As I write this, the partial government shutdown has been going on for 33 days.  It is a lot longer than most anyone expected, and it still isn’t clear when it will end.

Donald Trump took up this fight in his request for $5.7 billion to start building a wall on the Mexican border.  In the grand scheme of a $4.4 trillion annual budget, it is truly a drop in the bucket.  But it has become quite symbolic.

I believe it was because of Ann Coulter and her tweets that Trump decided to stand his ground (for now).  He probably realized that it was one of his major campaign themes.  When there are chants at rallies of “build that wall”, it would be hard to explain after 4 years why there is no wall, let alone why Mexico did not pay for it.

I can’t be certain, but I don’t think Trump is going to win this fight.  Pelosi and Schumer, as obnoxious as they are, understand the politics here.  They refuse to give any money to Trump to build a wall.  Some House Democrats are now saying that they are willing to give up to the $5.7 billion originally requested, but only for border security.  This would not include a wall.

Most of Trump’s supporters are behind him with this issue, perhaps with the exception of some government employees who are missing paychecks.  The problem for Trump is that most everyone else is blaming him for the government shutdown.

The left will hate Trump no matter what he does, but there are libertarians and middle-of-the-road people who have mixed opinions about Trump.  The middle-of-the-road people blame Trump for the government shutdown.  Some of them rightly see that he could have taken up this fight when the Republicans controlled Congress.

Maybe Trump just didn’t want more opposition coming from his own party.  But if he had taken up this fight with Paul Ryan when he was Speaker of the House, then I think Trump would have won that battle.  The Republican base would have been calling for Republican heads in Congress who refused to support funding the wall.

I don’t think Trump will be able to last forever on this.  Government employees are on the verge of missing their second paycheck.  Even though the total number is about 800,000 people who are missing their paydays, that may be enough to stop the shutdown once they get angry enough.  Sure, there are about 325 million people living in the United States, but we know that an irate minority can change things politically.

That’s the politics of the situation.  Now what about the actual shutdown and the potential lessons in the case for liberty?

Not Much of a Shutdown, But There Are Lessons

There are shills out there like Paul Krugman who claim that libertarians are finally getting their utopian experiment.  But even as Krugman admits in his column, it’s not like the marketplace can just jump in there in a matter of days and take over what were previously government-provided functions.  The government still won’t allow it in many cases anyway.

Of course, the main point in all of this is that it isn’t truly a government shutdown.  The military is still occupying many countries overseas and continuing to fight wars.  The troops aren’t coming home because of the shutdown.

Domestically, the Social Security checks are still going out.  The payments on the debt are still being made.  The hospitals are still accepting Medicare and Medicaid.  If Social Security, Medicare, and Medicaid had all stopped, then there really would have been a revolt by now.

If the government shutdown has shown us anything, it is that government is way too involved in every aspect of our lives.  If you haven’t felt a thing from the partial government shutdown, then you should be thinking that maybe we shouldn’t have all of these employees doing non-essential things, and we could save the taxpayers a lot of money.

If, on the other hand, you do feel a significant impact from the government shutdown, then you should be thinking that maybe the government shouldn’t be running these services. Unfortunately, most people do not take away that lesson.

If the government weren’t operating security (if that’s what you want to call it) at the airports, then a government shutdown wouldn’t matter.  If the federal government didn’t own so much land and so many parks, then it wouldn’t matter if the government shuts down.  The parks would still be taken care of by the owners.

Whether it is the FDA or air traffic controllers or museums, these things simply shouldn’t be funded or operated by the government.  Some things, such as farm subsidies, shouldn’t exist at all, unless private charities want to fund them.

The problem is obvious.  People and various industries are far too dependent on the government for their existence. Maybe some will see this lesson. But unfortunately, many people will just scream louder for more government.

The good news for libertarians is that most of the IRS is shut down.  It means they will get backlogged.  It means they won’t be able to do as much.

Feeling the Pain

A few libertarians will basically laugh in the faces of all of the government employees missing a paycheck.  I am a little more empathetic.  There really are some government employees who are just working to get paid.  They didn’t necessarily seek out power or try to land an easy job with great benefits.  They just took the job that was available at the time.  It doesn’t mean they should be allowed to suck off of everyone else forever, but we can still have some sympathy for regular people who are just trying to pay the bills and have no connection to the deep state.

If I could push a button and eliminate all of these jobs right away, I would do it.  These employees are having a tough few weeks without getting paid.  But what about the millions of taxpayers who work hard and are struggling to pay their rent and health insurance premiums?  They are forced to pay for a $4.4 trillion government, and it is seemingly endless.  There is no back pay for the average taxpayer.

We get to hear the heart-wrenching stories about government employees who are not able to pay their rent or their utilities.  But somehow, most people are surviving, whether it is through savings, or credit cards, or help from family, or short-term loans.

We don’t get to hear the heart-wrenching stories about middle class America on a daily basis. We don’t get to hear about the struggles to pay $500 per month in health insurance premiums for junk plans that barely cover anything.  We don’t hear about how expensive things have become in our lives. We certainly don’t hear about how government at all levels is spending about $60,000 per family in the United States.

The political lesson in all of this is that we need a lot less government.

There are personal lessons too.  The people not receiving paychecks are about to miss the second paycheck.  Yet, we hear these horror stories.  The lesson here is that you should have a rainy day fund.

It is extremely difficult these days for some of the reasons mentioned above.  Life is expensive because of the government.  But if you don’t have a month’s worth of expenses saved up in the bank, then you should make that a priority.  It doesn’t matter whether you are a government employee or not.  You should be able to access a month’s worth of expenses if you need it.

The government has made life really expensive.  The government has made many millions of people dependent on it, whether it is for a paycheck or for welfare benefits.  The government has made many people virtually helpless. And then when the benefits or paychecks dry up for even a brief period of time, it means disaster for millions of people.

You should never be dependent on the government if you can help it.  With the massive debt and unfunded liabilities, there are going to be defaults in the future.  Welfare benefits will be cut greatly at some point.  Consider this shutdown as a preview of bigger things to come in the future.

Tulsi Gabbard, a 37-year old congresswoman from Hawaii, has announced her intention to run for the U.S. presidency in the 2020 election.  There could end up being a couple of dozen or more candidates from the Democratic Party, but Gabbard stands out from the other names being mentioned.

She doesn’t stand out just because she is young and attractive.  It also isn’t because she was a member of the U.S. Army National Guard and an Iraq War veteran.  The main reason she stands out is because she is anti-establishment, particularly when it comes to the issue of war and foreign intervention.

Some would say that Gabbard is the left-wing version of Ron Paul.  But we have to get a bit more specific.  On cultural and economic issues, Gabbard is certainly mostly on the political left.  On the issue of foreign policy, Tulsi Gabbard and Ron Paul are basically in the same camp.

Gabbard will be 39 years old when the 2020 election is held.  She would be the youngest president in the history of the United States.  She would obviously also become the first female president.

The establishment has already taken their digs at Gabbard.  I suspect that the establishment media will try to ignore her as much as possible.  They will give her the Ron Paul treatment to a certain extent.  If she starts to gain significant support, then she is going to start to experience the Donald Trump treatment by the media.

Some so-called progressives have already come out against Gabbard to a certain extent.  They criticize her for having once been opposed to gay marriage, even though Obama did the same thing, and even though she would have been in her early 20s when she was vocal about it.  They criticize her for aligning with the BJP Party in India, as if most leftists in the U.S. have any idea about Indian politics.  It’s as if someone working for the establishment on the inside of the progressive movement has put out the talking points against her to be repeated.

On economic issues, Gabbard really is terrible from a libertarian point of view.  She favors a $15 minimum wage.  She also is a believer in the climate change agenda, i.e., using government to solve an unproven problem.

There are other issues aside from foreign policy where libertarians could potentially support her.  Gabbard has advocated for decriminalizing marijuana and for criminal justice reforms.  And while her economics are not good, she has opposed the Trans-Pacific Partnership and other managed trade deals.

Where It Matters

Libertarians should pay attention to the candidacy of Tulsi Gabbard.  She could be a game changer, or at least make things interesting.  She will have to find ways to avoid a media shutout and to strike down false and misleading stories about her.

While I believe good economics is crucial in achieving a free society, I think foreign policy is the most important issue.  It is an issue of life and death.  And even from an economics standpoint, the U.S. empire would have to be significantly scaled back in order to achieve any semblance of fiscal conservatism.

Gabbard was one of the few Democrats who actually met with Donald Trump after he was elected president.  She does not have Trump Derangement Syndrome as much of the left does.  She was positive about meeting him.  Interestingly, Steve Bannon was actually very complimentary of Gabbard.

Gabbard has been critical of Trump where it actually matters, such as striking Syria with missiles.  In other words, she has actually shown consistency.

The one thing that is really baffling about Gabbard is that she is listed as a member of the Council on Foreign Relations (CFR).  This is as establishment an organization as they come.  But when you consider her outspokenness on the issue of war, it is hard to believe that she would be under the thumb of the establishment.

Gabbard was in Iraq for a year in 2005 after having enlisted in the Hawaii Army National Guard. If she were really anti-war at the time, then she probably never should have signed up.  But at the same time, it was probably her time in Iraq that made her into the war opponent that she is today.

Gabbard has been incredible in her opposition to the war in Syria.  She met with Bashar al-Assad in 2017 and opposes trying to overthrow him. She has not accepted the word of the establishment that Assad has been using chemical weapons against his own people.  She seems to understand that a lot of lies and propaganda are fed to the population in order to support war.

Gabbard has been great (from a libertarian viewpoint) on most everything dealing with foreign policy.  She opposed the wars in Iraq and Libya.  She opposes funding the Saudis.  She has supported removing sanctions against Iran.

This is really where the presidency matters.  It is where the president should have the most control.  We have seen how hard it has been for Trump to follow through with some of his campaign promises.  The deep state opposes him at every turn whenever he takes an anti-establishment position.  Trump can’t even get 2,000 troops removed from Syria.  All of the war hawks in his cabinet are opposing him.

It is too bad that Trump did not get Gabbard into his cabinet.  She would have been great as Secretary of State or Secretary of Defense.  Instead he puts people like Nikki Haley, John Bolton, and Mike Pompeo in there.  If Gabbard were in Trump’s cabinet, at least he would have an ally in trying to pull troops out of Syria.

A few have suggested that Trump could dump Pence and run for president in 2020 with Gabbard.  I think this is highly unlikely, especially given the animosity between Democrats and Republicans.  If Trump couldn’t get someone like Gabbard in a high position in his cabinet, then I have no reason to expect him to join forces with her now.  Something would have to change drastically for him to take such a step.

A Libertarian Best-Case Scenario

If Gabbard were to get the nomination for the Democratic Party, I would actually consider voting for her.  It would be a treat watching two major candidates who are not complete war hawks.

For me, it would depend on where Gabbard focuses her attention.  If she spends half or more of her time talking about climate change and the right to free healthcare, then I wouldn’t support her.  I want to see most of her time being spent opposing war and the empire.

When Ron Paul ran for president as a Republican, he definitely made it a point to bring attention to the Federal Reserve and to promote a general message of liberty. But probably his biggest focus was on foreign policy.  Even when he was asked questions on economic policy, he would often return to the subject of foreign policy.  It was clear that his number one priority, if elected, would be to end the wars overseas.  I would want to get the same feeling from Gabbard.

If Gabbard did become president, I wouldn’t worry too much about her bad economics.  The best-case scenario from a libertarian standpoint would be to have a Republican majority in Congress.  They could oppose the more radical (radically bad) elements of her domestic agenda.  Meanwhile, if Gabbard is sincere and could resist the deep state, she could order all of the troops home and put an end to the wars.

Again, I understand her chances are slim.  Nobody should be naïve enough to believe that it won’t be an extremely hard road for her just to get the nomination.  Most of the left hates Trump more than they hate war. Therefore, it will be quite difficult to win over the left to her side.

Even though her chances are slim, I really hope that she is at least able to be in the debates. If she can promote her anti-war and anti-intervention agenda on the debate stage, it could change the whole tone of the debates.  It could force some candidates to adopt a less hawkish stance, even if they are insincere about it.

For this reason, I see only positive things coming from her candidacy, assuming she mostly sticks to her anti-war message.  She has the potential to be a good president where it matters most. Most of all, she can help move public opinion into a more libertarian direction when it comes to foreign policy.

I recently wrote a post about how to prepare for the possible coming of a recession.  I have also previously written about how middle class America needs a recession to alleviate some pain.

There will be greater short-term pain with a recession, but that is inevitable anyway.  Once the correction happens, it will actually straighten the course for a reallocation of resources that are more in accordance with consumer demand.  If the Fed doesn’t do too much damage in trying to stop the correction, then we might actually see a reduction in consumer prices, which is desperately needed for middle class America.

There is another benefit that could come with a major correction, but it will only be a benefit to a select few.  It will be an opportunity for those who are well positioned and for those who have their eyes open.

In the history of the United States, there are always people who come out looking good after a major economic downturn.  Even during the Great Depression, there were businesses that were started and eventually prospered.  There were people who bought investments for extremely low prices that nobody else wanted to touch.

Warren Buffett said, “Be fearful when others are greedy and greedy when others are fearful.” In other words, the time to buy is when there is blood in the streets.  Buffett is a stock investor, but this doesn’t just apply to stocks.  It can apply to commodities, real estate, certain collectibles, and businesses (other than just owning a few shares).

Most people didn’t want to touch real estate in 2010/ 2011.  Perhaps more accurately, most people couldn’t touch real estate because they didn’t have enough money and couldn’t easily get the credit to buy.  Most of the people who did have the capability to buy real estate were too afraid to do it after what had just happened.  But if you had bought cheap condos or single-family homes in a decent areas back then, you would have done very well.

If you had bought stocks in March 2009 after they had just been hammered, you would have done really well.

If you owned a small business and had ramped up investment around 2010/ 2011, you likely would have done really well if you had made good use of your resources.

This is what you should actually look forward to towards the back end of the next recession. But in order to get any possible benefit, you have to be in the right position.

Preparation for Opportunity

Many of the tips for preparing for a recession are the same tips you should take in preparing to take advantage of opportunities.

You don’t want to be in debt, with the possible exception of a manageable mortgage on your primary residence.

You want to make sure that you maintain your primary source of income.  And if there is a high risk of losing your primary source of income, then you should really be taking steps now for a Plan B.

For the assets you own, you want to make sure that they will not be wiped out by a hard recession. I recommend a permanent portfolio for your financial investments.

There is a reason that people say “cash is king” in a recession.  It really is true.  You will actually benefit, assuming there is price deflation.  The purchasing power of your cash should rise.

(This does not mean you literally have to hold cash.  You can keep your money in a bank.)

And just as it is important to prepare for a recession with a proper mindset, you will also want to have a proper mindset in preparing to take a little risk to take advantage of opportunities.

We probably aren’t going to end up like Venezuela.  There may be some tough times ahead, but the entrepreneurial spirit is alive and well in America.  We aren’t going to turn into a third-world nation.  Even if Bernie Sanders becomes president, we aren’t going to full-fledged socialism.  There will still be something of a market economy.

When things are really bad, you are going to make up excuses on why you shouldn’t invest or seek certain opportunities.  I am not saying that you should be careless with your money.  You shouldn’t just be throwing darts at a dartboard.

However, there will be opportunities that only come about once in a decade or less.  If the recession is bad enough, some of the opportunities may be once in a lifetime.

If you have been meaning to buy investment real estate, then sit tight.  Your opportunity will be coming, but you have to be patient.

If you have been meaning to start a business, then I am not going to say sit tight, unless it is capital intensive.  I would never recommend opening up a restaurant, but if that is your dream, then I would definitely recommend waiting.

But for any kind of online business or something else that doesn’t require a lot of capital investment, then I don’t think you should wait.  I do think you should start out very slowly with the anticipation that a recession will hit soon.  Once we are deep into the recession, then your infrastructure will already be set up.  Hopefully you will already have a good functioning website and you already have a few sales. You will be in a position to pour more time, and possibly money, into your venture at the back end of the recession.  And if you do require the purchase of any major assets, then you will get them on a giant sale.

Prepare for a recession, and prepare to take advantage of the opportunity that comes with a recession.  Be patient. When there is blood in the streets and virtually everybody is bearish on everything, that is the time to strike while the iron is hot.

Alexander Ocasio-Cortez, the 29-year old democratic socialist from New York, recently took office in Congress.  She has gained national fame and is trying to be the young female version of Bernie Sanders.

Ocasio-Cortez is a proponent of a “Green New Deal”.  In other words, she favors a massive expansion of government.  A “Green New Deal” is just a sales pitch for higher taxes and massive subsidies to certain favored industries.

Ocasio-Cortez has suggested that the U.S. adopt a 70% marginal tax rate for the highest income bracket.  Some of the left may be cringing at this suggestion (partially for political reasons), while some other parts of the left are cheering it on.  One of the common themes of those defending such high tax rates is that the U.S. once had even higher tax rates and did just fine.

My first question to the left is: Why do you want the government to collect more money? I fully realize that the government probably won’t collect more money, but I doubt that most leftists spouting a 70% marginal tax rate are thinking about the Laffer Curve.

Do they want more money to pay down the debt?  Do they want more money to ramp up the federal war on drugs?  Do they want more money in order to fight more wars overseas?

Of course, most leftists will say that they want greater welfare at home.  They will use terms such as “greater social benefits”, “free healthcare and education”, and “taking care of those in need”. Some might also say that we can spend more on building infrastructure to create more jobs.

This is mostly nonsense.  Even if the government did collect more money, we know that most of it would be wasted (at least from our perspective).  It wouldn’t be wasteful to the bureaucrats, lobbyists, and cronyists who live at our expense.

People have this syndrome of playing king.  They naively say that if only the government would implement their plan, then it would make things better.  But Congress never implements their plan, and the plans laid out never work as stated.

Does anyone honestly think that the government would run more efficiently or could significantly help more people (aside from those connected inside the beltway) if it could just have a few hundred billion dollars more to spend each year?

Central Banking and Income Taxation

With all of that said, the premise of having a 70% tax rate and being just fine is wrong. Ocasio-Cortez, Paul Krugman, and the other leftists defending this kind of idea are getting it wrong (whether intentional or not).  They are not comparing apples and oranges.

After World War 2, the highest tax rate was over 90%.  It came down to 70% in the 1960s.  After Reagan took office in 1981, the highest rate went down to 50%.  It ended up at 28% at the end of Reagan’s presidency.

The 1950s was a time of decent prosperity, and the highest marginal tax rate was over 90%.  It was also a time when the federal government was barely involved in medical care and insurance as compared to now. That was the time that a doctor would make house visits, and a stay in the hospital was rather affordable. Medicare and Medicaid did not exist at this time.

After World War 2, federal government spending went way down.  Overall, government was far smaller than what we have today.  There was less spending and less regulation.

In the 1950s, the U.S. was still on an international gold standard.  The U.S. was off the gold standard domestically, but the possibility of foreign governments redeeming gold for dollars kept something of a check on the Federal Reserve.  Therefore, it was a time of relatively low inflation as compared to what was seen after the abandonment of the international gold standard in 1971.

So many people, including economists, focus on tax rates and other factors.  But central banking is huge.  Virtually every transaction includes money on at least one half of the transaction.  When a central bank is tampering with interest rates and the money supply, it is tampering with the entire economy.  When you have a relatively stable money – as was the case in the 1950s – you will tend to get a good economy, in spite of higher tax rates.

As for the tax rates themselves, consider that the highest marginal rate of 90% or more was rarely actually paid.  It was only for incredibly high-income earners, and even then there were many deductions and other ways to shelter income.  You can call them loopholes or whatever you want, but the effective tax rate for most people was nowhere near the 90% rate that is frequently quoted.

The 1950s vs. The 1880s

There is one last important point to make in all of this.  Those calling for a high marginal tax rate, such as 70%, like to reflect on the 1950s.  But why not go back to the 1880s?

The 1950s is seen as a decent time for middle class American, and certainly it did introduce something of a new era of relative prosperity after the horrors of the Great Depression and World War 2.  But the time period after the Civil (so-called) War and before 1913 (the introduction of central banking and the 16^thAmendment) was perhaps the greatest period of prosperity in the history of the world.

It is that period where we saw the introduction of cars, airplanes, electricity, modern-day refrigerators, and so much more.  It was a time of good deflation, where real wages went up.  Due to massive increases in innovation and productivity, prices dropped and new products came to the market at an astounding pace. Living standards vastly improved from each generation to the next.

Why doesn’t the left talk about an earlier decade, such as the 1880s?  It is because they don’t want to talk about tax rates at that time.

What was the highest marginal tax rate in the 1880s?  It was zero percent.  There was no federal income tax.  It was after the 16^thAmendment passed in 1913 (the same year as the forming of the Federal Reserve) that the income tax began (with a couple of brief unconstitutional exceptions).

For me, pointing to the late 1800s just destroys the whole argument coming from the left that higher tax rates are fine because they were high in the 1950s.  If we are going by the standard of what times were most prosperous (according to the logic of the left), then we should just return to a zero percent income tax.

Donald Trump addressed the nation (for those who watched) on Tuesday night from the Oval Office. While there was originally some talk of the network stations not carrying the short speech, all of the major networks covered it.

A speech to the American public was long overdue for Donald Trump.  Unfortunately, he picked the wrong topic.

Maybe I say this just because I don’t feel that strongly about the immigration issue.  It is a tough issue for libertarians to deal with because we live in a world of massive government and government-owned land. If we didn’t have a welfare state at home and a warfare state abroad, then I think that would resolve at least 90% of the issue.  Most people wouldn’t be coming to the U.S. to hurt people (which they mostly don’t anyway) or to look for handouts.  The only handouts immigrants would be able to get would be from voluntary charity.

Trump has become obsessed with his wall.  It was a major campaign issue of his in 2015/ 2016, so you could say that he is just trying to fulfill his campaign promises.  I have my doubts that a wall would be that effective in keeping people out, and as Ron Paul used to say, it could eventually be used to keep people in.

I think the whole partial government shutdown standoff is due to Ann Coulter, and perhaps a few other conservative voices.  Coulter always throws her support behind the latest bold conservative. She had a political love affair with Chris Christie at one time.  Then she realizes that the person is more talk than action.  She thought Trump was different when she supported him.  So when it looked like the wall was quietly being dropped from his agenda, she attacked him on it.

If Trump were really serious about the wall, then he wouldn’t have waited until the end of 2018 with an incoming Democratic majority in the House of Representatives. Why wasn’t Trump doing this a year or more ago with Paul Ryan as Speaker of the House?

Now Trump is stuck. Nancy Pelosi and Chuck Schumer won’t budge.  Those two are terribly annoying people, but I have a feeling they are going to win this round of the political battle.

Most of the government has not shut down (unfortunately).  In particular, the wars overseas never end during a government shutdown.  Most of the IRS has closed for business with the latest shutdown, so that seems reason enough to keep it going.  But I don’t think Trump is going to be able to get his way on this.  The Democrats know what they are doing. They don’t care about $5 billion. It is a drop in the bucket in comparison to the well over $4 trillion annual budget.  Pelosi and Schumer just don’t want to fund any part of a wall because they don’t want any symbolic victories for Trump.

Trump’s only option to get his wall is to declare a national emergency and go ahead without Congressional approval.  I think this would be a great mistake, and it would set a bad precedent for the future.  It took Marco Rubio to point out that the Democrats might use this power in the future to declare a national emergency with so-called climate change.

The Real Issues

I have been preaching for a while now that Trump should address the nation in primetime, but not on immigration.  He should address the deep state that opposes him at nearly every turn. He should address the spy agencies and the intelligence agencies that operate with virtually no Congressional oversight.  He should address foreign policy and explain his commitment to withdrawing troops out of Syria and other wars in the Middle East.

Most of all – and this is related to the other points about the deep state and the secretive agencies – Trump should address the allegations of colluding with Russia and Russian interference in the election.  These false and unsubstantiated allegations are just continually thrown out there by the talking heads in Washington DC and in the establishment media.  They have no credibility.

It is weapons of mass destruction all over again.  In this case, they make accusations against Trump and Russia in order to kill several birds with one stone.  It increases tension with Russia and stops any sustainable talk of peace and friendship.  It provides a reason on why Hillary Clinton somehow lost to Trump in the election.  And it threatens Trump’s presidency with distractions and the possibility that he could even be prosecuted.

I don’t think Trump will go to jail for any of the made up stuff.  Maybe his lawyer really did pay off women to not talk, but I don’t think this qualifies as any kind of crime.  Of course, with federal law, they can make anything a crime.

If anything, they would use the threat of prosecution to get Trump to step down as president. They wouldn’t actually try to send him to jail or otherwise you would see a version of Trump that would make any previous version look tame.  He can obviously be a fighter, and if he thought he might go to jail, he would go down swinging.  He would try to take the deep state down with him.

Make no mistake about this.  Mueller and all of the other “investigators” are part of the criminal gang.  They are the ones who should be on trial.  They are liars and much worse.  They are the thugs of society who happen to dress up in suits.

I still have no idea how much Trump understands in all of this.  He obviously knows that a lot of people are out to get him. I don’t know if he understands the depth (for lack of a better word) of the deep state.  I don’t know if certain people have gone to him directly and made threats to him.

I expect Trump will run for re-election in 2020, but nothing is certain right now.  A lot can change when you have a whole swarm of corrupt actors trying to take you down.

Trump is far from being a libertarian, but he can do a great service for liberty by helping to expose the stench of Washington DC.  He has already done that to a certain extent, but he could do so much more.

When Trump expends his political capital on a fight for a wall at the Mexican border, it doesn’t expand liberty.  We can only hope that he will start expending even more energy on exposing the criminality of the deep state that is trying to take him down.

There are several reasons to be bullish on gold, but I think most of these reasons apply more to the long run.  The short run is too hard to predict.  If it was easy, then I would be extremely wealthy.

I am an advocate of owning gold and other investments that correlate with the price of gold. I always caution against gold mining stocks.  It’s not that I don’t ever recommend mining stocks or buy them myself, but I warn people that they are a very risky investment.

The main reason for owning gold (or gold equivalents such as GLD) is for insurance.  It is a hedge against massive currency depreciation.  It is a hedge against disaster.  It is a hedge against long-term fiscal insanity from governments.

I recommend having 25% in gold and gold-related investments as part of a permanent portfolio.  It is there to pull up your portfolio during times of higher price inflation.

It is ok to add more gold to your portfolio, but then it should be viewed as a speculation, just as owning any mining stocks would be speculative.  Gold obviously has periods where it goes down in terms of U.S. dollars (or whatever currency you are dealing with).  If you live in Venezuela and own some gold, then you probably aren’t going to exchange it for the local currency, which has undergone hyperinflation.  But in most places, if you want to actually spend your gold, you would likely first convert it back in to the currency that is widely used.

In terms of U.S. dollars, gold has done really well since about the turn of the century.  If you bought an ounce of gold for under $300 in 2000, then you have done well.  It has been a rougher ride since about 2011.

If we go through a recession in the near future – which is looking more likely with a yield curve that is almost inverted – then I don’t expect gold to perform well in the near future.  When the financial crisis struck in 2008 and early 2009, gold went down with stocks, although not nearly as much as stocks.  When there is recession that is not accompanied by high price inflation, people seek safety in cash and bonds.  This is particularly true in the U.S., where U.S. Treasury bonds are seen as the safest investment.  As people seek safety and liquidity, gold tends to not be in high demand.

But longer term, things are more bullish for gold.  If we do hit a recession, it is likely that the Fed will stop deflating and start inflating its balance sheet again.  It is likely to lower its target interest rate.  An easy money policy from the Fed tends to be bullish for gold.

On top of this, the national debt is about $22 trillion, with unfunded liabilities estimated to be as high as over $200 trillion.  During our current so-called prosperous time, the federal government is still running annual deficits in the ballpark of $1 trillion.  Those massive deficits are projected to continue even without accounting for a major recession.

In the long run, this is all bullish for gold.

Public Opinion and State Laws

The Mises Institute recently published an article about how some states are changing their laws to exempt gold from capital gains taxes.  This is not a concern for residents who live in a state with no taxes on income and investments (at a state level).

Some libertarians preach for a gold standard.  The proper libertarian position is that the free market should determine what should be used for money.  It’s just that gold (and, to a lesser extent, silver) has historically been chosen by the marketplace as money.  A government-run gold standard would, however, likely be much better than the pure fiat standard we deal with today.

In order to get closer to a free market in money, I believe it is important to repeal legal tender laws.  When Ron Paul was in Congress, he would regularly sponsor legislation to repeal legal tender laws.

But perhaps the most important aspect of this is to repeal any taxes associated with gold and silver.  As it currently stands, you are supposed to pay capital gains taxes on gold and silver.  If you bought a one-ounce gold coin for $300 and later sold it for $1,300, then you would owe taxes on the $1,000 gain. This seems rather unjust considering that the gold price increases over the long run largely due to inflation. Yet, you have to pay taxes because of the “gains”, which is really mostly currency depreciation.  On top of that, the government considers it a collectible, which can mean a higher tax rate.

Most individuals probably don’t pay taxes on small transactions of physical gold, or at least that is my guess.  But a major business is not going to disobey the law and make transactions in gold if it could ruin the business.  If a business were to say that people could transact in gold (or electronic equivalents representing gold), then it would present a problem of calculating taxes owed.  Every purchase would have to be translated into dollars in order to track any capital gains on the gold.  It would just be a total mess for all parties involved.

Therefore, I believe that getting rid of the federal tax on gold and silver would be a major step forward in allowing money competition.  It is a great sign that many states are eliminating these taxes, or at least considering it.

This can be compared to marijuana laws.  In the case of gold taxes, states are not defying the federal government as they have with marijuana laws, but I still see a close resemblance. When public opinion is shifting, it is more likely to show up at the state and local levels.  The federal government may just be lagging behind in gold taxation, just as it is lagging behind in marijuana legalization.

I believe it is just a matter of time before the federal government legalizes marijuana, or just leaves the matter up to the states (which would be the proper Constitutional position).  This could easily happen within the next few years.  Hopefully the same can be said for eliminating taxation on gold and silver. I am not saying it will happen in the next few years, but it is a possibility.  It is more likely now than it has been for a long time.

If the federal government were to eliminate taxation on gold and silver, I would expect the demand for gold and silver to go up.  I would expect the price of gold and silver to shoot higher.  Just the announcement that such legislation was likely to pass would probably drive the dollar price of gold higher.

I have not been a big fan of Bitcoin, but it has surprised me how much it took off.  If I had known there would be so much fanfare around Bitcoin, I would have bought some bitcoins early on and made a bunch of money.  I think the Bitcoin bubble will collapse (if it hasn’t already), but it is promising that there is so much interest out there for competing forms of money.

With the popularity of cryptocurrencies, and with state legislatures taking action to eliminate taxation on gold, this could ultimately be a bonanza for those who own gold. Silver is a little less clear, but silver investors would likely benefit too.

As people seek alternatives to the U.S. dollar and fiat currencies in general, we will hear more about this subject other than from predominantly libertarian and gold bug websites. This is bullish for gold over the long run.  If you are going to buy and hold an asset, gold seems the most promising, but you’ll have to be patient.

Happy New Year!

For some reason, the new year is seen as an opportunity to start fresh.  You can’t necessarily make all of your past mistakes vanish, but it is an opportunity to at least get on the right path going forward.  Whether it is losing weight or saving money or spending more time with family, you can make corrections to improve your situation going forward.  Hopefully your past mistakes aren’t so bad that they are impossible to correct.

It is not entirely clear why the new year brings a sense of starting over.  January 1 is just another day in your life, although often a holiday from work for most people.  You could just as easily make corrections to your life on July 1, or really any other day of the year.  So if you are reading this on a day other than January 1, you can still make corrections to your life for the better.  This sounds obvious, but sometimes we need to be reminded of the obvious.

One of the marks of the new year is the New Year’s resolution, at least for Americans. This often means just trying to get into good habits.  It means doing something that you should have been doing all along.

While I think goals are good, I also think it is important to set controllable goals.  If you want to lose weight, don’t make your goal to lose 20 pounds.  Or if that is your goal, it should only be your broad goal.  You have to be more specific to make sure you are taking the correct actions.  Your goal could be to consume no more than a certain amount of sugars and carbs per day.  Your goal could be to walk around your block at least twice per day.  You control these specific outcomes.  You don’t fully control how many pounds your body loses each week.

If you are trying to make more money, don’t make it a goal to get a 20% raise this year.  You are not fully in control of this goal. Maybe the economy will turn down. Maybe your boss won’t recognize your hard work, or maybe it just isn’t in the company’s budget.  Instead, set goals that could possibly lead to getting that 20% raise.  Set a goal of producing more at work, or showing up 15 minutes earlier every day.

This is not just true of New Year’s resolutions but for any goals.  You want to be in control of your action steps, and you don’t want to feel like a failure if your goals aren’t met.  You can’t control if your boss is a jerk and doesn’t want to give you a raise even though you are producing more than your peers. You can control what you can control.  And if you take specific action steps, then they are likely to eventually lead to something good, assuming you set up the right action steps.

A Financial Review

I think the new year is also a good time to do a review of your finances.  This is what I have done in the past.  And I know I could do it on July 1 or any other day, but it just makes sense to do it on January 1.  This is when I get year-end statements, and it is a time that is easy to remember.

If you are doing tax planning, you may have to do that before January 1, but that is one small piece of the puzzle.

The new year is a good time to reflect on your budget (if you have one).  It is a good time to assess where your money is going and what you are getting value from.  If you have a monthly subscription for something, are you getting your money’s worth from it?

With your year-end statements, it is a good idea to calculate your approximate net worth. If you own a primary residence, you can calculate your net worth with and without the equity.  I wouldn’t count most of your tangible things in your net worth.  Even with a car, I generally wouldn’t count it.  You certainly shouldn’t count things such as furniture and electronics, as they are consumption items that you probably aren’t going to sell.  And if you do sell anything, it probably isn’t worth much, and you are probably just replacing it with something more expensive.  There are exceptions with certain collectibles or things you could easily sell and not replace.

Since you are looking at your finances, it is also a good time to make any adjustments that you have been meaning to do or that should be done.  If you have to reallocate your portfolio, go ahead and take care of it.  If you have been meaning to open up a higher yield savings account, don’t keep procrastinating.

Important, But Not Urgent

Personal finance is one of those areas that people tend to neglect far too much.  It is one of those items that is not urgent, yet important.  We take care of the things in our life that are urgent and important.  We also take care of things that are urgent but not that important.  But we forget, or tend to neglect, the things that have no urgency, yet are highly important.

Imagine if Tom Clancy had not started writing because it wasn’t urgent at the time.  Imagine if Steve Jobs had waited to start Apple because he had some other seemingly important things to take care of at the time.

When it comes to your personal finances, or really anything else, don’t let non-urgency be your enemy.  Don’t look back 30 years from now and say, “Gee, I really probably should have set up that Roth IRA and put some money away.  I could be a lot richer now if I had taken a few minutes and done that.”

Stephen Covey wrote about the urgent vs. the important.  If you are going to make one resolution this year (and forever), I think it is a good idea to remind yourself to focus on things that are important but not urgent.  You typically don’t need to remind yourself of the things that are urgent.  This is true of personal finance and most other areas of your life.

With the stock market showing signs of panic, and the yield curve on the verge of inverting, the possibility of a recession is looking more and more likely for 2019.  But while we can discuss the probability of a recession coming, perhaps a more important question is what to do in advance.  How can someone prepare for a recession?

Much of my focus for this blog is on investments.  I recommend a permanent portfolio as described by Harry Browne.  I believe this is an appropriate portfolio at any time, regardless of whether we know a recession is coming or not.

In terms of investments, people would obviously prefer to be in stocks during boom times.  But the problem is that we can’t predict the future.  It is hard to know what will happen tomorrow or next year.  Investing in the permanent portfolio is an admission that we really can’t predict what will happen, as it is dependent on millions of human beings acting.

It’s entirely possible that things could turn around.  It’s possible that the Fed could make a new announcement that it is stopping the reduction in its balance sheet.  Maybe stocks will return to a bull status.  Nobody knows for sure.

If you really believe that we will soon hit a recession and you want to gamble, then you can obviously short the market (bet on stocks going down).  Just realize that this is speculation, and you could lose much of your money if you are incorrect.

For conservative investors, it is better to stick with the permanent portfolio, or something close to it.  Even for really aggressive investors, there is nothing wrong with putting half of your money in the permanent portfolio and then using the other half for speculation.

Income

Although I tend to focus on investment strategy, this is not the number one priority for most people, or at least it shouldn’t be.  If you are older and have a high net worth, then your investment portfolio really is probably your number one financial priority.  But for most people, the most important thing is your income.

A recession can actually be beneficial for the middle class because it helps to lower prices and reallocate resources.  The problem is that the misallocated resources have to correct, and part of that process means a shifting of labor.  This means unemployment or reduced work hours for some.

If your income is the most important thing to you financially – and for most people, it should be – then you should take steps to reduce the likelihood of losing significant income.

There are a number of things you can do here.  If you are employed, then it is important to make yourself indispensible to your employer, or at least to be good enough that it would be painful for your employer if you left.  Most companies don’t go bankrupt.  It is more common to lay off a certain percentage of the employees.  If you are in the top 20% of employees, then you will probably be safe.

It is also important to maintain marketable skills.  If you do find yourself unemployed, you want to be able to find employment elsewhere.  In a recession, a lot of people are looking for jobs, so it is harder to find one.  You may have to take a pay cut.  But if you have skills that are useful to employers, then it will increase your chances of finding employment.

If you have any kind of a side hustle, then it is a good idea to keep that going.  Or if you don’t, perhaps you can experiment with something.  You may even be able to make extra money on the side with your skills from your full-time day job. You will obviously want to make sure you are not in conflict with your main employer on this.

A final point about income is that it is good to have friends and connections.  It is good to have connections anyway, but it is especially helpful when looking for work.  You have a much better chance of finding employment if you have a vast network of friends.  They can give you ideas.  They can tell you if there are openings at their work.  Or maybe they know someone else who is looking for someone dependable.  You will probably have a better chance of finding work from your network of friends than from handing in your resume to random companies.

Debt and Liquidity

In preparation for a recession, monthly cash flow becomes more important.  It is not just a matter of income, but also what your expenses are.  I think the most important thing is to have low fixed expenses.

If you eat out a lot and spend money on entertainment, this is the easier part to adjust.  It is better if you cut back before a recession hits, but at least you aren’t locked into anything.  If you have to start meal planning at home instead of going out to eat, you will easily survive.

The problem for many people is that they are locked into these long-term expenses.  They buy houses with a big mortgage and cars with car loans.  They may have student loan debt or other debt.  If a recession hits, they can’t easily cut back because these are obligations. They could default on these things, but that is what we’re trying to avoid here.  If you default on your mortgage, you give up your house. And good luck defaulting on student loan debt.

Even with smaller things such as a cell phone contract or a home equity line of credit, you should be careful.  You don’t want to lock yourself in for another monthly expense that is hard to escape.

In preparation for recession, you should try to pay down all debt that isn’t mortgage debt. This is good advice even if a recession isn’t coming.  You want to reduce or eliminate your debt so that your monthly obligations are less.

If you don’t have any debt (other than your mortgage), then you should definitely build up an emergency fund.  Some advisors will say you should have 6 months of living expenses.  But if a recession hits and you are unemployed, you are going to want more than 6 months of reserves.  I typically recommend 9 months, but even here I would go longer if you are worried about your employment situation.

Overall, you want to make sure that you have liquidity.  In other words, you need access to money to pay your bills and unexpected expenses.  This is why you shouldn’t pay extra on your mortgage unless you are set up with a good emergency fund first.  It is also why you shouldn’t be pouring money into a 401k plan unless you have a good emergency fund.  You can’t easily access money tied up in a mortgage (extra principal that you’ve paid) or in a retirement account (excepting a Roth IRA).

The key here is cash flow and being able to pay your bills when times are tough.

Mindset

It is hard to prepare for a recession.  There aren’t a lot of things we can do to prepare other than being smart financially.  All of the things mentioned above are really things that should be done whether you think a recession is coming or not.

Still, I think we shouldn’t overlook mindset.  If you think a recession is coming, then at least you won’t be caught off guard when it happens.  You can think a little more calmly and rationally about the situation.

If you are mentally prepared, you will also find it easier to adjust to a more frugal lifestyle. If you go out to eat a few times a week, then it won’t be as big of an adjustment for you if you have to start eating in all of the time.  For someone who eats out and thinks the good times will last forever, it is a much harder adjustment.

You can’t fully know what will happen to you personally in a recession, but it helps if you are mentally prepared.  Instead of looking at it from a pessimistic point of view, just understand that it is a reality that you are mentally preparing for.

It also helps to compare your situation to others in the world who have it much worse. Think of poor people living in huts on the side of the road who have to beg for food.  If you have to eat cheap meals at home, then it won’t seem so bad in the big picture.

Even during the Great Depression, at least 75% of the people who wanted to work had work. People found a way to survive. If you are mentally prepared, and you take some basic financial steps to improve your situation going into a recession, then you are likely to come through it without too much going wrong.

I hope you have a very Merry Christmas this holiday season, regardless of whether you celebrate.

I don’t have a huge audience with this blog, but I much appreciate the people who do take the time to read.

On many holidays, I remind people to enjoy themselves and to not engage in heated debates with friends and family.  This is especially important in our time of Trump.

You probably aren’t going to convince any of your friends and family of your viewpoint anyway. And if you do, it isn’t going to happen by being really argumentative, unless the person you are talking to has a really open mind.

I think Christmas time especially is a time to act like a libertarian instead of preaching libertarianism.  You can demonstrate to others that you don’t have to be a statist to be a giving and loving human being.  I believe that the act of being a libertarian means being loving because you don’t want to initiate force on others for your social and political goals.  However, it is important to sell libertarianism through your actions.

You can be a libertarian and never give anyone a gift.  You can be a libertarian and not spend Christmas dinner with family.  You can be a libertarian and even be unkind to others as long as you aren’t using force.

However, if you want others to be sold on a message of liberty, then you yourself have to be a role model.  If you are a kind and loving person whom people want to be around, then they are more likely to be open to your pro liberty views.

Sometimes I write these things as a reminder to myself just as much as I am writing for others.

Merry Christmas!

I am an advocate of paying down or paying off a home mortgage when the situation fits right. When it comes to contributing to a 401k plan, my feelings are somewhat mixed, although I generally find it makes sense to get an employer match.

The biggest problem with putting extra money into paying down a mortgage or contributing to a 401k plan is the same.  The problem is that you are locking up your money.  It becomes illiquid.

In the case of a mortgage, you can’t get back that extra you pay on the principal amount unless you refinance or sell your house.  If you pay off the mortgage in its entirety, then you get the benefit of the additional cash flow each month.

In the case of a 401k plan, you will likely be restricted from withdrawing “your” money if you still work for the employer that sponsors it.  You may be able to take a loan, but then that will hurt your future cash flow, as you have to start paying off the loan almost right away.

Even if you no longer work for the employer that sponsored your 401k plan, you will still get hit with regular income taxes (assuming it’s not a Roth 401k), and you will pay an early withdrawal penalty if you are younger than the designated retirement age of 59 and a half.

Therefore, if someone is considering paying down their mortgage or contributing extra to a retirement plan, I recommend that this only be done if a liquid emergency fund is already set up.  While personal situations call for different actions, I generally think a 9-month emergency fund is appropriate, although a year might be better.  This would be based on 9 months of living expenses, not 9 months of salary.

In the case of a mortgage, you can take into consideration whether you are actually able to pay off your mortgage.  If you can pay off your entire mortgage, but it will leave you with only 4 months of living expense, it may be worth doing anyway.  Your monthly expenses will go down by the amount of your mortgage (not including any taxes or insurance that is rolled in). Your monthly cash flow should increase substantially, and you should be able to build up your emergency fund quickly with the additional savings each month.

Liquidity is the Key

When setting up an emergency fund, liquidity is the most important factor.  If you lose your job or you have a major emergency expense, then you have to be able to access your money quickly.  If most of your money is tied up in your house, then this is not liquid.  It takes time to sell a house.  It even takes time to refinance, and this could be costly with closing costs.

When it comes to accessing emergency money, you typically need to be able to access it within a month.  There may be scenarios where you need to access money almost immediately.  But in today’s world with credit cards, you can usually push things off for a month without hurting yourself much.

Most people think of an emergency fund as a savings account or money market fund.  These are obviously appropriate vehicles. The problem is that they pay almost nothing in terms of interest.

I think it is good to have some extra money in your checking or savings account for emergencies. At the same time, I don’t think it is necessary to have 9 months of living expenses sitting in your bank account.

You can still have liquidity without having total safety.  If you have a non-retirement brokerage account, it is generally liquid.  You can access the money reasonably quickly.  The only risk is if you are investing in stocks or other investment vehicles that could lose significant value.  Therefore, you have to adjust based on the riskiness of your investments.

If you are invested heavily in stocks, then you may want to double the amount in that account that you would actually need for an emergency.  You should assume that you could lose half of your money with a market downturn.

If there were a major market downturn and you had to access your money, this would be painful because you would be selling securities that are down in value.  You would have bought high, and you would be selling low.  This is a bad investment formula.  Therefore, this “emergency money” should only be for really dire circumstances.  You shouldn’t be selling stocks when they are low in order to fund a broken water heater or to pay for Christmas gifts.

I am an advocate of the permanent portfolio as designed by Harry Browne.  It is far from being perfectly safe, as is the same with every other investment.  Even money in a bank has risk, especially when it comes to inflation.

The permanent portfolio will generally avoid major swings.  It is well diversified, which smoothes out the ride.  You won’t get the wild ups and downs as you would investing in one sector or one investment type.  Therefore, I think it is reasonable to have part of an emergency fund in the permanent portfolio if it is outside of a retirement account.

In addition, consider that you can invest in a Roth IRA, which is a way to allow your investments to grow tax free (assuming the government doesn’t change the rules). You have already paid taxes on your earnings that are invested in a Roth IRA, but you will not pay taxes on the compounding gains.  This is especially helpful if you have a large degree of uncertainty of tax rates in the future.  You lock in the certainty of paying the tax rates of today.

I think it is typically better to leave your Roth IRA alone in terms of not withdrawing money from it early.  You can add to it, and you can rebalance your portfolio as necessary, but you don’t really want to withdraw money before the designated retirement age if you can help it.

With that said, I still think you can account for a portion of your emergency fund with a Roth IRA (not a Roth 401k).  You can withdraw your money at any time.  And if you only withdraw the principal amount that you have contributed, then you will not pay any additional taxes or penalties.  You would only potentially owe a penalty if you withdraw capital gains within 5 years.

Therefore, if you have a 6-month emergency fund in your bank account and a sizeable amount in a Roth IRA invested in something relatively stable like the permanent portfolio, then I think this is appropriate for the needs of most people.  You would want to touch your Roth IRA last in most situations, but at least you know it is there when you need it, and you won’t be penalized for accessing your money.