The Federal Open Market Committee (FOMC) released its latest monetary policy statement.  There wasn’t total certainty in what the FOMC would do, but it did raise its target range for the federal funds rate by 0.25%. The target range is now between 2.25% and 2.50%.

The Fed is now saying it expects two rate hikes in 2019 instead of three.  Therefore, this was being labeled as a dovish rate hike by some, which I suppose is something of an oxymoron.

The financial news media is screaming that the Fed has hiked rates again.  This is only sort of true.  It raised the target federal funds rate, which is the overnight borrowing rate for banks.  It did this by hiking the interest rate paid on bank reserves.  But this does not necessarily translate into market rates going up.

The short-term yields initially went up on the news, but finished the day mostly flat.  The longer-term yields fell meanwhile. In other words, the yield curve has flattened more.

The 30-year yield is now at about 3%, which would have seemed highly unlikely a few months ago. The 10-year yield is below 2.8%. There is slight inversion between the 2-year yield and the 5-year yield.

I like to compare the 10-year to the 3-month yield.  That spread is now less than 40 basis points (0.4%).  We could be just a matter of a few months away from an inversion there if things continue.  If things really get crazy, there could be an inversion within weeks. That’s not my prediction, but I am just saying that it is not impossible.

An inversion of the yield curve is a major warning signal of a recession.

The stock indexes were largely up on the day when the FOMC statement was released.  Stocks quickly gave up their gains on the day, and they continued downward.  I watched some of the market movement live, and it was quite volatile for a while.  There were 100-point swings in the Dow within minutes.

The Dow finished down over 350 points, while the Nasdaq was down over 2%.  The Dow and S&P 500 both finished at lows for 2018.

Jerome Powell Speaks

Jerome (Jay) Powell, the chairman of the Federal Reserve, held a press conference shortly after the release of the statement.  There were a few interesting things to note.

Powell was asked numerous times (with slight variations) about Trump’s pressuring the Fed with his tweets and comments.  Now that Trump is president, he has become even more of a low interest rate guy.  He has taken ownership of this economy, which was a poor political calculation on his part. I suspect that when things get worse, he will blame the Fed even more than the Democrats.

The Fed will be to blame, but it will be more for its actions from 2008 to 2014 than from its actions today.  The Fed’s tightening is just helping to expose the malinvestments from the Fed-generated boom.

Powell was not about to flame up a battle with Trump.  Powell mostly sidestepped the questions by just saying that the Fed is an independent entity and is acting without political consideration.

This is ironic given the fact that the Fed chair himself was nominated by Trump.  The Fed exists because of the federal government and politics.  The Fed holds a monopoly over the nation’s money supply.

Thankfully, Powell was also asked about the Fed’s balance sheet.  He replied that the balance sheet reduction program will continue as planned.

The Fed is now draining approximately $50 billion per month from its balance sheet by not rolling over maturing Treasury debt and mortgage-backed securities.  While it has a long way to go to unwind QE1, QE2, and QE3, it is not insignificant either.

The Fed nearly quintupled its balance sheet from 2008 to 2014 to well over $4 trillion, and it is never going to reduce it back to anywhere near the levels of 2008. But at a reduction rate of $50 billion per month, that is $600 billion per year.  If the economy keeps softening, I expect the Fed to put a halt to this tightening in 2019, despite what Powell says now.

This sets the stage for an interesting 2019.  Will it finally be the year that the massive bubbles pop?

Some people are so contrarian that they don’t expect a recession because so many people are now talking about the possibility of one.  But we live in the internet age, where you can find opinions all across the board easily.

I listened to some of the people on CNBC today after the FOMC announcement.  There were several guests who were essentially saying that there are no bubbles.  And you even get a few saying that now is a good time to buy.  So there are plenty of bull optimists out there still.

If anything, the establishment media might be a little less hesitant to talk down the economy than in times past because they are so anti Trump.  I wouldn’t really listen to the establishment media one way or the other, except for possible entertainment value.

The main thing to watch is the yield curve.  And with the latest Fed move, the yield curve just flattened more.

In the 1980s, and even after, there were Americans who were warning about the Japanese taking over economically.  It’s still not clear what “taking over” means, but whatever it means, it obviously hasn’t happened.

Part of the supposed threat was that the Japanese were selling more inexpensive products to Americans, thus undermining American companies.  Today, most Americans don’t seem to have an issue with buying a Toyota or Honda (Japanese companies) or other foreign brands.  Of course, many of the jobs associated with these “foreign companies” are American.

If Americans face any threat, it is from their own government.  There is no foreign power willing or able to invade the United States via pure violence.  Therefore, the only way others can obtain property from Americans is through voluntary exchange.

When you think about the argument warning against the Japanese from decades ago, it is silly, but not just because it didn’t come true.  It is useful in this case to use a reductio ad absurdum.

Let’s say the Japanese (whether that means companies, individuals, or the government) started giving away cars and televisions to undermine American companies.  Americans could just go to the store and pick up their new car and television set for free.  If this is too ridiculous to imagine, then just think if a new car sold for only $2,000 that would normally sell for $20,000.

This would obviously be unsustainable for the Japanese, regardless of whether it were companies giving away products or the government heavily subsidizing them.

But let’s say that the Japanese decided to waste resources and had enough savings to do so for a long period of time.  Would it make sense for the Americans to turn down the free (or highly inexpensive) products?

Some would argue that it would cost American jobs.  This isn’t completely wrong, but we have to be specific.  It would cost Americans very specific jobs, but it wouldn’t mean there would be fewer jobs overall.

If I wanted a new car and only had to pay $2,000 instead of $20,000, then I would have $18,000 left over as compared to having to buy the American car.  I now have $18,000 in savings that I can continue to save, or invest, or spend on something else.  Now multiply this by tens of millions of Americans.

The important point is that we would not have to expend resources on cars and televisions any longer that we previously would have spent.  We now have additional resources to consume in the form of other products (goods or services).  The new jobs created would be determined by consumer demand.

Overall, Americans would be far richer at the expense of the Japanese who are subsidizing the products.

Tariffs and Artificial Intelligence

We don’t hear much about the Japanese taking over any longer.  Some people have switched it to the Chinese.

Hardly a day goes by that I don’t hear a bad economic argument about jobs being destroyed. It is used as an excuse to enact tariffs, which make foreign products more expensive.  They also make some domestic products more expensive if they are using materials that are imported (such as steel and aluminum).

The same claims are being made about artificial intelligence (AI).  We are supposed to be worried about robots taking our jobs.

Again, robots will take certain jobs.  They already have.  Just think about the self-checkout at a store.  This means a reduction of jobs for cashiers.

But when a company is able to reduce its labor force with the same productivity, then it reduces its costs.  This tends to happen across the board, and competition will lead to lower prices (all else being equal).

If robots became so efficient that they eliminated half the jobs that are currently in existence, this would actually be beneficial for people.  It could be temporarily painful for any particular individual who just lost their job, but you must consider that new jobs would be created based on consumer demand.  Since humans have virtually endless wants and needs, there is always work to be done.  It is just a question of what the work is and how it will be done in accordance with consumer demand.

In this scenario where half the current jobs go to robots, you have to consider that society would be so much richer, and this would be a benefit to everyone, since everyone is a consumer.  If robots can cook your meals, fold your laundry, and make you healthy at a very small cost, then you will have a lot of resources to consume in other areas that would not have previously been available or attainable.

Technology and robots make us wealthier because things can be done more efficiently.  And in regards to tariffs, we are better off with free and open trade without barriers.  This makes for more efficiency and lower consumer prices.

The Chinese are not taking over any more than the Japanese were decades ago.  We should actually hope that the Chinese and Japanese and everyone else get richer.  They will not get richer at the expense of Americans.  If anything, it will be beneficial to Americans, as it provides that much more opportunity for trade and efficiency.

We should not be fearful about jobs going away due to efficiency or changing consumer demand. As long as the government doesn’t interfere too much, there will always be jobs available.  And if anything, the jobs will actually be more fulfilling for people, as the robots take on the mundane tasks.

A few hundred years ago, the majority of the population worked on farms.  Maybe this was a dream come true for a few people, but I doubt that most people today want to be farmers.  We have computer programmers, massage therapists, dog groomers, marketers, athletes, singers, and the list goes on.  Most don’t want to be farmers, and they don’t have to be now because of technology and productivity.  Even most people working in a corporate job in a cubicle would not trade it for a long day in the fields.

The number of fulfilling jobs will only expand as long as we allow it.  We must accept free trade, and we must not be afraid of advancing technology.

The current protests in France are a rather big deal, especially if sentiment there is widespread across Europe.  The protests get some headlines in the United States, but probably not enough given their significance.

There are many takeaways from this whole thing, and I think most of them are positive.

First, it is important to understand that these protests are a continuation of what is happening elsewhere in the West in developed countries.  The British protested with Brexit.  The U.S. protested with the election of Trump.  The French are protesting in the streets, but maybe that is because they don’t have a good protest vote to make at the polls.

The protesters in France have and will be called many things.  They will be called fascist.  They will be called street thugs.  Maybe they will be called a basket of deplorables, but that term didn’t work out too well for Hillary.

I have no doubt that some of the criminal class has joined the protesters in causing mayhem and destroying private property (to the extent that it exists in France).  But I believe the origins of the protests are authentic, and it is largely anti state.  Now, if you go and ask the average protester, I doubt they will talk about the non-aggression principle or other overtly libertarian themes.  But they will say that the middle class is struggling and has had enough. Whether they call for a drastic reduction in government or more government help is another matter, but you could say the same about Trump supporters and Brexit supporters.

The bottom line is that the French president thought he could get away with another move to benefit the state at the expense of the regular person.  But he highly miscalculated and overstepped his bounds. He did the equivalent of not feeding his serfs.  If the serfs are well enough fed and don’t see too many luxuries enjoyed by the master, then the serfs will stay in line.  But every serf has his breaking point.

Americans have a tendency to not be quite as tolerant.  Perhaps a better term is obedient.  That is why we do not have the same level of taxation in the United States as what is seen in France.  It wouldn’t get to that point here.  But in the case of France, Macron added a straw that broke that camel’s back.

It’s interesting that people will say that they care about climate change, but it is easy to speak words.  Most Americans will say they oppose running up the national debt.  But when it comes time to actually cut something from the federal budget, then it becomes a lot more difficult and there is no consensus.

The same goes for global warming – excuse me, climate change.  Many of the protesters will say they support a green agenda, but that support wanes quickly when it means a downgrade in lifestyle. The French protesters realized that the higher gasoline taxes (on top of the already high gasoline taxes) were just a move to hurt the lower and middle classes, while lining the pockets of the state.

I think it is a positive development that even people in Western Europe are starting to see the fraud of the climate change agenda.  The agenda has little to do with the environment and a lot to do with taxation and control.

A Nanny State and the Consent of the Governed

The most surprising aspect for me of this whole protest movement in France is the origin of the name.  The protesters are being called the yellow vests, as they wear yellow vests when protesting in the streets.

Until a couple of days ago, I had no idea that French motorists are actually required to have these yellow vests in their vehicles in case of emergency.  I know Americans tolerate a lot of regulation in their lives, but would they really tolerate something this crazy?

We hear the term nanny state used.  I can’t find a better example of the nanny state than requiring all motorists to have yellow emergency vests in their vehicles.  The French protesters are really late in the game.  They should have been protesting the requirement of yellow vests long before these added gasoline taxes.

These protests are also a good demonstration that the politicians rely on the consent of the governed.  When these protesters hit the streets, it wasn’t long before Macron backed off his proposal to raise taxes.  Macron stayed in hiding and said he would delay the tax hikes.  But the serfs had already been awakened, and it seems to be going beyond this one tax now.

The state cannot survive without the consent of the governed.  The politicians and bureaucrats will always get away with as much as they can.  They will impose control to the degree that they can get away with it. The main thing that keeps them in check is not a constitution or the courts.  It is public opinion.  They rely on the cooperation of the large majority of the public.

I hear the objection that many people are against government or government leaders in the U.S. and elsewhere, yet they still go on.  For example, at least half the people in the U.S. oppose Trump, and many of them strongly so.  Yet Trump remains in power.

But you have to realize that the anti Trump people are not opposed to the state.  They are just opposed to one personality or one party.  They do not oppose the system.  There is widespread agreement from the American people on the state funding of Social Security, Medicare, Medicaid, education, and a long list of other things.  There are times that a majority will say they oppose a conflict overseas, but most of the people opposed are only passively opposed.  It is easy to say you don’t favor the U.S. military going into Syria, but it is more a question of whether you really care that much.

In the case of France, I don’t know if a majority of people are opposed to the gasoline tax hikes. But there is obviously a very vocal and irate minority.  It is one thing to take a poll and extrapolate that a few million people oppose something.  It is another thing when thousands of protesters hit the streets with authentic outrage.

In conclusion, I see the protests in France as largely symbolic.  It is showing that there is resistance against the state. Sometimes that resistance is quiet until there is a trigger one day.

This is good news for liberty.  France is not exactly a place of great liberty, but even here the people have a limit.  This is disrupting the plans of the globalists who seek centralization and state control.  It is a further disruption to the European Union. It is a disruption to the agenda of those who push climate change and all of the big government that goes along with it.  It is a disruption against political power.

We should celebrate these victories when they come, even when they aren’t purely libertarian.

Now that the establishment financial media is discussing the yield curve and the possibility of recession, there is going to be a lot of discussion on the causes.  The anti Trump forces will blame Trump, but I don’t know what the pro Trump crowd will blame.

During Trump’s campaign in 2015/ 2016, he was critical of the Federal Reserve.  He also pointed out that there were bubbles in the economy.  He was right. The problem is that his position has changed since becoming president.  He has taken credit for the boom in stocks and the overall economy, so it will be hard for him to not accept the blame.

Trump has been critical of the Fed lately, but it is because the Fed has been tightening and increasing its target federal funds rate.  Trump doesn’t want the Fed to burst the bubbles because it will take place on his watch.

If there is a recession on Trump’s watch, then I think the pro Trump crowd will blame the Fed. That will be their go-to excuse. They will be correct in blaming the Fed, but not for the reasons stated.  The Fed isn’t at fault because of its recent tightening. The Fed is to blame for its extremely loose monetary policy from 2008 to 2014.

I think there will be a lot of discussion about Trump’s policies on taxes, tariffs, and regulations.  Some will say that his tariffs brought on the recession.  Ironically, some of this may come from the left.

From a libertarian standpoint, it is good that Trump lowered corporate tax rates and some other taxes (although there are some libertarians who disagree on this point).  It is also good that he has actually reduced regulations in some areas.

On the bad side, Trump has enacted tariffs, which are taxes on imports and exports.  This causes consumers to pay more for products than they otherwise would have.  Also on the bad, side, massive government spending has continued on Trump’s watch, and it has even gotten worse.  The deficit has exploded again.  You know it is bad when we are looking at trillion-dollar annual deficits even if the economy stays out of recession.

I don’t want to say that all of these things have no impact on the business cycle.  They do have an impact.  Tax reductions can provide a temporary boost, even if it means bigger deficits.  Tariffs can certainly slow things down.  Massive overall spending by government is bad economically because it misallocates resources.

But none of these things are the primary cause of the artificial booms and busts that we see.

It’s the Monetary Policy

The main driver of the boom/ bust cycle is the Federal Reserve.  Its primary tools are the money supply and controlling of the interest rates.  These two things are related.  When the financial crisis hit in 2008, the Fed responded with unprecedented monetary inflation and near-zero interest rates.  The Fed continued its balance sheet expansion (monetary base inflation) until late 2014.

This is a classic case of the Austrian Business Cycle Theory, as taught by Ludwig von Mises. The artificially low interest rates and easy money cause resources to be misallocated and causes unsustainable booms.  The low interest rates send a false signal that there is more savings than what actually exists.

When the Fed stops inflating and suppressing interest rates, then the misallocations (malinvestments) are exposed.  The investors in the bubble sectors realize that it is unsustainable, and the bubble pops. This can happen eventually even if the central bank just slows down its pace of inflation.

If the central bank keeps inflating at ever-expanding rates, then eventually we will have what Mises referred to as the crack-up boom.  This is hyperinflation, which leads to far greater poverty than any recession or depression.

In other words, the recession that we will eventually get is baked into the cake.  It is unavoidable at this point.  The damage was already done.  It is just a question of how severe it will be and whether the government and the Fed allow it to run its course.

If we hit a recession soon, it won’t really be Trump’s fault.  But it was stupid of him to take credit for the so-called booming economy of the last two years.  We could certainly be much better off if he hadn’t enacted new tariffs. We could be better off if he had gotten Congress to cut spending instead of increasing it.  But no matter what, he can’t prevent a recession that was already in the cards.  The most he could do is to slightly speed it up or slow it down.

I think the mistake that many Austrian school economists have made is predicting a recession too early.  Maybe it is a mistake in predicting anything, since the Austrian school teaches that we can’t predict human action with certainty, which is the driver of the economy.

The problem is that timing is almost impossible.  Even though the Fed stopped its balance sheet expansion 4 years ago, it takes time for all of this to process through the economy.  Interest rates have crept up, but are still historically very low.  Bubbles can often last longer than what seems possible.  They can also blow up bigger than what seems possible.

As I have said, we actually need a recession for the benefit of the middle class.  It will be painful, but the current misallocations of the bubble economy are also painful.  Life has become quite expensive.  We need a recession, which will hopefully lead to a reduction in government.  One can always hope.

Barely anything changes, yet everything changes overnight.  This is what it felt like watching the financial media on Tuesday, December 4, 2018.  Out of nowhere, it seemed like everyone in the financial world was talking about interest rates, or more specifically, the yield curve.

Why now?

I have been writing about the yield curve quite a bit over the past 6 months or so.  The reason is that the yield curve has been flattening, and this is a classic (i.e., reliable) indicator of a coming recession.

The Fed has been gradually raising its target federal funds rate.  Long-term yields have gone up, but short-term yields have gone up faster.  Short-term yields were near zero for quite a while, so it isn’t surprising they have gone up.

The 10-year yield went above the 3% mark over the last couple of months.  It seemed it was going to stay above 3% with the likelihood it would rise more.  The 10-year yield is closely tied to mortgage rates, so refinancing has slowed considerably.  Some people may have felt some urgency in buying a house because they thought mortgage rates would continue to rise.  That narrative is now being questioned.

As I write this, the 10-year yield is once again below 3%.  But the short-term yields have not retreated and are continuing the rise, meaning that the spread between long rates and short rates has narrowed.

On Tuesday, the markets were spooked.  The 2-year yield and the 5-year yield narrowly inverted.  Everything seemed to happen at once.  Stocks plummeted, while longer-term rates also plummeted.  This means that long-term bond prices rose.

It isn’t clear if stocks sold off because of the flattening yield curve, or if the yield curve flattened because of falling stocks.  They seemed to feed off of each other.

The U.S. markets got a break on Wednesday because the state had to pay homage to one of its own. Perhaps there is some irony in the Bush family closing down the trading markets.  It seems a fitting legacy for the man who believed in voodoo economics.

We obviously don’t know for sure where the yield curve will go from here, but it seems more likely that it will invert in the somewhat near future.  I don’t count it has having inverted yet.  I look at the 3-month yield versus the 10-year yield.  There is still a spread of about 50 basis points (0.5%).

Perhaps the yield curve made headlines because the intermediate-term yields slightly inverted.  It also helped that the Dow fell 800 points, although I was already seeing the yield curve headlines at the opening of the day.

Is Recession Closer This Time?

In the past, the inverted yield curve has signaled recession, but there has typically been a lag.  If you wanted to short stocks, it was better to wait 6 months or a year until after the inversion.  The yield curve actually inverted in 2006, but we didn’t see the worst of the financial crisis until September 2008, although the official recession did start long before that.

The bond investors have tended to be ahead of the game.  That is why the yield curve is such a great indicator.  There aren’t many trends in the financial markets that act as predictors this reliably.

In our day of the internet, news travels a lot faster.  It is also seen by a lot more eyes.  In the past, the only people who knew about an inverted yield curve were those watching CNBC and reading the Wall Street Journal, and even they may not have known.  I’m exaggerating a little, but I hope you get the point.  Today, there are many casual investors, or even just people with a 401k who are curious about the markets, who will see the headlines on their favorite financial website.  I don’t know for sure, but I don’t think there was this much awareness about the yield curve and its implications in the past.

Of course, as with anything, there are a few people who are saying, “This time is different.” That is a classic line, which usually means things won’t be much different.  They are never exactly the same, but history tends to rhyme often enough.  Why would an inverted yield curve be any different this time?  Why would bond investors all of a sudden get it wrong as compared to everyone else?  Why would people be locking in long-term rates if they expected a booming economy ahead?

If anything, I could see a quicker onset of a recession.  More people, especially investors, are aware of the dangers of an inverted yield curve.  Some people will see the inverted curve and still not sell their stocks. There are always people who just won’t take action, even though they know they should.  But on the margin, we have to believe that some investors are going to start selling to at least get to a more conservative portfolio.

The problem with indicators is that even if they are true, they cease to be true once they are common knowledge.  Let’s say there is a company that sells winter-related things, such as snow boots and jackets. Once the beginning of February hits, sales start to fall off.  The stock price of the company starts falling too.  This starts happening every year around the first of February. Then investors become aware of this trend, so they start selling the stock in mid-January.  This becomes the new trend.  Eventually, the trend just ends.  Investors know that sales will fall off in February and start back up again around September.  The stock price becomes less volatile as market information becomes better known.

The question is, why this hasn’t happened with the yield curve?  We don’t see recessions that often, but there have been enough of them in our post Great Depression country.  At what point do investors start figuring out that an inverted yield curve means a likely coming recession and a likely fall in stocks? Instead of a one-year delay, why doesn’t this speed up due to learning from the past?

I don’t have a good answer for this, but I am just offering the possibility that maybe things are speeding up.  Maybe investors are wising up to the past with regards to the yield curve.  When the curve does invert this time, maybe the major selloff will being right away.  Or maybe we will already be part way through it.  After all, stocks have taken a big hit over the last couple of months, but the yield curve has not yet fully flattened.

My conclusion is that I have no idea what will happen this time, but that it is good to be prepared for a quicker onset of a recession.  We may not get 6 months or a year warning from an inverted yield curve until a recession begins.  When the yield curve inverts, we may already be in a recession.  It would be wise to prepare for this possibility.

This is a question that libertarians themselves need to answer.  If you were asked, “What is a libertarian?”, how would you answer?

By libertarian, I am referring to a small “l” libertarian, as opposed to a large “L” libertarian, which would be a member of the Libertarian Party.

Of course, there are many people who call themselves libertarians who are not really libertarians.  It’s not that I or anybody else owns the definition of libertarian, but we can be certain that someone like Bill Weld is most certainly not one.  There are some who have libertarian leanings, but it would be hard to identify them as true libertarians.

If you want an interesting experiment, ask some of your friends or family to define what a libertarian is.  You may be surprised to hear some of the answers.  Some may struggle quite a bit giving you an answer.

The most common response you will hear is a list of some defining characteristics.  For example, you will get a list of things that libertarians are against: gun control, taxation, regulations, etc.

One answer you might get is that a libertarian is against government.  This is technically not correct without clarification. Libertarians, including anarchists, are not (or should not be) against all government.  We are against government in its current form – i.e. involuntary government.  There is nothing wrong with voluntary governing bodies, as long as people are free to associate or not to associate.  A principled libertarian is only against involuntary government, which is the state.  We use the term government because essentially all political entities that call themselves governments are involuntary in our current world.

When you ask the question of what a libertarian is, you could get the response that it is someone who advocates liberty.  This is a correct response.  The only problem is that it is so general as to almost be meaningless. Technically though, this really is the correct definition.  A libertarian is an advocate of liberty.

The problem here is that there are many people who will say they favor liberty, yet they are not libertarians.  When you dig deeper, they don’t really favor full liberty.  Then you get down to a proper definition of liberty. There are many people who advocate entitlement programs and an interventionist foreign policy who will say that favor liberty.

The Libertarian Party Pledge

The pledge to join the Libertarian Party (LP) is actually one of the best definitions of being a libertarian that I have seen.  It reads as follows:

“I hereby certify that I do not believe in or advocate the initiation of force as a means of achieving political or social goals.”

This really gets to the heart of what it means to be a libertarian.  If you think deeply about that pledge, it was crafted carefully.

You may wonder why it doesn’t just say that you should never advocate the initiation of force. But I have an unusual example to answer this.

Let’s say one of my children called me up saying they were stuck in the middle of the desert. It is 100 degrees outside, and they are about to die of thirst before anyone can rescue them.  There is someone there in the middle of the desert who has 500 bottles of drinking water, but he refuses to give (or sell) one bottle to my child dying of thirst.  My child asks me what to do.  If my child can steal the other person’s property (one bottle of water), I say to do it.  It is an encroachment on the other person and his property.  In a sense, you could say that I am advocating the use of force (although not to actually physically harm the other person).

I think the qualifier “as a means of achieving political or social goals” is there for such a crazy example or others of similar nature.

If someone calls your wife ugly and you punch him in the face, I’m not sure that this disqualifies you from being a libertarian.  You shouldn’t have done it, and you will face the consequences of having done so, but it doesn’t mean you are advocating force for political or social change.

Aside from the nuances of the definition, I think it is important for libertarians to remember why they are libertarians.  It is easy to get sucked in to debates about cultural and other issues that really aren’t dealing with the initiation of force.

It is also important to use this as a defense or argument in favor of libertarianism.  It is easy to get wrapped up in debates over all of these details on issues.  But you can often silence, or at least confuse, someone by pointing out that he is advocating the use of violence to solve the problem that he seeks to solve.

Many people just simply don’t understand what it means to be a libertarian.  Libertarians can do a much better job or describing the political viewpoints of others.  Critics of libertarians will often make things up.  They will say such things as: libertarians don’t believe in helping people.  And if you don’t believe in government-funded education, then they will say you are against education, and so on.

Some people are being dishonest.  Some really just don’t understand libertarianism.  Sometimes it is a combination of those things.  They often don’t understand, but they don’t give any effort in trying to understand.

I was recently talking about property taxes.  My daughter asked about why we have to pay property taxes.  I said that we have to pay for the schools that she doesn’t use.  She asked what happens if I just don’t pay them.  I don’t know if I should have been this blunt, but I told her that they would fine me more money.  And if I still don’t pay, then they will put a lien on my property, and eventually, policemen may show up at the door to take me to jail or shoot me.

That is the hardcore fact that non-libertarians constantly try to avoid.  They never want to talk about the guys with guns who will show up at your door to enforce the policies they are advocating.  The men with guns will kidnap you and lock you up, and if you resist, they will kill you.  This is politics.

This is what people need to be reminded of (or taught) whenever a political discussion occurs.

Someone may have a wonderful government proposal that is intended to help a lot of people in need. But the question is whether I am free to disagree.  If I don’t go along with it, will men show up to shoot me?  That is the ultimate end of every government program. Most people obey so that the men with guns don’t show up.  But we should always be reminded that this is the ultimate end if we choose to disagree and disobey.

The story of China is far from black and white.  It is a giant mix of a lot of good things and bad things.  China remains a communist country, at least in name.  In reality, it is some kind of mix of capitalism, mercantilism, and authoritarian.

It is not completely unlike the United States.  The U.S. is a mix of all of these things as well, but to a lesser degree. The U.S. government is more bureaucratic, which can be good or bad.  The Chinese economy is far more centrally planned, but they also don’t have as much red tape to go along with it.

The U.S. is obviously less authoritarian.  You can find horror stories and government abuses everywhere.  But the reality is that, in general, Americans still have freedom of speech, freedom of press, and gun ownership rights.  The same cannot be said for the average Chinese citizen/ resident.

It was recently reported that Jack Ma, the founder of Alibaba, has been a long-time member of the Communist Party. While the story is mildly interesting, it is not that big of a deal.  Again, he is a communist in name only.  He may have become a “communist” just for purely self-defense reasons.

Alibaba is a giant company that is comparable to Amazon.  In fact, many sellers on Amazon source their products from suppliers they find on Alibaba.  Alibaba is really a symbol of capitalism.  It is a demonstration of how millions of people voluntarily trade with each other to become better off.

China was once a truly communist country.  That is to say, it was a brutal totalitarian society.  Tens of millions of people were killed at the hands of the communists.  In 1979, Deng Xiaoping allowed markets to somewhat open up, particularly in agriculture.  China has since become a huge economic powerhouse with relatively freer markets.  It is centrally planned to a high degree, but this is a dramatic improvement from the socialist system it once was.  The relatively freer market has helped hundreds of millions of people escape extreme poverty.

With that said, economic growth in China seems to be struggling as compared to what it was in the previous couple of decades.  I am surprised the Chinese boom has been able to go on as long as it has. Some of the boom is artificial, and some of it is real.

The Chinese have never experienced a hardcore recession.  Prior to 1980, the entire country was in one big permanent recession.  It was an economic basket case with extreme poverty.  But since it began to experience exceptional economic growth, there has never been a large-scale economic decline, at least according to the statistics (which granted, aren’t probably that accurate).

The stock market has struggled in recent years in China.  You could say that the stock bubble has burst.  The Chinese government has continually tried to prop up that bubble, or at least prevent it from a further fall.

There is obviously a massive real estate bubble in China that is propped up by the Chinese central bank and the central planners.  It is incredible that prices have not fallen over a cliff at this point, but again, there is massive manipulation.  They are trying hard to prevent real estate prices from crashing.

As much as the U.S. economy is controlled by government, there is still far more room for corrections in the U.S. than what we see in China.

Some Malinvestments are Worse than Others

I have read or heard some people’s stories about visiting China.  They say that some of the infrastructure is incredible.  The main airports are modern, the highways are impressive, and the bullet trains are incredible to ride.

This isn’t a compliment to the central planners of China.  It is still malinvestment to a large degree.  But some misallocations are worse than others. At least when the Chinese bubble collapses, they will still have high-speed trains and some great infrastructure.

In the U.S., the government spends trillions of dollars, and for what?  The worst are the wars and the money spent to maintain an empire overseas.  It is completely wasteful, if not destructive.  There are massive entitlement programs (and other welfare) that serve to make people more dependent on government.  There is also other domestic spending that lines the pockets of the lobbyists and their industries.

Even in terms of debt, it is the Chinese buying U.S. government debt.  This is a malinvestment in itself, but from the Chinese point of view, at least they are collecting interest, while the U.S. government (the taxpayer) is paying out interest.  It is a short-term subsidy for American consumers to some degree, but it is a long-term liability, unless the government is actually going to default on the debt.

To be clear, I am much happier being in the United States than I would be China, at least by judging from what I know.  And I ultimately think the U.S. will be more resilient, especially when a hard recession comes.  Americans have been through hard recessions before.  In China, there are going to be violent revolts.

I think the general trajectory for China is up.  The people there have had a taste of a middle class lifestyle, and they aren’t going to easily give that up.  This should be beneficial for everyone.

Still, the U.S. has its advantages.  I already mentioned the liberties that Americans have that the Chinese do not. Most of the rest of the world does not have the same degree of liberty when it comes to speech, press, and gun ownership.  In addition, Americans are still very entrepreneurial.  This is good for economic growth.

The problem with the U.S. is the administrative state and all of the red tape.  It’s possible this may be a bigger problem than the unfunded liabilities.

I have said that we actually need a recession in a certain sense. We need the correction, which is the reallocation of resources.  It will help to make things more affordable for middle class America.

But even in the longer term, we need a recession to drastically scale back the government. It is going to be difficult when the government cannot fulfill all of its promises, particularly to senior citizens.  There will be pain involved.  The good news is that it will be an opportunity to correct some of the past mistakes.  Best of all, it will be an opportunity to dramatically scale back the U.S. empire overseas.

The hardest part will be repealing some of the red tape from the administrative state.  That will not likely come crashing down. Luckily, entrepreneurs are creative and resilient.  And with technology, we will find ways to go around the red tape and hopefully make some of it irrelevant.

I am still optimistic for both China and the U.S. in the long run.  But the paths to prosperity will not look the same. There will be short-term pains for both though.

I have heard people refer to the current state of the economy as the “everything bubble”. In other words, they are saying that virtually everything is in a bubble.  This could include real estate, stocks, bonds, crypto currencies, and commodities.  I would also say that government is a massive bubble, and that is what needs to be popped the most.

Of course, not everything can be in a bubble, unless we are facing the complete collapse of society and the division of labor.  There is always something that goes up, or at least doesn’t go down.  That is why I advocate a permanent portfolio. It is rare that all four asset classes go down in tandem.  And when it does happen, it is short lived.

I don’t necessarily think the U.S. dollar is in a bubble as compared to the other major currencies (the yuan, yen, and euro).  That is only because the Federal Reserve has been less bad in terms of monetary policy, especially over the last 4 years.

As long as these major currencies exist, at least one of them has to go up as compared to the others.  And even in terms of purchasing power, if price inflation gets out of control, then gold and silver will likely go up.

My point is that there are always going to be exceptions, even in an “everything bubble”. There will always be certain asset classes or investments that perform well.

Still, I think the idea of an “everything bubble” has some merit.  Maybe we can call it the “most everything bubble”.  One area where I tend to disagree with the idea of a bubble is in the realm of government bonds.  I continue to say that U.S. government bonds will do well in a recession (yields will fall), as long as price inflation stays relatively low.  There probably is a bubble in U.S. government debt, but it is going to take a lot longer to pop.

Gold is a little less predictable, but we know that gold will tend to do well when significant inflation becomes a concern.

I do believe that the “most everything bubble” is beginning to pop.  It has already started, and I am not referring to the recent decline in stocks, although that could also be the beginning of something.

So what is the first asset class to pop?

The Bitcoin Bubble

The price of one bitcoin recently dropped below $4,000.  It peaked in December 2017 at about $18,000.  Other crypto currencies have also fallen dramatically, but I point to Bitcoin because it started the trend and is still the most popular of the crypto currencies.

I have no idea if Bitcoin will have another run up from here or just continue to go down.  I am not making day-to-day predictions. But I do know that it could easily keep going down to $1,000 or $500 or $10.  It probably won’t hit zero any time soon because you can almost always find someone to pay something.  This is especially true with Bitcoin, since there are libertarian-leaning tech nerds who spend every waking hour of their lives researching and thinking about Bitcoin.

Bitcoin is nothing to me.  As with everything, it has subjective value.  But it is completely useless for anything other than the fact that others are willing to accept bitcoins or buy them.  Bitcoin is not much different from a government currency.  But with a government currency, you are essentially compelled to use it, and you have to pay taxes in it.

I see parallels between the Bitcoin/ crypto currency bubble and the tech bubble of the late 1990s. Bitcoins will fall like many dot com companies did.  It may do the equivalent of going bankrupt.  But just as the crash in tech stocks did not spell the end for the Internet, neither will the crash in cryptos spell the end for the blockchain. The technology behind Bitcoin will be used in many ways in the future for other things.

A few years ago, I wouldn’t have cared much if Bitcoin and other cryptos crashed.  I would have said it was mostly irrelevant to the overall economy.  Today, I see things a little different, only because Bitcoin has become so popular and talked about.  There is at least one show on CNBC that seems to devote a lot of their time talking about Bitcoin.  If you go around and ask people, there is now a large percentage of the population who are at least familiar with Bitcoin.

It does not surprise me that this was the first major bubble to pop.  Real estate takes time for prices to adjust.  Stocks can obviously crash quickly, but there is more support there, at least for the time being.  With Bitcoin, it is still a somewhat thin market, and it is easy for the price to fall quickly.  It is also pure speculation as far as I’m concerned.

I really do believe that the bursting of the Bitcoin bubble is the beginning of the bursting of the “most everything bubble”.  I just don’t know how long everything else is going to take to follow suit.

I’m still looking for the inverted yield curve.  Bitcoin didn’t need an inverted yield curve to collapse. But I don’t think we will see an official recession until the yield curve goes flat or inverted.  We are getting close, but we’re not quite there yet.

You’ve heard the saying about being penny wise and pound foolish.  In the U.S., it is being penny wise and dollar foolish.

I see this all the time, and I often even recognize it in my own life.  I’ll spend two hours shopping around for something to save 10 dollars, while I could have spent 10 minutes on something else in order to save 30 dollars (or more).

I have known people to have a lot of money sitting in the bank earning close to zero percent interest.  Meanwhile, they have a small mortgage or a car loan that could easily be paid off.  But they keep the loans with a ton of money sitting in the bank.  As I have said several times, you don’t get rich paying interest to others. You get rich by collecting interest.

I know that taking on a mortgage (and paying interest) can make sense in many cases, whether it is for purchasing a primary residence or purchasing investment properties. But at some point, you have to actually earn the equivalent of dividends or reduce your monthly expenditures in order to get ahead.  Otherwise, if you are always paying interest to a bank for your mortgage, then your house is (in the words of Robert Kiyosaki) more of a liability than an asset.

I have seen people with terrible investment strategies on both ends of the spectrum.  I’ve seen people with large sums of cash in the bank doing nothing for long periods of time, and I’ve seen people 100% invested in stocks with no emergency fund.

Speaking of being penny wise and dollar foolish, we just got through with Black Friday.  Now, I don’t begrudge people for going out shopping.  Some people actually enjoy it.  But some people were rushing to stores to buy something when they could have just bought it on line with the same discount.  There are also people who go on a spending spree just because they see a “sale” or a “doorbuster deal”, while they go deeper into credit card debt for things they don’t need.

I see all kinds of mistakes.  Some are far bigger than others.  I sometimes see my own mistakes in retrospect.  Sometimes it is good to have a neutral party looking at things.

This is where my offer comes in.  I am an affiliate for Tom Woods’ program called Liberty Classroom.  I am an affiliate, and he is offering great deals on this Black Friday weekend.  It looks like he is extending this discount into Cyber Monday.

If you purchase any one of his membership programs through my affiliate link, then you will get a round of email conversation with me regarding your own personal finances.  Except for specific legal or tax questions, you can ask me anything about personal finance (or other life advice).  If you want suggestions on whether to pay down certain debt, or how to allocate your investment portfolio, or how to buy gold coins, etc., go ahead and ask.

You can get my opinion on Bitcoin, which I have already offered and will be offering again soon. You can ask me about your family budget or about how to allocate your time more efficiently.  You will have me as a neutral party, offering ideas and suggestions.

If you could just get one actionable piece of advice that could save you (or make you) thousands of dollars, wouldn’t that be worth the small price tag here?  And on top of it, you are giving yourself (or to someone else) a great education in liberty.

Again, all you have to do is order one of the membership programs for Liberty Classroom via my affiliate link.  The Master Membership is currently the most discounted, but you just have to order any level through my affiliate link to get my bonus of a personal finance consultation.

All you have to do is forward me your receipt (geoff@libertarianinvestments.com) that you purchased Liberty Classroom through my affiliate link.  Then send me your bio (as much or as little as you want) and ask away.  If you want to wait to ask me your questions, you have up to a year from purchase to do so.  And to get this bonus, you just have to buy any one of the levels offered in Tom’s Liberty Classroom.

My offer of giving personal financial (or other) advice is good beyond this weekend.  But I know that Tom heavily discounts his program on Black Friday weekend, so I encourage you to take advantage of it now and save money.  You just have hours left before Tom’s big discount disappears.  This is the one time of year that Tom can be counted on to offer a very substantial discount.  It makes a great gift for yourself or for another liberty lover in your life.

 

ORDER NOW and invest in yourself. Become smarter and set yourself on a path to greater wealth.

When people criticize the public (government) school system, they tend to focus on things like reading, writing, and math.  They focus on test scores.  In the case of the United States, it is common to hear that American kids are falling behind foreigners.

These are not the main things I worry about when it comes to the government school system in the United States (or anywhere else for that matter).  Sure, it is a bit disturbing to read grammatically incorrect writing, or to encounter someone who doesn’t know basic math.

However, my main concern with any government education system is that it is teaching children too well – in this case, to be obedient little citizens.  The government, through the threat of force, extracts money from the citizenry and then uses that system to indoctrinate children in loving the state.  As with most government spending, it is a double whammy to libertarians. We would rather you just take our money and burn it instead of using it against us.

Whether it is intentional or not, kids are generally taught in school to respect, if not love, the government (i.e., the state).  They are taught that the government rescued us from the Great Depression through Keynesian economics.  They are taught that the U.S. government does good throughout the world (except maybe in the case of Trump or certain other exceptions).  They are taught that we need the government to provide basic services and a safety net so that poor people are not dying in the streets.

It is sad that I am sometimes actually encouraged when a kid does poorly in school and doesn’t really respect his teachers.  I don’t want children to be disrespectful in general to others, but it is healthy when there is skepticism and a little rebelliousness against the system.  It is good when children see the system as a joke, because it really should be viewed as a joke.

I am more concerned for the child who grows up believing everything he learned from his government schools.  This is the person who will not question authority (just following orders) and will be an obedient citizen to the state.  Those are the people the government wants to produce.

The good news is that we don’t have to remain in a state of obedience.  We don’t have to enslave ourselves.  With communication more open than ever, we can break free from the chains of government.  We can think for ourselves.  Even if you were “educated” in a government school, you still have a brain and free will.  You can think for yourself.

Education is extremely important.  That’s why you shouldn’t leave it up to the government schools.  And it is never too late to expand your knowledge.

This Black Friday weekend, there is a great deal on Liberty Classroom, which is put together by Tom Woods.  You can learn the history and economics (from a libertarian standpoint) that you didn’t get in school.

With today’s technology, I love taking advantage of listening to things while doing other things.  I wear my headphones and listen when I am driving, cutting the grass, or doing chores around the house.  I actually look forward to doing these otherwise mundane tasks because I get to listen to things that educate me and entertain me.

This weekend, Tom is significantly discounting his Liberty Classroom program.  If you order his Master Membership program this weekend through my affiliate link, then you will get a signed copy of his book The Politically Incorrect Guide to American History.

But here is the biggest bonus of all.  If you order through my affiliate link, then you will get a round of email conversation with me regarding your own personal finances.  Except for specific legal or tax questions, you can ask me anything about personal finance (or other life advice).  If you want suggestions on whether to pay down certain debt, or how to allocate your investment portfolio, or how to buy gold coins, etc., go ahead and ask.

All you have to do is forward me your receipt (geoff@libertarianinvestments.com) that you purchased Liberty Classroom through my affiliate link.  Then send me your bio (as much or as little as you want) and ask away.  If you want to wait to ask me your questions, you have up to a year from purchase to do so.  And to get this bonus, you just have to buy any one of the levels offered in Tom’s Liberty Classroom.

If you want Tom’s signed book, you have to order his Master Membership program through my link. But I realize that money is tight for some people, so you just have to order any one of his membership programs (a one-time purchase) and you will get my personal finance advice.

My offer of giving personal financial (or other) advice is good beyond this weekend.  But I know that Tom heavily discounts his program on Black Friday weekend, so I encourage you to take advantage of it now and save money.  You just have hours left before Tom’s big discount disappears.  This is the one time of year that Tom can be counted on to offer a very substantial discount.  It makes a great gift for yourself or for another liberty lover in your life.

 

ORDER NOW and invest in yourself. Become smarter and set yourself on a path to greater wealth.