doesn’t necessarily have to always be on the side of Democrats.  The establishment largely backed Bush’s war in Iraq, or at least they didn’t overtly question the “intelligence” agencies.

The few times the media has cheered on Trump have been in cases where he promotes war and intervention.  They cheered him on when he dropped some bombs on Syria, and the media promoted the story that Assad used chemical weapons on his own people, despite a lack of evidence. If anything, it was again probably the opposite of what they were saying.

MAGA in Chicago

The media has been particularly horrible lately.  The media personalities suffer from Trump Derangement Syndrome, and they just can’t help themselves.  It has made them into shills for the deep state, or perhaps more accurately, it has made it apparent that they are shills for the deep state.

The media jumped on the story about the Covington high school kids.  Why it was even a major story should be questioned, but of course we know it was because they hate Trump and want to make any Trump supporters look bad.  If a group of people with Obama shirts actually did the things that the Covington boys were accused of doing, you probably wouldn’t hear about it.

Of course, the media didn’t do any research on it before reporting the “story”.  They just want to put out the anti Trump propaganda as soon as possible.  And in the end, the story ended up being the opposite of what was originally told.

But the establishment media doesn’t learn.  They are too obsessed with taking down Trump.  So when a semi celebrity (he is more of a celebrity now) – Jussie Smollett – made claims of being attacked in Chicago by Trump supporters, the media jumped on that story.  There are many different examples from different media outlets with people saying how horrible this event was.  I expect some good YouTube videos in the future of compilations of media outrage when the original story was first reported.

As soon as I heard about this story, I figured it was fake.  I just can’t believe how gullible so many people are.  Just listening to the guy, you can pretty much tell he is lying.  He is a leftist political hack, and he claims to have been attacked in downtown Chicago by some guys yelling racial slurs and saying, “this is MAGA country”.

This is just so obviously ridiculous.  I mean, do these media personalities have the IQ of a first grader? When I think of Chicago – the home of Obama – I can just imagine walking the downtown streets at 2:00 AM and seeing a bunch of guys who are hardcore Trump supporters.  There must be MAGA hats all over the place in Chicago.

Even if the establishment media is evil, they must be stupid too.  This isn’t the kind of story they could just brush aside after the truth started to come out.  Now they are having to report that this leftist gay black celebrity played a hoax on them.  (I wouldn’t care about his race or sexual orientation except that the media obsesses over these things, and Smollett was their perfect caricature of both a hero and victim.)

My conclusion is that the establishment media is both evil and stupid.  You shouldn’t trust them about anything politically related, or even with any political implications.  I’m not saying that everything they say is completely wrong, but you should not listen to them.

Let’s also remember all of this when Trump leaves office.  The establishment media may no longer be as blatantly bad, but it will be the same evil and stupid people running the show.

I remember hearing Harry Browne talk about dictator syndrome.  I also remember reading about it, but I thought it was an article. I recently discovered that it was in his book, Why Government Doesn’t Work, where he wrote about dictator syndrome.

This is an affliction that is suffered by almost every human adult, including libertarians.  You think to yourself, “What if I were in charge?”  The problem is that when you fantasize about being in charge, sometimes you actually think that you can be in charge, or that your thoughts can be carried out by others.

This is where libertarians tend to be realists.  You can say, “If I were in charge, I would do this and this.”  But hardcore libertarians understand that nobody should be in charge, at least when it comes to using initiated force. And also, if they were in charge, they would not be capable of running other people’s lives, or at least not well.

Think about the so-called democratic socialists out there.  They have these grand visions for society, if only everyone would go along with them.  But people aren’t going to go along with them, because they have their own interests.

This is why a socialist society that is enforced will result in authoritarianism and tyranny. People aren’t going to continually go against their own interests, especially when they are living poorly. Most people aren’t going to work hard just to see their productivity consumed by others.  Most people aren’t going to abide by the law if the law means mass starvation.

In a socialist society, the dictator has a choice of either not fully carrying out his socialist agenda, or else turning to extreme violence.  This is why hundreds of millions of people have died at the hands of their own government.

But even in a more mixed economy such as the present-day United States, there is widespread dictator syndrome.  It doesn’t necessarily mean that you want to be an authoritarian dictator.  Your goals might be very well intended to help people.  But the problem is that you are assuming that you can dictate the policy just as you prescribe it.

There are two problems with prescribing policies of more state intervention in order to supposedly help people.

First, what you prescribe may not be what other people want.  And the only way to enforce it is through initiated violence.

Second, even if a large portion of the people actually did want what you are proposing, the end result would not be anything like what you proposed.

Unintended Consequences

It is on this second point that Harry Browne spoke of the dictator syndrome.  People make this incredibly naïve presumption that the policy they (or their favorite politician) are proposing will magically perform just as intended.

They don’t consider the lobbyists and special interests.  They don’t consider constituents telling their representatives to include certain language in a bill.  They don’t consider the deal making in Congress.  They don’t consider the interests of those who make large political donations.  They don’t consider the lawyers writing the legislation.  They don’t consider the administrative agencies and their bureaucrats who will implement the legislation.  They don’t consider the interpretations of the legislation by the administrative agencies and the courts.

As Harry stated, “By the time your program has run this gauntlet, it will be far bigger and far more expensive (in money and disrupted lives) than you had imagined.  And it will have been twisted to satisfy many factions.  In fact, your program may end up being the opposite of what you had intended.”

I have used this tactic against people because of their partisan politics.  For example, if a Democrat today were to cheer on some kind of intervention (let’s say, in Syria), then I can just say, “Oh, you think Donald Trump knows what’s best for Syria?”

Likewise, if a Republican says he wants stronger drug enforcement or to have a more conservative education curriculum, you can say, “Oh, you want Nancy Pelosi and the lobbyists to keep drugs off our streets?”  Or, “you want Nancy Pelosi and a future Democratic president teaching your kids?”

I have heard many people propose that it should be an education requirement to learn personal finance in high school.  This sounds like a good idea, until you think about the fact that it would be implemented by government bureaucrats and taught by government employees. Think “Common Core”.  It would also be ironic that the government – with a current national debt exceeding $22 trillion – would give a lesson on personal finance.

I think there is a bit of dictator syndrome in all of us.  The key is to let people know that they are not actually the dictator and they probably never will be the dictator.  The things you propose now will be used against you in the future.  If you want to be a dictator, then focus on controlling your own life.

It’s only the start of 2019, and the Democratic candidates for president are already throwing out great entertainment, if you overlook the scary policy proposals.  It is a contest in outdoing the last person’s absurd proposals.

The new and young star of the left, Alexandria Ocasio-Cortez, is helping to contribute to the fun.  She sets the scale far to the left, and the presidential candidates feel the need to follow. There is the Green New Deal, which is already serving to embarrass those endorsing it.  There are also many proposals for tax hikes on the rich. If one person says to tax the rich at 70%, then someone feels the need to up the ante to 80% or 90%.  I’m waiting for someone to go over 100% at this point.

Elizabeth Warren tried to change things up a bit.  Since she didn’t want to go for a 110% income tax, she turned to another tax. She proposed a wealth tax.  Her proposal is to impose a tax on wealth of 2% per year for amounts over $50 million, and 3% for amounts over $1 billion.

This means that if Jeff Bezos were worth $100 billion at the time of counting up the assets, then he would owe in the neighborhood of $3 billion.

This would be one of the worst forms of taxation from a libertarian standpoint.  It is always debatable what forms of taxation are worse than others, but I see a tax on property as perhaps the most egregious.  It is actually similar in a sense to inflation, which acts as a tax.  Inflation hits your money, while a wealth tax hits everything you own.

In other words, you could just do nothing, and you would keep owing money.  You could refrain from earning income, driving, or buying anything, and you would still owe the tax if you meet the threshold. You could even be living in a tent on the side of the road, but you would owe the tax if you meet the threshold.

I understand that multi-millionaires and billionaires aren’t in this situation, but it is to prove a point.  It is one of the most immoral forms of taxation.  Libertarians often say that taxation is theft.  This kind of tax is theft to the degree that you can only avoid it by not possessing enough money and things.

Some might say that millionaires and billionaires did not obtain their wealth in a moral manner. If it is coming from the left, it is mostly nonsense.  They do not understand (or don’t want to understand) that wealth is created and that the money they possess did not come at the expense of others (unless through government means).

There is something to be said for the fact that some rich people obtained some of their wealth through government means.  But this isn’t an argument to tax wealth.  It is an argument to cut off government regulations and subsidies that benefit the rich (or anyone else).  Mostly, it is a mixed bag though.  You could argue that Jeff Bezos and Bill Gates have received some government favors and subsidies, but there is also no doubt that they have created great wealth too.  In a free market, wealth is an indication of having served society.

Again, the answer isn’t a wealth tax.  The answer is to remove government favoritism, which simply means removing government power.

The Economics of a Wealth Tax

Aside from the immorality of the proposed tax, it is highly problematical from an economics standpoint.  In fact, I believe it would be such a disaster that it would be problematical from a political standpoint.

Let’s say that Jeff Bezos has to come up with $3 billion per year.  I hate to break it to Elizabeth Warren, but he probably doesn’t have a checking or savings account with his bank where he can just write a check.  Most of his net worth is tied up in assets.  In his case, a good portion is in Amazon shares.

Therefore, to come up with the money to pay the tax, Bezos would likely have to sell a significant portion of his shares.  The same would go for most of the other billionaires in the country.  So you would have these ultra-rich people selling massive quantities of stock shares.  Next thing you know, they would have the SEC accusing them of rigging the markets or insider trading, even though they are just trying to come up with money to pay “their fair share”.

If there were any serious legislation of a wealth tax that was threatening to pass, I believe that stocks would completely tank.  It wouldn’t happen after the legislation is passed.  It would happen in anticipation of it.  This is why I believe that Warren’s proposal is mostly rhetoric.  It would be political suicide to implement something so foolish. The middle class has 401k plans that would be impacted.

On top of all of this, how would she propose to enforce it?  What about all of the collectibles in the Bezos household? Would you have to get a government appraiser walking through to price the current value of the fine art on the walls and the antique furniture?  This would be a bookkeeper’s worst nightmare.  It would also turn us further into a police state with the government trying to monitor it.

The Other Wealth Tax Once Proposed

This gets very little mention, although I have seen a few outlets that have covered it.  Neither Donald Trump nor Elizabeth Warren probably wants it brought up.  Donald Trump once proposed a wealth tax too.

Trump was considering a run for the presidency back in 1999.  He briefly did run in 2000.  In late 1999, he proposed a one-time wealth tax of 14.25% in order to pay off the national debt.  Unfortunately, I don’t think a 100% wealth tax on the rich would pay off the national debt today.

I was a young adult at the time.  I was not a full libertarian at that point, but I still recognized the idiocy of his proposal. I have never forgotten it either. I figured someone who was such an economic idiot was not fit to serve as president.  Maybe he just thought everyone else was an economic idiot, but that is still bad, as I would rather someone who would tell the truth.

Trump’s proposal was a lot bigger than Warren’s, although it would have been a one-time tax as he proposed.  Still, if some rich person got hit with a 14.25% tax one time, how could he be sure it wouldn’t happen again?

If Elizabeth Warren were to pull off a miracle and win the Democratic nomination in 2020, then it would be great fun watching the debates.  I wonder if Trump would keep referring to her as Senator Pocahontas.

If such a scenario were to play out, I sure hope that someone asks the question about the wealth tax and that Trump once proposed such a thing.  I think that he would repudiate his former words, but you know how Trump’s ego is.  It would be hard for him to admit he was wrong 20 years ago for proposing such a thing.

Trump is still an economic idiot with his tariffs and out-of-control spending.  But at least he hasn’t mentioned a wealth tax in a very long time.

Again, I don’t think it is a serious threat politically.  There could be other taxes or tax hikes coming in the future, but I don’t think a straight out wealth tax will be one of them.

As I write this on February 9, 2019, the yield curve has further flattened. The 3-month yield and the 3-year yield both currently stand at 2.43%.  The question is: why would someone lock in the same rate for 3 years as for 3 months?

When you buy a US Treasury bill, you are essentially locking up your money.  If you could collect the same exact interest rate, you would typically rather buy a 3-month bill over a 3-year bill.  You can keep rolling over your 3-month security while still having access to your money if needed.

The only reason to buy the 3-year instrument (the longer term) is that the rates might go lower. You want to lock in what you consider to be a high rate as compared to the future.

When longer-term rates fall below shorter-term rates (an inverted yield curve), this indicates some fear amongst bond investors.  They are locking in longer-term rates in anticipation of them dropping further. There is less demand for short-term securities.

In terms of the current yield curve, there is already a slight inversion between the 2-year and the 5-year.  There is just one basis point (0.01%) separating the 3-month yield and the 5-year yield.  Even the 1-month and 2-month yields are about equal.

The 10-year yield is still a bit higher.  There is a 20 basis point spread from the 3-month yield.  When looking for an accurate recession indicator, I like to compare the 10-year against the 3-month.

Surprisingly, Most People Don’t Even Pay Attention

The last few months of 2018 were brutal for U.S. stocks.  It had some investors worried.  Then things turned around in January as stocks soared.  I think it was relief to many investors who are heavy in stocks.  Despite the correction in late 2018, the downturn seemed to be put down, and stocks were heading up again.

However, we should ask, was late 2018 just a little blip down in a continued bull market? Or was January 2019 just a blip in the beginning of a new bear market in stocks?

I am tending to lean to the latter because of what the yield curve is telling us.  Despite the hot January for stocks, the yield curve didn’t steepen much.  Now it is slightly flatter than it was at the start of 2019.

I really think there is something to the fact that most analysts just don’t want to be too pessimistic.  I know there are some perma-bears out there who always think the sky is falling.  But if you look to the establishment financial media (just about anything you would see on television or read in a major newspaper), there is a heavy bias towards being bullish on stocks.  You may hear a few guests mention the yield curve, but most of the big players just ignore it.

It is incredibly hard to predict financial markets.  This is why most people don’t get rich by investing.  It is even harder to time markets.  Yet, the yield curve is the one indicator that seems to almost always be accurate.  When there is an inverted yield curve, it means a recession is coming, likely in 18 months or less.

The yield curve, as it stands right now, should really be the lead story almost every day on any financial network or website.  If you go to CNBC during trading hours, the yield curve should be the most discussed topic.  Instead, you get a lot of talk about management changes at particular companies and their revenue forecasts for the next quarter.  It is missing the big picture.

CNBC and other networks will discuss the Federal Reserve when there is a meeting on monetary policy.  This is big picture stuff, for sure.  But even with Fed meetings, sometimes I feel like the big points are being missed.  We hear a lot about the federal funds rate, but we hear less about the interest paid on bank reserves, which is controlling the federal funds rate.  We also tend to hear less about the Fed’s current policy of draining its balance sheet (monetary deflation).

Just because it is not being widely discussed, it doesn’t mean that the yield curve is not important.  I think it is the most important indicator out there right now.  It is telling us that the strong performance for stocks in January may not last long.

Unless the yield curve starts steepening again, it looks like an economic downturn is coming. Stock investors will be among the hardest hit.

Donald Trump has been president for over 2 years now, and he just delivered his 2019 State of the Union address.  I wasn’t sure if he would last in office this long with everyone trying to take him down.

I didn’t watch Trump’s speech, which is good, because I heard it was long.  These speeches are largely for show.  If you actually care what the president has to say, it is better to read a transcript.  You can do that in a fraction of the time than the actual speech.  Some people do like to watch the reactions of different people (like Bernie Sanders when Trump says we will never be a socialist nation).

I don’t like most of Trump’s policies, but it is hard not to cheer for the guy at times just because his biggest enemies in Washington DC are some of the most despicable people in existence.  Unfortunately, a few of those horrible people are people that Trump actually put in his cabinet.

With people like John Bolton and Mike Pompeo, who needs enemies?  If someone told me in early 2016 that those names would be in the president’s administration, I would have thought almost anyone but Trump had won the presidency (aside from maybe Jill Stein).  I would have thought Hillary Clinton had a better chance of picking those two for sure.

Trump’s foreign policy has been completely inconsistent, just as it was in the campaign. But what can you expect when you surround yourself with a bunch of war hawks?  He can’t even get a couple thousand troops out of Syria, in a war that never received any congressional approval.

Trump is horrible on Iran.  He’s horrible in continuing the funding of the Saudis and the Israelis (the governments, that is).  He is horrible in trying to interfere in Venezuela.  He has been decent in some of his rhetoric in intervening less in the Middle East, but his actions don’t typically match his rhetoric.  And with Russia, relations are horrible despite Trump saying in the campaign that he wanted to get along with Putin.

I do give Trump some credit on North Korea for seemingly avoiding conflict.  Trump was very diplomatic when he met with Kim Jong Un.

In other words, foreign policy is still mostly a disaster.  There is a tiny bit of hope with Trump in the presidency as compared to almost anyone else, but maybe that is a reason to be pessimistic. If Trump can’t end any wars overseas without his cabinet and the military generals completely turning on him, then there will certainly be no hope with someone more hawkish in office. And it doesn’t look promising that someone like Tulsi Gabbard will win the presidency.

Aside from foreign policy, let’s look at the state of the union from a libertarian perspective.

The Bad

One thing that mostly gets ignored by both major parties is the massive debt and spending coming out of Washington DC.  The national debt is about $22 trillion, with $1 trillion annual deficits coming as far as the eye can see.  That is actually the optimistic scenario, as the deficit could be far worse if we go into recession.

Meanwhile, the baby boomers continue to retire, and some estimates of the unfunded liabilities are in excess of $200 trillion.  It is almost a meaningless number except to portray that promises are going to be broken.

The annual federal budget is now about $4.4 trillion.  Per household, this is over $35,000 per year.  Are you getting $35,000 worth of “services” from your federal government?

I think the only solution to the spending problem now is for some kind of default.  It won’t be an outright default on the debt or on Social Security.  It will be a series of mini defaults.  Some of the default will be through monetary inflation. Some of it will be in the form of cutting “benefits” in the future.  People on Social Security and Medicare aren’t going to be completely cut off, but they will find that their money doesn’t go as far over time.  They are probably already experiencing this and don’t fully understand why.

The Fed got away with massive monetary inflation from 2008 to 2014 because we didn’t see massive price inflation as shown by the Consumer Price Index (CPI).  The Fed did a lot of damage, but it didn’t show in significant price inflation or higher interest rates.  This doesn’t mean that it will always be this way. If we get to something like a 1970s scenario again, then the Fed will be forced to halt monetary inflation. The interest on the debt will become so massive that Congress will eventually be forced to cut back. This doesn’t seem possible now, but things can change rapidly.  And just because this game has gone on longer than what seemed likely, it doesn’t mean it will go on forever.

The Good

There are many other bad things I didn’t cover such as government spying, government regulations, government bureaucracy, and other invasions of civil liberties.

Still, as massive and intrusive as government has become, there is another side to the coin. I find that many libertarians don’t appreciate the positive sides, or the gains in liberty.

Despite the anti gun rhetoric from the media, there haven’t been any new major gun control laws put in place recently.  If anything, more people own guns than before.

Homeschooling has absolutely exploded.  You could say that parts of middle class America have seceded from the system, at least as far as education goes.  While the numbers are still relatively small as a percentage, it is no longer seen by most people as strange.  Because of the numbers, it has become socially acceptable.

While drug laws are still horrible, marijuana has been partially legalized in many states. It looks inevitable that federal laws will officially be eliminated and most states will have nearly full legalization.  Public opinion on this issue has changed drastically just in the last decade.

As libertarians, we also need to appreciate technology and decentralization.  I hear complaints about Google and Facebook censoring content they don’t like, and I don’t generally mind the criticism as long as people aren’t calling for more government involvement.  But let’s step back and appreciate what we are complaining about.  20 years ago, these companies were essentially non-existent.  30 years ago, the internet was basically non-existent. We have the greatest communication abilities now in history by a long shot.  While we complain about the censoring of alternative media, let’s appreciate that there actually is alternative media.  And let’s appreciate the fact that many millions of people access the alternative media and no longer have just the one choice of the establishment media.

Overall, there are things to be pessimistic about in the short run.  The wars and empire continue for now, but they will eventually be curtailed by economic forces.  There will be some pain in the short run in terms of the economy, and many people will have to temporarily reduce their living standards.

However, as long as we don’t have nuclear war or some other catastrophic event, then I think technology and decentralization will continue to advance, even in the face of bad economic conditions.  We will gain liberty in certain key areas while barely noticing.