I have been paying closer attention to the yield curve than anything else at this point.  The policy of the Federal Reserve has been tight for several years now, at least in the fact that it hasn’t been creating new money and, more recently, rolling off a relatively small amount of maturing debt.

The stock market is obviously indicating a boom, but stock investors are unreliable in terms of predicting the future.  A stock boom can turn into a crash really quickly.  The only warning sign is an uptick in volatility, which we have seen this year.

Bond investors tend to be better forecasters as a collective.  And by far the most accurate predictor of a coming recession is an inverted yield curve.

Over the last year or so, short-term interest rates have come up after being near zero for many years.  Long-term rates have also risen, but to a lesser degree.  This has led to a flattening yield curve, but it is not yet inverted.

I tend to compare the 3-month yield against the 10-year yield, but other people will focus on different maturity lengths.

With that said, it is interesting to just take a look at the 5-year yield against the 10-year yield.  As of the close on July 13, 2018, the 5-year yield stood at 2.73%, while the 10-year yield stood at 2.83%.  This is a difference of just 0.10%.

This differential is almost nothing, yet the difference is a maturity length of five years.  You can lock in a rate for 10 years at 2.83%.  But for an annual return of 0.10% less (almost nothing), you only have to lock in for 5 years.  If someone buys a 10-year bond, then he is expecting the rate to be lower in 5 years than what it is now, or at least he is expecting most everyone else to expect this (if that makes sense).

This means that the overall market sentiment is that price inflation will remain relatively low.  With U.S. bonds, there is almost no chance of an actual default (not counting the partial default from possible inflation).  Therefore, the interest rate doesn’t vary between maturity lengths due to a default risk.

If bond investors are suggesting that interest rates will be lower in 5 years than what they are now, then this means we are likely to have a significant economic downturn between now and then.  And with this downturn, there are not big expectations for price inflation.

This doesn’t mean that bond investors (as a collective) are correct.  But at the same time, I tend to trust bond investors more than stock investors.

I will continue to watch the yield curve closely.  Once it is flat or inverted, it means you should prepare rapidly for a recession.

I recommend that you prepare for a recession anyway.  This means having backup plans for your source of income.  This means not being heavy in stocks.  This means having liquidity.

If you have a strong cash position with little or no debt entering into a recession, then you will be so much better off than most others.  Not only will you be able to meet your monthly obligations, but you can actually take advantage of discounts in asset prices for assets that are heavily sold off during the downturn.

In the meantime, take advantage of the higher short-term rates with your cash position.  You can find a financial institution that pays a decent rate, or you can consider opening a TreasuryDirect account.  You probably aren’t going to regret having too strong of a cash (or cash equivalents) position.

This was a question addressed in a recent discussion I saw on Facebook.  It was not a random discussion amongst friends, but a conversation in a group that specifically discusses topics on financial independence.

The original person asking the question was wondering what to do with some extra money.  Should he invest it or put it into an emergency fund?  His only major debt is a car loan with a low interest rate.  I think it was 2.9%, but it could have been 1.9%.

There were varying opinions on the matter, but a few people (including myself) suggested paying off the car loan early.  There were some who vehemently disagreed because of the low interest rate, including the original commenter asking the question.  When these discussions form, it goes from giving advice to the original commenter to having a general philosophical debate.

I want to address why it might be a good idea to pay off a car loan in such a situation, even with a low interest rate.  I personally did this years ago on my car, even though my rate was really low.

Several years ago, I wrote a report on the pros and cons of paying down your home mortgage.  It is still available on kindle, and it is still very relevant today.

One of the cons of paying down your mortgage is that you are locking up your money.  Unless you sell your house or refinance it, that money you put into the principal balance of the mortgage is unavailable.  Therefore, if you are going to consider paying down your mortgage, you definitely want to have a substantial emergency fund beforehand, at a minimum.  The one exception is if you could actually pay off your mortgage because at that point you would start reaping the gains of not having that payment every month.  But even in this situation, you would still probably want to have some money in reserves for emergencies.

In my personal case, I did not have near enough liquid funds to pay off my mortgage.  Therefore, I haven’t touched it.  But I did have enough to pay off the remaining balance on my car loan.  So even though the interest rate on my car loan was lower than the interest rate on my mortgage, I opted to pay off the car loan, given that I did not have any other immediate uses for the money except possibly conventional investing.

As soon as a I paid it off, I didn’t have the car payment each month.  This was an immediate benefit for cash flow.  It made sense.

That is why it often makes sense to attack a car loan, even at a low rate.  It is much more feasible for most people to pay off the car loan in its entirety, thus eliminating that monthly payment.

If you have an emergency fund of $20,000 and a car loan with $15,000 remaining, then it might make sense to pay off the loan, even though your emergency fund would shrink to $5,000, assuming you don’t have any other known big expenses on the horizon.  In this scenario, you can divert the money that you would have been paying monthly towards your car payment back into your emergency fund.  You should be able to replenish your emergency fund within a few years just with the car payment money.

This isn’t always a good idea for everyone, and you certainly have to take your own personal situation into account.  Someone with higher expenses due to a family may want to have more of a cushion, for example.

As far as investing goes, it is true that you may be able to get a much better return on your money than the interest rate on your car loan.  But maybe you won’t.  Unless you can find a U.S. government bond paying a higher rate than that (which you probably won’t), then you will have downside risk to your investment.

While 1.9% or 2.9% isn’t a high rate, it is very difficult to find a risk-free return higher than that.  And depending on your tax rate, you may have to earn close to a 4% return just to get that 2.9% after taxes.

It is obviously a personal choice based on your risk tolerance.  It is also an issue of opportunity costs.  But unless you feel confident (and that doesn’t always mean anything either) that you can get a significantly higher return than the interest rate on your loan, why not lock in the sure thing?

Politically speaking, I think 2007 was my favorite year ever.  I had been active in my local Libertarian Party since 2003.  We would have some fun events such as protesting taxes at the Post Office on tax day, or handing out flyers on July 4th.  Although many in the party were not as radical as me, at least they were in the same ballpark most of the time.  I could generally have an intelligent discussion with people.

Still, the number of libertarians was small.  And then came 2007 with the announcement by Ron Paul that he was running for president as a Republican.  I was excited when I heard this news, as I had been following him for several years at that point.  I was even more excited when I heard that he would be in the debates.

I correctly never had any high hopes of Ron Paul winning the presidency or even coming close to getting the nomination.  However, I thought that if several million people could hear his message at the debates, that we would surely at least get a few converts towards libertarianism.

I was shocked to say the least at just how fast the momentum picked up after the first couple of debates.  All of a sudden, there were Ron Paul meetup groups forming, and signs and bumper stickers were starting to appear.  I went to a meetup and eventually started participating at least weekly.

My wife and I had just had our first baby, so it was a busy time for me, but I was fortunate that I could go out one or two nights a week to gather with other Ron Paul supporters.  A local businessman in my area volunteered his office building to be used as something of a local Ron Paul headquarters.  I was again fortunate that it was less than a mile from where I lived.

Once or twice a week, I would go and meet up with about 20 other people.  The numbers varied and not all of the same people were always there.  It was also a quite diverse group of people with a wide range of ages and very different backgrounds.  We all had one thing in common, and that was our support for Ron Paul and his message.  We would sit around and make up flyers, stuff envelopes, make banners, and a host of other things.  I have no idea if any of it worked to get out the message, but it sure was fun sitting around and chatting with other people.

The thing that still gets me is where all of these people came from.  I had been active in the Libertarian Party for nearly 5 years and the crowds were never that big.  Most of the Ron Paul supporters I had never met in my life.

I don’t know if these were closet libertarians who came out after Ron Paul’s campaign got up and running, or if Ron Paul convinced them to be libertarian.  I have a feeling it was somewhere in between for most of them.  I think most of them probably already had libertarian leanings, at least on some issues, and Ron Paul was able to articulate what they never quite could.  They had just never heard the message presented that way before.

Before we knew it, there was a Ron Paul blimp up in the air, there were money bombs, he was easily winning all of the online (non-scientific) polls, and he was attracting crowds of thousands of people who would chant things such as “End the Fed”.  All along, I knew inside that his chances of winning were still very slim going up against the Republican establishment, but this was a great opportunity to reach more people than ever.  And overall, I think that goal was accomplished.

There are some libertarians today (some of whom became libertarians due to Ron Paul) who will talk about how horrible everything is today, and how the people in this country are a bunch of statists.  However, I don’t think they realize that the libertarian population today, almost regardless of how you define that term, is far greater today than perhaps ever before.  It is certainly far greater than at any time in the last 100 years.

The crazy thing is that Ron Paul created a lot of hardcore libertarians.  Some of his previous supporters might not even call themselves libertarian any more because they have chosen another label.  Some of them have gone from a-political to Ron Paul supporter, and back to a-poliitcal again, but for different reasons.

It is important to recognize just how much progress has been made over the last 15 years.  I like to give credit to people who laid the groundwork before that, whether you go back to Mises and Rothbard, or a little more recent like Harry Browne.  But it was Ron Paul’s presidential run in 2007/ 2008, coupled with the Internet, that really sparked this change.  There are many multiples the number of people who are libertarian now than in, say, 2006.

With that said, I think many libertarians just don’t feel as positive today as they did back then.  Whether we like it or not, a lot revolves around the presidential race every four years.  In 2016, libertarians didn’t have someone to rally around.  Some people liked Rand Paul, but he did not have the radical message that his father brought.  Some people liked Trump for taking on the establishment, but he is obviously not a libertarian.  And Gary Johnson just didn’t make the cut either, as he did not carry a principled libertarian message and did not articulate his positions all that well.  It also didn’t help that he picked Bill Weld as his running mate.

I believe Tom Woods has similar sentiments that libertarians just haven’t had someone or something to rally around since the last Ron Paul presidential campaign in 2012.

After the 2007/ 2008 campaign, I knew a lot of Ron Paul supporters who wanted to stay within the Republican Party and effect change within the party.  It is hard to say how effective it has been, but I believe some people got frustrated after a while and left.  And while I think people should promote liberty doing things they feel passionate about (as long as it isn’t counterproductive), I was hoping more Ron Paul people would join the Libertarian Party.

The Libertarian Party was the obvious choice to me.  It wouldn’t have taken that large of a percentage of Ron Paul supporters to join the party and tip the scales toward a more radical (principled) libertarian message.  If people had immediately joined in early 2008, we could have had Mary Ruwart as the presidential nominee instead of Bob Barr.  And even if they had been too late for that, then we could have had a Ron Paul type person as the nominee in 2012.

This would have been a sight to see if Mary Ruwart had been the LP nominee in 2008.  She would have continued on with Ron Paul’s message.  I think Ron Paul would have gladly endorsed her instead of what he did do, which was just to encourage people to vote for a third-party candidate before eventually announcing his support for Chuck Baldwin of the Constitution Party.

I still wonder what could have been, but I also wonder what still could be.  In other words, it isn’t too late for all of the people who were inspired by Ron Paul in 2007/ 2008 (or 2011/ 2012) to join the Libertarian Party and make a difference.  The party has good ballot access for a third party, and it wouldn’t take that significant number of people to essentially overtake the party with a more radical message.

With that, now comes the news that Tom Woods and Dave Smith are joining the Libertarian Party.  This was done after speaking at an event hosted by the Mises Caucus of the Libertarian Party.  The Mises Caucus is what you might call the libertarian wing of the Libertarian Party.

Tom Woods, with his podcast, his one of the most influential libertarians there is today.  Dave Smith, a comedian and television personality, is also a rising star in the libertarian community.  With these two joining the party and letting others know about it, I am hopeful that many more radical libertarians will join the LP and make a major difference.

We don’t have to have Bill Weld in 2020.  We don’t need him campaigning against Trump (there are plenty of others).  We don’t need him adding any confusion on what it means to be a libertarian.  Instead, imagine an actual libertarian running on the LP ticket in 2020 and sending out a message similar to that of Ron Paul.

In 2008, Ron Paul received over a million votes.  In 2012, he received over two million votes.  But that was within Republican primaries.  In many states, you have to actually be registered as a Republican to vote in the primaries.  We know there were some Ron Paul supporters who didn’t go to the trouble of becoming a Republican so that they could vote for Ron Paul.

Maybe the 2020 election can be a good test of approximately how many libertarians there are out there.  We just need to have a candidate in the general election who is actually spreading a libertarian message.  With Tom Woods and Dave Smith joining the party, I have some hope that this scenario is possible.

Many people within the LP today think that the main purpose of the LP is to win political office.  But I think that is the wrong strategy.  The main goal should be to move society in a more libertarian direction.  And in order to do that, we have to educate more people on the moral superiority of liberty and the benefits of liberty.

I believe the LP should run a presidential candidate, but it should be someone who will stick to libertarian principles and is able to articulate the message to others.  It can be a rallying point for libertarians, and it can help continue to spread the message of liberty that Ron Paul started in 2007, along with others before him.

There is a saying that it is better to be lucky than good.  If anything, it is the other way around, at least in the long term.  It is better to be good than lucky.

It amazes me to see how so many people in this world don’t realize that it is usually the good who get lucky.  It doesn’t matter if you are talking about sports, relationships, health, business, investing, overall success, or a number of other things.  When you do something and become good at it, luck tends to follow.

This isn’t to say that the good can’t get unlucky.  Accidents can happen.  Someone playing a sport can experience an injury.  Someone eating healthy can still get sick.  A successful entrepreneur can lose his business.

What is important though is that doing things right puts you in a position to get lucky.  Whereas someone doing things wrong will almost never get lucky.  And if they do get lucky, the luck won’t continue.

I was watching a tennis match the other day.  Someone hit a ball that touched the net but went over.  After winning the point, the person put his hand up while looking at his opponent as if to say, “Sorry about that.”  It has become common etiquette in tennis as if to acknowledge that you got lucky and it was unfortunate for your opponent.  When I thought about it though, even in this circumstance, it is only partial luck.  After all, to hit a good hard shot in tennis, you generally want to get the ball as close to the net as possible without having your ball stopped by the net.  So if you just barely skim the net, this could actually be considered a pretty good shot.  The game of tennis has a history of proper etiquette and I am not criticizing the kind gesture, but it was just another example of where you have to be good to get lucky.

I play a little amateur chess, so I understand the game of chess well enough to know that it is generally the good people who get lucky.  I have seen plenty of examples where one player blunders and the opponent doesn’t even recognize the blunder.  It has happened to me plenty of times.

I was surprised one time during a U.S. chess championship where Fabiano Caruana (who will compete for the world title in November 2018) was playing a game and went into what is called a confessional booth.  You can talk to the viewing public about your current match, but the other players can’t hear what you are saying.  Caruana briefly explained his position and said he thought he had a winning position as long as he hadn’t overlooked anything.  After his opponent eventually lost and was interviewed, he basically chalked up that portion of the game to luck.  The problem is that Caruana had explained that exact position to the camera at the time and why it was winning, even though his opponent thought it was a few lucky moves after that.

This is actually stunning to hear a grandmaster try to cite luck in a game when his opponent just clearly was better than him.  (I don’t know who it was, as I didn’t recognize the name at the time.)

If you think hard enough, you can come up with hundreds of examples in life where somebody gets lucky because they put themself in the right position to accept that luck.

Maybe you always need a little bit of luck to get through things and be successful.  But you have to lay the groundwork in order for that luck to even be possible.  If an entrepreneur sells 10 different kinds of products and one of them happens to take off and make him rich (while his other 9 products failed), are you going to say he got lucky?  Maybe he got lucky with that one, but he had to be in the game in the first place.  Most people will never be in the game in the first place.

If you are finding yourself saying “I just can’t catch a break” or “that guy just got lucky”, then you may need to reexamine your life and strategies.  It is possible that you have just had some bad breaks recently, but know that if you want luck to come your way, you have to make sure that you are doing things well to put yourself in the position to receive that luck.

I have written a similar post on this subject before, but I think it is important enough to emphasize that I wanted to write more on it.

Happy Fourth of July!  This is known as Independence Day.  It could also be called Secession Day.  The American colonists were seceding from the British Crown, and the British Crown wasn’t willing to let them go peacefully.  There are actually many similarities to the so-called Civil War waged by Lincoln, yet most Americans see the two wars completely differently.

There are many Americans who know almost nothing about American history.  You can see this with some of the “man on the street” interviews.  (Is that politically incorrect to say now?)

There are some Americans who don’t even know the entity that the Americans were declaring independence from.  I am not talking about whether it was Britain or England or the United Kingdom.  I am saying that some Americans would guess something like France.

However, sometimes I find more hope in the ignorant/ apathetic crowd than I do in those who actually know something significant.  I would rather talk to the person who knows little about the American Revolution and the so-called Civil War than talk to someone who knows quite a bit about each war yet thinks both Washington and Lincoln are heroes to be celebrated.  (I personally think George Washington had his good points and bad points, whereas Lincoln was almost all bad.)

There is no question that Americans, in general, are very ethnocentric.  They think the world revolves around the United States.  In some ways, they are correct.  The U.S. is by far the richest country in the world, and it is also the most powerful militarily.  But even though the U.S. government could blow up the planet a hundred times over, it can’t beat a bunch of people living in caves in Afghanistan, unless the military were to just literally blow up the entire country and kill everyone.

I do not agree with American exceptionalism as it is presented today.  The problem is that it is an attitude that America is the best, and therefore everyone else should conform.  This is how we get all of these immoral wars.  It is how we get politicians from Woodrow Wilson to George W. Bush saying we are going to bring democracy to the rest of the world.  It is highly immoral because it is using force in an attempt to achieve these goals.  It is taking advantage of a certain arrogance within the population who want to cheer on the American military.

With all of my criticism, there is a certain aspect of American exceptionalism that I do embrace.  While the U.S. government has been abusive to foreign countries all over the place, the American people, aside from the arrogance part described above, still have a certain individualist and free-spirit streak that just doesn’t exist to the same extent in other countries.

Sure, the U.S. has become more of a welfare state.  Sure, the U.S. government has troops stationed all over the planet.  Sure, the government has a major presence in many aspect of our lives.  But despite all that, there is still this pro liberty streak that is still somewhat unique to these United States.

Most Americans think it is ok to make money and be successful.  If you start a business and become wealthy, it is typically celebrated.  This is not the case in many other countries.

Religious liberty is highly respected, even from those who don’t wish to practice a formal religion.  This was one of the unique aspects of America in the 1700s.

Most Americans still embrace free speech.  Perhaps we have regressed a little in this aspect with political correctness, but still consider that Donald Trump was able to win the presidency.  The hardcore people who preach political correctness and try to shut down speech are very vocal, but they are also in a small minority.  Most Americans still believe in free speech, even if they don’t agree with what is being said.

Americans can homeschool their children without a lot of restrictions.  And to be sure, more and more Americans are practicing this right that they have by abandoning the government school system.

Americans can own personal firearms.  Some cities and states are more restrictive than others, but for the most part, despite attempts at more gun control, most Americans can own a gun.  And this is widely practiced in the United States far more than any other country.

These are just a few of the many things to celebrate, despite the other side of the coin of a police state, a spy state, a welfare state, and a warfare state.

There are likely more libertarians in the U.S. today than at any time in the last 100 years.  There may be more hardcore libertarians now than ever before.

If you are at a 4th of July party or family get-together and someone mentions celebrating our freedom, you don’t have to be that bitter libertarian who points out how we live in a police state with our freedoms shrinking by the day.  Instead, affirm some aspect of freedom that you are able to celebrate.  You can say, “I sure am glad that I can at least be an entrepreneur and homeschool my children if I so choose.”

They say that ignorance is bliss.  Many people will celebrate the 4th of July in this state.  They will celebrate their freedom by barbecuing and setting off fireworks.  But really, they really are practicing a version of their freedom and enjoying life to a certain extent.

I think you can avoid ignorance without also being miserable all the time too.  You can be aware of the many injustices and the many ways in which big government makes our lives significantly worse.  But at the same time, you can celebrate and practice the liberty that you do have.  It is ok to have some fun and celebrate the good things in life.

There has been some political commentary out there suggesting that Bill Weld should run for the presidential nomination of the Libertarian Party.  In particular, George Will recently wrote an article asking if Bill Weld can restore conservatism by running on the LP ticket.

Bill Weld is a former Republican governor of Massachusetts.  In 2016, he joined up with the Libertarian Party and became the nominee for vice president.  Gary Johnson, the presidential nominee, favored Weld as his running mate.

Although there are several reasons why Johnson is not a libertarian, he certainly has more libertarian leanings that Bill Weld.  The following are 10 reasons why Bill Weld is most assuredly not a libertarian. In fact, it is even hard to say he holds many positions that are libertarian leaning.

• Bill Weld is a member of the Council on Foreign Relations (CFR). This is the ultimate organization of the establishment.  It is hard to imagine any member of the CFR being a libertarian unless the person is acting as a secret spy for information.  If Bill Weld is acting in a covert way in any way, it is to infiltrate the Libertarian Party on the behalf of the CFR, not the other way around.

• Bill Weld supported the Iraq War that started in 2003. While this was quite a while ago, and he has since hinted that the war was probably a mistake, he has not made it a point to say that his views have changed in any significant way.  It is easy now to say that there was faulty intelligence and that it was probably a mistake, especially since the political winds have dramatically shifted since that time.  Unfortunately, Weld is still a hardcore interventionist, and there is little evidence to make us believe he would pursue a non-interventionist foreign policy.

• Bill Weld did not shrink the state government as governor of Massachusetts. As with many politicians, he talks about shrinking government but has few specific proposals to actually do so.  Despite preaching fiscal conservatism, the state budget grew under his watch as governor.

• Bill Weld did very little else in bringing liberty to Massachusetts. If he had any sort of libertarian leanings at the time, you would think there is something he could highlight that he accomplished as governor that actually resulted in a lasting change.

• Bill Weld does not call for the abolition of any federal departments. He obviously does not believe in the Constitution or decentralization in virtually any capacity if he can’t think of one federal department to abolish.

• Bill Weld is not in favor of ending the federal war on drugs or legalizing drugs, or he has certainly not made this clear if he is. He says he wants to legalize marijuana, but he apparently does not take this same position in regards to other drugs.  Weld was actually a federal prosecutor earlier in his career, which included many drug cases.

• Bill Weld is a proponent of more gun control by government, although he has had to somewhat soften his stance for the Libertarian Party.Weld also said that you should not be able to buy any gun if you are on the terror watch list.  These people whom he wants to deny the right to own a gun have not necessarily been convicted of any criminal offense.

• Bill Weld thinks highly of Angela Merkel, the German president. When his running mate Johnson was asked his favorite foreign leader, Johnson struggled to come up with an answer, so Weld answered Merkel on his behalf. While this is a difficult question to answer for any libertarian because there aren’t many foreign leaders promoting a message of liberty, it is hard to understand why any libertarian would cite Merkel as a leader to admire.  She has been a shill for the European Union and a massive welfare state.

• Bill Weld helped George W. Bush prepare for debates in 2004. He went on to support Mitt Romney in 2007 for president, but endorsed Barack Obama over John McCain in the general election. Weld endorsed Mitt Romney in the 2012 presidential election.  In 2016, Weld endorsed John Kasich in the Republican primary.  Unless Weld had a dramatic shift in his political views in a short timeframe in mid-2016, it is hard to believe he has any significant libertarian tendencies with all of those recent endorsements.

• Bill Weld is so anti-Trump that he was actually campaigning for Hillary Clinton in 2016 (see here and here). He said that, “I’m not sure anybody’s more qualified than Hillary Clinton to be president of the United States.”  He was sabotaging his own ticket (Johnson/ Weld) because he absolutely did not want to see Trump elected.  Again, you have to wonder if Weld was sent by the CFR/ establishment to infiltrate the Libertarian Party in an attempt to soften the LP message as well as to take down Trump.

There are many more reasons out there on why Bill Weld is not even close to being a libertarian. If Bill Weld becomes the presidential nominee for the Libertarian Party, then the party should just change its name to Another Establishment Party.

The U.S. Supreme Court recently ruled that online retailers are responsible for collecting sales tax even if they don’t have a physical presence in the state where the purchase is made.

I would have written on this sooner, but I am still trying to digest the ramifications from this Supreme Court ruling.  The more I read about it though, the more unclear it becomes.

I have written before on the disastrous situation regarding 50 states with all differing sales tax policies.  There are only a few states that do not collect sales taxes on consumer goods.  Although I am a decentralist, I could see the benefit of actually having some kind of national policy regarding sales tax collection.  Like anything that Congress does though, they would probably just make it worse.

Most of the cases taken by the U.S. Supreme Court should never be heard at the federal level.  The Supreme Court usually abuses its power by taking jurisdiction over issues that should be settled at a state or local level.  With this case regarding sales tax collection, it is harder to say because there is a reasonable argument to be made that it does involve interstate commerce.

Although the Supreme Court made this ruling, it is not legislation.  Therefore, we don’t really know if it will be enforced or how much it will be enforced.  We don’t know how it will be enforced.  It reminds me of a quote attributed to Andrew Jackson to Supreme Court Chief Justice John Marshall saying, “John Marshall has made his decision; now let him enforce it.”

With this ruling, some are saying that Amazon will actually benefit because the company already collects sales tax in every state.  However, this is overlooking a major point.  About half of the products sold through Amazon are through third-party merchants.  There are many people who make a living selling their products through Amazon.  Most of these people do not collect sales taxes, except perhaps in the state where they actually reside.

What is to happen to these private retailers?  Amazon does not want to lose any significant percentage of this group.  But for a third-party merchant to collect taxes in all 50 states would be highly burdensome.  You would be registering (and oftentimes paying fees) to get set up in each individual state.  Each state’s form is different and the process of reporting the payments and sending them off to the state is different for each one.  It is a bureaucratic nightmare.

I suspect that most third-party merchants will just ignore this whole thing and take their chances.  Otherwise, unless they are making well into six figures or more per year, it probably won’t be worth the hassle (time and money).  There will be programs such as TaxJar that will either benefit greatly from this, or it may put them out of business.

Now let me explain that last part.  If the people at Amazon were smart at this stage, they would just set up sales tax collections on behalf of its third-party sellers.  Amazon has billions of dollars to work with and shouldn’t have too much trouble setting up systems to collect sales taxes for each state.

Many people on the outside think that Amazon sellers are complaining just because they don’t want to compete with brick and mortar stores.  But that isn’t really the biggest issue.  The biggest issue is the administrative headache of trying to collect sales taxes.  If Amazon did this on behalf of its merchants, I don’t think most sellers would mind.  They would probably be happy.

It gets even trickier when we start talking about Ebay and Etsy.  Of course, there are hundreds of more sites that sell products, which aren’t confined to one state.  Is someone selling $5 ornaments on Etsy going to collect sales taxes for every other state in the country? Is this seller who lives in Alabama going to pay hundreds of dollars to California to register a tax ID for the privilege of acting as a tax collector?

These are all real and valid questions that have yet to be answered.  I think enforcement is going to be very difficult because compliance is so difficult in the first place.  There is safety in numbers up to a certain point.  Is the federal government (or a state government) going to bring this to an absurd level and make an example out of someone who sells $100 (in revenue) per month?  If that happens, then something will change after the backlash.  At the very least, perhaps Congress will pass something that at least grants an exemption for those selling under a certain amount, say, $25,000 per month.

Stay tuned for where this whole thing goes.  I don’t expect it to dramatically hurt or help Amazon in the short term.  But for the long term, I think the executives at Amazon would be wise to collect all sales taxes on behalf of its sellers.  With one less headache, it would only encourage more sellers to join the Amazon platform.

I was recently involved in a thread on Facebook in which the original commenter was telling of their fear of investing a large lump sum of money in the stock market, especially given its current condition.  The group revolves around personal finance, but it is not a libertarian group.

Many in the group advocate something similar to Warren Buffett.  They think the best advice is to invest in a broad U.S. stock market index fund (such as Vanguard) that has very low fees.  They advocate buying and holding because “the market always goes up in the long term.”  Although they are following the advice of Warren Buffett, it is important to note that Buffett was highly successful because he didn’t do what he now advocates for others to do.

The responses to the original comment on this particular thread did vary, but the consensus opinion seemed to be to just invest the money now in stocks and not look at it for a long period of time.  It may go up or down in the near future, but you can almost be sure it will be much higher in 2 decades, or something along those lines.

The advocates of such a strategy can never answer (at least to my satisfaction) why a Japan-like scenario is not possible in the United States.  Japan is a first-world country.  If someone invested at the top of the market in 1989, they are still down by about half.  That is almost three decades now.

The answer I typically get, if there is any, is that the U.S. is not Japan.  And they say that if the U.S. stock market does that bad, then we are all in trouble anyway.  But I don’t completely agree with that because a down stock market doesn’t necessarily mean a collapse of the division of labor and a virtual collapse of civilization.  During the Great Depression of the 1930s, there was still 75% of the working population with jobs, even during the worst time.  Sure, times were really tough, but there were still people who were thriving.

It is no different in Japan today.  The stock market has been down for three decades, but it is not as if everyone is living in poverty.  Despite its massive problems, there are still many prosperous people living in Japan.

I am not saying that the U.S. or the U.S. stock market will end up like Japan.  I am just saying that it is possible, and a prolonged downturn in the stock market is a real possibility.

Now returning to this thread on social media, I stated that PRPFX is a good alternative.  For anyone that knows me on this blog, I am an advocate of setting up a permanent portfolio or something resembling it.

I have discussed the mutual fund PRPFX before.  It is a little different from the permanent portfolio as described by Harry Browne.  PRPFX does some stock picking, even though no one stock makes up a large percentage of the portfolio.  It also invests about 5% in silver. It also buys some Swiss franc-denominated assets.

Still, overall, PRPFX is pretty good.  As of this writing, I am not, nor have I ever been, an affiliate for the mutual fund.  But I am constantly recommending it.

In this discussion with mostly non-libertarians, I didn’t want to take the time to lay out the permanent portfolio.  It would get too complicated for some, and they would lose interest.  It was easier to just mention PRPFX.  I don’t expect to sell many people on it in such an environment, but you never know if one person will look into it and like it.

The one comment I received back (not from the original commenter) was that the expense ratio for PRPFX is high.  It is currently shown at 0.82%.  And to be fair, it is high compared to something like VTSAX, which doesn’t require much management because it is just buying the total stock market.

To be sure, the expense ratio for VTSAX is currently 0.04%.  It is almost nothing.  Meanwhile, PRPFX is closer to 1% per year than it is to zero.

Of course, investing in a mutual fund is a lot more than just management fees and expense ratios.  It matters not just how the fund has performed and is expected to perform.  It matters how much risk you want to take.

In my opinion, a fund like VTSAX is riskier than PRPFX by a large multitude.  If the stock market crashes by 50%, then I hope all of the investors in VTSAX are proud of having saved that 0.82% expense ratio.

For me, that 0.82% is an insurance policy.  It is a small price to pay to sleep at night.  There are no guarantees, but if the stock market crashes by 50%, I don’t expect PRPFX to go down by any more than 10%, and even that would be dramatic for this fund.  I will gladly pay the 0.82% in order to avoid the 50% drop.

You can, of course, set up your own permanent portfolio.  This could include VTSAX, which fits nicely for the 25% stock portion.  But you have to manage your portfolio, and you have to rebalance it when it is appropriate.

This is why I advocate PRPFX to those who want to keep it simple.  They don’t have to buy several funds.  They don’t have to be disciplined to rebalance when one asset class goes way up or way down.  They can pay the 0.82% and have it done for them.  It is a small price to pay in the larger picture of things.

This is a follow-up post to a recent post I wrote on investing directly in U.S. Treasury bills.  I pointed out that you can earn a great deal more in interest buying Treasury bills than you can earn through a regular checking or savings account with your bank.

Since writing that last post, I went ahead and set up an account through the TreasuryDirect website.  It wasn’t the easiest website to navigate, but it wasn’t the worst either.  Overall, for a government website, it went pretty well.  The only part that was a little confusing was setting up the account ID and password.  It was incredibly simple putting in a link to my bank account.

After setting it up, I put in an order to buy a 4-week Treasury bill.  The transaction went through today, and it looks like the interest rate is currently just over 1.8%.

The yield curve has been flattening a bit lately (a recession indicator).  The long-term rates have gone up, but the short-term rates have been going up at a faster pace over the last few months.  Therefore, I didn’t want to lock in anything too long because short-term rates may keep creeping higher.

When you put in a purchase order, you can enter in the dollar amount for investment, coupled with the length of time for the investment.  For example, you can put in an order to buy a 4-week Treasury for $10,000.  It will tell you the next date of auction for when it will be bought.  You can also look at the previous auctions and the going interest rates, although that is no guarantee of the interest rate you will ultimately get.

One thing I noted is that it took slightly less out of my bank account than what I had ordered.  Using the above example of placing an order for $10,000, you may only see a reduction out of your bank account for $9,985.  I believe the reason for this is that the amount you order is actually the amount at maturity.  You will earn $15 over that 4-week period and have $10,000 placed back in your checking account, unless you specified that you want it reinvested.

I know that interest rates are still extremely low by historical standards.  Still you can go through the TreasuryDirect website and at least get something as compared to the near zero with your bank. If you have any substantial amount of “cash” sitting on the sidelines, you might as well get a little bit of return without a lot of effort.

If you are concerned about liquidity, you can just keep purchasing the 4-week bills and rolling them over until you need the money for something.  It is a very short timeframe to lock up your money.  You could always split up your order in half and stagger the purchases every two weeks.  That way, you always have access to at least half of your money within a two-week timeframe.

If anyone else has had any experience with the TreasuryDirect website, feel free to share your experience in the comments below.

I know it is odd for a libertarian website to be promoting the buying of government debt, but you have to do what is right for you.

When the FOMC releases a new statement on monetary policy, I often comment, just as I did this past Wednesday.  One of the things I mentioned is that the FOMC increased its targeted federal funds rate by 0.25% to a range of 1.75% to 2%.  I also stated that the interest rate that the Fed pays to banks on their reserves was raised by only 20 basis points, or 0.20%.

Regarding this slight deviation, I stated the following: “This is more a curiosity than anything, but perhaps the Fed didn’t raise its target rate quite as much as stated.  The range of the federal funds rate went up 0.25%, but the interest paid to banks went up 0.20%.”

It turns out that the Fed chair, Jerome Powell, actually commented on this fact, and CNBC ran an article about it.

The article states, “The interest rate on excess reserves, known as the IOER, is now 1.95 percent while the funds rate was set in a target of 1.75 percent to 2 percent. The Fed sets the IOER at the high end of the funds range to keep the benchmark rate in check, but the difference between the two has narrowed sharply in recent weeks. The Fed hopes that a lower increase in the IOER will hold back the funds rate.”

It goes on to state, “Fed officials aren’t sure why the funds rate had been rising to the top end of its range. While there’s a belief that it is in large part due to increased issuance of short-term Treasury bills to pay for the increase in government spending, Fed Chairman Jerome Powell said Wednesday that uncertainty remains.”

In regards to the deviation, the Fed chair actually stated, “The truth is we don’t know with any precision.”

In other words, the Fed has no idea why this deviation has occurred, and its only reasoning is to blame it on the increased issuance of short-term Treasury bills.  But since the deficits will likely continue to increase, then there should be a continued increase in the issuance of short-term Treasury bills, especially as the Fed continues to be a net seller of them.

It’s not that I ever had a lot of confidence in the officials working at the Fed, but I thought they at least sort of knew what they were doing.  Now, I am less sure.  The Fed used to target a specific rate for the federal funds rate, such as 1.75%.  Now it uses a range, and it is having trouble just staying inside that range.  And this is during a time of seemingly little turmoil in the financial markets.  What will happen when the next financial crisis comes?